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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A1
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
----------------
Commission File Number 1-8036
---------
THE WEST COMPANY, INCORPORATED
--------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Pennsylvania 23-1210010
- ------------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 Gordon Drive, PO Box 645, Lionville, PA 19341-0645
- --------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-594-2900
--------------
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
- ----------------------- ------------------------------------------
Common Stock, par value New York Stock Exchange
$.25 per share
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
----
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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive
<PAGE>
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
As of March 17, 1995, the Registrant had 16,508,400 shares of its Common
Stock outstanding. The market value of Common Stock held by non-affiliates of
the Registrant as of that date was $416,837,100.
Exhibit Index appears on page 50.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
------------------------------------
None.
<PAGE>
PART I
Item l. Business
--------
The Company
-----------
The West Company, Incorporated is engaged in one industry segment - the
design, development, manufacture and marketing of stoppers, closures,
containers, medical device components and assemblies made from elastomers,
metal, glass and plastic that meet the unique filling, sealing, dispensing and
delivery needs of the health care and consumer products markets. The Company
also manufactures related packaging machinery. The Company's products include
pharmaceutical - packaging components (stoppers, seals, caps, containers and
dropper bulbs), components for medical devices (parts for syringes and
components for blood sampling and analysis devices and for intravenous
administration sets) and packaging components for consumer products.
The Company was incorporated in 1923. The executive offices of the Company
are located at 101 Gordon Drive, PO Box 645, Lionville, Pennsylvania 19341-0645,
approximately 35 miles from Philadelphia. The telephone number at the Company's
executive offices is 610-594-2900. As used herein, the term "Company" includes
The West Company, Incorporated and its consolidated subsidiaries, unless the
context otherwise indicates.
Principal Products - Pharmaceutical Packaging Components
--------------------------------------------------------
The Company manufactures a broad line of pharmaceutical stoppers from
natural rubber and a variety of synthetic elastomers. Several hundred
proprietary formulations of these substances are molded into a range of stopper
sizes used in packaging serums, vaccines, antibiotics, anesthetics, intravenous
solutions and other drugs. Most formulae are specially designed to be compatible
with drugs so that the drugs will remain effective and unchanged during storage.
The Company's rubber laboratories not only develop formulations, but also
conduct preliminary compatibility tests on customers' new drugs, and in the
United States file formulation information with the Food and Drug Administration
to assist its customers' new drug applications.
A broad line of aluminum seals which securely hold the stoppers on glass or
plastic containers is manufactured by the Company. The Company also makes a wide
variety of seals lined with its specially formulated rubber discs or other
materials. Aluminum seals include closures with tamper-evident tabs or plastic
FlipOffR buttons which must be removed before the drug can be withdrawn. The
Company also designs, manufactures and sells capping machines for use with
Company-designed metal caps and seals and other packaging equipment.
<PAGE>
The majority of pharmaceutical-packaging components currently manufactured by
the Company are used in packaging injectable drugs. Included in this category of
products are syringe parts used by pharmaceutical manufacturers to package their
drugs in pre-filled unit-dose disposable syringes.
Products used in the packaging of non-injectable drugs include rubber dropper
bulbs, plastic contraceptive drug packages and child-resistant and
tamper-evident plastic closures. The Company also manufactures and markets a
range of Counter CapR products. These devices are plastic child resistant caps
that advance, or count, every time a bottle of oral medication is opened or
closed, thereby promoting compliance with medication instructions. In addition,
the Company manufactures injection blow-molded plastic bottles and containers
for the pharmaceutical industry.
In January 1992, the Company entered into a partnership with Schott Corporation
to continue the glass vial, ampoule and cartridge manufacturing operations
formerly carried on by the Company at its Cleona, Pennsylvania site. The
partnership, Schott West Pharmaceutical Glass Company, is owned 60% by Schott
Corporation and 40% by the Company.
In January 1994, the Company acquired Senetics, Inc., a Boulder Colorado company
specializing in the development of innovative closure and delivery systems for
the oral and inhalation drug delivery markets. The purchase price of the
acquisition was $3 million, with additional payments to the former shareholders
of up to $750,000, contingent upon achievement of specified technical
milestones. Additional amounts are due based on license fees or royalty income
and/or direct sales of the product until January 5, 1999.
In May 1994, the Company's German holding company The West Company GmbH acquired
a 51% interest in Schubert Seals A/S, a Danish manufacturer of rubber components
and metal seals servicing the European pharmaceutical industry, for a purchase
price of $4.8 million. At closing the parties entered into a shareholders
agreement which contains limitations on the transfer of shares and provisions
relating to voting on key corporate actions.
Principal Products - Components for Medical Devices
----------------------------------------------------
The Company manufactures rubber and plastic components for empty disposable
syringes. Typical components include plungers, hubs and needle covers which are
assembled into finished empty disposable syringes by the Company's customers.
Blood-sampling system components manufactured by the Company include vacuum tube
stoppers and needle valves. The Company also makes a number of specialized
rubber and plastic components for blood analyzing systems.
Also included in this category are Company-manufactured and Company-purchased
components assembled into drug-transfer devices.
The Company also manufactures and sells disposable infant nursers and individual
nurser components to infant formula manufacturers.
<PAGE>
Principal Products
Packaging Components for the Consumer Products Industries
-----------------------------------------------------------------
The Company manufactures a wide range of plastic threaded closures for the
personal-care industry, mainly for such products as cosmetics and toiletries.
The Company offers many different standard threaded closure designs in a wide
range of sizes and colors, in addition to closures designed for specific
customers and specialty packaging. The Company also manufactures custom and
stock plastic containers for personal-care products.
The Company manufactures a variety of custom-designed and proprietary plastic
closures, some of which are tamper evident, for distillers and food and beverage
processors.
Order Backlog
--------------
Orders on hand at December 31, 1994 were approximately $99 million, compared
with approximately $90 million at the end of 1993. Orders on hand include those
placed by customers for manufacture over a period of time according to a
customer's schedule or upon confirmation by the customer. Orders are generally
considered firm when goods are manufactured or orders are confirmed. The Company
also has contractual arrangements with a number of its customers, and products
covered by these contracts are included in the Company's backlog only as orders
are received from those customers.
Raw Materials
--------------
The Company uses four basic raw materials in the manufacture of its products:
rubber, aluminum, plastic and glass. Approximately 25% of the total rubber used
by the Company is natural rubber, substantially all of which is imported from
Sri Lanka and Malaysia. Plastics and aluminum are purchased as needed from
several sources. The Company has been receiving adequate supplies of raw
materials to meet its production needs, and it foresees no significant
availability problems in the near future. However, the political stability and
seasonal weather conditions of countries which supply natural rubber may be
significant factors in the continuing supply of this commodity. Synthetic
elastomers and plastics currently purchased by the Company are made from
petroleum derivatives, the cost and availability of which are dependent on the
supply of petroleum feedstocks. Also, the Company is dependent on sole sources
of supply with respect to certain other raw material ingredients in older
product formulations. In the event the supplier discontinues production the
Company may be required to stockpile these materials until new formulations are
qualified with customers.
The Company is pursuing a supply chain management strategy of aligning with
vertically integrated suppliers that control their own feed stocks. This will
result in reducing the number of raw materials suppliers. In some cases, the
Company will purchase raw
<PAGE>
materials from a single source. this strategy is expected to assure quality,
secure supply and reduce costs. However, it could result in risks to the
Company's supply lines in the event of a supplier production problem. These
risks will be managed by selecting suppliers with backup plans and fail-safe
mechanisms as part of their operating standards.
Laboratory, Research and Engineering
-------------------------------------
Pharmaceutical packaging components must meet the rigid specifications set by
the pharmaceutical industry relating to the function of the package, material
compatibility, and freedom from chemical and physical contamination. Rubber
formulations that involve contact with injectable pharmaceutical products are
required to pass shelf-life tests extending from six months to three years. New
rubber compounds must be tested to show that they do not cause precipitation in
the customer's product or affect its potency, sterility, effectiveness, color or
clarity. In addition, in the United States the Food and Drug Administration may
review and inspect certain of the Company's facilities for adequacy of methods
and procedures and qualifications of technical personnel.
The Company maintains its own laboratories for testing raw materials and
finished goods to assure adherence to customer specifications and to safeguard
the quality of its products. The Company also uses its laboratory facilities for
research and development of new rubber and thermoplastic compounds and for
testing and evaluating new products and materials.
The Company maintains engineering staffs responsible for product and tooling
design and testing and for the design and construction of processing equipment.
In addition, a corporate product research department develops new packaging and
device concepts for identified market needs.
Research, development and engineering expenditures for the creation and
application of new and improved products and processes were approximately
$12,000,000 in 1994, $11,400,000 in 1993 and $11,100,000 in 1992. Approximately
140 professional employees were engaged full time in such activity in 1994.
Employees
----------
As of December 31, 1994, the Company and its subsidiaries had 3,680 full-time
employees.
Patents and Licenses
---------------------
The patents owned by the Company have been valuable in establishing the
Company's market share and in the growth of the Company's business and may
continue to be of value in the future, especially in view of the Company's
continuing development of its own
<PAGE>
proprietary products. Nevertheless, the Company does not consider its business
or its earnings to be materially dependent upon any single patent or patent
right.
Major Customers
-----------------
The Company serves major pharmaceutical and hospital supply/medical device
companies, many of which have several divisions with separate purchasing
responsibilities. The Company also sells to many of the leading manufacturers of
personal-care products. The Company distributes its products primarily through
its own sales force and also through regional distributors in the United States
and Asia/Pacific.
Becton Dickinson and Company ("B-D") accounted for approximately 11% of the
Company's consolidated net sales during the Company's last fiscal year. The
principal products sold to B-D are components made of rubber, metal and plastic
used in their disposable syringes and blood sampling and analysis devices. B-D
has manufactured a portion of its own rubber components for a number of years.
The Company expects to continue as a major B-D supplier.
Excluding B-D, the next ten largest customers accounted for approximately 28% of
the Company's consolidated net sales in 1994, and no one of these customers
accounted for more than 6% of 1994 consolidated net sales.
Competition
------------
The Company competes with several companies, some of which are larger than the
Company, across its major pharmaceutical packaging component and medical device
component product lines. In addition, many companies worldwide compete with the
Company for business related to specific product lines. However, although there
are no industry statistics available, the Company believes that it supplies a
major portion of the domestic industry requirements for pharmaceutical rubber
and metal packaging components, and has a significant share of the European
market for these components. Because of the special nature of these products,
competition is based primarily on product design and performance, although total
cost is becoming more important as health care markets worldwide face increasing
government controls and pressure to control overall costs.
The Company is one of the leading domestic producers of threaded plastic
closures, although there are numerous competitors in the field of plastics.
<PAGE>
In addition, some of the Company's customers also manufacture a portion of their
own plastic, rubber and glass components.
Environmental Matters
------------------------
The Company does not believe that it will have any material expenditures
relating to environmental matters other than those discussed in the Note
"Commitments and Contingencies" of Notes to Consolidated Financial Statements
contained in item 8 and incorporated by reference herein.
International
---------------
The Note "Affiliated Companies" and the Note "Industry Segment and
Operations by Geographic Area" of Notes to Consolidated Financial Statements
contained in item 8 are incorporated herein by reference.
The Company believes that its international business does not involve a
substantially greater business risk than its domestic business. However,
economic and competitive factors vary in the countries in which the Company's
international subsidiaries and affiliates do business. The future growth and
performance of the Company's international subsidiaries and affiliates are
dependent on these factors and the political stability of the countries where
they do business.
The Company's financial condition and results are impacted by fluctuations in
exchange rate markets (See Notes "Summary of Significant Accounting Policies -
Foreign Currency" and "Other Income (Expense)" of Notes to Consolidated
Financial Statements, incorporated herein by reference). Hedging by the
Company of these exposures is discussed in the Note "Debt" and in the Note
"Fair Value of Financial Instruments" of Notes to Consolidated Financial
Statements, incorporated herein by reference.
Item 4 (a) Executive Officers of the Registrant
-----------------------------------
The executive officers of the Company at March 28, 1995 were as follows:
<TABLE>
<CAPTION>
Name Age Business Experience During Past Five
Years
- ---- --- -----------------------------------------
<S> <C> <C>
George R. Bennyhoff 1 51 Senior Vice President, Human Resources and Public Affairs since
March 1986.
Wendy Dixon 39 Group Vice President, The Americas, since March 1995; previously Executive
Vice President and General Manager of International Operations for
Osteotech, Inc., a processor of medical implant products, from May
1993 to February 1995; and prior thereto held the following
positions with Centocor, Inc., a biotechnology pharmaceutical
company: Vice President, Business Development from August 1992 to
April 1993, Vice President, European Marketing & Sales from October
1990 to August 1992, Vice President, European Marketing & Business
Development from June 1989 to October 1990.
Jerry E. Dorsey 1 50 Executive Vice President and Chief Operating Officer since June 1994;
previously Group President from August 1993 to June, 1994;
President, Health Care Division from May 1992 to July 1993 for the
Company; and prior thereto President and Chief Executive Officer of
Foster Medical, a medical supply company, from 1990 to May 1992.
Steven A. Ellers 1 44 Vice President, Operations since June 1994; previously Vice President
Asia/Pacific and Managing Director, Singapore for the Company from
May 1990 to May 1994.
<PAGE>
John R. Gailey III 1 40 General Counsel and Secretary since May 1994; previously Corporate
Counsel and Secretary of the Company from December 1991 to April
1994 and; prior thereto an Associate with the law firm of Dechert
Price & Rhoads.
Stephen M. Heumann 1 53 Vice President and Treasurer since May 1994; previously Treasurer
from December 1990 to April 1994 and Assistant Treasurer from May
1990 through November 1990 for the Company.
Raymond J. Land 1 50 Senior Vice President, Finance and Administration from October 1991;
previously General Manager - Premium Meals for Campbell Soup
Company.
William G. Little 1 52 Director, President and Chief Executive Officer from May 1991;
previously Division President, Kendall, Inc., a medical device
company, from 1990 to May 1991.
Anna Mae Papso 1 51 Vice President since March 1991 and Corporate Controller since May 1989.
Ulf C. Tychsen 1 50 Group Vice President, Europe and Asia/Pacific, since January 1995;
previously President, Sales & Marketing from June 1994 to December
1994 and President, Europe Division from July 1992 to June 1994 for
the Company; and prior thereto Managing Director, Marketing and
Sales for Schulke & Mayr Gmbh, a manufacturer of disinfectants and
conservation products.
Victor E. Ziegler 1 64 Executive Vice President since January 1992; previously Division
President from July 1991 to January 1992 and Group President for
the Company.
</TABLE>
- -----------
1 Holds position as corporate officer elected by the Board of Directors for
one year term.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
---------------------------------------------------------
<PAGE>
FINANCIAL REVIEW
- --------------------
The Company operates in one industry segment: manufacturing and marketing
specialized products that satisfy the unique filling, sealing, dispensing and
delivery needs of the health care and consumer products industries. Over 85% of
the Company's revenues are generated by the health care market. The Company's
products include stoppers, closures, containers, medical device components and
assemblies made from elastomers, metal, plastic and glass. The Company also
manufacturers related packaging machinery.
The following is management's discussion and analysis of the Company's
operating results for the three years ended December 31, 1994 and its financial
position as of year-end 1994. 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 1994 net income was $27.3 million, or $1.70 per share, compared
with net income of $23.5 million, or $1.48 per share, in 1993 and $19.7 million,
or $1.26 per share, in 1992. In 1993, the Company standardized December 31 as
the reporting year end for all consolidated subsidiaries. This change required
all international subsidiaries to report December 1993 results in the reporting
year 1993, resulting in the inclusion of 13 months of operating results in 1993
for these subsidiaries. Also in 1993 the Company lengthened the life of certain
production equipment, which reduced depreciation expense. The depreciable life
of this equipment now corresponds to its historical pattern of use and more
closely matches industry practice. These two changes added approximately $.07
per share to 1993 earnings compared with 1992 and about $.01 per share to 1993
earnings compared with 1994. In 1993, the Company also adopted Statement of
Financial Accounting Standards (SFAS) No. 109, which changed the Company's
accounting for income taxes to the liability method. The cumulative impact of
this method of income tax accounting was to reduce deferred tax liabilities
recorded as of January 1, 1993, adding $.06 per share to 1993 net income.
NET SALES
- ----------
Net sales were $365.1 million in 1994, an increase of 5% compared with
reported sales in 1993, which included $8.8 million of international
subsidiaries' sales attributable to December 1992 operations. Adjusting for that
extra month would improve the annual sales increase to 7%. This improvement
reflects increased sales to international health care markets, including the
acquisition of a subsidiary in Europe, and increased domestic consumer product
demand.
