Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF INCOME

West Pharmaceutical Services, Inc. and Subsidiaries for the years ended December 31, 2018, 2017 and 2016

(in millions, except per share data)

		2018				2017				2016
Net sales		$	1,717.4			$	1,599.1			$	1,509.1
Cost of goods and services sold		1,172.0				1,086.2				1,007.7
Gross profit		545.4				512.9				501.4
Research and development		40.3				39.1				36.8
Selling, general and administrative expenses		262.9				246.0				239.6
Other expense (Note 15)		1.9				2.0				29.8
Operating profit		240.3				225.8				195.2
Interest expense		8.4				7.8				8.1
Interest income		(2.1		)		(1.3		)		(1.1		)
Other nonoperating income		(6.7		)		(3.1		)		(1.6		)
Income before income taxes		240.7				222.4				189.8
Income tax expense		41.4				80.9				54.4
Equity in net income of affiliated companies		(7.6		)		(9.2		)		(8.2		)
Net income		$	206.9			$	150.7			$	143.6
Net income per share:
Basic		$	2.80			$	2.04			$	1.96
Diluted		$	2.74			$	1.99			$	1.91
Weighted average shares outstanding:
Basic		73.9				73.9				73.3
Diluted		75.4				75.8				75.0
Dividends declared per share		$	0.58			$	0.54			$	0.50

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, 2018, 2017 and 2016

(in millions)

	2018				2017				2016
Net income	$	206.9			$	150.7			$	143.6
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(39.2		)		68.8				(18.1		)
Defined benefit pension and other postretirement plans:
Prior service (cost) credit arising during period, net of tax of $0, $0 and $1.1	(0.3		)		—				1.9
Net actuarial (loss) gain arising during period, net of tax of $(0.2), $1.3 and $(4.8)	(0.7		)		6.3				(11.1		)
Settlement effects arising during period, net of tax of $1.1	—				—				2.0
Less: amortization of actuarial loss, net of tax of $0.3, $0.5 and $1.2	1.1				3.6				2.2
Less: amortization of prior service credit, net of tax of $(0.5), $(0.5) and $(0.5)	(1.5		)		(3.5		)		(0.9		)
Less: amortization of transition obligation	—				—				0.1
Net loss on investment securities, net of tax of $(0.1), $(2.5) and $(0.1)	(0.1		)		(4.7		)		(0.2		)
Net gain (loss) on derivatives, net of tax of $1.5, $(0.1) and $0.1	3.8				(1.0		)		(0.1		)
Other comprehensive (loss) income, net of tax	(36.9		)		69.5				(24.2		)
Comprehensive income	$	170.0			$	220.2			$	119.4

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

CONSOLIDATED BALANCE SHEETS

West Pharmaceutical Services, Inc. and Subsidiaries at December 31, 2018 and 2017

(in millions, except per share data)

	2018				2017
ASSETS
Current assets:
Cash and cash equivalents	$	337.4			$	235.9
Accounts receivable, net	288.2				253.2
Inventories	214.5				215.2
Other current assets	54.3				39.2
Total current assets	894.4				743.5
Property, plant and equipment	1,752.7				1,745.8
Less: accumulated depreciation and amortization	930.7				890.8
Property, plant and equipment, net	822.0				855.0
Investments in affiliated companies	91.2				85.8
Goodwill	105.8				107.7
Deferred income taxes	24.7				25.7
Intangible assets, net	20.3				21.7
Other noncurrent assets	20.5				23.4
Total Assets	$	1,978.9			$	1,862.8
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and other current debt	$	0.1			$	—
Accounts payable	130.4				138.1
Pension and other postretirement benefits	2.3				2.2
Accrued salaries, wages and benefits	64.5				56.2
Income taxes payable	9.8				6.0
Other current liabilities	76.6				77.0
Total current liabilities	283.7				279.5
Long-term debt	196.0				197.0
Deferred income taxes	13.1				10.4
Pension and other postretirement benefits	56.2				53.4
Other long-term liabilities	33.6				42.6
Total Liabilities	582.6				582.9
Commitments and contingencies (Note 17)
Equity:
Preferred stock, 3.0 million shares authorized; 0 shares issued and outstanding in 2018 and 2017	—				—
Common stock, par value $.25 per share; 100.0 million shares authorized; shares issued: 75.3 million and 75.2 million in 2018 and 2017; shares outstanding: 74.1 million and 73.9 million in 2018 and 2017	18.8				18.8
Capital in excess of par value	282.0				309.3
Retained earnings	1,353.4				1,178.2
Accumulated other comprehensive loss	(154.2		)		(117.3		)
Treasury stock, at cost (1.2 million and 1.3 million shares in 2018 and 2017)	(103.7		)		(109.1		)
Total Equity	1,396.3				1,279.9
Total Liabilities and Equity	$	1,978.9			$	1,862.8

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, 2018, 2017 and 2016

(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, 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
Share 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
Effect of modified retrospective application of a new accounting standard	—			—				—				—			—				(4.1		)		—				(4.1		)
Net income	—			—				—				—			—				150.7				—				150.7
Stock-based compensation	—			—				6.5				—			7.5				—				—				14.0
Shares issued under stock plans	1.5			0.4				38.0				(0.1	)		7.3				—				—				45.7
Share purchased under share repurchase program	—			—				—				0.8			(74.4		)		—				—				(74.4		)
Shares repurchased for employee tax withholdings	—			—				(0.4		)		—			(3.4		)		—				—				(3.8		)
Dividends declared	—			—				—				—			—				(40.0		)		—				(40.0		)
Other adjustments to capital in excess of par value	—			—				4.8				—			—				—				—				4.8
Other comprehensive income, net of tax	—			—				—				—			—				—				69.5				69.5
Balance, December 31, 2017	75.2			18.8				309.3				1.3			(109.1		)		1,178.2				(117.3		)		1,279.9
Effect of modified retrospective application of a new accounting standard (see Note 3)	—			—				—				—			—				11.4				—				11.4
Net income	—			—				—				—			—				206.9				—				206.9
Stock-based compensation	—			—				7.3				—			9.2				—				—				16.5
Shares issued under stock plans	0.1			—				(34.8		)		(0.9	)		71.6				—				—				36.8
Shares purchased under share repurchase program	—			—				—				0.8			(70.8		)		—				—				(70.8		)
Shares repurchased for employee tax withholdings	—			—				0.2				—			(4.6		)		—				—				(4.4		)
Dividends declared	—			—				—				—			—				(43.1		)		—				(43.1		)
Other comprehensive loss, net of tax	—			—				—				—			—				—				(36.9		)		(36.9		)
Balance, December 31, 2018	75.3			$	18.8			$	282.0			1.2			$	(103.7	)		$	1,353.4			$	(154.2	)		$	1,396.3

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, 2018, 2017 and 2016

(in millions)

	2018				2017				2016
Cash flows from operating activities:
Net income	$	206.9			$	150.7			$	143.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	101.7				94.3				88.1
Amortization	2.7				2.4				2.6
Stock-based compensation	15.1				16.1				19.5
Non-cash restructuring charges	2.2				0.7				17.5
Pension curtailment gain	—				—				(2.1		)
Venezuela deconsolidation	—				11.1				—
Contingent consideration payments in excess of acquisition-date liability	(0.6		)		—				—
Loss on sales of equipment	1.8				1.6				0.7
Deferred income taxes	0.9				41.7				21.5
Pension and other retirement plans, net	(7.9		)		(6.9		)		(6.5		)
Equity in undistributed earnings of affiliates, net of dividends	(5.9		)		(7.0		)		(6.8		)
Changes in assets and liabilities:
Increase in accounts receivable	(43.8		)		(39.7		)		(23.3		)
Increase in inventories	(7.0		)		(3.6		)		(21.2		)
(Increase) decrease in other current assets	(6.2		)		0.3				(2.4		)
Increase in accounts payable	0.4				12.6				6.1
Changes in other assets and liabilities	28.3				(11.0		)		(17.9		)
Net cash provided by operating activities	288.6				263.3				219.4
Cash flows from investing activities:
Capital expenditures	(104.7		)		(130.8		)		(170.2		)
Purchase of investment in affiliated companies	—				—				(8.4		)
Cash related to deconsolidated Venezuelan subsidiary	—				(6.0		)		—
Other, net	3.9				3.2				2.8
Net cash used in investing activities	(100.8		)		(133.6		)		(175.8		)
Cash flows from financing activities:
Repayments of long-term debt	(0.1		)		(34.9		)		(69.8		)
Dividend payments	(42.1		)		(39.1		)		(35.8		)
Contingent consideration payments up to amount of acquisition-date liability	—				(0.7		)		(0.3		)
Proceeds from exercise of stock options and stock appreciation rights	31.8				39.5				25.9
Employee stock purchase plan contributions	4.9				4.4				3.8
Excess tax benefits from employee stock plans	—				—				18.2
Shares purchased under share repurchase programs	(70.8		)		(74.4		)		(52.2		)
Shares repurchased for employee tax withholdings	(4.4		)		(3.8		)		(3.7		)
Net cash used in financing activities	(80.7		)		(109.0		)		(113.9		)
Effect of exchange rates on cash	(5.6		)		12.2				(1.3		)
Net increase (decrease) in cash and cash equivalents	101.5				32.9				(71.6		)
Cash, including cash equivalents at beginning of period	235.9				203.0				274.6
Cash, including cash equivalents at end of period	$	337.4			$	235.9			$	203.0
Supplemental cash flow information:
Interest paid, net of amounts capitalized	$	8.4			$	8.0			$	8.6
Income taxes paid, net	$	42.0			$	31.0			$	48.1
Accrued capital expenditures	$	15.0			$	20.1			$	22.7
Dividends declared, not paid	$	11.3			$	10.4			$	9.5

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Summary of Significant Accounting Policies

Principles of Consolidation: The consolidated financial statements include the accounts of West after the elimination of intercompany transactions. We have no participation or other rights in variable interest entities. As of April 1, 2017, our consolidated financial statements exclude the results of our Venezuelan subsidiary. Please refer to Note 15, Other Expense, for further discussion.

