10-Q 1 wst-20220331.htm 10-Q wst-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
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 April 15, 2022, there were 74,075,617 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
March 31,
 20222021
Net sales$720.0 $670.7 
Cost of goods and services sold435.4 398.8 
Gross profit284.6 271.9 
Research and development14.6 12.2 
Selling, general and administrative expenses83.4 80.2 
Other (income) expense (Note 15)(3.1)3.9 
Operating profit189.7 175.6 
Interest expense2.2 1.9 
Interest income(0.3)(0.1)
Other nonoperating (income) expense (1.1)
Income before income taxes187.8 174.9 
Income tax expense21.2 28.7 
Equity in net income of affiliated companies(7.2)(5.0)
Net income$173.8 $151.2 
Net income per share: 
Basic$2.34 $2.04 
Diluted$2.29 $1.99 
Weighted average shares outstanding:  
Basic74.4 73.9 
Diluted76.0 75.8 

See accompanying notes to condensed consolidated financial statements.
3

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions)
 Three Months Ended
March 31,
 20222021
Net income$173.8 $151.2 
Other comprehensive loss, net of tax: 
Foreign currency translation adjustments(22.1)(28.4)
Defined benefit pension and other postretirement plan adjustments, net of tax of $0.3 and $0.2
0.9 0.6 
Net loss on derivatives, net of tax of $(0.8) and $(0.7)
(1.6)(1.8)
Other comprehensive loss, net of tax(22.8)(29.6)
Comprehensive income$151.0 $121.6 

See accompanying notes to condensed consolidated financial statements.
4

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions, except per share data)
 March 31,
2022
December 31,
2021
ASSETS  
Current assets:  
Cash and cash equivalents$667.7 $762.6 
Accounts receivable, net498.7 489.0 
Inventories416.5 378.4 
Other current assets107.6 112.0 
Total current assets1,690.5 1,742.0 
Property, plant and equipment2,237.0 2,215.0 
Less: accumulated depreciation and amortization1,171.1 1,157.5 
Property, plant and equipment, net1,065.9 1,057.5 
Operating lease right-of-use assets75.6 69.3 
Investments in affiliated companies208.1 207.7 
Goodwill108.8 109.9 
Intangible assets, net21.8 23.0 
Deferred income taxes66.4 48.5 
Pension and other postretirement benefits17.1 16.7 
Other noncurrent assets40.5 39.2 
Total Assets$3,294.7 $3,313.8 
LIABILITIES AND EQUITY  
Current liabilities:  
Notes payable and other current debt$44.2 $44.2 
Accounts payable248.2 232.2 
Pension and other postretirement benefits2.4 2.4 
Accrued salaries, wages and benefits77.5 116.3 
Income taxes payable34.7 26.3 
Operating lease liabilities9.8 9.3 
Other current liabilities168.0 163.4 
Total current liabilities584.8 594.1 
Long-term debt208.3 208.8 
Deferred income taxes3.3 4.9 
Pension and other postretirement benefits38.7 40.5 
Operating lease liabilities68.9 63.0 
Deferred compensation benefits26.3 28.9 
Other long-term liabilities38.2 38.2 
Total Liabilities968.5 978.4 
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 in 2022 and 2021; shares outstanding: 74.1 million and 74.2 million
18.8 18.8 
Capital in excess of par value219.9 249.0 
Retained earnings2,617.3 2,456.7 
Accumulated other comprehensive loss(182.4)(159.6)
Treasury stock, at cost (1.2 million and 1.1 million shares)
(347.4)(229.5)
Total Equity2,326.2 2,335.4 
Total Liabilities and Equity$3,294.7 $3,313.8 
See accompanying notes to condensed consolidated financial statements.

