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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 September 30, 2003
Commission File Number 1-8036
WEST PHARMACEUTICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1210010
- ------------------------------------------ ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 Gordon Drive, PO Box 645,
Lionville, PA 19341-0645
- ------------------------------------------ ----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-594-2900
N/A
- ----------------------------------------------------------------------------------
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 19434 during
the preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes_X_ No __
September 30, 2003 - 14,560,598
Indicate the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Page 2
Index
Form 10-Q for the Quarter Ended September 30, 2003
Page
Part I -Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income for the Quarter and Nine Months ended
September 30, 2003 and September 30, 2002 3
Condensed Consolidated Balance Sheets at September 30, 2003 and December
31, 2002 4
Consolidated Statement of Shareholders' Equity for the Nine Months ended
September 30, 2003 5
Condensed Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 2003 and September 30, 2002 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 22
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
Index to Exhibits F-1,
F-2
Page 3
Part I. Financial Information
Item 1. Financial Statements.
West Pharmaceutical Services, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
Quarter Ended Nine Months Ended
Sept. 30, 2003 Sept. 30, 2002 Sept. 30, 2003 Sept. 30, 2002
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 120,100 $ 104,100 $ 364,300 $ 312,300
Cost of goods and services sold 84,300 77,800 250,700 224,500
- -------------------------------------------------------------------------------------------------------------------
Gross profit 35,800 26,300 113,600 87,800
Selling, general and administrative expenses 27,800 19,100 79,000 60,900
Costs associated with plant explosion, net 1,100 - 9,900 -
Restructuring charge - 9,100 - 9,100
Other (income) expense, net - 400 500 (2,000)
- -------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 6,900 (2,300) 24,200 19,800
Interest expense, net 2,000 2,100 5,600 7,000
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 4,900 (4,400) 18,600 12,800
Provision for income taxes 1,500 (2,800) 5,700 3,200
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from consolidated operations 3,400 (1,600) 12,900 9,600
Equity in net income (loss) of affiliated companies 700 (400) 1,900 (100)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 4,100 (2,000) 14,800 9,500
Discontinued operations, net of tax - 5,600 - 5,500
- -------------------------------------------------------------------------------------------------------------------
Net income $ 4,100 $ 3,600 $ 14,800 $ 15,000
===================================================================================================================
Net income (loss) per share:
Basic
Continuing operations $ 0.28 $ (0.14) $ 1.02 $ 0.66
Discontinued operations - 0.39 - 0.38
- -------------------------------------------------------------------------------------------------------------------
$ 0.28 $ 0.25 $ 1.02 $ 1.04
===================================================================================================================
Assuming dilution
Continuing operations $ 0.28 $ (0.14) $ 1.02 $ 0.66
Discontinued operations - 0.39 - 0.38
- -------------------------------------------------------------------------------------------------------------------
$ 0.28 $ 0.25 $ 1.02 $ 1.04
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 14,506 14,463 14,490 14,420
Average shares assuming dilution 14,599 14,463 14,497 14,443
Dividends declared per common share $ 0.21 $ 0.20 $ 0.61 $ 0.58
See accompanying notes to condensed consolidated financial statements.
Page 4
West Pharmaceutical Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
Sept. 30, December 31,
2003 2002
- ---------------------------------------------------------------------------------
ASSETS
Current assets:
Cash, including cash equivalents $ 54,500 $ 33,200
Accounts receivable 76,300 66,600
Inventories 45,900 41,300
Income tax refundable - 3,600
Deferred income tax benefits 5,200 5,200
Other current assets 11,500 11,900
- ---------------------------------------------------------------------------------
Total current assets 193,400 161,800
- ---------------------------------------------------------------------------------
Property, plant and equipment 524,400 499,600
Less accumulated depreciation and amortization (291,500) (276,300)
- ---------------------------------------------------------------------------------
Net property, plant and equipment 232,900 223,300
Investments in affiliated companies 20,200 18,000
Goodwill 38,600 35,500
Pension asset 49,500 53,000
Deferred income tax benefits 21,900 19,900
Insurance receivable 300 -
Patents 6,800 7,300
Other intangibles 2,000 1,700
Other assets 10,000 9,100
- ---------------------------------------------------------------------------------
Total Assets $ 575,600 $ 529,600
=================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 11,600 $ 11,700
Notes payable 4,600 4,100
Accounts payable 25,100 19,200
Accrued expenses:
Salaries, wages and benefits 23,000 17,000
Income taxes payable 5,900 9,400
Restructuring costs 500 1,400
Deferred income taxes 2,400 2,400
Other 31,100 23,000
- ---------------------------------------------------------------------------------
Total current liabilities 104,200 88,200
- ---------------------------------------------------------------------------------
Long-term debt, excluding current portion 162,700 159,200
Deferred income taxes 49,400 48,500
Other long-term liabilities 33,700 32,200
Shareholders' equity 225,600 201,500
- ---------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 575,600 $ 529,600
=================================================================================
See accompanying notes to condensed consolidated financial statements.
