Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF INCOME

West Pharmaceutical Services, Inc. and Subsidiaries for the years ended December 31, 2016, 2015 and 2014

(In millions, except per share data)

		2016				2015				2014
Net sales		$	1,509.1			$	1,399.8			$	1,421.4
Cost of goods and services sold		1,008.0				944.0				973.6
Gross profit		501.1				455.8				447.8
Research and development		36.8				34.1				37.3
Selling, general and administrative expenses		239.8				233.0				228.7
Other expense (income) (Note 14)		27.7				60.1				(0.2		)
Operating profit		196.8				128.6				182.0
Interest expense		8.1				14.1				16.5
Interest income		1.1				1.6				3.5
Income before income taxes		189.8				116.1				169.0
Income tax expense		54.4				26.3				47.2
Equity in net income of affiliated companies		8.2				5.8				5.3
Net income		$	143.6			$	95.6			$	127.1
Net income per share:
Basic		$	1.96			$	1.33			$	1.79
Diluted		$	1.91			$	1.30			$	1.75
Weighted average shares outstanding:
Basic		73.3				72.0				70.9
Diluted		75.0				73.8				72.8
Dividends declared per share		$	0.50			$	0.46			$	0.41

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, 2016, 2015 and 2014

(In millions)

	2016				2015				2014
Net income	$	143.6			$	95.6			$	127.1
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(18.1		)		(70.3		)		(71.3		)
Defined benefit pension and other postretirement plans:
Prior service credit arising during period, net of tax of $1.1 and $0.3	1.9				0.4				—
Net actuarial loss arising during period, net of tax of $(4.8), $(6.0) and $(10.6)	(11.1		)		(9.3		)		(18.9		)
Settlement effects arising during period, net of tax of $1.1 and $18.7	2.0				31.7				—
Less: amortization of actuarial loss, net of tax of $1.2, $1.6 and $1.1	2.2				2.9				2.0
Less: amortization of prior service credit, net of tax of $(0.5), $(0.5) and $(0.5)	(0.9		)		(0.8		)		(0.8		)
Less: amortization of transition obligation	0.1				0.1				0.1
Net (losses) gains on investment securities, net of tax of $(0.1), $0.4 and $0.2	(0.2		)		0.7				0.4
Net (losses) gains on derivatives, net of tax of $0.1, $0.8 and $0.9	(0.1		)		1.2				1.7
Other comprehensive loss, net of tax	(24.2		)		(43.4		)		(86.8		)
Comprehensive income	$	119.4			$	52.2			$	40.3

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

CONSOLIDATED BALANCE SHEETS

West Pharmaceutical Services, Inc. and Subsidiaries at December 31, 2016 and 2015

(In millions, except per share data)

	2016				2015
ASSETS
Current assets:
Cash and cash equivalents	$	203.0			$	274.6
Accounts receivable, net	200.5				181.4
Inventories	199.3				181.1
Other current assets	39.1				36.6
Total current assets	641.9				673.7
Property, plant and equipment	1,554.7				1,440.3
Less: accumulated depreciation and amortization	776.4				719.3
Property, plant and equipment, net	778.3				721.0
Investments in affiliated companies	82.7				61.3
Goodwill	103.0				104.6
Deferred income taxes	66.2				70.5
Intangible assets, net	23.3				37.6
Other noncurrent assets	21.3				26.4
Total Assets	$	1,716.7			$	1,695.1
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and other current debt	$	2.4			$	69.3
Accounts payable	122.0				119.8
Pension and other postretirement benefits	2.2				5.6
Accrued salaries, wages and benefits	51.6				53.0
Income taxes payable	4.5				12.8
Other current liabilities	58.3				53.8
Total current liabilities	241.0				314.3
Long-term debt	226.2				228.9
Deferred income taxes	9.2				12.4
Pension and other postretirement benefits	75.6				62.0
Other long-term liabilities	47.2				53.6
Total Liabilities	599.2				671.2
Commitments and contingencies (Note 16)
Equity:
Preferred stock, 3.0 million shares authorized; 0 shares issued and 0 shares outstanding in 2016 and 2015	—				—
Common stock, par value $.25 per share; 100.0 million shares authorized; shares issued: 73.7 million and 72.4 million; shares outstanding: 73.1 million and 72.3 million	18.4				18.1
Capital in excess of par value	260.4				207.8
Retained earnings	1,071.6				964.6
Accumulated other comprehensive loss	(186.8		)		(162.6		)
Treasury stock, at cost (0.6 million and 0.1 million shares in 2016 and 2015)	(46.1		)		(4.0		)
Total Equity	1,117.5				1,023.9
Total Liabilities and Equity	$	1,716.7			$	1,695.1

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, 2016, 2015 and 2014

(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, 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 benefits 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
Net income	—			—				—				—			—				95.6				—				95.6
Stock-based compensation	—			0.1				26.4				—			0.2				—				—				26.7
Shares issued under stock plans	1.1			0.2				17.6				—			—				—				—				17.8
Shares repurchased for employee tax withholdings	(0.1	)		—				(5.5		)		—			(0.1		)		—				—				(5.6		)
Excess tax benefits from employee stock plans	—			—				9.1				—			—				—				—				9.1
Dividends declared	—			—				—				—			—				(33.2		)		—				(33.2		)
Other comprehensive loss, net of tax	—			—				—				—			—				—				(43.4		)		(43.4		)
Balance, December 31, 2015	72.4			18.1				207.8				0.1			(4.0		)		964.6				(162.6		)		1,023.9
Net income	—			—				—				—			—				143.6				—				143.6
Stock-based compensation	—			—				17.1				—			0.2				—				—				17.3
Shares issued under stock plans	1.4			0.3				21.0				—			9.9				—				—				31.2
Shares purchased under share repurchase program	—			—				—				0.5			(52.2		)		—				—				(52.2		)
Shares repurchased for employee tax withholdings	(0.1	)		—				(3.7		)		—			—				—				—				(3.7		)
Excess tax benefits from employee stock plans	—			—				18.2				—			—				—				—				18.2
Dividends declared	—			—				—				—			—				(36.6		)		—				(36.6		)
Other comprehensive loss, net of tax	—			—				—				—			—				—				(24.2		)		(24.2		)
Balance, December 31, 2016	73.7			$	18.4			$	260.4			0.6			$	(46.1	)		$	1,071.6			$	(186.8	)		$	1,117.5

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, 2016, 2015 and 2014

(In millions)

	2016				2015				2014
Cash flows from operating activities:
Net income	$	143.6			$	95.6			$	127.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	88.1				86.1				84.8
Amortization	2.6				3.8				5.2
Stock-based compensation	19.5				29.6				18.6
Non-cash restructuring charges	17.5				—				—
Pension (curtailment gain) settlement charge	(2.1		)		50.4				—
Loss on sales of equipment	0.7				0.4				0.3
Deferred income taxes	21.5				(8.9		)		7.0
Pension and other retirement plans, net	(6.5		)		(28.8		)		(25.0		)
Equity in undistributed earnings of affiliates, net of dividends	(6.8		)		(5.0		)		(4.5		)
Changes in assets/liabilities:
Increase in accounts receivable	(23.3		)		(14.1		)		(6.3		)
Increase in inventories	(21.2		)		(11.4		)		(16.2		)
Increase in other current assets	(2.4		)		(2.6		)		(11.7		)
Increase (decrease) in accounts payable	6.1				17.2				(3.5		)
Changes in other assets and liabilities	(17.9		)		0.1				7.1
Net cash provided by operating activities	219.4				212.4				182.9
Cash flows from investing activities:
Capital expenditures	(170.2		)		(131.6		)		(111.9		)
Acquisition of patents and other long-term assets	—				—				(0.2		)
Sales and maturities of short-term investments	—				—				16.8
Purchases of short-term investments	—				—				(9.3		)
Purchase of cost-method investments	(8.4		)		(1.5		)		(0.5		)
Other, net	2.8				3.6				1.1
Net cash used in investing activities	(175.8		)		(129.5		)		(104.0		)
Cash flows from financing activities:
Borrowings under revolving credit agreements	—				71.4				263.4
Repayments under revolving credit agreements	—				(71.4		)		(283.4		)
Debt issuance costs	—				(1.0		)		—
Repayments of long-term debt	(69.8		)		(27.4		)		(2.3		)
Dividend payments	(35.8		)		(32.4		)		(29.1		)
Contingent consideration payments	(0.3		)		(0.1		)		(0.3		)
Proceeds from exercise of stock options and stock appreciation rights	25.9				12.7				14.3
Employee stock purchase plan contributions	3.8				3.2				2.8
Excess tax benefits from employee stock plans	18.2				9.1				7.9
Shares purchased under share repurchase program	(52.2		)		—				—
Shares repurchased for employee tax withholdings	(3.7		)		(5.6		)		(4.1		)
Net cash used in financing activities	(113.9		)		(41.5		)		(30.8		)
Effect of exchange rates on cash	(1.3		)		(22.1		)		(22.8		)
Net (decrease) increase in cash and cash equivalents	(71.6		)		19.3				25.3
Cash, including cash equivalents at beginning of period	274.6				255.3				230.0
Cash, including cash equivalents at end of period	$	203.0			$	274.6			$	255.3
Supplemental cash flow information:
Interest paid, net of amounts capitalized	$	8.6			$	14.7			$	16.7
Income taxes paid, net	$	48.1			$	33.1			$	37.4
Accrued capital expenditures	$	22.7			$	25.0			$	21.0
Dividends declared, not paid	$	9.5			$	8.6			$	7.8

