10-Q 1 wst-20240331.htm 10-Q wst-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to

Commission File Number 1-8036

WEST PHARMACEUTICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania23-1210010
 (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
530 Herman O. West Drive, Exton, PA
19341-1147
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: 610-594-2900
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.25 per shareWSTNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          Yes No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                      Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                                                     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No 
As of April 18, 2024, there were 72,843,157 shares of the registrant’s common stock outstanding.


TABLE OF CONTENTS
  Page
 
ITEM 1. 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
   
 
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 5.
ITEM 6.
   

2

PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions, except per share data)

 Three Months Ended
March 31,
 20242023
Net sales$695.4 $716.6 
Cost of goods and services sold465.2 445.3 
Gross profit230.2 271.3 
Research and development17.6 17.1 
Selling, general and administrative expenses86.7 86.0 
Other expense (income) (Note 14)3.1 12.9 
Operating profit122.8 155.3 
Interest expense1.6 2.2 
Interest income(6.2)(4.8)
Income before income taxes and equity in net income of affiliated companies127.4 157.9 
Income tax expense16.4 23.6 
Equity in net income of affiliated companies(4.3)(5.7)
Net income$115.3 $140.0 
Net income per share: 
Basic$1.57 $1.88 
Diluted$1.55 $1.85 
Weighted average shares outstanding:  
Basic73.5 74.5 
Diluted74.3 75.7 

See accompanying notes to condensed consolidated financial statements.
3

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions)
 Three Months Ended
March 31,
 20242023
Net income$115.3 $140.0 
Other comprehensive (loss) income, net of tax: 
Foreign currency translation adjustments, net of tax of $1.0 and $0.2
(46.3)15.3 
Defined benefit pension and other postretirement plan adjustments, net of tax of $0.0 and $(0.2)
(0.2)(0.5)
Net loss on equity affiliate accumulated other comprehensive income, net of tax of $0.0 and $0.0
(0.1) 
Net loss on derivatives, net of tax of $(0.7) and $(0.1)
(1.9)(0.2)
Other comprehensive (loss) income, net of tax:(48.5)14.6 
Comprehensive income$66.8 $154.6 

See accompanying notes to condensed consolidated financial statements.
4

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions, except per share data)
 March 31,
2024
December 31,
2023
ASSETS  
Current assets:  
Cash and cash equivalents$601.8 $853.9 
Accounts receivable, net524.0 512.0 
Inventories429.9 434.7 
Other current assets137.2 135.8 
Total current assets1,692.9 1,936.4 
Property, plant and equipment2,791.3 2,738.0 
Less: accumulated depreciation and amortization1,342.7 1,324.7 
Property, plant and equipment, net1,448.6 1,413.3 
Operating lease right-of-use assets96.8 99.2 
Investments in affiliated companies202.5 210.0 
Goodwill107.6 108.5 
Intangible assets, net13.9 15.1 
Deferred income taxes21.0 25.7 
Other noncurrent assets19.0 21.3 
Total Assets$3,602.3 $3,829.5 
LIABILITIES AND EQUITY  
Current liabilities:  
Notes payable and other current debt$133.4 $134.0 
Accounts payable240.1 242.4 
Accrued salaries, wages and benefits66.5 105.9 
Income taxes payable16.8 16.6 
Operating lease liabilities18.0 17.7 
Other current liabilities173.6 155.2 
Total current liabilities648.4 671.8 
Long-term debt72.8 72.8 
Deferred income taxes12.7 12.7 
Pension and other postretirement benefits28.9 29.6 
Long-term operating lease liabilities82.4 84.5 
Deferred compensation benefits18.6 18.6 
Other long-term liabilities57.9 58.5 
Total Liabilities921.7 948.5 
Commitments and contingencies (Note 16)
Equity:
Preferred stock, 3.0 million shares authorized; 0 shares issued and outstanding
  
Common stock, par value $0.25 per share; 200.0 million shares authorized; shares issued: 75.3 million as of March 31, 2024 and December 31, 2023, respectively; shares outstanding: 73.0 million and 73.5 million as of March 31, 2024 and December 31, 2023, respectively
18.8 18.8 
Capital in excess of par value55.2 120.2 
Retained earnings3,624.1 3,523.4 
Accumulated other comprehensive loss(192.3)(143.8)
Treasury stock, at cost (2.3 million and 1.8 million shares)
(825.2)(637.6)
Total Equity2,680.6 2,881.0 
Total Liabilities and Equity$3,602.3 $3,829.5 
See accompanying notes to condensed consolidated financial statements.

5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions)
 Three Months Ended
March 31,
 20242023
Cash flows from operating activities:  
Net income$115.3 $140.0 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation34.7 30.7 
Amortization0.9 0.9 
Stock-based compensation5.0 8.5 
Loss on disposal of plant 9.4 
Asset impairments0.6 1.9 
Other non-cash items, net(3.7)(6.5)
Changes in assets and liabilities
(34.6)(46.8)
Net cash provided by operating activities118.2 138.1 
Cash flows from investing activities:  
Capital expenditures(90.6)(82.1)
Net cash used in investing activities(90.6)(82.1)
Cash flows from financing activities:  
Repayments of long-term debt(0.6)(0.6)
Dividend payments(14.7)(14.1)
Proceeds from stock-based compensation awards14.8 13.5 
Employee stock purchase plan contributions2.0 1.8 
Shares purchased under share repurchase program(267.0)(60.1)
Shares repurchased for employee tax withholdings(5.4)(11.5)
Other, net(0.1) 
Net cash used in financing activities(271.0)(71.0)
Effect of exchange rates on cash(8.7)7.0 
Net decrease in cash and cash equivalents(252.1)(8.0)
Cash, including cash equivalents at beginning of period853.9 894.3 
Cash, including cash equivalents at end of period$601.8 $886.3 

See accompanying notes to condensed consolidated financial statements.
6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1:  Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation: The condensed consolidated financial statements included in this report are unaudited and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting and U.S. Securities and Exchange Commission (“SEC”) regulations. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, these financial statements include all adjustments, which are of a normal recurring nature, necessary for a fair statement of the financial position, results of operations, cash flows and the change in equity for the periods presented. The condensed consolidated financial statements for the three months ended March 31, 2024, should be read in conjunction with the consolidated financial statements and notes thereto of West Pharmaceutical Services, Inc. and its majority-owned subsidiaries (which may be referred to as “West,” the “Company,” “we,” “us” or “our”) appearing in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”). The results of operations for any interim period are not necessarily indicative of results for the full year.

