UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Pennsylvania
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23-1210010
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification Number)
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101 Gordon Drive, PO Box 645,
Lionville, PA
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19341-0645
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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þ
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Accelerated filer
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o
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Non-accelerated filer
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o
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(Do not check if a smaller reporting company)
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Smaller reporting company
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o
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Page
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3
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PART I. FINANCIAL INFORMATION
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FINANCIAL STATEMENTS (UNAUDITED)
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5
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6
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7
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8
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9
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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19
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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31
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CONTROLS AND PROCEDURES
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31
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PART II. OTHER INFORMATION
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RISK FACTORS
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31
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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32
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EXHIBITS
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32
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33
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F-1
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·
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sales demand and our ability to meet that demand;
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·
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competition from other providers in our businesses, including customers’ in-house operations, and from lower-cost producers in emerging markets, which can impact unit volume, price and profitability;
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·
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customers’ changing inventory requirements and manufacturing plans that alter existing orders or ordering patterns for the products we supply to them;
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·
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the timing, regulatory approval and commercial success of customer products that incorporate our products, including the availability and scope of relevant public and private health insurance reimbursement for prescription products, medical devices and components, and medical procedures in which our customers’ products are employed or consumed;
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·
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average profitability, or mix, of products sold in any reporting period;
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·
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maintaining or improving production efficiencies and overhead absorption;
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·
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the timeliness and effectiveness of capital investments, particularly capacity expansions, including the effects of delays and cost increases associated with construction, availability and cost of capital goods, and necessary internal, governmental and customer approvals of planned and completed projects, and the demand for goods to be produced in new
facilities;
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·
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dependence on third-party suppliers and partners, some of which are single-source suppliers of critical materials and products, including our Japanese partner and affiliate Daikyo Seiko, Ltd.;
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·
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the availability and cost of skilled employees required to meet increased production, managerial, research and other needs, including professional employees and persons employed under collective bargaining agreements;
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·
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interruptions or weaknesses in our supply chain, which could cause delivery delays or restrict the availability of raw materials and key bought-in components and finished products;
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·
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raw material price escalation, particularly petroleum-based raw materials, and our ability to pass raw material cost increases on to customers through price increases;
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·
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deflation of selling prices under contracts requiring periodic price adjustments based on published cost-of-living or similar indices; and
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·
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claims associated with product quality, including product liability, and the related costs of defending and obtaining insurance indemnifying us for the cost of such claims.
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·
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the cost and progress of development, regulatory approval and marketing of new products as a result of our research and development efforts;
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·
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the defense of self-developed or in-licensed intellectual property, including patents, trade and service marks and trade secrets;
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·
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dependence of normal business operations on information and communication systems and technologies provided, installed or operated by third parties, including costs and risks associated with planned upgrades to existing business systems;
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·
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the effects of a prolonged U.S. or global economic downturn or recession;
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·
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the relative strength of the U.S. dollar in relation to other currencies, particularly the Euro, British Pound, Danish Krone, Singapore Dollar, and Japanese Yen;
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·
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changes in tax law or loss of beneficial tax incentives;
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·
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the conclusion of unresolved tax positions inconsistent with currently expected outcomes;
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·
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significant losses on investments of pension plan assets relative to expected returns on those assets could increase our pension expense and funding obligations in future periods; and
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·
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the potential delay, suspension or elimination of customers’ research and development efforts and overall spending resulting from continued uncertainty regarding federal healthcare reform efforts.
