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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to

Commission File Number 1-8036

WEST PHARMACEUTICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania23-1210010
 (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
530 Herman O. West Drive, Exton, PA
19341-0645
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: 610-594-2900
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.25 per shareWSTNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          Yes No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                      Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                                                     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No 
As of October 18, 2021, there were 74,079,715 shares of the registrant’s common stock outstanding.


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

2

PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

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

 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net sales$706.5 $548.0 $2,100.8 $1,566.7 
Cost of goods and services sold418.3 353.4 1,225.6 1,010.0 
Gross profit288.2 194.6 875.2 556.7 
Research and development13.1 12.5 39.1 34.0 
Selling, general and administrative expenses91.9 76.2 264.8 225.7 
Other expense (income) (Note 15)1.8 6.7 3.0 6.2 
Operating profit181.4 99.2 568.3 290.8 
Interest expense1.8 2.1 5.6 6.1 
Interest income(0.4)(0.2)(0.7)(1.2)
Other nonoperating (income) expense(1.1)(0.4)(3.6)(0.3)
Income before income taxes181.1 97.7 567.0 286.2 
Income tax expense12.0 21.1 73.0 52.1 
Equity in net income of affiliated companies(6.5)(5.7)(20.1)(13.7)
Net income$175.6 $82.3 $514.1 $247.8 
Net income per share:   
Basic$2.37 $1.11 $6.95 $3.35 
Diluted$2.31 $1.09 $6.78 $3.28 
Weighted average shares outstanding:    
Basic74.1 73.9 74.0 73.9 
Diluted76.0 75.8 75.8 75.6 

See accompanying notes to condensed consolidated financial statements.
3

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net income$175.6 $82.3 $514.1 $247.8 
Other comprehensive (loss) income, net of tax:   
Foreign currency translation adjustments(24.2)29.4 (46.9)(4.9)
Defined benefit pension and other postretirement plan adjustments, net of tax of $0.2, $(0.1), $0.4, and $(1.2), respectively
0.4 (0.2)1.1 (4.0)
Net gain (loss) on derivatives, net of tax of $(0.4), $(0.2), $(0.4) and $(0.4), respectively
1.3 (0.9)0.7 (1.0)
Other comprehensive (loss) income, net of tax(22.5)28.3 (45.1)(9.9)
Comprehensive income$153.1 $110.6 $469.0 $237.9 

See accompanying notes to condensed consolidated financial statements.
4

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions, except per share data)September 30,
2021
December 31,
2020
ASSETS  
Current assets:  
Cash and cash equivalents$688.0 $615.5 
Accounts receivable, net476.4 385.3 
Inventories353.8 321.3 
Other current assets80.1 51.6 
Total current assets1,598.3 1,373.7 
Property, plant and equipment2,146.1 2,035.5 
Less: accumulated depreciation and amortization1,139.6 1,092.3 
Property, plant and equipment, net1,006.5 943.2 
Operating lease right-of-use assets58.5 68.3 
Investments in affiliated companies215.7 214.7 
Goodwill108.9 111.1 
Intangible assets, net26.1 30.5 
Deferred income taxes80.0 16.0 
Pension and other postretirement benefits17.0 12.9 
Other noncurrent assets31.6 23.4 
Total Assets$3,142.6 $2,793.8 
LIABILITIES AND EQUITY  
Current liabilities:  
Notes payable and other current debt$44.2 $2.3 
Accounts payable207.7 213.1 
Pension and other postretirement benefits2.4 2.3 
Accrued salaries, wages and benefits114.0 106.0 
Income taxes payable39.5 26.0 
Operating lease liabilities8.1 10.1 
Other current liabilities142.7 143.6 
Total current liabilities558.6 503.4 
Long-term debt209.9 252.9 
Deferred income taxes11.6 10.4 
Pension and other postretirement benefits52.1 57.5 
Operating lease liabilities53.4 60.4 
Deferred compensation benefits26.9 22.9 
Other long-term liabilities27.8 31.8 
Total Liabilities940.3 939.3 
Commitments and contingencies (Note 17)
Equity:
Preferred stock, 3.0 million shares authorized; 0 shares issued and outstanding
  
