This report contains pages
(including cover page)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1998
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Commission File Number 1-8036
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THE WEST COMPANY, INCORPORATED
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1210010
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 Gordon Drive, PO Box 645,
Lionville, PA 19341-0645
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code 610-594-2900
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N/A
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Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve
months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No .
--- ---
March 31, 1998 -- 16,980,762
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Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Page 2
Index
Form 10-Q for the
Quarter Ended March 31, 1998
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations
for the Three Months ended March 31, 1998 and
March 31, 1997 3
Condensed Consolidated Balance Sheets
at March 31, 1998 and December 31, 1997 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended March 31, 1998
and March 31, 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Item 3. Quantitative and Qualitative Disclosure
about Market Risk 13
Part II - Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and reports on Form 8-K 14
SIGNATURES 15
Index to Exhibits F-1
Page 3
Part I - Financial Information
Item 1. Financial Statements
The West Company, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
Quarter Ended
March 31, 1998 March 31, 1997
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Net sales $ 105,200 100 % $114,700 100 %
Cost of goods sold 73,900 70 82,000 71
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Gross profit 31,300 30 32,700 29
Selling, general and administrative expenses 16,800 16 18,000 16
Acquired research and development 28,200 27 - -
Other income, net (600) - (300) -
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Operating profit (loss) (13,100)(13) 15,000 13
Interest expense 1,200 1 1,400 1
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Income (loss) before income taxes (14,300)(14) 13,600 12
and minority interests
Provision for income taxes 5,400 5 5,200 5
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Income (loss) from consolidated operations (19,700)(19) % 8,400 7 %
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Equity in net income of affiliated companies - -
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Net income (loss) $ (19,700) $ 8,400
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Net income (loss) per share:
Basic $ (1.19) $ .51
Assuming dilution $ (1.19) $ .51
Average shares outstanding 16,603 16,408
Average shares assuming dilution 16,603 16,551
See accompanying notes to consolidated financial statements.
Page 4
The West Company, Incorporated and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
ASSETS March 31, 1998 Dec. 31, 1997
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Current assets:
Cash, including equivalents $ 66,400 $ 52,300
Accounts receivable 70,000 60,400
Inventories 43,200 38,300
Current deferred income tax benefits 9,700 9,400
Other current assets 10,200 10,300
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Total current assets 199,500 170,700
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Net property, plant and equipment 201,600 202,200
Investments in affiliated companies 14,400 22,700
Goodwill 60,500 51,600
Intangibles and other assets 32,400 30,700
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Total Assets $508,400 $ 477,900
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 600 $ 700
Notes payable 40,300 900
Accounts payable 18,600 18,600
Salaries, wages, benefits 11,900 13,400
Income taxes payable 9,600 5,400
Other current liabilities 23,700 19,000
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Total current liabilities 104,700 58,000
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Long-term debt, excluding current portion 84,900 87,400
Deferred income taxes 29,900 30,100
Other long-term liabilities 24,800 24,700
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Shareholders' equity 264,100 277,700
Page 5
Total Liabilities and Shareholders' Equity $508,400 $ 477,900
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See accompanying notes to consolidated financial statements.
Page 6
The West Company Incorporated and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Quarter Ended
March 31, 1998 March 31, 1997
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Cash flows from operating activities:
Net income, plus net non-cash items $ 14,400 $ 15,900
Changes in assets and liabilities (6,000) (4,900)
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Net cash provided by operating activities 8,400 11,000
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Cash flows from investing activities:
Property, plant and equipment acquired (7,600) (6,300)
Proceeds from sale of assets 800 200
Payment for acquisition, net of cash acquired (6,900) -
Customer advances, net of repayments (900) (300)
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Net cash used in investing activities (14,600) (6,400)
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Cash flows from financing activities:
Proceeds from other long-term debt - 100
Repayment of long-term debt (2,400) (300)
Notes payable, net 23,900 (400)
Dividend payments (2,500) (2,300)
Sale of common stock, net 1,400 800
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Net cash provided by (used in) financing activities 20,400 (2,100)
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Effect of exchange rates on cash (100) (900)
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Net increase in cash, including equivalents $ 14,100 $ 1,600
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Certain items in operating activities have been reclassified for 1997
to conform with 1998 classifications.
