-----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, TvdIT6Pm30qi6vMeKIzC9m9Nl+8olzv4Si+ysMU6F3EJ1UWvcJv96ktTADxyHukT 4JC6UOtmt8juXfcFAgWsmg== 0000105770-97-000024.txt : 19970815 0000105770-97-000024.hdr.sgml : 19970815 ACCESSION NUMBER: 0000105770-97-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97660730 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 10Q2NDQTR This report contains 15 pages (including cover page) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended June 30, 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 . --- --- June 30, 1997 -- 16,463,120 ----------------------------------------------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Page 2 Index Form 10-Q for the Quarter Ended June 30, 1997 Page Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Operations for the Three and Six Months ended June 30, 1997 and June 30, 1996 3 Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 4 Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 1997 and June 30, 1996 5 Notes to Consolidated Financial Statements 6 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 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 13 Index to Exhibits F-1 Page 3 Item 1. Financial Statements The West Company, Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share data)
Quarter Ended Six Months Ended June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996 ---------------- ------------- --------------- -------------- Net sales $123,100 100% $119,000 100% $237,800 100% $232,900 100 % Cost of goods sold 86,800 70 87,100 73 168,800 71 169,700 73 ---------------------------------------------------------------------------------------------------- Gross profit 36,300 30 31,900 27 69,000 29 63,200 27 Selling, general and administrative expenses 19,100 16 18,100 15 37,100 16 37,200 16 Restructuring charge - - - - - - 21,500 9 Other (income) expense, net (200) - (100) - (500) - (200) - ---------------------------------------------------------------------------------------------------- Operating profit 17,400 14 13,900 12 32,400 13 4,700 2 Interest expense 1,400 1 1,800 2 2,800 1 3,400 2 ---------------------------------------------------------------------------------------------------- Income before income taxes and minority interests 16,000 13 12,100 10 29,600 12 1,300 - Provision for income taxes 6,200 5 4,600 4 11,300 5 2,200 1 Minority interests - - 100 - 100 - 100 - ---------------------------------------------------------------------------------------------------- Income (loss) from consolidated operations 9,800 8% 7,400 6% 18,200 7% (1,000) (1) % --- --- --- ---- Equity in net income of affiliated companies 300 700 300 900 ---------------------------------------------------------------------------------------------------- Net income (loss) $ 10,100 $ 8,100 $ 18,500 $ (100) ---------------------------------------------------------------------------------------------------- Net income per share: $ .61 $ .50 $ 1.12 $ 0.00 ---------------------------------------------------------------------------------------------------- Average shares outstanding 16,451 16,398 16,430 16,514 See accompanying notes to interim financial statements.
Page 4 The West Company, Incorporated and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
Unaudited Audited ASSETS June 30, 1997 Dec. 31, 1996 -------------- ------------- Current assets: Cash, including equivalents $ 41,400 $ 27,300 Accounts receivable, less allowance 70,800 69,300 Inventories 40,100 44,000 Current deferred income tax benefits 10,000 10,200 Other current assets 5,400 5,900 ---------------------------------------------------------------------------------------------------- Total current assets 167,700 156,700 ---------------------------------------------------------------------------------------------------- Net property, plant and equipment 201,400 210,300 Investments in affiliated companies 22,900 24,100 Goodwill 53,900 58,900 Deferred charges and other assets 29,700 27,400 ---------------------------------------------------------------------------------------------------- Total Assets $475,600 $ 477,400 ---------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 800 $ 1,000 Notes payable 1,100 1,900 Accounts payable 21,600 23,900 Salaries, wages, benefits 12,900 13,900 Income taxes payable 5,700 3,100 Other current liabilities 22,100 21,800 ---------------------------------------------------------------------------------------------------- Total current liabilities 64,200 65,600 ---------------------------------------------------------------------------------------------------- Long-term debt, excluding current portion 89,100 95,500 Deferred income taxes 37,600 39,700 Other long-term liabilities 24,900 24,300 Minority interests 400 300 Shareholders' equity 259,400 252,000 ---------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 475,600 $477,400 ---------------------------------------------------------------------------------------------------- See accompanying notes to interim financial statements.
Page 5 The West Company Incorporated and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 1997 June 30, 1996 ---------------- ------------------- Cash flows from operating activities: Net income, plus net non-cash items $ 33,500 $ 33,800 Changes in assets and liabilities 1,400 (11,200) --------------------------------------------------------------------------------------- Net cash provided by operating activities 34,900 22,600 --------------------------------------------------------------------------------------- Cash flows from investing activities: Property, plant and equipment acquired (14,900) (17,200) Proceeds from sale of assets 200 100 Customer advances, net of repayments - (200) --------------------------------------------------------------------------------------- Net cash used in investing activities (14,700) (17,300) --------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings under revolving credit agreements - 7,900 Repayment of long-term debt (1,100) (1,400) Notes payable, net (600) (600) Dividend payments (4,600) (4,300) Sale (purchase) of common stock, net 1,300 (9,100) --------------------------------------------------------------------------------------- Net cash used in financing activities (5,000) (7,500) --------------------------------------------------------------------------------------- Effect of exchange rates on cash (1,100) (200) --------------------------------------------------------------------------------------- Net increase (decrease) in cash, including equivalents $ 14,100 $(2,400) --------------------------------------------------------------------------------------- See accompanying notes to interim financial statements.
