Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF INCOME

West Pharmaceutical Services, Inc. and Subsidiaries for the years ended December 31, 2014, 2013 and 2012

(In millions, except per share data)

		2014				2013				2012
Net sales		$	1,421.4			$	1,368.4			$	1,266.4
Cost of goods and services sold		973.6				933.7				878.7
Gross profit		447.8				434.7				387.7
Research and development		37.3				37.9				33.2
Selling, general and administrative expenses		228.7				234.9				218.1
Other (income) expense (Note 14)		(0.2		)		(0.5		)		1.3
Operating profit		182.0				162.4				135.1
Loss on debt extinguishment		—				0.2				11.6
Interest expense		16.5				17.0				16.7
Interest income		3.5				1.9				1.8
Income before income taxes		169.0				147.1				108.6
Income tax expense		47.2				40.2				32.7
Equity in net income of affiliated companies		5.3				5.4				4.8
Net income		$	127.1			$	112.3			$	80.7
Net income per share:
Basic		$	1.79			$	1.61			$	1.19
Diluted		$	1.75			$	1.57			$	1.15
Weighted average shares outstanding:
Basic		70.9				69.6				68.1
Diluted		72.8				71.4				71.8
Dividends declared per share		$	0.41			$	0.39			$	0.37

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

West Pharmaceutical Services, Inc. and Subsidiaries for the years ended December 31, 2014, 2013 and 2012

(In millions)

	2014				2013				2012
Net income	$	127.1			$	112.3			$	80.7
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(71.3		)		(0.9		)		7.0
Defined benefit pension and other postretirement plans:
Net actuarial (loss) gain arising during period, net of tax of $(10.6), $20.3 and $(6.2)	(18.9		)		33.7				(13.2		)
Less: amortization of actuarial loss, net of tax of $1.1, $3.6 and $2.8	2.0				4.9				5.7
Less: amortization of prior service credit, net of tax of $(0.5), $(0.5) and $(0.5)	(0.8		)		(0.8		)		(0.8		)
Less: amortization of transition obligation	0.1				0.1				0.1
Net gains on investment securities, net of tax of $0.2, $2.1 and $0.2	0.4				3.5				0.4
Net gains (losses) on derivatives, net of tax of $0.9, 1.8 and $(2.1)	1.7				3.0				(3.6		)
Other comprehensive (loss) income, net of tax	(86.8		)		43.5				(4.4		)
Comprehensive income	$	40.3			$	155.8			$	76.3

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

West Pharmaceutical Services, Inc. and Subsidiaries at December 31, 2014 and 2013

(In millions, except per share data)

	2014				2013
ASSETS
Current assets:
Cash and cash equivalents	$	255.3			$	230.0
Accounts receivable, net	179.0				185.7
Inventories	181.5				176.9
Deferred income taxes	7.8				15.9
Other current assets	35.7				42.2
Total current assets	659.3				650.7
Property, plant and equipment	1,390.8				1,369.0
Less accumulated depreciation and amortization	685.0				657.3
Property, plant and equipment, net	705.8				711.7
Investments in affiliated companies	60.6				60.9
Goodwill	108.6				114.2
Deferred income taxes	66.1				61.8
Intangible assets, net	42.0				48.3
Other noncurrent assets	28.5				24.0
Total Assets	$	1,670.9			$	1,671.6
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and other current debt	$	27.2			$	2.2
Accounts payable	103.1				108.0
Pension and other postretirement benefits	2.6				2.2
Accrued salaries, wages and benefits	52.9				59.1
Income taxes payable	14.9				14.6
Other current liabilities	51.8				50.8
Total current liabilities	252.5				236.9
Long-term debt	309.5				371.3
Deferred income taxes	15.7				18.9
Pension and other postretirement benefits	83.7				83.1
Other long-term liabilities	52.6				55.0
Total Liabilities	714.0				765.2
Commitments and contingencies (Note 16)
Equity:
Preferred stock, 3.0 million shares authorized; 0 shares issued and 0 shares outstanding in 2014 and 2013	—				—
Common stock, par value $.25 per share; 100.0 million shares authorized; shares issued: 71.4 million and 70.4 million; shares outstanding: 71.3 million and 70.2 million	17.8				17.6
Capital in excess of par value	160.2				120.0
Retained earnings	902.2				805.0
Accumulated other comprehensive loss	(119.2		)		(32.4		)
Treasury stock, at cost (0.1 and 0.2 million shares in 2014 and 2013)	(4.1		)		(3.8		)
Total Equity	956.9				906.4
Total Liabilities and Equity	$	1,670.9			$	1,671.6

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENT OF EQUITY

West Pharmaceutical Services, Inc. and Subsidiaries for the years ended December 31, 2014, 2013 and 2012

(In millions)

	Common Shares Issued			Common Stock				Capital in Excess of Par Value				Number of Treasury Shares			Treasury Stock				Retained earnings				Accumulated other comprehensive loss				Total
Balance, December 31, 2011	68.6			$	17.2			$	67.7			1.2			$	(23.0	)		$	664.5			$	(71.5	)		$	654.9
Net income	—			—				—				—			—				80.7				—				80.7
Stock-based compensation	—			—				10.9				—			—				—				—				10.9
Shares issued under stock plans	0.2			—				(12.5		)		(1.2	)		24.4				—				—				11.9
Shares repurchased for employee tax withholdings	—			—				(0.3		)		0.2			(4.4		)		—				—				(4.7		)
Excess tax benefit from employee stock plans	—			—				4.9				—			—				—				—				4.9
Dividends declared	—			—				—				—			—				(25.3		)		—				(25.3		)
Other comprehensive loss, net of tax	—			—				—				—			—				—				(4.4		)		(4.4		)
Balance, December 31, 2012	68.8			17.2				70.7				0.2			(3.0		)		719.9				(75.9		)		728.9
Net income	—			—				—				—			—				112.3				—				112.3
Stock-based compensation	—			—				15.3				—			—				—				—				15.3
Shares issued under stock plans	1.8			0.4				30.9				—			(0.8		)		—				—				30.5
Shares repurchased for employee tax withholdings	(0.2	)		—				(5.2		)		—			—				—				—				(5.2		)
Excess tax benefit from employee stock plans	—			—				8.3				—			—				—				—				8.3
Dividends declared	—			—				—				—			—				(27.2		)		—				(27.2		)
Other comprehensive income, net of tax	—			—				—				—			—				—				43.5				43.5
Balance, December 31, 2013	70.4			17.6				120.0				0.2			(3.8		)		805.0				(32.4		)		906.4
Net income	—			—				—				—			—				127.1				—				127.1
Stock-based compensation	—			—				15.5				—			(0.3		)		—				—				15.2
Shares issued under stock plans	1.1			0.2				20.9				(0.1	)		—				—				—				21.1
Shares repurchased for employee tax withholdings	(0.1	)		—				(4.1		)		—			—				—				—				(4.1		)
Excess tax benefit from employee stock plans	—			—				7.9				—			—				—				—				7.9
Dividends declared	—			—				—				—			—				(29.9		)		—				(29.9		)
Other comprehensive loss, net of tax	—			—				—				—			—				—				(86.8		)		(86.8		)
Balance, December 31, 2014	71.4			$	17.8			$	160.2			0.1			$	(4.1	)		$	902.2			$	(119.2	)		$	956.9

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

West Pharmaceutical Services, Inc. and Subsidiaries for the years ended December 31, 2014, 2013 and 2012

(In millions)

	2014				2013				2012
Cash flows from operating activities:
Net income	$	127.1			$	112.3			$	80.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	84.8				81.0				72.8
Amortization	5.2				4.2				4.1
Loss on debt extinguishment	—				0.2				11.6
Stock-based compensation	18.6				21.2				15.5
Loss on sales of equipment	0.3				0.4				1.7
Asset impairments	—				—				6.2
Deferred income taxes	7.0				1.7				5.3
Pension and other retirement plans, net	(25.0		)		8.0				(2.7		)
Equity in undistributed earnings of affiliates, net of dividends	(4.5		)		(4.8		)		(4.5		)
Changes in assets/liabilities, net of acquisitions:
Increase in accounts receivable	(6.3		)		(9.1		)		(25.7		)
Increase in inventories	(16.2		)		(13.9		)		(8.9		)
(Increase) decrease in other current assets	(11.7		)		(0.6		)		5.8
(Decrease) increase in accounts payable	(3.5		)		4.6				5.8
Changes in other assets and liabilities	7.1				15.3				19.7
Net cash provided by operating activities	182.9				220.5				187.4
Cash flows from investing activities:
Capital expenditures	(111.9		)		(151.9		)		(131.3		)
Acquisition of patents and other long-term assets	(0.2		)		(3.9		)		(0.7		)
Sales and maturities of short-term investments	16.8				19.1				45.6
Purchases of short-term investments	(9.3		)		(14.2		)		(31.2		)
Other, net	0.6				1.0				1.6
Net cash used in investing activities	(104.0		)		(149.9		)		(116.0		)
Cash flows from financing activities:
Borrowings under revolving credit agreements	263.4				292.7				568.3
Repayments under revolving credit agreements	(283.4		)		(311.0		)		(502.6		)
Debt issuance costs	—				—				(7.5		)
Repayments of long-term debt	(2.3		)		(30.5		)		(215.9		)
Issuance of long-term debt	—				43.2				168.1
Dividend payments	(29.1		)		(26.7		)		(24.9		)
Contingent consideration payments	(0.3		)		(0.1		)		—
Proceeds from exercise of stock options and stock appreciation rights	14.3				21.7				8.7
Employee stock purchase plan contributions	2.8				2.5				2.2
Excess tax benefit from employee stock plans	7.9				8.3				4.9
Shares repurchased for employee tax withholdings	(4.1		)		(5.2		)		(4.7		)
Net cash used in financing activities	(30.8		)		(5.1		)		(3.4		)
Effect of exchange rates on cash	(22.8		)		2.6				2.1
Net increase in cash and cash equivalents	25.3				68.1				70.1
Cash, including cash equivalents at beginning of period	230.0				161.9				91.8
Cash, including cash equivalents at end of period	$	255.3			$	230.0			$	161.9
Supplemental cash flow information:
Interest paid, net of amounts capitalized	$	16.7			$	16.9			$	15.3
Income taxes paid, net	$	37.4			$	34.4			$	16.1
Accrued capital expenditures	$	21.0			$	17.1			$	54.3
Dividends declared, not paid	$	7.8			$	7.0			$	6.5

The accompanying notes are an integral part of the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Summary of Significant Accounting Policies

Principles of Consolidation: The consolidated financial statements include the accounts of West Pharmaceutical Services, Inc. and its majority-owned subsidiaries (which may be referred to as “West”, the “Company”, “we”, “us” or “our”) after the elimination of intercompany transactions. We have no participation or other rights in variable interest entities.

