APTARGROUP, INC. (ATR) FY 2022 MD&A

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

(Dollars in thousands, except per share amounts or as otherwise indicated)

The objective of the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to help the reader understand the financial condition and results of operations of AptarGroup, Inc. from management's perspective. MD&A is presented in eight sections: Overview, Results of Operations, Liquidity and Capital Resources, Recently Issued Accounting Standards, Critical Accounting Estimates, Operations Outlook and Forward-Looking Statements. MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K.

In MD&A, “we,” “our,” “us,” “AptarGroup,” “AptarGroup, Inc.”, “Aptar” and the “Company” refer to AptarGroup, Inc. and its consolidated subsidiaries.

OVERVIEW

GENERAL

Aptar is a global leader in the design and manufacturing of a broad range of drug delivery, consumer product dispensing and active material science solutions and services for the pharmaceutical, beauty, personal care, home care, food and beverage markets. Using insights, proprietary design, engineering and science to create dispensing, dosing and protective technologies for many of the world's leading brands, Aptar in turn makes a meaningful difference in the lives, looks, health and homes of millions of patients and consumers around the world.

In addition to the information presented herein that conforms to accounting principles generally accepted in the United States of America (“U.S. GAAP”), we also present certain financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S.GAAP financial measures because they allow for a more meaningful period over period comparison of operating results by removing the impact of items that, in management’s view, do not reflect Aptar’s core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the audited consolidated statements of income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures. See the reconciliation under "Non-U.S. GAAP Measures" below.

For the year ended December 31, 2022, reported sales increased 3% to $3.32 billion from $3.23 billion a year ago. Core sales, excluding the negative impact from changes in currency exchange rates and acquisition effects, increased 9% from 2021. Approximately half of our core sales increase is due to volume growth as many regions experienced post-pandemic re-openings during 2022, while the remaining half of this increase is due to price adjustments related to the passing through of the inflationary impacts of higher resin and other input costs. A reconciliation of core sales growth to reported net sales growth, the most directly comparable U.S. GAAP measure, can be found under "Net Sales" below.

2022 HIGHLIGHTS

•Each segment achieved top line growth with annual sales of $3.3 billion

•Reported sales grew 3% and core sales increased 9%

•Reported earnings per share decreased 1% to $3.59

•Reported net income decreased 2% to $239 million

•Adjusted EBITDA increased 2% to $617 million

•29th consecutive year of paying an increased annual dividend

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RESULTS OF OPERATIONS

The following table sets forth the consolidated statements of income and the related percentages of net sales for the periods indicated. Refer to Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for additional information regarding Results of Operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

(1)Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures".

SIGNIFICANT DEVELOPMENTS

The COVID-19 pandemic resulted in disruptions to the global economy and supply chains. As the rates of transmission slowed in many regions during 2022, we have seen several of our impacted applications return to more normal (pre-pandemic) volume and growth levels. We have seen improvement in sales of our products to our prescription, beauty, hair care and sun care customers as people return to more active lifestyles. However, we have also experienced volume reductions as applications which benefited from the pandemic, such as our personal cleansing and surface cleaner products, food applications, active material science solutions and injectables components, are now up against challenging comparisons to 2021 volume levels.

As of December 31, 2022, the war in Ukraine has not had a significant direct impact on our business though the near-term visibility for this situation is expected to remain fluid and uncertain for the next several quarters. However, we have experienced some indirect impacts on our business, including higher energy and other input costs as well as certain supply chain disruptions.

NET SALES

For the year ended December 31, 2022, reported net sales increased 3% to $3.32 billion from $3.23 billion a year ago. The average U.S. dollar exchange rate strengthened compared to the euro and other major currencies in which we operate, resulting in a negative currency translation impact of 6%. There was no significant impact from our acquisitions of Voluntis S.A. ("Voluntis"), Weihai Hengyu Medical Products Co., Ltd. ("Hengyu") and Metaphase Design Group Inc. ("Metaphase") on our consolidated net sales during 2022. Therefore, core sales, which exclude acquisitions and changes in foreign currency rates, increased by 9% in 2022 compared to 2021. Price increases to our customers due to rising inflationary costs had a strong impact on our core sales during 2022. Of our 9% core sales increase, approximately half of this increase is due to price adjustments related to the passing through of higher resin and other input costs. The remaining half of our core sales increase is due to volume growth mainly in our Pharma segment.

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(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

For further discussion on net sales by reporting segment, please refer to the segment analysis of net sales and operating income on the following pages.

