What drove the sharp increase in West's 2006 sales?

Net sales rose to $913.3 million from $699.7 million. The filing attributes 13.4 percentage points of the 30.5% increase to the timing impact of the 2005 acquisitions of TGI, Medimop and Monarch. Excluding acquisitions and foreign currency translation, net sales increased 16.5%. Demand for pharmaceutical packaging components and healthcare devices was the main organic driver.

How much did the company reduce its debt in 2006?

Total debt fell to $236.3 million at December 31, 2006, from $281.0 million a year earlier. The debt-to-total-invested-capital ratio dropped to 36.0% from 45.0%. Revolving credit borrowings were reduced by $57.7 million, and $100.0 million of 6.81% senior notes were prepaid and replaced with euro-denominated notes.

What are the main risks to the business according to the filing?

The filing cites dependence on injectable drug delivery, pricing pressure from customers and competitors, and reliance on single-source suppliers for many critical raw materials. It also cites exposure to raw material and energy price increases, which may not be passed on to customers, and international risks, since about 49% of net sales come from outside the U.S. Regulatory oversight of customers' products is another risk factor.

What is the company planning for future growth?

West plans to estimate 2007 capital spending of approximately $130 million, with more than 80% supporting Pharmaceutical Systems. It intends to expand molding and tooling capacity in Germany, France, Singapore, Serbia and the United Kingdom, and to establish a manufacturing presence in China, including a plastic injection-molding plant planned for completion in 2009 and a joint venture for a rubber components plant expected in 2011.

How did shareholder returns and dividends look in 2006?

The stock price range for 2006 was $52.77 to $24.83. Dividends paid per share were $0.49 for the year, and the quarterly dividend was raised to $0.13 in the fourth quarter of 2006. Diluted earnings per share were $2.00 including discontinued operations, and return on invested capital was 11.2%.

WST 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 1, 2007. Cited figures are marked; the original filing is the authoritative source.

West Pharmaceutical Services, Inc. reported net sales of $913.3 million^a for fiscal 2006, up 30.5% from $699.7 million in 2005.

Operating profit rose to $101.0 million^b from $73.4 million, and net income was $67.1 million, or $2.00 per diluted share, compared with $46.4 million in 2005. Income from continuing operations was $61.5 million, or $1.83 per diluted share. Growth was driven by the Pharmaceutical Systems segment, where net sales reached $644.1 million, and by the Tech Group segment, which grew to $279.2 million, helped by the 2005 acquisitions of Monarch, Tech Group Inc. (TGI) and Medimop.

Acquisition timing contributed 13.4 percentage points of the sales increase. Management cites rising demand for injectable and biotech drugs and expects 2007 capital spending of approximately $130 million^c, including new capacity in China. Balance sheet and cash flow improved during the year.

Operating cash flow was $139.4 million^d, and corporate cash flow was $33.2 million. Total debt fell to $236.3 million from $281.0 million, and the debt-to-total-invested-capital ratio was 36.0%, down from 45.0%. The company prepaid $100.0 million of 6.81% senior notes in February 2006, financed with new euro-denominated notes, and recorded a $5.9 million pretax loss on the extinguishment.

Shareholders' equity rose to $414.5 million, although the adoption of SFAS 158 reduced equity by $19.7 million. Return on invested capital was 11.2%. The filing also flags risks.

Management says the company depends on injectable drug delivery, faces pricing pressure, relies on single-source suppliers for many critical raw materials, and is exposed to raw material and energy costs. About 49% of consolidated net sales come from outside the U.S. The company also notes that its European plants were operating at or near 100% of capacity, and that on-time delivery has declined because of capacity constraints.

02—Key points

Key Highlights

Net sales rose 30.5% to $913.3 million in 2006, with acquisitions contributing 13.4 percentage points of the increase and foreign currency 0.6 percentage points.
Operating profit increased 37.5% to $101.0 million, and net income reached $67.1 million, or $2.00 per diluted share.
Pharmaceutical Systems net sales were $644.1 million, and Tech Group net sales were $279.2 million, up from $170.1 million in 2005.
Operating cash flow was $139.4 million, up from $85.6 million, and corporate cash flow was $33.2 million.
Total debt declined to $236.3 million from $281.0 million, and the debt-to-total-invested-capital ratio fell to 36.0% from 45.0%.
Order backlog was $250.1 million at December 31, 2006, up from $182.5 million at the end of 2005.
Management estimates 2007 capital spending of approximately $130 million, including a planned new plastic injection-molding plant in China with completion planned for 2009.

03—Questions

Frequently Asked Questions

What drove the sharp increase in West's 2006 sales?
Net sales rose to $913.3 million from $699.7 million. The filing attributes 13.4 percentage points of the 30.5% increase to the timing impact of the 2005 acquisitions of TGI, Medimop and Monarch. Excluding acquisitions and foreign currency translation, net sales increased 16.5%. Demand for pharmaceutical packaging components and healthcare devices was the main organic driver.
How much did the company reduce its debt in 2006?
Total debt fell to $236.3 million at December 31, 2006, from $281.0 million a year earlier. The debt-to-total-invested-capital ratio dropped to 36.0% from 45.0%. Revolving credit borrowings were reduced by $57.7 million, and $100.0 million of 6.81% senior notes were prepaid and replaced with euro-denominated notes.
What are the main risks to the business according to the filing?
The filing cites dependence on injectable drug delivery, pricing pressure from customers and competitors, and reliance on single-source suppliers for many critical raw materials. It also cites exposure to raw material and energy price increases, which may not be passed on to customers, and international risks, since about 49% of net sales come from outside the U.S. Regulatory oversight of customers' products is another risk factor.
What is the company planning for future growth?
West plans to estimate 2007 capital spending of approximately $130 million, with more than 80% supporting Pharmaceutical Systems. It intends to expand molding and tooling capacity in Germany, France, Singapore, Serbia and the United Kingdom, and to establish a manufacturing presence in China, including a plastic injection-molding plant planned for completion in 2009 and a joint venture for a rubber components plant expected in 2011.
How did shareholder returns and dividends look in 2006?
The stock price range for 2006 was $52.77 to $24.83. Dividends paid per share were $0.49 for the year, and the quarterly dividend was raised to $0.13 in the fourth quarter of 2006. Diluted earnings per share were $2.00 including discontinued operations, and return on invested capital was 11.2%.

04—Continue

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