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 $2.0 million and $0.5 million at December 31, 2018 and 2017, 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) and net realizable value. The following is a summary of inventories at December 31:

($ in millions)	2018				2017
Raw materials	$	90.4			$	88.6
Work in process	42.2				31.8
Finished goods	81.9				94.8
	$	214.5			$	215.2

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 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 2018, as part of our 2018 restructuring plan, we recorded within other expense a $2.2 million non-cash asset write-down associated with the discontinued use of certain equipment. During 2016, as part of our 2016 restructuring plan, we recorded within other expense a $4.5 million non-cash asset write-down associated with the discontinued use of certain equipment.

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. In January 2017, the FASB issued guidance which removes the second step of the quantitative 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 adopted this guidance as of January 1, 2017, on a prospective basis. Recent accounting guidance also 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 quantitative goodwill impairment test. As each of our reporting units had a fair value in excess of its carrying value of at least 180% within our 2016 annual impairment test, we elected to follow this guidance for our 2017 and 2018 annual impairment tests. Based upon our assessment, we determined that it was not more likely than not that the fair value of each of our reporting units was less than its carrying amount and determined that it was not necessary to perform the quantitative goodwill impairment tests in 2017 and 2018.

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

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. For our funded plans, we consider the current and expected asset allocations of our plan assets, as well as historical and expected rates of return, in estimating the long-term rate of return on plan assets. 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. Please refer to Note 14, Benefit Plans, for a more detailed discussion of our pension and other retirement plans.

Financial Instruments: All derivatives are recognized as either assets or liabilities in the balance sheet and recorded at their fair value. For a derivative designated as hedging the exposure to variable cash flows of a forecasted transaction (referred to as a cash flow hedge), the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income (“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: Our revenue results from the sale of goods or services and reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recognized based on a five-step model, in accordance with ASC 606. Following the identification of a contract with a customer, we identify the performance obligations (goods or services) in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize the revenue when (or as) we satisfy the performance obligations by transferring the promised goods or services to our customers. A good or service is transferred when (or as) the customer obtains control of that good or service. 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. Please refer to Note 3, Revenue, for additional information.

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. In response to the 2017 Tax Act, we reevaluated our position regarding permanent reinvestment of foreign subsidiary earnings and profits through 2017 (with the exception of China and Mexico) and decided that those profits were no longer permanently reinvested. As of January 1, 2018, we reasserted indefinite reinvestment related to all post-2017 unremitted earnings in all of our foreign subsidiaries. Please refer to Note 16, Income Taxes, for additional information. 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 March 2018, the FASB issued guidance which updates the income tax accounting in U.S. GAAP to reflect the SEC’s interpretive guidance released on December 22, 2017, when the 2017 Tax Act was signed into law. This guidance was effective immediately upon issuance. Please refer to Note 16, Income Taxes, for additional information.

In May 2017, the FASB issued guidance which amends the scope of modification accounting for share-based payment arrangements. The guidance focuses on changes to the terms or conditions of share-based payment awards that would require the application of modification accounting and specifies that an entity would not apply modification accounting if its fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. This guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption was permitted. We adopted this guidance as of January 1, 2018, on a prospective basis. The adoption did not have a material impact on our financial statements.

In March 2017, the FASB issued guidance on the presentation of net periodic pension and postretirement benefit cost (net benefit cost). The guidance requires the bifurcation of net benefit cost. The service cost component will be presented with other employee compensation costs in operating income (or capitalized in assets) and the other components will be reported separately outside of operations, and will not be eligible for capitalization. This guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption was permitted. We adopted this guidance as of January 1, 2018, on a retrospective basis. As a result of this adoption, we reclassified net benefit cost components other than service cost from operating income to outside of operations. Net periodic benefit cost for the year ended December 31, 2018 and 2017 was $4.1 million and $7.3 million, respectively, of which $10.8 million and $10.4 million, respectively, related to service cost and $6.7 million and $3.1 million, respectively, related to net benefit cost components other than service cost. The adoption of this guidance had no impact on net income.

In November 2016, the FASB issued guidance on the classification and presentation of restricted cash in the statement of cash flows. This guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption was permitted. We adopted this guidance as of January 1, 2018, on a retrospective basis. As of December 31, 2018 and 2017, we had no restricted cash.

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 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption was permitted. We adopted this guidance as of January 1, 2018, on a retrospective basis. The adoption did not have a material impact 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 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We adopted this guidance as of January 1, 2018, on a prospective basis. The adoption did 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, ASC 606, that supersedes 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, ASC 606 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 ASC 606. We adopted ASC 606 as of January 1, 2018, on a modified retrospective basis. Please refer to Note 3, Revenue, for additional information.

Standards Issued Not Yet Adopted

In August 2018, the FASB issued guidance to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by this update. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. We are currently evaluating our adoption timing and the impact that this guidance may have on our financial statements.

In August 2018, the FASB issued guidance which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. The guidance removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. This guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We believe that the adoption of this guidance will not have a material impact on our financial statements.

In August 2018, the FASB issued guidance which modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. We believe that the adoption of this guidance will not have a material impact on our financial statements.

In June 2018, the FASB issued guidance which expands the scope of accounting for share-based payment arrangements to include share-based payment transactions for acquiring goods and services from nonemployees. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption was permitted. We believe that the adoption of this guidance will not have a material impact on our financial statements.

In February 2018, the FASB issued guidance to address a specific consequence of the 2017 Tax Act by allowing a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the 2017 Tax Act’s reduction of the U.S. federal corporate income tax rate. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption was permitted. We are currently evaluating our adoption timing and the impact that this guidance may have on our financial statements.

In August 2017, the FASB issued guidance which expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption was permitted. 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 continue to review the impact that the adoption of this guidance will have on our financial statement disclosures, accounting policies, business processes, and internal controls. As of December 31, 2018 and 2017, future minimum rental payments under non-cancelable operating leases were $81.5 million and $79.1 million, respectively.

Note 3: Revenue

Adoption of ASC 606

On January 1, 2018, we adopted ASC 606, on a modified retrospective basis, applied to those contracts which were not completed as of January 1, 2018. As a result of our adoption, we recorded a cumulative-effect adjustment of $11.4 million within retained earnings in our consolidated balance sheet as of January 1, 2018, to reflect a change in the timing of revenue recognition under ASC 606, from point in time to over time, on our Contract-Manufactured Products product sales, certain Proprietary Products product sales, development and tooling agreements, as well as an acceleration on a portion of the remaining unearned income from a nonrefundable customer payment.

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for those periods.

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 was as follows:

($ in millions)	Balance at December 31, 2017				Adjustments Due to ASC 606				Balance at January 1, 2018
Assets:
Accounts receivable, net	$	253.2			$	25.0			$	278.2
Inventories	215.2				(20.8		)		194.4
Other current assets	39.2				(8.4		)		30.8
Liabilities and Equity:
Other current liabilities	$	77.0			$	(13.7	)		$	63.3
Deferred income taxes	10.4				3.0				13.4
Other long-term liabilities	42.6				(4.9		)		37.7
Retained earnings	1,178.2				11.4				1,189.6

The impact of the adoption of ASC 606 on our consolidated income statement for 2018 was as follows:

($ in millions)	As Reported				Balances without Adoption of ASC 606				Effects of Change (Lower)/Higher
Net sales	$	1,717.4			$	1,720.9			$	(3.5	)
Cost of goods and services sold	1,172.0				1,172.0				—
Other expense	1.9				1.2				0.7
Income tax expense	41.4				42.6				(1.2		)
Net income	$	206.9			$	209.9			$	(3.0	)

The impact of the adoption of ASC 606 on our consolidated balance sheet as of December 31, 2018 was as follows:

($ in millions)	As Reported				Balances without Adoption of ASC 606				Effects of Change Higher/(Lower)
Assets:
Accounts receivable, net	$	288.2			$	264.3			$	23.9
Inventories	214.5				234.4				(19.9		)
Other current assets	54.3				63.4				(9.1		)
Liabilities and Equity:
Other current liabilities	$	76.6			$	87.7			$	(11.1	)
Deferred income taxes	13.1				11.3				1.8
Other long-term liabilities	33.6				37.8				(4.2		)
Retained earnings	1,353.4				1,345.0				8.4

Revenue Recognition

Our revenue results from the sale of goods or services and reflects the consideration to which we expect to be entitled in exchange for those goods or services. We record revenue based on a five-step model, in accordance with ASC 606. Following the identification of a contract with a customer, we identify the performance obligations (goods or services) in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize the revenue when (or as) we satisfy the performance obligations by transferring the promised goods or services to our customers. A good or service is transferred when (or as) the customer obtains control of that good or service.

