0000105770-95-000018.txt : 19950815 0000105770-95-000018.hdr.sgml : 19950815 ACCESSION NUMBER: 0000105770-95-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST CO INC CENTRAL INDEX KEY: 0000105770 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 231210010 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08036 FILM NUMBER: 95562919 BUSINESS ADDRESS: STREET 1: 101 GORDON DR STREET 2: P O BOX 645 CITY: LIONVILLE STATE: PA ZIP: 19341-0645 BUSINESS PHONE: 6105942900 MAIL ADDRESS: STREET 1: 101 GORDON DRIVE STREET 2: PO BOX 645 CITY: LIONVILLE STATE: PA ZIP: 19341-0645 10-Q 1 This report contains 22 pages (including cover page) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended June 30, 1995 --------------- Commission File Number 0-5884 ------ THE WEST COMPANY, INCORPORATED ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1210010 ------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 101 Gordon Drive, PO Box 645, Lionville, PA 19341-0645 ------------------------------------- ---------------------- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code 610-594-2900 N/A --------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. 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 twelve months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ------ ------- July 31, 1995 --16,573,177 -------------------------------------------------------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Page 2 Index Form 10-Q for the Quarter Ended June 30, 1995 Page Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Income for the Three and Six Months ended June 30, 1995 and June 30, 1994 3 Condensed Consolidated Balance Sheets as of June 30, 1995 and December 31, 1994 4 Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 1995 and June 30, 1994 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II - Other Information Item 1. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 13 Index to Exhibits F-1 Page 3 Part I - Financial Information Item 1. Financial Statements The West Company, Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
(Unaudited) (Unaudited) Six Months Ended Six Months Ended June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994 Net sales $109,000 100 % $91,500 100 % $204,200 100 % $178,600 100 % Cost of goods sold 77,100 71 61,500 67 139,800 68 119,400 67 -------------------------------------------------------------------------------------------------- Gross profit 31,900 29 30,000 33 64,400 32 59,200 33 Selling, general and administrative expenses 18,100 16 17,100 18 35,300 17 32,900 18 Other (income) expense, net (1,300) (1) 500 1 (1,300) - 1,200 1 -------------------------------------------------------------------------------------------------- Operating profit 15,100 14 12,400 14 30,400 15 25,100 14 Interest expense, net 2,000 2 700 1 3,400 2 1,300 1 --------------------------------------------------------------------------------------------------- Income before income taxes and minority interests 13,100 12 11,700 13 27,000 13 23,800 13 Provision for income taxes 4,700 4 4,200 4 9,800 5 8,900 5 Minority interests 300 - 600 1 500 - 1,100 - --------------------------------------------------------------------------------------------------- Income from consolidated Page 4 operations 8,100 8 % 6,900 8 % 16,700 8 % 13,800 8 % Equity in net income of affiliated companies 600 600 200 700 --------------------------------------------------------------------------------------------------- Net income $ 8,700 $ 7,500 $ 16,900 $ 14,500 --------------------------------------------------------------------------------------------------- Net income per share $ .52 $ .47 $ 1.02 $ .91 ---------------------------------------------------------------------------------------------------- Average shares outstanding 16,531 15,993 16,511 15,975 Certain items have been reclassed to conform with current classifications See accompanying notes to interim financial statements.