Page 5
West Pharmaceutical Services, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
(in thousands)
Accumulated
Capital in other
Common excess of Retained comprehensive Treasury
stock par value earnings income (loss) Stock Total
- ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $ 4,300 $ 30,900 $ 261,200 $ (13,400) $ (81,500) $ 201,500
Net income 14,800 14,800
Shares issued under stock plans (400) 2,200 1,800
Cash dividends declared (8,800) (8,800)
Foreign currency translation
adjustment 16,400 16,400
Minimum pension liability
translation adjustment (200) (200)
Fair value of financial instruments
adjustment 100 100
- ------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2003 $ 4,300 $ 30,500 $ 267,200 $ 2,900 $ (79,300) $ 225,600
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
Page 6
West Pharmaceutical Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Nine Months Ended
Sept. 30, Sept. 30,
2003 2002
- --------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities:
Net income $ 14,800 $ 15,000
Income from discontinued operations - (5,500)
Depreciation and amortization 24,400 24,400
Other non-cash items, net 3,500 5,200
Changes in assets and liabilities, net of effects of
discontinued operations 7,600 (1,800)
- --------------------------------------------------------------------------------------
Net cash provided by operating activities
of continuing operations 50,300 37,300
- --------------------------------------------------------------------------------------
Cash flows (used in) provided by investing activities:
Property, plant and equipment acquired (34,800) (30,200)
Insurance proceeds received for property damage 10,100 -
Land acquired under government grant (2,000) -
Deposit held in trust from sale of assets - 4,300
Customer advances, net of repayments 1,400 (1,300)
Loan to affiliate - (1,000)
Proceeds from sale of assets - 300
- --------------------------------------------------------------------------------------
Net cash used in investing activities
of continuing operations (25,300) (27,900)
- --------------------------------------------------------------------------------------
Cash flows (used in) provided by financing activities:
Net borrowings (repayments) under revolving
credit agreements 2,000 (7,900)
Repayment of industrial revenue bond - (6,100)
Repayment of subordinated debenture - (4,300)
Repayment of other long-term debt (500) (400)
Other notes payable, net 400 (1,100)
Dividend payments (8,700) (8,200)
Issuance of common stock 300 3,300
Purchase of treasury stock - (100)
- --------------------------------------------------------------------------------------
Net cash used in financing activities
of continuing operations (6,500) (24,800)
- --------------------------------------------------------------------------------------
Net cash provided by discontinued operations - 8,100
- --------------------------------------------------------------------------------------
Effect of exchange rates on cash 2,800 900
- --------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 21,300 (6,400)
Cash, including cash equivalents at beginning of period 33,200 42,100
- --------------------------------------------------------------------------------------
Cash, including cash equivalents at end of period $ 54,500 $ 35,700
======================================================================================
See accompanying notes to condensed consolidated financial statements.
Page 7
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
1. The interim consolidated financial statements for the three and nine-month
periods ended September 30, 2003 should be read in conjunction with the
consolidated financial statements and notes thereto of West Pharmaceutical
Services, Inc. (the Company), appearing in the Company's 2002 Annual Report
on Form 10-K. The year-end condensed consolidated balance sheet data was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Interim Period Accounting Policy
--------------------------------
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments, consisting only of normal recurring
accruals and adjustments, necessary for a fair presentation of the Company's
financial position as of September 30, 2003 and the results of operations
and cash flows for the periods ended September 30, 2003 and 2002. The
results of operations for any interim period are not necessarily indicative
of results for the full year.
Reclassification
----------------
Certain reclassifications were made to prior period financial statements to
be consistent with the current period reporting presentation.
Income Taxes
------------
The tax rate used for interim periods is the estimated annual effective
consolidated tax rate, based on the current estimate of full year results,
except that taxes related to specific events and taxes applicable to prior
year adjustments, if any, are recorded as identified.
Stock-Based Compensation
------------------------
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of the grant over
the amount an employee must pay to acquire the stock.
Page 8
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
The Company did not record compensation cost for stock options for the three
and nine-months ended September 30, 2003 and 2002 because stock option grants
were made at 100% of the fair market value of the stock on the grant date.
If the fair value based method prescribed in SFAS No. 123, "Accounting for
Stock-Based Compensation," had been applied to stock option grants, the
Company's net income and basic and diluted net income per share would have
been reduced as summarized below:
Three Months Ended Nine Months Ended
9/30/03 9/30/02 9/30/03 9/30/02
-----------------------------------------------------------------------------------------------
Net income, as reported: $ 4,100 $ 3,600 $ 14,800 $ 15,000
Add: Stock-based compensation expense
included in net income, net of tax 400 (400) 500 -
Deduct: Total stock-based compensation
expense determined under the fair value
method for all awards, net of tax (700) 100 (1,300) (1,000)
-----------------------------------------------------------------------------------------------
Pro forma net income $ 3,800 $ 3,300 $ 14,000 $ 14,000
===============================================================================================
Net income per share:
Basic, as reported $ 0.28 $ 0.25 $ 1.02 $ 1.04
Basic, pro forma $ 0.26 $ 0.23 $ 0.97 $ 0.97
Diluted, as reported $ 0.28 $ 0.25 $ 1.02 $ 1.04
Diluted, pro forma $ 0.26 $ 0.23 $ 0.97 $ 0.97
-----------------------------------------------------------------------------------------------
2. Inventories at September 30, 2003 and December 31, 2002 were as follows:
9/30/03 12/31/02
---------------------------------------------------------
Finished goods $ 18,600 $ 18,900
Work in process 10,300 7,400
Raw materials 17,000 15,000
----------------------------------------------------------
$ 45,900 $ 41,300
==========================================================
3. Comprehensive income (loss) for the three and nine-months ended September 30, 2003
and September 30, 2002 was as follows:
Three Months Ended Nine Months Ended
9/30/03 9/30/02 9/30/03 9/30/02
------------------------------------------------------------------------------------
Net income $ 4,100 $ 3,600 $ 14,800 $ 15,000
Foreign currency translation
adjustments 1,400 (700) 16,400 7,400
Minimum pension liability translation
adjustments - - (200) (200)
Fair value adjustment on derivative
financial instruments - (100) 100 (100)
-------------------------------------------------------------------------------------
Comprehensive income $ 5,500 $ 2,800 $ 31,100 $ 22,100
=====================================================================================
Page 9
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
4. Net sales to external customers and income (loss) before income taxes by
reporting segment for the three and nine-months ended September 30, 2003
and September 30, 2002 were as follows:
Three Months Ended Nine Months Ended
Net sales: 9/30/03 9/30/02 9/30/03 9/30/02
-----------------------------------------------------------------------------------------
Pharmaceutical Systems $ 118,200 $ 102,900 $ 359,600 $ 306,300
Drug Delivery Systems 1,900 1,200 4,700 6,000
-----------------------------------------------------------------------------------------
Consolidated total $ 120,100 $ 104,100 $ 364,300 $ 312,300
=========================================================================================
Three Months Ended Nine Months Ended
Operating profit (loss): 9/30/03 9/30/02 9/30/03 9/30/02
-----------------------------------------------------------------------------------------
Pharmaceutical Systems $ 19,400 $ 13,000 $ 65,500 $ 48,400
Drug Delivery Systems (5,000) (4,100) (12,200) (10,400)
Corporate costs (4,800) (2,800) (14,400) (12,900)
Pension income (expense) (1,600) 700 (4,800) 2,100
Costs associated with plant
explosion (1,100) - (9,900) -
Restructuring charge - (9,100) - (9,100)
Argentina foreign exchange gain - - - 1,700
-----------------------------------------------------------------------------------------
Consolidated operating profit (loss) 6,900 (2,300) 24,200 19,800
Interest expense, net (2,000) (2,100) (5,600) (7,000)
-----------------------------------------------------------------------------------------
Consolidated income (loss) before
income taxes $ 4,900 $ (4,400) $ 18,600 $ 12,800
=========================================================================================
During 2003, approximately $10,400 of property, plant and equipment and
$2,500 of inventory in the Pharmaceutical Systems segment were destroyed in
a plant explosion (see footnote #11). Compared with December 31, 2002,
there were no other material changes in the amount of assets as of
September 30, 2003 for any other reporting segment.
