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APTARGROUP INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 4, 2014

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR AS OTHERWISE INDICATED)

RESULTS OF OPERATIONS Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Net Sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales (exclusive of depreciation and amortization shown below) 67.3 67.3 67.2 67.5 Selling, research & development and administrative 14.4 13.7 15.1 14.5 Depreciation and amortization 5.7 6.0 5.6 5.9 Restructuring initiatives -- 0.4 -- 0.5 Operating Income 12.6 12.6 12.1 11.6 Other expense (0.7 ) (0.7 ) (0.7 ) (0.8 ) Income before Income Taxes 11.9 11.9 11.4 10.8 Net Income 7.9 % 7.8 % 7.5 % 7.1 % Effective Tax Rate 33.4 % 34.6 % 33.8 % 33.8 % NET SALES We reported net sales of $670.6 million for the second quarter ended June 30, 2014, 5% above second quarter 2013 reported net sales of $641.4 million. The average U.S. dollar exchange rate weakened relative to the Euro in the second quarter of 2014 compared to the second quarter of 2013. However, the U.S. dollar strengthened compared to other foreign currencies, such as the Brazilian Real, Argentine Peso, Indian Rupee and Russian Ruble. As a result, net changes in exchange rates favorably impacted our reported sales growth by 1%. Therefore, sales excluding changes in foreign currency rates increased by 4% in the second quarter of 2014 compared to the second quarter of 2013. Each business segment reported an increase in sales: Second Quarter 2014 Beauty Food +



Net Sales Change over Prior Year + Home Pharma Beverage Total

Product Sales (including tooling) 3 % 4 % 7 % 4 % Currency Effects

-- 3 % -- 1 %



Total Reported Net Sales Growth 3 % 7 % 7 % 5 %

For the first six months of 2014, we reported net sales of $1.35 billion, 7% above the first six months of 2013 reported net sales of $1.26 billion. Consistent with the second quarter, the average U.S. dollar exchange rate weakened relative to the Euro but was mostly offset by strengthening of the U.S. dollar compared to other foreign currencies as mentioned above. Therefore, sales excluding changes in foreign currency rates increased by 6% in the first six months of 2014 compared to the first six months of 2013: First Six Months of 2014 Beauty Food +



Net Sales Change over Prior Year + Home Pharma Beverage Total

Product Sales (including tooling) 5 % 8 % 6 % 6 % Currency Effects

-- 3 % 1 % 1 %



Total Reported Net Sales Growth 5 % 11 % 7 % 7 %

For further discussion on net sales by reporting segment, please refer to the segment analysis of net sales and segment income on the following pages. The following table sets forth, for the periods indicated, net sales by geographic location: Three Months Ended June 30, Six Months Ended June 30, 2014 % of Total 2013 % of Total 2014 % of Total 2013 % of Total Domestic $ 161,624 24 % $ 169,245 26 % $ 332,301 25 % $ 326,473 26 % Europe 393,282 59 % 362,278 57 % 792,741 59 % 718,804 57 % Other Foreign 115,725 17 % 109,918 17 % 221,640 16 % 213,797 17 % $ 670,631$ 641,441$ 1,346,682$ 1,259,074 17

