SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 2004
Commission File Number 1-8036
WEST PHARMACEUTICAL SERVICES, INC.
(Exact name of registrant as specified
in its charter)
|
Pennsylvania (State or other jurisdiction of incorporation or organization) |
23-1210010 (I.R.S. Employer Identification No.) | |
101 Gordon Drive, PO Box 645, Lionville, PA (Address of principal executive offices) |
|
19341-0645 (Zip code) |
Registrant's
telephone number, including area code 610-594-2900 | ||
|
| ||
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 1934 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
June 30, 2003 – 15,245,661
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 June 30, 2004
Page
Part I -Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Statements of Income for the Three Months and Six Months
ended June 30, 2004 and 2003 3
Condensed Consolidated Balance Sheets at June 30, 2004 and December 31,
2003 4
Consolidated Statement of Shareholders' Equity for the Six Months ended
June 30, 2004 5
Condensed Consolidated Statements of Cash Flows for the Six Months ended
June 30, 2004 and 2003 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 Disclosure about Market Risk 21
Item 4. Controls and Procedures 21
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
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)
Three Months Ended Six Months Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
- ------------------------------------------------------------------------------------------------------
Net sales $ 138,100 $ 126,400 $ 271,700 $ 244,200
Cost of goods and services sold 95,300 85,000 188,300 166,400
- ------------------------------------------------------------------------------------------------------
Gross profit 42,800 41,400 83,400 77,800
Selling, general and administrative expenses 30,800 26,800 59,800 51,200
Costs associated with plant explosion - 3,700 - 8,800
Other expense, net 400 100 1,200 500
- ------------------------------------------------------------------------------------------------------
Operating profit 11,600 10,800 22,400 17,300
Interest expense, net 1,600 1,700 3,500 3,600
- ------------------------------------------------------------------------------------------------------
Income before income taxes 10,000 9,100 18,900 13,700
Provision for income taxes 3,200 2,900 6,100 4,200
- ------------------------------------------------------------------------------------------------------
Income from consolidated operations 6,800 6,200 12,800 9,500
Equity in net income of affiliated companies 900 700 1,900 1,200
- ------------------------------------------------------------------------------------------------------
Net income $ 7,700 $ 6,900 $ 14,700 $ 10,700
======================================================================================================
Net income per share:
Basic $ 0.51 $ 0.48 $ 0.99 $ 0.74
Assuming dilution $ 0.50 $ 0.48 $ 0.96 $ 0.74
- ------------------------------------------------------------------------------------------------------
Average common shares outstanding 14,960 14,483 14,841 14,481
Average shares assuming dilution 15,352 14,483 15,203 14,481
Dividends declared per common share $ 0.21 $ 0.20 $ 0.42 $ 0.40
See accompanying notes to condensed consolidated financial statements.
Page 4
West Pharmaceutical Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
June 30, December 31,
2004 2003
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash, including cash equivalents $ 52,900 $ 37,800
Accounts receivable 81,000 73,900
Inventories 55,500 48,000
Insurance receivable - 41,000
Deferred income taxes 6,000 6,100
Other current assets 13,100 9,900
- --------------------------------------------------------------------------------
Total current assets 208,500 216,700
- --------------------------------------------------------------------------------
Property, plant and equipment 577,700 563,600
Less accumulated depreciation and amortization 316,300 307,900
- --------------------------------------------------------------------------------
261,400 255,700
Investments in and advances to affiliated companies 22,900 22,200
Goodwill 40,800 41,500
Pension asset 49,200 50,500
Deferred income taxes 20,700 20,500
Patents 6,700 6,900
Other assets 8,100 9,600
- --------------------------------------------------------------------------------
Total Assets $ 618,300 $ 623,600
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,800 $ 8,000
Accounts payable 24,500 29,400
Accrued expenses:
Salaries, wages and benefits 22,500 24,500
Income taxes payable 9,800 8,400
Restructuring costs 1,400 1,400
Deferred income taxes 16,600 16,600
Other current liabilities 28,500 30,600
- --------------------------------------------------------------------------------
Total current liabilities 108,100 118,900
- --------------------------------------------------------------------------------
Long-term debt 153,200 167,000
Deferred income taxes 45,400 44,800
Other long-term liabilities 39,300 35,300
Shareholders' equity 272,300 257,600
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 618,300 $ 623,600
================================================================================
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 Unearned comprehensive Treasury
Stock par value earnings compensation income (loss) Stock Total
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31,
2003 $ 4,300 $ 30,100 $ 281,200 $ - $ 18,900 $ (76,900) $ 257,600
Net Income - - 14,700 - - - 14,700