Increased health care market sales were generated by continued market
penetration in the Asia/Pacific region, acquisitions and volume increases in
European and domestic health care markets. The volume increases were the result
of new product offerings by customers and increased demand. Acquisitions during
1994 included Senetics, Inc., a domestic company specializing in innovative
closure systems for oral and inhalation drug delivery, and a 51%
<PAGE>
interest in Schubert Seals A/S, a Danish manufacturer of metal seals for the
European pharmaceutical industry. The acquired companies added $8.4 million to
1994 sales. Sales in domestic and European markets have been negatively impacted
by price reductions on certain products due to government and consumer pressure
to reduce health care costs and by competition. The weaker U.S. dollar compared
with European and Asia/Pacific currencies added $2.3 million to reported 1994
sales amounts. Demand in Brazil for health care products increased during the
later part of year as a result of that country's economic plan, which has
stabilized the currency, but sales in South American health care markets were
lower for the year. Measured at consistent currency exchange rates, health care
sales increased by 5% over the comparable 12 months of 1993.
Domestic consumer products sales rose 18% in 1994. This increase reflects
primarily the increased demand for Spout-Pak(R) for gable carton juice
containers manufactured by International Paper Company and for the SAFETY
SQUEASE TM product manufactured for The Procter & Gamble Company's Scope(R) and
Aleve(R) products. Also machinery sales increased by $2.4 million, returning to
1992 levels, following 1993 delays in customers' capital spending programs.
In 1993, net sales increased by 3%, or $10.5 million, over 1992 levels.
Compared with 1992, this reported sales increase was reduced by $10.6 million
because of translation rate differences caused by the stronger U.S. dollar, but
increased by $8.1 million due to the inclusion of December 1993 operating
results of international subsidiaries. The inclusion of that additional month's
results in 1993 standardized the reporting year end for all consolidated
entities. Taking these two factors into account shows that worldwide health care
market sales grew at more than 5% in 1993. The growth was evident in all markets
served and came mainly from additional value-added products and services.
Especially notable was market penetration in the Asia/Pacific region. Sales to
consumer products markets declined by 8% compared with 1992, reflecting the
combined impact of elimination of small-volume customers and less profitable
product lines, and delays in customers' new product market introductions. Sales
of machinery declined in 1993 by $3 million as health care reform proposals
caused customers to delay their capital spending programs.
GROSS PROFIT
- ------------
The consolidated gross margin improved in 1994 to 31.8%, and gross profit
grew to $116.1 million, an 11% increase over 1993. This 1.8 percentage point
improvement in the gross margin compared with 1993 was the result, in part, of
higher sales volume. A significant portion of the increase reflects the use of
Total Quality Management ("TQM") techniques and implementation of Manufacturing,
Resource Planning systems ("MRP") and new technologies. Under TQM, employees
work in multi-disciplined teams to resolve business and process problems. MRP is
a software information management system that integrates data related to sales
forecasts, production scheduling, purchasing, inventory control and capacity
requirements planning. These programs and technologies combined to improve
productivity, yields and logistics, and contributed to an 8% increase in the
gross profit earned on sales to the health care markets. Higher contributions
were generated from sales to all market regions served. Margin increases in
domestic and South American operations improved significantly, while
Asia/Pacific and European markets generated margins comparable to 1993.
<PAGE>
Gross profit on consumer products market sales more than doubled in 1994
compared with 1993. This reflects the significant increase in volume, the higher
value-added product sales made possible through the product rationalization
programs begun several years ago and the productivity improvements generated
through the programs discussed above. Gross profit related to machinery
operations increased primarily due to the volume of orders and higher sales in
the year.
The Company began installing Manufacturing Resource Planning systems in 1993.
In addition, more than 90% of the Company's employees have been trained in Total
Quality Management principles during 1993 and 1994. The remaining employees,
most of whom are located at international manufacturing facilities, will be
trained in 1995. The intent of these initiatives is to make the Company more
responsive to customer requirements and to improve shareholder value. The
continued benefits of these programs are expected to be evident in greater
efficiencies and customer satisfaction.
The gross margin in 1993 was 30%, and gross profit was $104.6 million, an 8%
increase over 1992. The gross margin was 1.4 percentage points higher than in
1992. The reduction in depreciation expense caused by the extension of the
useful life of certain production equipment was responsible for a .5 percentage
point increase in the 1993 margin. The remaining improvement reflected the
higher sales of value-added products, the benefits of restructuring activities
and the Total Quality Management and Manufacturing Resource Planning initiatives
begun in 1993. Gross profit on health care industry sales increased 7%,
reflecting these factors. Margins improved in all regions served except Europe.
European operations were adversely impacted by turbulent foreign exchange
markets, recession in Germany, and the closing of a low-cost manufacturing
facility in Serbia due to the United Nations embargo. Consumer products markets
generated a lower gross profit in 1993 due to a volume decline, although
mitigated by cost-savings programs. Consumer products operations continued to
focus on leading consumer products manufacturers, such as Procter & Gamble and
International Paper, and their need for innovative packaging systems that result
in value-added products. New product introduction delays by such companies
impacted 1993 negatively. Machinery operations achieved a higher gross margin on
1993 sales, although gross profit was down 15% due to lower volume.
EXPENSES
- --------
Selling, general and administrative expenses have absorbed a higher
percentage of the sales dollar in each of the past three years. These expenses,
as a percentage of sales, were 18.9% in 1994, 18.2% in 1993 and 16.9% in 1992.
Selling, general and administrative expenses increased by $5.5 million in 1994,
or 9%, over 1993 levels. The increase is attributable in part to $2.8 million of
higher severance costs related to a global management reorganization and to
productivity improvements. The global reorganization established worldwide
functional responsibilities that had previously been carried out on a regional
basis, thereby increasing management efficiencies and improving service to the
Company's multi-national customers. The organization was restructured in
anticipation of the year-end 1994 buyout of the minority owners of five European
subsidiaries. The increase also reflects $1.1 million of rent and other expenses
related to the Company's new headquarters facility, which became occupied in
<PAGE>
September 1993, consolidation of $1.7 million of expenses of acquired companies
as well as higher costs related to self-insured claims and outside service costs
and exchange rate differences. Training and systems development will continue to
improve productivity and reduce costs.
The increase in 1993 selling, general and administrative expenses was 11%,
amounting to a $6.4 million increase over 1992. Outside service costs, including
training and systems development, and the move to the new corporate headquarters
facility were the primary causes of the increase.
Other expenses, net, in 1994 totaled $1.7 million compared with $.5 million
in 1993 and $.9 million in 1992. Included in this item are foreign currency
losses totaling $2.3 million, $5.4 million and $5.1 million, respectively. These
translation losses are driven by the high inflation in Brazil, which has been
significantly reduced since mid-1994 as a result of Brazil's economic plan
designed to reduce inflation and stabilize the currency. Also included are
foreign currency transaction losses of $.5 million in 1994, $.2 million in 1993
and $.5 million in 1992. The higher transaction losses in 1994 and 1992 were due
primarily to the realignment of European currencies. Foreign exchange losses are
offset in part by interest income totaling $1.2 million, $2.3 million, and $2.9
million in 1994, 1993, and 1992, respectively. Interest income was generated
mainly in Brazil and has been reduced in 1994 due to the economic program that
reduced interest rates and in 1993 due to reduced cash balances. Increased cash
balances in other geographic areas have produced interest income, which
partially offset the Brazilian reduction in 1994. In 1994, losses on real estate
totaled $.5 million compared with $1.4 million of gains in 1993 from the
Company's sale of its former headquarters and research center facilities and its
ownership interest in Tri/West Systems, Inc.
INTEREST
- ---------
Interest costs totaled $3.5 million in 1994, $3.4 million in 1993 and $4.1
million in 1992. Interest capitalized as a part of capital asset acquisitions
was approximately the same in each of the three years. Interest expense
attributable to the consolidation of companies acquired in 1994, mainly
attributable to capitalized leases, masked the further reduction in 1994
interest expense. This reduction was attributable to lower average domestic debt
levels and lower average interest rates on European debt. In 1993, the lower
interest costs resulted from an approximate $13 million decline in average debt
levels during the year. Average interest rates were also lower in 1993 compared
with 1992; however, the net cost of interest rate swaps increased.
INCOME TAXES
- -------------
The Company adopted the liability method of income tax accounting beginning in
1993 as mandated by SFAS No. 109 requirements. The effective tax rate in 1994
was 31.8% versus 38.2% in 1993. The unusually low 1994 tax rate reflects the
one-time impact of a net refund of foreign taxes paid by subsidiaries in prior
years. The refund was triggered by the payment of dividends. In addition,
<PAGE>
foreign tax loss carryforwards were assured realization due to the tax
consolidation of several operating subsidiaries, thereby reducing the tax asset
valuation allowance previously recorded on these potential tax benefits. The
transactions were made possible by the acquisition of the minority ownership in
these subsidiaries at year-end 1994. Finally, the 1994 effective income tax rate
declined due to lower state income tax liabilities and due to the higher
proportion of earnings being generated in lower-tax jurisdictions.
The 1993 effective tax rate of 38.2% represented a 2.9 percentage point drop
in the effective tax rate compared with 1992. The decline in the effective tax
rate resulted from the favorable settlement of a foreign tax audit issue, the
larger proportion of earnings generated in low-tax countries and a significant
reduction in the effective tax rate in Brazil. The 1993 decrease in the
statutory tax rate in Germany and lower state taxes offset the impact of the
increase in the U.S. federal tax rate. Because these tax rate changes largely
offset each other, the adoption of SFAS No. 109 did not have a material impact
on the 1993 tax provision.
The tax provision in 1992 was determined using previously accepted income tax
accounting principles, and deferred taxes were provided on the differences in
income for financial reporting and tax return purposes. At 41.1%, the 1992
effective tax rate reflected the mix of earnings, with higher-taxed European and
Latin American earnings offset in part by lower-taxed operations in Singapore
and Puerto Rico. The resulting effective rate was 3.2 percentage points above
the rate on domestic operations.
MINORITY INTERESTS AND EQUITY IN AFFILIATES
- -------------------------------------------
Minority interests increased to $1.9 million in 1994 compared with $1.7 million
in 1993 and 1992. The increase primarily reflects the acquisition of a majority
interest in Schubert Seals A/S in mid-1994. The increase was offset in part by
the November 30, 1994 acquisition of the remaining minority ownership in five
European subsidiaries. The terms of this transaction are incorporated herein by
reference to the Note "Acquisitions and Investments" to the Consolidated
Financial Statements.
Income from affiliates decreased in 1994 to half of the 1993 level. The
reduction reflects the translation loss on net monetary assets of the Company's
affiliates in Mexico due to the devaluation of the Mexican peso in late
December. Offsetting these losses in part was continued improvement in the glass
manufacturing operations of Schott West Pharmaceutical Glass Company in which
the Company holds a 40% interest. After losses in 1992, this joint venture
produced near breakeven results in 1993, and in 1994 has produced profits. The
turnaround resulted from the technical expertise of the Company's joint venture
partner, which improved product quality and increased productivity. Sales
increased in each of the past three years. Operating results of the Company's
affiliates in Japan and Mexico were lower in both 1994 and 1993 due to lower
margins and sales.
<PAGE>
CHANGES IN ACCOUNTING METHODS
- ------------------------------
The Company adopted SFAS No. 109 beginning in 1993. Prior financial statements
were not restated, and the cumulative impact to January 1, 1993 of applying SFAS
No. 109 principles was a $1.1 million reduction in the deferred tax liabilities
reported at December 31, 1992. This cumulative impact was reported separately in
the 1993 income statement, net of minority interest.
The Company also adopted SFAS No. 112, Employer's Accounting for Postemployment
Benefits. This accounting standard covers all types of benefit plans provided to
former or inactive employees and requires recognition of a liability under
certain circumstances during employees' active service or when an employee is
terminated. This accounting change did not have any significant impact on 1993
operating results.
FINANCIAL POSITION
- --------------------
The Company's financial position continues to be strong. Working capital totaled
$50.4 million at December 31, 1994, with a ratio of current assets to current
liabilities of 1.6:1. That year-end level was reduced significantly by the
liability to the former minority owners of five European subsidiaries for the
final installment of the acquisition price, which was paid in early 1995.
Receivable balances were higher at year-end 1994 as a function of a much
stronger December sales period. Inventory levels, excluding inventories of
companies acquired in 1994, were close to year end 1993 positions. Better
production planning systems have aided the control of inventories while assuring
customer needs can be met. Implementation of these systems at additional
manufacturing sites is expected to further reduce inventory requirements.
Cash from operating activities totaled $49.8 million in 1994. In addition, the
Company sold three former manufacturing properties, generating additional cash
of $3.4 million. These available funds more than covered cash requirements in
1994 including $27.1 million of capital expenditures, $7.2 million of dividends
to shareholders ($.45 per share) and $13.9 million of cash payments for 1994
acquisitions. Cash from exercise of employee stock options totaled $3.4 million.
New debt increased the debt to invested capital (total debt, minority interests
and shareholders' equity) ratio to 20.1%. Debt stood at $57.8 million at
year-end 1994 compared with $32.3 million at year-end 1993. Cash balances also
increased $22 million from December 31, 1993, and totaled $27.2 million at
December 31, 1994. The increase in assets noted above decreased the asset
turnover ratio to 1.04. Return on shareholders' equity was 13.2% equal to 1993.
1995 REQUIREMENTS
- ------------------
On January 2, 1995, the remaining 25.5 million deutsche marks due for the
acquisition of the minority owners' interests in five European subsidiaries was
paid using available cash and new debt facilities. Cash requirements for capital
projects in 1995 are estimated at $44 million. These projects focus on new
product tooling, cost reduction and quality improvements through
<PAGE>
technological upgrades. Acquisition and implementation of new information
management systems will continue as will maintenance and improvements to the
existing production capacity.
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 "Fair Value of Financial
Instruments" note to the Consolidated Financial Statements, incorporated herein
by reference, explains the impact of such hedges on the Company's results of
operations and financial position. In 1986, the Company entered into a currency
and interest rate swap agreement in connection with the acquisition of the
majority interest in certain European companies. The agreement expired early in
1995 and the Company repaid DM20 million ($13.1 million at expiration) and
received $7.2 million. The excess liability was funded with available cash and
new debt facilities. Cash requirements for remedial activity related to
environmental cleanup are not expected to exceed $1 million in 1995. In 1994,
payments related to environmental cleanup totaled $.8 million. Included in these
payments are amounts paid by the Company to perform testing and remedial work in
Puerto Rico. These payments complete the Company's obligation under a settlement
agreement with other potentially responsible parties signed in 1993 related to
this site. The Company has been indemnified by other financially responsible
parties against future government claims relating to groundwater contamination
at the site. All of the payments made in 1994 were covered by the estimated
liability recorded in prior years.
In 1995, in addition to cash flow from operations, the Company expects proceeds
from sale of stock arising from the exercise expiring employee stock options to
generate proceeds of $3.1 million. Management believes that this cash, available
credit facilities ($30 million short-term and DM35 million long-term at year-end
1994) and the Company's current capitalization provide sufficient flexibility to
meet cash flow requirements in the future.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
<PAGE>
Subsequent Event
- ----------------
On March 24, 1995, the Company announced that it had entered into a
definitive merger agreement with Paco Pharmaceutical Services, Inc. pursuant to
which the Company will acquire all of Paco's common stock at $12.25 per share in
cash. The purchase price of approximately $54 million is being funded from cash
balances and existing bank facilities. Material terms and conditions of the
merger agreement are contained in Section 13, "The Merger Agreement" of the
Offer to Purchase by Paco Acquisition Corp., which is incorporated by reference
herein.
Paco is a provider of contract packaging and contract manufacturing services
for pharmaceutical and personal health care companies. The following table
presents selected financial information on Paco's financial results for its
fiscal year ended March 31, 1994 and for the nine months ended December 31, 1994
and its financial position as of March 31, 1994 and December 31, 1994.