Page 5 The West Company, Incorporated and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
(Unaudited) ASSETS June 30, 1995 Dec. 31, 1994 -------------- ------------- Current assets: Cash, including equivalents $ 15,300 $ 27,200 Accounts receivable, net 66,200 57,800 Inventories 51,900 38,100 Other current assets 22,700 13,600 --------------------------------------------------------------------------- Total current assets 156,100 136,700 --------------------------------------------------------------------------- Property, plant and equipment, net 230,500 192,200 Investments in affiliated companies 24,900 21,900 Intangibles and other assets, net 73,600 46,600 -------------------------------------------------------------------------- Total Assets $485,100 $ 397,400 -------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 6,200 $ 19,200 Notes payable 36,000 2,700 Accounts payable 19,200 19,300 Other current liabilities 32,400 45,100 --------------------------------------------------------------------------- Total current liabilities 93,800 86,300 --------------------------------------------------------------------------- Long-term debt, excluding current portion 82,100 35,900 Deferred income taxes 33,900 24,400 Other long-term liabilities 23,500 21,600 Minority interests 2,700 1,900 Shareholders' equity 249,100 227,300 -------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $485,100 $397,400 --------------------------------------------------------------------------- See accompanying notes to interim financial statements. Page 6
The West Company Incorporated and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
(Unaudited) Six Months Ended June 30, 1995 June 30, 1994 ---------------- ------------------- Cash flows from operating activities: Net income, plus net non-cash items $ 31,600 $ 26,700 Changes in assets and liabilities (15,800) (9,500) ------------------------------------------------------------------------------------------ Net cash provided by operating activities 15,800 17,200 ------------------------------------------------------------------------------------------ Cash flows from investing activities: Property, plant and equipment acquired (14,800) (11,000) Proceeds from sale of assets 100 800 Payments for acquisitions, net of cash acquired (62,300) (4,500) Customer advances (4,700) - ------------------------------------------------------------------------------------------ Net cash used in investing activities (81,700) (14,700) ------------------------------------------------------------------------------------------ Cash flows from financing activities: New long-term debt 38,100 - Repayment of long-term debt (15,000) (900) Notes payable, net 33,000 3,800 Dividend payments (3,900) (3,500) Sale of common stock, net 900 1,500 ------------------------------------------------------------------------------------------ Net cash provided by financing activities 53,100 900 ------------------------------------------------------------------------------------------ Effect of exchange rates on cash 900 200 ------------------------------------------------------------------------------------------ Net (decrease) increase in cash, including equivalents $(11,900) $ 3,600 ------------------------------------------------------------------------------------------ See accompanying notes to interim financial statements. Page 7
The West Company, Incorporated and Subsidiaries Notes to Consolidated Financial Statements Interim results are based on the Company's accounts without audit. The interim consolidated financial statements for the quarter ended June 30, 1995 should be read in conjunction with the consolidated financial statements and notes thereto of The West Company, Incorporated appearing in the Company's 1994 Annual Report on Form 10-K. 1. Interim Period Accounting Policy --------------------------------- In the opinion of management, the unaudited Condensed Consolidated Balance Sheet as of June 30, 1995 and the related unaudited Consolidated Statements of Income for the three and six months then ended and the unaudited Condensed Consolidated Statement of Cash Flows for the six month period then ended and for the comparative periods in 1994 contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position as of June 30, 1995 and the results of operations and cash flows for the respective periods. The results of operations for any interim period are not necessarily indicative of results for the full year. Operating Expenses ------------------ Certain operating expenses have been annualized for interim reporting purposes. Income Taxes ------------- The tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on current estimates of full year results, except that taxes applicable to operating results in Brazil are recorded on a basis discrete to the period and prior year adjustments, if any, are recorded as identified. 