See accompanying notes to consolidated financial statements.
Page 7
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
The interim consolidated financial statements for the quarter
ended March 31, 1998 should be read in conjunction with the
consolidated financial statements and notes thereto of The West
Company, Incorporated appearing in the Company's 1997 Annual
Report on Form 10-K. The year-end condensed balance sheet data
was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. Interim results are based on the Company's accounts
without audit.
1. Interim Period Accounting Policy
---------------------------------
In the opinion of management, the unaudited Condensed
Consolidated Balance Sheet as of March 31, 1998 and the
related unaudited Consolidated Statement of Operations and
the unaudited Condensed Consolidated Statement of Cash Flows
for the three month period then ended and for the comparative
period in 1997 contain all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the
financial position as of March 31, 1998 and the results of
operations and cash flows for the respective periods. The
results of operations for any interim period are not
necessarily indicative of results for the full year.
Operating Expenses
------------------
To better relate costs to benefits received or activity in an
interim period, certain operating expenses have been
annualized for interim reporting purposes. Such expenses
include depreciation due to use of the half year convention,
certain employee benefit costs, annual quantity discounts,
and advertising.
Income Taxes
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The tax rate used for interim periods is the estimated annual
effective consolidated tax rate, based on the current
estimate of full year results (excluding the charge for
acquired research and development), except that taxes
applicable to operating results in Brazil and prior year
adjustments, if any, are recorded as identified.
Net Loss Per Share
---------------------
In the first quarter 1998 because of the reported net loss, the
incremental shares from potential issuance of common stock
under the Company's stock option and award plans are not
included in average shares assuming dilution.
Page 8
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
2. Inventories at March 31, 1998 and December 31, 1997 are
summarized as follows:
(in thousands) 1998 1997
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Finished goods $ 17,700 $ 15,800
Work in process 10,300 8,100
Raw materials 15,200 14,400
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$ 43,200 $ 38,300
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3. The carrying value of property, plant and equipment at March
31, 1998 and December 31, 1997 is determined as follows:
(in thousands) 1998 1997
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Property, plant and equipment $434,000 $428,600
Less accumulated depreciation 232,400 226,400
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Net property, plant and equipment $201,600 $202,200
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4. In 1998, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 130, Reporting Comprehensive Income,
which establishes standards for the disclosure of comprehensive
income and its components. Comprehensive income is the total
of net income and other revenue, expenses, gains and losses
for the period which are excluded from net income under
generally accepted accounting principles. For the three
months ended March 31, 1998 and 1997, the Company's
comprehensive income (loss) is as follows:
March 31, 1998 March 31, 1997
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Net income (loss) $(19,700) $8,400
Foreign currency
translation adjustments (2,600) (5,800)
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Comprehensive income (loss) $(22,300) $2,600
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In 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information." As required by the standard, the
Company will begin reporting under SFAS No. 131 in its
Annual Report.
5. Common stock issued at March 31, 1998 was 17,165,104 shares,
of which 184,342 shares were held in treasury. Dividends of
$.15 per common share were paid in the first quarter of 1998
and a dividend of $.15 per share payable to holders of
record on April 22, 1998 was declared on March 10, 1998.
6. The Company has accrued the estimated cost of environmental
compliance expenses related to soil or ground water
contamination at current and former manufacturing
facilities. The ultimate cost to be incurred by the Company
and the timing of such payments cannot be fully determined.
However, based on consultants' estimates of the costs of
remediation in accordance with applicable regulatory
requirements, the Company believes the accrued liability of
$1.5 million at March 31, 1998 is sufficient to cover the
future costs of these remedial actions, which will be
carried out over the next two to five years. The Company
has not anticipated any possible recovery from insurance or
other sources.
7. At March 31, 1998 the cumulative number of employees
terminated in accordance with the restructuring plan
announced on March 29, 1996 was 225 and total payout of
severance and
Page 9
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
benefits was $6.8 million. Restructuring activities, except
for the sale of one building and certain excess equipment
and payout of remaining severance, have been completed.
