# APTARGROUP, INC. (ATR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from APTARGROUP, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/896622/000089662224000010/atr-20231231.htm
Accession: 0000896622-24-000010
Filing date: 2024-02-09
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ATR/
All MD&A years: /company/ATR/mda/
Previous year: /company/ATR/mda/fy2022/ (FY 2022)
Next year: /company/ATR/mda/fy2024/ (FY 2024)

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, 2023, reported sales increased 5% to $3.49 billion from $3.32 billion a year ago. Core sales, excluding the positive impact from changes in currency exchange rates and acquisition effects, increased 3% from 2022. 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.

2023 HIGHLIGHTS

•First full year following segment re-alignment: Aptar Pharma, Aptar Beauty and Aptar Closures

•Reported sales grew 5% and core sales increased 3%

•Reported earnings per share increased 18% to $4.25

•Reported net income increased 19% to $284 million

•Adjusted EBITDA increased 15% to $708 million

•30th consecutive year of paying an increased annual dividend

[[GREPCENT_TABLE]]
[["20/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

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, 2022 for additional information regarding Results of Operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

[[GREPCENT_TABLE]]
[["Year Ended December 31,","","2023","","2022"],["","","Amount in Thousands $","% of Net Sales","","Amount in Thousands $","% of Net Sales"],["Net sales","","$","3,487,450","","100.0","%","","$","3,322,249","","100.0","%"],["Cost of sales (exclusive of depreciation and amortization shown below)","","2,224,051","","63.8","","","2,158,411","","65.0"],["Selling, research & development and administrative","","565,783","","16.2","","","544,262","","16.4"],["Depreciation and amortization","","248,593","","7.1","","","233,706","","7.0"],["Restructuring initiatives","","45,004","","1.3","","","6,597","","0.2"],["Operating income","","404,019","","11.6","","","379,273","","11.4"],["Interest expense","","(40,418)","","(1.2)","","","(40,827)","","(1.2)"],["Other (expense) income","","11,224","","0.3","","","(3,742)","","(0.1)"],["Income before income taxes","","374,825","","10.7","","","334,704","","10.1"],["Net Income","","$","284,176","","8.1","%","","$","239,555","","7.2","%"],["Effective tax rate","","24.2","%","","","28.4","%"],["Adjusted EBITDA margin (1)","","20.3","%","","","18.6","%"]]
[[/GREPCENT_TABLE]]

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

NET SALES

For the year ended December 31, 2023, reported net sales increased 5% to $3.49 billion from $3.32 billion a year ago. The average U.S. dollar exchange rate weakened compared to the euro and other major currencies in which we operate, resulting in a positive currency translation impact of 2%. There was no significant impact from our acquisitions of Metaphase, iD SCENT, and Gulf Closures on our consolidated net sales during 2023. Core sales, which exclude acquisitions and changes in foreign currency rates, increased by 3% in 2023 compared to 2022. Volume growth, especially for products in our prescription, consumer healthcare and beauty applications, had a positive impact on our core sales in spite of a 1% headwind on resin cost pass-through reductions.

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2023","Aptar Pharma","","Aptar Beauty","","Aptar Closures","","Total"],["Reported Net Sales Growth","12","%","","4","%","","(5)","%","","5","%"],["Currency Effects (1)","(2)","%","","(2)","%","","(1)","%","","(2)","%"],["Acquisitions","\u2014","%","","\u2014","%","","(1)","%","","\u2014","%"],["Core Sales Growth","10","%","","2","%","","(7)","%","","3","%"]]
[[/GREPCENT_TABLE]]

(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:

[[GREPCENT_TABLE]]
[["Years Ended December 31,","2023","% of Total","2022","% of Total"],["Domestic","$","1,001,087","","29","%","$","1,100,159","","33","%"],["Europe","2,001,779","","57","%","1,773,395","","53","%"],["Other Foreign","484,584","","14","%","448,695","","14","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["21/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

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

Our cost of sales (“COS”) as a percent of net sales decreased to 63.8% in 2023 compared to 65.0% in 2022, in spite of approximately $16 million additional costs related to the validation of the new injectables expansion capacity as well as inefficiencies in the first part of the year due to the Enterprise Resource Planning ("ERP") system implementation. Our COS percentage was positively impacted by an improved mix of our higher-margin Pharma product sales compared to the same period in 2022. We also benefited from the moderation of inflationary cost increases. Since we maintained our normal pass-through of resin costs during 2023 and there is no margin on these pass-through costs, the decrease in resin prices caused a decrease in our COS as a percentage of sales.

