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Registrant’s telephone number, including area code: i610-i594-2900
Securities registered pursuant
to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
iCommon Stock, par value $0.25 per share
iWST
iNew
York Stock Exchange
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iiYes/☑No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iiYes/☑No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Preferred
stock, ii3.0/ million shares authorized;
iiii0///
shares issued and outstanding
i—
i—
Common
stock, par value $ii0.25/ per share; ii200.0/
million shares authorized; shares issued: ii75.3/ million in 2022
and 2021; shares outstanding: i74.1 million and i74.2 million
i18.8
i18.8
Capital
in excess of par value
i219.9
i249.0
Retained
earnings
i2,617.3
i2,456.7
Accumulated
other comprehensive loss
(i182.4)
(i159.6)
Treasury
stock, at cost (i1.2 million and i1.1 million shares)
(i347.4)
(i229.5)
Total
Equity
i2,326.2
i2,335.4
Total
Liabilities and Equity
$
i3,294.7
$
i3,313.8
See
accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1: iBasis
of Presentation and Summary of Significant Accounting Policies
Biasis of Presentation: The condensed consolidated financial statements included in this report are unaudited and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting and U.S. Securities and Exchange Commission (“SEC”) regulations. The year-end condensed consolidated balance sheet data was derived
from audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, these financial statements include all adjustments, which are of a normal recurring nature, necessary for a fair statement of the financial position, results of operations, cash flows and the change in equity for the periods presented. The condensed consolidated financial statements for the three months ended March 31, 2022, should be read in conjunction with the consolidated financial statements and notes thereto of West Pharmaceutical Services, Inc. and its majority-owned subsidiaries (which may be referred to as “West,” the “Company,”“we,”“us” or “our”) appearing in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”). The results of operations for any interim period are not necessarily indicative of results for the full year.
West has been actively monitoring the coronavirus (“COVID-19”) situation and its impact globally. Our production facilities continue to operate as they had prior to the COVID-19 pandemic, other than for enhanced safety measures intended to prevent the spread of the virus. The remote working arrangements and travel restrictions imposed by various governments had limited impact on our ability to maintain operations,
as our manufacturing operations have generally been exempted from stay-at-home orders.
Note 2: iNew Accounting Standards
i
Recently
Adopted Standards
In November 2021, the Financial Accounting Standards Board ("FASB") issued guidance that seeks to improve the transparency of financial disclosures for government assistance received by business entities. The amendment requires disclosures for transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. This guidance is effective for fiscal years beginning after December 15, 2021. We adopted this guidance as of January 1, 2022, on a prospective basis. The adoption did not have a material impact on our financial statements.
Standards
Issued Not Yet Adopted
In March 2020, the FASB issued guidance which provides optional expedients and exceptions to address the impact of reference rate reform where contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate need to be discontinued. This guidance was effective upon issuance and generally can be applied through December 31, 2022. We have identified the contracts impacted by reference rate reform, and have executed certain amendments to replace the use of LIBOR. The Company does not expect such
adoption to cause a material impact to the consolidated financial statements.
Our
revenue results from the sale of goods or services and reflects the consideration to which we expect to be entitled in exchange for those goods or services. We record revenue based on a five-step model, in accordance with ASC Topic 606. Following the identification of a contract with a customer, we identify the performance obligations (goods or services) in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize the revenue when (or as) we satisfy the performance obligations by transferring the promised goods or services to our customers. A good or service is transferred when (or as) the customer obtains control of that
good or service.
i
The following table presents the approximate percentage of our net sales by market group:
During
the three months ended March 31, 2022, $i9.7 million of revenue was recognized that was included in deferred income at the beginning of the year.
The majority of the performance obligations within our contracts are satisfied within one year or less. Performance obligations satisfied beyond one year include
those relating to a nonrefundable customer payment of $i20.0 million received in June 2013 in return for the exclusive use of the SmartDose® technology platform within a specific therapeutic area. As of March 31, 2022, there was $i3.7
million of unearned income related to this payment, of which $i0.9 million was included in other current liabilities and $i2.8 million
was included in other long-term liabilities. The unearned income is being recognized as income on a straight-line basis over the remaining term of the agreement. The agreement does not include a future minimum purchase commitment from the customer.