<TABLE>
<CAPTION>
For the Year For the Nine Months
Ended March 31, 1994 Ended December 31, 1994
--------------------- -----------------------
(unaudited)
<S> <C> <C>
Income Statement:
Net Sales $ 68,000 $ 48,400
Gross Profit 10,600 6,500
Income before taxes 2,900 2,300
Income before account-
ing change 2,300 1,700
Net Income 1,900 1,700
-------------- ------------------
Balance Sheet: March 31, 1994 December 31, 1994
-------------- ------------------
Currents assets $ 24,300 $ 23,200
Noncurrent assets 35,900 35,800
-------------- ------------------
$ 60,200 $ 59,000
-------------- ------------------
Current liabilities $ 6,800 $ 5,300
Noncurrent liabilities 9,800 9,600
Shareholders' equity 43,600 44,100
-------------- ------------------
$ 60,200 $ 59,000
-------------- ------------------
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
THE WEST COMPANY, INCORPORATED AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31,
1994, 1993 AND 1992
<TABLE>
<CAPTION>
(in thousands, except per share data) 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
Net sales $365,100 100% $348,700 100% $338,200 100%
Cost of goods sold 249,000 68 244,100 70 241,500 71
---------------------------------------------------------------------
Gross profit 116,100 32 104,600 30 96,700 29
Selling, general and administrative expenses 69,000 19 63,500 18 57,100 17
Other expense, net 1,700 1 500 -- 900 1
---------------------------------------------------------------------
Operating profit 45,400 12 40,600 12 38,700 11
Interest expense 3,300 1 3,100 1 3,900 1
---------------------------------------------------------------------
Income before income taxes and minority interests 42,100 11 37,500 11 34,800 10
Provision for income taxes 13,400 3 14,300 4 14,300 4
Minority interests 1,900 1 1,700 1 1,700 1
---------------------------------------------------------------------
Income from consolidated operations 26,800 7% 21,500 6% 18,800 5%
Equity in net income of affiliated companies 500 1,000 900
---------------------------------------------------------------------
Income before cumulative effect of change in
accounting method 27,300 22,500 19,700
Cumulative effect to January 1, 1993 of the change
in accounting for income taxes -- 1,000 --
---------------------------------------------------------------------
Net income $ 27,300 $ 23,500 $ 19,700
---------------------------------------------------------------------
Net income per share:
Income before cumulative effect of change in
accounting method $ 1.70 $ 1.42 $ 1.26
Cumulative effect of change in accounting method -- .06 --
---------------------------------------------------------------------
$ 1.70 $ 1.48 $ 1.26
---------------------------------------------------------------------
Average shares outstanding 16,054 15,838 15,641
---------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
THE WEST COMPANY, INCORPORATED AND SUBSIDIARIES AT DECEMBER 31, 1994 AND 1993
(in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Current assets:
Cash, including equivalents (1994--$15,900; 1993--$1,700) $ 27,200 $ 5,200
Accounts receivable, less allowance (1994--$1,000; 1993--$1,100) 57,800 43,300
Inventories 38,100 34,500
Other current assets 13,600 12,000
------- -------
Total current assets 136,700 95,000
------- -------
Property, plant and equipment 366,800 322,800
Less accumulated depreciation and amortization 174,600 150,000
------- -------
192,200 172,800
Investments in affiliated companies 21,900 17,800
Goodwill 33,900 12,700
Assets held for disposition 1,400 5,200
Deferred charges and other assets 11,300 5,700
------- -------
$397,400 $309,200
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 19,200 $ 5,400
Notes payable 2,700 2,300
Accounts payable 19,300 14,100
Accrued expenses:
Salaries, wages and benefits 11,700 10,000
Deferred revenue and deposits 3,700 3,700
Other 29,700 13,100
------ -------
Total current liabilities 86,300 48,600
------ -------
Long-term debt, excluding current portion 35,900 24,600
Deferred income taxes 24,400 18,400
Other long-term liabilities 21,600 18,600
Minority interests 1,900 10,900
Shareholders' equity:
Preferred Stock, shares authorized: 3,000 shares; issued: 0
Common Stock, par value $.25 per share; shares authorized: 50,000
shares issued: 1994--16,845; 1993--16,845
shares outstanding: 1994--16,464; 1993--15,915 4,200 4,200
Capital in excess of par value 23,200 20,000
Cumulative foreign currency translation adjustments 17,100 11,000
Retained earnings 189,800 169,900
------- -------
234,300 205,100
Less Treasury Stock (1994--381 shares; 1993--930 shares) 7,000 17,000
------- -------
Total shareholders' equity 227,300 188,100
------- -------
$397,400 $309,200
-------- --------
</TABLE>
Certain items have been reclassified for 1993 to conform with 1994
classifications. The accompanying notes are an integral part of the financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE WEST COMPANY, INCORPORATED AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31,
1994, 1993 AND 1992
<TABLE>
<CAPTION>
Cumulative
foreign
Capital in currency
Common excess of translation Retained Treasury
(in thousands, except per share) Stock par value adjustments earnings Stock Total
-------- ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $ 4,100 $ 14,000 $ 11,900 $139,700 $(17,100) $152,600
---------------------------------------------------------------------------
Net income 19,700 19,700
Shares issued under stock option plans 100 5,300 200 5,600
Cash dividends declared ($.40 per share) (6,300) (6,300)
Translation adjustments 300 300
Repurchase of Common Stock (3,300) (3,300)
---------------------------------------------------------------------------
Balance, December 31, 1992 4,200 19,300 12,200 153,100 (20,200) 168,600
---------------------------------------------------------------------------
Net income 23,500 23,500
Shares issued under stock plans 700 3,200 3,900
Cash dividends declared ($.42 per share) (6,700) (6,700)
Translation adjustments (1,200) (1,200)
---------------------------------------------------------------------------
Balance, December 31, 1993 4,200 20,000 11,000 169,900 (17,000) 188,100
---------------------------------------------------------------------------
Net income 27,300 27,300
Shares issued under stock plans 300 3,400 3,700
Shares issued for acquisition 2,900 6,600 9,500
Cash dividends declared ($.46 per share) (7,400) (7,400)
Translation adjustments 6,100 6,100
---------------------------------------------------------------------------
Balance, December 31, 1994 $ 4,200 $ 23,200 $ 17,100 $189,800 $ (7,000) $227,300
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE WEST COMPANY, INCORPORATED AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER
31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 27,300 $ 23,500 $ 19,700
Adjustments to reconcile income before accounting
change to net cash from operating activities:
Depreciation and amortization 23,100 22,000 23,600
Loss (gain) on sales of real estate and investments 500 (1,400) --
Deferred income taxes (2,700) 1,400 500
Minority interests 1,900 1,800 1,700
Equity in undistributed earnings of affiliated companies, net (200) (500) (100)
(Increase) in accounts receivable (8,900) (4,900) (600)
(Increase) decrease in inventories (700) 2,700 (4,400)
(Increase) decrease in other current assets 2,500 3,000 (4,800)
Increase (decrease) in other current liabilities 3,000 (7,100) (2,900)
Other operating items 4,000 (2,000) 1,300
--------------------------------------------
Net cash provided by operating activities 49,800 38,500 34,000
--------------------------------------------
Cash flows from investing activities:
Property, plant and equipment acquired (27,100) (33,500) (22,400)
Proceeds from sales of assets 3,700 8,000 7,500
Payments for acquisitions, net of cash acquired (13,900) -- --
--------------------------------------------
Net cash used in investing activities (37,300) (25,500) (14,900)
--------------------------------------------
Cash flows from financing activities:
New long-term debt 18,100 1,600 5,500
Repayment of long-term debt (3,000) (6,500) (26,700)
Notes payable, net (3,000) (2,700) 5,900
Issuance of Common Stock, net 3,400 3,900 5,600
Repurchase of Treasury Stock -- -- (3,300)
Capital contribution by minority owner 400 -- 500
Dividend payments (7,200) (7,000) (6,300)
--------------------------------------------
Net cash provided by (used in) financing activities 8,700 (10,700) (18,800)
--------------------------------------------
Effect of exchange rates on cash 800 (100) --
--------------------------------------------
Net increase in cash and cash equivalents 22,000 2,200 300
Cash and cash equivalents at beginning of year 5,200 3,000 2,700
--------------------------------------------
Cash and cash equivalents at end of year $ 27,200 $ 5,200 $ 3,000
--------------------------------------------
Supplemental cash flow information:
Interest paid (net of amounts capitalized) $ 3,000 $ 3,000 $ 4,600
Income taxes paid $ 13,700 $ 11,900 $ 10,300
--------------------------------------------
</TABLE>
Certain items have been reclassified for 1993 to conform with 1994
classifications. The accompanying notes are an integral part of the financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and all significant majority-owned subsidiaries. For
years ending prior to 1993, international subsidiaries are included in
consolidated financial statements based on fiscal years ending November 30. In
1993, international subsidiaries are included in consolidated financial
statements based on the 13 months ended December 31. The inclusion of the
additional month in 1993 added $8,100 to revenues, $2,100 to gross profit and
net income per share of approximately $.01. Material intercompany transactions
and accounts are eliminated in consolidation. An affiliated company reports on
the basis of the fiscal year ending October 31. 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; 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 as 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. 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 of firm commitments, primarily raw
material purchases including local needs in foreign subsidiaries, are deferred
and recognized as part of the underlying transaction.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment 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.
DEPRECIATION AND AMORTIZATION: For financial reporting purposes, depreciation is
computed principally on the straight-line method over the estimated useful lives
of the assets. For income tax purposes, depreciation is computed using
accelerated methods. Goodwill is being amortized on the straight-line method
over periods ranging from 30 to 40 years. The Company continually evaluates the
appropriateness the remaining estimated useful life and the carrying value of
goodwill and other intangible assets. Carrying values in excess of expected
undiscounted associated cash flows are expensed when such determination is made.
RESEARCH AND DEVELOPMENT: Research, development and engineering expenditures for
the creation and application of new or improved products and processes, which
amounted to $12,000, $11,400 and $11,100 in 1994, 1993 and 1992, respectively,
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,
clean-up 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: Beginning in 1993, the Company adopted Statement of Financial
Accounting Standards (SEAS) No. 109, Accounting for Income Taxes, which provides
that income taxes be accounted for under the liability method. Under the
liability method, deferred income taxes are recognized by applying enacted
statutory tax rates, applicable to future years, to temporary
<PAGE>
differences between the tax bases and financial statement carrying values of the
Company's assets and liabilities. Prior-year financial statements have not been
restated. The cumulative effect of adopting SEAS No. 109 is reported in the 1993
Consolidated Statement of Income net of applicable minority interests. In 1992,
the provision for deferred income taxes is applicable to timing differences
between taxable income and income for financial reporting purposes.
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.
NET INCOME PER SHARE: Net income per share is based on the weighted average
number of shares of Common Stock outstanding during each period. Common Stock
equivalents are not material.
OTHER INCOME (EXPENSE)
Other income (expense) includes the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest income $ 1,200 $ 2,300 $ 2,900
Foreign exchange losses (2,800) (5,600) (5,600)
Gain (loss) on sales of real estate
and investments (500) 1,400 --
Other 400 1,400 1,800
-----------------------------------------------------
$(1,700) $ (500) $ (900)
-----------------------------------------------------
</TABLE>
ACQUISITIONS AND INVESTMENTS
On November 30, 1994, the Company acquired the remaining minority ownership
interests in five European subsidiary companies. The total purchase price for
the minority interests in these subsidiaries was DM45,000 ($28.7 million at
November 30, 1994). The cash portion of the purchase price totaled DM30,000
($19.1 million) of which DM4,500 ($2.9 million) was paid at closing and DM25,500
($16.2 million) on January 2, 1995; the balance of the consideration, DM15,000
($9.5 million), was paid through delivery of 363,214 shares of the Company's
Common Stock at closing.
On May, 20, 1994, the Company acquired a 51% ownership interest in Schubert
Seals A/S, a Danish manufacturer of metal seals and related products mainly for
the pharmaceutical industry. The total purchase was 31,000 kroner ($4.8 million
at May 20, 1994). The cash portion of the purchase price for these acquisitions
was financed principally using new debt facilities.
The acquisitions are being accounted for as purchases, and Schubert Seals A/S
has been consolidated from June 1, 1994. The excess of the purchase price over
the net assets acquired and minority interests acquired approximates $20,000 and
is being amortized over 40 years. The following table presents selected
financial information for the years ended December 31, 1994 and 1993 on a pro
forma (unaudited) basis assuming the acquisitions noted above had occurred on
January 1, 1994 and 1993:
<PAGE>
<TABLE>
<CAPTION>
1994 1993
------------------------
<S> <C> <C>
Net sales $369,300 $359,900
Income before taxes 40,100 35,700
Income from consolidated
operations 27,200 21,800
Net income 27,700 23,800
Net income per share $ 1.72 $ 1.50
------------------------
</TABLE>
In 1994, the Company acquired Senetics, Inc., a company specializing in
the development of innovative delivery technologies for oral and inhalation drug
delivery markets and a 10% ownership interest in DANBIOSYST UK LIMITED, a
company specializing in noninvasive drug delivery methods. The total
consideration for these acquisitions was $5,600, all of which was paid in cash.
The acquisition of Senetics is being accounted for as a purchase, and the
company has been consolidated since the beginning of the year. Additional
consideration may be due depending on the sales of Senetics' products and other
conditions during the period from acquisition to January 5, 1999. Such
additional consideration would be accounted for as goodwill. Pro forma results
of the Senetics acquisition, assuming it had been made at beginning of 1993,
would not be materially different from the results reported.
INCOME TAXES
Income before income taxes and minority interests was derived as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
----------------------------------------
Domestic operations $26,500 $ 24,100 $22,100
International operations 15,600 13,400 12,700
----------------------------------------
$42,100 $37,500 $34,800
----------------------------------------
</TABLE>
The related provision for income taxes consists of:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $ 9,500 $ 7,100 $ 7,100
State 600 2,000 2,000
International 6,000 2,700 4,700
------------------------------------------
16,100 11,800 13,800
------------------------------------------
Deferred:
Federal (300) 300 300
State -- 100 --
International (2,400) 2,100 200
------------------------------------------
(2,700) 2,500 500
------------------------------------------
$ 13,400 $ 14,300 $ 14,300
------------------------------------------
</TABLE>
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 is as follows:
<TABLE>
<CAPTION>
<C> <C> <C>
1994 1993 1992
--------------------------------------
Statutory corporate tax rate 35.0 % 35.0 % 34.0 %
Tax on international operations
(less than) in excess of
United States tax rate (3.4) (.3) 2.1
Prior-year international
tax adjustment - (1.1) 1.2
State income taxes, net of Federal
tax benefit .9 3.7 3.9
Other (.7) .9 (.1)
-------------------------------------
Effective tax rate 31.8 % 38.2 % 41.1 %
-------------------------------------
</TABLE>
The net current and noncurrent components of deferred income taxes recognized in
the balance sheet at December 31, 1994 and 1993 are:
<TABLE>
<CAPTION>
<C> <C>
1994 1993
------------------------
Net current assets $ 3,100 $ 3,000
Net noncurrent liabilities 24,400 18,400
------------------------
</TABLE>
The 1992 tax provision included deferred taxes related to the following timing
differences between income for tax and financial reporting purposes:
<TABLE>
<CAPTION>
<C> <C>
1992
------
Accelerated depreciation $ 500
Loss on asset dispositions 400
Severance and deferred compensation (700)
Capitalized interest 100
Environmental compliance 200
------
$ 500
------
</TABLE>
<PAGE>
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1994 and 1993 determined
in accordance with the provisions of SFAS No. 109. The adoption of SFAS No. 109
did not have a material impact on the tax provision in 1993.
<TABLE>
<CAPTION>
<C> <C>
1994 1993
---------------------
Deferred tax assets:
Loss on asset dispositions
and plant closings $ 700 $ 1,800
Severance and deferred
compensation 7,900 7,200
Net operating loss carryovers 2,600 3,900
Foreign tax credit carryovers 1,900 2,300
Other 1,900 500
Valuation allowance (4,100) (5,700)
------------------------
Total deferred tax assets $10,900 $10,000
------------------------
Deferred tax liabilities:
Accelerated depreciation $29,600 $25,200
Severance and deferred compensation 600 -
Other 2,000 200
------------------------
Total deferred tax liabilities $32,200 25,400
------------------------
</TABLE>
At December 31, 1994, subsidiaries had operating tax loss carryovers of
$8,700, which will be available to apply against the future taxable income of
such subsidiaries. The carryover periods expire beginning with $500 in 1995 and
continue through 1998. A valuation allowance has been recognized to offset the
related deferred tax asset to the extent realization is uncertain.
At December 31, 1994, unremitted earnings of international
subsidiaries, on which deferred income taxes have not been provided, amounted to
$51,000. 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, 1994, the Company had available foreign tax credit
carryovers of approximately $1,900 expiring in 1995 through 1999. A valuation
allowance has been recognized to offset the related deferred tax asset to the
extent realizations is uncertain.
