WEST PHARMACEUTICAL SERVICES INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

PREVIEW

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

No-we GAAP Financial Measures

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

Our operations

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

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









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Impact of COVID-19

It has been nearly two years since the COVID-19 pandemic began and there remains
uncertainty around the long-term impact of the pandemic on the world economy.
Our primary objectives have remained the same throughout the pandemic: to
support the safety of our team members and their families and continue to
support patients around the world. Throughout the COVID-19 pandemic, our
production facilities have continued to operate as they had prior to the
pandemic, other than for enhanced safety measures intended to prevent the spread
of the virus and higher levels of production at certain plant locations to meet
additional customer demand. Our capital and financial resources, including
overall liquidity, remain strong. The remote working arrangements and travel
restrictions imposed by various governments have had limited impact on our
ability to maintain operations, as our manufacturing operations have generally
been exempted from stay-at-home orders. However, we cannot predict the impact of
the progression of the COVID-19 pandemic on future results due to a variety of
factors, including the continued good health of our employees, the ability of
suppliers to continue to operate and deliver, the ability of West and its
customers to maintain operations, continued access to transportation resources,
the changing needs and priorities of customers, any further government and/or
public actions taken in response to the pandemic and ultimately the length of
the pandemic. We will continue to closely monitor the COVID-19 pandemic in order
to ensure the safety of our people and our ability to serve our customers and
patients worldwide.

Key Components and Factors Affecting Our Results of Operations

To assess the performance of our business, we consider various performance and financial measures. We believe the items discussed below provide insight into the factors that influence these key metrics.

Net sales

Our net sales results from the sale of goods or services and reflects the net
consideration to which we expect to be entitled to in exchange for those goods
or services.

Several factors affect our reported net sales in any period, including product,
payer and geographic sales mix, operational effectiveness, pricing realization,
timing of orders and shipments, regulatory actions, competition, and business
acquisitions that involve our customers or competitors.

Cost of goods and services sold and gross profit

Cost of goods and services sold includes personnel costs, manufacturing costs,
raw materials and product costs, freight costs, depreciation, and facility costs
associated with our manufacturing and warehouse facilities. Fluctuations in our
cost of goods sold correspond with the fluctuations in sales units as well as
inflationary and other market factors that influence our cost base.

Gross margin is calculated as net sales less cost of goods sold. Our gross margin is affected by the product and geographic sales mix, the realized prices of our products, the efficiency of our manufacturing operations and the costs of the materials used to manufacture our products.

Research and development costs

Research and development expenses relate to our investments in improvements to
our manufacturing processes, product enhancements, and additional investments in
our self-injection systems development, fluid transfer admixture devices,
elastomeric packaging components, and formulation development.

We expense research and development costs when incurred. Our research and development expenses fluctuate from period to period mainly due to continuous improvements in our manufacturing processes and improvements in our products.

Selling, general and administrative expenses

Selling, general and administrative expenses mainly include personnel costs, incentive compensation, insurance, professional fees and amortization.

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Summary of financial performance

The following tables present a reconciliation from U.S. GAAP to non-U.S. GAAP
financial measures:
                                                Operating            Income tax
($ in millions)                                   profit              expense             Net income           Diluted EPS
Year ended December 31, 2021 GAAP             $     752.3          $     107.2          $     661.8          $       8.67
Unallocated items:
Restructuring and related charges (1)                 2.2                  0.4                  1.8                     0.02
Pension settlement (2)                                  -                  0.5                  1.5                     0.02
Amortization of acquisition-related
intangible assets (3)                                 0.8                  0.1                  2.8                     0.04
Asset impairment (4)                                  2.8                    -                  2.8                     0.04
Cost investment activity (5)                          4.3                 (0.1)                 4.4                  0.06
Royalty acceleration (6)                                -                 18.5                (18.5)                (0.25)
Tax law changes (7)                                     -                  1.4                 (1.4)                (0.02)
Year ended December 31, 2021 adjusted amounts
(non-U.S. GAAP)                               $     762.4          $     128.0          $     655.2          $       8.58



During 2021, we recorded a tax benefit of $31.5 million associated with
stock-based compensation.

                                                Operating            Income tax
($ in millions)                                   profit              expense             Net income           Diluted EPS
Year ended December 31, 2020 GAAP             $     406.9          $      72.5          $     346.2          $       4.57
Unallocated items:
Restructuring and severance related charges
(1)                                                   7.0                  1.7                  5.3                  0.07
Pension settlement (2)                                  -                  0.9                  2.9                  0.04
Amortization of acquisition-related
intangible assets (3)                                 0.6                  0.1                  3.6                  0.05
Cost investment impairment (5)                           2.5                 -                     2.5                  0.03
Year ended December 31, 2020 adjusted amounts
(non-U.S. GAAP)                               $     417.0          $      75.2          $     360.5          $       4.76



During 2020, we recorded a tax benefit of $20.8 million associated with
stock-based compensation.