Note 2:  New Accounting Standards

Standards Issued Not Yet Adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued guidance that seeks to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendment enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. We are currently evaluating the impact of this guidance on our financial statements and disclosures. The Company does not expect such adoption to cause a material impact to the consolidated financial statements and disclosures.

In December 2023, the FASB issued guidance that seeks to enhance income tax disclosures to provide information to better assess how an entity's operations and related tax risks affect its tax rate and prospects for future cash flows. Within the income tax rate reconciliation, the amendment requires disclosure of additional categories and greater detail about individual reconciling items over a specified threshold. It also requires information pertaining to taxes paid to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions over a specified threshold. This guidance is effective for fiscal years beginning after December 15, 2024. We are currently evaluating the impact of this guidance on our financial statements and disclosures, but we expect adoption will cause a significant impact to our Income Taxes footnote disclosure.


Note 3:  Revenue

Our revenue results from the sale of goods or services and reflects the consideration to which we expect to be entitled in exchange for those goods or services. We record revenue based on a five-step model, in accordance with Accounting Standards Codification (“ASC”) 606. Following the identification of a contract with a customer, we identify the performance obligations (goods or services) in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize the revenue when (or as) we satisfy the performance obligations by transferring the promised goods or services to our customers. A good or service is transferred when (or as) the customer obtains control of that good or service.

7

The following table presents the approximate percentage of our net sales by market group:
Three Months Ended
March 31,
20242023
Biologics
37 %
34 %
Generics
 18 %
20 %
Pharma
25 %
27 %
Contract-Manufactured Products
20 %
19 %
100 %
100 %

The following table presents the approximate percentage of our net sales by product category:
Three Months Ended
March 31,
20242023
High-Value Product Components
47 %
51 %
High-Value Product Delivery Devices
11 %
7 %
Standard Packaging
22 %
23 %
Contract-Manufactured Products
20 %
19 %
100 %
100 %

Due to the Company's reassessment of product categories, beginning in the second quarter of 2023, certain product types have been moved from High-Value Product Components to High-Value Product Delivery Devices. No adjustments were made to the product categorization prior to the second quarter of 2023.

The following table presents the approximate percentage of our net sales by geographic location:
Three Months Ended
March 31,
20242023
Americas
43 %
44 %
Europe, Middle East, Africa
48 %
47 %
Asia Pacific
9 %
9 %
100 %
100 %














8

Contract Assets and Liabilities

The following table summarizes our contract assets and liabilities, excluding amounts included in accounts receivable, net:
($ in millions)
Contract assets, December 31, 2023$21.5 
Contract assets, March 31, 2024
19.9 
Change in contract assets - (decrease) increase$(1.6)
Deferred income, December 31, 2023$(53.9)
Deferred income, March 31, 2024
(57.9)
Change in deferred income - (increase) decrease$(4.0)

Contract assets are included within other current assets and deferred income is included within other current liabilities and other long-term liabilities. During the three months ended March 31, 2024, $15.5 million of revenue was recognized that was included in deferred income at the beginning of the year.

The majority of the performance obligations within our contracts are satisfied within one year or less. Performance obligations satisfied beyond one year include those relating to a nonrefundable customer payment of $20.0 million received in June 2013 in return for the exclusive use of the SmartDose® technology platform within a specific therapeutic area. As of March 31, 2024, there was $1.9 million of deferred income related to this payment, of which $0.9 million was included in other current liabilities and $1.0 million was included in other long-term liabilities. The deferred income is being recognized as income on a straight-line basis over the remaining term of the agreement. The agreement does not include a future minimum purchase commitment from the customer.

Note 4:  Net Income Per Share

The following table reconciles the shares used in the calculation of basic net income per share to those used for diluted net income per share:
Three Months Ended
March 31,
(in millions)20242023
Net income$115.3 $140.0 
Weighted average common shares outstanding73.5 74.5 
Dilutive effect of equity awards, based on the treasury stock method
0.8 1.2 
Weighted average shares assuming dilution74.3 75.7 

During the three months ended March 31, 2024 and 2023, there were 0.2 million and 0.3 million shares, respectively, from stock-based compensation plans not included in the computation of diluted net income per share because their impact was antidilutive.

In February 2023, the Board of Directors approved a share repurchase program under which we may repurchase up to $1.0 billion in shares of common stock. The share repurchase program does not have an expiration date under which we may repurchase common stock on the open market or in privately-negotiated transactions. The number of shares to be repurchased and the timing of such transactions will depend on a variety of factors, including market conditions.

During the three months ended March 31, 2024, we purchased 729,679 shares of our common stock under the program at a cost of $267.0 million, or an average price of $365.87 per share.
9


During the three months ended March 31, 2023, we purchased 183,360 shares of our common stock under the program at a cost of $60.1 million, or an average price of $327.90 per share.

Note 5:  Inventories

Inventories are valued at the lower of cost (on a first-in, first-out basis) or net realizable value. Inventory balances were as follows:
($ in millions)March 31,
2024
December 31,
2023
Raw materials$174.0 $172.3 
Work in process81.6 87.3 
Finished goods174.3 175.1 
 $429.9 $434.7 

Note 6:  Leases

A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: 1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment); and 2) the customer has the right to control the use of the identified asset. Lease payments included in the measurement of the operating lease right-of-use assets and lease liabilities are comprised of fixed payments (including in-substance fixed payments), variable payments that depend on an index or rate, and the exercise price of a lessee option to purchase the underlying asset if the lessee is reasonably certain to exercise.

The components of lease expense were as follows:
Three Months Ended
March 31,
($ in millions)20242023
Operating lease cost$5.6 $5.9 
Short-term lease cost0.5 1.3 
Variable lease cost1.9 1.7 
Total lease cost$8.0 $8.9 

Supplemental cash flow information related to leases was as follows:
Three Months Ended
March 31,
($ in millions)20242023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$5.3 $4.9 
Right-of-use assets obtained in exchange for new operating lease liabilities$4.2 $0.6 

As of March 31, 2024 and December 31, 2023, the weighted average remaining lease term for operating leases was 9.4 years and 9.8 years, respectively.