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Table of Contents COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW) Our cost of sales as a percent of net sales was 67.3% in the second quarter of 2014, which is consistent with the cost of sales as a percent of net sales in the same period a year ago. Increased sales volumes in our Pharma segment positively impacted our cost of sales percentage as margins on our pharmaceutical products typically are higher than the overall Company average. Also favorably impacting the cost of sales percentage are cost savings initiatives, including savings related to our European restructuring initiative. These decreases were offset by less favorable resin adjustments in 2014 compared to 2013 which negatively impacted our cost of sales percentage. While the majority of resin cost increases are passed along to our customers in our selling prices, we typically experience a lag in the timing of passing on these cost increases. Currency effects and start-up costs in Latin America also unfavorably impacted the cost of sales percentage. Cost of sales as a percent of net sales decreased slightly to 67.2% in the first six months of 2014 compared to 67.5% in the same period a year ago. This decrease is mainly due to increased sales volumes across each segment allowing for greater operating leverage and the fact that our Pharma segment had the strongest sales growth of our three segments. SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE Our Selling, Research & Development and Administrative expenses ("SG&A") increased by approximately $8.4 million to $96.5 million in the second quarter of 2014 compared to $88.1 million during the same period a year ago. Excluding changes in foreign currency rates, SG&A increased $7.3 million in the quarter. The increase is due to several factors including higher research and development costs associated with our recently acquired bonded aluminum to plastic license and higher information technology costs associated with our ongoing enterprise resource planning system roll-ins and higher stock compensation expense. SG&A as a percentage of net sales increased to 14.4% compared to 13.7% in the same period of the prior year due to the higher expenses noted above. SG&A increased by approximately $20.8 million to $203.2 million in the first six months of 2014 compared to $182.4 million during the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $19.1 million in the first six months of the year. As discussed above, the increase is mainly due to our investments in research and development and information technology systems along with higher stock compensation expense. SG&A as a percentage of net sales increased to 15.1% in the first six months of 2014 compared to 14.5% in the first six months of 2013 primarily due to higher expenses during the current year. DEPRECIATION AND AMORTIZATION Reported depreciation and amortization expenses slightly decreased to $38.5 million in the second quarter of 2014 compared to $38.6 million during the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization decreased by approximately $0.9 million in the quarter compared to the same period a year ago. 2013 expenses included $1.5 million of accelerated depreciation on certain corporate assets as well as $0.6 million of accelerated depreciation related to our European restructuring initiatives. These one-time charges in 2013 were partially offset by additional investments in our new products and continued roll-out of our global enterprise resource planning system in 2014. Depreciation and amortization as a percentage of net sales decreased to 5.7% in the second quarter of 2014 compared to 6.0% for the same period a year ago mainly due to our increase in sales during 2014. For the first six months of 2014, reported depreciation and amortization expenses increased by approximately $0.9 million to $75.7 million compared to $74.8 million in the first half of 2013. Excluding changes in foreign currency rates, depreciation and amortization decreased by approximately $0.2 million in the first six months of 2014. As discussed above, one-time charges of $1.5 million of accelerated depreciation on certain corporate assets and $1.0 million of accelerated depreciation related to our restructuring initiatives in 2013 were partially offset by additional investments in our new products along with continued roll-out of our global enterprise resource planning system in 2014. Depreciation and amortization as a percentage of net sales also decreased slightly to 5.6% compared to 5.9% for the same period a year ago due to higher sales in the first half of 2014. RESTRUCTURING INITIATIVES In November 2012, the Company announced a plan to optimize certain capacity in Europe. Due to increased production efficiencies and to better position the Company for future growth in Europe, AptarGroup transferred and consolidated production capacity involving twelve facilities. Under the plan, two facilities were closed impacting approximately 170 employees. During the three and six months ended June 30, 2013, we recognized $2.6 million and $6.6 million of restructuring expenses, respectively, along with the $0.6 million and $1.0 million of accelerated depreciation of assets, respectively, mentioned above.



The plan was substantially completed at the end of 2013 with total costs of approximately $19.5 million. Savings from the plan are expected to be approximately $10 million on an annualized basis.

OPERATING INCOME Operating income increased approximately $3.7 million in the second quarter of 2014 to $84.6 million compared to $80.9 million in the same period in the prior year. Excluding changes in currency rates, operating income decreased by approximately $1.4 million in the quarter. The primary reason for the decrease in operating income over the prior year is the higher SG&A costs in 18 --------------------------------------------------------------------------------



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the current quarter as discussed above. Operating income as a percentage of net sales remained consistent at 12.6% in the second quarter of 2014 compared to the same period in the prior year. Operating income increased approximately $17.8 million to



$163.3

million in the first six months of 2014 compared to $145.5 million in the same period in the prior year. Excluding changes in currency rates, operating income increased by approximately $7.2 million in the first six months of 2014. The increase in operating income is mainly due to higher product sales discussed above. Operating income as a percentage of sales increased to 12.1% in the first six months of 2014 compared to 11.6% for the same period in the prior year. NET OTHER EXPENSE Net other expenses in the second quarter of 2014 increased to $4.9 million from $4.6 million in the same period in the prior year. This increase is mainly due to increased costs associated with forward contracts in place to mitigate our foreign currency exposure on cross border transactions. Net other expenses for the six months ended June 30, 2014