                                                 Operating            Income tax
($ in millions)                                    profit              expense             Net income           Diluted EPS
Year ended December 31, 2019 GAAP              $     296.6          $      59.0          $     241.7          $       3.21
Unallocated items:
Restructuring and related charges (1)                     4.9                  1.2                  3.7                  0.04
Gain on restructuring-related sale of assets            (1.7)                (0.4)                (1.3)                (0.02)
Pension settlement (2)                                      -                  0.8                  2.7                  0.04
Argentina currency devaluation                            1.0                    -                  1.0                  0.01
Tax recovery (8)                                        (4.4)                (1.5)                (2.9)                (0.04)
Tax law changes (7)                                         -                  0.3                (0.3)                     -
Year ended December 31, 2019 adjusted amounts
(non-U.S. GAAP)                                $     296.4          $      59.4          $     244.6          $       3.24


In 2019, we recorded a tax benefit of $10.3 million associated with stock-based compensation.

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(1) During 2021 and 2020, the Company recorded a restructuring and severance
related charge of $2.2 million and $7.0 million, respectively, to optimize
certain organizational structure within the Company. During 2019, the Company
recorded $4.9 million in restructuring and related charges in connection with
the 2018 plan.

(2) The Company recorded a pension settlement charge within other nonoperating
(income) expense, as it determined that normal-course lump-sum payments for our
U.S. qualified, and in 2020 and 2019 our non-qualified, defined benefit pension
plan exceeded the threshold for settlement accounting.

(3) During 2021, the company recorded $0.8 million of amortization expense
within operating profit associated with an acquisition of an intangible asset
during the second quarter of 2020. Additionally, the company recorded
$2.1 million of amortization expense in association with an acquisition of
increased ownership interest in Daikyo. During 2020, the company recorded
$0.6 million of amortization expense within operating profit associated with an
acquisition of an intangible asset during the second quarter of 2020.
Additionally, the company recorded $3.1 million of amortization expense in
association with an acquisition of increased ownership interest in Daikyo.

(4) The Company recorded a $2.8 million impairment charge for certain long-lived
and intangible assets within the Proprietary Products segment as it determined
the carrying value exceeded the fair value of the assets. $1.9 million of this
charge is recorded in Cost of Goods Sold and $0.9 million of the charge is
recorded in Selling, General, and Administrative expense, due to the nature of
the impaired assets.

(5) During 2021, the net cost investment activity was $4.3 million, inclusive of
an impairment charge of $4.6 million offset by a $0.3 million gain on the sale
of a cost investment. During 2020, the Company recorded a cost investment
impairment charge of $2.5 million.

(6) The Company prepaid future royalties from one of its subsidiaries, which resulted in a $18.5 million tax benefit.

(7) During 2021, the Company recorded a tax benefit of $1.4 million due to the
impact of a United Kingdom tax law change enacted during the period. During
2019, the Company recorded a net tax benefit of $0.3 million due to the impact
of federal law changes enacted during the respective year.

(8) The Company recorded a net tax recovery related to international excise duties previously paid, following a favorable court ruling.

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RESULTS OF OPERATIONS

We evaluate the performance of our segments based upon, among other things,
segment net sales and operating profit. Segment operating profit excludes
general corporate costs, which include executive and director compensation,
stock-based compensation, certain pension and other retirement benefit costs,
and other corporate facilities and administrative expenses not allocated to the
segments. Also excluded are items that we consider not representative of ongoing
operations. Such items are referred to as other unallocated items for which
further information can be found above in the reconciliation from U.S. GAAP to
non-U.S. GAAP financial measures.

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

Net sales

The following table shows revenue, consolidated and by business segment:

                                          Year Ended December 31,                      % Change
($ in millions)                     2021           2020           2019         2021/2020      2020/2019
Proprietary Products             $ 2,317.3      $ 1,648.6      $ 1,398.6          40.6  %        17.9  %
Contract-Manufactured Products       514.7          498.6          441.5           3.2  %        12.9  %
Intersegment sales elimination        (0.4)          (0.3)          (0.2)         33.3  %        50.0  %
Consolidated net sales           $ 2,831.6      $ 2,146.9      $ 1,839.9          31.9  %        16.7  %



2021 compared to 2020
Consolidated net sales increased by $684.7 million, or 31.9%, in 2021, including
a favorable foreign currency translation impact of $53.5 million. Excluding
foreign currency translation effects, consolidated net sales increased by $631.2
million, or 29.4%.

Proprietary Products - Proprietary Products net sales increased by $668.7
million, or 40.6%, in 2021, including a favorable foreign currency translation
impact of $46.1 million. Excluding foreign currency translation effects, net
sales increased by $622.6 million, or 37.8%, primarily due to growth in our
high-value product offerings, including Westar®, NovaPure®, Daikyo®, and
FluroTec®-coated components. Net sales in 2021 included approximately $459
million in COVID-19 related activity for vaccines, antiviral treatments and
treatment of underlying COVID-19 symptoms. Net sales in 2020 included
approximately $99 million in COVID-19 related activity for vaccines, antiviral
treatments and treatment of underlying COVID-19 symptoms.