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

Our selling, research & development and administrative expenses (“SG&A”) increased approximately 4% or $21.5 million to $565.8 million in 2023 compared to $544.3 million in 2022. Excluding changes in foreign currency rates, SG&A increased by approximately $14.7 million compared to the prior year. Of this increase, $1.5 million relates to incremental SG&A costs in 2023 due to our acquisitions of Metaphase, iD SCENT, and Gulf Closures. Improvements from our overhead cost management initiatives during 2023 were more than offset by higher compensation costs, including accruals related to our current short-term and long-term incentive compensation programs, along with higher travel costs. SG&A as a percentage of net sales, however, decreased to 16.2% in 2023 compared to 16.4% in the prior year.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense increased approximately 6% or $14.9 million to $248.6 million in 2023 compared to $233.7 million in 2022. Excluding changes in foreign currency rates, depreciation and amortization expense increased by approximately $11.4 million compared to the prior year. Approximately $0.9 million of this increase is due to our acquisitions of Metaphase, iD SCENT, and Gulf Closures. The remaining increase relates to higher capital spending during the current and prior years to support our growth strategy, including several new manufacturing facilities commencing operations during 2023. Depreciation and amortization as a percentage of net sales increased to 7.1% in 2023 compared to 7.0% in the prior year.

RESTRUCTURING INITIATIVES

During the third quarter of 2022, we began an initiative to better leverage our fixed cost base through growth and cost reduction measures. For the years ended December 31, 2023 and 2022, we recognized $45.4 million and $6.2 million, respectively, of restructuring costs related to this initiative. The cumulative expense incurred as of December 31, 2023 was $51.6 million.

Restructuring costs for the years ended December 31, 2023 and 2022 are as follows:

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2023","","2022"],["Restructuring Initiatives by Plan:"],["Optimization initiative","$","45,445","","","$","6,224"],["Prior year initiatives","(441)","","","373"],["Total Restructuring Initiatives","$","45,004","","","$","6,597"],["Restructuring Initiatives by Segment"],["Aptar Pharma","$","4,852","","","$","\u2014"],["Aptar Beauty","20,683","","","5,539"],["Aptar Closures","17,927","","","1,058"],["Corporate & Other","1,542","","","\u2014"],["Total Restructuring Initiatives","$","45,004","","","$","6,597"]]
[[/GREPCENT_TABLE]]

OPERATING INCOME

Operating income increased approximately $24.7 million or 7% to $404.0 million in 2023 compared to $379.3 million in 2022. Excluding changes in foreign currency rates, operating income increased by approximately $14.7 million in 2023 compared to 2022. Strong Aptar Pharma segment sales growth along with our lower COS percentage and SG&A leverage discussed above more than compensated for our higher restructuring costs. Operating income as a percentage of net sales increased to 11.6% in 2023 compared to 11.4% for the prior year.

[[GREPCENT_TABLE]]
[["22/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

INTEREST EXPENSE

Interest expense decreased by $0.4 million in 2023 to $40.4 million compared to $40.8 million in 2022. During 2022, we repaid part of our private placement debt, which included a $0.4 million make-whole payment for the early redemption during the second quarter of 2022 which did not repeat during 2023. See Note 7 – Debt of the Consolidated Financial Statements for further details. On March 7, 2022, we issued $400 million aggregate principal amount of 3.60% Senior Notes due March 2032 in an underwritten public offering. We have been able to successfully offset the higher borrowing costs on these notes with lower overall debt balances carried during 2023.