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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|||||||||||||||
2009
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2008
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2009
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2008
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|||||||||||||
Net sales
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$ | 258.9 | $ | 256.2 | $ | 762.3 | $ | 806.3 | ||||||||
Cost of goods and services sold
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187.2 | 190.2 | 542.6 | 573.3 | ||||||||||||
Gross profit
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71.7 | 66.0 | 219.7 | 233.0 | ||||||||||||
Research and development
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5.1 | 4.6 | 14.1 | 14.8 | ||||||||||||
Selling, general and administrative expenses
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44.3 | 41.5 | 132.3 | 122.5 | ||||||||||||
Restructuring and other items (Note 3)
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(3.6 | ) | 2.0 | (2.5 | ) | (2.8 | ) | |||||||||
Operating profit
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25.9 | 17.9 | 75.8 | 98.5 | ||||||||||||
Interest expense
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3.8 | 4.3 | 11.1 | 12.6 | ||||||||||||
Interest income
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(0.3 | ) | (0.4 | ) | (0.6 | ) | (2.1 | ) | ||||||||
Income before income taxes
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22.4 | 14.0 | 65.3 | 88.0 | ||||||||||||
Income tax expense
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6.0 | 0.8 | 14.6 | 20.0 | ||||||||||||
Equity in net income of affiliated companies
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0.8 | 0.3 | 1.6 | 0.8 | ||||||||||||
Net income
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17.2 | 13.5 | 52.3 | 68.8 | ||||||||||||
Less: net income attributable to noncontrolling interests
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- | 0.2 | - | 0.5 | ||||||||||||
Net income attributable to common shareholders
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$ | 17.2 | $ | 13.3 | $ | 52.3 | $ | 68.3 | ||||||||
Net income per share attributable to common shareholders:
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||||||||||||||||
Basic
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$ | 0.52 | $ | 0.41 | $ | 1.60 | $ | 2.11 | ||||||||
Diluted
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$ | 0.50 | $ | 0.40 | $ | 1.53 | $ | 1.98 | ||||||||
Weighted average common shares outstanding
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32.9 | 32.5 | 32.8 | 32.4 | ||||||||||||
Weighted average shares assuming dilution
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36.4 | 36.2 | 36.3 | 36.1 | ||||||||||||
September 30,
2009
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December 31,
2008
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|||||||
ASSETS
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||||||||
Current assets:
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||||||||
Cash, including cash equivalents
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$ | 79.5 | $ | 87.2 | ||||
Accounts receivable, net
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142.5 | 128.6 | ||||||
Inventories
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135.9 | 115.7 | ||||||
Deferred income taxes
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4.4 | 5.1 | ||||||
Other current assets
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36.8 | 29.6 | ||||||
Total current assets
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399.1 | 366.2 | ||||||
Property, plant and equipment
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1,053.7 | 965.0 | ||||||
Less accumulated depreciation and amortization
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483.3 | 434.0 | ||||||
Property, plant and equipment, net
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570.4 | 531.0 | ||||||
Investments in affiliated companies
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35.8 | 33.6 | ||||||
Goodwill
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114.9 | 105.3 | ||||||
Deferred income taxes
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66.8 | 63.7 | ||||||
Intangible assets, net
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56.8 | 50.0 | ||||||
Other noncurrent assets
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20.1 | 18.9 | ||||||
Total Assets
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$ | 1,263.9 | $ | 1,168.7 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
