-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HFiHF7r+FIEmy8/8KS7LQSWnKKWf4aOGrV9t658xUoLQ3AZCeyEyT1XU8nUKDKxl xGbgdRpwjYalcK5HAA/l+Q== 0000105770-01-000008.txt : 20010402 0000105770-01-000008.hdr.sgml : 20010402 ACCESSION NUMBER: 0000105770-01-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST PHARMACEUTICAL SERVICES 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-K SEC ACT: SEC FILE NUMBER: 001-08036 FILM NUMBER: 1586453 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-K 1 0001.txt 10K2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 ---------------- Commission File Number 1-8036 --------- WEST PHARMACEUTICAL SERVICES, INC. -------------------------------------- (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 offices) (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 Name of each exchange on which registered - ----------------------- ------------------------------------------ Common Stock, par value New York Stock Exchange $.25 per share Securities registered pursuant to Section 12(g) of the Act: None ---- 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 X . 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. [_X_] As of March 22, 2001, the Registrant had 14,335,556 shares of its Common Stock outstanding. The market value of Common Stock held by non-affiliates of the Registrant as of that date was $331,151,344. Exhibit Index appears on pages F-1, F-2, F-3, F-4 and F-5. DOCUMENTS INCORPORATED BY REFERENCE ------------------------------------ Documents incorporated by reference: 1) portions of the Registrant's Annual Report to Shareholders for the Company's 2000 fiscal year (the "2000 Annual Report to Shareholders") are incorporated by reference in Parts I and II; and (2) portions of the Registrant's definitive Proxy Statement (the "Proxy Statement") are incorporated by reference in Part III. PART 1 Item 1. Business West Pharmaceutical Services, Inc. (formerly The West Company, Incorporated) applies value-added technologies to the process of bringing new drug therapies and healthcare products to global markets. West's technologies include the design and manufacture of packaging components for pharmaceutical, healthcare and consumer products; research and development of drug delivery systems; contract manufacturing and packaging services; clinical services; contract laboratory services; and other services that support the manufacturing, filling and packaging of pharmaceutical, healthcare and consumer products. The Company's activities are organized in three operating segments: 1) the Device Product Development segment (consisting of four regional business units serving global markets) designs, manufactures and sells stoppers, closures, medical device components and assemblies made from elastomers, metal and plastics; 2) the Contract Services segment (consisting of three business units serving mainly the United States market) provides contract manufacturing and contract packaging services to the pharmaceutical and personal care industries, contract laboratory services for testing injectable drug packaging and clinical research for Phase I, II and III studies as well as post clinical studies; and the Drug Delivery Research and Development segment (consisting of two business units) identifies and develops drug delivery systems for biopharmaceutical and other drugs to improve their therapeutic performance and/or their method of administration. As of December 31, 2000, the Company and its subsidiaries had 4,700 employees. The Company, a Pennsylvania business corporation, was founded in 1923. The executive offices of the Company are located at 101 Gordon Drive, PO Box 645, Lionville, Pennsylvania 19341-0645, approximately 35 miles from Philadelphia. The telephone number at the Company's executive offices is 610-594-2900. As used in this Item, the term "Company" includes West Pharmaceutical Services, Inc. and its consolidated subsidiaries, unless the context otherwise indicates. Device Product Development Principal Products ---------------------------- Pharmaceutical Stoppers - ----------------------- The Company is the world's largest independent manufacturer of stoppers for sealing drug vials and other pharmaceutical containers. Several hundred proprietary formulations are molded from natural rubber and synthetic elastomers into a variety of stopper sizes, shapes and colors. The stoppers are used in packaging serums, vaccines, antibiotics, anesthetics, intravenous solutions and other drugs and solutions. Most stopper formulations are specially designed to be compatible with drugs so that the drugs will remain effective and unchanged during storage. New elastomeric compounds must be tested to show that they do not leach into the customer's product or affect its potency, sterility, effectiveness, color or clarity. The Company's laboratories conduct tests to determine the compatibility of its stoppers with customers' drugs and, in the United States, file formulation information with the Food and Drug Administration in support of customers' new drug applications. Stoppers usually are washed, sterilized and subject to other pre-use processes by the customer or a third-party before they are fitted on the container. The Company has introduced a value-added line of stoppers that are pre-washed and ready to be sterilized, eliminating several steps in customers' incoming processes. The Company is also marketing a line of pre-sterilized stoppers that can be introduced directly into customers' sterile drug-filling operations. Metal Seals - ----------- The Company also offers a broad line of aluminum seals in various sizes, shapes, and colors. The seals are crimped onto glass or plastic pharmaceutical containers to hold the stoppers securely in place. The top of aluminum seals often contains tamper-evident tabs or plastic covers, which must be removed before the drug can be withdrawn. Some aluminum seals are sold with specially formulated rubber or elastomeric discs pre-fitted inside the seal. These "lined" seals may be placed directly onto the pharmaceutical container, thus eliminating the need for a separate stopper. Other Products - --------------- Other products for the pharmaceutical industry include: * Products used in the packaging of non-injectable drugs such as rubber dropper bulbs, plastic contraceptive drug packages, and child-resistant and tamper-evident plastic closures * Plastic containers, bottles, and closures for the consumer and medical device and diagnostic markets. * Elastomeric and plastic components for empty and pre-filled disposable syringes such as plungers, hubs, and needle covers * Blood-sampling system components, including vacuum tube stoppers and needle valves, and a number of specialized elastomeric and plastic components for blood-analyzing systems and other medical devices * Components for IV Sets * Disposable infant nursers and individual nurser components The Company also manufactures a wide range of standard and custom- designed plastic threaded caps and containers for the personal-care industry. The caps, produced mainly for health and beauty aids, come in many different sizes and colors. The Company also makes closures for food and beverage processors. The Company focuses its efforts on multiple-piece closures that require high-speed assembly. Product Development - ------------------------ The Company maintains its own laboratories for testing raw materials and finished goods to assure conformity to customer specifications and to safeguard product quality. Laboratory facilities are also used for development of new products. Engineering staffs are responsible for product and tooling design and testing and for the design and construction of processing equipment. In addition, a corporate product development department develops new packaging and device concepts. Approximately 94 professional employees were engaged in these activities in 2000. Development and engineering expenditures for the creation and application of new and improved device products and manufacturing processes were approximately $9.3 million in 2000, $8.9 million in 1999, and $8.9 million in 1998, net of cost reimbursements by customers. Contract Services Principal Services --------------------- Contract Packaging and Contract Manufacturing - --------------------------------------------- The Company entered into the pharmaceutical services market in 1995 with its acquisition of Paco Pharmaceutical Services, Inc. ("Paco"). Paco's name was changed to West Pharmaceutical Services Lakewood, Inc. ("West Lakewood"). West Lakewood provides contract manufacturing and packaging of products for pharmaceutical and consumer-products companies. With its flexible manufacturing environment and workforce, West Lakewood has the capability to make and package a variety of products according to customers' specifications, usually employing customer-supplied raw materials. Once its work is complete, West Lakewood delivers the finished product to the customer for final sale and distribution to the end user. Customers typically use West Lakewood services on a temporary basis to supplement their own manufacturing or packaging capability in times of peak demand and during a new-product introduction or special promotion. However, West Lakewood does retain long-term business in both the manufacturing and packaging areas. West Lakewood operates a facility in Lakewood, New Jersey. The Canovanas, Puerto Rico facility was closed in early 2001 in connection with the Company's 2000 restructuring plan. West Lakewood contract packaging and manufacturing processes and services are subject to the Good Manufacturing Practice standards applicable to the pharmaceutical industry as well as to numerous other federal and state laws and regulations governing the manufacture, handling and packaging of drugs and other regulated substances. West Lakewood manufactures liquids, creams, solids, suspensions, and powders. Products produced include: * headache and cold medications * skin lotions * deodorants * toothpaste and mouthwash West Lakewood contract packaging services include the design, assembly and filling of a broad variety of packages, including: * blister packages (i.e., a plastic film with a foil backing) * bottles and tubes * laminated and other flexible pouches or strip packages * aluminum and plastic liquid cup containers * paperboard specialty packages * innovative tamper-evident and child-resistant packages Although the type of package depends on the requirements of the customer, blister packaging or bottles typically are used for tablets and capsules while aluminum or plastic cups, pouches, bottles and tubes are used for liquids, creams, ointments and powders. Clinical Services - ----------------- The Company entered into the clinical services market with its April 1999 acquisition of the Clinical Services division of Collaborative Clinical Research, Inc. The Clinical Services Group operates three business units. These Business units, which are described more fully below, are: a Phase I-through-IV Clinical Trial research facility (the "GFI Research Center"); a clinical research group (CRO) that conducts marketing and clinical research studies for customers' prescription drugs, consumer products, and OTC switch projects; and a site management organization (SMO) that provides assistance for clinical trial studies. The SMO unit will be closed in early 2001, with ongoing studies being supported through their conclusion. West's GFI Research Center conducts Phase I through Phase IV clinical research trials and provides other clinical research services including device and actual use studies at its 80-bed unit located in Evansville, Indiana. Phase I research is substantially more demanding than other phases of the clinical research process because healthy volunteers must typically be sequestered for the duration of the study. Phase II-IV studies are frequently more specialized with respect to therapeutic patient populations required. The diversity of GFI's service offering has aided the development of both their recruitment and clinical operations capabilities. The CRO performs a variety of Rx clinical services that assist client companies in completing Phase II-IV clinical trials and consumer-related research that assists sponsor companies with Rx-to-OTC switch and other consumer product research studies. The CRO capabilities include project management, clinical study, site identification, patient recruitment, monitoring, data management/statistics and report writing. West is distinguished by its' unique blend of clinical research and marketing research as well as specialty patient recruitment services. Clinical Services division contracts provide a fixed price for each component or service delivered. The ultimate contract value depends on such variables as the number of research sites selected, the number of patients enrolled and other services required by the Sponsor. These contracts range in duration from several months to several years. As services are performed over the life of the contract, revenue is earned under the percentage-of- completion method utilizing units of delivery. Costs associated with contract revenue are recognized as incurred. Cash flows vary with each contract, although generally a portion of the contract fee is paid at the time the trial begins, with the balance paid as pre-determined contract milestones are satisfied. Pre-payments received are recorded as a liability under "deferred revenue" until work has been completed and revenue has been recognized. Generally, Sponsors may terminate a contract with the Company with or without cause. In the event of termination, the Company is entitled to payment for all work performed through the termination date and for costs associated with termination of the study. Contract Laboratory Services - ----------------------------- In 1998, the Company established the contract laboratory services business, which provides testing services to analyze customers' drug product packaging. Regulatory agencies require drug companies to demonstrate that packaging components will not contaminate the drug. The test data generated is acceptable for U.S. Food and Drug Administration (FDA) submissions. The services offered include extractables testing, method development and validation, stability testing for extractables and active substances, moisture analysis of closures, quantification of closure surface silicone, and other custom services. The Company's laboratory complies with applicable Good Manufacturing Practice (GMP) standards and is FDA registered. Research and Development Drug Delivery Systems -------------------------- Since 1993, the Company has been developing proprietary drug delivery systems for various drug and biological products for which alternative methods and routes of administration might improve therapeutic performance or the cost effectiveness of the therapy. In furtherance of that effort, in 1998 the Company completed the acquisition of DanBioSyst UK Ltd (DBS), a research and development company located in Nottingham, England. DBS was re-named West Pharmaceutical Services Drug Delivery & Clinical Research Center, LTD. in 1999 and its operations integrated with the Company's Lionville based drug delivery operations to form a new operating segment, Drug Delivery Research and Development. West Drug Delivery engages in both independent and client-funded research to develop unique delivery technologies, patenting these where possible, and, subject to any rights granted or ceded in connection with client funding, retains the rights to exploit the patented technology. West Drug Delivery has patents or patent applications covering a range of delivery technologies for various routes of administration, including nasal, oral, parenteral, pulmunary, rectal and vaginal. West Drug Delivery then seeks to license the technologies to pharmaceutical companies for use in combination with their drug products. Alternatively, West will develop unique versions of generic drug products, which incorporate its proprietary delivery technologies, and then seek development and marketing partners or licensees for the resulting products. West Drug Delivery also maintains laboratory and clinical scale manufacturing capabilities that support client and internal development projects. In 2000, West Drug Delivery's efforts were focused on: client-funded projects; on the further development of proprietary formulations of the drugs morphine and leuprolide, both using the Company's patented chitosan-based nasal delivery system; and on the development of a proprietary formulation of budesonide (a steroid) using the company's Targit(R) system, an orally administered, specially coated, starch capsule system designed to bypass normal digestion and deliver the drug to particular regions of the colon for local and systemic effect. Initial human studies of the nasal morphine product were completed and the product was licensed to a third party for further development in 2001. West Drug Delivery had 65 employees as of December 31, 2000 and total expenses, net of revenues received, were $9.0 million in 2000 and $7.7 million in 1999. Recent Developments ------------------- The Company has taken steps to expand its product offerings and improve competitiveness of both its Device Product Development and Contract Services operating segments. In 1996 and 1997, the Company implemented a major restructuring plan announced in 1996. The plan included the closing or downsizing of six manufacturing facilities, withdrawal from the machinery business and an approximate 5% reduction in the workforce. The restructuring was designed to reduce the costs associated with multiple plant sites and shift certain production capacity to lower-cost locations. In 1998, a further 1% reduction in the workforce, made possible by manufacturing and other operating efficiencies, was announced. (Additional information pertaining to the 1998 activities is incorporated by reference to the Note "Restructuring Charges" of Notes to Consolidated Financial Statements of the 2000 Annual Report to Shareholders.) In 1998, the Company acquired Betraine Limited, a company located in England, which manufactures precision injection molded plastic components for the healthcare and consumer industries. The acquisition expanded global capabilities in the non-injectable market. The Company's name was changed to West Pharmaceutical Services Lewes (West-Lewes). In 1999, the Company changed its business plan with respect to its plastics strategy concerning future market demands and total capacity requirements. As a result, the Company reversed a portion of its 1996 restructuring reserve pertaining to its Puerto Rico facility and wrote off the assets associated with a proprietary plastic product line that had not gained market acceptance. In November 2000, the Company announced a plan to streamline operations and improve operating efficiencies by reducing or consolidating business units in its Contract Services and Device Product Development segments. The plan included the closure of two plants in Puerto Rico engaged in contract packaging and plastics device molding and the sterile-fill suite at the Lakewood, New Jersey facility, and the initiation of other staff reduction cost control measures. In addition, the site management organization (SMO) business operations of the Clinical Services business unit was closed as the business model has proven unsuccessful in the marketplace and estimated growth has not materialized. An after-tax charge of $15.5 million was taken to fourth quarter 2000 earnings to reflect the writedown of goodwill, asset write-offs, severance charges, and other restructuring related costs. Order Backlog -------------- Device product orders on hand at December 31, 2000, was approximately $92 million, compared with approximately $96 million at the end of 1999. Orders on hand include those placed by customers for manufacture over a period of time according to a customer's schedule or upon confirmation by the customer. Orders are generally considered firm when goods are manufactured or orders are confirmed. The Company also has contractual arrangements with a number of its customers, and products covered by these contracts are included in the Company's backlog only as orders are received from those customers. West Lakewood's twelve-month backlog of unfilled customer orders was approximately $11 million at December 31, 2000 and $9 million at December 31, 1999. Backlog