Note 4: iNet Income Per Share
i
The
following table reconciles the shares used in the calculation of basic net income per share to those used for diluted net income per share:
Three Months Ended March 31,
(in millions)
2022
2021
Net
income
$
i173.8
$
i151.2
Weighted
average common shares outstanding
i74.4
i73.9
Dilutive
effect of equity awards, based on the treasury stock method
i1.6
i1.9
Weighted
average shares assuming dilution
i76.0
i75.8
/
During
the three months ended March 31, 2022 and 2021, there were i0.0 million and i0.1
million shares, respectively, from stock-based compensation plans not included in the computation of diluted net income per share because their impact was antidilutive.
In December 2021, our Board of Directors approved a share repurchase program for calendar-year 2022 authorizing the repurchase of up to i650,000 shares of our common stock from time to time on the open market as permitted under Exchange Act Rule 10b-18 or in privately-negotiated
transactions. The number of shares to be repurchased and the timing of such transactions will depend on a variety of factors, including market conditions. This share repurchase program is expected to be completed by December 31, 2022.
During the three months ended March 31, 2022, we purchased i390,000 shares of our common stock under the program at a cost of $i147.1
million, or an average price of $i377.23 per share.
A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: 1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property,
plant, and equipment); and 2) the customer has the right to control the use of the identified asset. Lease payments included in the measurement of the operating lease right-of-use assets and lease liabilities are comprised of fixed payments (including in-substance fixed payments), variable payments that depend on an index or rate, and the exercise price of a lessee option to purchase the underlying asset if the lessee is reasonably certain to exercise.
iThe components of lease expense were as follows:
Three
Months Ended March 31,
($ in millions)
2022
2021
Operating lease cost
$
i3.3
$
i3.1
Short-term
lease cost
i0.4
i0.2
Variable
lease cost
i1.4
i0.8
Total
lease cost
$
i5.1
$
i4.1
/
iSupplemental
cash flow information related to leases was as follows:
Three Months Ended March 31,
($ in millions)
2022
2021
Cash
paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
i3.2
$
i3.2
Right-of-use
assets obtained in exchange for new operating lease liabilities
$
i9.7
$
i0.5
/
As
of March 31, 2022 and December 31, 2021, the weighted average remaining lease term for operating leases was i10.4 years and i10.7
years, respectively.
iMaturities of operating lease liabilities were as follows:
($
in millions)
March 31,
December 31,
Year
2022
2021
2022 (remaining period as of)
$
i9.3
$
i11.5
2023
i11.7
i10.7
2024
i11.1
i10.0
2025
i9.4
i8.2
2026
i8.4
i7.3
Thereafter
i43.8
i38.7
i93.7
i86.4
Less:
imputed lease interest
(i15.0)
(i14.1)
Total
lease liabilities
$
i78.7
$
i72.3
/
Note
7: iAffiliated Companies
At March 31, 2022 and December 31, 2021, the aggregate carrying amount of our investment in affiliated companies that are accounted for under the equity method was $i198.0
million and $i201.2 million, respectively, and the aggregate carrying amount of our investment in affiliated companies that are not accounted for under the equity method was $i10.1
million and $i6.5 million at March 31, 2022 and December 31, 2021, respectively. We have elected to record these investments, for which fair value was not readily determinable, at cost, less impairment, adjusted for subsequent observable price changes. We test these investments for impairment whenever circumstances indicate that the carrying value of the investments may not be recoverable.
Our
purchases from, and royalty payments made to, affiliates totaled $i58.5 million for the three months ended March 31, 2022, as compared to $i38.0
million for the same period in 2021. As of March 31, 2022 and December 31, 2021, the payable balance due to affiliates was $i45.1 million and $i25.5
million, respectively. The majority of these transactions related to a distributorship agreement with Daikyo that allows us to purchase and re-sell Daikyo products.
Sales to affiliates were $i4.0 million for the three months ended March 31, 2022, as compared to $i2.9
million for the same period in 2021. As of March 31, 2022 and December 31, 2021, the receivable balance due from affiliates was $i3.3 million and $i2.3
million, respectively.
Please refer to Note 7, Affiliated Companies, to the consolidated financial statements in our 2021 Annual Report for additional details.
The
following table summarizes our long-term debt obligations, net of unamortized debt issuance costs and current maturities. The interest rates shown in parentheses are as of March 31, 2022.