8. On March 31, 1998, the Company acquired for approximately
BPS 20 million ($33.5 million at March 31, 1998) the
remaining 70% interest in DanBioSyst U.K. Ltd. ("DBS"),
making DBS a wholly-owned subsidiary. This transaction is
accounted for by the purchase method, and was financed with
cash of $9.4 million, 320,406 shares of restricted common
stock valued at $8.7 million, and short-term notes of $15.4
million. Based on a preliminary appraisal of the assets
acquired, the allocation of the purchase price has been
estimated as follows:
(in millions)
Current assets 1.3
Equipment and leasehold improvements .8
In-process research & development 28.2
Other intangibles .4
Goodwill 2.8
Estimated in-process research and development was written
off at the date of acquisition. The purchase price allocation
will be finalized in the second quarter of 1998 and
operating results of DBS will be consolidated beginning on
April 1, 1998.
Page 10
Item 2.
Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
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Results of Operations for the Quarter Ended March 31, 1998 Versus
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March 31, 1997.
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Net Sales
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Net sales for the first quarter of 1998 were $105.2 million, an
8% decrease compared with sales for the same quarter in 1997.
The anticipated sales decline is attributed primarily to lower
sales and a reduction in several key healthcare customers' product
sales. Additionally, customers' inventory reductions impacted
first quarter 1998 sales. Also, the strong U.S. dollar impacted
sales, excluding this effect sales for the first quarter declined
6% when compared with the first quarter of 1997.
Gross Profit
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Gross profit margin for the first quarter was 29.8% of net sales
compared with 28.5% for the same period in 1997. The Company
continues to benefit from cost savings programs and margins on
sales of contract services increased substantially compared with
1997's first quarter.
Selling, General and Administrative
-----------------------------------
Selling, general and administrative (SG&A) expenses decreased by
$1.3 million for the quarter and as a percentage of net sales
rose slightly. SG&A expenses decreased primarily because of the
impact of the strong U.S. dollar, lower pension costs due to
higher income on pension plan assets, and lower expenses
associated with bad debts and other claims.
Acquired Research and Development
---------------------------------
The information contained in Note 8 to the Consolidated Financial
Statements, which is incorporated herein by reference, describes
the Company's acquisition of DanBioSyst U.K. Ltd., and the
estimated allocation of the purchase price based on preliminary
appraisal work. Acquired in-process research and development
estimated at $28.2 million was expensed, as required by
Statement of Financial Accounting Standards (SFAS) No. 2, at the
date of purchase.
Page 11
Management's Discussion and Analysis of Financial Condition
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and Results of Operations.(Continued)
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Other Income and Expense
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Other income increased in the first quarter 1998 compared with
the same quarter in 1997, reflecting interest income earned on
higher average temporary cash investments during the period.
Interest Expense
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Lower interest rates and lower average debt levels reduced
interest expense by $.2 million in 1998 compared with first
quarter 1997.
Minority interest and the Company's equity in net income of
affiliated companies for both comparable reporting periods were
less than $.1 million. For the first quarter 1998, operating
results improved at Daikyo Seiko, Ltd., a Japanese Company in
which the Company owns a 25% equity stock, due to increased sales
and margins. The increase was offset by operating losses and an
unfavorable exchange rate impact at the Company's affiliates in
Mexico.
Taxes
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The effective tax rate for the first quarter 1998 was 39%,
excluding the charge for acquired research and development. For
the first quarter of 1997, the effective tax rate was 38.5%.
This is higher than the actual effective rate of 23.2% at year
end 1997, which was significantly affected by two events: a tax
reorganization of the Company's German subsidiaries, and
repatriation of cash dividends from certain subsidiaries, which
resulted in a net benefit of $7.9 million to the Company.
Excluding this net benefit, the 1997 effective tax rate was 37%.
An increase in the statutory tax rate of France, enacted in the
fourth quarter 1997, has increased the effective tax rate in 1998
for the Company.