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||||||||
Current liabilities:
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||||||||
Notes payable and other current debt
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$ | 4.0 | $ | 3.9 | ||||
Accounts payable
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55.3 | 67.6 | ||||||
Pension and other postretirement benefits
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2.1 | 2.0 | ||||||
Accrued salaries, wages and benefits
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53.2 | 42.3 | ||||||
Income taxes payable
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3.0 | 2.7 | ||||||
Taxes other than income
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13.9 | 7.0 | ||||||
Other current liabilities
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31.3 | 33.6 | ||||||
Total current liabilities
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162.8 | 159.1 | ||||||
Long-term debt
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393.0 | 382.1 | ||||||
Deferred income taxes
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22.2 | 20.4 | ||||||
Pension and other postretirement benefits
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85.2 | 86.0 | ||||||
Other long-term liabilities
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35.0 | 34.0 | ||||||
Total Liabilities
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698.2 | 681.6 | ||||||
Commitments and contingencies (Note 13)
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||||||||
Total Equity
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565.7 | 487.1 | ||||||
Total Liabilities and Equity
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$ | 1,263.9 | $ | 1,168.7 |
Common Stock
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Treasury Stock
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|||||||||||||||||||||||||||||||
Number of shares issued
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Common Stock
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Capital in excess of par value
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Number of shares
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Treasury Stock
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Retained earnings
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Accumulated other comprehensive (loss) income
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Total
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|||||||||||||||||||||||||
Balance, December 31, 2008
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34.3 | $ | 8.6 | $ | 69.4 | (1.6 | ) | $ | (63.2 | ) | $ | 517.2 | $ | (44.9 | ) | $ | 487.1 | |||||||||||||||
Net income
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52.3 | 52.3 | ||||||||||||||||||||||||||||||
Stock-based compensation
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4.2 | 4.2 | ||||||||||||||||||||||||||||||
Shares issued under stock plans
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(4.8 | ) | 0.3 | 10.0 | 5.2 | |||||||||||||||||||||||||||
Shares repurchased for employee tax withholdings
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- | (1.1 | ) | (1.1 | ) | |||||||||||||||||||||||||||
Excess tax benefit from stock option exercises
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2.1 | 2.1 | ||||||||||||||||||||||||||||||
Cash dividends declared ($0.30 per share)
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(9.9 | ) | (9.9 | ) | ||||||||||||||||||||||||||||
Other comprehensive income, net of tax
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25.8 | 25.8 | ||||||||||||||||||||||||||||||
Balance, September 30, 2009
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34.3 | $ | 8.6 | $ | 70.9 | (1.3 | ) | $ | (54.3 | ) | $ | 559.6 | $ | (19.1 | ) | $ | 565.7 |
Nine Months Ended
September 30,
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||||||||
2009
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2008
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|||||||
Cash flows from operating activities:
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||||||||
Net income
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$ | 52.3 | $ | 68.8 | ||||
Depreciation
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46.7 | 42.2 | ||||||
Amortization
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3.1 | 3.2 | ||||||
Other non-cash items, net
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19.3 | 12.1 | ||||||
Changes in assets and liabilities
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(36.3 | ) | (35.3 | ) | ||||
Net cash provided by operating activities
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85.1 | 91.0 | ||||||