Use of Estimates: The financial statements are prepared in conformity with U.S. GAAP. These principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingencies in the financial statements. Actual amounts realized may differ from these estimates.

Cash and Cash Equivalents: Cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with maturities of three months or less at the time of purchase.

Accounts Receivable: Our accounts receivable balance was net of an allowance for doubtful accounts of $0.9 million and $0.8 million at December 31, 2014 and 2013, respectively. We record the allowance based on a specific identification methodology.

Inventories: Inventories are valued at the lower of cost (on a first-in, first-out basis) or market. The following is a summary of inventories at December 31:

($ in millions)	2014			2013
Finished goods	$	76.0		$	80.0
Work in process	25.6			24.8
Raw materials	79.9			72.1
	$	181.5		$	176.9

Property, Plant and Equipment: Property, plant and equipment assets are carried at cost. Maintenance and minor repairs and renewals are charged to expense as incurred. Costs incurred for computer software developed or obtained for internal use are capitalized for application development activities and immediately expensed for preliminary project activities or post-implementation activities. Upon sale or retirement of depreciable assets, costs and related accumulated depreciation are eliminated, and gains or losses are recognized in other income and expense. Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the assets, or the remaining term of the lease, if shorter.

Impairment of Goodwill and Other Intangible Assets: Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, following the completion of our annual budget and long-range planning process, or whenever circumstances indicate that the carrying value of these assets may not be recoverable. Goodwill is tested for impairment at the reporting unit level, which is the same as, or one level below, our operating segments. Recent accounting guidance allows entities to first assess qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance, to determine whether it is necessary to perform the first step of the two-step quantitative goodwill impairment test. We considered this guidance when performing our annual impairment testing, but elected to continue utilizing the two-step quantitative impairment test. The first step in the two-step analysis is to compare the fair value of each reporting unit to its carrying amount, including goodwill. If the carrying amount exceeds fair value, the second step must be performed. The second step requires the comparison of the carrying amount of the goodwill to its implied fair value, which is calculated as if the reporting unit had just been acquired as of the testing date. Any excess of the carrying amount of goodwill over the implied fair value would represent an impairment loss.

Certain trademarks have been determined to have indefinite lives and, therefore, are not subject to amortization. Similar to the impairment testing for goodwill, there is an option to first assess qualitative factors as a basis for determining whether it is necessary to perform a quantitative impairment test. We considered this option when performing our impairment testing, but elected to continue utilizing a quantitative test, comparing the fair value and carrying value of the asset. Any excess carrying value would represent an impairment loss. Fair values are determined using discounted cash flow analyses.

Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives of 5 to 25 years, and reviewed for impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable.

Impairment of Long-Lived Assets: Long-lived assets, including property, plant and equipment, are tested for impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable. An asset is considered impaired if the carrying value of the asset exceeds the sum of the future expected undiscounted cash flows to be derived from the asset. Once an asset is considered impaired, an impairment loss is recorded within other (income) expense for the difference between the asset's carrying value and its fair value. For assets held and used in the business, management determines fair value using estimated future cash flows to be derived from the asset, discounted to a net present value using an appropriate discount rate. For assets held for sale or for investment purposes, management determines fair value by estimating the proceeds to be received upon sale of the asset, less disposition costs.

Employee Benefits: The measurement of the obligations under our defined benefit pension and postretirement medical plans are subject to a number of assumptions. These include the rate of return on plan assets (for funded plans) and the rate at which the future obligations are discounted to present value. U.S. GAAP requires the recognition of an asset or liability for the funded status of a defined benefit postretirement plan, as measured by the difference between the fair value of plan assets, if any, and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement plan, such as a retiree health plan, the benefit obligation is the accumulated postretirement benefit obligation. See Note 13, Benefit Plans, for a more detailed discussion of our pension and other retirement plans.

Financial Instruments: All derivatives are recognized as either assets or liabilities in the balance sheet and recorded at their fair value. For a derivative designated as hedging the exposure to variable cash flows of a forecasted transaction (referred to as a cash flow hedge), the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income, net of tax, and subsequently reclassified into earnings when the forecasted transaction affects earnings. For a derivative designated as hedging the exposure to changes in the fair value of a recognized asset or liability or a firm commitment (referred to as a fair value hedge), the derivative's gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item. For a derivative designated as hedging the foreign currency exposure of a net investment in a foreign operation, the gain or loss is reported in other comprehensive income, net of tax, as part of the cumulative translation adjustment. The ineffective portion of any derivative used in a hedging transaction is recognized immediately into earnings. Derivative financial instruments that are not designated as hedges are also recorded at fair value, with the change in fair value recognized immediately into earnings. We do not purchase or hold any derivative financial instrument for investment or trading purposes.

Foreign Currency Translation: Foreign currency transaction gains and losses are recognized in the determination of net income. Foreign currency translation adjustments of subsidiaries and affiliates operating outside of the U.S. are accumulated in other comprehensive income, a separate component of equity.

Revenue Recognition: Revenue is recognized when persuasive evidence of a sales arrangement exists, title and risk of loss have transferred, the selling price is fixed or determinable, and collectability is reasonably assured. Generally, sales are recognized upon shipment or upon delivery to our customers' site, based upon shipping terms or legal requirements. Some customers receive pricing rebates upon attaining established sales volumes. We record rebate costs when sales occur based on our assessment of the likelihood that the required volumes will be attained.

We also maintain an allowance for product returns, as we believe that we are able to reasonably estimate the amount of returns based on our substantial historical experience.

Shipping and Handling Costs: Shipping and handling costs are included in cost of goods and services sold. Shipping and handling costs billed to customers in connection with the sale are included in net sales.

Research and Development: Research and development expenditures are for the creation, engineering and application of new or improved products and processes. Expenditures include primarily salaries and outside services for those directly involved in research and development activities and are expensed as incurred.

Environmental Remediation and Compliance Costs: Environmental remediation costs are accrued when such costs are probable and reasonable estimates are determinable. Cost estimates include investigation, cleanup and monitoring activities; such estimates are adjusted, if necessary, based on additional findings. Environmental compliance costs are expensed as incurred as part of normal operations.

Litigation: From time to time, we are involved in product liability matters and other legal proceedings and claims generally incidental to our normal business activities. In accordance with U.S. GAAP, 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. These estimates are based on an analysis made by internal and external legal counsel considering information known at the time. Legal costs in connection with loss contingencies are expensed as incurred.

Income Taxes: Deferred income taxes are recognized by applying enacted statutory tax rates, applicable to future years, to temporary differences between the tax basis and financial statement carrying values of our assets and liabilities. Valuation allowances are established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. No provision is made for the U.S. income taxes on the undistributed earnings of wholly-owned foreign subsidiaries as such earnings are intended to be permanently reinvested. We recognize interest costs related to income taxes in interest expense and penalties within other (income) expense. The tax law ordering approach is used for purposes of determining whether an excess tax benefit has been realized during the year.

Stock-Based Compensation: Under the fair value provisions of U.S. GAAP, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. In order to determine the fair value of stock options on the grant date, the company uses the Black-Scholes valuation model.

Net Income Per Share: Basic net income per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding during each period. Net income per share assuming dilution considers the dilutive effect of outstanding stock options and other stock awards based on the treasury stock method, as well as convertible debt based on the if-converted method. The treasury stock method assumes the use of exercise proceeds to repurchase common stock at the average fair market value in the period. The if-converted method assumes conversion of the debt at the beginning of the reporting period (or at time of issuance, if later). In addition, interest charges applicable to the convertible debt, net of tax, are added back to net income for the purpose of this calculation.

Note 2: New Accounting Standards

Recently Adopted Standards

In November 2014, the Financial Accounting Standards Board ("FASB") issued guidance related to pushdown accounting. Companies now have the option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The election to apply pushdown accounting can be made either in the reporting period in which the change-in-control event occurred, or in a subsequent reporting period. This guidance was effective immediately upon issuance. The adoption did not have a material impact on our financial statements.

In July 2013, the FASB issued revised guidance to address the diversity in practice related to the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. We adopted this guidance as of January 1, 2014, on a prospective basis. The adoption did not have a material impact on our financial statements.

In March 2013, the FASB issued guidance that clarifies the application of U.S. GAAP to the release of cumulative translation adjustments related to changes of ownership in or within foreign entities, including step acquisitions. This guidance was adopted as of January 1, 2014, on a prospective basis. The adoption did not have a material impact on our financial statements.

Standards Issued Not Yet Adopted

In January 2015, the FASB issued guidance which removes the concept of extraordinary items from U.S. GAAP. This guidance eliminates the requirement for companies to spend time assessing whether items meet the criteria of being both unusual and infrequent. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Management believes that the adoption of this guidance will not have a material impact on our financial statements.

In August 2014, the FASB issued guidance which defines management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. Management believes that the adoption of this guidance will not have a material impact on our financial statements.

In June 2014, the FASB issued guidance that clarifies the accounting for share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. In this case, the performance target would be required to be treated as a performance condition, and should not be reflected in estimating the grant-date fair value of the award. The guidance also addresses when to recognize the related compensation cost. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Management is currently reviewing this guidance to determine the impact it may have, if any, on our financial statements.

In May 2014, the FASB issued guidance on the accounting for revenue from contracts with customers that will supersede most existing revenue recognition guidance, including industry-specific guidance. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the guidance requires enhanced disclosures regarding the nature, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance is effective for interim and annual reporting periods beginning on or after December 15, 2016. Entities can choose to apply the guidance using either a full retrospective approach or a modified retrospective approach. Management is currently evaluating the impact that this guidance will have on our financial statements, if any, including which transition method it will adopt.

In April 2014, the FASB issued guidance for the reporting of discontinued operations, which also contains new disclosure requirements for both discontinued operations and other disposals that do not meet the definition of a discontinued operation. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Management believes that the adoption of this guidance will not have a material impact on our financial statements.