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 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 $0.4 million and $0.6 million at December 31, 2016 and 2015, 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)	2016			2015
Raw materials	$	78.0		$	74.4
Work in process	28.9			30.1
Finished goods	92.4			76.6
	$	199.3		$	181.1

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) 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.

At December 31, 2015, a trademark had been determined to have an indefinite life and, therefore, was not subject to amortization. During 2016, as part of our restructuring plan, we recorded within other expense a $10.0 million non-cash asset write-down associated with the discontinued use of this trademark.

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. During 2016, as part of our restructuring plan, we recorded within other expense a $2.8 million non-cash asset write-down associated with the discontinued use of a patent.

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. During 2016, as part of our restructuring plan, we recorded within other expense a $4.5 million non-cash asset write-down associated with the discontinued use of certain equipment.

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 OCI, 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 OCI, 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 loss, 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 legal proceedings, investigations 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, we use 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. The treasury stock method assumes the use of exercise proceeds to repurchase common stock at the average fair market value in the period.

Note 2: New Accounting Standards

Recently Adopted Standards

In November 2015, the Financial Accounting Standards Board (“FASB”) issued guidance regarding the balance sheet classification of deferred taxes. This guidance requires that deferred tax assets and liabilities be classified as noncurrent. The requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not affected by these amendments. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted and the amendments may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. We adopted this guidance in the fourth quarter of 2015, on a prospective basis. The adoption did not have a material impact on our financial statements.

In September 2015, the FASB issued guidance that simplifies the accounting for measurement-period adjustments in business combinations, by eliminating the requirement to account for those adjustments retrospectively. Instead, the acquirer will be required to recognize measurement-period adjustments in the reporting period in which the amounts are determined. We adopted this guidance as of January 1, 2016, on a prospective basis. The adoption did not have a material impact on our financial statements.

In May 2015, the FASB issued amended guidance on the disclosure requirements for certain investments whose fair value was measured using the net asset value (“NAV”) per share practical expedient. In addition, the guidance eliminates the requirement to categorize such investments within the fair value hierarchy table. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, and retroactive application is required for all periods presented. We adopted this guidance in the fourth quarter of 2016. The adoption did not have a material impact on our financial statements. Please refer to Note 13, Benefit Plans, for additional details.

In April 2015, the FASB issued guidance regarding the classification of debt issuance costs. This guidance requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt. Subsequently, in August 2015, the FASB issued additional guidance which addressed the presentation of debt issuance costs associated with lines of credit, whereby these costs may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued, and retrospective application is required for each balance sheet presented. We adopted this guidance in the fourth quarter of 2015. The adoption did not have a material impact on our financial statements.

In April 2015, the FASB issued guidance on the accounting for fees paid by a customer in a cloud computing arrangement. We adopted this guidance as of January 1, 2016, on a prospective basis. The adoption did not have a material impact on our financial statements.

In February 2015, the FASB issued amended guidance that changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. We adopted this guidance as of January 1, 2016, on a prospective basis. The adoption did not have a material impact on our financial statements.

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. We adopted this guidance as of January 1, 2016. The adoption did 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. We adopted this guidance in the fourth quarter of 2016. The adoption did not have an 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. We adopted this guidance as of January 1, 2016. The adoption did not have a material impact on our financial statements.

Standards Issued Not Yet Adopted

In January 2017, the FASB issued guidance which removes the second step of the goodwill impairment test. A goodwill impairment charge will now be the amount by which a reporting unit's carrying amount exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our financial statements.

In January 2017, the FASB issued guidance which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This

guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We are currently evaluating the impact that this guidance will have on our financial statements.

In November 2016, the FASB issued guidance on the classification and presentation of restricted cash in the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our financial statements.

In October 2016, the FASB issued guidance which requires companies to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our financial statements.

In August 2016, the FASB issued guidance to reduce the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our financial statements.

In March 2016, the FASB issued guidance that simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our financial statements.

In March 2016, the FASB issued guidance that simplifies the transition to the equity method of accounting. This guidance eliminates the requirement to retroactively adopt the equity method of accounting when there is an increase in the level of ownership interest or degree of influence. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. We believe that the adoption of this guidance will not have a material impact on our financial statements.

In February 2016, the FASB issued guidance on the accounting for leases. This guidance requires lessees to recognize lease assets and lease liabilities on the balance sheet and to expand disclosures about leasing arrangements, both qualitative and quantitative. In terms of transition, the guidance requires adoption based upon a modified retrospective approach. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. We are continuing to evaluate the impact that this guidance will have on our financial statements.

In January 2016, the FASB issued guidance that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We believe that the adoption of this guidance will not have a material impact on our financial statements.

In July 2015, the FASB issued guidance regarding the subsequent measurement of inventory. This guidance requires inventory measured using any method other than last-in, first-out or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value represents estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. We believe that the adoption of this guidance will not have a material impact 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. The FASB subsequently issued additional clarifying standards to address issues arising from implementation of the new revenue recognition standard. This guidance is effective for interim and annual reporting periods beginning on or after December 15, 2017. Early adoption is permitted as of one year prior to the current effective date. Entities can choose to apply the guidance using either a full retrospective approach or a modified retrospective approach. We have made progress towards completion of our evaluation of the potential impact that the adoption of this guidance will have on our financial statements.

Note 3: Net Income Per Share

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

(in millions)	2016				2015				2014
Net income	$	143.6			$	95.6			$	127.1
Weighted average common shares outstanding	73.3				72.0				70.9
Dilutive effect of stock options, stock appreciation rights and performance share awards, based on the treasury stock method	1.7				1.8				1.9
Weighted average shares assuming dilution	75.0				73.8				72.8

During 2016, 2015 and 2014, there were 0.1 million, 0.7 million, and 0.5 million shares from stock-based compensation plans not included in the computation of diluted net income per share because their impact was antidilutive.

In December 2015, we announced a share repurchase program authorizing the repurchase of up to700,000 shares of our common stock from time to time on the open market or in privately-negotiated transactions as permitted under the Securities Exchange Act of 1934 Rule 10b-18. During 2016, we purchased 700,000 shares of our common stock under this program at a cost of $52.2 million, or an average price of $74.54 per share. This share repurchase program expired on December 31, 2016.

In December 2016, we announced a share repurchase program authorizing the repurchase of up to 800,000 shares of our common stock from time to time on the open market or in privately-negotiated transactions as permitted under the Securities Exchange Act of 1934 Rule 10b-18. The number of shares to be repurchased and the timing of such transactions will depend on a variety of factors, including market conditions. This share repurchase program commenced on January 1, 2017 and is expected to be completed by December 31, 2017.

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)	2016			2015
Land		$	18.6		$	17.6
Buildings and improvements	5-50	443.3			412.8
Machinery and equipment	10-15	698.5			674.8
Molds and dies	4-7	98.3			94.4
Computer hardware and software	3-10	121.9			118.3
Construction in progress		174.1			122.4
		$	1,554.7		$	1,440.3

Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $88.1 million, $86.1 million and $84.8 million, respectively.

