UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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(Amendment No. 1)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Pennsylvania
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23-1210010
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification Number)
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101 Gordon Drive, PO Box 645,
Lionville, PA
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19341-0645
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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þ
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Accelerated filer
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o
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Non-accelerated filer
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o
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(Do not check if a smaller reporting company)
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Smaller reporting company
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o
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WEST PHARMACEUTICAL SERVICES, INC.
(Registrant)
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By: /s/ William J. Federici
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William J. Federici
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Vice President and Chief Financial Officer
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Exhibit Number
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Description
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3.1*
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Our Amended and Restated Articles of Incorporation effective December 17, 2007 are incorporated by reference from our Form 8-K dated December 17, 2007.
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3.2*
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Our Bylaws, as amended through October 14, 2008 are incorporated by reference from our Form 8-K dated October 20, 2008.
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4.1*
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Form of stock certificate for common stock is incorporated by reference from our annual report on Form 10-K dated May 6, 1999.
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4.2*
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Article 5, 6, 8(c) and 9 of our Amended and Restated Articles of Incorporation are incorporated by reference from our Form 8-K dated December 17, 2007.
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4.3*
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Article I and V of our Bylaws, as amended through October 14, 2008 are incorporated by reference from our Form 8-K dated October 20, 2008.
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4.4*
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Instruments defining the rights of holders of long-term debt securities of West and its subsidiaries have been omitted. (1)
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10.1*
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Credit Agreement, dated June 3, 2011, by and among West Pharmaceutical Services, Inc., our direct and indirect subsidiaries from time to time parties thereto, the several banks and other financial institutions from time to time parties thereto and PNC Bank, National Association, as administrative agent for the Lenders incorporated by reference from our Form 8-K filed on June 9, 2011.
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10.2*
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Security Agreement, dated June 3, 2011, by and among West Pharmaceutical Services, Inc., our subsidiaries listed on the signature pages thereto and PNC Bank, National Association, as administrative agent incorporated by reference from our Form 8-K filed on June 9, 2011.
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10.3*
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Global Supply Agreement between West Pharmaceutical Services, Inc. and ExxonMobil Chemical Company incorporated by reference from our Form 8-K filed on July 1, 2011.
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31.1*
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Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2*
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Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1*
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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.
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32.2*
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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.
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101.INS**
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XBRL Instance Document
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101.SCH**
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XBRL Taxonomy Extension Schema Document
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101.CAL**
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.LAB**
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE**
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XBRL Taxonomy Extension Presentation Linkbase Document
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101.DEF**
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XBRL Taxonomy Extension Definition Linkbase Document
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CONDENSED CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED) (USD $)
In Millions |
Total
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Common Stock [Member]
