2 0 1 5
ANNUAL
REPORT
Support.
Expertise.
Innovation.
W E S T P H A R M A C E U T I C A L S E RV I C E S , I N C .
Financial Summary
West Pharmaceutical Services, Inc. and Subsidiaries
(dollars in millions, except per share data)
Net Sales
2015
2014
$ 1,399.8 $ 1,421.4
Net Sales Growth Ex-Currency
7.2%
Diluted earnings per share
As reported
Pension settlement charge
Executive retirement and related costs
License costs
Tax adjustments/settlements
$ 1.30 $ 1.75
–
–
0.01
0.02
0.43
0.09
–
0.01
As Adjusted (Non-GAAP)
$ 1.83 $ 1.78
Our 2015 as-reported results include the impact of a pension settlement charge of
$32.0 million ($0.43 per diluted share), executive retirement and related costs of
$6.9 million ($0.09 per diluted share), and a discrete income tax charge of $0.8 million
($0.01 per diluted share).
Our 2014 as-reported results include the impact of a charge for license costs associated
with acquired in-process research of $0.8 million ($0.01 per diluted share) and discrete
income tax charges of $1.8 million ($0.02 per diluted share).
Adjusted results are intended to aid investors in understanding the Company’s year-
over-year results and are considered non-GAAP financial measures. Non-GAAP financial
measures should not be considered in isolation or as an alternative to such measures
determined in accordance with GAAP. Our executive team uses these financial
measures to evaluate the performance of the Company in terms of profitability and
efficiency, as well as to compare operating results to prior periods.
For a discussion of non-GAAP financial measures, please refer to our 2015 Form 10-K
filed on February 26, 2016 and the February 18, 2016 current report on Form 8-K.
West is a trusted partner to the global pharmaceutical and
biologics industry for its proven expertise in the design and
manufacture of technologically advanced, high-quality integrated
containment and delivery systems for medicines that improve
patient health. Founded in 1923, West has grown to become
a global leader in this industry through an everyday, 100%
commitment to quality, collaboration, service, innovation, and
equally important, an enduring sense of responsibility to patients.
West is valued for our willingness to partner with our customers
from concept to commercialization. Customers appreciate that
West is driven by a shared goal to improve patient health, and
our team members use this passion to fuel innovation of safe
and secure containment and delivery systems for the medicines
offered by our customers. West’s number one priority is delivering
quality products that meet the exact product specifications and
quality standards customers require and expect. Through a robust
global network of manufacturing, customer service and R&D
centers across the globe, West is well-positioned to serve an
ever-growing global customer base.
West is a caring corporate citizen in the communities in which
our employees live and work, and we recognize our responsibility
to protect the environment. We are proud of the charitable giving
and volunteer activities of our 7,100 employees. Together with the
Herman O. West Foundation, the Company contributes to a wide
range of organizations working to improve our world.
The integrity with which West has managed its business is
reflected in the Company’s financial performance. Since 2010,
West has grown net sales nearly 30%, achieving $1.4 billion
in net sales for 2015. The Company is positioned for future
development, growth and profitability.
At West, we’re proud of our heritage, and work hard to ensure
we continue to anticipate and meet the needs of a dynamic
healthcare industry. We come to work each day confident in our
expertise, ready to serve our customers and steadfast in our
shared commitment to improve global health.
WEST PHARMACEUT ICAL SE RVIC ES, INC.
A Letter from West’s President
and Chief Executive Officer
2015 West ANNUAL REPORT
Eric M. Green
President and
Chief Executive Officer
It is my great pleasure to report that 2015 was a successful year for West. We grew net sales on a
constant-currency basis, with record adjusted operating profit and adjusted diluted earnings per share.
Our customers are increasing their purchases of our proprietary products, especially our industry-
leading, high-value product offerings and proprietary devices; and contract manufacturing service
offerings grew double digits in 2015. We are expanding capacity to meet growing demand and are
optimizing our existing global operations infrastructure to drive efficiencies, reduce cost, increase
quality and improve order fulfillment. The Company has a solid financial position, and we are committed
to deploying the considerable cash our business generates in a manner that will create shareholder
value. With a talented global workforce and strong secular growth trends in the markets we serve, we
enter 2016 well-positioned for future growth and continued success.
STRONG PERFORMANCE IN 2015
In 2015, both of our business segments, Pharmaceutical Packaging Systems (PPS) and Pharmaceutical
Delivery Systems (PDS), contributed to growth, and we saw substantial improvement in all major
geographies. Despite significant currency headwinds, West generated net sales of $1.4 billion, which
translated into 7.2% sales growth excluding currency effects. Adjusted
operating profit margin expanded to 13.6% of net sales, and adjusted
diluted earnings per share increased to $1.83, a record high and an
increase of 3% over 2014. Excluding an additional $0.29 per share in
adverse currency effects, full-year 2015 adjusted diluted EPS would
have grown by 19%, a strong achievement in a year of significant
transition.
In our PPS segment, net sales growth was fueled by high-value product
offerings, which grew 14.8% excluding impacts from foreign currency
and represented 46% of segment sales. Growth was led by strong
adoption of FluroTec® film and PTFE-coated components, Westar®
Ready-to-Use and Ready-to-Sterilize offerings, West EnvisionTM stoppers
and plungers, as well as our innovative NovaPure® product lines. We also continued to see steady
growth from our standard product offerings.
In our PDS segment, excluding foreign currency effects, net sales increased $16.4 million, or 4.1%,
primarily driven by an increase in contract manufacturing sales. Interest in the Daikyo Crystal Zenith®
containment products continues to be solid, with a number of compounds in formal stability trials and
one drug now in commercial use. This technology represents an important way to address customers’
need for high quality and technologically advanced containment systems for today’s sophisticated
biologic drugs, particularly when there may be challenges of interaction or adsorption related to
traditional glass vials.
Several customer-funded development programs are underway based on the SmartDose® electronic
wearable injector platform including an anticipated commercial launch with one strategic customer
later in 2016. This groundbreaking drug delivery system is designed to improve the patient experience
and encourage medication adherence for therapeutic applications requiring high dose volumes.
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We at West have
always worked closely
with our customers,
and continue to
live the motto
“by your side for a
healthier world.”
With favorable macro trends for injectable therapies increasing the
demand for our products and services, we are making investments
that are intended to accelerate our business, strengthen our
capabilities and increase the production capacity required to
support the needs of our customers. Major investments in 2015
included the ongoing construction of our new center of excellence
in Waterford, Ireland, and further expansion of high-value
component production capacity in our plant in Kinston, North
Carolina.
LOOKING TO THE FUTURE
The injectable therapies market is robust, and our customers
increasingly seek greater quality and reliability from the
containment and drug delivery systems they use to bring their
important drugs to market. They appreciate and depend on
the high-quality and reliable high-value product offerings and
proprietary containment and delivery devices we offer. In driving
to meet and exceed customer demand and our reputation in the
marketplace, in 2015 we developed and began the implementation
of an Enterprise Strategic Plan. The plan accentuates our focus
on the market segments and customers we serve, as we work to
become the world leader in the integrated containment and delivery
of injectable medicines. To drive results, we formed three global
functional organizations: Commercial, Operations and Innovation &
Technology. Within the scope of its mandate, each group will focus
on customer experience and operational excellence, as well as
product and service differentiation.
We at West have always worked closely with our customers, and
continue to live the motto “by your side for a healthier world.”
That said, the world is becoming more complex and varied, and
our customers are no exception. The primary interface with our
customers is the newly formed Commercial group, which we have
split into three sub-groups: Biologics, Pharma and Generics. These
highly focused organizations will help us better understand and
respond to the very different requirements of our customers in each
sub-group. In this way, the Commercial team will be able to deploy
our product portfolio and contract manufacturing services more
efficiently and effectively.
We are a growth company with great customers, quality products
and a long runway for future growth. To achieve that success,
we have to operate with excellence and realize more efficiencies
in the way we conduct business today so we can invest in our
future. Our newly formed Global Operations group is optimizing our
global footprint and leveraging our unique worldwide capabilities
to enable us to attain our supply chain goals, including capital
efficiency and margin expansion.
We continue to invest in the development of new products and
services to meet and exceed the challenges that our customers
face. Building on the success of our R&D efforts, the newly formed
2
G16-23570_AnnualReportTXT.indd 2
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2015 West ANNUAL REPORT Innovation & Technology group will focus on product design and
development to bring to the market the leading-edge applications
for the containment, administration and delivery of injectable
therapies our customers are seeking.
A Culture
of Giving Back
I am very pleased with the progress we made as an organization
this year. Two of the people who have been crucial to our long-term
success in making these changes, though, will be leaving West
this year. Anthony Welters, a member of our Board of Directors for
19 years, will not stand for re-election; John Paproski, Senior Vice
President and Chief Technology Officer, who has been with West for
36 years — most of them in senior leadership roles — will retire
as of April 1. The contributions of Tony and John have truly made a
difference at West, and we, as shareholders, are deeply indebted
to both for the tremendous value they have helped the Company
deliver. I am grateful for their support and guidance as I have
transitioned into this role.
As we look to the future, the fundamental long-term trends of our
markets remain favorable. From our founder, Herman O. West, to
my predecessor, Donald E. Morel, Jr., Ph.D., who retired in 2015,
the leadership at West has established an industry leading brand
that is synonymous with quality, expertise and innovation. We are
prepared to grow and create shareholder value by continuing to
meet the unique requirements of our customers. The work we do
at West plays an integral role in improving healthcare around the
world, and our products impact millions of patients each and every
day. I am proud to be working alongside more than 7,100 talented
colleagues, each of whom is committed to safety and quality,
addressing the challenges and needs of our customers, and serving
the communities where we live and work. I am grateful for the
support and counsel of our Board of Directors. Finally, all of us at
West thank you, our shareholders, for your trust and support.
Regards,
Eric M. Green
President and Chief Executive Officer
Employees pictured here supported Fox Chase Cancer Center in
Philadelphia, Pa.
Since 1972, the H.O. West Foundation, as an independently
managed 501(c)3 entity, has provided financial assistance to
qualified, non-profit organizations that serve cultural, health,
education and community service needs. The Foundation
has helped to support a variety of non-profit organizations,
placing particular emphasis on children with special needs in
the areas and communities where West employees live and
work. In 2015, the Foundation aided a variety of groups with
multi-year grants, matching contributions and educational
scholarships.
Now in its 12th year, West without Borders, our employee
fundraising campaign associated with the Foundation, enjoys
active participation from employees across the globe. At
every local site, West employees are encouraged to raise
money for charities aligned to the campaign and Foundation’s
goals, but also for those that have special meaning to the
employees in their community. In 2015, the U.S. team in
Exton, Pa. chose to honor veterans by adding an option to
support the veteran-specific charities No Barriers USA and
The Travis Manion Foundation. Employees also raised funds
to support dozens of additional charities, including Fox Chase
Cancer Center in Philadelphia and the United Way.
West has a long and distinguished history of giving back to
our communities, and it is with great pleasure that we look
forward to celebrating the 45th anniversary of the H.O. West
Foundation in 2017.
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2015 West ANNUAL REPORT WE S T PHARMACEUTICAL SERVICES, INC.
Chairman’s Address
I am pleased to report that our leadership team has successfully
managed the Company through the significant transition that
occurred at West during 2015. In July, after 23 years leading the
Company to significant growth, tremendous shareholder returns
and a leading global position in the core markets we serve, we said
goodbye to our long-time Chairman and CEO, Donald E. Morel, Jr.,
Ph.D., and welcomed our new President and CEO, Eric M. Green.
With a successful CEO transition, West delivered solid performance
and another record year of earnings, of which we are all very proud.
This past summer, we celebrated Don’s significant contributions
to West, the impact he had on our Company and the outstanding
legacy he leaves behind. We are grateful for Don’s leadership, his
stewardship, and for laying such a strong foundation for future
growth. When Eric joined our team, we took the opportunity to
take a fresh look at the Company, our future and the strategy
we will employ to achieve our goals. Eric hit the ground running,
establishing a new and effective strategic planning process. He
mobilized a cross-border and cross-functional team, which spent
three months developing a comprehensive Enterprise Strategic Plan
and five-year business plan, which the Board of Directors believes
will create incremental shareholder value.
The business plan builds upon the strategy our Company has
employed for many years, and positions the Company well to meet
the increasing requirements our global customers are demanding
to enable delivery of cutting edge medical treatments over a broad
set of therapeutic areas. As noted by Eric in this year’s CEO letter,
the Company intends to “become the world leader in the integrated
containment and delivery of injectable medicines” — an ambitious
but highly attainable goal.
Eric has assembled a strong management team that has the right
mix of long-time West executives, newly-promoted leaders from
within the Company and domain experts with successful track
records at other global companies. There is a high level of energy
and enthusiasm that will take the Company to new heights and, as
I look to 2016, I can truly say that this is one of the most exciting
times I can ever remember at West.
Regards,
Patrick J. Zenner
Chairman of the Board
4
Net Sales (reported, $ millions)
Constant Currency
CAGR 6.7%
CAGR
4.8%
$1,399.8
$450
$1,192.3
$400
$350
$300
$450
$400
$350
$300
2011
2012
2013
2014
2015
Adjusted Diluted EPS* (Non-GAAP)
CAGR
11.8%
$1.83
$1.17
2011
2012
2013
2014
2015
Source: Company estimates; *Please refer to
“Financial Summary” at the beginning of the 2015
Annual Report and our March 10, 2016 current
report on Form 8-K for reconciliation of non-GAAP
financial measures.
Comparison of Cumulative
Five-Year Total Return
350%
300%
250%
200%
150%
100%
50%
2010
2011
2012
2013
2014
2015
West Pharmaceutical Services, Inc.
S&P MidCap 400 Index
G16-23570_AnnualReportTXT.indd 4
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2015 West ANNUAL REPORT BOARD OF DIRECTORS
Mark A. Buthman
Retired Executive Vice President &
Chief Financial Officer
Kimberly-Clark Corporation
Director since 2011
Board committees: Audit; Nominating and
Corporate Governance
Myla Lai-Goldman, M.D.
President & Chief Executive Officer
GeneCentric Diagnostics, Inc.
Director since 2014
Board committee:
Innovation and Technology
William F. Feehery, Ph.D.
President
Industrial Biosciences at
E. I. du Pont de Nemours and Company
Director since 2012
Board committee:
Innovation and Technology
Eric M. Green
President & Chief Executive Officer
Director since 2015
Thomas W. Hofmann
Retired Senior Vice President &
Chief Financial Officer
Sunoco, Inc.
Director since 2007
Board committees: Audit; Compensation
Paula A. Johnson, M.D., MPH
Executive Director
Connors Center for Women’s
Health and Gender Biology
Chief, Division of Women’s Health at
Brigham and Women’s Hospital
Director since 2005
Board committees:
Audit; Innovation and Technology
Douglas A. Michels
President & Chief Executive Officer
OraSure Technologies, Inc.
Director since 2011
Board committees: Audit; Compensation
John H. Weiland
President & Chief Operating Officer
C. R. Bard, Inc.
Director since 2007
Board committee: Compensation
Anthony Welters
Executive Chairman
BlackIvy Group LLC
Director since 1997
Board committee: Nominating and
Corporate Governance
Patrick J. Zenner
Retired President & Chief Executive Officer
Hoffmann-La Roche Inc.
Director since 2002
Chairman of the Board
Board committee:
Nominating and Corporate Governance
HONORARY DIRECTOR
Morihiro Sudo
President
Daikyo Seiko, Ltd.
EXECUTIVE OFFICERS
Michael A. Anderson
Vice President & Treasurer
Warwick Bedwell
Vice President & Managing Director
Asia Pacific Region
Annette F. Favorite
Senior Vice President &
Chief Human Resources Officer
William J. Federici
Senior Vice President &
Chief Financial Officer
Karen A. Flynn
Senior Vice President &
Chief Commercial Officer
Eric M. Green
President & Chief Executive Officer
Heino Lennartz
Vice President & General Manager
Global Pharma
Daniel Malone
Vice President and Controller
George L. Miller
Senior Vice President, General Counsel &
Corporate Secretary
John E. Paproski
Senior Vice President &
Chief Technology Officer
Christopher G. Ryan
Vice President & General Manager
Global Generics
BOARD COMMITTEES
INDEPENDENT DIRECTORS
The Board of Directors has designated directors who are independent of management as
“Independent Directors.” The Independent Directors’ duties include annual evaluations of
the Chief Executive Officer, his leadership succession plans and achievement of long-range
strategic initiatives.
Audit Committee
Mark A. Buthman, Chairman
Compensation Committee
John H. Weiland, Chairman
Innovation and Technology Committee
William F. Feehery, Ph.D., Chairman
Nominating and Corporate
Governance Committee
Patrick J. Zenner, Chairman
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2015 West ANNUAL REPORT
2015 West ANNUAL REPORT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8036
WEST PHARMACEUTICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
23-1210010
(I.R.S. Employer Identification Number)
530 Herman O. West Drive, Exton, PA
(Address of principal executive offices)
19341-0645
(Zip Code)
Registrant’s telephone number, including area code: 610-594-2900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.25 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2015 was approximately $4,181,975,535 based on the
closing price as reported on the New York Stock Exchange.
As of January 31, 2016, there were 72,333,516 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Proxy Statement for the Annual Meeting of Shareholders to be held May 3, 2016
Parts Into Which Incorporated
Part III
TABLE OF CONTENTS
BUSINESS
PART I
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES
EXECUTIVE OFFICERS OF THE COMPANY
PROPERTIES
LEGAL PROCEEDINGS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
SELECTED FINANCIAL DATA
ITEM 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
ITEM 8.
ITEM 9.
RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
ITEM 14.
DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EXHIBIT INDEX
2
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F-1
PART I
ITEM 1. BUSINESS
General
West Pharmaceutical Services, Inc. (which may be referred to as West, the Company, we, us or our) is a
manufacturer of components and systems for the packaging and delivery of injectable drugs as well as components
for the pharmaceutical, healthcare and consumer products industries. Our products include stoppers and seals for
vials, prefillable syringe components and systems, components for intravenous and blood collection systems, safety
and administration systems, advanced injection systems, and contract design and manufacturing services. Our
customers include the leading global producers of pharmaceuticals, biologics, medical devices and consumer
products. The Company was incorporated under the laws of the Commonwealth of Pennsylvania on July 27, 1923.
All trademarks and registered trademarks used in this report are the property of West Pharmaceutical Services, Inc.,
either directly or indirectly through its subsidiaries unless noted otherwise. Daikyo Crystal Zenith® (“CZ®”) is a
registered trademark of Daikyo Seiko, Ltd. ("Daikyo").
Throughout this report, references to “Notes” refer to the Notes to Consolidated Financial Statements included in
Part II, Item 8 of this Annual Report on Form 10-K ("Form 10-K"), unless otherwise indicated.
West Website
We maintain a website at www.westpharma.com. Our Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 are available on our website under the Investors - SEC Filings caption as soon as reasonably
practical after we electronically file the material with, or furnish it to, the U.S. Securities and Exchange Commission
(“SEC”). These filings are also available to the public over the Internet at the SEC's website at www.sec.gov. You
may also read and copy any document we file at the SEC's Public Reference Room at 100 F. Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference
Room.
Throughout this Form 10-K, we incorporate by reference certain information from parts of other documents filed
with the SEC and from our Proxy Statement for the 2016 Annual Meeting of Shareholders (“2016 Proxy
Statement”), which will be filed with the SEC within 120 days following the end of our 2015 fiscal year. Our 2016
Proxy Statement will be available on our website on or about March 31, 2016, under the caption Investors - Annual
Report & Proxy.
Information about our corporate governance, including our Corporate Governance Principles and Code of Business
Conduct, as well as information about our Directors, Board Committees, Committee Charters, and instructions on
how to contact the Board is available on our website under the Investors - Corporate Governance caption. We intend
to make any required disclosures regarding any amendments of our Code of Business Conduct or waivers granted to
any of our directors or executive officers under the heading Code of Business Conduct on our website. Information
relating to the West Pharmaceutical Services Dividend Reinvestment Plan is also available on our website under the
Investors - Transfer Agent/Dividend Reinvestment caption.
We will provide any of the foregoing information without charge upon written request to our Corporate Secretary,
West Pharmaceutical Services, Inc., 530 Herman O. West Drive, Exton, PA 19341.
3
Business Segments
In 2015, our business operations consisted of two reportable segments, the Pharmaceutical Packaging Systems
segment ("Packaging Systems") and the Pharmaceutical Delivery Systems segment (“Delivery Systems”).
Beginning in 2016, we are changing our organization and reporting structure for our next phase of growth and
development, which will result in a change to Proprietary Products and Contract-Manufactured Products as
reportable segments. The Proprietary Products reportable segment, which will combine the existing Packaging
Systems segment with the proprietary products portion of the existing Delivery Systems segment, will develop
commercial, operational, and innovation strategies across our global network, with specific emphasis on product
offerings to biologic, generic, and pharmaceutical customers. The Contract-Manufactured Products reportable
segment, which will consist of the contract manufacturing portion of the existing Delivery Systems segment, will
serve as a fully integrated business focused on the design, manufacture, and automated assembly of complex
assemblies for pharmaceutical and medical device customers.
The information and discussion included in this Form 10-K reflects the structure in place as of December 31, 2015.
Packaging Systems Segment
Our Packaging Systems segment includes primary packaging components and systems for injectable drug delivery,
including stoppers and seals for vials, closures and other components used in syringe, intravenous and blood
collection systems, and prefillable syringe components. The growth strategy for Packaging Systems includes organic
growth through market segmentation, new-product innovation, strategic acquisitions and geographic expansion. We
have manufacturing facilities in North and South America, Europe and Asia Pacific, with affiliated companies in
Mexico and Japan. See Item 2, Properties, for additional information on our manufacturing and other sites.
Packaging Systems consists of three operating segments - Americas, Europe and Asia Pacific - which are aggregated
for reporting purposes.
Packaging Systems' products generally consist of elastomeric components offered in a variety of standard and
customer-specific configurations and formulations, which are available with advanced barrier films and coatings to
enhance their performance. West FluroTec® barrier film is applied to reduce the risk of product loss by
contamination and protect the shelf life of packaged drugs. We also apply a fluoropolymer laminate to the surface of
stoppers and plungers to improve compatibility between the closure and the drug. B2-coating is a coating applied to
the surface of stoppers and plungers which eliminates the need for conventional silicone application. It helps
manufacturers reduce product rejections due to trace levels of silicone molecules found in non-coated packaged drug
compounds. FluroTec and B2-coating technologies are licensed from Daikyo.
In addition, our Westar® RS and Westar® RU post-manufacturing processes are documented and fully validated
procedures for washing, siliconizing and sterilizing stoppers and syringe components. The Westar RS process
prepares components for introduction into the customer's sterilizer and the Westar RU process provides sterilized
components. These processes increase the overall efficiency of injectable drug production by outsourcing
component processing, thereby eliminating steps otherwise required in our customers' manufacturing processes, and
help to assure compliance with the latest regulatory requirements for component preparation. We also offer
Envision™ components that are inspected using automated vision inspection systems, ensuring that components
(plungers and stoppers) meet enhanced quality specifications for visible and subvisible particulate contamination. In
2015, we launched Daikyo RUV components, which are manufactured using clean, high-quality elastomer
formulations and then washed, camera-inspected and sterilized to help reduce the customer’s manufacturing
footprint, streamline processes, minimize risks around component preparation and eliminate bioburden.
Our NovaPure® components, which include serum and lyophilization stoppers and syringe plungers, incorporate
quality by design principles and are manufactured utilizing advanced process technologies. The closures provide the
highest levels of quality to the market, helping to ensure the safety, efficacy and purity of injectable drug products.
4
Our tamper-evident Flip-Off® seals are sold in a wide range of sizes and colors to meet customers' needs for product
identification and differentiation. The seals can be provided using proprietary printing for cautionary statements and
embossing technology that can serve as a counterfeiting deterrence. Our newest sterile drug vial seal, the Flip-Off
PlusRU seal, provides drug manufacturers around the world with ready-to-use, high-quality seals that consistently
achieve reproducible and safe container integrity for drug products while minimizing levels of bioburden and
particulates.
As an adjunct to our Packaging Systems products, we offer contract analytical laboratory services for testing and
evaluating primary drug-packaging components and their compatibility with the contained drug formulation. West
Analytical Services provides customers with in-depth knowledge and analysis of the interaction and compatibility of
drug products with elastomer, glass and plastic packaging components. Our analytical laboratories also provide
specialized testing for complete drug delivery systems.
See Note 17, Segment Information, for net sales and asset information for Packaging Systems.
Delivery Systems Segment
Our Delivery Systems segment includes safety and administration systems, multi-component systems for drug
containment and administration and a variety of custom contract-manufacturing solutions targeted to the healthcare
and consumer-products industries. Delivery Systems has expertise in product design and development, including in-
house mold design and construction, an engineering center for developmental and prototype tooling, process design
and validation and high-speed automated assemblies. In addition, Delivery Systems is responsible for the continued
development and commercialization of our line of proprietary healthcare, administrative and advanced injection
systems, including Daikyo CZ®, SmartDose® and other systems. Delivery Systems has manufacturing operations in
North America and Europe. See Item 2, Properties, for additional information on our manufacturing and other sites.
Delivery Systems includes a variety of products and services, which are described below:
The Daikyo CZ 1ml long Insert Needle syringe system is the market's first polymer syringe system without silicone
oil lubrication applied to the barrel or plunger that incorporates an insert-molded needle to avoid the need for
adhesive. The luer lock version of the Daikyo CZ syringe system was introduced previously, along with several sizes
of sterile vials. Additional sizes of vials continue to be introduced. CZ technology is licensed from Daikyo.
The development of our SmartDose electronic wearable injector continues to gain momentum in the marketplace,
with multiple active development programs in place. This system is designed for controlled, subcutaneous delivery
of high volume and high viscosity drugs, using prefillable Daikyo CZ cartridges. The system is fully programmable,
has a single push-button operation and a hidden needle for safety.
The ConfiDose® auto-injector and SelfDoseTM self-injection systems enhance patient compliance and safety. The
needle remains automatically shielded at all times. These systems eliminate preparation steps and simplify the
injection of drugs, providing patients with a sterile, single-use disposable system that can be readily used at home.
Our administration systems include sterile devices for the preparation and administration of drug products, including
patented products such as the MixJect® transfer device, the Mix2Vial® needleless reconstitution system, the
Vial2Bag® system, and a variety of vial adapters.
Examples of our safety systems that are designed to prevent needle sticks are éris™ and NovaGuard® SA for
prefilled syringes and NovaGuard® LP for luer lock syringes.
5
We offer customer contract-manufacturing and assembly solutions, which use such technologies as multi-component
molding, in-mold labeling, ultrasonic welding and clean room molding and device assembly used to manufacture
customer-owned components and devices used in surgical, diagnostic, ophthalmic, other drug delivery systems, and
consumer products.
See Note 17, Segment Information, for net sales and asset information for Delivery Systems.
International
We have significant operations outside of the United States ("U.S."), which are managed through the same business
segments as our U.S. operations – Packaging Systems and Delivery Systems. Sales outside of the U.S. accounted for
52.0% of consolidated net sales in 2015. For a geographic breakdown of sales, see Note 17, Segment Information.
Although the general business processes are similar to the domestic business, international operations are exposed to
additional risks. These risks include currency fluctuations relative to the U.S. Dollar ("USD"), multiple tax
jurisdictions and, particularly in South America and Israel, political and social issues that could destabilize local
markets and affect the demand for our products.
See further discussion of our international operations, the risks associated with our international operations, and our
attempt to minimize some of these risks in Part I, Item 1A, Risk Factors; Part II, Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations under the caption Financial Condition, Liquidity and
Capital Resources; Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk; Note 1 under the
captions Financial Instruments and Foreign Currency Translation; and Note 9, Derivative Financial Instruments.