Note 3: Net Income Per Share

The following table reconciles net income and shares used in the calculation of basic net income per share to those used for diluted net income per share:

(in millions)	2014				2013				2012
Numerator:
Net income, as reported, for basic net income per share	$	127.1			$	112.3			$	80.7
Plus: interest expense on convertible debt, net of tax	—				—				2.0
Net income for diluted net income per share	$	127.1			$	112.3			$	82.7
Denominator:
Weighted average common shares outstanding	70.9				69.6				68.1
Dilutive effect of stock options, stock appreciation rights and performance share awards, based on the treasury stock method	1.9				1.7				1.1
Assumed conversion of convertible debt, based on the if-converted method	—				0.1				2.6
Weighted average shares assuming dilution	72.8				71.4				71.8

During 2014 and 2012, there were 0.5 million and 1.0 million shares from stock-based compensation plans not included in the computation of diluted net income per share because their impact was antidilutive. During 2013, the number of shares not included in the computation of diluted net income per share was immaterial.

On October 29, 2014, our Board of Directors authorized the repurchase of up to $100.0 million of our common stock from time to time on the open market or in privately negotiated transactions as permitted under the regulations of the Securities and Exchange Commission. The extent to which we repurchase the shares and the timing of any repurchases will be determined by us based on our evaluation of market conditions and other factors. The program is expected to be completed no later than December 31, 2015. As of December 31, 2014, no shares had been repurchased under the program.

Note 4: Property, Plant and Equipment

A summary of gross property, plant and equipment at December 31 is presented in the following table:

($ in millions)	Expected useful lives (years)	2014			2013
Land		$	15.1		$	15.7
Buildings and improvements	5-50	410.6			397.5
Machinery and equipment	10-15	654.1			655.2
Molds and dies	4-7	94.8			95.7
Computer hardware and software	3-10	111.3			107.1
Construction in progress		104.9			97.8
		$	1,390.8		$	1,369.0

Depreciation expense for the years ended December 31, 2014, 2013 and 2012 was $84.8 million, $81.0 million and $72.8 million, respectively.

Capitalized leases included in 'buildings and improvements' were $2.2 million and $2.5 million at December 31, 2014 and 2013, respectively. Capitalized leases included in 'machinery and equipment' were $1.7 million and $1.9 million at December 31, 2014 and 2013, respectively. Accumulated depreciation on all property, plant and equipment accounted for as capitalized leases was $2.2 million and $2.2 million at December 31, 2014 and 2013, respectively. At December 31, 2014, future minimum payments under capital leases were $0.2 million in 2015 and were immaterial in 2016.

We capitalize interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. Capitalized interest for the years ended December 31, 2014, 2013 and 2012 was $1.6 million, $1.6 million and $1.9 million, respectively.

Note 5: Affiliated Companies

At December 31, 2014, the following affiliated companies were accounted for under the equity method:

	Location	Ownership interest
The West Company Mexico, S.A. de C.V.	Mexico	49%
Aluplast S.A. de C.V.	Mexico	49%
Pharma Tap S.A. de C.V.	Mexico	49%
Pharma Rubber S.A. de C.V.	Mexico	49%
Daikyo	Japan	25%

Unremitted income of affiliated companies included in consolidated retained earnings amounted to $51.2 million, $46.7 million and $41.9 million at December 31, 2014, 2013 and 2012, respectively. Dividends received from affiliated companies were $0.8 million in 2014, $0.6 million in 2013 and $0.4 million in 2012.

Our equity in net unrealized gains of Daikyo's investment securities and derivative instruments, as well as pension adjustments included in accumulated other comprehensive loss was $(4.7) million, $(4.3) million and $(0.8) million at December 31, 2014, 2013 and 2012, respectively.

Our purchases from, and royalty payments made to, affiliates totaled $68.7 million, $67.7 million and $75.2 million, respectively, in 2014, 2013 and 2012, of which $5.9 million and $5.6 million was due and payable as of December 31, 2014 and 2013, 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 $5.1 million, $5.9 million and $3.5 million, respectively, in 2014, 2013 and 2012, of which $0.6 million and $0.3 million was receivable as of December 31, 2014 and 2013, respectively.

At December 31, 2014 and 2013, the aggregate carrying amount of investments in equity method affiliates was $57.1 million and $57.9 million, respectively. In addition, at December 31, 2014 and 2013, we have a cost-basis investment with a carrying amount of $3.5 million and $3.0 million, respectively.

Note 6: Goodwill and Intangible Assets

The changes in the carrying amount of goodwill by reportable segment were as follows:

($ in millions)	Packaging Systems			Delivery Systems			Total
Balance, December 31, 2012	$	36.7		$	75.8		$	112.5
Foreign currency translation	1.3			0.4			1.7
Balance, December 31, 2013	38.0			76.2			114.2
Disposition	—			(0.5		)	(0.5		)
Foreign currency translation	(3.9		)	(1.2		)	(5.1		)
Balance, December 31, 2014	$	34.1		$	74.5		$	108.6

As of December 31, 2014, we had no accumulated goodwill impairment losses.

Intangible assets and accumulated amortization as of December 31 were as follows:

	2014									2013
($ in millions)	Cost			Accumulated Amortization			Net			Cost			Accumulated Amortization			Net
Patents and licensing	$	20.1		$	(11.5	)	$	8.6		$	20.7		$	(9.4	)	$	11.3
Technology	3.4			(0.4		)	3.0			3.5			(0.1		)	3.4
Trademarks	12.1			(1.3		)	10.8			12.1			(1.1		)	11.0
Customer relationships	29.5			(16.3		)	13.2			29.7			(14.6		)	15.1
Customer contracts	11.2			(4.8		)	6.4			11.7			(4.2		)	7.5
	$	76.3		$	(34.3	)	$	42.0		$	77.7		$	(29.4	)	$	48.3

The cost basis of intangible assets includes a foreign currency translation loss of $1.2 million and a foreign currency translation gain of $0.5 million for the twelve months ended December 31, 2014 and 2013, respectively. Amortization expense for the years ended December 31, 2014, 2013 and 2012 was $4.9 million, $3.9 million and $3.9 million, respectively. Estimated annual amortization expense for the next five years is as follows: 2015 - $3.6 million, 2016 - $3.0 million, 2017 - $2.8 million, 2018 - $2.6 million and 2019 - $2.5 million. Trademarks with a carrying amount of $10.0 million were determined to have indefinite lives and therefore do not require amortization.

Note 7: Other Current Liabilities

Other current liabilities as of December 31 consisted of:

($ in millions)	2014			2013
Deferred income	$	13.3		$	10.8
Other accrued expenses	22.4			23.7
Other	16.1			16.3
Total other current liabilities	$	51.8		$	50.8

Other consisted primarily of dividends payable, value-added taxes payable and accrued taxes other than income.

Note 8: Debt

The following table summarizes our long-term debt obligations, net of current maturities, at December 31. The interest rates shown in parentheses are as of December 31, 2014.

($ in millions)	2014				2013
Term loan, due 2014 (8.40%)	$	—			$	0.1
Series B floating rate notes, due 2015 (1.13%)	25.0				25.0
Euro note B, due 2016 (4.38%)	74.3				84.1
Capital leases, due through 2016 (6.0%)	0.2				0.4
Revolving credit facility, due 2017 (1.71%)	29.7				53.7
Term loan, due 2018 (1.66%)	39.2				41.3
Note payable, due 2019	0.3				0.3
Series A notes, due 2022 (3.67%)	42.0				42.0
Series B notes, due 2024 (3.82%)	53.0				53.0
Series C notes, due 2027 (4.02%)	73.0				73.0
Convertible debt, due 2047 (4.0%)	—				0.6
Total debt	336.7				373.5
Less: current portion of long-term debt	27.2				2.2
Long-term debt	$	309.5			$	371.3

Series B Notes

As of December 31, 2014, there is one tranche remaining from our 2005 private placement, for $25.0 million that matures on July 28, 2015. The Series B Notes bear interest at LIBOR plus 0.9 percentage points. Please refer to Note 9, Derivative Financial Instruments, for a discussion of the interest-rate swap agreement associated with the Series B Notes.

Euro-denominated Note

Our Euro note B of €61.1 million ($74.3 million at December 31, 2014) has a term of 10 years due February 27, 2016 at a fixed annual interest rate of 4.38%. This Euro-denominated note, in conjunction with the Euro-denominated revolver borrowings mentioned below, is accounted for as a hedge of our net investment in our European subsidiaries.

Revolving Credit Facility

In 2012, we entered into a $300.0 million multi-currency revolving credit facility, which expires in April 2017 and contains an accordion feature allowing the maximum to be increased through a term loan to $350.0 million upon approval by the banks. Up to $30.0 million of the credit facility is available for swing-line loans and up to $30.0 million is available for the issuance of letters of credit. Borrowings under the revolving credit facility bear interest at a rate equal to LIBOR plus a margin ranging from 1.25 to 2.25 percentage points, which is based on the ratio of our senior debt to modified EBITDA. The credit facility contains representations and covenants that require compliance with, among other restrictions, a maximum leverage ratio and a minimum interest coverage ratio. The credit facility also contains usual and customary default provisions, limitations on liens securing indebtedness, asset sales, distributions and acquisitions. Total lender and other third party costs incurred of $2.4 million, a portion of which represents unamortized debt issuance costs from our prior credit facility, were recorded in other noncurrent assets and are being amortized as additional interest expense over the term of this facility.

At December 31, 2014, we had $29.7 million in outstanding long-term borrowings under this facility, of which $4.2 million was denominated in Yen and $25.5 million in Euro. These borrowings, together with outstanding letters of credit of $3.5 million, resulted in a borrowing capacity available under this facility of $266.8 million at December 31, 2014. The total amount outstanding under this facility as of December 31, 2013 of $53.7 million was classified as long-term.

Term Loan

In 2013, we entered into a $42.8 million five-year term loan due January 2018 related to our corporate office and research building. Borrowings under the loan bear interest at a variable rate equal to LIBOR plus a margin of 1.50 percentage points. At December 31, 2014, $39.2 million was outstanding under this loan, of which $2.1 million was classified as current. Please refer to Note 9, Derivative Financial Instruments, for a discussion of the interest-rate swap agreement associated with this loan.

