<PAGE>
This report contains 18 pages
(including cover page)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1997
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Commission File Number 1-8036
------
THE WEST COMPANY, INCORPORATED
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1210010
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 Gordon Drive, PO Box 645,
Lionville, PA 19341-0645
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code 610-594-2900
--------------
N/A
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Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve
months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No .
--- ---
March 31, 1997 -- 16,438,787
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Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
<PAGE> Page 2
Index
Form 10-Q for the
Quarter Ended March 31, 1997
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations for the
Three Months ended March 31, 1997 and March
31, 1996 3
Condensed Consolidated Balance Sheets as of March
31, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended March 31, 1997 and
March 31, 1996 6
Notes to Consolidated Financial Statements 7
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 6. Exhibits and reports on Form 8-K 13
SIGNATURES 14
Index to Exhibits F-1
<PAGE> Page 3
Part I - Financial Information
Item 1. Financial Statements
The West Company, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1997 March 31, 1996
--------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 114,700 100 % $113,900 100 %
Cost of goods sold 82,000 71 82,600 72
--------------------------------------------------------------------------------------------------
Gross profit 32,700 29 31,300 28
Selling, general and administrative expenses 18,000 16 19,100 17
Restructuring charge - - 21,500 19
Other income, net (300) - (100) -
--------------------------------------------------------------------------------------------------
Operating profit (loss) 15,000 13 (9,200) (8)
Interest expense 1,400 1 1,600 1
--------------------------------------------------------------------------------------------------
Income (loss) before income taxes 13,600 12 (10,800) (9)
and minority interests
Provision for (recovery of) income taxes 5,200 5 (2,400) (2)
--------------------------------------------------------------------------------------------------
Income (loss) from consolidated operations 8,400 7 % (8,400) (7) %
Equity in net income of affiliated companies - --- 200 ---
--------------------------------------------------------------------------------------------------
Net income (loss) $ 8,400 (8,200)
--------------------------------------------------------------------------------------------------
Net income (loss) per share $ .51 $ (.49)
Average shares outstanding 16,408 16,631
See accompanying notes to interim financial statements.
</TABLE>
Page 4
<PAGE>
The West Company, Incorporated and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
ASSETS March 31, 1997 Dec. 31, 1996
-------------- -------------
<S> <C> <C>
Current assets:
Cash, including equivalents $ 28,900 $ 27,300
Accounts receivable 76,800 69,300
Inventories 43,700 44,000
Current deferred income tax benefits 9,900 10,200
Other current assets 8,000 5,900
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Total current assets 167,300 156,700
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Net property, plant and equipment 202,300 210,300
Investments in affiliated companies 23,000 24,100
Goodwill 55,500 58,900
Intangibles and other assets 28,400 27,400
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Total Assets $476,500 $ 477,400
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 900 $ 1,000
Notes payable 1,400 1,900
Accounts payable 21,600 23,900
Salaries, wages, benefits 13,200 13,900
Income taxes payable 7,300 3,100
Other current liabilities 25,300 21,800
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Total current liabilities 69,700 65,600
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Long-term debt, excluding current portion 90,600 95,500
Deferred income taxes 38,300 39,700
Other long-term liabilities 24,200 24,300
Minority interests 300 300
Shareholders' equity 253,400 252,000
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<PAGE>
Page 5
Total Liabilities and Shareholders' Equity $ 476,500 $477,400
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See accompanying notes to interim financial statements.
</TABLE>
Page 6
<PAGE>
The West Company Incorporated and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1997 March 31, 1996
---------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income, plus net non-cash items $ 16,800 $ 17,500
Changes in assets and liabilities (5,800) (6,500)
------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,000 11,000
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Cash flows from investing activities:
Property, plant and equipment acquired (6,300) (8,600)
Proceeds from sale of assets 200 100
Customer advances, net of repayments (300) -
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Net cash used in investing activities (6,400) (8,500)
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Cash flows from financing activities:
New long-term debt 100 3,000
Repayment of long-term debt (300) (7,500)
Notes payable, net (400) 1,000
Dividend payments (2,300) (2,200)
Sale of common stock, net 800 200
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Net cash used in financing activities (2,100) (5,500)
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Effect of exchange rates on cash (900) (100)
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Net increase (decrease) in cash, including equivalents $ 1,600 $(3,100)
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See accompanying notes to interim financial statements.