Raw Materials
We use three basic raw materials in the manufacture of our products: elastomers, aluminum and plastic. Elastomers
include both natural and synthetic materials. We currently have access to adequate supplies of these raw materials to
meet our production needs through agreements with suppliers.
We employ a supply-chain management strategy in our business segments, which involves purchasing from
integrated suppliers that control their own sources of supply. Due to regulatory control over our production
processes, and the cost and time involved in qualifying suppliers, we rely on single-source suppliers for many
critical raw materials. We purchase certain of our raw materials in the open market. This strategy increases the risk
that our supply chain may be interrupted in the event of a supplier production problem. These risks are managed,
where possible, by selecting suppliers with multiple manufacturing sites, rigorous quality control systems, surplus
inventory levels and other methods of maintaining supply in case of an interruption in production.
Intellectual Property
Intellectual property, including patents, trade secrets and know-how, is important to our business. We own or license
intellectual property rights, including issued patents and pending patent applications in the U.S. and in other
countries that relate to various aspects of our products. In particular, key value-added and proprietary products and
processes are licensed from Daikyo. Our intellectual property rights have been useful in establishing our market
share and in the growth of our business, and are expected to continue to be of value in the future.
Seasonality
Although our Packaging Systems business is not inherently seasonal, sales and operating profit in the second half of
the year are typically lower than the first half primarily due to scheduled plant shutdowns in conjunction with our
customers' production schedules and the year-end impact of holidays on production.
Our Delivery Systems business is not inherently seasonal.
6
Working Capital
We are required to carry significant amounts of inventory to meet customer requirements. In addition, some of our
supply agreements require us to purchase inventory in bulk orders, which increases inventory levels but decreases
the risk of supply interruption. Levels of inventory are also influenced by the seasonal patterns addressed above. For
a more detailed discussion of working capital, please see the discussion in Part II, Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations under the caption Financial Condition, Liquidity and
Capital Resources.
Marketing
Our Packaging Systems customers include most of the major branded pharmaceutical, generic and
biopharmaceutical companies in the world. Packaging Systems components and other products are sold to major
pharmaceutical, biotechnology and hospital supply/medical device companies, which incorporate them into their
products for distribution to the ultimate end-user.
Our Delivery Systems segment sells to many of the world's largest pharmaceutical, biopharmaceutical and medical
device companies and to large customers within the consumer and food-and-beverage industries. Delivery Systems
components generally are incorporated into our customers' manufacturing lines for further processing or assembly.
Our products and services are distributed primarily through our own sales force and distribution network, with
limited use of contract sales agents and regional distributors.
Our ten largest customers accounted for 42.0% of our consolidated net sales in 2015, but none of these customers
individually accounted for more than 10% of net sales. See Note 17, Segment Information, for information on sales
by significant product group.
Order Backlog
Order backlog includes firm orders placed by customers for manufacture over a period of time according to their
schedule or upon confirmation by the customer. We also have contractual arrangements with a number of our
customers. Products covered by these contracts are included in our backlog only as orders are received. Order
backlog may be positively or negatively impacted by several factors, including customer ordering patterns and the
necessary lead-time to deliver customer orders. Order backlog is one of many measures we use to understand future
demand, and should not be considered in isolation to predict future sales growth.
At December 31, 2015 and 2014, the order backlog for Packaging Systems was $413.2 million and $339.7 million,
respectively. The increase in backlog primarily reflects changes in customer ordering patterns and extended lead-
times for certain high-value products, partially offset by an unfavorable foreign currency impact. In 2015, we had
orders being placed further in advance by certain customers, some as much as a year, while others focused more on
short-term stock-building. The entire order backlog for Packaging Systems at December 31, 2015 is expected to be
filled during 2016.
The majority of Delivery Systems' manufacturing activity is governed by contractual volume expectations, with
terms between one and three years, subject to periodic revisions based on customer requirements.
Competition
We compete with several companies across our Packaging Systems product lines. Because of the special nature of
our pharmaceutical packaging components and our long-standing participation in the market, competition is based
primarily on product design and performance, although total cost is becoming increasingly important as
pharmaceutical companies continue with aggressive cost-control programs across their operations.
We differentiate ourselves from our competition as an integrated drug packaging and delivery systems global
supplier that can provide pre-sale primary packaging support and engineering development, analytical services,
7
regulatory expertise and after-sale technical support. Customers also appreciate the global scope of West's
manufacturing capability and our ability to produce many products at multiple sites.
Our Delivery Systems business operates in very competitive markets for both healthcare and consumer products.
The competition varies from smaller regional companies to large global molders. Given the extreme cost pressures
they face, many of our customers look off-shore to reduce cost. We differentiate ourselves by leveraging our global
capability and by employing new technologies such as high-speed automated assembly, insert-molding, multi-shot
molding and expertise with multiple-piece closure systems.
There are a small number of competitors supplying medical devices and medical devices components. We compete
for this market on the basis of our reputation for quality and reliability in engineering and project management,
diverse contract manufacturing capabilities and knowledge of and experience in complying with U.S. Food and
Drug Administration ("FDA") requirements. We also have specialized knowledge of container and closure
components, which is integral to developing delivery systems. With our range of proprietary technologies, we
compete with new and established companies in the area of drug delivery devices, including suppliers of prefillable
syringes, auto-injectors, safety needles and other proprietary systems.
Research and Development Activities
We maintain our own research-scale production facilities and laboratories for developing new products, and offer
contract engineering design and development services to assist customers with new product development. Our
quality control, regulatory and laboratory testing capabilities are used to ensure compliance with applicable
manufacturing and regulatory standards for primary and secondary pharmaceutical packaging components. The
engineering departments are responsible for product and tooling design and testing, and for the design and
construction of processing equipment. We continue to seek new innovative opportunities for acquisition, licensing,
partnering or development of products, services and technologies that serve the injectable drug containment and
delivery market. Research and development spending will continue to increase as we pursue innovative strategic
platforms in prefillable syringes, injectable containers, advanced injection and safety and administration systems.
Commercial development of our new products and services for medical and pharmaceutical applications commonly
requires several years. New products that we develop may require separate approval as medical devices, and
products that are intended to be used in the packaging and delivery of pharmaceutical products will be subject to
both customer acceptance of our products and regulatory approval of the customer's products following our
development period.
We spent $14.4 million in 2015, $16.3 million in 2014, and $15.1 million in 2013 on research and development for
Packaging Systems. Delivery Systems incurred research and development costs of $19.7 million, $21.0 million, and
$22.8 million in the years 2015, 2014 and 2013, respectively.
Environmental Regulations
We are subject to various federal, state and local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment. Our compliance with these laws and
regulations has not had a material impact on our financial position, results of operations or cash flows. There were
no material capital expenditures for environmental control facilities in 2015 and there are no material expenditures
planned for such purposes in 2016.
Employees
As of December 31, 2015, we employed approximately 7,100 people in our operations throughout the world.
8
ITEM 1A. RISK FACTORS
The statements in this section describe major risks to our business and should be considered carefully. In addition,
these statements constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995.
Our disclosure and analysis in this Form 10-K contains some forward-looking statements that are based on
management's beliefs and assumptions, current expectations, estimates and forecasts. We also provide forward-
looking statements in other materials we release to the public as well as oral forward-looking statements. Such
statements give our current expectations or forecasts of future events. They do not relate strictly to historical or
current facts. We have attempted, wherever possible, to identify forward-looking statements by using words such as
“estimate,” “expect,” “intend,” “believe,” “plan,” “anticipate” and other words and terms of similar meaning. In
particular, these include statements relating to future actions, business plans and prospects, new products, future
performance or results of current or anticipated products, sales efforts, expenses, interest rates, foreign-exchange
rates, economic effects, the outcome of contingencies, such as legal proceedings, and financial results.
Many of the factors that will determine our future results are beyond our ability to control or predict. Achievement of
future results is subject to known or unknown risks or uncertainties, and therefore, actual results could differ
materially from past results and those expressed or implied in any forward-looking statement. You should bear this
in mind as you consider forward-looking statements.
Unless required by applicable securities law, we undertake no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or otherwise. We also refer you to further
disclosures we make on related subjects in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
to the SEC.
Our operating results may be adversely affected by unfavorable economic and market conditions.
The current uncertainty in the global economy, including the continuing effects of recession or slow economic
growth in the U.S., Europe, and emerging markets in Asia and South America, may negatively affect our operating
results. Examples of the effects of these continuing global economic challenges include: our suppliers' and our
customers' inability to access the credit markets at commercially reasonable rates; reduction in sales due to
customers decreasing their inventories in the near-term or long-term or due to liquidity difficulties; reduction in sales
due to shortages of materials we purchase from our suppliers; reduction in research and development efforts and
expenditures by our customers; our inability to hedge our currency and raw material risks sufficiently or at
commercially reasonable prices; insolvency of suppliers or customers; inflationary pressures on our supplies or our
products; and increased expenses due to growing taxation of corporate profits or revenues. Our operating results in
one or more geographic regions may also be affected by uncertain or changing economic conditions within that
region. If economic and market conditions in the U.S., Europe, or in emerging markets, weaken further, we may
experience material adverse impacts on our business, financial condition and results of operations.
Our sales and profitability are largely dependent on the sale of drug products delivered by injection and the
packaging of drug products. If the products developed by our customers in the future use another delivery
system, our sales and profitability could suffer.
Our business depends to a substantial extent on customers' continued sales and development of products that are
delivered by injection. If our customers fail to continue to sell, develop and deploy injectable products or we are
unable to develop new products that assist in the delivery of drugs by alternative methods, our sales and profitability
may suffer.
9
Changes in foreign currency exchange rates could have a material adverse effect on our business and/or
results of operations.
Our business is subject to foreign currency exchange rate fluctuations. Sales outside of the U.S. accounted for 52.0%
of our consolidated net sales in 2015 and we anticipate that sales from international operations will continue to
represent a significant portion of our total sales in the future. In addition, many of our manufacturing facilities and
suppliers are located outside of the U.S. Further, we intend to continue our expansion into emerging and/or faster-
growing markets outside of the U.S. in the future. Virtually all of our international sales, assets and related operating
costs and expenses are earned, valued or incurred in the currency of the local country, primarily the Euro, the
Singapore Dollar, and the Danish Krone. In addition, we are exposed to Japanese Yen ("Yen"), as we maintain a 25%
ownership interest in, and we purchase finished goods and other materials from, Daikyo. We are also exposed to
currencies in emerging market countries, such as the Chinese Yuan, the Indian Rupee, and various South American
currencies, including the Venezuelan Bolivar and the Brazilian Real. Our consolidated financial statements are
presented in USD, and, therefore, we must translate the reported values of our foreign assets, liabilities, revenues
and expenses into USD, which can result in significant fluctuations in the amount of those assets, liabilities,
revenues or expenses. The exchange rates between these foreign currencies and USD in recent years have fluctuated
significantly and may continue to do so in the future. Increases or decreases in the value of USD compared to these
foreign currencies may negatively affect the value of these items in our consolidated financial statements, which
could have a material adverse effect on our operating results.
In addition to translation risks, we incur currency transaction risk when we or one of our subsidiaries enters into a
purchase or sales transaction in a currency other than that entity's local currency. In order to reduce our exposure to
fluctuations in certain exchange rates, we have entered, and expect to continue to enter, into hedging arrangements,
including the use of financial derivatives. There can be no certainty that we will be able to enter into or maintain
hedges of these currency risks, or that our hedges will be effective, which could have a significant effect on our
financial condition and operating results.
If we are unable to provide comparative value advantages, timely fulfillment of customer orders or resist
pricing pressure, we will have to reduce our prices, which may reduce our profit margins.
We compete with several companies across our major product lines. Because of the special nature of these products,
competition is based primarily on product design and performance, although total cost is becoming increasingly
important as pharmaceutical companies continue with aggressive cost-control programs across their operations.
Competitors often compete on the basis of price. We differentiate ourselves from our competition as a "full-service,
value-added" global supplier that is able to provide pre-sale compatibility studies and other services and
sophisticated post-sale technical support on a global basis. However, we face continued pricing pressure from our
customers and competitors. If we are unable to resist or to offset the effects of continued pricing pressure through
our value-added services, improved operating efficiencies and reduced expenditures, or if we have to reduce our
prices, our sales and profitability may suffer.
Consolidation in the pharmaceutical and healthcare industries could adversely affect our future revenues and
operating income.
The pharmaceutical and medical technology industries have experienced a significant amount of consolidation. As a
result of this consolidation, competition to provide goods and services to customers has increased. In addition, group
purchasing organizations and integrated health delivery networks have served to concentrate purchasing decisions
for some customers, which has placed pricing pressure on suppliers. Further consolidation within the industries we
serve could exert additional pressure on the prices of our products.
10
We are subject to regulation by governments around the world, and if these regulations are not complied
with, existing and future operations may be curtailed, and we could be subject to liability.
The design, development, manufacturing, marketing and labeling of certain of our products and our customers'
products that incorporate our products are subject to regulation by governmental authorities in the U.S., Europe and
other countries, including the FDA and the European Medicines Agency. Complying with governmental regulation
can be costly and can result in required modification or withdrawal of existing products and a substantial delay in
the introduction of new products. Failure to comply with applicable regulatory requirements or failure to obtain
regulatory approval for a new product could result in expenses and actions that could adversely affect our business
and financial performance.
Products incorporating our technologies are subject to regulations and extensive approval or clearance
processes, which make the timing and success of new-product commercialization difficult to predict.
The process of obtaining FDA and other required regulatory approvals is expensive and time-consuming.
Historically, most medical devices incorporating our technologies have been subject to the FDA's 510(k) marketing
approval process, which typically lasts from six to nine months. Supplemental or full pre-market approval reviews
require a significantly longer period, delaying commercialization. Pharmaceutical products incorporating our
technologies are subject to the FDA's New Drug Application process, which typically takes a number of years to
complete. Additionally, biotechnology products incorporating our technologies are subject to the FDA's Biologics
License Application process, which also typically takes a number of years to complete. Outside of the U.S., sales of
medical devices and pharmaceutical or biotechnology products are subject to international regulatory requirements
that vary from country to country. The time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval.
Changes in the regulation of drug products and devices may increase competitive pressure and adversely
affect our business.
An effect of the governmental regulation of our customers' drug products, devices, and manufacturing processes is
that compliance with regulations makes it costly and time-consuming for customers to substitute or replace
components and devices produced by one supplier with those from another. The regulation of our customers'
products that incorporate our components and devices has increased over time. If the applicable regulations were to
be modified in a way that reduced the cost and time involved for customers to substitute one supplier's components
or devices for those made by another, it is likely that the competitive pressure would increase and adversely affect
our sales and profitability.
If we are not successful in protecting our intellectual property rights, we may harm our ability to compete.
Our patents, trademarks and other intellectual property are important to our business. We rely on patent, trademark,
copyright, trade secret, and other intellectual property laws, as well as nondisclosure and confidentiality agreements
and other methods, to protect our proprietary information, technologies and processes. We also have obligations with
respect to the non-use and non-disclosure of third party intellectual property. We may need to engage in litigation or
similar activities to enforce our intellectual property rights, to protect our trade secrets or to determine the validity
and scope of proprietary rights of others. Any such litigation could require us to expend significant resources and
divert the efforts and attention of our management and other personnel from our business operations. We cannot
assure you that the steps we will take to prevent misappropriation, infringement or other violation of our intellectual
property or the intellectual property of others will be successful. In addition, effective patent, copyright, trademark
and trade secret protection may be unavailable or limited for some of our intellectual property in some countries.
Failure to protect our intellectual property could harm our business and results of operations. In addition, if relevant
and effective patent protection is not available or has expired, we may not prevent competitors from independently
developing products and services similar or duplicative to ours.
11
Disruption in our manufacturing facilities could have a material adverse effect on our ability to make and sell
products and have a negative impact on our reputation, performance or financial condition.
We have manufacturing sites throughout the world. In addition, in some instances, the manufacturing of certain
product lines is concentrated in one or more of our plants. The functioning of our manufacturing and distribution
assets and systems could be disrupted for reasons either within or beyond our control, including: extreme weather or
longer-term climatic changes; natural disasters; pandemic; war; accidental damage; disruption to the supply of
material or services; product quality and safety issues; systems failure; workforce actions; or environmental
contamination. There is a risk that incident management systems in place may prove inadequate and that any
disruption may materially adversely affect our ability to make and sell products and, therefore, materially adversely
affect our reputation, performance or financial condition.
The medical technology industry is very competitive and customer demands and/or new products in the
marketplace could cause a reduction in demand.
The medical technology industry is subject to rapid technological changes, and we face significant competition
across our product lines and in each market in which our products are sold. We face this competition from a wide
range of companies. These include large medical device companies, some of which have greater financial and
marketing resources than we do. We also face competition from firms that are more specialized than we are with
respect to particular markets. In some instances, competitors, including pharmaceutical companies, also offer, or are
attempting to develop, alternative therapies for diseases that may be delivered without a medical device. The
development of new or improved products, processes or technologies by other companies (such as needle-free
injection technology) may render some of our products or proposed products obsolete or less competitive. In
addition, failure to meet increased customer quality expectations could cause a reduction in demand.
Our international sales and operations are subject to risks and uncertainties that vary by country and which
could have a material adverse effect on our business and/or results of operations.
We conduct business in most of the major pharmaceutical markets in the world. Our international operations and our
ability to implement our overall business strategy (including our plan to continue expanding into emerging and/or
faster-growing markets outside of the U.S.) are subject to risks and uncertainties that can vary by country, and
include: transportation delays and interruptions; political and economic instability and disruptions; imposition of
duties and tariffs; import and export controls; the risks of divergent business expectations or cultural incompatibility
inherent in establishing and maintaining operations in foreign countries; difficulties in staffing and managing multi-
national operations; labor strikes and/or disputes; and potentially adverse tax consequences. Limitations on our
ability to enforce legal rights and remedies with third parties or our joint venture partners outside of the U.S. could
also create exposure. In addition, we may not be able to operate in compliance with foreign laws and regulations, or
comply with applicable customs, currency exchange control regulations, transfer pricing regulations or any other
laws or regulations to which we may be subject, in the event that these laws or regulations change. Any of these
events could have an adverse effect on our international operations in the future by reducing the demand for our
products, decreasing the prices at which we can sell our products or otherwise have an adverse effect on our
financial condition, results of operations and cash flows.
Disruptions in the supply of key raw materials could adversely impact our operations.
We generally purchase our raw materials and supplies required for the production of our products in the open
market. For reasons of quality assurance, sole source availability or cost effectiveness, many components and raw
materials are available and/or purchased only from a single supplier. Due to the stringent regulations and
requirements of the FDA and other regulatory authorities regarding the manufacture of our products, we may not be
able to quickly establish additional or replacement sources for these components or materials or do so without
excessive cost. As a result, a reduction or interruption in manufacturing, or an inability to secure alternative sources
of raw materials or components, could have a material adverse effect on our business and/or results of operations.
12
Raw material and energy prices have a significant impact on our profitability. If raw material and/or energy
prices increase, and we cannot pass those price increases on to our customers, our profitability and financial
condition may suffer.
We use three basic raw materials in the manufacture of our products: elastomers (which include synthetic and
natural material), aluminum and plastic. In addition, our manufacturing facilities consume a wide variety of energy
products to fuel, heat and cool our operations. Supply and demand factors, which are beyond our control, generally
affect the price of our raw materials and utility costs. If we are unable to pass along increased raw material prices
and energy costs to our customers, our profitability, and thus our financial condition, may be adversely affected. The
prices of many of these raw materials and utilities are cyclical and volatile. For example, the prices of certain
commodities, particularly petroleum-based raw materials, have in the recent past exhibited rapid changes, affecting
the cost of synthetic elastomers and plastic. While we generally attempt to pass along increased costs to our
customers in the form of sales price increases, historically there has been a time delay between raw material and/or
energy price increases and our ability to increase the prices of our products. In some circumstances, we may not be
able to increase the prices of our products due to competitive pressure and other factors.
If we are not timely or successful in new-product innovation or the development and commercialization of
proprietary multi-component systems, our future revenues and operating income could be adversely affected.
Our growth partly depends on new-product innovation and the development and commercialization of proprietary
multi-component systems for injectable drug administration and other healthcare applications (such as the Daikyo
CZ ready-to-use prefilled syringes and the SmartDose systems). Product development and commercialization is
inherently uncertain and is subject to a number of factors outside of our control, including any necessary regulatory
approvals and commercial acceptance for the products. The ultimate timing and successful commercialization of
new products and systems requires substantial evaluations of the functional, operational, clinical and economic
viability of the Company's products. In addition, the timely and adequate availability of filling capacity is essential
to both conducting definitive stability trials and the timing of first commercialization of customers' products in CZ
prefilled syringes. Delays, interruptions or failures in developing and commercializing new-product innovations or
proprietary multi-component systems could adversely affect future revenues and operating income. In addition,
adverse conditions may also result in future charges to recognize impairment in the carrying value of our goodwill
and other intangible assets, which could have a material adverse effect on our financial results.
We may not succeed in finding and completing acquisition or other strategic transactions, if any, which could
have an adverse effect on our business and results of operations.
We have historically engaged in acquisition activity and we may in the future engage in acquisitions or other
strategic transactions, such as joint ventures or investments in other entities. We may be unable to identify suitable
targets, opportunistic or otherwise, for acquisitions or other strategic transactions in the future. If we identify a
suitable candidate, our ability to successfully implement the strategic transaction would depend on a variety of
factors including our ability to obtain financing on acceptable terms, and to comply with the restrictions contained in
our debt agreements. Strategic transactions involve risks, including those associated with integrating the operations
or maintaining the operations as separate (as applicable), financial reporting, disparate technologies and personnel of
acquired companies, joint ventures or related companies; managing geographically dispersed operations or other
strategic investments; the diversion of management's attention from other business concerns; the inherent risks in
entering markets or lines of business in which we have either limited or no direct experience; unknown risks; and the
potential loss of key employees, customers and strategic partners of acquired companies, joint ventures or
companies in which we may make strategic investments. We may not successfully integrate any businesses or
technologies we may acquire or strategically develop in the future and may not achieve anticipated revenue and cost
benefits relating to any such strategic transactions. Strategic transactions may be expensive, time consuming and
may strain our resources. Strategic transactions may not be accretive to our earnings and may negatively impact our
results of operations as a result of, among other things, the incurrence of debt, one-time write-offs of goodwill and
amortization expenses of other intangible assets. In addition, strategic transactions that we may pursue could result
in dilutive issuances of equity securities.
13
Product defects could adversely affect the results of our operations.
The design, manufacture and marketing of medical devices involve certain inherent risks. Manufacturing or design
defects, unanticipated use of our products, or inadequate disclosure of risks relating to the use of our products can
lead to injury or other adverse events. These events could lead to recalls or safety alerts relating to our products
(either voluntary or required by the FDA or similar governmental authorities in other countries), and could result, in
certain cases, in the removal of a product from the market. A recall could result in significant costs, as well as
negative publicity and damage to our reputation that could reduce demand for our products. Personal injuries
relating to the use of our products can also result in product liability claims being brought against us. In some
circumstances, such adverse events could also cause delays in new product approvals.
Our operations must comply with environmental statutes and regulations, and any failure to comply could
result in extensive costs which would harm our business.
The manufacture of some of our products involves the use, transportation, storage and disposal of hazardous or toxic
materials and is subject to various environmental protection and occupational health and safety laws and regulations
in the countries in which we operate. This has exposed us in the past, and could expose us in the future, to risks of
accidental contamination and events of non-compliance with environmental laws. Any such occurrences could result
in regulatory enforcement or personal injury and property damage claims or could lead to a shutdown of some of our
operations, which could have an adverse effect on our business and results of operations. We currently incur costs to
comply with environmental laws and regulations and these costs may become more significant.
A loss of key personnel or highly skilled employees could disrupt our operations.
Our executive officers are critical to the management and direction of our businesses. Our future success depends, in
large part, on our ability to retain these officers and other key employees, including people in technical, marketing,
sales and research positions. Competition for experienced employees, particularly for persons with specialized skills,
can be intense. Our ability to recruit such talent will depend on a number of factors, including compensation and
benefits, work location and work environment. If we cannot effectively recruit and retain qualified executives and
employees, our business could be adversely affected. Although we believe that we will be able to attract and retain
talented personnel and replace key personnel should the need arise, our inability to do so on a timely basis could
disrupt the operations of the unit affected or our overall operations. In addition, because of the complex nature of
many of our products and programs, we are generally dependent on an educated and highly skilled engineering staff
and workforce. Our operations could be disrupted by a shortage of available skilled employees.
The uncertain effects of potential climate change legislation could lead to significantly increased costs.
If legislation or regulations are enacted or promulgated in the U.S., Europe or Asia or any other jurisdictions in
which we do business that limit or reduce allowable greenhouse gas emissions and other emissions, such restrictions
could have a significant effect on our operating and financial decisions, including those involving capital
expenditures to reduce emissions, and our results of operations. Our manufacturing operations may not be able to
operate as planned if we are not able to comply with new legal and regulatory legislation around climate change, or
it may become too costly to operate in a profitable manner. Additionally, suppliers' added expenses could be passed
on to us in the form of higher prices and we may not be able to pass on such expenses to our customers through
price increases.
14
Federal healthcare reform may adversely affect our results of operations.
The Patient Protection and Affordable Care Act (the “PPACA”) was enacted in March 2010. The PPACA reduces
Medicare and Medicaid payments to hospitals, clinical laboratories and pharmaceutical companies, and could
otherwise reduce the volume of medical procedures. These factors, in turn, could result in reduced demand for our
products and increased downward pricing pressure. It is also possible that the PPACA will result in lower
reimbursements for our customers' products. While the PPACA is intended to expand health insurance coverage to
uninsured persons in the U.S., the impact of any overall increase in access to healthcare on sales of West's products
is uncertain at this time. Our sales depend, in part, on the extent to which pharmaceutical companies and healthcare
providers and facilities are reimbursed by government authorities, private insurers and other third-party payers for
the costs of our products. The coverage policies and reimbursement levels of third-party payers, which can vary
among public and private sources, may affect which products customers purchase and the prices they are willing to
pay for these products in a particular jurisdiction. Legislative or administrative reforms to reimbursement systems in
the U.S. (as part of the PPACA) or abroad (for example, those under consideration in France, Germany, Italy and the
United Kingdom) could significantly reduce reimbursement for our customers products, which could in turn reduce
the demand for our products.
Moreover, in the coming years, additional changes could be made to governmental healthcare programs that could
significantly impact the success of our products. We will continue to evaluate the PPACA, as amended, the
implementation of regulations or guidance related to various provisions of the PPACA by federal agencies, as well
as trends and changes that may be encouraged by the legislation and that may potentially impact our business over
time.
No assurance can be given that we will continue to pay or declare dividends.
We have historically paid dividends. However, there can be no assurance that we will pay or declare dividends in the
future. The actual declaration and payment of future dividends, the amount of any such dividends, and the
establishment of record and payment dates, if any, are subject to determination by our Board of Directors each
quarter after its review of our then-current strategy, applicable debt covenants and financial performance and
position, among other things. Our declaration and payment of future dividends is subject to risks and uncertainties,
including: deterioration of our financial performance or position; inability to declare a dividend in compliance with
applicable laws or debt covenants; an increase in our cash needs or decrease in available cash; and the business
judgment of the Board of Directors that a declaration of a dividend is not in the Company's best interests.
Our results of operations and earnings may not meet guidance or expectations.
We provide public guidance on our expected results of operations for future periods. This guidance is comprised of
forward-looking statements subject to risks and uncertainties, including the risks and uncertainties described in this
Form 10-K and in our other public filings and public statements, and is based necessarily on assumptions we make
at the time we provide such guidance. Our guidance may not always be accurate. If, in the future, our results of
operations for a particular period do not meet our guidance or the expectations of investment analysts or if we
reduce our guidance for future periods, the market price of our common stock could decline significantly.
We are exposed to credit risk on accounts receivable and certain prepayments made in the normal course of
business. This risk is heightened during periods when economic conditions worsen.