Shares issued under
stock plans - 1,300 - (8,100) - 18,100 11,300
Amortization of unearned
compensation - - - 1,800 - - 1,800
Dividends declared - - (6,400) - - - (6,400)
Foreign currency
translation adjustment - - - - (6,600) - (6,600)
Minimum pension
liability translation
adjustment - - - - (100) - (100)
- ---------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2004 $ 4,300 $ 31,400 $ 289,500 $ (6,300) $ 12,200 $ (58,800) $ 272,300
=====================================================================================================================
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)
Six Months Ended
June 30, June 30,
2004 2003
- ---------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities:
Net income $ 14,700 $ 10,700
Depreciation and amortization 17,000 16,600
Other non-cash items, net 3,700 2,400
Changes in assets and liabilities (8,600) (4,000)
- ---------------------------------------------------------------------------------
Net cash provided by operating activities 26,800 25,700
- ---------------------------------------------------------------------------------
Cash flows provided by (used in) investing activities:
Property, plant and equipment acquired (28,800) (18,100)
Insurance proceeds received for property damage 31,800 4,500
Land acquired under government grant - (2,000)
Repayment of affiliate loan 600 -
Customer advances, net of repayments (800) 700
Other (100) -
- ---------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 2,700 (14,900)
- ---------------------------------------------------------------------------------
Cash flows provided by (used in) financing activities:
Net (repayments) borrowings under revolving
credit agreements (13,600) 4,500
Payment of fees under revolving credit agreements (400) -
Repayment of other long-term debt - (200)
Other notes payable, net (3,400) (600)
Dividend payments (6,200) (5,800)
Issuance of common stock 10,200 -
- ---------------------------------------------------------------------------------
Net cash used in financing activities (13,400) (2,100)
- ---------------------------------------------------------------------------------
Effect of exchange rates on cash (1,000) 2,400
- ---------------------------------------------------------------------------------
Net increase in cash and cash equivalents 15,100 11,100
Cash, including cash equivalents at beginning of period 37,800 33,200
- ---------------------------------------------------------------------------------
Cash, including cash equivalents at end of period $ 52,900 $ 44,300
=================================================================================
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 six-month
period ended June 30, 2004 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
2003 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 June 30, 2004 and the results of
operations and cash flows for the periods ended June 30, 2004 and 2003.
The results of operations for any interim period are not necessarily
indicative of results for the full year.
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, if any, are
recorded in the interim period in which they occur.
Stock-Based Compensation
------------------------
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board (APB) 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.
In the second quarter of 2004, the Company awarded 190,350 shares of
performance vesting restricted shares to key employees under the 2004
Stock-Based Compensation Plan. The shares vest over three performance
periods as follows; 64,939 shares vest according to 2004 annual results,
62,706 shares vest according to the combined 2004 and 2005 results, and
the final 62,705 shares vest according to the results achieved over the
three-year period ending December 31, 2006. The ultimate amount of shares
that will vest is determined by the achievement of compound annual growth
rates on revenue and return on invested capital targets. The awards will
be forfeited if results for the respective performance period are less
than 70% of the performance target. Achievement of between 70% and 100%
of the designated plan targets will result in the vesting of 50% to 100%
of the original award amounts. If performance targets are exceeded in the
second and third performance periods, additional unrestricted shares
could be awarded. The maximum additional unrestricted share award for
exceeding performance period targets is 31,353 shares and 62,705 shares
for the second and third performance periods, respectively. As the
ultimate number of shares that will be awarded will not be known until
the end of these performance periods, the plan is accounted for as a
variable award plan under APB 25, and compensation expense is recognized
over the performance period(s) based on an estimate of the number of
shares that will vest considering the performance criteria and the market
price of the stock at the end of each interim period until the final
award is determined.
Page 8
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
Unearned compensation of $8,100 was recorded at the grant date of the
awards in the second quarter of 2004 and is being amortized ratably over
the vesting periods. Compensation expense of $1,800 was recognized for
the performance restricted stock during the three- and six-month periods
ended June 30, 2004. The unamortized balance of unearned compensation on
performance restricted stock is included as a separate component of
shareholders' equity.