5. Common stock issued at September 30, 2003 was 17,165,141 shares, of which
2,604,543 shares were held in treasury. Dividends of $.20 per common share
were paid in the third quarter of 2003 and a dividend of $.21 per share
payable November 5, 2003 to holders of record on October 22, 2003 was
declared on August 12, 2003.
Below are the calculations of earnings (loss) per share for the three
and nine-months ended September 30, 2003 and 2002. Options to purchase
805,192 and 2,062,927 shares of common stock that were outstanding during
the quarter ended September 30, 2003 and 2002, respectively, were not
included in the computation of diluted earnings per share since the
options' exercise prices were greater than the average market price of
the common shares and, therefore, the effect would be antidilutive.
Antidilutive options outstanding during the nine months ended
September 30, 2003 and 2002 were 2,074,767 and 993,098, respectively.
Page 10
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
Three Months Ended Nine Months Ended
9/30/03 9/30/02 9/30/03 9/30/02
--------------------------------------- --------- ----------- ---------- -----------
Net income (loss):
Income from continuing operations $ 4,100 $ (2,000) $ 14,800 $ 9,500
Discontinued operations - 5,600 - 5,500
------ ------ ------ ------
Net income $ 4,100 $ 3,600 $ 14,800 $ 15,000
Average common shares outstanding 14,506 14,463 14,490 14,420
Add: Dilutive stock options 93 - 7 23
------ ------ ------ ------
Average shares assuming dilution 14,599 14,463 14,497 14,443
Basic net income (loss) per share:
Income from continuing operations $ 0.28 $ (0.14) $ 1.02 $ 0.66
Discontinued operations - 0.39 - 0.38
------ ------ ------ ------
Net income $ 0.28 $ 0.25 $ 1.02 $ 1.04
Diluted net income (loss) per share:
Income from continuing operations $ 0.28 $ (0.14) $ 1.02 $ 0.66
Discontinued operations - 0.39 - 0.38
------ ------ ------ ------
Net income $ 0.28 $ 0.25 $ 1.02 $ 1.04
6. The Company has accrued the estimated cost of environmental compliance
expenses related to soil or ground water contamination at current and former
manufacturing facilities. During the second quarter of 2003, the Company
accrued $400 for environmental response activities at the Kinston facility,
of which $300 was paid in the third quarter of 2003. Based on consultants'
estimates of the costs of remediation in accordance with applicable regulatory
requirements, the Company believes the accrued liability of $1,000 at
September 30, 2003 is sufficient to cover the future costs of these remedial
actions, which will be carried out over the next several years. The Company
does not anticipate any recovery from insurance or other sources.
7. Goodwill by reportable segment as of September 30, 2003 and December 31, 2002
was as follows:
9/30/03 12/31/02
--------------------------------------------------
Pharmaceutical Systems $ 36,600 $ 33,500 $
Drug Delivery Systems 2,000 2,000
--------------------------------------------------
$ 38,600 $ 35,500 $
==================================================
The increase in the goodwill balance from December 31, 2002 is solely due
to foreign currency translation adjustments.
Page 11
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
The cost and respective accumulated amortization for the Company's patents,
was $11,500 and $4,700, respectively, as of September 30, 2003, and $11,400
and $4,100, respectively, as of December 31, 2002. The cost basis of patents
includes the effects of foreign currency translation adjustments. The Company
recorded $200 and $600 of amortization expense for the three and nine-months
ended September 30, 2003 and 2002. Amortization for the full year 2003 is
estimated to be $800. The estimated annual amortization expense for each of
the next five years is approximately $700 per year.
8. The following table details the activity related to the Company's restructuring
reserve, which consists of accrued severance, benefits, contract termination
costs and non-cash write-offs:
Severance Continuing Discontinued
and benefits Other operations operations Total
------------------------------------------------------------------------------------------
Balance, December 31, 2002 $ 800 $ 500 $ 1,300 $ 100 $ 1,400
Cash payments (400) (400) (800) (100) (900)
------------------------------------------------------------------------------------------
Balance, September 30, 2003 $ 400 $ 100 $ 500 $ - $ 500
==========================================================================================
Reductions to the reserve balance represent severance and benefits payments
and monthly payments for a terminated information systems contract. The
Company expects to complete all payments within the next twelve months.
In the third quarter ended September 30, 2002 the Company recorded a pre-tax
restructuring charge of $9,100. The charge included a $5,800 write-off of
construction-in-progress and a $500 accrual for contract termination fees
related to the termination of the Company's information systems implementation
project and a $2,800 impairment of its investment in a genetic research
technology company. These restructuring items generated a $2,300 tax benefit.