The following table sets forth, for the periods indicated, net sales by geographic location:

COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)

Our cost of sales (“COS”) as a percent of net sales increased to 65.0% in 2022 compared to 64.1% in 2021. While our COS percentage was positively impacted by an improved mix of our higher-margin Pharma product sales compared to 2021, this positive impact was more than offset by the under-absorption at certain Beauty + Home and Food + Beverage sites, especially in North America, due to lingering supply chain issues and our customers working off current inventory levels. During 2021, we also received a $5.6 million favorable Brazilian court ruling that a certain state value added tax should not be included in the calculation of federal gross receipts taxes, which also lowered our 2021 COS percentage. See Note 13 - Commitments and Contingencies of the Condensed Consolidated Financial Statements for further details.

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

Our selling, research & development and administrative expenses (“SG&A”) decreased approximately 1% or $7.0 million to $544.3 million in 2022 compared to $551.2 million in 2021. Excluding changes in foreign currency rates, SG&A increased by approximately $22.7 million compared to the prior year. Of this increase, $3.0 million relates to incremental SG&A costs in 2022 due to our acquisitions of Hengyu and Voluntis which were completed during the third quarter of 2021. The remaining increase is partially related to higher compensation costs, including accruals related to our current short-term incentive and equity compensation programs. We also had an increase in information systems costs due to an upgrade of our enterprise reporting system along with higher professional fees for internal projects and higher travel costs compared to 2021. Also, in March 2022 we recorded a $1.4 million expected net credit loss reserve against the outstanding note receivable from one of our venture investments (Kali Care). SG&A as a percentage of net sales decreased to 16.4% in 2022 compared to 17.1% in the prior year.

DEPRECIATION AND AMORTIZATION

Reported depreciation and amortization expense decreased less than 1% or $1.1 million to $233.7 million in 2022 compared to $234.9 million in 2021. Excluding changes in foreign currency rates, depreciation and amortization expense increased by approximately $12.9 million compared to the prior year. Approximately $4.1 million of this increase is due to our acquisitions of Voluntis and Hengyu completed during the third quarter of 2021 and the remaining increase relates to higher capital spending during the current and prior year to support our growth strategy. Depreciation and amortization as a percentage of net sales decreased to 7.0% in 2022 compared to 7.3% in the prior year.

RESTRUCTURING INITIATIVES

In late 2017, we began a business transformation plan to drive profitable sales growth, increase operational excellence, enhance our approach to innovation and improve organizational effectiveness. The primary focus of the plan was the Beauty + Home segment; however, certain global general and administrative functions were also addressed. As of the end of 2021, we had completed the vast majority of our planned initiatives related to our transformation plan, including implementing new commercial strategies, reducing costs and adding capabilities in Asia and in fast growing application fields that we believe will position the segment for future growth and profitability. The cumulative expense incurred for this transformation plan as of December 31, 2022 was approximately $137 million, of which $0.4 million was recognized during 2022.

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We continue to look at our operating structure and are continuing to identify actions to further reduce costs and improve our competitiveness. Restructuring costs for the years ended December 31, 2022 and 2021 are as follows:

OPERATING INCOME

Reported operating income increased approximately $31.9 million or 9% to $379.3 million in 2022 compared to $347.3 million in 2021. Excluding changes in foreign currency rates, operating income increased by approximately $60.3 million in 2022 compared to 2021. Strong sales growth, along with lower restructuring costs, during 2022 drove this improvement. Operating income as a percentage of net sales increased to 11.4% in 2022 compared to 10.8% for the prior year.

INTEREST EXPENSE

Interest expense increased by $10.5 million in 2022, primarily as a result of our $400 million 3.60% Senior Notes due March 2032, which were issued on March 7, 2022. See Note 7 – Debt of the Consolidated Financial Statements for further details.

NET OTHER EXPENSE (INCOME)

Net other expense increased $8.3 million in 2022 to a $3.7 million expense compared to $4.6 million of income in 2021. We report the change in the fair value of our PureCycle investment in net other expense. As discussed in Note 20 – Investment in Equity Securities of the Consolidated Financial Statements, our investment in PureCycle was converted into shares of PCT, a publicly traded entity, during the first quarter of 2021. This investment is recorded at fair value based on observable market prices for identical assets with the change in fair value being recorded as a net investment gain or loss in the Consolidated Statements of Income. During 2022, we recognized a $2.1 million loss on this investment while we reported a $4.7 million gain during 2021.

PROVISION FOR INCOME TAXES

The reported effective tax rate on income before income taxes for 2022 and 2021 was 28.4% and 24.3%, respectively. The tax rate for 2022 was higher compared to 2021 due primarily to lower tax benefits from share-based compensation and increased taxes related to a legal entity reorganization.