The Company has recorded stock-based compensation for other employee
restricted stock awards and for director stock-based compensation. The
Company did not record compensation cost for stock options for the three
and six months ended June 30, 2004 and 2003, because stock option grants
are at 100% of fair market value of the stock on the grant date. The
Company also did not record compensation costs for shares issued under the
noncompensatory employee stock purchase plan. If the fair value based
method prescribed in Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," had been applied to
restricted stock grants, stock option grants and shares issued under the
employee stock purchase plan, the Company's net income and basic and
diluted net income per share would have been reduced as summarized below:
Three Months Ended Six Months Ended
6/30/04 6/30/03 6/30/04 6/30/03
----------------------------------------------------------------------------------------------
Net income, as reported: $ 7,700 $ 6,900 $14,700 $10,700
Add: Stock-based compensation expense
included in net income, net of tax 1,700 300 1,900 100
Deduct: Total stock-based compensation
expense determined under the fair value
based method for all awards, net of tax (2,200) (600) (2,700) (600)
----------------------------------------------------------------------------------------------
Pro forma net income $ 7,200 $ 6,600 $13,900 $10,200
==============================================================================================
Net income per share:
Basic, as reported $ 0.51 $ 0.48 $ 0.99 $ 0.74
Basic, proforma $ 0.48 $ 0.46 $ 0.94 $ 0.71
Diluted, as reported $ 0.50 $ 0.48 $ 0.96 $ 0.74
Diluted, pro forma $ 0.47 $ 0.46 $ 0.91 $ 0.71
----------------------------------------------------------------------------------------------
2. Inventories at June 30, 2004 and December 31, 2003 were as follows:
6/30/04 12/31/03
----------------------------------------------------------
Finished goods $ 26,500 $ 21,700
Work in process 10,600 8,600
Raw materials 18,400 17,700
----------------------------------------------------------
$ 55,500 $ 48,000
==========================================================
Page 9
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
3. Comprehensive income (loss) for the three and six months ended June
30, 2004 and 2003 were as follows:
Three Months Ended Six Months Ended
6/30/04 6/30/03 6/30/04 6/30/03
-------------------------------------------------------------------------------------------
Net income $ 7,700 $ 6,900 $ 14,700 $ 10,700
Foreign currency translation adjustments (3,400) 10,500 (6,600) 15,000
Minimum pension liability translation
adjustments, net of tax - (300) (100) (200)
Fair value adjustment on derivative
financial instruments, net of tax - 100 - 100
-------------------------------------------------------------------------------------------
Comprehensive income $ 4,300 $ 17,200 $ 8,000 $ 25,600
===========================================================================================
4. Net sales to external customers and operating profit (loss) by
reporting segment for the three and six months ended June 30, 2004 and
2003 were as follows:
Three Months Ended Six Months Ended
Net Sales: 6/30/04 6/30/03 6/30/04 6/30/03
----------------------------------------------------------------------------
Pharmaceutical Systems $ 136,200 $ 125,200 $ 266,600 $ 241,400
Drug Delivery Systems 1,900 1,200 5,100 2,800
----------------------------------------------------------------------------
Total $ 138,100 $ 126,400 $ 271,700 $ 244,200
============================================================================
Three Months Ended Six Months Ended
Operating Profit (Loss): 6/30/04 6/30/03 6/30/04 6/30/03
-----------------------------------------------------------------------------------
Pharmaceutical Systems $ 24,400 $ 25,200 $ 45,000 $ 46,100
Drug Delivery Systems (4,200) (3,700) (7,000) (7,200)
Corporate costs (7,400) (5,100) (13,200) (9,600)
Domestic pension expense (1,200) (1,900) (2,400) (3,200)
Costs associated with plant
explosion - (3,700) - (8,800)
-----------------------------------------------------------------------------------
Operating profit 11,600 10,800 22,400 17,300
Interest expense, net (1,600) (1,700) (3,500) (3,600)
----------------------------------------------------------------------------------
Income before income taxes $ 10,000 $ 9,100 $ 18,900 $ 13,700
===================================================================================
In June 2004, the Company issued a press release announcing its plans to
explore strategic alternatives for its Drug Delivery Systems segment.
5. Common stock issued at June 30, 2004 was 17,165,141 shares, of which
1,919,480 shares were held in treasury. Dividends of $.21 per common
share were paid in the second quarter of 2004 and a dividend of $.21 per
share payable August 4, 2004 to holders of record on July 21, 2004 was
declared on June 29, 2004.
Page 10
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
Below are the calculations of earnings per share for the three and six
months ended June 30, 2004 and 2003. Options to purchase 2,059,416 and
2,088,469 shares of common stock that were outstanding during the three
and six months ended June 30, 2003, 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. There were 245,500
antidilutive options outstanding during both the three- and six-month
periods ended June 30, 2004.
Three Months Ended Six Months Ended
6/30/04 6/30/03 6/30/04 6/30/03
---------------------------------------------------------------------------------
Net income $7,700 $6,900 $14,700 $10,700
Average common shares outstanding 14,960 14,483 14,841 14,481
Add: Dilutive stock options 392 - 362 -
---------------------------------------------------------------------------------
Average shares assuming dilution 15,352 14,483 15,203 14,481
---------------------------------------------------------------------------------
Basic net income per share $0.51 $0.48 $0.99 $0.74
Diluted net income per share $0.50 $0.48 $0.96 $0.74
---------------------------------------------------------------------------------
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. Based on consultants'
estimates of the costs of remediation in accordance with applicable
regulatory requirements, the Company believes the accrued liability of
$2,300 at June 30, 2004 is sufficient to cover the future costs of these
remedial actions, including the expected demolition and environmental
cleanup at the former Kinston, North Carolina site.
7. Goodwill by reportable segment as of June 30, 2004 and December 31,
2003 was as follows:
6/30/04 12/31/03
--------------------------------------------------------
Pharmaceutical Systems $ 38,800 $ 39,500 $
Drug Delivery Systems 2,000 2,000
--------------------------------------------------------
$ 40,800 $ 41,500 $
========================================================
The decrease in the goodwill balance from December 31, 2003 is solely due
to foreign currency translation adjustments.
The cost and respective accumulated amortization for the Company's
patents, was $12,000 and $5,300, respectively, as of June 30, 2004, and
$11,800 and $4,900, respectively, as of December 31, 2003. The cost
basis of patents includes the effects of foreign currency translation
adjustments. The Company recorded amortization expense of $200 and $400,
respectively, for the three and six months ended June 30, 2004 and 2003.