A substantial majority of our outstanding trade receivables are not covered by collateral or credit insurance. In
addition, we have made prepayments associated with insurance premiums and other advances in the normal course
of business. While we have procedures to monitor and limit exposure to credit risk on trade receivables and other
current assets, there can be no assurance such procedures will effectively limit our credit risk and avoid losses,
which could have a material adverse effect on our financial condition and operating results.
15
Unauthorized access to our or our customers' information and systems could negatively impact our business.
We may face certain security threats, including threats to the confidentiality, availability and integrity of our data
and systems. We maintain an extensive network of technical security controls, policy enforcement mechanisms and
monitoring systems in order to address these threats. While these measures are designed to prevent, detect and
respond to unauthorized activity in our systems, certain types of attacks could result in financial or information
losses and/or reputational harm. If we cannot prevent the unauthorized access, release and/or corruption of our or
our customers' confidential, classified or personally identifiable information, our reputation could be damaged, and/
or we could face financial losses.
If we fail to comply with our obligations under our distributorship or license agreements with Daikyo or we
are unable to renew these agreements on the same or substantially similar terms, we could lose license rights
that are important to our business.
Key value-added and proprietary products and processes are licensed from our affiliate, Daikyo, including but not
limited to Daikyo CZ, FluroTec and B2-coating technologies. Our rights to these products and processes are licensed
pursuant to agreements that expire in 2017, which we expect to renew prior to their expiration. However, if we are
unsuccessful in renewing these agreements, or if the agreements are terminated early because we fail to satisfy our
obligations, our business could be adversely impacted.
ITEM IB. UNRESOLVED STAFF COMMENTS
As of the filing of this Form 10-K, there were no unresolved comments from the Staff of the SEC.
16
ITEM 2. PROPERTIES
Our corporate headquarters are located at 530 Herman O. West Drive, Exton, Pennsylvania. This building also
houses our North American sales and marketing, administrative support and customer service functions, as well as
laboratories.
The following table summarizes production facilities by segment and geographic region. All facilities shown are
owned except where otherwise noted.
Packaging Systems
European Operations
Asia Pacific Operations
China
Qingpu
India
Sri City
Singapore
Jurong
Contract Analytical Laboratory:
North American Operations
United States
Exton, PA
Denmark
Horsens
England
St. Austell
France
Le Nouvion
Germany
Eschweiler (1)
Stolberg
Serbia
Kovin
European Operations
England
Bodmin (2)
Delivery Systems
European Operations
France
Le Vaudreuil (2)
Ireland
Dublin (2)
Manufacturing:
North American Operations
United States
Clearwater, FL
Jersey Shore, PA
Kearney, NE
Kinston, NC
Lititz, PA
St. Petersburg, FL (1)
South American Operations
Brazil
Sao Paulo
Mold-and-Die Tool Shop:
North American Operations
United States
Upper Darby, PA
Manufacturing:
North American Operations
United States
Frankford, IN (2)
Grand Rapids, MI
Phoenix, AZ (2)
Scottsdale, AZ (2)(3)
Tempe, AZ (2)
Williamsport, PA
Puerto Rico
Cayey
(1) This manufacturing facility is also used for research and development activities.
(2) This facility is leased in whole or in part.
(3) This manufacturing facility is also used for mold and die production.
17
Our Delivery Systems segment leases facilities located in Israel, New Jersey and Texas for research and
development, as well as other activities. Sales offices in various locations are leased under short-term arrangements.
In October 2014, we announced plans to expand our global manufacturing operations to include a new facility in
Waterford, Ireland, which will produce packaging components for insulin injector cartridges and other high-value
packaging components. Construction began in July 2015.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are set forth in this table. Executive officers are elected by the Board of
Directors annually at the regular meeting of the Board of Directors following the Annual Meeting of Shareholders.
Name
Michael A. Anderson
Age
60
Warwick Bedwell
56
Annette F. Favorite
William J. Federici
Karen A. Flynn
51
56
53
Position
Vice President and Treasurer since June 2001. He was Finance Director,
Drug Delivery Systems Division from October 1999 to June 2001, Vice
President, Business Development from April 1997 to October 1999 and
Director of Taxes from July 1992 to April 1997.
President, Pharmaceutical Packaging Systems Asia Pacific Region since
January 3, 2011. Previously, he served as Vice President and Commercial
Director-Bone and Rheumatology for Roche Products (UK) Limited, a
biotech company, from October 2008 to August 2010. From January 2007
to October 2008, he served as Vice President and Global Head of
Business Development for Hoffman LaRoche Inc. (U.S.) and from June
2003 to December 2006, he served as President and General Manager of
Roche Inc. in the Philippines. Prior thereto, he held numerous positions in
commercial operations for Roche Products Pty Ltd. in Australia.
Senior Vice President and Chief Human Resources Officer since October
2015. Prior to joining West, she spent more than 25 years at IBM
Corporation, an information technology services company, in a number of
strategic and global human resources roles. Most recently, she served as
Vice President, Global Talent Management.
Senior Vice President and Chief Financial Officer since joining the
Company in August 2003. He was National Industry Director for
Pharmaceuticals of KPMG LLP (accounting firm) from June 2002 until
August 2003 and, prior thereto, an audit partner with Arthur Andersen,
LLP.
President, Pharmaceutical Packaging Systems since October 2014. She
was President, Pharmaceutical Packaging Systems Americas Region from
June 2012 to October 2014 and served as Vice President, Sales from May
2008 to June 2012. From 2000 to 2008, she worked in Sales Management,
most recently as Vice President, Global Accounts, for Catalent (formerly a
business segment of Cardinal Health). Prior thereto, she held various
positions at West, including Quality, Research and Development, and
Sales.
18
Eric M. Green
46
Heino Lennartz
50
Daniel Malone
George L. Miller
John E. Paproski
54
61
59
Christopher G. Ryan
55
Chief Executive Officer since April 2015 and President since December
2015. Prior to joining West, he was Executive Vice President and
President of the Research Markets business unit at Sigma-Aldrich
Corporation, a leading life science and technology company, from 2013 to
2015. From 2009 to 2013, he served as Vice President and Managing
Director, International, where he was responsible for Asia Pacific and
Latin America, and prior thereto, held various commercial and operational
roles.
President, Pharmaceutical Packaging Systems Europe Region since
February 2010 and, prior thereto, President, Europe, Pharmaceutical
Systems since July 2009. He was Vice President Finance, MIS &
Purchasing for Europe & Asia Pacific from December 2006 until July
2009. Mr. Lennartz was Vice President Corporate Finance of AIXTRON
AG, a leading semiconductor equipment company, from 2003 to 2006
and, prior thereto, held various positions, including Director Business
Systems Europe, at GDX Automotive, a rubber and plastic car body
sealing system supplier.
Vice President and Corporate Controller since August 2011. He was Vice
President of Finance, Pharmaceutical Packaging Systems Americas
Region from September 2008 to August 2011 and Director of Financial
and Management Reporting from October 1999 to September 2008.
Senior Vice President, General Counsel and Corporate Secretary since
joining West in November 2015. Previously, he served as Senior Vice
President, General Counsel and Corporate Secretary for Sigma-Aldrich
Corporation from 2009 to 2015. Prior to working at Sigma-Aldrich, he
held senior legal positions with Novartis AG, a global healthcare
company.
President, Pharmaceutical Delivery Systems since December 2009. He
was Vice President of Innovation, from January 2005 to December 2009
and Vice President, Global Product Development from August 1996 to
January 2005. He has held numerous other operations and engineering
positions within the Company, including Vice President of Rubber
Operations from August 1993 to January 2005 and Director of
Manufacturing Engineering from 1991 to 1993.
President, Pharmaceutical Packaging Systems Americas Region since
February 2015. Previously, he served as Global Business Leader and
Strategic Marketer for the Industrial Product Division at W.L. Gore. Prior
to serving in this role, he led a Global Consumer Performance Fabric
Business Unit at the same company. Prior thereto, he held various senior
positions at Cargill, Inc.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under the symbol “WST.” The following table shows
the high and low prices for our common stock as reported by the NYSE, for the periods indicated.
First Quarter
Low
High
48.66
60.30
41.41
51.12
Second Quarter
Low
High
52.73
60.00
40.93
45.73
Third Quarter
Low
High
53.10
61.73
39.11
45.43
Fourth Quarter
Low
High
52.79
64.59
43.49
55.29
Year
High
64.59
55.29
Low
48.66
39.11
2015
2014
As of January 31, 2016, we had 861 shareholders of record, which excludes shareholders whose shares were held by
brokerage firms, depositaries and other institutional firms in “street names” for their customers.
Dividends
Our common stock paid a quarterly dividend of $0.10 per share in each of the first three quarters of 2014; $0.11 per
share in the fourth quarter of 2014 and each of the first three quarters of 2015; and $0.12 per share in the fourth
quarter of 2015.
Issuer Purchases of Equity Securities
The following table shows information with respect to purchases of our common stock made during the three
months ended December 31, 2015 by us or any of our “affiliated purchasers” as defined in Rule 10b-18(a)(3) under
the Exchange Act:
Period
October 1 – 31, 2015
November 1 – 30, 2015
December 1 – 31, 2015
Total
Total number of
shares purchased
(1)
Average
price paid
per share
20
$
220
70
310
$
53.34
61.55
61.41
60.99
Total number of
shares purchased as
part of publicly
announced plans or
Maximum number
of shares that may
yet be purchased
under the plans or
programs
programs
(2)
(2)
—
—
—
—
—
—
—
—
(1) Includes 310 shares purchased on behalf of employees enrolled in the Non-Qualified Deferred
Compensation Plan for Designated Employees (Amended and Restated Effective January 1, 2008).
Under the plan, Company match contributions are delivered to the plan’s investment administrator,
who then purchases shares in the open market and credits the shares to individual plan accounts.
(2) In December 2015, we announced a share repurchase program authorizing the repurchase of up to
700,000 shares of the Company’s 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. The program commenced on January 1, 2016 and is expected to
be completed by December 31, 2016. The Company's previously-authorized share repurchase program
expired on December 31, 2015.
20
Performance Graph
The following performance graph compares the cumulative total return to holders of our common stock with the
cumulative total return of the following Standard & Poor's ("S&P") indices, for the five years ended December 31,
2015: MidCap 400 Index, 400 Health Care Equipment & Supplies Industry, SmallCap 600 Index and 600 Health
Care Equipment & Supplies Industry. Due to the appreciation in the Company's share value, the S&P added the
Company to its midcap indices in 2015, and removed the Company from their smallcap indices, which were shown
in the prior-year Form 10-K.
Cumulative total return to shareholders is measured by dividing total dividends (assuming dividend reinvestment)
plus the per-share price change for the period by the share price at the beginning of the period. The Company's
cumulative shareholder return is based on an investment of $100 on December 31, 2010 and is compared to the
cumulative total return of the S&P indices mentioned above over the period with a like amount invested.
21
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY
West Pharmaceutical Services, Inc. and Subsidiaries
(in millions, except per share data)
SUMMARY OF OPERATIONS
Net sales
Operating profit
Net income
Net income per share:
Basic (1)
Diluted (2)
Weighted average common shares outstanding
Weighted average shares assuming dilution
Dividends declared per common share
YEAR-END FINANCIAL POSITION
Cash and cash equivalents
Working capital †
Total assets †
Total invested capital:
Total debt †
Total equity
Total invested capital †
PERFORMANCE MEASUREMENTS (3)
Gross margin (a)
Operating profitability (b)
Effective tax rate
Return on invested capital (c) †
Net debt-to-total invested capital (d) †
Research and development expenses
Operating cash flow
Stock price range
$
$
$
$
$
$
2015
2014
2013
2012
2011
1,399.8
128.6
95.6
1.33
1.30
72.0
73.8
0.46
274.6
359.4
1,695.1
298.2
1,023.9
1,322.1
$
$
$
$
$
1,421.4
182.0
127.1
1.79
1.75
70.9
72.8
0.41
255.3
406.6
1,669.7
335.5
956.9
1,292.4
$
$
$
$
$
1,368.4
162.4
112.3
1.61
1.57
69.6
71.4
0.39
230.0
413.6
1,670.2
372.1
906.4
1,278.5
32.6%
9.2%
22.6%
7.6%
2.3%
34.1
212.4
$64.59-48.66
31.5%
12.8%
28.0%
10.2%
7.7%
37.3
182.9
31.8%
11.9%
27.4%
9.8%
13.6%
37.9
220.5
$55.29-39.11 $50.60-27.31
$
$
$
$
$
$
$
$
1,266.4
135.1
80.7
1.19
1.15
68.1
71.8
0.37
161.9
295.4
1,562.5
410.0
728.9
1,138.9
$
$
$
$
$
1,192.3
109.6
75.5
1.12
1.08
67.3
74.0
0.35
91.8
228.8
1,398.7
349.0
654.9
1,003.9
30.6%
10.7%
30.2%
8.8%
25.4%
33.2
187.4
28.5%
9.2%
25.3%
8.2%
28.2%
29.1
130.7
$28.01-18.68 $23.98-17.75
$
(1) Based on weighted average common shares outstanding.
(2) Based on weighted average shares, assuming dilution.
(3) Performance measurements represent indicators commonly used in the financial community. The following
performance measures are not in conformity with U.S. generally accepted accounting principles ("U.S. GAAP")
and should not be used as a substitute for the comparable U.S. GAAP financial measures. The non-U.S. GAAP
financial measures are included as management uses them in evaluating our results of operations, and believes
that this information provides users a valuable insight into our overall performance and financial position.
(a) Net sales minus cost of goods and services sold, including applicable depreciation and amortization, divided
by net sales.
(b) Operating profit divided by net sales.
(c) Operating profit multiplied by one minus the effective tax rate divided by average total invested capital.
(d) Net debt (total debt less cash and cash equivalents) divided by total invested capital less cash and cash
equivalents.
22
† Reflects the Company's adoption of the guidance issued by the Financial Accounting Standards Board ("FASB")
in 2015 regarding the classification of debt issuance costs.
Factors affecting the comparability of the information reflected in the selected financial data:
Net income in 2015 included the impact of a pension settlement charge of $32.0 million (net of $18.4 million in
tax), a charge for executive retirement and related costs of $6.9 million (net of $4.0 million in tax) and a discrete
tax charge of $0.8 million.
Net income in 2014 included the impact of a charge for license costs associated with acquired in-process
research of $0.8 million (net of $0.4 million in tax) and discrete tax charges of $1.8 million.
Net income in 2013 included the impact of a loss on extinguishment of debt of $0.2 million and net discrete tax
charges of $3.6 million.
Net income in 2012 included the impact of restructuring and related charges of $1.4 million (net of $0.7 million
in tax), an impairment charge of $2.1 million (net of $1.3 million in tax), an increase in acquisition-related
contingencies of $1.0 million (net of $0.2 million in tax), a loss on extinguishment of debt of $9.8 million (net
of $1.8 million in tax) and discrete tax charges of $2.1 million.
Net income in 2011 included the impact of restructuring and related charges of $3.5 million (net of $1.8 million
in tax), income from the reduction of acquisition-related contingencies of $0.2 million, special separation
benefits related to the retirement of our former President and Chief Operating Officer of $1.8 million (net of
$1.1 million in tax) and net discrete tax charges of $1.4 million.
23
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion is intended to further the reader's understanding of the consolidated financial condition and
results of operations of our Company. It should be read in conjunction with our consolidated financial statements
and the accompanying footnotes included in Part II, Item 8 of this Form 10-K. These historical financial statements
may not be indicative of our future performance. This Management's Discussion and Analysis of Financial
Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our
current expectations and could be affected by the uncertainties and risks discussed in Part I, Item 1A of this Form
10-K.
Throughout this section, references to “Notes” refer to the footnotes included in Part II, Item 8 of this Form 10-K,
unless otherwise indicated.
Non-U.S. GAAP Financial Measures
For the purpose of aiding the comparison of our year-over-year results, we may refer to net sales and other financial
results excluding the effects of changes in foreign currency exchange rates. The constant-currency amounts are
calculated by translating the current year’s functional currency results at the prior-year period’s exchange rate. We
may also refer to consolidated operating profit and consolidated operating profit margin excluding the effects of
unallocated items. The re-measured results excluding effects from currency translation and excluding the effects of
unallocated items are not in conformity with U.S. GAAP and should not be used as a substitute for the comparable
U.S. GAAP financial measures. The non-U.S. GAAP financial measures are incorporated into our discussion and
analysis as management uses them in evaluating our results of operations, and believes that this information
provides users a valuable insight into our results.
Our Operations
We are a manufacturer of components and systems for the packaging and delivery of injectable drugs as well as
components for the pharmaceutical, healthcare and consumer products industries. Our products include stoppers and
seals for vials, prefillable syringe components and systems, components for intravenous and blood collection
systems, safety and administration systems, advanced injection systems, and contract design and manufacturing
services. Our customers include the leading global producers of pharmaceuticals, biologics, medical devices and
consumer products. We were incorporated under the laws of the Commonwealth of Pennsylvania on July 27, 1923.
Our business operations are organized into two reportable segments, Packaging Systems and Delivery Systems.
Packaging Systems develops, manufactures and sells primary packaging components and systems for injectable drug
delivery, including stoppers and seals for vials, closures and other components used in syringe, intravenous and
blood collection systems, and prefillable syringe components. Delivery Systems develops, manufactures and sells
safety and administration systems, multi-component systems for drug administration, and a variety of custom
contract-manufacturing solutions targeted to the healthcare and consumer-products industries. In addition, Delivery
Systems is responsible for the continued development and commercialization of our line of proprietary, multi-
component systems for injectable drug administration and other healthcare applications. We also maintain global
partnerships to share technologies and market products with affiliates in Japan and Mexico.
24
Our 2015 results were affected by the weakening of the Euro and other foreign currencies in relation to USD. As a
result of our global manufacturing and distribution presence, more than half of our revenues are generated outside of
the U.S. in currencies other than USD, including approximately 40% in Europe and 10% collectively in Asia and
South America. Fluctuations in foreign currency exchange rates, therefore, can have a significant effect on our
consolidated financial results. Generally, our financial results are affected positively by a weaker USD and
negatively by a stronger USD, as compared to the foreign currencies in which we conduct our business. In terms of
net sales, the most significant foreign currencies are the Euro, the Singapore Dollar, and the Danish Krone, with
Euro-denominated sales representing the majority of sales transacted in foreign currencies. In addition, we are
exposed to Yen, as we maintain a 25% ownership interest in, and we purchase finished goods and other materials
from, Daikyo. During 2015, average exchange rates were unfavorable versus the exchange rates realized in 2014,
resulting in lower reported net sales, operating profit, net income, and net income per diluted share of $123.9
million, $29.3 million, $21.4 million, and $0.29, respectively, as compared to 2014. The average Euro to USD
exchange rate decreased from $1.33 for 2014 to $1.11 for 2015.
Our 2015 results also include a $50.4 million pension settlement charge, which reduced net income and net income
per diluted share by $32.0 million and $0.43, respectively, as compared to 2014, a $10.9 million charge for executive
retirement and related costs, which lowered net income and net income per diluted share by $6.9 million and $0.09,
respectively, as compared to 2014, and a discrete tax charge of $0.8 million, which reduced net income and net
income per diluted share by $0.8 million and $0.01, respectively, compared to 2014.
Excluding foreign currency effects, the pension settlement charge, the executive retirement charge, and the discrete
tax charge, our net sales and net income per diluted share increased by 7.2% and 21.1%, respectively, for 2015, as
compared to 2014. At December 31, 2015, our cash and cash equivalents balance totaled $274.6 million and our
borrowing capacity under our senior unsecured, multi-currency revolving credit facility agreement (the "New Credit
Agreement") was $269.9 million. The New Credit Agreement expires in October 2020.
2016 Organizational Structure Change and Business Outlook
In 2015, our business operations consisted of two reportable segments, as discussed above. Beginning in 2016, we
are changing our organization and reporting structure for our next phase of growth and development, which will
result in a change to Proprietary Products and Contract-Manufactured Products as reportable segments. See Part I,
Item 1, Business, of this Form 10-K for further discussion regarding the change in our organization and reporting
structure.
We continue to focus on our customers' increasing demand for higher product quality, including the development of
our proprietary packaging and delivery systems product offerings. We will manage our capabilities and asset base to
respond to changing markets and to enable improvements in service and quality. We expect that contract
manufacturing will remain focused on pharmaceutical and medical device customers. We plan to continue funding
capital projects related to new products, expansion activity, advanced quality systems, and investment in emerging
markets. We believe that our strong operating results and financial position give us a platform for sustained growth,
and will enable us to take advantage of opportunities to invest in our business as they arise. See Part I, Item 1A, Risk
Factors, of this Form 10-K for further discussion regarding the risks associated with our operations.
On February 17, 2016, the Venezuelan government announced a devaluation of the Bolivar, from the 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. Please refer to Note 18, Subsequent Events, for
further discussion.
25
RESULTS OF OPERATIONS
We evaluate the performance of our segments based upon, among other things, segment net sales and operating
profit. Segment operating profit excludes general corporate costs, which include executive and director
compensation, stock-based compensation, adjustments to annual incentive plan expense for over- or under-
attainment of targets, certain pension and other retirement benefit costs, and other corporate facilities and
administrative expenses not allocated to the segments. Also excluded are items that management considers not
representative of ongoing operations. Such items are referred to as other unallocated items and generally include
restructuring and related charges, certain asset impairments and other specifically-identified income or expense
items.
Percentages in the following tables and throughout this Results of Operations section may reflect rounding
adjustments.
Net Sales
The following table presents net sales, consolidated and by reportable segment:
($ in millions)
Packaging Systems
Delivery Systems
Intersegment sales elimination
Year Ended December 31,
% Change
2015
2014
2013
2015/2014
2014/2013
$ 1,000.7
$ 1,019.7
$
996.0
400.2
(1.1)
402.5
(0.8)
374.1
(1.7)
$ 1,368.4
(1.9)%
(0.5)%
—
(1.5)%
2.4%
7.6%
—
3.9%
Consolidated net sales
$ 1,399.8
$ 1,421.4
2015 compared to 2014
Consolidated net sales decreased by $21.6 million, or 1.5%, in 2015, including an unfavorable foreign currency
impact of $123.9 million. Excluding foreign currency effects, consolidated net sales increased by $102.3 million, or
7.2%. Consolidated net sales originating in the U.S. in 2015 were $667.4 million, an increase of 5.8% from 2014.
Consolidated net sales generated outside of the U.S. (mainly in Europe) in 2015 were $732.4 million, a decrease of
7.4% from 2014 due to an unfavorable foreign currency impact. Excluding foreign currency effects, consolidated net
sales generated outside of the U.S. in 2015 increased by 8.3%.
Packaging Systems – Packaging Systems' net sales decreased by $19.0 million, or 1.9%, in 2015, including an
unfavorable foreign currency impact of $105.2 million. Excluding foreign currency effects, net sales increased by
$86.2 million, or 8.5%, due to growth in our high-value product offerings, particularly FluroTec-coated components,
Westar components, and the Envision line of vision-inspected components. An improvement in product mix and
higher sales volumes contributed 6.9 percentage points of the increase, and sales price increases contributed the
remainder of the increase. Our high-value product offerings represented 46.0% of Packaging Systems' net sales in
2015, as compared to 43.6% in 2014.
Delivery Systems – Delivery Systems' net sales decreased by $2.3 million, or 0.5%, in 2015, including an
unfavorable foreign currency impact of $18.7 million. Excluding foreign currency effects, net sales increased by
$16.4 million, or 4.1%, due to an increase in contract manufacturing sales, particularly sales of glucose monitoring
devices. Sales volumes contributed the entirety of the increase. Proprietary net sales represented 24.7% of Delivery
Systems' net sales in 2015, as compared to 26.2% in 2014, as net sales for SmartDose were higher in 2014 due to
clinical trials that have since concluded.
26
2014 compared to 2013
Consolidated net sales increased by $53.0 million, or 3.9%, in 2014, despite an unfavorable foreign currency impact
of $5.5 million. Excluding foreign currency effects, consolidated net sales increased by $58.5 million, or 4.3%.
Packaging Systems – Packaging Systems’ net sales increased by $23.7 million, or 2.4%, in 2014, despite an
unfavorable foreign currency impact of $5.7 million. Excluding foreign currency effects, net sales increased by
$29.4 million, or 2.9%. While overall growth in our high-value product offerings continued, customer inventory
management actions due to regulatory issues and formulation changes reduced demand levels for Teflon and
FluroTec-coated components, resulting in a reduction in sales of these products in 2014. Our high-value product
offerings represented 43.2% of Packaging Systems' net sales for 2014, as compared to 42.9% in 2013. Higher sales
volumes and a moderate improvement in product mix contributed 2.1 percentage points of the increase, and sales
price increases contributed 0.8 percentage points of the increase.
Delivery Systems – Delivery Systems’ net sales increased by $28.4 million, or 7.6%, in 2014, including a favorable
foreign currency impact of $0.2 million. Excluding foreign currency effects, net sales increased by $28.2 million, or
7.5%, primarily due to an increase in contract manufacturing sales, proprietary reconstitution product sales, and
customer-funded clinical development sales of our SmartDose component samples. Proprietary net sales represented
26.2% of Delivery Systems' net sales for 2014, as compared to 24.8% in 2013. Sales volume and product mix
improvements contributed 7.1 percentage points of the increase, and sales price increases contributed the remainder
of the increase.
The intersegment sales elimination, which is required for the presentation of consolidated net sales, represents the
elimination of components sold between our segments.
Gross Profit
The following table presents gross profit and related gross margins, consolidated and by reportable segment:
($ in millions)
Packaging Systems:
Gross Profit
Gross Margin
Delivery Systems:
Gross Profit
Gross Margin
Consolidated Gross Profit
Consolidated Gross Margin
Year Ended December 31,
% Change
2015
2014
2013
2015/2014
2014/2013
$
381.7
$
369.0
$
361.4
3.4 %
2.1%
38.1%
36.2%
36.3%
$
$
$
$
74.1
18.5%
455.8
32.6%
$
$
78.8
19.6%
447.8
31.5%
73.3
19.6%
434.7
31.8%
(6.0)%
7.5%
1.8 %
3.0%
2015 compared to 2014
Consolidated gross profit increased by $8.0 million, or 1.8%, in 2015, despite an unfavorable foreign currency
impact of $42.4 million. Consolidated gross margin increased by 1.1 margin points in 2015.
Packaging Systems – Packaging Systems' gross profit increased by $12.7 million, or 3.4%, in 2015, despite an
unfavorable foreign currency impact of $37.1 million. Packaging Systems' gross margin increased by 1.9 margin
points in 2015, as product mix improvements, sales price increases, and production efficiencies were partially offset
by increased labor and overhead costs.
27
Delivery Systems –Delivery Systems' gross profit decreased by $4.7 million, or 6.0%, in 2015, including an
unfavorable foreign currency impact of $5.3 million. Delivery Systems' gross margin decreased by 1.1 margin points
in 2015, as a result of increased overhead and depreciation related to new capabilities supporting both proprietary
and contract manufacturing programs.
2014 compared to 2013
Consolidated gross profit increased by $13.1 million, or 3.0%, in 2014, despite an unfavorable foreign currency
impact of $2.3 million. Consolidated gross margin decreased by 0.3 margin points in 2014.
Packaging Systems – Packaging Systems’ gross profit increased by $7.6 million, or 2.1%, in 2014, despite an
unfavorable foreign currency impact of $2.3 million. Packaging Systems' gross margin decreased by 0.1 margin
points in 2014, as lower raw material costs and moderate sales price and product mix improvements were offset by
increased employee compensation, laboratory and engineering costs.
Delivery Systems – Delivery Systems’ gross profit increased by $5.5 million, or 7.5%, in 2014. Delivery Systems’
gross margin remained constant at 19.6%, as margin improvements from the increased proportion of proprietary
products sold were offset by higher depreciation and overhead costs for these programs, as well as start-up costs on
new contract manufacturing products.