is defined by West Lakewood as orders written and included in production schedules during the next twelve months. Such orders generally may be cancelled by the customer without penalty. The Clinical Services division backlog consists of signed contracts yet to be completed. Contracts included in backlog are subject to termination or delay at any time and therefore the backlog is not necessarily a meaningful predictor of future results. Delayed contracts remain in the Company's backlog until canceled. As of December 31, 2000, the Clinical Services division's backlog was $6.5 million; at December 31, 1999 the backlog was $6.2 million. Raw Materials -------------- The Company uses three basic raw materials in the manufacture of its device products: elastomers, aluminum, and plastic. The Company has been receiving adequate supplies of raw materials to meet its production needs, and it foresees no significant availability problems in the near future. The Company is pursuing a supply chain management strategy, which involves purchasing from integrated suppliers that control their own sources of supply. This strategy has reduced the number of raw materials suppliers used by the Company. In some cases, the Company will purchase raw materials from a single source to assure quality and reduce costs. This strategy increases the risks that the Company's supply lines may be interrupted in the event of a supplier production problem. These risks are managed by selecting suppliers with multiple manufacturing sites, rigid quality control systems, surplus inventory levels and other methods of maintaining supply in case of interruption in production. Patents and Licenses --------------------- The Company's device products patents and trademarks have been useful in establishing the Company's market share and in the growth of the Company's manufactured device product business and may continue to be of value in the future, especially in view of the Company's continuing development of its own proprietary products. Nevertheless, the Company does not consider its current manufactured device product business or its earnings to be materially dependent upon any single patent or trademark. Although not material at this time, the Company believes its drug delivery development capabilities will play an increasingly important role in the future. The Drug Delivery operating segment has a growing portfolio of patented technology, which is critical to the Company's success because a significant amount of future income is expected to be derived from licensing this technology to customers. Major Customers ----------------- The Company provides manufactured device components and/or contract services to major pharmaceutical, biotechnology and hospital supply/medical device companies, many of which have several divisions with separate purchasing responsibilities. The Company also provides contract packaging and contract manufacturing services for many of the leading manufacturers of personal care products and clinical research services to full service contract research organizations. The Company distributes its products and services primarily through its own sales force but also uses regional distributors in the United States and in the Asia/Pacific region. Becton Dickinson and Company ("BD") accounted for approximately 13% of the Company's 2000 consolidated net sales. The principal products sold to BD are synthetic rubber, natural rubber, metal and plastic components used in BD's disposable syringes and blood sampling and analysis devices. The Company expects to continue as a major BD supplier. Excluding BD, the next ten largest customers accounted for approximately 35% of the Company's consolidated net sales in 2000 but no one of these customers accounted for more than 7% of 2000 consolidated net sales. Competition ------------ The Company competes with several companies, some of which are larger than the Company, across its major Device Product Development product lines. In addition, many companies worldwide compete with the Company for business related to specific product lines. However, the Company believes that it supplies a major portion of the U.S. market requirements for pharmaceutical elastomer and metal packaging components and has a significant share of the European market for these components. Because of the special nature of these products, competition is based primarily on product design and performance, although total cost is becoming increasingly more important as pharmaceutical companies continue with aggressive cost control programs across their entire operations. Competitors often compete on the basis of price. The Company differentiates itself from its competition as a "full-service" supplier that is able to provide pre-sale compatibility studies and other services and sophisticated post- sale technical support on a global basis. The Company competes against numerous competitors in the field of plastic closures for consumer products, many of which are larger than the Company and command significant market shares. The Company differentiates itself through its expertise in high-speed assembly of multiple-piece closure systems. The U.S. contract packaging and manufacturing service industry is highly competitive. For packaging services, West Lakewood competes with three significant companies, all of which are larger than it. For contract manufacturing services, West Lakewood competes with four major competitors and several smaller regional companies; several of these competitors are larger than it. In addition, most domestic pharmaceutical companies maintain in-house manufacturing and packaging capabilities and at times will offer their excess capacity to manufacture or package other companies' products on a contract basis. However, most large pharmaceutical and personal healthcare companies have traditionally made extensive use of contract packagers and manufacturers during times of peak demand, during the introduction of a new product and for production of samples and special product promotions. The clinical research industry is highly fragmented and comprised of several large, full-service Contract Research Organizations (CROs), many small CROs and limited services providers. The major competitors in the industry include the research departments of pharmaceutical companies and CROs. Many companies provide proprietary drug delivery technologies to the pharmaceutical and biotechnology markets. However, unlike West, the majority of these companies are focused on a single route of drug administration, and very few have capabilities necessary to take drug products through all stages of the development process and commercial manufacture. The three largest companies, the market leaders, have multiple-delivery technologies, but their strong franchises are in oral, controlled-release delivery systems. West's drug delivery technologies, none of which is currently in commercial production, are in less competitive segments that do not compete with the market leaders. Environmental Regulations ------------------------- The Company does not believe that it will have any material expenditures relating to environmental matters other than those discussed in the Note "Commitments and Contingencies" of Notes to Consolidated Financial Statements of the 2000 Annual Report to Shareholders, incorporated herein by reference. International --------------- The Note "Affiliated Companies" and the Note "Segment Information" of Notes to Consolidated Financial Statements of the 2000 Annual Report to Shareholders are incorporated herein by reference. The Company believes that its international business does not involve a substantially greater business risk than its domestic business. Although financial crises have been evident at various times during recent years in the Asia/Pacific region and in our major markets in South America and have at times resulted in a decline in demand for the Company's products in these regions, direct sales to customers in these markets have historically not been significant. In 2000, such sales represented less than 10% of consolidated sales. The Company's financial condition and results are impacted by fluctuations in exchange-rate markets (See Notes "Summary of Significant Accounting Policies - Foreign Currency Translation" and "Other Income (Expense)" of Notes to Consolidated Financial Statements of the 2000 Annual Report to Shareholders, incorporated herein by reference). Hedging by the Company of these exposures is discussed in the Note "Summary of Significant Accounting Policies - Financial Instruments" and in the Note "Financial Instruments" of Notes to Consolidated Financial Statements of the 2000 Annual Report to Shareholders, incorporated herein by reference. Item 2. Properties ----------- In the Device Product Development operating segment, the Company maintains eight manufacturing plants and two mold and die production facilities in the United States, one manufacturing plant in Puerto Rico, and a total of eight manufacturing plants and two mold and die production facilities in Germany, England, France, Denmark, Brazil and Singapore. The Puerto Rico facility is scheduled to be closed in mid-year 2001. In the Contract Services operating segment, the Company maintains one facility in Lakewood, New Jersey to provide contract manufacturing and packaging services. Clinical research services are provided by West Evansville from leased space in Indianapolis, Indiana and Evansville, Indiana. Contract laboratory services are provided from the Company's Lionville, Pennsylvania facility. The Company's executive offices, U.S. research and development center and pilot plant are located in a leased facility at Lionville, Pennsylvania, about 35 miles from Philadelphia. The Company conducts drug delivery research and development in a leased facility located in Nottingham, England. All other company facilities are used for manufacturing and distribution, and facilities in Eschweiler, Germany, are also used for development activities for device products. The manufacturing production facilities of the Company are well maintained, are operating generally on a two- or three-shift basis and are adequate for the Company's present needs. The principal facilities in the United States and Puerto Rico are as follows: - - Approximately 775,000 square feet of owned and 1,085,000 square feet of leased space in Pennsylvania, New Jersey, Florida, Nebraska, North Carolina, Ohio and Indiana. The principal international facilities are as follows: - - Approximately 500,000 square feet of owned space and 86,000 square feet of leased space in Germany, England, Denmark and France. - - Approximately 250,000 square feet of owned space in Brazil. - - Approximately 90,000 square feet of owned space in Singapore. Sales office facilities in separate locations are leased under short-term arrangements. The Company also holds for sale former manufacturing facility space in Puerto Rico - totaling 42,000 square feet. Item 3. Legal Proceedings. ----------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 4 (a) Executive Officers of the Registrant None. Item 4 (a) Executive Officers of the Registrant ----------------------------------------- The executive officers of the Company at March 30, 2001 were as follows: Name Age Business Experience During Past Five Years - ---- --- ---------------------------------------- Joseph E. Abbott 1 48 Corporate Controller. Previously Director of Internal Audit since 1997; Controller, Clopay Corp. from June 1996 to April 1997; previously Controller, ARCO Chemical Americas. George R. Bennyhoff 1 57 Senior Vice President, Human Resources and Public Affairs. Steven A. Ellers 1 50 Executive Vice President previously Senior Vice President and Chief Financial Officer since March 1998; Group President from August 1997 to February 1998; Corporate Vice President, Sales from April 1996 to July 1997; previously Vice President, Operations. John R. Gailey III 1 46 Vice President, General Counsel and Secretary. Stephen M. Heumann 1 59 Vice President, Treasurer and Assistant Secretary. Lawrence P. Higgins 1 61 Vice President, Operations since May 1996. Prior to joining the Company, Mr. Higgins was an international business consultant. 1 Holds position as corporate officer elected by the Board of Directors for a one-year term. Name Age Business Experience During Past Five Years - ---- --- -------------------------------------- Herbert F. Hugill 1 53 Division President, Sales and Contract Services since June 2000; previously Division President, Clinical Services since November 1999 and General Manager of the Clinical Services Group from its acquisition in April 1999. Previously Mr. Hugill served as Chief Operating Officer and Director from December 1997 of Collaborative Clinical Research, Inc. from which the Company purchased the Clinical Service Division. From 1996 to 1997 Mr. Hugill was President and Chief Executive Officer and a Director of Mediscience Technology Corp., a development stage biomedical technology company, and prior thereto President, RP Scherer North America, a drug delivery systems company. William G. Little 1 58 Chairman of the Board and Chief Executive Officer, President of the Company until September 1998. Donald E. Morel, Jr.,Ph.D.1 43 Division President, Drug Delivery Systems since November 1999; Group President from March 1998 to October 1999; Corporate Vice President, Scientific Services from May 1995 to February 1998. Anna Mae Papso 1 57 Corporate Vice President, Finance since June 2000; Previously Vice President & Corporate Controller. Anthony A. Sinkula, Ph.D.1 63 Vice President and Chief Scientific Officer since July 1998 and prior to joining the Company a consultant to several major pharmaceutical companies and the National Cancer Institute. 1 Holds position as corporate officer elected by the Board of Directors for a one-year term. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ---------------------------------------------------- The Company's common stock is listed on the New York Stock Exchange and the high and low prices for the stock for each calendar quarter in 2000 and 1999 were as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter Year High Low High Low High Low High Low High Low 2000 31.88 23.00 25.50 19.63 23.88 19.63 25.00 20.69 31.88 19.63 1999 36.69 31.81 39.38 31.81 40.44 37.63 38.25 30.88 40.44 30.88
As of December 31, 2000, the Company had 1,780 shareholders of record. There were also 2,200 holders of shares registered in nominee names. The Company's common stock paid a quarterly dividend of $.16 per share in each of the first three quarters of 1999; $.17 per share in the fourth quarter of 1999 and each of the first three quarters of 2000; and $.18 per share in the fourth quarter of 2000. Item 6. Selected Financial Data. ----------------------- Information with respect to the Company's net sales, income (loss) from consolidated operations, income (loss) before change in accounting method, income (loss) before change in accounting method per share (basic and assuming dilution) and dividends paid per share is incorporated by reference to the line items corresponding to those categories under the heading "Ten-Year Summary - Summary of Operations" of the 2000 Annual Report to Shareholders. Information with respect to total assets and total debt is incorporated by reference to the line items corresponding to those categories under the heading "Ten-Year Summary - - Year-End Financial Position" of the 2000 Annual Report to Shareholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. --------------------------------------------------------- The information called for by this Item is incorporated by reference to the text appearing in the "Financial Review" section of the 2000 Annual Report to Shareholders. Item 7A. Quantitative and Qualitative Disclosure about Market Risk -------------------------------------------------------- The information called for by this Item is incorporated by reference to the Notes "Financial Instruments" and "Summary of Significant Accounting Policies" of Notes to Consolidated Financial Statements of the 2000 Annual Report to Shareholders. Item 8. Financial Statements and Supplementary Data. ------------------------------------------- The information called for by this Item is incorporated by reference to "Consolidated Financial Statements", "Notes to Consolidated Financial Statements", and "Quarterly Operating and Per Share Data (Unaudited)" of the 2000 Annual Report to Shareholders. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. ------------------------------------------------------- None. PART III Item 10. Directors and Executive Officers of the Registrant. --------------------------------------------------- Information called for by this Item is incorporated by reference to "PROPOSAL #1: ELECTION OF DIRECTORS" and "STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS" in the Proxy Statement. Information about executive officers of the Company is set forth in Item 4 (a) of this report. Item 11. Executive Compensation. ----------------------- Information called for by this Item is incorporated by reference to "COMPENSATION OF DIRECTORS AND NAMED EXECUTIVE OFFICERS"; and "BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION" contained in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------- Information called for by this Item is incorporated by reference to "STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS" contained in the Proxy Statement. Item 13. Certain Relationships and Related Transactions. ----------------------------------------------- None PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. ------------------------------------------------------- (a)1. The following report and consolidated financial statements, included in the 2000 Annual Report to Shareholders, have been incorporated herein by reference: Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Comprehensive Income for the years ended December 31, 2000, 1999 and 1998 Consolidated Balance Sheets at December 31, 2000 and 1999 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Report of Independent Accountants (a)2. Supplementary Financial Information 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. See Index to Exhibits on pages F-1, F-2, F-3, F-4 and F-5 of this Report. (b) There were no reports on Form 8-K filed by the Company in the fourth quarter of 2000. (c) The exhibits are listed in the Index to Exhibits on pages F-1, F-2, F-3, F-4 and F-5 of this Report. (d) Financial Statements of affiliates are omitted because they do not meet the tests of a significant subsidiary at the 20% level. SIGNATURES 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. WEST PHARMACEUTICAL SERVICES, INC. (Registrant) By /s/ A. M. Papso - -------------------------------- Anna Mae Papso Corporate Vice President, Finance March 30, 2001 - -------------------------------- Date Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ------ ------- /s/ William G. Little Chairman, Director March 30, 2001 - ---------------------------------- and Chief Executive Officer William G. Little (Principal Executive Officer) /s/ Joseph E. Abbott Corporate Controller March 30, 2001 - ---------------------------------- (Principle Accounting Officer) Joseph E. Abbott /s/ Tenley E. Albright Director March 30, 2001 - ----------------------------------- Tenley E. Albright * /s/ John W. Conway Director March 30, 2001 - ----------------------------------- John W. Conway* /s/ George W. Ebright Director March 30, 2001 - ------------------------------------ George W. Ebright* /s/ L. Robert Johnson Director March 30, 2001 - ------------------------------------ L. Robert Johnson*
Signature Title Date --------- ------ ------- /s/ William H. Longfield Director March 30, 2001 - -------------------------------------- William H. Longfield* /s/ John P. Neafsey Director March 30, 2001 - -------------------------------------- John P. Neafsey* /s/ Anna Mae Papso Corporate Vice President, March 30, 2001 - -------------------------------------- Finance Anna Mae Papso (Chief Financial Officer) /s/ Monroe E. Trout Director March 30, 2001 - --------------------------------------- Monroe E. Trout* /s/ Anthony Welters Director March 30, 2001 - --------------------------------------- Anthony Welters* /s/ Geoffrey F. Worden Director March 30, 2001 - ---------------------------------------- Geoffrey F. Worden* * By John R. Gailey III pursuant to a power of attorney.