There were no capitalized leases included in buildings and improvements at December 31, 2016. Capitalized leases included in machinery and equipment were $1.5 million at December 31, 2016. Capitalized leases included in buildings and improvements and machinery and equipment were $2.0 million and $1.5 million at December 31, 2015, respectively. Accumulated depreciation on all property, plant and equipment accounted for as capitalized leases was $1.5 million and $2.1 million at December 31, 2016 and 2015, respectively.

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, 2016, 2015 and 2014 was $3.6 million, $1.5 million and $1.6 million, respectively.

During 2016, as part of our restructuring plan, we recorded within other expense a $4.5 million non-cash asset write-down associated with the discontinued use of certain equipment.

Note 5: Affiliated Companies

At December 31, 2016, 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 $63.0 million, $56.2 million and $51.2 million at December 31, 2016, 2015 and 2014, respectively. Dividends received from affiliated companies were $1.4 million in 2016, $0.8 million in 2015 and $0.8 million in 2014.

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 $(5.3) million, $(5.4) million and $(4.7) million at December 31, 2016, 2015 and 2014, respectively.

Our purchases from, and royalty payments made to, affiliates totaled $94.5 million, $65.8 million and $68.9 million, respectively, in 2016, 2015 and 2014, of which $9.0 million and $10.1 million was due and payable as of December 31, 2016 and 2015, 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 $6.8 million, $5.3 million and $5.1 million, respectively, in 2016, 2015 and 2014, of which $0.9 million and $0.5 million was receivable as of December 31, 2016 and 2015, respectively.

At December 31, 2016 and 2015, the aggregate carrying amount of investments in equity-method affiliates was $69.3 million and $56.3 million, respectively. In addition, during 2016, we made an $8.4 million cost-method investment in an intradermal drug delivery company. At December 31, 2016 and 2015, we had cost-method investments, for which fair value was not readily determinable, with a carrying amount of $13.4 million and $5.0 million, respectively. We test our cost-method investments for impairment whenever circumstances indicate that the carrying value of the investments may not be recoverable.

Note 6: Goodwill and Intangible Assets

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

($ in millions)	Proprietary Products			Contract-Manufactured Products			Total
Balance, December 31, 2014	$	78.9		$	29.7		$	108.6
Foreign currency translation	(3.8		)	(0.2		)	(4.0		)
Balance, December 31, 2015	75.1			29.5			104.6
Foreign currency translation	(1.4		)	(0.2		)	(1.6		)
Balance, December 31, 2016	$	73.7		$	29.3		$	103.0

As of December 31, 2016, we had no accumulated goodwill impairment losses.

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

	2016									2015
($ in millions)	Cost			Accumulated Amortization			Net			Cost			Accumulated Amortization			Net
Patents and licensing	$	17.8		$	(13.4	)	$	4.4		$	19.7		$	(12.8	)	$	6.9
Technology	3.3			(0.7		)	2.6			3.4			(0.6		)	2.8
Trademarks	2.0			(1.6		)	0.4			12.0			(1.4		)	10.6
Customer relationships	29.3			(18.3		)	11.0			29.5			(17.7		)	11.8
Customer contracts	10.7			(5.8		)	4.9			10.8			(5.3		)	5.5
	$	63.1		$	(39.8	)	$	23.3		$	75.4		$	(37.8	)	$	37.6

The cost basis of intangible assets includes a foreign currency translation loss of $0.3 million and $0.9 million for the years ended December 31, 2016 and 2015, respectively. Amortization expense for the years ended December 31, 2016, 2015 and 2014 was $2.6 million, $3.5 million and $4.9 million, respectively. Estimated annual amortization expense for the next five years is as follows: 2017 - $4.1 million, 2018 - $3.5 million, 2019 - $3.6 million, 2020 - $3.6 million and 2021 - $3.5 million. During 2016, as part of our restructuring plan, we recorded within other expense a $2.8 million non-cash asset write-down associated with the discontinued use of a patent and a $10.0 million non-cash asset write-down associated with the discontinued use of an indefinite-lived trademark.

Note 7: Other Current Liabilities

Other current liabilities as of December 31 included the following:

($ in millions)	2016			2015
Deferred income	$	13.2		$	14.4
Other accrued expenses	20.3			23.1
Dividends payable	9.5			8.6
Restructuring obligations	5.9			—
Other	9.4			7.7
Total other current liabilities	$	58.3		$	53.8

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

Note 8: Debt

The following table summarizes our long-term debt obligations, net of unamortized debt issuance costs and current maturities, at December 31. The interest rates shown in parentheses are as of December 31, 2016.

($ in millions)	2016				2015
Euro note B, due February 27, 2016	$	—			$	66.8
Term loan, due January 1, 2018 (2.27%)	34.9				37.1
Note payable, due December 31, 2019	0.2				0.2
Credit Facility, due October 15, 2020 (1.00%)	26.4				27.1
Series A notes, due July 5, 2022 (3.67%)	42.0				42.0
Series B notes, due July 5, 2024 (3.82%)	53.0				53.0
Series C notes, due July 5, 2027 (4.02%)	73.0				73.0
	229.5				299.2
Less: unamortized debt issuance costs	0.9				1.0
Total debt	228.6				298.2
Less: current portion of long-term debt	2.4				69.3
Long-term debt	$	226.2			$	228.9

Euro-denominated Note

Our Euro note B of €61.1 million ($66.8 million at December 31, 2015) matured in February 2016.

Term Loan

In 2013, we entered into a $42.8 million fivefive-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 the London Interbank Offered Rate (“LIBOR”) plus a margin of 1.50 percentage points. Please refer to Note 9, Derivative Financial Instruments, for a discussion of the interest-rate swap agreement associated with this loan. At December 31, 2016, $34.9 million was outstanding under this loan, of which $2.4 million was classified as current. As of December 31, 2016 and 2015, there were unamortized debt issuance costs remaining of $0.1 million and $0.1 million, respectively, which are being amortized as additional interest expense over the term of the loan.

Credit Facility

In October 2015, we entered into the Credit Facility, that replaced our prior revolving credit facility, which was scheduled to expire in April 2017. The Credit Facility, which expires in October 2020, contains a $300.0 million credit facility, which may be increased from time to time by up to $100.0 million in the aggregate, subject to the satisfaction of certain conditions and 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 standby letters of credit. Borrowings under the Credit Facility bear interest at either the base rate or at the applicable LIBOR rate, plus a tiered margin based on the ratio of our total debt to modified earnings before interest, taxes, depreciation and amortization (“EBITDA”), ranging from 0 to 75 basis points for base rate loans and 100 to 175 basis points for LIBOR rate loans. Consistent with our previous revolving credit facility, 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, and limitations on liens securing indebtedness, asset sales, distributions and acquisitions. As of December 31, 2016 and 2015, total unamortized debt issuance costs of $1.3 million and $1.6 million, respectively, were recorded in other noncurrent assets and are being amortized as additional interest expense over the term of the Credit Facility. A portion of these costs relate to our prior credit facility.

At December 31, 2016, we had $26.4 million in outstanding long-term borrowings under the Credit Facility, of which $4.3 million was denominated in Yen and $22.1 million in Euro. These borrowings, together with outstanding letters of credit of $3.0 million, resulted in a borrowing capacity available under the Credit Facility of $270.6 million at December 31, 2016.

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 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%. Please refer to Note 9, Derivative Financial Instruments, for additional discussion of the related interest rate hedge. As of December 31, 2016 and 2015, there were unamortized debt issuance costs remaining of $0.8 million and $0.9 million, respectively, which are being amortized as additional interest expense over the term of the Notes.

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, 2016, 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 2017.

Interest costs incurred during 2016, 2015 and 2014 were $11.7 million, $15.6 million and $18.1 million, respectively. The aggregate annual maturities of long-term debt were as follows: 2017 - $2.4 million, 2018 - $32.6 million, 2019 - $0.1 million, 2020 - $26.4 million, none in 2021, 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 investment or trading purposes. All derivatives are recorded on the balance sheet at fair value.

Interest Rate Risk

At December 31, 2016, we had a $34.9 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 swap as a cash flow hedge.

Foreign Exchange Rate Risk

In 2016 and 2015, we entered into forward exchange contracts, designated as fair value hedges, to neutralize our exposure to fluctuating foreign exchange rates on cross-currency intercompany loans. As of December 31, 2016 and December 31, 2015, the total amount of these forward exchange contracts was €57.5 million and €20.0 million, respectively.