increased

slightly to $10.0 million from $9.8 million in the same period in the prior year. Lower interest expense and hedging costs were offset by the recognition of a $1.5 million write-down on a non-controlling investment taken during the first quarter of 2014 to align with the current fair value. EFFECTIVE TAX RATE The reported effective tax rate decreased to 33.4% for the three months ended June 30, 2014 compared to 34.6% for the same period ended June 30, 2013 and remained consistent at 33.8% for the six months ended June 30, 2014 and 2013. The decrease in the rate for the three months ended June 30, 2014 is related primarily to a favorable IRS ruling on the classification of a subsidiary that was determined in the second quarter of 2014. The rate for the six months ended June 30, 2013 was favorably impacted by an Italian tax law change which provided approximately the same benefit as the IRS ruling in 2014, thereby leaving the tax rates the same for the six months ended June 30, 2013 and 2014. Additionally, although the effective tax rate increased in 2014 due to tax law changes enacted in France in December 2013, the increase was offset by our decision not to repatriate funds from Europe in 2014 and the absence of any associated tax costs. NET INCOME ATTRIBUTABLE TO APTARGROUP, INC. We reported net income attributable to AptarGroup, Inc. of $53.1 million and $101.5 million in the three and six months ended June 30, 2014, respectively, compared to $49.8 million and $89.8 million for the same periods in the prior year. BEAUTY + HOME SEGMENT



Operations that sell dispensing systems primarily to the personal care, beauty and home care markets form the Beauty + Home segment.

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Net Sales $385,226$374,984$776,462$738,456 Segment Income 27,198 30,339 54,979 54,754 Segment Income as a percentage of Net Sales 7.1 % 8.1 % 7.1 % 7.4 % Net sales for the quarter ended June 30, 2014 increased 3% to $385.2 million compared to $375.0 million in the second quarter of the prior year. For the segment, changes in foreign currency rates did not have a material impact on reported sales for the quarter ended June 30, 2014. Sales, excluding foreign currency changes, to the beauty market increased 3% mainly on the growth in new skin care products while sales to the personal care market were flat in the second quarter of 2014 compared to the same period in the prior year. Home care sales increased 17% mainly on higher tooling sales. Geographically, local currency sales increases in Europe, Asia and Latin America more than offset continued softness in the North American region. Customer tooling sales, excluding foreign currency changes, increased in the second quarter of 2014 to $11.5 million compared to $7.9 million in the second quarter of the prior year. Increases in resin pass throughs to our customers also positively impacted sales by $0.3 million. Net sales increased 5% in the first six months of 2014 to



$776.5

million compared to $738.5 million in the first six months of the prior year. Changes in foreign currency rates did not have a material impact on reported sales for the first six months of 2014. Sales of our products, excluding foreign currency changes, to the beauty market increased 6% while sales to the personal care market increased 5% in the first six months of 2014 compared to the first six months of 2013. Geographically, excluding foreign currency changes, all four regions reported sales growth. Customer tooling sales, excluding foreign currency changes, also increased in the first six months of 2014 to $16.3 million compared to $14.1 million in the first six months of the prior year. Segment income for the second quarter of 2014 decreased approximately 10% to $27.2 million compared to $30.3 million reported in the prior year. Currency effects and start-up costs in Latin America negatively impacted results by approximately $2.1 million while less favorable resin adjustments negatively impacted results by approximately $0.9 million. Business softness and operational inefficiencies in North America also negatively impacted results. 19

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Table of Contents Segment income in the first six months of 2014 increased by



less

than 1% to $55.0 million compared to $54.8 million reported in the same period in the prior year. Increases in product sales and savings related to our European restructuring initiative were offset by $5.3 million of negative currency transaction effects and start-up costs for our new facilities in Latin America along with higher SG&A costs mainly related to professional and legal fees. PHARMA SEGMENT



Operations that sell dispensing systems to the prescription drug, consumer health care and injectables markets form the Pharma segment.

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Net Sales $ 195,690$ 182,931$ 390,039$ 351,800 Segment Income 52,793 50,437 105,275 96,417 Segment Income as a percentage of Net Sales 27.0 % 27.6 % 27.0 % 27.4 % Net sales for the Pharma segment increased by 7% in the second quarter of 2014 to $195.7 million compared to $182.9 million in the second quarter of 2013. Changes in foreign currency rates represented 3% of the total segment sales increase. Sales, excluding changes in foreign currency rates, increased 4%. Sales, excluding foreign currency changes, to the prescription and consumer health care markets increased 3% and 11%, respectively. Consumer health care's growth over the prior year was mainly due to several new eye care product introductions using our ophthalmic squeeze dispenser along with strong bag-on-valve sales for nasal saline products. Sales, excluding foreign currency changes, to the injectables market decreased by 3% with lower tooling sales accounting for 2% of the 3% decrease and the remainder due to one particular customer being overstocked. Net sales for the first six months of 2014 increased