INDEX TO EXHIBITS Exhibit Number (3) (a) Amended and Restated Articles of Incorporation of the Company through January 4, 1999 incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-8036). (3) (b) Bylaws of the Company, as amended through October 27, 1998, incorporated by reference to Exhibit (3)(b) to the Company's Form 10-Q for the quarter ended September 30, 1998 (File No. 1-8036). (4) Miscellaneous long term debt instruments and credit facility agreements of the Company, under which the underlying authorized debt is equal to less than ten percent of the total assets of the Company and its subsidiaries on a consolidated basis, may not be filed as exhibits to this report pursuant to Section (b) (4) (iii) A of Item 601 of Reg S-K. The Company agrees to furnish to the Commission, upon request, copies of any such unfiled instruments. (File No. 1-8036). (4) (a) Form of stock certificate for common stock incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-8036). (4) (b) Note Purchase Agreement dated as of April 8, 1999 among the Company and the insurance companies identified on a schedule thereto, incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2000. (File No. 1-8036). (4) (c) Credit Agreement, dated as of July 26, 2000 among the Company, the banks identified on a schedule thereto, and PNC Bank, N.A., as agent for the banks, incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2000. (File No. 1-8036). (9) None. (10) (a) Lease dated as of December 31, 1992 between Lion Associates, L.P. and the Company, relating to the lease of the Company's headquarters in Lionville, Pa., incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-8036). F - 1 Exhibit Number (10) (b) First Addendum to Lease dated as of May 22, 1995 between Lion Associates, L.P. and the Company, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1- 8036). (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. 1- 8036). (10) (d) Amendments to the Long Term Incentive Plan, dated April 30, 1996, incorporated herein by reference to the Company's Form 10Q for the quarter ended June 30, 1996 (File No. 1-8036). (10) (e) 1999 Non-Qualified Stock Option Plan for Non- Employee Directors, effective as of April 27, 1999, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1- 8036). (10) (f) Form of Director Stock Option Agreement, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-8036).. (10) (g) Form of second amended and restated agreement between the Company and certain of its executive officers dated as of March 25, 2000, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. (File No. 1-8036). (10) (h) Schedule of agreements with executive officers, incorporated by reference to the Company's Quarterly Report on Forms 10-Q for the quarter ended June 30, 2000. (File No.1-8036). (10) (i) Supplemental Employees' Retirement Plan, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 1-8036). (10) (j) Amendment No. 1 to Supplemental Employees' Retirement Plan, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1- 8036). F - 2 Exhibit Number (10) (k) Amendment No. 2 to Supplemental Employees' Retirement Plan, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1995 (File No. 1-8036). (10) (l) Retirement Plan for Non-Employee Directors reflecting amendments effective on November 5, 1991, April 28, 1998 and May 27, 1999, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-8036). (10) (m) Amended and Restated Employment Agreement dated as of March 25, 2000 between the Company and William G. Little, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. (File No. 1-8036). (10) (n) Non-Qualified Deferred Compensation Plan for Designated Executive Officers adopted August 30, 1994, reflecting amendments effective on March 7, 1995, April 28, 1998 and April 1, 2000, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (File No. 1-8036). (10) (o) Deferred Compensation Plan for Outside Directors, as amended and restated effective May 27, 1999, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-8036). (10) (p) 1999 Stock-Equivalent Compensation Plan for Non-Employee Directors, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-8036). (10) (q) Lease Agreement, dated August 31, 1978, between Paco Packaging, Inc. and Nineteenth Lakewood Corp., as amended by Amendment of Lease, dated November 30, 1978, Second Amendment of Lease, dated August 6, 1979, Third Amendment of Lease, dated July 24, 1980 and Fourth Amendment of Lease, dated August 14, 1980, incorporated by reference to the Exhibits to Paco Pharmaceutical Services, Inc's Registration Statement on Form S-1, Registration No. 33-48754, filed with the Commission. F - 3 Exhibit Number (10) (r) Fifth Amendment of Lease, dated May 13, 1994, to the Lease Agreement, dated August 31, 1978, between Paco Packaging, Inc. and Nineteenth Lakewood Corp., incorporated by reference to the Exhibits to Paco Pharmaceutical Services, Inc.'s Annual Report on Form 10-K for the year ended March 31, 1994 (File number 0-20324). (10) (s) Lease Agreement, dated December 9, 1977, between Paco Packaging, Inc. and New Oak Street Corp., as amended by the Amendment to Lease Agreement, dated August 31, 1978, Second Amendment of Lease, dated April 8, 1979 and Third Amendment of Lease, dated November 16, 1983, incorporated by reference to the Exhibits to Paco Pharmaceutical Services, Inc.'s Registration Statement on Form S-1, Registration No. 33-48754, filed with the Commission. (10) (t) Lease Agreement, dated April 7, 1986, between Northlake Realty Co. Inc. and Paco Packaging, Inc., as amended by Amendment to Lease, dated July 1, 1986, Second Amendment of Lease, dated June 15, 1987 between Paco Packaging and C. P. Lakewood, L. P., Agreement, dated December 29, 1987, and Lease Modification Agreement, dated December 13, 1989, incorporated by reference to the Exhibits to Paco Pharmaceutical Services, Inc.'s Registration Statement on Form S-1, Registration No. 33-48754, filed with the Commission. (10) (u) Collective Bargaining Agreement, dated December 1, 1997, by and between Paco Pharmaceutical Services, Inc. and Teamster Local 35 (affiliated with the International Brotherhood of Teamsters), incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (File No.1-8036). (10) (v) 1998 Key Employee Incentive Compensation Plan, dated March 10, 1998, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (File No.1-8036). F - 4 Exhibit Number (10) (w) Asset Purchase Agreement Among Collaborative Clinical Research, Inc., GFI Pharmaceutical Services, Inc., and Collaborative Holdings, Inc. and the Company dated December 21, 1998, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No.1-8036). (10) (x) Form of Bonus Agreement between the Company and certain of its executive officers dated as of December 21, 2000. Portions of this Exhibit have been omitted pursuant to a request for confidential treatment. (10) (y) Schedule of agreements with certain executive officers. (11) Not Applicable. (12) Not Applicable. (13) Portions of 2000 Annual Report to Shareholders. (16) Not applicable. (18) None. (21) Subsidiaries of the Company. (22) None. (23) Consent of Independent Accountants. (24) Powers of Attorney. (27) Financial Data Schedules (99) None. F - 5 EX-10.(X) 2 0002.txt BONUS AGREEMENT Exhibit (10)(x) CONFIDENTIAL TREATMENT PURSUANT TO 17 C.F.R. $240.24b-2 ------------------------------------------------------- - ------------------------------------------------------------------------------- Portions of this Exhibit have been omitted pursuant to a request for confidential treatment pursuant to 17 C.F.R. $240.24b-2. The omitted information has been filed separately with the Securities and Exchange Commission. Areas where information has been omitted are marked with "***" ------------------------------------------------------- BONUS AGREEMENT - ------------------------------------------------------------------------------- THIS IS A BONUS AGREEMENT (the "Agreement"), dated as of December 21, 2000 between West Pharmaceutical, Services, Inc., a Pennsylvania corporation, (the "Company") and [Designated Executive] ("Executive"). The Board of Directors of the Company has authorized and directed senior management to work with the Company's financial advisor in evaluating strategic alternatives to enhance shareholder value. Such alternatives include the sale of the Company or one or more of its business units. The Compensation Committee of the Board of Directors and the Board wish to award a bonus opportunity that would serve as an incentive for certain key senior management personnel to successfully implement the strategic review. In consideration of the foregoing and Executive's continued employment with the Company, and intending to be legally bound, the Company agrees with Executive as follows: 1. Success Bonus. (a) If all of the following occurs: (1) A "Change in Control" (as such term is defined in the Second Amended and Restated Change-in-Control Agreement dated as of March 25, 2000 between the Company and the Executive (hereinafter referred to as the "Change-in-Control Agreement")) of the Company occurs or is deemed to have occurred on or before December 31, 2001; (2) As a result of or in connection with such Change in Control the Company's shareholders would receive consideration for each share of the Company's Common Stock of at least *** in cash or, in the event the consideration consists of securities or a combination of cash and securities, a combined total value of at least *** ; and (3) The Executive remains employed by the Company on the date of such Change in Control, Then the Company will pay to the Executive a bonus equal to [see Exhibit (10)(y) - Schedule of Contracts with Certain Executives] of the Executive's highest annual base salary rate in effect during the year of the Change in Control. (b) The bonus shall be paid in cash net of all federal, state or local income or payroll taxes that the Company is required by applicable law to withhold. (c) The bonus shall be paid not later than five days following the date of the Change in Control, or, if the Change in Control is deemed to have occurred as a result of the Executive's employment termination, five days following such termination. (d) The Executive and the Company acknowledge and agree that any bonus amount that may be received under this Agreement is not intended to be included in the calculation of severance compensation under Section 3 (a) of the Change-in-Control Agreement, and therefore, will not constitute a bonus paid or payable upon the termination of employment within the meaning of that agreement. 2. Duration of Agreement. This Agreement will commence on the date hereof and continue until the later of January 5, 2002 or payment in full of any amount due and payable hereunder. This Agreement may be terminated at any time (a) By the mutual written consent of Executive and the Company; or (b) By the Company if it notifies Executive in writing that it is no longer considering a transaction or business combination involving the Company that would constitute a Change in Control. 3. Miscellaneous. (a) This Agreement will be binding upon and inure to the benefit of Executive, Executive's personal representatives and heirs and the Company and any successor of the Company, but neither this Agreement nor any rights arising hereunder may be assigned or pledged by Executive. (b) Should any provision of this Agreement be adjudged to any extent invalid by any competent tribunal, that provision will be deemed modified to the extent necessary to make it enforceable. (c) This Agreement will be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. (d) This Agreement constitutes the entire agreement and understanding between the Company and Executive with respect to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings between the Company and Executive with respect to such matters. (e) This Agreement may be executed in one or more counterparts, which together shall constitute a single agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above. WEST PHARMACEUTICAL SERVICES, INC. By: -------------------------- -------------------------------------- [Designated Executive] William G. Little, Chairman of the Board and Chief Executive Officer EX-10.(Y) 3 0003.txt SCHEDULE OF CERTAIN EXECUTIVES EXHIBIT (10)(y) SCHEDULE OF CERTAIN EXECUTIVES - ------------------------------------------------------------------------------ The following executives have entered into Bonus Agreements with the Company dated as of December 21, 2000: Executive Percentage Bonus in Section 2(a) - ----------------------------------------------------------------------------- Linda R. Altemus 120% George R. Bennyhoff 120 Steven A. Ellers 150 John R. Gailey III 120 Stephen M. Heumann 120 Lawrence P. Higgins 120 Herbert L. Hugill 120 William G. Little 225 Donald E. Morel Jr. 180 Anna Mae Papso 120 EX-13 4 0004.txt ANNUAL REPORT FINANCIALS FINANCIAL REVIEW - -------------------- West Pharmaceutical Services (the Company) designs, develops and manufactures systems and products that enhance and add value to the process of dispensing and delivering pharmaceutical and healthcare products. West's technologies include the design and manufacture of packaging components for pharmaceutical, healthcare and consumer products (device product development); research and development of drug delivery systems (drug delivery research and development); contract laboratory services, clinical services and other services that support the manufacturing, filling and packaging of pharmaceutical and healthcare products (contract services). The following is management's discussion and analysis of the Company's operating results for the three years ended December 31, 2000, and its financial position as of year-end 2000. The information should be read in conjunction with the financial statements and accompanying notes appearing elsewhere in this report. RESULTS OF OPERATIONS - --------------------- The Company's 2000 net income was $1.6 million, or $.11 per share. Net income includes a net charge of $15.5 million in the fourth quarter of 2000 related to a restructuring plan and an unusual tax benefit of $1.5 million due to the favorable resolution of trade tax issues related to the 1997 tax reorganization of the Company's German subsidiaries. The Company's 1999 net income was $38.7 million, or $2.59 per share, and included net tax benefits totaling $2.3 million from a combination of a foreign tax refund from a fourth quarter tax reorganization of European subsidiaries and the favorable settlement of a prior years' tax appeal, and a $.7 million restructuring charge. In 1998, net income was $6.7 million, or $.41 per share, and included a charge of $28.2 million related to in-process research and development associated with the 1998 acquisition of DanBioSyst UK Ltd. (DBS) and a $2.5 million net restructuring charge related to staff reductions. Excluding the items noted in all three years, the Company's 2000 net income of $15.5 million, or $1.08 per share, compares with 1999 net income of $36.3 million, or $2.44 per share, and 1998 net income of $37.4 million, or $2.28 per share. Net Sales - --------- Net sales were $430.1 million in 2000 compared with $469.1 million in 1999. The strong U.S. dollar reduced reported sales by about $19 million compared with 1999, while a recent accounting change increased sales by $3.7 million. The $3.7 million represents freight billed to customers. The Company's practice had been to offset these freight cost reimbursements from customers against the costs. At constant exchange rates, sales in 2000 were 4.3% lower than 1999 net sales. Sales in the Device Product Development segment decreased almost 1% (measured at constant exchange rates) in 2000 compared with 1999. Sales increased in international markets by 5.1% due to higher volume. This increase was offset by low demand in domestic markets where sales decreased by 5.6% largely due to the combined impact of customers' inventory adjustments related to aggressive supply chain management programs and year 2000 contingency build-up, a lower-value product mix and delays due to increased regulatory activity. Pricing also negatively affected sales in this business segment due to competition and continued pressures to drive down healthcare costs. Future sales growth in this segment will be achieved by focusing on the customers' needs and by providing new services and products. Businesses in the Contract Services segment experienced a sales decline of 20.5% compared with 1999. The current focus by pharmaceutical companies on managing a reduced pipeline of new products, often as a result of merger activities, has resulted in a reduction in the demand for outsourcing, which directly impacts the Contract Services segment. Sales of contract manufacturing and packaging services decreased by 30.1% compared with 1999 and clinical services sales, although 41.2% higher due to full-year ownership, were disappointing. The lower demand was due to a combination of factors: 1) customers' conversion to in-house production; 2) poor market acceptance for certain customers' products; 3) lack of customers' new product launches; and 4) customer product cancellations due to regulatory issues. The Company has increased its capabilities in these business units and is aggressively seeking new customers for its contract services offerings. To date these businesses have had limited success in gaining new customer orders in this highly competitive environment. Revenues attributable to the Drug Delivery Research and Development segment totaled $1.8 million in 2000 compared with $1.3 million in 1999. In 2000, this segment was focused on further development of proprietary formulations of morphine and leuprolide, both using the Company's patented chitosan-based nasal delivery system, and on the development of a proprietary formulation of budesonide using the Company's TARGIT{R} system. During the third quarter of 2000, the Company completed agreements with Innovative Drug Delivery Systems, Inc.(IDDS) granting IDDS exclusive rights to the Company's transmucosal drug delivery technologies for the delivery of morphine and fentanyl, both well-known pain medications, and midazolam, an anti-anxiety drug frequently administered prior to surgery. The agreements provide for IDDS to make license, option and milestone payments to the Company that could total up to $22 million through year 2004. West would also be entitled to royalties on the sale of any licensed products that proceed through to commercialization. Net sales of $469.1 million in 1999 compare with $449.7 million for 1998. The impact of the strong U.S. dollar reduced reported sales by approximately $10 million compared with 1998. At constant exchange rates, sales in 1999 were 6.5% higher than 1998 net sales. Sales of manufactured device products increased 7.8% (measured at constant exchange rates) in 1999 compared with 1998, with all geographic regions showing growth. A number of factors contributed to this increase: 1) increased customer demand for higher value components for insulin and vaccines; 2) a switch by certain customers to higher value components to improve their production efficiencies; and 3) increased customer inventories of some products related to year 2000 contingency planning. Sales in European markets increased 9.8%, and in domestic markets sales increased 5.9%. In domestic markets, the increase in sales to healthcare markets was offset in part by a decline in sales to consumer markets, mainly due to competition. Also, sales increased significantly in Asia/Pacific markets due to higher volume. Contract Services sales increased 1.4% in 1999 compared with 1998. The acquisition of the clinical services business units in April 1999 added $10.1 million to 1999 sales. Sales of contract manufacturing and packaging services decreased by 11% compared with 1998. In addition to the factors noted previously for 2000, the sales decline was the result of two long-time customers' products being converted to in-house production. Gross Profit - ------------ The consolidated gross margin in 2000 was 24.0% and gross profit was $103.4 million. These results compare with a 30.8% gross margin and gross profit of $144.3 million in 1999. Lower margins were reported in 2000 in both the Device Product Development and Contract Services segments. Margins on manufactured device product sales decreased by more than five percentage points due to the combined impact of several factors: 1) lower volume and a less favorable product mix in domestic markets; 2) higher material costs due largely to the increased cost of dollar-based raw materials to international operations; 3) losses in the U.K. plastics device facility; 4) lower pricing; and 5) major expansion or start-up/development costs at several plants that affected efficiencies. In the Contract Services segment, low demand and contract cancellations for contract manufacturing and packaging services caused this business unit to operate below breakeven margins. Margins for the clinical services business unit also declined versus 1999 due to lower demand and competition. The 1999 consolidated gross margin of 30.8% compared favorably with the 30.1% gross margin in 1998, with