9. In December 2002, the Company sold its consumer healthcare research business,
previously part of the Drug Delivery Systems segment. The results of this
business have been reflected as discontinued operations in the accompanying
consolidated financial statements. Revenues and pretax profit from the
discontinued operation were $800 and $(500) for the three months ended
September 30, 2002 and $4,000 and $0 for the nine months ended
September 30, 2002. After-tax profit for the discontinued operation was
$(300) and $0, respectively, for the three and nine-months ended
September 30, 2002.
The Company was required to hold $4,300 of the proceeds from the 2001 sale
of its contract manufacturing and packaging business in trust for the
repayment of certain debentures that the Company agreed to redeem as part
of the sale. These debentures were repaid in the first quarter of 2002
resulting in a $400, net of tax, charge which was included in discontinued
operations. In the third quarter of 2002, the Company recorded a tax benefit
in income from discontinued operations of $5,900 principally related to a
tax refund on the disposal of the facility. See footnote #12.
Page 12
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
10. Other (income) expense for the three and nine-months ended September 30, 2003
and September 30, 2002 were as follows:
Three Months Ended Nine Months Ended
9/30/03 9/30/02 9/30/03 9/30/02
----------------------------------------------------------------------------------------
Foreign currency transaction (gains) losses $ - $ - $ (400) $ (2,300)
Loss on sales of equipment and other assets 100 100 800 100
Other (100) 300 100 200
----------------------------------------------------------------------------------------
$ - $ 400 $ 500 $ (2,000)
========================================================================================
During the first quarter of 2002, the Company's Argentina subsidiary recorded
a foreign exchange gain of $1,700 on assets denominated in non-peso currencies
due to the devaluation of the Argentine peso. The foreign currency gain was
subject to both Argentine federal income taxes and related U.S. dividend
withholding taxes.
11. On January 29, 2003, the Company's Kinston, North Carolina plant suffered
an explosion and related fire that resulted in six deaths, a number of
injured personnel and substantial damage to the building, machinery and
equipment and inventories. The Company recognized $1,100 and $9,900 of
direct costs associated with the loss in the three and nine-months ended
September 30, 2003, primarily for potentially uninsured costs, including
insurance deductibles, legal and investigational costs, and environmental
response costs. Certain additional costs associated with operating under the
Company's manufacturing recovery plan, including production inefficiencies,
additional freight and the use of overtime, are included in the results of
operations. The Company recorded estimated insurance recoveries related to
these costs and to margins on lost sales of $2,300 and $4,900, respectively,
for the three and nine months ended September 30, 2003. While the Company
believes that additional costs will be recovered, it is unable to estimate
the ultimate amount of recovery at this time.
As of September 30, 2003 the Company has recorded a $300 net insurance
receivable from its insurance provider. The receivable includes $10,400
for the net book value of the Kinston plant's property, plant and equipment,
$2,400 for the net book value of the inventory, $4,900 for business
interruption recoveries and $7,600 of other recoverable costs, offset
by $25,000 in cash advances from the Company's insurance provider.
In the second quarter of 2003 the Company purchased land from Lenoir County,
North Carolina for $2,000 on which the Company is in the process of rebuilding
its compression molding operation. Under the terms of the agreement,
commencing in 2005, the County will reimburse the purchase price of the land
in yearly increments of $200 as long as the Company complies with certain
capital investment and employment conditions.
The Company has been named a defendant in a lawsuit in connection with the
explosion and related fire in which plaintiffs seek unspecified compensatory
and punitive damages. Because this lawsuit is in its early stages, the Company
is unable to state these plaintiffs' alleged damages. The Company believes
that overall it has sufficient insurance to cover losses from expected litigation
associated with the incident.
Page 13
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
12. In the third quarter of 2002, the Company recorded an $8,300 tax benefit associated
with the 2001 disposition of its contract manufacturing and packaging business and
the shutdown of a plastic device manufacturing facility. Of the $8,300 benefit,
$5,900 was recorded in discontinued operations with the remaining $2,400 benefit
reflected in continuing operations. The tax benefit and the related tax refund
were a result of a change in U.S. tax law in 2002 related to loss disallowance
rules.
13. During the third quarter of 2002, the Company recorded an $800 charge, included
in equity in net income (loss) of affiliated companies, for its share of the costs
related to the consolidation of two rubber molding operations for one of its equity
investments in Mexico. As of September 30, 2003, all employees have been terminated
and all related payments have been made.
Page 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months and Nine Months ended September 30, 2003 versus
September 30, 2002
- ------------------------------------------------------------------------------------
Net Sales
- ---------
Consolidated net sales for the third quarter of 2003 were $120.1 million compared to
$104.1 million reported in the third quarter of 2002. Sales increased 15% from the prior
year quarter with 6% of the increase due to the impact of foreign currency translation.
Overall price increases accounted for 1.3% of the sales increase over the quarter ended
September 30, 2002.
Third quarter 2003 sales for the Pharmaceutical Systems segment were $118.2 million,
a $15.3 million or 15% increase from prior year quarter reported sales of $102.9 million.
Approximately 6% of the increase is the result of foreign currency translation. Sales in
all geographic regions increased. Sales in Europe increased 26% with 14% of the increase
resulting from foreign currency translation. Increased demand for prefilled syringe
components facilitated by expansions in France and Germany resulted in increased sales
volumes in the European region. Sales in domestic markets increased 8% from the prior
year quarter, led by demand for the Company's Westar(R)line of ready-to-sterilize components
and pharmaceutical closures incorporating the Company's coating technologies.
Revenues for the quarter ended September 30, 3003 for the Drug Delivery Systems segment,
which includes the clinical services business unit and the drug delivery business unit,
were $1.9 million, compared to $1.2 million in the prior year quarter. The increase in
revenue is due to improved demand in the clinical services business unit for early phase
clinical trials. Drug delivery business unit revenues declined slightly from those in
the third quarter of 2002 as there were no significant licensing or developmental milestone
payments realized or recognized in the quarter.