Amortization for the full year 2004 is estimated to be $800. The estimated
annual amortization expense for each of the next five years is approximately
$800 per year.
Page 11
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
8. There were no changes in the Company's restructuring reserve for the
quarter ended June 30, 2004. The Company expects to complete payments of
$1,400 within the next twelve months.
9. Other (income) expense for the three and six months ended June 30,
2004 and 2003 was as follows:
Three Months Ended Six Months Ended
6/30/04 6/30/03 6/30/04 6/30/03
----------------------------------------------------------------------------------------------
Foreign currency transaction (gains) losses $ (100) $ (400) $ 300 $ (400)
Loss on sales of equipment and other assets 400 400 800 700
Other 100 100 100 200
----------------------------------------------------------------------------------------------
$ 400 $ 100 $ 1,200 $ 500
==============================================================================================
10. The components of net pension expense for domestic and international
plans for the three and six months ended June 30, 2004 and 2003 were as
follows:
Other retirement
Pension benefits benefits
Three months 6/30/04 6/30/03 6/30/04 6/30/03
----------------------------------------------------------------------------------------
Service cost $1,300 $1,100 $200 $200
Interest cost 2,800 2,800 100 100
Expected return on assets (3,700) (3,100) - -
Amortization of prior service cost 200 200 - -
Recognized actuarial losses 800 1,100 - (100)
----------------------------------------------------------------------------------------
Pension expense $1,400 $2,100 $300 $200
========================================================================================
Other retirement
Pension benefits benefits Total
Three months 6/30/04 6/30/03 6/30/04 6/30/03 6/30/04 6/30/03
----------------------------------------------------------------------------------
Domestic plans $ 900 $1,700 $300 $200 $1,200 $1,900
International plans 500 400 - - 500 400
----------------------------------------------------------------------------------
$1,400 $2,100 $300 $200 $1,700 $2,300
==================================================================================
Page 12
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
Other retirement
Pension benefits benefits
Six months 6/30/04 6/30/03 6/30/04 6/30/03
-----------------------------------------------------------------------------------------
Service cost $2,600 $2,100 $300 $300
Interest cost 5,700 5,400 300 300
Expected return on assets (7,300) (6,100) - -
Amortization of unrecognized transition costs - (100) - -
Amortization of prior service cost 400 400 - (100)
Recognized actuarial losses 1,500 1,900 - (100)
-----------------------------------------------------------------------------------------
Pension expense $2,900 $3,600 $600 $400
=========================================================================================
Other retirement
Pension benefits benefits Total
Six months 6/30/04 6/30/03 6/30/04 6/30/03 6/30/04 6/30/03
-------------------------------------------------------------------------------------
Domestic plans $1,800 $2,800 $600 $400 $2,400 $3,200
International plans 1,100 800 - - 1,100 800
-------------------------------------------------------------------------------------
$2,900 $3,600 $600 $400 $3,500 $4,000
=====================================================================================
11. On May 17, 2004, the Company replaced its existing revolving credit
facility. The new agreement, involving a group of six banks,
provides a $125.0 million committed revolving credit facility
through January 5, 2009. Financing costs on the new agreement of
$0.4 million were deferred and are being amortized over the life
of the agreement. Under the new agreement, the Company's
Leverage Ratio (the ratio of total debt less cash to
consolidated capitalization) may not exceed 50% and Consolidated
Net Worth (shareholders equity, excluding cumulative translation
adjustments) must be at least $198.9 million plus half of any
net income after taxes earned after December 31, 2003. As of
June 30, 2004 the Company's Leverage Ratio was 28.4% and its
Consolidated Net Worth stood at $255.2 million. Failure to meet
these or other debt covenants would cause all borrowings under
the revolving credit facility, as well as $100.0 million of
senior notes, to become immediately due and payable and may
trigger early payment penalties.
Interest costs on notes drawn under the revolving credit
facility are primarily based on London Interbank Offering Rates
plus an applicable margin ranging from 0.70% to 1.20% dependent
on the Company's Leverage Ratio. In addition, the Company must
pay an annual facility fee ranging from 0.175% to 0.30% during
the commitment period as determined by the Leverage Ratio. As of
June 30, 2004, the Company had borrowed $53.2 million under the
revolving credit facility.
12. In the first quarter of 2004, the Company recorded a $600 gain,
included in equity in net income of affiliated companies, for its share
of the gain on the sale of property owned by a Mexican affiliate. The
facility was shut down during 2002 when the affiliate consolidated two of
its rubber molding operations.