Common stock, par value $0.25 per share; 200.0 million shares authorized; shares issued: 75.3 million and 75.3 million, respectively; shares outstanding: 74.1 million and 74.0 million, respectively
18.8 18.8 
Capital in excess of par value251.2 267.3 
Retained earnings2,335.8 1,846.7 
Accumulated other comprehensive loss(155.7)(110.6)
Treasury stock, at cost (1.2 million and 1.3 million shares, respectively)
(247.8)(167.7)
Total Equity2,202.3 1,854.5 
Total Liabilities and Equity$3,142.6 $2,793.8 
See accompanying notes to condensed consolidated financial statements.
5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions)
 Nine Months Ended
September 30,
 20212020
Cash flows from operating activities:  
Net income$514.1 $247.8 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation84.6 77.3 
Amortization3.3 3.3 
Stock-based compensation27.5 27.6 
Pension settlement charge0.7 3.4 
Contingent consideration payments in excess of acquisition-date liability(1.0)(0.7)
Other non-cash items, net(17.5)(9.5)
Changes in assets and liabilities
(188.5)(25.4)
Net cash provided by operating activities423.2 323.8 
Cash flows from investing activities:  
Capital expenditures(176.9)(116.7)
Purchase of intangibles (3.8)
Other, net1.2 (1.4)
Net cash used in investing activities(175.7)(121.9)
Cash flows from financing activities:  
Repayments of long-term debt(1.1)(1.7)
Dividend payments(37.8)(35.5)
Proceeds from stock-based compensation awards23.1 22.0 
Employee stock purchase plan contributions5.7 4.6 
Shares purchased under share repurchase programs(137.1)(115.5)
Shares repurchased for employee tax withholdings(14.7)(2.3)
Net cash used in financing activities(161.9)(128.4)
Effect of exchange rates on cash(13.1)6.8 
Net increase (decrease) in cash and cash equivalents72.5 80.3 
Cash, including cash equivalents at beginning of period615.5 439.1 
Cash, including cash equivalents at end of period$688.0 $519.4 

See accompanying notes to condensed consolidated financial statements.
6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Basis of Presentation: The condensed consolidated financial statements included in this report are unaudited and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting and U.S. Securities and Exchange Commission (“SEC”) regulations. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, these financial statements include all adjustments, which are of a normal recurring nature, necessary for a fair statement of the financial position, results of operations, cash flows and the change in equity for the periods presented. The condensed consolidated financial statements for the three and nine months ended September 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, and where applicable, the Company has made contract amendments to reflect the removal of the LIBOR rate.

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.

7

The following table presents the approximate percentage of our net sales by market group:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Biologics
40 %
32 %
40 %
29 %
Generics
 18 %
18 %
17 %
19 %
Pharma
24 %
27 %
24 %
28 %
Contract-Manufactured Products
18 %
23 %
19 %
24 %
100 %
100 %
100 %
100 %

The following table presents the approximate percentage of our net sales by product category:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
High-Value Product Components
55 %
47 %
54 %
45 %
High-Value Product Delivery Devices
5 %
5 %
4 %
5 %
Standard Packaging
22 %
25 %
23 %
26 %
Contract-Manufactured Products
18 %
23 %
19 %
24 %
100 %
100 %
100 %
100 %

The following table presents the approximate percentage of our net sales by geographic location:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Americas
45 %
49 %
45 %
49 %
Europe, Middle East, Africa
45 %
42 %
45 %
43 %
Asia Pacific
10 %
9 %
10 %
8 %
100 %
100 %
100 %
100 %

Contract Assets and Liabilities

The following table summarizes our contract assets and liabilities, excluding amounts included in accounts receivable, net:
($ in millions)
Contract assets, December 31, 2020$10.9 
Contract assets, September 30, 2021
12.8 
Change in contract assets - increase (decrease)$1.9 
Deferred income, December 31, 2020$(57.1)
Deferred income, September 30, 2021
(38.1)
Change in deferred income - decrease (increase)$19.0 