At December 31, 2022, with the exceptions identified below, we continued to assert indefinite reinvestment of foreign earnings from Aptar's foreign operations. We do not have a balance of foreign earnings that will be subject to U.S. tax upon repatriation under the currently enacted U.S. tax laws. We continually analyze our global working capital requirements as well as local country operation needs.

During 2022, we removed our indefinite reinvestment assertion with respect to undistributed earnings in Germany. We recorded a liability of $0.6 million to reflect the taxes that would be paid when these amounts are distributed. We previously removed the indefinite reinvestment assertion for the pre-2020 earnings in Italy, Switzerland and Colombia, and have accrued $0.6 million for those taxes. We continue to assert indefinite reinvestment with respect to foreign earnings from other countries. We estimate that if the non-U.S. subsidiaries were to make a distribution of their cash or distributable reserves to the U.S., we would incur local country withholding tax and income taxes in the range of $15 million to $20 million. We would recognize such tax expense in our Consolidated Statements of Income and Consolidated Balance Sheets should we change the current indefinite reinvestment assertion on foreign earnings.

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

We reported net income of $239.3 million in 2022 compared to $244.1 million reported in 2021.

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(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures."

Reported net sales increased approximately 6% in 2022 to $1.36 billion compared to $1.28 billion in 2021. Changes in currencies negatively affected net sales by 8%, while the acquisitions of Voluntis, Hengyu and Metaphase had a positive impact of 1%. Therefore, core sales increased 13% in 2022 compared to the prior year. The majority of the core sale growth is due to higher product sales volumes while pricing pass-through increases were more than able to offset lower tooling sales during 2022. Core sales of our products to the prescription drug market increased 11% on strong demand for our allergic rhinitis and asthma devices as a result of the destocking effect during 2021. Additionally, within our consumer health care division there were higher incidents of cold and flu during 2022, as well as the Omicron variant of COVID-19 which manifests itself similar to cold and flu symptoms. We also saw strong sales of our products on emergency medical applications for existing and new solutions in the prescription drug market. The 15% core sales growth in the consumer health care market was driven by higher demand for our nasal decongestant, saline rinses and cough and cold solutions. Increased demand for elastomeric components for vaccines and biologics drove the 7% core sales growth in our injectables market. Core sales of our active material science solutions increased 21% mainly on strong demand for our oral solid dose solutions and Activ-Film products used with at-home COVID-19 test kits.

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

(2)Core sales for the comparable period not deemed significant.

Adjusted EBITDA for 2022 increased to $441.6 million compared to $425.7 million in 2021. This increase was mainly driven by our strong core sales growth described above which was able to compensate for a negative $31.5 million impact from the translation of our foreign currency results into U.S. dollars. However, the lack of margin on the pass-through of higher input costs and incremental startup costs for our digital health investments and elastomeric component capacity expansion led to a lower Adjusted EBITDA margin of 32.4% compared to 33.1% in 2021.

(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures."

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Reported net sales grew slightly in 2022 to $1.44 billion compared to $1.43 billion in 2021. Changes in currency rates negatively impacted net sales by 7%. Therefore, core sales increased 7% in 2022 compared to the prior year. The majority of this core sales growth came from pass-through of higher input costs. Core sales of our products to the beauty market increased 13% during 2022 as we experienced growth across the majority of our applications. Personal care core sales increased 3% due to higher sales of our hair care and sun care applications. Core sales to the home care markets decreased 12% mainly due to lower tooling sales and reduced demand for our industrial and household cleaner applications as rates of COVID-19 transmission have slowed in certain regions during 2022.

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

Adjusted EBITDA for 2022 increased to $166.5 million from $154.7 million in 2021 due primarily to product sales growth and operational improvements mainly during the first half of 2022. These improvements compensated for the negative $10.7 million impact from the translation of our foreign currency results. During the prior year, we reported a $2.7 million favorable value added tax ruling in Brazil, which also negatively impacted the current year comparison.

(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures".

Reported net sales increased approximately 3% in 2022 to $522.5 million compared to $508.6 million in 2021. Changes in currency rates negatively impacted net sales by 2%. Therefore, core sales increased 5% in 2022 compared to the prior year. Strong tooling sales, along with the pass-through of higher material costs, positively impacted 2022 core sales while volumes were even with 2021 levels. Core sales to the food market increased 8% while core sales to the beverage market decreased 2% during 2022 compared to the prior year. For the food market, we saw strong tooling sales along with growth in our granular powder and food service packaging products. Core sales to the beverage market declined as higher demand for our bottled water applications was not enough to offset the decline in tooling sales.