approximately

11% to $390.0 million compared to $351.8 million in the first six months of the prior year. Changes in foreign currency rates represented 3% of the total segment sales increase. Excluding changes in foreign currency rates, sales increased by 8% in the first six months of 2014 compared to the first six months of 2013. Excluding foreign currency rate changes, sales to the prescription and consumer health care markets increased 6% and 18%, respectively, in the first six months of 2014 compared to the same period in the prior year led by strong sales of our products to the asthma/COPD, pain and nasal decongestant markets. Excluding foreign currency rate changes, sales to the injectables market increased 1% as first quarter sales increases more than offset the decrease in tooling sales and customer overstocking in the second quarter. Segment income in the second quarter of 2014 increased approximately 5% to $52.8 million compared to $50.4 million reported in the same period in the prior year. This increase is mainly attributed to the higher sales for both the prescription and consumer health care markets as mentioned above. Segment income in the first six months of 2014 increased approximately 9% to $105.3 million compared to $96.4 million reported in the same period of the prior year. This increase is again mainly attributed to the higher sales for the prescription and consumer health care markets. The Pharma segment also recognized a $1.5 million expense in the first quarter of 2014 related to the write-down of a non-controlling investment to align with the current fair value. FOOD + BEVERAGE SEGMENT



Operations that sell dispensing systems primarily to the food and beverage markets form the Food + Beverage segment.

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Net Sales $ 89,715$ 83,526$ 180,181$ 168,818 Segment Income 12,416 11,864 21,496 20,414 Segment Income as a percentage of Net Sales 13.8 % 14.2 % 11.9 % 12.1 % Net sales for the Food + Beverage segment for the quarter ended June 30, 2014 increased approximately 7% to $89.7 million compared to $83.5 million in the second quarter of the prior year. For the segment, changes in foreign currency rates did not have a material impact on reported sales for the quarter ended June 30, 2014. Excluding foreign currency rate changes, sales to the beverage market increased approximately 11% on the combination of the continued success of functional bottled water in the Asian region and growth in the concentrate market that collectively offset lower tooling sales. Excluding foreign currency rate changes, sales to the food market increased 4% mainly due to an increase in custom tooling sales. Increases in resin pass throughs to our customers also positively impacted sales by $0.6 million. Net sales for the first six months of 2014 increased



approximately

7% to $180.2 million compared to $168.8 million in the first six months of the prior year. Excluding changes in foreign currency rates, sales increased 6%. Sales, excluding foreign currency changes, to the beverage market increased 9% and sales to the food market increased approximately 4% in the first six months of 2014 compared to the same period in the prior year. Consistent with the second quarter, the six month beverage sales increase is driven by the continued success of functional bottled water in the Asian region and growth in the concentrate market offset by $4.8 million of lower tooling sales. The food increase is mainly due to improving sales to our sauces and condiments market. 20

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Table of Contents Segment income in the second quarter of 2014 increased approximately 5% to $12.4 million compared to $11.9 million during the same period in the prior year. Segment income was positively impacted by the increased product sales discussed above along with improved productivity and overhead cost absorption, particularly in North America and Europe. Less favorable resin adjustments negatively impacted segment results by $1.3 million in the quarter. Segment income in the first six months of 2014 increased



approximately 5% to $21.5 million compared to $20.4 million reported in the same period of the prior year. The strong growth in product sales along with improved manufacturing productivity and cost absorption mentioned above contributed to the improvement.

CORPORATE & OTHER In addition to our three operating business segments, AptarGroup assigns certain costs to "Corporate & Other," which is presented separately in Note 13 of the Unaudited Notes to the Condensed Consolidated Financial Statements. Corporate & Other primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our operating segments. Corporate & Other expense decreased to $8.5 million for the quarter ended June 30, 2014 compared to $8.7 million in the second quarter of the prior year mainly due to a $1.5 million adjustment for accelerated depreciation on certain corporate assets in 2013 which outweighed increases in professional fees and personnel costs in 2014. Corporate & Other expense in the first six months of 2014