Private Placement

In 2012, we concluded a private placement issuance of $168.0 million in senior unsecured notes. The total amount of the private placement issuance was divided into three tranches - $42.0 million 3.67% Series A Notes due July 5, 2022, $53.0 million 3.82% Series B Notes due July 5, 2024, and $73.0 million 4.02% Series C Notes due July 5, 2027 (the “Notes”). The Notes rank pari passu with our other senior unsecured debt. The proceeds from the issuance reduced indebtedness under our prior revolving credit facility that was incurred to finance our 2012 repurchase of our Convertible Debentures discussed below. The weighted average of the coupon interest rates on the Notes is 3.87%. Related interest-rate hedging and transaction costs incurred increased the annual effective rate of interest on the Notes to an estimated 4.16%. Refer to Note 9, Derivative Financial Instruments, for additional discussion of the related interest rate hedge. In connection with this issuance, we incurred lender and other third party costs of $1.2 million which were recorded in other noncurrent assets and are being amortized as additional interest expense over the term of the Notes.

Convertible Debt

In 2007, the Company issued $161.5 million of Convertible Debentures. In 2012, we repurchased $158.4 million in aggregate principal amount of the Convertible Debentures, representing 98.06% of the aggregate outstanding principal amount. During 2013, we repurchased an additional $2.5 million and in 2014, we repurchased the remaining $0.6 million in aggregate principal amount of our Convertible Debentures. As a result of these repurchases, we recognized a pre-tax loss on debt extinguishment of less than $0.1 million in 2014, and a pre-tax loss on debt extinguishment of $0.2 million and $11.6 million during 2013 and 2012, respectively.

Covenants

Pursuant to the financial covenants in our debt agreements, we are required to maintain established interest coverage ratios and to not exceed established leverage ratios. In addition, the agreements contain other customary covenants, none of which we consider restrictive to our operations. At December 31, 2014, we were in compliance with all of our debt covenants, and we expect to continue to be in compliance with the terms of these agreements throughout 2015.

Interest costs incurred during 2014, 2013 and 2012 were $18.1 million, $18.6 million and $18.6 million, respectively. The aggregate annual maturities of long-term debt were as follows: 2015 - $27.2 million, 2016 - $76.8 million, 2017 - $32.1 million, 2018 - $32.6 million, 2019 - immaterial, and thereafter - $168.0 million.

Note 9: Derivative Financial Instruments

Our ongoing business operations expose us to various risks such as fluctuating interest rates, foreign 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 speculation or trading purposes. All derivatives are recorded on the balance sheet at fair value.

Interest Rate Risk

We have a $25.0 million interest rate swap agreement outstanding as of December 31, 2014, that is designated as a cash flow hedge to protect against volatility in the interest rates on our Series B Notes. Under this swap, we receive variable interest rate payments based on three-month LIBOR in return for making quarterly fixed rate payments. Including the applicable margin, the interest rate swap agreement effectively fixes the interest rate payable on the Series B Notes at 5.51%.

In addition, at December 31, 2014, we have a $39.2 million forward-start interest rate swap outstanding that hedges the variability in cash flows due to changes in the applicable interest rate of our variable-rate five-year term loan related to the purchase of our corporate office and research building. Under this swap, we receive variable interest rate payments based on one-month LIBOR plus a margin in return for making monthly fixed interest payments at 5.41%. We designated this forward-start interest rate swap as a cash flow hedge.

During 2012, we entered into two forward treasury lock agreements for a total notional amount of $160.0 million, to protect against changes in the benchmark 10-year Treasury rate during the 30-60 day period leading up to the issuance date of our private placement debt. We designated these treasury locks as cash flow hedges. In June 2012, the pricing for our private placement debt (refer to Note 8, Debt) was finalized and accordingly, we terminated both treasury lock agreements, resulting in a $4.6 million settlement payment made by us. This amount, which was reflected in accumulated other comprehensive loss, will be expensed over the life of the private placement debt.

Foreign Exchange Rate Risk

During 2014, we entered into several foreign currency hedge contracts that were designated as cash flow hedges of forecasted transactions denominated in foreign currencies, which are described in more detail below.

We entered into a series of foreign currency contracts intended to hedge the currency risk associated with a portion of our forecasted USD-denominated inventory purchases made by certain European subsidiaries, for a total notional amount of €9.8 million ($12.0 million).

We also entered into a series of foreign currency contracts to hedge the currency risk associated with a portion of our forecasted Euro-denominated sales of finished goods by one of our USD functional-currency subsidiaries for a total notional amount of $10.9 million.

In addition, we entered into several contracts which involve both a written and a purchased option to hedge the currency risk associated with a portion of our forecasted Yen-denominated inventory purchases made by West in the U.S. The notional amounts of these contracts include ¥1.6 billion of a derivative asset and ¥1.6 billion of a derivative liability, or $13.2 million each.

Lastly, we entered into several contracts which involve both a written and a purchased option to hedge the currency risk associated with a portion of our forecasted Yen-denominated inventory purchases made by certain European subsidiaries. The notional amounts of these contracts include ¥1.1 billion of a derivative asset and ¥1.1 billion of a derivative liability, or $9.5 million each.

At December 31, 2014, a portion of our debt consists of borrowings denominated in currencies other than the U.S. dollar. We have designated our €61.1 million ($74.3 million) Euro note B and our €21.0 million ($25.5 million) Euro-denominated borrowings under our multi-currency revolving credit facility as a hedge of our net investment in certain European subsidiaries. A cumulative foreign currency translation gain of $7.5 million pre-tax ($4.6 million after tax) on this debt was recorded within accumulated other comprehensive loss as of December 31, 2014. We have also designated our ¥500.0 million ($4.2 million) Yen-denominated borrowings under our multi-currency revolving credit facility as a hedge of our net investment in Daikyo. At December 31, 2014, there was a cumulative foreign currency translation gain on this Yen-denominated debt of $1.2 million pre-tax ($0.8 million after tax) which was also included within accumulated other comprehensive loss.

Commodity Price Risk

Many of our Packaging Systems 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.

In November 2014, we purchased a series of call options for a total of 134,700 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 through December 2015. With these contracts we may benefit from a decline in crude oil prices, as there is no downward exposure other than the $0.1 million premium that we paid to purchase the contracts.

During the year ended December 31, 2014 and 2013, a loss of $0.1 million and $0.1 million, respectively, was recorded in cost of goods and services sold related to call options.

Effects of Derivative Instruments on Financial Position and Results of Operations

Refer to Note 10, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of December 31, 2014 and 2013.

The following table summarizes the effects, net of tax, of derivative instruments designated as hedges on other comprehensive income (“OCI”) and earnings for the year ended December 31:

	Amount of Gain (Loss) Recognized in OCI								Amount of (Gain) Loss Reclassified from Accumulated OCI into Income								Location of (Gain) Loss Reclassified from Accumulated OCI into Income
($ in millions)	2014				2013				2014				2013
Cash Flow Hedges:
Foreign currency hedge contracts	$	0.3			$	0.4			$	(0.2	)		$	(0.2	)		Net sales
Foreign currency hedge contracts	—				(2.5		)		0.2				3.3				Cost of goods and services sold
Interest rate swap contracts	(0.4		)		0.2				1.6				1.6				Interest expense
Forward treasury locks	—				—				0.2				0.2				Interest expense
Total	$	(0.1	)		$	(1.9	)		$	1.8			$	4.9
Net Investment Hedges:
Foreign currency-denominated debt	$	8.5			$	(2.1	)		$	—			$	—			Foreign exchange and other
Total	$	8.5			$	(2.1	)		$	—			$	—

During 2014 and 2013, there was no material ineffectiveness related to our cash flow and net investment 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)	December 31, 2014				Level 1				Level 2				Level 3
Assets:
Deferred compensation assets	$	6.6			$	6.6			$	—			$	—
Foreign currency contracts	0.2				—				0.2
	$	6.8			$	6.6			$	0.2			$	—
Liabilities:
Contingent consideration	$	5.0			$	—			$	—			$	5.0
Deferred compensation liabilities	8.7				8.7				—				—
Interest rate swap contracts	3.6				—				3.6				—
	$	17.3			$	8.7			$	3.6			$	5.0

	Balance at				Basis of Fair Value Measurements
($ in millions)	December 31, 2013				Level 1				Level 2				Level 3
Assets:
Short-term investments	$	7.5			$	7.5			$	—			$	—
Deferred compensation assets	5.7				5.7				—				—
	$	13.2			$	13.2			$	—			$	—
Liabilities:
Contingent consideration	$	4.3			$	—			$	—			$	4.3
Deferred compensation liabilities	7.8				7.8				—				—
Interest rate swap contracts	5.6				—				5.6				—
	$	17.7			$	7.8			$	5.6			$	4.3

Short-term investments, which are comprised of certificates of deposit and mutual funds, are valued using a market approach based on quoted market prices in an active market. Deferred compensation assets are included within other noncurrent assets and are also 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 assets, 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 contingent consideration is included within other current liabilities and other long-term liabilities and 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. Interest rate swaps, included within other long-term liabilities, are valued based on the terms of the contract and observable market inputs (i.e., LIBOR, Eurodollar synthetic forwards and swap spreads). Refer to Note 9, Derivative Financial Instruments, for further discussion of our derivatives.

Level 3 Fair Value Measurements

The fair value of 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 consolidated statements of income. The significant unobservable inputs used in the fair value measurement of the 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. As development and commercialization of SmartDose progresses, we may need to update the sales projections, the probability of success factors, and the discount rate used. This could result in a material increase or decrease to the contingent consideration liability.

The following table provides a summary of changes in our Level 3 fair value measurements:

	($ in millions)
Balance, December 31, 2012	$	3.3
Increase in fair value recorded in earnings	1.1
Payments	(0.1		)
Balance, December 31, 2013	4.3
Increase in fair value recorded in earnings	1.0
Payments	(0.3		)
Balance, December 31, 2014	$	5.0

Refer to Note 14, Other (Income) Expense, for further discussion of acquisition-related contingencies.

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.

Quoted market prices are used to estimate the fair value of publicly traded long-term debt. The fair value of debt that is not quoted on an exchange is estimated using a discounted cash flow method based on interest rates that are currently available to us for debt issuances with similar terms and maturities. At December 31, 2014, the estimated fair value of long-term debt was $311.4 million compared to a carrying amount of $309.5 million. At December 31, 2013, the estimated fair value of long-term debt was $365.8 million and the carrying amount was $371.3 million.

