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 and six months ended June 30, 2021, 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, 2020 (the “2020 Annual Report”). The results of operations for any interim period are not necessarily indicative of results for the full year.
West has been actively monitoring the novel coronavirus (“COVID-19”) situation and its impact globally. Throughout the COVID-19 pandemic, production facilities have continued to operate as they had prior to the pandemic, other than for enhanced safety measures intended to prevent the spread of the virus and higher levels of production at certain plant locations to meet additional customer demand. The remote working arrangements and travel restrictions imposed by various governments have had limited impact on our ability to maintain operations, as our manufacturing operations have generally been exempted from stay-at-home orders.
Note 2: New Accounting Standards
Standards Issued Not Yet Adopted
In March 2020, the FASB issued guidance which provides optional expedients and exceptions to address the impact of reference rate reform where contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate need to be discontinued. This guidance was effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the impact to our financial statements, the transition, and disclosure requirements of this guidance.
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 ASC Topic 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.
The following table presents the approximate percentage of our net sales by market group:
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Biologics
|
41 %
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|
28 %
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|
40 %
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|
28 %
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Generics
|
16 %
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|
21 %
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|
17 %
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|
20 %
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|
Pharma
|
24 %
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|
27 %
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|
24 %
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28 %
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Contract-Manufactured Products
|
19 %
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|
24 %
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19 %
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24 %
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|
|
100 %
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|
100 %
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|
100 %
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|
100 %
|
The following table presents the approximate percentage of our net sales by product category:
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2021
|
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2020
|
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2021
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2020
|
|
High-Value Product Components
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55 %
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44 %
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54 %
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44 %
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High-Value Product Delivery Devices
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4 %
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6 %
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4 %
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5 %
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Standard Packaging
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22 %
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26 %
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23 %
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27 %
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Contract-Manufactured Products
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19 %
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24 %
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19 %
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24 %
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|
|
100 %
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|
100 %
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|
100 %
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|
100 %
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The following table presents the approximate percentage of our net sales by geographic location:
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2021
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2020
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2021
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2020
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Americas
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43 %
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|
50 %
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|
45 %
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|
49 %
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Europe, Middle East, Africa
|
47 %
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42 %
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45 %
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43 %
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Asia Pacific
|
10 %
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8 %
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10 %
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8 %
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|
|
100 %
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|
100 %
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|
100 %
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|
100 %
|
Contract Assets and Liabilities
The following table summarizes our contract assets and liabilities, excluding contract assets included in accounts receivable, net:
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($ in millions)
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Contract assets, December 31, 2020
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$
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10.9
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Contract assets, June 30, 2021
|
10.1
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Change in contract assets - increase (decrease)
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$
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(0.8)
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|
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Deferred income, December 31, 2020
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$
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(57.1)
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Deferred income, June 30, 2021
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(40.0)
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Change in deferred income - decrease (increase)
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$
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17.1
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Starting in the third quarter of 2020, the Company entered into new capacity reservation agreements, which include the receipt of up-front cash. The decrease in the deferred income balance is primarily due to the revenue recognition associated with the capacity reservation agreements, which is to be recognized over the next 1 to 2 years.
During the six months ended June 30, 2021, $28.4 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 June 30, 2021, there was $4.3 million of unearned income related to this payment, of which $0.9 million was included in other current liabilities and $3.4 million was included in other long-term liabilities. The unearned 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:
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Three Months Ended
June 30,
|
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Six Months Ended
June 30,
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(in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net income
|
$
|
187.3
|
|
|
$
|
91.2
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|
|
$
|
338.5
|
|
|
$
|
165.5
|
|
|
Weighted average common shares outstanding
|
74.0
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|
|
73.8
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|
|
74.0
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|
|
73.8
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|
|
Dilutive effect of equity awards, based on the treasury stock method
|
1.7
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|
|
1.7
|
|
|
1.8
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|
|
1.7
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Weighted average shares assuming dilution
|
75.7
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|
|
75.5
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|
|
75.8
|
|
|
75.5
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During the three months ended June 30, 2021 and 2020, there were 0.1 million and 0.2 million shares, respectively, from stock-based compensation plans not included in the computation of diluted net income per share because their impact was antidilutive. There were 0.1 million and 0.2 million antidilutive shares outstanding during the six months ended June 30, 2021 and 2020, respectively.
In December 2020, we announced a share repurchase program for calendar-year 2021 authorizing the repurchase of up to 631,000 shares of our common stock from time to time on the open market or in privately-negotiated transactions as permitted under Exchange Act Rule 10b-18. The number of shares to be repurchased and the timing of such transactions will depend on a variety of factors, including market conditions. There were no shares purchased during the three months ended June 30, 2021. During the six months ended June 30, 2021, we purchased 479,000 shares of our common stock under the program at a cost of $137.1 million, or an average price of $286.23 per share. This share repurchase program is expected to be completed by December 31, 2021.