5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions)
 Three Months Ended
March 31,
 20222021
Cash flows from operating activities:  
Net income$173.8 $151.2 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation28.7 28.0 
Amortization0.9 1.1 
Stock-based compensation5.5 5.9 
Pension settlement charge0.6 0.6 
Contingent consideration payments in excess of acquisition-date liability(0.4)(0.4)
Other non-cash items, net(7.7)(2.8)
Changes in assets and liabilities
(50.2)(94.9)
Net cash provided by operating activities151.2 88.7 
Cash flows from investing activities:  
Capital expenditures(65.8)(54.7)
Other, net(2.5)0.2 
Net cash used in investing activities(68.3)(54.5)
Cash flows from financing activities:  
Repayments of long-term debt(0.6)(0.6)
Debt issuance costs(1.1) 
Dividend payments(13.4)(12.6)
Proceeds from stock-based compensation awards6.3 5.8 
Employee stock purchase plan contributions2.0 1.8 
Shares purchased under share repurchase program(147.1)(137.1)
Shares repurchased for employee tax withholdings(18.8)(13.7)
Net cash used in financing activities(172.7)(156.4)
Effect of exchange rates on cash(5.1)(9.6)
Net decrease in cash and cash equivalents(94.9)(131.8)
Cash, including cash equivalents at beginning of period762.6 615.5 
Cash, including cash equivalents at end of period$667.7 $483.7 

See accompanying notes to condensed consolidated financial statements.
6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Basis of Presentation: The condensed consolidated financial statements included in this report are unaudited and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting and U.S. Securities and Exchange Commission (“SEC”) regulations. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, these financial statements include all adjustments, which are of a normal recurring nature, necessary for a fair statement of the financial position, results of operations, cash flows and the change in equity for the periods presented. The condensed consolidated financial statements for the three months ended March 31, 2022, 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, 2021 (the “2021 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 coronavirus (“COVID-19”) situation and its impact globally. Our production facilities continue to operate as they had prior to the COVID-19 pandemic, other than for enhanced safety measures intended to prevent the spread of the virus. The remote working arrangements and travel restrictions imposed by various governments 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

Recently Adopted Standards

In November 2021, the Financial Accounting Standards Board ("FASB") issued guidance that seeks to improve the transparency of financial disclosures for government assistance received by business entities. The amendment requires disclosures for transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. This guidance is effective for fiscal years beginning after December 15, 2021. We adopted this guidance as of January 1, 2022, on a prospective basis. The adoption did not have a material impact on our financial statements.

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 have identified the contracts impacted by reference rate reform, and have executed certain amendments to replace the use of LIBOR. The Company does not expect such adoption to cause a material impact to the consolidated financial statements.

7

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:
Three Months Ended
March 31,
20222021
Biologics
43 %
39 %
Generics
 17 %
18 %
Pharma
24 %
24 %
Contract-Manufactured Products
16 %
19 %
100 %
100 %

The following table presents the approximate percentage of our net sales by product category:
Three Months Ended
March 31,
20222021
High-Value Product Components
56 %
52 %
High-Value Product Delivery Devices
5 %
5 %
Standard Packaging
23 %
24 %
Contract-Manufactured Products
16 %
19 %
100 %
100 %

The following table presents the approximate percentage of our net sales by geographic location:
Three Months Ended
March 31,
20222021
Americas
45 %
46 %
Europe, Middle East, Africa
45 %
44 %
Asia Pacific
10 %
10 %
100 %
100 %









8

Contract Assets and Liabilities

The following table summarizes our contract assets and liabilities, excluding contract assets included in accounts receivable, net:
($ in millions)
Contract assets, December 31, 2021$14.6 
Contract assets, March 31, 2022
14.8 
Change in contract assets - increase (decrease)$0.2 
Deferred income, December 31, 2021$(61.3)
Deferred income, March 31, 2022
(56.8)
Change in deferred income - decrease (increase)$4.5 

During the three months ended March 31, 2022, $9.7 million of revenue was recognized that was included in deferred income at the beginning of the year.