Page 13
West Pharmaceutical Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share data)
(continued)
13. The Company continues to incur additional production and business
interruption costs connected to interim production procedures put in
place following the Kinston accident. For the three- and six-month periods
ending June 30, 2004, these additional costs of goods sold totaled $3,100
and $6,400, respectively. For the three- and six-month periods ending June
30, 2003, similar costs totaling $2,800 and $4,400, respectively, were
incurred, however these costs were partially offset by a $2,600 insurance
recovery recorded in the second quarter of 2003. As a result of the
insurance recovery, the net impact of these costs was only $200 and
$1,800 for the three- and six-month periods ending June 30, 2003. A final
insurance settlement was recorded in December 2003; no additional amounts
are recoverable with regard to continuing business interruption losses
incurred in 2004. The Company has also incurred an additional $500 and
$1,000 in Kinston related legal costs recorded in the selling, general
and administrative expense line for the three- and six-month periods
ending June 30, 2004, respectively.
In addition, for the three- and six-month periods ended June 30, 2003, the
Company recognized $3,700 and $8,800, respectively, of direct uninsured
costs associated with the Kinston explosion. These costs included insurance
policy deductibles, legal and investigational costs, and environmental
response costs.
At December 31, 2003 the Company recorded a $41,000 receivable due from
its insurance provider in connection with the settlement of its insurance
claim for the Kinston accident. The Company received the $41,000 in
February 2004.
The Company has been named a defendant in a lawsuit filed 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 estimate these plaintiffs' alleged
damages. The Company believes that overall it has sufficient insurance to
cover losses from expected litigation associated with the incident.
14. In January 2003, the Financial Accounting Standards Board ("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 and 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 adopted FIN 46 on January 1, 2004. The
adoption of FIN 46 did not have an impact on the Company's financial
position or results of operations.
Page 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months and Six Months ended June 30, 2004
versus June 30, 2003
Net Sales
- ---------
Consolidated net sales for the second quarter of 2004 were $138.1 million
compared to $126.4 million reported in the second quarter of 2003. Sales
increased 9% from the prior-year quarter with 3% of the increase due to the
impact of foreign currency translation. Overall price increases accounted for
0.2% of the sales increase over the quarter ended June 30, 2003.
Second quarter 2004 sales for the Pharmaceutical Systems segment were $136.2
million, an $11.0 million or 9% increase from prior-year quarter reported
sales of $125.2 million. Approximately 3% of the increase was the result of
foreign currency translation. Domestic sales increased 10% over the prior-year
quarter, driven by a range of factors including strong demand for serum
stoppers and other coated closures, revenue from tooling and design services,
and increased demand from a specific customer partially to support a product
the customer only recently began purchasing from the Company. Sales increases
were also recorded in the plastic device manufacturing group, due to increased
demand for consumer packaging components and customer safety-stock increases in
advance of the pending closure of the Company's facility in Lewes, England.
Following the strong results recorded in the first quarter of 2004,
international sales grew at a slower rate during the second quarter, as
customers sought to work down inventory levels. Second quarter 2004
international sales were 7% above second quarter 2003 levels, with 6% of
the increase due to the impact of foreign currency translation.
Revenues for the quarter ended June 30, 2004 for the Drug Delivery Systems
segment, which includes the clinical services business unit and the drug
delivery business unit, were $1.9 million in 2004, compared to $1.2 million
in the prior-year quarter. The increase in revenue is primarily due
to improved demand in the clinical services business unit.
Net sales in the first half of 2004 were $271.7 million compared to
$244.2 million in the first six months of 2003. Sales increased 11% from
the prior year with 5% of the increase due to the impact of foreign currency
translation. Overall price increases accounted for 0.4% of the sales increase
over the first six months of 2003. Pharmaceutical Systems segment sales
were 10% higher than the prior year with 5% of the increase resulting from
foreign currency translation. Drug Delivery Systems' revenues for the six-month
period increased $2.3 million due to higher revenues in the clinical services
business unit.
Operating Profit
- ----------------
Operating profit (loss) by operating segment, including corporate costs,
U.S. pension plan expense and other charges recorded in operating profit, for
the three- and six-month periods ended June 30, 2004 and 2003 were as follows:
Page 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months and Six Months ended June 30, 2004 versus
June 30, 2003, continued
Three Months Ended Six Months Ended
Operating Profit (Loss) June 30 June 30
($ in millions) 2004 2003 2004 2003
- ------------------------------------------------------------------------------
Pharmaceutical Systems $ 24.4 $ 25.2 $ 45.0 $ 46.1
Drug Delivery Systems (4.2) (3.7) (7.0) (7.2)
Corporate costs (7.4) (5.1) (13.2) (9.6)
Domestic pension expense (1.2) (1.9) (2.4) (3.2)
Costs associated with plant explosion - (3.7) - (8.8)
- ------------------------------------------------------------------------------
Consolidated Total $ 11.6 $ 10.8 $ 22.4 $ 17.3
==============================================================================
Pharmaceutical Systems segment operating profit for the second quarter of 2004
decreased by $0.8 million compared to the prior-year quarter. The majority of
this decrease was due to $3.1 million of additional production and business
interruption costs incurred in the 2004 quarter associated with interim
production plans enacted after the 2003 explosion at the Kinston plant. In the
second quarter of 2003, similar costs totaling $2.8 million were incurred,
however these costs were largely offset by recorded insurance recoveries of
$2.6 million. As a result of the final insurance settlement recorded at the
end of 2003, no additional amounts are recoverable with regard to continuing
business interruption losses. These factors caused the gross margin for the
Pharmaceutical Systems segment to decline to 31.1% in the second quarter of
2004 compared to 32.9% in the prior-year quarter. The decline in margins was
partially mitigated by a favorable product mix and production efficiencies in
European plant operations. Selling, general and administrative expenses in the
Pharmaceutical Systems segment were approximately 13% of net sales in both the
second quarter of 2004 and 2003.