Note 5: Inventories
Inventories are valued at the lower of cost (on a first-in, first-out basis) and net realizable value. Inventory balances were as follows:
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($ in millions)
|
June 30,
2021
|
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December 31,
2020
|
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Raw materials
|
$
|
130.2
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|
|
$
|
133.5
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|
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Work in process
|
65.8
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|
|
54.9
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Finished goods
|
149.2
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|
|
132.9
|
|
|
|
$
|
345.2
|
|
|
$
|
321.3
|
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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:
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|
Three Months Ended
June 30,
|
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Six Months Ended
June 30,
|
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($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating lease cost
|
$
|
3.1
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|
|
$
|
3.1
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|
|
$
|
6.2
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|
|
$
|
6.2
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|
|
Short-term lease cost
|
0.3
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|
|
0.1
|
|
|
0.5
|
|
|
0.3
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|
|
Variable lease cost
|
1.4
|
|
|
0.8
|
|
|
2.2
|
|
|
1.6
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|
|
Total lease cost
|
$
|
4.8
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|
|
$
|
4.0
|
|
|
$
|
8.9
|
|
|
$
|
8.1
|
|
Supplemental cash flow information related to leases were as follows:
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|
|
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|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
($ in millions)
|
2021
|
|
|
2020
|
|
2021
|
2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
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|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
3.1
|
|
|
|
$
|
3.2
|
|
|
$
|
6.3
|
|
$
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
$
|
0.3
|
|
|
|
$
|
1.8
|
|
|
$
|
0.8
|
|
$
|
4.3
|
|
As of June 30, 2021 and December 31, 2020, the weighted average remaining lease term for operating leases was 11.0 and 11.1 years, respectively.
As of June 30, 2021 and December 31, 2020, the weighted average discount rate was 3.66% and 3.68%, respectively.
Maturities of operating lease liabilities were as follows:
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|
|
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|
|
|
|
|
|
($ in millions)
|
June 30,
|
|
December 31,
|
|
|
|
|
|
|
|
Year
|
2021
|
|
2020
|
|
|
|
|
|
2021 (remaining period as of )
|
$
|
6.0
|
|
|
$
|
12.4
|
|
|
|
|
|
|
|
|
2022
|
10.5
|
|
|
10.4
|
|
|
|
|
|
|
|
|
2023
|
9.4
|
|
|
9.3
|
|
|
|
|
|
|
|
|
2024
|
8.7
|
|
|
8.7
|
|
|
|
|
|
|
|
|
2025
|
6.9
|
|
|
6.9
|
|
|
|
|
|
|
|
|
Thereafter
|
37.1
|
|
|
37.5
|
|
|
|
|
|
|
|
|
|
78.6
|
|
|
85.2
|
|
|
|
|
|
|
|
|
Less: imputed lease interest
|
(13.3)
|
|
|
(14.7)
|
|
|
|
|
|
|
|
|
Total lease liabilities
|
$
|
65.3
|
|
|
$
|
70.5
|
|
|
|
|
|
|
|
Note 7: Affiliated Companies
At June 30, 2021 and December 31, 2020, the aggregate carrying amount of our investment in affiliated companies that are accounted for under the equity method was $203.1 million and $201.9 million, respectively, and the aggregate carrying amount of our investment in affiliated companies that are not accounted for under the equity method was $8.6 million and $12.8 million, 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 $47.6 million and $85.6 million, respectively, for the three and six months ended June 30, 2021, as compared to $27.9 million and $60.4 million, respectively, for the same period in 2020. As of June 30, 2021 and December 31, 2020, the payable balance due to affiliates was $18.9 million and $33.6 million, respectively. The majority of these transactions related to a distributorship agreement with Daikyo that allows us to purchase and re-sell Daikyo products.
Sales to affiliates were $3.1 million and $6.0 million, respectively, for the three and six months ended June 30, 2021, as compared to $2.8 million and $5.0 million, respectively, for the same periods in 2020. As of June 30, 2021 and December 31, 2020, the receivable balance due from affiliates was $2.5 million and $1.4 million, respectively.
Note 8: Debt
The following table summarizes our long-term debt obligations, net of unamortized debt issuance costs and current maturities. The interest rates shown in parentheses are as of June 30, 2021.
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|
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|
|
|
|
|
|
|
|
|
($ in millions)
|
June 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan, due December 31, 2024 (1.02%)
|
$
|
86.6
|
|
|
$
|
87.7
|
|
|
Series A notes, due July 5, 2022 (3.67%)
|
42.0
|
|
|
42.0
|
|
|
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
|
|
|
|
254.6
|
|
|
255.7
|
|
|
Less: unamortized debt issuance costs
|
0.5
|
|
|
0.5
|
|
|
Total debt
|
254.1
|
|
|
255.2
|
|
|
Less: current portion of long-term debt
|
2.3
|
|
|
2.3
|
|
|
Long-term debt, net
|
$
|
251.8
|
|
|
$
|
252.9
|
|
Please refer to Note 8, Debt, to the consolidated financial statements in our 2020 Annual Report for additional details regarding our debt agreements.