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.
8

During the nine months ended September 30, 2021, $30.0 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 September 30, 2021, there was $4.1 million of unearned income related to this payment, of which $0.9 million was included in other current liabilities and $3.2 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:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2021202020212020
Net income$175.6 $82.3 $514.1 $247.8 
Weighted average common shares outstanding74.1 73.9 74.0 73.9 
Dilutive effect of equity awards, based on the treasury stock method
1.9 1.9 1.8 1.7 
Weighted average shares assuming dilution76.0 75.8 75.8 75.6 

During the three months ended September 30, 2021 and 2020, there were 0.0 million and 0.0 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 0.0 million and 0.2 million antidilutive shares outstanding during the nine months ended September 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 September 30, 2021. During the nine months ended September 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:
($ in millions)September 30,
2021
December 31,
2020
Raw materials$140.4 $133.5 
Work in process71.1 54.9 
Finished goods142.3 132.9 
 $353.8 $321.3 

9

Note 6:  Leases

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

The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2021202020212020
Operating lease cost$3.3 $3.1 $9.5 $9.3 
Short-term lease cost0.4 0.3 0.9 0.6 
Variable lease cost1.1 1.2 3.3 2.8 
Total lease cost$4.8 $4.6 $13.7 $12.7 

Supplemental cash flow information related to leases were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2021202020212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2.9 $3.2 $9.2 $9.6 
Right-of-use assets obtained in exchange for new operating lease liabilities$ $0.3 $0.8 $4.6 

As of September 30, 2021 and December 31, 2020, the weighted average remaining lease term for operating leases was 10.9 and 11.1 years, respectively.

As of September 30, 2021 and December 31, 2020, the weighted average discount rate was 3.67% and 3.68%, respectively.

10

Maturities of operating lease liabilities were as follows:
($ in millions)September 30,December 31,
Year20212020
2021 (remaining period as of )$3.0 $12.4 
202210.3 10.4 
20239.3 9.3 
20248.5 8.7 
20256.8 6.9 
Thereafter36.2 37.5 
74.1 85.2 
Less: imputed lease interest(12.6)(14.7)
Total lease liabilities$61.5 $70.5 

Note 7:  Affiliated Companies

At September 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 $207.1 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 $34.0 million and $119.6 million for the three and nine months ended September 30, 2021, respectively, as compared to $36.6 million and $97.0 million, respectively, for the same periods in 2020. As of September 30, 2021 and December 31, 2020, the payable balance due to affiliates was $13.8 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 $2.8 million and $8.8 million, respectively, for the three and nine months ended September 30, 2021, as compared to $2.7 million and $7.7 million, respectively, for the same periods in 2020. As of September 30, 2021 and December 31, 2020, the receivable balance due from affiliates was $2.2 million and $1.4 million, respectively.

Please refer to Note 7, Affiliated Companies, to the consolidated financial statements in our 2020 Annual Report for additional details.

11

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 September 30, 2021.
($ in millions)September 30,
2021
December 31,
2020
Term Loan, due December 31, 2024 (1.01%)
$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 costs0.5 0.5 
Total debt254.1 255.2 
Less: current portion of long-term debt44.2 2.3 
Long-term debt, net$209.9 $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 September 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 September 30, 2021, we had $86.6 million in borrowings under the Term Loan, of which $2.2 million was classified as current and $84.4 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 September 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.

12

In addition, we have entered into several foreign currency contracts, designated as cash flow hedges, for periods of up to eighteen months, intended to hedge the currency risk associated with a portion of our forecasted transactions denominated in foreign currencies. As of September 30, 2021, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:

(in millions)Sell
CurrencyPurchaseUSDEuro
USD28.8  24.0 
Yen6,131.7 24.6 27.7 
SGD28.7 17.8 3.0 

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 ¥9.4 billion ($86.1 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 September 2021, we purchased several series of call options for a total of 596,367 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 September 30, 2021, we had outstanding contracts to purchase 182,495 barrels of crude oil from October 2021 to March 2023, at a weighted-average strike price of $70.40 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 September 30, 2021 and December 31, 2020.

