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 September 30, 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 .
--- ---
September 30, 1998 -- 17,004,827
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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 September 30, 1998
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the Three
and Nine Months ended September 30, 1998 and
September 30, 1997 3
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 5
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended September 30, 1998
and September 30, 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Part II - Other Information
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
Index to Exhibits F-1
Page 4
Item 1. Financial Statements
The West Company, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
Sept. 30, 1998 Sept. 30,1997 Sept. 30, 1998 Sept. 30, 1997
---------------- ------------- --------------- --------------
Net sales $113,900 100% $105,200 100% $ 334,900 100% $343,000 100%
Cost of goods sold 80,500 71 76,000 72 235,400 70 244,800 71
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Gross profit 33,400 29 29,200 28 99,500 30 98,200 29
Selling, general and
administrative expenses 17,300 15 16,300 15 52,500 16 53,400 16
Restructuring charge 4,000 3 - - 4,000 1 - -
Acquired research and development - - - - 28,200 8 - -
Other (income), net (300) - (900) - (1,700) - (1,400) -
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Operating profit 12,400 11 13,800 13 16,500 5 46,200 13
Interest expense 1,800 2 1,400 1 4,900 1 4,200 1
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Income before income taxes
and minority interests 10,600 9 12,400 12 11,600 4 42,000 12
Provision for (recovery of)
income taxes 4,100 4 (4,600)(4) 15,300 5 6,700 2
Minority interests - - - - 100 - 100 -
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Income (loss) from consolidated
operations 6,500 5% 17,000 16% (3,800) (1)% 35,200 10%
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Equity in net income of
affiliated companies - 300 500 600
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Net income (loss) $ 6,500 $ 17,300 $ (3,300) $ 35,800
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Page 5
Net income (loss) per share:
Basic $ 0.38 $ 1.05 $ (0.20) $ 2.18
Assuming dilution $ 0.38 $ 1.05 $ (0.20) $ 2.17
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Average shares outstanding 17,003 16,481 16,867 16,447
Average shares outstanding
assuming dilution 17,078 16,594 16,867 16,513
See accompanying notes to interim financial statements.
Page 6
The West Company, Incorporated and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Unaudited Audited
ASSETS Sept. 30, 1998 Dec. 31, 1997
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Current assets:
Cash, including equivalents $ 50,000 $ 52,300
Accounts receivable, less allowance 71,200 60,400
Inventories 44,800 38,300
Current deferred income tax benefits 9,500 9,400
Other current assets 10,800 10,300
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Total current assets 186,300 170,700
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Net property, plant and equipment 213,800 202,200
Investments in affiliated companies 14,300 22,700
Goodwill 71,100 51,600
Intangibles and other assets 36,200 30,700
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Total Assets $521,700 $ 477,900
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 600 $ 700
Notes payable 17,200 900
Accounts payable 16,200 18,600
Accrued expenses:
Salaries, wages, benefits 18,900 13,400
Income taxes payable 11,500 5,400
Other current liabilities 27,100 19,000
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Total current liabilities 91,500 58,000
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Long-term debt, excluding current portion 94,900 87,400
Deferred income taxes 30,600 30,100
Other long-term liabilities 25,300 24,700
Shareholders' equity 279,400 277,700
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Total Liabilities and Shareholders' Equity $521,700 $477,900
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Page 7
See accompanying notes to interim financial statements.
Page 8
The West Company Incorporated and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Nine Months Ended
Sept. 30, 1998 Sept. 30, 1997
---------------- -------------------
Cash flows from operating activities:
Net income, plus net non-cash items $ 45,800 $ 46,200
Changes in assets and liabilities (3,000) 10,400
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Net cash provided by operating activities 42,800 56,600
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Cash flows from investing activities:
Property, plant and equipment acquired (27,900) (23,500)
Proceeds from sale of assets 900 200
Payments for acquisitions, net of cash acquired (19,500) -
Customer advances, net of repayments 900 -
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Net cash used in investing activities (45,600) (23,300)
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Cash flows from financing activities:
Net borrowings under revolving credit agreement 5,800 -
Repayment of long-term debt (1,900) (1,100)
Notes payable, net 700 (100)
Dividend payments (7,500) (6,900)
Sale of common stock, net 2,000 2,400
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Net cash used in financing activities (900) (5,700)
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Effect of exchange rates on cash 1,500 (1,800)
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Net (decrease) increase in cash, including equivalents $ (2,200) $25,800
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See accompanying notes to interim financial statements.