</TABLE>
Page 7
<PAGE>
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
The interim consolidated financial statements for the quarter
ended March 31, 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 March 31, 1997 and the
related unaudited Consolidated Statement of Operations and
the unaudited Condensed Consolidated Statement of Cash Flows
for the three month period then ended and for the comparative
period in 1996 contain all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the
financial position as of March 31, 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 prior year adjustments,
if any, are recorded as identified.
2. Inventories at March 31, 1997 and December 31, 1996 are
summarized as follows:
(in thousands) 1997 1996
-------- --------
Finished goods $ 16,800 $ 18,000
Work in process 10,200 8,500
Raw materials and supplies 16,700 17,500
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$ 43,700 $ 44,000
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Page 8
<PAGE>
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
3. The carrying value of property, plant and equipment
at March 31, 1997 and December 31, 1996 determined as follows:
(in thousands) 1997 1996
-------- --------
Property, plant and equipment $424,100 $431,600
Less accumulated depreciation 221,800 221,300
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Net property, plant and equipment $202,300 $210,300
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-------- --------
4. Common stock issued at March 31, 1997 was 16,438,787 shares,
of which 405,948 shares were held in treasury. Dividends of
$.14 per common share were paid in the first quarter of 1997
and a dividend of $.14 per share payable to holders of
record on April 23, 1997 was declared on March 7, 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 March 31, 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 calculating 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 on the weighted average common shares outstanding,
because dilution from the Company's common stock equivalents
was immaterial.
Page 9
The West Company, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
SFAS 128 also requires presentation of diluted EPS, which
considers the issuance of common stock for all dilutive
potential common shares. 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 three
months ended March 31, 1997 and March 31, 1996, is as
follows (in thousands, except per share data):
1997 1996
----- -----
Net income $ 8,400 $ (8,200)
Diluted EPS $ .51 $ (.49)
Weighted average shares outstanding 16,515 16,631
7. At March 31, 1997 the cumulative number of employees
terminated under the restructuring plan announced on
March 29, 1996 was 158 and the total payout of severance
and benefits was $6.0 million. Downsizing of certain
operations will be substantially complete by the end of the
second quarter of 1997.
8. 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 Acquistition
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 March 1996, the court dismissed all of
OCAP's claims and all of Scherer's counterclaims. OCAP has
filed a notice of appeal, and the defendants have filed a
notice of cross-appeal. The court has allowed OCAP and the
defendants until July, 1997 to perfect their appeals.
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 Quarter Ended March 31, 1997 Versus
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March 31, 1996.
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Net Sales
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Net sales for the first quarter of 1997 were $114.7 million, a 1%
increase compared with the same quarter in 1996. Sales increased
for contract services in the United States but were almost
entirely offset by the effect of a stronger U.S. dollar, which
had the effect of reducing reported sales by $2.7 million.
Increased sales for the Company's manufactured products sold to
the U.S. health care market were offset by weaker sales in
international markets. Sales of $1 million in the 1996
comparable period relate to the machinery business which was sold
in August 1996.
Gross Profit
------------
The gross profit margin for the first quarter 1997 was 28.5% of
net sales compared with 27.5% for the same period in 1996.
Margins were boosted by a favorable product mix in the first
quarter for the Company's manufactured products and
improved cost efficiencies in our manufacturing operations. The
Company implemented its plan to shift certain production to
lower-cost facilities, as announced in the first quarter of 1996.
Selling, General and Administrative
-----------------------------------
Selling, general and administrative expenses decreased $1.1
million compared with the first quarter 1996, and are 15.7% as a
percentage of sales compared with 16.8% in 1996. The translation
impact of a stronger U.S. dollar and workforce reductions related
to the 1996 restructuring plan are the primary reasons for the
favorable variance.
Other Income and Expense
--------------------------
Other income increased by $0.2 million compared with the same
period in 1996 due to higher interest income. The income relates
to higher average temporary cash investments.
Page 11
Management's Discussion and Analysis of Financial Condition
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and Results of Operations.(Continued)
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Interest Expense
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Lower rates and lower average debt levels led to a reduction in
interest expense versus the first quarter 1996.
Equity in Net Income of Affiliated Companies
--------------------------------------------
Daikyo Seikyo, Ltd, a Japanese company in which the Company owns
a 25% equity stake, had lower results for the first quarter 1997
versus the same quarter in 1996.