As of March 31, 2024 and December 31, 2023, the weighted average discount rate was 3.55% and 3.55%, respectively.

10

Maturities of operating lease liabilities were as follows:
($ in millions)March 31,December 31,
Year20242023
2024 (remaining period as of)$16.0 $20.9 
202519.5 18.7 
202616.5 15.7 
202711.9 11.2 
202810.1 9.5 
Thereafter41.7 42.1 
115.7 118.1 
Less: imputed lease interest(15.3)(15.9)
Total lease liabilities$100.4 $102.2 

Note 7:  Affiliated Companies

At March 31, 2024 and December 31, 2023, the aggregate carrying amount of our investment in affiliated companies that are accounted for under the equity method was $195.9 million and $203.2 million, respectively, and the aggregate carrying amount of our investment in affiliated companies that are not accounted for under the equity method was $6.6 million and $6.8 million at March 31, 2024 and December 31, 2023, respectively. We have elected to record these investments, for which fair value was not readily determinable, at cost, less impairment, adjusted for subsequent observable price changes. We test these investments for impairment whenever circumstances indicate that the carrying value of the investments may not be recoverable.

Our purchases from, and royalty payments made to, affiliates totaled $28.6 million for the three months ended March 31, 2024, as compared to $44.2 million for the same period in 2023. As of March 31, 2024 and December 31, 2023, the payable balance due to affiliates was $26.7 million and $25.9 million, respectively. The majority of these transactions related to a distributorship agreement with Daikyo Seiko, LTD ("Daikyo") that allows us to purchase and re-sell Daikyo products.

Sales to affiliates were $3.2 million for the three months ended March 31, 2024, as compared to $3.3 million for the same period in 2023. As of March 31, 2024 and December 31, 2023, the receivable balance due from affiliates was $2.1 million and $1.6 million, respectively.

Note 8:  Debt

The following table summarizes our long-term debt obligations, net of unamortized debt issuance costs and current maturities. The interest rates shown in parentheses are as of March 31, 2024.
($ in millions)March 31,
2024
December 31,
2023
Term Loan, due December 31, 2024 (6.28%)
$80.4 $81.0 
Series B notes, due July 5, 2024 (3.82%)
53.0 53.0 
Series C notes, due July 5, 2027 (4.02%)
73.0 73.0 
206.4 207.0 
Less: unamortized debt issuance costs for Term Loan and Series Notes0.2 0.2 
Total debt206.2 206.8 
Less: current portion of long-term debt133.4 134.0 
Long-term debt, net$72.8 $72.8 

11

Credit Facility

At March 31, 2024, the borrowing capacity available under our $500.0 million multi-currency revolving credit facility, including outstanding letters of credit of $2.4 million, was $497.6 million.

Term Loan

At March 31, 2024, we had $80.4 million in borrowings under the Term Loan, of which $80.4 million was classified as current. Please refer to Note 9, Derivative Financial Instruments, for a discussion of the foreign currency hedge associated with the Term Loan.

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 March 31, 2024, we were in compliance with all of our debt covenants.

Note 9:  Derivative Financial Instruments

Our ongoing business operations expose us to various risks, such as fluctuating interest rates, foreign currency exchange rates and increasing commodity prices. To manage these market risks, we periodically enter into derivative financial instruments, such as interest rate swaps, options and foreign exchange contracts for periods consistent with, and for notional amounts equal to or less than, the related underlying exposures. We do not purchase or hold any derivative financial instruments for investment or trading purposes. All derivatives are recorded in our condensed consolidated balance sheet at fair value.

Foreign Exchange Rate Risk

We have entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany loans. As of both March 31, 2024 and December 31, 2023, the total amount of these forward exchange contracts was Singapore Dollar ("SGD") 601.5 million and $13.4 million. We have also entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany demand notes which were executed in June 2023. As of both March 31, 2024 and December 31, 2023, the total amount of these forward exchange contracts was Euro ("EUR") 278.6 million and SGD 94.0 million. We have also entered into a forward exchange contract, designated as a fair value hedge, to manage our exposure to fluctuating foreign exchange rates on a cross-currency intercompany demand note which was executed in February 2024. As of March 31, 2024, the total amount of this forward exchange contract was $175.0 million.

12




In addition, we have entered into several foreign currency contracts, designated as cash flow hedges, for periods of up to eighteen months, intended to hedge the currency risk associated with a portion of our forecasted transactions denominated in foreign currencies. As of March 31, 2024, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:
(in millions)Sell
CurrencyPurchaseUSDEURSGD
EUR25.9 28.6   
Yen6,006.8 28.8 13.0 1.1 
SGD40.1 14.7 14.2  

In December 2019, we entered into a cross-currency swap for $90 million, which we designated as a hedge of our net investment in Daikyo. As of March 31, 2024, the notional amount of the cross-currency swap was ¥8.8 billion ($80.4 million) and the swap termination date is December 31, 2024. Under the cross-currency swap, we receive floating interest rate payments based on USD compounded SOFR plus a margin, in return for paying floating interest rate payments based on Japanese Yen (“Yen”) Tokyo Overnight Average Rate ("TONAR") plus a margin. In addition, we receive periodic fixed payments of USD in return for paying fixed principal payments of Yen.

Commodity Price Risk

Many of our proprietary products are made from synthetic elastomers, which are derived from the petroleum refining process. We purchase the majority of our elastomers via long-term supply contracts, some of which contain clauses that provide for surcharges related to fluctuations in crude oil prices. The following economic hedges did not qualify for hedge accounting treatment since they did not meet the highly effective requirement at inception.

From November 2017 through March 2024, we purchased several series of call options for a total of 1,062,239 barrels of crude oil to mitigate our exposure to such oil-based surcharges and protect operating cash flows with regards to a portion of our forecasted elastomer purchases.

As of March 31, 2024, we had outstanding contracts to purchase 229,501 barrels of crude oil from March 2024 to September 2025, at a weighted-average strike price of $87.00 per barrel.

Effects of Derivative Instruments on Financial Position and Results of Operations

Please refer to Note 10, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of March 31, 2024 and December 31, 2023.