INVENTORIES
Inventories at December 31 include the following:
<TABLE>
<CAPTION>
<C> <C>
1994 1993
-----------------------------------------
Finished goods $17,200 $14,100
Work in process 4,700 4,700
Raw materials 16,200 15,700
-----------------------------------------
$38,100 $34,500
-----------------------------------------
</TABLE>
<PAGE>
Included above are inventories located in the United States that are valued on
the LIFO basis, amounting to $16,200 and $14,300 at December 31, 1994 and 1993,
respectively, which are approximately $8,000 and $8,500, respectively, lower
than replacement value.
PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31 and the estimated
useful lives is presented in the following table:
<TABLE>
<CAPTION>
<C> <C>
Years of
Expected
Useful
Life 1994 1993
------------------------------------
Land $ 4,000 $ 3,400
Buildings and improvements 7 - 50 97,000 87,900
Machinery and equipment 3 - 20 196,400 170,400
Molds and dies 4 - 6 53,600 46,600
Construction in progress 15,800 14,500
------------------------------------
$ 366,800 $ 322,800
------------------------------------
</TABLE>
Effective January 1, 1993, the Company changed the estimated life of its
elastomer molds and dies to six and four years, respectively, from three years.
The change allocates this equipment cost to better reflect expectations of
production service and is more consistent with industry practice. The effect of
the change was to reduce depreciation expense by $1,800 and increase net income
by $.06 per share in 1993.
AFFILIATED COMPANIES
At December 31, 1994, the following affiliated companies were accounted for
under the equity method:
<TABLE>
<CAPTION>
<C> <C>
Location Ownership
Interest
-----------------------------------
West Rubber de Mexico S.A. Mexico 49%
Aluplast S.A. de C.V. Mexico 49%
Pharma-Tap S.A. de C.V. Mexico 49%
Schott West Pharmaceutical
Glass Company U.S.A. 40%
Daikyo Seiko, Ltd. Japan 25%
----------------------------------
</TABLE>
A summary of the financial information for these companies is presented below:
<TABLE>
<CAPTION>
<C> <C>
1994 1993
----------------------------------
Balance Sheet:
Current assets $ 91,800 $ 72,900
Noncurrent assets 84,800 74,500
----------------------------------
Total assets $176,600 $147,400
----------------------------------
Current liabilities $ 46,400 $ 36,700
Noncurrent liabilities 64,400 49,600
Owners' equity 65,800 61,100
----------------------------------
Total liabilities and owners' equity $176,600 $147,400
----------------------------------
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C>
1994 1993 1992
-----------------------------------------
Income Statement:
Net sales $89,600 $83,500 $74,600
Gross profit 23,700 21,100 18,000
Net income 1,800 2,700 2,800
-----------------------------------------
</TABLE>
Unremitted income of affiliated companies included in consolidated retained
earnings amounted to $9,100, $8,900 and $8,400 at December 31, 1994, 1993 and
1992, respectively. Dividends received from affiliated companies in 1994, 1993
and 1992 were $600 in each of the years.
DEBT
SHORT-TERM: At December 31, 1994, the Company had available unused short-term
lines of credit amounting to $30,000 and an unused long-term credit line of
DM35,000; a fee ranging from 1/12% to 1/8% per annum is payable on the available
credit lines. Other notes payable in the amounts of $2,700 and $2,300 at
December 31, 1994 and 1993, respectively, are payable within one year and bear
interest at weighted average interest rates of 7.4% and 8.2%, respectively.
LONG TERM:
<TABLE>
<CAPTION>
<C> <C>
At December 31, 1994 1993
----------------------------
Unsecured:
Tax-exempt industrial revenue bonds, due 1995
to 2005 (3.67% to 3.97%) (a) $11,200 $11,600
Other notes, due 1995 to 1997
(6.0% to 10.13%) 27,500 14,500
Collateralized:
Mortgage notes, due 1995 to 2006 (3.5% to
11%) (b) 16,400 3,900
----------------------------
Total long-term debt 55,100 30,000
Less current portion 19,200 5,400
----------------------------
<PAGE>
$35,900 $24,600
----------------------------
</TABLE>
(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 $1,300 is reflected as
a reduction of the principal outstanding on the bonds. (b) Real estate,
machinery and equipment with a carrying value of $22,000 at December 31, 1994
are pledged as collateral.
Long-term debt maturing in the years following 1995 is: $6,000 in
1996, $11,600 in 1997, $600 in 1998 and $700 in 1999.
Certain of the financing agreements, among other things, require the
maintenance of certain working capital, interest coverage and debt to
capitalization ratios and tangible net worth; restrict the sale of assets; and
limit the payment of dividends. At December 31, 1994, under the most restrictive
debt agreement, retained earnings free of restriction were $67,000.
Interest costs incurred during 1994, 1993 and 1992 were $3,500,
$3,400 and $4,100, respectively, of which $200, $300 and $200, respectively,
were capitalized as part of the cost of acquiring certain assets.
To finance and hedge a portion of the 1986 purchase of ownership
interests in certain European subsidiaries, the Company entered into a currency
and interest rate swap agreement which matured early in 1995. Under the
agreement, the Company exchanged $7,200 bearing interest at LIBOR plus 1/8%
(7 1/8% at December 31, 1994) for DM20,000 ($12.9 million at December 31, 1994)
bearing interest at 7.5%. A swap agreement expired in 1994 under which the
Company agreed to swap $2,700 bearing interest at LIBOR for DM5,000 ($2.8
million at March 30, 1994) bearing interest at 6.33%. The net interest expense
recognized in connection with these agreements was $600 in 1994, $800 in 1993
and $800 in 1992.
Principal and/or interest amounts due under swap agreements are
presented in the financial statements on a net basis.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial
instruments as of December 31, 1994 is provided in accordance with the
requirements of Statement of Financial Accounting Standards No. 119. The
estimated fair values are based on methods appropriate to the circumstances:
<TABLE>
<CAPTION>
<C> <C>
Carrying Value Estimated Fair Value
-----------------------------------------------------------
1994 1993 1994 1993
-----------------------------------------------------------
Cash and cash equivalents $ 27,200 $5,200 $ 27,200 $5,200
Short- and long-term debt 57,800 32,300 56,200 32,600
Forward exchange contracts (400) 800
-----------------------------------------------------------
</TABLE>
Methods used to estimate the fair market values of the above listed financial
instrument are as follows: cash and cash equivalents are estimated at carrying
values that approximate market, due to the short-maturity of cash equivalents.
Debt is estimated based on current market quotes for instruments of similar
maturity. Interest rate swaps (see preceding Debt
<PAGE>
Note) and forward exchange rate contracts are valued at published market prices,
market prices of comparable instruments or quotes.
Forward exchange contracts are used only to hedge raw material purchase
commitments and foreign-currency-denominated loans. At December 31, 1994, the
Company had a total of $14,200 of forward exchange rate contracts. Forward
exchange contracts totalling $4,600 relate to raw material purchases mainly in
German deutsche marks; these contracts expired monthly through June 1995.
Gains/losses on contracts used to hedge raw material purchases are deferred and
will adjust the cost of such inventory. A forward contract to cover a deutsche
mark denominated loan totalling $9.6 million expired early in 1995 when the loan
was paid.
BENEFIT PLANS
PENSION PLANS: The Company and certain international subsidiaries sponsor
defined benefit pension plans. The United States plans cover substantially all
domestic employees and members of the Company's Board of Directors. The plans
call for benefits to be paid to eligible participants at retirement based on
compensation rates near retirement and/or on length of service. Contributions to
the United States employee plans reflect investment performance of plan assets,
benefits attributed to employees' service to date and service expected in the
future. Assets of the United States employee plans and one international
subsidiary plan consist primarily of common and preferred stocks,
investment-grade corporate bonds, guaranteed insurance contracts and United
States government obligations; other international subsidiary plans and the plan
for directors are not funded.
Total pension expense for 1994, 1993 and 1992 includes the following:
<TABLE>
<CAPTION>
<C> <C> <C>
1994 1993 1992
------------------------------------------------
Service cost $ 2,900 $ 2,600 $ 2,400
Interest cost 6,200 5,900 5,500
Actual return on assets (500) (12,600) (6,400)
Net amortization and deferral (8,500) 4,500 (1,800)
------------------------------------------------
Pension expense (income) $ 100 $ 400 $ (300)
-----------------------------------------------
</TABLE>
The following sets forth the funded status of the employee pension plans and the
amounts included in the accompanying balance sheets at December 31, 1994 and
1993:
<TABLE>
<CAPTION>
United States Plans International Plans
------------------- -------------------
<C> <C> <C> <C>
1994 1993 1994 1993
-----------------------------------------------------------------
Vested benefit obligations
(VBO) $(58,700) $(66,300) $(2,900) $(2,300)
-----------------------------------------------------------------
Accumulated benefit
obligations (ABO) $(60,400) $(68,200) $(3,200) $(2,500)
-----------------------------------------------------------------
Projected benefit
obligations (PBO) $(72,200) $(84,200) $(3,300) $(2,500)
Plan assets at fair value 92,900 96,500 - -
-----------------------------------------------------------------
Assets in excess of (less
<PAGE>
than) PBO 20,700 12,300 (3,300) (2,500)
Unrecognized net gain (11,300) (5,700) - (600)
Unrecognized prior
service cost (300) 1,700 - 600
Unamortized transition asset (6,400) (7,200) - -
-----------------------------------------------------------------
Prepaid pension cost
(accrued liability)
included in the balance sheet $ 2,700 $ 1,100 $(3,300) $(2,500)
----------------------------------------------------------------
</TABLE>
Information with respect to the unfunded pension plan for the Company's
nonemployee directors is as follows:
<TABLE>
<CAPTION>
<C> <C>
1994 1993
------------ ------------
VBO $(700) $(800)
------------ ------------
ABO $(800) $(800)
------------ ------------
PBO $(900) $(900)
Unrecognized net gain 200 -
Unrecognized prior service
cost 200 300
------------ ------------
Balance sheet liability $(900) $(600)
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
United States Plans International Plans
--------------- ---------------
<C> <C> <C> <C>
1994 1993 1994 1993
--------------------------------------------------
Assumptions:
Discount rate 8.25% 7.0% 7.5% 7.5%
Rate of increase in
compensation 6.0% 5.75% 3.0% 3.0%
Directors' retainer
increase 5.5% 5.5% - -
Long-term rate of
return on assets 9.0% 9.0% - -
--------------------------------------------------
</TABLE>
OTHER RETIREMENT BENEFITS: The Company provides minimal life insurance benefits
for certain United States retirees and pays a portion of health care (medical
and dental) costs for retired United States salaried employees and their
dependents. Benefits for plan participants age 65 and older are coordinated with
Medicare. Retirees' contributions to the cost of such benefits may be adjusted
from time to time. The Company's obligation is unfunded.
Total expense recognized for 1994, 1993 and 1992 with respect to these
nonpension retirement benefits includes the following:
<TABLE>
<CAPTION>
<C> <C> <C>
1994 1993 1992
---------------------------------------------
Service Cost $ 500 $ 500 $ 500
Interest Cost 1,000 1,000 1,000
---------------------------------------------
$ 1,500 $ 1,500 $ 1,500
---------------------------------------------
</TABLE>
The following sets forth the accrued obligation included in the accompanying
balance sheets at December 31, 1994 and 1993 applicable to each employee group
for nonpension retirement benefits:
<TABLE>
<CAPTION>
<C> <C>
1994 1993
---------------------------
Retired employees $(4,600) $ (6,000)
Active employees--fully eligible (1,700) (2,100)
Active employees--
not fully eligible (5,400) (6,600)
---------------------------
Total (11,700) (14,700)
Unrecognized (gain) loss from
assumption changes (2,900) 1,000
---------------------------
Balance sheet liability $(14,600) $(13,700)
---------------------------
</TABLE>
The discount rates used were 8.25% for 1994 and 7% for 1993; the health care
cost trend was 14% in 1994 and 1993, decreasing to 5.5% by 2007. Increasing the
assumed trend rate for health care costs by one percentage point would result in
an accrued obligation of $12,200 at December 31, 1994 for these retirement
benefits and an increase of $100 in the related 1994 expense.
OTHER
The Company provides certain postemployment benefits for terminated and disabled
employees, including severance pay, disability-related benefits and health care
benefits. Statement of Financial Accounting Standards No. 112, Employer's
Accounting for Postemployment Benefits, requires these costs to be accrued over
the employee's active service period under certain circumstances or at the date
of the event triggering the benefit. The Company adopted this accounting
practice in 1993, and the impact was insignificant.
The Company also sponsors a defined contribution savings plan for
salaried and certain hourly United States employees. Company contributions are
equal to 50% of each participant's contribution up to 6% of their base
compensation. Total expense under the plan in 1994, 1993 and 1992 was $800, $800
and $600, respectively.
CAPITAL STOCK
Through December 31, 1994, the Company has acquired 1,113,900 shares of
its Common Stock under a repurchase program covering up to 1,600,000 shares
announced in 1989. Purchases (sales) of Common Stock held in treasury during
<PAGE>
the three years ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
<C> <C> <C>
1994 1993 1992
---------------------------------------------
Shares held at
beginning of year 929,700 1,103,900 950,200
Purchases, net,
at fair market value 11,200 9,400 163,700
Shares issued for acquisition (363,200) - -
Stock option exercises (196,600) (183,600) (10,000)
---------------------------------------------
Shares held at end of year 381,100 929,700 1,103,900
---------------------------------------------
</TABLE>
The Company's Shareholders Rights Plan entitles a shareholder to purchase 1/1000
of a share of a newly designated series of the Company's Preferred Stock at a
price of $75.00 with each Right. A Right becomes exercisable if a person or
group ("acquiror") acquires 15% or more of the Common Stock or commences a
tender offer that would result in the acquiror owning 18% or more of the Common
Stock. After the Rights become exercisable and in the event the Company is
involved in a merger or other business combination, sale of 50% or more of its
assets or earning power, or if an acquiror purchases 18% or more of the Common
Stock or engages in self-dealing transactions, a Right will entitle its holder
to purchase common stock of the surviving company having a market value twice
the exercise price of the Right. The Rights may be redeemed by the Company at
$.001 per Right at any time before certain events occur. Two Rights are attached
to each share of Common Stock, and such rights will not trade separately unless
they become exercisable. All Rights expire on January 15, 2000.
In 1990, 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. An employee's purchases are limited
annually to 10% of base compensation. The original offer expired on December 31,
1991, but was extended to December 31, 1995. Shares are purchased in the open
market, or Treasury shares are used.
STOCK OPTION AND AWARD PLANS
The Company has a long-term incentive plan for officers and key management
employees of the Company and its subsidiaries that provides for the grant
through March 8, 1998 of stock options, stock appreciation rights, restricted
stock awards and performance awards. A maximum of 2,125,000 shares of Common
Stock or stock equivalents are available for issue under this plan of which
568,600 shares are available at December 31, 1994 for future grant. 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, no stock options or stock
appreciation rights can be exercised during the six months immediately following
the date of grant and all stock options and stock appreciation rights must
expire no later than 10 years after the date of grant. All outstanding stock
option grants expire five years from date of grant.
Option activity under this plan during the three years ended December
31, 1994 is summarized below:
<TABLE>
<CAPTION>
<C> <C> <C>
1994 1993 1992
------------------------------------------------
Options outstanding, January 1 737,600 735,900 859,600
Granted 197,400 187,900 177,900
Exercised ($13.25 to $24.94
per share) (193,600) (181,700) (290,600)
Forfeited (15,000) (4,500) (11,000)
------------------------------------------------
Options outstanding, December 31 726,400 737,600 735,900
------------------------------------------------
Average option price $19.62 $17.95 $17.02
------------------------------------------------
</TABLE>
Under the Company's management incentive plan, participants are paid cash
bonuses on the attainment of certain financial goals. The bonuses awarded
totaled $2,100 in 1994, $2,000 in 1993 and $1,800 in 1992. In 1993, bonus
participants were offered the opportunity to purchase Common Stock with up to
25% of their cash bonus award. Beginning in 1994, 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 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. In 1994 and 1993, restricted
stock awards for 3,000 shares and 1,900 shares, respectively, were granted, and
in 1994, 500 shares were forfeited. Compensation expense is being recognized
over the vesting period based on the fair market value of Common Stock on the
award date: $24.94 per share in 1994 and $20.81 per share in 1993.
An executive stock compensation plan, which expired in 1989, provided
for the granting to key employees of shares without payment to the Company or
incentive stock options. Grants were at the discretion of a committee of the
Board of Directors, subject to certain conditions as to exercise price and time
period. Option activity under this plan for the year ended December 31, 1992 is
summarized below:
<TABLE>
<CAPTION>
<S> <C> <C>
1992
--------------------
Options outstanding, January 1 68,200
Exercised ($14.00 to $19.25 per share) (64,800)
Forfeited (3,400)
--------------------
Options outstanding, December 31 -
--------------------
</TABLE>
A nonqualified stock option plan for nonemployee directors was approved in 1992.