Net sales for the nine months ended September 30, 2003 were $364.3 million compared to
$312.3 million in the prior year period. Sales increased 17% from the prior year with
7% of the increase due to the impact of foreign currency translation. Overall price
increases accounted for 1.7% of the sales increase over the first nine months of 2002.
Pharmaceutical Systems segment sales were $359.6 million in the nine months ended
September 30, 2003, compared to $306.3 million for the nine months of 2002, 17% higher
than the prior year with 7% of the increase resulting from foreign currency translation.
The same factors that influenced the quarterly comparisons affected the nine-month
comparisons. Drug Delivery Systems' revenues for the nine month period ended
September 30, 2003 decreased $1.3 million to $4.7 million from $6.0 million in the
first nine months of 2002. The decrease is due to lower revenues in the first half
of 2003 in the Company's clinical services business unit, offset slightly by increased
revenues from contract research services in the Company's drug delivery business
unit.
Page 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months and Nine Months ended September 30, 2003 versus
September 30, 2002
- -----------------------------------------------------------------------------------
Operating Profit
- ----------------
The Company recorded operating profit of $6.9 million in the third quarter ended
September 30, 2003, compared to an operating loss of $2.3 million in the prior year
quarter. Operating profit (loss) by operating segment, including corporate costs, U.S.
pension plan income (expense) and other charges recorded in operating profit, for the
three and nine-months ended September 30, 2003 and September 30, 2002 were as follows:
Operating Profit (Loss) Three Months Ended Nine Months Ended
($ in millions) Sept. 30, 2003 Sept. 30, 2002 Sept. 30, 2003 Sept. 30, 2002
- ---------------------------------------------------------------------------------------------
Pharmaceutical Systems $ 19.4 $ 13.0 $ 65.5 $ 48.4
Drug Delivery Systems (5.0) (4.1) (12.2) (10.4)
Corporate costs (4.8) (2.8) (14.4) (12.9)
Pension income (expense) (1.6) 0.7 (4.8) 2.1
Restructuring charge - (9.1) - (9.1)
Argentina foreign
exchange gain - - - 1.7
Costs associated with plant
explosion (1.1) - (9.9) -
- ---------------------------------------------------------------------------------------------
Consolidated Total $ 6.9 $ (2.3) $ 24.2 $ 19.8
=============================================================================================
Pharmaceutical Systems' segment operating profit for the third quarter ended September 30,
increased by $6.4 million, of which $1.0 million is due to foreign currency translation,
particularly the Euro versus the U.S. dollar. Improvements in the 2003 third quarter
resulted from increased gross profit generated primarily by sales volume increases.
Gross margins in the Pharmaceutical Systems segment increased to 30.0% in the third
quarter of 2003 compared to 25.7% in the prior year quarter, reflecting improved
production efficiencies in Europe resulting from facility expansion projects in France
and Germany. The improvements in Europe were partially offset by additional costs
resulting from the transfer of production from our Kinston plant to other manufacturing
locations, including production inefficiencies and the use of overtime. In the third
quarter of 2003 the Company recorded insurance recoveries of $2.3 million as a reduction
of cost of goods sold, of which $1.7 million related to the additional costs of production
inefficiencies and overtime and $0.6 million related to margins on lost sales.
Approximately $0.4 million of the estimated recovery recorded in the third quarter
pertained to lost sales incurred in the first and second quarters of 2003. For the nine
month period ended September 30, 2003, approximately $4.9 million in insurance recoveries
were recorded. While the Company believes that other costs incurred in the nine months
ended September 30, 2003 will be subject to further insurance recovery, it is unable to
estimate the ultimate amount of the recovery at this time. Selling, general and
administrative expenses were approximately 14% of net sales in the third quarter of 2003
compared to 13% in the prior year quarter. The increase is due to increased selling and
marketing costs in Europe.
Pharmaceutical Systems' segment operating profit for the nine month period ended
September 30, 2003 increased by $17.1 million, of which $4.6 million is due to foreign
currency translation. The same factors that influenced the quarterly comparisons affected
the nine-month comparisons.
Page 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months and Nine Months ended September 30, 2003 versus
September 30, 2002
- ----------------------------------------------------------------------------------
In the Drug Delivery Systems' segment, operating losses for the quarter ended
September 30, 2003, increased by $0.9 million from the prior year quarter. Improvements
in clinical services revenues resulted in breakeven results for the clinical services
business unit. Modest declines in drug delivery technology revenue as well as increased
research and development and outside services costs for a near term licensing opportunity
led to increased operating losses in the drug delivery business unit.
Drug Delivery Systems' Segment operating losses for the nine months ended September 30, 2003
increased $1.8 million from the prior year period. The increase in operating losses
is primarily due to decreased sales in the clinical services business unit. The clinical
services business unit suffered from reduced demand and competition from full service
clinical research organizations in the first half of 2003, with some improvement in the
level of demand for early phase clinical trials in the third quarter ended September
30, 2003. In the drug delivery business unit, the same factors that influenced the
quarterly comparisons affected the nine-month comparisons.
Corporate costs were $4.8 million in the third quarter ended September 30, 2003 up
from $2.8 million in 2002. The increase in the third quarter 2003 includes a $1.2 million
increase in stock-based directors' compensation resulting from the increase in the
Company's stock price in the third quarter of 2003, versus a decrease in the price
in the third quarter of 2002. In addition, management incentive compensation increased
$1.1 million reflecting the achievement of performance targets in 2003. For the
nine-month period ended September 30, 2003, Corporate costs were $14.4 million, up
from the $12.9 million in 2002. The increase in the nine months ended September 30, 2003
is mainly the result of a $1.6 million increase in incentive compensation and a $0.9
million increase in stock-based directors' compensation partially offset by $1.3 million
decrease in information systems project costs.
U.S. pension plan expenses were $1.6 million in the third quarter ended September 30, 2003
compared to income of $0.7 million in the same period of 2002. Year-to-date pension
expense was $4.8 million in 2003 compared to income of $2.1 million in 2002. The
increase in pension expense is due to the continuing impact of lower returns on pension
plan assets through 2002.