13

The following table summarizes the effects of derivative instruments designated as fair value hedges on the condensed consolidated statements of income:
Amount of Gain (Loss) Recognized in Income for the
Three Months Ended
March 31,
Location on Statement of Income
($ in millions)20242023
Fair Value Hedges:
Hedged item (intercompany loan)
$7.5 $2.5 Other expense (income)
Derivative designated as hedging instrument
(7.5)(2.5)Other expense (income)
Amount excluded from effectiveness testing
(1.8)1.2 Other expense (income)
Total$(1.8)$1.2 

We recognize in earnings the initial value of forward point components on a straight-line basis over the life of the fair value hedge. The expense recognized in earnings, pre-tax, for forward point components for the three months ended March 31, 2024 was $1.8 million. The income recognized in earnings, pre-tax, for forward point components for the three months ended March 31, 2023 was $1.2 million.

The following table summarizes the effects of derivative instruments designated as fair value, cash flow, and net investment hedges on other comprehensive income (“OCI”) and earnings, net of tax:
 Amount of Gain (Loss) Recognized in OCI for theAmount of (Gain) Loss Reclassified from Accumulated OCI into Income for theLocation of (Gain) Loss Reclassified from Accumulated OCI into Income
Three Months Ended
March 31,
Three Months Ended
March 31,
($ in millions)2024202320242023 
Fair Value Hedges:
Foreign currency hedge contracts$(0.3)$0.2 $ $ Other expense (income)
Total$(0.3)$0.2 $ $ 
Cash Flow Hedges:     
Foreign currency hedge contracts$0.1 $(0.1)$(0.1)$0.7 Net sales
Foreign currency hedge contracts(2.9)(1.0)1.2  Cost of goods and services sold
Forward treasury locks  0.1  Interest expense
Total$(2.8)$(1.1)$1.2 $0.7  
Net Investment Hedges:     
Cross-currency swap$4.6 $1.7 $ $ Other expense (income)
Total$4.6 $1.7 $ $  




14

Refer to the above table which summarizes the effects of derivative instruments designated as fair value hedges within the other expense (income) line in our condensed consolidated statements of income for the three months ended March 31, 2024 and 2023. The following table summarizes the effects of derivative instruments designated as cash flow and net investment hedges by line item in our condensed consolidated statements of income:
Three Months Ended
March 31,
($ in millions)20242023
Net sales$(0.1)$0.7 
Cost of goods and services sold1.2  
Interest expense0.1  

The following table summarizes the effects of derivative instruments not designated as hedges on the condensed consolidated statements of income:
Amount of Gain (Loss) Recognized in Income for the
Three Months Ended
March 31,
Location on Statement of Income
($ in millions)20242023
Commodity call options$0.1 $(0.6)Other expense (income)
Currency forwards0.4 0.0Other expense (income)
Total$0.5 $(0.6)

For the three months ended March 31, 2024 and 2023, there was no material ineffectiveness related to our hedges.

Note 10:  Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following fair value hierarchy classifies the inputs to valuation techniques used to measure fair value into one of three levels:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables present the assets and liabilities recorded at fair value on a recurring basis:

15

 Balance atBasis of Fair Value Measurements
($ in millions)March 31,
2024
Level 1Level 2Level 3
Assets:    
Deferred compensation assets$9.9 $9.9 $ $ 
Foreign currency contracts0.5  0.5  
Cross-currency swap22.5  22.5  
Commodity call options0.9  0.9  
 $33.8 $9.9 $23.9 $ 
Liabilities:    
Contingent consideration$3.7 $ $ $3.7 
Deferred compensation liabilities10.1 10.1   
Foreign currency contracts10.3  10.3  
 $24.1 $10.1 $10.3 $3.7 

 Balance atBasis of Fair Value Measurements
($ in millions)December 31,
2023
Level 1Level 2Level 3
Assets:    
Deferred compensation assets$10.2 $10.2 $ $ 
Foreign currency contracts5.0  5.0  
Cross-currency swap18.4  18.4  
Commodity call options0.6  0.6  
 $34.2 $10.2 $24.0 $ 
Liabilities:    
Contingent consideration$3.6 $ $ $3.6 
Deferred compensation liabilities10.4 10.4   
Foreign currency contracts2.2  2.2  
 $16.2 $10.4 $2.2 $3.6 




Deferred compensation assets are included within other noncurrent assets and are valued using a market approach based on quoted market prices in an active market. The fair value of our foreign currency contracts, included within other current and other noncurrent assets, as well as other current and other long-term liabilities, is valued using an income approach based on quoted forward foreign exchange rates and spot rates at the reporting date. The fair value of the cross-currency swap, included within other noncurrent assets, is valued using a market approach. Please refer to Note 9, Derivative Financial Instruments, for further discussion of our derivatives. The fair value of our commodity call options, included within other current and other noncurrent assets, is valued using a market approach. The fair value of the contingent consideration liability, within current and long-term liabilities, related to the SmartDose® technology platform (the “SmartDose® contingent consideration”) was initially determined using a probability-weighted income approach, and is revalued at each reporting date or more frequently if circumstances dictate. Changes in the fair value of this obligation are recorded as income or expense within other expense (income) in our condensed consolidated statements of income. The fair value of deferred compensation liabilities is based on quoted prices of the underlying employees’ investment selections and is included within other long-term liabilities.

16

Other Financial Instruments

We believe that the carrying amounts of our cash and cash equivalents and accounts receivable approximate their fair values due to their near-term maturities.

The estimated fair value of long-term debt is based on quoted market prices for debt issuances with similar terms and maturities and is classified as Level 2 within the fair value hierarchy. At March 31, 2024, the estimated fair value of long-term debt was $70.3 million compared to a carrying amount of $72.8 million. At December 31, 2023, the estimated fair value of long-term debt was $70.8 million and the carrying amount was $72.8 million.