Page 9
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
The interim consolidated financial statements for the period
ended September 30, 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 September 30, 1998 and the
related unaudited Consolidated Statement of Operations for
the three and nine month period then ended, and the unaudited
Condensed Consolidated Statement of Cash Flows for the nine
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 September 30, 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 except that the 1998 charge for
acquired research and development, the 1997 German tax
reorganization, and taxes applicable to operating results in
Brazil are recorded on a basis discrete to the period, and
prior year adjustments, if any, are recorded as identified.
Net Loss Per Share
---------------------
For the nine months ended September 30, 1998, because of the
reported net loss, the incremental shares from potential
issuance of common stock under the Company's stock option and
award plan are not included in average shares assuming
dilution.
Page 10
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
2. Inventories at September 30, 1998 and December 31, 1997 are
summarized as follows:
(in thousands) 1998 1997
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Finished goods $ 15,600 $ 15,800
Work in process 13,900 8,100
Raw materials 15,300 14,400
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$ 44,800 $ 38,300
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3. The carrying value of property, plant and equipment at
September 30, 1998 and December 31, 1997 is determined as
follows:
(in thousands) 1998 1997
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Property, plant and equipment $466,700 $428,600
Less accumulated depreciation 252,900 226,400
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Net property, plant and equipment $213,800 $202,200
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4. In 1998, the Company adopted Statement of Financial
Accounting Standards (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 and nine months ended September
30, 1998 and 1997, the Company's comprehensive income (loss)
is as follows:
Three Months Ended Nine Months Ended
9/30/98 9/30/97 9/30/98 9/30/97
(in thousands) ------- ------- ------- -------
Net income (loss) $6,500 $ 17,300 $(3,300) $35,800
Foreign currency
translation adjustments 4,100 (900) 1,400 (9,000)
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Page 11
Comprehensive income
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
(loss) $10,600 $16,400 $(1,900) $26,800
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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 1998 Annual Report.
On June 16, 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activity". The
statement will be effective for the Company in the year
2000. The new standard requires companies to record
derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be
accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The impact that
this accounting standard will have on the Company's
financial position and results of operations cannot be
determined at this time.
On March 4, 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use. This statement establishes standards for
determining the internal and external costs of developing
software for internal use which must be capitalized and
amortized over the useful life of the software. The Company
adopted this Statement, but the effect was not material on
the quarter or year-to-date financial statements.
5. Common stock issued at September 30, 1998 was 17,165,141
shares, of which 160,314 shares were held in treasury. A
dividend of $.15 per common share was paid in the third
quarter of 1998, and a dividend of $.16 per share payable on
November 4, 1998 to holders of record on October 21, 1998
was declared on August 11, 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
Page 12
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
on consultants' estimates of the costs of remediation in
accordance with applicable regulatory requirements, the
Company believes the accrued liability of $1.3 million at
September 30, 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 September 30, 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 benefits was $7.0 million. Restructuring
activities, except for the sale of one building and certain
excess equipment and payout of remaining severance, have
been completed.
On September 8, 1998, the Company recorded a pre-tax charge
of $4.0 million. The charge is related to employee
reductions associated with identified manufacturing and
other efficiencies. The charge covers severance and
benefits for 92 employees and other related charges. At
September 30, 1998, the total payout of severance and
benefits associated with this charge was $0.2 million.
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. The preliminary allocation of the purchase price
follows:
(in thousands)
Current assets $1,300
Equipment and leasehold improvements 800
In-process research & development 28,200
Other intangibles 400
Goodwill 2,800
Estimated in-process research and development was written
off at the date of acquisition. Operating results of DBS
were consolidated beginning on April 1, 1998.
On July 1, 1998 the Company acquired Betraine, Ltd. for BPS
7.2 million ($11.8 million at July 1, 1998) Betraine
manufactures precision injection molded plastic components
for the healthcare and consumer products industries. The
Page 13
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
acquisition is accounted for as a purchase and results were
consolidated as of July 1, 1998. The acquisition was
financed from existing cash. The assets and liabilities
have been consolidated based on a preliminary allocation of
the purchase price; final allocation is expected by year end
1998. The excess of the purchase price over the net assets
acquired will be amortized over 20 years.