Credit Agreement - Credit Facility
At June 30, 2021, the borrowing capacity available under our $300.0 million multi-currency revolving credit facility (the “Credit Facility”), including outstanding letters of credit of $2.4 million, was $297.6 million.
Credit Agreement Amendment - Term Loan
At June 30, 2021, we had $86.6 million in borrowings under the Term Loan, of which $2.3 million was classified as current and $84.3 million was classified as long-term. Please refer to Note 9, Derivative Financial Instruments, for a discussion of the foreign currency hedge associated with the Term Loan.
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 June 30, 2021 and December 31, 2020, the total amount of these forward exchange contracts was Singapore Dollar (“SGD”) 601.5 million and $13.4 million.
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 June 30, 2021, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:
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|
(in millions)
|
|
|
Sell
|
|
Currency
|
Purchase
|
|
USD
|
Euro
|
|
USD
|
38.7
|
|
|
—
|
|
32.6
|
|
|
Yen
|
8,568.0
|
|
|
35.5
|
|
38.0
|
|
|
SGD
|
47.8
|
|
|
28.6
|
|
5.8
|
|
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. The notional amount of the cross-currency swap is ¥9.5 billion ($86.6 million) and the swap termination date is December 31, 2024. Under the cross-currency swap, we receive floating interest rate payments based on three-month U.S. Dollar (“USD”) LIBOR plus a margin, in return for paying floating interest rate payments based on three-month Japanese Yen (“Yen”) LIBOR plus a margin.
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 June 2021, we purchased several series of call options for a total of 552,686 barrels of crude oil to mitigate our exposure to such oil-based surcharges and protect operating cash flows with regard to a portion of our forecasted elastomer purchases.
As of June 30, 2021, we had outstanding contracts to purchase 171,634 barrels of crude oil from July 2021 to December 2022, at a weighted-average strike price of $65.77 per barrel.
Effects of Derivative Instruments on Financial Position and Results of Operations
Please refer to Note 10, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of June 30, 2021 and December 31, 2020.
The following table summarizes the effects of derivative instruments designated as fair value hedges on the condensed consolidated statements of income:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain) Loss Recognized in Income for the
|
|
Amount of (Gain) Loss Recognized in Income for the
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
Location on Statement of Income
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
Hedged item (intercompany loan)
|
$
|
4.8
|
|
|
$
|
(1.2)
|
|
|
$
|
(5.1)
|
|
|
$
|
15.9
|
|
|
Other expense (income)
|
|
Derivative designated as hedging instrument
|
(4.8)
|
|
|
1.2
|
|
|
5.1
|
|
|
(15.9)
|
|
|
Other expense (income)
|
|
Amount excluded from effectiveness testing
|
(0.6)
|
|
|
(2.0)
|
|
|
(1.2)
|
|
|
(3.9)
|
|
|
Other expense (income)
|
|
Total
|
$
|
(0.6)
|
|
|
$
|
(2.0)
|
|
|
$
|
(1.2)
|
|
|
$
|
(3.9)
|
|
|
|
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 amounts recognized in earnings, pre-tax, for forward point components for the three and six months ended June 30, 2021 and 2020 were $0.6 million, $1.2 million, and $1.7 million, $3.7 million, respectively.
The following tables summarize the effects of derivative instruments designated as fair value, cash flow, and net investment hedges on other comprehensive income (“OCI”) and earnings, net of tax:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in OCI for the
|
|
Amount of (Gain) Loss Reclassified from Accumulated OCI into Income for the
|
|
Location of (Gain) Loss Reclassified from Accumulated OCI into Income
|
|
|
Three Months Ended
June 30,
|
|
Three Months Ended
June 30,
|
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
Fair Value Hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedge contracts
|
$
|
0.2
|
|
|
$
|
(0.7)
|
|
|
$
|
0.4
|
|
|
$
|
(1.3)
|
|
|
Other expense (income)
|
|
Total
|
$
|
0.2
|
|
|
$
|
(0.7)
|
|
|
$
|
0.4
|
|
|
$
|
(1.3)
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedge contracts
|
$
|
(0.4)
|
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
|
$
|
(0.3)
|
|
|
Net sales
|
|
Foreign currency hedge contracts
|
(0.9)
|
|
|
(0.7)
|
|
|
1.5
|
|
|
(0.2)
|
|
|
Cost of goods and services sold
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward treasury locks
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
Interest expense
|
|
Total
|
$
|
(1.3)
|
|
|
$
|
(0.3)
|
|
|
$
|
2.0
|
|
|
$
|
(0.4)
|
|
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swap
|
$
|
0.4
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other expense (income)
|
|
Total
|
$
|
0.4
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in OCI for the
|
|
Amount of (Gain) Loss Reclassified from Accumulated OCI into Income for the
|
|
Location of (Gain) Loss Reclassified from Accumulated OCI into Income
|
|
|
Six Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
Fair Value Hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedge contracts
|
$
|
(0.4)
|
|
|
$
|
2.9
|
|
|
$
|
0.8
|
|
|
$
|
(2.6)
|
|
|
Other expense (income)
|
|
Total
|
$
|
(0.4)
|
|
|
$
|
2.9
|
|
|
$
|
0.8
|
|
|
$
|
(2.6)
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedge contracts
|
$
|
(0.7)
|
|
|
$
|
0.5
|
|
|
$
|
0.9
|
|
|
$
|
(0.5)
|
|
|
Net sales
|
|
Foreign currency hedge contracts
|
(2.8)
|
|
|
(0.3)
|
|
|
1.5
|
|
|
(0.2)
|
|
|
Cost of goods and services sold
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward treasury locks
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
Interest expense
