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This report contains 12 pages
(including cover page)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1994
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Commission File Number 0-5884
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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 (I.R.S. Employer Identification
of incorporation or organization) Number)
101 Gordon Drive, PO Box 645, Lionville, PA 1934100645
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 215-594-2900
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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 .
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June 30, 1994 - - - 16,015,990
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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.
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Index
Form 10-Q for the
Quarter Ended June 30, 1994
Page
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Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the Three and Six Months
ended June 30, 1994 and July 4, 1993 3
Condensed Consolidated Balance Sheets as of June 30, 1994 and
December 31, 1993 4
Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1994 and July 4, 1993 5
Notes to Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II - Other Information
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holder 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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Item 1. Financial Statements
The West Company, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1994 July 4, 1993 June 30, 1994 July 4, 1993
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<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 91,500 100 % $87,100 100 % $ 178,600 100 % $ 174,000 100 %
Cost of goods sold 61,700 67 60,200 69 119,900 67 123,000 71
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Gross profit 29,800 33 26,900 31 58,700 33 51,000 29
Selling, general and administrative
expenses 16,900 18 15,800 18 32,400 18 30,700 18
Other expense (income), net 500 1 300 - 1,200 1 (700) (1)
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Operating profit 12,400 14 10,800 13 25,100 14 21,000 12
Interest expense 700 1 700 1 1,300 1 1,400 1
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Income before income taxes and
minority interests 11,700 13 10,100 12 23,800 13 19,600 11
Provision for income taxes 4,200 4 3,800 4 8,900 5 7,600 4
Minority interests 600 1 500 1 1,100 - 800 1
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Income from consolidated operations 6,900 8 % 5,800 7 % 13,800 8 % 11,200 6 %
Equity in net income of
affiliated companies 600 400 700 600
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Income before cumulative effect
of change in accounting method 7,500 6,200 14,500 11,800
Cumulative effect to January 1, 1993 of
the change in accounting for
income taxes - - - 1,000
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Net income $ 7,500 $ 6,200 $ 14,500 $ 12,800
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Net income per share:
Income before cumulative effect of
change in accounting method $ .47 $ .39 $ .91 $ .75
Cumulative effect of change in
accounting method - - - .06
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$ .47 $ .39 $ .91 $ .81
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Average shares outstanding 15,993 15,811 15,975 15,787
The Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, in
1993.
See accompanying notes to financial statements.
</TABLE>
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The West Company, Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS June 30, 1994 Dec. 31, 1993
Current assets: --------------- ------------
Cash, including equivalents $ 8,800 $ 5,200
Accounts receivable 54,900 43,300
Inventories 38,100 34,500
Other current assets 13,800 10,200
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Total current assets 115,600 93,200
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Net property, plant and equipment 186,100 172,800
Investments in affiliated companies 19,000 17,800
Intangibles and other assets 31,000 23,600
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Total Assets $ 351,700 $ 307,400
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 11,500 $ 5,400
Notes payable 9,400 2,300
Accounts payable 15,200 14,100
Other current liabilities 32,100 25,000
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Total current liabilities $ 68,200 $ 46,800
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Long-term debt, excluding current portion 26,000 24,600
Deferred income taxes 20,200 18,400
Other long-term liabilities 19,800 18,600
Minority interests 13,700 10,900
Shareholders' equity 203,800 188,100
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Total Liabilities and Shareholders' Equity $ 351,700 $ 307,400
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Shareholders' equity per share $ 12.72 $ 11.82
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See accompanying notes to financial statements.