NET OTHER (INCOME) EXPENSE

Net other expense (income) increased $15.0 million to $11.2 million of income in 2023 compared to $3.7 million of expense in 2022. During the fourth quarter of 2023, we reached a $6.6 million settlement for disputed amounts with our insurance company to recover for losses caused by a fire at our facility in Annecy, France (the 'Annecy Settlement'). $3.5 million of the $15 million increase is due to the change in fair value of our PureCycle investment. As discussed in Note 20 – Investment in Equity Securities of the Consolidated Financial Statements, 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 our Consolidated Statements of Income. During 2023, we also recognized $1.8 million of improved performance in our equity investments along with $3.2 million in lower pension costs compared to 2022, which more than offset $2.4 million of foreign exchange losses due to the devaluation of the Argentine peso during the fourth quarter of 2023.

PROVISION FOR INCOME TAXES

The reported effective tax rate on income before income taxes for 2023 and 2022 was 24.2% and 28.4%, respectively. The tax rate for 2023 was lower compared to 2022 due primarily to a better mix of earnings and increased tax benefits from share-based compensation.

At December 31, 2023, 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 in developing our repatriation plans.

During 2023, we recorded a liability of $2.8 million in connection with the distribution of all pre-2023 earnings of a China subsidiary that were previously asserted to be indefinitely reinvested. We also previously removed our indefinite reinvestment assertion with respect to undistributed earnings accumulated in Germany. We also previously removed the indefinite reinvestment assertion for the pre-2020 earnings in Italy, Switzerland and Colombia. 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 $284.5 million in 2023 compared to $239.3 million reported in 2022.

[[GREPCENT_TABLE]]
[["In thousands, except percentages"],["APTAR PHARMA SEGMENT"],["Year Ended December 31,","2023","2022","% Change 2023 vs. 2022"],["Net Sales","$","1,520,993","","$","1,361,256","","11.7","%"],["Adjusted EBITDA (1)","502,633","","441,622","","13.8"],["Adjusted EBITDA margin (1)","33.0","%","32.4","%"]]
[[/GREPCENT_TABLE]]

(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."

[[GREPCENT_TABLE]]
[["23/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

Reported net sales increased approximately 12% in 2023 to $1.52 billion compared to $1.36 billion in 2022. Changes in currency rates positively affected net sales by 2%, while the acquisition of Metaphase did not have a significant impact during 2023. Therefore, core sales increased 10% in 2023 compared to the prior year. Strong core sales growth for our proprietary drug delivery systems to the prescription drug and consumer health care markets more than compensated for lower sales to the injectables and active material science solutions markets. Core sales of our proprietary drug delivery systems to the prescription drug market increased 26% on continued strong demand for our allergic rhinitis, asthma and emergency medicines and central nervous system devices. The 17% core sales growth in the consumer health care market was driven by higher demand for our nasal decongestant, saline rinses, eye care and cough and cold solutions. Core sales of our products to the injectables market declined 7% primarily due to the shutdown of operations for the implementation of our new ERP system in the first quarter of 2023. In addition, we were up against strong prior year comparisons as we experienced strong sales of our elastomeric components for COVID-19 and other vaccines during 2022. Similarly, core sales of our active material science solutions decreased 22% mainly on strong prior year period demand for our active film products used with at-home COVID-19 antigen test kits and tooling sales that did not repeat during 2023. Digital Health currently does not represent a significant percentage of the total Pharma sales.

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2023","Prescription Drug","","Consumer Health Care","","Injectables","","Active Material Science Solutions","","Digital Health","","Total"],["Reported Net Sales Growth","27","%","","20","%","","(4)","%","","(21)","%","","\u2014","%","","12","%"],["Currency Effects (1)","(1)","%","","(3)","%","","(2)","%","","(1)","%","","(4)","%","","(2)","%"],["Acquisitions","\u2014","%","","\u2014","%","","(1)","%","","\u2014","%","","\u2014","%","","\u2014","%"],["Core Sales Growth","26","%","","17","%","","(7)","%","","(22)","%","","(4)","%","","10","%"]]
[[/GREPCENT_TABLE]]

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

Adjusted EBITDA for 2023 increased approximately 14% to $502.6 million compared to $441.6 million in 2022. The positive impact of our strong core sales growth in the prescription drug and consumer healthcare divisions was partially offset by the additional expenses related to our injectables ERP system implementation in the first quarter of 2023 and the impact of lower COVID-19 related sales in our injectables and active material science solutions divisions, as discussed above. Overall, our Adjusted EBITDA margin improved modestly to 33.0% in 2023 compared to 32.4% in 2022.