We recognize the majority of our revenue, primarily relating to Proprietary Products product sales, at a point in time, following the transfer of control of our products to our customers, which typically occurs upon shipment or delivery, depending on the terms of the related agreements.

We recognize revenue relating to our Contract-Manufactured Products product sales and certain Proprietary Products product sales over time, as our performance does not create an asset with an alternative use to us and we have an enforceable right to payment for performance completed to date.

We recognize revenue relating to our development and tooling agreements over time, as our performance creates or enhances an asset that the customer controls as the asset is created or enhanced.

For revenue recognized over time, revenue is recognized by applying a method of measuring progress toward complete satisfaction of the related performance obligation. When selecting the method for measuring progress, we select the method that best depicts the transfer of control of goods or services promised to our customers.

Revenue for our Contract-Manufactured Products product sales, certain Proprietary Products product sales, and our development and tooling agreements is recorded under an input method, which recognizes revenue on the basis of our efforts or inputs to the satisfaction of a performance obligation (for example, resources consumed, labor hours expended, costs incurred, time elapsed, or machine hours used) relative to the total expected inputs to the satisfaction of that performance obligation. The input method that we use is based on costs incurred.

The majority of the performance obligations within our contracts are satisfied within one year or less. Performance obligations satisfied beyond one year include those relating to a nonrefundable customer payment of $20.0 million received in June 2013 in return for the exclusive use of the SmartDose technology platform within a specific therapeutic area. As of December 31, 2018, there was $6.5 million of unearned income related to this payment, of which $0.9 million was included in other current liabilities and $5.6 million was included in other long-term

liabilities. The unearned income is being recognized as income on a straight-line basis over the remaining term of the agreement. The agreement does not include a future minimum purchase commitment from the customer.

Our revenue can be generated from contracts with multiple performance obligations. When a sales agreement involves multiple performance obligations, each obligation is separately identified and the transaction price is allocated based on the amount of consideration we expect to be entitled in exchange for transferring the promised good or service to the customer.

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.

The following table presents the approximate percentage of our net sales by market group:

	2018			2017 (1)
Biologics	21	%		23	%
Generics	21	%		20	%
Pharma	34	%		34	%
Contract-Manufactured Products	24	%		23	%
	100	%		100	%
(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method.

The following table presents the approximate percentage of our net sales by product category:

	2018			2017 (1)
High-Value Components	41	%		41	%
Standard Packaging	32	%		32	%
Delivery Devices	3	%		4	%
Contract-Manufactured Products	24	%		23	%
	100	%		100	%
(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method.

The following table presents the approximate percentage of our net sales by geographic location:

	2018			2017 (1)
Americas	48	%		51	%
Europe, Middle East, Africa	44	%		42	%
Asia Pacific	8	%		7	%
	100	%		100	%
(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method.

Contract Assets and Liabilities

Contract assets or liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations, we record a contract asset. Contract assets are recorded on the consolidated balance sheet in accounts receivable, net, and other assets (current and noncurrent portions, respectively). Contract assets included in accounts receivable, net, relate to the unbilled amounts of our product sales for which we have recognized revenue over time. Contract assets included in other assets represent the remaining performance obligations of our development and tooling agreements. Conversely, if the measure of the

remaining performance obligations exceeds the measure of the remaining rights, we record a contract liability. Contract liabilities are recorded on the consolidated balance sheet in other liabilities (current and noncurrent portions, respectively) and represent cash payments received in advance of our performance.

The following table summarizes our contract assets and liabilities, excluding contract assets included in accounts receivable, net:

	($ in millions)
Contract assets, December 31, 2017	$	7.5
Contract assets, December 31, 2018	9.1
Change in contract assets - increase (decrease)	$	1.6
Deferred income, December 31, 2017	$	(33.6	)
Deferred income, December 31, 2018	(33.4		)
Change in deferred income - decrease (increase)	$	0.2

The decrease in deferred income during 2018 was primarily due to the recognition of revenue of $111.1 million, including $28.9 million of revenue that was included in deferred income at the beginning of the year (of which $18.6 million was recognized in the cumulative-effect adjustment as of January 1, 2018), partially offset by additional cash payments of $109.8 million received in advance of satisfying future performance obligations along with $1.1 million in other adjustments.

Practical Expedients and Exemptions

We have elected to disregard the effects of a significant financing component, as we expect, at the inception of our contracts, that the period between when we transfer a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

In addition, we have elected to omit the disclosure of the majority of our remaining performance obligations, which are satisfied within one year or less.

Supply Chain Financing

We have entered into supply chain financing agreements with certain banks, pursuant to which we offer for sale certain accounts receivable to such banks from time to time, subject to the terms of the applicable agreements. These transactions result in a reduction in accounts receivable, as the agreements transfer effective control over, and credit risk related to, the receivables to the banks. These agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold. As of December 31, 2018, we derecognized $5.7 million of accounts receivable under these agreements. Discount fees related to the sale of such accounts receivable on our consolidated income statement for 2018 were not material.

Voluntary Recall

On January 24, 2019, we issued a voluntary recall of our Vial2Bag product line due to reports of potential unpredictable or variable dosing under certain conditions. Our 2018 results included an $11.3 million provision for product returns, recorded as a reduction of sales. Our inventory balance for these devices was $6.5 million at December 31, 2018, which included estimated in-transit inventory being returned by our customers. We are working to develop the support required to get the products back on the market, and we currently believe the returned inventory will be saleable in 2019.

Note 4: Net Income Per Share

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

(in millions)	2018				2017				2016
Net income	$	206.9			$	150.7			$	143.6
Weighted average common shares outstanding	73.9				73.9				73.3
Dilutive effect of equity awards, based on the treasury stock method	1.5				1.9				1.7
Weighted average shares assuming dilution	75.4				75.8				75.0

During 2018, 2017 and 2016, there were 0.4 million, 0.4 million, and 0.1 million shares, respectively, from stock-based compensation plans not included in the computation of diluted net income per share because their impact was antidilutive.

In February 2018, we announced a share repurchase program for calendar-year 2018 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 repurchased and the timing of such transactions depended on a variety of factors, including market conditions. During 2018, we purchased 800,000 shares of our common stock under the program at a cost of $70.8 million, or an average price of $88.51 per share. Please refer to Note 19, Subsequent Events, for discussion of our share repurchase program for calendar-year 2019.

Note 5: 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)		2018				2017
Land			$	20.9			$	21.4
Buildings and improvements	5-50		569.1				539.2
Machinery and equipment	10-15		806.7				793.4
Molds and dies	4-7		115.8				114.5
Computer hardware and software	3-10		151.1				144.6
Construction in progress			89.1				132.7
			$	1,752.7			$	1,745.8

Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $101.7 million, $94.3 million and $88.1 million, respectively.

There were no capitalized leases included in buildings and improvements and machinery and equipment at December 31, 2018 and 2017.

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, 2018, 2017 and 2016 was $0.9 million, $2.7 million and $3.6 million, respectively.

During 2018, as part of our 2018 restructuring plan, we recorded within other expense a $2.2 million non-cash asset write-down associated with the discontinued use of certain equipment. During 2016, as part of our 2016 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 6: Affiliated Companies

At December 31, 2018, 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 $75.8 million, $69.9 million and $63.0 million at December 31, 2018, 2017 and 2016, respectively. Dividends received from affiliated companies were $1.7 million in 2018, $2.2 million in 2017 and $1.4 million in 2016.

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 $0.4 million, $0.5 million and $5.3 million at December 31, 2018, 2017 and 2016, respectively.

Our purchases from, and royalty payments made to, affiliates totaled $86.3 million, $86.7 million and $94.5 million, respectively, in 2018, 2017 and 2016, of which $12.9 million and $12.4 million was due and payable as of December 31, 2018 and 2017, 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 $9.6 million, $8.1 million and $6.8 million, respectively, in 2018, 2017 and 2016, of which $1.6 million and $1.3 million was receivable as of December 31, 2018 and 2017, respectively.

At December 31, 2018 and 2017, the aggregate carrying amount of our investment in affiliated companies that are accounted for under the equity method was $77.8 million and $72.4 million, respectively. At December 31, 2018 and 2017, the aggregate carrying amount of our investment in affiliated companies that are not accounted for under the equity method was $13.4 million. We have elected to record these investments, for which fair value was not readily determinable, at cost, less impairment, adjusted for subsequent observable price changes. We test these investments for impairment whenever circumstances indicate that the carrying value of the investments may not be recoverable.

Note 7: 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, 2016	$	73.7			$	29.3			$	103.0
Foreign currency translation	3.9				0.8				4.7
Balance, December 31, 2017	77.6				30.1				107.7
Foreign currency translation	(1.6		)		(0.3		)		(1.9		)
Balance, December 31, 2018	$	76.0			$	29.8			$	105.8

As of December 31, 2018, we had no accumulated goodwill impairment losses.

