-----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, EOVwWdvrgSNxzkNPMMvdhs70PFQd+Qqwd6hG5VwhcnzmDY+yWpwhcevEykvsfclI CH3BavUrwQzXXThhWu+N6Q== 0000105770-97-000016.txt : 19970520 0000105770-97-000016.hdr.sgml : 19970520 ACCESSION NUMBER: 0000105770-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST CO INC CENTRAL INDEX KEY: 0000105770 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 231210010 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08036 FILM NUMBER: 97607974 BUSINESS ADDRESS: STREET 1: 101 GORDON DR STREET 2: P O BOX 645 CITY: LIONVILLE STATE: PA ZIP: 19341-0645 BUSINESS PHONE: 6105942900 MAIL ADDRESS: STREET 1: 101 GORDON DRIVE STREET 2: PO BOX 645 CITY: LIONVILLE STATE: PA ZIP: 19341-0645 10-Q 1 10Q1STQTR This report contains 18 pages (including cover page) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 1997 --------------- Commission File Number 1-8036 ------ THE WEST COMPANY, INCORPORATED ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1210010 ------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 101 Gordon Drive, PO Box 645, Lionville, PA 19341-0645 ------------------------------------- ---------------------- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code 610-594-2900 -------------- N/A ----------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- March 31, 1997 -- 16,438,787 ----------------------------------------------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Page 2 Index Form 10-Q for the Quarter Ended March 31, 1997 Page Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Operations for the Three Months ended March 31, 1997 and March 31, 1996 3 Condensed Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 4 Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 1997 and March 31, 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II - Other Information Item 1. Legal Proceedings 13 Item 6. Exhibits and reports on Form 8-K 13 SIGNATURES 14 Index to Exhibits F-1 Page 3 Part I - Financial Information Item 1. Financial Statements The West Company, Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share data)
Quarter Ended March 31, 1997 March 31, 1996 --------------- -------------- Net sales $ 114,700 100 % $113,900 100 % Cost of goods sold 82,000 71 82,600 72 -------------------------------------------------------------------------------------------------- Gross profit 32,700 29 31,300 28 Selling, general and administrative expenses 18,000 16 19,100 17 Restructuring charge - - 21,500 19 Other income, net (300) - (100) - -------------------------------------------------------------------------------------------------- Operating profit (loss) 15,000 13 (9,200) (8) Interest expense 1,400 1 1,600 1 -------------------------------------------------------------------------------------------------- Income (loss) before income taxes 13,600 12 (10,800) (9) and minority interests Provision for (recovery of) income taxes 5,200 5 (2,400) (2) -------------------------------------------------------------------------------------------------- Income (loss) from consolidated operations 8,400 7 % (8,400) (7) % Equity in net income of affiliated companies - --- 200 --- -------------------------------------------------------------------------------------------------- Net income (loss) $ 8,400 (8,200) -------------------------------------------------------------------------------------------------- Net income (loss) per share $ .51 $ (.49) Average shares outstanding 16,408 16,631 See accompanying notes to interim financial statements.
Page 4 The West Company, Incorporated and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands)
ASSETS March 31, 1997 Dec. 31, 1996 -------------- ------------- Current assets: Cash, including equivalents $ 28,900 $ 27,300 Accounts receivable 76,800 69,300 Inventories 43,700 44,000 Current deferred income tax benefits 9,900 10,200 Other current assets 8,000 5,900 --------------------------------------------------------------------------- Total current assets 167,300 156,700 --------------------------------------------------------------------------- Net property, plant and equipment 202,300 210,300 Investments in affiliated companies 23,000 24,100 Goodwill 55,500 58,900 Intangibles and other assets 28,400 27,400 --------------------------------------------------------------------------- Total Assets $476,500 $ 477,400 --------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 900 $ 1,000 Notes payable 1,400 1,900 Accounts payable 21,600 23,900 Salaries, wages, benefits 13,200 13,900 Income taxes payable 7,300 3,100 Other current liabilities 25,300 21,800 --------------------------------------------------------------------------- Total current liabilities 69,700 65,600 --------------------------------------------------------------------------- Long-term debt, excluding current portion 90,600 95,500 Deferred income taxes 38,300 39,700 Other long-term liabilities 24,200 24,300 Minority interests 300 300 Shareholders' equity 253,400 252,000 --------------------------------------------------------------------------- Page 5 Total Liabilities and Shareholders' Equity $ 476,500 $477,400 --------------------------------------------------------------------------- See accompanying notes to interim financial statements.