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

Adjusted EBITDA for 2022 decreased to $71.5 million compared to $79.4 million in 2021. As discussed above, we experienced strong tooling sales along with the pass-through of higher material costs during 2022. Material pass-throughs do not have any margin, and our tooling sales historically have lower margins than our product sales. This change in sales mix, along with some operational inefficiencies in North America drove our lower Adjusted EBITDA for 2022.

CORPORATE & OTHER

In addition to our three reporting segments, Aptar assigns certain costs to “Corporate & Other,” which is presented separately in Note 18 — Segment Information of the Notes to the Consolidated Financial Statements. For Corporate & Other, Adjusted EBITDA (which excludes net interest, taxes, depreciation, amortization, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items) primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our reporting segments.

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Corporate & Other expenses in 2022 increased to $62.9 million compared to $52.3 million in 2021. This increase is partially related to higher compensation costs, including our short-term incentive and equity compensation programs. We also reported higher professional fees and travel costs as travel returned to normal (pre-pandemic) levels as compared to the prior year. Our results include approximately $1.2 million and $2.0 million realized gains on sales of PCT shares for 2022 and 2021, respectively. As noted above, any unrealized investment gains or losses are removed from our Adjusted EBITDA calculation as we believe that unrealized cost investment gains and losses from changes in market prices are not considered relevant to understanding our reported consolidated earnings or evaluating our periodic economic performance.

NON-U.S. GAAP MEASURES

In addition to the information presented herein that conforms to U.S. GAAP, we also present financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S. GAAP financial measures because they allow for a better period-over-period comparison of operating results by removing the impact of items that, in management’s view, do not reflect our core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the audited consolidated statements of income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measures to arrive at these non-U.S. GAAP financial measures.

In our Management's Discussion and Analysis, we exclude the impact of foreign currency translation when presenting net sales and other information, which we define as “constant currency.” Changes in net sales excluding the impact of foreign currency translation is a non-U.S. GAAP financial measure. As a worldwide business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Consequently, when our management looks at our financial results to measure the core performance of our business, we may exclude the impact of foreign currency translation by translating our prior period results at current period foreign currency exchange rates. As a result, our management believes that these presentations are useful internally and may be useful to investors. We also exclude the impact of material acquisitions when comparing results to prior periods. Changes in operating results excluding the impact of acquisitions are non-U.S. GAAP financial measures. We believe it is important to exclude the impact of acquisitions on period over period results in order to evaluate performance on a more comparable basis.

We present earnings before net interest and taxes (“EBIT”) and earnings before net interest, taxes, depreciation and amortization (“EBITDA”). We also present our adjusted earnings before net interest and taxes (“Adjusted EBIT”) and adjusted earnings before net interest, taxes, depreciation and amortization (“Adjusted EBITDA”), both of which exclude the business transformation charges (restructuring initiatives), acquisition-related costs, purchase accounting adjustments related to acquisitions and investments and net unrealized investment gains and losses related to observable market price changes on equity securities. Our Operations Outlook is also provided on a non-U.S. GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled, such as exchange rates and changes in the fair value of equity investments, or reliably predicted because they are not part of our routine activities, such as restructuring initiatives and acquisition-related costs.

We provide a reconciliation of Net Debt to Net Capital as a non-U.S. GAAP measure. "Net Debt" is calculated as interest bearing debt less cash and equivalents and short-term investments while "Net Capital" is calculated as stockholders' equity plus Net Debt. Net Debt to Net Capital measures a company’s financial leverage, which gives users an idea of a company's financial structure, or how it is financing its operations, along with insight into its financial strength. We believe that it is meaningful to take into consideration the balance of our cash, cash equivalents and short-term investments when evaluating our leverage. If needed, such assets could be used to reduce our gross debt position.

Finally, we provide a reconciliation of free cash flow as a non-U.S. GAAP measure. Free cash flow is calculated as cash provided by operating activities less capital expenditures plus proceeds from government grants related to capital expenditures. We use free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. We believe that it is meaningful to investors in evaluating our financial performance and measuring our ability to generate cash internally to fund our initiatives.

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(1)Net unrealized investment loss represents the change in fair value of our investment in PCT (see Note 20 - Investment in Equity Securities for further details).

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(1)Net unrealized investment gain represents the change in fair value of our investment in PCT (see Note 20 - Investment in Equity Securities for further details).