Pharmaceutical Systems segment operating profit for the first half of 2004
declined by $1.1 million as compared to the prior year, again mostly due to
Kinston-related costs. Additional production costs related to the Kinston
accident for the six-month period of 2004 totaled $6.4 million. In the first
half of 2003, these costs totaled $4.4 million and were partially offset by
the $2.6 million insurance recovery noted above resulting in a net $1.8
million impact. As a result of these factors, the gross margin for the
Pharmaceutical Systems segment declined to 30.7% from 32.1% for the six-month
periods ending June 30, 2004 and 2003, respectively. The decline in margins
was again partially mitigated by a favorable product mix and plant efficiency
gains in Europe.
Page 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months and Six Months ended June 30, 2004
versus June 30, 2003
In the second quarter of 2003, the Company incurred $3.7 million of direct
uninsured costs associated with the Kinston plant explosion. These costs
included insurance policy deductibles, legal and investigational costs, and
environmental response costs. These costs totaled $8.8 million for the six-month
period ended June 30, 2003 and were accounted for outside of the Pharmaceutical
Systems segment.
In the Drug Delivery Systems segment, operating losses for the quarter ended
June 30, 2004, increased by $0.5 million from the prior-year quarter, principally
due to spending on the nasal fentanyl, nasal leuprolide, and oral budesonide
clinical development programs. These cost increases more than offset a modest
improvement in operating profit generated by the clinical services unit. The
same factors that influenced the quarterly comparison affected the six-month
comparisons.
Corporate costs were $7.4 million in the second quarter of 2004 up from $5.1
million in 2003. The increase in second quarter 2004 costs includes a $1.8
million expense related to a performance vesting restricted stock plan granted
during the quarter. The Company estimates the full year cost of this plan will
be approximately $3.6 million, however the ultimate amount of expense recorded
under the plan is subject to the attainment of performance conditions and the
market price of the stock at future measurement dates. Other Corporate cost
increases resulted from Sarbanes-Oxley and FDA compliance efforts. Corporate
costs for the three- and six-month periods ended June 30, 2004, include
$0.5 million and $1.0 million, respectively, of Kinston-related legal costs.
In 2003, Kinston-related legal costs were reported as part of the line entitled
"Costs associated with plant explosion". On a year-to-date basis, Corporate costs
were $3.6 million higher than the prior-year period due to the performance
vesting restricted stock award, Kinston-related legal costs, increased
stock-based directors' compensation costs and Sarbanes Oxley and other
compliance costs, partially offset by lower incentive bonus and information
systems costs.
U.S. pension plan expenses were $1.2 million in the second quarter of 2004
compared to $1.9 million in the same period of 2003. Year-to-date pension
expense was $2.4 million in 2004 compared to $3.2 million in 2003. The decrease
in pension expense is due to the 2003 recovery of the U.S. stock market which
resulted in unrealized gains that reduced current year expense. The Company
expects full-year 2004 U.S. pension expense to be approximately $5.0 million.
Interest Expense, net
- ---------------------
Net interest costs were $1.6 million in the second quarter 2004 down from
$1.7 million in the prior-year quarter. For the six months ended June 30,
2004, net interest costs were $3.5 million compared to $3.6 million in the
prior year. The slight decrease in interest expense is a result of decreased
average debt levels in the current year, partially offset by reduced interest
income on customer advances.
Page 17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months and Six Months ended June 30, 2004
versus June 30, 2003, continued
Provision for Income Taxes
- --------------------------
The effective tax rate for the second quarter ended June 30, 2004 was 32.0%
compared to 31.2% in the prior-year quarter. For the six-month period, the
effective tax rate was 32.4% in 2004 compared to 30.3% in 2003. The increase
in the effective rate from the prior year is due to a change in the
geographic mix of earnings.
In a press release issued in the second quarter of 2004, the Company stated
that the effective tax rate would be negatively impacted by a change in Danish
tax law. The use of previously unrecognized net operating loss carryforwards
has temporarily mitigated the impact of the law change.
Equity in Net Income of Affiliated Companies
- --------------------------------------------
Earnings in net income of affiliated companies were $0.9 million in the second
quarter of 2004 up from the $0.7 million in the second quarter of 2003.
Earnings for the six-month period were also up from the prior year with income
of $1.9 million in 2004 compared to $1.2 million in 2003. Earnings from
Daikyo Seiko, Ltd., a Japanese company in which the Company has a 25%
ownership interest, benefited from increased customer purchases in advance of
a pending formulation change. Results from the Company's 49% owned Mexican
affiliates were up from the same six-month period in 2003 as a result of the
Company's $0.6 million portion of the gain on the sale of property in 2004.
