01—Abstract
Summary
Summary of the 10-K filed February 27, 2013. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. reported net sales of $1,266.4 milliona for 2012, up from $1,192.3 million in 2011, with consolidated net sales increasing by 6.2% (10.1% excluding foreign currency effects).
Operating profit rose to $135.1 millionb from $109.6 million, and net income was $80.7 million, or $2.30 per diluted share, compared with $75.5 million, or $2.16 per diluted share, in 2011. Gross margin improved to 30.6% from 28.5%, driven mainly by sales price increases and a favorable product mix, with the Packaging Systems segment (net sales of $915.1 million) generating most of the operating profit at $187.5 million. The company's balance sheet and cash generation strengthened over the year.
Net cash provided by operating activities was $187.4 millionc, versus $130.7 million in 2011, and cash and cash equivalents ended the year at $161.9 million. Total debt rose to $411.5 million from $349.4 million, largely from the June 2012 repurchase of $158.4 million of Convertible Debentures and the July 2012 issuance of $168.0 million in senior unsecured notes. Net debt-to-total invested capital improved to 25.5% from 28.2%.
Management's 2013 outlook anticipates continued revenue improvement from higher-value closure products and proprietary delivery systems, with capital spending of up to $150 milliond, excluding about $35 million tied to the new corporate office and research building. The order backlog was $354.0 million at December 31, 2012, all expected to be filled in 2013, up from $289.8 million a year earlier. Key risks cited include reliance on injectable drug products, pricing pressure, currency exposure (53% of sales outside the United States), raw material costs, and regulatory approval timelines.
02—Key points
Key Highlights
- Net sales of $1,266.4 million in 2012, up 6.2% from $1,192.3 million in 2011; up 10.1% excluding foreign currency effects.
- Operating profit of $135.1 million, up 23.3% from $109.6 million; gross margin rose to 30.6% from 28.5%.
- Net income of $80.7 million, or $2.30 per diluted share, versus $75.5 million, or $2.16 per diluted share, in 2011.
- Net cash provided by operating activities of $187.4 million, compared with $130.7 million in 2011.
- Order backlog of $354.0 million at December 31, 2012, up from $289.8 million at the end of 2011, all expected to be filled in 2013.
- Total debt increased to $411.5 million from $349.4 million, after refinancing $158.4 million of Convertible Debentures; net debt-to-total invested capital fell to 25.5% from 28.2%.
- Quarterly dividend increased to $0.19 per share from $0.18, beginning with the fourth quarter 2012 dividend.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, West Pharmaceutical Services kept $0.06.
- Revenue$1.27B100.0%
- Cost of revenue−$878.7M69.4%
- Gross profit$387.7M30.6%
- Operating costs−$252.6M19.9%
- Operating income$135.1M10.7%
- Interest, other & tax−$54.4M4.3%
- Net income$80.7M6.4%
Where FY2012 revenue went
$1.27B- Cost of revenue: $878.7M, 69% of revenue
- SG&A: $218.1M, 17% of revenue
- Net income: $80.7M, 6.4% of revenue
- R&D: $33.2M, 2.6% of revenue
- Interest, other & tax: $54.4M, 4.3% of revenue
Kept 6.4% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 27, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $1.27B$1.19B | +6.2% |
| Cost of Revenue | $878.70M$853.00M | +3.0% |
| Gross Profit | $387.70M$339.30M | +14.3% |
| R&D Expenses | $33.20M$29.10M | +14.1% |
| SG&A Expenses | $218.10M$191.10M | +14.1% |
| Operating Income | $135.10M$109.60M | +23.3% |
| Interest Expense | $16.70M$18.20M | −8.2% |
| Net Income | $80.70M$75.50M | +6.9% |
| EPS (Basic) | $1.19$1.12 | +6.2% |
| EPS (Diluted) | $1.15$1.08 | +6.5% |
| Shares Outstanding (Basic) | 68.10M67.30M | +1.2% |
| Shares Outstanding (Diluted) | 71.80M74.00M | −3.0% |
05—Questions
Frequently Asked Questions
What drove the improvement in profitability in 2012?
Gross profit rose to $387.7 million from $339.3 million. Management attributed the gross margin increase primarily to sales price increases and a favorable mix of products sold, partly offset by higher raw material costs and wage, benefit and other cost increases. Packaging Systems operating profit increased 22.9%, and Delivery Systems operating profit increased 87.8%.
How did the company's debt position change in 2012?
In June 2012, West repurchased $158.4 million of its Convertible Debentures, and in July 2012 it issued $168.0 million of senior unsecured notes with a weighted average coupon of 3.87%. A loss on debt extinguishment of $11.6 million was recognized. Total debt at year-end was $411.5 million, and the company was in compliance with all debt covenants.
What is the company's outlook for 2013?
Management anticipates continued revenue improvement driven by customers moving up the product quality and value scale in Packaging Systems and growth in Delivery Systems' proprietary products. Capital spending is expected to be up to $150 million, excluding about $35 million associated with the new corporate office and research building.
What are the main risks highlighted in the filing?
Key risks include dependence on customers' injectable drug products, continued pricing pressure, consolidation in the pharmaceutical industry, regulatory approval timelines, raw material and energy price volatility, single-source supplier reliance, and foreign currency exposure. Sales outside the United States account for 53% of consolidated net sales.
How concentrated is the customer base?
The ten largest customers accounted for 40.4% of consolidated net sales in 2012, but none of these customers individually accounted for more than 10% of net sales.
06—Continue