WEST PHARMACEUTICAL SERVICES INC

Note 11: Derivative Financial Instruments

Our ongoing business operations expose us to various risks, such as fluctuating interest rates, foreign currency exchange rates and increasing commodity prices. To manage these market risks, we periodically enter into derivative financial instruments, such as interest rate swaps, options and foreign exchange contracts for periods consistent with, and for notional amounts equal to or less than, the related underlying exposures. We do not purchase or hold any derivative financial instruments for investment or trading purposes. All derivatives are recorded in our consolidated balance sheet at fair value.

Foreign Currency Exchange Rate Risk

We have entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany loans. As of December 31, 2024 the total amount of these forward exchange contracts was Singapore Dollar ("SGD")421.9 million and $13.4 million. As of December 31, 2023 the total amount of these forward exchange contracts was SGD 601.5 million and $13.4 million. We have also entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany demand notes which were executed at various times throughout 2023 and 2024. As of December 31, 2024, the total amount of these forward exchange contracts was Euro ("EUR")145.3 million and $47.1 million. As of December 31, 2023, the total amount of these forward exchange contracts was EUR 278.6 million and SGD 94.0 million.

In addition, we have entered into several foreign currency contracts, designated as cash flow hedges, for periods of up toeighteen months, intended to hedge the currency risk associated with a portion of our forecasted transactions denominated in foreign currencies.

As of December 31, 2024, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:

In December 2019, we entered into afive-year floating-to-floating forward-starting cross-currency swap for $90 million, which we designated as a hedge of our net investment in Daikyo. This cross-currency swap had an original maturity date of December 31, 2024, but was extinguished in July 2024. In July 2024, we entered into a new cross-currency swap for $130 million, which we designated as a hedge of our net investment in Daikyo. As of December 31, 2024, the notional amount of the cross-currency swap is Japanese Yen ("JPY")17.0 billion ($130.0 million) and the swap termination date is July 2, 2027. Under the current cross-currency swap, we receive fixed USD interest rate payments in return for paying fixed JPY interest rate payments.

Additionally, we will periodically enter into forward exchange contracts to mitigate our exposure to fluctuating foreign exchange rates on assets and liabilities, other than the intercompany loans and demand notes referenced above, which are denominated in foreign currencies. The Company has elected not to designate these forward contracts in hedging relationships, and any change in the value of the contracts is recognized in income.

Commodity Price Risk

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

We regularly purchase call options on 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. As of December 31, 2024, we had outstanding contracts to purchase 190,773 barrels of crude oil from December 2024 to June 2026, at a weighted-average strike price of $84.70 per barrel.

Effects of Derivative Instruments on Financial Position and Results of Operations

Please refer to Note 12, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of December 31, 2024 and 2023.

The following table summarizes the effects of derivative instruments designated as fair value hedges in our consolidated statements of income for the years ended December 31:

We recognize in earnings the initial value of forward point components on a straight-line basis over the life of the fair value hedge. The expense recognized in earnings, pre-tax, for forward point components for the years ended December 31, 2024 and 2023 was $5.9 million and $0.2 million, respectively. The income recognized in earnings, pre-tax, for forward point components for the year ended December 31, 2022 was $4.0 million. We expect to recognize an expense of $0.3 million in earnings, pre-tax, for forward point components in 2025.

The following tables summarize the effects of derivative instruments designated as fair value, cash flow, and net investment hedges on OCI and earnings, net of tax, for the years ended December 31:

Refer to the above table which summarizes the effects of derivative instruments designated as fair value hedges within the other expense (income) line in our consolidated statements of income for the years ended December 31. The following table summarizes the effects of derivative instruments designated as cash flow and net investment hedges by line item in our consolidated statements of income for the years ended December 31:

The following table summarizes the effects of derivative instruments not designated as hedges in our consolidated statements of income for the years ended December 31:

During 2024, 2023 and 2022 there was no material ineffectiveness related to our hedges.