Page 6 The West Company Incorporated and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Quarter Ended March 31, 1997 March 31, 1996 ---------------- ------------------- Cash flows from operating activities: Net income, plus net non-cash items $ 16,800 $ 17,500 Changes in assets and liabilities (5,800) (6,500) ------------------------------------------------------------------------------------------ Net cash provided by operating activities 11,000 11,000 ------------------------------------------------------------------------------------------ Cash flows from investing activities: Property, plant and equipment acquired (6,300) (8,600) Proceeds from sale of assets 200 100 Customer advances, net of repayments (300) - ------------------------------------------------------------------------------------------ Net cash used in investing activities (6,400) (8,500) ------------------------------------------------------------------------------------------ Cash flows from financing activities: New long-term debt 100 3,000 Repayment of long-term debt (300) (7,500) Notes payable, net (400) 1,000 Dividend payments (2,300) (2,200) Sale of common stock, net 800 200 ------------------------------------------------------------------------------------------ Net cash used in financing activities (2,100) (5,500) ------------------------------------------------------------------------------------------ Effect of exchange rates on cash (900) (100) ------------------------------------------------------------------------------------------ Net increase (decrease) in cash, including equivalents $ 1,600 $(3,100) ------------------------------------------------------------------------------------------- See accompanying notes to interim financial statements.
Page 7 The West Company, Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) The interim consolidated financial statements for the quarter ended March 31, 1997 should be read in conjunction with the consolidated financial statements and notes thereto of The West Company, Incorporated appearing in the Company's 1996 Annual Report on Form 10-K. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Interim results are based on the Company's accounts without audit. 1. Interim Period Accounting Policy --------------------------------- In the opinion of management, the unaudited Condensed Consolidated Balance Sheet as of March 31, 1997 and the related unaudited Consolidated Statement of Operations and the unaudited Condensed Consolidated Statement of Cash Flows for the three month period then ended and for the comparative period in 1996 contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position as of March 31, 1997 and the results of operations and cash flows for the respective periods. The results of operations for any interim period are not necessarily indicative of results for the full year. Operating Expenses ------------------ To better relate costs to benefits received or activity in an interim period, certain operating expenses have been annualized for interim reporting purposes. Such expenses include depreciation due to use of the half year convention, certain employee benefit costs, annual quantity discounts, and advertising. Income Taxes ------------- The tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on current estimates of full year results, except that taxes applicable to operating results in Brazil, and prior year adjustments, if any, are recorded as identified. 2. Inventories at March 31, 1997 and December 31, 1996 are summarized as follows: (in thousands) 1997 1996 -------- -------- Finished goods $ 16,800 $ 18,000 Work in process 10,200 8,500 Raw materials and supplies 16,700 17,500 -------- -------- $ 43,700 $ 44,000 -------- -------- -------- -------- Page 8 The West Company, Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) 3. The carrying value of property, plant and equipment at March 31, 1997 and December 31, 1996 determined as follows: (in thousands) 1997 1996 -------- -------- Property, plant and equipment $424,100 $431,600 Less accumulated depreciation 221,800 221,300 -------- -------- Net property, plant and equipment $202,300 $210,300 -------- -------- -------- -------- 4. Common stock issued at March 31, 1997 was 16,438,787 shares, of which 405,948 shares were held in treasury. Dividends of $.14 per common share were paid in the first quarter of 1997 and a dividend of $.14 per share payable to holders of record on April 23, 1997 was declared on March 7, 1997. 5. The Company has accrued the estimated cost of environmental compliance expenses related to soil or ground water 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 $1.1 million at March 31, 1997 is sufficient to cover the future costs of these remedial actions, which will be carried out over the next two to three years. The Company has not anticipated any possible recovery from insurance or other sources. 6. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 establishes new standards for calculating and presenting earnings per share (EPS). SFAS 128 replaces the current presentation of "primary" EPS with a presentation of "basic" EPS. Basic EPS will be calculated for the Company by dividing net income by the weighted average number of common shares outstanding during the period. The Company's basic EPS will be identical to its historical presentation of EPS, which has been calculated using on the weighted average common shares outstanding, because dilution from the Company's common stock equivalents was immaterial. Page 9 The West Company, Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) SFAS 128 also requires presentation of diluted EPS, which considers the issuance of common stock for all dilutive potential common shares. For the Company, it assumes issuance of common shares under the Company's stock option and award plans. The Company will adopt SFAS 128 effective with its 1997 year end, as required. The pro forma diluted EPS calculated in accordance with SFAS 128 for the three months ended March 31, 1997 and March 31, 1996, is as follows (in thousands, except per share data): 1997 1996 ----- ----- Net income $ 8,400 $ (8,200) Diluted EPS $ .51 $ (.49) Weighted average shares outstanding 16,515 16,631 7. At March 31, 1997 the cumulative number of employees terminated under the restructuring plan announced on March 29, 1996 was 158 and the total payout of severance and benefits was $6.0 million. Downsizing of certain operations will be substantially complete by the end of the second quarter of 1997. 8. On February 21, 1992, R. P. Scherer ("Scherer"), the former parent company of Paco Pharmaceutical Services, Inc. ("Paco") agreed to sell Paco and its subsidiaries to OCAP Acquistition Corp. ("OCAP"). After Scherer terminated the sale contract in March of that year, OCAP sued Scherer and Paco, alleging breach of contract and breach of the implied covenant of good faith. OCAP sought $75 million in actual damages, $100 million in punitive damages, plus costs and expenses. Scherer brought counterclaims against OCAP of a similar nature. Following a trial March 1996, the court dismissed all of OCAP's claims and all of Scherer's counterclaims. OCAP has filed a notice of appeal, and the defendants have filed a notice of cross-appeal. The court has allowed OCAP and the defendants until July, 1997 to perfect their appeals. In management's opinion, the ultimate outcome of this litigation will not have a material adverse effect on the Company's business or financial condition because we believe OCAP's claims are without merit and even if they were, Scherer has agreed to indemnify Paco against all liabilities (including fees and expenses incurred after March 31, 1992) in the matter. Page 10 Item 2. Management's Discussion and Analysis of Financial Condition and -------------------------------------------------------------- Results of Operations. ---------------------- Results of Operations for the Quarter Ended March 31, 1997 Versus ----------------------------------------------------------------- March 31, 1996. ------------------------ Net Sales --------- Net sales for the first quarter of 1997 were $114.7 million, a 1% increase compared with the same quarter in 1996. Sales increased for contract services in the United States but were almost entirely offset by the effect of a stronger U.S. dollar, which had the effect of reducing reported sales by $2.7 million. Increased sales for the Company's manufactured products sold to the U.S. health care market were offset by weaker sales in international markets. Sales of $1 million in the 1996 comparable period relate to the machinery business which was sold in August 1996. Gross Profit ------------ The gross profit margin for the first quarter 1997 was 28.5% of net sales compared with 27.5% for the same period in 1996. Margins were boosted by a favorable product mix in the first quarter for the Company's manufactured products and improved cost efficiencies in our manufacturing operations. The Company implemented its plan to shift certain production to lower-cost facilities, as announced in the first quarter of 1996. Selling, General and Administrative ----------------------------------- Selling, general and administrative expenses decreased $1.1 million compared with the first quarter 1996, and are 15.7% as a percentage of sales compared with 16.8% in 1996. The translation impact of a stronger U.S. dollar and workforce reductions related to the 1996 restructuring plan are the primary reasons for the favorable variance. Other Income and Expense -------------------------- Other income increased by $0.2 million compared with the same period in 1996 due to higher interest income. The income relates to higher average temporary cash investments. Page 11 Management's Discussion and Analysis of Financial Condition ---------------------------------------------------------- and Results of Operations.(Continued) -------------------------------------- Interest Expense -------------------------------------------------------------- Lower rates and lower average debt levels led to a reduction in interest expense versus the first quarter 1996. Equity in Net Income of Affiliated Companies -------------------------------------------- Daikyo Seikyo, Ltd, a Japanese company in which the Company owns a 25% equity stake, had lower results for the first quarter 1997 versus the same quarter in 1996. Taxes ----- The effective tax rate for the first quarter 1997 was 38.5% which is equivalent to the tax rate for the first quarter 1996, excluding the restructuring charge and the tax benefit on the restructuring charge. The final 1996 effective tax rate excluding the restructuring charge and the tax benefit on the charge, was 36.6%. The increase in the estimated 1997 tax relates to the mix in geographic source of the income. Net Income/Loss ---------------- Net income for the first quarter 1997 was $8.4 million, or $.51 per share. This compares with $.41 