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Capital in Excess of Par Value [Member]
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Treasury Stock [Member]
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Retained earnings [Member]
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Accumulated other comprehensive (loss) income [Member]
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Balance, Beginning at Dec. 31, 2010 | $ 625.7 | $ 8.6 | $ 77.3 | $ (41.5) | $ 612.6 | $ (31.3) |
Balance, Beginning (in shares) at Dec. 31, 2010 | 34.3 | (1.0) | ||||
Net income | 39.7 | 39.7 | ||||
Stock-based compensation | 5.4 | 5.4 | ||||
Shares issued under stock plans | 6.0 | (11.2) | 17.2 | |||
Shares issued under stock plans (in shares) | 0.4 | |||||
Shares repurchased for employee tax withholdings | (3.5) | (3.5) | ||||
Shares repurchased for employee tax withholdings (in shares) | (0.1) | |||||
Excess tax benefit from employee stock plans | 3.1 | 3.1 | ||||
Dividends declared | (11.1) | (11.1) | ||||
Other comprehensive income, net of tax | 30.7 | 30.7 | ||||
Balance, Ending at Jun. 30, 2011 | $ 696.0 | $ 8.6 | $ 74.6 | $ (27.8) | $ 641.2 | $ (0.6) |
Balance, Ending (in shares) at Jun. 30, 2011 | 34.3 | (0.7) |
Inventories (Tables)
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Note 6: Inventories Inventories are valued at the lower of standard cost (which approximates actual cost on a first-in-first-out basis) or market. Inventory balances were as follows:
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Document And Entity Information (USD $)
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6 Months Ended | ||
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Jun. 30, 2011
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Jul. 31, 2011
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Jun. 30, 2010
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Entity Registrant Name | WEST PHARMACEUTICAL SERVICES INC | ||
Entity Central Index Key | 0000105770 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $ 1,213,616,750 | ||
Entity Common Stock, Shares Outstanding | 33,672,936 | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q2 | ||
Document Type | 10-Q | ||
Amendment Flag | false | ||
Document Period End Date | Jun. 30, 2011 |
Benefit Plans (Tables)
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Jun. 30, 2011
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Benefit Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of net periodic benefit cost | The components of net periodic benefit cost for the three months ended June 30 were as follows ($ in millions):
The components of net periodic benefit cost for the six months ended June 30 were as follows ($ in millions):
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Revolving Credit Facility
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6 Months Ended |
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Jun. 30, 2011
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Revolving Credit Facility [Abstract] | |
Revolving Credit Facility | Note 7: Revolving Credit Facility In June 2011, we entered into a credit agreement governing our new $50.0 million revolving credit facility. The proceeds of the loans will be used to finance the construction and acquisition of our new corporate office and research facility. We currently expect to acquire the new facility during the first quarter of 2013. On the date of acquisition, the revolving loan balance will be converted to a five-year term loan. Borrowings under the loans will bear interest at a variable rate equal to one-month LIBOR plus a margin of 1.50 percentage points. The credit agreement requires us to maintain a total leverage ratio no greater than 3.50 to 1.00 and an interest coverage ratio greater than or equal to 2.50 to 1.00. In connection with the new credit agreement, we incurred debt issuance costs of $0.3 million which are recorded in other noncurrent assets and are being amortized as additional interest expense over the term of the credit facility. As of June 30, 2011, we had no balance outstanding under this new credit facility. |
Segment Information (Tables)
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Jun. 30, 2011
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Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | The following table presents information about our reportable segments, reconciled to consolidated totals:
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Comprehensive Income (Tables)
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Comprehensive Income [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income | Comprehensive income (loss) was as follows:
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Segment Information
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Jun. 30, 2011
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Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | Note 12: Segment Information Our operations are comprised of two reportable segments: Pharmaceutical Packaging Systems (“Packaging Systems”) and Pharmaceutical Delivery Systems (“Delivery Systems”). Packaging Systems consists of our core pharmaceutical packaging products for injectable drug delivery, including stoppers and seals for vials, closures and other components used in syringe, intravenous and blood collection systems, as well as laboratory and other services. 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. Segment operating profit excludes general corporate costs, including stock-based compensation, adjustments to annual incentive plan expense for over- or under-attainment and certain pension and other retirement benefit costs. Also excluded are items that management considers not representative of ongoing operations, such as restructuring and related charges, certain asset impairments and other specifically identified gains and losses. The following table presents information about our reportable segments, reconciled to consolidated totals:
During the second quarter of 2011, we incurred $2.1 million in separation costs related to the retirement of our former President and Chief Operating Officer. These costs are included within other unallocated items and consist primarily of stock-based compensation expense. The respective equity compensation arrangements were amended to allow certain of his awards to continue to vest over the original vesting period instead of being forfeited upon separation, resulting in a revaluation of the awards and acceleration of expense. Also included within other unallocated items are restructuring and related costs, as well as other specifically identified gains and losses, which are discussed further in Note 2, Restructuring and Other Items. |
Income Taxes
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6 Months Ended |
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Jun. 30, 2011
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Income Taxes [Abstract] | |
Income Taxes | Note 3: Income Taxes The tax provision for interim periods is determined using the estimated annual effective tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items. For the three and six months ended June 30, 2011, our effective tax rate was 22.5% and 23.7%, respectively, compared with 24.6% for both periods in 2010. Discrete tax items did not have a significant impact on our effective tax rate for the three and six month periods ended June 30, 2011. In the second quarter of 2010, we recognized a $0.5 million discrete tax charge. It is reasonably possible that, due to the expiration of statutes and the closing of audits during the next twelve months, the total amount of unrecognized tax benefits may be reduced further by approximately $0.8 million, resulting in a favorable impact on the effective tax rate. During each of the six month periods ended June 30, 2011 and 2010, we recognized $0.1 million in tax-related interest expense. The balance of accrued interest related to uncertain tax positions was $0.5 million and $0.4 million at June 30, 2011 and December 31, 2010, respectively. Because we are a global organization, we and our subsidiaries file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. We are subject to examination in the U.S. Federal tax jurisdiction for tax years 2007 through 2010. We are also open for examination in various state and foreign jurisdictions for tax years 2005 through 2010. |
Comprehensive Income (Details) (USD $)
In Millions |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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Comprehensive Income [Abstract] | ||||
Net income | $ 20.1 | $ 21.7 | $ 39.7 | $ 41.6 |
Other comprehensive income (loss), net of tax: [Abstract] | ||||
Foreign currency translation adjustments | 10.2 | (28.0) | 31.5 | (46.6) |
Defined benefit pension and other postretirement plans | 0.6 | 0.8 | 0.5 | 2.0 |
Unrealized gains (losses) on derivatives: [Abstract] | ||||
Unrealized gains arising during the period | 0.1 | 0.4 | 0.1 | 0.9 |
Losses included in net income | (0.6) | (0.8) | (1.4) | (1.6) |
Net unrealized losses on derivatives | (0.5) | (0.4) | (1.3) | (0.7) |
Other comprehensive income (loss), net of tax | 10.3 | (27.6) | 30.7 | (45.3) |
Comprehensive income (loss) | $ 30.4 | $ (5.9) | $ 70.4 | $ (3.7) |
Comprehensive Income
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Jun. 30, 2011
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Comprehensive Income [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income | Note 9: Comprehensive Income (Loss) Comprehensive income (loss) was as follows:
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New Accounting Standards
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6 Months Ended |
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Jun. 30, 2011
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New Accounting Standards [Abstract] | |
New Accounting Standards | Note 14: New Accounting Standards Recently Adopted Standards In December 2010, the FASB issued amended guidance for business combinations. The update addresses diversity in the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations, and defines the periods for which pro forma information should be presented. This guidance was effective for us as of January 1, 2011 and will be applied prospectively to business combinations entered into on or after that date. In September 2009, the FASB issued revised guidance for multiple-deliverable revenue arrangements. The guidance requires companies to allocate revenue in these types of arrangements based on an element’s estimated selling price if vendor-specific or other third-party evidence is not available. This guidance also expands required disclosures. We adopted this guidance as of January 1, 2011, on a prospective basis. The adoption did not have a material impact on our financial statements. Standards Issued Not Yet Adopted In June 2011, the FASB issued guidance which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. This guidance eliminates the option to report components of other comprehensive income as part of the statement of equity. This guidance is effective for reporting periods beginning on or after December 15, 2011. Management believes the adoption will not have a material impact on our financial statements. In May 2011, the FASB issued guidance to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. It also changes certain fair value measurement principles and expands the disclosures for fair value measurements that are estimated using significant unobservable inputs. This guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. Management believes the adoption will not have a material impact on our financial statements. |