gross profit increasing from $135.2 million in 1998 to $144.3 million in 1999. Margins on manufactured device product sales increased by more than one percentage point due to the combined impact of increased volume, a more profitable product mix in all markets and cost savings and efficiency programs. Margins on contract manufacturing and packaging services sales declined due to the combined impact of lower volume in the last half of 1999 and the loss of two profitable contracts, as a result of customers converting to in-house production. The margin decline was mitigated by the higher-margin services of the clinical services business units. Expenses - -------- Selling, general and administrative expenses as a percent of sales were 15.7% in 2000, 16.6% in 1999, and 15.7% in 1998. Selling, general and administrative expenses totaled $67.7 million in 2000, $77.9 million in 1999 and $70.5 million in 1998. The $10.2 million decrease in these expenses in 2000 compared with 1999 primarily relates to higher income on U.S. pension plan assets, lower incentive compensation, the impact of the stronger U.S. dollar, lower severance costs and a smaller adjustment to the estimated cost for environmental remediation activities. These favorable factors more than offset increased spending on drug delivery research and development and the expenses of acquired companies. The $7.4 million increase in these expenses in 1999 compared with 1998 primarily relates to expenses of acquired companies, spending on drug delivery research and development, management information systems' costs (in part related to year 2000 remediation and contingency planning), severance costs and revised estimates of costs for environmental remediation activities. These increases more than offset the following favorable factors: higher income on U.S. pension plan assets and the impact of the stronger U.S. dollar. Restructuring Charges and Other Income - --------------------------------------- In November 2000, the Company announced a series of initiatives designed to streamline operations and improve efficiencies. As part of this plan, the Company will close contract packaging and plastic device manufacturing plants in Puerto Rico and close its site management office in Cleveland, Ohio during the first half of 2001. The Company also closed its sterile-fill operation in Lakewood, New Jersey. The pre-tax charge related to these actions totaled $20.8 million. Approximately $3.9 million of the charge relates to asset disposal costs and severance and benefits for the approximately 180 employees affected by the restructuring activities. The remainder consists of a goodwill write-off and plant and equipment write-downs to net realizable value. In 1999, the Company revised its business plan related to its plastics component manufacturing operations which resulted in a $3.5 million reversal of the restructuring charge recorded in 1996. In addition, the Company recorded a charge of $4.2 million associated with the write-off of a plastic product line that had not gained market acceptance. Transactions included in the other income category netted to income of $.3 million in 2000, compared to income of $1.2 million in 1999 and $2.5 million in 1998. Interest income, included therein, totaled $2.7 million in 2000, $2.5 million in 1999 and $2.7 million in 1998, a result of cash flow from operations available for investment and, in 2000, interest related to a tax refund. Foreign currency losses were $1.1 million in 2000 compared with $.9 million in 1999, and were immaterial in 1998. The strong U.S. dollar compared with Euro-based currencies was responsible for the losses. Net losses on sales of equipment and other assets totaled $1.0 million in 2000 compared with $.6 million in both 1999 and 1998. Interest - --------- Interest costs totaled $14.1 million in 2000 compared with $11.0 million in 1999 and $7.5 million in 1998, of which $1.0 million in 2000, $.6 million in 1999 and $.3 million in 1998 were capitalized as part of the cost of capital asset acquisitions. The average consolidated debt level increased in both 2000 and 1999 despite a strong operating cash flow in 1999. Higher debt levels were largely due to the Company's repurchase of its stock on the open market (402,100 shares in 2000 at an average cost of $26.77 per share and 530,800 shares in 1999 at an average cost of $34.10 per share) and the purchase of two million shares at $30.00 per share in a Dutch Auction self-tender (October 1998). Also, the acquisition of the clinical services business unit in April 1999, DBS in March 1998 and Betraine Limited in July 1998 contributed to the increase in debt. In 2000, capital expenditures were higher than operating cash flow and interest rates were also higher. Income Taxes - ------------ The effective tax rate on consolidated income was 71.7% in 2000, 32.5% in 1999, and 76.1% in 1998. Unusual events have impacted the effective tax rate in each of these years. Excluding the impact of these unusual items would result in comparative tax rates of 36.4% for 2000, 37.5% for 1999 and 37.8% for 1998. These comparative tax rates reflect changes in the geographic mix of earnings and changes in the statutory tax rate in several countries during the three-year period. The unusual items impacting the reported effective tax rates are as follows: In 2000, lower tax benefits on certain components of the restructuring charge were partially offset by $1.5 million of tax benefits realized upon the favorable resolution of trade tax issues related to the 1997 tax reorganization of the Company's German subsidiaries. In 1999, two events produced a net tax benefit of $2.3 million. A foreign dividend made possible by a tax reorganization of the Company's European subsidiaries late in the year triggered the refund of taxes previously paid. The Company also realized a favorable settlement of a prior years' tax appeal. In 1998, the reported effective tax rate was increased by a non-deductible $28.2 million charge for acquired in-process research and development. Equity in Affiliates - -------------------- The contribution to earnings from a 25% ownership interest in Daikyo Seiko, Ltd. and a 49% ownership interest in three companies in Mexico increased in 2000 and 1999. Daikyo's results in 2000 and 1999 benefited from higher margins and a stronger Japanese yen versus the U.S. dollar. Additionally, in 1999 Daikyo's results included higher sales volumes and the benefit of a legal settlement of a patent infringement. Contributions from Mexican operations were flat after having increased in 1999. Equity in losses of DBS related to the Company's then 30% ownership interest were recorded until April 1998 when it became a wholly owned subsidiary. FINANCIAL POSITION - -------------------- The cash balance at December 31, 2000 was $42.7 million and working capital totaled $93.8 million, a ratio of current assets to current liabilities of 2.2 to 1. In July 2000, the Company signed a $135 million revolving credit agreement with a group of six banks. The credit agreement consists of a $70 million, five-year revolving credit facility and a $65 million 364-day line of credit. Interest cost on these facilities is charged at London Inter-Bank Offering Rates (LIBOR) plus a margin dependent on the Company's debt to total capital ratio. The interest rate on the initial borrowings under this facility was 7.4%. Commitment fees on these credit agreements also fluctuate according to the Company's debt to total capital ratio with a maximum commitment fee of 17.5 basis points on the 364-day facility and 20.0 basis points on the five-year facility. Consolidated debt totaled $199.4 million at December 31, 2000, compared with $171.1 million at year-end 1999. Debt to total invested capital (total debt, minority interests and shareholders' equity) was 49.2% at December 31, 2000. For the year, funds generated from operations totaled $48.6 million versus $69.4 million in 1999 as a result of the lower net income. Capital spending for 2000 increased to $57.3 million, primarily due to facility, maintenance and efficiency upgrades on Device Product Development segment assets. Other investment activity in 2000 included a $2.0 million additional investment in a genotyping technology company, and a $1.0 million payment to acquire an exclusive technology license, which will enable the Company to manufacture a patented reconstitution device to deliver lyophilized drugs. Cash dividends totaled $9.8 million ($.69 per share) and $10.8 million was used to repurchase common stock (402,100 shares at an average price of $26.77 per share). These net cash outflows were financed primarily through $30.3 million of increased borrowings. 2001 REQUIREMENTS - ------------------ Capital Expenditures: - --------------------- Cash requirements for capital projects in 2001 are projected to be about $60 million. Capital projects will focus on completion of the capacity expansion at two European plants, new product development and technology upgrades to reduce cost and improve quality. In addition, a program to install enterprise resource planning capability will start in 2001. This program is intented to drive internal efficiencies and improved business processes. Foreign exchange exposure: - ------------------------- In accordance with the Company's foreign exchange management policy, the adverse consequences resulting from foreign currency exposure are mitigated by engaging in certain hedging activities. Foreign exchange forward contracts are used to minimize exposure related to foreign currency transactions and commitments for raw material purchases. The Company has entered into interest rate swap agreements to minimize risk to interest rate increases. The Note "Financial Instruments" to the Consolidated Financial Statements explains the impact of such hedges and interest rate swaps on the Company's results of operations and financial position. Remedial activities: - ------------------- Cash requirements for remedial activity related to environmental cleanup are expected to be relatively small in 2001 as the Company continues to work with local environmental authorities to finalize the remediation plan at a U.S. manufacturing site. The Company has been indemnified by other financially responsible parties against future government claims relating to groundwater contamination at a Puerto Rico site, and the Company does not anticipate any remedial expenses with respect to this site. The Company believes its financial condition and current capitalization provide sufficient flexibility to meet cash flow requirements in the future. In late 2000, the Company's Board of Directors authorized management to engage UBS Warburg LLC to review all of the Company's strategic alternatives and identify opportunities to enhance shareholder value, which may include disposition of assets or business combinations involving the Company. FORWARD-LOOKING INFORMATION - --------------------------- Certain statements in this Annual Report, including management's discussion and analysis, that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "estimate", "expect", "intend", "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including but not limited to (1)sales demand, (2)the timing and success of customers' projects, (3)competitive pressures, (4)the strength or weakness of the U.S. dollar, (5)inflation, (6)the cost of raw materials, (7)continued cost-improvement programs, (8)statutory tax rates and (9)significant asset dispositions. The Company does not intend to update these forward-looking statements. CONSOLIDATED STATEMENTS OF INCOME WEST PHARMACEUTICAL SERVICES, INC. AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998. (in thousands, except per share data)
2000 1999 1998 -------------------------------------------------------------- Net sales .......................... $ 430,100 100% $ 469,100 100% $ 449,700 100% Cost of goods and services sold .... 326,700 76 324,800 69 314,500 70 -------------------------------------------------------------- Gross profit ...................... 103,400 24 144,300 31 135,200 30 Selling, general and administrative expenses ........... 67,700 16 77,900 17 70,500 16 Restructuring charge ............... 20,800 5 700 -- 4,000 1 Acquired research and development .. -- -- -- -- 28,200 6 Other (income), net ................ (300) -- (1,200) -- (2,500) (1) -------------------------------------------------------------- Operating profit .................. 15,200 3 66,900 14 35,000 8 Interest expense ................... 13,100 3 10,400 2 7,200 2 -------------------------------------------------------------- Income before income taxes and minority interests ..... 2,100 -- 56,500 12 27,800 6 Provision for income taxes ......... 1,500 -- 18,400 4 21,200 5 Minority interests ................. 200 -- 200 -- 100 -- -------------------------------------------------------------- Income from consolidated operations 400 -- 37,900 8% 6,500 1% -- -- -- Equity in net income of ............ affiliated companies .............. 1,200 800 200 -------------------------------------------------------------- Net income ........................ $ 1,600 $ 38,700 $ 6,700 -------------------------------------------------------------- Net income per share: Basic ........................... $ .11 $ 2.59 $ .41 Assuming dilution ................ $ .11 $ 2.57 $ .40 -------------------------------------------------------------- Average common shares outstanding .. 14,407 14,914 16,435 Average shares assuming dilution ... 14,409 15,048 16,504 The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME WEST PHARMACEUTICAL SERVICES, INC. AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998. (in thousands)
Minimum Foreign Unrealized pension Total currency gains liability other Total translation (losses) adjustment comprehensive Net comprehensive adjustments on securities (net of tax) income(loss) income income (loss) --------------------------------------------------------------------------------- Cumulative balance, January 1, 1998............. $ 3,400 $ 100 $ -- $ 3,500 Comprehensive income 1998................. 4,100 (400) 3,700 $ 6,700 $ 10,400 ---------------------------------------------------------------------------------- Cumulative balance, December 31, 1998........... 7,500 (300) 7,200 Comprehensive income 1999................. (13,600) 1,100 (12,500) $ 38,700 $ 26,200 --------------------------------------------------------------------------------- Cumulative balance, December 31, 1999........... (6,100) 800 (5,300) Comprehensive loss 2000................... (8,200) (700) (300) (9,200) $ 1,600 $ (7,600) -------------------------------------------------------------------------------- Cumulative balance, December 31,2000............ $(14,300) $ 100 $ (300) $(14,500) ---------------------------------------------------------- The accompanying notes are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS WEST PHARMACEUTICAL SERVICES, INC. AND SUBSIDIARIES AT DECEMBER 31, 2000 AND 1999. (in thousands, except per share data)
2000 1999 ASSETS ---------------------- Current assets: Cash, including equivalents (2000--$29,000; 1999--$26,100) ............ $ 42,700 $ 45,300 Accounts receivable, less allowance (2000--$1,200; 1999--$1,800) ...... 60,900 74,600 Inventories ........................................................... 41,000 42,100 Income tax refundable.................................................. 7,700 6,500 Deferred income tax benefits .......................................... 7,700 7,300 Other current assets .................................................. 13,100 8,900 ---------------------- Total current assets ................................................... 173,100 184,700 ---------------------- Property, plant and equipment .......................................... 521,400 489,200 Less accumulated depreciation and amortization ......................... 285,600 261,600 ---------------------- 235,800 227,600 Investments in affiliated companies .................................... 22,000 20,200 Goodwill ............................................................... 52,400 66,500 Prepaid pension asset................................................... 40,200 24,800 Deferred income tax benefits............................................ 18,000 11,800 Other assets ........................................................... 15,900 16,200 ---------------------- $ 557,400 $ 551,800 ----------------------
2000 1999 ---------------------- LIABILITIES AND SHAREHOLDERS' EQUITY ................................... Current liabilities: Current portion of long-term debt ..................................... $ 500 $ 2,200 Notes payable ......................................................... 3,100 27,400 Accounts payable ...................................................... 27,600 25,500 Accrued expenses: Salaries, wages and benefits ......................................... 11,300 15,600 Income taxes payable ................................................. 7,200 3,600 Restructuring costs................................................... 4,200 100 Deferred income taxes................................................. 1,900 1,900 Other ................................................................ 23,500 27,700 ---------------------- Total current liabilities .............................................. 79,300 104,000 ---------------------- Long-term debt, excluding current portion .............................. 195,800 141,500 Deferred income taxes .................................................. 51,000 48,000 Other long-term liabilities ............................................ 25,500 26,300 Minority interests ..................................................... 1,000 800 Shareholders' equity: Preferred stock, shares authorized: 3,000; shares issued and outstanding: 2000--0; 1999--0 Common stock, par value $.25 per share; shares authorized: 50,000; shares issued: 2000--17,165; 1999--17,165; shares outstanding: 2000--14,310; 1999--14,664 ....................... 4,300 4,300 Capital in excess of par value ........................................ 32,100 31,700 Retained earnings ..................................................... 269,800 278,100 Accumulated other comprehensive (loss)................................. (14,500) (5,300) ---------------------- 291,700 308,800 Less treasury stock (2000--2,855 shares; 1999--2,501 shares) ........... 86,900 77,600 ---------------------- Total shareholders' equity ............................................. 204,800 231,200 ---------------------- $ 557,400 $ 551,800 ---------------------- The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY WEST PHARMACEUTICAL SERVICES, INC. AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998. (in thousands, except per share data)
Capital in Other Common excess of Retained comprehensive Treasury stock par value earnings income (loss) stock Total --------------------------------------------------------------------- Balance, January 1, 1998 ...................$ 4,200 $ 24,000 $ 252,500 $ 3,500 $ (6,500) $ 277,700 ---------------------------------------------------------------------- Net income ................................. 6,700 6,700 Shares issued under stock plans ............ 300 3,300 3,600 Shares issued for acquisition .............. 100 8,600 8,700 Shares repurchased ......................... (60,400) (60,400) Cash dividends declared ($.62 per share) ... (9,900) (9,900) Changes-other comprehensive income (loss)... 3,700 3,700 ---------------------------------------------------------------------- Balance, December 31, 1998 ................. 4,300 32,900 249,300 7,200 (63,600) 230,100 ---------------------------------------------------------------------- Net income ................................ 38,700 38,700 Shares issued under stock plans ........... (1,200) 4,100 2,900 Shares repurchased ........................ (18,100) (18,100) Cash dividends declared ($.66 per share) .. (9,900) (9,900) Changes-other comprehensive income (loss).. (12,500) (12,500) ---------------------------------------------------------------------- Balance, December 31, 1999 ................ 4,300 31,700 278,100 (5,300) (77,600) 231,200 ---------------------------------------------------------------------- Net income ................................ 1,600 1,600 Shares issued under stock plans ........... 400 1,500 1,900 Shares repurchased......................... (10,800) (10,800) Cash dividends declared ($.70 per share) .. (9,900) (9,900) Changes-other comprehensive income (loss).. (9,200) (9,200) ---------------------------------------------------------------------- Balance, December 31, 2000 ................ $ 4,300 $ 32,100 $ 269,800 $ (14,500) $ (86,900) $ 204,800 ----------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS WEST PHARMACEUTICAL SERVICES, INC. AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998. (in thousands)