[[GREPCENT_TABLE]]
[["In thousands, except percentages"],["APTAR BEAUTY SEGMENT"],["Year Ended December 31,","2023","2022","% Change 2023 vs. 2022"],["Net Sales","$","1,267,697","","$","1,222,535","","3.7","%"],["Adjusted EBITDA (1)","163,716","","151,887","","7.8"],["Adjusted EBITDA margin (1)","12.9","%","12.4","%"]]
[[/GREPCENT_TABLE]]

(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 4% in 2023 to $1.27 billion compared to $1.22 billion in 2022. Changes in currency rates positively impacted net sales by 2%, while our acquisition of iD SCENT did not have a material impact on the sales for 2023. Therefore, core sales increased 2% in 2023 compared to the prior year. Regionally, strong sales growth in Europe and Latin America more than offset lower North American demand. Core sales of our products to the beauty market increased 10% during 2023 on higher sales in both prestige and mass fragrance, along with continued growth for our cosmetic solutions. Personal care core sales decreased 7% as higher demand for our sun care applications was offset by softness in baby and hair care product sales mainly due to customer destocking in North America. Core sales to the home care markets decreased 22% over 2022 mainly due to lower demand from our air care and surface cleaner customers.

[[GREPCENT_TABLE]]
[["24/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2023","Personal Care","","Beauty","","Home Care","","Total"],["Reported Net Sales Growth","(5)","%","","12","%","","(21)","%","","4","%"],["Currency Effects (1)","(2)","%","","(2)","%","","(1)","%","","(2)","%"],["Acquisitions","\u2014","%","","\u2014","%","","\u2014","%","","\u2014","%"],["Core Sales Growth","(7)","%","","10","%","","(22)","%","","2","%"]]
[[/GREPCENT_TABLE]]

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

Adjusted EBITDA for 2023 increased approximately 8% to $163.7 million from $151.9 million in 2022. This is partially due to the $6.6 million Annecy Settlement as discussed above. We further benefited from higher tooling profits and improved European profitability due to strong volume growth which more than compensated for lower profitability in North America. Adjusted EBITDA margin improved to 12.9% in 2023 compared to 12.4% in 2022.

[[GREPCENT_TABLE]]
[["In thousands, except percentages"],["APTAR CLOSURES SEGMENT"],["Year Ended December 31,","2023","2022","% Change 2023 vs. 2022"],["Net Sales","$","698,760","","$","738,458","","(5.4)","%"],["Adjusted EBITDA (1)","103,693","","86,109","","20.4"],["Adjusted EBITDA margin (1)","14.8","%","11.7","%"]]
[[/GREPCENT_TABLE]]

(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 decreased approximately 5% in 2023 to $698.8 million compared to $738.5 million in 2022. Changes in currency rates positively impacted net sales by 1%, while the acquisition of Gulf Closures also had a positive impact of 1%. Therefore, core sales decreased 7% in 2023 compared to the prior year. Approximately half of the core sales decrease is due to passing through lower input costs, mainly due to lower resin prices during 2023. Tooling sales and product volumes were also lower as customers continued to work through their inventory levels, primarily in North America. Core sales to the food and personal care markets decreased 9% and 16%, respectively, while core sales to the beverage market increased 5% during 2023 compared to the prior year. For the food market, we were up against strong prior year period comparisons, mainly for sauces and condiment applications and our infant nutrition products. The personal care market was also negatively impacted by lower sales of our body and hair care applications, while the beverage market reported growth mainly from higher demand for our bottled water and concentrate products.