|
|
Total
|
$
|
(3.5)
|
|
|
$
|
0.2
|
|
|
$
|
2.5
|
|
|
$
|
(0.6)
|
|
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swap
|
$
|
5.4
|
|
|
$
|
(0.6)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other expense (income)
|
|
Total
|
$
|
5.4
|
|
|
$
|
(0.6)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
The following table summarizes the effects of derivative instruments designated as fair value, cash flow, and net investment hedges by line item in our condensed consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net sales
|
$
|
0.5
|
|
|
$
|
(0.3)
|
|
|
$
|
0.9
|
|
|
$
|
(0.5)
|
|
|
Cost of goods and services sold
|
1.5
|
|
|
(0.2)
|
|
|
1.5
|
|
|
(0.2)
|
|
|
Interest expense
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
|
Other expense (income)
|
0.4
|
|
|
(1.3)
|
|
|
0.8
|
|
|
(2.6)
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Amount of Gain (Loss) Recognized in Income for the
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
Location on Statement of Income
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
Commodity call options
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
(0.2)
|
|
|
Other expense (income)
|
|
Total
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
(0.2)
|
|
|
|
For the three and six months ended June 30, 2021 and 2020, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Basis of Fair Value Measurements
|
|
($ in millions)
|
June 30,
2021
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
Deferred compensation assets
|
$
|
14.6
|
|
|
$
|
14.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency contracts
|
7.0
|
|
|
—
|
|
|
7.0
|
|
|
—
|
|
|
Cross-currency swap
|
1.4
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
Commodity call options
|
1.7
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
|
$
|
24.7
|
|
|
$
|
14.6
|
|
|
$
|
10.1
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
3.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.6
|
|
|
Deferred compensation liabilities
|
15.5
|
|
|
15.5
|
|
|
—
|
|
|
—
|
|
|
Foreign currency contracts
|
3.6
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
|
|
$
|
22.7
|
|
|
$
|
15.5
|
|
|
$
|
3.6
|
|
|
$
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Basis of Fair Value Measurements
|
|
($ in millions)
|
December 31,
2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
Deferred compensation assets
|
$
|
12.8
|
|
|
$
|
12.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency contracts
|
3.0
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
|
Commodity call options
|
0.3
|
|
|
|
|
0.3
|
|
|
|
|
|
$
|
16.1
|
|
|
$
|
12.8
|
|
|
$
|
3.3
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
3.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.6
|
|
|
Deferred compensation liabilities
|
14.5
|
|
|
14.5
|
|
|
—
|
|
|
—
|
|
|
Cross-currency swap
|
5.6
|
|
|
—
|
|
|
5.6
|
|
|
—
|
|
|
Foreign currency contracts
|
9.7
|
|
|
—
|
|
|
9.7
|
|
|
—
|
|
|
|
$
|
33.4
|
|
|
$
|
14.5
|
|
|
$
|
15.3
|
|
|
$
|
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 our commodity call options, included within other current and other noncurrent assets, is valued using a market approach. The fair value of our contingent consideration, included within other current and other long-term liabilities, is discussed further in the section related to Level 3 fair value measurements. 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. The fair value of the cross-currency swap, included within other non-current assets, is valued using a market approach. Please refer to Note 9, Derivative Financial Instruments, for further discussion of our derivatives. All derivatives are recognized on a gross basis as either assets or liabilities in the balance sheet.
Level 3 Fair Value Measurements
The fair value of the contingent consideration liability 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 significant unobservable inputs used in the fair value measurement of the SmartDose contingent consideration are the sales projections, the probability of success factors, and the discount rate. Significant increases or decreases in any of those inputs in isolation would result in a significantly lower or higher fair value measurement. Sales projections were derived using upside, base and downside forecasted cases for each partnership and applying probability-weighted scenarios of 10%, 50% and 40% to the three cases, respectively, to reflect the likelihood of West meeting the estimated sales projection targets. The probability of success factors included the probabilities of successful FDA approval for each partnership drug, which was estimated in a range of 19% to 100% based on the development phase of each respective drug, and the probability of the successful execution of supply agreements with each partnership, which was estimated in the range of 25% to 100% based on historical, current, and future supply agreements with the respective partnerships. The fair value of this liability utilized a risk-adjusted discount rate of 19% to present value the cash flows. The discount rate is calculated by determining the after-tax required returns on debt and equity and weighting each return by the respective percent of debt and equity to total capital. Key inputs for the discount rate include the risk-free rate on the 20-Year United States Treasury maturity, equity risk premium, company-specific risk premium, pre-tax cost of debt, and U.S. tax rate, among others. As development and commercialization of the SmartDose technology platform progresses, we may need to update the sales projections, the probability of success factors, and the discount rate used. This could result in an increase or decrease to the SmartDose contingent consideration.