The plan provides for the annual granting to each eligible director of options
covering 1,500 shares at an option price equal to 100% of the fair market value
of the Company's Common Stock on the date of grant. Common Stock issued pursuant
to the plan may not exceed 100,000 shares. Option activity under this plan
during the three years ended December 31, 1994 is summarized below:
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C>
1994 1993 1992
----------------------------------------------
Options outstanding, January 1 27,000 15,000 --
Granted 16,500 15,000 15,000
Exercised ($20.625) (3,000) -- --
Forfeited (4,500) (3,000) --
----------------------------------------------
Options outstanding, December 31 36,000 27,000 15,000
----------------------------------------------
Average option price $22.72 $21.875 $20.625
----------------------------------------------
</TABLE>
COMMITMENTS AND CONTINGENCIES
At December 31, 1994, the Company was obligated under various operating lease
agreements with terms ranging from one month to 20 years. Rental expense in
1994, 1993 and 1992 was $5,000, $4,000 and $2,300, respectively. Minimum rentals
for noncancelable operating leases with initial or remaining terms in excess of
one year are: 1995--$5,100; 1996--$4,700; 1997--$4,300; 1998--$4,000;
1999--$3,800 and thereafter $55,000.
At December 31, 1994, outstanding contractual commitments for the
purchase of equipment and raw materials amounted to $13,300, all of which is
due to be paid in 1995.
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 $1,700 at
December 31, 1994 is sufficient to cover the future costs of these remedial
actions, which will be carried out over the next two to three years. The Company
has not anticipated any possible recovery from insurance or other sources.
The Company guarantees 40% of the debt of Schott West Pharmaceutical
Glass Company under a $5,000 line of credit, of which $4,400 was outstanding
at December 31, 1994.
INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREA
The West Company and its affiliated companies operate in one industry segment.
The Company develops, manufactures and markets stoppers, closures, containers,
medical device components and assemblies made from elastomers, metal, plastic
and glass for the health care and consumer products markets. The Company also
manufactures related packaging machinery. Total sales include sales to one
customer of approximately $40,200, $41,900 and $38,800 in 1994, 1993 and 1992,
respectively. Operating information and identifiable assets by geographic area
of manufacture are shown below:
<TABLE>
<CAPTION>
<C> <C> <C>
1994 1993 1992
---------------------------------------- ------
Net sales:
United States $216,600 $207,500 $205,800
Europe 114,200 107,000 102,800
Other 34,300 34,200 29,600
-----------------------------------------------
Total $365,100 $348,700 $338,200
-----------------------------------------------
Income from consolidated
<PAGE>
operations:
United States $ 16,400 $ 14,400 $ 12,800
Europe 5,500 3,700 3,600
Other 4,900 3,400 2,400
----------------------------------------------
$ 26,800 $ 21,500 $ 18,800
----------------------------------------------
Equity in net income (loss) of affiliated companies:
United States $ 200 $ - $ (500)
Other 300 1,000 1,400
----------------------------------------------
$ 500 $ 1,000 $ 900
----------------------------------------------
Income before cumulative effect
of change in accounting method $ 27,300 $ 22,500 $ 19,700
-----------------------------------------------
Identifiable assets:
United States $ 179,000 $156,900 $147,800
Europe 151,000 97,600 106,200
Other 45,500 36,900 34,400
-----------------------------------------------
$ 375,500 $291,400 $288,400
-----------------------------------------------
Investments in affiliated companies:
United States $ 3,300 $ 2,800 $ 2,800
Europe 2,700 - -
Other 15,900 15,000 13,200
-----------------------------------------------
$ 21,900 $ 17,800 $ 16,000
-----------------------------------------------
Total assets $ 397,400 $309,200 $304,400
-----------------------------------------------
</TABLE>
<PAGE>
QUARTERLY OPERATING AND PER SHARE DATA (UNAUDITED)
THE WEST COMPANY, INCORPORATED AND SUBSIDIARIES
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1994 Three Months Ended 1993 Three Months Ended
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Oct. 3 July 4 April 4
----------------------------------------------------------------------------
Net sales 99,100 87,400 91,500 87,100 92,800 81,900 87,100 86,900
Gross profit 32,000 25,400 29,800 28,900 29,500 24,100 26,900 24,100
Income before change
accounting method 7,200 5,600 7,500 7,000 5,900 4,800 6,200 5,600
Net income 7,200 5,600 7,500 7,000 5,900 4,800 6,200 6,600
Net income before change in
accounting method per share .44 .35 .47 .44 .37 .30 .39 .36
Net income per share .44 .35 .47 .44 .37 .30 .39 .42
Dividends paid per share .12 .11 .11 .11 .11 .10 .10 .10
Common Stock price:
High 29 1/8 25 3/4 24 3/4 25 3/4 24 7/8 25 1/4 23 1/2 24 3/8
Low 25 1/2 21 5/8 21 1/4 23 3/4 23 1/2 23 1/4 22 3/8 19 7/8
----------------------------------------------------------------------------
First quarter 1993 results include gains on sale of real estate amounting to
$.04 per share.
Fourth quarter 1993 results include the full-year effect of a change in the
life of certain operating assets, which increased net income by $.06 per
share, and four months operating results for international subsidiaries.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF THE WEST COMPANY,
INCORPORATED:
We have audited the accompanying consolidated balance sheets of The West
Company, Incorporated and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1994. 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 in accordance with generally accepted
auditing standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The West Company, Incorporated and Subsidiaries as of December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
As discussed in the summary of Significant Accounting Policies
Note to the Consolidated Financial Statements, the Company changed its method of
accounting for income taxes in 1993.
Coopers and Lybrand, L.L.P.
600 Lee Road
Wayne, Pennsylvania
February 24, 1995
<PAGE>
TEN YEAR SUMMARY
THE WEST COMPANY, INCORPORATED AND SUBSIDIARIES
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
-----------------------------------------------
SUMMARY OF OPERATIONS
Net sales $ 365,100 348,700 338,200
Operating profit (loss) $ 45,400 40,600 38,700
Income (loss) before income taxes and minority interests $ 42,100 37,500 34,800
Provision for income taxes 13,400 14,300 14,300
Minority interests 1,900 1,700 1,700
-----------------------------------------------
Income (loss) from consolidated operations 26,800 21,500 18,800
Equity in net income of affiliated companies 500 1,000 900
-----------------------------------------------
Income (loss) before change in accounting method $ 27,300 22,500 19,700
-----------------------------------------------
Income (loss) before change in accounting method per share (a)(b) $ 1.70 1.42 1.26
Average shares outstanding (b) 16,054 15,838 15,641
Dividends paid per common share (b) $ .45 .41 .40
-----------------------------------------------
Research, development and engineering expenses $ 12,000 11,400 11,100
Capital expenditures $ 27,100 33,500 22,400
-----------------------------------------------
YEAR-END FINANCIAL POSITION
Working capital $ 50,400 46,400 37,700
Total assets 397,400 309,200 304,400
Total invested capital:
Total debt 57,800 32,300 42,000
Minority interests 1,900 10,900 10,100
Shareholders' equity 227,300 188,100 168,600
-----------------------------------------------
Total $ 287,000 231,300 220,700
-----------------------------------------------
PERFORMANCE MEASUREMENTS
Gross margin (c) % 31.8 30.0 28.6
Operating profitability (d) % 12.4 11.7 11.5
Tax rate % 31.8 38.2 41.1
Asset turnover ratio (e) 1.04 1.11 1.10
Return on average shareholders' equity % 13.2 13.2 12.3
Total debt as % of total invested capital % 20.1 14.0 19.1
-----------------------------------------------
Shareholders' equity per share $ 13.81 11.82 10.71
Stock price range (b) 29 1/8-21 1/4 25 1/4-19 7/8 24 1/8-16 3/4
-----------------------------------------------
</TABLE>
(a) Based on average shares outstanding.
(b) Adjusted for 2-for-1 stock split effective May 18, 1987.
(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.
1994 includes for the first time the results of two affiliates in which majority
ownership was acquired in 1994.
1993 includes 13 months of operating results in 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.
1990 includes a restructuring charge that reduced operating results by $.45
per share, and 1990 included for the first time the results of two companies in
which controlling ownership was acquired in 1989.
1988 included for the first time the results of an affiliate in which majority
ownership was acquired in 1988.
1986 included for the first time the results of five affiliates in which
majority ownership was acquired in 1986.
<PAGE>
TEN YEAR SUMMARY
THE WEST COMPANY, INCORPORATED AND SUBSIDIARIES
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1990 1989 1988 1987 1986 1985
-------------------------------------------------------------------------------------------------------
329,600 323,200 308,700 285,400 253,300 235,600 190,100
(1,600) 15,600 38,700 30,100 25,600 31,300 24,700
(7,700) 9,600 34,400 26,100 22,100 29,400 23,400
4,700 6,400 13,200 10,100 9,500 13,200 10,400
(2,400) 300 2,100 1,400 1,000 900 100
-------------------------------------------------------------------------------------------------------
(10,000) 2,900 19,100 14,600 11,600 15,300 12,900
1,500 1,400 1,600 2,800 2,100 1,700 2,100
-------------------------------------------------------------------------------------------------------
(8,500) 4,300 20,700 17,400 13,700 17,000 15,000
-------------------------------------------------------------------------------------------------------
(.55) .27 1.28 1.07 .85 1.06 .95
15,527 15,793 16,235 16,249 16,195 16,126 15,745
.40 .40 .31 .29 .27 .245 .225
-------------------------------------------------------------------------------------------------------
10,800 10,900 11,900 11,300 9,700 9,100 6,800
25,600 33,200 34,300 29,700 43,100 29,300 19,800
-------------------------------------------------------------------------------------------------------
26,500 36,500 50,400 53,000 45,200 36,200 40,300
313,200 343,500 313,000 298,900 280,100 238,200 179,200
58,400 78,500 58,100 55,200 60,500 44,300 30,400
8,400 11,700 9,100 10,600 6,200 5,500 500
152,600 176,100 179,700 171,400 155,800 138,900 119,500
-------------------------------------------------------------------------------------------------------
219,400 266,300 246,900 237,200 222,500 188,700 150,400
-------------------------------------------------------------------------------------------------------
25.4 24.4 26.5 25.0 25.3 26.5 26.8
(.5) 4.8 12.5 10.5 10.1 13.3 13.0
61.7 66.5 38.5 38.6 42.9 45.0 44.5
1.00 .98 1.01 .99 .98 1.13 1.13
(8.9) 2.4 11.8 10.6 9.3 13.2 13.3
26.6 29.5 23.5 23.3 27.2 23.5 20.2
-------------------------------------------------------------------------------------------------------
9.81 11.37 11.15 10.53 9.61 8.61 7.54
18 3/4-11 1/8 20-10 1/2 22 5/8-14 7/8 17 1/2-12 1/4 22 1/8-12 1/2 17 1/8-12 1/4 13 5/8-8 3/4
-------------------------------------------------------------------------------------------------------
</TABLE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
<TABLE>
<S> <C>
George W. Ebright Mr. Ebright, 57, has been a director since 1992. He is a director and the former
Chairman of the Board and Chief Executive Officer of Cytogen Corp., a
biotechnology pharmaceutical company. Mr. Ebright is a director of Univax
Biologics, Inc. and Arrow International Incorporated.
L. Robert Johnson Mr. Johnson, 53, has been a director since 1989. He is Managing General
Partner of Founders Capital Partners, L.P., a venture capital partnership. Mr.
Johnson currently serves as a director of Axint Technologies Corp., RSVP
Information Inc., Agris Corporation, Digital Delivery Inc. and Symbiotics Inc.
John P. Neafsey Mr. Neafsey, 55, has been a director since 1987. He is President of JN
Associates, an investment consulting firm. Previously, Mr. Neafsey was President
and Chief Executive Officer of Greenwich Capital Markets, Inc., an investment
banking firm. He is an advisory director of The Beacon Group of New York
and a director of the Management Policy Council, Provident Mutual Life
Insurance Company of Philadelphia and the American Council for Capital
Formation.
Hans Wimmer Mr. Wimmer, 65, has been a director
since 1979. Prior to his retirement in November
1994, he was President of Pharma-Gummi Wimmer
West GmbH. Mr. Wimmer is also a director of
Vetter Pharma, DIN Berlin/German Medical
Standard Organization and Verien zur Normung im
Bereich der Medizin.
Geoffrey F. Worden Mr. Worden, 55, has been a director since 1993. He has been President of
South Street Capital, Inc., an investment company, since 1992. Previously, Mr.
Worden was a Managing Director of Kidder, Peabody & Co., Incorporated.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Tenley E. Albright, M.D. Dr. Albright, 59, has been a director since 1993. She is a physician and surgeon,
Chairman of Western Resources, Inc. and member of the Corporation of the
New England Baptist Hospital and Woods Hole Oceanographic Institution.
From 1989 through 1993 Dr. Albright was Founder, President, then Chairman
of the Institute for Clinical Applications/Vital Sciences Inc., a clinical diagnostic
research laboratory. She is also a director of State Street Bank and Trust
Company, State Street Boston Corporation and Whitehead Institute for
Biomedical Research.
Walter F. Raab Mr. Raab, 70, has been a director since 1973. Prior to his retirement in 1990,
he was Chairman and Chief Executive Officer of AMP Incorporated, producers
of electrical/electronic connection devices, where he continues to serve as a
director. Mr. Raab is also a director of Dauphin Deposit Corporation, Harris
Corporation and Holy Spirit Hospital.
William S. West Mr. West, 67, has been a director since 1958 and Chairman of the Board since
July 1985. Previously, he served as the Company's President and Chief
Executive Officer.
J. Roffe Wike, II Mr. Wike, 68, has been a director since 1962. Prior to his retirement in January
1994, Mr. Wike was Senior Partner and a director of Cooke & Bieler,
investment counselors.
Victor E. Ziegler Mr. Ziegler, 64, has been a director since 1991 and
Executive Vice President since 1992. He was Division
President, Health Care from 1991 to 1992 and Group President,
Manufacturing prior to 1991.
</TABLE>
<TABLE>
<S> <C>
William J. Avery Mr. Avery, 54, has been a director since 1992. He is Chairman of the Board,
President and Chief Executive Officer of Crown Cork & Seal Company, Inc.,
manufacturer of cans, crowns and machinery. He is also a director of Can
Manufacturers Institute, the Connelly Foundation, Pennsylvania Chamber of
Business & Industry and the YMCA.
George J. Hauptfuhrer, Jr. Mr. Hauptfuhrer, 68, has been a director since 1973. He is Of Counsel of
Dechert Price & Rhoads, a law firm where he was a partner, Chairman and
Chief Executive Officer until his retirement in 1990.
William G. Little Mr. Little, 52, has been a director, President and
Chief Executive Officer since 1991. He was Division President
of Kendall Inc., a medical device manufacturer, from 1990 to
1991 and Group Vice President and Division President of C.R.
Bard, Inc., a medical device manufacturer, from 1975 to 1990.
He is a director of Paoli Memorial Hospital and Fox Chase
Cancer Center.
Monroe E. Trout, M.D. Dr. Trout, 63, has been a director since 1991. Dr. Trout is Chairman Emeritus
of American Healthcare Systems, a network of integrated healthcare systems,
where he served as Chairman of the Board, President and Chief Executive
Officer until his retirement in January 1995. Dr. Trout is a director of Gensia
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Inc., Science Applications International
Corporation (SAIC), Baxter International Inc.,
Cytyc Corporation and the University of
California San Diego Foundation.
</TABLE>
Information about executive officers of the Company is set forth in
Item 4(a) of the report.
Steven A. Ellers, the Company's Vice President, Operations, filed an
initial report of ownership of Common Stock pursuant to Section 16 of the
Securities Exchange Act of 1934, and regulations thereunder, 11 days following
the due date. J. Roffe Wike, II, a director of the Company, reported in October
1994 a transaction by his daughter that was attributable to him under Commission
regulations which should have been reported in August 1994.
<PAGE>
Item 11. Executive Compensation.
-----------------------
REPORT OF THE BOARD COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Compensation Philosophy -- The Company's executive compensation philosophy
is designed to further the following four objectives: (1) link shareholder and
management interests; (2) reward management for producing superior corporate
results relative to comparable companies; (3) recognize individual performance;
and (4) assist the Company in attracting and retaining key executives of the
highest calibre.
These four principles are implemented through an executive compensation
program that includes base salary, annual incentive bonus awards and long-term
incentives in the form of non-qualified stock options. Base salaries are set to
approximate the 50th percentile level of comparable positions, while total
compensation (salary, bonus and stock options) is targeted to parallel the
Company's competitive performance. The Company has a target financial
performance objective of top quartile results, and thus, total compensation is
generally targeted at the 75th percentile of comparable positions, subject to
meeting corporate and individual performance goals.