per share for the first quarter 1996, excluding the 1996 first quarter restructure charge of $.90 per share. The net loss reported for the 1996 first quarter was $8.2 million, or $.49 per share. Financial Position ------------------ Cash flow from operations was more than adequate to fund capital expenditures and make dividend payments of $.14 per share, and resulted in further reduction of debt and an increase in operating cash. The working capital ratio at March 31, 1997 was 2.4 to 1. Total debt as a percentage of total invested capital was 26.8% at March 31, 1997, compared with 28.1% at December 31, 1996. Operating cash totaled $28.9 million at March 31, 1997. At March 31, 1997, the Company and subsidiaries had available unused lines of credit of $76.8 million. On April 7, 1997, the Company agreed to terms amending an existing revolving credit facility, increasing the amount available for borrowing and adjusting the rate schedule for applicable margins and facility fees. The amended agreement will provide for borrowings up to $70 million and $55 million, with a term of 364 days and five years, respectively, renewable at the lenders' option. Page 12 Management's Discussion and Analysis of Financial Condition ---------------------------------------------------------- and Results of Operations.(Continued) -------------------------------------- Management believes available borrowing capacity and cash flow from operations indicates the ability to meet current requirements and fund substantial future growth. Page 13 Part II - Other Information Item 1. Legal Proceedings On February 21, 1992, R. P. Scherer ("Scherer"), the former parent company of Paco Pharmaceutical Services, Inc. ("Paco") agreed to sell Paco and its subsidiaries to OCAP Acquistition Corp. ("OCAP"). After Scherer terminated the sale contract in March of that year, OCAP sued Scherer and Paco, alleging breach of contract and breach of the implied covenant of good faith. OCAP sought $75 million in actual damages, $100 million in punitive damages, plus costs and expenses. Scherer brought counterclaims against OCAP of a similar nature. Following a trial March 1996, the court dismissed all of OCAP's claims and all of Scherer's counterclaims. OCAP has filed a notice of appeal, and the defendants have filed a notice of cross-appeal. The court has allowed OCAP and the defendants until July, 1997 to perfect their appeals. In management's opinion, the ultimate outcome of this litigation will not have a material adverse effect on the Company's business or financial condition because we believe OCAP's claims are without merit and even if they were, Scherer has agreed to indemnify Paco against all liabilities (including fees and expenses incurred after March 31, 1992) in the matter. Item 6. Exhibits and Reports on Form 8-K __________________________________ (a) See Index to Exhibits on pages F-1 and F-2 of this Report. (b) No reports on Form 8-K have been filed for the quarter ended March 31, 1997. Page 14 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WEST COMPANY, INCORPORATED ----------------------------------- (Registrant) May 15, 1997 /s/ John A. Vigna ------------- --------------------------------- Date (Signature) John A. Vigna Senior Vice President, Finance and Administration and Chief Financial Officer Page 15 INDEX TO EXHIBITS Exhibit Page Number Number (3) (a) Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit (4) to the Company's Registration Statement on Form S-8 (Registration No. 33-37825). (3) (b) Bylaws of the Company, as amended and restated December 13, 1994, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-8036). (4) (a) Form of stock certificate for common stock incorporated by reference to Exhibit (3) (b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 1-8036). (4) (b) Flip-In Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of January 16, 1990, incorporated by reference to Exhibit 1 to the Company's Form 8-A Registration Statement (File No. 1-8036). (4) (c) Flip-Over Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of January 16, 1990, incorporated by reference to Exhibit 2 to the Company's Form 8-A Registration Statement (File No. 1-8036). (10) (a) Form of agreement between the Company and certain of its executive officers, incorporated by reference to Exhibit 10 (e) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 1-8036). (10) (b) Schedule of agreements with executive officers. (11) Not Applicable. (15) None. (18) None. F - 1 Page 16 Exhibit Page Number Number (19) None. (22) None. (23) None. (24) None. (27) Financial Data Schedules. (99) None. F - 2 EX-10 2 EXHIBIT 10B Exhibit 10 (b) SCHEDULE OF AGREEMENTS WITH EXECUTIVE OFFICERS ---------------------------------------------- The Company entered into agreements with three of its executive officers: Steven A. Ellers, John A. Vigna and Donald E. Morel. Under the agreements the Company will pay these officers salary and benefits following a change in control of the Company. The agreements also restrict them from competing with the Company following their employment termination. Each agreement is substantially identical in all material respects to the agreement set forth in Exhibit 10 (a). EX-27 3 EXHIBIT 27
5 3-MOS DEC-31-1996 MAR-31-1997 28,900 0 76,800 0 43,700 17,900 424,100 221,800 476,500 69,700 90,600 4,200 0 0 249,200 476,500 114,700 114,700 82,000 82,000 (300) 0 1,400 13,600 5,200 8,400 0 0 0 8,400 .51 .0
-----END PRIVACY-ENHANCED MESSAGE-----