The following table provides a summary of changes in our Level 3 fair value measurements:
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
Balance, December 31, 2019
|
$
|
3.3
|
|
|
Increase in fair value recorded in earnings
|
1.2
|
|
|
Payments
|
(0.9)
|
|
|
Balance, December 31, 2020
|
3.6
|
|
|
Increase in fair value recorded in earnings
|
0.8
|
|
|
Payments
|
(0.8)
|
|
|
Balance, June 30, 2021
|
$
|
3.6
|
|
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 June 30, 2021, the estimated fair value of long-term debt was $263.9 million compared to a carrying amount of $251.8 million. At December 31, 2020, the estimated fair value of long-term debt was $265.7 million and the carrying amount was $252.9 million.
Note 11: Accumulated Other Comprehensive Loss
The following table presents the changes in the components of accumulated other comprehensive income ("AOCI") (loss), net of tax, for the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
(Losses) gains on
derivatives
|
|
Change in equity affiliate investment AOCI
|
|
Defined benefit
pension and other
postretirement plans
|
|
Foreign
currency
translation
|
|
Total
|
|
Balance, December 31, 2020
|
$
|
(1.9)
|
|
|
$
|
0.6
|
|
|
$
|
(40.5)
|
|
|
$
|
(68.8)
|
|
|
$
|
(110.6)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(3.9)
|
|
|
—
|
|
|
0.1
|
|
|
(22.7)
|
|
|
(26.5)
|
|
|
Amounts reclassified out from accumulated other comprehensive income (loss)
|
3.3
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
3.9
|
|
|
Other comprehensive income (loss), net of tax
|
(0.6)
|
|
|
—
|
|
|
0.7
|
|
|
(22.7)
|
|
|
(22.6)
|
|
|
Balance, June 30, 2021
|
$
|
(2.5)
|
|
|
$
|
0.6
|
|
|
$
|
(39.8)
|
|
|
$
|
(91.5)
|
|
|
$
|
(133.2)
|
|
A summary of the reclassifications out of accumulated other comprehensive loss is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
Location on Statement of Income
|
|
Detail of components
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Gains (losses) on derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(0.5)
|
|
|
$
|
0.3
|
|
|
$
|
(1.0)
|
|
|
$
|
0.6
|
|
|
Net sales
|
|
Foreign currency contracts
|
|
(2.3)
|
|
|
0.3
|
|
|
(2.3)
|
|
|
0.4
|
|
|
Cost of goods and services sold
|
|
Foreign currency contracts
|
|
(0.6)
|
|
|
2.0
|
|
|
(1.2)
|
|
|
4.0
|
|
|
Other expense (income)
|
|
Forward treasury locks
|
|
(0.1)
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
(0.2)
|
|
|
Interest expense
|
|
Total before tax
|
|
(3.5)
|
|
|
2.5
|
|
|
(4.7)
|
|
|
4.8
|
|
|
|
|
Tax benefit (expense)
|
|
1.2
|
|
|
(0.8)
|
|
|
1.4
|
|
|
(1.6)
|
|
|
|
|
Net of tax
|
|
$
|
(2.3)
|
|
|
$
|
1.7
|
|
|
$
|
(3.3)
|
|
|
$
|
3.2
|
|
|
|
|
Amortization of defined benefit pension and other postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
(a)
|
|
Actuarial losses
|
|
(0.1)
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
(0.2)
|
|
|
(a)
|
|
Settlements
|
|
(0.1)
|
|
|
(0.9)
|
|
|
(0.7)
|
|
|
(2.3)
|
|
|
(a)
|
|
Total before tax
|
|
(0.2)
|
|
|
(0.9)
|
|
|
(0.8)
|
|
|
(2.2)
|
|
|
|
|
Tax benefit (expense)
|
|
0.1
|
|
|
0.3
|
|
|
0.2
|
|
|
0.6
|
|
|
|
|
Net of tax
|
|
$
|
(0.1)
|
|
|
$
|
(0.6)
|
|
|
$
|
(0.6)
|
|
|
$
|
(1.6)
|
|
|
|
|
Total reclassifications for the period, net of tax
|
|
$
|
(2.4)
|
|
|
$
|
1.1
|
|
|
$
|
(3.9)
|
|
|
$
|
1.6
|
|
|
|
(a) These components are included in the computation of net periodic benefit cost. Please refer to Note 14, Benefit Plans, for additional details.