To further the goal of aligning management and shareholder interests, as
well as providing executives an opportunity and incentive to realize long-term
appreciation of assets, the Compensation Committee has established guidelines
that call for executives to own, within five to seven years of attaining their
respective positions, an amount of Common Stock with a market value equal to:
five times base salary for the Chief Executive Officer; three times base salary
for executive vice presidents; and two times base salary for other senior
executives. Although the share ownership guidelines are not mandatory, the
Committee reviews annually each executive's progress toward meeting his or her
share ownership goal. The Committee has no set policy on failure to meet the
guidelines.
Principal Compensation Elements -- The Compensation Committee, which is
composed entirely of independent directors, annually determines the targeted
compensation for each of the Company's executive officers. In setting base
salaries, annual incentive bonus awards and stock-option grants, the Committee
relies primarily on compensation data from outside surveys of companies in
general industry with comparable annual revenues and employee base. The
Committee also takes into consideration recommendations of the President and
Chief Executive Officer with regard to the performance and relative experience
of the individual involved.
Bonus awards are made under the Company's Management Incentive Bonus Plan
(the "Bonus Plan"). These awards are contingent principally (75%) upon the
Company attaining a pre-specified level of financial performance with additional
weight (25%) given to achievement of individual objectives. Individual
objectives focus on such factors as new product development, new business
initiatives, productivity and quality improvements and are designed to correlate
to the Company's overall strategic objectives for the year. Mr. Little's
individual objectives are approved by the Committee, and objectives for each
other executive officer are approved by that individual's direct supervisor.
Annual-incentive bonus ranges are established for each job position. For
1994, the bonus target for the President and Chief Executive Officer was 75% of
base salary. For other executive officers, the bonus targets range from 40% to
65% of base salary. Executives may receive a maximum of 150% of their target
bonus if corporate financial performance meets or exceeds the target by 125%. No
awards are granted if actual corporate performance is less than 90% of target.
In support of the goal of linking shareholder and management interests,
one-fourth of a Bonus Plan participant's after-tax annual bonus is paid in the
form of Common Stock. Each participant also receives a number of additional
restricted shares equal to 25% of the number of bonus shares
<PAGE>
received. The restricted shares are forfeited if the bonus shares are
transferred within four years of the date of grant.
<PAGE>
The Company's long-term incentive program is designed to reward management
for consistent improvement of shareholder value, primarily through the use of
non-qualified stock options. Stock options are viewed as an excellent method of
linking management interests with those of shareholders because the value of a
stock option is created by increases in the market value of the Common Stock, an
important indicator of shareholder value. Under the Committee's stock-option
award program, a fixed number of shares are granted each year in amounts
estimated to produce competitive long-term compensation when compared to general
industry. Stock option values are determined using the Black-Scholes valuation
method. Although there is no direct relationship between the size of option
awards and the Company's share-ownership guidelines, stock options are
considered the primary vehicle to assist executives in meeting these guidelines.
Establishing Financial Performance Goals -- The Board of Directors
annually establishes the corporate financial performance target under the Bonus
Plan for the following year as part of the overall budget approval process with
the advice and concurrence of the Committee. In providing this advice, the
Committee reviews comparative financial-performance data of a self-selected peer
group of 12 companies (the "Peer Group") and of the Standard & Poor's 400 index.
The guidelines used for selecting the Peer Group companies were both
quantitative and qualitative in nature and included such factors as nature of
business, revenues, employee base, technology base, market share, customer type
and customer relationship. The Peer Group is the same group used in the
shareholder-return performance chart on page 15. Return-on-equity (ROE) was used
as the financial-performance measurement for 1994. In November 1993, the
Committee reviewed data compiled by an independent compensation consultant that
indicated the Company's ROE performance equalled the Peer Group's actual 75th
percentile performance, while being somewhat below that of the S&P 400. Based on
this information, the Committee believes that the 1994 annual-incentive ROE
target set by the Board was consistent with the Company's goal of matching
executive pay with corporate performance.
1994 Compensation -- For 1994, William G. Little, the Company's President
and Chief Executive Officer, received a base salary of $363,684, an increase of
5.9% from the prior year. The Committee set Mr. Little's 1994 salary based upon
compensation survey data that indicated this salary to be at the median level of
chief executive officer positions of companies of comparable size in general
industry. In setting this base salary, the Committee also considered the
continued improvement in the Company's financial performance and the fact that
Mr. Little met or exceeded each of his individual objectives for the prior year,
including the Company's 1993 financial performance target. Each of the other
named executive officers received salary adjustments to bring his base salary in
line with median market practice as evidenced by executives with similar
responsibilities in companies of comparable size in general industry.
Annual incentive awards for each of the named executive officers,
including Mr. Little, reflect the Company's attainment of the predetermined ROE
target and the level of achievement of individual goals by each executive
officer. The Company's actual 1994 ROE was 92% of the performance target.
Accordingly, the Committee authorized a bonus award of $256,327 for Mr. Little
for 1994. In accordance with the terms of the Bonus Plan, Mr. Little received a
portion of his bonus in the form of 1,832 bonus shares and was granted 458
restricted shares of Common Stock.
At the time of his hiring in 1991, Mr. Little was granted a non-qualified
stock option for 150,000 shares that vests over a four-year period. The
Committee considered comparable compensation data and competitive market factors
in determining the terms of Mr. Little's stock option. During 1994, each of the
Company's other executive officers received an additional grant of stock options
consistent with the Committee's stock-option award program described above.
<PAGE>
The foregoing discussion does not apply to Mr. Wimmer whose 1994
compensation was determined by the terms of management contracts with various
European subsidiaries and by a separate agreement under which he received an
annual bonus based on European Division profits. Mr. Wimmer retired from his
position in November 1994.
John P. Neafsey, Chairman
George Hauptfuhrer, Jr.
Monroe E. Trout
Compensation of Named Executives
General
The following table sets forth, for 1992, 1993 and 1994, compensation
provided by the Company to each of the named executives in all capacities in
which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
Other
Annual Restricted Securities All Other
Compensa- Stock Underlying Compensa-
Name & Principal Position Year Salary Bonus tion Award(s) Options ation
($)(A) ($)(A) ($) ($)(B) (#) ($)(C)
<S> <C> <C> <C> <C> <C> <C> <C>
William G. Little 1994 363,684 256,327 4,329 11,624 0 8,904
President and Chief 1993 343,176 259,189 4,329 10,774 0 9,136
Executive Officer 1992 331,828 250,000 3,164 10,375 0 4,900
Victor E. Ziegler 1994 219,628 104,691 4,095 4,695 12,000 6,583
Executive Vice 1993 212,271 107,379 4,095 4,389 12,000 6,362
President 1992 206,992 100,754 2,993 0 12,000 4,914
J. E. Dorsey(D) 1994 221,081 138,589 3,674 6,244 8,000 6,630
Executive Vice 1993 191,880 105,796 3,674 4,315 8,000 3,105
President and 1992 125,864 61,500 2,402 2,760 6,000 0
Chief Operating
Officer
Raymond J. Land 1994 189,343 90,291 3,674 4,010 8,000 5,677
Senior Vice President, 1993 180,874 92,605 3,674 3,741 8,000 4,497
Finance and 1992 172,221 88,193 2,685 0 8,000 842
Administration
Ulf C. Tychsen(D) 1994 203,261 87,211 9,202 3,020 8,000 0
Group Vice President, 1993 194,649 86,339 6,344 3,940 8,000 0
Europe & Asia Pacific 1992 -- -- -- -- -- --
Hans Wimmer(D) 1994 185,637 433,697 9,485 0 0 0
Former President, 1993 214,753 510,370 8,865 0 0 0
Pharma-Gummi Wimmer 1992 196,803 494,000 -- 0 0 0
West GmbH
</TABLE>
- -----------------
(A) Amounts shown reflect salary and bonuses earned by the named executives
for the applicable fiscal year and include the value of any restricted and
unrestricted shares awarded under the Company's Management Incentive Bonus
Plan. Bonuses are paid in the fiscal year following the fiscal year for
which they are
<PAGE>
earned. Mr. Tychsen's 1994 and 1993 compensation was paid in Deutsche
Marks, as follows: Salary DM 329,282 and DM 321,171, respectively; and
bonus DM 141,282 and DM 142,459, respectively. Mr. Wimmer's 1994, 1993 and
1992 compensation also was paid in Deutsche Marks, as follows: Salary DM
300,732, DM 354,342 and DM 307,012, respectively; and bonus DM 702,590, DM
842,110 and DM 770,640, respectively. The U.S. dollar figures shown are
based on average exchange rates of 1.62, 1.65 and 1.56 for 1994, 1993 and
1992, respectively.
(B) Restricted stock awards are made in the fiscal year following the fiscal
year for which they are earned. Restricted stock awards vest four years
from the grant date. Values are determined by multiplying the number of
shares awarded by the closing market price of the Common Stock on the
grant date, which was $20.75 for 1992 awards, $24.94 for 1993 awards and
$25.38 for 1994 awards. Dividends are paid and reinvested on restricted
shares.
The following table contains information relating to the outstanding
holdings of restricted stock of the named executives at December 31, 1994.
The table does not include restricted stock granted in 1995 with respect
to 1994 service. Values are determined by multiplying the number of shares
by $27.50, the December 30, 1994 closing price for the Company's Common
Stock.
<TABLE>
<CAPTION>
Current
Number of Market
Restricted Value of
Name Shares Held Restricted
Shares Held
<S> <C> <C>
William G. Little.......................... 932 $25,630
Victor E. Ziegler.......................... 176 4,840
J. E. Dorsey............................... 306 8,415
Raymond J. Land............................ 150 4,125
Ulf C. Tychsen............................. 158 4,345
Hans Wimmer................................ 0 --
</TABLE>
(C) Includes for 1994, 1993 and 1992: (i) term life insurance premiums paid by
the Company for Mr. Little--$648, $648 and $536, respectively; and (ii)
Company contributions under the Savings Plan for Mr. Little--$8,256,
$8,488 and $4,364, respectively, Mr. Ziegler--$6,583, $6,362, and $4,914,
respectively, Mr. Dorsey--$6,630, $3,105 and $0, respectively, and Mr.
Land--$5,677, $4,497 and $842, respectively.
(D) Information is provided only for fiscal years during which the individual
served as an executive officer. Mr. Tychsen first became an executive
officer of the Company in 1993. Mr. Dorsey commenced his employment with
the Company on April 21, 1992. Although Mr. Wimmer had been President of
Pharma-Gummi Wimmer West GmbH, one of the Company's European subsidiaries,
for many years, he first became an executive officer of the Company in
1992. Mr. Wimmer retired in November 1994.
<PAGE>
Stock Options
The following table provides information concerning the grant of stock
options in 1994 under the Company's Long-Term Incentive Plan.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
Individual Grants
- ------------------------------------------------------------------------------------------------------
Number of
Securities % of
Underlying Total Grant
Options Options Date
Granted to Granted to Exercise Present
Employees Employees Price(B) Expiration Value(C)
Name in 1994(A) in 1994 ($/Sh) Date ($)
- ---- ----------- -------- ------- ----- ---
<S> <C> <C> <C> <C> <C>
William G. Little 0 -- -- -- --
Victor E. Ziegler 12,000 6.1% 24.94 3/1/99 79,920
J. E. Dorsey 8,000 4.1% 24.94 3/1/99 53,280
Raymond J. Land 8,000 4.1% 24.94 3/1/99 53,280
Ulf C. Tychsen 8,000 4.1% 24.94 3/1/99 53,280
Hans Wimmer 0 -- -- -- --
</TABLE>
- --------------
(A) Option grants are for a five-year term and first became exercisable six
months after the date of grant.
(B) The exercise price of $24.94 represents the average of the highest and
lowest reported sale price on March 1, 1994 (the date of grant). The
exercise price (and any applicable withholding taxes) may be paid in cash,
shares of Common Stock valued at fair market value on the date of exercise
or pursuant to a cashless exercise procedure under which the optionee
provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes.
(C) The estimated value has been determined by application of the
Black-Scholes option-pricing model, based upon the terms of the option
grant and the Company's stock price performance history as of the date of
grant (March 1, 1994). The key assumptions set forth below used in the
valuation are based upon historical experience, and are not a forecast of
future stock-price performance or volatility or of future dividend policy.
No adjustments have been made for forfeitures or non-transferability.
Dividend Yield: 1.8%
Volatility: .277
Risk-Free Rate of Return: 6.28%
Expected Exercise Period: 5 Years
1994 Stock Option Exercises
The following table provides information relating to the exercise of stock
options by the named executives in 1994, as well as the number and value of
their unexercised options as of December 31, 1994.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value Number of Shares Value of
Shares Realized Underlying Unexercised
Acquired (Market Value Unexercised In-the-Money
on Less Any Options Held at Options at
Name Exercise(#) Exercise Price)($) 12/31/94(#) 12/31/94($)(A)(B)
- -----------------------------------------------------------------------------------------------------------------------------------
Not Not
Exercisable Exercisable Exercisable Exercisable
<S> <C> <C> <C> <C> <C> <C>
William G. Little 0 -- 115,000 30,000 1,423,125 371,250
Victor E. Ziegler 12,000 41,250 53,889 0 418,020 --
J. E. Dorsey 0 -- 22,000 0 120,880 --
Raymond J. Land 0 -- 24,000 0 142,500 --
Ulf C. Tychsen 0 -- 24,000 0 142,500 --
Hans Wimmer 0 -- 0 0 -- --
</TABLE>
- ---------------
(A) The value of unexercised options represents the difference between the
closing price of the Company's Common Stock on December 30, 1994 ($27.50)
and the exercise price of each unexercised option held by the named
executives.
(B) All option grants to the named executives other than Mr. Little are for a
five-year term and first became exercisable six months after the date of
grant. Mr. Little was granted an option in 1991, which vests over a
four-year period.
Retirement Plan
The Company's Salaried Employees' Retirement Plan (the "Retirement Plan")
is a non-contributory defined benefit plan. It provides for normal retirement at
age 65 and permits early retirement in certain cases. Benefits are based upon
years of service and compensation (including salary, bonuses and stock award
distributions ("Covered Compensation")) for the five consecutive calendar years
within the ten years prior to retirement during which the compensation was the
highest.
The Internal Revenue Code limits the maximum annual benefit which may be
paid to any individual from the Retirement Plan's trust fund and the amount of
compensation that may be recognized. Under the Company's Supplemental Employees'
Retirement Plan (the "Supplemental Plan"), the Company will make supplemental,
unfunded payments to offset any reductions in benefits that may result from such
limitations.
The following table shows the estimated annual retirement benefits payable
(before reduction by the offset for Social Security payments) under the
Retirement Plan and the Supplemental Plan at normal retirement date to all
eligible employees, including the named executives, in specified remuneration
and years of service classifications.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------------------------------------------
Five Year
Average
Compensation 15 20 25 30 35
------------ --- --- --- --- --
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 57,000 $ 76,000 $ 95,000 $ 100,000 $ 105,000
250,000 71,250 95,000 118,750 125,000 131,250
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
300,000 85,500 114,000 142,500 150,000 157,500
400,000 114,000 152,000 190,000 200,000 210,000
500,000 142,500 190,000 237,500 250,000 262,500
600,000 171,000 228,000 285,000 300,000 315,000
650,000 185,250 247,000 308,750 325,000 341,250
</TABLE>
Amounts shown are calculated on a straight-line annuity basis. Under the
Retirement Plan, credited years of service and Covered Compensation for 1994 are
19 years and $622,873 for Mr. Little, 34 years and $327,007 for Mr. Ziegler, 2
years and $326,877 for Mr. Dorsey, and 3 years and $281,948 for Mr. Land.
Employment and Other Agreements
The Company has entered into an employment agreement with Mr. Little under
which he serves as President and Chief Executive Officer of the Company for a
base annual salary determined in accordance with Company compensation review
policies. Mr. Little also is entitled to participate in the Company's annual and
long-term incentive plans. The employment term may be ended by the Company upon
two years' notice of termination but may be terminated earlier by the Company
for cause, or due to disability or death.
Mr. Wimmer, who retired in November 1994, is entitled to receive an annual
pension in the amount of DM 360,000 ($222,222 at an average 1994 exchange rate
of 1.62).
