<PAGE>
This report contains 15 pages
(including cover page)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1997
---------------
Commission File Number 1-8036
------
THE WEST COMPANY, INCORPORATED
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
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 (Zip Code)
offices)
Registrant's telephone number, including area code 610-594-2900
--------------
N/A
-----------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve
months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No .
--- ---
June 30, 1997 -- 16,463,120
-----------------------------------------------------------------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
<PAGE> Page 2
Index
Form 10-Q for the
Quarter Ended June 30, 1997
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations for the
Three and Six Months ended June 30, 1997 and
June 30, 1996 3
Condensed Consolidated Balance Sheets as of June
30, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 30, 1997 and
June 30, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Part II - Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security
Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
Index to Exhibits F-1
<PAGE> Page 3
Item 1. Financial Statements
The West Company, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION> Quarter Ended Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
---------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $123,100 100% $119,000 100% $237,800 100% $232,900 100 %
Cost of goods sold 86,800 70 87,100 73 168,800 71 169,700 73
----------------------------------------------------------------------------------------------------
Gross profit 36,300 30 31,900 27 69,000 29 63,200 27
Selling, general and
administrative expenses 19,100 16 18,100 15 37,100 16 37,200 16
Restructuring charge - - - - - - 21,500 9
Other (income) expense, net (200) - (100) - (500) - (200) -
----------------------------------------------------------------------------------------------------
Operating profit 17,400 14 13,900 12 32,400 13 4,700 2
Interest expense 1,400 1 1,800 2 2,800 1 3,400 2
----------------------------------------------------------------------------------------------------
Income before income taxes
and minority interests 16,000 13 12,100 10 29,600 12 1,300 -
Provision for income taxes 6,200 5 4,600 4 11,300 5 2,200 1
Minority interests - - 100 - 100 - 100 -
----------------------------------------------------------------------------------------------------
Income (loss) from consolidated
operations 9,800 8% 7,400 6% 18,200 7% (1,000) (1) %
--- --- --- ----
Equity in net income of
affiliated companies 300 700 300 900
----------------------------------------------------------------------------------------------------
Net income (loss) $ 10,100 $ 8,100 $ 18,500 $ (100)
----------------------------------------------------------------------------------------------------
Net income per share: $ .61 $ .50 $ 1.12 $ 0.00
----------------------------------------------------------------------------------------------------
Average shares outstanding 16,451 16,398 16,430 16,514
See accompanying notes to interim financial statements.
</TABLE>
Page 4
The West Company, Incorporated and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Unaudited Audited
ASSETS June 30, 1997 Dec. 31, 1996
-------------- -------------
<S> <C> <C>
Current assets:
Cash, including equivalents $ 41,400 $ 27,300
Accounts receivable, less allowance 70,800 69,300
Inventories 40,100 44,000
Current deferred income tax benefits 10,000 10,200
Other current assets 5,400 5,900
----------------------------------------------------------------------------------------------------
Total current assets 167,700 156,700
----------------------------------------------------------------------------------------------------
Net property, plant and equipment 201,400 210,300
Investments in affiliated companies 22,900 24,100
Goodwill 53,900 58,900
Deferred charges and other assets 29,700 27,400
----------------------------------------------------------------------------------------------------
Total Assets $475,600 $ 477,400
----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 800 $ 1,000
Notes payable 1,100 1,900
Accounts payable 21,600 23,900
Salaries, wages, benefits 12,900 13,900
Income taxes payable 5,700 3,100
Other current liabilities 22,100 21,800
----------------------------------------------------------------------------------------------------
Total current liabilities 64,200 65,600
----------------------------------------------------------------------------------------------------
Long-term debt, excluding current portion 89,100 95,500
Deferred income taxes 37,600 39,700
Other long-term liabilities 24,900 24,300
Minority interests 400 300
Shareholders' equity 259,400 252,000
----------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 475,600 $477,400
----------------------------------------------------------------------------------------------------
See accompanying notes to interim financial statements.