Contract Manufactured Products – Net sales of Contract Manufactured Products increased by $16.1 millioni.e. 3.2% in 2021, including a favorable currency effect of $7.4 million. Excluding currency effects, sales increased by $8.6 millionor 1.7%, mainly due to an increase in sales of health-related medical devices.

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

2020 compared to 2019
Consolidated net sales increased by $307.0 million, or 16.7%, in 2020, including
a favorable foreign currency translation impact of $5.7 million. Excluding
foreign currency translation effects, as well as incremental sales of $1.2
million from the acquisition of our distributor in South Korea in 2019,
consolidated net sales increased by $300.1 million, or 16.3%.

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Proprietary Products - Proprietary Products net sales increased by $250.0
million, or 17.9%, in 2020, including a favorable foreign currency translation
impact of $2.2 million. Excluding foreign currency translation effects, as well
as $1.2 million of incremental sales in 2020 from the acquisition of our
distributor in South Korea in 2019, net sales increased by $246.6 million, or
17.6%, primarily due to growth in our high-value product offerings, including
our FluroTec-coated components, Westar® components, Daikyo® and NovaPure®
components, Daikyo Crystal Zenith® products, and our self-injection delivery
platforms, all of which included approximately $99 million in COVID-19 related
activity for vaccines, antiviral treatments and treatment of underlying COVID-19
symptoms.

Contract-Manufactured Products - Contract-Manufactured Products net sales
increased by $57.1 million, or 12.9%, in 2020, including a favorable foreign
currency translation impact of $3.5 million. Excluding foreign currency
translation effects, net sales increased by $53.5 million, or 12.1%, due to an
increase in the sale of healthcare-related injection and diagnostic devices.

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

Gross Profit

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

                                            Year Ended December 31,                      % Change
($ in millions)                         2021           2020          2019        2021/2020      2020/2019
Proprietary Products:
Gross profit                        $ 1,093.9       $ 682.2       $ 540.4           60.3  %        26.2  %
Gross profit margin                      47.2  %       41.4  %       38.6  %
Contract-Manufactured Products:
Gross profit                        $    83.8       $  85.6       $  65.5           (2.1) %        30.7  %
Gross profit margin                      16.3  %       17.2  %       14.8  %
Unallocated items                   $    (1.9)      $     -       $  (0.2)
Consolidated gross profit           $ 1,175.8       $ 767.8       $ 605.7  

53.1% 26.8% Consolidated gross margin 41.5% 35.8% 32.9%

2021 vs. 2020 Consolidated gross margin up by $408.0 millioni.e. 53.1%, in 2021, including a favorable currency effect of $19.5 million. The consolidated gross margin increased by 5.7 margin points in 2021.

Proprietary Products - Proprietary Products gross profit increased by $411.7
million, or 60.3%, in 2021, including a favorable foreign currency translation
impact of $18.2 million. Proprietary Products gross profit margin increased by
5.8 margin points in 2021, due to a favorable mix of products sold, sales price
increases and production efficiencies, partially offset by increased overhead
costs including compensation costs.

Contract-Manufactured Products - Contract-Manufactured Products gross profit
decreased by $1.8 million, or 2.1%, in 2021, including a favorable foreign
currency translation impact of $1.3 million. Contract-Manufactured Products
gross profit margin decreased by 0.9 margin points in 2021, due to unfavorable
mix of products sold and timing of the pass-through of raw material price
increases to customers.

2020 compared to 2019 Consolidated gross margin up by $162.1 millioni.e. 26.8% in 2020, including a favorable exchange rate effect of $1.0 million. The consolidated gross margin increased by 2.9 margin points in 2020.

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Proprietary Products - Proprietary Products gross profit increased by $141.8
million, or 26.2%, in 2020, including a favorable foreign currency translation
impact of $0.3 million. Proprietary Products gross profit margin increased by
2.8 margin points in 2020, due to a favorable mix of products sold, production
efficiencies, and sales price increases, partially offset by increased overhead
costs including compensation costs and COVID-19 related expenses.

Contract-Manufactured Products - Contract-Manufactured Products gross profit
increased by $20.1 million, or 30.7%, in 2020, including a favorable foreign
currency translation impact of $0.7 million. Contract-Manufactured Products
gross profit margin increased by 2.4 margin points in 2020, due to a favorable
mix of products sold and production efficiencies, partially offset by increased
overhead costs including compensation costs.

Research and development (“R&D”) costs

The following table presents consolidated R&D expenses:

                                   Year Ended December 31,                      % Change
($ in millions)                  2021            2020        2019       2021/2020      2020/2019

Consolidated R&D costs     $    52.8           $ 46.9      $ 38.9          12.6  %        20.6  %



2021 compared to 2020
Consolidated R&D costs increased by $5.9 million, or 12.6%, in 2021, as compared
to 2020. Efforts remain focused on the continued investment in self-injection
systems development, fluid transfer admixture devices, elastomeric packaging
components, and formulation development.