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LIQUIDITY AND CAPITAL RESOURCES

Given our current low level of leverage relative to others in our industry and our ability to generate strong levels of cash flow from operations, we believe we are in a strong financial position to meet our business requirements in the foreseeable future. We have historically used cash flow from operations, our revolving and other credit facilities, proceeds from stock options and debt, as needed, as our primary sources of liquidity. Our primary uses of cash are to invest in equipment and facilities that are necessary to support our growth, pay quarterly dividends to stockholders, repurchase shares of our common stock and to make acquisitions that will contribute to the achievement of our strategic objectives. Due to uncertainties from the war in Ukraine, potential new global pandemics or COVID-19 variants, uncertain macroeconomic conditions, including rising interest rates and the inflationary environment, in the event that customer demand decreases significantly for a prolonged period of time and adversely impacts our cash flows from operations, we would have the ability to restrict and significantly reduce our capital expenditure levels and share repurchases, as well as evaluate our acquisition strategy. A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products.

Cash and equivalents increased to $141.7 million at December 31, 2022 from $122.9 million at December 31, 2021 while total short and long-term interest bearing debt of $1.18 billion at December 31, 2022 decreased from $1.20 billion at December 31, 2021. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholders’ equity plus Net Debt) decreased to 33.3% at December 31, 2022 compared to 35.1% at December 31, 2021. See the reconciliation under "Non-U.S. GAAP Measures".

In 2022, our operations provided approximately $478.6 million in cash flow compared to $363.4 million in 2021. Cash flow from operations was primarily derived from earnings before depreciation and amortization. The increase in 2022 cash flow from operations compared to 2021 is primarily attributable to improved working capital management and lower restructuring costs. Based on our current business plan and revenue prospects, we believe that our 2023 operating cash flow will be more than sufficient to fund our working capital needs, scheduled repayments of debt, outstanding purchase commitments as discussed in Note 13 - Commitments and Contingencies and lease arrangements as discussed in Note 8 - Lease Commitments.

We used $295.6 million in cash for investing activities during 2022 compared to $457.2 million during 2021. During 2022, there was a decrease in overall spend related to acquisition activities. Approximately $4.1 million of cash was utilized to fund the Metaphase acquisition in 2022, while in 2021, $89.7 million and $53.8 million of cash was utilized to fund the Voluntis and Hengyu acquisitions, respectively. Additionally, in 2022 we received $27.8 million related to government grant proceeds for our active material science solutions and injectables divisions. In 2023, we expect our capital investments to be in the range of $260 million to $280 million.

Financing activities utilized $162.1 million of cash during 2022, compared to $81.5 million during 2021. During 2022, we received proceeds from long-term obligations of $412.0 million primarily from the issuance of $400 million of our 3.60% Senior Notes due March 2032 during the first quarter of 2022. As part of our bond offering, we paid $4.0 million in debt issuance costs. Additionally, we repaid $143.1 million related to our revolving credit facility, paid $56 million related to our term loan that matured in July 2022, paid $99.5 million of dividends and purchased $92.1 million of treasury stock. We redeemed all $75.0 million of our 3.25% senior unsecured notes during the second quarter of 2022 at a price equal to the principal amount plus accrued interest and a $0.4 million make-whole premium. Additionally, we redeemed all $125.0 million of our 3.49% senior unsecured notes during the third quarter of 2022 at a price equal to the principal amount plus accrued interest. In 2023, we expect to have financing cash outlays of approximately $107.0 million to fund short- and long-term debt obligations as discussed in Note 7 - Debt, which will be covered by cash on hand or additional borrowings on our revolving credit facility.

Refer to Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for additional information regarding cash flows for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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On June 30, 2021, we entered into an amended and restated multi-currency revolving credit facility (the "revolving credit facility") with a syndicate of banks to replace the then-existing facility maturing July 2022 (the "prior credit facility") and to amend and restate the unsecured term loan facility extended to our wholly-owned UK subsidiary under the prior credit facility (as amended, the "amended term facility"). The revolving credit facility matures in June 2026, subject to a maximum of two one-year extensions in certain circumstances, and provides for unsecured financing of up to $600 million available in the U.S. and to our wholly-owned UK subsidiary. The amended term facility matured in July 2022 and was repaid in full. The revolving credit facility can be drawn in various currencies including USD, EUR, GBP, and CHF to the equivalent of $600 million, which may be increased by up to $300 million subject to the satisfaction of certain conditions. Each borrowing under the revolving credit facility will bear interest at rates based on LIBOR (in the case of USD), EURIBOR (in the case of EUR), SONIA (in the case of GBP), SARON (in the case of CHF), prime rates or other similar rates, in each case plus an applicable margin. The revolving credit facility provides mechanics relating to a transition away from LIBOR (in the case of USD) and the designated benchmark rates for other available currencies and the replacement of any such applicable benchmark by a replacement alternative benchmark rate or mechanism for loans made in the applicable currency. A facility fee on the total amount of the revolving credit facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the revolving credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio. As of December 31, 2022, there were no borrowings under the revolving credit facility in the U.S. or by our wholly-owned UK subsidiary. As of December 31, 2021, $133 million was utilized under the revolving credit facility in the U.S. and €10 million (approximately $11.4 million based on the exchange rates at the end of 2021) was utilized by our wholly-owned UK subsidiary. Credit facility balances are included in notes payable, revolving credit facility and overdrafts on the Consolidated Balance Sheets.