Net Income
- ----------
Net income for the second quarter of 2004 was $7.7 million, or $.50 per diluted
share, compared to $6.9 million, or $.48 per diluted share, in the second
quarter of 2003. Net income for the second quarter of 2004 included $3.6 million
of pre-tax costs ($2.4 million, or $0.16 per diluted share, net of tax) related
to the explosion at the Kinston facility. Net income for the second quarter of
2003 included $3.7 million of uninsured costs associated with the plant explosion
and an additional $0.2 million of related net business interruption losses,
totaling $3.9 million ($2.6 million, or $0.18 per diluted share, net of tax).
Average common shares outstanding assuming dilution were 15.4 million in the
second quarter of 2004 compared to 14.5 million in the second quarter of 2003.
Net income for the six-month period in 2004 was $14.7 million, or $0.96 per
diluted share, compared to $10.7 million, or $0.74 per diluted share, for the
same period in 2003. 2004 results include $7.4 million of pre-tax costs
($4.9 million, or $0.33 per diluted share, net of tax) related to the
Kinston explosion. Six-month results as of June 30, 2003 included
$8.8 million of uninsured costs associated with the plant explosion and an
additional $1.8 million of related net business interruption losses, totaling
$10.6 million ($7.0 million, or $0.48 per diluted share, net of tax). Average
common shares outstanding assuming dilution were 15.2 million for the first six
months of 2004 compared to 14.5 million for the same period in 2003.
Page 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months and Six Months ended June 30, 2004
versus June 30, 2003, continued
Average common shares outstanding assuming dilution increased significantly
during 2004 due to stock option exercises and the dilutive effect of outstanding
options resulting from the Company's rising stock price.
Liquidity and Capital Resources
- -------------------------------
Working capital at June 30, 2004 was $100.4 million compared with $97.8 million
at December 31, 2003. The working capital ratio at June 30, 2004 was 1.9
to 1. Days sales outstanding were 50.8 days, decreasing slightly from 51.3 in
2003. Cash flow from operations was $26.8 million for the first six months of
2004, an increase of $1.1 million from the prior year. This slight increase is
a result of $4.0 million higher net income in the six-month period in 2004
compared to 2003, partially offset by increases in accounts receivable,
inventory and other current assets.
Capital spending for the six-month period ended June 30, 2004 was $28.8
million. Expenditures included $10.9 million related to the construction of a
new compression molding facility in Kinston, $3.1 million for the expansion of
a metals and plastics production facility in Stolberg, Germany and $1.6
million for the expansion of Westar production at the Company's facility in
Jersey Shore, Pennsylvania. The remaining expenditures were for new equipment
purchases and equipment upgrades. Full-year 2004 capital spending is
projected to be approximately $60 million, which includes $14 million related
to the replacement of the Kinston facility. The Company expects that the new
Kinston facility will be fully operational by the end of 2004.
The Company paid cash dividends totaling $6.2 million ($0.42 per share) during
the six-month period ended June 30, 2004 and received $8.9 million in proceeds
from employee stock option exercises and $1.3 million from employee stock
purchase plan contributions.
Debt as a percentage of total invested capital at June 30, 2004 was 36.7%
compared to 40.5% at December 31, 2003. Total shareholders' equity was
$272.3 million at June 30, 2004 compared to $257.6 million at December 31, 2003.
The increase in equity was due to current year net income and employee
stock option exercises, partially offset by dividend payments and negative
foreign currency translation adjustments.
The Company relies on operating cash flow, short-term lines of credit, and a
long-term revolving credit facility for working capital needs and capital
expenditures.
Page 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months and Six Months ended June 30, 2004
versus June 30, 2003, continued
On May 17, 2004, the Company replaced its existing revolving credit facility.
The new agreement, involving a group of six banks, provides a $125.0 million
committed revolving credit facility through January 5, 2009. Financing costs
on the new agreement of $0.4 million were deferred and are being amortized
over the life of the agreement. Under the new agreement, the Company's
Leverage Ratio (the ratio of total debt less cash to consolidated
capitalization) may not exceed 50% and Consolidated Net Worth (shareholders
equity, excluding cumulative translation adjustments) must be at least $198.9
million plus half of any net income after taxes earned after December 31,
2003. As of June 30, 2004, the Company's Leverage Ratio was 28.4% and its
Consolidated Net Worth stood at $255.2 million. Failure to meet these or other
debt covenants would cause all borrowings under the revolving credit facility,
as well as $100.0 million of senior notes, to become immediately due and
payable and may trigger early payment penalties.
Interest costs on notes drawn under the revolving credit facility are primarily
based on London Interbank Offering Rates plus an applicable margin ranging from
0.70% to 1.20% dependent on the Company's Leverage Ratio. In addition, the Company
must pay an annual facility fee ranging from 0.175% to 0.30% during the commitment
period as determined by the Leverage Ratio. As of June 30, 2004, the Company had
borrowed $53.2 million under the revolving credit facility.
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.
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."
New Accounting Standards
- ------------------------
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 and 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 adopted FIN 46 on January 1, 2004. The adoption
of FIN 46 did not have an impact on the Company's financial position or
results of operations.