2020 compared to 2019
Consolidated R&D costs increased by $8.0 million, or 20.6%, in 2020, as compared
to 2019. Efforts remain focused on the continued investment in self-injection
systems development, fluid transfer admixture devices, elastomeric packaging
components, and formulation development.

All R&D costs incurred in 2021, 2020 and 2019 related to Proprietary Products.

Selling, general and administrative (“SG&A”) expenses

The following table presents the general and administrative expenses, consolidated and by segment to be presented, as well as the central and unallocated elements:

                                         Year Ended December 31,                     % Change
($ in millions)                      2021          2020          2019        2021/2020      2020/2019
Proprietary Products              $ 244.8       $ 197.5       $ 189.9           23.9  %         4.0  %
Contract-Manufactured Products       15.9          15.5          16.2            2.6  %        (4.3) %
Corporate and unallocated items     102.1          89.0          66.6           14.7  %        33.6  %
Consolidated SG&A costs           $ 362.8       $ 302.0       $ 272.7           20.1  %        10.7  %
SG&A as a % of net sales             12.8  %       14.1  %       14.8  %



2021 compared to 2020
Consolidated SG&A costs increased by $60.8 million, or 20.1%, in 2021, including
an unfavorable foreign currency translation impact of $2.6 million.

Proprietary Products – SG&A costs for proprietary products increased by $47.3 millionor 23.9%, in 2021, mainly due to an increase in compensation costs and personnel costs, an increase in professional services and legal services, partially offset by a reduction in travel costs.

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Contract Manufactured Products – Contract Manufactured Products SG&A costs increased by $0.4 millionor 2.6%, in 2021, due to an increase in compensation costs.

Corporate and unallocated items – SG&A Corporate costs increased by $13.1 millionor 14.7%, in 2021, primarily due to increased compensation costs and stock-based compensation costs.

2020 compared to 2019
Consolidated SG&A costs increased by $29.3 million, or 10.7%, in 2020 with no
foreign currency translation impact.

Proprietary Products – SG&A costs for proprietary products increased by $7.6 millionor 4.0%, in 2020, primarily due to an increase in compensation costs, partially offset by reduced travel costs and incremental costs incurred in 2019 associated with our voluntary recall.

Contract Manufactured Products – Contract Manufactured Products SG&A costs decreased by $0.7 millioni.e. 4.3%, in 2020, due to a reduction in travel costs.

Corporate and unallocated items – SG&A Corporate costs increased by $22.4 millionor 33.6%, in 2020, primarily due to increased stock-based compensation costs, incentive compensation costs and an increase in consulting services costs.

Other Expense (Income)

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

                                              Year Ended December 31,
($ in millions)                             2021            2020        2019
Proprietary Products                  $    0.2            $  3.3      $ (2.0)
Contract-Manufactured Products             0.7               1.5         

0.2

Corporate and unallocated items            7.0               7.2        

(0.7)

Consolidated other expense (income)   $    7.9            $ 12.0      $ 

(2.5)

Other expenses and income, made up of gains and losses on foreign exchange transactions, gains and losses on the sale of fixed assets, development and licensing income, contingent consideration and miscellaneous income and expenses, are generally recognized in sector results.

2021 compared to 2020
Consolidated other expense (income) decreased by $4.1 million in 2021.

Proprietary Products - Proprietary Products other expense (income) decreased by
$3.1 million in 2021 as compared to 2020, primarily due to a decrease in the
fixed asset impairments recorded.

Contract-Manufactured Products - Contract-Manufactured Products other expense
(income) decreased by $0.8 million in 2021 as compared to 2020, primarily due to
a reduction in the foreign currency exchange transaction loss.

Corporate and unallocated items - Corporate and unallocated items decreased by
$0.2 million in 2021 as compared to 2020. During 2021, we recorded $2.2 million
in restructuring and related charges and $4.6 million in impairment charges
related to our cost investments. During 2020, we recorded $4.6 million in
restructuring and related charges and a $2.5 million impairment charge related
to a cost investment.

2020 compared to 2019
Consolidated other expense (income) changed by $14.5 million in 2020.
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Proprietary Products - Proprietary Products other expense (income) changed by
$5.3 million in 2020, primarily due to an increase in the fixed asset
impairments recorded, partially offset by a decrease in the SmartDose contingent
consideration charge. Please refer to Note 12, Fair Value Measurements, for
further discussion of this item.

Contract-Manufactured Products - Contract-Manufactured Products other expense
(income) changed by $1.3 million in 2020 as compared to 2019, primarily due to
an increase in foreign exchange transaction losses.