In March 2022, we amended and extended the existing credit facility (entered into in March 2019), which was scheduled to expire in March 2024, from $i300.0 million to a $i500.0 million
senior unsecured revolving credit facility by entering into a Second Amendment and Joinder and Assumption Agreement (the "Amended Credit Agreement"), filed on Form 8-K dated March 31, 2022. The Amended Credit Agreement, which expires March 2027, contains a senior unsecured, multi-currency revolving credit facility of $i500.0 million, with sublimits of up to $i50.0 million
for swing line loans for Domestic Borrowers in U.S. dollars and a $i40.0 million swing line loan for West Pharmaceuticals Services Holding GmbH and up to $i50.0 million
for the issuance of standby letters of credit. The credit facility may be increased from time-to-time by the greater of (a) $i929.0 million or (b) EBITDA for the preceding itwelve
month period in the aggregate through an increase in the revolving credit facility, subject to the satisfaction of certain conditions. Borrowings under the credit facility bear interest, at the Company’s option, at either: (a) the Term Secured Overnight Financing Rate (“SOFR”) plus i0.10% plus an applicable margin; or (b) a base rate defined as the highest of: (i) the Bank of America “prime rate”; (ii) the Federal Funds effective rate plus i0.50%;
and (iii) Term SOFR plus i1.00%. The applicable margin is based on the ratio of the Company’s Net Consolidated Debt to its modified EBITDA, ranging from i0
to i37.5 basis points for base rate loans and i87.5 to i137.5
basis points for Term SOFR loans. The Amended Credit Agreement contains financial covenants providing that the Company shall not permit the ratio of the Company’s Net Consolidated Debt to its Modified EBITDA to be greater than i3.5 to 1; provided that, no more than ithree
times during the term of the Amended Credit Agreement, upon the occurrence of a Qualified Acquisition for each of the ifour fiscal quarters of the Company immediately following such Qualified Acquisition, the ratio set forth above shall be increased to i4.0
to 1. The Amended Credit Agreement also contains customary limitations on liens securing indebtedness of the Company and its subsidiaries, fundamental changes (mergers, consolidations, liquidations and dissolutions), asset sales, distributions and acquisitions.
At March 31, 2022, the borrowing capacity available under our $i500.0 million
multi-currency revolving credit facility, including outstanding letters of credit of $i2.4 million, was $i497.6 million.
Term Loan
At
March 31, 2022, we had $i84.9 million in borrowings under the Term Loan, of which $i2.2 million was classified as current and $i82.7
million was classified as long-term. Please refer to Note 9, Derivative Financial Instruments, for a discussion of the foreign currency hedge associated with the Term Loan.
Please refer to Note 10, Debt, to the consolidated financial statements in our 2021 Annual Report for additional details regarding our debt agreements.
Our ongoing business operations expose us to various risks, such as fluctuating interest rates, foreign currency exchange rates and increasing commodity prices. To manage these market risks, we periodically enter into derivative financial instruments, such as interest rate swaps, options and foreign exchange contracts
for periods consistent with, and for notional amounts equal to or less than, the related underlying exposures. We do not purchase or hold any derivative financial instruments for investment or trading purposes. All derivatives are recorded in our condensed consolidated balance sheet at fair value.
Foreign Exchange Rate Risk
We have entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany loans. As of both March 31, 2022 and December 31, 2021, the total amount of these forward exchange contracts
was Singapore Dollar (“SGD”) ii601.5/ million and $ii13.4/
million.
In addition, we have entered into several foreign currency contracts, designated as cash flow hedges, for periods of up to ieighteen months, intended to hedge the currency risk associated with a portion of our forecasted transactions denominated in foreign currencies. iAs
of March 31, 2022, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:
(in millions)
Sell
Currency
Purchase
USD
EUR
USD
i14.4
i—
i12.1
JPY
i5,386.8
i20.0
i24.2
SGD
i8.3
i5.6
i0.6
In
December 2019, we entered into a cross-currency swap for $i90 million, which we designated as a hedge of our net investment in Daikyo. As of March 31, 2022, the notional amount of the cross-currency swap was ¥i9.3
billion ($i84.9 million) and the swap termination date is December 31, 2024. Under the cross-currency swap, we receive floating interest rate payments based on USD compounded SOFR plus a margin, in return for paying floating interest rate payments based on Japanese Yen (“Yen”) Tokyo Overnight Average Rate ("TONAR") plus a margin.