The majority of the performance obligations within our contracts are satisfied within one year or less. Performance obligations satisfied beyond one year include those relating to a nonrefundable customer payment of $20.0 million received in June 2013 in return for the exclusive use of the SmartDose® technology platform within a specific therapeutic area. As of March 31, 2022, there was $3.7 million of unearned income related to this payment, of which $0.9 million was included in other current liabilities and $2.8 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
March 31,
(in millions)20222021
Net income$173.8 $151.2 
Weighted average common shares outstanding74.4 73.9 
Dilutive effect of equity awards, based on the treasury stock method
1.6 1.9 
Weighted average shares assuming dilution76.0 75.8 

During the three months ended March 31, 2022 and 2021, there were 0.0 million and 0.1 million shares, respectively, from stock-based compensation plans not included in the computation of diluted net income per share because their impact was antidilutive.

In December 2021, our Board of Directors approved a share repurchase program for calendar-year 2022 authorizing the repurchase of up to 650,000 shares of our common stock from time to time on the open market as permitted under Exchange Act Rule 10b-18 or in privately-negotiated transactions. The number of shares to be repurchased and the timing of such transactions will depend on a variety of factors, including market conditions. This share repurchase program is expected to be completed by December 31, 2022.

During the three months ended March 31, 2022, we purchased 390,000 shares of our common stock under the program at a cost of $147.1 million, or an average price of $377.23 per share.

9

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)March 31,
2022
December 31,
2021
Raw materials$167.4 $153.8 
Work in process70.2 63.5 
Finished goods178.9 161.1 
 $416.5 $378.4 

Note 6:  Leases

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

The components of lease expense were as follows:
Three Months Ended
March 31,
($ in millions)20222021
Operating lease cost$3.3 $3.1 
Short-term lease cost0.4 0.2 
Variable lease cost1.4 0.8 
Total lease cost$5.1 $4.1 

Supplemental cash flow information related to leases was as follows:
Three Months Ended
March 31,
($ in millions)20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$3.2 $3.2 
Right-of-use assets obtained in exchange for new operating lease liabilities$9.7 $0.5 

As of March 31, 2022 and December 31, 2021, the weighted average remaining lease term for operating leases was 10.4 years and 10.7 years, respectively.

As of March 31, 2022 and December 31, 2021, the weighted average discount rate was 3.52% and 3.58%, respectively.

10

Maturities of operating lease liabilities were as follows:
($ in millions)March 31,December 31,
Year20222021
2022 (remaining period as of)$9.3 $11.5 
202311.7 10.7 
202411.1 10.0 
20259.4 8.2 
20268.4 7.3 
Thereafter43.8 38.7 
93.7 86.4 
Less: imputed lease interest(15.0)(14.1)
Total lease liabilities$78.7 $72.3 

Note 7:  Affiliated Companies

At March 31, 2022 and December 31, 2021, the aggregate carrying amount of our investment in affiliated companies that are accounted for under the equity method was $198.0 million and $201.2 million, respectively, and the aggregate carrying amount of our investment in affiliated companies that are not accounted for under the equity method was $10.1 million and $6.5 million at March 31, 2022 and December 31, 2021, 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 $58.5 million for the three months ended March 31, 2022, as compared to $38.0 million for the same period in 2021. As of March 31, 2022 and December 31, 2021, the payable balance due to affiliates was $45.1 million and $25.5 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 $4.0 million for the three months ended March 31, 2022, as compared to $2.9 million for the same period in 2021. As of March 31, 2022 and December 31, 2021, the receivable balance due from affiliates was $3.3 million and $2.3 million, respectively.