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

(1)Definitions of ratios are included as part of the revolving credit facility agreement and the private placement agreements.

Based upon the above consolidated leverage ratio covenant, we would have the ability to borrow approximately an additional $1.1 billion before the 3.50 to 1.00 maximum ratio requirement would be exceeded.

On July 6, 2022, we entered into an agreement to swap approximately $200 million of our fixed USD debt to fixed EUR debt which should generate interest savings of approximately $0.5 million per quarter based upon exchange rates as of the transaction date.

In October 2020, we entered into an unsecured money market borrowing arrangement to provide short term financing of up to $30 million that is available in the U.S. No borrowing on this facility is permitted over a quarter end date. As such, no balance was utilized under this arrangement as of December 31, 2022.

Our foreign operations have historically met cash requirements with the use of internally generated cash or uncommitted short-term borrowings. We also have committed financing arrangements in both the U.S. and the UK as detailed above. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.

RECENTLY ISSUED ACCOUNTING STANDARDS

For a discussion of recently issued accounting standards, including their impacts, if any, of the adoption of these standards, see Note 1 – Summary of Significant Accounting Policies.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, pensions and contingencies. We base our estimates on historical experience and on a variety of other assumptions believed to be reasonable in order to make judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our Consolidated Financial Statements. Management has discussed the development and selection of these critical accounting estimates with the audit committee of our Board of Directors and the audit committee has reviewed our disclosure relating to it in this MD&A.

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IMPAIRMENT OF GOODWILL

In accordance with current accounting standards, goodwill has an indefinite life and is not amortized. We evaluate our goodwill for impairment at the reporting unit level on an annual basis, or whenever indicators of impairment exist. We have determined that our Beauty + Home and Food + Beverage business segments represent reporting units. In addition to the Pharma business reporting unit, the injectables and active material science solutions divisions of the Pharma segment qualify as separate reporting units for goodwill impairment testing apart from the remaining Pharma business. As of December 31, 2022, we have $945.6 million of goodwill, which is allocated as follows:

We believe that the accounting estimates related to determining the fair value of our reporting units is a critical accounting estimate because: (1) it is highly susceptible to change from period to period as it requires management to make assumptions about the future cash flows for each reporting unit over several years, and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our results of operations could be material. Management’s determination of the fair value of our reporting units, based on future cash flows for the reporting units, requires significant judgment and the use of estimates and assumptions related to projected revenue growth rates, the terminal growth factor, as well as the discount rate. Actual cash flows in the future may differ significantly from those forecasted today. The estimates and assumptions for future cash flows and their impact on the impairment testing of goodwill are a critical accounting estimate.

For our goodwill impairment assessment, we first consider qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50 percent chance) that the fair value of a reporting unit is less than its carrying amount (the “step zero” approach). Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance, and other relevant entity-specific events. In the absence of sufficient qualitative factors, if it is determined that the fair value of a reporting unit is below its carrying amount, where necessary, goodwill will be impaired at that time.

Based on our qualitative assessment of macroeconomic, industry, and market events and circumstances as well as the overall financial performance of the reporting units, we determined it was more likely than not that the fair value of these reporting units was greater than their carrying amounts and therefore no impairment of goodwill was recognized during the year ended December 31, 2022.

INCOME TAXES

We recognize tax benefits from uncertain tax positions if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater-than-50% likelihood of being realized upon ultimate settlement. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of U.S. GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management's expectations could have a material impact on our financial condition and operating results.

At December 31, 2022 and 2021, we had $114.8 million and $130.2 million, respectively, of deferred tax assets net of valuation allowance on our balance sheet, a significant portion of which is related to net operating losses and other tax attribute carryforwards. The ultimate realization of these deferred tax assets is dependent upon the amount, source, and timing of future taxable income. In cases where we believe it is more likely than not that we may not realize the future potential tax benefits, we establish a valuation allowance against the deferred tax assets.