Corporate and unallocated items - Corporate and unallocated items changed by
$7.9 million in 2020. During 2020, we recorded $4.6 million in restructuring and
related charges and a $2.5 million impairment charge related to a cost
investment. In 2019, offsetting the $4.9 million restructuring and related
charge and $1.0 million charge as a result of the continued devaluation of
Argentina's currency, the Company recorded a $1.9 million gain on the sale of
fixed assets as a result of our 2018 restructuring plan and recognized a tax
recovery of $4.7 million related to previously-paid international excise taxes,
following a favorable court ruling.

Operating profit

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

                                                        Year Ended December 31,                                   % Change
($ in millions)                                2021              2020              2019               2021/2020               2020/2019
Proprietary Products                        $  796.1          $  434.5          $  313.6                    83.2  %                 38.6  %
Contract-Manufactured Products                  67.2              68.6              49.1                    (2.0) %                 39.7  %
Corporate                                     (100.9)            (86.1)            (66.3)                   17.2  %                 29.9  %

Adjusted consolidated operating profit $762.4 $417.0

     $  296.4                    82.8  %                 40.7  %
Adjusted consolidated operating profit
margin                                          26.9  %           19.4  %           16.1  %
Unallocated items                              (10.1)            (10.1)     

0.2

Consolidated operating profit               $  752.3          $  406.9          $  296.6                    84.9  %                 37.2  %
Consolidated operating profit margin            26.6  %           19.0  %           16.1  %



2021 compared to 2020
Consolidated operating profit increased by $345.4 million, or 84.9%, in 2021,
including a favorable foreign currency translation impact of $16.4 million.

Proprietary Products - Proprietary Products operating profit increased by $361.6
million, or 83.2%, in 2021, including a favorable foreign currency translation
impact of $15.3 million, due to the factors described above, most notably the
sales increase in our high-value product offerings, inclusive of COVID-19
related activity.

Contract-Manufactured Products - Contract-Manufactured Products operating profit
decreased by $1.4 million, or 2.0%, in 2021, including a favorable foreign
currency translation impact of $1.1 million, due to the factors described above,
most notably due an unfavorable mix of products sold and timing of the
pass-through of raw material price increases to customers.

Corporate - Corporate costs increased by $14.8 million, or 17.2%, in 2021, which
decreased operating profit, due to the factors described above most notably an
increase in stock-based compensation costs and incentive compensation costs.

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

Excluding unallocated items, our adjusted consolidated operating margin increased by 7.5 margin points in 2021.

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2020 compared to 2019
Consolidated operating profit increased by $110.3 million, or 37.2%, in 2020,
including a favorable foreign currency translation impact of $0.8 million.

Proprietary Products - Proprietary Products operating profit increased by $120.9
million, or 38.6%, in 2020, including a favorable foreign currency translation
impact of $0.2 million, due to the factors described above, most notably the
sales increase in our high-value product offerings, inclusive of COVID-19
related activity.

Contract-Manufactured Products - Contract-Manufactured Products operating profit
increased by $19.5 million, or 39.7%, in 2020, including a favorable foreign
currency translation impact of $0.6 million, due to the factors described above,
most notably the sales increase in our products with a more favorable gross
profit margin.

Corporate - Corporate costs increased by $19.8 million, or 29.9%, in 2020, which
decreased operating profit, due to the factors described above most notably an
increase in stock-based compensation costs and incentive compensation costs.

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

Excluding unallocated items, our adjusted consolidated operating margin increased by 3.3 margin points in 2020.

Interest expense, net

The following table presents interest expense, net, by significant component:
                                 Year Ended December 31,                      % Change
($ in millions)                2021             2020       2019       2021/2020      2020/2019
Interest expense        $     10.2             $ 9.6      $ 9.4           6.3  %         2.1  %
Capitalized interest          (2.0)             (1.4)      (0.9)         42.9  %        55.6  %
Interest income               (1.0)             (1.4)      (3.8)        (28.6) %       (63.2) %
Interest expense, net   $      7.2             $ 6.8      $ 4.7           5.9  %        44.7  %



2021 compared to 2020
Interest expense, net, increased by $0.4 million, or 5.9%, in 2021, due to an
increase in other bank fees and a decrease in interest income in 2021 resulting
from lower interest rates compared to the prior year, partially offset by an
increase in capitalized interest due to an increase in capital expenditures in
2021.

2020 compared to 2019
Interest expense, net, increased by $2.1 million, or 44.7%, in 2020, due to a
decrease in interest income in 2020 resulting from lower interest rates compared
to the prior year, partially offset by an increase in capitalized interest due
to an increase in capital expenditures in 2020.

Other non-operating expenses (income)

2021 compared to 2020
Other nonoperating (income) expense changed by $2.6 million in 2021, primarily
due to a reduction in the pension settlement charge and by a decrease in U.S.
pension interest cost. In both 2021 and 2020, we determined that normal-course
lump-sum payments for our U.S. qualified, and non-qualified in 2020, defined
benefit pension plan exceeded the threshold for settlement accounting under U.S.
GAAP for the year.