13

The following table summarizes the effects of derivative instruments designated as fair value hedges on the condensed consolidated statements of income:
Amount of (Gain) Loss Recognized in Income for theAmount of (Gain) Loss Recognized in Income for the
Three Months Ended
September 30,
Nine Months Ended
September 30,
Location on Statement of Income
($ in millions)2021202020212020
Fair Value Hedges:
Hedged item (intercompany loan)
$(5.9)$9.3 $(11.0)$25.1 Other expense (income)
Derivative designated as hedging instrument
5.9 (9.3)11.0 (25.1)Other expense (income)
Amount excluded from effectiveness testing
(0.9)(1.9)(2.1)(5.9)Other expense (income)
Total$(0.9)$(1.9)$(2.1)$(5.9)

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 nine months ended September 30, 2021 and 2020 were $0.6 million, $1.9 million, and $1.3 million, $5.0 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:
 Amount of Gain (Loss) Recognized in OCI for theAmount of (Gain) Loss Reclassified from Accumulated OCI into Income for theLocation of (Gain) Loss Reclassified from Accumulated OCI into Income
Three Months Ended
September 30,
Three Months Ended
September 30,
($ in millions)2021202020212020 
Fair Value Hedges
Foreign currency hedge contracts$(0.2)$(0.1)$0.1 $(0.7)Other expense (income)
Total$(0.2)$(0.1)$0.1 $(0.7)
Cash Flow Hedges:     
Foreign currency hedge contracts$0.1 $(0.5)$0.1 $0.2 Net sales
Foreign currency hedge contracts1.4  (0.3)0.1 Cost of goods and services sold
Forward treasury locks  0.1 0.1 Interest expense
Total$1.5 $(0.5)$(0.1)$0.4  
Net Investment Hedges:     
Cross-currency swap$0.6 $(3.0)$ $ Other expense (income)
Total$0.6 $(3.0)$ $  
14

 Amount of Gain (Loss) Recognized in OCI for theAmount of (Gain) Loss Reclassified from Accumulated OCI into Income for theLocation of (Gain) Loss Reclassified from Accumulated OCI into Income
Nine Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2021202020212020 
Fair Value Hedges
Foreign currency hedge contracts$(0.6)$2.8 $0.9 $(3.3)Other expense (income)
Total$(0.6)$2.8 $0.9 $(3.3)
Cash Flow Hedges:     
Foreign currency hedge contracts$(0.5)$ $0.9 $(0.3)Net sales
Foreign currency hedge contracts(1.4)(0.3)1.2 (0.1)Cost of goods and services sold
Forward treasury locks  0.2 0.2 Interest expense
Total$(1.9)$(0.3)$2.3 $(0.2) 
Net Investment Hedges:     
Cross-currency swap$6.0 $(2.0)$ $ Other expense (income)
Total$6.0 $(2.0)$ $  

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
September 30,
Nine Months Ended
September 30,
($ in millions)2021202020212020
Net sales$0.1 $0.2 $0.9 $(0.3)
Cost of goods and services sold(0.3)0.1 1.2 (0.1)
Interest expense0.1 0.1 0.2 0.2 
Other expense (income)0.1 (0.7)0.9 (3.3)

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 theAmount of Gain (Loss) Recognized in Income for the
Three Months Ended
September 30,
Nine Months Ended
September 30,
Location on Statement of Income
($ in millions)2021202020212020
Commodity call options$0.5 $0.1 $1.6 $0.3 Other expense (income)
Total$0.5 $0.1 $1.6 $0.3 

For the three and nine months ended September 30, 2021 and 2020, there was no material ineffectiveness related to our hedges.

15

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 atBasis of Fair Value Measurements
($ in millions)September 30,
2021
Level 1Level 2Level 3
Assets:    
Deferred compensation assets$14.4 $14.4 $ $ 
Foreign currency contracts12.0  12.0  
Cross-currency swap2.2  2.2  
Commodity call options1.8  1.8  
 $30.4 $14.4 $16.0 $ 
Liabilities:    
Contingent consideration$3.5 $ $ $