</TABLE> Page 5
<PAGE>
The West Company Incorporated and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 June 30, 1996
---------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income, plus net non-cash items $ 33,500 $ 33,800
Changes in assets and liabilities 1,400 (11,200)
---------------------------------------------------------------------------------------
Net cash provided by operating activities 34,900 22,600
---------------------------------------------------------------------------------------
Cash flows from investing activities:
Property, plant and equipment acquired (14,900) (17,200)
Proceeds from sale of assets 200 100
Customer advances, net of repayments - (200)
---------------------------------------------------------------------------------------
Net cash used in investing activities (14,700) (17,300)
---------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under revolving credit agreements - 7,900
Repayment of long-term debt (1,100) (1,400)
Notes payable, net (600) (600)
Dividend payments (4,600) (4,300)
Sale (purchase) of common stock, net 1,300 (9,100)
---------------------------------------------------------------------------------------
Net cash used in financing activities (5,000) (7,500)
---------------------------------------------------------------------------------------
Effect of exchange rates on cash (1,100) (200)
---------------------------------------------------------------------------------------
Net increase (decrease) in cash, including equivalents $ 14,100 $(2,400)
---------------------------------------------------------------------------------------
See accompanying notes to interim financial statements.
</TABLE>
Page 6
<PAGE>
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
The interim consolidated financial statements for the period
ended June 30, 1997 should be read in conjunction with the
consolidated financial statements and notes thereto of The West
Company, Incorporated appearing in the Company's 1996 Annual
Report on Form 10-K. The year-end condensed balance sheet data
was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. Interim results are based on the Company's accounts
without audit.
1. Interim Period Accounting Policy
---------------------------------
In the opinion of management, the unaudited Condensed
Consolidated Balance Sheet as of June 30, 1997 and the
related unaudited Consolidated Statement of Operations for
the three and six month period then ended and for the
comparative period in 1996 and the unaudited Condensed
Consolidated Statement of Cash Flows for the six months then
ended and the comparative period in 1996 contain all
adjustments, consisting only of normal recurring accruals,
necessary to present fairly the financial position as of June
30, 1997 and the results of operations and cash flows for the
respective periods. The results of operations for any
interim period are not necessarily indicative of results for
the full year.
Operating Expenses
------------------
To better relate costs to benefits received or activity in an
interim period, certain operating expenses have been
annualized for interim reporting purposes. Such expenses
include depreciation due to use of the half year convention,
certain employee benefit costs, annual quantity discounts,
and advertising.
Income Taxes
-------------
The tax rate used for interim periods is the estimated annual
effective consolidated tax rate, based on current estimates
of full year results, except that taxes applicable to
operating results in Brazil and the restructuring charge are
recorded on a basis discrete to the period, and prior year
adjustments, if any, are recorded as identified.
2. Inventories at June 30, 1997 and December 31, 1996 are
summarized as follows:
Audited
(in thousands) 1997 1996
-------- --------
Finished goods $ 16,000 $ 18,000
Work in process 8,900 8,500
Raw materials and supplies 15,200 17,500
-------- --------
$ 40,100 $ 44,000
-------- --------
-------- --------
Page 7
<PAGE>
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
3. The carrying value of property, plant and equipment at June
30, 1997 and December 31, 1996 was determined as follows:
Audited
(in thousands) 1997 1996
-------- --------
Property, plant and equipment $428,300 $431,600
Less accumulated depreciation 226,900 221,300
-------- --------
Net property, plant and equipment $201,400 $210,300
-------- --------
-------- --------
4. Common stock issued at June 30, 1997 was 16,844,735 shares,
of which 381,615 shares were held in treasury. Dividends of
$.14 per common share were paid in the second quarter of
1997 and a dividend of $.14 per share payable to holders of
record on July 23, 1997 was declared on April 30, 1997.
5. 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
$1.1 million at June 30, 1997 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.
6. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128). SFAS 128 establishes new
standards for computing and presenting earnings per share
(EPS). SFAS 128 replaces the current presentation of primary
EPS with a presentation of basic EPS. Basic EPS will be
calculated for the Company by dividing net income by the
weighted average number of common shares outstanding during
the period. The Company's basic EPS will be identical to
its historical presentation of EPS, which has been
calculated using weighted average common shares outstanding,
because dilution from the Company's common stock equivalents
was immaterial.