In addition, in the fourth quarter of 2016, we entered into several foreign currency contracts, designated as cash flow hedges, for periods of up to eighteen months, intended to hedge the currency risk associated with a portion of our forecasted transactions denominated in foreign currencies. At December 31, 2016, we had outstanding foreign currency contracts to purchase and sell certain currencies, as follows:

(in millions)				Sell
Currency	Purchase			USD		Euro
USD	49.0			—		46.1
Yen	6,475.0			31.6		23.5
Singapore Dollar	37.0			18.2		7.3

At December 31, 2016, a portion of our debt consisted of borrowings denominated in currencies other than USD. We have designated our €21.0 million ($22.1 million) Euro-denominated borrowings under our Credit Facility as a hedge of our net investment in certain European subsidiaries. A cumulative foreign currency translation gain of $1.7 million pre-tax ($1.1 million after tax) on this debt was recorded within accumulated other comprehensive loss as of December 31, 2016. We have also designated our ¥500.0 million ($4.3 million) Yen-denominated borrowings under our Credit Facility as a hedge of our net investment in Daikyo. At December 31, 2016, there was a cumulative foreign currency translation loss on this Yen-denominated debt of less than $0.1 million, which was also included within accumulated other comprehensive loss.

Commodity Price Risk

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

In February 2016, we purchased a series of call options for a total of 71,900 barrels of crude oil to mitigate our exposure to such oil-based surcharges and protect operating cash flows with regards to a portion of our forecasted elastomer purchases through November 2016. With these contracts in 2016, we benefited $0.4 million due to increases in crude oil prices, offset by the $0.2 million premium that we paid to purchase the contracts.

In November 2016, we purchased a series of call options for a total of 96,525 barrels of crude oil through November 2017. During 2016, the gain recorded in cost of goods and services sold related to these options was less than $0.1 million.

Effects of Derivative Instruments on Financial Position and Results of Operations

Please refer to Note 10, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of December 31, 2016 and 2015.

The following table summarizes the effects of derivative instruments designated as hedges on OCI and earnings, net of tax, for the year ended December 31:

	Amount of (Loss)Gain 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)	2016				2015				2016				2015
Cash Flow Hedges:
Foreign currency hedge contracts	$	(0.5	)		$	1.6			$	—			$	(1.6	)		Net sales
Foreign currency hedge contracts	(0.6		)		—				—				—				Cost of goods and services sold
Interest rate swap contracts	(0.1		)		(0.3		)		0.8				1.3				Interest expense
Forward treasury locks	—				—				0.3				0.2				Interest expense
Total	$	(1.2	)		$	1.3			$	1.1			$	(0.1	)
Net Investment Hedges:
Foreign currency-denominated debt	$	—			$	6.2			$	—			$	—			Foreign exchange and other
Total	$	—			$	6.2			$	—			$	—

During 2016 and 2015, there was no material ineffectiveness related to our hedges.

Note 10: Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following fair value hierarchy classifies the inputs to valuation techniques used to measure fair value into one of three levels:

•	Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•	Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables present the assets and liabilities recorded at fair value on a recurring basis:

	Balance at				Basis of Fair Value Measurements
($ in millions)	December 31, 2016				Level 1				Level 2				Level 3
Assets:
Deferred compensation assets	$	7.4			$	7.4			$	—			$	—
Foreign currency contracts	0.2				—				0.2				—
	$	7.6			$	7.4			$	0.2			$	—
Liabilities:
Contingent consideration	$	8.0			$	—			$	—			$	8.0
Deferred compensation liabilities	8.4				8.4				—				—
Interest rate swap contract	1.0				—				1.0				—
Foreign currency contracts	1.6				—				1.6				—
	$	19.0			$	8.4			$	2.6			$	8.0

	Balance at				Basis of Fair Value Measurements
($ in millions)	December 31, 2015				Level 1				Level 2				Level 3
Assets:
Deferred compensation assets	$	6.8			$	6.8			$	—			$	—
Foreign currency contracts	0.2				—				0.2				—
	$	7.0			$	6.8			$	0.2			$	—
Liabilities:
Contingent consideration	$	6.0			$	—			$	—			$	6.0
Deferred compensation liabilities	8.8				8.8				—				—
Interest rate swap contracts	2.0				—				2.0				—
Foreign currency contracts	0.2				—				0.2				—
	$	17.0			$	8.8			$	2.2			$	6.0

Deferred compensation assets are included within other noncurrent assets and are valued using a market approach based on quoted market prices in an active market. The fair value of our foreign currency contracts, included within other current assets and other current liabilities, is valued using an income approach based on quoted forward foreign exchange rates and spot rates at the reporting date. The fair value of our contingent consideration, included within other current and long-term liabilities, is discussed further in the section related to Level 3 fair value measurements. The fair value of deferred compensation liabilities is based on quoted prices of the underlying employees’ investment selections and is included within other long-term liabilities. Our interest rate swap, included within other long-term liabilities, is valued based on the terms of the contract and observable market inputs (i.e., LIBOR, Eurodollar synthetic forwards and swap spreads). Please 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 expense (income) 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 the SmartDose technology platform progresses, we may need to update the sales projections, the probability of success factors, and the discount rate used. This could result in 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, 2014	$	5.0
Increase in fair value recorded in earnings	1.1
Payments	(0.1		)
Balance, December 31, 2015	6.0
Increase in fair value recorded in earnings	2.3
Payments	(0.3		)
Balance, December 31, 2016	$	8.0

Please refer to Note 14, Other Expense (Income), 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.

The estimated fair value of long-term debt is based on quoted market prices for debt issuances with similar terms and maturities and is classified as Level 2 within the fair value hierarchy. At December 31, 2016, the estimated fair value of long-term debt was $228.3 million compared to a carrying amount of $226.2 million. At December 31, 2015, the estimated fair value of long-term debt was $225.0 million and the carrying amount was $228.9 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, 2014	$	(4.3	)	$	4.7		$	(64.6	)	$	(55.0	)	$	(119.2	)
Other comprehensive income (loss) before reclassifications	1.3			0.7			(8.9		)	(70.3		)	(77.2		)
Amounts reclassified out	(0.1		)	—			33.9			—			33.8
Other comprehensive income (loss), net of tax	1.2			0.7			25.0			(70.3		)	(43.4		)
Balance, December 31, 2015	(3.1		)	5.4			(39.6		)	(125.3		)	(162.6		)
Other comprehensive loss before reclassifications	(1.2		)	(0.2		)	(9.2		)	(18.1		)	(28.7		)
Amounts reclassified out	1.1			—			3.4			—			4.5
Other comprehensive loss, net of tax	(0.1		)	(0.2		)	(5.8		)	(18.1		)	(24.2		)
Balance, December 31, 2016	$	(3.2	)	$	5.2		$	(45.4	)	$	(143.4	)	$	(186.8	)

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

Detail of components	2016			2015			Location on Statement of Income
Losses on cash flow hedges:
Foreign currency contracts	$	—		$	1.8		Net sales
Interest rate swap contracts	(1.3		)	(2.1		)	Interest expense
Forward treasury locks	(0.4		)	(0.3		)	Interest expense
Total before tax	(1.7		)	(0.6		)
Tax expense	0.6			0.7
Net of tax	$	(1.1	)	$	0.1
Amortization of defined benefit pension and other postretirement plans:
Transition obligation	$	(0.1	)	$	(0.1	)	(a)
Prior service credit	1.4			1.3			(a)
Actuarial losses	(3.4		)	(4.5		)	(a)
Curtailment	(3.1		)	—			(a)
Settlements	—			(50.4		)	(a)
Total before tax	(5.2		)	(53.7		)
Tax expense	1.8			19.8
Net of tax	$	(3.4	)	$	(33.9	)
Total reclassifications for the period, net of tax	$	(4.5	)	$	(33.8	)

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

Note 12: Stock-Based Compensation

On May 3, 2016, our shareholders approved the adoption of the West Pharmaceutical Services, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Plan”). All remaining shares available for issuance under the 2011 Omnibus Incentive Compensation Plan (the “2011 Plan”) were extinguished upon adoption of the 2016 Plan. Awards granted under previous plans remain outstanding until expiration or settlement. The 2016 Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to employees and non-employee directors. A committee of the Board of Directors determines the terms and conditions of awards to be granted. Vesting requirements vary by award. At December 31, 2016, there were 5,334,471 shares remaining in the 2016 Plan for future grants.