Page 6 The West Company, Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) The interim consolidated financial statements for the period ended June 30, 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 June 30, 1997 and the related unaudited Consolidated Statement of Operations for the three and six month period then ended and for the comparative period in 1996 and the unaudited Condensed Consolidated Statement of Cash Flows for the six months then ended and the comparative period in 1996 contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position as of June 30, 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 the restructuring charge are recorded on a basis discrete to the period, and prior year adjustments, if any, are recorded as identified. 2. Inventories at June 30, 1997 and December 31, 1996 are summarized as follows: Audited (in thousands) 1997 1996 -------- -------- Finished goods $ 16,000 $ 18,000 Work in process 8,900 8,500 Raw materials and supplies 15,200 17,500 -------- -------- $ 40,100 $ 44,000 -------- -------- -------- -------- Page 7 The West Company, Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) 3. The carrying value of property, plant and equipment at June 30, 1997 and December 31, 1996 was determined as follows: Audited (in thousands) 1997 1996 -------- -------- Property, plant and equipment $428,300 $431,600 Less accumulated depreciation 226,900 221,300 -------- -------- Net property, plant and equipment $201,400 $210,300 -------- -------- -------- -------- 4. Common stock issued at June 30, 1997 was 16,844,735 shares, of which 381,615 shares were held in treasury. Dividends of $.14 per common share were paid in the second quarter of 1997 and a dividend of $.14 per share payable to holders of record on July 23, 1997 was declared on April 30, 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 June 30, 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 computing 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 weighted average common shares outstanding, because dilution from the Company's common stock equivalents was immaterial. Page 8 The West Company, Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) SFAS 128 also requires presentation of diluted EPS, which considers the potential issuance of common stock for all dilutive instruments. 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 quarter and six months ended June 30, 1997 and June 30, 1996, is as follows (in thousands, except per share data): Quarter Ended Six Months Ended 1997 1996 1997 1996 ----- ----- ----- ----- Net income $10,100 $ 8,100 $ 18,500 $ (100) Diluted EPS $ .61 $ .50 $ 1.12 $ .00 The Company is currently reviewing two new standards of disclosure required to be applied in 1998 financial statement preparation. SFAS No. 130, "Reporting Comprehensive No. 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial statements. It also establishes standards for related disclosure about products and services, geographic areas, and major customers. 7. At June 30, 1997 the cumulative number of employees terminated in accordance with the restructuring plan announced on March 29, 1996 was 206 and total payout of severance and benefits was $6.4 million. Downsizing of operations is substantially complete. 8. On February 21, 1992, R.P. Scherer ("Scherer"), the former parent company of Paco Pharmaceutical Services, Inc. (Paco"), Page 9 The West Company, Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) agreed to sell Paco and its subsidiaries to OCAP Acquisition 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 in March 1996, the court dismissed all of OCAP's claims and all of Scherer's counterclaims. Plaintiffs and defendants have each perfected their appeals, and argument is anticipated in September, 1997. 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 Three and Six Months Ended June 30, -------------------------------------------------------------- 1997 Versus Comparable 1996 Periods. ------------------------------------ Net Sales --------- Net sales for the second quarter of 1997 were $123.1 million, a 3% increase compared with sales of $119.0 million for the same quarter in 1996. Without the effect of the strong U.S. dollar and eliminating the 1996 sales of the machinery business (sold in August 1996), sales would show a 7% improvement compared with 1996's second quarter. The strong U.S. dollar had the effect of reducing sales by $2.9 million. Volumes grew within expectations in the Company's healthcare products and consumer products businesses and were sharply higher in the contract services business. Increased sales of the Company's core products in the U.S. were offset, in part, by lower sales in Europe and Latin America. Net sales for the first six months of 1997 were $237.8 million, a 2% increase compared with sales in the same six months of 1996. The strong U.S. dollar reduced sales by $5.6 million; excluding this impact and eliminating machinery sales in 1996 would result in a 6% increase in sales, compared with 1996's first half. Higher sales of healthcare and consumer products in the U.S. and significant increases in contract services sales outpaced declines in sales to international healthcare products markets. Gross Profit ------------ The gross profit margin in the second quarter 1997 was 29.5% of net sales compared with 26.8% for the same period in 1996. Gross profit margins also improved for the six month period to 29.0% from 27.2% in 1996. The primary reasons for these improvements are improved manufacturing efficiencies, cost saving initiatives, a favorable product mix, and benefits of production shifts to lower cost facilities. Page 11 Management's Discussion and Analysis of Financial Condition and -------------------------------------------------------------- Results of Operations. ---------------------- Results