Research and Development (“R&D”) Costs
The following table presents R&D costs, consolidated and by reportable segment:
($ in millions)
Packaging Systems
Delivery Systems
Consolidated R&D costs
Year Ended December 31,
% Change
2015
2014
2013
2015/2014
2014/2013
$
$
14.4
19.7
34.1
$
$
16.3
21.0
37.3
$
$
15.1
22.8
37.9
(11.7)%
(6.2)%
(8.6)%
7.9 %
(7.9)%
(1.6)%
2015 compared to 2014
Consolidated R&D costs decreased by $3.2 million, or 8.6%, in 2015, including the impact of foreign currency,
which decreased R&D costs by $1.0 million.
Packaging Systems – Packaging Systems' R&D costs decreased by $1.9 million, or 11.7%, in 2015, primarily due
to the reallocation of resources to commercial projects in 2015 and the impact of foreign currency, which decreased
R&D costs by $0.8 million.
Delivery Systems – Delivery Systems' R&D costs decreased by $1.3 million, or 6.2%, in 2015, due to the
reassignment of personnel to clinical trial production activities for SmartDose in 2015, the completion of
development work on the SelfDose self-injection system in 2014, and the impact of foreign currency, which
decreased R&D costs by $0.2 million. Efforts remain focused on the further development of SmartDose and CZ
products.
2014 compared to 2013
Consolidated R&D costs decreased by $0.6 million, or 1.6%, in 2014.
Packaging Systems – Packaging Systems' R&D costs increased by $1.2 million, or 7.9%, in 2014, as a result of
continued investment in next-generation packaging components.
Delivery Systems – Delivery Systems' R&D costs decreased by $1.8 million, or 7.9%, in 2014, primarily due to the
reassignment of personnel to clinical trial production activities for SmartDose.
28
Selling, General and Administrative (“SG&A”) Costs
The following table presents SG&A costs, consolidated and by reportable segment and corporate:
($ in millions)
Packaging Systems
Delivery Systems
Corporate
Year Ended December 31,
% Change
2015
2014
2013
2015/2014
2014/2013
$
132.7
$
130.1
$
128.4
42.5
57.8
45.4
53.2
42.6
63.9
2.0 %
(6.4)%
8.6 %
1.9 %
1.3 %
6.6 %
(16.7)%
(2.6)%
Consolidated SG&A costs
SG&A as a % of net sales
$
$
233.0
16.6%
$
228.7
16.1%
234.9
17.2%
2015 compared to 2014
Consolidated SG&A costs increased by $4.3 million, or 1.9%, in 2015, despite the impact of foreign currency, which
decreased SG&A costs by $12.5 million. Consolidated SG&A cost for 2015 and 2014 were 16.6% and 16.1%,
respectively, of consolidated net sales for 2015 and 2014.
Packaging Systems – Packaging Systems' SG&A costs increased by $2.6 million, or 2.0%, in 2015, as increases in
compensation costs related to merit increases, incentive compensation costs, and consulting and sales costs were
partially offset by the impact of foreign currency, which decreased SG&A costs by $11.3 million.
Delivery Systems – Delivery Systems' SG&A costs decreased by $2.9 million, or 6.4%, in 2015, as decreases in
sales costs and the impact of foreign currency, which decreased SG&A costs by $1.2 million, were partially offset by
increases in incentive compensation costs, compensation costs, and depreciation expense.
Corporate – Corporate’s SG&A costs increased by $4.6 million, or 8.6%, in 2015, due to increased incentive
compensation costs and stock-based compensation expense, both of which were partially offset by decreases in U.S.
pension costs and outside services.
2014 compared to 2013
Consolidated SG&A costs decreased by $6.2 million, or 2.6%, in 2014, including the impact of foreign currency,
which decreased SG&A costs by $0.9 million. Consolidated SG&A costs for 2014 and 2013 were 16.1% and 17.2%,
respectively, of consolidated net sales for 2014 and 2013.
Packaging Systems – Packaging Systems' SG&A costs increased by $1.7 million, or 1.3%, in 2014, as a result of
increased compensation costs for wage increases and additional marketing and sales personnel in Asia, partially
offset by a decrease in consulting costs and foreign currency effects.
Delivery Systems – Delivery Systems' SG&A costs increased by $2.8 million, or 6.6%, in 2014, as a result of
incremental business development costs and depreciation and amortization expense.
Corporate – Corporate's SG&A costs decreased by $10.7 million, or 16.7%, in 2014, due to a decrease in U.S.
pension expense mostly resulting from the amortization of actuarial gains and losses and a decrease in incentive
compensation costs.
29
Other Expense (Income)
The following table presents other income and expense items, consolidated and by reportable segment and
unallocated items:
(Income) expense
($ in millions)
Packaging Systems
Delivery Systems
Corporate
Unallocated items
Consolidated other expense (income) $
Year Ended December 31,
2015
2014
2013
$
(1.1) $
(0.1)
—
61.3
60.1
$
(0.4) $
(1.1)
0.1
1.2
(0.2) $
0.9
(1.5)
0.1
—
(0.5)
Other income and expense items, consisting of foreign exchange transaction gains and losses, gains and losses on
the sale of fixed assets, development income, contingent consideration costs, and miscellaneous income and charges,
are generally recorded within segment results.
2015 compared to 2014
Consolidated other expense (income) changed by $60.3 million in 2015.
Packaging Systems – Packaging Systems' other income increased by $0.7 million in 2015, primarily due to an asset
write-off recorded in 2014.
Delivery Systems – Delivery Systems' other income decreased by $1.0 million in 2015, due to gains recorded in
2014, including a gain recorded as a result of the sale of a contract services business, and an increase in foreign
exchange transaction losses.
Corporate – Corporate other expense decreased by $0.1 million to zero in 2015.
Unallocated items – During 2015, we recorded a $50.4 million pension settlement charge, of which $47.0 million
related to our purchase of a group annuity contract from Metropolitan Life Insurance Company ("MetLife") to settle
$139.4 million of our $313.6 million outstanding pension benefit obligations under our U.S. qualified pension plan.
MetLife assumed the obligation to pay future pension benefits and provide administrative services beginning
November 1, 2015 for approximately 1,750 retirees and surviving beneficiaries who retired before January 1, 2015
and are currently receiving payments from this plan. The purchase was funded directly by plan assets. The
remaining portion of the pension settlement charge related to lump-sum payouts made to terminated vested
participants of our U.S. qualified pension plan. In addition, during 2015, we recorded a $10.9 million charge for
executive retirement and related costs, including $2.4 million for a long-term incentive plan award for our previous
Chief Executive Officer ("CEO"), $8.0 million for the revaluation of modified outstanding awards to provide for
continued vesting for our previous CEO and Senior Vice President of Human Resources in conjunction with their
retirement, and $0.5 million for other costs, including relocation and legal fees.
2014 compared to 2013
Consolidated other income decreased by $0.3 million in 2014.
Packaging Systems – Packaging Systems' other (income) expense changed by $1.3 million in 2014, due to foreign
exchange transaction gains, partially offset by an increase in losses on miscellaneous fixed asset disposals.
Delivery Systems – Delivery Systems' other income decreased by $0.4 million in 2014, due to foreign exchange
transaction losses and a decrease in development income, partially offset by an increase in gains on miscellaneous
fixed asset disposals.
30
Corporate – Corporate other expense remained constant at $0.1 million in 2014.
Unallocated items – During 2014, we recorded a $1.2 million charge for license costs associated with acquired in-
process research.
Operating Profit
The following table presents adjusted operating profit (loss), consolidated and by reportable segment, corporate and
unallocated items:
($ in millions)
Packaging Systems
Delivery Systems
Corporate
Adjusted consolidated operating profit
Adjusted consolidated operating profit margin
$
Unallocated items
Consolidated operating profit
Consolidated operating profit margin
Year Ended December 31,
% Change
2015
2014
2013
2015/2014
2014/2013
$
235.7
$
223.0
$
217.0
12.0
(57.8)
189.9
13.6%
(61.3)
$
$
9.4
(64.0)
162.4
11.9%
—
13.5
(53.3)
183.2
12.9%
(1.2)
182.0
12.8%
$
128.6
$
9.2%
$
162.4
(29.3)%
12.1 %
11.9%
5.7 %
(11.1)%
8.4 %
3.7 %
2.8 %
43.6 %
(16.7)%
12.8 %
2015 compared to 2014
Consolidated operating profit decreased by $53.4 million, or 29.3%, in 2015, mostly due to a $50.4 million pension
settlement charge, a $10.9 million charge for executive retirement and related costs, and an unfavorable foreign
currency impact of $29.3 million. Consolidated operating profit margin decreased by 3.6 margin points in 2015.
Packaging Systems – Packaging Systems’ operating profit increased by $12.7 million, or 5.7%, in 2015, despite an
unfavorable foreign currency impact of $25.5 million, due to the factors described above.
Delivery Systems – Delivery Systems’ operating profit decreased by $1.5 million, or 11.1%, in 2015, including an
unfavorable foreign currency impact of $3.8 million, due to the factors described above.
Corporate – Corporate costs increased by $4.5 million, or 8.4%, in 2015, due to the factors described above.
Unallocated items – Please refer to the Other Expense (Income) section for details.
2014 compared to 2013
Consolidated operating profit increased by $19.6 million, or 12.1%, in 2014, despite an unfavorable foreign
currency impact of $1.4 million. Consolidated operating profit margin increased by 0.9 margin points in 2014.
Packaging Systems – Packaging Systems’ operating profit increased by $6.0 million, or 2.8%, in 2014, despite an
unfavorable foreign currency impact of $1.4 million, due to the factors described above.
Delivery Systems – Delivery Systems’ operating profit increased by $4.1 million, or 43.6%, in 2014, due to the
factors described above.
Corporate – Corporate costs decreased by $10.7 million, or 16.7%, in 2014, due to the factors described above.
Unallocated items – Please refer to the Other Expense (Income) section for details.
31
Loss on Debt Extinguishment
During the year ended December 31, 2014, we repurchased the remaining $0.6 million in aggregate principal
amount of our 4.00% Convertible Junior Subordinated Debentures due March 15, 2047 (the "Convertible
Debentures"), resulting in a pre-tax loss on debt extinguishment of less than $0.1 million.
During the year ended December 31, 2013, we repurchased $2.5 million in aggregate principal amount of our
Convertible Debentures, resulting in a pre-tax loss on debt extinguishment of $0.2 million, the majority of which
consisted of the premium over par value.
Interest Expense, Net
The following table presents interest expense, net, by significant component:
($ in millions)
Interest expense
Capitalized interest
Interest income
Interest expense, net
Year Ended December 31,
% Change
2015
2014
2013
2015/2014
2014/2013
$
$
15.6
$
18.1
$
(1.5)
(1.6)
(1.6)
(3.5)
12.5
$
13.0
$
18.6
(1.6)
(1.9)
15.1
(13.8)%
(6.3)%
(54.3)%
(3.8)%
(2.7)%
— %
84.2 %
(13.9)%
2015 compared to 2014
Interest expense, net, decreased by 0.5 million, or 3.8%, in 2015, primarily due to lower interest expense resulting
from less debt outstanding during 2015, partially offset by a decrease in interest income. During 2014, we recorded
$1.6 million in interest income following the settlement of a tax matter in Brazil.
2014 compared to 2013
Interest expense, net, decreased by $2.1 million, or 13.9%, in 2014, primarily due to $1.6 million in interest income
following the settlement of a tax matter in Brazil and lower interest expense resulting from less debt outstanding
during 2014.
Income Taxes
The provision for income taxes was $26.3 million, $47.2 million, and $40.2 million for the years 2015, 2014, and
2013, respectively, resulting in effective tax rates of 22.6%, 28.0%, and 27.4%, respectively.
The decrease in the effective tax rate for 2015 reflects the impact of a tax benefit of $18.4 million in connection with
a $50.4 million pension settlement charge and a tax benefit of $4.0 million in connection with a $10.9 million charge
for executive retirement and related costs, partially offset by the impact of unfavorable changes in our geographic
mix of earnings. In addition, during 2015, we recorded a discrete tax charge of $0.8 million resulting from the
impact of a change in the enacted tax rate in the United Kingdom on our previously-recorded deferred tax asset
balances.
The increase in the effective tax rate for 2014 reflects changes in our geographic mix of earnings and the impact of a
discrete tax charge of $1.0 million resulting from the impact of a change in apportionment factors on state tax rates
applied to items in other comprehensive income and a discrete tax charge of $0.8 million as a result of the
finalization of estimates of foreign tax credits available with respect to a repatriation of cash from our subsidiaries in
Israel.
32
During 2013, we recorded a discrete tax charge of $3.5 million, which related to the finalization of a beneficial
agreement with local tax authorities in Israel that clarified the future tax status of our entities in Israel and settled a
tax audit for the years 2009 through 2011. During 2013, we also recorded a discrete tax charge of $1.3 million
resulting from the impact of the change in the enacted tax rate in the United Kingdom on our previously-recorded
deferred tax asset balances and a discrete tax benefit of $1.3 million related to the Research and Development tax
credit for activities completed in 2012. In accordance with U.S. GAAP, although the American Taxpayer Relief Act
of 2012 (the "Taxpayer Relief Act") reinstated the tax credit on a retroactive basis to January 1, 2012, the credit was
not taken into account for financial reporting purposes until 2013.
As of December 31, 2015, we had $5.9 million of total gross unrecognized tax benefits, all of 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 liability for unrecognized tax benefits may be reduced by approximately $1.0
million during the next twelve months, which would favorably impact our effective tax rate.
Equity in Net Income of Affiliated Companies
Equity in net income of affiliated companies represents the contribution to earnings from our 25% ownership
interest in Daikyo and our 49% ownership interest in four companies in Mexico. Equity in net income of affiliated
companies was $5.8 million, $5.3 million, and $5.4 million for the years 2015, 2014 and 2013, respectively. Equity
in net income of affiliated companies increased by $0.5 million, or 9.4%, in 2015, as favorable operating results in
Mexico were partially offset by unfavorable operating results at Daikyo. Equity in net income of affiliated
companies decreased by $0.1 million, or 1.9%, in 2014, as an unfavorable foreign currency impact on Daikyo's
results was partially offset by favorable operating results in Mexico.
Purchases from, and royalty payments made to, affiliates totaled $65.8 million in 2015, $68.9 million in 2014, and
$74.5 million in 2013, the majority of which related to a distributorship agreement with Daikyo that allows us to
purchase and re-sell Daikyo products. Sales to affiliates were $5.3 million, $5.1 million, and $5.9 million in 2015,
2014, and 2013, respectively.
Net Income
Net income in 2015 was $95.6 million, or $1.30 per diluted share, compared to $127.1 million, or $1.75 per diluted
share, in 2014. Our 2015 results included the impact of a pension settlement charge of $32.0 million (net of $18.4
million in tax), a charge for executive retirement and related costs of $6.9 million (net of $4.0 million in tax) and a
discrete tax charge of $0.8 million.
Net income in 2014 was $127.1 million, or $1.75 per diluted share, compared to $112.3 million, or $1.57 per diluted
share, in 2013. Our 2014 results included the impact of a charge for license costs associated with acquired in-process
research of $0.8 million (net of $0.4 million in tax) and discrete tax charges of $1.8 million.
Net income in 2013 was $112.3 million, or $1.57 per diluted share, compared to $80.7 million, or $1.15 per diluted
share, in 2012. Our 2013 results included the impact of a loss on extinguishment of debt of $0.2 million and net
discrete tax charges of $3.6 million.
33
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following table presents cash flow data for the years ended December 31:
($ in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net Cash Provided by Operating Activities
2015
2014
2013
$
$
$
$
212.4
(129.5) $
(41.5) $
$
182.9
(104.0) $
(30.8) $
220.5
(149.9)
(5.1)
2015 compared to 2014
Net cash provided by operating activities increased by $29.5 million in 2015, due to increased earnings before non-
cash charges and lower working capital requirements.
2014 compared to 2013
Net cash provided by operating activities decreased by $37.6 million in 2014, due to a $27.2 million increase in
pension plan contributions and our receipt of a nonrefundable customer payment of $20.0 million in June 2013 in
return for the exclusive use of SmartDose within a specific therapeutic area.
Net Cash Used in Investing Activities
2015 compared to 2014
Net cash used in investing activities increased by $25.5 million in 2015, due to an increase in capital spending, to
$131.6 million, and sales and maturities of our remaining short-term investments in 2014. The capital spending for
2015 consisted of spending for new products, expansion activity, and emerging markets, including projects in the
U.S., Europe, and Asia.
In October 2014, we announced plans to expand our global manufacturing operations to include a new facility in
Waterford, Ireland, which will produce packaging components for insulin injector cartridges and other high-value
packaging components. Construction began in July 2015.
2014 compared to 2013
Net cash used in investing activities decreased by $45.9 million in 2014, due to a $40.0 million decrease in capital
spending, to $111.9 million, mainly as the construction of our corporate office and research building was completed
in February 2013. The majority of the capital spending for 2014 related to new products, expansion activity, and
emerging markets, including projects in the U.S., Europe, China and India.
Net Cash Used in Financing Activities
2015 compared to 2014
Net cash used in financing activities increased by $10.7 million in 2015, due to an increase in net debt repayments
and dividend payments.
2014 compared to 2013
Net cash used in financing activities increased by $25.7 million in 2014, primarily due to an increase in net
repayments of debt and a $7.4 million decrease in proceeds from the exercise of stock options and stock appreciation
rights.
34
We paid cash dividends totaling $32.4 million ($0.45 per share) and $29.1 million ($0.41 per share) during 2015 and
2014, respectively.
In December 2015, we announced a share repurchase program authorizing the repurchase of up to 700,000 shares of
our common stock from time to time on the open market or in privately-negotiated transactions as permitted under
the Securities Exchange Act of 1934 Rule 10b-18. The number of shares to be repurchased and the timing of such
transactions will depend on a variety of factors, including market conditions. The program commenced on January
1, 2016 and is expected to be completed by December 31, 2016. The Company’s previously-authorized share
repurchase program expired on December 31, 2015.
Liquidity and Capital Resources
The table below presents selected liquidity and capital measures as of:
($ in millions)
Cash and cash equivalents
Working capital
Total debt
Total equity
Net debt-to-total invested capital
December 31,
2015
December 31,
2014
$
$
$
$
274.6
359.4
298.2
1,023.9
2.3%
$
$
$
$
255.3
406.6
335.5
956.9
7.7%
Cash and cash equivalents include all instruments that have maturities of ninety days or less when purchased.
Working capital is defined as current assets less current liabilities. Net debt is defined as total debt less cash and
cash equivalents, and total invested capital is defined as the sum of net debt and total equity. Net debt and total
invested capital are non-U.S. GAAP financial measures that should not be used as a substitute for the comparable
U.S. GAAP financial measures. The non-U.S. GAAP financial measures are incorporated into our discussion and
analysis as management believes that this information provides users a valuable insight into our overall
performance and financial position. Working capital, total debt, and net debt-to-total invested capital amounts and
percentages reflect our adoption of the guidance issued by the FASB in 2015 regarding the classification of debt
issuance costs.
Cash and cash equivalents – Our cash and cash equivalents balance at December 31, 2015 consisted of cash held
in depository accounts with banks around the world and cash invested in high-quality, short-term investments. The
cash and cash equivalents balance at December 31, 2015 included $141.2 million of cash held by subsidiaries within
the U.S., and $133.4 million of cash held by subsidiaries outside of the U.S. Deferred income taxes have not been
provided for any funds held by the subsidiaries outside of the U.S., as such earnings are intended to be reinvested
indefinitely outside of the U.S.
Working capital - Working capital at December 31, 2015 decreased by $47.2 million, or 11.6%, as compared to
December 31, 2014, including a decrease of $22.7 million due to foreign currency translation. Excluding the impact
of currency exchange rates, cash and cash equivalents, accounts receivable and inventories increased by $41.4
million, $14.1 million and $11.4 million, respectively, and total current liabilities increased by $86.4 million.
Accounts receivable and inventory turnover measurements remained consistent between December 31, 2014 and
December 31, 2015. The increase in current liabilities was primarily due to the reclassification of our Series B Notes
from long-term debt to current liabilities between those period ends and an increase in accounts payable, partially
offset by the maturity of our Series B floating rate notes on July 28, 2015.
Debt and credit facilities - The $37.3 million decrease in total debt at December 31, 2015, as compared to
December 31, 2014, resulted from net repayments of $27.4 million and foreign currency rate fluctuations of $10.1
million, partially offset by a reduction of $0.2 million in unamortized debt issuance costs.
35
On October 15, 2015, we entered into the New Credit Agreement that replaced our prior $300.0 million revolving
credit facility, which was scheduled to expire in April 2017. The New Credit Agreement, 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 New Credit Agreement bear interest at either the base rate or at the applicable
London Interbank Offered Rate ("LIBOR") rate, plus a tiered margin based on the ratio of our total debt to modified
earnings before interest, taxes, depreciation and amortization ("EBITDA"), ranging from 0 to 75 basis points for
base rate loans and 100 to 175 basis points for LIBOR rate loans. At December 31, 2015, we had $27.1 million in
outstanding borrowings under the New Credit Agreement, of which $4.2 million was denominated in Yen and $22.9
million was denominated in Euro. The total amount outstanding at December 31, 2015 was classified as long-term.
These borrowings, together with outstanding letters of credit of $3.0 million, resulted in a borrowing capacity
available under the New Credit Agreement of $269.9 million at December 31, 2015. We do not expect any
significant limitations on our ability to access this source of funds.
Pursuant to the financial covenants in our debt agreements, we are required to maintain established interest coverage
ratios and to not exceed established leverage ratios. In addition, the agreements contain other customary covenants,
none of which we consider restrictive to our operations. At December 31, 2015, we were in compliance with all of
our debt covenants, and we expect to continue to be in compliance with the terms of these agreements throughout
2016.
We believe that cash on hand and cash generated from operations, together with availability under our multi-
currency revolving credit facility, will be adequate to address our foreseeable liquidity needs based on our current
expectations of our business operations, capital expenditures and scheduled payments of debt obligations.
Commitments and Contractual Obligations
The following table summarizes our contractual obligations and commitments at December 31, 2015. These
obligations are not expected to have a material impact on liquidity.
($ in millions)
Purchase obligations (1)
Long-term debt
Interest on long-term debt and interest rate swaps (2)
Operating lease obligations
Other long-term liabilities (3)
Total contractual obligations(4)
Payments Due By Period
Total
Less than 1
year
1 - 3
years
3 - 5
years
More than
5 years
$
$
10.7 $
299.2
67.6
58.2
16.4
452.1 $
10.4 $
69.3
9.4
9.6
0.4
99.1 $
0.3 $
34.8
15.8
13.1
2.0
66.0 $
— $
27.1
13.8
7.6
3.6
52.1 $
—
168.0
28.6
27.9
10.4
234.9
(1) Our business creates a need to enter into various commitments with suppliers. In accordance with U.S. GAAP,
these purchase obligations are not reflected in the accompanying consolidated balance sheets. These purchase
commitments do not exceed our projected requirements and are in the normal course of business.
(2) For fixed-rate long-term debt, interest was based on principal amounts and fixed coupon rates at year end.
Future interest payments on variable-rate debt were calculated using principal amounts and the applicable
ending interest rate at year end. Interest on fixed-rate derivative instruments was based on notional amounts and
fixed interest rates contractually obligated at year end.
(3) Represents acquisition-related contingencies. In connection with certain business acquisitions, we agreed to
make payments to the sellers when and if certain operating milestones are achieved, such as sales and operating
income targets.
36
(4) This table does not include obligations pertaining to pension and postretirement benefits because the actual
amount and timing of future contributions may vary significantly depending upon plan asset performance,
benefit payments, and other factors. Contributions to our plans are expected to be $7.2 million in 2016. See
Note 13, Benefit Plans, for estimated benefit payments over the next ten years.
Reserves for uncertain tax positions - The table above does not include $5.9 million of total gross unrecognized tax
benefits as of December 31, 2015. Due to the high degree of uncertainty regarding the timing of potential cash
flows, we cannot reasonably estimate the settlement periods for amounts which may be paid.
Letters of credit - We have letters of credit totaling $3.0 million supporting the reimbursement of workers'
compensation and other claims paid on our behalf by insurance carriers. Our accrual for insurance obligations was
$8.2 million at December 31, 2015, of which $4.1 million is in excess of our deductible and, therefore, is
reimbursable by the insurance company.
OFF-BALANCE SHEET ARRANGEMENTS
At December 31, 2015, we had no off-balance sheet financing arrangements other than operating leases,
unconditional purchase obligations incurred in the ordinary course of business, and outstanding letters of credit
related to various insurance programs.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis addresses consolidated financial statements that are prepared in accordance
with U.S. GAAP. The application of these principles requires management to make estimates and assumptions, some
of which are subjective and complex, that affect the amounts reported in the consolidated financial statements. We
believe the following accounting policies and estimates are critical to understanding and evaluating our results of
operations and financial position:
Revenue Recognition: Revenue is recognized when persuasive evidence of a sales arrangement exists, title and risk
of loss have transferred, the selling price is fixed or determinable, and collectability is reasonably assured.
Generally, sales are recognized upon shipment or upon delivery to our customers' site, based upon shipping terms or
legal requirements. Some customers receive pricing rebates upon attaining established sales volumes. We record
rebate costs when sales occur based on our assessment of the likelihood that the required volumes will be attained.
We also maintain an allowance for product returns, as we believe that we are able to reasonably estimate the amount
of returns based on our substantial historical experience.
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.
Impairment of Goodwill and Other Intangible Assets: Goodwill and indefinite-lived intangible assets are tested
for impairment at least annually, following the completion of our annual budget and long-range planning process, or
whenever circumstances indicate that the carrying value of these assets may not be recoverable. Goodwill is tested
for impairment at the reporting unit level, which is the same as, or one level below, our operating segments. Recent
accounting guidance allows entities to first assess qualitative factors, including macroeconomic conditions, industry
and market considerations, cost factors, and overall financial performance, to determine whether it is necessary to
perform the first step of the two-step quantitative goodwill impairment test. We considered this guidance when
performing our annual impairment testing, but elected to continue utilizing the two-step quantitative impairment
37
test. The first step in the two-step test is to compare the fair value of each reporting unit to its carrying amount,
including goodwill. If the carrying amount exceeds fair value, the second step must be performed. The second step
requires the comparison of the carrying amount of the goodwill to its implied fair value, which is calculated as if the
reporting unit had just been acquired as of the testing date. Any excess of the carrying amount of goodwill over the
implied fair value would represent an impairment loss. Considerable management judgment is necessary to estimate
fair value. Amounts and assumptions used in our goodwill impairment test, such as future sales, future cash flows
and long-term growth rates, are consistent with internal projections and operating plans. Amounts and assumptions
used in our goodwill impairment test are also largely dependent on the continued sale of drug products delivered by
injection and the packaging of drug products, as well as our timeliness and success in new-product innovation or the
development and commercialization of proprietary multi-component systems. Changes in the estimate of fair value,
including the estimate of future cash flows, could have a material impact on our future results of operations and
financial position. No impairment in the carrying value of our reporting units was evident as a result of our annual
review of goodwill. With the exception of our Delivery Systems' Americas and Delivery Systems' Europe reporting
units, each of which had a fair value in excess of its carrying value of approximately 20% and each of which is
largely dependent on the continued and anticipated demand for certain of its contract manufacturing and proprietary
products, each of our reporting units whose assets included goodwill had a fair value in excess of its respective
carrying value of at least 150%. At December 31, 2015, the goodwill associated with the Delivery Systems'
Americas and Europe reporting units equaled $39.7 million, or 38.0% of our total goodwill.
Certain trademarks have been determined to have indefinite lives and, therefore, are not subject to amortization.