2000 1999 1998 ------------------------------- Cash flows from operating activities: Net income ........................................ $ 1,600 $ 38,700 $ 6,700 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization ................... 37,000 35,700 32,300 Acquired in-process research and development .... -- -- 28,200 Restructuring charge ............................ 20,800 700 4,000 Loss on sales of equipment and other assets...... 1,000 600 600 Deferred income taxes ........................... 100 8,500 5,900 Pension and other retirement plans .............. (15,800) (9,200) (6,000) Equity in undistributed earnings of affiliated companies, net ................................. (1,000) (500) (100) Decrease (increase) in accounts receivable ...... 10,400 (10,200) (700) Decrease (increase) in inventories .............. (500) (1,200) (2,400) Decrease (increase) in other current assets ..... (900) (1,400) 800 (Decrease) increase in other current liabilities (3,700) 6,900 500 Other operating items ........................... (400) 800 1,200 -------------------------------- Net cash provided by operating activities .......... 48,600 69,400 71,000 -------------------------------- Cash flows from investing activities: Property, plant and equipment acquired ............ (57,300) (46,200) (41,800) Proceeds from sales of assets ..................... 300 100 1,200 Payments for acquisitions, net of cash acquired ... (3,400) (17,200) (34,900) Customer advances, net of repayments .............. (100) 1,600 1,700 -------------------------------- Net cash used in investing activities .............. (60,500) (61,700) (73,800) --------------------------------
2000 1999 1998 ------------------------------- Cash flows from financing activities: Borrowings (repayments) under revolving credit agreements, net ................. 70,000 (46,000) 65,000 Proceeds from senior notes ........................ -- 100,000 -- Proceeds from other long-term debt ................ -- -- 1,500 Repayment of other long-term debt ................. (16,200) (3,000) (19,100) Other notes payable, net .......................... (23,500) (16,800) 800 Issuance of common stock, net ..................... 1,500 2,800 2,600 Dividend payments ................................. (9,800) (10,300) (9,400) Purchase of treasury stock ........................ (10,800) (18,100) (60,400) -------------------------------- Net cash provided by (used in) financing activities 11,200 8,600 (19,000) -------------------------------- Effect of exchange rates on cash ................... (1,900) (2,300) 800 -------------------------------- Net (decrease) increase in cash and cash equivalents (2,600) 14,000 (21,000) Cash and cash equivalents at beginning of year ..... 45,300 31,300 52,300 -------------------------------- Cash and cash equivalents at end of year ........... $ 42,700 $ 45,300 $ 31,300 -------------------------------- Supplemental cash flow information: Interest paid, net of amounts capitalized ......... $ 12,900 $ 9,000 $ 5,100 Income taxes paid ................................. $ 2,100 $ 15,100 $ 14,700 -------------------------------- The accompanying notes are an integral part of the financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Summary of Significant Accounting Policies - ------------------------------------------ Basis of Presentation: The financial statements are prepared in conformity with generally accepted accounting principles in the United States. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses and the disclosure of contingencies in the financial statements. Actual amounts realized may differ from these estimates. Principles of Consolidation: The consolidated financial statements include the accounts of West Pharmaceutical Services, Inc. and all majority-owned subsidiaries (the Company). Material intercompany transactions and accounts are eliminated in consolidation. Certain items have been reclassified to conform with current classifications. Investments in affiliated companies in which ownership exceeds 20% are accounted for on the equity method. Statement of Cash Flows: Cash flows from operating activities are reported under the indirect method; cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. Inventories: Inventories are valued at the lower of cost or market. The cost of inventories located in the United States is determined on the last-in, first-out (LIFO) method, except for the cost of inventories of West Pharmaceutical Services Lakewood, Inc. (West Lakewood), a wholly owned subsidiary, which is determined on the first-in, first-out (FIFO) method. The cost of inventories located outside the United States is determined principally on the average cost method. Foreign Currency Translation: Foreign currency transaction gains and losses and translation gains and losses of subsidiaries operating in high-inflation economies are recognized in the determination of net income. Foreign currency translation adjustments of other subsidiaries and affiliates operating outside the United States are accumulated in other comprehensive income, a separate component of shareholders' equity. Financial Instruments: The Company uses interest rate swaps and forward exchange contracts to minimize the economic exposure related to fluctuating interest and foreign exchange rates. Amounts to be paid or received under interest rate swaps are accrued as interest expense, and presented in the financial statements on a net basis. Gains and losses on hedges of existing assets and liabilities are recognized monthly and offset gains and losses on the underlying transaction. Gains and losses related to firm commitments, primarily raw material purchases including local needs in foreign subsidiaries, are deferred and recognized as part of the underlying transaction. The Company will adopt Financial Accounting Standards Statement No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities," as amended, beginning in 2001. This accounting standard requires the Company to recognize all derivatives as either assets or liabilities and measure those instruments at fair value as of the balance sheet date. The change in fair value of a derivative designated and qualified as part of a hedging transaction is generally matched with the recognition of the item or risk being hedged. The change in fair value of a derivative instrument with no hedging designation or purpose is recognized immediately into earnings. On January 1, 2001, the Company will record a $300 charge to other comprehensive income, principally due to recording the fair market value of interest rate swap agreements which hedge variable interest rate notes payable. Marketable Securities: Investments in debt and marketable securities are classified under one of three categories: held-to-maturity, available-for-sale and trading, based on management's intentions. Investments in marketable securities are stated at fair market value. Unrealized gains and losses on trading securities are included in income. Unrealized gains and losses on securities available-for-sale are accumulated in other comprehensive income, a separate component of shareholders' equity. Cost of marketable securities is determined on the moving average method. Revenue Recognition: Sales of manufactured components and contract manufacturing and packaging services are recorded at the time title passes, which generally occurs when the goods are shipped. In 2000, the Company adopted Emerging Issues Task Force Issue 00-10, "Accounting for Shipping and Handling Revenues and Costs." Accordingly, as of January 1, 2000, freight charge reimbursements are reported as net sales and freight expenses are reported as cost of goods and services sold. Full-year freight expense for 2000 was $3,700. Freight revenues and expenses were reported on a net basis in prior years. Clinical service revenue and related direct costs are recognized as specific contract terms are fulfilled under the percentage of completion method (the units of delivery method). Fees for individual contract clinical services are fixed upon execution of the contract and provide for payment for all work performed. Pass-through costs that are paid directly by clients, and for which the Company does not bear the risk of performance, are excluded from revenue. The termination of a contract typically results in no material adjustments to the revenue or costs previously recognized. Revenue associated with drug delivery systems development is recognized when earned in accordance with the terms of contract research agreements with the customer. Non-refundable license and milestone fees are recognized as revenue when related services under the agreements are performed. 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. Upon sale or retirement of depreciable assets, costs and related depreciation are eliminated, and gains or losses are recognized in the determination of net income. Impairment of Asset Value: The Company continually evaluates the appropriateness of the remaining estimated useful life and the carrying value of its operating assets, goodwill and other intangible assets. Carrying values in excess of undiscounted estimates of related cash flows are expensed when such determination is made. Depreciation and Amortization: For financial reporting purposes, depreciation is computed principally on the straight-line method over the estimated useful lives of the assets, or the remaining term of the lease, if shorter. For income tax purposes, depreciation is computed using accelerated methods. Goodwill is being amortized on the straight-line method over periods ranging from 13 to 40 years. Research and Development: Research, development and engineering expenditures for the creation and application of new or improved products and processes, and drug delivery systems, the totals of which amounted to $19,200 in 2000, $16,700 in 1999 and $14,500 in 1998, 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 are not discounted and include investigation, cleanup and monitoring activities; such estimates are adjusted, if necessary, based on additional findings. In general, environmental compliance costs are expensed. Environmental compliance costs at current operating sites are capitalized if they increase the value of the property and/or prevent environmental hazards from occurring. Income Taxes: Deferred income taxes are recognized by applying enacted statutory tax rates, applicable to future years, to temporary differences between the tax bases and financial statement carrying values of the Company's assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets to amounts that are more likely than not to be realized. United States income taxes and withholding taxes are accrued on the portion of earnings of international subsidiaries and affiliates (which qualify as joint ventures) intended to be remitted to the parent company. Stock-Based Compensation: The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Net Income Per Share: Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period. Net income per share assuming dilution considers the potential issuance of common shares under the Company's stock option and award plans, based on the treasury stock method. The treasury stock method assumes use of exercise proceeds to repurchase common stock at the average fair market value in the period. Other Income (Expense) - ----------------------
2000 1999 1998 ----------------------------- Interest income ............... $ 2,700 $ 2,500 $ 2,700 Foreign exchange (losses) gains (1,100) (900) 200 Loss on sales of equipment and other assets.............. (1,000) (600) (600) Other ......................... (300) 200 200 ----------------------------- $ 300 $ 1,200 $ 2,500 -----------------------------
Restructuring Charges - --------------------- In 2000, the Company announced a series of initiatives designed to streamline operations and improve efficiencies. As part of the plan, the Company will close contract packaging and plastic device manufacturing plants in Puerto Rico and close its site management office in Cleveland, Ohio during the first half of 2001. The Company also will close its sterile-fill operation in Lakewood, New Jersey. These actions and other personnel reductions affect approximately 180 employees. The Company recorded a pre-tax restructuring charge of $20,800 in the fourth quarter of 2000 related to these decisions. The charge covers a $9,200 goodwill write-down to the site management organization of the clinical services business unit, a $7,700 reduction to estimated net realizable value of assets to be sold and $3,900 of accrued severance and related benefits and asset disposal costs. In 1999, the Company revised its business plan related to its plastics component manufacturing operations. The 1999 plan included investment in new capacity and capabilities at the Company's Puerto Rico facility, which resulted in a $3,500 adjustment of the restructuring charge recorded in 1996 related to this operation. In addition, the Company wrote off the $4,200 carrying value of equipment and intangibles related to a proprietary plastic product line that had not gained market acceptance. In 1998, the Company recorded a pre-tax charge of $4,000. The charge related to employee reductions associated with identified manufacturing and other operating efficiencies. The charge included severance and benefits for 90 employees including manufacturing and staff positions and other related charges. At December 31, 2000, the total payout of severance and benefits to date associated with this charge was $3,900. Acquisitions and Investments - ----------------------------- During 2000, the Company invested $2,000 in a firm involved with genotyping technology. The Company's cumulative investment in this firm is $3,300 at December 31, 2000, representing an 18.53% ownership interest. The Company is conditionally committed to investing an additional $300, which would bring its cumulative ownership percentage to 19.95%. On April 20, 1999, the Company acquired the assets of the Clinical Services Division (CSD) of Collaborative Clinical Research, Inc. CSD provides clinical research services to the pharmaceutical and biotechnology industries. Its focus is on the identification, placement, monitoring and management of clinical-trial programs. The CSD purchase price was comprised of a combination of $15,900 in cash, and the assumption of $2,300 of current liabilities. The acquisition was accounted for as a purchase and CSD was consolidated beginning May 1, 1999. The allocation of the purchase price follows: Current assets ..................... $ 2,900 Equipment and leasehold improvements 800 Goodwill ........................... 14,500 The excess of the purchase price over the net assets acquired is being amortized on a straight-line basis over 20 years. Pro forma results assuming the acquisition of CSD as of January 1, 1999 would not materially change reported sales or net income. On July 1, 1998, the Company acquired Betraine Limited for British pounds sterling (BPS) 7,200 ($11,800 at July 1, 1998). Betraine manufactures precision injection molded plastic components for the healthcare and consumer products industries. The acquisition was accounted for as a purchase and Betraine was consolidated beginning July 1, 1998. The acquisition was financed with existing cash. The excess of the purchase price over the net assets acquired is being amortized on a straight-line basis over 20 years. On March 31, 1998, the Company acquired for BPS 20,000 ($33,500 at March 31, 1998) the remaining 70% interest in DanBioSyst UK Ltd. (DBS), making DBS a wholly owned subsidiary. DBS is engaged in drug delivery system research and development. This transaction was accounted for by the purchase method, and was financed with cash of $9,400; 320,406 shares of restricted common stock valued at $8,700; and short-term notes of $15,400. DBS was consolidated beginning April 1, 1998. The allocation of the purchase price, determined by an independent appraiser using the income approach, follows:
Current assets ..................... $ 1,300 Equipment and leasehold improvements 800 In-process research and development 28,200 Patents ............................ 2,800 Other intangibles .................. 400
In-process research and development was written off at the date of acquisition. This value relates to various drug delivery platforms which DBS had in different stages of the development process. The appraisal was based on licensing of such delivery systems with significant revenues generated beginning in 2003. A discount rate of 32% was used. The initial 30% interest in DBS was acquired in 10% increments over the period 1994 through 1996. Income Taxes - ------------ Income before income taxes and minority interests was derived as follows:
2000 1999 1998 ------------------------------ Domestic operations .... $ (3,900) $ 36,000 $ 8,600 International operations 6,000 20,500 19,200 ------------------------------ $ 2,100 $ 56,500 $ 27,800 ------------------------------
The related provision for income taxes consists of:
2000 1999 1998 ------------------------------ Current provision: Federal ......... $ (1,900) $ 3,300 $ 8,800 State ........... 100 300 900 International ... 3,200 6,300 5,600 ------------------------------ 1,400 9,900 15,300 ------------------------------ Deferred provision: Federal ......... 1,500 7,200 4,200 International ... (1,400) 1,300 1,700 ------------------------------ 100 8,500 5,900 ------------------------------ Provision for income taxes $ 1,500 $ 18,400 $ 21,200 ------------------------------
A reconciliation of the United States statutory corporate tax rate to the Company's effective consolidated tax rate on income before income taxes and minority interests follows:
2000 1999 1998 -------------------------- Statutory corporate tax rate ............. 35.0% 35.0% 35.0% Tax on international operations in excess of United States tax rate..... (13.6) 2.9 1.2 Restructuring costs without tax benefits.. 92.4 -- -- Tax reorganization benefit ............... (70.9) (3.1) -- Acquired research and development ........ -- -- 35.5 United States tax on repatriated international earnings .................. 18.1 .6 .8 State income taxes, net of Federal tax benefit .................. -- .4 2.3 Settlement of tax audit .................. -- (1.8) -- Other .................................... 10.7 (1.5) 1.3 -------------------------- Effective tax rate ....................... 71.7% 32.5% 76.1% --------------------------
Results for 2000 include a tax benefit realized upon the favorable resolution of trade tax issues connected to the 1997 reorganization of the Company's German subsidiaries. In the fourth quarter of 1999, the Company completed a tax reorganization of its European subsidiaries. The reorganization made possible payment of a dividend which triggered refund of taxes previously paid. The net current and noncurrent components of deferred income taxes recognized in the balance sheet at December 31 are as follows:
2000 1999 ----------------- Net current assets ....... $ 5,800 $ 5,400 Net noncurrent liabilities $ 33,000 $ 36,200 -----------------
The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31:
2000 1999 -------------------- Deferred tax assets: Loss on asset dispositions and plant closings...................... $ 1,800 $ 2,400 Severance and deferred compensation ........................... 8,600 9,200 German tax reorganization ............... 3,800 4,900 Net operating loss carryovers ........... 8,000 3,800 Foreign tax credit carryovers ........... 1,400 1,100 Restructuring charge .................... 4,100 -- Other ................................... 3,000 3,800 Valuation allowance ..................... (6,800) (4,900) ------------------- Total ................................ $ 23,900 $ 20,300 ------------------- Deferred tax liabilities: Accelerated depreciation ................ $ 28,200 $ 34,400 Severance and deferred compensation...... 15,900 11,900 Other ................................... 7,000 4,800 ------------------- Total ............................... $ 51,100 $ 51,100 -------------------
At December 31, 2000, subsidiaries had state and foreign operating tax loss carryovers of $37,100 and $20,600, respectively. These loss carryovers are available to apply against the future taxable income of the subsidiaries. The carryover periods expire beginning with $8,400 in 2002 and continue through 2007. At December 31, 2000, undistributed earnings of international subsidiaries, on which deferred income taxes have not been provided, amounted to $140,700. It is the Company's intention to reinvest these undistributed earnings of foreign subsidiaries, and it is not practicable to determine the amount of income or withholding tax that would be payable upon the remittance of those earnings. Such earnings would become taxable upon the sale or liquidation of foreign subsidiaries or upon the remittance of dividends. Tax credits that would become available upon distribution of such earnings could reduce income taxes then payable at the United States statutory rate. As of December 31, 2000, the Company had available foreign tax credit carryovers of approximately $1,400 expiring in 2001 through 2005. Net Income Per Share - -------------------- The following table reconciles shares used in basic income per share to the shares used in income per share assuming dilution. There is no adjustment to the net income of the Company in the calculation of net income per share assuming dilution.
