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."