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ACQUISITIONS

We account for business combinations using the acquisition method, which requires management to estimate the fair value of identifiable assets acquired and liabilities assumed, and to properly allocate purchase price consideration to the individual assets acquired and liabilities assumed. Goodwill is measured as the excess amount of consideration transferred, compared to fair value of the assets acquired and the liabilities assumed. The allocation of the purchase price utilizes significant estimates and assumptions in determining the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset and are reviewed by consulting with outside valuation experts. The purchase price allocation for business acquisitions contains uncertainties because it requires management's judgment.

Management applied judgment in determining the fair value of the acquired assets with respect to the acquisitions of Metaphase, Voluntis, and Hengyu, including the fair values of acquired intangibles including acquired technology and customer relationships. The judgments made in determining the estimated fair value assigned to the assets acquired, as well as the estimated life of the assets, can materially impact net income in periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. In particular, judgment was applied with respect to determining the fair value of acquired technology and customer relationships intangible assets, which involved the use of significant estimates and assumptions with respect to the timing and amounts of cash flow projections, the revenue growth rates, the customer attrition rates, the technology obsolescence rate, the EBITDA margins and the discount rate.

VALUATION OF PENSION BENEFITS

The benefit obligations and net periodic pension cost associated with our domestic and foreign noncontributory pension plans are determined using actuarial assumptions. Such assumptions include discount rates to reflect the time value of money, rate of employee compensation increases, demographic assumptions to determine the probability and timing of benefit payments, and the long-term rate of return on plan assets. The actuarial assumptions are based upon management’s best estimates, after consulting with outside investment advisors and actuaries. Because assumptions and estimates are used, actual results could differ from expected results.

The discount rate is utilized principally in calculating our pension obligations, which are represented by the Accumulated Benefit Obligation ("ABO") and the Projected Benefit Obligation (“PBO”), and in calculating net periodic benefit cost. In establishing the discount rate for our foreign plans, we review a number of relevant interest rates including AA corporate bond yields. In establishing the discount rate for our domestic plans, we match the hypothetical duration of our plans, using a weighted average duration that is based upon projected cash payments, to a simulated bond portfolio (FTSE Pension Index Curve). At December 31, 2022, the discount rates for our domestic and foreign plans were 5.15% and 3.69%, respectively.

We believe that the accounting estimates related to determining the valuation of pension benefits are critical accounting estimates because: (1) changes in them can materially affect net income and (2) we are required to establish the discount rate and the expected return on fund assets, which are highly uncertain and require judgment. The estimates for the valuation of pension benefits are critical accounting estimates for all of our segments.

To the extent the discount rates increase (or decrease), our PBO and net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease in each discount rate would be a $43.7 million increase in the PBO ($33.6 million for the domestic plans and $10.1 million for the foreign plans) and a $10.9 million increase in net periodic benefit cost ($10.3 million for the domestic plans and $0.6 million for the foreign plans). To the extent the PBO increases, the after-tax effect of such increase could reduce Other Comprehensive Income and Stockholders’ Equity. The estimated effect of a 1% increase in each discount rate would be a $35.3 million decrease in the PBO ($26.5 million for the domestic plans and $8.8 million for the foreign plans) and a $8.5 million decrease in net periodic benefit cost ($7.9 million for the domestic plans and $0.6 million for the foreign plans).

The assumed expected long-term rate of return on assets is the average rate of earnings expected on the funds invested to provide for the benefits included in the PBO. Of domestic plan assets, approximately 47% was invested in equities, 27% was invested in fixed income securities, 10% was invested in hedge funds, 8% was invested in infrastructure securities, 7% was invested in real estate securities and 1% was invested in money market funds, at December 31, 2022. Of foreign plan assets, approximately 92% was invested in investment funds, 5% was invested in equity securities, 1% was invested in corporate securities, 1% was invested in fixed income securities and 1% was invested in money market funds at December 31, 2022.

The expected long-term rate of return assumptions are determined based on our investment policy combined with expected risk premiums of equities and fixed income securities over the underlying risk-free rate. This rate is utilized principally in calculating the expected return on the plan assets component of the net periodic benefit cost. To the extent the actual rate of return on assets realized over the course of a year is greater or less than the assumed rate, that year’s net periodic benefit cost is not affected. Rather, this gain (or loss) reduces (or increases) future net periodic benefit cost over a period of approximately 15 to 20 years. To the extent the expected long-term rate of return on assets increases (or decreases), our net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease (or increase) in each expected long-term rate of return on assets would be a $2.4 million increase (or decrease) in net periodic benefit cost.