Similar to the impairment testing for goodwill, there is an option to first assess qualitative factors as a basis for
determining whether it is necessary to perform a quantitative impairment test. We considered this option when
performing our impairment testing, but elected to continue utilizing a quantitative test, comparing the fair value and
carrying value of the asset. Any excess carrying value would represent an impairment loss. Fair values are
determined using discounted cash flow analyses.
Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives, and
reviewed for impairment whenever circumstances indicate that the carrying value of these assets may not be
recoverable.
Employee Benefits: We maintain funded and unfunded defined benefit pension plans in the U.S. and a number of
other countries that cover employees who meet eligibility requirements. In addition, we sponsor postretirement
benefit plans which provide healthcare benefits for eligible employees who retire or become disabled. The
measurement of annual cost and obligations under these defined benefit postretirement plans is subject to a number
of assumptions, which are specific for each of our U.S. and foreign plans. The assumptions, which are reviewed at
least annually, are relevant to both the plan assets (where applicable) and the obligation for benefits that will
ultimately be provided to our employees. Two of the most critical assumptions in determining pension and retiree
medical plan expense are the discount rate and expected long-term rate of return on plan assets. Other assumptions
reflect demographic factors such as retirement age, rates of compensation increases, mortality and turnover and are
evaluated periodically and updated to reflect our actual experience. 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. Under U.S. GAAP, differences between actual and expected results are
generally accumulated in other comprehensive income (loss) as actuarial gains or losses and subsequently amortized
into earnings over future periods.
Changes in key assumptions could have a material impact on our future results of operations and financial position.
We estimate that every 25 basis point reduction in our long-term rate of return assumption would increase pension
expense by $0.6 million, and every 25 basis point reduction in our discount rate would increase pension expense by
$0.6 million. A decrease in the discount rate increases the present value of benefit obligations. Our net pension
underfunded balance at December 31, 2015 was $57.4 million, compared to $76.2 million at December 31, 2014.
Our underfunded balance for other postretirement benefits was $10.2 million at December 31, 2015, compared to
$10.1 million at December 31, 2014.
38
Income Taxes: We estimate income taxes payable based upon current domestic and international tax legislation. In
addition, deferred income tax assets and liabilities are established to recognize differences between the tax basis and
financial statement carrying values of assets and liabilities. We maintain valuation allowances where it is more likely
than not that all or a portion of a deferred tax asset will not be realized. The recoverability of tax assets is subject to
our estimates of future profitability, generally at the respective subsidiary company and country level. Changes in
tax legislation, business plans and other factors may affect the ultimate recoverability of tax assets or final tax
payments, which could result in adjustments to tax expense in the period such change is determined.
When accounting for uncertainty in income taxes recognized in our financial statements, we apply a more-likely-
than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.
Contingent Consideration
The fair value of the contingent consideration liability related to SmartDose ("SmartDose contingent consideration")
was initially determined using a probability-weighted income approach, and is revalued at each reporting date or
more frequently if circumstances dictate. Changes in the fair value of this obligation are recorded as income or
expense within other expense (income) in our consolidated statements of income. The significant unobservable
inputs used in the fair value measurement of the contingent consideration are the sales projections, the probability of
success factors, and the discount rate. Significant increases or decreases in any of those inputs in isolation would
result in a significantly lower or higher fair value measurement. As development and commercialization of
SmartDose progresses, we may need to update the sales projections, the probability of success factors, and the
discount rate used. This could result in a material increase or decrease to the contingent consideration liability.
See Note 1, Summary of Significant Accounting Policies and Note 2, New Accounting Standards, to our consolidated
financial statements for additional information on accounting and reporting standards considered in the preparation
and presentation of our financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risk factors such as fluctuating interest rates, foreign currency exchange rates and
increasing commodity prices. These risk factors can impact our results of operations, cash flows and financial
position. To manage these risks, we periodically enter into derivative financial instruments such as interest rate
swaps, call options and forward exchange contracts for periods consistent with and for notional amounts equal to or
less than the underlying exposures. In accordance with Company policy, derivative financial instruments are not
used for speculation or trading purposes.
Foreign Currency Exchange Risk
Sales outside of the U.S. accounted for 52.0% of consolidated net sales in 2015. Virtually all of these sales and
related operating costs are denominated in the currency of the local country and translated into USD for consolidated
reporting purposes. Although the majority of the assets and liabilities of these subsidiaries are denominated in the
functional currency of the subsidiary, they may also hold assets or liabilities denominated in other currencies. These
items may give rise to foreign currency transaction gains and losses. As a result, our results of operations and
financial position are exposed to changing currency exchange rates. We periodically use forward contracts to hedge
certain transactions or to neutralize month-end balance sheet exposures on cross-currency intercompany loans.
We have designated our €61.1 million Euro note B and our €21.0 million Euro-denominated borrowings under our
revolving credit facility as a hedge of our net investment in certain European subsidiaries. We also have ¥500.0
million in Yen-denominated borrowings under our revolving credit facility which has been designated as a hedge of
our net investment in Daikyo. At December 31, 2015, a net cumulative foreign currency translation gain on these
hedges of $5.8 million (net of tax of $3.4 million) was recorded within accumulated other comprehensive loss.
39
Interest Rate Risk
As a result of our normal borrowing activities, we have long-term debt with both fixed and variable interest rates.
Long-term debt consists of senior notes, revolving credit facilities and capital lease obligations. Our exposures to
fluctuations in interest rates are managed to the extent considered necessary by entering into interest rate swap
agreements.
The following table summarizes our interest rate risk-sensitive instruments:
($ in millions)
Current Debt and Capital Leases:
U.S. dollar denominated (1)
Average interest rate - variable
U.S. dollar denominated
Average interest rate - variable
Long-Term Debt:
U.S. dollar denominated (1)
Average interest rate - variable
U.S. dollar denominated
Average interest rate - fixed
Euro denominated
Average interest rate - variable
Yen denominated
Average interest rate - variable
2016
2017
2018
2019
2020 Thereafter
$ 2.5
1.7%
66.8
4.4%
32.6
2.2
1.7% 1.7%
Carrying
Value
Fair
Value
$
2.5 $
2.5
66.8
66.8
34.8
34.8
168.0
168.0
163.1
3.9%
22.9
22.9
4.2
4.2
22.9
1.7%
4.2
1.6%
(1) As of December 31, 2015, we have a forward-start interest rate swap outstanding designed to hedge the
variability in cash flows due to changes in the applicable interest rate of our $37.1 million five-year term loan. At
December 31, 2015, this agreement had a fair value of $2.0 million, unfavorable to the Company, which was
recorded as a noncurrent liability. Refer to Note 9, Derivative Financial Instruments, for additional information on
this interest rate hedge.
Commodity Price Risk
Many of our Packaging Systems products are made from synthetic elastomers, which are derived from the petroleum
refining process. We purchase the majority of our elastomers via long-term supply contracts, some of which contain
clauses that provide for surcharges related to fluctuations in crude oil prices. In recent years, increases in raw
material costs have had an adverse impact on us. We expect the volatility in raw material prices to continue. We will
continue to pursue pricing and hedging strategies, and ongoing cost control initiatives to offset the effects on gross
profit.
In November 2014, we purchased a series of call options for a total of 134,700 barrels of crude oil to mitigate our
exposure to such oil-based surcharges and protect operating cash flows with regard to a portion of our forecasted
elastomer purchases through December 2015. As of December 31, 2015, there were no options outstanding.
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
West Pharmaceutical Services, Inc. and Subsidiaries for the years ended December 31, 2015, 2014 and 2013
(In millions, except per share data)
Net sales
Cost of goods and services sold
Gross profit
Research and development
Selling, general and administrative expenses
Other expense (income) (Note 14)
Operating profit
Loss on debt extinguishment
Interest expense
Interest income
Income before income taxes
Income tax expense
Equity in net income of affiliated companies
Net income
Net income per share:
Basic
Diluted
2015
2014
2013
$
1,399.8
$
1,421.4
$
1,368.4
944.0
455.8
34.1
233.0
60.1
128.6
—
14.1
1.6
116.1
26.3
5.8
973.6
447.8
37.3
228.7
(0.2)
182.0
—
16.5
3.5
169.0
47.2
5.3
$
$
$
95.6
$
127.1
$
1.33
1.30
$
$
1.79
1.75
$
$
933.7
434.7
37.9
234.9
(0.5)
162.4
0.2
17.0
1.9
147.1
40.2
5.4
112.3
1.61
1.57
69.6
71.4
Weighted average shares outstanding:
Basic
Diluted
72.0
73.8
70.9
72.8
Dividends declared per share
$
0.46
$
0.41
$
0.39
The accompanying notes are an integral part of the consolidated financial statements.
41
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
West Pharmaceutical Services, Inc. and Subsidiaries for the years ended December 31, 2015, 2014 and 2013
(In millions)
Net income
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments
2015
2014
2013
$
95.6
$
127.1
$
112.3
(70.3)
(71.3)
(0.9)
Defined benefit pension and other postretirement plans:
Prior service credit arising during period, net of tax of $0.3
Net actuarial (loss) gain arising during period, net of tax of $(6.0),
$(10.6) and $20.3
Settlement effects arising during the period, net of tax of $18.7
Less: amortization of actuarial loss, net of tax of $1.6, $1.1 and
$3.6
Less: amortization of prior service credit, net of tax of $(0.5),
$(0.5) and $(0.5)
Less: amortization of transition obligation
Net gains on investment securities, net of tax of $0.4, $0.2 and $2.1
Net gains on derivatives, net of tax of $0.8, 0.9 and $1.8
Other comprehensive (loss) income, net of tax
Comprehensive income
$
0.4
(9.3)
31.7
2.9
(0.8)
0.1
0.7
1.2
(43.4)
52.2
$
—
(18.9)
—
2.0
(0.8)
0.1
0.4
1.7
(86.8)
40.3
$
—
33.7
—
4.9
(0.8)
0.1
3.5
3.0
43.5
155.8
The accompanying notes are an integral part of the consolidated financial statements.
42
CONSOLIDATED BALANCE SHEETS
West Pharmaceutical Services, Inc. and Subsidiaries at December 31, 2015 and 2014
(In millions, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment
Less accumulated depreciation
Property, plant and equipment, net
Investments in affiliated companies
Goodwill
Deferred income taxes
Intangible assets, net
Other noncurrent assets
Total Assets
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and other current debt
Accounts payable
Pension and other postretirement benefits
Accrued salaries, wages and benefits
Income taxes payable
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Pension and other postretirement benefits
Other long-term liabilities
Total Liabilities
Commitments and contingencies (Note 16)
Equity:
Preferred stock, 3.0 million shares authorized; 0 shares issued and 0 shares
outstanding in 2015 and 2014
Common stock, par value $.25 per share; 100.0 million shares authorized;
shares issued: 72.4 million and 71.4 million; shares outstanding: 72.3 million
and 71.3 million
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (0.1 million shares in 2015 and 2014)
Total Equity
Total Liabilities and Equity
2015
2014
$
$
$
274.6
181.4
181.1
—
36.6
673.7
1,440.3
719.3
721.0
61.3
104.6
70.5
37.6
26.4
1,695.1
69.3
119.8
5.6
53.0
12.8
53.8
314.3
228.9
12.4
62.0
53.6
671.2
255.3
179.0
181.5
7.8
35.5
659.1
1,390.8
685.0
705.8
60.6
108.6
66.1
42.0
27.5
1,669.7
27.2
103.1
2.6
52.9
14.9
51.8
252.5
308.3
15.7
83.7
52.6
712.8
—
—
18.1
207.8
964.6
(162.6)
(4.0)
1,023.9
1,695.1
$
17.8
160.2
902.2
(119.2)
(4.1)
956.9
1,669.7
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
43
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B
CONSOLIDATED STATEMENTS OF CASH FLOWS
West Pharmaceutical Services, Inc. and Subsidiaries for the years ended December 31, 2015, 2014 and 2013
(In millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
Amortization
Loss on debt extinguishment
Stock-based compensation
Pension settlement charge
Loss on sales of equipment
Deferred income taxes
Pension and other retirement plans, net
Equity in undistributed earnings of affiliates, net of dividends
Changes in assets/liabilities:
Increase in accounts receivable
Increase in inventories
Increase in other current assets
Increase (decrease) in accounts payable
Changes in other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Acquisition of patents and other long-term assets
Sales and maturities of short-term investments
Purchases of short-term investments
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Borrowings under revolving credit agreements
Repayments under revolving credit agreements
Debt issuance costs
Repayments of long-term debt
Issuance of long-term debt
Dividend payments
Contingent consideration payments
Proceeds from exercise of stock options and stock appreciation rights
Employee stock purchase plan contributions
Excess tax benefit from employee stock plans
Shares repurchased for employee tax withholdings
Net cash used in financing activities
Effect of exchange rates on cash
Net increase in cash and cash equivalents
Cash, including cash equivalents at beginning of period
Cash, including cash equivalents at end of period
Supplemental cash flow information:
Interest paid, net of amounts capitalized
Income taxes paid, net
Accrued capital expenditures
Dividends declared, not paid
2015
2014
2013
$
95.6
$
127.1
$
112.3
86.1
3.8
—
29.6
50.4
0.4
(8.9)
(28.8)
(5.0)
(14.1)
(11.4)
(2.6)
17.2
0.1
212.4
(131.6)
—
—
—
2.1
(129.5)
71.4
(71.4)
(1.0)
(27.4)
—
(32.4)
(0.1)
12.7
3.2
9.1
(5.6)
(41.5)
(22.1)
19.3
255.3
274.6
14.7
33.1
25.0
8.6
$
$
$
$
$
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18.6
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0.3
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(25.0)
(4.5)
(6.3)
(16.2)
(11.7)
(3.5)
7.1
182.9
(111.9)
(0.2)
16.8
(9.3)
0.6
(104.0)
263.4
(283.4)
—
(2.3)
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(29.1)
(0.3)
14.3
2.8
7.9
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(30.8)
(22.8)
25.3
230.0
255.3
16.7
37.4
21.0
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$
$
$
$
$
81.0
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21.2
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(13.9)
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4.6
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220.5
(151.9)
(3.9)
19.1
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1.0
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292.7
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21.7
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2.6
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161.9
230.0
16.9
34.4
17.1
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$
$
$
$
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The accompanying notes are an integral part of the consolidated financial statements.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the accounts of West Pharmaceutical
Services, Inc. and its majority-owned subsidiaries (which may be referred to as “West”, the “Company”, “we”, “us”
or “our”) after the elimination of intercompany transactions. We have no participation or other rights in variable
interest entities.
Use of Estimates: The financial statements are prepared in conformity with U.S. GAAP. These principles require
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingencies in the financial statements. Actual amounts realized may differ from
these estimates.
Cash and Cash Equivalents: Cash equivalents include time deposits, certificates of deposit and all highly liquid
debt instruments with maturities of three months or less at the time of purchase.
Accounts Receivable: Our accounts receivable balance was net of an allowance for doubtful accounts of $0.6
million and $0.9 million at December 31, 2015 and 2014, respectively. We record the allowance based on a specific
identification methodology.
Inventories: Inventories are valued at the lower of cost (on a first-in, first-out basis) or market. The following is a
summary of inventories at December 31:
($ in millions)
Raw materials
Work in process
Finished goods
2015
2014
$
$
74.4 $
30.1
76.6
181.1 $
79.9
25.6
76.0
181.5
Property, Plant and Equipment: Property, plant and equipment assets are carried at cost. Maintenance and minor
repairs and renewals are charged to expense as incurred. Costs incurred for computer software developed or
obtained for internal use are capitalized for application development activities and immediately expensed for
preliminary project activities or post-implementation activities. Upon sale or retirement of depreciable assets, costs
and related accumulated depreciation are eliminated, and gains or losses are recognized in other (income) expense.
Depreciation and amortization are computed principally using the straight-line method over the estimated useful
lives of the assets, or the remaining term of the lease, if shorter.
Impairment of Goodwill and Other Intangible Assets: Goodwill and indefinite-lived intangible assets are tested
for impairment at least annually, following the completion of our annual budget and long-range planning process, or
whenever circumstances indicate that the carrying value of these assets may not be recoverable. Goodwill is tested
for impairment at the reporting unit level, which is the same as, or one level below, our operating segments. Recent
accounting guidance allows entities to first assess qualitative factors, including macroeconomic conditions, industry
and market considerations, cost factors, and overall financial performance, to determine whether it is necessary to
perform the first step of the two-step quantitative goodwill impairment test. We considered this guidance when
performing our annual impairment testing, but elected to continue utilizing the two-step quantitative impairment
test. The first step in the two-step analysis is to compare the fair value of each reporting unit to its carrying amount,
including goodwill. If the carrying amount exceeds fair value, the second step must be performed. The second step
requires the comparison of the carrying amount of the goodwill to its implied fair value, which is calculated as if the
reporting unit had just been acquired as of the testing date. Any excess of the carrying amount of goodwill over the
implied fair value would represent an impairment loss.
46
Certain trademarks have been determined to have indefinite lives and, therefore, are not subject to amortization.
Similar to the impairment testing for goodwill, there is an option to first assess qualitative factors as a basis for
determining whether it is necessary to perform a quantitative impairment test. We considered this option when
performing our impairment testing, but elected to continue utilizing a quantitative test, comparing the fair value and
carrying value of the asset. Any excess carrying value would represent an impairment loss. Fair values are
determined using discounted cash flow analyses.
Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives of 5
to 25 years, and reviewed for impairment whenever circumstances indicate that the carrying value of these assets
may not be recoverable.
Impairment of Long-Lived Assets: Long-lived assets, including property, plant and equipment, are tested for
impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable. An asset
is considered impaired if the carrying value of the asset exceeds the sum of the future expected undiscounted cash
flows to be derived from the asset. Once an asset is considered impaired, an impairment loss is recorded within other
(income) expense for the difference between the asset's carrying value and its fair value. For assets held and used in
the business, management determines fair value using estimated future cash flows to be derived from the asset,
discounted to a net present value using an appropriate discount rate. For assets held for sale or for investment
purposes, management determines fair value by estimating the proceeds to be received upon sale of the asset, less
disposition costs.
Employee Benefits: The measurement of the obligations under our defined benefit pension and postretirement
medical plans are subject to a number of assumptions. These include the rate of return on plan assets (for funded
plans) and the rate at which the future obligations are discounted to present value. U.S. GAAP requires the
recognition of an asset or liability for the funded status of a defined benefit postretirement plan, as measured by the
difference between the fair value of plan assets, if any, and the benefit obligation. For a pension plan, the benefit
obligation is the projected benefit obligation; for any other postretirement plan, such as a retiree health plan, the
benefit obligation is the accumulated postretirement benefit obligation. See Note 13, Benefit Plans, for a more
detailed discussion of our pension and other retirement plans.
Financial Instruments: All derivatives are recognized as either assets or liabilities in the balance sheet and recorded
at their fair value. For a derivative designated as hedging the exposure to variable cash flows of a forecasted
transaction (referred to as a cash flow hedge), the effective portion of the derivative's gain or loss is initially reported
as a component of other comprehensive income, net of tax, and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a derivative designated as hedging the exposure to changes in the fair
value of a recognized asset or liability or a firm commitment (referred to as a fair value hedge), the derivative's gain
or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged
item. For a derivative designated as hedging the foreign currency exposure of a net investment in a foreign
operation, the gain or loss is reported in other comprehensive income, net of tax, as part of the cumulative
translation adjustment. The ineffective portion of any derivative used in a hedging transaction is recognized
immediately into earnings. Derivative financial instruments that are not designated as hedges are also recorded at
fair value, with the change in fair value recognized immediately into earnings. We do not purchase or hold any
derivative financial instrument for investment or trading purposes.
Foreign Currency Translation: Foreign currency transaction gains and losses are recognized in the determination
of net income. Foreign currency translation adjustments of subsidiaries and affiliates operating outside of the U.S.
are accumulated in other comprehensive income, a separate component of equity.
47
Revenue Recognition: Revenue is recognized when persuasive evidence of a sales arrangement exists, title and risk
of loss have transferred, the selling price is fixed or determinable, and collectability is reasonably assured.
Generally, sales are recognized upon shipment or upon delivery to our customers' site, based upon shipping terms or
legal requirements. Some customers receive pricing rebates upon attaining established sales volumes. We record
rebate costs when sales occur based on our assessment of the likelihood that the required volumes will be attained.
We also maintain an allowance for product returns, as we believe that we are able to reasonably estimate the amount
of returns based on our substantial historical experience.
Shipping and Handling Costs: Shipping and handling costs are included in cost of goods and services sold.
Shipping and handling costs billed to customers in connection with the sale are included in net sales.
Research and Development: Research and development expenditures are for the creation, engineering and
application of new or improved products and processes. Expenditures include primarily salaries and outside services
for those directly involved in research and development activities and are expensed as incurred.
Environmental Remediation and Compliance Costs: Environmental remediation costs are accrued when such
costs are probable and reasonable estimates are determinable. Cost estimates include investigation, cleanup and
monitoring activities; such estimates are adjusted, if necessary, based on additional findings. Environmental
compliance costs are expensed as incurred as part of normal operations.
Litigation: From time to time, we are involved in legal proceedings, investigations and claims generally incidental
to our normal business activities. In accordance with U.S. GAAP, we accrue for loss contingencies when it is
probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These estimates
are based on an analysis made by internal and external legal counsel considering information known at the time.
Legal costs in connection with loss contingencies are expensed as incurred.
Income Taxes: Deferred income taxes are recognized by applying enacted statutory tax rates, applicable to future
years, to temporary differences between the tax basis and financial statement carrying values of our assets and
liabilities. Valuation allowances are established when it is more likely than not that all or a portion of a deferred tax
asset will not be realized. No provision is made for the U.S. income taxes on the undistributed earnings of wholly-
owned foreign subsidiaries as such earnings are intended to be permanently reinvested. We recognize interest costs
related to income taxes in interest expense and penalties within other (income) expense. The tax law ordering
approach is used for purposes of determining whether an excess tax benefit has been realized during the year.
Stock-Based Compensation: Under the fair value provisions of U.S. GAAP, stock-based compensation cost is
measured at the grant date based on the value of the award and is recognized as expense over the vesting period. In
order to determine the fair value of stock options on the grant date, the company uses the Black-Scholes valuation
model.
Net Income Per Share: Basic net income per share is computed by dividing net income attributable to common
shareholders by the weighted average number of shares of common stock outstanding during each period. Net
income per share assuming dilution considers the dilutive effect of outstanding stock options and other stock awards
based on the treasury stock method, as well as convertible debt based on the if-converted method. The treasury stock
method assumes the use of exercise proceeds to repurchase common stock at the average fair market value in the
period. The if-converted method assumes conversion of the debt at the beginning of the reporting period (or at time
of issuance, if later). In addition, interest charges applicable to the convertible debt, net of tax, are added back to net
income for the purpose of this calculation.
48
Note 2: New Accounting Standards
Recently Adopted Standards
In November 2015, the FASB issued guidance regarding the balance sheet classification of deferred taxes. This
guidance requires that deferred tax assets and liabilities be classified as noncurrent. The current requirement that
deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount
is not affected by these amendments. This guidance is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2016. Early adoption is permitted and the amendments may be applied either
prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. We adopted this
guidance in the fourth quarter of 2015, on a prospective basis. The adoption did not have a material impact on our
financial statements.
In April 2015, the FASB issued guidance regarding the classification of debt issuance costs. This guidance requires
debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction
from the carrying amount of that debt. Subsequently, in August 2015, the FASB issued additional guidance which
addressed the presentation of debt issuance costs associated with lines of credit, whereby these costs may be
presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether
there are any outstanding borrowings. This guidance is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been
previously issued, and retrospective application is required for each balance sheet presented. We adopted this
guidance in the fourth quarter of 2015. Debt issuance costs previously recorded as an asset, in the amount of $1.0
million and $1.2 million as of December 31, 2015 and 2014, respectively, have been reclassified as a reduction to
long-term debt within our consolidated balance sheets.
In April 2014, the FASB issued guidance for the reporting of discontinued operations, which also contained new
disclosure requirements for both discontinued operations and other disposals that do not meet the definition of a
discontinued operation. We adopted this guidance as of January 1, 2015, on a prospective basis. The adoption did
not have a material impact on our financial statements.
Standards Issued Not Yet Adopted
In September 2015, the FASB issued guidance that simplifies the accounting for measurement-period adjustments in
business combinations, by eliminating the requirement to account for those adjustments retrospectively. Instead, the
acquirer will be required to recognize measurement-period adjustments in the reporting period in which the amounts
are determined. This guidance is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2015. Management believes that the adoption of this guidance will not have a material impact on our
financial statements.
In July 2015, the FASB issued guidance regarding the subsequent measurement of inventory. This guidance requires
inventory measured using any method other than last-in, first-out or the retail inventory method to be measured at
the lower of cost and net realizable value. Net realizable value represents estimated selling prices in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Management
believes that the adoption of this guidance will not have a material impact on our financial statements.
In April 2015, the FASB issued guidance on the accounting for fees paid by a customer in a cloud computing
arrangement. This guidance is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2015. Management is currently evaluating the impact that this guidance will have on our financial
statements, if any.
49
In January 2015, the FASB issued guidance which removes the concept of extraordinary items from U.S. GAAP.
This guidance eliminates the requirement for companies to spend time assessing whether items meet the criteria of
being both unusual and infrequent. This guidance is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2015. Management believes that the adoption of this guidance will not have a material
impact on our financial statements.
In August 2014, the FASB issued guidance which defines management's responsibility to evaluate whether there is
substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.
This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim
periods thereafter. Early adoption is permitted. Management believes that the adoption of this guidance will not have
a material impact on our financial statements.
In June 2014, the FASB issued guidance that clarifies the accounting for share-based payments in which the terms of
the award provide that a performance target that affects vesting could be achieved after the requisite service period.
In this case, the performance target would be required to be treated as a performance condition, and should not be
reflected in estimating the grant-date fair value of the award. The guidance also addresses when to recognize the
related compensation cost. This guidance is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2015. Management believes that the adoption of this guidance will not have a material
impact on our financial statements.
In May 2014, the FASB issued guidance on the accounting for revenue from contracts with customers that will
supersede most existing revenue recognition guidance, including industry-specific guidance. The core principle
requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In
addition, the guidance requires enhanced disclosures regarding the nature, timing and uncertainty of revenue and
cash flows arising from an entity's contracts with customers. This guidance is effective for interim and annual
reporting periods beginning on or after December 15, 2017. Early adoption is permitted as of one year prior to the
current effective date. Entities can choose to apply the guidance using either a full retrospective approach or a
modified retrospective approach. Management is currently evaluating the impact that this guidance will have on our
financial statements, if any, including the transition method which it will adopt.
Note 3: Net Income Per Share
The following table reconciles net income and shares used in the calculation of basic net income per share to those
used for diluted net income per share:
(in millions)
Net income
Weighted average common shares outstanding
Dilutive effect of stock options, stock appreciation rights and performance
share awards, based on the treasury stock method
Assumed conversion of convertible debt, based on the if-converted method
Weighted average shares assuming dilution
2015
2014
2013
$
95.6
72.0
1.8
—
73.8
$
$
127.1
70.9
112.3
69.6
1.9
—
72.8
1.7
0.1
71.4
During 2015 and 2014, there were 0.7 million and 0.5 million shares from stock-based compensation plans not
included in the computation of diluted net income per share because their impact was antidilutive. During 2013, the
number of shares not included in the computation of diluted net income per share was immaterial.
50
In December 2015, we announced a share repurchase program authorizing the repurchase of up to 700,000 shares of
the Company’s 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. The program commenced on January
1, 2016 and is expected to be completed by December 31, 2016. The Company’s previously-authorized share repurchase
program expired on December 31, 2015.
Note 4: Property, Plant and Equipment
A summary of gross property, plant and equipment at December 31 is presented in the following table:
($ in millions)
Land
Buildings and improvements
Machinery and equipment
Molds and dies
Computer hardware and software
Construction in progress
Expected useful
lives (years)
5-50
10-15
4-7
3-10
2015
2014
$
$
17.6 $
412.8
674.8
94.4
118.3
122.4
1,440.3 $
15.1
410.6
654.1
94.8
111.3
104.9
1,390.8
Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $86.1 million, $84.8 million and
$81.0 million, respectively.