Stock-Based Compensation
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6 Months Ended |
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Jun. 30, 2011
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Stock-Based Compensation [Abstract] | |
Stock-Based Compensation | Note 10: Stock-Based Compensation In the first quarter of 2011, we granted 471,468 stock options at a weighted average exercise price of $40.85 per share based on the grant-date fair value of our stock to key employees under the 2007 Omnibus Incentive Compensation Plan (the “2007 Plan”). Stock options granted to employees vest in equal annual increments over four years of continuous service. All awards expire ten years from the date of grant. The weighted average grant date fair value of options granted was $8.76 per share as determined by the Black-Scholes option valuation model using the following weighted average assumptions: a risk-free interest rate of 2.16%; expected life of 5.5 years based on prior experience; stock volatility of 24.3% based on historical data; and a dividend yield of 1.7%. Stock option expense is recognized over the vesting period, net of forfeitures. In addition, during the first quarter of 2011, we granted 101,099 performance-vesting share (“PVS”) awards at a grant-date fair value of $40.85 per share to key employees under the 2007 Plan. Each PVS award entitles the holder to one share of our common stock if the annual growth rate of revenue and return on invested capital targets are achieved over a three-year performance period. The actual payout may vary from 0% to 200% of an employee’s targeted award. The fair value of PVS awards was based on the market price of our stock at the grant date and is recognized as an expense over the performance period, adjusted for estimated target outcomes and net of forfeitures. On May 3, 2011, the 2011 Omnibus Incentive Compensation Plan (the “2011 Plan”) was approved by our shareholders. All remaining shares available for issuance under the 2007 Plan were extinguished upon adoption of the 2011 Plan. Awards granted under previous plans remain outstanding until expiration or settlement. 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. A committee of the Board of Directors determines the terms and conditions of awards to be granted. Vesting requirements vary by award. At inception, there were 4,800,000 shares of common stock available for issuance under the 2011 Plan. Stock options and stock appreciation rights reduce the number of shares available 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. At June 30, 2011, there were 4,735,429 shares remaining in the 2011 Plan. |
Inventories (Details) (USD $)
In Millions |
Jun. 30, 2011
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Dec. 31, 2010
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Inventories, net [Abstract] | ||
Finished goods | $ 71.9 | $ 65.1 |
Work in process | 23.6 | 21.4 |
Raw materials | 65.7 | 60.5 |
Total inventories | $ 161.2 | $ 147.0 |
Net Income Per Share
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Jun. 30, 2011
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Net Income Per Share | Note 8: 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:
Options to purchase 1.0 million and 1.3 million shares of our common stock for the three months ended June 30, 2011 and 2010, respectively, were not included in the computation of diluted net income per share because their impact would be antidilutive. There were 1.2 million and 1.0 million antidilutive options outstanding during the six month periods ended June 30, 2011 and 2010, respectively. |
Summary of Significant Accounting Policies
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6 Months Ended |
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Jun. 30, 2011
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Summary of Significant Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Note 1: Summary of Significant Accounting Policies Basis of Presentation: The condensed consolidated financial statements included in this report are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and Securities and Exchange Commission ("SEC") regulations. The year-end condensed consolidated balance sheet data was derived from audited financial statements. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, these financial statements include all adjustments which are of a normal recurring nature, necessary for a fair statement of the financial position, results of operations, cash flows and the change in equity for the periods presented. The condensed consolidated financial statements for the three and six month periods ended June 30, 2011 should be read in conjunction with the consolidated financial statements and notes thereto of West Pharmaceutical Services, Inc. (which may be referred to as "West", "the Company", "we", "us" or "our"), appearing in our Annual Report on Form 10-K for the year ended December 31, 2010 ("2010 Annual Report"). The results of operations for any interim period are not necessarily indicative of results for the full year. |
Derivative Financial Instruments
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Jun. 30, 2011