Cash flows from investing activities:
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||||||||
Capital expenditures
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(76.4 | ) | (88.2 | ) | ||||
Acquisition of business
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(16.9 | ) | - | |||||
Acquisition of patents and other long-term assets
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(2.8 | ) | (0.4 | ) | ||||
Proceeds from redemption of investments
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4.2 | 14.6 | ||||||
Other
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0.1 | 0.8 | ||||||
Net cash used in investing activities
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(91.8 | ) | (73.2 | ) | ||||
Cash flows from financing activities:
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||||||||
Borrowings (repayments) under revolving credit agreements, net
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4.9 | (11.3 | ) | |||||
Changes in other debt
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(0.5 | ) | (0.3 | ) | ||||
Dividend payments
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(14.8 | ) | (13.6 | ) | ||||
Excess tax benefit from stock option exercises
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2.1 | 6.0 | ||||||
Shares repurchased for employee tax withholdings
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(1.1 | ) | (5.2 | ) | ||||
Issuance of common stock from treasury
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4.3 | 5.6 | ||||||
Net cash used in financing activities
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(5.1 | ) | (18.8 | ) | ||||
Effect of exchange rates on cash
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4.1 | (4.9 | ) | |||||
Net decrease in cash and cash equivalents
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(7.7 | ) | (5.9 | ) | ||||
Cash, including cash equivalents at beginning of period
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87.2 | 108.4 | ||||||
Cash, including cash equivalents at end of period
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$ | 79.5 | $ | 102.5 |
Three Months Ended
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Nine Months Ended
|
|||||||||||||||
September 30,
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September 30,
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|||||||||||||||
($ in millions)
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2009
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2008
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2009
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2008
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||||||||||||
Restructuring and related charges:
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||||||||||||||||
Severance and post-employment benefits
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$ | - | $ | 0.1 | $ | 0.3 | $ | 1.2 | ||||||||
Asset write-offs
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- | - | 0.5 | 1.2 | ||||||||||||
Other
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- | (0.1 | ) | 0.3 | 0.1 | |||||||||||
Total restructuring and related charges
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- | - | 1.1 | 2.5 | ||||||||||||
Other unallocated (charges) income:
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||||||||||||||||
Contract settlement and related costs (gain)
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- | 1.8 | - | (6.1 | ) | |||||||||||
Brazil tax amnesty benefit
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(3.9 | ) | - | (3.9 | ) | - | ||||||||||
Total unallocated (charges) income
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(3.9 | ) | 1.8 | (2.8 | ) | (3.6 | ) | |||||||||
Foreign exchange losses
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0.2 | 0.3 | 0.1 | 0.6 | ||||||||||||
Other
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0.1 | (0.1 | ) | 0.2 | 0.2 | |||||||||||
Total restructuring and other items
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$ | (3.6 | ) | $ | 2.0 | $ | (2.5 | ) | $ | (2.8 | ) |
($ in millions)
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Amount of Gain (Loss) Recognized in OCI
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Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
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Location of Gain (Loss)
Reclassified from
Accumulated OCI into Income
|
||||||
Cash Flow Hedges:
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|||||||||
Interest rate swap contracts
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$ | 0.3 | $ | (0.8 | ) |
Interest expense