Note 11: Accumulated Other Comprehensive Loss

The following table presents the changes in the components of accumulated other comprehensive loss, net of tax:

($ in millions)	Losses on cash flow hedges			Unrealized gains on investment securities			Defined benefit pension and other postretirement plans			Foreign currency translation			Total
Balance, December 31, 2012	$	(9.0	)	$	0.8		$	(84.9	)	$	17.2		$	(75.9	)
Other comprehensive (loss) income before reclassifications	(1.8		)	3.5			33.7			(0.9		)	34.5
Amounts reclassified out	4.8			—			4.2			—			9.0
Other comprehensive income (loss), net of tax	3.0			3.5			37.9			(0.9		)	43.5
Balance, December 31, 2013	(6.0		)	4.3			(47.0		)	16.3			(32.4		)
Other comprehensive (loss) income before reclassifications	(0.1		)	0.4			(18.9		)	(71.3		)	(89.9		)
Amounts reclassified out	1.8			—			1.3			—			3.1
Other comprehensive income (loss), net of tax	1.7			0.4			(17.6		)	(71.3		)	(86.8		)
Balance, December 31, 2014	$	(4.3	)	$	4.7		$	(64.6	)	$	(55.0	)	$	(119.2	)

A summary of the reclassifications out of accumulated other comprehensive loss is presented in the following table ($ in millions):

Detail of components	2014			2013			Location on Statement of Income
Losses on cash flow hedges:
Foreign currency contracts	$	0.3		$	—		Net sales
Foreign currency contracts	(0.3		)	(5.1		)	Cost of goods and services sold
Interest rate swap contracts	(2.6		)	(2.6		)	Interest expense
Forward treasury locks	(0.4		)	(0.3		)	Interest expense
Total before tax	(3.0		)	(8.0		)
Tax expense	1.2			3.2
Net of tax	$	(1.8	)	$	(4.8	)
Amortization of defined benefit pension and other postretirement plans:
Transition obligation	$	(0.1	)	$	(0.1	)	(a)
Prior service cost	1.3			1.3			(a)
Actuarial losses	(3.1		)	(8.5		)	(a)
Total before tax	(1.9		)	(7.3		)
Tax expense	0.6			3.1
Net of tax	$	(1.3	)	$	(4.2	)
Total reclassifications for the period, net of tax	$	(3.1	)	$	(9.0	)

(a) These components are included in the computation of net periodic benefit cost. Refer to Note 13, Benefit Plans, for additional details.

Note 12: Stock-Based Compensation

The 2011 Omnibus Incentive Compensation Plan (the “2011 Plan”) provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to employees and non-employee directors. The terms and conditions of awards to be granted are determined by our Board's nominating and corporate governance and compensation committees. Vesting requirements vary by award. At December 31, 2014, there were 4,056,600 shares remaining in the 2011 Plan for future grants.

Stock options and stock appreciation rights reduce the number of shares available for grant by one share for each award granted. All other awards that will be distributed in stock under the 2011 Plan will reduce the total number of shares available for grant by an amount equal to 2.35 times the number of shares awarded. If awards made under previous plans would entitle a plan participant to an amount of West stock in excess of the target amount, the additional shares (up to a maximum threshold amount) will be distributed under the 2011 Plan.

The following table summarizes our stock-based compensation expense for the years ended December 31:

($ in millions)	2014			2013			2012
Stock option and appreciation rights	$	7.6		$	7.7		$	5.3
Performance-vesting shares	6.5			6.5			6.0
Performance-vesting units	1.9			2.4			0.9
Performance-vesting shares/units dividend equivalents	0.4			0.4			0.1
Employee stock purchase plan	0.5			0.4			0.4
Deferred compensation plans	1.7			3.8			2.8
Total stock-based compensation expense	$	18.6		$	21.2		$	15.5

In 2014, the Company adopted a policy to provide for continued vesting of future performance-vesting awards and stock option awards for retiring executive officers who are at least 57 years of age at the time of retirement, have been employed by the Company for 10 years, and have not been terminated for "cause" as defined under the 2011 Plan.

The amount of unrecognized compensation expense for all nonvested awards as of December 31, 2014, was approximately $15.6 million, which is expected to be recognized over a weighted average period of 1.5 years.

Stock Options

Stock options granted to employees vest in equal annual increments over 4 years of continuous service. All awards expire 10 years from the date of grant. Upon the exercise of stock options, shares are issued in exchange for the exercise price of the options.

The following table summarizes changes in outstanding options:

(in millions, except per share data)	2014		2013		2012
Options outstanding, January 1	4.8		5.6		5.8
Granted	0.7		0.9		1.2
Exercised	(0.7	)	(1.6	)	(1.4	)
Forfeited	(0.2	)	(0.1	)	—
Options outstanding, December 31	4.6		4.8		5.6
Options exercisable, December 31	2.6		2.3		3.0

Weighted Average Exercise Price	2014			2013			2012
Options outstanding, January 1	$	21.99		$	19.83		$	17.88
Granted	47.59			29.71			21.47
Exercised	20.17			18.97			13.12
Forfeited	31.42			23.10			20.66
Options outstanding, December 31	$	25.49		$	21.99		$	19.83
Options exercisable, December 31	$	20.67		$	19.51		$	19.01

As of December 31, 2014, the weighted average remaining contractual life of options outstanding and of options exercisable was 6.3 years and 5.1 years, respectively.

As of December 31, 2014, the aggregate intrinsic value of total options outstanding was $127.2 million, of which $85.6 million represented vested options.

The fair value of the options was estimated on the date of grant using a Black-Scholes option valuation model that used the following weighted average assumptions in 2014, 2013 and 2012: a risk-free interest rate of 1.6%, 0.9%, and 0.9%, respectively; stock volatility of 21.9%, 22.5%, and 23.3%, respectively; and dividend yields of 0.8%, 1.3%, and 1.7%, respectively. Stock volatility is estimated based on historical data and the impact from expected future trends. Expected lives, which are based on prior experience, averaged 6 years for 2014, 2013 and 2012. The weighted average grant date fair value of options granted in 2014, 2013 and 2012 was $10.38, $5.73 and $4.01, respectively.

For the years ended December 31, 2014, 2013 and 2012, the intrinsic value of options exercised was $16.0 million, $27.3 million and $16.9 million, respectively. The grant date fair value of options vested during those same periods was $4.7 million, $4.0 million and $3.8 million, respectively.

Stock Appreciation Rights

Stock appreciation rights (“SARs”) granted to eligible international employees vest in equal annual increments over 4 years of continuous service. All awards expire 10 years from the date of grant. The fair value of each cash-settled SAR is adjusted at the end of each reporting period, with the resulting change reflected in expense. As of December 31, 2014, SARs outstanding were 297,714, of which 94,174 were cash-settled and 203,540 were stock-settled. Upon exercise of a cash-settled SAR, the employee receives cash for the difference between the grant date price and the fair market value of the Company's stock on the date of exercise. As a result of the cash settlement feature, cash-settled SARs are recorded within other long-term liabilities. Upon exercise of a stock-settled SAR, shares are issued in exchange for the exercise price of the stock-settled SAR. As a result of the stock settlement feature, stock-settled SARs are recorded within equity.

The following table summarizes changes in outstanding SARs:

	2014		2013		2012
SARs outstanding, January 1	375,104		389,686		320,336
Granted	7,733		132,566		145,018
Exercised	(85,123	)	(147,148	)	(75,668	)
SARs outstanding, December 31	297,714		375,104		389,686
SARs exercisable, December 31	88,751		56,938		110,292

Weighted Average Exercise Price	2014			2013			2012
SARs outstanding, January 1	$	24.03		$	20.81		$	20.17
Granted	47.74			29.56			21.22
Exercised	22.09			20.47			18.91
SARs outstanding, December 31	$	25.20		$	24.03		$	20.81
SARs exercisable, December 31	$	23.15		$	20.95		$	20.70

Performance Awards

In addition to stock options and SAR awards, we grant performance vesting share (“PVS”) awards and performance vesting unit (“PVU”) awards 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 (“ROIC”), over a specified performance period. Depending on the achievement of the targets, recipients of PVS awards are entitled to receive a certain number of shares of common stock, whereas recipients of PVU awards are entitled to receive a payment in cash per unit based on the fair market value of a share of our common stock at the end of the performance period.

The following table summarizes changes in our outstanding PVS awards:

	2014			2013			2012
Non-vested PVS awards, January 1	578,358			652,662			657,038
Granted at target level	133,823			175,498			209,680
Adjustments above/(below) target	53,438			38,330			(120,155		)
Vested and converted	(250,205		)	(273,044		)	(83,859		)
Forfeited	(44,695		)	(15,088		)	(10,042		)
Non-vested PVS awards, December 31	470,719			578,358			652,662
Weighted Average Grant Date Fair Value	2014			2013			2012
Non-vested PVS awards, January 1	$	23.79		$	21.42		$	19.39
Granted at target level	47.21			29.67			21.33
Adjustments above/(below) target	22.86			23.83			13.86
Vested and converted	48.69			29.56			21.22
Forfeited	30.76			23.29			20.98
Non-vested PVS awards, December 31	$	30.93		$	23.79		$	21.42

The actual payout of PVS and PVU awards may vary from 0% to 200% of an employee's targeted award. The fair value of PVS 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. The weighted average grant date fair value of PVS awards granted during the years 2014, 2013 and 2012 was $47.21, $29.67 and $21.33, respectively. Including forfeiture and above-target achievement expectations, we expect that the PVS awards will convert to 606,198 shares to be issued over an average remaining term of 1 year.

The fair value of PVU awards is also based on the market price of our stock at the grant date. These awards are revalued at the end of each quarter based on changes in our stock price. As a result of the cash settlement feature, PVU awards are recorded within other long-term liabilities.