Note 12: Shareholders’ Equity
The following table presents the changes in shareholders’ equity for the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Issued
|
|
Common Stock
|
|
Capital in Excess of Par Value
|
|
Number of Treasury Shares
|
|
Treasury Stock
|
|
Retained earnings
|
|
Accumulated other comprehensive loss
|
|
Total
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
75.3
|
|
|
$
|
18.8
|
|
|
$
|
267.3
|
|
|
1.3
|
|
|
$
|
(167.7)
|
|
|
$
|
1,846.7
|
|
|
$
|
(110.6)
|
|
|
$
|
1,854.5
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
151.2
|
|
|
—
|
|
|
151.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity related to stock-based compensation
|
—
|
|
|
—
|
|
|
(20.6)
|
|
|
(0.3)
|
|
|
23.1
|
|
|
—
|
|
|
—
|
|
|
2.5
|
|
|
Shares purchased under share repurchase program
|
—
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
(137.1)
|
|
|
—
|
|
|
—
|
|
|
(137.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.17 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12.5)
|
|
|
—
|
|
|
(12.5)
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29.6)
|
|
|
(29.6)
|
|
|
Balance, March 31, 2021
|
75.3
|
|
|
$
|
18.8
|
|
|
$
|
246.7
|
|
|
1.5
|
|
|
$
|
(281.7)
|
|
|
$
|
1,985.4
|
|
|
$
|
(140.2)
|
|
|
$
|
1,829.0
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
187.3
|
|
|
—
|
|
|
187.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity related to stock-based compensation
|
—
|
|
|
—
|
|
|
1.3
|
|
|
(0.2)
|
|
|
20.5
|
|
|
—
|
|
|
—
|
|
|
21.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.17 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12.5)
|
|
|
—
|
|
|
(12.5)
|
|
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.0
|
|
|
7.0
|
|
|
Balance, June 30, 2021
|
75.3
|
|
|
$
|
18.8
|
|
|
$
|
248.0
|
|
|
1.3
|
|
|
$
|
(261.2)
|
|
|
$
|
2,160.2
|
|
|
$
|
(133.2)
|
|
|
$
|
2,032.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the changes in shareholders’ equity for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Issued
|
|
Common Stock
|
|
Capital in Excess of Par Value
|
|
Number of Treasury Shares
|
|
Treasury Stock
|
|
Retained earnings
|
|
Accumulated other comprehensive loss
|
|
Total
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
75.3
|
|
|
$
|
18.8
|
|
|
$
|
272.7
|
|
|
1.2
|
|
|
$
|
(118.1)
|
|
|
$
|
1,549.4
|
|
|
$
|
(149.6)
|
|
|
$
|
1,573.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of modified retrospective application of a new accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
(0.1)
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74.3
|
|
|
—
|
|
|
74.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity related to stock-based compensation
|
—
|
|
|
—
|
|
|
(5.1)
|
|
|
(0.3)
|
|
|
17.9
|
|
|
—
|
|
|
—
|
|
|
12.8
|
|
|
Shares purchased under share repurchase program
|
—
|
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
(115.5)
|
|
|
—
|
|
|
—
|
|
|
(115.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.16 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11.8)
|
|
|
—
|
|
|
(11.8)
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42.7)
|
|
|
(42.7)
|
|
|
Balance, March 31, 2020
|
75.3
|
|
|
$
|
18.8
|
|
|
$
|
267.6
|
|
|
1.7
|
|
|
$
|
(215.7)
|
|
|
$
|
1,611.8
|
|
|
$
|
(192.3)
|
|
|
$
|
1,490.2
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
91.2
|
|
|
—
|
|
|
91.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity related to stock-based compensation
|
—
|
|
|
—
|
|
|
(4.5)
|
|
|
(0.2)
|
|
|
24.9
|
|
|
—
|
|
|
—
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.5
|
|
|
4.5
|
|
|
Balance, June 30, 2020
|
75.3
|
|
|
$
|
18.8
|
|
|
$
|
263.1
|
|
|
1.5
|
|
|
$
|
(190.8)
|
|
|
$
|
1,703.0
|
|
|
$
|
(187.8)
|
|
|
$
|
1,606.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2021, there were 2,484,562 shares remaining in the 2016 Plan for future grants.
During the six months ended June 30, 2021, we granted 157,416 stock options at a weighted average exercise price of $275.02 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 $63.19 per share as determined by the Black-Scholes option valuation model using the following weighted average assumptions: a risk-free interest rate of 0.7%; expected life of 5.6 years based on prior experience; stock volatility of 23.9% 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 six months ended June 30, 2021, we granted 36,174 stock-settled performance share unit (“PSU”) awards at a weighted average grant-date fair value of $329.88 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 number 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 six months ended June 30, 2021, we granted 4,637 stock-settled restricted share unit (“RSU”) awards at a weighted average grant-date fair value of $279.92 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 $10.3 million and $16.2 million for the three and six months ended June 30, 2021, respectively. For the three and six months ended June 30, 2020, stock-based compensation expense was $12.3 million and $17.7 million, respectively.