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|||
Total
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$ | 0.3 | $ | (0.8 | ) | ||||
Net Investment Hedges:
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|||||||||
Foreign currency-denominated debt
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$ | (6.2 | ) | $ | - |
Restructuring and other items
|
|||
Total
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$ | (6.2 | ) | $ | - |
($ in millions)
|
Amount of Gain (Loss) Recognized in OCI
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Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
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Location of Gain (Loss)
Reclassified from
Accumulated OCI into Income
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||||||
Cash Flow Hedges:
|
|||||||||
Foreign currency hedge contracts
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$ | 0.2 | $ | - |
Cost of goods and services sold
|
||||
Interest rate swap contracts
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3.0 | (1.9 | ) |
Interest expense
|
|||||
Total
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$ | 3.2 | $ | (1.9 | ) | ||||
Net Investment Hedges:
|
|||||||||
Foreign currency-denominated debt
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$ | (4.2 | ) | $ | - |
Restructuring and other items
|
|||
Total
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$ | (4.2 | ) | $ | - |
·
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Level 1
: Unadjusted quoted prices in active markets for identical assets or liabilities.
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·
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Level 2
: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not
active.
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·
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Level 3
: Unobservable inputs that reflect the reporting entity’s own assumptions.
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Balance at
|
Basis of Fair Value Measurements
|
|||||||||||||||
September 30,
|
||||||||||||||||
($ in millions)
|
2009
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Level 1
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Level 2
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Level 3
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||||||||||||
Assets:
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||||||||||||||||
Short-term investments
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$ | 0.9 | $ | - | $ | 0.9 | $ | - | ||||||||
Deferred compensation assets
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3.3 | 3.3 | - | - | ||||||||||||
Long-term investments
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0.2 | - | 0.2 | - | ||||||||||||
$ | 4.4 | $ | 3.3 | $ | 1.1 | $ | - | |||||||||
Liabilities:
|
||||||||||||||||
Foreign currency contracts
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$ | 0.2 | $ | - | $ | 0.2 | $ | - | ||||||||
Deferred compensation liability
|
8.5 | 8.5 | - | - | ||||||||||||
Interest rate swap contracts
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6.4 | - | 6.4 | - | ||||||||||||
$ | 15.1 | $ | 8.5 | $ | 6.6 | $ | - |
Balance at
|
Basis of Fair Value Measurements
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|||||||||||||||
December 31,
|
||||||||||||||||
($ in millions)
|
2008
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Level 1
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Level 2
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Level 3
|
||||||||||||
Assets:
|
||||||||||||||||
Short-term investments
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$ | 4.3 | $ | - | $ | 4.3 | $ | - | ||||||||
Deferred compensation assets
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2.8 | 2.8 | - | - | ||||||||||||
Long-term investments
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0.8 | - | 0.8 | - | ||||||||||||
$ | 7.9 | $ | 2.8 | $ | 5.1 | $ | - | |||||||||
Liabilities:
|
||||||||||||||||
Foreign currency contracts
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$ | 2.0 | $ | - | $ | 2.0 | $ | - | ||||||||
Deferred compensation liability
|
7.5 | 7.5 | - | - | ||||||||||||
Interest rate swap contracts
|
8.2 | - | 8.2 | - | ||||||||||||
$ | 17.7 | $ | 7.5 | $ | 10.2 | $ | - |
September 30,
|
December 31,
|
|||||||
($ in millions)
|
2009
|
2008
|
||||||
Finished goods
|
$ | 56.8 | $ | 46.9 | ||||
Work in process
|
20.6 | 18.8 | ||||||
Raw materials
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58.5 | 50.0 | ||||||
$ | 135.9 | $ | 115.7 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Net income, as reported, for basic net income per share
|
