01—Abstract
Summary
Summary of the 10-K filed March 30, 2000. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. (filed under the name West Pharmaceutical Services, Inc., formerly The West Company, Incorporated) reported 1999 net sales of $469.1 milliona, up from $449.7 million in 1998, and net income of $38.7 million, or $2.59 per share, compared with $6.7 million, or $.41 per share, in 1998.
The 1999 result includes net tax benefits of $2.3 millionb, a $4.2 million write-off of a plastic product line that had not gained market acceptance, and a $3.5 million reversal of part of the 1996 restructuring charge. The 1998 result included a $28.2 million charge for acquired in-process research and development from the DanBioSyst UK acquisition. Excluding these items, net income was $36.3 million, or $2.44 per share, versus $37.4 million, or $2.28 per share, in 1998.
The company operates three segments: Device Product Development (the largest, with $384.0 millionc of 1999 net sales), Contract Services ($83.8 million), and Drug Delivery Research and Development ($1.3 million). The company stated that it expects a decline in earnings in the first half of 2000, with a significant decline in first-quarter earnings versus the same periods in 1999. Management cited the time required to secure additional contract services projects and no significant revenue from drug delivery research and development.
Contract manufacturing and packaging sales fell 11% in 1999, and the Clinical Services business acquired in April 1999 added $10.1 milliond to 1999 sales. Cash flow from operations was $69.4 million, and total debt rose to $171.1 million at year-end 1999 from $141.1 million, following a $100 million, 10-year private debt placement. The company's revolving credit agreement expires in August 2000, and discussions for a replacement facility had begun.
02—Key points
Key Highlights
- Net sales of $469.1 million in 1999, up from $449.7 million in 1998; the filing states the strong U.S. dollar reduced reported sales by about $10 million, and sales grew 6.5% at constant exchange rates.
- Net income of $38.7 million, or $2.59 per share (basic), versus $6.7 million, or $.41 per share, in 1998, which included a $28.2 million acquired in-process R&D charge.
- Excluding one-time items, 1999 net income was $36.3 million, or $2.44 per share, compared with $37.4 million, or $2.28 per share, in 1998.
- The company expects a decline in earnings in the first half of 2000, with a significant decline in first-quarter 2000 earnings versus 1999.
- Device Product Development generated $384.0 million of 1999 net sales and $93.4 million of operating profit; Contract Services generated $83.8 million in sales and $4.3 million in operating profit.
- Total debt rose to $171.1 million at December 31, 1999, from $141.1 million, after a $100 million, 10-year private senior note placement at 6.81%.
- The company repurchased 530,800 common shares at an average cost of $34.10 in 1999 and paid $10.3 million in cash dividends ($.65 per share).
03—Questions
Frequently Asked Questions
Why did net income rise so sharply in 1999 compared with 1998?
The 1998 results included a $28.2 million charge for acquired in-process research and development tied to the DanBioSyst UK acquisition, which was non-deductible and raised the 1998 effective tax rate to 76.1%. Net income for 1999 was $38.7 million, which included $2.3 million of net tax benefits, a $4.2 million write-off of a plastic product line, and a $3.5 million reversal of a 1996 restructuring charge. Excluding these items, net income was $36.3 million in 1999 versus $37.4 million in 1998.
What does the company expect for 2000 earnings?
The company currently expects a decline in earnings in the first half of 2000, with a significant decline in first-quarter earnings versus the same periods in 1999. The filing attributes this to the time needed to secure additional contract services projects, device product development sales growth at close to market rates, and no significant revenue from drug delivery research and development.
How is the contract services business performing?
Contract services sales increased 1.4% for the full year 1999, helped by the Clinical Services acquisition, which added $10.1 million to sales but was below expectations due to project postponements and cancellations. Sales of contract manufacturing and packaging services decreased 11% compared with 1998, due to lost sales from two product lines moved to in-house production, low demand, launch postponements, and regulatory-related cancellations.
How much debt does the company carry, and what are its upcoming financing needs?
Total debt was $171.1 million at December 31, 1999, up from $141.1 million at year-end 1998. Long-term debt, excluding the current portion, was $141.5 million. The company's revolving credit agreement provides up to $125 million through August 2000 and expires in August 2000; management said it had begun discussions for a replacement facility. Planned 2000 capital expenditures are projected at $50 million.
What were the main drivers of growth in the device product development segment?
Sales of manufactured device products for healthcare and consumer markets increased 7.8% at constant exchange rates in 1999, with all geographic regions growing. Drivers included increased demand for higher-value components for insulin and vaccines, customers switching to higher-value components for production efficiency, and increased customer inventories tied to year 2000 contingency planning. European sales rose 9.8% and domestic sales rose 5.9%.
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