Stock options and stock appreciation rights reduce the number of shares available by one share for each award granted. All other awards under the 2016 Plan will reduce the total number of shares available for grant by an amount equal to 2.5 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 2016 Plan.

The following table summarizes our stock-based compensation expense recorded within selling, general and administrative expenses for the years ended December 31:

($ in millions)	2016			2015			2014
Stock option and appreciation rights	$	8.6		$	9.2		$	7.6
Performance-vesting shares	6.7			6.0			6.5
Performance-vesting units	0.1			0.7			1.9
Performance-vesting shares/units dividend equivalents	0.2			0.2			0.4
Employee stock purchase plan	0.7			0.6			0.5
Deferred compensation plans	3.2			2.5			1.7
Total stock-based compensation expense	$	19.5		$	19.2		$	18.6

In addition, we recorded a $0.2 million charge during 2016 as part of our restructuring plan, and we recorded a $10.4 million charge during 2015 related to executive retirements. Both charges were recorded within other expense. Please refer to Note 14, Other Expense (Income), for further discussion of these charges.

The amount of unrecognized compensation expense for all non-vested awards as of December 31, 2016, was approximately $16.2 million, which is expected to be recognized over a weighted average period of 1.7 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)	2016		2015		2014
Options outstanding, January 1	5.0		4.6		4.8
Granted	0.7		0.9		0.7
Exercised	(1.1	)	(0.5	)	(0.7	)
Forfeited	(0.1	)	—		(0.2	)
Options outstanding, December 31	4.5		5.0		4.6
Options exercisable, December 31	2.7		2.9		2.6

Weighted Average Exercise Price	2016			2015			2014
Options outstanding, January 1	$	31.77		$	25.49		$	21.99
Granted	61.98			56.06			47.59
Exercised	22.50			21.85			20.17
Forfeited	45.91			—			31.42
Options outstanding, December 31	$	38.11		$	31.77		$	25.49
Options exercisable, December 31	$	27.17		$	22.75		$	20.67

As of December 31, 2016, the weighted average remaining contractual life of options outstanding and of options exercisable was 6.3 years and 4.9 years, respectively.

As of December 31, 2016, the aggregate intrinsic value of total options outstanding was $212.4 million, of which $153.5 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 2016, 2015 and 2014: a risk-free interest rate of 1.4%, 1.7%, and 1.6%, respectively; stock volatility of 20.4%, 21.0%, and 21.9%, respectively; and dividend yields of 0.9%, 0.9%, and 0.8%, 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 2016, 2015 and 2014. The weighted average grant date fair value of options granted in 2016, 2015 and 2014 was $12.12, $10.57 and $10.38, respectively. Stock option expense is recognized over the vesting period, net of forfeitures.

For the years ended December 31, 2016, 2015 and 2014, the intrinsic value of options exercised was $49.4 million, $17.7 million and $16.0 million, respectively. The grant date fair value of options vested during those same periods was $5.8 million, $4.8 million and $4.7 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, 2016, SARs outstanding were 116,087, of which 61,135 were cash-settled and 54,952 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:

	2016		2015		2014
SARs outstanding, January 1	232,930		297,714		375,104
Granted	3,368		12,356		7,733
Exercised	(114,976	)	(77,140	)	(85,123	)
Forfeited	(5,235	)	—		—
SARs outstanding, December 31	116,087		232,930		297,714
SARs exercisable, December 31	71,701		112,295		88,751

Weighted Average Exercise Price	2016			2015			2014
SARs outstanding, January 1	$	27.79		$	25.20		$	24.03
Granted	68.40			57.25			47.74
Exercised	24.95			22.52			22.09
Forfeited	42.28			—			—
SARs outstanding, December 31	$	31.13		$	27.79		$	25.20
SARs exercisable, December 31	$	26.65		$	24.60		$	23.15

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, 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:

	2016			2015			2014
Non-vested PVS awards, January 1	422,726			470,719			578,358
Granted at target level	115,035			147,908			133,823
Adjustments above/(below) target	19,339			132,444			53,438
Vested and converted	(173,364		)	(318,337		)	(250,205		)
Forfeited	(5,674		)	(10,008		)	(44,695		)
Non-vested PVS awards, December 31	378,062			422,726			470,719
Weighted Average Grant Date Fair Value	2016			2015			2014
Non-vested PVS awards, January 1	$	45.60		$	30.93		$	23.79
Granted at target level	60.47			55.49			47.21
Adjustments above/(below) target	38.71			22.97			22.86
Vested and converted	59.64			51.53			48.69
Forfeited	49.86			41.84			30.76
Non-vested PVS awards, December 31	$	54.47		$	45.60		$	30.93

Shares earned under 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 2016, 2015 and 2014 was $60.47, $55.49 and $47.21, respectively. Including forfeiture and above-target achievement expectations, we expect that the PVS awards will convert to 362,939 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:

	2016		2015		2014
Non-vested PVU awards, January 1	29,196		55,509		79,456
Granted at target level	419		1,386		1,584
Adjustments above/(below) target	2,858		19,315		6,907
Vested and converted	(29,032	)	(47,014	)	(32,438	)
Forfeited	(990	)	—		—
Non-vested PVU awards, December 31	2,451		29,196		55,509

Weighted Average Grant Date Fair Value	2016			2015			2014
Non-vested PVU awards, January 1	$	32.07		$	26.15		$	23.86
Granted at target level	59.64			54.14			47.34
Adjustments above/(below) target	30.80			22.07			22.72
Vested and converted	59.64			51.53			47.34
Forfeited	50.55			—			—
Non-vested PVU awards, December 31	$	25.28		$	32.07		$	26.15

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 60,839 shares, 61,757 shares and 76,751 shares for the years 2016, 2015 and 2014, respectively. At December 31, 2016, there were approximately 4.0 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 2016, we granted 20,077 deferred stock awards, with a grant date fair value of $71.47. Similarly, a non-qualified deferred compensation plan for eligible employees provides for the conversion of compensation into deferred stock units. As of December 31, 2016, the two deferred compensation plans held a total of 388,287 deferred stock units, including 24,296 units to be paid in cash.

In addition, during 2016, we granted 1,393 restricted share awards at a weighted grant-date fair value of $71.79 per share to new executive officers under the 2016 Plan. During 2015, we granted 41,458 restricted share awards at a weighted grant-date fair value of $57.89 per share to new executive officers under the 2011 Plan. The fair value of the awards is based on the market price of our stock at the grant date and is recognized as expense over the vesting period.

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 2,400 shares, 1,500 shares and 4,200 shares in 2016, 2015 and 2014, respectively. Incentive stock forfeitures of 800 shares, 200 shares and 4,100 shares occurred in 2016, 2015 and 2014, respectively. Compensation expense is recognized over the vesting period based on the fair market value of common stock on the award date: $59.64 per share granted in 2016, $51.53 per share granted in 2015 and $48.69 per share granted in 2014.

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 $4.9 million for 2016, $4.8 million for 2015 and $4.3 million for 2014.

Pension and Other Retirement Benefits

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

	Pension benefits										Other retirement benefits
($ in millions)	2016			2015			2014				2016			2015			2014
Net periodic benefit cost:
Service cost	$	10.2		$	10.6		$	9.8			$	0.5		$	0.5		$	0.4
Interest cost	10.5			13.8			17.1				0.5			0.4			0.4
Expected return on assets	(12.6		)	(19.5		)	(19.3		)		—			—			—
Amortization of prior service credit	(1.4		)	(1.3		)	(1.3		)		—			—			—
Amortization of transition obligation	0.1			0.1			0.1				—			—			—
Amortization of actuarial loss (gain)	4.8			5.9			4.7				(1.4		)	(1.4		)	(1.6		)
Curtailment	(2.1		)	—			—				—			—			—
Settlement effects	—			50.4			—				—			—			—
Net periodic benefit cost	$	9.5		$	60.0		$	11.1			$	(0.4	)	$	(0.5	)	$	(0.8	)
Other changes in plan assets and benefit obligations recognized in OCI, pre-tax:
Net loss (gain) arising during period	$	19.2		$	17.7		$	31.5			$	(0.1	)	$	(0.8	)	$	0.1
Prior service credit arising during period	—			(0.7		)	—				(3.0		)	—			—
Amortization of prior service credit	1.4			1.3			1.3				—			—			—
Amortization of transition obligation	(0.1		)	(0.1		)	(0.1		)		—			—			—
Amortization of actuarial (loss) gain	(4.8		)	(5.9		)	(4.7		)		1.4			1.4			1.6
Curtailment	(3.1		)	—			—				—			—			—
Settlement effects	—			(50.4		)	—				—			—			—
Foreign currency translation	(3.2		)	(1.6		)	(2.1		)		—			—			—
Total recognized in OCI	$	9.4		$	(39.7	)	$	25.9			$	(1.7	)	$	0.6		$	1.7
Total recognized in net periodic benefit cost and OCI	$	18.9		$	20.3		$	37.0			$	(2.1	)	$	0.1		$	0.9