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2023","Food","","Beverage","","Personal Care","","Other (2)","","Total"],["Reported Net Sales Growth","(9)","%","","14","%","","(15)","%","","2","%","","(5)","%"],["Currency Effects (1)","\u2014","%","","(2)","%","","(1)","%","","\u2014","%","","(1)","%"],["Acquisitions","\u2014","%","","(7)","%","","\u2014","%","","\u2014","%","","(1)","%"],["Core Sales Growth","(9)","%","","5","%","","(16)","%","","2","%","","(7)","%"]]
[[/GREPCENT_TABLE]]

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

(2)Other includes beauty, home care and healthcare markets.

Adjusted EBITDA for 2023 increased approximately 20% to $103.7 million compared to $86.1 million in 2022. Our profitability was positively impacted by a focus on operational improvements and containing costs within our new segment structure. As discussed above, approximately half of our sales decrease was due to passing through lower input costs. As these pass-throughs typically do not carry any margin, the lower sales favorably impact our margins. Together, these changes led to our Adjusted EBITDA margin improving from 11.7% in 2022 to 14.8% during 2023.

[[GREPCENT_TABLE]]
[["25/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

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.

Corporate & Other expenses in 2023 decreased to $62.3 million compared to $62.9 million in 2022. This expense decrease is mainly due to realized gains on the sale of PCT shares related to our PureCycle investment. Our results include approximately $4.2 million and $1.2 million realized gains on sales of PCT shares for 2023 and 2022, respectively. As noted above, any unrealized investment gains or losses are removed from our Adjusted EBITDA calculation as we believe that unrealized 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. The remaining cost increases are mainly due to higher professional fees for corporate projects and higher incentive compensation costs, including accruals related to our current short-term and equity compensation programs.

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 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.

[[GREPCENT_TABLE]]
[["26/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2023"],["","Consolidated","","Aptar Pharma","","Aptar Beauty","","Aptar Closures","","Corporate & Other","","Net Interest"],["Net Sales","$","3,487,450","","","$","1,520,993","","","$","1,267,697","","","$","698,760","","","$","\u2014","","","$","\u2014"],["Reported net income","$","284,176"],["Reported income taxes","90,649"],["Reported income before income taxes","374,825","","","388,415","","","59,210","","","33,615","","","(70,370)","","","(36,045)"],["Adjustments:"],["Restructuring initiatives","45,004","","","4,852","","","20,683","","","17,927","","","1,542"],["Net investment gain (1)","(1,413)","","","","","","","","","(1,413)"],["Realized gain on investments included in net investment gain above","4,188","","","","","","","","","4,188"],["Transaction costs related to acquisitions","480","","","\u2014","","","424","","","56","","","\u2014"],["Adjusted earnings before income taxes","423,084","","","393,267","","","80,317","","","51,598","","","(66,053)","","","(36,045)"],["Interest expense","40,418","","","","","","","","","","","40,418"],["Interest income","(4,373)","","","","","","","","","","","(4,373)"],["Adjusted earnings before net interest and taxes (Adjusted EBIT)","459,129","","","393,267","","","80,317","","","51,598","","","(66,053)","","","\u2014"],["Depreciation and amortization","248,593","","","109,366","","","83,399","","","52,095","","","3,733","","","\u2014"],["Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)","$","707,722","","","$","502,633","","","$","163,716","","","$","103,693","","","$","(62,320)","","","$","\u2014"],["Reported net income margin (Reported net income / Reported Net Sales)","8.1","%"],["Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)","20.3","%","","33.0","%","","12.9","%","","14.8","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["27/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2022"],["","Consolidated","","Aptar Pharma","","Aptar Beauty","","Aptar Closures","","Corporate & Other","","Net Interest"],["Net Sales","$","3,322,249","","","$","1,361,256","","","$","1,222,535","","","$","738,458","","","$","\u2014","","","$","\u2014"],["Reported net income","$","239,555"],["Reported income taxes","95,149"],["Reported income before income taxes","334,704","","","346,995","","","65,850","","","32,185","","","(72,199)","","","(38,127)"],["Adjustments:"],["Restructuring initiatives","6,597","","","\u2014","","","5,539","","","1,058","","","\u2014"],["Net investment loss (1)","2,110","","","","","","","","","2,110"],["Realized gain on investments included in net investment loss above","1,213","","","","","","","","","1,213"],["Transaction costs related to acquisitions","231","","","231","","","\u2014","","","\u2014","","","\u2014"],["Adjusted earnings before income taxes","344,855","","","347,226","","","71,389","","","33,243","","","(68,876)","","","(38,127)"],["Interest expense","40,827","","","","","","","","","","","40,827"],["Interest income","(2,700)","","","","","","","","","","","(2,700)"],["Adjusted earnings before net interest and taxes (Adjusted EBIT)","382,982","","","347,226","","","71,389","","","33,243","","","(68,876)","","","\u2014"],["Depreciation and amortization","233,706","","","94,396","","","80,498","","","52,866","","","5,946","","","\u2014"],["Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)","$","616,688","","","$","441,622","","","$","151,887","","","$","86,109","","","$","(62,930)","","","$","\u2014"],["Reported net income margin (Reported net income / Reported Net Sales)","7.2","%"],["Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)","18.6","%","","32.4","%","","12.4","%","","11.7","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["Net Debt to Net Capital Reconciliation","December 31, 2023","","December 31, 2022"],["Revolving credit facility and overdrafts","$","81,794","","","$","3,810"],["Current maturities of long-term obligations, net of unamortized debt issuance costs","376,426","","","118,981"],["Long-Term Obligations, net of unamortized debt issuance costs","681,188","","","1,052,597"],["Total Debt","$","1,139,408","","","$","1,175,388"],["Less:"],["Cash and equivalents","$","223,643","","","$","141,732"],["Net Debt","$","915,765","","","$","1,033,656"],["Total Stockholders' Equity","$","2,321,298","","","$","2,068,204"],["Net Debt","915,765","","","1,033,656"],["Net Capital","$","3,237,063","","","$","3,101,860"],["Net Debt to Net Capital","28.3","%","","33.3","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["28/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