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2020 compared to 2019
Other nonoperating (income) expense changed by $1.3 million in 2020, primarily
due to a decrease in the interest cost component of our net periodic benefit
expense, partially offset by an increase in pension settlement charges. A
pension settlement charge of $3.7 million was recorded in 2020, as we determined
that normal-course lump-sum payments for each of our U.S. qualified and
non-qualified defined benefit pension plans exceeded the threshold for
settlement accounting under U.S. GAAP for the year.

Income taxes

The provision for income taxes has been $107.2 million, $72.5 millionand $59.0 million for the years 2021, 2020 and 2019, respectively, and the effective tax rate was 14.3%, 18.1% and 20.2%, respectively.

During 2021, we recorded a tax benefit of $31.5 million associated with
stock-based compensation, an increase from the tax benefit of $20.8 million
associated with stock-based compensation in 2020, and a tax benefit of
$18.5 million for prepayment of future royalties from one of our subsidiaries,
which both contributed to the effective tax rate decline from 18.1% in 2020 to
14.3% in 2021.

In 2020, we recorded a tax benefit of $20.8 million associated with stock-based compensation and imposed less tax on international operations compared to the previous year.

During 2019, we recorded a net tax benefit of $0.3 million due to the impact of
federal law changes enacted during the year, as well as a tax benefit of $10.3
million associated with stock-based compensation.

Please refer to Note 17, Income Taxes, for a more detailed discussion of our income taxes.

Equity in Affiliate Net Income

Equity in net income of affiliated companies represents the contribution to
earnings from our 49% ownership interest in Daikyo, which increased from 25%
during the fourth quarter of 2019, and our 49% ownership interest in four
companies majority-owned by a long-time partner located in Mexico. Please refer
to Note 7,   Affiliated Companies  , for further discussion. Equity in net
income of affiliated companies was $20.1 million, $17.4 million, and $8.9
million for the years 2021, 2020, and 2019, respectively. Equity in net income
of affiliated companies increased by $2.7 million, or 15.5%, in 2021, primarily
due to favorable operating results at Daikyo. Equity in net income of affiliated
companies increased by $8.5 million, or 95.5%, in 2020, primarily due to
favorable operating results at Daikyo and the increased ownership of Daikyo
starting in the fourth quarter of 2019.

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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Cash flow

The following table presents the cash flows for the years ended the 31st of December: (in millions of dollars)

                                 2021          2020          

2019

Net cash provided by operating activities    $  584.0      $  472.5      $  367.2
Net cash used in investing activities        $ (253.1)     $ (179.5)     $ (228.0)
Net cash used in financing activities        $ (168.1)     $ (137.1)     $  (36.8)



Net cash from operating activities

2021 compared to 2020
Net cash provided by operating activities increased by $111.5 million in 2021,
primarily due to improved operating results, offset by increases in working
capital and timing of tax payments in 2021.

2020 compared to 2019
Net cash provided by operating activities increased by $105.3 million in 2020,
primarily due to improved operating results and changes in assets and
liabilities.

Net cash used in investment activities

2021 vs. 2020 Net cash used in investing activities increased by $73.6 million in 2021, primarily due to increased capital expenditures in 2021 to meet customer demand.

2020 compared to 2019
Net cash used in investing activities decreased by $48.5 million in 2020,
primarily due to 2019 investing activities that did not recur in 2020, such as
our increase in Daikyo ownership and the acquisition of our South Korea
distributor in 2019. These reductions in investing activities were offset in
2020 by an increase in capital expenditures to support our increased customer
demands.

Net cash used in fundraising activities

2021 vs. 2020 Net cash used in financing activities increased by $31.0 million in 2021, primarily due to increased purchases under our share buyback program.

2020 compared to 2019
Net cash used in financing activities increased by $100.3 million in 2020,
primarily due to an increase in purchases under our share repurchases program
and given 2019 included new long-term borrowings while no such new borrowings
occurred in 2020.

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Cash and capital resources

The table below presents selected liquidity and capital measures as of:
($ in millions)                December 31, 2021       December 31, 2020
Cash and cash equivalents     $            762.6      $            615.5
Accounts receivable, net      $            489.0      $            385.3
Inventories                   $            378.4      $            321.3
Accounts payable              $            232.2      $            213.1
Debt                          $            253.0      $            255.2
Equity                        $          2,335.4      $          1,854.5
Working capital               $          1,147.9      $            870.3



Cash and cash equivalents include all instruments that have maturities of ninety
days or less when purchased. Working capital is defined as current assets less
current liabilities.