Capitalized leases included in 'buildings and improvements' were $2.0 million and $2.2 million at December 31,
2015 and 2014, respectively. Capitalized leases included in 'machinery and equipment' were $1.5 million and $1.7
million at December 31, 2015 and 2014, respectively. Accumulated depreciation on all property, plant and
equipment accounted for as capitalized leases was $2.1 million and $2.2 million at December 31, 2015 and 2014,
respectively. At December 31, 2015, future minimum payments under capital leases were immaterial in 2016.
We capitalize interest on borrowings during the active construction period of major capital projects. Capitalized
interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. Capitalized
interest for the years ended December 31, 2015, 2014 and 2013 was $1.5 million, $1.6 million and $1.6 million,
respectively.
Note 5: Affiliated Companies
At December 31, 2015, the following affiliated companies were accounted for under the equity method:
The West Company Mexico, S.A. de C.V.
Aluplast S.A. de C.V.
Pharma Tap S.A. de C.V.
Pharma Rubber S.A. de C.V.
Daikyo
Location
Mexico
Mexico
Mexico
Mexico
Japan
Ownership interest
49%
49%
49%
49%
25%
Unremitted income of affiliated companies included in consolidated retained earnings amounted to $56.2 million,
$51.2 million and $46.7 million at December 31, 2015, 2014 and 2013, respectively. Dividends received from
affiliated companies were $0.8 million in 2015, $0.8 million in 2014 and $0.6 million in 2013.
51
Our equity in net unrealized gains of Daikyo's investment securities and derivative instruments, as well as pension
adjustments included in accumulated other comprehensive loss was $(5.4) million, $(4.7) million and $(4.3) million
at December 31, 2015, 2014 and 2013, respectively.
Our purchases from, and royalty payments made to, affiliates totaled $65.8 million, $68.9 million and $74.5 million,
respectively, in 2015, 2014 and 2013, of which $10.1 million and $5.9 million was due and payable as of
December 31, 2015 and 2014, respectively. The majority of these transactions related to a distributorship agreement
with Daikyo that allows us to purchase and re-sell Daikyo products. Sales to affiliates were $5.3 million, $5.1
million and $5.9 million, respectively, in 2015, 2014 and 2013, of which $0.5 million and $0.6 million was
receivable as of December 31, 2015 and 2014, respectively.
At December 31, 2015 and 2014, the aggregate carrying amount of investments in equity method affiliates was
$56.3 million and $57.1 million, respectively. In addition, at December 31, 2015 and 2014, we have a cost-basis
investment with a carrying amount of $5.0 million and $3.5 million, respectively.
Note 6: Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by reportable segment were as follows:
($ in millions)
Balance, December 31, 2013
Disposition
Foreign currency translation
Balance, December 31, 2014
Foreign currency translation
Balance, December 31, 2015
Packaging
Systems
Delivery
Systems
Total
$
$
38.0 $
—
(3.9)
34.1
(3.1)
31.0 $
76.2 $
(0.5)
(1.2)
74.5
(0.9)
73.6 $
114.2
(0.5)
(5.1)
108.6
(4.0)
104.6
As of December 31, 2015, we had no accumulated goodwill impairment losses.
Intangible assets and accumulated amortization as of December 31 were as follows:
($ in millions)
Patents and licensing
Technology
Trademarks
Customer relationships
Customer contracts
2015
Accumulated
Amortization
Cost
Net
Cost
2014
Accumulated
Amortization
$
$
19.7 $
3.4
12.0
29.5
10.8
75.4 $
(12.8) $
(0.6)
(1.4)
(17.7)
(5.3)
(37.8) $
6.9 $
2.8
10.6
11.8
5.5
37.6 $
20.1 $
3.4
12.1
29.5
11.2
76.3 $
(11.5) $
(0.4)
(1.3)
(16.3)
(4.8)
(34.3) $
Net
8.6
3.0
10.8
13.2
6.4
42.0
The cost basis of intangible assets includes a foreign currency translation loss of $0.9 million and $1.2 million for
the twelve months ended December 31, 2015 and 2014, respectively. Amortization expense for the years ended
December 31, 2015, 2014 and 2013 was $3.5 million, $4.9 million and $3.9 million, respectively. Estimated annual
amortization expense for the next five years is as follows: 2016 - $2.9 million, 2017 - $2.7 million, 2018 - $2.5
million, 2019 - $2.5 million and 2020 - $2.4 million. Trademarks with a carrying amount of $10.0 million were
determined to have indefinite lives and, therefore, do not require amortization.
52
Note 7: Other Current Liabilities
Other current liabilities as of December 31 included the following:
($ in millions)
Deferred income
Other accrued expenses
Dividends payable
Other
Total other current liabilities
2015
2014
$
$
14.4 $
23.1
8.6
7.7
53.8 $
13.3
22.4
7.8
8.3
51.8
Other consisted primarily of value-added taxes payable and accrued taxes other than income.
Note 8: Debt
The following table summarizes our long-term debt obligations, net of unamortized debt issuance costs, at December
31. The interest rates shown in parentheses are as of December 31, 2015.
($ in millions)
Series B floating rate notes, due July 28, 2015
Euro note B, due February 27, 2016 (4.38%)
Capital leases, due through 2016 (6%)
Revolving credit facility, due April 26, 2017
Term loan, due January 1, 2018 (1.74%)
Note payable, due December 31, 2019
Revolving credit facility, due October 15, 2020 (1.71%)
Series A notes, due July 5, 2022 (3.67%)
Series B notes, due July 5, 2024 (3.82%)
Series C notes, due July 5, 2027 (4.02%)
Total debt
Less: current portion of long-term debt
Long-term debt
Euro-denominated Note
2015
2014
$
— $
66.8
—
—
37.0
0.2
27.1
41.8
52.7
72.6
298.2
69.3
228.9
$
$
25.0
74.3
0.2
29.7
39.0
0.3
—
41.8
52.7
72.5
335.5
27.2
308.3
Our Euro note B of €61.1 million ($66.8 million at December 31, 2015) has a term of 10 years due February 27,
2016 at a fixed annual interest rate of 4.38%. This Euro-denominated note, in conjunction with the Euro-
denominated revolver borrowings mentioned below, is accounted for as a hedge of our net investment in our
European subsidiaries.
53
Revolving Credit Facility
In October 2015, we entered into the New Credit Agreement that replaced our prior revolving credit facility, which
was scheduled to expire in April 2017. The New Credit Agreement, 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 revolving 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 EBITDA, ranging from 0 to 75 basis points
for base rate loans and 100 to 175 basis points for LIBOR rate loans. Consistent with our previous revolving credit
facility, the New Credit Agreement contains representations and covenants that require compliance with, among
other restrictions, a maximum leverage ratio and a minimum interest coverage ratio. The New Credit Agreement also
contains usual and customary default provisions, and limitations on liens securing indebtedness, asset sales,
distributions and acquisitions. As of December 31, 2015, total unamortized debt issuance costs of $1.6 million, a
portion of which relates to our prior credit facility, were recorded in other noncurrent assets and are being amortized
as additional interest expense over the term of the new credit facility.
At December 31, 2015, we had $27.1 million in outstanding long-term borrowings under this new facility, of which
$4.2 million was denominated in Yen and $22.9 million in Euro. These borrowings, together with outstanding letters
of credit of $3.0 million, resulted in a borrowing capacity available under this facility of $269.9 million at
December 31, 2015.
Term Loan
In 2013, we entered into a $42.8 million five-year term loan due January 2018 related to our corporate office and
research building. Borrowings under the loan bear interest at a variable rate equal to LIBOR plus a margin of 1.50
percentage points. Please refer to Note 9, Derivative Financial Instruments, for a discussion of the interest-rate swap
agreement associated with this loan. At December 31, 2015, $37.1 million was outstanding under this loan, of which
$2.4 million was classified as current. As of December 31, 2015 and 2014, there were unamortized debt issuance
costs remaining of $0.1 million and $0.2 million, respectively, which are being amortized as additional interest
expense over the term of the loan.
Private Placement
In 2012, we concluded a private placement issuance of $168.0 million in senior unsecured notes. The total amount
of the private placement issuance was divided into three tranches - $42.0 million 3.67% Series A Notes due July 5,
2022, $53.0 million 3.82% Series B Notes due July 5, 2024, and $73.0 million 4.02% Series C Notes due July 5,
2027 (the “Notes”). The Notes rank pari passu with our other senior unsecured debt. The weighted average of the
coupon interest rates on the Notes is 3.87%. Related interest-rate hedging and transaction costs incurred increased
the annual effective rate of interest on the Notes to an estimated 4.16%. Refer to Note 9, Derivative Financial
Instruments, for additional discussion of the related interest rate hedge. As of December 31, 2015 and 2014, there
were unamortized debt issuance costs remaining of $0.9 million and $1.0 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, 2015, 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
2016.
54
Interest costs incurred during 2015, 2014 and 2013 were $15.6 million, $18.1 million and $18.6 million,
respectively. The aggregate annual maturities of long-term debt were as follows: 2016 - $69.3 million, 2017 - $2.2
million, 2018 - $32.6 million, 2019 - immaterial, 2020 - $27.1 million, and thereafter - $168.0 million.
Note 9: Derivative Financial Instruments
Our ongoing business operations expose us to various risks such as fluctuating interest rates, foreign exchange rates
and increasing commodity prices. To manage these market risks, we periodically enter into derivative financial
instruments such as interest rate swaps, options and foreign exchange contracts for periods consistent with and for
notional amounts equal to or less than the related underlying exposures. We do not purchase or hold any derivative
financial instruments for speculation or trading purposes. All derivatives are recorded on the balance sheet at fair
value.
Interest Rate Risk
At December 31, 2015, we had a $37.1 million forward-start interest rate swap outstanding that hedges the
variability in cash flows due to changes in the applicable interest rate of our variable-rate five-year term loan related
to the purchase of our corporate office and research building. Under this swap, we receive variable interest rate
payments based on one-month LIBOR plus a margin in return for making monthly fixed interest payments at 5.41%.
We designated this swap as a cash flow hedge.
During 2012, we entered into two forward treasury lock agreements for a total notional amount of $160.0 million, to
protect against changes in the benchmark 10-year Treasury rate during the 30-60 day period leading up to the
issuance date of our private placement debt. We designated these treasury locks as cash flow hedges. In June 2012,
the pricing for our private placement debt (refer to Note 8, Debt) was finalized and accordingly, we terminated both
treasury lock agreements, resulting in a $4.6 million settlement payment made by us. This amount, which was
reflected in accumulated other comprehensive loss, will be expensed over the life of the private placement debt.
Foreign Exchange Rate Risk
In the fourth quarter of 2015, we entered into a forward exchange contract, designated as a fair value hedge, to
neutralize our exposure to fluctuating foreign exchange rates on a cross-currency intercompany loan. Changes in the
fair value of this derivative are recognized within other expense (income) and are offset by changes in the fair value
of the underlying exposure being hedged. The amount of loss recognized during the fourth quarter of 2015 was $0.2
million.
In addition, during 2015, we entered into several foreign currency hedge contracts that were designated as cash flow
hedges of forecasted transactions denominated in foreign currencies, which are described in more detail below.
We entered into a series of foreign currency contracts intended to hedge the currency risk associated with a portion
of our forecasted USD-denominated inventory purchases made by certain European subsidiaries, for a total notional
amount of €22.1 million ($24.1 million).
We also entered into a series of foreign currency contracts to hedge the currency risk associated with a portion of our
forecasted Euro-denominated sales of finished goods by one of our USD functional-currency subsidiaries for a total
notional amount of €18.0 million ($19.7 million).
55
At December 31, 2015, a portion of our debt consisted of borrowings denominated in currencies other than USD.
We have designated our €61.1 million ($66.8 million) Euro note B and our €21.0 million ($22.9 million) Euro-
denominated borrowings under our multi-currency revolving credit facility as a hedge of our net investment in
certain European subsidiaries. A cumulative foreign currency translation gain of $9.2 million pre-tax ($5.8 million
after tax) on this debt was recorded within accumulated other comprehensive loss as of December 31, 2015. We
have also designated our ¥500.0 million ($4.2 million) Yen-denominated borrowings under our multi-currency
revolving credit facility as a hedge of our net investment in Daikyo. At December 31, 2015, there was a cumulative
foreign currency translation gain on this Yen-denominated debt of less than $0.1 million, which was also included
within accumulated other comprehensive loss.
Commodity Price Risk
Many of our Packaging Systems products are made from synthetic elastomers, which are derived from the petroleum
refining process. We purchase the majority of our elastomers via long-term supply contracts, some of which contain
clauses that provide for surcharges related to fluctuations in crude oil prices. The following economic hedges did not
qualify for hedge accounting treatment since they did not meet the highly effective requirement at inception.
In November 2014, we purchased a series of call options for a total of 134,700 barrels of crude oil to mitigate our
exposure to such oil-based surcharges and protect operating cash flows with regard to a portion of our forecasted
elastomer purchases through December 2015. With these contracts we may benefit from a decline in crude oil prices,
as there is no downward exposure other than the $0.1 million premium that we paid to purchase the contracts.
During the year ended December 31, 2014, a loss of $0.1 million was recorded in cost of goods and services sold
related to these call options. During 2015, the loss recorded related to these options was less than $0.1 million.
Effects of Derivative Instruments on Financial Position and Results of Operations
Refer to Note 10, Fair Value Measurements, for the balance sheet location and fair values of our derivative
instruments as of December 31, 2015 and 2014.
The following table summarizes the effects of derivative instruments designated as hedges on other comprehensive
income (“OCI”) and earnings, net of tax, for the year ended December 31:
Amount of Gain
(Loss)
Recognized in
OCI
Amount of (Gain)
Loss Reclassified
from Accumulated
OCI into Income
2015
2014
2015
2014
Location of (Gain) Loss
Reclassified from
Accumulated OCI into
Income
($ in millions)
Cash Flow Hedges:
Foreign currency hedge contracts
$
Foreign currency hedge contracts
Interest rate swap contracts
Forward treasury locks
Total
Net Investment Hedges:
$
Foreign currency-denominated debt $
Total
$
1.6
—
(0.3)
—
1.3
6.2
6.2
$
$
$
$
$
0.3
—
(0.4)
—
(0.1) $
(1.6) $
—
1.3
0.2
(0.1) $
(0.2) Net sales
0.2 Cost of goods and services sold
Interest expense
Interest expense
1.6
0.2
1.8
8.5
8.5
$ — $
— Foreign exchange and other
$ — $
—
During 2015 and 2014, there was no material ineffectiveness related to our hedges.
56
Note 10: Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. The following fair value hierarchy classifies the inputs to valuation techniques
used to measure fair value into one of three levels:
• Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted
prices for identical or similar assets or liabilities in markets that are not active.
• Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
The following tables present the assets and liabilities recorded at fair value on a recurring basis:
($ in millions)
Assets:
Deferred compensation assets
Foreign currency contracts
Liabilities:
Contingent consideration
Deferred compensation liabilities
Interest rate swap contract
Foreign currency contracts
($ in millions)
Assets:
Deferred compensation assets
Foreign currency contracts
Liabilities:
Contingent consideration
Deferred compensation liabilities
Interest rate swap contracts
Balance at
December 31,
2015
Basis of Fair Value Measurements
Level 1
Level 2
Level 3
$
$
$
$
$
$
$
6.8
0.2
7.0
6.0
8.8
2.0
0.2
6.8
—
6.8
$
$
— $
0.2
0.2
$
— $
— $
8.8
—
—
—
2.0
0.2
2.2
$
17.0
$
8.8
$
Balance at
December 31,
2014
Basis of Fair Value Measurements
Level 1
Level 2
Level 3
$
$
$
$
$
$
$
6.6
0.2
6.8
5.0
8.7
3.6
17.3
$
6.6
—
6.6
$
$
— $
0.2
0.2
$
— $
— $
8.7
—
8.7
$
—
3.6
3.6
$
57
—
—
—
6.0
—
—
—
6.0
—
—
—
5.0
—
—
5.0
Deferred compensation assets are included within other noncurrent assets and are valued using a market approach
based on quoted market prices in an active market. The fair value of our foreign currency contracts, included within
other current assets and other current liabilities, is valued using an income approach based on quoted forward
foreign exchange rates and spot rates at the reporting date. The fair value of our contingent consideration, included
within other current and long-term liabilities, is discussed further in the section related to Level 3 fair value
measurements. The fair value of deferred compensation liabilities is based on quoted prices of the underlying
employees’ investment selections and is included within other long-term liabilities. Our interest rate swap, included
within other long-term liabilities, is valued based on the terms of the contract and observable market inputs (i.e.,
LIBOR, Eurodollar synthetic forwards and swap spreads). Refer to Note 9, Derivative Financial Instruments, for
further discussion of our derivatives.
Level 3 Fair Value Measurements
The fair value of the SmartDose contingent consideration was initially determined using a probability-weighted
income approach, and is revalued at each reporting date or more frequently if circumstances dictate. Changes in the
fair value of this obligation are recorded as income or expense within other expense (income) in our consolidated
statements of income. The significant unobservable inputs used in the fair value measurement of the contingent
consideration are the sales projections, the probability of success factors, and the discount rate. Significant increases
or decreases in any of those inputs in isolation would result in a significantly lower or higher fair value
measurement. As development and commercialization of SmartDose progresses, we may need to update the sales
projections, the probability of success factors, and the discount rate used. This could result in a material increase or
decrease to the contingent consideration liability.
The following table provides a summary of changes in our Level 3 fair value measurements:
Balance, December 31, 2013
Increase in fair value recorded in earnings
Payments
Balance, December 31, 2014
Increase in fair value recorded in earnings
Payments
Balance, December 31, 2015
($ in millions)
$
$
4.3
1.0
(0.3)
5.0
1.1
(0.1)
6.0
Refer to Note 14, Other Expense (Income), for further discussion of acquisition-related contingencies.
Other Financial Instruments
We believe that the carrying amounts of our cash and cash equivalents and accounts receivable approximate their
fair values due to their near-term maturities.
Quoted market prices are used to estimate the fair value of publicly traded long-term debt. The fair value of debt that
is not quoted on an exchange is estimated using a discounted cash flow method based on interest rates that are
currently available to us for debt issuances with similar terms and maturities. At December 31, 2015, the estimated
fair value of long-term debt was $225.0 million compared to a carrying amount of $228.9 million. December 31,
2014, the estimated fair value of long-term debt was $311.4 million and the carrying amount was $308.3 million.
58
Note 11: Accumulated Other Comprehensive Loss
The following table presents the changes in the components of accumulated other comprehensive loss, net of tax:
($ in millions)
Losses on
cash flow
hedges
Unrealized gains
on investment
securities
Defined benefit
pension and other
postretirement plans
Foreign
currency
translation
Total
Balance, December 31, 2013
$
(6.0) $
4.3 $
(47.0) $
16.3 $
(32.4)
Other comprehensive (loss)
income before reclassifications
Amounts reclassified out
Other comprehensive income
(loss), net of tax
Balance, December 31, 2014
Other comprehensive (loss)
income before reclassifications
Amounts reclassified out
Other comprehensive income
(loss), net of tax
Balance, December 31, 2015
$
(0.1)
1.8
1.7
(4.3)
1.3
(0.1)
1.2
(3.1) $
0.4
—
0.4
4.7
0.7
—
0.7
5.4 $
(18.9)
1.3
(17.6)
(64.6)
(8.9)
33.9
(71.3)
—
(71.3)
(55.0)
(70.3)
—
(89.9)
3.1
(86.8)
(119.2)
(77.2)
33.8
25.0
(39.6) $
(70.3)
(43.4)
(125.3) $ (162.6)
A summary of the reclassifications out of accumulated other comprehensive loss is presented in the following table
($ in millions):
Detail of components
2015
2014
Location on Statement of Income
Losses on cash flow hedges:
Foreign currency contracts
Foreign currency contracts
Interest rate swap contracts
Forward treasury locks
Total before tax
Tax expense
Net of tax
Amortization of defined benefit pension and
other postretirement plans:
Transition obligation
Prior service credit
Actuarial losses
Settlements
Total before tax
Tax expense
Net of tax
Total reclassifications for the period, net of tax
$
1.8 $
—
(2.1)
(0.3)
(0.6)
0.7
0.1 $
(0.1) $
1.3
(4.5)
(50.4)
(53.7)
19.8
(33.9) $
(33.8) $
$
$
$
$
0.3 Net sales
(0.3) Cost of goods and services sold
(2.6) Interest expense
(0.4) Interest expense
(3.0)
1.2
(1.8)
(0.1) (a)
1.3 (a)
(3.1) (a)
— (a)
(1.9)
0.6
(1.3)
(3.1)
(a) These components are included in the computation of net periodic benefit cost. Refer to Note 13, Benefit
Plans, for additional details.
During 2015, we recorded a $50.4 million pension settlement charge related to the acceleration of a portion of our
unrecognized actuarial losses. Please refer to Note 13, Benefit Plans, for additional details.
59
Note 12: Stock-Based Compensation
The 2011 Omnibus Incentive Compensation Plan (the “2011 Plan”) provides for the granting of stock options, stock
appreciation rights, restricted stock awards and performance awards to employees and non-employee directors. The
terms and conditions of awards to be granted are determined by our Board's nominating and corporate governance
and compensation committees. Vesting requirements vary by award. At December 31, 2015, there were 2,487,881
shares remaining in the 2011 Plan for future grants.
Stock options and stock appreciation rights reduce the number of shares available for grant by one share for each
award granted. All other awards that will be distributed in stock under the 2011 Plan will reduce the total number of
shares available for grant by an amount equal to 2.35 times the number of shares awarded. If awards made under
previous plans would entitle a plan participant to an amount of West stock in excess of the target amount, the
additional shares (up to a maximum threshold amount) will be distributed under the 2011 Plan.
The following table summarizes our stock-based compensation expense recorded within selling, general and
administrative expenses for the years ended December 31:
($ in millions)
Stock option and appreciation rights
Performance-vesting shares
Performance-vesting units
Performance-vesting shares/units dividend equivalents
Employee stock purchase plan
Deferred compensation plans
Total stock-based compensation expense
2015
2014
2013
$
$
9.2 $
6.0
0.7
0.2
0.6
2.5
19.2 $
7.6 $
6.5
1.9
0.4
0.5
1.7
18.6 $
7.7
6.5
2.4
0.4
0.4
3.8
21.2
In addition, during 2015, we recorded a $10.4 million charge related to executive retirements, which was recorded
within other expense. Please refer to Note 14, Other Expense (Income), for further discussion of this charge.
In 2014, the Company adopted a policy to provide for continued vesting of future performance-vesting awards and
stock option awards for retiring executive officers who are at least 57 years of age at the time of retirement, have
been employed by the Company for 10 years, and have not been terminated for "cause" as defined under the 2011
Plan.
The amount of unrecognized compensation expense for all nonvested awards as of December 31, 2015, was
approximately $16.8 million, which is expected to be recognized over a weighted average period of 1.8 years.
Stock Options
Stock options granted to employees vest in equal annual increments over 4 years of continuous service. All awards
expire 10 years from the date of grant. Upon the exercise of stock options, shares are issued in exchange for the
exercise price of the options.
60
The following table summarizes changes in outstanding options:
(in millions, except per share data)
Options outstanding, January 1
Granted
Exercised
Forfeited
Options outstanding, December 31
Options exercisable, December 31
Weighted Average Exercise Price
Options outstanding, January 1
Granted
Exercised
Forfeited
Options outstanding, December 31
Options exercisable, December 31
2015
4.6
0.9
(0.5)
—
5.0
2.9
2015
25.49 $
56.06
21.85
—
31.77 $
22.75 $
2014
4.8
0.7
(0.7)
(0.2)
4.6
2.6
2014
21.99 $
47.59
20.17
31.42
25.49 $
20.67 $
2013
5.6
0.9
(1.6)
(0.1)
4.8
2.3
2013
19.83
29.71
18.97
23.10
21.99
19.51
$
$
$
As of December 31, 2015, the weighted average remaining contractual life of options outstanding and of options
exercisable was 6.3 years and 4.9 years, respectively.
As of December 31, 2015, the aggregate intrinsic value of total options outstanding was $143.1 million, of which
$110.3 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 2015, 2014 and 2013: a risk-free interest rate of 1.7%, 1.6%,
and 0.9%, respectively; stock volatility of 21.0%, 21.9%, and 22.5%, respectively; and dividend yields of 0.9%,
0.8%, and 1.3%, 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 2015, 2014 and 2013. The
weighted average grant date fair value of options granted in 2015, 2014 and 2013 was $10.57, $10.38 and $5.73,
respectively. Stock option expense is recognized over the vesting period, net of forfeitures.
For the years ended December 31, 2015, 2014 and 2013, the intrinsic value of options exercised was $17.7 million,
$16.0 million and $27.3 million, respectively. The grant date fair value of options vested during those same periods
was $4.8 million, $4.7 million and $4.0 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, 2015, SARs outstanding were 232,930, of which 131,924 were cash-settled and 101,006 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.
61
The following table summarizes changes in outstanding SARs:
SARs outstanding, January 1
Granted
Exercised
SARs outstanding, December 31
SARs exercisable, December 31
Weighted Average Exercise Price
SARs outstanding, January 1
Granted
Exercised
SARs outstanding, December 31
SARs exercisable, December 31
Performance Awards
2015
297,714
12,356
(77,140)
232,930
112,295
2015
25.20 $
57.25
22.52
27.79 $
24.60 $
2014
375,104
7,733
(85,123)
297,714
88,751
2014
24.03 $
47.74
22.09
25.20 $
23.15 $
2013
389,686
132,566
(147,148)
375,104
56,938
2013
20.81
29.56
20.47
24.03
20.95
$
$
$
In addition to stock options and SAR awards, we grant performance vesting share (“PVS”) awards and performance
vesting unit (“PVU”) awards to eligible employees. These awards are earned based on the Company's performance
against pre-established targets, including annual growth rate of revenue and return on invested capital (“ROIC”),
over a specified performance period. Depending on the achievement of the targets, recipients of PVS awards are
entitled to receive a certain number of shares of common stock, whereas recipients of PVU awards are entitled to
receive a payment in cash per unit based on the fair market value of a share of our common stock at the end of the
performance period.
The following table summarizes changes in our outstanding PVS awards:
Non-vested PVS awards, January 1
Granted at target level
Adjustments above/(below) target
Vested and converted
Forfeited
Non-vested PVS awards, December 31
2015
470,719
147,908
132,444
(318,337)
(10,008)
422,726
2014
578,358
133,823
53,438
(250,205)
(44,695)
470,719
2013
652,662
175,498
38,330
(273,044)
(15,088)
578,358
Weighted Average Grant Date Fair Value
Non-vested PVS awards, January 1
Granted at target level
Adjustments above/(below) target
Vested and converted
Forfeited
Non-vested PVS awards, December 31
2015
30.93 $
55.49
22.97
51.53
41.84
45.60 $
2014
23.79 $
47.21
22.86
48.69
30.76
30.93 $
2013
21.42
29.67
23.83
29.56
23.29
23.79
$
$
Shares earned under PVS and PVU awards may vary from 0% to 200% of an employee's targeted award. The fair
value of PVS awards is based on the market price of our stock at the grant date and is recognized as expense over
the performance period, adjusted for estimated target outcomes and net of forfeitures. The weighted average grant
date fair value of PVS awards granted during the years 2015, 2014 and 2013 was $55.49, $47.21 and $29.67,
respectively. Including forfeiture and above-target achievement expectations, we expect that the PVS awards will
convert to 412,687 shares to be issued over an average remaining term of 1 year.
62
The fair value of PVU awards is also based on the market price of our stock at the grant date. These awards are
revalued at the end of each quarter based on changes in our stock price. As a result of the cash settlement feature,
PVU awards are recorded within other long-term liabilities.