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Derivative Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Note 4: 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 On February 25, 2011, we exercised an option to purchase our new corporate office and research facility. Refer to Note 13, Commitments and Contingent Liabilities, for additional details. In conjunction with this, we anticipate that during the first quarter of 2013, we will borrow $43.0 million pursuant to a five-year term loan with a variable interest rate. In anticipation of this debt, we entered into a forward-start interest rate swap with the same notional amount in order to hedge the variability in cash flows due to changes in the applicable interest rate over the five-year period beginning January 2013. Under this swap, we will receive variable interest rate payments based on one-month London Interbank Offering Rates (“LIBOR”) plus a margin in return for making monthly fixed interest payments at 5.41%. We designated the forward-start interest rate swap as a cash flow hedge. As a result of our normal borrowing activities, we have entered into long-term debt obligations with both fixed and variable interest rates. As of June 30, 2011, we have two interest rate swap agreements outstanding. Both swap agreements are designated as cash flow hedges to protect against volatility in the interest rates payable on our $50.0 million note maturing July 28, 2012 (“Series A Note”) and our $25.0 million note maturing July 28, 2015 (“Series B Note”). Under both of these swaps, we will receive variable interest rate payments based on three-month LIBOR in return for making quarterly fixed rate payments. Including the applicable margin, the interest rate swap agreements effectively fix the interest rates payable on the Series A and B notes at 5.32% and 5.51%, respectively. Foreign Exchange Rate Risk As described in more detail below, during 2011, we entered into several foreign currency hedge contracts that were designated as cash flow hedges of forecasted transactions denominated in foreign currencies. We entered into a series of foreign currency contracts intended to hedge the currency risk associated with a portion of our forecasted Japanese Yen (“JPY”) denominated purchases of inventory from Daikyo Seiko Ltd. made by certain European subsidiaries. As of June 30, 2011, there were six monthly contracts outstanding at ¥95.0 million each, for an aggregate notional amount of ¥570.0 million (approximately $7.0 million). We have also entered into a series of foreign currency contracts to hedge the currency risk associated with a portion of our forecasted U.S. dollar (“USD”) denominated inventory purchases by certain European subsidiaries. As of June 30, 2011, there were six monthly contracts outstanding at $0.8 million each, for an aggregate notional amount of $4.8 million. In addition, we 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. As of June 30, 2011, there were six monthly contracts outstanding at $1.2 million each, for an aggregate notional amount of $7.2 million. As of June 30, 2011 and December 31, 2010, a portion of our long-term debt consisted of borrowings denominated in currencies other than the U.S. dollar. We designated our €81.5 million Euro-denominated notes as a hedge of our net investment in certain European subsidiaries. A cumulative foreign currency translation loss of $17.2 million pre-tax ($10.6 million after tax) on this debt was recorded within accumulated other comprehensive loss as of June 30, 2011. We have also designated our 1.0 billion Yen-denominated note payable as a hedge of our net investment in a Japanese affiliate. At June 30, 2011, there was a cumulative foreign currency translation loss on this Yen-denominated debt of $1.5 million pre-tax ($0.9 million after tax) which was also included within accumulated other comprehensive loss. Commodity Price Risk Many of our Packaging Systems products are made from synthetic elastomers, which are derived from the petroleum refining process. We purchase the majority of our elastomers via long-term supply contracts, some of which contain clauses that provide for surcharges related to fluctuations in crude oil prices. We entered into the following economic hedges that did not qualify for hedge accounting treatment since they did not meet the highly effective requirement at inception. In January 2011, we purchased a series of call options for a total of 77,900 barrels of crude oil, intended to mitigate our exposure to such oil-based surcharges and protect operating cash flows with regard to a portion of our forecasted elastomer purchases during the months of May through November 2011. With these option contracts, we may benefit from a decline in crude oil prices, as there is no downward exposure other than the $0.5 million premium that we paid to purchase the contracts. During the three and six month periods ended June 30, 2011, a loss of $0.2 million and a gain of $0.7 million, respectively, was recorded in cost of goods and services sold related to these outstanding call options. During the three and six month periods ended June 30, 2010, a loss of $0.2 million and $0.3 million, respectively, related to crude-oil options was recorded in cost of goods and services sold. Effects of Derivative Instruments on Financial Position and Results of Operations Refer to Note 5, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of June 30, 2011 and December 31, 2010. The following tables summarize the effects of derivative instruments designated as hedges on other comprehensive income (“OCI”) and earnings:
For the three and six month periods ended June 30, 2011 and 2010, there was no ineffectiveness related to our cash flow and net investment hedges. |
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