2000 1999 1998 --------------------------- Net income ................. $ 1,600 $ 38,700 $ 6,700 --------------------------- Average common shares outstanding ........ 14,407 14,914 16,435 Assumed stock options exercised and awards vested 2 134 69 --------------------------- Average shares assuming dilution ......... 14,409 15,048 16,504 ---------------------------
Comprehensive Income - -------------------- Comprehensive income consists of reported net income and other comprehensive income which reflects revenue, expenses and gains and losses which generally accepted accounting principles exclude from net income. For the Company, the items excluded from current net income are cumulative foreign currency translation adjustments, unrealized gains or losses on available-for-sale securities and additional minimum pension liability adjustments. Comprehensive income and the cumulative balance of each item of other comprehensive income is displayed in the accompanying Consolidated Statements of Comprehensive Income. Inventories - -----------
2000 1999 ------------------------ Finished goods $ 17,300 $14,000 Work in process 9,400 12,800 Raw materials 14,300 15,300 ------------------------ $ 41,000 $42,100 ------------------------
Included above are inventories located in the United States that are valued on the LIFO basis, amounting to $11,900 and $11,800 at December 31, 2000 and 1999, respectively, which are approximately $6,700 and $6,800, respectively, lower than replacement value. Affiliated Companies - -------------------- At December 31, 2000, the following affiliated companies were accounted for under the equity method:
Fiscal Ownership Location year end interest --------------------------------- West Pharmaceutical Services Mexico, S.A. de C.V. Mexico Dec. 31 49% Aluplast S.A. de C.V. ....... Mexico Dec. 31 49% Pharma-Tap S.A. de C.V. ..... Mexico Dec. 31 49% Daikyo Seiko, Ltd. .......... Japan Oct. 31 25% ---------------------------------
A summary of the financial information for these companies is presented below:
2000 1999 ---------------------- Balance Sheets: Current assets ................................ $ 106,100 $ 95,400 Noncurrent assets ............................. 127,600 111,100 ---------------------- Total assets ................................ $ 233,700 $206,500 ---------------------- Current liabilities ........................... $ 59,100 $ 62,100 Noncurrent liabilities ........................ 105,400 74,300 Owners' equity ................................ 69,200 70,100 ---------------------- Total liabilities and owners' equity $ 233,700 $206,500 ---------------------- 2000 1999 1998 --------------------------- Income Statements: Net sales ............................... $ 87,200 $78,200 $69,500 Gross profit ............................ 21,800 17,000 14,500 Net income .............................. 4,800 3,400 1,000 ---------------------------
Unremitted income of affiliated companies included in consolidated retained earnings amounted to $12,600, $11,600 and $11,100 at December 31, 2000, 1999 and 1998, respectively. Dividends received from affiliated companies were $200 in 2000, $300 in 1999 and $200 in 1998. The Company's equity in unrealized gains and losses of Daikyo Seiko, Ltd.'s investment in securities available for sale included in other comprehensive income, a separate component of shareholders' equity, was $100, $800 and $(300) at December 31, 2000, 1999 and 1998, respectively. The unrealized losses in 2000 and 1998 are net of income tax benefits of $500 and $300, respectively. The unrealized gain in 1999 is net of an income tax provision of $1,000. Property, Plant and Equipment - ------------------------------ A summary of property, plant and equipment at December 31 is presented in the following table:
Years of expected useful life 2000 1999 ---------------------------------- Land ..................... $ 3,200 $ 3,100 Buildings and improvements 7-50 111,500 103,700 Machinery and equipment .. 3-20 320,700 304,700 Molds and dies ........... 4-7 54,300 53,500 Construction in progress.. 31,700 24,200 ---------------------------------- $521,400 $489,200 ----------------------------------
Debt - ---- Short-Term: Notes payable in the amounts of $3,100 and $27,400 at December 31, 2000 and 1999, respectively, are payable within one year and bear interest at a weighted average interest rate of 8% and 7%, respectively.
Long-term: At December 31, 2000 1999 --------------------- Unsecured: Senior notes, due 2009 (6.81%) ................ $100,000 $100,000 Revolving credit facility, due 2005 (7.43%) ... 70,000 -- Tax-exempt industrial revenue bonds, due 2005 (4.2% to 5.95%) (a) ................ 10,800 10,900 Subordinated debentures, due 2007 (6.5%) ...... 3,600 3,400 Other notes, due 2001 to 2005 (6.80% to 9.24%) 11,900 25,900 Collateralized: Mortgage notes (6.94%)......................... -- 3,500 --------------------- Total long-term debt .......................... 196,300 143,700 Less current portion .......................... 500 2,200 --------------------- $195,800 $141,500 --------------------- (a) The proceeds of industrial revenue bonds that were not required for the respective construction projects have been invested by the Company. Use of these excess funds and earnings thereon is restricted to servicing the debt. The aggregate of unexpended proceeds and earnings thereon of $1,700 is reflected as a reduction of the principal outstanding on the bonds.
In April 1999, the Company entered into an agreement with five insurance companies to borrow a total of $100,000 for ten years at a coupon rate of 6.81%; the effective interest rate is 6.91%. Interest is payable quarterly. The proceeds were used to repay debt under existing lines of credit, for the acquisition of CSD and for general corporate purposes. In July 2000, the Company signed a $135,000 revolving credit agreement with a group of six banks. The credit agreement consists of a $70,000 five-year revolving credit facility and a $65,000 364-day line of credit. Interest on these facilities is charged at London Inter-Bank Offering Rates (LIBOR) plus a margin dependent on the Company's debt to total capital ratio. The interest rate on the initial borrowings under these facilities was 7.4%. Commitment fees on these credit agreements also fluctuate according to the Company's debt to total capital ratio with a maximum commitment fee of 17.5 basis points on the 364-day and 20.0 basis points on the five-year facility. As of December 31, 2000, the Company had borrowed $49,100 directly under the five-year facility. These borrowings were recorded as long-term debt. Additional notes payable of $20,900 under uncommitted facilities were also classified as long-term debt, as the Company has the intent and ability to re-finance these obligations on a long-term basis under the five-year facility. At December 31, 2000, $4,300 at par value of West Lakewood's subordinated debentures were outstanding. The subordinated debentures are reflected in the balance sheet net of discount, which is being amortized through the maturity date of the subordinated debentures, March 1, 2007. The unamortized discount totaled $700 and $900 at December 31, 2000 and 1999, respectively. The holders have the right to convert such subordinated debentures into cash for an amount approximating 50% of the par value of the subordinated debentures converted. Interest is payable semiannually. Long-term debt maturing in the years following 2001 is: $500 in 2002, $10,700 in 2003, $100 in 2004 and $80,900 in 2005. Certain of the financing agreements, among other things, require the maintenance of working capital, interest coverage, debt-to-capitalization and tangible net worth ratios and restrict the sale of assets. Interest costs incurred during 2000, 1999 and 1998 were $14,100, $11,000 and $7,500, respectively, of which $1,000, $600 and $300, respectively, were capitalized as part of the cost of acquiring certain assets. At December 31, 2000, the Company has four interest rate swap contracts outstanding, three with notional values of $3,000 each, to fix the interest rates at 6.54%, 6.775% and 6.51% through April, July and August 2001, respectively, and one with a notional value of BPS 6,950 at a fixed interest rate of 7.23% through 2003. Under the terms of these agreements, the Company makes periodic interest payments based on these fixed rates of interest on the notional principal amounts to a counterparty that makes payments based on a market interest rate. The net interest expense recognized in connection with these agreements was less than $200 in 2000 and 1999 and $100 in 1998. Financial Instruments - --------------------- The following disclosure reflects the estimated fair value of financial instruments of the Company as of December 31:
Carrying value Estimated fair value ------------------------------------------------- Asset (liability) 2000 1999 2000 1999 - ----------------- ------------------------------------------------- Cash and cash equivalents ... $ 42,700 $ 45,300 $ 42,700 $ 45,300 Short-and long-term debt .... (199,400) (171,100) (197,900) (167,100) Interest rate swaps(a) ...... -- -- (300) -- Forward exchange contracts(a) -- -- -- -- ------------------------------------------------- (a) The estimated fair value of the interest rate swaps was less than $100 at December 31, 1999. The estimated fair value of forward exchange contracts was less than $100 at December 31, 2000 and 1999.