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

	2018												2017
($ in millions)	Cost				Accumulated Amortization				Net				Cost				Accumulated Amortization				Net
Patents and licensing	$	19.6			$	(15.1	)		$	4.5			$	18.2			$	(14.1	)		$	4.1
Technology	3.3				(1.2		)		2.1				3.3				(1.0		)		2.3
Trademarks	2.0				(1.8		)		0.2				2.0				(1.7		)		0.3
Customer relationships	29.3				(20.0		)		9.3				29.3				(19.1		)		10.2
Customer contracts	11.0				(6.8		)		4.2				11.1				(6.3		)		4.8
	$	65.2			$	(44.9	)		$	20.3			$	63.9			$	(42.2	)		$	21.7

The cost basis of intangible assets includes a foreign currency translation loss of $0.3 million and a foreign currency translation gain of $0.9 million for the years ended December 31, 2018 and 2017, respectively. Amortization expense for the years ended December 31, 2018, 2017 and 2016 was $2.7 million, $2.4 million and $2.6 million, respectively. Estimated annual amortization expense for the next five years is as follows: 2019 - $2.6 million, 2020 - $2.6 million, 2021 - $2.1 million, 2022 - $2.1 million and 2023 - $2.1 million. During 2016, as part of our 2016 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 8: Other Current Liabilities

Other current liabilities as of December 31 included the following:

($ in millions)	2018				2017
Deferred income	$	25.5			$	18.4
Other accrued expenses	26.2				27.7
Dividends payable	11.3				10.4
Restructuring obligations	3.3				2.1
Other	10.3				18.4
Total other current liabilities	$	76.6			$	77.0

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

Note 9: 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, 2018.

($ in millions)	2018				2017
Note payable, due December 31, 2019	$	0.1			$	0.1
Credit Facility, due October 15, 2020 (1.00%)	28.6				29.6
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
	196.7				197.7
Less: unamortized debt issuance costs	0.6				0.7
Total debt	196.1				197.0
Less: current portion of long-term debt	0.1				—
Long-term debt, net	$	196.0			$	197.0

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, 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, 2018 and 2017, total unamortized debt issuance costs of $0.6 million and $1.0 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, 2018, we had $28.6 million in outstanding long-term borrowings under the Credit Facility, of which $4.6 million was denominated in Yen and $24.0 million in Euro. These borrowings, together with outstanding letters of credit of $2.5 million, resulted in a borrowing capacity available under the Credit Facility of $268.9 million at December 31, 2018. Please refer to Note 10, Derivative Financial Instruments, for a discussion of the foreign currency hedges associated with this facility.

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%. As of December 31, 2018 and 2017, there were unamortized debt issuance costs remaining of $0.6 million and $0.7 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, 2018, 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 2019.

Interest costs incurred during 2018, 2017 and 2016 were $9.3 million, $10.5 million and $11.7 million, respectively. The aggregate annual maturities of long-term debt, excluding unamortized debt issuance costs, were as follows: 2019 - $0.1 million, 2020 - $28.6 million, none in 2021, 2022 - $42.0 million, none in 2023, and thereafter - $126.0 million.

Note 10: Derivative Financial Instruments

Our ongoing business operations expose us to various risks, such as fluctuating interest rates, foreign currency exchange rates and increasing commodity prices. To manage these market risks, we periodically enter into derivative financial instruments, such as interest rate swaps, options and foreign exchange contracts for periods consistent with, and for notional amounts equal to or less than, the related underlying exposures. We do not purchase or hold any derivative financial instruments for investment or trading purposes. All derivatives are recorded 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 hedged the variability in cash flows due to changes in the applicable interest rate of our variable-rate five-year term loan. Under this swap, we received 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.

On October 2, 2017, we paid the $33.1 million outstanding to extinguish the term loan and terminated the interest-rate swap agreement.

Foreign Exchange Rate Risk

We have entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany loans. As of December 31, 2018, the total amount of these forward exchange contracts was €10.0 million, SGD 601.5 million and $13.4 million. As of December 31, 2017, the total amount of these forward exchange contracts was €12.0 million, SGD 171.0 million and $13.4 million.

In addition, we have entered into several foreign currency contracts, designated as cash flow hedges, for periods of up to eighteen months, intended to hedge the currency risk associated with a portion of our forecasted transactions denominated in foreign currencies. As of December 31, 2018, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:

(in millions)				Sell
Currency	Purchase			USD		Euro
USD	32.9			—		27.8
Yen	5,602.7			27.3		20.4
SGD	42.4			20.0		9.5

At December 31, 2018, a portion of our debt consisted of borrowings denominated in currencies other than USD. We have designated our €21.0 million ($24.0 million) Euro-denominated borrowings under our Credit Facility as a hedge of our net investment in certain European subsidiaries. A cumulative foreign currency translation loss of $0.2 million pre-tax ($0.1 million after tax) on this debt was recorded within accumulated other comprehensive loss as of December 31, 2018. We have also designated our ¥500.0 million ($4.6 million) Yen-denominated borrowings under our Credit Facility as a hedge of our net investment in Daikyo. At December 31, 2018, there was a cumulative foreign currency translation loss of $0.4 million pre-tax ($0.3 million after tax) on this Yen-denominated debt, 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 November 2016, we purchased a series of call options for a total of 96,525 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 2017. In November 2017, we purchased a series of call options for a total of 125,166 barrels of crude oil through May 2019. In April 2018, we purchased a series of call options for a total of 30,612 barrels of crude oil from December 2018 through August 2019.

During 2018, the gain recorded in cost of goods and services sold related to these options was $0.1 million. During 2017, the loss recorded in cost of goods and services sold related to these options was $0.3 million.

As of December 31, 2018, we had outstanding contracts to purchase 47,445 barrels of crude oil from January 2019 to August 2019 at a weighted-average strike price of $76.45 per barrel.

Effects of Derivative Instruments on Financial Position and Results of Operations

Please refer to Note 11, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of December 31, 2018 and 2017.

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 Gain (Loss) Recognized in OCI								Amount of Loss (Gain) Reclassified from Accumulated OCI into Income								Location of Loss (Gain) Reclassified from Accumulated OCI into Income
($ in millions)	2018				2017				2018				2017
Cash Flow Hedges:
Foreign currency hedge contracts	$	0.4			$	(1.7	)		$	0.6			$	1.1			Net sales
Foreign currency hedge contracts	2.2				(2.0		)		0.3				0.8				Cost of goods and services sold
Interest rate swap contracts	—				0.1				—				0.5				Interest expense
Forward treasury locks	—				—				0.3				0.2				Interest expense
Total	$	2.6			$	(3.6	)		$	1.2			$	2.6
Net Investment Hedges:
Foreign currency-denominated debt	$	0.8			$	(2.4	)		$	—			$	—			Other expense
Total	$	0.8			$	(2.4	)		$	—			$	—

During 2018 and 2017, there was no material ineffectiveness related to our hedges.

Note 11: 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, 2018				Level 1				Level 2				Level 3
Assets:
Deferred compensation assets	$	8.7			$	8.7			$	—			$	—
Foreign currency contracts	6.5				—				6.5				—
	$	15.2			$	8.7			$	6.5			$	—
Liabilities:
Contingent consideration	$	1.7			$	—			$	—			$	1.7
Deferred compensation liabilities	9.8				9.8				—				—
Foreign currency contracts	0.2				—				0.2				—
	$	11.7			$	9.8			$	0.2			$	1.7

	Balance at				Basis of Fair Value Measurements
($ in millions)	December 31, 2017				Level 1				Level 2				Level 3
Assets:
Deferred compensation assets	$	8.9			$	8.9			$	—			$	—
Foreign currency contracts	0.5				—				0.5				—
	$	9.4			$	8.9			$	0.5			$	—
Liabilities:
Contingent consideration	$	4.9			$	—			$	—			$	4.9
Deferred compensation liabilities	9.9				9.9				—				—
Foreign currency contracts	5.1				—				5.1				—
	$	19.9			$	9.9			$	5.1			$	4.9

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 other long-term liabilities, is discussed further in the section related to Level 3 fair value

measurements. The fair value of deferred compensation liabilities is based on quoted prices of the underlying employees’ investment selections and is included within other long-term liabilities. Please refer to Note 10, Derivative Financial Instruments, for further discussion of our derivatives.

Level 3 Fair Value Measurements

The fair value of the contingent consideration liability related to the SmartDose technology platform (the "SmartDose contingent consideration") was initially determined using a probability-weighted income approach, and is revalued at each reporting date or more frequently if circumstances dictate. Changes in the fair value of this obligation are recorded as income or expense within other (income) expense in our consolidated statements of income. The significant unobservable inputs used in the fair value measurement of the SmartDose contingent consideration are the sales projections, the probability of success factors, and the discount rate. Significant increases or decreases in any of those inputs in isolation would result in a significantly lower or higher fair value measurement. 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 SmartDose contingent consideration.

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

	($ in millions)
Balance, December 31, 2016	$	8.0
Decrease in fair value recorded in earnings	(2.4		)
Payments	(0.7		)
Balance, December 31, 2017	4.9
Decrease in fair value recorded in earnings	(2.6		)
Payments	(0.6		)
Balance, December 31, 2018	$	1.7

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, 2018, the estimated fair value of long-term debt was $192.6 million compared to a carrying amount of $196.0 million. At December 31, 2017, the estimated fair value of long-term debt was $201.5 million and the carrying amount was $197.0 million.