The following table summarizes changes in our outstanding PVU awards:
Non-vested PVU awards, January 1
Granted at target level
Adjustments above/(below) target
Vested and converted
Non-vested PVU awards, December 31
2015
55,509
1,386
19,315
(47,014)
29,196
2014
79,456
1,584
6,907
(32,438)
55,509
Weighted Average Grant Date Fair Value
Non-vested PVU awards, January 1
Granted at target level
Adjustments above/(below) target
Vested and converted
Non-vested PVU awards, December 31
2015
26.15 $
54.14
22.07
51.53
32.07 $
2014
23.86 $
47.34
22.72
47.34
26.15 $
$
$
2013
69,240
25,538
3,000
(18,322)
79,456
2013
20.98
29.56
25.30
29.56
23.86
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 61,757 shares, 76,751 shares and 84,675 shares for the years 2015, 2014 and 2013,
respectively. At December 31, 2015, there were approximately 4.1 million shares available for issuance under the
ESPP.
Deferred Compensation Plans
Our deferred compensation plans include a Non-Qualified Deferred Compensation Plan for Non-Employee
Directors, under which non-employee directors may defer all or part of their annual cash retainers. The deferred fees
may be credited to a stock-equivalent account. Amounts credited to this account are converted into deferred stock
units based on the fair market value of one share of our common stock on the last day of the quarter. For deferred
stock units ultimately paid in cash, a liability is calculated at an amount determined by multiplying the number of
units by the fair market value of our common stock at the end of each reporting period. In addition, deferred stock
awards are granted on the date of our annual meeting, and are distributed in shares of common stock. In 2015, we
granted 22,746 deferred stock awards, with a grant date fair value of $53.25. Similarly, a non-qualified deferred
compensation plan for eligible employees provides for the conversion of compensation into deferred stock units. As
of December 31, 2015, the two deferred compensation plans held a total of 496,976 deferred stock units, including
24,296 units to be paid in cash.
In addition, during 2015, we granted 41,458 restricted share awards at a weighted grant-date fair value of $57.89 per
share to new executive officers under the 2011 Plan. The fair value of the awards is based on the market price of our
stock at the grant date and is recognized as expense over the vesting period.
63
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, 4,200 shares and 5,300 shares in
2015, 2014 and 2013, respectively. Incentive stock forfeitures of 200 shares, 4,100 shares and 200 shares occurred in
2015, 2014 and 2013, respectively. Compensation expense is recognized over the vesting period based on the fair
market value of common stock on the award date: $51.53 per share granted in 2015, $48.69 per share granted in
2014 and $29.56 per share granted in 2013.
Note 13: Benefit Plans
Certain of our U.S. and international subsidiaries sponsor defined benefit pension plans. In addition, we provide
minimal death benefits for certain U.S. retirees and pay a portion of healthcare costs for retired U.S. salaried
employees and their dependents. Benefits for participants are coordinated with Medicare and the plan mandates
Medicare risk (“HMO”) coverage wherever possible and caps the total contribution for non-HMO coverage. We also
sponsor a defined contribution plan for certain salaried and hourly U.S. employees. Our 401(k) plan contributions
were $4.8 million for 2015, $4.3 million for 2014 and $4.0 million for 2013.
Pension and Other Retirement Benefits
The components of net periodic benefit cost and other amounts recognized in other comprehensive income were as
follows:
($ in millions)
Net periodic benefit cost:
Service cost
Interest cost
Expected return on assets
Amortization of prior service credit
Amortization of transition obligation
Amortization of actuarial loss (gain)
Settlement effects
Net periodic benefit cost
Other changes in plan assets and benefit
obligations recognized in other comprehensive
income, pre-tax:
Net loss (gain) arising during period
Prior service credit arising during period
Amortization of prior service credit
Amortization of transition obligation
Amortization of actuarial (loss) gain
Settlement effects
Foreign currency translation
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and
other comprehensive income
$
$
$
$
$
Pension benefits
2015
2014
2013
Other retirement benefits
2013
2015
2014
9.8 $
9.7
10.6 $
14.8
17.1
13.8
(17.3)
(19.3)
(19.5)
(1.3)
(1.3)
(1.3)
0.1
0.1
0.1
9.2
4.7
5.9
50.4
—
—
60.0 $ 11.1 $ 15.2
$
0.5 $
0.4
—
—
—
(1.4)
—
0.4 $
0.4
—
—
—
(1.6)
—
$
(0.5) $ (0.8) $
1.1
0.6
—
—
—
(0.7)
—
1.0
17.7 $ 31.5 $ (36.1)
—
—
(0.7)
1.3
1.3
1.3
(0.1)
(0.1)
(0.1)
(9.2)
(4.7)
(5.9)
—
(50.4)
—
(2.1)
(1.6)
0.6
(39.7) $ 25.9 $ (43.5)
20.3 $ 37.0 $ (28.3)
$
$
$
(0.8) $
—
—
—
1.4
—
—
0.6 $
0.1 $ (18.5)
—
—
—
—
—
—
0.7
1.6
—
—
—
—
1.7 $ (17.8)
0.1 $
0.9 $ (16.8)
64
Net periodic benefit cost by geographic location is as follows:
U.S. plans
International plans
Net periodic benefit cost
Pension benefits
Other retirement benefits
2015
2014
2013
57.4 $
8.1 $
11.9
2.6
3.0
3.3
60.0 $
11.1 $
15.2
$
$
$
$
2015
(0.5) $
—
(0.5) $
2014
(0.8) $
—
(0.8) $
2013
1.0
—
1.0
During 2015, we recorded a $50.4 million pension settlement charge within other expense, of which $47.0 million
related to our purchase of a group annuity contract from MetLife to settle $139.4 million of our $313.6 million
outstanding pension benefit obligation under our U.S. qualified pension plan. MetLife assumed the obligation to pay
future pension benefits and provide administrative services beginning November 1, 2015 for approximately 1,750
retirees and surviving beneficiaries who retired before January 1, 2015 and are currently receiving payments from
this plan. The purchase was funded directly by plan assets. The remaining portion of the pension settlement charge
related to lump-sum payouts made to terminated vested participants of our U.S. qualified pension plan.
The following table presents the changes in the benefit obligation and the fair value of plan assets, as well as the
funded status of the plans:
($ in millions)
Change in benefit obligation:
Benefit obligation, January 1
Service cost
Interest cost
Participants' contributions
Actuarial (loss) gain
Amendments/transfers in
Benefits/expenses paid
Settlement
Foreign currency translation
Benefit obligation, December 31
Change in plan assets:
Fair value of assets, January 1
Actual return on assets
Employer contribution
Participants' contribution
Benefits/expenses paid
Settlement
Foreign currency translation
Fair value of assets, December 31
Funded status at end of year
Pension benefits
2015
2014
Other retirement benefits
2014
2015
(398.5) $
(10.6)
(13.8)
(0.6)
7.8
0.8
14.6
149.7
4.3
(246.3) $
322.3 $
(6.0)
38.0
0.6
(14.6)
(149.7)
(1.7)
188.9 $
(360.8) $
(9.8)
(17.1)
(0.9)
(44.5)
—
28.8
—
5.8
(398.5) $
284.7
32.3
35.4
0.9
(28.8)
—
(2.2)
322.3
$
$
(10.1) $
(0.5)
(0.4)
(0.6)
0.8
—
0.6
—
—
(10.2) $
— $
—
—
0.6
(0.6)
—
—
— $
(9.2)
(0.4)
(0.4)
(0.6)
(0.1)
—
0.6
—
—
(10.1)
—
—
—
0.6
(0.6)
—
—
—
(57.4) $
(76.2) $
(10.2) $
(10.1)
$
$
$
$
$
International pension plan assets, at fair value, included in the preceding table were $29.2 million and $30.3 million
at December 31, 2015 and 2014, respectively.
65
Amounts recognized in the balance sheet were as follows:
Pension benefits
($ in millions)
Current liabilities
Noncurrent liabilities
2015
(5.0) $
(52.4)
(57.4) $
$
$
Other retirement benefits
2014
(0.8)
(9.3)
(10.1)
2015
(0.6) $
(9.6)
(10.2) $
2014
(1.8) $
(74.4)
(76.2) $
The amounts in accumulated other comprehensive loss, pre-tax, consisted of:
($ in millions)
Net actuarial loss (gain)
Transition obligation
Prior service credit
Total
Pension benefits
Other retirement benefits
2015
79.9 $
0.1
(5.7)
74.3 $
2014
120.1 $
0.2
(6.3)
114.0 $
$
$
2015
(13.2) $
—
—
(13.2) $
2014
(13.8)
—
—
(13.8)
The net actuarial loss, transition obligation and prior service credit for the defined benefit pension plans that will be
amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are
$4.6 million, $0.1 million and $1.4 million, respectively. The net actuarial gain for the other retirement benefits plan
that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal
year is $1.4 million.
The accumulated benefit obligation for all defined benefit pension plans was $238.9 million and $391.0 million at
December 31, 2015 and 2014, respectively, including $55.5 million and $60.2 million, respectively, for international
pension plans.
All of the defined benefit pension plans have projected benefit obligations and accumulated benefit obligations in
excess of plan assets as of December 31, 2015 and 2014.
Benefit payments expected to be paid under our defined benefit pension and other retirement benefit plans in the
next ten years are as follows:
($ in millions)
2016
2017
2018
2019
2020
2021 to 2025
Domestic
International
Total
$
$
15.3 $
12.8
13.5
14.1
16.0
82.9
154.6 $
1.5 $
1.7
1.9
2.2
2.8
14.6
24.7 $
16.8
14.5
15.4
16.3
18.8
97.5
179.3
In 2016, we expect to contribute $6.5 million to pension plans, of which $2.0 million is for international plans.
Included in this amount is a $4.5 million contribution to our non-qualified defined benefit pension plan. In addition,
we expect to contribute $0.7 million for other retirement benefits in 2016. We periodically consider additional,
voluntary contributions depending on the investment returns generated by pension plan assets, changes in benefit
obligation projections and other factors.
66
Weighted average assumptions used to determine net periodic benefit cost were as follows:
Discount rate
Rate of compensation increase
Long-term rate of return on assets
Pension benefits
2015
4.08%
4.07%
6.84%
2014
4.50%
4.29%
7.01%
2013
3.99%
4.24%
7.12%
Other retirement benefits
2015
3.90%
—
—
2014
4.55%
—
—
2013
3.50%
—
—
Weighted average assumptions used to determine the benefit obligations were as follows:
Discount rate
Rate of compensation increase
Pension benefits
2015
4.22%
4.07%
2014
3.96%
4.14%
Other retirement benefits
2014
3.90%
—
2015
4.30%
—
The discount rate used to determine the benefit obligations for U.S. pension plans was 4.55% and 4.15% as of
December 31, 2015 and 2014, respectively. The weighted average discount rate used to determine the benefit
obligations for all international plans was 3.19% and 2.99% as of December 31, 2015 and 2014, respectively. The
rate of compensation increase for U.S. plans was 4.25% for 2015 and 2014, while the weighted average rate for all
international plans was 2.73% for 2015 and 2.74% for 2014. Other retirement benefits were only available to U.S.
employees. The long-term rate of return for U.S. plans, which accounts for 85% of global plan assets, was 7.25% for
2015, 2014 and 2013.
The assumed healthcare cost trend rate used to determine benefit obligations was 7.00% for all participants in 2015,
decreasing to 5.00% by 2021. A change in the assumed healthcare cost trend rate by one percentage point would
result in a $0.4 million increase or decrease in the postretirement obligation. The assumed healthcare cost trend rate
used to determine net periodic benefit cost was 7.00% for all participants in 2015, decreasing to 5.00% by 2019. The
effect of a one percentage point increase in the rate would be a $0.1 million increase in the aggregate service and
interest cost components, while a one percentage point decrease in the rate would have an immaterial impact.
The weighted average asset allocations by asset category for our pension plans, at December 31, were as follows:
Equity securities
Debt securities
Other
2015
62%
35%
3%
100%
2014
63%
35%
2%
100%
Our U.S. pension plan is managed as a balanced portfolio comprised of two components: equity and fixed income
debt securities. Equity investments are used to maximize the long-term real growth of fund assets, while fixed
income investments are used to generate current income, provide for a more stable periodic return, and to provide
some protection against a prolonged decline in the market value of equity investments. Temporary funds may be
held as cash. We maintain a long-term strategic asset allocation policy which provides guidelines for ensuring that
the fund's investments are managed with the short-term and long-term financial goals of the fund, while allowing the
flexibility to react to unexpected changes in capital markets.
67
The following are the U.S. target asset allocations and acceptable allocation ranges:
Equity securities
Debt securities
Other
Target
allocation
65%
35%
—%
Allocation
range
60%-70%
30%-40%
0%-5%
Diversification across and within asset classes is the primary means by which we mitigate risk. We maintain
guidelines for all asset and sub-asset categories in order to avoid excessive investment concentrations. Fund assets
are monitored on a regular basis. If at any time the fund asset allocation is not within the acceptable allocation range,
funds will be reallocated. We also review the fund on a regular basis to ensure that the investment returns received
are consistent with the short-term and long-term goals of the fund and with comparable market returns. We are
prohibited from pledging fund securities and from investing pension fund assets in our own stock, securities on
margin or derivative securities.
The following tables present the fair value of our pension plan assets, utilizing the fair value hierarchy discussed in
Note 10, Fair Value Measurements:
($ in millions)
Cash
Equity securities:
Indexed mutual funds
International mutual funds
Fixed income securities:
Mutual funds
Insurance contract
Balanced mutual fund
($ in millions)
Cash
Equity securities:
Indexed mutual funds
International mutual funds
Fixed income securities:
Mutual funds
Insurance contract
Balanced mutual fund
Balance at
December 31,
2015
Basis of Fair Value Measurements
Level 3
Level 2
Level 1
$
0.6 $
0.6 $
— $
79.2
37.7
79.2
37.7
63.0
0.6
7.8
188.9 $
63.0
—
7.8
188.3 $
$
—
—
—
0.6
—
0.6 $
—
—
—
—
—
—
—
Balance at
December 31,
2014
Basis of Fair Value Measurements
Level 3
Level 2
Level 1
$
1.1 $
1.1 $
142.3
58.7
142.3
58.7
111.4
1.0
7.8
322.3 $
111.4
—
7.8
321.3 $
$
—
—
—
—
1.0
—
1.0 $
—
—
—
—
—
—
68
Note 14: Other Expense (Income)
Other expense (income) consisted of:
($ in millions)
Pension settlement charge
Executive retirement and related costs
License costs
Development income
Contingent consideration costs
Other items
Total other expense (income)
2015
2014
2013
$
$
50.4
10.9
—
(1.5)
1.1
(0.8)
60.1
$
$
— $
—
1.2
(1.6)
1.0
(0.8)
(0.2) $
—
—
—
(2.0)
1.0
0.5
(0.5)
During 2015, we recorded a $50.4 million pension settlement charge, of which $47.0 million related to our purchase
of a group annuity contract from MetLife and $3.4 million related to lump-sum payouts made to terminated vested
participants of our U.S. qualified pension plan. Please refer to Note 13, Benefit Plans, for additional details.
In addition, during 2015, we recorded a $10.9 million charge for executive retirement and related costs, which
included $2.4 million for a long-term incentive plan award for the Company’s previous CEO, $8.0 million for the
revaluation of modified outstanding awards to provide for continued vesting for the Company’s previous CEO and
Senior Vice President of Human Resources in conjunction with their retirement, and $0.5 million for other costs,
including relocation and legal fees.
During 2014, we recorded a $1.2 million charge for license costs associated with acquired in-process research.
Development income of $1.5 million was recognized within Delivery Systems during 2015, related to a
nonrefundable customer payment of $20.0 million received in June 2013 in return for the exclusive use of
SmartDose within a specific therapeutic area. As of December 31, 2015, there was $15.9 million of unearned income
related to this payment, of which $1.5 million was included in other current liabilities and $14.4 million was
included in other long-term liabilities. The unearned income is being recognized as development income on a
straight-line basis over the remaining term of the agreement. The agreement does not include a future minimum
purchase commitment from the customer. During 2014 and 2013, we recorded development income of $1.6 million
and $2.0 million, respectively, within Delivery Systems, of which $1.5 million and $1.0 million related to the
nonrefundable customer payment described above.
Contingent consideration costs represent changes in the fair value of the SmartDose contingent consideration. Please
refer to Note 10, Fair Value Measurements, for additional details.
Other items consist of foreign exchange transaction gains and losses, gains and losses on the sale of fixed assets, and
miscellaneous income and charges.
Note 15: Income Taxes
As a global organization, we and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various
state and foreign jurisdictions. During 2015, the statute of limitations for the 2011 U.S. federal tax year lapsed,
leaving tax years 2012 through 2015 open to examination. For U.S. state and local jurisdictions, tax years 2011
through 2015 are open to examination. We are also subject to examination in various foreign jurisdictions for tax
years 2008 through 2015.
69
A reconciliation of the beginning and ending amount of the liability for unrecognized tax benefits is as follows:
($ in millions)
Balance at January 1
Additions for tax positions taken in the current year
Reduction for expiration of statute of limitations/audits
Balance at December 31
$
$
2015
6.9 $
0.6
(1.6)
5.9 $
2014
7.1
0.6
(0.8)
6.9
In addition, we had balances in accrued liabilities for interest and penalties of $0.3 million and $0.6 million at
December 31, 2015 and 2014, respectively. As of December 31, 2015, we had $5.9 million of total gross
unrecognized tax benefits, of which $5.9 million, if recognized, would favorably impact the effective income tax
rate. It is reasonably possible that, due to the expiration of statutes and the closing of tax audits, the liability for
unrecognized tax benefits may be reduced by approximately $1.0 million during the next twelve months, which
would favorably impact our effective tax rate.
The components of income before income taxes are:
($ in millions)
U.S. operations
International operations
Total income before income taxes
2015
(4.0) $
120.1
116.1 $
2014
57.5 $
111.5
169.0 $
2013
28.9
118.2
147.1
$
$
The related provision for income taxes consists of:
($ in millions)
Current:
Federal
State
International
Current income tax provision
Deferred:
Federal and state
International
Deferred income tax provision
Income tax expense
2015
2014
2013
1.0 $
0.9
33.3
35.2
(13.2)
4.3
(8.9)
26.3 $
5.2 $
0.5
34.5
40.2
7.7
(0.7)
7.0
47.2 $
—
0.3
38.2
38.5
9.2
(7.5)
1.7
40.2
$
$
Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for
financial reporting and tax purposes.
70
The significant components of our deferred tax assets and liabilities at December 31 are:
($ in millions)
Deferred tax assets
Net operating loss carryforwards
Tax credit carryforwards
Pension and deferred compensation
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Accelerated depreciation
Other
Total deferred tax liabilities
Net deferred tax asset
2015
2014
16.5 $
40.8
42.0
19.3
(20.1)
98.5
35.0
5.4
40.4
58.1 $
20.4
40.4
43.7
20.0
(22.1)
102.4
36.8
7.7
44.5
57.9
$
$
A reconciliation of the U.S. federal corporate tax rate to our effective consolidated tax rate on income before income
taxes follows:
U.S. federal corporate tax rate
Tax on international operations less than U.S. tax rate
Reversal of prior valuation allowance
Reversal of reserves for unrecognized tax benefits
U.S. tax on international earnings, net of foreign tax credits
State income taxes, net of federal tax effect
U.S. research and development credits
Other business credits and Section 199 Deduction
Other
Effective tax rate
2015
35.0%
(5.1)
—
(1.6)
(4.6)
0.3
(1.3)
(1.3)
1.2
22.6%
2014
35.0%
(6.8)
(0.5)
(0.5)
(0.1)
1.5
(0.9)
(0.7)
1.0
28.0%
2013
35.0%
(5.3)
(1.0)
(0.8)
0.1
0.1
(1.8)
(0.5)
1.6
27.4%
During 2015, we recorded a discrete tax benefit of $4.0 million related to executive retirement and related costs. In
addition, we recorded a discrete tax benefit of $18.4 million for a non-cash pension settlement charge. This charge
was incurred in connection with the purchase of a group annuity contract for pre-2015 retirees and their
beneficiaries. In 2015, we also recorded a discrete tax charge of $0.8 million resulting from the impact of a change
in the enacted tax rate in the United Kingdom on our previously-recorded deferred tax asset balances.
During 2014, we recorded a discrete tax charge of $1.0 million resulting from the impact of a change in
apportionment factors on state tax rates applied to items in other comprehensive income and a discrete tax charge of
$0.8 million as a result of the finalization of estimates of foreign tax credits available with respect to a repatriation of
cash from our subsidiaries in Israel.
71
During 2013, we recorded a discrete tax charge of $3.5 million, which related to the finalization of a beneficial
agreement with local tax authorities in Israel that clarified the future tax status of our entities in Israel and settled a
tax audit for the years 2009 through 2011. During 2013, we also recorded a discrete tax charge of $1.3 million
resulting from the impact of a change in the enacted tax rate in the United Kingdom on our previously-recorded
deferred tax asset balances and a discrete tax benefit of $1.3 million related to the reinstatement of the Research and
Development tax credit under the Taxpayer Relief Act that was enacted in January 2013. In accordance with U.S.
GAAP, although the Taxpayer Relief Act retroactively reinstated the tax credit for two years, from January 1, 2012
through December 31, 2013, it was not taken into account for financial reporting purposes until 2013.
At December 31, 2015, we have fully utilized all of our U.S. federal net operating loss carryforwards. State
operating loss carryforwards of $265.8 million created a deferred tax asset of $14.7 million, while foreign operating
loss carryforwards of $8.9 million created a deferred tax asset of $1.8 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: $5.8 million in 2016 and $260.0 million thereafter.
Foreign loss carryforwards will begin to expire in 2019, while $5.6 million of the total $8.9 million will not expire.
As of December 31, 2015, we had available foreign tax credit carryforwards of $21.1 million expiring as follows:
$1.5 million in 2018, $3.1 million in 2019, $3.2 million in 2020, $9.6 million in 2021 and $3.7 million in 2024. We
have U.S. federal and state research and development credit carryforwards of $11.0 million and $3.2 million,
respectively. The $11.0 million of U.S. federal research and development credits expire as follows: $1.1 million
expire in 2028, $1.1 million expire in 2029, $1.0 million expire in 2030, $1.0 million expire in 2031, $1.4 million
expire in 2032 and $5.4 million expire after 2032. The $3.2 million of state research and development credits expire
as follows: $0.5 million expire in 2021, $0.8 million expire in 2022, $0.5 million expire in 2023 and $1.4 million
expire after 2023. Additionally, we have available other state tax credits of $1.0 million which expire in 2020.
As part of its simplification initiative, in 2015, the FASB issued new guidance that requires entities with a classified
balance sheet to present all deferred tax assets and liabilities as noncurrent. Management has elected to early adopt
the new guidance, on a prospective basis. This election was included as part of the year-end 2015 financial
statements. Prior period results were not restated to reflect this election.
Undistributed earnings of foreign subsidiaries amounted to $529.1 million at December 31, 2015, on which deferred
income taxes have not been provided because such earnings are intended to be reinvested indefinitely outside of the
U.S. It is not practicable to estimate the tax liability that might be incurred if such earnings were remitted to the U.S.
Note 16: Commitments and Contingencies
At December 31, 2015, we were obligated under various operating lease agreements. Rental expense in 2015, 2014
and 2013 was $10.5 million, $10.7 million and 10.3 million, respectively.
At December 31, 2015, future minimum rental payments under non-cancelable operating leases were:
Year
2016
2017
2018
2019
2020
Thereafter
Total
($ in millions)
9.6
7.3
5.8
4.1
3.5
27.9
58.2
$
$
At December 31, 2015, outstanding unconditional contractual commitments for the purchase of raw materials and
equipment amounted to $10.7 million, of which $10.4 million is due to be paid in 2016.
72
We have letters of credit totaling $3.0 million supporting the reimbursement of workers' compensation and other
claims paid on our behalf by insurance carriers. Our accrual for insurance obligations was $8.2 million at
December 31, 2015, of which $4.1 million is in excess of our deductible and, therefore, is reimbursable by the
insurance company.
Our SmartDose contingent consideration is payable to the selling shareholders based upon a percentage of product
sales over the life of the underlying product patent, which is 17 years, with no cap on total payments. Given the
length of the earnout period and the uncertainty in forecasted product sales, we do not believe it is meaningful to
estimate the upper end of the range over the entire period. However, our estimated probable range which could
become payable over the next five years is between zero and $6.0 million.
Note 17: Segment Information
Our business operations are organized into two reportable segments, Packaging Systems and Delivery Systems.
Packaging Systems develops, manufactures and sells primary packaging components and systems for injectable drug
delivery, including stoppers and seals for vials, closures and other components used in syringe, intravenous and
blood collection systems, and prefillable syringe components. Delivery Systems develops, manufactures and sells
safety and administration systems, multi-component systems for drug administration, and a variety of custom
contract-manufacturing solutions targeted to the healthcare and consumer-products industries. In addition, Delivery
Systems is responsible for the continued development and commercialization of our line of proprietary, multi-
component systems for injectable drug administration and other healthcare applications.
Packaging Systems has three operating segments: the Americas, Europe and Asia Pacific. These operating segments
are aggregated for reporting purposes as they have common economic characteristics, produce and sell a similar
range of products, use a similar distribution process and have a similar customer base. Delivery Systems consists of
only one operating segment.
We evaluate the performance of our segments based upon, among other things, segment net sales and operating
profit. Segment operating profit excludes general corporate costs, which include executive and director
compensation, stock-based compensation, adjustments to annual incentive plan expense for over- or under-
attainment of targets, certain pension and other retirement benefit costs, and other corporate facilities and
administrative expenses not allocated to the segments. Also excluded are items that management considers not
representative of ongoing operations. Such items are referred to as other unallocated items and generally include
restructuring and related charges, certain asset impairments and other specifically-identified income or expense
items. Corporate assets include pension assets and investments in affiliated companies. The accounting policies of
the segments are the same as those described in the summary of significant accounting policies.
The following table provides information on sales by significant product group:
($ in millions)
Packaging Systems
Proprietary products
Contract manufacturing
Delivery Systems
Intersegment sales elimination
Net sales
2015
1,000.7 $
97.6
302.6
400.2
(1.1)
1,399.8 $
2014
1,019.7 $
106.5
296.0
402.5
(0.8)
1,421.4 $
2013
996.0
92.7
281.4
374.1
(1.7)
1,368.4
$
$
The intersegment sales elimination, which is required for the presentation of consolidated net sales, represents the
elimination of components sold between our segments.
We do not have any customers accounting for greater than 10% of consolidated net sales.