In the third quarter ended September 30, 2002, the Company recorded a pre-tax restructuring
charge of $9.1 million ($6.8 million, or $0.47 per share, net of tax). The charge included
a $5.8 million write-off of construction-in-progress and a $0.5 million accrual for contract
termination fees related to the termination of an information systems implementation project
and a $2.8 million impairment of the Company's investment in a genetic research technology
company.
The nine months ended September 30, 2002 includes a $1.7 million foreign exchange gain
recorded by the Company's subsidiary in Argentina on net assets denominated in non-peso
currencies due to the devaluation of the Argentine peso.
Costs Associated With Plant Explosion
- -------------------------------------
During the three and nine months ended September 30, 2003, the Company recognized
$1.1 million and $9.9 million, respectively, of direct costs associated with the
January 29, 2003 Kinston explosion, primarily for potentially uninsured legal,
investigational, and environmental response costs.
Page 17
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months and Nine Months ended September 30, 2003 versus
September 30, 2002
- -------------------------------------------------------------------------------------
The Company expects that it will continue to incur potentially uninsured costs in connection
with ongoing investigations and legal matters associated with the Kinston accident, but
believes that such expenses will continue to decline from current levels in the fourth
quarter of 2003 and in 2004.
Interest Expense, net
- ---------------------
Net interest costs were $2.0 million in the third quarter ended September 30, 2003 compared
to $2.1 million in the prior year quarter. The modest decrease is due to increased interest
income from customer advances. For the nine months ended September 30, 2003, net interest
costs were $5.6 million compared to $7.0 million in the prior year period. The decrease
for the nine month period ended September 30, 2003 is due to increased interest income
from customer advances of $0.8 million and a decrease in interest expense of $0.4 million,
resulting from lower average debt levels and lower interest rates in the current year.
The remaining decrease is due to an increase in interest income from higher cash balances.
Provision for Income Taxes
- --------------------------
The effective tax rate for the third quarter ended September 30, 2003 was a 31% provision
compared to a benefit of 65% in the prior year quarter. In the third quarter ended
September 30, 2002, the Company recorded a tax benefit of $8.3 million associated with the
2001 disposition of its contract manufacturing and packaging business and the shutdown of
a plastic device manufacturing plant. Of the total benefit, $2.4 million ($0.17 per share)
was recorded in continuing operations and the remaining $5.9 million ($0.41 per share)
was recorded in discontinued operations. The tax benefit and related tax refund resulted
from a change in U.S. tax law in 2002 related to loss disallowance rules. The remaining
difference in the effective rate from the prior year quarter is due to the nondeductible
write-down of the Company's investment in a genetic research company and a change in the
geographic mix of earnings.
For the nine-month period ended September 30, the effective tax rate was 31% compared
to 25% in 2002. The difference in the effective rate from the prior year nine month period
is due to the net effect of the 2002 $2.4 million tax benefit noted above, offset slightly
by the 2002 nondeductible write-down of the Company's investment in a genetic research company.
The 2003 utilization of foreign tax credits offset slightly by an increase in the valuation
allowance on U.K. net operating losses also contributed to the change.
Equity in Net Income of Affiliated Companies
- --------------------------------------------
Earnings in net income of affiliated companies was $0.7 million in the third quarter ended
September 30, 2003 up from a $0.4 million loss in the third quarter of 2002. Earnings
for the nine-month period compare favorably to the prior year with income of $1.9 million
in 2003 compared to a loss of $0.1 million in 2002. Earnings from Daikyo Seiko, Ltd.,
a Japanese company in which the Company has a 25% ownership interest, increased $0.4 million
from the prior year quarter as Daikyo continues to experience increases in demand from
its U.S. and European customers as well as improved manufacturing efficiencies. Full year
results for Daikyo are up $0.9 million from the prior year.
Breakeven results in the third quarter ended September 30, 2003 from the Company's 49%
owned Mexican affiliates were up significantly from the losses incurred in the same period
of 2002. In the third quarter of 2002, the Company recorded a $0.8 million ($0.06 per
share) charge for its share of the costs related to its Mexican affiliate's consolidation
of two rubber molding operations. Results for the nine month period for Mexico are
also breakeven, up $1.1 million from the prior year period.
Page 18
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months and Nine Months ended September 30, 2003 versus
September 30, 2002
- ----------------------------------------------------------------------------------
Discontinued Operations
- -----------------------
In December 2002, the Company sold its consumer healthcare research business located in
Indianapolis, Indiana. Third quarter 2002 losses for this business of $0.3 million
and breakeven results for the nine-month period of 2002 have been reflected in
discontinued operations in the accompanying consolidated financial statements.
As noted above, the Company recorded a $5.9 million ($0.41 per share) tax benefit
connected with the sale of the contract manufacturing and packaging business. This
tax benefit was recorded in the third quarter of 2002 and was included in discontinued
operations.
The Company was required to hold $4.3 million of the proceeds of the 2001 sale of
the contract manufacturing and packaging business in trust for the repayment of
certain debentures that the Company agreed to redeem as part of the sale. These
debentures were repaid in the first quarter of 2002 resulting in a $0.4 million
($0.03 per share), net of tax charge, which was included in discontinued operations.
Net Income
- ----------
Net income for the third quarter ended September 30, 2003 was $4.1 million, or
$0.28 per share, compared to $3.6 million, or $0.25 per share, in the third quarter
of 2002. Net income for the third quarter ended September 30, 2003 included
$1.1 million of pre-tax costs ($0.7 million, or $0.05 per share, net of tax) related
to the explosion at the Kinston facility. Net income for the third quarter ended
September 30, 2002 included a pre-tax restructuring charge of $9.1 million
($6.8 million, or $0.47 per share, net of tax), a one-time tax benefit due to a
change in tax law of $2.4 million ($0.17 per share) and income from discontinued
operations of $5.6 million, or $0.39 per share, net of tax.