Please refer to Note 7, Affiliated Companies, to the consolidated financial statements in our 2021 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 March 31, 2022.
($ in millions)March 31,
2022
December 31,
2021
Term Loan, due December 31, 2024 (1.63%)
$84.9 $85.5 
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 
252.9 253.5 
Less: unamortized debt issuance costs0.4 0.5 
Total debt252.5 253.0 
Less: current portion of long-term debt44.2 44.2 
Long-term debt, net$208.3 $208.8 

Credit Facility

In March 2022, we amended and extended the existing credit facility (entered into in March 2019), which was scheduled to expire in March 2024, from $300.0 million to a $500.0 million senior unsecured revolving credit facility by entering into a Second Amendment and Joinder and Assumption Agreement (the "Amended Credit Agreement"), filed on Form 8-K dated March 31, 2022. The Amended Credit Agreement, which expires March 2027, contains a senior unsecured, multi-currency revolving credit facility of $500.0 million, with sublimits of up to $50.0 million for swing line loans for Domestic Borrowers in U.S. dollars and a $40.0 million swing line loan for West Pharmaceuticals Services Holding GmbH and up to $50.0 million for the issuance of standby letters of credit. The credit facility may be increased from time-to-time by the greater of (a) $929.0 million or (b) EBITDA for the preceding twelve month period in the aggregate through an increase in the revolving credit facility, subject to the satisfaction of certain conditions. Borrowings under the credit facility bear interest, at the Company’s option, at either: (a) the Term Secured Overnight Financing Rate (“SOFR”) plus 0.10% plus an applicable margin; or (b) a base rate defined as the highest of: (i) the Bank of America “prime rate”; (ii) the Federal Funds effective rate plus 0.50%; and (iii) Term SOFR plus 1.00%. The applicable margin is based on the ratio of the Company’s Net Consolidated Debt to its modified EBITDA, ranging from 0 to 37.5 basis points for base rate loans and 87.5 to 137.5 basis points for Term SOFR loans. The Amended Credit Agreement contains financial covenants providing that the Company shall not permit the ratio of the Company’s Net Consolidated Debt to its Modified EBITDA to be greater than 3.5 to 1; provided that, no more than three times during the term of the Amended Credit Agreement, upon the occurrence of a Qualified Acquisition for each of the four fiscal quarters of the Company immediately following such Qualified Acquisition, the ratio set forth above shall be increased to 4.0 to 1. The Amended Credit Agreement also contains customary limitations on liens securing indebtedness of the Company and its subsidiaries, fundamental changes (mergers, consolidations, liquidations and dissolutions), asset sales, distributions and acquisitions.

At March 31, 2022, the borrowing capacity available under our $500.0 million multi-currency revolving credit facility, including outstanding letters of credit of $2.4 million, was $497.6 million.

Term Loan

At March 31, 2022, we had $84.9 million in borrowings under the Term Loan, of which $2.2 million was classified as current and $82.7 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.

Please refer to Note 10, Debt, to the consolidated financial statements in our 2021 Annual Report for additional details regarding our debt agreements.
12

Note 9:  Derivative Financial Instruments

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

Foreign Exchange Rate Risk

We have entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany loans. As of both March 31, 2022 and December 31, 2021, 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 March 31, 2022, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:
(in millions)Sell
CurrencyPurchaseUSDEUR
USD14.4  12.1 
JPY5,386.8 20.0 24.2 
SGD8.3 5.6 0.6 

In December 2019, we entered into a cross-currency swap for $90 million, which we designated as a hedge of our net investment in Daikyo. As of March 31, 2022, the notional amount of the cross-currency swap was ¥9.3 billion ($84.9 million) and the swap termination date is December 31, 2024. Under the cross-currency swap, we receive floating interest rate payments based on USD compounded SOFR plus a margin, in return for paying floating interest rate payments based on Japanese Yen (“Yen”) Tokyo Overnight Average Rate ("TONAR") plus a margin.

Commodity Price Risk

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

From November 2017 through March 2022, we purchased several series of call options for a total of 640,267 barrels of crude oil to mitigate our exposure to such oil-based surcharges and protect operating cash flows with regards to a portion of our forecasted elastomer purchases.