Commodity Price Risk
Many of our proprietary products are made from
synthetic elastomers, which are derived from the petroleum refining process. We purchase the majority of our elastomers via long-term supply contracts, some of which contain clauses that provide for surcharges related to fluctuations in crude oil prices. The following economic hedges did not qualify for hedge accounting treatment since they did not meet the highly effective requirement at inception.
From November 2017 through March 2022, we purchased several series of call options for a total of i640,267
barrels of crude oil to mitigate our exposure to such oil-based surcharges and protect operating cash flows with regards to a portion of our forecasted elastomer purchases.
As of March 31, 2022, we had outstanding contracts to purchase i154,320 barrels of crude oil from March 2022 to June 2023, at a weighted-average strike price of $i76.06
per barrel.
Effects of Derivative Instruments on Financial Position and Results of Operations
iThe
following table summarizes the effects of derivative instruments designated as fair value hedges on the condensed consolidated statements of income:
Amount of Gain (Loss) Recognized in Income for the
Three Months
Ended March 31,
Location on Statement of Income
($ in millions)
2022
2021
Fair Value Hedges:
Hedged
item (intercompany loan)
$
(i9.6)
$
(i9.9)
Other
(income) expense
Derivative designated as hedging instrument
i9.6
i9.9
Other
(income) expense
Amount excluded from effectiveness testing
i0.8
i0.6
Other
(income) expense
Total
$
i0.8
$
i0.6
/
We
recognize in earnings the initial value of forward point components on a straight-line basis over the life of the fair value hedge. The amounts recognized in earnings, pre-tax, for forward point components for the three months ended March 31, 2022 and 2021 were $i0.8 million and $i0.6
million, respectively.
The following tables summarize the effects of derivative instruments designated as fair value, cash flow, and net investment hedges on other comprehensive income (“OCI”) and earnings, net of tax:
Amount
of (Loss) Gain Recognized in OCI for the
Amount of (Gain) Loss Reclassified from Accumulated OCI into Income for the
Location of (Gain) Loss Reclassified from Accumulated OCI into Income
The following table summarizes the effects of derivative instruments designated as fair value, cash flow, and net investment hedges by line item in our condensed consolidated statements of income:
Three Months Ended March 31,
($ in millions)
2022
2021
Net
sales
$
(i0.3)
$
i0.3
Cost
of goods and services sold
i0.5
i—
Interest
expense
i0.1
i0.1
Other
(income) expense
i—
i0.4
iThe
following table summarizes the effects of derivative instruments not designated as hedges on the condensed consolidated statements of income:
Amount of Gain (Loss) Recognized in Income for the
Three Months Ended March
31,
Location on Statement of Income
($ in millions)
2022
2021
Commodity call options
$
i2.8
$
(i0.5)
Other
(income) expense
Total
$
i2.8
$
(i0.5)
/
For
the three months ended March 31, 2022 and 2021, there was no material ineffectiveness related to our hedges.
Note 10: iFair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following fair value hierarchy classifies the inputs to valuation techniques used to measure fair value into one of three levels:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•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.
•Level 3:
Unobservable inputs that reflect the reporting entity’s own assumptions.
Deferred
compensation assets are included within other noncurrent assets and are valued using a market approach based on quoted market prices in an active market. The fair value of our foreign currency contracts, included within other current and other noncurrent assets, as well as other current and other long-term liabilities, is valued using an income approach based on quoted forward foreign exchange rates and spot rates at the reporting date. The fair value of the cross-currency swap, included within other noncurrent assets, is valued using a market approach. Please refer to Note 9, Derivative Financial Instruments, for further discussion of our derivatives. The fair value of our commodity call options, included within other current and other noncurrent
assets, is valued using a market approach. The fair value of the contingent consideration liability, within current and long-term liabilities, related to the SmartDose® technology platform (the “SmartDose® contingent consideration”) was initially determined using a probability-weighted income approach, and is revalued at each reporting date or more frequently if circumstances dictate. Changes in the fair value of this obligation are recorded as income or expense within other (income) expense in our condensed consolidated statements of income. The fair value of deferred compensation liabilities is based on quoted prices of the underlying employees’ investment selections and is included within other long-term liabilities.
We believe that the carrying amounts of our cash and cash equivalents and accounts receivable approximate their fair values due to their near-term maturities.
The estimated fair value of long-term debt is based on quoted market prices for debt issuances with similar terms and maturities and is classified as Level 2 within the fair value hierarchy. At March 31, 2022, the estimated fair value of long-term debt was $i210.4
million compared to a carrying amount of $i208.3 million. At December 31, 2021, the estimated fair value of long-term debt was $i217.9 million and
the carrying amount was $i208.8 million.