Note 12: 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, 2016	$	(3.2	)		$	5.2			$	(45.4	)		$	(143.4	)		$	(186.8	)
Other comprehensive (loss) income before reclassifications	(3.6		)		(4.7		)		6.3				68.8				66.8
Amounts reclassified out	2.6				—				0.1				—				2.7
Other comprehensive (loss) income, net of tax	(1.0		)		(4.7		)		6.4				68.8				69.5
Balance, December 31, 2017	(4.2		)		0.5				(39.0		)		(74.6		)		(117.3		)
Other comprehensive income (loss) before reclassifications	2.6				(0.1		)		(1.0		)		(39.2		)		(37.7		)
Amounts reclassified out	1.2				—				(0.4		)		—				0.8
Other comprehensive income (loss), net of tax	3.8				(0.1		)		(1.4		)		(39.2		)		(36.9		)
Balance, December 31, 2018	$	(0.4	)		$	0.4			$	(40.4	)		$	(113.8	)		$	(154.2	)

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

Detail of components		2018				2017				Location on Statement of Income
Losses on cash flow hedges:
Foreign currency contracts		$	(0.7	)		$	(1.3	)		Net sales
Foreign currency contracts		(0.5		)		(1.2		)		Cost of goods and services sold
Interest rate swap contracts		—				(0.7		)		Interest expense
Forward treasury locks		(0.4		)		(0.4		)		Interest expense
Total before tax		(1.6		)		(3.6		)
Tax expense		0.4				1.0
Net of tax		$	(1.2	)		$	(2.6	)
Amortization of defined benefit pension and other postretirement plans:
Prior service credit		2.0				2.1				(a)
Actuarial losses		(1.4		)		(2.3		)		(a)
Total before tax		0.6				(0.2		)
Tax expense		(0.2		)		0.1
Net of tax		$	0.4			$	(0.1	)
Total reclassifications for the period, net of tax		$	(0.8	)		$	(2.7	)

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

Note 13: Stock-Based Compensation

The West Pharmaceutical Services, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Plan”) provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to

employees and non-employee directors. A committee of the Board of Directors determines the terms and conditions of awards to be granted. Vesting requirements vary by award. At December 31, 2018, there were 3,710,483 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)	2018				2017				2016
Stock option and appreciation rights	$	8.6			$	7.8			$	8.6
Performance share units, stock-settled	2.5				4.1				6.7
Performance share units, cash-settled	—				0.1				0.1
Performance share units, dividend equivalents	0.1				0.1				0.2
Employee stock purchase plan	0.9				0.8				0.7
Deferred compensation plans	3.0				3.2				3.2
Total stock-based compensation expense	$	15.1			$	16.1			$	19.5

In addition, we recorded a $0.2 million charge during 2016 as part of our restructuring plan, which was recorded within other expense. Please refer to Note 15, Other Expense, for further discussion of the 2016 restructuring plan.

The amount of unrecognized compensation expense for all non-vested awards as of December 31, 2018 was approximately $19.1 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 increments. 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)	2018			2017			2016
Options outstanding, January 1	3.5			4.5			5.0
Granted	0.5			0.5			0.7
Exercised	(1.0	)		(1.5	)		(1.1	)
Forfeited	—			—			(0.1	)
Options outstanding, December 31	3.0			3.5			4.5
Options exercisable, December 31	1.7			1.9			2.7

Weighted Average Exercise Price	2018				2017				2016
Options outstanding, January 1	$	48.76			$	38.11			$	31.77
Granted	90.36				84.09				61.98
Exercised	35.95				26.15				22.50
Forfeited	75.32				60.92				45.91
Options outstanding, December 31	$	58.93			$	48.76			$	38.11
Options exercisable, December 31	$	45.32			$	35.44			$	27.17

As of December 31, 2018, the weighted average remaining contractual life of options outstanding and of options exercisable was 6.4 years and 5.2 years, respectively.

As of December 31, 2018, the aggregate intrinsic value of total options outstanding was $117.5 million, of which $89.3 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 2018, 2017 and 2016: a risk-free interest rate of 2.7%, 2.0%, and 1.4%, respectively; stock volatility of 19.8%, 19.9%, and 20.4%, respectively; and dividend yields of 0.7%, 0.7%, and 0.9%, 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 2018, 2017 and 2016. The weighted average grant date fair value of options granted in 2018, 2017 and 2016 was $20.16, $18.08 and $12.12, respectively. Stock option expense is recognized over the vesting period, net of forfeitures.

For the years ended December 31, 2018, 2017 and 2016, the intrinsic value of options exercised was $61.3 million, $91.7 million and $49.4 million, respectively. The grant date fair value of options vested during those same periods was $8.3 million, $6.7 million and $5.8 million, respectively.

Stock Appreciation Rights

Stock appreciation rights (“SARs”) granted to eligible international employees vest in equal annual increments over 4 years of continuous service. All awards expire 10 years from the date of grant. The fair value of each cash-settled SAR is adjusted at the end of each reporting period, with the resulting change reflected in expense. As of December 31, 2018, SARs outstanding were 39,819, of which 25,659 were cash-settled and 14,160 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:

	2018			2017			2016
SARs outstanding, January 1	51,368			116,087			232,930
Granted	3,480			2,792			3,368
Exercised	(14,629	)		(67,511	)		(114,976	)
Forfeited	(400	)		—			(5,235	)
SARs outstanding, December 31	39,819			51,368			116,087
SARs exercisable, December 31	30,285			39,769			71,701

Weighted Average Exercise Price	2018				2017				2016
SARs outstanding, January 1	$	38.55			$	31.13			$	27.79
Granted	89.64				83.47				68.40
Exercised	28.45				27.65				24.95
Forfeited	63.43				—				42.28
SARs outstanding, December 31	$	46.48			$	38.55			$	31.13
SARs exercisable, December 31	$	36.91			$	30.77			$	26.65

Performance Awards

In addition to stock options and SAR awards, we grant performance share unit (“PSU”) 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 stock-settled PSU awards are entitled to receive a certain number of shares of common stock, whereas recipients of cash-settled PSU 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 stock-settled PSU awards:

	2018				2017				2016
Non-vested stock-settled PSU awards, January 1	341,944				378,062				422,726
Granted at target level	102,307				92,045				115,035
Adjustments above/(below) target	(2,284		)		(11,369		)		19,339
Vested and converted	(121,984		)		(116,684		)		(173,364		)
Forfeited	(23,946		)		(110		)		(5,674		)
Non-vested stock-settled PSU awards, December 31	296,037				341,944				378,062
Weighted Average Grant Date Fair Value	2018				2017				2016
Non-vested stock-settled PSU awards, January 1	$	64.38			$	54.47			$	45.60
Granted at target level	90.45				84.01				60.47
Adjustments above/(below) target	33.86				42.85				38.71
Vested and converted	93.00				50.06				59.64
Forfeited	68.65				73.64				49.86
Non-vested stock-settled PSU awards, December 31	$	76.84			$	64.38			$	54.47

Shares earned under PSU awards may vary from 0% to 200% of an employee’s targeted award. The fair value of stock-settled PSU awards is based on the market price of our stock at the grant date and is recognized as expense over the performance period, adjusted for estimated target outcomes and net of forfeitures. The weighted average grant date fair value of stock-settled PSU awards granted during the years 2018, 2017 and 2016 was $90.45, $84.01 and $60.47, respectively. Including forfeiture and above-target achievement expectations, we expect that the stock-settled PSU awards will convert to 108,626 shares to be issued over an average remaining term of one year.

The fair value of cash-settled PSU 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, cash-settled PSU awards are recorded within other long-term liabilities.

The following table summarizes changes in our outstanding cash-settled PSU awards:

	2018			2017			2016
Non-vested cash-settled PSU awards, January 1	1,972			2,451			29,196
Granted at target level	560			598			419
Adjustments above/(below) target	(30	)		(107	)		2,858
Vested and converted	(910	)		(970	)		(29,032	)
Forfeited	—			—			(990	)
Non-vested cash-settled PSU awards, December 31	1,592			1,972			2,451

Weighted Average Grant Date Fair Value	2018				2017				2016
Non-vested cash-settled PSU awards, January 1	$	92.25			$	25.28			$	32.07
Granted at target level	89.64				83.47				59.64
Adjustments above/(below) target	41.53				66.61				30.80
Vested and converted	93.00				86.93				59.64
Forfeited	—				—				50.55
Non-vested cash-settled PSU awards, December 31	$	79.48			$	92.25			$	25.28

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 55,669 shares, 56,218 shares and 60,839 shares for the years 2018, 2017 and 2016, respectively. At December 31, 2018, there were approximately 3.9 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 2018, we granted 18,824 deferred stock awards, with a grant date fair value of $87.69. Similarly, a non-qualified deferred compensation plan for eligible employees provides for the conversion of compensation into deferred stock units. As of December 31, 2018, the two deferred compensation plans held a total of 429,777 deferred stock units, including 24,296 units to be paid in cash.

In addition, during 2018, we granted 15,942 restricted share awards at a weighted grant-date fair value of $96.77 per share to new executive officers under the 2016 Plan. There were no grants of restricted share awards in 2017. 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. The fair value of these 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 1,500 shares, 1,800 shares and 2,400 shares in 2018, 2017 and 2016, respectively. Incentive stock forfeitures of 200 shares, 800 shares and 800 shares occurred in 2018, 2017 and 2016, respectively. Compensation expense is recognized over the vesting period based on the fair market value of common stock on the award date: $93.00 per share granted in 2018, $86.93 per share granted in 2017 and $59.64 per share granted in 2016.

Note 14: 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 $6.5 million for 2018, $5.7 million for 2017 and $4.9 million for 2016.