Taxes
-----
The effective tax rate for the first quarter 1997 was 38.5% which
is equivalent to the tax rate for the first quarter 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 increase in the estimated 1997 tax
relates to the mix in geographic source of the income.
Net Income/Loss
----------------
Net income for the first quarter 1997 was $8.4 million, or $.51
per share. This compares with $.41 per share for the first
quarter 1996, excluding the 1996 first quarter restructure charge
of $.90 per share. The net loss reported for the 1996 first
quarter was $8.2 million, or $.49 per share.
Financial Position
------------------
Cash flow from operations was more than adequate to fund capital
expenditures and make dividend payments of $.14 per share, and
resulted in further reduction of debt and an increase in
operating cash. The working capital ratio at March 31, 1997 was
2.4 to 1.
Total debt as a percentage of total invested capital was 26.8% at
March 31, 1997, compared with 28.1% at December 31, 1996.
Operating cash totaled $28.9 million at March 31, 1997. At March
31, 1997, the Company and subsidiaries had available unused lines
of credit of $76.8 million. On April 7, 1997, the Company agreed
to terms amending an existing revolving credit facility,
increasing the amount available for borrowing and adjusting the
rate schedule for applicable margins 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, renewable at the lenders' option.
<PAGE>
Page 12
Management's Discussion and Analysis of Financial Condition
----------------------------------------------------------
and Results of Operations.(Continued)
--------------------------------------
Management believes available borrowing capacity and cash flow
from operations indicates the ability to meet current
requirements and fund substantial future growth.
<PAGE> 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 Acquistition
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 March 1996, the court dismissed all of
OCAP's claims and all of Scherer's counterclaims. OCAP has
filed a notice of appeal, and the defendants have filed a
notice of cross-appeal. The court has allowed OCAP and the
defendants until July, 1997 to perfect their appeals.
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 6. Exhibits and Reports on Form 8-K
__________________________________
(a) See Index to Exhibits on pages F-1 and F-2 of this
Report.
(b) No reports on Form 8-K have been filed for the quarter
ended March 31, 1997.
<PAGE> Page 14
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE WEST COMPANY, INCORPORATED
-----------------------------------
(Registrant)
May 15, 1997 /s/ John A. Vigna
------------- ---------------------------------
Date (Signature)
John A. Vigna
Senior Vice President,
Finance and Administration
and Chief Financial 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).
(10) (a) Form of agreement between the Company and
certain of its executive officers,
incorporated by reference to Exhibit 10 (e)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991
(File No. 1-8036).
(10) (b) Schedule of agreements with executive
officers.
(11) Not Applicable.
(15) None.
(18) None.
F - 1
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Page 16
Exhibit Page
Number Number
(19) None.
(22) None.
(23) None.
(24) None.
(27) Financial Data Schedules.
(99) None.
F - 2
Exhibit 10 (b)
SCHEDULE OF AGREEMENTS WITH EXECUTIVE OFFICERS
----------------------------------------------
The Company entered into agreements with three of its
executive officers: Steven A. Ellers, John A. Vigna and Donald
E. Morel. Under the agreements the Company will pay these officers
salary and benefits following a change in control of the Company.
The agreements also restrict them from competing with the Company
following their employment termination. Each agreement is
substantially identical in all material respects to the agreement
set forth in Exhibit 10 (a).
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 28,900
<SECURITIES> 0
<RECEIVABLES> 76,800
<ALLOWANCES> 0
<INVENTORY> 43,700
<CURRENT-ASSETS> 17,900
<PP&E> 424,100
<DEPRECIATION> 221,800
<TOTAL-ASSETS> 476,500
<CURRENT-LIABILITIES> 69,700
<BONDS> 90,600
<COMMON> 4,200
0
0
<OTHER-SE> 249,200
<TOTAL-LIABILITY-AND-EQUITY> 476,500
<SALES> 114,700
<TOTAL-REVENUES> 114,700
<CGS> 82,000
<TOTAL-COSTS> 82,000
<OTHER-EXPENSES> (300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,400
<INCOME-PRETAX> 13,600
<INCOME-TAX> 5,200
<INCOME-CONTINUING> 8,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,400
<EPS-PRIMARY> .51
<EPS-DILUTED> .0
</TABLE>