2. Inventories at June 30, 1995 and December 31, 1994 are summarized as follows: Audited (in thousands) 1995 1994 -------- -------- Finished goods $ 21,400 $ 17,000 Work in process 11,000 5,300 Raw materials and supplies 19,500 15,800 -------- -------- $ 51,900 $ 38,100 -------- -------- -------- -------- Page 8 The West Company, Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Continued) 3. The carrying value of property, plant and equipment is determined as follows: Audited (in thousands) 1995 1994 -------- -------- Property, plant and equipment $ 433,000 $ 366,800 Less accumulated depreciation 202,500 174,600 -------- -------- Property, plant and equipment, net $ 230,500 $ 192,200 -------- -------- -------- -------- 4. Common stock issued at June 30, 1995 was 16,844,735 shares, of which 309,242 shares were held in treasury. Dividends of $.12 per common share were paid in the second quarter of 1995 and a dividend of $.12 per share payable to holders of record on July 19, 1995 was declared on May 2, 1995. 5. The Company has accrued the estimated cost of environmental compliance expenses related to current and former manufacturing facilities. The ultimate cost to be incurred by the Company cannot be fully determined; however, based on information currently available, the Company believes the accrued liability is sufficient to cover the future costs of required remedial actions. 6. On April 27, 1995 the Company announced that it completed its acquisition of Paco Pharmaceutical Services, Inc. and subsidiaries, ("Paco") a public company traded over-the- counter. The merger followed the completion of a cash tender offer for Paco common stock at $12.25 per share. Paco became a wholly-owned subsidiary of the Company, and has been consolidated beginning on May 1, 1995. The following table presents selected financial information for the six months ended June 30, 1995 on a proforma basis assuming the acquisition of 100% of Paco had occurred on January 1, 1995 and $0.5 million of cost savings, (pro-rated over the first four months) related to synergies of the companies had been realized. Net sales $ 224,200 Income before taxes 25,900 Income from consolidated operations 15,900 Net income 16,100 Net income per share $ .98 Page 9 Item 2. Management's Discussion and Analysis of Financial Condition and -------------------------------------------------------------- Results of Operations. ---------------------- Results of Operations for the Quarter and Six Months Ended June ----------------------------------------------------------------- 30, 1995 Versus the Comparable 1994 Periods ----------------------------------------------------------------- Net Sales --------- Net sales for the second quarter of 1995 were $17.5 million, or 19.3%, higher versus the same quarter in 1994. For the six months, net sales were $25.6 million, or 14.4%, higher compared with the same period in 1994. For both the quarter and the six month period, net sales increases primarily reflect acquisitions, Paco Pharmaceutical Services, Inc. (Paco) in April 1995 and 51% of Schubert Seals A/S (Schubert) in May 1994. Also, sales increased because of favorable exchange rates, strong demand for the Company's Spout-Pak closure system for gable-carton juice containers, and continued strong demand in international health care markets. These increases were offset in part by lower machinery sales and lower sales to U.S. health care markets in the first quarter. Gross Profit ------------ Gross profit increased 6.5% in the second quarter; however the gross margin was 29.2% for the second quarter 1995 which was 3.6 percentage points lower compared with the same quarter in 1994. Excluding the consolidation of Paco, the margin would have been 30.8%. Higher material costs and a change in product mix were the primary reasons for the lower margin. In addition in South America, government-mandated increases in salary and fringe benefits also had a negative effect on the gross margin. For the first six months of 1995, the gross margin was 31.5% which was 1.7 percentage points lower versus the same period in 1994. Excluding Paco, the gross margin would have been 32.5%. The reduced gross margin reflects product mix and higher material prices. However, gross margins continued to improve in Europe because of strong demand for the Company's products. Selling, General and Administrative Expenses -------------------------------------------- Selling, general and administrative expenses (SG&A) increased by $1.0 million for the second quarter 1995 versus 1994 and $2.4 Page 10 Item. 2. Management Discussion and Analysis of Financial Condition and -------------------------------------------------------------- Results of Operations. (Continued) ---------------------------------- million for the six month period. Additional expenses from the consolidation of Paco and Schubert and a weaker U.S. dollar were offset in part by cost savings from staff reductions and lower claim costs. However, SG&A is lower as a percentage of sales in 1995 compared with 1994. Other (income), expense, net ---------------------------- Other income, net, for the second quarter increased by $1.8 million compared