The Company has entered into agreements with each of the named executive
officers other than Messrs. Wimmer and Tychsen, which provide for benefits in
the event of employment termination following a change in control of the
Company. These agreements are designed to assist the Company in attracting and
retaining highly qualified executives and to help ensure that if the Company is
faced with an unsolicited tender offer proposal, its executives will continue to
manage the Company without being unduly distracted by the uncertainties of their
personal affairs and thereby will be better able to assist in evaluating such a
proposal in an objective manner.
Each executive is entitled to receive severance compensation under his
agreement if, within two years following a change in control of the Company, he
resigns following a constructive termination of his employment or his employment
is terminated by the Company other than by reason of death, disability, willful
misconduct, or normal retirement. Such severance compensation includes the
immediate vesting of the executive's interest, if any, in the Company's employee
benefit plans, continuing salary and bonus payments at the level prior to
termination and continuation of certain health and welfare benefits for up to
three years following such termination. A "change in control" is defined
generally as a change in a majority of the Company's Board of Directors or
purchase of more than 51% of the Company's stock. Each agreement also provides
that during the term of the executive's employment with the Company and for a
period of one year thereafter, whether or not a change in control of the Company
occurs, the executive will neither be employed by any competitor of the Company
nor compete with the Company in any part of the United States (any market or
territory, in the case of Mr. Little). The payment of severance compensation is
not conditioned upon the executive seeking other employment nor is it subject to
reduction in the event the executive secures other employment consistent with
the agreement.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The following graph compares for fiscal years 1990 through 1994 the yearly
change in the cumulative total returns to holders of Common Stock with the
cumulative total return of the Standard & Poor's 400 Industrials-Limited Index
(the "S&P 400") and of a company-selected peer group. Cumulative
total-return-to-shareholders is measured by dividing total dividends (assuming
dividend reinvestment) plus per-share price change for the period by the share
price at the beginning of the period. The Company's cumulative shareholder
return is based
<PAGE>
on an investment of $100 on December 31, 1989 and is compared to the cumulative
total return of the S&P 400 and peer group over the period with a like amount
invested.
<PAGE>
The peer-group companies were selected by the Company based principally on
nature of business, revenues, employee base, technology base, market share,
customer type and customer relationship. The peer group was developed initially
as part of an assessment of the Company's executive compensation levels. The
peer group is composed of Amphenol Corporation, Andrew Corporation, Applied
Magnetics Corporation, Augat Inc., Beckman Instruments, Inc., C.R. Bard, Inc.,
CTS Corp., Millipore Corporation, Pall Corporation, The Perkin-Elmer
Corporation, Sealed Air Corporation and Thomas & Betts Corporation.
<TABLE>
<CAPTION>
West Company S&P 400 Peer Group
<S> <C> <C> <C>
12/89 100.00 100.00 100.00
12/90 66.58 99.11 98.18
12/91 103.40 129.59 142.54
12/92 127.13 136.98 156.78
12/93 140.75 149.35 166.04
12/94 160.63 155.05 185.34
</TABLE>
Compensation of Directors
Each director who is not employed by the Company or one of its
subsidiaries receives an annual retainer of $16,000 per year, plus attendance
fees of $1,000 for board meetings and $750 for committee meetings. The Chairman
of the Board receives an annual fee of $35,000. The chairman of each board
committee and the Chairman, Independent Directors each receive an annual fee of
$3,500. Directors may elect annually to defer all or any part of their
director's fees, which deferred amounts will be payable upon their termination
as a director.
Each non-employee director who has completed five years of service as a
director will be entitled to receive an annual retirement benefit, commencing at
age 60, of between 50% and 100% of his or her base annual retainer at the time
of retirement, depending on the length of service, for a maximum period of 15
years or until the director's earlier death. Non-employee directors are eligible
to receive annually an option to acquire 1,500 shares of Common Stock under the
Company's 1992 Non-Qualified Stock Option Plan for Non-Employee Directors. Each
option will expire five years from the date of grant.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------
The following table sets forth, as of March 20, 1995, certain
information concerning each person known to the Company to have been the
beneficial owner of more than 5% of the Common Stock. Except as indicated below,
the Company is informed that the beneficial owners have sole voting and sole
investment power over the shares shown opposite their names.
<TABLE>
<CAPTION>
Amount and Percent
Name and Address of Nature of Beneficial of
Beneficial Owner Ownership Class
<S> <C> <C>
Jean Wike Faust .................................................. 1,261,734(1) 7.6%
16 Fox Chase Road
Malvern, PA 19355
Mitchell Hutchins Institutional Investors Inc..................... 1,351,100(2) 8.2%
1285 Avenue of the Americas
New York, NY 10019
TriMark Investment Management Inc................................. 998,000 6.0%
One First Canadian Place, Suite 5600
P.O. Box 487
Toronto, Ontario M5X 1E5
Franklin H. West.................................................. 839,939(3) 5.1%
619 Broad Acres Road
Narberth, PA 19072
William S. West................................................... 1,274,956(3)(4) 7.7%
101 Gordon Drive
Lionville, PA 19341
J. Roffe Wike, II................................................. 1,741,554(1)(5) 10.5%
2125 Twinbrook Road
Berwyn, PA 19312
Wilmington Trust Company.......................................... 1,314,360(6) 8.0%
1100 North Market Street
Wilmington, DE 19890
</TABLE>
- ---------------
(1) Includes 226,000 shares held by a trust of which Mrs. Faust is the sole
beneficiary. J. Roffe Wike, II, the brother of Mrs. Faust, has sole
investment and voting power over such shares in his capacity as trustee.
Also includes 582,954 shares held by a trust as to which Mrs. Faust and
Mr. Wike share voting and investment power.
(2) Represents shared voting and investment power.
(3) Franklin H. West, William S. West and Fidelity Bank, N.A. share the
investment power over the same 746,264 shares which are held by two trusts
of which they are co-trustees. Does not include 134,785 shares owned by
Franklin West's wife and children, as to which he disclaims beneficial
ownership.
(4) Does not include 221,900 shares owned by Mr. West's wife, as to which he
disclaims beneficial ownership.
(5) Includes options to acquire 4,500 shares. Does not include 7,840 shares
owned by Mr. Wike's wife, as to which he disclaims beneficial ownership.
<PAGE>
(6) Includes (i) sole voting power with respect to 440,620 shares, (ii) shared
voting power with respect to 873,740 shares and shared investment power
with respect to 866,640 shares.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 20, 1995, information
concerning the beneficial ownership of Common Stock by each director and nominee
for director, each of the Company's executive officers named in the Summary
Compensation Table on page 10 of this proxy statement and all directors and
executive officers as a group. No director or officer owns more than 1% of the
outstanding Common Stock except William S. West, who owns 7.7% of the
outstanding Common Stock, and J. Roffe Wike, II, who, including shares that may
be acquired within 60 days, is the beneficial owner of 10.5% of the Common
Stock. All directors and officers as a group are the beneficial owners of 23.2%
of the Common Stock, including shares that may be acquired by them within 60
days. Additional information concerning the beneficial ownership of Messrs. West
and Wike is contained in footnotes related to the table on the preceding page.
<TABLE>
<CAPTION>
Shares owned Shares which
Name directly and may be acquired
indirectly(1) within 60 days(2)
<S> <C> <C>
Tenley E. Albright....................................... 0 1,500
William J. Avery......................................... 500 4,500
J. E. Dorsey............................................. 3,155 22,000
George W. Ebright........................................ 1,000 3,000
George J. Hauptfuhrer, Jr................................ 6,000 4,500
L. Robert Johnson........................................ 2,000 4,500
Raymond J. Land.......................................... 1,970 24,000
William G. Little........................................ 17,899 115,000
John P. Neafsey.......................................... 2,000 4,500
Walter F. Raab........................................... 4,000 4,500
Monroe E. Trout.......................................... 2,000 3,000
Ulf C. Tychsen........................................... 1,393 24,000
William S. West.......................................... 1,274,956 0
J. Roffe Wike, II........................................ 1,737,054 4,500
Hans Wimmer.............................................. 440,000 0
Geoffrey F. Worden....................................... 1,500(3) 1,500
Victor E. Ziegler........................................ 23,447 45,000
All directors and executive officers
as a group (23 persons).............................. 3,558,766 361,465
</TABLE>
- -----
(1) Includes shares allocated to individual accounts under the Company's
Savings Plan and/or restricted shares granted under the Company's Stock
Bonus Program as follows: Mr. Dorsey - 367 and 246 shares, respectively;
Mr. Land - 425 and 158 shares, respectively; Mr. Little - 861 and 458
shares, respectively; Mr. Tychsen - 119 restricted shares; Mr. Ziegler -
5,936 and 185 shares, respectively; and all directors and executive
officers as a group - 12,931 and 1,584 shares, respectively.
(2) Stock options available for exercise within 60 days under the Company's
Long-Term Incentive Plan and 1992 Non-Qualified Stock Option Plan for
Non-Employee Directors.
(3) Does not include 500 shares held by Mr. Worden's wife, as to which he
disclaims beneficial ownership.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
In November 1994, the Company acquired from Hans Wimmer, a director and
former executive officer of the Company, approximately 25.5% of the equity
interests in five European-based companies, which were held by Mr. Wimmer,
resulting in the Company owning 100% of those companies. The acquisition was
completed pursuant to an amended and restated put and call agreement entered
into in March 1993. The Company paid a total purchase price of DM 45,000,000
($27,777,777 at an average 1994 exchange rate of DM 1.62), of which DM
30,000,000 ($18,518,519) was paid in cash. The remaining DM 15,000,000
($9,259,259) was paid by delivery of 363,214 shares of Common Stock. Mr. Wimmer
has the right to require the Company to file a registration statement with the
Securities and Exchange Commission on one occasion during each of the two years
following the closing of the transaction to permit a public distribution of the
shares. One of the Company's German subsidiaries leases its facilities from
Henrik Wimmer, a son of Hans Wimmer. Lease payments totaled DM 99,564 ($61,459)
during 1994.
Geoffrey F. Worden and John P. Neafsey, directors of the Company, were
separately engaged by the Company during 1994 as consultants in certain
financial matters. The Company paid Mr. Worden and Mr. Neafsey a total of
$59,000 and $32,000, respectively, in fees for their services during 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, The West Company, Incorporated has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
THE WEST COMPANY, INCORPORATED
(Registrant)
By /s/ Raymond J. Land
---------------------------------
Raymond J. Land
Senior Vice President,
Finance and Administration
(Principal Financial Officer)
October 19, 1995
---------------------------------
Date
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Number
<S> <C> <C>
(99) Excerpt from Offer to Purchase by Paco Acquisition Corp.,
relating to Agreement and Plan of Merger dated March 24,
1995, among Paco Pharmaceutical Services, Inc. The West
Company, Incorporated and Paco Acquisition Corp.
</TABLE>
The Merger Agreement. On March 24, 1995, Paco Pharmaceutical Services,
Inc. (the "Company"), The West Company, Incorporated ("Parent") and Paco
Acquisition Corp. ("Purchaser"), a wholly owned subsidiary of Parent, entered
into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which
Purchaser offered to purchase all outstanding shares of common stock, par value
$.01 per share (the "Shares"), of the Company, net to the selling shareholders
of the Company, at $12.25 per Share (the "Offer Price"), upon the terms and
subject to the conditions of the Offer to Purchase and related Letter of
Transmittal dated March 30, 1995 (which, together with any amendments or
supplements thereto, collectively constitute the "Offer").
The Merger Agreement provides that following the satisfaction
or waiver of the conditions described below under 'Conditions to the
Merger', Purchaser will be merged with and into the Company (the
"Merger"), with the Company surviving the Merger as a wholly owned
subsidiary of Parent, and each then outstanding Share (other than
Shares owned by the Company as treasury stock or by any subsidiary
of the Company, Parent, Purchaser or any other subsidiary of Parent
or by stockholders, if any, who are entitled to and who properly
exercise dissenters' rights under Delaware law) will be converted
into the right to receive an amount equal to the Offer Price
(the "Merger Consideration").
Vote Required to Approve Merger. The Delaware General Corporation Law
("DGCL") requires, among other things, that the adoption of any plan of merger
or consolidation of the Company must be ap2proved by the Board of Directors and
generally by the holders of the Company's outstanding voting securities. The
Board of Directors of the Company has approved the Offer and the Merger;
consequently, the only additional action of the Company that may be necessary to
effect the Merger is approval by such stockholders if the short-form merger
procedure described below is not available. Under the DGCL, the affirmative vote
of holders of a majority of the outstanding Shares (including any Shares owned
by Purchaser), is generally required to approve the Merger. If Purchaser
acquires, through the Offer or otherwise, voting power with respect to at least
a majority of the outstanding Shares, (which would be the case if a majority of
the shares outstanding are validly tendered and not withrawn (the "Minimum
Condition") and Purchaser were to accept for payment Shares tendered pursuant to
the Offer), it would have sufficient voting power to effect the Merger without
the vote of any other stockholder of the Company. However, the DGCL also
provides that if a parent company owns at least 90% of each class of stock of a
subsidiary, the parent company can effect a 'short-form' merger with that
subsidiary without the action of the other stockholders of the subsidiary.
Accordingly, if, as a result of the Offer or otherwise, Purchaser acquires or
controls the voting power of at least 90% of the outstanding Shares, Purchaser
could, and intends to, effect the Merger without prior notice to, or any action
by, any other stockholder of the Company.
Conditions to the Merger. The Merger Agreement provides that the
Merger is subject to the satisfaction of certain conditions, including the
following: (i) if required by applicable law, the Merger Agreement shall have
been approved by the affirmative vote of the Company's stockholders by the
requisite vote in accordance with applicable law, (ii) no statute, rule,
regulation, executive order, decree, or injunction shall have been enacted,
entered, promulgated, or enforced by any court or governmental authority which
is in effect and has the effect of prohibiting the consummation of the Merger
and (iii) Purchaser shall have accepted for payment and paid for Shares tendered
pursuant to the Offer.
Termination of the Merger Agreement. The Merger Agreement may be
terminated at any time prior to the effective time of the Merger,
notwithstanding approval by the stockholders of the Company, (i) by mutual
written consent duly authorized by the Boards of Directors of the Company,
Parent and Purchaser; (ii) by either the Company or Parent: (a) if the Offer
terminates or expires in accordance with its terms without Purchaser having
purchased any Shares pursuant to the Offer; provided, however, that the right to
terminate the Merger Agreement shall not be available to any party whose failure
to fulfill any of its obligations under the Merger Agreement results in the
failure of any such condition; (b) if Shares have not been accepted for payment
pursuant to the Offer on or prior to August 1, 1995; provided, however, that the
right to terminate the Merger Agreement shall not be available to any party
whose failure to fulfill any of its obligations under the Merger Agreement
results in the failure of the Offer to be consummated; or (c) if any court of
competent jurisdiction or any other governmental body shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have
<PAGE>
become final and nonappealable; (iii) by the Company if the Offer has not
been timely commenced and such failure to commence shall be in violation of the
Merger Agreement; (iv) by Parent or Purchaser if the Company fails to perform in
any material respect any of its obligations under the Merger Agreement or the
Option Agreement or if the Offer shall not have been commenced because of the
occurrence of any event or circumstance set forth in Section 14 (i.e., failure
to satisfy the Minimum Condition, no expiration of any applicable waiting period
under the Hart Scott Rodino Act and certain other governmental actions); (v) by
the Company in respect of a superior proposal (provided the Company shall have
paid Parent the Termination Fee and the Expense Fee) as described; or (vi) by
the Company if Parent or Purchaser fails to perform in any material respect any
of its obligations under this Agreement. In the event the Merger Agreement is
terminated as described in this paragraph, the Merger Agreement will become void
and there will be no liability or obligation on the part of the Company,
Purchaser or Parent, except with respect to certain specified provisions
(including the provisions described below under 'Fees and Expenses') and except
to the extent that such termination results from the willful and material breach
by a party of any of its representations, warranties, covenants or agreements
set forth in the Merger Agreement.
Takeover Proposals. The Merger Agreement provides that the Company
will not, nor will it permit any of its subsidiaries to, nor will it authorize
or permit any director, officer or employee of or any investment banker,
attorney or other advisor or representative of the Company or any of its
subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage the
submission of any takeover proposal (as defined below) or (ii) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any takeover proposal; provided, however, that prior to the
acceptance for payment of Shares pursuant to the Offer, to the extent required
by the fiduciary obligations of the Board of Directors of the Company (as
determined in good faith by the Board of Directors based on the advice of
outside counsel), the Company may upon receipt by the Company of an unsolicited
written, bona fide takeover proposal, furnish information with respect to the
Company pursuant to a customary confidentiality agreement (containing
'standstill' provisions no less onerous than in the Confidentiality Agreements
dated June 28, 1994 between the Company and Parent) and participate in
negotiations regarding such takeover proposal. The Merger Agreement defines
'takeover proposal' as any proposal for a merger or other business combination
involving the Company or any of its subsidiaries or any proposal or offer to
acquire in any manner (including through a joint venture with the Company),
directly or indirectly, an equity interest in, not less than 25% of the
outstanding voting securities of, or assets representing not less than 25% of
the annual revenues or net earnings of the Company or any of its subsidiaries.