Page 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months and Six Months ended June 30, 2004
versus June 30, 2003, continued
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.
During the second quarter of 2004, the Company entered into a forward exchange
arrangement to protect against variability in future cash flows regarding raw
material purchases by European subsidiaries denominated in U.S. dollars (USD).
This arrangement is divided into monthly contracts of $0.6 million each with
the last contract ending in December 2004. The terms of the arrangement set
a base rate of 1.18 USD per Euro and a limit rate of 1.29 USD per Euro. The
Company is protected against a strengthening USD by restricting the exchange
rate to the base rate. The Company would participate in gains caused by a
weakening USD up to the limit rate. If the limit rate is exceeded during the
next six months, the Company agrees to buy USD at the base rate each month
ending in December 2004. There are no cash payments required and no income
statement effect of an exchange rate between the base and limit rates.
At June 30, 2004, the exchange rate was between these rates resulting in no
cash payments and no income statement effect.
The Company periodically uses forward contracts to hedge certain transactions
or to neutralize month-end balance sheet exposures on cross currency
intercompany loans. The Company has a number of forward contracts with fair
values totaling $0.1 million as of June 30, 2004 to purchase various
currencies in Europe and Asia.
Cautionary Statement Regarding Forward-Looking Information
- ----------------------------------------------------------
Certain statements contained in this Report or in other company documents and
certain statements that may be made by management of the Company orally may
contain forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. The words "estimate", "expect", "intent",
"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 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 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months and Six Months ended June 30, 2004
versus June 30, 2003, continued
Item 3. Quantitative and Qualitative Disclosure 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 Annual Report on Form 10-K for the year ended December 31, 2003.
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 Officer, as appropriate, to allow timely decisions regarding
required disclosure.
The Company's management, with the participation of the Chief Executive Officer
and the Chief Financial Officer, has 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, the Company's management, with the participation of the Chief
Executive Officer and the Chief Financial Officer, has evaluated the
Company's internal control over financial reporting, and based on such
evaluation, has concluded that there has been no change to the Company's internal
control over financial reporting that occurred during the quarter ended
June 30, 2004 that has materially affected, or is reasonably likely to
materially affect, these internal controls.
Page 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months and Six Months ended June 30, 2004
versus June 30, 2003, continued
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
(a) The Company held its annual meeting of shareholders on May 4, 2004.
(c) Three matters were voted on at the annual meeting: (1) the election
of four directors in Class II; (2) the approval of the Company's 2004
Stock-Based Compensation Plan; and (3) the ratification of the
appointment of PricewaterhouseCoopers LLP as the Company's independent
registered public accounting firm for 2004. The results of the voting
are as follows:
Proposal #1 - Election of Directors
For Withheld
George W. Ebright 12,886,894 713,949
L. Robert Johnson 12,695,764 905,079
John P. Neafsey 12,704,552 896,291
Geoffrey F. Worden 12,888,906 711,937
Proposal #2 - Approval of the 2004 Stock-Based Compensation Plan
For Against Abstained
10,232,802 1,893,546 33,565
Proposal #3 - Ratification of Appointment of Independent Registered
Public Accounting Firm
For Against Abstained
13,261,470 327,020 12,353
Item 6. Exhibits and Reports on Form 8-K
(a) See Index to Exhibits on pages F-1 and F-2 of this Report.
(b) On April 20, 2004, 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 April 20, 2004.
On May 28, 2004, the Company filed a Current Report on Form 8-K. Under
Item 5 of that Report, the Company furnished to the Commission the Press
Release dated May 28, 2004.
On June 30, 2004, the Company filed a Current Report on Form 8-K. Under
Item 9 of that Report, the Company furnished to the Commission the
Press Release dated June 30, 2004.
Page 23
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)
August 4, 2004 /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 March 6, 2004, incorporated
by reference to Exhibit (3)(b) to the Company's Form 10-Q for the
quarter ended March 31, 2004 (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) (b) 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) (c) Article I and V of the Bylaws of the Company, as amended through
March 6, 2004, incorporated by reference to Exhibit (4)(c) of the
Company's Form 10-Q for the quarter ended March 31, 2004 (File No.
1-8036).
(10) (a) Change-In-Control Agreement, dated as of April 28, 2004, between
the Company and William J. Federici.
(10) (b) Credit Agreement, dated as of May 17, 2004, incorporated by reference
to Exhibit 99.1 of the Company's Current Report on Form 8-K dated
May 28, 2004 (File No. 1-8036).
(10) (c) Form of 2004 Management Incentive Plan (Pharmaceutical Systems
Division-Americas Region, Corporate, Pharmaceutical Systems Division-
Device Group, Drug Delivery Division, Pharmaceutical Systems Division-
Europe/Asia, and Pharmaceutical Systems Division).
(11) Non applicable.
(15) None.
(18) None.
(19) None.
(22) None.
F - 1
INDEX TO EXHIBITS
Exhibit
Number
(23) Non Applicable.
(24) None.
(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.
F-2