Note 11: Accumulated Other Comprehensive Loss

The following table presents the changes in the components of accumulated other comprehensive income ("AOCI") (loss), net of tax, for the three months ended March 31, 2024:
($ in millions)DerivativesEquity affiliate investment AOCIDefined benefit
pension and other
postretirement plans
Foreign
currency
translation
Total
Balance, December 31, 2023$ $2.3 $(10.1)$(136.0)$(143.8)
Other comprehensive (loss) income before reclassifications(3.1)(0.1) (46.3)(49.5)
Amounts reclassified out from accumulated other comprehensive income (loss)1.2  (0.2) 1.0 
Other comprehensive (loss) income, net of tax(1.9)(0.1)(0.2)(46.3)(48.5)
Balance, March 31, 2024$(1.9)$2.2 $(10.3)$(182.3)$(192.3)


The following table presents the changes in the components of accumulated other comprehensive income ("AOCI") (loss), net of tax, for the three months ended March 31, 2023:
($ in millions)DerivativesEquity affiliate investment AOCIDefined benefit
pension and other
postretirement plans
Foreign
currency
translation
Total
Balance, December 31, 2022$0.2 $1.6 $(9.4)$(175.4)$(183.0)
Other comprehensive income (loss) before reclassifications(0.9) (0.2)15.3 14.2 
Amounts reclassified out from accumulated other comprehensive income (loss)0.7  (0.3) 0.4 
Other comprehensive income (loss), net of tax(0.2) (0.5)15.3 14.6 
Balance, March 31, 2023$ $1.6 $(9.9)$(160.1)$(168.4)


A summary of the reclassifications out of accumulated other comprehensive loss is presented in the following table:
17

($ in millions)Three Months Ended
March 31,
Location on Statement of Income
Detail of components20242023
(Losses) gains on derivatives:
Foreign currency contracts$0.1 $(0.7)Net sales
Foreign currency contracts(1.6) Cost of goods and services sold
Forward treasury locks(0.1)(0.1)Interest expense
Total before tax(1.6)(0.8)
Tax benefit0.4 0.1 
Net of tax$(1.2)$(0.7)
Amortization of defined benefit pension and other postretirement plans:
Actuarial gains0.3 0.4 (a)
Total before tax0.3 0.4 
Tax expense(0.1)(0.1)
Net of tax$0.2 $0.3 
Total reclassifications for the period, net of tax$(1.0)$(0.4)

(a) These components are included in the computation of net periodic benefit cost.
18

Note 12: Shareholders Equity

The following table presents the changes in shareholders’ equity for the three months ended March 31, 2024:
Common Shares IssuedCommon StockCapital in Excess of Par ValueNumber of Treasury SharesTreasury StockRetained earningsAccumulated other comprehensive lossTotal
(in millions)
Balance, December 31, 202375.3 $18.8 $120.2 1.8 $(637.6)$3,523.4 $(143.8)$2,881.0 
Net income— — — — — 115.3 — 115.3 
Activity related to stock-based compensation— — (65.0)(0.2)79.4 — — 14.4 
Shares purchased under share repurchase program— — — 0.7 (267.0)— — (267.0)
Dividends declared ($0.20 per share)
— — — — — (14.6)— (14.6)
Other comprehensive loss, net of tax— — — — — — (48.5)(48.5)
Balance, March 31, 202475.3 $18.8 $55.2 2.3 $(825.2)$3,624.1 $(192.3)$2,680.6 

The following table presents the changes in shareholders’ equity for the three months ended March 31, 2023:
Common Shares IssuedCommon StockCapital in Excess of Par ValueNumber of Treasury SharesTreasury StockRetained earningsAccumulated other comprehensive lossTotal
(in millions)
Balance, December 31, 202275.3 $18.8 $232.2 1.2 $(370.9)$2,987.8 $(183.0)$2,684.9 
Net income— — — — — 140.0 — 140.0 
Activity related to stock-based compensation— — (50.8)(0.3)61.8 — — 11.0 
Shares purchased under share repurchase program— — — 0.2 (60.1)— — (60.1)
Dividends declared ($0.19 per share)
— — — — — (14.2)— (14.2)
Other comprehensive income, net of tax— — — — — — 14.6 14.6 
Balance, March 31, 202375.3 $18.8 $181.4 1.1 $(369.2)$3,113.6 $(168.4)$2,776.2 

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Note 13: Stock-Based Compensation

The West Pharmaceutical Services, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Plan”) provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to employees and non-employee directors. A committee of the Board of Directors determines the terms and conditions of awards to be granted. Vesting requirements vary by award. At March 31, 2024, there were 1,357,302 shares remaining in the 2016 Plan for future grants.

During the three months ended March 31, 2024, we granted 84,140 stock options at a weighted average exercise price of $350.18 per share based on the grant-date fair value of our stock to employees under the 2016 Plan. The weighted average grant date fair value of options granted was $134.81 per share as determined by the Black-Scholes option valuation model using the following weighted average assumptions: a risk-free interest rate of 4.3%; expected life of 6.0 years based on prior experience; stock volatility of 32.0% based on historical data; and a dividend yield of 0.3%. Stock option expense is recognized over the vesting period, net of forfeitures.

During the three months ended March 31, 2024, we granted 32,424 stock-settled performance share unit ("PSU") awards at a weighted average grant-date fair value of $350.18 per share to eligible employees. These awards are earned based on the Company's performance against pre-established targets, including annual growth rate of revenue and return on invested capital, over a specified performance period. Depending on the achievement of the targets, recipients of stock-settled PSU awards are entitled to receive a certain numbers of shares of common stock. Shares earned under PSU awards may vary from 0% to 200% of an employee's targeted award. The fair value of stock-settled PSU awards is based on the market price of our stock at the grant date and is recognized as expense over the performance period, adjusted for estimated target outcomes and net of forfeitures.

During the three months ended March 31, 2024, we granted 6,571 stock-settled restricted share unit (“RSU”) awards at a weighted average grant-date fair value of $350.18 per share to eligible employees. These awards are earned over a specified performance period. The fair value of stock-settled RSU awards is based on the market price of our stock at the grant date and is recognized as expense over the vesting period, net of forfeitures.

Stock-based compensation expense was $5.0 million and $8.5 million for the three months ended March 31, 2024 and 2023, respectively.

20

Note 14:  Other Expense (Income)

Other expense (income) consists of:
Three Months Ended
March 31,
($ in millions)20242023
Loss on disposal of plant$ $9.4 
Foreign exchange transaction losses1.2 0.9 
Contingent consideration1.0 0.3 
Asset impairments0.6 1.9 
Other items0.3 0.4 
Total other expense (income)$3.1 $12.9 

Loss on Disposal of Plant

During the three months ended March 31, 2023, the Company recorded expense of $9.4 million within other expense (income), as a result of the sale of one of the Company's manufacturing facilities within the Proprietary Products segment. The transaction closed during the second quarter of 2023.