Net income for the nine-month period ended September 30, 2003 was $14.8 million,
or $1.02 per share, compared to $15.0 million, or $1.04 per share, for the 2002
period. 2003 results include $9.9 million of pre-tax costs ($6.5 million, or
$0.45 per share, net of tax) related to the Kinston explosion. In addition to the
restructuring and one-time tax benefit noted above, 2002 results include a
$1.7 million foreign exchange gain ($0.8 million, or $0.05 per share, net of tax)
related to the devaluation of the Argentine peso and income from discontinued
operations of $5.5 million, or $0.38 per share, net of tax.
Liquidity and Capital Resources
- -------------------------------
Working capital at September 30, 2003 was $89.2 million compared with $73.6 million
at December 31, 2002. The working capital ratio at September 30, 2003 was 1.9 to 1.
Accounts receivable increased significantly, reflecting the increase in September 2003
sales levels versus December 2002. Days sales outstanding was 52 days improving
slightly from the 53 days in 2002. Cash flows from operations were $50.3 million
for the nine months ended September 30, 2003, an increase of $13.0 million from
the prior year. The increase is due mainly to strong operating results in the
Company's Pharmaceutical Systems segment. Timing of accounts payable and payroll
payments also contributed to increased operating cash flow in the quarter.
Page 19
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months and Nine Months ended September 30, 2003 versus
September 30, 2002
- ----------------------------------------------------------------------------------
As a result of the Kinston explosion, the Company has recorded a net insurance
receivable of $0.3 million as of September 30, 2003. The receivable includes
$12.8 million for the net book value of property, plant, and equipment and
inventory destroyed in the explosion as well as $12.5 million of recoverable
costs and business interruption recoveries. These costs were offset by
$25.0 million in advances from the Company's insurance carrier. The Company's
property and business interruption insurance coverage provides for a maximum
insurance recovery of $66.0 million.
Capital spending for the nine-month period ended September 30, 2003 was
$34.8 million. Expenditures include new equipment purchases and equipment
upgrades used in the production of the Company's existing product lines, as
well as expenditures focused on new products and expansion activities,
including the expansion of the Company's primary production facility for
Westar products located in Jersey Shore, PA and expansions at various European
facilities. As a result of the Kinston accident, the Company has spent
approximately $5.6 million in capital related to expanding production capacity
at several plants as well as the construction of a new compression molding
operation in Kinston. Full year 2003 capital spending is projected to be
approximately $65.2 million, which includes $16.9 million related to the
replacement of the damaged Kinston facility.
The Company expects that the Kinston construction project will be largely financed
by replacement cost coverage provided by the Company's property insurance policy.
In the second quarter of 2003, the Company purchased land under an economic
development grant with Lenoir County, North Carolina. Under the terms of the
agreement, the County will reimburse the purchase price in yearly increments as
long as the Company maintains minimum capital investment and workforce conditions.
The Company paid cash dividends totaling $8.7 million ($0.60 per share) during
the nine month period ended September 30, 2003.
Debt as a percentage of total invested capital at September 30, 2003 was 44.2%
compared to 46.5% at December 31, 2002. Total shareholders' equity was
$225.6 million at September 30, 2003 compared to $201.5 million at December 31, 2002.
The increase in equity was due to positive foreign currency translation adjustments,
current year net income and employee stock option exercises, partially offset by
dividend payments.
The Company believes that its financial condition, current capitalization and
expected income from operations will be sufficient to meet the Company's future
expected cash requirements, at least through July 2005, at which time the Company's
revolving credit facility expires. The Company fully expects to obtain similar
credit facilities at that time. The Company reviews its financing requirements
and alternatives on a regular basis and, if market conditions are sufficiently
attractive, the Company may consider issuing equity securities in order to
strengthen its balance sheet and to provide greater flexibility to achieve its
core Pharmaceutical Systems business objectives.
The Company is subject to certain risks and uncertainties connected with the
explosion at the Company's Kinston, NC plant. See the text under the caption
"Cautionary Statement Regarding Forward-Looking Information."
Page 20
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months and Nine Months ended September 30, 2003 versus
September 30, 2002
- -----------------------------------------------------------------------------------
New Accounting Standards
- ------------------------
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus
opinion on EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The
consensus provides guidance on accounting by a vendor for arrangements under
which it will perform multiple revenue-generating activities. Specifically, the
consensus addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting. EITF 00-21 is effective
for revenue arrangements entered into in fiscal periods beginning after
June 15, 2003. EITF 00-21 did not have a material effect on the Company's
consolidated financial position or results of operations.
In January 2003, the FASB released Interpretation No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research Bulletin No. 51" (FIN 46).
FIN 46 requires a company to consolidate a variable interest entity if the company
has a variable interest that will absorb the majority of the entity's expected losses
if they occur, receive a majority of the entity's expected residual returns if they
occur, or both. The new interpretation was effective immediately at the time of its
release for variable interest entities created after January 31, 2003. In October
2003, the FASB deferred the effective date of FIN 46 for variable interest entities
in which a company holds a variable interest that it acquired before February 1, 2003
and issued an exposure draft to amend FIN 46. The amended FIN 46 is expected to be
effective in the first interim or annual period beginning after December 15, 2003,
for variable interest entities in which the company holds a variable interest that
it acquired before February 1, 2003. The Company is currently assessing the impact
FIN 46 will have on its financial statements.
Market Risk
- -----------
The Company is exposed to various market risk factors such as fluctuating interest
rates and foreign currency rate fluctuations. These risk factors can impact results
of operations, cash flows and financial position. These risks are managed periodically
with the use of derivative financial instruments such as interest rate swaps and
forward exchange contracts. In accordance with Company policy, derivative financial
instruments are not used for speculation or trading purposes.
In order to minimize the exposure to foreign currency fluctuations, the Company
borrowed 10.0 million British Pound Sterling (BPS) in 2002 and designated the
borrowing as a hedge of the Company's net investment in its U.K. subsidiaries.