increased

to $20.3 million compared to $19.5 million reported in the same period of the prior year. The increase is mainly due to increases in professional fees along with higher personnel costs. These increases are somewhat offset by the 2013 accelerated depreciation on certain corporate assets noted above. FOREIGN CURRENCY A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial statements of our foreign entities. Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Brazilian Real, British Pound, Swiss Franc and other South American and Asian currencies, among others. Recently we have experienced volatility in certain Latin American and Asian currencies, including the Argentine Peso, Brazilian Real, Indian Rupee and the Russian Ruble. We manage our exposures to foreign exchange principally with forward exchange contracts to hedge certain transactions and firm purchase and sales commitments denominated in foreign currencies. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial statements. Conversely, a strengthening U.S. dollar has a dilutive effect. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Changes in exchange rates on such inter-country sales could materially impact our results of operations. QUARTERLY TRENDS Our results of operations in the second half of the year typically are negatively impacted by customer plant shutdowns in the summer months in Europe and plant shutdowns in December. In the future, our results of operations in a quarterly period could be impacted by factors such as changes in product mix, changes in material costs, changes in growth rates in the industries to which our products are sold, recognition of equity based compensation expense for retirement eligible employees in the period of grant and changes in general economic conditions in any of the countries in which we do business. We generally incur higher stock option expense in the first



quarter

compared with the rest of the fiscal year. Our estimated stock option expense on a pre-tax basis (in $ millions) for the year 2014 compared to 2013 is as follows: 2014 2013 First Quarter $ 8.4$ 6.5 Second Quarter 3.7 2.8



Third Quarter (estimated for 2014) 2.9 2.2 Fourth Quarter (estimated for 2014) 2.9 2.2

$ 17.9$ 13.7 LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are cash flow from operations and our revolving credit facility. In the first six months of 2014, our operations provided approximately $109.6 million in cash flow. Our operations provided the same level of cash flow in the first six months of 2013. In both periods, cash flow from operations was primarily derived from earnings before depreciation and amortization. During the first half of 2014, we utilized the majority of the operating cash flows to finance capital expenditures. We used $84.9 million in cash for investing activities during



the

first half of 2014, compared to $69.0 million during the same period a year ago. The increase in cash used for investing activities is due primarily to an increase in capital expenditures of $15.3 million in the first half of 2014 compared to the first half of 2013. Cash outlays for capital expenditures for 2014 are estimated to be approximately $190 million but could vary due to changes in exchange rates as well as the timing of capital projects. Proceeds from financing activities were $12.0 million in the



first

half of 2014 compared to a use of $82.1 million in cash for financing activities during the same period a year ago. The increase in cash from financing activities was primarily due to an increase in the proceeds from notes payable primarily used to cover dividends and share repurchases in 2014. 21 --------------------------------------------------------------------------------



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Cash and equivalents increased to $341.3 million at June 30, 2014 from $309.9 million at December 31, 2013. Total short and long-term interest bearing debt also increased in the first half of 2014 to $570.4 million from $494.6 million at December 31, 2013. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholder's equity plus Net Debt) was 13.0% at the end of June 2014 compared to 11.1% at December 31, 2013. Our U.S. operations generate sufficient cash flows to fund their liquidity needs and do not depend on cash located outside of the U.S. for their operations. Nevertheless, we are a dividend payer and have an active share repurchase program. These two items are funded with operating cash flows from the U.S. and are supplemented by additional borrowings from our revolving credit facility. Specifically, in the U.S., we have an unsecured $300 million revolving line of credit of which $95 million was unused and available as of June 30, 2014 and believe we have the ability to borrow additional funds should the need arise. On January 31, 2013, we amended the revolving credit facility to, among other things, add a swingline loan sub-facility and extend the maturity date for the revolving credit facility by one year, to January 31, 2018. On January 31, 2014, we amended the revolving credit facility to, among other things, increase the amount of permitted receivables transactions from $100 to $150 million, reduce the cost of committed funds by 12.5 basis points and uncommitted funds by 2.5 basis points, and extend the maturity date of the revolving credit facility by one year, to January 31, 2019.