Net periodic benefit cost by geographic location is as follows:

	Pension benefits										Other retirement benefits
	2016			2015			2014				2016			2015			2014
U.S. plans	$	7.1		$	57.4		$	8.1			$	(0.4	)	$	(0.5	)	$	(0.8	)
International plans	2.4			2.6			3.0				—			—			—
Net periodic benefit cost	$	9.5		$	60.0		$	11.1			$	(0.4	)	$	(0.5	)	$	(0.8	)

During 2016, we recorded a pension curtailment gain of $2.1 million in connection with our decision to freeze both our U.S. qualified and non-qualified defined benefit pension plans as of January 1, 2019.

During 2015, we recorded a $50.4 million pension settlement charge within other expense, of which $47.0 million related to our purchase of a group annuity contract from MetLife to settle $139.4 million of our $313.6 million outstanding pension benefit obligation under our U.S. qualified pension plan. MetLife assumed the obligation to pay future pension benefits and provide administrative services beginning November 1, 2015 for approximately 1,750 retirees and surviving beneficiaries who retired before January 1, 2015 and are currently receiving payments from this plan. The purchase was funded directly by plan assets. The remaining portion of the pension settlement charge related to lump-sum payouts made to terminated vested participants of our U.S. qualified pension plan.

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)	2016			2015				2016			2015
Change in benefit obligation:
Benefit obligation, January 1	$	(246.3	)	$	(398.5	)		$	(10.2	)	$	(10.1	)
Service cost	(10.2		)	(10.6		)		(0.5		)	(0.5		)
Interest cost	(10.5		)	(13.8		)		(0.5		)	(0.4		)
Participants' contributions	(0.6		)	(0.6		)		(0.5		)	(0.6		)
Actuarial (loss) gain	(23.4		)	7.8				0.1			0.8
Amendments/transfers in	—			0.8				3.0			—
Benefits/expenses paid	16.2			14.6				0.6			0.6
Curtailment	5.2			—				—			—
Settlement	—			149.7				—			—
Foreign currency translation	7.4			4.3				—			—
Benefit obligation, December 31	$	(262.2	)	$	(246.3	)		$	(8.0	)	$	(10.2	)
Change in plan assets:
Fair value of assets, January 1	$	188.9		$	322.3			$	—		$	—
Actual return on assets	16.8			(6.0		)		—			—
Employer contribution	6.8			38.0				0.1			—
Participants' contributions	0.6			0.6				0.5			0.6
Benefits/expenses paid	(16.2		)	(14.6		)		(0.6		)	(0.6		)
Settlement	—			(149.7		)		—			—
Foreign currency translation	(4.5		)	(1.7		)		—			—
Fair value of assets, December 31	$	192.4		$	188.9			$	—		$	—
Funded status at end of year	$	(69.8	)	$	(57.4	)		$	(8.0	)	$	(10.2	)

International pension plan assets, at fair value, included in the preceding table were $28.8 million and $29.2 million at December 31, 2016 and 2015, respectively.

Amounts recognized in the balance sheet were as follows:

	Pension benefits						Other retirement benefits
($ in millions)	2016			2015			2016			2015
Current liabilities	$	(1.5	)	$	(5.0	)	$	(0.7	)	$	(0.6	)
Noncurrent liabilities	(68.3		)	(52.4		)	(7.3		)	(9.6		)
	$	(69.8	)	$	(57.4	)	$	(8.0	)	$	(10.2	)

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

	Pension benefits						Other retirement benefits
($ in millions)	2016			2015			2016			2015
Net actuarial loss (gain)	$	86.0		$	79.9		$	(11.9	)	$	(13.2	)
Transition obligation	—			0.1			—			—
Prior service credit	(2.3		)	(5.7		)	(3.0		)	—
Total	$	83.7		$	74.3		$	(14.9	)	$	(13.2	)

The net actuarial loss 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 $4.7 million and $1.4 million, respectively. The net actuarial gain and prior service credit 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 $2.3 million and $0.7 million.

The accumulated benefit obligation for all defined benefit pension plans was $258.4 million and $238.9 million at December 31, 2016 and 2015, respectively, including $60.6 million and $55.5 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, 2016 and 2015.

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
2017	$	12.5		$	1.5		$	14.0
2018	13.4			1.7			15.1
2019	14.3			2.1			16.4
2020	15.3			2.7			18.0
2021	15.0			2.4			17.4
2022 to 2026	73.6			14.9			88.5
	$	144.1		$	25.3		$	169.4

In 2017, we expect to contribute $23.0 million to pension plans, of which $1.9 million is for international plans. Included in this amount is a $1.1 million contribution to our non-qualified defined benefit pension plan. In addition, we expect to contribute $0.7 million for other retirement benefits in 2017. 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
	2016		2015		2014			2016		2015		2014
Discount rate	3.99	%	4.08	%	4.50	%		4.30	%	3.90	%	4.55	%
Rate of compensation increase	4.04	%	4.07	%	4.29	%		—		—		—
Long-term rate of return on assets	6.95	%	6.84	%	7.01	%		—		—		—

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

	Pension benefits					Other retirement benefits
	2016		2015			2016		2015
Discount rate	3.68	%	4.22	%		3.90	%	4.30	%
Rate of compensation increase	4.04	%	4.07	%		—		—

The discount rate used to determine the benefit obligations for U.S. pension plans was 4.15% and 4.55% as of December 31, 2016 and 2015, respectively. The weighted average discount rate used to determine the benefit obligations for all international plans was 2.25% and 3.19% as of December 31, 2016 and 2015, respectively. The rate of compensation increase for U.S. plans was 4.25% for 2016 and 2015, while the weighted average rate for all international plans was 2.59% for 2016 and 2.73% for 2015. Other retirement benefits were only available to U.S. employees. The long-term rate of return for U.S. plans, which accounts for 85% of global plan assets, was 7.25% for 2016, 2015 and 2014.

The assumed healthcare cost trend rate used to determine benefit obligations was 6.60% for all participants in 2016, decreasing to 5.00% by 2021. A change in the assumed healthcare cost trend rate by one percentage point would result in a $0.2 million increase or decrease in the postretirement obligation. The assumed healthcare cost trend rate used to determine net periodic benefit cost was 7.00% for all participants in 2016, decreasing to 5.00% by 2021. 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:

	2016		2015
Equity securities	60	%	62	%
Debt securities	30	%	35	%
Other	10	%	3	%
	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)	2016			Level 1			Level 2			Level 3
Cash	$	10.0		$	10.0		$	—		$	—
Equity securities:
Indexed mutual funds	8.9			8.9			—			—
International mutual funds	3.0			3.0			—			—
Fixed income securities:
Mutual funds	9.2			9.2			—			—
Insurance contract	0.5			—			0.5			—
Balanced mutual fund	6.3			6.3			—			—
Pension plan assets in the fair value hierarchy	$	37.9		$	37.4		$	0.5		$	—
Pension plan assets measured at NAV	154.5
Pension plan assets at fair value	$	192.4

In accordance with U.S. GAAP, certain pension plan assets measured at NAV have not been classified in the fair value hierarchy.