Note 11: iAccumulated
Other Comprehensive Loss
i
The following table presents the changes in the components of accumulated other comprehensive income ("AOCI") (loss), net of tax, for the three months ended March 31, 2022:
($
in millions)
(Losses) gains on derivatives
Change in equity affiliate investment AOCI
Defined benefit pension and other postretirement plans
The
following table presents the changes in the components of accumulated other comprehensive income ("AOCI") (loss), net of tax, for the three months ended March 31, 2021:
($ in millions)
(Losses) gains on derivatives
Change
in equity affiliate investment AOCI
Defined benefit pension and other postretirement plans
The West Pharmaceutical Services, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Plan”) provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to employees and non-employee directors. A committee of the Board of Directors determines the terms and conditions of awards to be granted.
Vesting requirements vary by award. At March 31, 2022, there were i1,727,432 shares remaining in the 2016 Plan for future grants.
During the three months ended March 31, 2022, we granted i109,496
stock options at a weighted average exercise price of $i369.13 per share based on the grant-date fair value of our stock to employees under the 2016 Plan. The weighted average grant date fair value of options granted was $i96.50
per share as determined by the Black-Scholes option valuation model using the following weighted average assumptions: a risk-free interest rate of i1.8%; expected life of i5.6
years based on prior experience; stock volatility of i24.9% based on historical data; and a dividend yield of i0.2%.
Stock option expense is recognized over the vesting period, net of forfeitures.
During the three months ended March 31, 2022, we granted i28,688 stock-settled performance share unit ("PSU") awards at a weighted average grant-date fair value of $i369.13
per share to eligible employees. These awards are earned based on the Company's performance against pre-established targets, including annual growth rate of revenue and return on invested capital, over a specified performance period. Depending on the achievement of the targets, recipients of stock-settled PSU awards are entitled to receive a certain numbers of shares of common stock. Shares earned under PSU awards may vary from i0%
to i200% of an employee's targeted award. The fair value of stock-settled PSU awards is based on the market price of our stock at the grant date and is recognized as expense over the performance period, adjusted for estimated target outcomes and net of forfeitures.
During the three months ended March 31, 2022, we granted i3,427
stock-settled restricted share unit (“RSU”) awards at a weighted average grant-date fair value of $i369.13 per share to eligible employees. These awards are earned over a specified performance period. The fair value of stock-settled RSU awards is based on the market price of our stock at the grant date and is recognized as expense over
the vesting period, net of forfeitures.
Stock-based compensation expense was $i5.5 million and $i5.9
million for the three months ended March 31, 2022 and 2021, respectively.
The components of net periodic benefit cost for the three months ended March 31 were as follows:
Pension
benefits
Other retirement benefits
Total
($ in millions)
2022
2021
2022
2021
2022
2021
Service cost
$
i0.4
$
i0.4
$
i—
$
i—
$
i0.4
$
i0.4
Interest
cost
i1.6
i1.4
i—
i0.1
i1.6
i1.5
Expected
return on assets
(i2.2)
(i3.1)
i—
i—
(i2.2)
(i3.1)
Amortization
of prior service credit
i—
i—
i—
(i0.1)
i—
(i0.1)
Recognized
actuarial losses (gains)
i0.4
i0.5
(i0.4)
(i0.4)
i—
i0.1
Settlements
i0.6
i0.6
i—
i—
i0.6
i0.6
Net
periodic benefit cost
$
i0.8
$
(i0.2)
$
(i0.4)
$
(i0.4)
$
i0.4
$
(i0.6)
Pension
benefits
Other retirement benefits
Total
($ in millions)
2022
2021
2022
2021
2022
2021
U.S. plans
$
i0.4
$
(i0.6)
$
(i0.4)
$
(i0.4)
$
i—
$
(i1.0)
International
plans
i0.4
i0.4
i—
i—
i0.4
i0.4
Net
periodic benefit cost
$
i0.8
$
(i0.2)
$
(i0.4)
$
(i0.4)
$
i0.4
$
(i0.6)
/
During
the three months ended March 31, 2022 and 2021, we recorded a pension settlement charge of $i0.6 million and $i0.6 million,
respectively, within other nonoperating (income) expense, as we determined that normal-course lump-sum payments for our U.S. qualified defined benefit pension plan exceeded the threshold for settlement accounting under U.S. GAAP for the year.