$ | 17.2 | $ | 13.3 | $ | 52.3 | $ | 68.3 | ||||||||
Plus: interest expense on convertible debt, net of tax
|
1.1 | 1.1 | 3.2 | 3.2 | ||||||||||||
Net income for diluted net income per share
|
$ | 18.3 | $ | 14.4 | $ | 55.5 | $ | 71.5 | ||||||||
Weighted average common shares outstanding
|
32.9 | 32.5 | 32.8 | 32.4 | ||||||||||||
Assumed stock options exercised and awards vested,
based on the treasury stock method
|
0.6 | 0.8 | 0.6 | 0.8 | ||||||||||||
Assumed conversion of convertible debt, based on the
if-converted method
|
2.9 | 2.9 | 2.9 | 2.9 | ||||||||||||
Weighted average shares assuming dilution
|
36.4 | 36.2 | 36.3 | 36.1 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Net income
|
$ | 17.2 | $ | 13.5 | $ | 52.3 | $ | 68.8 | ||||||||
Other comprehensive income (loss), net of tax:
|
||||||||||||||||
Foreign currency translation adjustments
|
11.7 | (28.1 | ) | 21.9 | (17.0 | ) | ||||||||||
Defined benefit pension and other postretirement plans
|
1.2 | 0.6 | 2.5 | 0.8 | ||||||||||||
Net unrealized (losses) gains on investment securities
|
(0.1 | ) | - | 0.1 | - | |||||||||||
Unrealized gains (losses) on derivatives:
|
||||||||||||||||
Unrealized gains arising during the period
|
0.3 | 0.7 | 3.2 | 1.0 | ||||||||||||
Losses included in net income
|
(0.8 | ) | (0.7 | ) | (1.9 | ) | (1.3 | ) | ||||||||
Net unrealized (losses) gains on derivatives
|
(0.5 | ) | - | 1.3 | (0.3 | ) | ||||||||||
Other comprehensive income (loss), net of tax
|
12.3 | (27.5 | ) | 25.8 | (16.5 | ) | ||||||||||
Comprehensive income (loss)
|
29.5 | (14.0 | ) | 78.1 | 52.3 | |||||||||||
Comprehensive income attributable to noncontrolling interests
|
- | 0.2 | - | 0.5 | ||||||||||||
Comprehensive income (loss) attributable to common shareholders
|
$ | 29.5 | $ | (14.2 | ) | $ | 78.1 | $ | 51.8 |
Pension benefits
|
Other retirement benefits
|
Total
|
||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
Service cost
|
$ | 1.9 | $ | 1.9 | $ | 0.2 | $ | 0.2 | $ | 2.1 | $ | 2.1 | ||||||||||||
Interest cost
|
3.8 | 3.5 | 0.2 | 0.2 | 4.0 | 3.7 | ||||||||||||||||||
Expected return on assets
|
(3.0 | ) | (4.1 | ) | - | - | (3.0 | ) | (4.1 | ) | ||||||||||||||
Amortization of prior service credit
|
(0.3 | ) | (0.3 | ) | - | - | (0.3 | ) | (0.3 | ) | ||||||||||||||
Recognized actuarial losses
|
1.9 | 0.4 | - | - | 1.9 | 0.4 | ||||||||||||||||||
Net periodic benefit cost
|
$ | 4.3 | $ | 1.4 | $ | 0.4 | $ | 0.4 | $ | 4.7 | $ | 1.8 |
Pension benefits
|
Other retirement benefits
|
Total
|
||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
U.S. plans
|
$ | 3.9 | $ | 1.1 | $ | 0.4 | $ | 0.4 | $ | 4.3 | $ | 1.5 | ||||||||||||
International plans
|
0.4 | 0.3 | - | - | 0.4 | 0.3 | ||||||||||||||||||
Net periodic benefit cost
|
$ | 4.3 | $ | 1.4 | $ | 0.4 | $ | 0.4 | $ | 4.7 | $ | 1.8 |
Pension benefits
|
Other retirement benefits
|
Total
|
||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
Service cost
|
$ | 5.9 | $ | 5.6 | $ | 0.6 | $ | 0.6 | $ | 6.5 | $ | 6.2 | ||||||||||||
Interest cost
|
10.9 | 10.5 | 0.7 | 0.6 | 11.6 | 11.1 | ||||||||||||||||||
Expected return on assets
|
(8.9 | ) | (12.4 | ) | - | - | (8.9 | ) | (12.4 | ) | ||||||||||||||
Amortization of transition obligation
|
0.1 | 0.1 | - | - | 0.1 | 0.1 | ||||||||||||||||||
Amortization of prior service (credit) cost
|
(0.9 | ) | (0.9 | ) | 0.1 | 0.1 | (0.8 | ) | (0.8 | ) | ||||||||||||||
Recognized actuarial losses
|
5.3 | 1.4 | - | - | 5.3 | 1.4 | ||||||||||||||||||
Net periodic benefit cost
|
$ | 12.4 | $ | 4.3 | $ | 1.4 | $ | 1.3 | $ | 13.8 | $ | 5.6 |
Pension benefits
|
Other retirement benefits
|
Total
|
||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
U.S. plans
|
$ | 11.1 | $ | 3.2 | $ | 1.4 | $ | 1.3 | $ | 12.5 | $ | 4.5 | ||||||||||||
International plans
|
1.3 | 1.1 | - | - | 1.3 | 1.1 | ||||||||||||||||||
Net periodic benefit cost
|
$ | 12.4 | $ | 4.3 | $ | 1.4 | $ | 1.3 | $ | 13.8 | $ | 5.6 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Net sales
|
||||||||||||||||
Pharmaceutical Systems
|
$ | 198.1 | $ | 190.5 | $ | 579.2 | $ | 610.6 | ||||||||
Tech Group
|
62.9 | 68.3 | 192.0 | 204.3 | ||||||||||||
Intersegment sales
|
(2.1 | ) | (2.6 | ) | (8.9 | ) | (8.6 | ) | ||||||||
Total net sales
|
$ | 258.9 | $ | 256.2 | $ | 762.3 | $ | 806.3 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Operating profit
|
||||||||||||||||
Pharmaceutical Systems
|
$ | 29.9 | $ | 23.1 | $ | 91.5 | $ | 107.0 | ||||||||
Tech Group
|
2.6 | 5.1 | 13.4 | 13.5 | ||||||||||||
Corporate costs
|
(3.7 | ) | (3.9 | ) | (13.1 | ) | (14.0 | ) | ||||||||
Stock-based compensation costs
|
(2.5 | ) | (3.1 | ) | (6.3 | ) | (7.1 | ) | ||||||||
U.S. pension and other retirement benefits
|
(4.3 | ) | (1.5 | ) | (12.5 | ) | (4.5 | ) | ||||||||
Other unallocated (charges) income