As of March 31, 2022, we had outstanding contracts to purchase 154,320 barrels of crude oil from March 2022 to June 2023, at a weighted-average strike price of $76.06 per barrel.

Effects of Derivative Instruments on Financial Position and Results of Operations

Please refer to Note 10, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of March 31, 2022 and December 31, 2021.

13

The following table summarizes the effects of derivative instruments designated as fair value hedges on the condensed consolidated statements of income:
Amount of Gain (Loss) Recognized in Income for the
Three Months Ended
March 31,
Location on Statement of Income
($ in millions)20222021
Fair Value Hedges:
Hedged item (intercompany loan)
$(9.6)$(9.9)Other (income) expense
Derivative designated as hedging instrument
9.6 9.9 Other (income) expense
Amount excluded from effectiveness testing
0.8 0.6 Other (income) expense
Total$0.8 $0.6 

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 months ended March 31, 2022 and 2021 were $0.8 million and $0.6 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 (Loss) Gain Recognized in OCI for theAmount of (Gain) Loss Reclassified from Accumulated OCI into Income for theLocation of (Gain) Loss Reclassified from Accumulated OCI into Income
Three Months Ended
March 31,
Three Months Ended
March 31,
($ in millions)2022202120222021 
Fair Value Hedges:
Foreign currency hedge contracts$(1.2)$(0.6)$ $0.4 Other (income) expense
Total$(1.2)$(0.6)$ $0.4 
Cash Flow Hedges:     
Foreign currency hedge contracts$0.4 $(0.1)$(0.3)$0.3 Net sales
Foreign currency hedge contracts(1.1)(1.9)0.5  Cost of goods and services sold
Forward treasury locks  0.1 0.1 Interest expense
Total$(0.7)$(2.0)$0.3 $0.4  
Net Investment Hedges:     
Cross-currency swap$3.3 $5.0 $ $ Other (income) expense
Total$3.3 $5.0 $ $  





14

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
March 31,
($ in millions)20222021
Net sales$(0.3)$0.3 
Cost of goods and services sold0.5  
Interest expense0.1 0.1 
Other (income) expense 0.4 


The following table summarizes the effects of derivative instruments not designated as hedges on the condensed consolidated statements of income:
Amount of Gain (Loss) Recognized in Income for the
Three Months Ended
March 31,
Location on Statement of Income
($ in millions)20222021
Commodity call options$2.8 $(0.5)Other (income) expense
Total$2.8 $(0.5)

For the three months ended March 31, 2022 and 2021, 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.
15

The following tables present the assets and liabilities recorded at fair value on a recurring basis:
 Balance atBasis of Fair Value Measurements
($ in millions)March 31,
2022
Level 1Level 2Level 3
Assets:    
Deferred compensation assets$15.0 $15.0 $ $ 
Foreign currency contracts23.3  23.3  
Cross-currency swap8.7  8.7  
Commodity call options3.9  3.9  
 $50.9 $15.0 $35.9 $ 
Liabilities:    
Contingent consideration$4.0 $ $ $4.0 
Deferred compensation liabilities15.4 15.4   
Foreign currency contracts4.5  4.5  
 $23.9 $15.4 $4.5 $4.0 

 Balance atBasis of Fair Value Measurements
($ in millions)December 31,
2021
Level 1Level 2Level 3
Assets:    
Deferred compensation assets$15.5 $15.5 $ $ 
Foreign currency contracts14.8  14.8  
Cross-currency swap4.4  4.4  
Commodity call options1.7  1.7  
 $36.4 $15.5 $20.9 $ 
Liabilities:    
Contingent consideration$3.7 $ $ $3.7 
Deferred compensation liabilities16.1 16.1   
Foreign currency contracts3.4  3.4  
 $23.2 $16.1 $3.4 $3.7 

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



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Other Financial Instruments

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

The estimated fair value of long-term debt is based on quoted market prices for debt issuances with similar terms and maturities and is classified as Level 2 within the fair value hierarchy. At March 31, 2022, the estimated fair value of long-term debt was $210.4 million compared to a carrying amount of $208.3 million. At December 31, 2021, the estimated fair value of long-term debt was $217.9 million and the carrying amount was $208.8 million.