Contingent Consideration

Contingent consideration represents changes in the fair value of the SmartDose® contingent consideration. Please refer to Note 10, Fair Value Measurements, for additional details.

Restructuring and Related Charges

In December 2022, the Company approved a restructuring plan to adjust our operating cost base to better respond to the macroeconomic factors influencing our business. These changes are expected to be implemented over a period of up to twenty-four months from the date of approval. The plan is expected to require restructuring and related charges of approximately $22 million to $24 million, with annualized savings in the range of $22 million to $24 million.

The following table presents activity related to our restructuring obligations related to our 2022 restructuring plan:
($ in millions)Severance
and benefits
Other chargesTotal
Balance, December 31, 2023
$3.0 $ $3.0 
(Credits) charges   
Cash payments(0.3) (0.3)
Balance, March 31, 2024
$2.7 $ $2.7 










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Note 15:  Income Taxes

The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items.

The provision for income taxes was $16.4 million and $23.6 million for the three months ended March 31, 2024 and 2023, respectively, and the effective tax rate was 12.9% and 14.9%, respectively. The decrease in the effective tax rate is primarily due to a shift in the forecasted geographic earnings mix, offset by a decrease in the tax benefit related to stock-based compensation for the three months ended March 31, 2024, as compared to the same period in 2023. During the three months ended March 31, 2024 and 2023, we recorded a tax benefit of $10.9 million and $11.6 million, respectively, associated with stock-based compensation. The Company continues to address the change in tax laws enacted pursuant to the Organization for Economic Cooperation and Development (OECD)’s 15% global minimum tax initiative (Pillar 2). The 2024 forecasted impact of Pillar 2 is not expected to be material to the Company.

Note 16:  Commitments and Contingencies

From time to time, we are involved in product liability matters and other legal proceedings and claims generally incidental to our normal business activities. We accrue for loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. While the outcome of current proceedings cannot be accurately predicted, we believe their ultimate resolution should not have a material adverse effect on our business, financial condition, results of operations or liquidity.

There have been no significant changes to the commitments and contingencies included in our 2023 Annual Report.

Note 17:  Segment Information

Our business operations are organized into two reportable segments, Proprietary Products and Contract-Manufactured Products. Our Proprietary Products reportable segment offers proprietary packaging, containment solutions 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.

The Chief Operating Decision Maker ("CODM") evaluates 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 the CODM considers not representative of ongoing operations. Such items are referred to as other unallocated items and generally include restructuring and related charges, certain asset impairments and other specifically-identified income or expense items. The segment operating profit metric is what the CODM uses in evaluating our results of operations and the financial measure that provides a valuable insight into our overall performance and financial position.

The following table presents information about our reportable segments, reconciled to consolidated totals:
Three Months Ended
March 31,
($ in millions)20242023
Net sales:
Proprietary Products$559.5 $583.1 
Contract-Manufactured Products135.9 133.5 
Consolidated net sales$695.4 $716.6 
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The following table provides summarized financial information for our segments:
Three Months Ended
March 31,
($ in millions)20242023
Proprietary Products$126.3 $170.7 
Contract-Manufactured Products17.1 17.4 
Total business segment operating profit$143.4 $188.1 
Corporate and Unallocated
Stock-based compensation expense$(5.0)$(8.5)
Corporate general costs (1)
(15.4)(14.7)
Unallocated Items:
Loss on disposal of plant (2)
 (9.4)
Amortization of acquisition-related intangible assets (3)
(0.2)(0.2)
Total Corporate and Unallocated(20.6)(32.8)
Total consolidated operating profit$122.8 $155.3 
Interest (income) expense, net(4.6)(2.6)
Income before income taxes and equity in net income of affiliated companies$127.4 $157.9 

(1) Corporate general costs includes executive and director compensation, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments.

(2) During the three months ended March 31, 2023, the Company recorded expense of $9.4 million within other expense (income), as a result of the sale of one of the Company's manufacturing facilities within the Proprietary Products segment. The transaction closed during the second quarter of 2023.

(3) During the three months ended March 31, 2024 and 2023, we recorded $0.2 million of amortization expense within operating profit associated with an intangible asset acquired during the second quarter of 2020.

Please refer to Note 14, Other Expense (Income), for further discussion of certain unallocated items referenced above.

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

OVERVIEW

The following discussion is intended to further the reader’s understanding of the consolidated financial condition and results of operations of our Company. It should be read in conjunction with our condensed consolidated financial statements and accompanying notes elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”) as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and accompanying notes included in our 2023 Annual Report. Our historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks discussed in Part I, Item 1A of our 2023 Annual Report and in Part II, Item 1A of this Form 10-Q.

Throughout this section, references to “Notes” refer to the notes to our condensed consolidated financial statements (unaudited) in Part I, Item 1 of this Form 10-Q, unless otherwise indicated.
23



Non-U.S. GAAP Financial Measures

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

Our Operations

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

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

Macroeconomic Factors

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

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Financial Performance Summary

The following tables present a reconciliation from U.S. GAAP to non-U.S. GAAP financial measures:

($ in millions, except per share data)Operating ProfitIncome tax expenseNet incomeDiluted EPS
Quarter ended March 31, 2024 GAAP
$122.8 $16.4 $115.3 $1.55 
Unallocated items:
Amortization of acquisition-related intangible assets (1)
0.2 — 0.7 0.01 
Quarter ended March 31, 2024 adjusted amounts (non-U.S. GAAP)
$123.0 $16.4 $116.0 $1.56 

During the first quarter 2024, we recorded a tax benefit of $10.9 million associated with stock-based compensation.

($ in millions, except per share data)Operating ProfitIncome tax expenseNet incomeDiluted EPS
Quarter ended March 31, 2023 GAAP
$155.3 $23.6 $140.0 $1.85 
Unallocated items:
Amortization of acquisition-related intangible assets (1)
0.2— 0.70.01 
Loss on disposal of plant (2)
9.4— 9.40.12 
Quarter ended March 31, 2023 adjusted amounts (non-U.S. GAAP)
$164.9 $23.6 $150.1 $1.98 
    

During the first quarter 2023, we recorded a tax benefit of $11.6 million associated with stock-based compensation.

