01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. reported record 2007 consolidated net sales of $1,020.1 milliona, exceeding $1 billion for the first time in its history, up from $913.3 million in 2006.
Net income was $70.7 millionb, or $2.05 per diluted share, compared with $67.1 million in 2006. Income from continuing operations was $71.2 million, while operating profit declined to $94.9 million from $101.0 million, reflecting $26.4 million of pre-tax restructuring, impairment and Brazilian tax charges. The Pharmaceutical Systems segment drove growth, with net sales of $741.8 million and operating profit of $141.9 million, while the Tech Group segment's sales rose to $289.2 million but its operating profit fell to $11.6 million.
The Tech Group was hurt by Pfizer's October 2007 decision to discontinue marketing Exubera®, which led to a $12.9 millionc impairment of the related Nektar contract intangible asset and a December 2007 restructuring plan with estimated charges of approximately $12.0 million. Management expects 2008 Pharmaceutical Systems sales growth of approximately 7% and a 2008 capital spending budget of approximately $140 million, and it anticipates Tech Group sales to decline about 7% in 2008 as Exubera® revenue ends. Balance sheet leverage increased during the year.
Total debt rose to $395.1 milliond from $236.3 million, mainly due to $161.5 million of 4% convertible junior subordinated debentures due 2047, and the net debt-to-total invested capital ratio reached 36.9% versus 31.1% a year earlier. Cash and cash equivalents increased to $108.4 million. The company also repurchased 980,300 shares for $39.4 million under its August 2007 program and announced on February 27, 2008 that it does not intend to make further repurchases.
02—Key points
Key Highlights
- Record net sales of $1,020.1 million in 2007, up from $913.3 million in 2006, with foreign currency translation contributing $41.4 million of the increase.
- Net income of $70.7 million, or $2.05 per diluted share, versus $67.1 million in 2006; income from continuing operations was $71.2 million.
- Operating profit fell to $94.9 million from $101.0 million, including $26.4 million of unallocated charges for restructuring, a Nektar-related impairment and Brazilian tax provisions.
- Pharmaceutical Systems segment net sales rose to $741.8 million, with operating profit of $141.9 million; Tech Group segment sales were $289.2 million with operating profit of $11.6 million.
- Exubera® device sales were approximately $32 million, or slightly more than 11% of Tech Group segment revenues in 2007, and the company does not anticipate revenue from the device in 2008 or later.
- Total debt increased to $395.1 million from $236.3 million after issuing $161.5 million of 4% convertible debentures due 2047; the net debt-to-total invested capital ratio was 36.9% versus 31.1%.
- Order backlog was $253.0 million at December 31, 2007, all expected to be filled in fiscal 2008, compared with $250.1 million at the end of 2006.
03—Questions
Frequently Asked Questions
What drove the decline in operating profit despite record sales?
Operating profit was $94.9 million versus $101.0 million in 2006. The filing attributes $26.4 million of unallocated costs to a $3.4 million restructuring charge, a $12.9 million impairment of a customer contract intangible asset tied to Exubera®, and a $10.1 million provision for Brazilian tax issues. Tech Group operating profit also fell by $6.5 million, largely due to costs of relocating and validating a new Michigan facility.
What is the impact of the Exubera® discontinuation on West?
After Pfizer announced on October 18, 2007 that it would discontinue marketing Exubera®, West recorded a $12.9 million impairment of its Nektar contract intangible asset. Sales of the device were approximately $32 million, or slightly more than 11% of Tech Group segment revenues in 2007. An agreement reached with Nektar in February 2008 provides full reimbursement for certain costs and funding to maintain the production facility through December 31, 2008.
How did the company's debt and liquidity change in 2007?
Total debt rose to $395.1 million from $236.3 million, mainly due to $161.5 million of 4% convertible junior subordinated debentures due March 15, 2047, which generated net proceeds of $156.3 million. Cash and cash equivalents increased to $108.4 million from $47.1 million. Management stated that operating cash flow, cash on hand and available credit facilities are more than sufficient to meet its operating, research and development, capital investment and financing needs.
What are management's expectations for 2008?
Management expects sales growth of approximately 7% in the Pharmaceutical Systems segment and projects Tech Group sales to be approximately 7% below 2007 levels. Consolidated research and development spending is expected to reach $20 million, about 25% more than 2007. The 2008 capital spending budget is approximately $140 million, of which approximately $20 million is for information systems projects.
What did the company do with its share repurchases and dividends?
During 2007 West purchased 980,300 shares under its August 2007 program at a total cost of $39.4 million, or an average of $40.23 per share. On February 27, 2008 the company announced it does not intend to make further share repurchases. Cash dividends paid totaled $17.5 million ($0.53 per share), and the quarterly dividend was raised to $0.14 per share in the fourth quarter of 2007.
04—Continue