Note 11: Accumulated Other Comprehensive Loss

The following table presents the changes in the components of accumulated other comprehensive income ("AOCI") (loss), net of tax, for the three months ended March 31, 2022:
($ in millions)(Losses) gains on
derivatives
Change in equity affiliate investment AOCIDefined benefit
pension and other
postretirement plans
Foreign
currency
translation
Total
Balance, December 31, 2021$(1.2)$1.5 $(31.8)$(128.1)$(159.6)
Other comprehensive (loss) income before reclassifications(1.9) 0.4 (22.1)(23.6)
Amounts reclassified out from accumulated other comprehensive (loss) income 0.3  0.5  0.8 
Other comprehensive (loss) income, net of tax(1.6) 0.9 (22.1)(22.8)
Balance, March 31, 2022$(2.8)$1.5 $(30.9)$(150.2)$(182.4)


The following table presents the changes in the components of accumulated other comprehensive income ("AOCI") (loss), net of tax, for the three months ended March 31, 2021:
($ in millions)(Losses) gains on
derivatives
Change in equity affiliate investment AOCIDefined benefit
pension and other
postretirement plans
Foreign
currency
translation
Total
Balance, December 31, 2020$(1.9)$0.6 $(40.5)$(68.8)$(110.6)
Other comprehensive (loss) income before reclassifications(2.6) 0.1 (28.4)(30.9)
Amounts reclassified out from accumulated other comprehensive (loss) income 0.8  0.5  1.3 
Other comprehensive (loss) income, net of tax(1.8) 0.6 (28.4)(29.6)
Balance, March 31, 2021$(3.7)$0.6 $(39.9)$(97.2)$(140.2)









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A summary of the reclassifications out of accumulated other comprehensive loss is presented in the following table:
($ in millions)Three Months Ended
March 31,
Location on Statement of Income
Detail of components20222021
(Losses) gains on derivatives:
Foreign currency contracts$0.3 $(0.3)Net sales
Foreign currency contracts(0.5) Cost of goods and services sold
Foreign currency contracts (0.6)Other (income) expense
Forward treasury locks(0.1)(0.1)Interest expense
Total before tax(0.3)(1.0)
Tax benefit 0.2 
Net of tax$(0.3)$(0.8)
Amortization of defined benefit pension and other postretirement plans:
Prior service credit$ $0.1 (a)
Actuarial losses (0.1)(a)
Settlements(0.6)(0.6)(a)
Total before tax(0.6)(0.6)
Tax benefit 0.1 0.1 
Net of tax$(0.5)$(0.5)
Total reclassifications for the period, net of tax$(0.8)$(1.3)

(a) These components are included in the computation of net periodic benefit cost. Please refer to Note 14, Benefit Plans, for additional details.
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Note 12: Shareholders Equity

The following table presents the changes in shareholders’ equity for the three months ended March 31, 2022:
Common Shares IssuedCommon StockCapital in Excess of Par ValueNumber of Treasury SharesTreasury StockRetained earningsAccumulated other comprehensive lossTotal
(in millions)
Balance, December 31, 202175.3 $18.8 $249.0 1.1 $(229.5)$2,456.7 $(159.6)$2,335.4 
Net income— — — — — 173.8 — 173.8 
Activity related to stock-based compensation— — (29.1)(0.3)29.2 — — 0.1 
Shares purchased under share repurchase program— — — 0.4 (147.1)— — (147.1)
Dividends declared ($0.18 per share)
— — — — — (13.2)— (13.2)
Other comprehensive loss, net of tax— — — — — — (22.8)(22.8)
Balance, March 31, 202275.3 $18.8 $219.9 1.2 $(347.4)$2,617.3 $(182.4)$2,326.2