|
3.9 | (1.8 | ) | 2.8 | 3.6 | |||||||||||
Total operating profit
|
25.9 | 17.9 | 75.8 | 98.5 | ||||||||||||
Interest expense
|
3.8 | 4.3 | 11.1 | 12.6 | ||||||||||||
Interest income
|
(0.3 | ) | (0.4 | ) | (0.6 | ) | (2.1 | ) | ||||||||
Income before income taxes
|
$ | 22.4 | $ | 14.0 | $ | 65.3 | $ | 88.0 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
Net sales:
|
September 30,
|
September 30,
|
||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Pharmaceutical Systems
|
$ | 198.1 | $ | 190.5 | $ | 579.2 | $ | 610.6 | ||||||||
Tech Group
|
62.9 | 68.3 | 192.0 | 204.3 | ||||||||||||
Intersegment sales
|
(2.1 | ) | (2.6 | ) | (8.9 | ) | (8.6 | ) | ||||||||
Total net sales
|
$ | 258.9 | $ | 256.2 | $ | 762.3 | $ | 806.3 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
Gross profit:
|
September 30,
|
September 30,
|
||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Pharmaceutical Systems
|
||||||||||||||||
Gross Profit
|
$ | 63.4 | $ | 56.2 | $ | 190.1 | $ | 204.3 | ||||||||
Gross Margin
|
32.0 | % | 29.5 | % | 32.8 | % | 33.5 | % | ||||||||
Tech Group
|
||||||||||||||||
Gross Profit
|
$ | 8.3 | $ | 9.8 | $ | 29.6 | $ | 28.7 | ||||||||
Gross Margin
|
13.2 | % | 14.4 | % | 15.4 | % | 14.1 | % | ||||||||
Consolidated Gross Profit
|
$ | 71.7 | $ | 66.0 | $ | 219.7 | $ | 233.0 | ||||||||
Consolidated Gross Margin
|
27.7 | % | 25.7 | % | 28.8 | % | 28.9 | % |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Pharmaceutical Systems
|
$ | 4.6 | $ | 4.2 | $ | 13.0 | $ | 13.6 | ||||||||
Tech Group
|
0.5 | 0.4 | 1.1 | 1.2 | ||||||||||||
Total R&D expense
|
$ | 5.1 | $ | 4.6 | $ | 14.1 | $ | 14.8 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Pharmaceutical Systems
|
$ | 28.7 | $ | 28.7 | $ | 85.6 | $ | 83.6 | ||||||||
SG&A as a % of segment net sales
|
14.5 | % | 15.1 | % | 14.8 | % | 13.7 | % | ||||||||
Tech Group
|
$ | 5.1 | $ | 4.4 | $ | 14.9 | $ | 13.6 | ||||||||
SG&A as a % of segment net sales
|
8.1 | % | 6.5 | % | 7.7 | % | 6.7 | % | ||||||||
Corporate costs:
|
||||||||||||||||
General corporate costs
|
3.7 | 3.8 | 13.0 | 13.7 | ||||||||||||
Stock-based compensation expense
|
2.5 | 3.1 | 6.3 | 7.1 | ||||||||||||
U.S. pension and other retirement benefits
|
4.3 | 1.5 | 12.5 | 4.5 | ||||||||||||
Total Selling, General & Administrative costs
|
$ | 44.3 | $ | 41.5 | $ | 132.3 | $ | 122.5 | ||||||||
Total SG&A as a % of total net sales
|
17.1 | % | 16.2 | % | 17.4 | % | 15.2 | % |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Pharmaceutical Systems
|
$ | 0.2 | $ | 0.2 | $ | - | $ | 0.1 | ||||||||
Tech Group
|
0.1 | (0.1 | ) | 0.2 | 0.4 | |||||||||||
Corporate
|
- | 0.1 | 0.1 | 0.3 | ||||||||||||
Unallocated charges (credits):
|
||||||||||||||||
Brazil tax amnesty benefit
|
(3.9 | ) | - | (3.9 | ) | - | ||||||||||
Contract settlement and related gain, net
|
- | 1.8 | - | (6.1 | ) | |||||||||||
Restructuring and related charges
|
- | - | 1.1 | 2.5 | ||||||||||||
Total unallocated charges (credits)
|
(3.9 | ) | 1.8 | (2.8 | ) | (3.6 | ) | |||||||||
Total restructuring and other items
|
$ | (3.6 | ) | $ | 2.0 | $ | (2.5 | ) | $ | (2.8 | ) |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Pharmaceutical Systems
|
$ | 29.9 | $ | 23.1 | $ | 91.5 | $ | 107.0 | ||||||||
Tech Group
|
2.6 | 5.1 | 13.4 | 13.5 | ||||||||||||
Corporate and other unallocated items:
|
||||||||||||||||
General corporate costs
|
(3.7 | ) | (3.9 | ) | (13.1 | ) | (14.0 | ) | ||||||||
Stock-based compensation costs
|
(2.5 | ) | (3.1 | ) | (6.3 | ) | (7.1 | ) | ||||||||
U.S. pension and other retirement benefits
|
(4.3 | ) | (1.5 | ) | (12.5 | ) | (4.5 | ) | ||||||||
Other unallocated (charges) income
|
3.9 | (1.8 | ) | 2.8 | 3.6 | |||||||||||
Total operating profit
|
$ | 25.9 | $ | 17.9 | $ | 75.8 | $ | 98.5 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
($ in millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Interest expense
|
$ | 4.6 | $ | 4.9 | $ | 13.5 | $ | 14.3 | ||||||||
Capitalized interest
|
(0.8 | ) | (0.6 | ) | (2.4 | ) | (1.7 | ) | ||||||||
Interest income
|
(0.3 | ) | (0.4 | ) | (0.6 | ) | (2.1 | ) | ||||||||
Interest expense, net
|
$ | 3.5 | $ | 3.9 | $ | 10.5 | $ | 10.5 |
·
|
In 2009, we recognized a $2.1 million net tax provision benefit principally resulting from the completion of a tax audit and the expiration of open tax periods in various tax jurisdictions.
|
·
|
In 2008, an agreement with the Republic of Singapore reduced our income tax rate in that country for a period of 10 years, on a retroactive basis back to July 2007, resulting in a $1.0 million tax benefit.
|
·
|
Also in 2008, we recognized a $2.3 million net tax provision benefit resulting from the expiration of open tax audit years in certain tax jurisdictions.