(1)During the three months ended March 31, 2024 and 2023, the Company recorded $0.2 million of amortization expense within operating profit associated with an intangible asset acquired during the second quarter of 2020. During the three months ended March 31, 2024 and 2023, the Company recorded $0.5 million of amortization expense in association with an acquisition of increased ownership interest in Daikyo.

(2)During the three months ended March 31, 2023, the Company recorded expense of $9.4 million within other expense (income), as a result of the sale of one of the Company's manufacturing facilities within the Proprietary Products segment. The transaction closed during the second quarter of 2023.















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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 the Results of Operations section may reflect rounding adjustments.

Net Sales

The following table presents net sales, consolidated and by reportable segment, for the three months ended March 31, 2024 and 2023:
Three Months Ended
March 31,
Percentage Change
($ in millions)20242023As-ReportedOrganic
Proprietary Products$559.5 $583.1 (4.0)%(4.0)%
Contract-Manufactured Products135.9 133.5 1.8 %1.3 %
Consolidated net sales$695.4 $716.6 (3.0)%(3.0)%

Consolidated net sales decreased by $21.2 million, or 3.0%, for the three months ended March 31, 2024, as compared to the same period in 2023, including a favorable foreign currency translation impact of $3.4 million. Excluding foreign currency translation effects and removal of the 2023 sales impact related to one of our plants that was disposed of in the second quarter of 2023 of $3.2 million, consolidated net sales for the three months ended March 31, 2024 decreased by $21.4 million, or 3.0%, as compared to the same period in 2023.

Proprietary Products – Proprietary Products net sales decreased by $23.6 million, or 4.0%, for the three months ended March 31, 2024, as compared to the same period in 2023, including a favorable foreign currency translation impact of $2.8 million. Excluding foreign currency translation effects and removal of the 2023 sales impact related to one of our plants that was disposed of in the second quarter of 2023 of $3.2 million, net sales for the three months ended March 31, 2024 decreased by $23.2 million, or 4.0%, as compared to the same period in 2023, primarily due to a decline in sales of certain high-value product offerings, primarily FluroTec® products, Westar® components and a decrease in the sales of standard components. These reductions were partially offset by an increase in sales of NovaPure® products, self-injection device platforms and Daikyo Crystal Zenith® components, as well as increased sales prices.

Contract-Manufactured Products – Contract-Manufactured Products net sales increased by $2.4 million, or 1.8%, for the three months ended March 31, 2024, as compared to the same period in 2023, including a favorable foreign currency translation impact of $0.6 million. Excluding foreign currency translation effects, net sales for the three months ended March 31, 2024 increased by $1.8 million, or 1.3%, as compared to the same period in 2023, primarily due to an increase in sales of components associated with diagnostic devices and increased sales prices.








26




Gross Profit

The following table presents gross profit and related gross profit margins, consolidated and by reportable segment:
Three Months Ended
March 31,
($ in millions)20242023
Proprietary Products:
Gross profit$207.1 $247.8 
Gross profit margin37.0 %42.5 %
Contract-Manufactured Products:  
Gross profit$23.1 $23.5 
Gross profit margin17.0 %17.6 %
Consolidated gross profit$230.2 $271.3 
Consolidated gross profit margin33.1 %37.9 %

Consolidated gross profit decreased by $41.1 million, or 15.1%, for the three months ended March 31, 2024, as compared to the same period in 2023, including a favorable foreign currency translation impact of $1.3 million for the three months ended March 31, 2024, as compared to the same period in 2023. Consolidated gross profit margin decreased by 4.8 margin points for the three months ended March 31, 2024, as compared to the same period in 2023.

Proprietary Products - Proprietary Products gross profit decreased by $40.7 million, or 16.4%, for the three months ended March 31, 2024, as compared to the same period in 2023, including a favorable foreign currency translation impact of $1.2 million. Proprietary Products gross profit margin decreased by 5.5 margin points for the three months ended March 31, 2024, as compared to the same periods in 2023, due to lower sales volume and an unfavorable mix of products sold. These headwinds were partially offset by increased sales prices.

Contract-Manufactured Products - Contract-Manufactured Products gross profit decreased by $0.4 million, or 1.7%, for the three months ended March 31, 2024, as compared to the same period in 2023, including a favorable foreign currency translation impact of $0.1 million. Contract-Manufactured Products gross profit margin decreased by 0.6 margin points for the three months ended March 31, 2024, as compared to the same period in 2023, due to inflationary pressures, primarily within compensation costs, and unfavorable mix of product sold. These headwinds were partially offset by increased sales prices.

Research and Development (“R&D”) Costs

The following table presents consolidated R&D costs:
Three Months Ended
March 31,
($ in millions)20242023
Consolidated R&D costs$17.6 $17.1 

Consolidated R&D costs increased by $0.5 million, or 2.9%, for the three months ended March 31, 2024, as compared to the same period in 2023, due to additional research performed to identify new product opportunities. Efforts remain focused on the continued investment in elastomeric packaging components, formulation development, drug containment systems, self-injection systems and drug administration consumables.

27

All of the R&D costs incurred during the three months ended March 31, 2024 and 2023 related to Proprietary Products.

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

The following table presents SG&A costs, consolidated and by reportable segment and corporate and unallocated items:
Three Months Ended
March 31,
($ in millions)20242023
Proprietary Products$60.7 $56.5 
Contract-Manufactured Products6.2 6.0 
Corporate and unallocated items19.8 23.5 
Consolidated SG&A costs$86.7 $86.0 
SG&A as a % of net sales12.5 %12.0 %

Consolidated SG&A costs increased by $0.7 million, or 0.8%, for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to an increase in costs related to professional services and increased compensation costs, offset by a decrease in expense related to stock-based compensation.

Proprietary Products - Proprietary Products SG&A costs increased by $4.2 million, or 7.4%, for the three months ended March 31, 2024, as compared to the same period in 2023. Proprietary Products SG&A costs increased primarily due to an increase in costs related to professional services and increased compensation costs.

Contract-Manufactured Products - Contract-Manufactured Products SG&A costs increased by $0.2 million, or 3.3% for the three months ended March 31, 2024, as compared to the same period in 2023.

Corporate and unallocated items - Corporate SG&A costs decreased by $3.7 million, or 15.7%, for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to a decrease in expense related to stock-based compensation, offset by increased compensation costs.