[[GREPCENT_TABLE]]
[["Free Cash Flow Reconciliation","December 31, 2023","","December 31, 2022"],["Net Cash Provided by Operations","$","575,239","","","$","478,617"],["Capital Expenditures","(312,342)","","","(310,427)"],["Proceeds from Government Grants","\u2014","","","27,795"],["Free Cash Flow","$","262,897","","","$","195,985"]]
[[/GREPCENT_TABLE]]

LIQUIDITY AND CAPITAL RESOURCES

Given our current level of leverage relative to others in our industry and our ability to consistently generate significant 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 and our revolving and other credit facilities, as needed, as our primary sources of liquidity. Our primary uses of cash are to invest in equipment and working capital for the continued growth of our business, including facilities that are necessary to support our growth, pay quarterly dividends to stockholders, make acquisitions and repurchase shares of our common stock. 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 $223.6 million at December 31, 2023 from $141.7 million at December 31, 2022 while total short and long-term interest bearing debt of $1.14 billion at December 31, 2023 decreased from $1.18 billion at December 31, 2022. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholders’ equity plus Net Debt) decreased to 28.3% at December 31, 2023 compared to 33.3% at December 31, 2022. See the reconciliation under "Non-U.S. GAAP Measures".

In 2023, our operations provided approximately $575.2 million in net cash flow compared to $478.6 million in 2022. Cash flow from operations is primarily derived from earnings before depreciation and amortization. The increase in 2023 cash flow from operations compared to 2022 is primarily attributable to improved earnings and better working capital management. Based on our current business plan and revenue prospects, we believe that our 2024 operating cash flow will be more than sufficient to fund our working capital needs and outstanding purchase commitments as discussed in Note 20 - Investment in Equity Securities and Note 13 - Commitments and Contingencies as well as lease arrangements as discussed in Note 8 - Lease Commitments.

We used $324.5 million in cash for investing activities during 2023 compared to $295.6 million during 2022. During 2023, approximately $10.9 million was utilized to fund the iD SCENT and Gulf Closures acquisitions, and $5.2 million was utilized to fund the remaining payment on the Hengyu acquisition. Our investments in capital projects net of government grant proceeds increased $29.7 million primarily due to $27.8 million related to government grant proceeds received in 2022 for our active material science solutions and injectables divisions. In 2024, we expect our capital investments to be in the range of $280 million to $300 million.