	Balance at
	December 31,			Basis of Fair Value Measurements
($ in millions)	2015			Level 1			Level 2			Level 3
Cash	$	0.6		$	0.6		$	—		$	—
Equity securities:
Indexed mutual funds	79.2			79.2			—			—
International mutual funds	37.7			37.7			—			—
Fixed income securities:
Mutual funds	63.0			63.0			—			—
Insurance contract	0.6			—			0.6			—
Balanced mutual fund	7.8			7.8			—			—
Pension plan assets at fair value	$	188.9		$	188.3		$	0.6		$	—

Note 14: Other Expense (Income)

Other expense (income) consisted of:

($ in millions)	2016				2015				2014
Restructuring and related charges:
Severance and post-employment benefits	$	8.9			$	—			$	—
Asset-related charges	17.3				—				—
Other charges	0.2				—				—
Total restructuring and related charges	$	26.4			$	—			$	—
Pension settlement charge	—				50.4				—
Pension curtailment gain	(2.1		)		—				—
Executive retirement and related costs	—				10.9				—
Venezuela currency devaluation	2.7				—				—
License costs	—				—				1.2
Development income	(1.5		)		(1.5		)		(1.6		)
Contingent consideration costs	2.3				1.1				1.0
Other items	(0.1		)		(0.8		)		(0.8		)
Total other expense (income)	$	27.7			$	60.1			$	(0.2	)

Restructuring and Related Charges

On February 15, 2016, our Board of Directors approved a restructuring plan designed to repurpose several of our

production facilities in support of growing high-value proprietary products and to realign operational and commercial activities to meet the needs of our new market-focused commercial organization.

During 2016, we incurred $26.4 million in restructuring and related charges in connection with this plan, consisting of $8.9 million for severance charges, $10.0 million for a non-cash asset write-down associated with the discontinued use of a trademark, $7.3 million for non-cash asset write-downs associated with the discontinued use of a patent and certain equipment, and $0.2 million for other charges.

The following table presents activity related to our restructuring obligations:

($ in millions)	Severance and benefits				Asset-related charges				Other charges				Total
Balance, December 31, 2015	$	—			$	—			$	—			$	—
Charges	8.9				17.3				0.2				26.4
Cash payments	(3.0		)		—				—				(3.0		)
Non-cash asset write-downs	—				(17.3		)		(0.2		)		(17.5		)
Balance, December 31, 2016	$	5.9			$	—			$	—			$	5.9

Other Items

During 2015, we recorded a $50.4 million pension settlement charge, of which $47.0 million related to our purchase of a group annuity contract from MetLife and $3.4 million related to lump-sum payouts made to terminated vested participants of our U.S. qualified pension plan. Please refer to Note 13, Benefit Plans, for additional details.

During 2016, we recorded a pension curtailment gain of $2.1 million in connection with our decision to freeze both our U.S. qualified and non-qualified defined benefit pension plans as of January 1, 2019.

In addition, during 2015, we recorded a $10.9 million charge for executive retirement and related costs, including $2.4 million for a long-term incentive plan award for our previous CEO, $8.0 million for the revaluation of modified outstanding awards to provide for continued vesting for our previous CEO and Senior Vice President of Human Resources in conjunction with their retirement, and $0.5 million for other costs, including relocation and legal fees.

On February 17, 2016, the Venezuelan government announced a devaluation of the Bolivar, from the previously-prevailing official exchange rate of 6.3 Bolivars to USD to 10.0 Bolivars to USD, and streamlined the previous

three-tiered currency exchange mechanism into a dual currency exchange mechanism. As a result, during 2016, we recorded a $2.7 million charge. After the remeasurement, as of December 31, 2016, we had $1.8 million in net monetary assets denominated in Venezuelan Bolivars, including $0.7 million in cash and cash equivalents, and $4.5 million in non-monetary assets. If there are further devaluations of the Bolivar or other changes in the currency exchange mechanisms in Venezuela in the future, a pre-tax charge of up to $6.3 million could be required. We will continue to actively monitor the political and economic developments in Venezuela.

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

Development income of $1.5 million was recognized within Proprietary Products during 2016, related to a nonrefundable customer payment of $20.0 million received in June 2013 in return for the exclusive use of the SmartDose technology platform within a specific therapeutic area. As of December 31, 2016, there was $14.4 million of unearned income related to this payment, of which $1.5 million was included in other current liabilities and $12.9 million was included in other long-term liabilities. 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 2015 and 2014, we recorded development income of $1.5 million and $1.6 million, respectively, within Proprietary Products, of which $1.5 million for each year related to the nonrefundable customer payment described above.

Contingent consideration costs represent changes in the fair value of the SmartDose contingent consideration. Please refer to Note 10, Fair Value Measurements, for additional details.

Other items consist of foreign exchange transaction gains and losses, gains and losses on the sale of fixed assets, and miscellaneous income and charges.

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 2016, the statute of limitations for the 2012 U.S. federal tax year lapsed, leaving tax years 2013 through 2016 open to examination. For U.S. state and local jurisdictions, tax years 2012 through 2016 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years 2009 through 2016.

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

($ in millions)	2016			2015
Balance at January 1	$	5.9		$	6.9
Increase due to current year position	1.0			0.8
Increase due to prior year position	1.2			0.9
Reduction for expiration of statute of limitations	(0.9		)	(1.2		)
Settlements	(1.0		)	(1.5		)
Balance at December 31	$	6.2		$	5.9

In addition, we had balances in accrued liabilities for interest and penalties of $0.1 million and $0.3 million at December 31, 2016 and 2015, respectively. As of December 31, 2016, we had $6.2 million of total gross unrecognized tax benefits, of which $1.4 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 amount of gross unrecognized tax benefits may be reduced by approximately $0.7 million during the next twelve months, which would favorably impact our effective tax rate.

The components of income before income taxes are:

($ in millions)	2016			2015			2014
U.S. operations	$	84.5		$	(4.0	)	$	57.5
International operations	105.3			120.1			111.5
Total income before income taxes	$	189.8		$	116.1		$	169.0

The related provision for income taxes consists of:

($ in millions)	2016			2015			2014
Current:
Federal	$	2.5		$	1.0		$	5.2
State	1.0			0.9			0.5
International	29.4			33.3			34.5
Current income tax provision	32.9			35.2			40.2
Deferred:
Federal and state	21.8			(13.2		)	7.7
International	(0.3		)	4.3			(0.7		)
Deferred income tax provision	21.5			(8.9		)	7.0
Income tax expense	$	54.4		$	26.3		$	47.2

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)	2016			2015
Deferred tax assets
Net operating loss carryforwards	$	15.4		$	16.5
Tax credit carryforwards	27.9			40.8
Restructuring and impairment charges	2.9			—
Pension and deferred compensation	46.4			42.0
Other	19.5			19.3
Valuation allowance	(18.7		)	(20.1		)
Total deferred tax assets	93.4			98.5
Deferred tax liabilities:
Accelerated depreciation	30.3			35.0
Other	6.1			5.4
Total deferred tax liabilities	36.4			40.4
Net deferred tax asset	$	57.0		$	58.1

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

	2016		2015		2014
U.S. federal corporate tax rate	35.0	%	35.0	%	35.0	%
Tax on international operations less than U.S. tax rate	(2.9	)	(5.1	)	(6.8	)
Reversal of prior valuation allowance	(0.3	)	—		(0.5	)
Reversal of reserves for unrecognized tax benefits	(0.6	)	(1.6	)	(0.5	)
U.S. tax on international earnings, net of foreign tax credits	(1.3	)	(4.6	)	(0.1	)
State income taxes, net of federal tax effect	0.8		0.3		1.5
U.S. research and development credits	(0.8	)	(1.3	)	(0.9	)
Other business credits and Section 199 Deduction	(1.1	)	(1.3	)	(0.7	)
Other	(0.1	)	1.2		1.0
Effective tax rate	28.7	%	22.6	%	28.0	%

During 2016, we recorded a tax benefit of $9.0 million in connection with restructuring and related charges of $26.4 million, a discrete tax charge of $0.8 million related to the pension curtailment gain of $2.1 million, and a discrete tax charge of $1.0 million resulting from the impact of changes in enacted tax rates on our previously-recorded deferred tax asset and liability balances.

During 2015, we recorded a discrete tax benefit of $4.0 million related to executive retirement and related costs. In addition, we recorded a discrete tax benefit of $18.4 million for a pension settlement charge. In 2015, 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 asset balances.

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 OCI 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.

At December 31, 2016, we have fully utilized all of our U.S. federal net operating loss carryforwards. State operating loss carryforwards of $254.8 million created a deferred tax asset of $14.0 million, while foreign operating loss carryforwards of $9.4 million created a deferred tax asset of $1.4 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: $5.3 million in 2017 and $249.5 million thereafter. Foreign loss carryforwards will begin to expire in 2024, while $6.2 million of the total $9.4 million will not expire.