Cash and cash equivalents - Our cash and cash equivalents balance at
December 31, 2021 consisted of cash held in depository accounts with banks
around the world and cash invested in high-quality, short-term investments. The
cash and cash equivalents balance at December 31, 2021 included $422.0 million
of cash held by subsidiaries within the U.S. and $340.6 million of cash held by
subsidiaries outside of the U.S. In response to the 2017 Tax Act, we reevaluated
our position regarding permanent reinvestment of foreign subsidiary earnings and
profits through 2017 (with the exception of China and Mexico) and decided that
those profits were no longer permanently reinvested. As of January 1, 2018, we
reasserted indefinite reinvestment related to all post-2017 unremitted earnings
in all of our foreign subsidiaries. In general, it is our practice and intention
to permanently reinvest the earnings of our foreign subsidiaries and repatriate
earnings only when the tax impact is de minimis, and that position has not
changed subsequent to the one-time transition tax under the 2017 Tax Act, except
as noted above. Accordingly, no deferred taxes have been provided for
withholding taxes or other taxes that would result upon repatriation of
approximately $635.3 million of undistributed earnings from foreign subsidiaries
to the U.S., as those earnings continue to be permanently reinvested. Further,
it is impracticable for us to estimate any future tax costs for any unrecognized
deferred tax liabilities associated with our indefinite reinvestment assertion,
because the actual tax liability, if any, would be dependent on complex analysis
and calculations considering various tax laws, exchange rates, circumstances
existing when there is a repatriation, sale or liquidation, or other factors.

Working capital - Working capital at December 31, 2021 increased by $277.6
million, or 31.9%, as compared to December 31, 2020, which includes an
unfavorable foreign currency translation impact of $13.3 million. Excluding the
impact of currency exchange rates, cash and cash equivalents, accounts
receivable, inventories, and total current liabilities increased by $162.6
million, $121.0 million, $69.3 million, and $108.0 million, respectively. The
increase in accounts receivable was due to increased sales activity. The
increase in inventories that occurred in the period was to ensure we have
sufficient inventory on hand to support the needs of our customers. The increase
in total current liabilities was primarily due to increases in current debt,
accounts payable, accrued salaries, wages and benefits, accrued expenses, and
accrued rebates.

Debt and credit facilities – The $2.2 million decrease in total debt to
December 31, 2021compared to December 31, 2020resulted from debt repayments under our term loan.

Our sources of liquidity include our Credit Facility. At December 31, 2021, we
had no outstanding borrowings under the Credit Facility. At December 31, 2021,
the borrowing capacity available under the Credit Facility, including
outstanding letters of credit of $2.4 million, was $297.6 million. We do not
expect any significant limitations on our ability to access this source of
funds. Please refer to Note 10,   Debt  , for further discussion of our Credit
Facility.

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Pursuant to the financial covenants in our debt agreements, we are required to
maintain established interest coverage ratios and to not exceed established
leverage ratios. In addition, the agreements contain other customary covenants,
none of which we consider restrictive to our operations. At December 31, 2021,
we were in compliance with all of our debt covenants, and we expect to continue
to be in compliance with the terms of these agreements throughout 2022.

We believe that cash on hand and cash generated from operations, together with
availability under our Credit Facility, will be adequate to address our
foreseeable liquidity needs based on our current expectations of our business
operations, capital expenditures and scheduled payments of debt obligations to
continue to meet customer demand.

Commitments and contractual obligations

Contractual obligations associated with ongoing business activities are expected
to result in cash payments in future periods, and include the following material
items:

•Our business creates a need to enter into various commitments with suppliers,
including for the purchase of raw materials and finished goods. In accordance
with U.S. GAAP, these purchase obligations are not reflected in the accompanying
consolidated balance sheets. At December 31, 2021, our outstanding unconditional
contractual commitments, including for the purchase of raw materials and
finished goods, amounted to $93.6 million, of which $48.3 million is due to be
paid in 2022. These purchase commitments do not exceed our projected
requirements and are in the normal course of business. The Company previously
entered into a material supply agreement for butyl polymers used as a principal
raw material in a broad range of the Company's polymer-based pharmaceutical
packaging products.

• Our long-term debt securities, net of unamortized debt issuance costs, including fixed and floating rate debt securities described in more detail in Note 10, Debt

.

•Our operating leases obligations primarily related to land, buildings, and
machinery and equipment, with lease terms through 2047 further discussed in Note
6,   Leases  .

CRITICAL ACCOUNTING ESTIMATES

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

Impairment of Long-Lived Assets: Long-lived assets, including property, plant
and equipment and operating lease right-of-use assets, are tested for impairment
whenever circumstances, such as a deterioration in general macroeconomic
conditions or a change in company strategy, increased competition, declining
product demand, plans to dispose of an asset or asset group, or recent financial
or legal factors that could impact the expected cash flows, indicate that the
carrying value of these assets may not be recoverable. An asset is considered
impaired if the carrying value of the asset exceeds the sum of the future
expected undiscounted cash flows to be derived from the asset. Impairment
reviews are based on an estimated future cash flow approach that requires
significant judgment with respect to future revenue and expense growth rates,
selection of appropriate discount rate, asset groupings, and other assumptions
and estimates. The Company uses estimates that are consistent with its business
plans and a market participant view of the assets being evaluated. Once an asset
is considered impaired, an impairment loss is recorded within other expense
(income) for the difference between the asset's carrying value and its fair
value. For assets held and used in the business, management determines fair
value using estimated future cash flows to be derived from the asset, discounted
to a net present value using an appropriate discount rate. For assets held for
sale or for investment purposes, management determines fair value by estimating
the proceeds to be received upon sale of the asset, less disposition costs.