Financing activities utilized $171.6 million of cash during 2023, compared to $162.1 million during 2022. During 2023, we paid $103.7 million of dividends, purchased $47.6 million of our common stock that was placed into treasury stock and received proceeds of $54.0 million on stock option exercises. We paid our outstanding contingent consideration obligation related to the Fusion acquisition of $25.3 million of which $22.8 million was treated as a financing outflow. Additionally, we received proceeds of $77.0 million from our revolving credit facility and repaid $125.8 million of our long-term debt obligations. During 2022, we received proceeds of $412.0 million primarily from the issuance of $400 million of our 3.60% Senior Notes due March 2032, we repaid $143.1 million related to our revolving credit facility, redeemed all $75.0 million of our 3.25% senior unsecured notes and repaid $125.0 million on our 3.49% senior unsecured notes. In 2024, we expect to have financing cash outlays of approximately $458.2 million to fund short- and long-term debt obligations as discussed in Note 7 - Debt, which are expected to 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, 2022 for additional information regarding cash flows for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

[[GREPCENT_TABLE]]
[["29/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

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. As of December 31, 2023, $36.5 million and €40.0 million ($44.2 million) was utilized under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary. As of December 31, 2022, no balance was utilized under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary.

There are no compensating balance requirements associated with our revolving credit facility. Each borrowing under the revolving credit facility will bear interest at rates based on SOFR (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. In May 2023, the revolving credit facility was amended to make SOFR the default borrowing rate for USD. The revolving credit facility also provides mechanics relating to a transition away from 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. 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:

[[GREPCENT_TABLE]]
[["","Requirement","Level at December 31, 2023"],["Consolidated Leverage Ratio (1)","Maximum of 3.50 to 1.00","1.46 to 1.00"],["Consolidated Interest Coverage Ratio (1)","Minimum of 3.00 to 1.00","16.06 to 1.00"]]
[[/GREPCENT_TABLE]]

(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 $1.3 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, 2023.

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 and the Audit Committee has reviewed our disclosure relating to it in this MD&A.

[[GREPCENT_TABLE]]
[["30/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

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 Aptar Beauty and Aptar Closures business segments each represent a reporting unit. In addition to the Aptar Pharma business reporting unit, the injectables and active material science solutions divisions of the Aptar Pharma segment qualify as separate reporting units for goodwill impairment testing apart from the remaining Aptar Pharma business. As a result of the realignment of two of our segments effective January 1, 2023, we reclassified $39.5 million of goodwill from Aptar Beauty into Aptar Closures. As of December 31, 2023, we have $963.4 million of goodwill, which is allocated as follows:

[[GREPCENT_TABLE]]
[["In Thousands"],["Reporting Unit","Balance at December 31, 2023"],["Pharma","$","175,606"],["Injectables","171,211"],["Active Material Science Solutions","161,630"],["Beauty","287,096"],["Closures","167,875"],["Total","$","963,418"]]
[[/GREPCENT_TABLE]]

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, projected EBITDA margins, 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.

We have historically evaluated our goodwill for impairment annually as of October 1 or more frequently if events or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below it's carrying value, in accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other.” Due to the realignment of the Beauty and Closures segments, management determined it appropriate to calculate the fair value of both reporting units and compare with their associated carrying amounts as of January 1, 2023. Further, as we performed our annual goodwill impairment assessment, due to events or circumstances that were unfavorable for injectables and active material science solutions, management determined it appropriate to calculate the fair value of both reporting units and compare with their associated carrying amounts as of October 1, 2023.

We estimated the fair values of the affected businesses based upon the present value of their estimated future cash flows. Our determination of fair value involved judgment and the use of significant estimates and assumptions, including assumptions regarding the projected revenue growth rates, projected EBITDA margins, the terminal growth factor, as well as the discount rate to calculate estimated future cash flows. We believe that our assumptions used in discounting future cash flows are appropriate. At October 1, 2023, our goodwill for the Injectables and Active Material Science Solutions reporting units were $166.1 million and $158.7 million, respectively. A 15% decrease in the estimated fair value of the Injectables and Active Material Science Solutions would not have resulted in a different conclusion. Based on our qualitative and quantitative analysis performed over 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, 2023.