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

Requirement Level at June 30, 2014



Debt to total capital ratio Maximum of 55% 27.2%

Based upon the above debt to total capital ratio covenant we had the ability to borrow approximately an additional $1.3 billion at June 30, 2014 before the 55% requirement would be exceeded. Our foreign operations have historically met cash requirements with the use of internally generated cash or borrowings. These foreign subsidiaries have financing arrangements with several foreign banks to fund operations located outside the U.S., but all these lines are uncommitted. Cash generated by foreign operations has generally been reinvested locally. The majority of our $341.3 million in cash and equivalents is located outside of the U.S. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. If we were to repatriate non-U.S. cash balances from certain subsidiaries, it could have adverse tax consequences as we may be required to pay and record income tax expense on these funds. Historically, the tax consequences associated with repatriating current year earnings to the U.S. have been between 10% and 14% of the repatriated amount. We believe we are in a strong financial position and have the financial resources to meet business requirements in the foreseeable future. We have historically used cash flow from operations as our primary source of liquidity. Our primary uses of liquidity are to invest in equipment and facilities that are necessary to support our growth and to make acquisitions that will contribute to the achievement of our strategic objectives. In the event that customer demand would decrease significantly for a prolonged period of time and negatively impact cash flow from operations, we would have the ability to restrict and significantly reduce capital expenditure levels, as well as evaluate our acquisition strategy and dividend and share repurchase programs. A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products. On July 17, 2014, the Board of Directors declared a quarterly dividend of $0.28 per share payable on August 20, 2014 to stockholders of record as of July 30, 2014. OFF-BALANCE SHEET ARRANGEMENTS We lease certain warehouse, plant and office facilities as well as certain equipment under noncancelable operating leases expiring at various dates through the year 2027. Most of the operating leases contain renewal options and certain equipment leases include options to purchase during or at the end of the lease term. Other than operating lease obligations, we do not have any off-balance sheet arrangements. RECENTLY ISSUED ACCOUNTING STANDARDS We have reviewed the recently issued accounting standards updates to the FASB's Accounting Standards Codification that have future effective dates. Standards which are effective for the first half of 2014 are discussed in Note 1 of the Unaudited Notes to Condensed Consolidated Financial Statements. In May 2014, the FASB amended the guidance for recognition of revenue from customer contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance will be effective for the Company's fiscal year beginning after December 15, 2016. Early application is not permitted. Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption. OUTLOOK Looking to the third quarter, we anticipate that each of our business segments will grow over the prior year. With a focus on operational efficiencies, cost containment and price adjustments where possible, we expect our Beauty + Home segment's profitability to gradually improve during the second half of the year; however, conditions in Latin America are expected to remain challenging for this segment. Our other segments are expected to continue to do well and the diversification of our business and 22 --------------------------------------------------------------------------------



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flow of new product introductions will continue to support our long-term growth.

AptarGroup expects diluted earnings per share using a 35% effective tax rate to be in the range of $0.72 to $0.77 per share for the third quarter of 2014 compared to $0.67 per diluted share reported in the prior year period, or $0.70 per share after excluding the negative impact of $0.03 per share from the European restructuring plan. AptarGroup is in the process of implementing a legal reorganization for our non-U.S. subsidiaries that will allow greater financial flexibility in the future. As a result of this legal reorganization, the Company expects to record a one-time tax expense in the third quarter of approximately $3 million or $0.04 per share, which is not included in the guidance range given. The impact of this one-time tax expense is expected to increase the effective tax rate in the third quarter to 39%. AptarGroup anticipates the full year effective tax rate, including the one-time expense mentioned above, to be approximately 35%. FORWARD-LOOKING STATEMENTS Certain statements in Management's Discussion and Analysis and other sections of this Form 10-Q are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Restructuring Initiatives, Quarterly Trends, Liquidity and Capital Resources, and Outlook sections of this Form 10-Q. Words such as "expects," "anticipates," "believes," "estimates," and other similar expressions or future or conditional verbs such as "will," "should," "would" and "could" are intended to identify such forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment, including but not limited to: economic, environmental and political conditions worldwide; financial conditions of customers and suppliers;



the cost of materials and other input costs (particularly resin, metal, anodization costs and transportation and energy costs);

changes or consolidations within our customer base and/or changes in consumer spending levels;

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

our ability to contain costs and improve productivity;



our ability to successfully implement facility expansions and new facility projects, including the Stelmi expansion and our new facility in Colombia;

our ability to increase prices, contain costs and improve productivity;

significant fluctuations in foreign currency exchange rates, including the current volatility noted in the Latin American and Asian regions;

changes in capital availability or cost, including interest rate fluctuations;

volatility of global credit markets; the timing and magnitude of capital expenditures;



our ability to identify potential new acquisitions and to successfully acquire and integrate such operations or products;

direct or indirect consequences of acts of war or terrorism; cybersecurity threats that could impact our networks and reporting systems;



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

fiscal and monetary policy, including changes in worldwide tax rates;

changes or difficulties in complying with government regulation;

changing regulations or market conditions regarding environmental sustainability;

work stoppages due to labor disputes; competition, including technological advances;



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

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

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

the demand for existing and new products;

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

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

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

significant product liability claims; and other risks associated with our operations. Although we believe that our forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Item 1A ("Risk Factors") of Part I included in the Company's Annual Report on Form 10-K for additional risk factors affecting the Company. 23

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