Page 8
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
SFAS 128 also requires presentation of diluted EPS, which
considers the potential issuance of common stock for all
dilutive instruments. For the Company, it assumes issuance
of common shares under the Company's stock option and award
plans. The Company will adopt SFAS 128 effective with its
1997 year end, as required. The pro forma diluted EPS
calculated in accordance with SFAS 128 for the quarter and
six months ended June 30, 1997 and June 30, 1996, is as
follows (in thousands, except per share data):
Quarter Ended Six Months Ended
1997 1996 1997 1996
----- ----- ----- -----
Net income $10,100 $ 8,100 $ 18,500 $ (100)
Diluted EPS $ .61 $ .50 $ 1.12 $ .00
The Company is currently reviewing two new standards of
disclosure required to be applied in 1998 financial statement
preparation. SFAS No. 130, "Reporting Comprehensive
No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial
statements. SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" establishes standards for
reporting information about operating segments in annual
financial statements and requires selected information
about operating segments in interim financial statements.
It also establishes standards for related disclosure about
products and services, geographic areas, and major customers.
7. At June 30, 1997 the cumulative number of employees
terminated in accordance with the restructuring plan
announced on March 29, 1996 was 206 and total payout of
severance and benefits was $6.4 million. Downsizing of
operations is substantially complete.
8. On February 21, 1992, R.P. Scherer ("Scherer"), the former
parent company of Paco Pharmaceutical Services, Inc.
(Paco"),
Page 9
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
agreed to sell Paco and its subsidiaries to OCAP Acquisition
Corp. ("OCAP"). After Scherer terminated the sale contract
in March of that year, OCAP sued Scherer and Paco, alleging
breach of contract and breach of the implied covenant of
good faith. OCAP sought $75 million in actual damages, $100
million in punitive damages, plus costs and expenses.
Scherer brought counterclaims against OCAP of a similar
nature. Following a trial in March 1996, the court
dismissed all of OCAP's claims and all of Scherer's
counterclaims. Plaintiffs and defendants have each
perfected their appeals, and argument is anticipated in
September, 1997.
In management's opinion, the ultimate outcome of this
litigation will not have a material adverse effect on the
Company's business or financial condition because we believe
OCAP's claims are without merit and even if they were,
Scherer has agreed to indemnify Paco against all liabilities
(including fees and expenses incurred after March 31, 1992)
in the matter.
Page 10
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------
Results of Operations.
----------------------
Results of Operations for the Three and Six Months Ended June 30,
--------------------------------------------------------------
1997 Versus Comparable 1996 Periods.
------------------------------------
Net Sales
---------
Net sales for the second quarter of 1997 were $123.1 million, a
3% increase compared with sales of $119.0 million for the same
quarter in 1996. Without the effect of the strong U.S. dollar
and eliminating the 1996 sales of the machinery business (sold in
August 1996), sales would show a 7% improvement compared with
1996's second quarter. The strong U.S. dollar had the effect of
reducing sales by $2.9 million. Volumes grew within expectations
in the Company's healthcare products and consumer products
businesses and were sharply higher in the contract services
business. Increased sales of the Company's core products in
the U.S. were offset, in part, by lower sales in Europe and Latin
America.
Net sales for the first six months of 1997 were $237.8 million, a
2% increase compared with sales in the same six months of 1996.
The strong U.S. dollar reduced sales by $5.6 million; excluding
this impact and eliminating machinery sales in 1996 would result
in a 6% increase in sales, compared with 1996's first half.
Higher sales of healthcare and consumer products in the U.S. and
significant increases in contract services sales outpaced
declines in sales to international healthcare products markets.
Gross Profit
------------
The gross profit margin in the second quarter 1997 was 29.5% of
net sales compared with 26.8% for the same period in 1996. Gross
profit margins also improved for the six month period to 29.0%
from 27.2% in 1996. The primary reasons for these improvements
are improved manufacturing efficiencies, cost saving initiatives,
a favorable product mix, and benefits of production shifts to
lower cost facilities.