The following table summarizes changes in our outstanding PVU awards:

	2014		2013		2012
Non-vested PVU awards, January 1	79,456		69,240		54,572
Granted at target level	1,584		25,538		27,100
Adjustments above/(below) target	6,907		3,000		(7,156	)
Vested and converted	(32,438	)	(18,322	)	(5,276	)
Non-vested PVU awards, December 31	55,509		79,456		69,240

Weighted Average Grant Date Fair Value	2014			2013			2012
Non-vested PVU awards, January 1	$	23.86		$	20.98		$	19.65
Granted at target level	47.34			29.56			21.22
Adjustments above/(below) target	22.72			25.30			15.22
Vested and converted	47.34			29.56			21.22
Non-vested PVU awards, December 31	$	26.15		$	23.86		$	20.98

Employee Stock Purchase Plan

We also offer an Employee Stock Purchase Plan (“ESPP”) which provides for the sale of our common stock to eligible employees at 85% of the current market price on the last trading day of each quarterly offering period. Payroll deductions are limited to 25% of the employee's base salary, not to exceed $25,000 in any one calendar year. In addition, employees may not buy more than 2,000 shares during any offering period (8,000 shares per year). Purchases under the ESPP were 76,751 shares, 84,675 shares and 103,010 shares for the years 2014, 2013 and 2012, respectively. At December 31, 2014, there were approximately 4.1 million shares available for issuance under the ESPP.

Deferred Compensation Plans

Our deferred compensation plans include a Non-Qualified Deferred Compensation Plan for Non-Employee Directors, under which non-employee directors may defer all or part of their annual cash retainers. The deferred fees may be credited to a stock-equivalent account. Amounts credited to this account are converted into deferred stock units based on the fair market value of one share of our common stock on the last day of the quarter. For deferred stock units ultimately paid in cash, a liability is calculated at an amount determined by multiplying the number of units by the fair market value of our common stock at the end of each reporting period. In addition, deferred stock awards are granted on the date of our annual meeting, and are distributed in shares of common stock. In 2014, we granted 27,144 deferred stock awards, with a grant date fair value of $43.10. Similarly, a non-qualified deferred compensation plan for eligible employees provides for the conversion of compensation into deferred stock units. As of December 31, 2014, the two deferred compensation plans held a total of 503,873 deferred stock units, including 24,296 units to be paid in cash.

Annual Incentive Plan

Under our annual incentive plan, participants are paid bonuses on the attainment of certain financial goals, which they can elect to receive in either cash or shares of our common stock. If the employee elects payment in shares, they are also given a restricted incentive stock award equal to one share for each four bonus shares issued. The incentive stock awards vest at the end of four years provided that the participant has not made a disqualifying disposition of their bonus shares. Incentive stock award grants were 4,200 shares, 5,300 shares and 2,800 shares in 2014, 2013 and 2012, respectively. Incentive stock forfeitures of 4,100 shares, 200 shares and 800 shares occurred in 2014, 2013 and 2012, respectively. Compensation expense is recognized over the vesting period based on the fair market value of common stock on the award date: $48.69 per share granted in 2014, $29.56 per share granted in 2013 and $21.22 per share granted in 2012.

Note 13: Benefit Plans

Certain of our U.S. and international subsidiaries sponsor defined benefit pension plans. In addition, we provide minimal death benefits for certain U.S. retirees and pay a portion of healthcare costs for retired U.S. salaried employees and their dependents. Benefits for participants are coordinated with Medicare and the plan mandates Medicare risk (“HMO”) coverage wherever possible and caps the total contribution for non-HMO coverage. We also sponsor a defined contribution plan for certain salaried and hourly U.S. employees. Our 401(k) plan contributions were $4.3 million for 2014, $4.0 million for 2013 and $3.7 million for 2012.

Pension and Other Retirement Benefits

The components of net periodic benefit cost and other amounts recognized in other comprehensive income were as follows:

	Pension benefits										Other retirement benefits
($ in millions)	2014			2013			2012				2014			2013			2012
Net periodic benefit cost:
Service cost	$	9.8		$	9.7		$	8.5			$	0.4		$	1.1		$	1.3
Interest cost	17.1			14.8			15.5				0.4			0.6			1.0
Expected return on assets	(19.3		)	(17.3		)	(16.4		)		—			—			—
Amortization of prior service (credit) cost	(1.3		)	(1.3		)	(1.4		)		—			—			0.1
Amortization of transition obligation	0.1			0.1			0.1				—			—			—
Amortization of actuarial loss (gain)	4.7			9.2			8.5				(1.6		)	(0.7		)	—
Net periodic benefit cost	$	11.1		$	15.2		$	14.8			$	(0.8	)	$	1.0		$	2.4
Other changes in plan assets and benefit obligations recognized in other comprehensive income, pre-tax:
Net loss (gain) arising during period	$	31.5		$	(36.1	)	$	16.5			$	0.1		$	(18.5	)	$	2.1
Amortization of prior service credit (cost)	1.3			1.3			1.4				—			—			(0.1		)
Amortization of transition obligation	(0.1		)	(0.1		)	(0.1		)		—			—			—
Amortization of actuarial (loss) gain	(4.7		)	(9.2		)	(8.5		)		1.6			0.7			—
Foreign currency exchange rate changes on the above line items	(2.1		)	0.6			0.8				—			—			—
Total recognized in other comprehensive income	$	25.9		$	(43.5	)	$	10.1			$	1.7		$	(17.8	)	$	2.0
Total recognized in net periodic benefit cost and other comprehensive income	$	37.0		$	(28.3	)	$	24.9			$	0.9		$	(16.8	)	$	4.4

Net periodic benefit cost by geographic location is as follows:

	Pension benefits										Other retirement benefits
	2014			2013			2012				2014			2013			2012
U.S. plans	$	8.1		$	11.9		$	12.0			$	(0.8	)	$	1.0		$	2.4
International plans	3.0			3.3			2.8				—			—			—
Net periodic benefit cost	$	11.1		$	15.2		$	14.8			$	(0.8	)	$	1.0		$	2.4

The following table presents the changes in the benefit obligation and the fair value of plan assets, as well as the funded status of the plans:

	Pension benefits							Other retirement benefits
($ in millions)	2014			2013				2014			2013
Change in benefit obligation:
Benefit obligation, January 1	$	(360.8	)	$	(363.2	)		$	(9.2	)	$	(26.0	)
Service cost	(9.8		)	(9.7		)		(0.4		)	(1.1		)
Interest cost	(17.1		)	(14.8		)		(0.4		)	(0.6		)
Participants' contributions	(0.9		)	(0.6		)		(0.6		)	(0.5		)
Actuarial (loss) gain	(44.5		)	12.9				(0.1		)	18.5
Benefits/expenses paid	28.8			16.4				0.6			0.5
Foreign currency translation	5.8			(1.8		)		—			—
Benefit obligation, December 31	$	(398.5	)	$	(360.8	)		$	(10.1	)	$	(9.2	)
Change in plan assets:
Fair value of assets, January 1	$	284.7		$	251.0			$	—		$	—
Actual return on assets	32.3			40.5				—			—
Employer contribution	35.4			8.2				—			—
Participants' contribution	0.9			0.6				0.6			0.5
Benefits/expenses paid	(28.8		)	(16.4		)		(0.6		)	(0.5		)
Foreign currency translation	(2.2		)	0.8				—			—
Fair value of assets, December 31	$	322.3		$	284.7			$	—		$	—
Funded status at end of year	$	(76.2	)	$	(76.1	)		$	(10.1	)	$	(9.2	)

International pension plan assets, at fair value, included in the preceding table were $30.3 million and $28.5 million at December 31, 2014 and 2013, respectively.

Amounts recognized in the balance sheet were as follows:

	Pension benefits						Other retirement benefits
($ in millions)	2014			2013			2014			2013
Current liabilities	$	(1.8	)	$	(1.5	)	$	(0.8	)	$	(0.7	)
Noncurrent liabilities	(74.4		)	(74.6		)	(9.3		)	(8.5		)
	$	(76.2	)	$	(76.1	)	$	(10.1	)	$	(9.2	)

The amounts in accumulated other comprehensive loss, pre-tax, consisted of:

	Pension benefits						Other retirement benefits
($ in millions)	2014			2013			2014			2013
Net actuarial loss (gain)	$	120.1		$	95.2		$	(13.8	)	$	(15.5	)
Transition obligation	0.2			0.3			—			—
Prior service credit	(6.3		)	(7.4		)	—			—
Total	$	114.0		$	88.1		$	(13.8	)	$	(15.5	)

The net actuarial loss, transition obligation and prior service credit for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $6.5 million, $0.1 million and $1.3 million, respectively. The net actuarial gain for the other retirement benefits plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $1.4 million.

The accumulated benefit obligation for all defined benefit pension plans was $391.0 million and $355.4 million at December 31, 2014 and 2013, respectively, including $60.2 million and $56.6 million, respectively, for international pension plans.

All of the defined benefit pension plans have projected benefit obligations and accumulated benefit obligations in excess of plan assets as of December 31, 2014 and 2013.

Benefit payments expected to be paid under our defined benefit pension and other retirement benefit plans in the next ten years are as follows:

($ in millions)	Domestic			International			Total
2015	$	21.5		$	1.6		$	23.1
2016	22.9			1.6			24.5
2017	24.4			1.8			26.2
2018	24.9			2.2			27.1
2019	25.8			2.4			28.2
2020 to 2024	135.5			15.1			150.6
	$	255.0		$	24.7		$	279.7

In 2015, we expect to contribute $23.3 million to pension plans, of which $2.1 million is for international plans. Included in this amount is a contribution to the U.S. qualified pension plan of $20.0 million, as well as a $1.2 million contribution to our non-qualified defined benefit pension plan. In addition, we expect to contribute $0.8 million for other retirement benefits in 2015. We periodically consider additional, voluntary contributions depending on the investment returns generated by pension plan assets, changes in benefit obligation projections and other factors.

Weighted average assumptions used to determine net periodic benefit cost were as follows:

	Pension benefits							Other retirement benefits
	2014		2013		2012			2014		2013		2012
Discount rate	4.50	%	3.99	%	4.78	%		4.55	%	3.50	%	4.50	%
Rate of compensation increase	4.29	%	4.24	%	4.29	%		—		—		—
Long-term rate of return on assets	7.01	%	7.12	%	7.37	%		—		—		—

Weighted average assumptions used to determine the benefit obligations were as follows:

	Pension benefits					Other retirement benefits
	2014		2013			2014		2013
Discount rate	3.96	%	4.82	%		3.90	%	4.55	%
Rate of compensation increase	4.14	%	4.37	%		—		—

The discount rate used to determine the benefit obligations for U.S. pension plans was 4.15% and 5.00% as of December 31, 2014 and 2013, respectively. The weighted average discount rate used to determine the benefit obligations for all international plans was 2.99% and 3.92% as of December 31, 2014 and 2013, respectively. The rate of compensation increase for U.S. plans was 4.25% for 2014 and 4.50% for 2013, while the weighted average rate for all international plans was 2.74% for 2014 and 2.80% for 2013. Other retirement benefits were only available to U.S. employees. The long-term rate of return for U.S. plans, which accounts for 91% of global plan assets, was 7.25% for 2014 and 2013, and 7.50% for 2012.