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.

[[GREPCENT_TABLE]]
[["31/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

At December 31, 2023 and 2022, we had $133.4 million and $114.8 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. We have $131.4 million of tax losses in Luxembourg for which no deferred tax asset or valuation allowance has been recorded since there is no expectation of realization.

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, iD SCENT and Gulf Closures, including the fair values of acquired intangibles including acquired technology, trademarks and customer relationships. In particular, judgment was applied with respect to determining the fair value of acquired technology, trademarks and customer relationships intangible assets, which involved the use of benchmarking to prior deals to assess the reasonableness of allocation of excess purchase price to goodwill and intangibles.

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, 2023, the discount rates for our domestic and foreign plans were 4.95% and 3.20%, 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 $49.0 million increase in the PBO ($36.3 million for the domestic plans and $12.7 million for the foreign plans) and a $3.1 million increase in net periodic benefit cost ($2.1 million for the domestic plans and $1.0 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 $39.1 million decrease in the PBO ($28.4 million for the domestic plans and $10.7 million for the foreign plans) and a $5.3 million decrease in net periodic benefit cost ($4.6 million for the domestic plans and $0.7 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 48% was invested in equities, 26% was invested in fixed income securities, 11% was invested in hedge funds, 8% was invested in infrastructure securities, 5% was invested in real estate securities and 1% was invested in money market funds, at December 31, 2023. Of foreign plan assets, approximately 94% was invested in investment funds, 3% was invested in equity securities, 1% was invested in corporate debt securities, 1% was invested in fixed income securities and 1% was invested in money market funds at December 31, 2023.

[[GREPCENT_TABLE]]
[["32/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

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.

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 $6.0 million decrease in the PBO ($1.3 million decrease for the domestic plans and $4.7 million decrease for the foreign plans) and a $0.9 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 $6.4 million increase in the PBO ($1.3 million increase for the domestic plans and $5.1 million increase for the foreign plans) and a $1.0 million increase to the net periodic benefit cost.

Our primary pension related assumptions as of December 31, 2023 and 2022 were as follows:

[[GREPCENT_TABLE]]
[["Actuarial Assumptions as of December 31,","2023","2022"],["Discount rate:"],["Domestic plans","4.95","%","5.15","%"],["Foreign plans","3.20","%","3.69","%"],["Expected long\u2011term rate of return on plan assets:"],["Domestic plans","7.00","%","7.00","%"],["Foreign plans","3.23","%","3.53","%"],["Rate of compensation increase:"],["Domestic plans","3.24","%","3.20","%"],["Foreign plans","3.20","%","3.21","%"]]
[[/GREPCENT_TABLE]]

In order to determine the 2024 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, 2023. The estimated impact of the changes to the assumptions as noted in the table above on our 2024 net periodic benefit cost is expected to be an increase of approximately $1.5 million.

OPERATIONS OUTLOOK

Looking to the first quarter, we intend to build on our positive momentum from the previous year and anticipate starting the year off strong. We expect demand for pharma's proprietary drug delivery systems and elastomeric components for biologics to continue to grow. We also expect our beauty and closures segments to benefit from a progressive recovery of the North American market and we anticipate continued demand for our fragrance dispensing technologies. We remain focused on reducing SG&A as a percentage of sales and reducing our fixed costs.

Aptar expects earnings per share for the first quarter of 2024, excluding any restructuring expenses, changes in the fair value of equity investments and acquisition-related costs, to be in the range of $1.10 to $1.18 and this guidance is based on an effective tax rate range of 24.5% to 26.5%.

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”, "continues", "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 recent events in the Middle East 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;

[[GREPCENT_TABLE]]
[["33/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents

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

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

•the execution of our fixed cost reduction initiatives, including our optimization initiative;

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

•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, difficulties or failures in complying with government regulation, including FDA or similar foreign governmental authorities;

•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.

[[GREPCENT_TABLE]]
[["34/ATR","2023 Form 10-K"]]
[[/GREPCENT_TABLE]]

Table of Contents