</TABLE>
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The West Company Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1994 July 4, 1993
<S> <C> <C>
Cash flows from operating activities:
Net income, plus net non-cash items $ 26,700 $ 26,300
Changes in assets and liabilities (9,500) (11,200)
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Net cash provided by operating activities 17,200 15,100
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Cash flows from investing activities:
Property, plant and equipment acquired (11,000) (19,000)
Proceeds from sale of assets 800 6,200
Payments for acquisitions, net of
cash acquired (4,500) -
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Net cash used in investing activities (14,700) (12,800)
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Cash flows from financing activities:
New long-term debt - 2,200
Repayment of long-term debt (900) (600)
Notes payable, net 3,800 (2,900)
Dividend payments (3,500) (3,200)
Sale of common stock, net 1,500 1,700
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Net cash provided by (used in)
financing activities 900 (2,800)
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Effect of exchange rates on cash 200 0
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Net increase (decrease) in cash,
including equivalents $ 3,600 $ (500)
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See accompanying notes to financial statements.
</TABLE>
<PAGE>
The West Company, Incorporated and Subsidiaries
Notes to Interim Financial Statements
The interim consolidated financial statements for the three and six month
periods ended June 30, 1994 are based on the Company's accounts without audit
and should be read in conjunction with the consolidated financial statements and
notes thereto of The West Company, Incorporated appearing in the Company's 1993
Annual Report on Form 10-K.
1. Interim Period Accounting Policy
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In the opinion of management, the unaudited Condensed Consolidated Balance
Sheet as of June 30, 1994 and the related unaudited Consolidated Statement of
Income for the three and six months periods then ended and the unaudited
Condensed Consolidated Statement of Cash Flows for the six month period then
ended and for the comparative periods in 1993 contain all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
financial position as of June 30, 1994 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.
In the fourth quarter of 1993, the Company standardized its reporting year
end to December 31 thereby eliminating the one month lag for all
international operations. Consequently the first six months of 1994, include
the first six calendar months for all operations, but 1993 comparative
information reflects the six months from December 1992 through May 1993 for
all international subsidiaries.
Operating Expenses
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Certain operating expenses have been annualized for interim reporting
purposes.
Income Taxes
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The tax rate used for interim periods is the estimated annual effective
consolidated tax rate, based on current estimates of full year results,
except that taxes applicable to operating results in Brazil are recorded on a
basis discrete to the period and prior year adjustments, if any, are recorded
as identified.
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The West Company, Incorporated and Subsidiaries
Notes to Interim Financial Statements
(Continued)
2. Inventories at June 30, 1994 and December 31, 1993 are summarized as
follows:
Audited
(in thousands) 1994 1993
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Finished goods $ 17,100 $ 14,100
Work in process 5,400 4,700
Raw materials and supplies 15,600 15,700
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$ 38,100 $ 34,500
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3. The carrying value of property, plant and equipment is determined as
follows:
Audited
(in thousands) 1994 1993
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Property, plant and equipment $ 351,300 $ 322,800
Less accumulated depreciation 165,200 150,000
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Net property, plant and equipment $ 186,100 $ 172,800
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4. Common stock issued at June 30, 1994 was 16,844,735 shares, of which
828,745 shares were held in treasury. Dividends of $.11 per common share
were paid in each quarter of 1994.
5. The Company has accrued the estimated cost of environmental compliance
expenses related to current and former manufacturing facilities. The
ultimate cost to be incurred by the Company cannot be fully determined;
however, based on information currently available, the Company believes
the accrued liability is sufficient to cover the future costs of required
remedial actions.
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Management's Discussion and Analysis of Financial
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Condition and Results of Operations.
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Results of Operations for the Three and Six Months Ended
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June 30, 1994 Versus the Comparable 1993 Periods.
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Net Sales
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Net sales for the quarter were $4.4 million higher in 1994 versus the same
period in 1993. Increased demand for products in U.S. consumer products markets
and higher sales in Europe due in large part to the acquisition of a 51%
interest in Schubert Seals A/S were the primary reasons for the improvement.
These increases were offset in part by lower sales in Brazil because of reduced
government demand there.