Note
15: iOther (Income) Expense
iOther (income) expense consists of:
Three
Months Ended March 31,
($ in millions)
2022
2021
Restructuring and related charges
$
i—
$
i1.2
Fixed
asset impairments and (gain) loss on sale of equipment
(i0.1)
i0.1
Contingent
consideration
i0.8
i0.7
Foreign
exchange transaction gains
(i1.1)
(i0.3)
Other
items
(i2.7)
i2.2
Total
other (income) expense
$
(i3.1)
$
i3.9
/
Restructuring
and Related Charges
In July 2020, our Board of Directors approved a restructuring plan designed to optimize certain organizational structures within the Company to better support our continued growth and business priorities. These changes are expected to be implemented over a period of up to itwenty-four months from the date of approval. The plan is expected to require charges to be approximately $i7 million
to $i8 million, with annualized savings in the range of $i0.9 million to $i1.6 million.
Since its approval, we recorded a net pre-tax amount equal to $i6.8 million in restructuring and related charges associated with this plan.
Contingent consideration represents changes in the fair value of the SmartDose® contingent consideration. Please refer to Note 10, Fair Value Measurements, for additional details.
Other Items
During the three months ended March 31, 2022 and 2021, we recorded a gain of $i2.8 million
and a loss of $i0.5 million, respectively, related to oil hedges. Please refer to Note 9, Derivative Financial Instruments, for further discussion of our hedging activity.
During the three months ended March 31, 2021,
we recorded an impairment charge of $i2.2 million for one of the Company's cost investments.
Note 16: iIncome
Taxes
The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items.
The provision for income taxes was $i21.2 million and $i28.7
million for the three months ended March 31, 2022 and 2021, respectively, and the effective tax rate was i11.3% and i16.4%,
respectively. During the three months ended March 31, 2022 and 2021, we recorded a tax benefit of $i8.9 million and $i11.1 million,
respectively, associated with stock-based compensation. The decrease in the effective tax rate is primarily due to a $i5.9 million tax benefit recorded as a result of a state tax valuation allowance reversal for the three months ended March 31, 2022, as compared to the same period in 2021.
Note
17: iCommitments and Contingencies
From time to time, we are involved in product liability matters and other legal proceedings and claims generally incidental to our normal business activities. We accrue for loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. While the outcome of current proceedings cannot be accurately predicted, we believe their ultimate resolution should not have a material adverse effect on our
business, financial condition, results of operations or liquidity.
There have been no significant changes to the commitments and contingencies included in our 2021 Annual Report.
Our business operations are organized into itwo reportable segments, Proprietary Products and Contract-Manufactured Products. Our Proprietary Products reportable segment offers proprietary packaging, containment and drug delivery products, along with analytical lab services and other integrated services and solutions, primarily to biologic, generic and pharmaceutical drug customers. Our Contract-Manufactured
Products reportable segment serves as a fully integrated business, focused on the design, manufacture, and automated assembly of complex devices, primarily for pharmaceutical, diagnostic, and medical device customers.
The Chief Operating Decision Maker ("CODM") evaluates the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that the CODM considers not representative of ongoing operations. Such items are referred to as other unallocated items and generally include restructuring and related charges, certain asset impairments and other specifically-identified
income or expense items. The segment operating profit metric is what the CODM uses in evaluating our results of operations and the financial measure that provides a valuable insight into our overall performance and financial position.
i
The following table presents information about our reportable segments, reconciled to consolidated totals:
The
intersegment sales elimination, which is required for the presentation of consolidated net sales, represents the elimination of components sold between our segments.
Amortization
of acquisition-related intangible assets(2)
(i0.2)
(i0.2)
Cost
investment impairment
i—
(i2.2)
Total
Corporate and Unallocated
(i22.8)
(i23.4)
Total
consolidated operating profit
$
i189.7
$
i175.6
Other
expense, net
i1.9
i0.7
Income
before income taxes
$
i187.8
$
i174.9
(1)
Corporate general costs includes executive and director compensation, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments.
(2) During the three months ended March 31, 2022 and 2021, we recorded $ii0.2/ million
of amortization expense within operating profit associated with an intangible asset acquired during the second quarter of 2020.