Methods used to estimate the fair market values of the above listed financial instruments are as follows: cash and cash equivalents due to their short maturity are estimated at carrying values that approximate market; debt is estimated based on current market quotes for instruments of similar maturity; interest rate swaps (see preceding Note "Debt") and forward exchange rate contracts are valued at published market prices, market prices of comparable instruments or quotes. Notional amounts upon which current interest rate swap contracts are based do not represent amounts exchanged and are not a measure of the Company's exposure. Failure by the contract counterparty to make interest payments under an interest rate swap contract would result in an accounting loss to the Company only if interest rates exceeded the fixed rate to be paid by the Company. The accounting loss corresponds to the cost to replace the swap contract. Benefit Plans - ------------- The Company and certain domestic and international subsidiaries sponsor defined benefit pension plans. In addition, the Company provides minimal life insurance benefits for certain United States retirees and pays a portion of healthcare (medical and dental) costs for retired United States 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. The expense (income) components of net pension income are as follows:
Pension benefits Other retirement benefits ------------------------------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------------------------------------------------------------- Service cost ...... $ 3,400 $ 4,400 $ 3,600 $ 300 $ 400 $ 500 Interest cost ..... 9,200 8,900 8,500 500 400 500 Expected return on assets ....... (21,300) (17,600) (15,400) -- -- -- Amortization of unrecognized transition asset (700) (700) (800) -- -- -- Amortization of prior service cost 500 400 400 (1,500) (1,500) (1,500) Recognized actuarial gains . (5,100) (2,000) (1,800) (100) -- -- Curtailment gain .. -- (200) -- -- -- -- ------------------------------------------------------------------- Pension (income) .. $(14,000) $ (6,800) $ (5,500) $ (800) $ (700) $ (500) -------------------------------------------------------------------
The following tables provide a reconciliation of the benefit obligation, plan assets and funded status of the plans:
Other Pension benefits retirement benefits ------------------------------------------------ 2000 1999 2000 1999 ------------------------------------------------ Change in benefit obligation: Benefit obligation, January 1 .................. $ (122,300) $(131,900) $ (5,800) $ (8,400) Service cost ................ (3,400) (4,400) (300) (400) Interest cost ............... (9,200) (8,900) (500) (400) Participants' contributions.. (300) (200) (100) (100) Actuarial gain (loss) ....... (3,500) 18,100 (100) 3,300 Amendments/Transfers in ..... (1,000) (3,300) (600) -- Benefits/expenses paid ...... 6,800 6,600 200 200 Curtailment gain ............ -- 200 -- -- Settlement .................. -- 900 -- -- Foreign exchange impact ..... 900 600 -- -- ----------------------------------------------- Benefit obligation December 31 ................ $ (132,000) $(122,300) $ (7,200) $ (5,800) ----------------------------------------------- Change in plan assets: Fair value of assets, January 1 .......... $ 229,300 $ 189,400 $ -- $ -- Actual return on assets .................. (16,200) 44,500 -- -- Employer contribution ....... 700 700 100 100 Participants' contributions.. 300 200 100 100 Transfers in ................ -- 1,400 -- -- Benefits/expenses paid ...... (6,800) (6,600) (200) (200) Foreign exchange impact ..... (700) (300) -- -- ----------------------------------------------- Fair value of plan assets, December 31 ........ $ 206,600 $ 229,300 $ -- $ -- ----------------------------------------------- Funded status: Assets in excess (less than) benefits $ 74,600 $ 107,000 $ (7,200) $ (5,800) Unrecognized net actuarial(gain)loss (43,800) (90,300) (1,600) (2,000) Unrecognized transition asset ... (700) (1,300) -- -- Unrecognized prior service cost . 3,500 2,900 (2,500) (4,600) Additional minimum liability........... (700) -- -- -- -------------------------------------------------------- December 31: Prepaid pension asset $ 40,200 $ 24,800 $ -- $ -- Accrued liability .. $ (7,300) $ (6,500) $ (11,300) $ (12,400) --------------------------------------------------------
In 1999, the Company curtailed its pension plan for active non-employee directors. A gain of $200 was recognized on the curtailment. The accrued pension obligation to the active directors was settled by issuing common stock equivalent units. The number of stock equivalent units was determined by dividing each director's accrued pension liability by $33.60, the average market price of the Company's stock over a 30-day period prior to the settlement. The aggregate projected benefit obligation and aggregate fair value of plan assets for pension plans with obligations in excess of plan assets were $17,200 and $8,700, respectively, as of December 31, 2000, and $15,800 and $9,300, respectively, as of December 31, 1999. Weighted average assumptions as of December 31 follow: (CAPTION> Other retirement Pension Benefit benefits ----------------------------------------- 2000 1999 2000 1999 ----------------------------------------- Discount rate .............. 7.6% 7.8% 7.8% 8.0% Rate of compensation increase .................. 5.2% 5.3% -- -- Long-term rate of return on assets .......... 9.1% 9.1% -- --
----------------------------------------- The assumed healthcare cost trend used is 7.5% for all participants in 2000, decreasing to 5.5% by 2006. Increasing or decreasing the assumed trend rate for healthcare costs by one percentage point would result in a $500 increase and decrease, respectively, in the accumulated benefit obligation. The related change in the aggregate service and interest cost components of the 2000 plan expense is a $100 increase and decrease, respectively. The Company provides certain post-employment benefits for terminated and disabled employees, including severance pay, disability-related benefits and healthcare benefits. These costs are accrued over the employee's active service period under certain circumstances or at the date of the event triggering the benefit. The Company also sponsors a defined contribution savings plan for certain salaried and hourly United States employees. Company contributions are equal to 50% of each participant's contribution up to 6% of the participant's base compensation. Total expense of $1,300, $1,300 and $1,200 was incurred for Company contributions in 2000, 1999 and 1998, respectively. Capital Stock - ------------- Purchases (sales) of common stock held in treasury during the three years ended December 31, 2000, are as follows:
2000 1999 1998 --------------------------------------- Shares held, January 1 2,501,400 2,139,500 277,200 Purchases ............ 402,100 530,800 2,026,300 Stock option exercises ........... (48,700) (168,900) (164,000) --------------------------------------- Shares held, December 31 ......... 2,854,800 2,501,400 2,139,500 ---------------------------------------
In March 1999, the Company's Board of Directors authorized the purchase of up to one million shares of the Company's common stock in open market or privately negotiated transactions. The Company acquired 402,100 shares in 2000 at an average price of $26.77 per share. In 1999, the Company acquired 530,800 shares at an average price of $34.10 per share. Cumulative purchases under the plan total 932,900 shares. In October 1998, the Company purchased 2,000,000 shares of its common stock in a Dutch Auction self-tender at a price of $30.00 per share. In 1992, the Company made an offering under an employee stock purchase plan, which provides for the sale of the Company's common stock to substantially all employees at 85% of fair market value. The offer has been extended to December 31, 2001. An employee's purchases are limited annually to 10% of base compensation. Shares are purchased in the open market, or treasury shares are used. Stock Option and Award Plans - ---------------------------- The Company has two long-term incentive plans for officers and key management employees of the Company and its subsidiaries. Options may no longer be granted under one of the plans. The plans provide for the grant of stock options, stock appreciation rights, restricted stock awards and performance awards. At December 31, 2000, 520,000 shares of common stock are available for future grants. A committee of the Board of Directors determines the terms and conditions of grants, except that the exercise price of certain options cannot be less than 100% of the fair market value of the stock on the date of grant. All stock options and stock appreciation rights are exercisable at the date indicated in connection with their issuance, but not later than 10 years after the date of grant. Option activity is summarized in the following table:
2000 1999 1998 --------------------------------------------- Options outstanding, January 1 ......... 1,059,600 1,220,600 1,285,200 Granted ............ 820,000 151,500 132,500 Exercised .......... (47,800) (232,700) (144,100) Forfeited .......... (164,800) (79,800) (53,000) --------------------------------------------- Options outstanding, December 31 ....... 1,667,000 1,059,600 1,220,600 Options exercisable, December 31 ....... 751,300 636,300 594,200 --------------------------------------------- Weighted Average Exercise Price .... 2000 1999 1998 --------------------------------------------- Options outstanding, January 1 ......... $29.15 $28.08 $27.23 Granted ............ 25.98 33.26 30.46 Exercised .......... 24.56 24.09 22.32 Forfeited .......... 28.32 28.90 28.84 --------------------------------------------- Options outstanding, December 31 ....... $27.86 $29.15 $28.08 Options exercisable, December 31 ....... $29.41 $28.09 $27.67 --------------------------------------------- The range of exercise prices at December 31, 2000, is $21.53 to $38.84 per share.
Under the Company's management incentive plan, participants are paid cash bonuses on the attainment of certain financial goals. Bonus participants are required to use 25% of their cash bonus, after certain adjustments for taxes payable, to purchase common stock of the Company at current fair market value. Bonus participants are given a restricted stock award equal to one share for each four shares of common stock purchased with bonus awards. These stock awards vest at the end of four years provided that the participant has not made a disqualifying disposition of the stock purchased. Restricted stock awards were granted for 4,500 shares in 2000, 3,600 shares in 1999 and 3,800 shares in 1998. Restricted stock forfeitures of 1,500 shares, 3,900 shares and 300 shares occurred in 2000, 1999 and 1998, respectively. Compensation expense is being recognized over the vesting period based on the fair market value of common stock on the award date: $26.06 per share in 2000, $32.81 per share in 1999 and $31.47 per share in 1998. In 1999, the Company replaced its previously existing non-qualified stock option plan for non-employee directors. The new plan established 125,000 shares available for future grants to plan participants. Options granted under the new plan vest over a three-year period; 45,000 options were granted under the new plan in 1999. At December 31, 2000, 80,000 options remain available for future grants. The Company's former plan was terminated in 1999 and no future grants will be made under that plan; 34,500 options granted under the former plan remain outstanding at December 31, 2000. The exercise price on all options is established at the market value of the Company's common stock on the date of grant. Option activity under the non-employee directors' plan(s) is summarized below:
2000 1999 1998 ------------------------------------ Options outstanding, January 1 ......... 96,000 66,500 63,500 Granted ............ -- 45,000 15,000 Exercised........... (3,000) (15,500) (12,000) Forfeited........... (13,500) -- -- ------------------------------------ Options outstanding, December 31 ....... 79,500 96,000 66,500 Options exercisable, December 31 ....... 49,500 51,000 51,500 ------------------------------------ Weighted Average Exercise Price .... 2000 1999 1998 ------------------------------------ Options outstanding, January 1 ......... $30.04 $26.97 $25.49 Granted ............ -- 32.84 30.72 Exercised .......... 22.69 25.25 23.81 Forfeited........... 28.25 -- -- ------------------------------------ Options outstanding, December 31 ....... $30.62 $30.04 $26.97 Options exercisable, December 31 ....... $29.27 $27.57 $25.88 ----------------------------------- The range of exercise prices at December 31, 2000, is $22.69 to $32.84 per share.
Stock options outstanding under all plans totaled 1,746,500 at December 31, 2000. The weighted average remaining contractual life at December 31, 2000 for all plans is 6.1 years. In 2000, 1,677,000 stock options were excluded from the computation of diluted earnings per share due to their antidilutive effect. The Company has elected to measure compensation cost using the intrinsic value method of accounting. Accordingly, no compensation cost has been recognized related to stock option and stock purchase plans because grants are at 100% of fair market value on the grant date. If the fair-value based method of accounting had been applied to stock option grants in the most recent three years, the Company's net income and basic net income per share would have been reduced as summarized below:
2000 1999 1998 --------------------------------- Net income: As reported ........ $1,600 $ 38,700 $ 6,700 Pro forma .......... $ 500 $ 37,800 $ 5,700 Net income per share: As reported ........ $ .11 $ 2.59 $ .41 Pro forma .......... $ .03 $ 2.53 $ .35
The following assumptions were used to compute the fair value of the option grants in 2000, 1999 and 1998 using the Black-Scholes option-pricing model: a risk-free interest rate of 6.0%, 6.5% and 5.75%, respectively; stock volatility of 23.2%, 20.2% and 22.4%, respectively; and dividend yields of 2.8%, 2.2% and 2.0%, respectively. Expected lives averaged 6 years for options granted in 2000 and 3 years for options granted in 1999 and 1998 under the key management employee plan. Expected lives of 5 years were used for 1999 option grants and 2 years for 1998 grants under the directors' plans. Commitments and Contingencies - ------------------------------ At December 31, 2000, the Company was obligated under various operating lease agreements with terms ranging from one month to 20 years. Rental expense in 2000, 1999 and 1998 was $8,600, $8,400 and $7,600, respectively. Minimum rentals for noncancelable operating leases with initial or remaining terms in excess of one year are: 2001--$9,600; 2002--$10,000; 2003--$10,200; 2004--$9,900; 2005--$8,700 and thereafter $35,000. Minimum operating lease payments have been reduced by related minimum sublease income. At December 31, 2000, outstanding unconditional contractual commitments for the purchase of software, equipment and raw materials amounted to $6,600, all of which is due to be paid in 2001. The Company has accrued the estimated cost of environmental compliance expenses related to soil or groundwater contamination at current and former manufacturing facilities. The ultimate cost to be incurred by the Company and the timing of such payments cannot be fully determined. However, based on consultants' estimates of the costs of remediation in accordance with applicable regulatory requirements, the Company believes the accrued liability of $1,500 at December 31, 2000, is sufficient to cover the future costs of these remedial actions, which are expected to be carried out over an extended period. The Company has not anticipated any possible recovery from insurance or other sources. Segment Information - -------------------- West Pharmaceutical Services, Inc. serves the healthcare and consumer products industries through design, manufacture and sales of stoppers, closures, medical device components and assemblies made from elastomers, metal and plastics. This segment is referred to as Device Product Development and it consists of four regional business units that manufacture and sell these products to customers mainly in their respective regions. The Company also provides contract services to healthcare and consumer companies consisting of manufacture and/or packaging of drugs and personal care items, clinical services and laboratory testing. This segment is referred to as Contract Services and consists of three business units. Finally, the Company is engaged in research and development of drug delivery systems for biopharmaceutical and other drugs to improve their therapeutic performance and/or the method of administration. This segment, consisting of two business units, is referred to as Drug Delivery Research and Development. The Company's executive management evaluates performance of these segments based on operating profit, and allocates resources to them based on an assessment of market growth and profitability potential. Operating profit is income before interest expense, income taxes, minority interests and equity in affiliates. Corporate expenses, including global functional management costs, and unusual items (restructuring charges and the 1998 acquired in-process research and development charge) are not allocated to segments. The accounting policies of the segments are the same as those reported in the Summary of Significant Accounting Policies on page 16. Total net sales generated from the Device Product Development segment include sales to one customer of approximately $55,200, $54,600 and $53,200 in 2000, 1999 and 1998 , respectively. Summarized financial information concerning the Company's segments is shown in the following table. The consolidated total of operating profit corresponds to operating profit in the accompanying Consolidated Statements of Income.
Device Drug delivery Corporate and product Contract research and unallocated Consolidated development services development items total ------------------------------------------------------------------------- 2000 - ---- Net sales................. $361,900 $ 66,700 $ 1,800 $ (300) $430,100 Interest income........... 1,700 700 -- 300 2,700 Operating profit (loss)... 70,000 (12,000) (9,000) (33,800) 15,200 Segment assets............ 359,300 83,900 13,500 100,700 557,400 Capital expenditures...... 43,500 10,900 800 2,100 57,300 Depreciation and amortization expense..... 25,300 7,400 1,400 2,900 37,000 1999 - ----- Net sales ................ $384,000 $ 83,800 $ 1,300 $ -- $469,100 Interest income .......... 1,200 300 -- 1,000 2,500 Operating profit(loss).... 93,400 4,300 (7,700) (23,100) 66,900 Segment assets ........... 354,000 105,000 12,500 80,300 551,800 Capital expenditures...... 34,100 7,200 800 4,100 46,200 Depreciation and amortization expense..... 26,500 5,700 1,300 2,200 35,700 1998 - ----- Net sales ................ $365,600 $ 82,600 $ 1,500 $ -- $449,700 Interest income .......... 1,600 100 -- 1,000 2,700 Operating profit(loss).... 83,800 9,700 (5,300) (53,200) 35,000 Segment assets ........... 339,800 80,500 13,400 74,400 508,100 Capital expenditures...... 31,500 6,700 1,400 2,200 41,800 Depreciation and amortization expense..... 24,000 4,400 1,300 2,600 32,300
The following table presents sales by country in which the legal subsidiary is domiciled and assets are located.