As of December 31, 2016, we had available foreign tax credit carryforwards of $8.2 million expiring as follows: $3.2 million in 2024 and $5.0 million in 2025. We have U.S. federal and state research and development credit carryforwards of $12.0 million and $3.0 million, respectively. The $12.0 million of U.S. federal research and development credits expire as follows: $0.6 million expire in 2028, $1.1 million expire in 2029, $1.0 million expire in 2030, $1.0 million expire in 2031, $1.4 million expire in 2032, $1.4 million expire in 2033 and $5.5 million expire after 2033. The $3.0 million of state research and development credits expire as follows: $0.2 million expire in 2021, $0.8 million expire in 2022, $0.5 million expire in 2023 and $1.5 million expire after 2023. Additionally, we have available other state tax credits of $0.9 million which expire in 2020.

In November 2015, the FASB issued guidance regarding the balance sheet classification of deferred taxes. This guidance requires that deferred tax assets and liabilities be classified as noncurrent. The requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not affected by these amendments. We adopted this guidance in the fourth quarter of 2015, on a prospective basis. Please refer to Note 2, New Accounting Standards, for additional details.

Undistributed earnings of foreign subsidiaries amounted to $612.3 million at December 31, 2016, 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, 2016, we were obligated under various operating lease agreements. Rental expense in 2016, 2015 and 2014 was $11.7 million, $10.5 million and 10.7 million, respectively.

At December 31, 2016, future minimum rental payments under non-cancelable operating leases were:

Year	($ in millions)
2017	$	12.3
2018	10.9
2019	8.5
2020	5.4
2021	4.8
Thereafter	26.5
Total	$	68.4

At December 31, 2016, outstanding unconditional contractual commitments for the purchase of raw materials and finished goods amounted to $75.7 million, of which $4.2 million is due to be paid in 2017.

We have letters of credit totaling $3.0 million supporting the reimbursement of workers' compensation and other claims paid on our behalf by insurance carriers. Our accrual for insurance obligations was $4.4 million at December 31, 2016, of which $1.2 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, 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 $8.9 million.

Note 17: Segment Information

In 2015, our business operations consisted of two reportable segments, Packaging Systems and Delivery Systems. Beginning in 2016, we changed our organization and reporting structure for our next phase of growth and development, which resulted in a change to Proprietary Products and Contract-Manufactured Products as our

reportable segments. The Proprietary Products reportable segment, which is a combination of the previous

Packaging Systems segment and the proprietary products portion of the previous Delivery Systems segment,

develops commercial, operational, and innovation strategies across our global network, with specific emphasis on

product offerings to biologic, generic, and pharmaceutical drug customers. The Contract-Manufactured Products

reportable segment, which consists of the contract manufacturing portion of the previous Delivery Systems segment,

serves as a fully integrated business focused on the design, manufacture, and automated assembly of complex devices, primarily for pharmaceutical, diagnostic, and medical device customers.

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 we consider not representative of ongoing operations. Such items are referred to as other unallocated items and generally include restructuring and related charges, certain asset impairments and other specifically-identified income or expense items.

The following table presents information about our reportable segments, reconciled to consolidated totals:

($ in millions)	2016			2015			2014
Net sales:
Proprietary Products	$	1,189.9		$	1,098.3		$	1,126.3
Contract-Manufactured Products	320.2			302.4			295.7
Intersegment sales elimination	(1.0		)	(0.9		)	(0.6		)
Consolidated net sales	$	1,509.1		$	1,399.8		$	1,421.4

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

	Net Sales										Property, Plant and Equipment, Net
($ in millions)	2016			2015			2014				2016			2015			2014
United States	$	738.3		$	667.4		$	630.7			$	329.3		$	332.3		$	327.5
Germany	200.6			194.0			219.4				96.8			102.9			110.9
France	116.3			107.6			118.2				37.1			38.6			40.4
Other European countries	268.3			252.0			285.0				192.3			117.6			91.5
Other	185.6			178.8			168.1				122.8			129.6			135.5
	$	1,509.1		$	1,399.8		$	1,421.4			$	778.3		$	721.0		$	705.8

The following tables provide summarized financial information for our segments:

($ in millions)	Proprietary Products			Contract-Manufactured Products			Corporate and Elimination			Consolidated
2016
Net sales	$	1,189.9		$	320.2		$	(1.0	)	$	1,509.1
Operating profit	$	241.9		$	38.2		$	(83.3	)	$	196.8
Interest expense, net	—			—			(7.0		)	(7.0		)
Income before income taxes	$	241.9		$	38.2		$	(90.3	)	$	189.8
Segment assets	$	1,173.9		$	261.1		$	281.7		$	1,716.7
Capital expenditures	133.2			34.0			3.0			170.2
Depreciation and amortization expense	71.7			14.9			4.1			90.7
2015
Net sales	$	1,098.3		$	302.4		$	(0.9	)	$	1,399.8
Operating profit	$	212.2		$	35.5		$	(119.1	)	$	128.6
Interest expense, net	—			—			(12.5		)	(12.5		)
Income before income taxes	$	212.2		$	35.5		$	(131.6	)	$	116.1
Segment assets	$	1,083.7		$	248.5		$	362.9		$	1,695.1
Capital expenditures	113.2			22.1			(3.7		)	131.6
Depreciation and amortization expense	69.9			14.2			5.8			89.9
2014
Net sales	$	1,126.3		$	295.7		$	(0.6	)	$	1,421.4
Operating profit	$	199.6		$	36.9		$	(54.5	)	$	182.0
Interest expense, net	—			—			(13.0		)	(13.0		)
Income before income taxes	$	199.6		$	36.9		$	(67.5	)	$	169.0
Segment assets	$	1,185.5		$	234.0		$	250.2		$	1,669.7
Capital expenditures	88.4			26.9			(3.4		)	111.9
Depreciation and amortization expense	71.6			12.7			5.7			90.0

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, 2016 and December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index 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, 2016, 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 28, 2017

Quarterly Operating and Per Share Data (Unaudited)

($ in millions, except per share data)	First Quarter (1)			Second Quarter (2)			Third Quarter (3)			Fourth Quarter (4)			Full Year
2016
Net sales	$	362.1		$	388.0		$	376.7		$	382.3		$	1,509.1
Gross profit	123.3			133.3			121.1			123.4			501.1
Net income	22.1			44.7			37.6			39.1			143.6
Net income per share:
Basic	$	0.31		$	0.61		$	0.51		$	0.53		$	1.96
Diluted	$	0.30		$	0.60		$	0.50		$	0.52		$	1.91
2015
Net sales	$	335.9		$	359.7		$	344.5		$	359.7		$	1,399.8
Gross profit	109.7			118.2			108.3			119.6			455.8
Net income	32.9			27.8			1.5			33.4			95.6
Net income per share:
Basic	$	0.46		$	0.39		$	0.02		$	0.46		$	1.33
Diluted	$	0.45		$	0.38		$	0.02		$	0.45		$	1.30

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

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

(1)	Net income for the first quarter of 2016 included restructuring and related charges of $15.0 million ($0.20 per diluted share) and a charge of $2.5 million related to the devaluation of the Venezuelan Bolivar ($0.03 per diluted share).

(2)	Second quarter 2016 net income included $1.0 million in reversals of previously-recorded restructuring and related charges ($0.01 per diluted share). Second quarter 2015 net income included a $6.9 million ($0.09 per diluted share) charge for executive retirement and related costs.

(3)

Net income for the third quarter of 2016 included restructuring and related charges of $1.6 million ($0.02 per diluted share) and a discrete tax charge of $0.3 million ($0.01 per diluted share). Net income for the third quarter of 2015 included a pension settlement charge of $31.1 million ($0.42 per diluted share) in connection with our purchase of a group annuity contract from MetLife and lump-sum payouts made to terminated vested participants of our U.S. qualified pension plan.

(4)

Fourth quarter 2016 net income included restructuring and related charges of $1.8 million ($0.02 per diluted share), a pension curtailment gain of $1.3 million ($0.01 per diluted share) and a discrete tax charge of $0.7 million ($0.01 per diluted share). Fourth quarter 2015 net income included a $0.9 million ($0.01 per diluted share) pension settlement charge related to lump-sum payouts made to terminated vested participants of our U.S. qualified pension plan and a discrete tax charge of $0.8 million ($0.01 per diluted share).