The assumed healthcare cost trend rate used to determine benefit obligations was 7.00% for all participants in 2014, decreasing to 5.00% by 2019. A change in the assumed healthcare cost trend rate by one percentage point would result in a $0.3 million increase or decrease in the postretirement obligation. The assumed healthcare cost trend rate used to determine net periodic benefit cost was 7.50% for all participants in 2014, decreasing to 5.00% by 2019. The effect of a one percentage point increase in the rate would be a $0.1 million increase in the aggregate service and interest cost components, while a one percentage point decrease in the rate would have an immaterial impact.

The weighted average asset allocations by asset category for our pension plans, at December 31, were as follows:

	2014		2013
Equity securities	63	%	66	%
Debt securities	35	%	32	%
Other	2	%	2	%
	100	%	100	%

Our U.S. pension plan is managed as a balanced portfolio comprised of two components: equity and fixed income debt securities. Equity investments are used to maximize the long-term real growth of fund assets, while fixed income investments are used to generate current income, provide for a more stable periodic return, and to provide some protection against a prolonged decline in the market value of equity investments. Temporary funds may be held as cash. We maintain a long-term strategic asset allocation policy which provides guidelines for ensuring that the fund's investments are managed with the short-term and long-term financial goals of the fund, while allowing the flexibility to react to unexpected changes in capital markets.

The following are the U.S. target asset allocations and acceptable allocation ranges:

	Target allocation	Allocation range
Equity securities	65%	60%-70%
Debt securities	35%	30%-40%
Other	—%	0%-5%

Diversification across and within asset classes is the primary means by which we mitigate risk. We maintain guidelines for all asset and sub-asset categories in order to avoid excessive investment concentrations. Fund assets are monitored on a regular basis. If at any time the fund asset allocation is not within the acceptable allocation range, funds will be reallocated. We also review the fund on a regular basis to ensure that the investment returns received are consistent with the short-term and long-term goals of the fund and with comparable market returns. We are prohibited from pledging fund securities and from investing pension fund assets in our own stock, securities on margin or derivative securities.

The following tables present the fair value of our pension plan assets, utilizing the fair value hierarchy discussed in Note 10, Fair Value Measurements:

	Balance at
	December 31,			Basis of Fair Value Measurements
($ in millions)	2014			Level 1			Level 2			Level 3
Cash	$	1.1		$	1.1		$	—		$	—
Equity securities:
Indexed mutual funds	142.3			142.3			—			—
International mutual funds	58.7			58.7			—			—
Fixed income securities:
Mutual funds	111.4			111.4			—			—
Insurance contract	1.0			—			1.0			—
Balanced mutual fund	7.8			7.8			—			—
	$	322.3		$	321.3		$	1.0		$	—

	Balance at
	December 31,			Basis of Fair Value Measurements
($ in millions)	2013			Level 1			Level 2			Level 3
Cash	$	1.0		$	1.0		$	—		$	—
Equity securities:
Indexed mutual funds	132.6			132.6			—			—
International mutual funds	55.4			55.4			—			—
Fixed income securities:
Mutual funds	87.4			87.4			—			—
Insurance contract	1.2			—			1.2			—
Balanced mutual fund	7.1			7.1			—			—
	$	284.7		$	283.5		$	1.2		$	—

Note 14: Other (Income) Expense

Other (income) expense consisted of:

($ in millions)	2014				2013				2012
License costs	$	1.2			$	—			$	—
Development income	(1.6		)		(2.0		)		(6.5		)
Acquisition-related contingencies	1.1				1.0				1.2
Foreign exchange and other	(0.9		)		0.5				1.1
Restructuring and related charges	—				—				2.1
Impairment charge	—				—				3.4
Total other (income) expense	$	(0.2	)		$	(0.5	)		$	1.3

Other Income and Expense Items

During 2014, we recorded a $1.2 million charge for license costs associated with acquired in-process research.

In addition, during 2014, we recorded development income of 1.6 million within Delivery Systems, the majority of which related to our receipt of a nonrefundable customer payment of $20.0 million in June 2013 in return for the exclusive use of SmartDose within a specific therapeutic area. Unearned income related to this payment of $1.5 million and $15.9 million was included within other current liabilities and other long-term liabilities, respectively, at December 31, 2014. The unearned income is being recognized as development 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. During 2013, we recorded development income of $2.0 million within Delivery Systems, of which $1.0 million related to the nonrefundable customer payment described above. Development income recorded within Delivery Systems during 2012 was primarily attributable to services and the reimbursement of certain costs.

The SmartDose contingent consideration increased by $1.1 million, $1.0 million and $1.2 million during 2014, 2013 and 2012, respectively, due to the time value of money and changes made to sales projections.

Restructuring and Related Charges

Restructuring and related charges incurred in 2012 were associated with the restructuring plan that was announced in 2010. We incurred total charges of $21.9 million as part of this plan. The plan and its activities were completed, and all obligations were paid during 2013.

In addition, during 2012, as a result of continuing delays and lower-than-expected demand, we updated the sales projections related to one of our product lines in Delivery Systems. The revised projections triggered an impairment review of the associated assets. Our review concluded that the estimated fair value of the product no longer exceeded the carrying value of the related assembly equipment and intangible asset and, therefore, an impairment charge of $3.4 million was recorded. We estimated the fair value of the asset group using an income approach based on discounted cash flows.

Note 15: Income Taxes

As a global organization, we and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. During 2014, the statute of limitations for the 2010 U.S. federal tax year lapsed, leaving tax years 2011 through 2014 open to examination. For U.S. state and local jurisdictions, tax years 2010 through 2014 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years 2006 through 2014.

A reconciliation of the beginning and ending amount of the liability for unrecognized tax benefits is as follows:

($ in millions)	2014			2013
Balance at January 1	$	7.1		$	6.8
Additions for tax positions taken in the current year	0.6			1.7
Reduction for expiration of statute of limitations/audits	(0.8		)	(1.4		)
Balance at December 31	$	6.9		$	7.1

In addition, we had balances in accrued liabilities for interest and penalties of $0.6 million and $0.5 million at December 31, 2014 and 2013, respectively. As of December 31, 2014, we had $6.9 million of total gross unrecognized tax benefits, of which $6.8 million, if recognized, would favorably impact the effective income tax rate. It is reasonably possible that, due to the expiration of statutes and the closing of tax audits, the liability for unrecognized tax benefits may be reduced by approximately $0.3 million during the next twelve months, which would favorably impact our effective tax rate.

The components of income before income taxes are:

($ in millions)	2014			2013			2012
U.S. operations	$	57.5		$	28.9		$	8.9
International operations	111.5			118.2			99.7
Total income before income taxes	$	169.0		$	147.1		$	108.6

The related provision for income taxes consists of:

($ in millions)	2014			2013			2012
Current:
Federal	$	5.2		$	—		$	—
State	0.5			0.3			0.2
International	34.5			38.2			27.2
Current income tax provision	40.2			38.5			27.4
Deferred:
Federal and state	7.7			9.2			3.3
International	(0.7		)	(7.5		)	2.0
Deferred income tax provision	7.0			1.7			5.3
Income tax expense	$	47.2		$	40.2		$	32.7

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.

The significant components of our deferred tax assets and liabilities at December 31 are:

($ in millions)	2014			2013
Deferred tax assets
Net operating loss carryforwards	$	20.4		$	20.7
Tax credit carryforwards	40.4			36.1
Restructuring and impairment charges	—			0.1
Pension and deferred compensation	43.7			51.2
Other	20.0			19.8
Valuation allowance	(22.1		)	(23.5		)
Total deferred tax assets	102.4			104.4
Deferred tax liabilities:
Accelerated depreciation	36.8			40.5
Other	7.7			5.4
Total deferred tax liabilities	44.5			45.9
Net deferred tax asset	$	57.9		$	58.5

A reconciliation of the U.S. federal corporate tax rate to our effective consolidated tax rate on income before income taxes follows:

	2014		2013		2012
U.S. federal corporate tax rate	35.0	%	35.0	%	35.0	%
Tax on international operations less than U.S. tax rate	(6.8	)	(5.3	)	(5.9	)
Non-benefited losses	—		—		0.6
Reversal of prior valuation allowance	(0.5	)	(1.0	)	—
Reversal of reserves for unrecognized tax benefits	(0.5	)	(0.8	)	(0.2	)
U.S. tax on international earnings, net of foreign tax credits	(0.1	)	0.1		(1.2	)
State income taxes, net of federal tax effect	1.5		0.1		(1.0	)
U.S. research and development credits	(0.9	)	(1.8	)	—
Other business credits and Section 199 Deduction	(0.7	)	(0.5	)	(1.0	)
Non-deductible debt premium	—		—		2.0
Other	1.0		1.6		1.9
Effective tax rate	28.0	%	27.4	%	30.2	%

During 2014, we recorded a discrete tax charge of $1.0 million resulting from the impact of a change in apportionment factors on state tax rates applied to items in other comprehensive income and a discrete tax charge of $0.8 million as a result of the finalization of estimates of foreign tax credits available with respect to a repatriation of cash from our subsidiaries in Israel.

During 2013, we recorded a discrete tax charge of $3.5 million, which related to the finalization of a beneficial agreement with local tax authorities in Israel that clarified the future tax status of our entities in Israel and settled a tax audit for the years 2009 through 2011. During 2013, we also recorded a discrete tax charge of $1.3 million resulting from the impact of a change in the enacted tax rate in the United Kingdom on our previously-recorded deferred tax asset balances and a discrete tax benefit of $1.3 million related to the reinstatement of the Research and Development tax credit under the Taxpayer Relief Act that was enacted in January 2013. In accordance with U.S. GAAP, although the Taxpayer Relief Act retroactively reinstated the tax credit for two years, from January 1, 2012 through December 31, 2013, it was not taken into account for financial reporting purposes until 2013. Had the Taxpayer Relief Act been signed prior to January 2013, our effective tax rate for 2012 would have been reduced by approximately 1.0%.