Page 11
Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------
Results of Operations.
----------------------
Results of Operations for the Three and Six Months Ended June 30,
--------------------------------------------------------------
1997 Versus Comparable 1996 Periods (continued).
------------------------------------------------
Selling, General and Administrative
-----------------------------------
Selling, general and administrative (SG&A) expenses increased
$1.0 million compared with the second quarter 1996, and represent
15.5% of sales compared with 15.2% in 1996. For the six month
period, SG&A expenses were virtually flat versus the comparable
period, but as a percentage of sales, SG&A expenses declined to
15.6% from 16.0%. Increased research and development
expenditures and business development costs offset the effects of
the stronger U.S. dollar in both periods.
Other Income and Expense
--------------------------
Other income increased by $0.1 million for the second quarter
compared with the same 1996 quarter. Interest income increased
because of higher average temporary cash investments. For the
six months, other income increased by $0.3 million because of the
higher interest income combined with lower losses related to the
sale of fixed assets.
Interest Expense and Equity in Affiliates
--------------------------------------------------------------
Lower rates and lower average debt levels helped to reduce
interest expense compared with the same periods in 1996.
Higher costs at Daikyo Seiko, Ltd., a Japanese company in which the
Company owns a 25% equity stake, coupled with the weaker Japanese
yen caused equity in net income of affiliates to drop for the
quarter and six months 1997 compared with 1996. Also, the Company
is accounting for its 30% stake in DanBioSyst under the equity
method beginning in 1997, and goodwill amortization has been
recorded.
Taxes
-----
The effective tax rate for the first half of 1997 was 38.5% which
was the same as the tax rate in the first half of 1996, excluding
the restructuring charge and the tax benefit on the restructuring
charge. The final 1996 effective tax rate, excluding the
restructuring charge and the tax benefit on the charge, was
36.6%. The mix in geographic source of income in 1997 is
responsible for the increase in estimated tax rate.
Page 12
Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------
Results of Operations.
----------------------
Results of Operations for the Three and Six Months Ended June 30,
--------------------------------------------------------------
1997 Versus Comparable 1996 Periods (continued).
------------------------------------------------
Net Income
---------------
Net income for the second quarter 1997 was $10.1 million, or $.61
per share, compared with net income for the second quarter 1996
of $8.1 million, or $.50 per share. Net income for the six
months 1997 was $18.5 million compared with net income of $14.9
million in 1996, excluding the first quarter restructuring charge
of $15.0 million, or $.90 per share.
Financial Position
------------------
Working capital at June 30, 1997 was $103.5 million compared with
$91.1 million at December 31, 1996. The working capital ratio at
June 30, 1997 was 2.6 to 1. Cash flow from operations was more
than adequate to fund capital expenditures and dividend payments
of $.28 per share. The Company continued to reduce debt and cash
and cash equivalent balances have increased to $41.4 million.
Total debt as a percentage of total invested capital was 25.9% at
June 30, 1997, compared with 28.1% at December 31, 1996. On
April 7, 1997, the Company agreed to terms amending an existing
revolving credit facility, increasing the amount available for
borrowing and adjusting the interest rate and facility fees. The
amended agreement will provide for borrowings up to $70 million
and $55 million with a term of 364 days and five years,
respectively. At June 30, 1997, the Company had available unused
lines of credit of $131.6 million.
The available borrowing capacity and cash flow from operations is
adequate, in the opinion of management, to meet estimated cash
requirements and fund future growth.
Page 13
Part II - Other Information
Item 1. Legal Proceedings.
-----------------
On February 21, 1992, R.P Scherer ("Scherer"), the former
parent company of Paco Pharmaceutical Services, Inc. ("Paco"),
agreed to sell Paco and its subsidiaries to OCAP Acquisition
Corp. ("OCAP"). After Scherer terminated the sale contract in
March of that year, OCAP sued Scherer and Paco, alleging
breach of contract and breach of the implied covenant of good
faith. OCAP sought $75 million in actual damages, $100
million in punitive damages, plus costs and expenses. Scherer
brought counterclaims against OCAP of a similar nature.