9. On September 9, 1998 the Company commenced a "Dutch Auction"
self-tender for up to 2,000,000 shares at a price range of
not less than $27.00 per share and not more than $31.00 per
share. The self-tender period expired on October 7, and on
October 8 the Company announced that it would purchase
approximately 2,000,000 shares at a price of $30.00 per
share in accordance with the terms of the tender offer. The
shares purchased represent approximately 11.8% of the shares
outstanding immediately prior to the offer. The Company
financed the purchase of the shares with funds borrowed
under available lines of credit.
Page 14
Item 2.
Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
----------------------
Results of Operations for the Three and Nine Month Periods
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Ended September 30, 1998 Versus Comparable 1997 Periods
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Net Sales
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Net sales for the third quarter of 1998 were $113.9 million, an
8% increase compared with net sales of $105.2 million for the
same quarter in 1997. Service sales to both healthcare and
consumer product markets in the U.S. increased sharply over 1997
because of strong demand for contract packaging and manufacturing
services. Product sales to healthcare customers were flat in
North and South American markets, but 11% higher in European
markets due to a combination of increased demand and the
acquisition of Betraine, Ltd. on July 1, 1998. In addition
product sales to consumer markets were 12% higher due largely to
the introduction of Procter & Gamble's new Crest Multicare
product and the acquisition of Betraine, Ltd. The total sales of
companies acquired in 1998 included in the third quarter 1998
consolidated sales was $2.7 million. The impact on reported
sales of foreign currency exchange rates was marginally favorable
in the quarter as the U.S. dollar was stronger versus Asian
currencies but weaker against European currencies.
Net sales for the first nine months of 1998 were $334.9 million,
a 2% decrease compared with $343.0 million for the first nine
months of 1997. Product sales to U.S. healthcare and consumer
markets were lower, a result of reduced sales to several key
healthcare market customers, in part due to reductions in
customers' inventory levels, and a combination of lower resin
prices and loss of business at two accounts to competitors,
respectively. Stronger sales in Europe due to demand and
acquisitions (Betraine and DanBioSyst U.K. Ltd) partially offset
this reduction. Other international markets had lower sales.
Also, the stronger U.S. dollar reduced reported sales by $4.0
million.
Gross Profit
-------------
Gross profit margins improved for the third quarter and for the
nine months. The gross profit margin for the third quarter was
29.2% of net sales compared with 27.7% for the same period in
1997. The gross profit margin for the nine month period was
29.7% up from 28.6% in 1997.
Page 15
The Company continues to benefit from efficiencies and
Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------
Results of Operations. (Continued)
-----------------------------------
cost saving programs. In addition, margins on sales of contract
services have improved due to mix, and margins on product sales
to consumer markets has improved in part due to resin price
decreases passed through to customers.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative (SG&A) expenses increased
$1.0 million compared with the third quarter 1998, but declined
as a percentage of sales from 15.4% in the third quarter 1997 to
15.2% in 1998. The impact of the stronger U.S. dollar and higher
income on pension plan assets did not offset increased selling
costs for contract services and the consolidation of SG&A
expenses associated with companies acquired in 1998.
In the nine month comparisons, SG&A expenses in 1998 decreased by
$0.9 million compared with 1997 and rose slightly as a percentage
of net sales. Higher income on pension plan assets, lower cost
for other employee benefits and the impact of the stronger U.S.
dollar more than offset SG&A expenses recorded by companies
acquired in 1998.
Restructuring Charge
--------------------
The information contained in Note 7 to the Consolidated Financial
Statements, which is incorporated herein by reference, describes
the Company's charge to earnings in the third quarter of 1998,
related to staff reductions, which are expected to reduce the
headcount by about 1%.
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 and the allocation of the
purchase price based on an appraisal. Acquired in-process
research and development expense of $28.2 million was expensed,
as required, at the time of purchase.
Other (income) expense
----------------------
In the third quarter, provision for losses on certain investments
and disputed claims of former employees and losses on sale of
fixed assets, reduced third quarter other income by $0.6 million.
However, interest income was higher in the third quarter and for
the nine month period reflecting higher average temporary cash
investments during the periods. The interest income declined in
the third quarter due to the cashpurchase of Betraine on July 1,
Page 16
Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------
Results of Operations. (Continued)
-----------------------------------
1998.