Note 14: Benefit Plans
The components of net periodic benefit cost for the three months ended June 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
Other retirement benefits
|
|
Total
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service cost
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
Interest cost
|
1.5
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
|
1.9
|
|
|
Expected return on assets
|
(3.0)
|
|
|
(3.0)
|
|
|
—
|
|
|
—
|
|
|
(3.0)
|
|
|
(3.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
0.1
|
|
|
—
|
|
|
(0.1)
|
|
|
(0.1)
|
|
|
—
|
|
|
(0.1)
|
|
|
Recognized actuarial losses (gains)
|
0.5
|
|
|
0.5
|
|
|
(0.4)
|
|
|
(0.4)
|
|
|
0.1
|
|
|
0.1
|
|
|
Settlements
|
0.1
|
|
|
0.9
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.9
|
|
|
Net periodic benefit cost
|
$
|
(0.4)
|
|
|
$
|
0.6
|
|
|
$
|
(0.5)
|
|
|
$
|
(0.5)
|
|
|
$
|
(0.9)
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
Other retirement benefits
|
|
Total
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
U.S. plans
|
$
|
(1.0)
|
|
|
$
|
0.2
|
|
|
$
|
(0.5)
|
|
|
$
|
(0.5)
|
|
|
$
|
(1.5)
|
|
|
$
|
(0.3)
|
|
|
International plans
|
0.6
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
|
0.4
|
|
|
Net periodic benefit cost
|
$
|
(0.4)
|
|
|
$
|
0.6
|
|
|
$
|
(0.5)
|
|
|
$
|
(0.5)
|
|
|
$
|
(0.9)
|
|
|
$
|
0.1
|
|
The components of net periodic benefit cost for the six months ended June 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
Other retirement benefits
|
|
Total
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service cost
|
$
|
0.8
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
0.6
|
|
|
Interest cost
|
2.9
|
|
|
3.9
|
|
|
0.1
|
|
|
0.1
|
|
|
3.0
|
|
|
4.0
|
|
|
Expected return on assets
|
(6.1)
|
|
|
(6.0)
|
|
|
—
|
|
|
—
|
|
|
(6.1)
|
|
|
(6.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
0.1
|
|
|
—
|
|
|
(0.2)
|
|
|
(0.3)
|
|
|
(0.1)
|
|
|
(0.3)
|
|
|
Recognized actuarial losses (gains)
|
1.0
|
|
|
1.0
|
|
|
(0.8)
|
|
|
(0.8)
|
|
|
0.2
|
|
|
0.2
|
|
|
Settlements
|
0.7
|
|
|
2.3
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
2.3
|
|
|
Net periodic benefit cost
|
$
|
(0.6)
|
|
|
$
|
1.8
|
|
|
$
|
(0.9)
|
|
|
$
|
(1.0)
|
|
|
$
|
(1.5)
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
Other retirement benefits
|
|
Total
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
U.S. plans
|
$
|
(1.6)
|
|
|
$
|
1.1
|
|
|
$
|
(0.9)
|
|
|
$
|
(1.0)
|
|
|
$
|
(2.5)
|
|
|
$
|
0.1
|
|
|
International plans
|
1.0
|
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
0.7
|
|
|
Net periodic benefit cost
|
$
|
(0.6)
|
|
|
$
|
1.8
|
|
|
$
|
(0.9)
|
|
|
$
|
(1.0)
|
|
|
$
|
(1.5)
|
|
|
$
|
0.8
|
|
During the three and six months ended June 30, 2021, we recorded a $0.1 million and $0.7 million pension settlement charge, respectively, within other nonoperating (income) expense, as we determined that normal-course lump-sum payments for our U.S. qualified defined benefit pension plan exceeded the threshold for settlement accounting under U.S. GAAP for the year.
Note 15: Other Expense (Income)
Other expense (income) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Restructuring and related charges
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
2.2
|
|
|
$
|
—
|
|
|
Fixed asset impairments and loss (gain) on sale of equipment
|
0.2
|
|
|
6.3
|
|
|
0.3
|
|
|
6.5
|
|
|
Contingent consideration
|
0.2
|
|
|
0.1
|
|
|
0.9
|
|
|
0.1
|
|
|
Foreign exchange transaction gains
|
(2.6)
|
|
|
(2.0)
|
|
|
(2.9)
|
|
|
(5.5)
|
|
|
Other items
|
(1.5)
|
|
|
(1.4)
|
|
|
0.7
|
|
|
(1.6)
|
|
|
Total other expense (income)
|
$
|
(2.7)
|
|
|
$
|
3.0
|
|
|
$
|
1.2
|
|
|
$
|
(0.5)
|
|
Restructuring and Related Charges
In July 2020, our Board of Directors approved a restructuring plan designed to optimize certain organizational structures within the Company to better support our continued growth and business priorities. 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 $15 million to $17 million. Since its approval, we recorded a net pre-tax amount equal to $6.8 million in restructuring and related charges associated with this plan.