The Merger Agreement provides that neither the Board of Directors of the
Company nor any committee thereof will (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Purchaser or Parent, the approval or
recommendation by the Board of Directors of the Company or any such committee of
the Merger Agreement, the Option Agreement, the Offer or the Merger, (ii)
approve or recommend, or propose to approve or recommend, any takeover proposal
or (iii) enter into any agreement with respect to any takeover proposal.
Notwithstanding the foregoing, in the event the Board of Directors of the
Company receives an unsolicited takeover proposal that, in the exercise of its
fiduciary obligations (as determined in good faith by the Board of Directors and
based on the advice of outside counsel), it determines to be a superior proposal
(as defined below), the Board of Directors may (subject to the following
sentences) withdraw or modify its approval or recommendation of the Merger
Agreement, the Option Agreement, the Offer or the Merger, approve or recommend
any such superior proposal, enter into an agreement with respect to such
superior proposal or terminate the Merger Agreement, in each
<PAGE>
case at any time after the fifth business day following Parent's receipt of
written notice (a 'Notice of Superior Proposal') advising Parent that the Board
of Directors has received a superior proposal, specifying the material terms and
conditions of such superior proposal and identifying the person making such
superior proposal. The Company may take any of the foregoing actions pursuant to
the preceding sentence only if (i) Purchaser has not accepted for payment Shares
pursuant to the Offer, (ii) the Company is not otherwise in material breach of
the Merger Agreement and (iii) the Company has paid to Parent the Termination
Fee and the Expense Fee (as defined below). For purposes of the Merger
Agreement, a 'superior proposal' means any bona fide takeover proposal on terms
which the Board of Directors of the Company determines in its good faith
reasonable judgment to be more favorable to the Company's stockholders than the
Offer and the Merger. The Merger Agreement also provides that nothing contained
therein will prohibit the Company from taking and disclosing to its stockholders
a position contemplated by Rule 14e-2(a) under the Exchange Act.
The Merger Agreement provides that the Company will promptly advise Parent
orally and in writing of any request for information or of any takeover
proposal, or any inquiry which could lead to any takeover proposal, the material
terms and conditions of such inquiry or takeover proposal and the identity of
the person making such request, takeover proposal or inquiry.
Fees and Expenses. The Merger Agreement provides that the Company
will pay to Parent in cash in immediately available funds by wire transfer to an
account designated by Parent an amount equal to its reasonable out-of-pocket
expenses (including, without limitation, fees and expenses of all counsel,
printers, banks, accountants, and investment banking firms, and their respective
agents but excluding fees to or expenses of financing sources for the Offer and
the Merger) not exceeding $750,000 (the 'Expense Fee') and an additional fee of
$1,000,000 (the 'Termination Fee'), if (i) there shall be a material breach by
the Company of the Merger Agreement or (ii) the Company shall have delivered (or
been obliged to deliver) to Parent a Notice of Superior Proposal or (iii) (x) at
any time on or after the date of the Merger Agreement until one year following
the termination of the Merger Agreement, any person or 'group'(within the
meaning of Section 13(d)(3) of the Exchange Act) (other than Parent or any of
its affiliates) shall have acquired, directly of indirectly, the Company, assets
representing more than 50% of the revenues of the Company or more than 50% of
the Shares then outstanding, and (y)(A) on or after the date of the Merger
Agreement and prior to the expiration of the Offer, such person or group shall
have made a takeover proposal, (B) the Offer, if required to have been
commenced, shall have remained open until the scheduled expiration date
immediately following the date such takeover proposal was first publicly
announced and (C) the Merger Agreement shall have been terminated pursuant to
the provisions of the Merger Agreement described in clause (ii)(a) under
'Termination of the Merger Agreement' above. In addition, the Merger Agreement
provides that the Company will promptly pay the Expense Fee to Parent if the
Merger Agreement is terminated for any reason other than by a breach by Parent
of its obligations under the Merger Agreement.
Conduct of Business by the Company. The Merger Agreement provides
that, during the period from the date of the Merger Agreement to the acceptance
of Shares for payment, the Company and its subsidiaries will each conduct its
operations according to its ordinary and usual course of business. The Merger
Agreement also provides that neither the Company nor any of its subsidiaries
shall, without the prior written consent of Parent, (i) issue, sell or pledge,
or authorize or propose the issuance, sale or pledge of (a) additional shares of
capital stock of any class (including the Shares), or securities convertible
into any such shares, or any rights, warrants or options to acquire any such
shares or other convertible securities, or grant or accelerate
<PAGE>
any right to convert or exchange any securities of the Company for shares, other
than (1) Shares issuable pursuant to the terms of outstanding Stock Options and
commitments disclosed in the Merger Agreement, or (2) issuance of shares of
capital stock to the Company by a wholly-owned subsidiary of the Company, or (b)
any other securities in respect of, in lieu of or in substitution for Shares
outstanding on the date thereof or split, combine or reclassify any of the
Company's capital stock; (ii) purchase, redeem or otherwise acquire, or propose
to purchase or otherwise acquire, any of its outstanding securities (including
the Shares); (iii) declare, set aside or pay any dividend or other distribution
on any shares of capital stock of the Company, except that direct or indirect
wholly-owned subsidiary of the Company may pay a dividend to its parent; (iv)
make any acquisition of a material amount of assets or securities, any
disposition (including by way of mortgage, license, encumber or any Lien (as
defined in the Merger Agreement)) of a material amount of assets or securities
or any change in its capitalization, or enter into a material contract or
release or relinquish any material contract rights, or make any amendments, or
modifications thereto not in the ordinary course of business; (v) (a) incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to acquire
any debt securities of the Company or any of its subsidiaries, guarantee any
debt securities of another person, enter into any 'keep well' or other agreement
to maintain any financial statement condition of another person or enter into
any arrangement having the economic effect of any of the foregoing or (b) make
any loans, advances of capital contributions to, or investments in, any other
person, other than to the Company or any direct or indirect wholly-owned
subsidiary of the Company; (vi) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of the
Company included in the SEC Documents (as defined in the Merger Agreement) filed
prior to the date of this Agreement or incurred since the date of such financial
statements in the ordinary course of business, (vii) propose or adopt any
amendments to the Amended and Restated Certificate of Incorporation or Bylaws of
the Company (or any such similar organizational documents of its subsidiaries);
(viii) enter into any new employment, severance or termination agreements with,
or grant any increase in severance or termination pay to, any officers,
directors or key employees or grant any material increases in the compensation
or benefits to officers, directors and key employees; (ix) enter into any
agreement, commitment or transaction which is material to the Company and its
subsidiaries taken as a whole, except agreements, commitments or transactions in
the ordinary course of business; (x) change any accounting methods, principles
or practices materially affecting their assets, liabilities or business, except
insofar as may be required by a change in generally accepted accounting
principles; (xi) settle the terms of any material litigation affecting the
Company or any of its subsidiaries; (xii) make any tax election or settle or
compromise any income tax liability; (xiii) make or agree to make any
commitments (which shall not exceed $1.4 million in the aggregate) for capital
expenditures or make any expenditures not previously committed to, which
individually are in excess of $100,000 or which in the aggregate are in excess
of $250,000; or (xiv) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty in the
Merger Agreement untrue or incorrect.
Board of Directors. The Merger Agreement provides that, subject to
compliance with Section 14(f) of the Exchange Act, promptly upon the acceptance
for payment of and payment for any Shares by Purchaser pursuant to the Offer,
Purchaser will be entitled to designate such number of directors on the Board of
Directors of the Company as will give Purchaser a majority of such directors,
and the Company will, at
<PAGE>
such time, cause Purchaser's designees to be so appointed or elected by the
existing Board of Directors of the Company; provided, however, that, in the
event Purchaser's designees are elected to the Company's Board of Directors,
until the Effective Time of the Merger, (i) the Board of Directors of the
Company is required to have at least three directors who were directors on the
date of the Merger Agreement and who are not officers of the Company
("Independent Directors") and (ii) if the number of Independent Directors
is reduced below three for any reason, the remaining Independent Directors will
designate a person to fill such vacancy, who will be deemed to be an Independent
Director, or, if no Independent Directors then remain, the other directors will
designate three persons to fill such vacancies who are not officers or
affiliates of the Company, or officers or affiliates of Parent or any of its
subsidiaries, and such persons will be deemed to be Independent Directors.
Subject to applicable law, the Company has agreed to take all action requested
by Parent necessary to effect any such election, including mailing to its
stockholders an information statement containing the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and the
Company has agreed to make such mailing with the mailing of the Schedule 14D-9.
In connection with the foregoing, the Merger Agreement provides that the
Company, at the option of Parent, will promptly increase the size of the
Company's Board of Directors and/or obtain the resignation of such number of its
current directors as is necessary to enable Purchaser's designees to be elected
or appointed to the Board of Directors as provided above.
Stock Options. The Merger Agreement provides that as soon as
practicable following the date of the Merger Agreement, the Board of Directors
of the Company (or, if appropriate, any committee administering the Stock Option
Plan (as defined in the Merger Agreement)) will adopt such resolutions or take
such other actions as are required in accordance with the Stock Option Plan to
adjust the terms of all outstanding Stock Options (as defined in the Merger
Agreement) to provide that each Stock Option, whether vested or not, outstanding
immediately prior to the acceptance for payment of Shares pursuant to the Offer
to be cancelled in exchange for a cash payment by the Company of an amount equal
to (i) the excess, if any, of (x) the price per Share to be paid pursuant to the
Offer over (y) the exercise price per Share subject to such Stock Option,
multiplied by (ii) the number of Shares for which such Stock Option shall not
theretofore have been exercised.
Benefit Plans. The Merger Agreement provides that from and after the
Effective Time, the Surviving Corporation (as defined in the Merger Agreement)
will honor in accordance with their terms all existing employment, severance,
consulting or other compensation agreements or benefit contracts between the
Company or any of its subsidiaries and any officer, director or employee of the
Company or any of its subsidiaries which are specifically disclosed in the
Merger Agreement ('Benefit Plans') and all benefits or other amounts earned or
accrued through the Effective Time under the Benefit Plans. In addition, the
Merger Agreement provides that for the one-year period immediately following
the Effective Time, Parent will cause the Company to provide such benefit plans,
programs and arrangements that are substantially comparable in the aggregate to
the Benefit Plans.
Indemnification and Insurance. The Merger Agreement provides that
Parent will, at all times after consummation of the Offer, indemnify, or will
cause the Company (or the Surviving Corporation in the Merger) and its
subsidiaries to indemnify, each person who is now, or has been at any time prior
to the date hereof, an employee, agent, director or officer of the Company or
any of its subsidiaries, successors and assigns (individually an 'Indemnified
Party' and collectively the 'Indemnified Parties'), to the same extent and in
the same manner as is now provided
<PAGE>
in the respective charters or by-laws of the Company and such subsidiaries or
otherwise in effect on the date hereof, and with respect to any claim, liability
loss, damage, cost or expense, whenever asserted or claimed (an 'Indemnified
Liability') based in whole or in part on, or arising in whole or in part out of,
any matter existing or occurring at or prior to the Effective Time. The Merger
Agreement also provides that Parent shall cause to be maintained in effect for
not less than six years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by the Company (provided
that Parent may substitute therefor policies of at least the same coverage
containing terms and conditions which are no less advantageous) with respect to
matters occurring prior to the Effective Time to the extent available, provided
that in no event shall Parent be required to expend to maintain or procure
insurance coverage pursuant to the Merger Agreement a total amount in excess of
$450,000.
Best Efforts; Notification. The Merger Agreement provides that each
of the parties will use its reasonable best efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of the Merger Agreement, the
proper officers and directors of each party to the Merger Agreement shall take
all such necessary action.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties including representations regarding
litigation, Benefit Plans, ERISA compliance, taxes, compliance with applicable
laws, labor matters, title to properties and undisclosed liabilities.
Procedure for Termination, Amendment, Extension or Waiver. The Merger
Agreement provides that the affirmative vote of the Independent Directors is
required for the Company to amend or terminate the Merger Agreement, exercise or
waive any of its rights or remedies under the Merger Agreement or extend the
time for performance of Purchaser's and Parent's respective obligations under
the Merger Agreement.
Option Agreement. On March 24, 1995, the Company entered into the Option
Agreement with Purchaser pursuant to which the Company granted Purchaser an
irrevocable option to purchase, at a price of $12.25 per share, such number of
authorized and unissued shares of common stock, par value $.01 per share, of the
Company which, together with the Shares owned by Purchaser at the time of
exercise, would result in Purchaser owning, immediately after such exercise,
90.1% of the outstanding Shares (calculated on a fully-diluted basis). The
option may be exercised by Purchaser, in whole or in part, at any time or from
time to time after the acceptance of Shares for purchase pursuant to the Offer
and prior to the termination of the Option Agreement provided that at the time
of any such exercise Purchaser owns at least 70% of the outstanding Shares
(calculated on a fully-diluted basis). Based on the number of shares outstanding
on March 24, 1995, and assuming the exercise or conversion of all existing
options, rights and securities exercisable or convertible into shares of common
stock, the option may be exercised for up to 8,881,054 shares of common stock,
representing 68.9% of the shares of common stock outstanding as of March 24,
1995 on a fully-diluted basis.
The Company's obligation to deliver Shares upon exercise of the option,
and Purchaser's obligation to deliver the purchase price, are subject only
to the conditions that: (a) no injunction or other order issued by any
Governmental Entity prohibiting the delivery of the Shares shall be in effect;
(b) any applicable waiting period under the HSR Act shall have expired or been
terminated; and (c) Purchaser (or its permitted assignees) shall have accepted
Shares for purchase pursuant to the Offer. The Option Agreement shall terminate
on the earlier of (a) the Effective Time or (b) the termination of the Merger
Agreement in accordance with its terms. The Option Agreement contains customary
representations and warranties including representations regarding organization,
authority, consents and approvals, no violation and investment intent.
Appraisal Rights and Other Matters. Holders of Shares do not have
dissenters' rights as a result of the Offer. However, if the Merger is
consummated, holders of Shares will have certain rights pursuant to the
provisions of Section 262 of the DGCL to dissent and demand appraisal of, and to
receive payment in cash of the fair value of, their Shares. If the statutory
procedures were complied with, such rights could lead to a judicial
determination of the fair value required to be paid in cash to such dissenting
holders for their Shares. Any such judicial determination of the fair value of
Shares could be based upon considerations other than or in addition to the Offer
Price or the market value of the Shares, including asset values and the
investment value of the Shares. The value so determined could be more or less
than the Offer Price or the Merger Consideration.
If any added holder of Shares who demands appraisal under Section 262 of
the DGCL fails to perfect, or effectively withdraws or loses his right to
appraisal, as provided in the DGCL, the Shares of such stockholder will be
converted into the Merger Consideration in accordance with the Merger Agreement.
A stockholder may withdraw his demand for appraisal by delivery to Parent of a
written withdrawal of his demand for appraisal and acceptance of the Merger.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
The Merger would have to comply with any applicable Federal law operative
at the time of its consummation. Rule 13e-3 under the Exchange Act is applicable
to certain 'going private' transactions. Purchaser does not believe that Rule
13e-3 will be applicable to the Merger unless the Merger is consummated more
than one year after the termination of the Offer. If applicable, Rule 13e-3
would require, among other things, that certain financial information concerning
the Company and certain information relating to the fairness of the Merger and
the consideration offered to minority shareholders be filed with the Commission
and disclosed to minority shareholders prior to consummation of the Merger.
Parent intends to conduct a detailed review of the Company and its assets,
corporate structure, dividend policy, capitalization, operations, properties,
policies, management and personnel and to consider, subject to the terms of the
Merger Agreement, what, if any, changes would be desirable in light of the
circumstances then existing, and reserves the right to take such actions or
effect such changes as it deems desirable. Such changes could include changes in
the Company's business, corporate structure, capitalization, Board of Directors,
management or dividend policy.
Except as otherwise described in this Offer to Purchase, Purchaser and
Parent have no current plans or proposals that would relate to, or result in,
any extraordinary corporate transaction involving the Company, such as a merger,
reorganization or liquidation involving the Company or any of its subsidiaries,
a sale or transfer of a material amount of assets of the Company or any of its
subsidiaries, any change in the Company's capitalization or dividend policy or
any other material change in the Company's business, corporate structure or
personnel.