For the six months, net sales were $4.6 million higher compared to the same
period in 1993. The standardization of reporting periods in the fourth quarter
of 1993 increased reported sales comparisons by $2.8 million. In addition, sales
to U.S. consumer products markets and machinery sales increased. Offsetting
these increases were the absence of Tri/West Systems, Inc. sales (sold in the
third quarter of 1993) and unfavorable exchange rate variances due to a stronger
U.S. dollar.
Gross Profit
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Gross profit for the second quarter of 1994 increased 11% compared to the same
quarter in 1993. Margins improved significantly to 32.6% from 30.8% because of
operating efficiencies and increased sales activity. Especially notable is the
improvement in margins on consumer products sales in the U.S., which doubled.
For the six month period, gross profit was 15% higher in 1994 versus the same
period in 1993. Again, as it was for the quarter, improved operating
efficiencies in the U.S. contributed to the improvement. Also, the
standardization of reporting periods for international operations accounted for
$2.0 million of the increase in gross profit comparisons.
Selling, general and administrative (SG&A) expenses increased by $1.1 million,
or 7%, in the second quarter of 1994 versus the same quarter in 1993. For the
six months, SG&A expenses are up $1.7 million, or 6%, in 1994 compared to 1993.
Expenses for outside services, rental and other expenses related to the new
headquarters facility and contributions increased 1994 spending. Reporting
period standardization also contributed to the unfavorable variance. Part of
these expenses were offset by cost savings because of staff reductions over the
last three years and favorable exchange rate variances.
Other expense for the quarter increased to $0.5 million from $0.3 million in
1993. For the first six months of 1994, other expense increased to $1.2 million
from $0.7 million of other income in the comparable 1993 period. Continued high
inflation in Brazil increased translation losses while interest income was
lower. Also, other income for the six months 1993 included a gain from the sale
of the Company's former headquarters and research center facilities.
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Interest Expense and Minority Interests
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Interest expense for the second quarter of 1994 was unchanged from the same
period in 1993 and interest expense was lower by $0.1 million for the six months
1994 compared to 1993. Lower average debt levels and a stronger U.S. dollar in
Europe were the major causes.
Minority interests reflect higher earnings by the Company's majority-owned
subsidiaries in Europe including 49% minority holding in Schubert Seals A/S, in
which the Company acquired a 51% interest in May, 1994.
Taxes
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The tax rate for the quarter was 35.4%. This reflects the reduction of the
current estimate of the 1994 effective tax rate to 37.25% because of lower state
tax liabilities. The effective tax rate at the end of the first six months 1993
was 39%, but was 38% at the end of 1993, due to the favorable settlement of an
audit issue in the fourth quarter 1993.
Net Income
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Net income for the second quarter of 1994 was $7.5 million, or $.47 per share,
compared to net income for the second quarter of 1993 of $6.2 million, or $.39
per share. Net income for six months ended June 30, 1994 was $14.5 million, or
$.91 per share, compared to net income of $11.8 million, or $.75 per share,
(before the cumulative adjustment of deferred taxes to adopt Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes) in the
comparable period of 1993. The Company's adoption of SFAS 109 added $1 million,
or $.06 per share, to the 1993 six months earnings.
Financial Position
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Working capital at June 30, 1994 was $47.4 million compared to $46.4 million at
December 31, 1993. The working capital ratio at June 30, 1994 was 1.69 to 1.
Cash on hand and cash flows from operations were adequate to fund the
acquisition payments for Schubert Seals A/S and Senetics, and capital
expenditures, and to repay long-term debt and pay dividends equal to $.22 per
share. Management believes the Company's current capitalization will provide
sufficient cash to meet requirements in the near future. Total debt as a
percentage of total invested capital was 17.4% at the end of June 30, 1994,
compared to 14.0% at the end of December 31, 1993.