Following a trial in March 1996, the court dismissed all of
OCAP's claims and all of Scherer's counterclaims. Plaintiffs
and defendants have each perfected their appeals, and argument
is anticipated in September, 1997.
In management's opinion, the ultimate outcome of this
litigation will not have a material adverse effect on the
Company's business or financial condition because we believe
OCAP's claims are without merit and even if they were, Scherer
has agreed to indemnify Paco against all liabilities
(including fees and expenses incurred after March 31, 1992) in
the matter.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Company held its annual meeting of shareholders on
April 30, 1997.
(c) Class I directors (with a term expiring in 2000) were
elected by a vote of:
For Against
--- -------
William H. Longfield 12,743,618 239,559
Monroe E. Trout 12,741,654 241,526
Anthony Welters 12,745,608 237,570
William G. Little 12,742,980 240,197
Tenley E. Albright, George W. Ebright, L. Robert
Johnson, John P. Neafsey, J. Roffe Wike, II and Geoffrey
F. Worden continued their term of office after the
meeting.
The appointment of Coopers & Lybrand as the Company's
independent accountants for the year ending December 31,
1997 was approved by a vote of 12,867,374 for the
appointment and 89,520 against, with 26,286 abstentions.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) See Index to Exhibits on pages F-1 of this Report.
(b) No reports on Form 8-K have been filed for the quarter
ended June 30, 1997.
<PAGE> Page 14
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE WEST COMPANY, INCORPORATED
-----------------------------------
(Registrant)
August 14, 1997
------------- ---------------------------------
Date (Signature)
Anna Mae Papso
Vice President and
Corporate Controller
(Chief Accounting Officer)
Page 15
INDEX TO EXHIBITS
Exhibit Page
Number Number
(3) (a) Restated Articles of Incorporation of the
Company, incorporated by reference to Exhibit
(4) to the Company's Registration Statement
on Form S-8 (Registration No. 33-37825).
(3) (b) Bylaws of the Company, as amended and
restated December 13, 1994, incorporated by
reference to the Company's Annual Report on
Form 10-K for the year ended December 31,
1994 (File No. 1-8036).
(4) (a) Form of stock certificate for common stock
incorporated by reference to Exhibit (3) (b)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989 (File
No. 1-8036).
(4) (b) Flip-In Rights Agreement between the Company
and American Stock Transfer & Trust Company,
as Rights Agent, dated as of January 16,
1990, incorporated by reference to Exhibit 1
to the Company's Form 8-A Registration
Statement (File No. 1-8036).
(4) (c) Flip-Over Rights Agreement between the
Company and American Stock Transfer & Trust
Company, as Rights Agent, dated as of January
16, 1990, incorporated by reference to
Exhibit 2 to the Company's Form 8-A
Registration Statement (File No. 1-8036).
(11) Not Applicable.
(15) None.
(18) None.
(19) None.
(22) None.
(23) None.
(24) None.
(27) Financial Data Schedules.
(99) None.
F - 1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 41,400
<SECURITIES> 0
<RECEIVABLES> 70,800
<ALLOWANCES> 0
<INVENTORY> 40,100
<CURRENT-ASSETS> 15,400
<PP&E> 428,300
<DEPRECIATION> 226,900
<TOTAL-ASSETS> 475,600
<CURRENT-LIABILITIES> 64,200
<BONDS> 89,100
<COMMON> 4,200
0
0
<OTHER-SE> 255,200
<TOTAL-LIABILITY-AND-EQUITY> 475,600
<SALES> 237,800
<TOTAL-REVENUES> 237,800
<CGS> 168,800
<TOTAL-COSTS> 168,800
<OTHER-EXPENSES> (500)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,800
<INCOME-PRETAX> 29,600
<INCOME-TAX> 11,300
<INCOME-CONTINUING> 18,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,500
<EPS-PRIMARY> 1.12
<EPS-DILUTED> .0
</TABLE>