Sales Long-lived assets -------------------------------------------------------------- 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- United States .......... $266,900 $296,100 $282,300 $149,900 $143,400 $137,900 Germany ................ 37,200 52,100 50,000 26,900 25,400 29,100 Other European countries 92,300 89,900 85,400 50,200 50,500 50,800 Other .................. 33,700 31,000 32,000 17,600 16,800 17,300 -------- -------- -------- -------- -------- -------- $430,100 $469,100 $449,700 $244,600 $236,100 $235,100 -------- -------- -------- -------- -------- --------
Report of Management The Company's management is responsible for the integrity, reliability and objectivity of publicly reported financial information. Management believes that the financial statements as of and for the year ended December 31, 2000, have been prepared in conformity with accounting principles generally accepted in the United States and that information presented in this Annual Report is consistent with those statements. In preparing the financial statements, management makes informed judgements and estimates where necessary, with appropriate consideration given to materiality. In meeting its responsibility for preparing financial statements, management maintains a system of internal accounting controls to assure the safety of its assets against unauthorized acquisition, use or disposition. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and recorded properly, allowing for preparation of reliable financial statements. There are inherent limitations in the effectiveness of all internal control systems. The design of the Company's system recognizes that errors or irregularities may occur and that estimates and judgements are required to assess the relative cost and expected benefits of the controls. Management believes that the Company's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period. The independent accountants are appointed by the Board of Directors, with the approval of the shareholders. As part of their engagement, the independent accountants audit the Company's financial statements, express their opinion thereon, and review and evaluate selected systems, accounting procedures and internal controls to the extent they consider necessary to support their report. /s/ William G. Little - ------------------------------------------------------- William G. Little Chairman and Chief Executive Officer /s/ Anna Mae Papso - -------------------------------------------------------- Anna Mae Papso Corporate Vice President, Finance Report of Independent Accountants To the Shareholders and the Board of Directors of West Pharmaceutical Services, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of West Pharmaceutical Services, Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP - -------------------------------- PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 23, 2001 Ten-Year Summary West Pharmaceutical Services, Inc. and Subsidiaries (in thousands, except per share data)
2000 1999 1998 ----------------------------------------- SUMMARY OF OPERATIONS Net sales ................................................. $ 430,100 469,100 449,700 Operating profit (loss) ................................... $ 15,200 66,900 35,000 Income (loss) before income taxes and minority interests .. $ 2,100 56,500 27,800 Provision for income taxes ................................ $ 1,500 18,400 21,200 Minority interests ........................................ $ 200 200 100 ----------------------------------------- Income (loss) from consolidated operations ................ $ 400 37,900 6,500 Equity in net income of affiliated companies .............. $ 1,200 800 200 ----------------------------------------- Income (loss) before change in accounting method ........... $ 1,600 38,700 6,700 ----------------------------------------- Income (loss) before change in accounting method per share: Basic (a) ................................................ $ .11 2.59 .41 Assuming dilution (b) .................................... $ .11 2.57 .40 Average common shares outstanding ......................... 14,407 14,914 16,435 Average shares assuming dilution .......................... 14,409 15,048 16,504 Dividends paid per common share ........................... $ .69 .65 .61 ----------------------------------------- Research, development and engineering expenses ............ $ 19,200 16,700 14,500 Capital expenditures ...................................... $ 57,300 46,200 41,800 ----------------------------------------- YEAR-END FINANCIAL POSITION Working capital ........................................... $ 93,800 80,700 53,000 Total assets .............................................. $ 557,400 551,800 508,100 Total invested capital: Total debt ............................................... $ 199,400 171,100 141,100 Minority interests ....................................... $ 1,000 800 600 Shareholders' equity ..................................... $ 204,800 231,200 230,100 ----------------------------------------- Total ..................................................... $ 405,200 403,100 371,800 ----------------------------------------- PERFORMANCE MEASUREMENTS Gross margin (c) .......................................... % 24.1 30.8 30.1 Operating profitability (d) ............................... % 3.5 14.3 7.8 Tax rate .................................................. % 71.7 32.5 76.1 Asset turnover ratio (e) .................................. .78 .89 .91 Return on average shareholders' equity .................... % .7 16.8 2.6 Total debt as a percentage of total invested capital ...... % 49.2 42.5 37.9 ----------------------------------------- Shareholders' equity per share ............................ $ 14.31 15.77 15.31 Stock price range ........................................ $31.88-19.63 40.44-30.88 35.69-25.75 ----------------------------------------- (a) Based on average common shares outstanding. (b) Based on average shares, assuming dilution. (c) Net sales minus cost of goods sold, including applicable depreciation and amortization, divided by net sales. (d) Operating profit (loss) divided by net sales. (e) Net sales divided by average total assets; 1993 asset turnover ratio is based on 12 months' sales for international subsidiaries. 2000 includes tax benefits totaling $.11 per share realized upon the favorable resolution of trade tax issues connected to the 1997 tax reorganization of the Company's German subsidiaries, and 2000 includes a net restructuring charge that reduced operating results by $1.08 per share. 1999 includes net tax benefits totaling $.15 per share related to a favorable determination of a prior years' tax appeal and the refund of taxes paid previously as a result of a dividend, and 1999 includes for the first time results of the clinical service business acquired on April 20, 1999. 1998 includes a charge for acquired research and development and a restructuring charge that reduced operating results by $1.72 per share and $.15 per share, respectively, and 1998 includes for the first time the results of two companies acquired in 1998. 1997 includes the net tax benefit mainly from a German tax reorganization which increased net income per share by $.48. 1996 includes a restructuring charge that reduced operating results by $.91 per share. 1995 includes for the first time the net operating results of the contract manufacturing and packaging subsidiary from May 1. 1994 includes for the first time the results of two companies in which majority ownership was acquired in 1994. 1993 includes 13 months of operating results for international subsidiaries. Beginning in 1992 the Company's ownership interest in glass manufacturing operating results is reported as equity in net income of affiliates. Prior to the 1992 sale of a majority interest in such operation, operating results were fully consolidated. 1991 includes a restructuring charge that reduced operating results by $1.37 per share.
Ten-Year Summary West Pharmaceutical Services, Inc. and Subsidiaries (in thousands, except per share data)
1997 1996 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------- 452,500 458,800 412,900 365,100 348,700 337,500 328,900 63,000 32,700 49,800 45,400 40,600 38,700 (1,600) 57,400 25,800 42,500 42,100 37,500 34,800 (7,700) 13,300 10,800 13,900 13,400 14,300 14,300 4,700 200 100 800 1,900 1,700 1,700 (2,400) - ---------------------------------------------------------------------------------------------- 43,900 14,900 27,800 26,800 21,500 18,800 (10,000) 500 1,500 900 500 1,000 900 1,500 - ---------------------------------------------------------------------------------------------- 44,400 16,400 28,700 27,300 22,500 19,700 (8,500) - ---------------------------------------------------------------------------------------------- 2.69 1.00 1.73 1.70 1.42 1.26 (.55) 2.68 .99 1.71 1.69 1.41 1.25 (.55) 16,475 16,418 16,557 16,054 15,838 15,641 15,527 16,572 16,500 16,718 16,215 16,010 15,776 15,527 .57 .53 .49 .45 .41 .40 .40 - ---------------------------------------------------------------------------------------------- 12,000 11,200 12,000 12,000 11,400 11,100 10,800 34,400 31,700 31,300 27,100 33,500 22,400 25,600 - ---------------------------------------------------------------------------------------------- 110,200 88,600 86,600 50,400 46,400 37,700 26,500 480,400 479,900 480,100 397,400 309,200 304,400 313,200 89,000 98,400 114,300 57,800 32,300 42,000 58,400 400 300 200 1,900 10,900 10,100 8,400 277,700 252,000 254,100 227,300 188,100 168,600 152,600 - ---------------------------------------------------------------------------------------------- 367,100 350,700 368,600 287,000 231,300 220,700 219,400 - ---------------------------------------------------------------------------------------------- 29.2 27.5 28.6 32.1 30.2 28.8 25.6 13.9 7.1 12.1 12.4 11.7 11.5 (.5) 23.2 41.8 32.8 31.8 38.2 41.1 61.7 .94 .96 .94 1.04 1.11 1.10 1.00 16.7 6.5 11.9 13.2 13.2 12.3 (8.9) 24.2 28.1 31.0 20.1 14.0 19.1 26.6 - ----------------------------------------------------------------------------------------------- 16.76 15.39 15.29 13.81 11.82 10.71 9.81 35.06-27.00 30.00-22.13 30.63-22.63 29.13-21.25 25.25-19.88 24.13-16.75 18.75-11.13 - ------------------------------------------------------------------------------------------------
Quarterly Operating and Per Share Data (Unaudited) (in thousands of dollars, except per share data)
Net income (loss) per share Net ----------------- Net Gross income Assuming Quarter ended sales profit (loss) Basic dilution ---------------------------------------------------- March 31, 2000...... $108,700 $ 28,200 $ 5,100 $ .35 $ .35 June 30, 2000....... 113,600 28,200 5,000 .35 .35 September 30, 2000(1) 105,300 24,600 4,600 .32 .32 December 31, 2000 (2) 102,500 22,400 (13,100) (.91) (.91) ---------------------------------------------------- $430,100 $103,400 $ 1,600 $ .11 $ .11 ---------------------------------------------------- March 31, 1999 ...... $114,200 $ 34,400 $ 9,500 $ .63 $ .63 June 30, 1999 ....... 124,400 39,800 10,400 .70 .69 September 30, 1999(3) 115,100 34,300 8,600 .58 .57 December 31, 1999(4) 115,400 35,800 10,200 .69 .68 ---------------------------------------------------- $469,100 $144,300 $ 38,700 $ 2.59 $ 2.57 ---------------------------------------------------- (1) Third quarter 2000 results include a tax benefit realized upon the favorable resolution of trade tax issues connected to the 1997 reorganization of the Company's German subsidiaries. (2) Fourth quarter 2000 results include a charge related to initiatives taken to streamline operations. See Note "Restructuring Charges." (3) Third quarter 1999 results include the tax benefit realized on the favorable settlement of a prior years' tax claim. (4) Fourth quarter 1999 results include the net tax benefit due mainly to a refund of foreign taxes triggered by a dividend from a foreign subsidiary, a charge related to the write-off of a plastic product line which had not gained market acceptance, and the reversal of a portion of a 1996 restructuring charge because of a change in the business plan. See Notes "Income Taxes" and "Restructuring Charges."
EX-21 5 0005.txt SUBSIDIARIES OF COMPANY Exhibit 21 SUBSIDIARIES OF THE COMPANY
State/County of Stock Incorporation Ownership -------------- --------- West Pharmaceutical Services, Inc Pennsylvania Parent Co. Senetics, Inc. Colorado 100.0% West Pharmaceutical Services Cleveland, Inc. Delaware 100.0 West Pharamceutical Services Indiana Holding, Inc. Delaware 100.0 West Pharmaceutical Services Lakewood, Inc. Delaware 100.0 West Pharmaceutical Services Evansville, L.P. Delaware 100.0 Paco Laboratories, Inc. Delaware 100.0 Charter Laboratories, Inc. Delaware 100.0 West Pharmaceutical Services Canovanas, Inc. Delaware 100.0 West Pharmaceutical Services Vega Alta, Inc. Delaware 100.0 West Pharmaceutical Services of Delaware, Inc. Delaware 100.0 West Pharmaceutical Services of Florida, Inc. Florida 100.0 Citation Plastics Co. New Jersey 100.0 West Pharmaceutical Services Argentina S.A. Argentina 100.0 West Pharmaceutical Services Australia Pty. Ltd. Australia 100.0 West International Sales Corporation Barbados 100.0 West Pharmaceutical Services Brasil LTDA. Brasil 100.0 West Pharmaceutical Services Colombia S.A. Colombia 98.2(a) West Pharmaceutical Services Holding Danmark ApS Denmark 100.0 West Pharmaceutical Services Danmark A/S Denmark 100.0 West Pharmaceutical Services Finance Danmark ApS Denmark 100.0 West Pharmaceutical Services Limited Danmark A/S Denmark 100.0 West Pharmaceutical Services Group Limited England 100.0 West Pharmaceutical Services Drug Delivery & Clinical Research Centre Ltd. England 100.0 West Pharmaceutical Services Cornwall Ltd. England 100.0 Plasmec PLC England 100.0 West Pharmaceutical Services Lewes Ltd. England 100.0 Penmed Limited England 100.0 Schiemann Tools Limited England 100.0 West Pharmaceutical Services France S.A. France 99.9(b) West Pharmaceutical Services Holding France SAS France 100.0 West Pharmaceutical Services Holding GmbH Germany 100.0 West Pharmaceutical Services Verwaltungs GmbH Germany 100.0 West Pharmaceutical Services Deutschland GmbH Co KG Germany 100.0 The West Company (India) Private Ltd. India 100.0 West Pharmaceutical Services Italia S.r.L. Italy 100.0 West Pharmaceutical Services Korea Limited Korea 100.0 The West Company (Mauritius) Ltd. Mauritius 100.0 West Pharmaceutical Services Singapore Pte. Ltd Singapore 100.0 West Pharmaceutical Services Hispania S.A. Spain 82.1 West Pharmaceutical Services Venezuela C.A. Venezuela 100.0 Pharma-Gummi Beograd Yugoslavia 84.7(c) (a) 1.55% is held in treasury by West Pharmaceutical Services Colombia S.A. (b) In addition, .01% is owned directly by 8 individual shareholders who are officers of the Company. (c) Affiliated company accounted for on the cost basis.
EX-23 6 0006.txt CONSENT LETTER OF INDEPENDENT ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements of West Pharmaceutical Services, Inc. and subsidiaries, on Forms S-8 (Registration Nos. 2-95618, 2-45534, 33-39506, 33-32580, 33-37825, 33-61074, 33-61076, 333-12287, 333-12289, 333-53817, and 333-78783) of our report dated February 23, 2001, relating to the consolidated financial statements of West Pharmaceutical Services, Inc. and subsidiaries as of December 31, 2000 and December 31, 1999, and for the three years in the period ended December 31, 2000, which is incorporated in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 30, 2001 EX-24 7 0007.txt POWER OF ATTORNEY 10K2000 Exhibit 24 POWER OF ATTORNEY The undersigned hereby authorizes and appoints William G. Little and John R. Gailey III, and each of them, as her attorneys-in-fact to sign on her behalf and in her capacity as a director of West Pharmaceutical Services, Inc., and to file, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and all amendments, exhibits and supplements thereto. Date: March 10, 2001 /s/ Tenley E. Albright, M.D. --------------- ------------------------------ Tenley E. Albright, M.D. POWER OF ATTORNEY The undersigned hereby authorizes and appoints William G. Little and John R. Gailey III, and each of them, as his attorneys-in-fact to sign on his behalf and in his capacity as a director of West Pharmaceutical Services, Inc., and to file, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and all amendments, exhibits and supplements thereto. Date: March 10, 2001 /s/ John W. Conway -------------- ------------------- John W. Conway POWER OF ATTORNEY The undersigned hereby authorizes and appoints William G. Little and John R. Gailey III, and each of them, as his attorneys-in-fact to sign on his behalf and in his capacity as a director of West Pharmaceutical Services, Inc., and to file, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and all amendments, exhibits and supplements thereto. Date: March 10, 2001 /s/ G. W. Ebright -------------- ------------------- George W. Ebright POWER OF ATTORNEY ------------------- The undersigned hereby authorizes and appoints William G. Little and John R. Gailey III, and each of them, as his attorneys-in-fact to sign on his behalf and in his capacity as a director of West Pharmaceutical Services, Inc., and to file, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and all amendments, exhibits and supplements thereto. Date: March 10, 2001 /s/ L. Robert Johnson -------------- ----------------------- L. Robert Johnson POWER OF ATTORNEY ---------------------- The undersigned hereby authorizes and appoints William G. Little and John R. Gailey III, and each of them, as his attorneys-in-fact to sign on his behalf and in his capacity as a director of West Pharmaceutical Services, Inc., and to file, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and all amendments, exhibits and supplements thereto. Date: March 10, 2001 /s/ William H. Longfield -------------- ------------------------------ William H. Longfield POWER OF ATTORNEY --------------------- The undersigned hereby authorizes and appoints William G. Little and John R. Gailey III, and each of them, as his attorneys-in-fact to sign on his behalf and in his capacity as a director of West Pharmaceutical Services, Inc., and to file, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and all amendments, exhibits and supplements thereto. Date: March 10, 2001 /s/ J. P. Neafsey -------------- -------------------- John P. Neafsey POWER OF ATTORNEY --------------------- The undersigned hereby authorizes and appoints William G. Little and John R. Gailey III, and each of them, as his attorneys-in-fact to sign on his behalf and in his capacity as a director of West Pharmaceutical Services, Inc., and to file, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and all amendments, exhibits and supplements thereto. Date: March 10, 2001 /s/ Monroe E. Trout, M.D. -------------- ------------------------ Monroe E. Trout, M.D. POWER OF ATTORNEY ---------------------- The undersigned hereby authorizes and appoints William G. Little and John R. Gailey III, and each of them, as his attorneys-in-fact to sign on his behalf and in his capacity as a director of West Pharmaceutical Services, Inc., and to file, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and all amendments, exhibits and supplements thereto. Date: March 10, 2001 /s/ Anthony Welters -------------- --------------------- Anthony Welters POWER OF ATTORNEY --------------------- The undersigned hereby authorizes and appoints William G. Little and John R. Gailey III, and each of them, as his attorneys-in-fact to sign on his behalf and in his capacity as a director of West Pharmaceutical Services, Inc., and to file, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and all amendments, exhibits and supplements thereto. Date: March 10, 2001 /s/ Geoffrey F. Worden ------------- ------------------------ Geoffrey F. Worden EX-27 8 0008.txt FDS --
5 1,000 12-mos DEC-31-2000 JAN-01-2000 DEC-31-2000 42,700 0 62,100 (1,200) 41,000 173,100 521,400 285,600 557,400 79,300 195,800 0 0 4,300 200,500 557,400 430,100 430,100 326,700 326,700 0 0 13,100 2,100 1,500 1,600 0 0 0 1,600 .11 .11
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