Due to unfavorable interest rates, the 10.0 million BPS debt was repaid in the
first quarter of 2003. The mark-to-market currency adjustments recorded as a
cumulative translation adjustment to shareholders' equity will remain there until
the disposal of the investment.
Due to continuing fluctuations in the Japanese Yen, in January 2003, the Company
entered into an arrangement to hedge its net investment in Daikyo Seiko, Ltd., a
Japanese company in which the Company has a 25% ownership interest. The Company's
strategy is to minimize the exposure to foreign currency fluctuations by employing
borrowings in the functional currency of the investment. The Company borrowed
1.7 billion Yen under its five-year revolving credit facility and has designated
the borrowing as a hedge of its net investment in the Company's investment in Daikyo.
In September 2003, the Company entered into a forward contract in order to hedge
foreign currency exposure on a cross currency intercompany loan. The forward
contract, which is designated as a fair value hedge, terminated in October 2003
when the intercompany loan was repaid. The notional amount for the forward
contract taken out by a subsidiary with a BPS functional currency was 10.8 million
Danish Krone.
Page 21
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months and Nine Months ended September 30, 2003 versus
September 30, 2002
- ----------------------------------------------------------------------------------
Cautionary Statement Regarding Forward-Looking Information
- ----------------------------------------------------------
Certain statements contained in this Report that are not historical are "forward
looking statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. The words "estimate," "expect," "intend", "believe" and similar
expressions are intended to identify forward-looking statements. These forward-looking
statements involve known and unknown risks and uncertainties. The Company's actual
results may differ materially from those expressed in any forward looking statement
and are dependent on a number of factors including, but not limited to: sales
demand, timing of customers' projects; successful development of proprietary drug
delivery technologies and systems; regulatory, licensee and/or market acceptance
of products based on those technologies; competitive pressures; the strength or
weakness of the U.S. dollar; inflation; the cost of raw materials; the availability
of credit facilities; and, statutory tax rates. With respect to the explosion and
fire at the Company's Kinston, NC plant, the following risks and uncertainties
should also be taken into consideration: the timely replacement of production
capacity; the adequacy and timing of insurance recoveries for property losses
and/or liability to third parties and related costs; the unpredictability of existing
and future possible litigation related to the explosion and the adequacy of insurance
recoveries for costs associated with such litigation; government actions or
investigations affecting the Company; the ability of the Company to successfully
shift production and compounding capacity to other plant sites in a timely manner,
including the successful integration of experienced personnel to other production
sites; the extent of uninsured costs for, among other things, legal and investigation
services and incremental insurance; and regulatory approvals and customer acceptance
of goods from alternate sites.
The Company assumes no obligation to update forward-looking statements as
circumstances change. Investors are advised, however, to consult any further
disclosures the Company makes on related subjects in the Company's 10-K, 10-Q and
8-K reports.
Page 22
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The information called for by this item is included in the text under
the caption "Market Risk" in Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and should
be read in conjunction with the Company's Form 10-K filed for the year
ended December 31, 2002.
Item 4. Controls and Procedures.
The Company has established disclosure controls and procedures (as
defined under SEC Rules 13a-15(e) and 15d-15(e)) that are designed to,
among other things, ensure that information required to be disclosed
in the Company's periodic reports is recorded, processed, summarized
and reported on a timely basis and that such information is made
known to the Company's Chief Executive Officer and Chief Financial
regarding required disclosure.
The Certifying Officers have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered
by this quarterly report, and based on such evaluation, have concluded
that such disclosure controls and procedures are effective.
Additionally, based on their evaluation of the Company's internal control
over financial reporting, the Certifying Officers have also concluded
that there has been no change during the period covered by this report
to the Company's internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, these
internal controls.
Page 23
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) See Index to Exhibits on pages F-1 and F-2 of this Report.
On July 22, 2003, the Company filed a Current Report on
Form 8-K. Under Item 12 of that Report, the Company furnished
to the Commission the press release dated July 22, 2003.
On August 20, 2003, the Company filed a Current Report on
Form 8-K. Under Item 5 of that Report, the Company furnished
to the Commission two press releases dated August 18, 2003.
Page 24
SIGNATURES
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.
WEST PHARMACEUTICAL SERVICES, INC.
------------------------------------
(Registrant)
November 10, 2003 /s/ William J. Federici
- ----------------- -------------------------------------
Date William J. Federici
Vice President and Chief Financial Officer
INDEX TO EXHIBITS
Exhibit
Number
(2) None
(3) (a) Amended and Restated Articles of Incorporation of the Company through
January 4, 1999 incorporated by reference to Exhibit (3)(a) of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-8036).
(3) (b) Bylaws of the Company, as amended through October 27, 1998,
incorporated by reference to Exhibit (3)(b) to the Company's
Form 10-Q for the quarter ended September 30, 1998 (File No.1-8036).
(4) (a) Form of stock certificate for common stock incorporated by
reference to Exhibit (4) (a) of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 1-8036).
(4)(a)(1) Article 5, 6, 8(c) and 9 of the Amended and Restated Articles of
Incorporation of the Company, incorporated by reference to Exhibit
(3)(a) of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 (File No. 1-8036).
(4)(a)(2) Article I and V of the Bylaws of the Company, as amended,
incorporated by reference to Exhibit (3)(b) to the Company's
Form 10-Q for the quarter ended September 30, 1998 (File No. 1-8036).
(10) None.
(11) Non applicable.
(15) None.
(18) None.
(19) None.
(22) None.
(23) Non Applicable.
(24) None.
F - 1
INDEX TO EXHIBITS
Exhibit
Number
(31) (a) Section 302 Certification by Donald E. Morel, Jr., Ph.D.
(31) (b) Section 302 Certification by William J. Federici.
(32) (a) Certification by Donald E. Morel, Jr., Ph.D., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(32) (b) Certification by William J. Federici, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(99) None.
F-2