<PAGE>
Part II - Other Information
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Item 1. Legal Proceedings
A. Wayne, New Jersey
The Company is a party to an Administrative Consent Order with the New Jersey
Department of Environmental Protection (DEP) under which the Company is required
to submit and perform a cleanup plan for property formerly owned by the Company
in Wayne, New Jersey. The DEP has approved the Company's plan which permits a
plastic waste-disposal area to be capped and to remain in place, subject to
placing a use restriction on that portion of the property, and subject to the
DEP's further determination of the extent to which groundwater monitoring will
be required. The present owner of the property has thus far declined to provide
the use restriction and the Company has initiated legal action against him to
compel him to provide the use restriction. The DEP has not yet taken final
action with respect to any further remedial steps such as ground water
monitoring which may be required as part of the cleanup plan.
B. Vega Alta, Puerto Rico
Since 1987 the Company, along with several other major companies, has been
considered by the Environmental Protection Agency to be potentially responsible
for costs of an environmental clean-up of ground water contamination in an area
which includes the site of one of the Company's existing plant locations in
Puerto Rico. In this connection, EPA has issued two orders for corrective
action work to clean up the ground water and the Company has been named a
defendant in a cost recovery action brought by the United States in the United
States District Court for the District of Puerto Rico against the Company and
other potentially responsible parties.
As a result of these orders, the Company and two other potentially responsible
parties have been engaged in the design and construction of a ground water
recovery and treatment well (the Ponderosa Well) as the first part of an overall
remedy at the site.
Effective June 30, 1993, the Company entered into an agreement with General
Electric Company, UNISYS Corporation, Motorola Corporation and Harman
Automotive, Inc. under which the Company has paid General Electric Company
$800,000 and General Electric and UNISYS Corporation have agreed to indemnify
the Company against all future government claims relating to the contamination
of the ground water by volatile organic compounds. As a part of this agreement,
the Company has also obtained releases of cost recovery claims from all of the
other parties to the agreement.
Under the terms of this agreement, the Company will continue to be responsible
for any required clean up of the soils at its facilities in Puerto Rico and for
any future toxic tort or natural resource damage claims which may arise from the
contamination of the ground water. The indemnity includes protection against
any possible claim by the Puerto Rico Aqueduct and Sewer Authority, which once
indicated that it might assert a claim against the potentially responsible
parties for the cost of its development of other wellfields to replace the water
formerly supplied by the contaminated aquifer.
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Pursuant to the terms of this Agreement, the Company has stipulated with the
United States that it is a liable party.
As a result of this agreement, the Company will avoid the costs of participation
in the existing litigation and any further contribution to the cost of remedying
the contaminated ground water at this site.
See note number 5 of Notes to Interim Financial Statements beginning on page 6
of this report.
Item 4. Submission of Matters to a Vote of Security Holders
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(a) The Company held its annual meeting of shareholders on May 3, 1994.
(c) The following nominees were elected Class I directors (with a term
expiring in 1997) by the following vote:
BROKER
FOR WITHHELD NON-VOTES ABSTENTIONS
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W. J. Avery 12,363,058 104,000 0 N/A
G. J. Hauptfuhrer, Jr. 12,363,058 104,400 0 N/A
W. G. Little 12,362,858 104,600 0 N/A
M. E. Trout 12,363,058 104,400 0 N/A
The appointment of Coopers & Lybrand as the Company's independent accounts
for the year ending December 31, 1994 was approved by the following vote:
FOR WITHHELD BROKER NON-VOTES ABSTENTIONS
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12,376,747 79,399 6,126 5,183
Item 6. Exhibits and Reports on Form 8-K
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(a) None
(b) No reports on Form 8-K have been filed for the three months ended
June 30, 1994.
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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)
August 11, 1994 /s/ R. J. Land
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(Date) (Signature)
R. J. Land
Sr. Vice President, Finance and
Chief Financial Officer
August 11, 1994 /s/ A. M. Papso
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(Date) (Signature)
A. M. Papso
Vice President and Corporate
Controller
(Chief Accounting Officer)