Interest Expense and Equity in Affiliates
--------------------------------------------
Interest expense increased in the third quarter and nine month
period comparisons, due to additional debt associated with the
DanBioSyst acquisition.
Equity in net income of affiliated companies was lower in both
the quarter and nine months compared with the same periods in
1997. Lower income at Daikyo Seiko, Ltd., a Japanese company in
which the Company owns a 25% equity stake, resulted from a sharp
decline in third quarter sales, which drastically decreased
margins and offset prior year-to-date comparative increases.
Income at Mexican affiliates, in which the Company has a 49%
equity stake, were also lower in part due to unfavorable currency
exchange impacts.
Taxes
-----
The effective tax rate for the 1998 nine month period was 38.5%,
excluding the charge for the acquired research and development.
This rate is significantly higher than the full year 1997
effective tax rate of 23.2% which was affected by two, third-
quarter 1997 events: a tax reorganization of the Company's German
subsidiaries and repatriation of cash dividends from certain
subsidiaries. These two events resulted in a full year net tax
benefit of $7.9 million to the Company in 1997; excluding this
benefit, the 1997 effective tax rate was 37%. The expected
increase in the 1998 tax rate reflects the geographic mix of
earnings.
Net Income
----------
Net income for the third quarter 1998 was $6.5 million , or $.38
per share. Results include an after-tax restructuring charge of
$2.5 million, associated mainly with staff reductions. In the
third quarter of 1997, the Company reported net income of $17.3
million, or $1.05 per share, which included a net tax benefit of
$9.4 million, or $.57 per share, associated mainly with the legal
reorganization of German subsidiaries. Excluding these unusual
items in both periods, net income increased by 13% in the quarter
to $.53 per share from $.48 per share.
The Company reported a net loss for the nine-month period of $3.3
million, or $.20 per share. Results include the $28.2 million
charge relating to the in-process research and development
associated with the acquisition of DanBioSyst and a net
restructuring charge of $2.5 million.
Page 17
Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------
Results of Operations. (Continued)
-----------------------------------
In 1997, the year-to-date net income was $35.8 million, or $2.18
per share, which included a net tax benefit of $9.4 million
related mainly to the tax reorganization of the Company's German
subsidiaries. Excluding these unusual items in both periods,
1998 net income for the nine months increased by 4% to $1.62 per
share from $1.60 per share in 1997.
Financial Position
-------------------
Working capital at September 30, 1998 was $94.8 million compared
with $112.7 million at December 31, 1997. The working capital
ratio at September 30, 1998 was 2.0 to 1. Cash provided by
operations, was adequate to fund capital expenditures and make
dividend payments of $.45 per share. The cash portion of
acquisitions was financed using available cash and borrowings
totalling $6.9 million. The borrowings were used for a portion
of the cash required for the DanBioSyst acquisition, (see
disclosure on the acquisition in Note 8 to the Consolidated
Financial Statements).
In addition, sellers received a portion of the purchase price,
$15.4 million, in short-term notes and 320,406 shares of common
stock. The acquisition price of Betraine was all cash (see
disclosure on the acquisition in Note 8 to the Consolidated
Financial Statements).
Total debt as a percentage of total invested capital was 28.7% at
September 30, 1998, compared with 24.2% at December 31, 1997. At
September 30, 1998, the Company had available unused lines of
credit of $114.9 million. Net borrowings of $5.8 million under
a short-term line of credit were classified as long-term because
of the Company s intent to renew the borrowings using available
long-term credit facilities. On October 8, 1998, the Company
acquired 2,000,000 shares of Common Stock at $30.00 per share at
the close of a "Dutch Auction" tender offer. The Company funded
the stock purchase using available lines of credit, but is
currently negotiating long-term financing. Available lines of
credit and cash flow from operations are adequate, in the opinion
of management, to meet future cash requirements.
Page 18
YEAR 2000
---------
Background
----------
Many computer systems were designed and developed using two
digits, rather than four, to specify the year. As a result, such
systems will recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failure or
miscalculations.
Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------
Results of Operations. (Continued)
-----------------------------------
The Company's Year 2000 Program
-------------------------------
With the assistance of an independent consultant, the Company has
developed a comprehensive, centrally maintained, corporate-wide
Year 2000 project plan designed to manage and carry out
activities to address the Year 2000 issue. The Company's plan is
being implemented by a Project Team consisting of two-full-time
staff members, representatives from staff functions, and at least
one project manager from each of the Company's locations.