|
2009
|
2008
|
|||||||
Net cash provided by operating activities
|
$ | 85.1 | $ | 91.0 | ||||
Net cash used in investing activities
|
(91.8 | ) | (73.2 | ) | ||||
Net cash used in financing activities
|
(5.1 | ) | (18.8 | ) |
2009
|
2008
|
|||||||
Cash and cash equivalents
|
$ | 79.5 | $ | 102.5 | ||||
Working capital
|
$ | 236.3 | $ | 245.0 | ||||
Current ratio
|
2.5 to 1
|
2.5 to 1
|
||||||
Total debt
|
$ | 397.0 | $ | 382.5 | ||||
Net debt-to-total invested capital
|
35.9 | % | 34.2 | % |
Period
|
Total number of shares purchased
(1)(2)(3)
|
Average price paid per share
|
Total number of shares purchased as
part of publicly
announced plans or
programs
|
Maximum number
of shares that may
yet be purchased
under the plans or
programs
|
||||||||||||
July 1 – 31, 2009
|
- | $ | - | - | - | |||||||||||
August 1 – 31, 2009
|
13,647 | $ | 39.58 | - | - | |||||||||||
September 1 – 30, 2009
|
- | $ | - | - | - | |||||||||||
Total
|
13,647 | $ | 39.58 | - | - |
Exhibit Number
|
Description
|
3.1
|
Our Amended and Restated Articles of Incorporation effective December 17, 2007 are incorporated by reference from our Form 8-K dated December 17, 2007.
|
3.2
|
Our Bylaws, as amended effective October 14, 2008 are incorporated by reference from our Form 8-K dated October 20, 2008.
|
4.1
|
Form of stock certificate for common stock is incorporated by reference from our 1998 10-K report.
|
4.2
|
Article 5, 6, 8(c) and 9 of our Amended and Restated Articles of Incorporation are incorporated by reference from our Form 8-K dated December 17, 2007.
|
4.3
|
Article I and V of our Bylaws, as amended through October 14, 2008 are incorporated by reference from our Form 8-K dated October 20, 2008.
|
4.4
|
Instruments defining the rights of holders of long-term debt securities of West and its subsidiaries have been omitted.
1
|
10.1
|
2009 Supplemental Long-Term Incentive Award.
|
31.1
|
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
Relevant Performance Period
|
Target OPM
|
OPM Increase
During the Period
|
Payout Weight
|
July 1, 2009 to December 31, 2009
|
10.5%
|
0.3%
|
20%
|
January 1, 2010 to December 31, 2010
|
11.2%
|
0.7%
|
40%
|
January 1, 2011 to December 31, 2011
|
12.2%
|
1.0%
|
40%
|
TOTAL
|
2.0%
|
100%
|
July – December 2009
|
|||
(20% Weighting)
|
|||
Performance Range
|
OPM Attained
|
Payout
|
|
Maximum:
|
115%
|
12.08%
|
150%
|
Target:
|
100%
|
10.50%
|
100%
|
95%
|
9.98%
|
80%
|
|
Threshold:
|
85%
|
8.93%
|
50%
|
Less than 85%:
|
-0-
|
1.
|
Your employment terminates for any reason before December 31, 2011; or
|
2.
|
If at any time during your employment or within 3 months following termination of your employment, you directly or indirectly engage in activity harmful to, or not in the best interest of, the Company. Such activity includes, without limitation:
|
·
|
conduct related to your employment for which either criminal or civil penalties against you may be sought;
|
·
|
acquisition of a direct or indirect interest or an option to acquire such an interest in any person or entity engaged in competition with the Company’s business (other than an interest of not more than 5 percent of the outstanding stock of any publicly traded company);
|
·
|
accepting employment with or serving as a director, officer, employee or consultant of, or furnishing information to, or otherwise facilitating the efforts of, any person or entity engaged in competition with the Company’s business;
|
·
|
soliciting, employing, interfering with, or attempting to entice away from the Company any employee who has been employed by the Company in an executive or supervisory capacity within one year before such solicitation, employment, interference or enticement;
|
·
|
violation of Company policies, including the Company’s insider-trading policy; or
|
·
|
using for yourself or others, or disclosing to others, any confidential or proprietary information of the Company in contravention of any Company policy or agreement.
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of West Pharmaceutical Services, Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of West Pharmaceutical Services, Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|