The following table presents activity related to our restructuring obligations related to our 2020 restructuring plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
Severance
and benefits
|
|
Asset-related charges
|
|
Other charges
|
|
Total
|
|
Balance, December 31, 2020
|
$
|
4.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.6
|
|
|
Charges
|
1.0
|
|
|
—
|
|
|
1.2
|
|
|
2.2
|
|
|
Cash payments
|
(1.1)
|
|
|
—
|
|
|
(0.5)
|
|
|
(1.6)
|
|
|
Balance, June 30, 2021
|
$
|
4.5
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
5.2
|
|
In February 2018, our Board of Directors approved a restructuring plan designed to realign our manufacturing capacity with demand. These changes were expected to be implemented over a period of up to twenty-four months from the date of approval. The plan was expected to require restructuring and related charges of approximately $16 million. Since its approval, we have recorded $13.7 million in restructuring and related charges associated with this plan. The plan is now considered complete.
The following table presents activity related to our restructuring obligations related to our 2018 restructuring plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
Severance
and benefits
|
|
Total
|
|
Balance, December 31, 2020
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
Cash payments
|
(0.1)
|
|
|
(0.1)
|
|
|
Balance, June 30, 2021
|
$
|
—
|
|
|
$
|
—
|
|
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.
Other Items
During the six months ended June 30, 2021, we recorded an impairment charge of $2.2 million for one of the Company's cost investments.
During the three and six months ended June 30, 2021, we recorded a net gain of $1.3 million on the sale of one of the Company's cost investments.
During both the three and six months ended June 30, 2021 and 2020, we recorded development income of $0.2 million and $0.4 million, respectively, related 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. Please refer to Note 3, Revenue, for additional information.
Note 16: 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 $32.3 million and $16.0 million for the three months ended June 30, 2021 and 2020, respectively, and the effective tax rate was 15.3% and 15.6%, respectively. The provision for income taxes was $61.0 million and $31.0 million for the six months ended June 30, 2021 and 2020, respectively, and the effective tax rate was 15.8% and 16.4%, respectively.
Note 17: 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 2020 Annual Report.
Note 18: 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 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
June 30,
|
|
Six Months Ended
June 30,
|
|
($ in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Proprietary Products
|
$
|
587.3
|
|
|
$
|
399.5
|
|
|
$
|
1,131.0
|
|
|
$
|
773.0
|
|
|
Contract-Manufactured Products
|
136.4
|
|
|
127.8
|
|
|
263.5
|
|
|
245.9
|
|
|
Intersegment sales elimination
|
(0.1)
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
(0.2)
|
|
|
Consolidated net sales
|
$
|
723.6
|
|
|
$
|
527.2
|
|
|
$
|
1,394.3
|
|
|
$
|
1,018.7
|
|
The intersegment sales elimination, which is required for the presentation of consolidated net sales, represents the elimination of components sold between our segments.
The following table provides summarized financial information for our segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
|
Proprietary Products
|
$
|
216.2
|
|
|
$
|
112.2
|
|
|
$
|
398.8
|
|
|
$
|
205.4
|
|
|
Contract-Manufactured Products
|
18.7
|
|
|
20.5
|
|
|
35.1
|
|
|
33.3
|
|
|
Total business and segment operating profit
|
$
|
234.9
|
|
|
$
|
132.7
|
|
|
$
|
433.9
|
|
|
$
|
238.7
|
|
|
Corporate and Unallocated
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
$
|
(10.3)
|
|
|
$
|
(12.3)
|
|
|
$
|
(16.2)
|
|
|
$
|
(17.7)
|
|
|
Corporate general costs (1)
|
(13.4)
|
|
|
(14.4)
|
|
|
(27.3)
|
|
|
(27.0)
|
|
|
Unallocated Items:
|
|
|
|
|
|
|
|
|
Restructuring and severance related charges
|
(1.0)
|
|
|
(2.2)
|
|
|
(2.2)
|
|
|
(2.2)
|
|
|
Amortization of Acquisition-related Intangible Assets (2)
|
(0.2)
|
|
|
(0.2)
|
|
|
(0.4)
|
|
|
(0.2)
|
|
|
Cost investment activity
|
1.3
|
|
|
—
|
|
|
(0.9)
|
|
|
—
|
|
|
Total Corporate and Unallocated
|
(23.6)
|
|
|
(29.1)
|
|
|
(47.0)
|
|
|
(47.1)
|
|
|
Total consolidated operating profit
|
$
|
211.3
|
|
|
$
|
103.6
|
|
|
$
|
386.9
|
|
|
$
|
191.6
|
|
|
Other expense, net
|
0.3
|
|
1.6
|
|
|
1.0
|
|
3.1
|
|
|
Income before income taxes
|
$
|
211.0
|
|
|
$
|
102.0
|
|
|
$
|
385.9
|
|
|
$
|
188.5
|
|
(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 and six months ended June 30, 2021, the Company recorded $0.2 million and $0.4 million, respectively, of amortization expense within operating profit associated with an intangible asset acquired during the second quarter of 2020.