The plan calls for the Company to have completed modifications
necessary to address the Year 2000 issue by June 30, 1999. The
progress of the Company's Year 2000 efforts is reviewed monthly
by senior management and reports are provided to the Company's
Audit Committee and Board of Directors on a periodic basis
throughout the year.
The Company has completed a risk assessment of the impact of the
Year 2000. The assessment identified and prioritized critical
business processes and plant locations to be targeted for
remediation, replacement or other corrective action. The Company
has also substantially completed an inventory of all application
software, hardware, operating systems software, desktop software
and computer-controlled manufacturing and facility equipment from
all Company locations worldwide to identify potential Year 2000
problems.
The Company has made significant progress in remediating or
replacing critical information systems which support business
functions. Due to multiple geographical locations, discrete
computer systems exist in the U.S., Europe, South America and
Asia/ Pacific regions. The U.S. (other than Paco Pharmaceutical
Services) and European-based manufacturing, financial-reporting
and payroll systems have been completed, and other systems,
including Paco, are at various stages of completion, but are on-
schedule to be completed during the first half of 1999. Desktop
inventory and assessment audits are expected to be completed by
the end of the year, with corrective action expected to be
completed by July 1, 1999.
The assessment of research and development, manufacturing
processes and facility management systems is well underway at all
plant locations. Remediation and replacement, as necessary, of
all critical software-dependent systems are expected to be
completed by June 30, 1999. The Company is relying on a
combination of testing, replacement and certification letters
from
Page 19
Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------
Results of Operations. (Continued)
-----------------------------------
equipment and system vendors as part of its Year 2000 program.
The Company has received Year 2000 compliance certifications from
all of its major raw-materials suppliers and major service
providers to ensure that delivery of required supplies and
services continues uninterrupted.
Based on the progress to date, no contingency plans are
expected to be needed, and therefore none have been developed.
However, because the Company's Year 2000 program schedule is
expected to be substantially complete by June 30, 1999, the
Company believes adequate time will be available to address
deficiencies without a material impact on manufacturing and
operations, customer service and other critical business
functions. Nonetheless, if such deficiencies are not addressed
in a timely manner, the Year 2000 issue could have a material
impact on the operations of the Company.
Internal and external resources are being used to remediate or
replace non-compliant technology, and to appropriately test Year
2000 modifications. The program and related expenditures are
being funded through operating cash flows. The project to
address Year 2000 began in April 1997. The pretax costs incurred
to date for this effort were approximately $3.7 million and $1.0
million in 1998 and 1997, respectively. Generally, compliance
software is being implemented for its improved functionally. As
a result $3.3 million and $1.0 million have been capitalized in
1998 and 1997, respectively. The Company does not separately
track the cost and time that its own internal employees spend
on the Y2K project. Such costs are principally the related
payroll costs for its management information systems group.
The Company expects costs of approximately $5.0 million will be
incurred in 1999 to substantially complete the effort.
The cost of the Year 2000 project and the date on which the
Company believes it will substantially complete modifications are
based on management s best estimates. Such estimates were
derived using project-management software and information from
individual project team members. The estimates are based on
numerous assumptions of future events, including the continued
Page 20
availability of certain resources and other factors. Because
none of these estimates can be guaranteed, actual time and cost
to complete modifications could differ materially from those
anticipated. Specific factors that might cause such differences
include, but are not limited to, the reliability and timely
receipt of vendor certifications, the appropriateness and
effectiveness of testing and validation methods, the availability
and cost of trained personnel and the timely availability of
replacement hardware and software and similar uncertainties.
Item 3. Quantitative and Qualitative Disclosure about Market
Risk
------------------------------------------------------
Not applicable. This requirement will become effective for the
Company filings including annual financial statements for 1998.
Page 21
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 September 30, 1998.
Page 22
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE WEST COMPANY, INCORPORATED
-----------------------------------
(Registrant)
November 16, 1998 /s/ Steven A. Ellers
------------- ---------------------------------
Date (Signature)
Steven A. Ellers
Senior Vice President,
Finance and Administration
(Chief Financial Officer)
Page 23
INDEX TO EXHIBITS
Exhibit
Number
(3) (a) Amended Articles of Incorporation of the
Company.
(3) (b) Amended By-Laws of the Company.
(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.
(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-1
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