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)	2018				2017				2016				2018				2017				2016
Net periodic benefit cost:
Service cost	$	10.8			$	10.4			$	10.2			$	—			$	—			$	0.5
Interest cost	9.4				9.8				10.5				0.2				0.3				0.5
Expected return on assets	(15.7		)		(13.5		)		(12.6		)		—				—				—
Amortization of prior service credit	(1.3		)		(1.3		)		(1.4		)		(0.7		)		(0.7		)		—
Amortization of transition obligation	—				—				0.1				—				—				—
Amortization of actuarial loss (gain)	3.8				4.9				4.8				(2.4		)		(2.6		)		(1.4		)
Curtailment	—				—				(2.1		)		—				—				—
Net periodic benefit cost	$	7.0			$	10.3			$	9.5			$	(2.9	)		$	(3.0	)		$	(0.4	)
Other changes in plan assets and benefit obligations recognized in OCI, pre-tax:
Net loss (gain) arising during period	$	3.5			$	(9.0	)		$	19.2			$	(1.4	)		$	(1.1	)		$	(0.1	)
Prior service credit arising during period	0.3				—				—				—				—				(3.0		)
Amortization of prior service credit	1.3				1.3				1.4				0.7				0.7				—
Amortization of transition obligation	—				—				(0.1		)		—				—				—
Amortization of actuarial (loss) gain	(3.8		)		(4.9		)		(4.8		)		2.4				2.6				1.4
Curtailment	—				—				(3.1		)		—				—				—
Foreign currency translation	(1.2		)		2.6				(3.2		)		—				—				—
Total recognized in OCI	$	0.1			$	(10.0	)		$	9.4			$	1.7			$	2.2			$	(1.7	)
Total recognized in net periodic benefit cost and OCI	$	7.1			$	0.3			$	18.9			$	(1.2	)		$	(0.8	)		$	(2.1	)

Net periodic benefit cost by geographic location is as follows:

	Pension benefits												Other retirement benefits
($ in millions)	2018				2017				2016				2018				2017				2016
U.S. plans	$	4.8			$	7.3			$	7.1			$	(2.9	)		$	(3.0	)		$	(0.4	)
International plans	2.2				3.0				2.4				—				—				—
Net periodic benefit cost	$	7.0			$	10.3			$	9.5			$	(2.9	)		$	(3.0	)		$	(0.4	)

In March 2017, the FASB issued guidance on the presentation of net periodic pension and postretirement benefit

cost (net benefit cost). We adopted this guidance as of January 1, 2018, on a retrospective basis. Please refer to Note

2, New Accounting Standards, for additional information.

Effective January 1, 2019, except for interest crediting, benefit accruals under our U.S. qualified and non-qualified

defined benefit pension plans will cease.

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.

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)	2018				2017				2018				2017
Change in benefit obligation:
Benefit obligation, January 1	$	(288.0	)		$	(262.2	)		$	(7.1	)		$	(8.0	)
Service cost	(10.8		)		(10.4		)		—				—
Interest cost	(9.4		)		(9.8		)		(0.2		)		(0.3		)
Participants’ contributions	(0.6		)		(0.7		)		(0.6		)		(0.5		)
Actuarial (loss) gain	20.4				(11.8		)		1.4				1.2
Amendments/transfers in	(0.3		)		—				—				—
Benefits/expenses paid	18.0				14.2				0.5				0.5
Foreign currency translation	3.7				(7.3		)		—				—
Benefit obligation, December 31	$	(267.0	)		$	(288.0	)		$	(6.0	)		$	(7.1	)
Change in plan assets:
Fair value of assets, January 1	$	239.5			$	192.4			$	—			$	—
Actual return on assets	(8.3		)		34.4				—				—
Employer contribution	2.7				23.2				(0.1		)		—
Participants’ contributions	0.6				0.7				0.6				0.5
Benefits/expenses paid	(18.0		)		(14.2		)		(0.5		)		(0.5		)
Foreign currency translation	(2.0		)		3.0				—				—
Fair value of assets, December 31	$	214.5			$	239.5			$	—			$	—
Funded status at end of year	$	(52.5	)		$	(48.5	)		$	(6.0	)		$	(7.1	)

International pension plan assets, at fair value, included in the preceding table were $33.4 million and $34.7 million at December 31, 2018 and 2017, respectively.

Amounts recognized in the balance sheet were as follows:

	Pension benefits								Other retirement benefits
($ in millions)	2018				2017				2018				2017
Current liabilities	$	(1.6	)		$	(1.5	)		$	(0.7	)		$	(0.7	)
Noncurrent liabilities	(50.9		)		(47.0		)		(5.3		)		(6.4		)
	$	(52.5	)		$	(48.5	)		$	(6.0	)		$	(7.1	)

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

	Pension benefits								Other retirement benefits
($ in millions)	2018				2017				2018				2017
Net actuarial loss (gain)	$	73.0			$	74.5			$	(9.4	)		$	(10.4	)
Prior service cost (credit)	0.9				(0.8		)		(1.7		)		(2.4		)
Total	$	73.9			$	73.7			$	(11.1	)		$	(12.8	)

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 $2.1 million and $0.1 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 $2.1 million and $0.7 million.

The accumulated benefit obligation for all defined benefit pension plans was $263.0 million and $283.7 million at December 31, 2018 and 2017, respectively, including $64.0 million and $67.3 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, 2018 and 2017.

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
2019	$	13.6			$	2.1			$	15.7
2020	14.6				2.7				17.3
2021	14.1				2.2				16.3
2022	14.7				2.9				17.6
2023	14.9				2.3				17.2
2024 to 2028	69.3				16.9				86.2
	$	141.2			$	29.1			$	170.3

In 2019, we expect to contribute $3.2 million to pension plans, of which $2.3 million is for international plans. In addition, we expect to contribute $0.7 million for other retirement benefits in 2019. 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
	2018			2017			2016			2018			2017			2016
Discount rate	2.91	%		3.48	%		3.99	%		3.45	%		3.90	%		4.30	%
Rate of compensation increase	4.00	%		4.01	%		4.04	%		—			—			—
Long-term rate of return on assets	6.71	%		6.47	%		6.95	%		—			—			—

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

	Pension benefits						Other retirement benefits
	2018			2017			2018			2017
Discount rate	3.76	%		3.14	%		4.20	%		3.45	%
Rate of compensation increase	4.01	%		3.80	%		—			—

The discount rate used to determine the benefit obligations for U.S. pension plans was 4.30% and 3.65% as of December 31, 2018 and 2017, respectively. The weighted average discount rate used to determine the benefit obligations for all international plans was 2.19% and 1.62% as of December 31, 2018 and 2017, respectively. The rate of compensation increase for U.S. plans was 4.25% for 2018 and 2017, while the weighted average rate for all international plans was 2.60% for 2018 and 2.44% for 2017. Other retirement benefits were only available to U.S. employees. The expected long-term rate of return for U.S. plans, which accounts for 84.45% of global plan assets, was 7.00% for 2018, 7.00% for 2017 and 7.25% for 2016.

The assumed healthcare cost trend rate used to determine benefit obligations was 6.25% for all participants in 2018, decreasing to 5.00% by 2024. A change in the assumed healthcare cost trend rate by one percentage point would have an immaterial impact in the postretirement obligation. The assumed healthcare cost trend rate used to determine net periodic benefit cost was 6.60% for all participants in 2018, decreasing to 5.00% by 2022. The effect of a one percentage point increase or decrease in the rate would have an immaterial impact in the aggregate service and interest cost components.

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

	2018			2017
Equity securities	23	%		63	%
Debt securities	74	%		37	%
Other	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 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.

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.

During the three months ended December 31, 2018, in anticipation of benefit accruals under our U.S. qualified and non-qualified defined benefit pension plans ceasing effective January 1, 2019, except for interest crediting, we changed the U.S. target asset allocations from 65% equity securities and 35% debt securities to 30% equity securities and 70% debt securities.

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

	Target allocation		Allocation range
Equity securities	30%		27% - 33%
Debt securities	70%		67% - 73%
Other	—%		0% - 3%

The following tables present the fair value of our pension plan assets, utilizing the fair value hierarchy discussed in Note 11, Fair Value Measurements. In accordance with U.S. GAAP, certain pension plan assets measured at net asset value (“NAV”) have not been classified in the fair value hierarchy.

	Balance at
	December 31,				Basis of Fair Value Measurements
($ in millions)	2018				Level 1				Level 2				Level 3
Cash	$	1.7			$	1.7			$	—			$	—
Equity securities:
International mutual funds	17.7				17.7				—				—
Fixed income securities:
Mutual funds	13.9				13.9				—				—
Pension plan assets in the fair value hierarchy	$	33.3			$	33.3			$	—			$	—
Pension plan assets measured at NAV	181.2
Pension plan assets at fair value	$	214.5

	Balance at
	December 31,				Basis of Fair Value Measurements
($ in millions)	2017				Level 1				Level 2				Level 3
Cash	$	1.6			$	1.6			$	—			$	—
Equity securities:
International mutual funds	15.5				15.5				—				—
Fixed income securities:
Mutual funds	17.5				17.5				—				—
Pension plan assets in the fair value hierarchy	$	34.6			$	34.6			$	—			$	—
Pension plan assets measured at NAV	204.9
Pension plan assets at fair value	$	239.5

Note 15: Other Expense

Other expense consisted of:

($ in millions)	2018				2017				2016
Restructuring and related charges:
Severance and post-employment benefits	$	3.1			$	—			$	8.9
Asset-related charges	2.2				—				17.3
Other charges	3.8				—				0.2
Total restructuring and related charges	$	9.1			$	—			$	26.4
Argentina currency devaluation	1.1				—				—
Venezuela deconsolidation	—				11.1				—
Venezuela currency devaluation	—				—				2.7
Development and licensing income	(0.9		)		(10.6		)		(1.5		)
Contingent consideration	(2.6		)		(2.4		)		2.3
Other items	(4.8		)		3.9				(0.1		)
Total other expense	$	1.9			$	2.0			$	29.8

Restructuring and Related Charges

In February 2018, our Board of Directors approved a restructuring plan designed to realign our manufacturing capacity with demand. These changes are expected to be implemented over the following twelve to twenty-four months. The plan will require restructuring and related charges in the range of $8.0 million to $13.0 million and capital expenditures in the range of $9.0 million to $14.0 million.