73
The following table presents sales and net property, plant and equipment, by the country in which the legal
subsidiary is domiciled and assets are located:
($ in millions)
United States
Germany
France
Other European countries
Other
2015
Sales
2014
2013
$
667.4 $
194.0
107.6
252.0
178.8
588.7
219.6
112.6
279.3
168.2
$ 1,399.8 $ 1,421.4 $ 1,368.4
630.7 $
219.4
118.2
285.0
168.1
Property, Plant and Equipment, Net
2014
2015
2013
$
$
332.3 $
102.9
38.6
117.6
129.6
721.0 $
327.5 $
110.9
40.4
91.5
135.5
705.8 $
324.7
124.4
43.4
83.2
136.0
711.7
The following tables provide summarized financial information for our segments:
($ in millions)
2015
Net sales
Operating profit
Interest expense, net
Income before income taxes
Segment assets
Capital expenditures
Depreciation and amortization expense
2014
Net sales
Operating profit
Interest expense, net
Income before income taxes
Segment assets (1)
Capital expenditures
Depreciation and amortization expense
2013
Net sales
Operating profit
Loss on debt extinguishment
Interest expense, net
Income before income taxes
Segment assets (1)
Capital expenditures
Depreciation and amortization expense
$
$
$
$
$
$
$
$
$
$
$
$
Packaging
Systems
Delivery
Systems
Corporate and
Eliminations
Consolidated
1,000.7 $
235.7 $
—
235.7 $
940.8 $
100.0
56.6
1,019.7 $
223.0 $
—
223.0 $
1,024.3 $
76.5
58.3
996.0 $
217.0 $
—
—
217.0 $
1,048.9 $
81.3
55.5
400.2 $
12.0 $
—
12.0 $
402.1 $
33.5
24.4
402.5 $
13.5 $
—
13.5 $
405.1 $
35.8
23.0
374.1 $
9.4 $
—
—
9.4 $
429.3 $
28.5
20.9
(1.1) $
(119.1) $
(12.5)
(131.6) $
352.2 $
(1.9)
8.9
(0.8) $
(54.5) $
(13.0)
(67.5) $
240.3 $
(0.4)
8.7
(1.7) $
(64.0) $
(0.2)
(15.1)
(79.3) $
192.0 $
42.1
8.8
1,399.8
128.6
(12.5)
116.1
1,695.1
131.6
89.9
1,421.4
182.0
(13.0)
169.0
1,669.7
111.9
90.0
1,368.4
162.4
(0.2)
(15.1)
147.1
1,670.2
151.9
85.2
(1) Corporate segment asset amounts at December 31, 2014 and 2013 have been adjusted to reflect the
reclassification of debt issuance costs of $1.2 million and $1.4 million, respectively, in accordance with new
accounting guidance issued in April 2015. Refer to Note 2, New Accounting Standards, for additional details.
74
Note 18: Subsequent Events
In 2015, our business operations consisted of two reportable segments, Packaging Systems and Delivery Systems.
Beginning in 2016, we are changing our organization and reporting structure for our next phase of growth and
development, which will result in a change to Proprietary Products and Contract-Manufactured Products as
reportable segments. See Part I, Item 1, Business, of this Form 10-K for further discussion regarding the change in
our organization and reporting structure.
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. These changes are
expected to be implemented over the next twelve to twenty-four months. The total 2016 charge associated with this
plan will be in the range of $23.0 million to $28.0 million, the majority of which will be recorded in the first quarter
of 2016. The charge consists of a range of $17.0 million to $20.0 million in non-cash asset write-downs associated
with the discontinued use of certain trademarks and equipment, and a range of $6.0 million to $8.0 million for cash
severance charges on personnel reductions representing 1% to 2% of our global workforce. We expect to realize $4.0
million to $5.0 million in cost reductions from this program in 2016, with cost saving benefits growing to $8.0
million to $10.0 million in 2017.
On February 17, 2016, the Venezuelan government announced a devaluation of the Bolivar, from the 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. The weaker of the two rates will be a free-floating
exchange rate based on an existing system that currently sells dollars at around 200 Bolivars per USD. Since
February 2013, when the Venezuelan government announced a devaluation of the Bolivar, we have used the
previously-prevailing official exchange rate of 6.3 Bolivars to USD to re-measure our Venezuelan subsidiary's
financial statements. The devaluation of the Bolivar to 10.0 Bolivars per USD will result in an estimated pre-tax
charge of $2.3 million in the first quarter of 2016. At December 31, 2015, we had $6.2 million in net monetary
assets denominated in Venezuelan Bolivars, including $4.7 million in cash and cash equivalents, and $1.4 million in
non-monetary assets. If there are further devaluations of the Bolivar or other changes in the currency exchange
mechanisms in Venezuela in the future, a pre-tax charge of up to $7.6 million could be required. We will continue to
actively monitor the political and economic developments in Venezuela.
75
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of West Pharmaceutical Services, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under Item 15 (a) (1), present
fairly, in all material respects, the financial position of West Pharmaceutical Services, Inc., and its subsidiaries at
December 31, 2015 and December 31, 2014, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial statement schedules listed in the
accompanying index appearing under Item 15 (a) (2) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for
these financial statements and financial statement schedules, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is
to express opinions on these financial statements, on the financial statement schedules, and on the Company's
internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it
classifies deferred taxes in 2015 due to the adoption of Accounting Standards Update 2015-17, Balance Sheet
Classification of Deferred Taxes.
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.
76
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 26, 2016
77
Quarterly Operating and Per Share Data (Unaudited)
($ in millions, except per share data)
2015
Net sales
Gross profit
Net income
Net income per share:
Basic
Diluted
2014
Net sales
Gross profit
Net income
Net income per share:
Basic
Diluted
First
Quarter
Second
Quarter
(1)
Third
Quarter
(2)
Fourth
Quarter
(3)
Full Year
$
$
$
$
$
$
335.9 $
109.7
32.9
359.7 $
118.2
27.8
344.5 $
108.3
1.5
359.7 $
119.6
33.4
1,399.8
455.8
95.6
0.46 $
0.45 $
0.39 $
0.38 $
0.02 $
0.02 $
0.46 $
0.45 $
1.33
1.30
346.8 $
106.4
27.1
368.9 $
121.8
37.6
355.9 $
109.9
31.0
349.8 $
109.7
31.4
1,421.4
447.8
127.1
0.38 $
0.38 $
0.53 $
0.52 $
0.44 $
0.43 $
0.44 $
0.43 $
1.79
1.75
The sum of the quarterly per share amounts may not equal full year due to rounding.
Factors affecting the comparability of the information reflected in the quarterly data:
(1) Second quarter 2015 net income included a $6.9 million ($0.09 per diluted share) charge for executive
retirement and related costs.
(2) Net income for the third quarter of 2015 included a pension settlement charge of $31.1 million ($0.42 per
diluted share) in connection with our purchase of a group annuity contract from MetLife and lump-sum payouts
made to terminated vested participants of our U.S. qualified pension plan. Net income for the third quarter of
2014 included the impact of a charge for license costs associated with acquired in-process research of $0.8
million ($0.01 per diluted share).
(3) Fourth quarter 2015 net income included a $0.9 million ($0.01 per diluted share) pension settlement charge
related to lump-sum payouts made to terminated vested participants of our U.S. qualified pension plan and a
discrete tax charge of $0.8 million ($0.01 per diluted share). Fourth quarter 2014 net income included $1.8
million ($0.02 per diluted share) of discrete tax items.
78
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls are controls and procedures designed to reasonably ensure that information required to be
disclosed in our reports filed under the Exchange Act, such as this annual report, is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms. Disclosure Controls include, without
limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed
under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management,
including our CEO and Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate, to
allow timely decisions regarding required disclosure. Our Disclosure Controls include some, but not all, components
of our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our
CEO and CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934), as of the end of the period covered by this Form 10-K. Based on this
evaluation, our CEO and CFO have concluded that, as of December 31, 2015, our disclosure controls and
procedures are effective.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial
reporting is a process designed under the supervision of our CEO and CFO to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of our financial statements for external reporting
purposes in accordance with U.S. generally accepted accounting principles.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015
based on the framework established in “Internal Control-Integrated Framework (2013)” issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has
determined that our internal control over financial reporting was effective as of December 31, 2015.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
West have been detected. These inherent limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Also projections of any evaluation of effectiveness to future periods are subject to the risks that controls
may become inadequate because of changes in conditions, or that the degree of compliance with policies or
procedures may deteriorate.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is
included herein.
79
Changes in Internal Controls
During the fourth quarter ended December 31, 2015, there have been no changes to our internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our directors is incorporated by reference from the discussion under the heading Items to be Voted
on - Proposal 1 - Election of Ten Directors in our 2016 Proxy Statement. Information about our Code of Business
Conduct is incorporated by reference from the discussion under the heading Corporate Governance and Board
Matters - Code of Business Conduct in our 2016 Proxy Statement. Information regarding the procedures by which
our shareholders may recommend nominees to our Board of Directors is incorporated by reference from the
discussion under the heading Other Information - 2017 Shareholder Proposals or Nominations included in our 2016
Proxy Statement. Information about our Audit Committee, including the members of the committee, and our Audit
Committee financial experts, is incorporated by reference from the discussion under the heading Corporate
Governance and Board Matters - Committees - Audit Committee in our 2016 Proxy Statement. The balance of the
information required by this item is contained in the discussion entitled Executive Officers of the Company in Part I
of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information about director and executive compensation is incorporated by reference from the discussion under the
headings Director Compensation and Executive Compensation in our 2016 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by this Item is incorporated by reference from the discussion under the headings Other
Information - Stock Ownership in our 2016 Proxy Statement.
Equity Compensation Plan Information Table
The following table sets forth information about the grants of stock options, restricted stock or other rights under all
of the Company's equity compensation plans as of the close of business on December 31, 2015. The table does not
include information about tax-qualified plans such as the West 401(k) Plan or the Tech Group Puerto Rico Savings
and Retirement Plan.
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights (a)
Weighted-
Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights (b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding Securities
Reflected in Column (a)) (c)
5,964,740 (1) $
31.62 (2)
6,541,710 (3)
—
5,964,740
$
—
31.62
—
6,541,710
80
(1)
Includes 3,152,653 outstanding stock options, 131,924 outstanding stock-settled stock appreciation rights,
416,418 restricted performance share units, 41,458 restricted retention share units, 259,417 deferred stock-
equivalents units and 428 restricted stock-equivalents units granted to directors under the 2011 Plan. Includes
1,745,308 outstanding stock options and 90,988 deferred stock-equivalents units granted to directors under the
Non-Qualified Deferred Compensation Plan for Non-Employee Directors under the 2007 Omnibus Incentive
Compensation Plan (which was terminated in 2011). Includes 126,146 outstanding stock options under the 2004
Stock-Based Compensation Plan (which was terminated in 2007). The average term of remaining options and
stock-settled stock appreciation rights granted is 6.3 years. No future grants or awards may be made under the
terminated plans. The total includes restricted performance share units at 100% of grant. The restricted
performance share unit payouts were at 167.8%, 124.4%, and 113.4% in 2015, 2014 and 2013, respectively. The
total does not include stock-equivalent units granted or credited to directors under the Non-Qualified Deferred
Compensation Plan for Non-Employee Directors to be settled only in cash.
(2) Restricted performance share and deferred stock-equivalent units are excluded when determining the weighted-
average exercise price of outstanding options.
(3) Represents 4,053,829 shares reserved under the Company's Employee Stock Purchase Plan and 2,487,881
shares remaining available for issuance under the 2011 Plan. The estimated number of shares that could be
issued for 2015 from the Employee Stock Purchase Plan is 679,400. This number of shares is calculated by
multiplying the 430 share per offering period per participant limit by 1,580, the number of current participants
in the plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information called for by this Item is incorporated by reference from the discussion under the heading Related
Person Transactions and Procedures in our 2016 Proxy Statement. Information about director independence is
incorporated by reference from the discussion under the heading Corporate Governance and Board Matters -
Related Person Transactions and Procedures in our 2016 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information about the fees for professional services rendered by our independent auditors in 2015 and 2014 is
incorporated by reference from the discussion under the heading Independent Auditor and Fees - Fees Paid to
PricewaterhouseCoopers LLP in our 2016 Proxy Statement. Our Audit Committee's policy on pre-approval of audit
and permissible non-audit services of our independent auditors is incorporated by reference from the section
captioned Independent Auditors and Fees - Audit Committee Policy on Pre-Approval of Audit and Permissible Non-
Audit Services in our 2016 Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
The following documents are included in Part II, Item 8:
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Balance Sheets at December 31, 2015 and 2014
Consolidated Statement of Equity for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
81
(a) 2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
($ in millions)
For the year ended December 31, 2015
Allowances deducted from assets:
Deferred tax asset valuation allowance
Allowance for doubtful accounts
Total allowances deducted from assets
For the year ended December 31, 2014
Allowances deducted from assets:
Deferred tax asset valuation allowance
Allowance for doubtful accounts
Total allowances deducted from assets
For the year ended December 31, 2013
Allowances deducted from assets:
Deferred tax asset valuation allowance
Allowance for doubtful accounts
Total allowances deducted from assets
Balance at
beginning of
period
Charged
to costs
and
expenses
Deductions
(1)
Balance at
end of
period
$
$
$
$
$
$
22.1 $
0.9
23.0 $
(0.3) $
0.1
(0.2) $
23.5 $
0.8
24.3 $
(0.9) $
0.4
(0.5) $
20.4 $
0.5
20.9 $
2.8 $
—
2.8 $
(1.7) $
(0.4)
(2.1) $
(0.5) $
(0.3)
(0.8) $
0.3 $
0.3
0.6 $
20.1
0.6
20.7
22.1
0.9
23.0
23.5
0.8
24.3
__________________________
(1) Includes accounts receivable written off, the write-off or write-down of valuation allowances, and
translation adjustments.
All other schedules are omitted because they are either not applicable, not required or because the information
required is contained in the consolidated financial statements or notes thereto.
(a) 3. Exhibits - An index of the exhibits included in this Form 10-K is contained on pages F-1 through F-3 and is
(b)
(c)
incorporated herein by reference.
See subsection (a) 3. above.
Financial Statements of affiliates are omitted because they do not meet the tests of a significant subsidiary at
the 20% level.
82
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, West Pharmaceutical
Services, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
WEST PHARMACEUTICAL SERVICES, INC.
(Registrant)
By: /s/ William J. Federici
William J. Federici
Senior Vice President and Chief Financial Officer
February 26, 2016
83
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of West Pharmaceutical Services, Inc. in the capacities and on the dates indicated.
Signature
/s/ Eric M. Green
Eric M. Green
/s/ Daniel Malone
Daniel Malone
/s/ William J. Federici
William J. Federici
/s/ Mark A. Buthman
Mark A. Buthman
/s/ William F. Feehery
William F. Feehery
/s/ Thomas W. Hofmann
Thomas W. Hofmann
/s/ Paula A. Johnson
Paula A. Johnson
/s/ Myla Lai-Goldman, M.D.
Myla Lai-Goldman, M.D.
/s/ Douglas A. Michels
Douglas A. Michels
/s/ John H. Weiland
John H. Weiland
/s/ Anthony Welters
Anthony Welters
/s/ Patrick J. Zenner
Patrick J. Zenner
Title
Director, President and Chief Executive Officer
(Principal Executive Officer)
Date
February 26, 2016
Vice President and Controller
(Principal Accounting Officer)
February 26, 2016
Senior Vice President and Chief Financial Officer February 26, 2016
(Principal Financial Officer)
Director
Director
Director
Director
Director
Director
Director
Director
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
Director and Chairman of the Board
February 23, 2016
84
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4 (1)
10.1
10.2
10.3
10.4 (2)
10.5 (2)
10.6 (2)
10.7 (2)
10.8 (2)
10.9 (2)
10.10 (2)
10.11 (2)
10.12 (2)
10.13 (2)
10.14 (2)
10.15 (2)
EXHIBIT INDEX
Description
Our Amended and Restated Articles of Incorporation are incorporated by reference from our Form
10-Q report for the quarter ended March 31, 2015.
Our Bylaws, as amended through May 5, 2015, are incorporated by reference from our Form 10-Q
report for the quarter ended March 31, 2015.
Form of stock certificate for common stock is incorporated by reference from our annual report on
Form 10-K dated May 6, 1999.
Article 5, 6, 8(c) and 9 of our Amended and Restated Articles of Incorporation are incorporated by
reference from our Form 10-Q report for the quarter ended March 31, 2015.
Article I and V of our Bylaws, as amended through May 5, 2015, are incorporated by reference
from our Form 10-Q report for the quarter ended March 31, 2015.
Instruments defining the rights of holders of long-term debt securities of West and its subsidiaries
have been omitted.
First Amendment to Credit Agreement, dated as of September 4, 2015, by and among West, certain
of its subsidiaries, the several banks and other financial institutions party thereto, and PNC Bank,
National Association, as administrative agent for the Lenders incorporated by reference from our
Form 10-Q report for the quarter ended September 30, 2015.
Credit Agreement, dated as of October 15, 2015, between West, certain of its subsidiaries, the
lenders party thereto from time to time, PNC Bank, National Association, as Administrative Agent
and PNC Capital Markets, LLC, as Sole Lead Arranger and Sole Bookrunner, is incorporated by
reference from our Form 8-K dated October 15, 2015.
Note Purchase Agreement, dated July 5, 2012, among the Company and the Purchasers named
therein is incorporated by reference from our Form 8-K filed on July 10, 2012.
Retirement Separation Agreement, dated as of June 30, 2015, between us and Donald E. Morel, Jr.,
Ph.D., is incorporated by reference from our Form 8-K dated July 1, 2015.
2015 Long-Term Incentive Plan Award, dated as of June 30, 2015, between us and Donald E. Morel,
Jr., is incorporated by reference from our Form 10-Q report for the quarter ended June 30, 2015.
2015 Long-Term Incentive Plan Award, dated as of June 30, 2015, between us and Patrick Zenner,
is incorporated by reference from our Form 10-Q report for the quarter ended June 30, 2015.
Employment Agreement, dated as of April 13, 2015, between us and Eric M. Green, is incorporated
by reference from our Form 8-K dated April 15, 2015.
Indemnification Agreement, dated as of April 24, 2015, between us and Eric M. Green, is
incorporated by reference from our Form 8-K dated April 30, 2015.
Sign-On Retention Award Notice, dated as of April 24, 2015, from us to Eric M. Green, is
incorporated by reference from our Form 8-K dated April 30, 2015.
Form of Second Amended and Restated Change-in-Control Agreement between us and certain of
our executive officers dated as of March 25, 2000 is incorporated by reference from our 10-Q report
for the quarter ended March 31, 2000.
Form of Amendment No. 1 to Second Amended and Restated Change-in-Control Agreement dated
as of May 1, 2001 between us and certain of our executive officers is incorporated by reference
from our 2001 10-K report.
Form of Amendment No. 2 to Second Amended and Restated Change-in-Control Agreement
between us and certain of our executive officers, dated as of various dates in December 2008, is
incorporated by reference from our 2008 10-K report.
Schedule of agreements with executive officers is incorporated by reference from our 2008 10-K
report.
Separation and Release Agreement, dated as of July 31, 2014, between us and Jeffrey C. Hunt.
Change-in-Control Agreement, dated as of May 3, 2012, between us and John Paproski, is
incorporated by reference from our 2013 10-K report.
F-1
Exhibit
Number
10.16 (2)
10.17 (2)
10.18 (2)
10.19 (2)
10.20 (2)
10.21 (2)
10.22 (2)
10.23 (2)
10.24 (2)
10.25 (2)
10.26 (2)
10.27 (2)
10.28 (2)
10.29 (2)
10.30 (2)
10.31 (2)
10.32 (2)
10.33 (2)
10.34 (2)
10.35 (2)
10.36
10.37
Description
Change-in-Control Agreement, dated as of August 16, 2012, between us and Daniel Malone, is
incorporated by reference from our 2013 10-K report.
Change-in-Control Agreement, dated as of August 15, 2012, between us and Karen Flynn, is
incorporated by reference from our 2013 10-K report.
Employment Agreement, dated as of April 30, 2002, between us and Donald E. Morel, Jr. is
incorporated by reference from our 10-Q report for the quarter ended September 30, 2002.
Amendment #1 to the Employment Agreement between us and Donald E. Morel, Jr., dated as of
December 19, 2008, is incorporated by reference from our 2008 10-K report.
Non-Qualified Stock Option Agreement, dated as of April 30, 2002 between us and Donald E.
Morel, Jr. is incorporated by reference from our 10-Q report for the quarter ended September 30,
2002.
Indemnification Agreement, dated as of January 5, 2009 between us and Donald E. Morel, Jr. is
incorporated by reference from our Form 8-K dated January 6, 2009.
Supplemental Employees' Retirement Plan, as amended and restated effective January 1, 2008, is
incorporated by reference from our 2008 10-K report.
Non-Qualified Deferred Compensation Plan for Designated Employees, as amended and restated
effective January 1, 2008, is incorporated by reference from our 2008 10-K report.
Deferred Compensation Plan for Outside Directors, as amended and restated effective June 30,
2013, is incorporated by reference from our 2013 10-K report.
West Pharmaceutical Services, Inc. 2011 Omnibus Incentive Compensation Plan is incorporated by
reference from our Form 8-K filed on May 6, 2011.
2007 Omnibus Incentive Compensation Plan effective as of May 1, 2007, is incorporated by
reference to Exhibit 99.1 of the Company's Form 8-K dated May 4, 2007.
2004 Stock-Based Compensation Plan (now terminated) is incorporated by reference from our
Proxy Statement for the 2004 Annual Meeting of Shareholders.
Form of Executive 2006 Non-Qualified Stock Option Award is incorporated by reference from our
10-Q report for the quarter ended March 31, 2006.
Form of Director 2006 Non-Qualified Stock Option Award Notice is incorporated by reference from
our 10-Q report for the quarter ended June 30, 2006.
Form of Director 2006 Stock Unit Award Notice is incorporated by reference from our 10-Q report
for the quarter ended June 30, 2006.
Form of 2007 Non-Qualified Stock Option and Performance-Vesting Share Unit Award, issued
pursuant to the 2004 Stock-Based Compensation Plan, is incorporated by reference from our 10-Q
report for the quarter ended March 31, 2007.
Form of Director 2007 Deferred Stock Award, issued pursuant to the 2007 Omnibus Incentive
Compensation Plan, is incorporated by reference from our 10-Q report for the quarter ended June
30, 2007.
Form of 2008 Non-Qualified Stock Option and Performance-Vesting Share Unit Award, issued
pursuant to the 2007 Omnibus Incentive Compensation Plan, is incorporated by reference from our
10-Q report for the quarter ended March 31, 2008.
Form of Director 2008 Deferred Stock Award, issued pursuant to the 2007 Omnibus Incentive
Compensation Plan, is incorporated by reference from our 2008 10-K report.
Form of 2009 Supplemental Long-Term Incentive Award, is incorporated by reference from our 10-
Q report for the quarter ended September 30, 2009.
Credit Agreement, dated June 3, 2011, by and among us, certain of our subsidiaries, several banks
and other financial institutions from time to time parties thereto (the "Lenders") and PNC Bank,
National Association, as administrative agent for the Lenders.
Security Agreement, dated June 3, 2011, by and among us, the subsidiaries of the Company listed
on the signature pages thereto and PNC Bank, National Association, as administrative agent, for the
holders of the Obligations.
F-2
Exhibit
Number
10.38 (3)
10.39 (3)
10.40
10.41 (3)
10.42 (2)
10.43
10.44
10.45 (3)
10.46 (2)
10.47 (2)
21.
23.
31.1
31.2
32.1*
32.2*
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
Description
Agreement, effective as of January 1, 2005, between us and The Goodyear Tire & Rubber Company
is incorporated by reference from our 10-Q report for the quarter ended June 30, 2005.
First Agreement to Amend to Agreement, effective as of July 1, 2008, between us and The
Goodyear Tire & Rubber Company is incorporated by reference from our 10-Q report for the
quarter ended March 31, 2009.
Distributorship Agreement, dated January 25, 2007, between Daikyo Seiko, Ltd. and us is
incorporated by reference from our 2006 10-K report.
Amended and Restated Technology Exchange and Cross License Agreement, dated January 25,
2007, between us and Daikyo Seiko, Ltd. is incorporated by reference from our 2006 10-K report.
Letter Agreement dated as of March 30, 2006 between us and Donald E. Morel, Jr. is incorporated
by reference from our 10-Q report for the quarter ended June 30, 2006.
Note Purchase Agreement, dated as of July 28, 2005, among us and each of the purchasers listed on
Schedule A thereto, is incorporated by reference from our 8-K report dated August 3, 2005.
Indemnification agreements between us and each of our directors in the form of Exhibit 10.1 to our
Form 8-K report dated January 6, 2009, which is incorporated by reference.
Global Supply Agreement by and between ExxonMobil Chemical Company and us, entered into on
August 11, 2014, and effective January 1, 2014 through December 31, 2018 is incorporated by
reference from our Form 8-K report filed on August 15, 2014.
Form of 2014 Long-Term Incentive Plan Award is incorporated by reference from our Form 10-Q
report for the quarter ended March 31, 2014.
Form of 2014 Stock-Settled Restricted Stock Unit Award is incorporated by reference from our
Form 10-Q report for the quarter ended June 30, 2014.
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
(1) We agree to furnish to the SEC, upon request, a copy of each instrument with respect to issuances of long-term
debt of the Company and its subsidiaries.
(2) Management compensatory plan.
(3) Certain portions of this exhibit have been omitted pursuant to a confidential treatment request submitted to the
SEC.
* Furnished, not filed.
F-3
(This page has been left blank intentionally.)
2015 West ANNUAL REPORT
W E S T P H A R M A C E U T I C A L S E RV I C E S , I N C .
INVESTOR INFORMATION
Stock Listing
NYSE symbol: WST
Shareholders of Record
As of December 31, 2015: 863
Global Headquarters
West Pharmaceutical Services, Inc.
530 Herman O. West Drive | Exton, PA 19341 | USA
610-594-2900
www.westpharma.com
Average Daily Trading Volume 2015
First Quarter:
Second Quarter:
Third Quarter:
Fourth Quarter:
331,767 shares
260,506 shares
457,486 shares
257,331 shares
Annual Meeting
Tuesday, May 3, 2016, 9:30 a.m. | Exton, PA
Code of Business Conduct
Available at http://investor.westpharma.com
Investor Relations Contact
Quintin Lai, Ph.D.
VP, Corporate Development, Strategy &
Investor Relations
610-594-3318
Quintin.Lai@westpharma.com
Transfer Agent and Registrar
Broadridge Corporate Issuer Solutions
1717 Arch St., Suite 1300
Philadelphia, PA 19103
855-627-5084
shareholder@broadridge.com
Written Affirmation
On May 15, 2015, Eric M. Green, West’s
President & Chief Executive Officer,
submitted to the NYSE the Written
Affirmation required by the rules of the
NYSE certifying that he was not aware of
any violations by the Company of NYSE
Corporate Governance listing standards.
Section 302 and 906 Certifications
The certifications of Mr. Green and William
J. Federici, West’s Chief Financial Officer,
made pursuant to Section 302 and Section
906 of the Sarbanes-Oxley Act of 2002
regarding the quality of the Company’s
public disclosures, have been filed as
exhibits to West’s 2015 Form 10-K.
Dividends
West Pharmaceutical Services has paid 181
consecutive quarterly common stock cash
dividends since becoming a public company
in 1970. Dividends usually are declared by
the Board during the last month of each
calendar quarter and, if approved, typically
are paid on the first Wednesday of February,
May, August and November to shareholders
of record two weeks prior to the payment
date.
Publications
To receive copies of press releases or
quarterly and annual reports filed with the
United States Securities and Exchange
Commission, write to Investor Relations at
global headquarters, call 888-594-3222, or
send a message through West’s website,
westpharma.com.
Dividend Reinvestment Plan
The West Pharmaceutical Services
Dividend Reinvestment Plan for all
registered shareholders is a convenient
and economical way for shareholders to
increase their investment in West through
the purchase of additional shares with
dividends and voluntary cash payments.
All brokerage commissions and costs of
administering the plan are paid by West. For
details of the plan and an enrollment form,
please contact the Dividend Reinvestment
Department of Broadridge Corporate
Issuer Solutions (see Transfer Agent and
Registrar).
Investor On-Line
http://investor.westpharma.com
Trademarks
Daikyo Crystal Zenith® is a registered
trademark of Daikyo Seiko, Ltd. Crystal
Zenith technology is licensed from Daikyo
Seiko, Ltd. SmartDose® is a registered
trademark of Medimop Medical Projects
Ltd., a subsidiary of West Pharmaceutical
Services, Inc.
All other trademarks and registered trade-
marks used in this report are the property
of West Pharmaceutical Services, Inc. or its
subsidiaries, in the United States and other
jurisdictions, unless noted otherwise.
West Pharmaceutical Services, Inc.
530 Herman O. West Drive | Exton, PA 19341 | USA
610-594-2900
www.westpharma.com
Copyright © 2016 West Pharmaceutical Services, Inc.
#9496 • 0316