Other Expense (Income)

The following table presents other income and expense items, consolidated and by reportable segment, corporate and unallocated items:
Expense (Income)Three Months Ended
March 31,
($ in millions)20242023
Proprietary Products$2.5 $3.5 
Contract-Manufactured Products(0.2)0.1 
Corporate and unallocated items0.8 9.3 
Consolidated other expense (income)$3.1 $12.9 

Other expense and income items consist of a loss on disposal of plant, asset impairments, foreign exchange transaction gains and losses, contingent consideration and miscellaneous income and charges.

Consolidated other expense (income) changed by $9.8 million for the three months ended March 31, 2024, as compared to the same period in 2023, due to the factors described below.

28

Proprietary Products - Proprietary Products other expense (income) changed by $1.0 million for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to additional asset impairments being recorded in the three months ended March 31, 2023, as compared to the same period in 2024.

Contract-Manufactured Products - Contract-Manufactured Products other expense (income) changed by $0.3 million for the three months ended March 31, 2024, as compared to the same period in 2023.

Corporate and unallocated items - Corporate and unallocated other expense (income) changed by $8.5 million for the three months ended March 31, 2024, as compared to the same periods in 2023, primarily due to the Company recording expense of $9.4 million as a result of the sale of one of the Company’s manufacturing facilities within the Proprietary Products segment in the three months ended March 31, 2023 that did not repeat in 2024.

Operating Profit

The following table presents operating profit and adjusted operating profit, consolidated and by reportable segment, corporate and unallocated items:
Three Months Ended
March 31,
($ in millions)20242023
Proprietary Products$126.3 $170.7 
Contract-Manufactured Products17.1 17.4 
Corporate and unallocated(20.6)(32.8)
Consolidated operating profit$122.8 $155.3 
Consolidated operating profit margin17.7 %21.7 %
Unallocated items0.2 9.6 
Adjusted consolidated operating profit (non-U.S. GAAP)$123.0 $164.9 
Adjusted consolidated operating profit margin (non-U.S. GAAP)17.7 %23.0 %

Consolidated operating profit decreased by $32.5 million, or 20.9%, for the three months ended March 31, 2024, as compared to the same period in 2023, including a favorable foreign currency translation impact of $1.2 million for the three months ended March 31, 2024, as compared to the same period in 2023.

Proprietary Products - Proprietary Products operating profit decreased by $44.4 million, or 26.0%, for the three months ended March 31, 2024, as compared to the same period in 2023, including a favorable foreign currency translation impact of $1.1 million, due to the factors described above, most notably lower gross profit driven by lower sales volume and an unfavorable mix of products sold.

Contract-Manufactured Products - Contract-Manufactured Products operating profit decreased by $0.3 million, or 1.7%, for the three months ended March 31, 2024, as compared to the same period in 2023, including a favorable foreign currency translation impact of $0.1 million, due to the factors described above, most notably increased labor costs that were driven by inflation.

Corporate and unallocated - Excluding the unallocated items, Corporate costs decreased by $2.8 million, or 12.1%, for the three months ended March 31, 2024, as compared to the same period in 2023, due to the factors described above.

For unallocated items, please refer to the Financial Performance Summary section above for details.

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Interest Expense, Net

The following table presents interest expense, net, by significant component:
Three Months Ended
March 31,
($ in millions)20242023
Interest expense$3.6 $3.3 
Capitalized interest(2.0)(1.1)
Interest expense, net$1.6 $2.2 
Interest income$(6.2)$(4.8)
Interest expense, net, decreased $0.6 million for the three months ended March 31, 2024, as compared to the same period in 2023, due to an increase in capitalized interest, offset by higher interest rates compared to the prior year.

Interest income increased by $1.4 million for the three months ended March 31, 2024, as compared to the same period in 2023, due primarily from 2024 investments in liquid low-risk money market funds or bank deposits in the U.S., Europe, and South America yielding higher interest rates compared to 2023.

Income Tax Expense

The provision for income taxes was $16.4 million and $23.6 million for the three months ended March 31, 2024 and 2023, respectively, and the effective tax rate was 12.9% and 14.9%, respectively. The decrease in the effective tax rate is primarily due to a shift in the forecasted geographic earnings mix, offset by a decrease in the tax benefit related to stock-based compensation for the three months ended March 31, 2024, as compared to the same period in 2023.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies decreased by $1.4 million for the three months ended March 31, 2024, as compared to the same period in 2023, due to less favorable operating results at Daikyo and the Mexico affiliates.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following table presents cash flow data for the three months ended March 31:
($ in millions)20242023
Net cash provided by operating activities$118.2 $138.1 
Net cash used in investing activities$(90.6)$(82.1)
Net cash used in financing activities$(271.0)$(71.0)

30

Net Cash Provided by Operating Activities – Net cash provided by operating activities decreased by $19.9 million for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to a decline in operating results.

Net Cash Used in Investing Activities – Net cash used in investing activities increased by $8.5 million for the three months ended March 31, 2024, as compared to the same period in 2023, due to an increase in capital expenditures for additional manufacturing capacity in 2024 to meet customer demand.

Net Cash Used in Financing Activities – Net cash used in financing activities increased by $200.0 million for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to an increase in purchases under our share repurchase program in 2024, as compared to 2023.

Liquidity and Capital Resources

The table below presents selected liquidity and capital measures:
($ in millions)March 31,
2024
December 31,
2023
Cash and cash equivalents$601.8 $853.9 
Accounts receivable, net$524.0 $512.0 
Inventories$429.9 $434.7 
Accounts payable$240.1 $242.4 
Debt$206.2 $206.8 
Equity$2,680.6 $2,881.0 
Working capital$1,044.5 $1,264.6 

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 March 31, 2024 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 March 31, 2024 included $220.6 million of cash held by subsidiaries within the U.S., and $381.2 million of cash held by subsidiaries outside of the U.S. During the three months ended March 31, 2024, we purchased 729,679 shares of our common stock under our share repurchase program at a cost of $267.0 million, or an average price of $365.87 per share.

Working capital – Working capital at March 31, 2024 decreased by $220.1 million, or 17.4%, as compared to December 31, 2023, which includes an unfavorable foreign currency translation impact of $20.7 million. Excluding the impact of currency exchange rates, cash and cash equivalents