with the same quarter in 1994. For the six month period other income increased by $2.5 million compared with 1994. Lower foreign exchange losses in Brazil, a gain from the sale of a small unprofitable business line, and higher investment income were the primary reasons for the improvements. Interest Expense, Minority Interests and Equity in Affiliates -------------------------------------------------------------- Higher average debt levels related to acquired companies, the financing of acquisitions in 1994 and 1995 and a weaker U.S. dollar increased interest expense by $1.3 million for the second quarter and by $2.1 million for the six month period compared with 1994. Minority interests are lower reflecting the buyout of the remaining minority ownerships in the Company's largest subsidiaries in Europe which occurred in the fourth quarter of 1994. Equity in the net income of affiliated companies was unchanged in 1995 compared with the same quarter in 1994. For the six months, the Company's share of net income was lower by $0.5 million compared with 1994. The devaluation of the Mexican peso was the primary reason and continues to have a negative effect on results. Taxes ----- The tax rate for the second quarter 1995 was 35.9%. This reflects the reduction in the estimated effective annual tax rate to 36.5%. The lower estimated tax rate reflects the mix of earnings with a higher proportion of earnings in low tax jurisdictions. The estimated effective annual tax rate at June 30, 1994 was 37.25%. The effective annual tax rate at the end of 1994 was 31.8%, reflecting the one-time impact of a net refund of Page 11 Item. 2. Management Discussion and Analysis of Financial Condition and -------------------------------------------------------------- Results of Operations. (Continued) ---------------------------------- foreign taxes paid by subsidiaries in prior years, triggered by the payment of dividends. No similar significant one-time benefits are expected in 1995. Net Income ---------- Net income for the second quarter 1995 was $8.7 million, or $.52 per share, compared with net income for the second quarter 1994 $7.5 million, or $.47 per share. Net income for six months ended June 30, 1995 was $16.9 million, or $1.02 per share, compared with net income of $14.5 million, or $.91 per share. Financial Position ------------------- Working capital at June 30, 1995 was $62.3 million compared with $50.4 million at December 31, 1994. Working capital increased because of the consolidation of Paco. The working capital ratio at June 30, 1995 was 1.66 to 1. Cash on hand and cash flows from operations were adequate to fund capital expenditures, repay long-term debt and pay dividends. Available cash and debt facilities were used to fund the acquisition of Paco and meet final obligations for the Company's purchase of the remaining minority interests in five subsidiaries in Europe. Total debt as a percentage of total invested capital was 33.1% at June 30, 1995, compared to 20.1% at December 31, 1994. At June 30, 1995, the Company had available unused lines of credit of $9.9 million. Page 12 Part II - Other Information Item 1. Legal Proceedings. ------------------ A. Wayne, New Jersey ------------------ The Company is a party to an Administrative Consent Order with the New Jersey Department of Environmental Protection (DEP) under which the Company is required to submit and perform a cleanup plan for property formerly owned by the Company in Wayne, New Jersey. The DEP has approved the Company's plan which permits a plastic waste-disposal area to be capped and to remain in place, subject to placing a use restriction on that portion of the property, and subject to the DEP's further determination of the extent to which groundwater monitoring will be required. The present owner of the property has thus far declined to provide the use restriction and the Company has initiated legal action against him to compel him to provide the use restriction. The DEP has not yet taken final action with respect to any further remedial steps such as ground water monitoring which may be required as part of the cleanup plan. See note number 5 of the Notes to Consolidated Financial Statements beginning on page 8 of this report. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Company held its annual meeting of shareholders on May 2, 1995. (c) George W. Ebright, L. Robert Johnson, John F. Neafsey, Hans Wimmer and Geoffrey F. Worden were elected Class II directors (with a term expiring in 1998) by a vote of 12,979,139 for the election and 13,470 against. The appointment of Coopers & Lybrand as the Company's independent accounts for the year ending December 31, 1995 was approved by the following vote: FOR AGAINST ABSTENTIONS ----- -------- ------------ 12,957,606 25,708 9,292 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) See Index to Exhibits on pages F-1, F-2, F-3 and F-4 of this Report. Page 13 Item 1. Legal Proceedings., continued ----------------------------- (b) Form 8-K filed on May 10, 1995, covering