During 2018, we recorded $8.8 million in restructuring and related charges associated with this plan, consisting of $3.1 million for severance charges, $2.2 million for non-cash asset write-downs associated with the discontinued use of certain equipment, and $3.5 million for other charges.

The following table presents activity related to our restructuring obligations related to our 2018 restructuring plan:

($ in millions)	Severance and benefits				Asset-related charges				Other charges				Total
Balance, December 31, 2017	$	—			$	—			$	—			$	—
Charges	3.1				2.2				3.5				8.8
Cash payments	(0.8		)		—				—				(0.8		)
Non-cash asset write-downs	—				(2.2		)		(3.5		)		(5.7		)
Balance, December 31, 2018	$	2.3			$	—			$	—			$	2.3

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 2018, we recorded $0.3 million in additional charges related to this restructuring plan. Our remaining restructuring obligations related to our 2016 restructuring plan as of December 31, 2018 were $1.0 million.

Other Items

During 2018, we recorded a charge of $1.1 million related to the classification of Argentina’s economy as highly inflationary under U.S. GAAP as of July 1, 2018.

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. In 2017, as a result of the continued deterioration of conditions in Venezuela as well as our continued reduced access to USD settlement controlled by the Venezuelan government, we recorded a charge of $11.1 million related to the deconsolidation of our Venezuelan subsidiary, following our determination that we no longer met the U.S. GAAP criteria for control of that subsidiary. This charge included the derecognition of the carrying amounts of our Venezuelan subsidiary’s assets and liabilities, as well as the write-off of our investment in our Venezuelan subsidiary, related unrealized translation adjustments and the elimination of intercompany accounts. As of April 1, 2017, our consolidated financial statements exclude the results of our Venezuelan subsidiary.

During 2018, 2017 and 2016, we recorded development income of $0.9 million, $1.5 million and $1.5 million, respectively, related to a nonrefundable customer payment of $20.0 million received in June 2013 in return for the exclusive use of the SmartDose technology platform within a specific therapeutic area. Please refer to Note 3, Revenue, for additional information. In addition, during 2017, we recorded income of $9.1 million attributable to the reimbursement of certain costs related to a technology that we subsequently licensed to a third party. The license of technology to the third party may result in additional income in the future, contingent on commercialization of the related product.

Contingent consideration represents changes in the fair value of the SmartDose contingent consideration. Please refer to Note 11, 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. Other items changed in 2018 as a result of foreign exchange transaction gains of $5.5 million in 2018, as compared to foreign exchange transaction losses of $2.1 million in 2017, and a $1.1 million gain on the sale of fixed assets as a result of our restructuring plans.

Note 16: 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 2018, the statute of limitations for the 2014 U.S. federal tax year lapsed, leaving tax years 2015 through 2018 open to examination. For U.S. state and local jurisdictions, tax years 2014 through 2018 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years 2011 through 2018.

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

($ in millions)	2018				2017
Balance at January 1	$	3.2			$	6.2
Increase due to current year position	0.8				0.4
Increase due to prior year position	0.4				0.1
Reduction for expiration of statute of limitations/audits	(0.5		)		(3.5		)
Balance at December 31	$	3.9			$	3.2

In addition, we had balances in accrued liabilities for interest and penalties of $0.2 million and $0.1 million at December 31, 2018 and 2017, respectively. As of December 31, 2018, we had $3.9 million of total gross unrecognized tax benefits, which, 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 $0.4 million during the next twelve months, which would favorably impact our effective tax rate.

The components of income before income taxes are:

($ in millions)	2018				2017				2016
U.S. operations	$	132.9			$	96.5			$	84.5
International operations	107.8				125.9				105.3
Total income before income taxes	$	240.7			$	222.4			$	189.8

The related provision for income taxes consists of:

($ in millions)	2018				2017				2016
Current:
Federal	$	2.1			$	2.1			$	2.5
State	3.3				0.1				1.0
International	35.1				37.0				29.4
Current income tax provision	40.5				39.2				32.9
Deferred:
Federal and state	1.4				41.8				21.8
International	(0.5		)		(0.1		)		(0.3		)
Deferred income tax provision	0.9				41.7				21.5
Income tax expense	$	41.4			$	80.9			$	54.4

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)	2018				2017
Deferred tax assets
Net operating loss carryforwards	$	18.4			$	19.7
Tax credit carryforwards	10.5				13.7
Restructuring and impairment charges	—				0.1
Pension and deferred compensation	27.2				28.3
Other	11.4				14.3
Valuation allowance	(16.0		)		(20.9		)
Total deferred tax assets	51.5				55.2
Deferred tax liabilities:
Accelerated depreciation	31.3				26.3
Tax on undistributed earnings of subsidiaries	6.6				9.8
Other	2.0				3.8
Total deferred tax liabilities	39.9				39.9
Net deferred tax asset	$	11.6			$	15.3

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

	2018			2017			2016
U.S. federal corporate tax rate	21.0	%		35.0	%		35.0	%
Tax on international operations other than U.S. tax rate	4.8			(4.5	)		(2.9	)
Reversal of prior valuation allowance	—			(0.5	)		(0.3	)
Adjustments to reserves for unrecognized tax benefits	0.2			(0.2	)		(0.6	)
U.S. tax on international earnings, net of foreign tax credits	(0.2	)		0.1			(1.3	)
State income taxes, net of federal tax effect	2.3			0.2			0.8
U.S. research and development credits	(0.9	)		(0.8	)		(0.8	)
Excess tax benefits on share-based payments	(6.0	)		(14.1	)		—
Impact of 2017 Tax Act	(2.9	)		15.9			—
Tax on undistributed earnings of subsidiaries	(1.3	)		4.4			—
Venezuela deconsolidation	—			1.7			—
Other business credits and Section 199 Deduction	—			(0.6	)		(1.1	)
Other	0.2			(0.2	)		(0.1	)
Effective tax rate	17.2	%		36.4	%		28.7	%

During 2018, we recorded a net tax benefit of $2.5 million for the impact of tax law changes, including the 2017 Tax Act, and a tax benefit of $14.3 million associated with our adoption in 2017 of guidance issued by the FASB regarding share-based payment transactions.

During 2017, we recorded a discrete tax charge of $48.8 million related to the 2017 Tax Act and the impact of changes in enacted international tax rates on previously-recorded deferred tax asset and liability balances, as well as a tax benefit of $33.1 million associated with our adoption of the guidance issued by the FASB regarding share-based payment transactions.

The 2017 Tax Act, which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system. These changes include, but are not limited to, a federal statutory rate reduction from 35.0% to 21.0% effective for tax years beginning after December 31, 2017. Changes in tax rates and tax laws are accounted for in the period of enactment. As a result, during the year ended December 31, 2017, we recorded a discrete charge based upon our understanding of the 2017 Tax Act and the guidance available as of the date of that filing. A significant portion of the discrete tax liability was attributable to a one-time mandatory deemed repatriation tax of post-1986 undistributed foreign subsidiary earnings and profits (the “Transition Toll Tax”) of $27.9 million. Additionally, due to the reduction of the federal statutory rate, we revalued our deferred assets and liabilities and recorded a provisional $11.4 million federal tax expense, net of state tax impact, during the year ended December 31, 2017.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. We recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended December 31, 2017. As of December 31, 2018, we finalized our calculations and tax positions used in our analysis of the impact of the 2017 Tax Act in consideration of proposed regulations and other guidance issued during 2018. As a result, we recorded a $7.5 million tax benefit related to a reduction of the Transition Toll Tax and an incremental tax expense of $4.0 million related to other adjustments. The final measurement reduced the Transition Toll Tax expense to $20.4 million from $27.9 million. The net impact of these adjustments resulted in a benefit of 1.45% to the 2018 effective tax rate.

The 2017 Tax Act created a provision known as global intangible low-tax income (“GILTI”) that imposes a U.S. tax on certain earnings of controlled foreign subsidiaries. We made an accounting policy election to reflect GILTI taxes, if any, as a current income tax expense in the period incurred.

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.

As of December 31, 2018, we have fully utilized all of our U.S. federal net operating loss carryforwards. State operating loss carryforwards of $233.5 million created a deferred tax asset of $15.6 million, while foreign operating loss carryforwards of $23.2 million created a deferred tax asset of $2.8 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: $11.6 million in 2019 and $221.9 million thereafter. Foreign loss carryforwards will begin to expire in 2025, while $20.2 million of the total $23.2 million will not expire.