of Operations for the Three and Six Months Ended June 30, -------------------------------------------------------------- 1997 Versus Comparable 1996 Periods (continued). ------------------------------------------------ Selling, General and Administrative ----------------------------------- Selling, general and administrative (SG&A) expenses increased $1.0 million compared with the second quarter 1996, and represent 15.5% of sales compared with 15.2% in 1996. For the six month period, SG&A expenses were virtually flat versus the comparable period, but as a percentage of sales, SG&A expenses declined to 15.6% from 16.0%. Increased research and development expenditures and business development costs offset the effects of the stronger U.S. dollar in both periods. Other Income and Expense -------------------------- Other income increased by $0.1 million for the second quarter compared with the same 1996 quarter. Interest income increased because of higher average temporary cash investments. For the six months, other income increased by $0.3 million because of the higher interest income combined with lower losses related to the sale of fixed assets. Interest Expense and Equity in Affiliates -------------------------------------------------------------- Lower rates and lower average debt levels helped to reduce interest expense compared with the same periods in 1996. Higher costs at Daikyo Seiko, Ltd., a Japanese company in which the Company owns a 25% equity stake, coupled with the weaker Japanese yen caused equity in net income of affiliates to drop for the quarter and six months 1997 compared with 1996. Also, the Company is accounting for its 30% stake in DanBioSyst under the equity method beginning in 1997, and goodwill amortization has been recorded. Taxes ----- The effective tax rate for the first half of 1997 was 38.5% which was the same as the tax rate in the first half of 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 mix in geographic source of income in 1997 is responsible for the increase in estimated tax rate. Page 12 Management's Discussion and Analysis of Financial Condition and -------------------------------------------------------------- Results of Operations. ---------------------- Results of Operations for the Three and Six Months Ended June 30, -------------------------------------------------------------- 1997 Versus Comparable 1996 Periods (continued). ------------------------------------------------ Net Income --------------- Net income for the second quarter 1997 was $10.1 million, or $.61 per share, compared with net income for the second quarter 1996 of $8.1 million, or $.50 per share. Net income for the six months 1997 was $18.5 million compared with net income of $14.9 million in 1996, excluding the first quarter restructuring charge of $15.0 million, or $.90 per share. Financial Position ------------------ Working capital at June 30, 1997 was $103.5 million compared with $91.1 million at December 31, 1996. The working capital ratio at June 30, 1997 was 2.6 to 1. Cash flow from operations was more than adequate to fund capital expenditures and dividend payments of $.28 per share. The Company continued to reduce debt and cash and cash equivalent balances have increased to $41.4 million. Total debt as a percentage of total invested capital was 25.9% at June 30, 1997, compared with 28.1% at December 31, 1996. On April 7, 1997, the Company agreed to terms amending an existing revolving credit facility, increasing the amount available for borrowing and adjusting the interest rate 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. At June 30, 1997, the Company had available unused lines of credit of $131.6 million. The available borrowing capacity and cash flow from operations is adequate, in the opinion of management, to meet estimated cash requirements and fund 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 Acquisition 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 in March 1996, the court dismissed all of OCAP's claims and all of Scherer's counterclaims. Plaintiffs and defendants have each perfected their appeals, and argument is anticipated in September, 1997. 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 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Company held its annual meeting of shareholders on April 30, 1997. (c) Class I directors (with a term expiring in 2000) were elected by a vote of: For Against --- ------- William H. Longfield 12,743,618 239,559 Monroe E. Trout 12,741,654 241,526 Anthony Welters 12,745,608 237,570 William G. Little 12,742,980 240,197 Tenley E. Albright, George W. Ebright, L. Robert Johnson, John P. Neafsey, J. Roffe Wike, II and Geoffrey F. Worden continued their term of office after the meeting. The appointment of Coopers & Lybrand as the Company's independent accountants for the year ending December 31, 1997 was approved by a vote of 12,867,374 for the appointment and 89,520 against, with 26,286 abstentions. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) See Index to Exhibits on pages F-1 of this Report. (b) No reports on Form 8-K have been filed for the quarter ended June 30, 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) August 14, 1997 ------------- --------------------------------- Date (Signature) Anna Mae Papso Vice President and Corporate Controller (Chief Accounting 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). (11) Not Applicable. (15) None. (18) None. (19) None. (22) None. (23) None. (24) None. (27) Financial Data Schedules. (99) None. F - 1 EX-27 2 EXHIBIT 27
5 6-MOS DEC-31-1996 JUN-30-1997 41,400 0 70,800 0 40,100 15,400 428,300 226,900 475,600 64,200 89,100 4,200 0 0 255,200 475,600 237,800 237,800 168,800 168,800 (500) 0 2,800 29,600 11,300 18,200 0 0 0 18,500 1.12 .0
-----END PRIVACY-ENHANCED MESSAGE-----