the merger agreement on March 24, 1995 between The West Company, Incorporated, and Paco Pharmaceutical Services, Inc.. Page 14 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WEST COMPANY, INCORPORATED ----------------------------------- (Registrant) August 14, 1995 /s/ J. E. Dorsey -------------------- ----------------------------------- Date (Signature) J. E. Dorsey Executive Vice President, Chief Operating Officer August 14, 1995 /s/ A. M. Papso -------------------- ----------------------------------- Date (Signature) A. M. Papso Vice President and Corporate Controller (Chief Accounting Officer) INDEX TO EXHIBITS Exhibit Page Number Number ------ -------- (3) (a) Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit (4) to the Company's Registration Statement on Form S-8 (Registration No. 33-37825). (3) (b) Bylaws of the Company, as amended and restated December 13, 1994, incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended 12/31/94 (File No.0-5884). (4) (a) Form of stock certificate for common stock incorporated by reference to Exhibit (3) (b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-5884). (4) (b) Flip-In Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of January 16, 1990, incorporated by reference to Exhibit 1 to the Company's Form 8-A Registration Statement (File No. 1-8036). (4) (c) Flip-Over Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of January 16, 1990, incorporated by reference to Exhibit 2 to the Company's Form 8-A Registration Statement (File No. 1-8036). (10) (a) Registration Rights Agreement dated March 23, 1993 between the Company and Hans Wimmer, incorporated by reference to The Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-5884). (10) (b) Lease dated as of December 31, 1992 between Lion Associates, L.P. and LuMont Keystone/Lionville Trust, relating to the lease of the Company's headquarters in Lionville, Pa., incorporated by reference to F-1 Exhibit Page Number Number ------ ------- The Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0- 5884). (10) (c) Long-Term Incentive Plan, as amended March 2, 1993, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0- 5884). (10) (d) 1995 Annual Incentive Bonus Plan, incorporated by reference to The Company's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 0-5884). (10) (e) Non-Qualified Stock Option Plan for Non- Employee Directors, incorporated by reference to The Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-5884). (10) (f) Pension agreement dated February 17, 1994 between Pharma-Gummi Wimmer West GmbH and Ulf Tychsen, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0- 5884). (10) (g) Form of agreement between the Company and certain of its executive officers, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (File No.0-5884). (10) (h) Schedule of agreements with executive officers. (10) (i) Supplemental Employees' Retirement Plan ("SERP"), incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-5884). F-2 Exhibit Page Number Number ------- ------ (10 (j) Amendment No. 1 to the Company's Supplemental Employees' Retirement Plan. (10) (k) Retirement Plan for Non-Employee Directors of the Company, as amended November 5, 1991, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-5884). (10) (l) Employment Agreement dated May 20, 1991 between the Company and William G. Little, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-5884). (10) (m) Management Contract dated as of March 7, 1986, between Hans Wimmer and Pharma-Gummi Wimmer West GmbH, as amended, incorporated by reference to The Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-5884). (10) (n) Contract of Employment dated April 2, 1992 between Ulf C. Tychsen and Pharma-Gummi Wimmer West GmbH, and related letter agreement of even date and Addendum No. 1 dated September 26, 1994, incorporated by reference to the Company's Annual Report on form 10-K for the year ended December 31, 1994 (File No. 0-5884). (10) (o) Non-qualified Deferred Compensation Plan for Designated Executive Officers ("Officiers Deferred Comp Plan") incorporated by reference to Exhibit (10) (s) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0- 5884). (10) (p) Amendment No. 1 to the Non-qualified Deferred Compensation Plan for Designated Executive Officers. F-3 Exhibit Page Number Number ------ ------ (10) (q) Non-qualified Deferred Compensation Plan for Outside Directors, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-5884). (10) (r) Agreement and Plan of Merger dated March 24, 1995 Among the Company, Stoudt Acquisition Corp. and Paco Pharmaceutical Services, Inc. incorporated by reference to the Company's Schedule 14 D-1 filed on March 31, 1995. (11) Not applicable. (15) Not applicable. (18) None. (22) None. (23) Not applicable. (24) None. (27) Financial Data Schedules. (99) None. F-4 EX-27 2
5 6-MOS DEC-31-1995 JUN-30-1995 15,300 0 66,200 0 51,900 22,700 433,000 202,500 485,100 93,800 124,300 4,200 0 0 244,900 485,100 204,200 204,200 139,800 139,800 35,300 0 3,400 27,000 9,800 16,900 0 0 0 16,900 1.02 .0