As of December 31, 2018, we have utilized all available foreign tax credit carryforwards against the Transition Toll Tax. We have U.S. federal and state research and development credit carryforwards of $5.6 million and $2.6 million, respectively. The $5.6 million of U.S. federal research and development credits expire as follows: $1.5 million expire in 2037, $1.8 million expire in 2038, and $2.3 million expire in 2039. The $2.6 million of state research and development credits expire as follows: $0.6 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 $0.1 million which expire in 2020.

In response to the 2017 Tax Act, we reevaluated our position regarding permanent reinvestment of foreign subsidiary earnings and profits through 2017 (with the exception of China and Mexico) and decided that those profits were no longer permanently reinvested. As of January 1, 2018, we reasserted indefinite reinvestment related to all post-2017 unremitted earnings in all of our foreign subsidiaries. In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is de minimis, and that position has not changed subsequent to the one-time transition tax under the 2017 Tax Act, except as noted above. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of approximately $79.7 million of undistributed earnings from foreign subsidiaries to the U.S., as those earnings continue to be permanently reinvested. Further, it is impracticable for us to estimate any future tax costs for any unrecognized deferred tax liabilities associated with our indefinite reinvestment assertion, because the actual tax liability, if any, would be dependent on complex analysis and calculations considering various tax laws, exchange rates, circumstances existing when there is a repatriation, sale, or liquidation, or other factors.

Note 17: Commitments and Contingencies

At December 31, 2018, we were obligated under various operating lease agreements. Rental expense in 2018, 2017 and 2016 was $14.5 million, $13.3 million and $11.7 million, respectively.

At December 31, 2018, future minimum rental payments under non-cancelable operating leases were:

Year	($ in millions)
2019	$	13.0
2020	10.5
2021	7.8
2022	6.9
2023	5.5
Thereafter	37.8
Total	$	81.5

At December 31, 2018, outstanding unconditional contractual commitments for the purchase of raw materials and finished goods amounted to $72.7 million, of which $14.0 million is due to be paid in 2019.

We have letters of credit totaling $2.5 million supporting the reimbursement of workers’ compensation and other claims paid on our behalf by insurance carriers. Our accrual for insurance obligations was $3.4 million at December 31, 2018, of which $0.9 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 $2.1 million.

Note 18: Segment Information

Our business operations are organized into two reportable segments, Proprietary Products and Contract-Manufactured Products. Our Proprietary Products reportable segment offers proprietary packaging, containment and drug delivery products, along with analytical lab services, to biologic, generic and pharmaceutical drug customers. Our Contract-Manufactured Products reportable segment serves as a fully integrated business, focused on the design, manufacture, and automated assembly of complex devices, primarily for pharmaceutical, diagnostic, and medical device customers.

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)	2018				2017				2016
Net sales:
Proprietary Products	$	1,308.6			$	1,236.9			$	1,189.9
Contract-Manufactured Products	409.1				362.5				320.2
Intersegment sales elimination	(0.3		)		(0.3		)		(1.0		)
Consolidated net sales	$	1,717.4			$	1,599.1			$	1,509.1

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)	2018				2017				2016				2018				2017				2016
United States	$	766.1			$	734.6			$	738.3			$	315.3			$	323.8			$	329.3
Germany	235.9				226.4				200.6				99.3				108.8				96.8
France	127.5				125.6				116.3				42.5				43.1				37.1
Other European countries	386.1				318.5				268.3				232.5				244.9				192.3
Other	201.8				194.0				185.6				132.4				134.4				122.8
	$	1,717.4			$	1,599.1			$	1,509.1			$	822.0			$	855.0			$	778.3

The following tables provide summarized financial information for our segments:

($ in millions)	Proprietary Products				Contract-Manufactured Products				Corporate and Elimination				Consolidated
2018
Net sales	$	1,308.6			$	409.1			$	(0.3	)		$	1,717.4
Operating profit	$	266.4			$	44.3			$	(70.4	)		$	240.3
Interest expense	—				—				8.4				8.4
Interest income	—				—				(2.1		)		(2.1		)
Other nonoperating income	—				—				(6.7		)		(6.7		)
Income before income taxes	$	266.4			$	44.3			$	(70.0	)		$	240.7
Segment assets	$	1,342.3			$	301.4			$	335.2			$	1,978.9
Capital expenditures	77.0				20.7				7.0				104.7
Depreciation and amortization expense	83.9				17.2				3.3				104.4
2017
Net sales	$	1,236.9			$	362.5			$	(0.3	)		$	1,599.1
Operating profit	$	243.8			$	48.3			$	(66.3	)		$	225.8
Interest expense	—				—				7.8				7.8
Interest income	—				—				(1.3		)		(1.3		)
Other nonoperating income	—				—				(3.1		)		(3.1		)
Income before income taxes	$	243.8			$	48.3			$	(69.7	)		$	222.4
Segment assets	$	1,321.3			$	286.4			$	255.1			$	1,862.8
Capital expenditures	107.2				18.6				5.0				130.8
Depreciation and amortization expense	77.1				16.4				3.2				96.7
2016
Net sales	$	1,189.9			$	320.2			$	(1.0	)		$	1,509.1
Operating profit	$	243.1			$	38.2			$	(86.1	)		$	195.2
Interest expense	—				—				8.1				8.1
Interest income	—				—				(1.1		)		(1.1		)
Other nonoperating income	—				—				(1.6		)		(1.6		)
Income before income taxes	$	243.1			$	38.2			$	(91.5	)		$	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

Note 19: Subsequent Events

In January 2019, we entered into an agreement to acquire the business of our distributor in South Korea. The transaction is expected to close in April 2019.

In February 2019, we announced a share repurchase program for calendar-year 2019 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 is expected to be completed by December 31, 2019. Our previously-authorized share repurchase program expired on December 31, 2018.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of West Pharmaceutical Services, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of West Pharmaceutical Services, Inc. and its subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2018 and the manner in which it accounts for share-based compensation award-related income tax effects in 2017.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, 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 the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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

Philadelphia, Pennsylvania

February 27, 2019

We have served as the Company’s auditor since 1963.

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
2018
Net sales	$	415.7			$	447.5			$	431.7			$	422.5			$	1,717.4
Gross profit	134.4				142.2				135.6				133.2				545.4
Net income	43.6				56.1				55.2				52.0				206.9
Net income per share:
Basic	$	0.59			$	0.76			$	0.75			$	0.70			$	2.80
Diluted	$	0.58			$	0.75			$	0.73			$	0.69			$	2.74
2017
Net sales	$	387.7			$	397.6			$	398.2			$	415.6			$	1,599.1
Gross profit	134.2				125.0				125.1				128.6				512.9
Net income	60.9				38.8				51.0				—				150.7
Net income per share:
Basic	$	0.83			$	0.53			$	0.69			$	—			$	2.04
Diluted	$	0.81			$	0.51			$	0.67			$	—			$	1.99

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 2018 included the impact of restructuring and related charges of $2.7 million ($0.03 per diluted share), a net tax charge of $0.3 million ($0.01 per diluted share) for the estimated impact of the 2017 Tax Act, and a tax benefit of $2.1 million ($0.03 per diluted share) associated with our adoption of the guidance issued by the FASB regarding share-based payment transactions. Net income for the first quarter of 2017 included the impact of a tax benefit of $15.9 million ($0.21 per diluted share) associated with our adoption of the guidance issued by the FASB regarding share-based payment transactions.

(2)

Second quarter 2018 net income included the impact of restructuring and related charges of $1.6 million ($0.01 per diluted share), a net tax benefit of $4.8 million ($0.06 per diluted share) for the estimated impact of the 2017 Tax Act, and a tax benefit of $3.4 million ($0.04 per diluted share) associated with our adoption of the guidance issued by the FASB regarding share-based payment transactions. Second quarter 2017 net income included the impact of a tax benefit of $9.6 million ($0.13 per diluted share) associated with our adoption of the guidance issued by the FASB regarding share-based payment transactions and a charge of $11.1 million ($0.15 per diluted share) related to the deconsolidation of our Venezuelan subsidiary.

(3)

Net income for the third quarter of 2018 included the impact of restructuring and related charges of $0.9 million ($0.01 per diluted share), a net tax charge of $0.4 million for the estimated impact of the 2017 Tax Act, a tax benefit of $7.7 million ($0.10 per diluted share) associated with our adoption of the guidance issued by the FASB regarding share-based payment transactions, and a charge of $1.1 million ($0.02 per diluted share) related to the classification of Argentina’s economy as highly inflationary under U.S. GAAP as of July 1, 2018. Net income for the third quarter of 2017 included the impact of a tax benefit of $4.8 million ($0.06 per diluted share) associated with our adoption of the guidance issued by the FASB regarding share-based payment transactions.

(4)	Fourth quarter 2018 net income included the impact of restructuring and related charges of $2.1 million ($0.02 per diluted share), a gain on the sale of fixed assets as a result of our restructuring plans of $0.9 million ($0.01 per diluted share), a net tax charge of $1.6 million ($0.03 per diluted share) for the impact of tax law changes,

including the 2017 Tax Act, and a tax benefit of $1.1 million ($0.02 per diluted share) associated with our adoption in 2017 of guidance issued by the FASB regarding share-based payment transactions. Fourth quarter 2017 net income included the impact of a discrete tax charge of $48.8 million ($0.64 per diluted share) related to the 2017 Tax Act and the impact of changes in enacted international tax rates on previously-recorded deferred tax asset and liability balances and a tax benefit of $2.8 million ($0.04 per diluted share) associated with our adoption of the guidance issued by the FASB regarding share-based payment transactions.