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Impairment of Goodwill and Other Intangible Assets: Goodwill is tested for
impairment at least annually, following the completion of our annual budget and
long-range planning process, or whenever circumstances indicate that the
carrying value of these assets may not be recoverable. Goodwill is tested for
impairment at the reporting unit level, which is the same as, or one level
below, our operating segments. A goodwill impairment charge represents the
amount by which a reporting unit's carrying amount exceeds its fair value, not
to exceed the total amount of goodwill allocated to that reporting unit.
Considerable management judgment is necessary to estimate fair value. Amounts
and assumptions used in our goodwill impairment test, such as future sales,
future cash flows and long-term growth rates, are consistent with internal
projections and operating plans. Amounts and assumptions used in our goodwill
impairment test are also largely dependent on the continued sale of drug
products delivered by injection and the packaging of drug products, as well as
our timeliness and success in new-product innovation or the development and
commercialization of proprietary multi-component systems. Changes in the
estimate of fair value, including the estimate of future cash flows, could have
a material impact on our future results of operations and financial position.
Accounting guidance also allows entities to first assess qualitative factors,
including macroeconomic conditions, industry and market considerations, cost
factors, and overall financial performance, to determine whether it is necessary
to perform the quantitative goodwill impairment test. We elected to follow this
guidance for our annual impairment test. Based upon our assessment, we
determined that it was not more likely than not that the fair value of each of
our reporting units was less than its carrying amount and determined that it was
not necessary to perform the quantitative goodwill impairment test.

Definite life intangible assets are amortized on a straight-line basis over their estimated useful lives and are tested for impairment when circumstances indicate that the carrying value of these assets may not be be recoverable.

Employee Benefits: We maintain funded and unfunded defined benefit pension plans
in the U.S. and a number of other countries that cover employees who meet
eligibility requirements. In addition, we sponsor postretirement benefit plans
which provide healthcare benefits for eligible employees who retire or become
disabled. Postretirement benefit plans are limited to only those active
employees who met the eligibility requirements as of January 1, 2017. The
measurement of annual cost and obligations under these defined benefit pension
and postretirement plans are subject to a number of assumptions, which are
specific for each of our U.S. and foreign plans. The assumptions, which are
reviewed at least annually, are relevant to both the plan assets (where
applicable) and the obligation for benefits that will ultimately be provided to
our employees. Two of the most critical assumptions in determining pension
expense are the discount rate and expected long-term rate of return on plan
assets. Other assumptions reflect demographic factors such as retirement age,
rates of compensation increases, mortality and turnover, and are evaluated
periodically and updated to reflect our actual experience. For our funded plans,
we consider the current and expected asset allocations of our plan assets, as
well as historical and expected rates of return, in estimating the long-term
rate of return on plan assets. One of the most critical assumptions in
determining retiree mental plan expense is the discount rate. Under U.S. GAAP,
differences between actual and expected results are generally accumulated in
other comprehensive income (loss) as actuarial gains or losses and subsequently
amortized into earnings over future periods.

Changes in key assumptions could have a material impact on our future results of
operations and financial position. We estimate that every 25-basis point
reduction in our long-term rate of return assumption would increase pension
expense by $0.7 million, and every 25-basis point reduction in our discount rate
would decrease pension expense by $0.0 million. A decrease in the discount rate
increases the present value of benefit obligations. Our net pension underfunded
balance at December 31, 2021 was $20.6 million, compared to $40.8 million at
December 31, 2020. Our underfunded balance for other postretirement benefits was
$5.6 million at December 31, 2021, compared to $6.1 million at December 31,
2020.







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Income Taxes: We estimate income taxes payable based upon current domestic and
international tax legislation. In addition, deferred income taxes are recognized
by applying enacted statutory tax rates to tax loss carryforwards and temporary
differences between the tax basis and financial statement carrying values of our
assets and liabilities. The enacted statutory tax rate applied is based on the
rate expected to be applicable at the time of the forecasted utilization of the
loss carryforward or reversal of the temporary difference. Valuation allowances
on deferred tax assets are established when it is more likely than not that all
or a portion of a deferred tax asset will not be realized. The realizability of
deferred tax assets is subject to our estimates of future taxable income,
generally at the respective subsidiary company and country level. Changes in tax
legislation, business plans and other factors may affect the ultimate
recoverability of tax assets or final tax payments, which could result in
adjustments to tax expense in the period such change is determined.

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

Please refer to Note 1, Basis of presentation and summary of significant accounting policies and Note 2, New accounting standards, to our consolidated financial statements for additional information on our significant accounting policies and accounting standards issued but not yet adopted.

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