During 2012, as a result of the finalization of estimates of foreign tax credits available with respect to a dividend from one of our foreign subsidiaries, we recorded a discrete tax charge of $1.0 million. We also recorded a discrete tax charge of $0.8 million resulting from the impact of a change in the enacted tax rate in the United Kingdom on our previously-recorded deferred tax balances and recorded a discrete tax charge of $0.3 million reduction of our deferred tax assets associated with the legal restructuring of the ownership of our Puerto Rico operations.

At December 31, 2014, we have fully utilized all of our U.S. federal net operating loss carryforwards. State operating loss carryforwards of $267.0 million created a deferred tax asset of $15.0 million, while foreign operating loss carryforwards of $22.5 million created a deferred tax asset of $5.4 million. Management estimates that certain state and foreign operating loss carryforwards are unlikely to be utilized and the associated deferred tax assets have been fully reserved. State loss carryforwards expire as follows: $8.3 million in 2015 and $258.7 million thereafter. Foreign loss carryforwards will begin to expire in 2018, while $17.2 million of the total $22.5 million will not expire.

As of December 31, 2014, we had available foreign tax credit carryforwards of $22.6 million expiring as follows: $0.4 million in 2016, $2.4 million in 2017, $1.8 million in 2018, $3.1 million in 2019, $3.2 million in 2020, $9.6 million in 2021 and $2.1 million in 2024. We have U.S. federal and state research and development credit carryforwards of $7.6 million and $3.3 million, respectively. The $7.6 million of U.S. federal research and development credits expire as follows: $0.2 million expire in 2029, $1.0 million expire in 2030, $1.0 million expire in 2031, $1.4 million expire in 2032 and $4.0 million expire after 2032. The $3.3 million of state research and development credits expire as follows: $0.5 million expire in 2021, $0.8 million expire in 2022 and $2.0 million expire after 2022. We have additional available state tax credits of $1.5 million which expire in 2020.

Undistributed earnings of foreign subsidiaries amounted to $653.0 million at December 31, 2014, on which deferred income taxes have not been provided because such earnings are intended to be reinvested indefinitely outside of the U.S. It is not practicable to estimate the tax liability that might be incurred if such earnings were remitted to the U.S.

Note 16: Commitments and Contingencies

At December 31, 2014, we were obligated under various operating lease agreements. Rental expense in 2014 and 2013 was $10.7 million and 10.3 million, respectively. Net rental expense in 2012 was $12.0 million, which was net of sublease income of $0.4 million.

At December 31, 2014, future minimum rental payments under non-cancelable operating leases were:

Year	($ in millions)
2015	$	10.3
2016	8.1
2017	6.1
2018	4.5
2019	3.4
Thereafter	30.6
Total	$	63.0

At December 31, 2014, outstanding unconditional contractual commitments for the purchase of raw materials, utilities and equipment amounted to $20.4 million, of which $6.0 million is due to be paid in 2015.

We have letters of credit totaling $3.5 million supporting the reimbursement of workers' compensation and other claims paid on our behalf by insurance carriers. Our accrual for insurance obligations was $8.7 million at December 31, 2014, of which $4.6 million is in excess of our deductible and, therefore, is reimbursable by the insurance company.

Our SmartDose contingent consideration is payable to the selling shareholders based upon a percentage of product sales over the life of the underlying product patent, which is 17 years, with no cap on total payments. Given the length of the earnout period and the uncertainty in forecasted product sales, we do not believe it is meaningful to estimate the upper end of the range over the entire period. However, our estimated probable range which could become payable over the next five years is between zero and $4.1 million.

Note 17: Segment Information

Our business operations are organized into two reportable segments, which are aligned with the underlying markets and customers they serve. Our reportable segments are Packaging Systems and Delivery Systems. Packaging Systems develops, manufactures and sells primary packaging components and systems for injectable drug delivery, including stoppers and seals for vials, closures and other components used in syringe, intravenous and blood collection systems, and prefillable syringe components. Delivery Systems develops, manufactures and sells safety and administration systems, multi-component systems for drug administration, and a variety of custom contract-manufacturing solutions targeted to the healthcare and consumer-products industries. In addition, Delivery Systems is responsible for the continued development and commercialization of our line of proprietary, multi-component systems for injectable drug administration and other healthcare applications.

Packaging Systems has three operating segments: the Americas, Europe and Asia Pacific. These operating segments are aggregated for reporting purposes as they have common economic characteristics, produce and sell a similar range of products, use a similar distribution process and have a similar customer base. Delivery Systems consists of only one operating segment.

We evaluate the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, adjustments to annual incentive plan expense for over- or under-attainment of targets, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that management 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. Corporate assets include pension assets and investments in affiliated companies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

The following table provides information on sales by significant product group:

($ in millions)	2014			2013			2012
Packaging Systems	$	1,019.7		$	996.0		$	915.1
Proprietary products	105.4			92.7			77.0
Contract manufacturing	297.1			281.4			275.1
Delivery Systems	402.5			374.1			352.1
Intersegment sales elimination	(0.8		)	(1.7		)	(0.8		)
Net sales	$	1,421.4		$	1,368.4		$	1,266.4

The intersegment sales elimination, which is required for the presentation of consolidated net sales, represents the elimination of components sold between our segments.

We do not have any customers accounting for greater than 10% of consolidated net sales.

The following table presents sales and net property, plant and equipment, by the country in which the legal subsidiary is domiciled and assets are located:

	Sales										Property, Plant and Equipment, Net
($ in millions)	2014			2013			2012				2014			2013			2012
United States	$	655.5		$	614.5		$	592.8			$	339.4		$	336.0		$	322.0
Germany	219.4			219.6			184.4				110.9			124.4			117.2
France	118.2			112.6			102.6				40.4			43.4			42.1
Other European countries	285.0			279.4			251.4				91.5			83.2			72.3
Other	143.3			142.3			135.2				123.6			124.7			115.4
	$	1,421.4		$	1,368.4		$	1,266.4			$	705.8		$	711.7		$	669.0

The following tables provide summarized financial information for our segments:

($ in millions)	Packaging Systems			Delivery Systems			Corporate and Eliminations			Consolidated
2014
Net sales	$	1,019.7		$	402.5		$	(0.8	)	$	1,421.4
Operating profit	$	223.0		$	13.5		$	(54.5	)	$	182.0
Interest expense, net	—			—			(13.0		)	(13.0		)
Income before income taxes	$	223.0		$	13.5		$	(67.5	)	$	169.0
Segment assets	$	1,024.3		$	405.1		$	241.5		$	1,670.9
Capital expenditures	76.5			35.8			(0.4		)	111.9
Depreciation and amortization expense	58.3			23.0			8.7			90.0
2013
Net sales	$	996.0		$	374.1		$	(1.7	)	$	1,368.4
Operating profit	$	217.0		$	9.4		$	(64.0	)	$	162.4
Loss on debt extinguishment	—			—			(0.2		)	(0.2		)
Interest expense, net	—			—			(15.1		)	(15.1		)
Income before income taxes	$	217.0		$	9.4		$	(79.3	)	$	147.1
Segment assets	$	1,048.9		$	429.3		$	193.4		$	1,671.6
Capital expenditures	81.3			28.5			42.1			151.9
Depreciation and amortization expense	55.5			20.9			8.8			85.2
2012
Net sales	$	915.1		$	352.1		$	(0.8	)	$	1,266.4
Operating profit	$	187.5		$	18.4		$	(70.8	)	$	135.1
Loss on debt extinguishment	—			—			(11.6		)	(11.6		)
Interest expense, net	—			—			(14.9		)	(14.9		)
Income before income taxes	$	187.5		$	18.4		$	(97.3	)	$	108.6
Segment assets	$	942.7		$	389.3		$	232.0		$	1,564.0
Capital expenditures	74.3			24.5			32.5			131.3
Depreciation and amortization expense	52.7			18.4			5.8			76.9

During 2014, we recognized a pre-tax loss on debt extinguishment of less than $0.1 million, in connection with repurchases of our Convertible Debentures. We recognized a pre-tax loss on debt extinguishment of $0.2 million and $11.6 million, during 2013 and 2012 respectively, in connection with similar repurchases. Refer to Note 8, Debt, for additional details.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

West Pharmaceutical Services, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15 (a) (1), present fairly, in all material respects, the financial position of West Pharmaceutical Services, Inc. and its subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule appearing under Item 15 (a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 25, 2015

Quarterly Operating and Per Share Data (Unaudited)

($ in millions, except per share data)	First Quarter (1)			Second Quarter			Third Quarter (2)			Fourth Quarter (3)			Full Year
2014
Net sales	$	346.8		$	368.9		$	355.9		$	349.8		$	1,421.4
Gross profit	106.4			121.8			109.9			109.7			447.8
Net income	$	27.1		$	37.6		$	31.0		$	31.4		$	127.1
Net income per share:
Basic	$	0.38		$	0.53		$	0.44		$	0.44		$	1.79
Diluted	$	0.38		$	0.52		$	0.43		$	0.43		$	1.75
2013
Net sales	$	339.4		$	344.5		$	341.8		$	342.7		$	1,368.4
Gross profit	111.7			110.9			105.5			106.6			434.7
Net income	$	31.7		$	30.2		$	26.8		$	23.6		$	112.3
Net income per share:
Basic	$	0.46		$	0.44		$	0.38		$	0.33		$	1.61
Diluted	$	0.45		$	0.43		$	0.37		$	0.33		$	1.57

The sum of the quarterly per share amounts may not equal full year due to rounding.

Factors affecting the comparability of the information reflected in the quarterly data:

(1)	First quarter 2013 net income included a loss on debt extinguishment of $0.2 million and $1.3 million ($0.02 per diluted share) of discrete tax items.

(2)	Net income for the third quarter of 2014 included the impact of a charge for license costs associated with acquired in-process research of $0.8 million ($0.01 per diluted share). Net income for the third quarter of 2013 included $1.3 million ($0.02 per diluted share) of discrete tax items.

(3)	Fourth quarter 2014 net income included $1.8 million ($0.02 per diluted share) of discrete tax items. Fourth quarter 2013 net income included $3.5 million ($0.05 per diluted share) of discrete tax items.