Net Income/Loss
----------------
The net loss for the first quarter 1998 was $19.7 million, or
$1.19 per share. The loss is a result of a charge of
$28.2 million, or $1.70 per share, for the estimate of acquired
research and development associated with the acquisition of
DanBioSyst U.K. Ltd. Excluding this charge, net income for the
quarter was $8.5 million, or $.51 per share. This compares with
net income of $8.4 million, or $.51 per share, in the first
quarter of 1997.
Page 12
Financial Position
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Working capital at March 31, 1998 was $94.8million compared with
Management's Discussion and Analysis of Financial Condition
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and Results of Operations.(Continued)
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$112.7 million at December 31, 1997. The working capital ratio
at March 31, 1998 was 1.91 to 1. Cash provided by operations and
available cash balances were used to fund capital expenditures,
repay debt and make dividend payments.
On March 30, 1998, the Company borrowed $24.5 million under a
short-term money market facility to finance the
DanBioSyst acquisition, (see disclosure on the acquisition in
Note 8 to the Consolidated Financial Statements). However, the
sellers elected to receive a portion of the purchase price, $15.4
million in short-term notes. This change in payment terms
increased cash and short term notes payable at March 31, 1998.
The Company intends to repay the borrowing under the short-term
facility during the second quarter.
As a result of the borrowing described above, total debt as a
percentage of total invested capital was 32.2% at March 31, 1998,
compared with 24.2% at December 31, 1997.
At March 31, 1998 the Company had available unused lines of
credit of $113.5 million.
This available borrowing capacity and cash flow from operations
is adequate, in the opinion of management, to meet estimated cash
requirements and fund future growth.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
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Not applicable.
Page 13
Part II - Other Information
Item 1. Legal Proceedings
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
__________________________________
(a) See Index to Exhibits on pages F-1 and F-2 of this
Report.
(b) No reports on Form 8-K have been filed for the quarter
ended March 31, 1998.
Page 14
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE WEST COMPANY, INCORPORATED
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(Registrant)
May 15, 1998 /s/ Steven A. Ellers
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Date (Signature)
Steven A. Ellers
Senior Vice President,
Finance and Administration
Page 15
INDEX TO EXHIBITS
Exhibit
Number
(3) (a) Restated Articles of Incorporation of the
Company, incorporated by reference to Exhibit
(4) to the Company's Registration Statement
on Form S-8 (Registration No. 33-37825).
(3) (b) Bylaws of the Company, as amended and
restated December 13, 1994, incorporated by
reference to the Company's Annual Report on
Form 10-K for the year ended December 31,
1994 (File No. 1-8036).
(4) (a) Form of stock certificate for common stock
incorporated by reference to Exhibit (3) (b)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989 (File
No. 1-8036).
(4) (b) Flip-In Rights Agreement between the Company
and American Stock Transfer & Trust Company,
as Rights Agent, dated as of January 16,
1990, incorporated by reference to Exhibit 1
to the Company's Form 8-A Registration
Statement (File No. 1-8036).
(4) (c) Flip-Over Rights Agreement between the
Company and American Stock Transfer & Trust
Company, as Rights Agent, dated as of January
16, 1990, incorporated by reference to
Exhibit 2 to the Company's Form 8-A
Registration Statement (File No. 1-8036).
(9) None.
(10) (a) Non-Qualified Stock Option Plan for Non-
Employee Directors, as amended as of April
28, 1998.
(10) (b) Form of amended and restated agreement
between the Company and certain of its
executive officers.
(10) (c) Schedule of agreements with executive
officers.
(10) (d) Amendment No. 2 to Retirement Plan for
Non-Employee Directors of the Company, dated
April 28, 1998.
(10) (e) Amendment No. 2 to Non-Qualified Deferred
Compensation Plan for Designated Executive
Officers dated April 28, 1998.
Page 16
Exhibit
Number
(10) (f) Amendment No. 1 Non-qualified Deferred
Compensation Plan for Outside Directors.
(11) Not Applicable.
(12) Not Applicable.
(15) None.
(16) Not applicable.
(18) None.
(19) None.
(22) None.
(23) None.
(24) None.
(27) Financial Data Schedule
(99) None.
F-2