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The average rate of compensation increase is utilized principally in calculating the PBO and the net periodic benefit cost. The estimated effect of a 0.5% decrease in each of the expected compensation rates would be a $4.8 million decrease in the PBO ($1.1 million decrease for the domestic plans and $3.7 million decrease for the foreign plans) and a $1.1 million decrease to the net periodic benefit cost. The estimated effect of a 0.5% increase in each of the expected compensation rates would be a $5.2 million increase in the PBO ($1.2 million increase for the domestic plans and $4.0 million increase for the foreign plans) and a $1.1 million increase to the net periodic benefit cost.

Our primary pension related assumptions as of December 31, 2022 and 2021 were as follows:

In order to determine the 2023 net periodic benefit cost, we expect to use the discount rates, expected long-term rates of return on plan assets and rates of compensation assumptions as of December 31, 2022. The estimated impact of the changes to the assumptions as noted in the table above on our 2023 net periodic benefit cost is expected to be a decrease of approximately $20.1 million.

OPERATIONS OUTLOOK

Looking to the first quarter, we expect the momentum to continue in Pharma, especially for prescription and consumer healthcare as well as in our beauty end-markets such as fragrance and skincare. A key focus in 2023 and beyond will be to continue to leverage our fixed cost base and increase efficiencies.

Aptar expects earnings per share for the first quarter of 2023, excluding any restructuring expenses, changes in the fair value of equity investments and acquisition-related costs, to be in the range of $0.85 to $0.93 and this guidance is based on an effective tax rate range of 25.5% to 27.5%.

FORWARD-LOOKING STATEMENTS

Certain statements in MD&A and other sections of this Form 10-K are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Significant Developments, Restructuring Initiatives, Liquidity and Capital Resources, Contingencies and Operations Outlook sections of this Form 10-K. Words such as “expects,” “anticipates,” “believes,” “estimates,” “future”, “potential”, "are optimistic" and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results or other events may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment, including but not limited to:

•geopolitical conflicts worldwide including the invasion of Ukraine by the Russian military and the resulting indirect impact on demand from our customers selling their products into these countries, as well as rising input costs and certain supply chain disruptions;

•lower demand and asset utilization due to an economic recession either globally or in key markets we operate within;

•the impact of COVID-19 and its variants on our global supply chain and our global customers, employees and operations, which has elevated and will continue to elevate many of the risks and uncertainties discussed below;

•economic conditions worldwide, including inflationary conditions and potential deflationary conditions in other regions we rely on for growth;

•the execution of our fixed cost initiatives;

•the availability of direct labor workers and the increase in direct labor costs, especially in North America;

•our ability to preserve organizational culture and maintain employee productivity in the work-from-home environment caused by the current pandemic;

•the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers;

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•fluctuations in the cost of materials, components, transportation cost as a result of supply chain disruptions and labor shortages, and other input costs (particularly resin, metal, anodization costs and energy costs);

•significant fluctuations in foreign currency exchange rates or our effective tax rate;

•the impact of tax reform legislation, changes in tax rates and other tax-related events or transactions that could impact our effective tax rate;

•financial conditions of customers and suppliers;

•consolidations within our customer or supplier bases;

•changes in customer and/or consumer spending levels;

•loss of one or more key accounts;

•our ability to successfully implement facility expansions and new facility projects;

•our ability to offset inflationary impacts with cost containment, productivity initiatives and price increases;

•changes in capital availability or cost, including rising interest rates;

•volatility of global credit markets;

•our ability to identify potential new acquisitions and to successfully acquire and integrate such operations, including the successful integration of the businesses we have acquired, including contingent consideration valuation;

•our ability to build out acquired businesses and integrate the product/service offerings of the acquired entities into our existing product/service portfolio;

•direct or indirect consequences of acts of war, terrorism or social unrest;

•cybersecurity threats that could impact our networks and reporting systems;

•the impact of natural disasters and other weather-related occurrences;

•fiscal and monetary policies and other regulations;

•changes or difficulties in complying with government regulation;

•changing regulations or market conditions regarding environmental sustainability;

•work stoppages due to labor disputes;

•competition, including technological advances;

•our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights;

•the outcome of any legal proceeding that has been or may be instituted against us and others;

•our ability to meet future cash flow estimates to support our goodwill impairment testing;

•the demand for existing and new products;

•the success of our customers’ products, particularly in the pharmaceutical industry;

•our ability to manage worldwide customer launches of complex technical products, particularly in developing markets;

•difficulties in product development and uncertainties related to the timing or outcome of product development;

•significant product liability claims; and

•other risks associated with our operations.

Although we believe that our forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Part 1, Item 1A - Risk Factors included in this Form 10-K for additional risk factors affecting the Company.

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