/
Please refer to Note 15, Other (Income) Expense, for further discussion of certain unallocated items referenced above.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion is intended to further the reader’s understanding of the consolidated financial condition and results of operations of our Company. It should be read in conjunction with our condensed consolidated financial statements and accompanying notes elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”) as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and accompanying notes included in our 2021 Annual Report. Our historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial
Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks discussed in Part I, Item 1A of our 2021 Annual Report and in Part II, Item 1A of this Form 10-Q.
Throughout this section, references to “Notes” refer to the notes to our condensed consolidated financial statements (unaudited) in Part I, Item 1 of this Form 10-Q, unless otherwise indicated.
For
the purpose of aiding the comparison of our year-over-year results, we may refer to net sales and other financial results excluding the effects of changes in foreign currency exchange rates. Organic net sales exclude the impact from acquisitions and/or divestitures and translate the current-period reported sales of subsidiaries whose functional currency is other than USD at the applicable foreign exchange rates in effect during the comparable prior-year period. We may also refer to adjusted consolidated operating profit and adjusted consolidated operating profit margin, which exclude the effects of unallocated items. The unallocated items are not representative of ongoing operations, and generally include restructuring and related charges, certain asset impairments, and other specifically-identified income or expense items. The re-measured results excluding effects from currency
translation, the impact from acquisitions and/or divestitures, and excluding the effects of unallocated items are not in conformity with U.S. GAAP and should not be used as a substitute for the comparable U.S. GAAP financial measures. The non-U.S. GAAP financial measures are incorporated in our discussion and analysis as management uses them in evaluating our results of operations and believes that this information provides users with a valuable insight into our overall performance and financial position.
Our Operations
We are a leading global manufacturer in the design and production of technologically advanced, high-quality, integrated containment and delivery systems for injectable drugs and healthcare products. Our products include a variety of primary packaging, containment solutions, reconstitution and transfer systems, and drug delivery systems,
as well as contract manufacturing, analytical lab services and integrated solutions. Our customers include the leading biologic, generic, pharmaceutical, diagnostic, and medical device companies in the world. Our top priority is delivering quality products that meet the exact product specifications and quality standards customers require and expect. This focus on quality includes a commitment to excellence in manufacturing, scientific and technical expertise and management, which enables us to partner with our customers in order to deliver safe, effective drug products to patients quickly and efficiently.
Our business operations are organized into two reportable segments, Proprietary Products and Contract-Manufactured Products.
Our Proprietary Products reportable segment offers proprietary packaging, containment and drug delivery products, along with analytical lab services and other integrated services and solutions, primarily to biologic, generic and pharmaceutical drug customers. Our Contract-Manufactured Products reportable segment serves as a fully integrated business, focused on the design, manufacture, and automated assembly of complex devices, primarily for pharmaceutical, diagnostic, and medical device customers. We also maintain collaborations to share technologies and market products with affiliates in Japan and Mexico.
Impact of COVID-19
West has been actively monitoring the COVID-19 situation and its impact globally. Our primary objectives have remained the same throughout
the pandemic: to support the safety of our team members and their families and continue to support patients around the world. Our production facilities continue to operate as they had prior to the COVID-19 pandemic, other than for enhanced safety measures intended to prevent the spread of the virus. Our capital and financial resources, including overall liquidity, remain strong. The remote working arrangements and travel restrictions imposed by various governments had limited impact on our ability to maintain operations, as our manufacturing operations have generally been exempted from stay-at-home orders. However, we cannot predict the impact of the progression of the COVID-19 pandemic on future results due to a variety of factors, including the continued good health of our employees, the ability of suppliers to continue to operate and deliver, the ability of West and its customers to maintain operations, continued access to transportation resources, the changing needs
and priorities of customers, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic. We will continue to closely monitor the COVID-19 pandemic in order to ensure the safety of our people and our ability to serve our customers and patients worldwide.
Amortization of acquisition-related
intangible assets (2)
0.2
—
0.7
0.01
Cost investment impairment
2.2
—
2.2
0.03
Quarter ended March 31,
2021 adjusted amounts (non-U.S. GAAP)
$
179.2
$
29.1
$
155.6
$
2.05
During the first quarter 2021, we recorded a tax benefit of $11.1 million associated with stock-based compensation.
(1)The Company
recorded a pension settlement charge within other nonoperating (income) expense, as it determined that normal-course lump-sum payments for our U.S. qualified defined benefit pension plan exceeded the threshold for settlement accounting.
(2)During the three months ended March 31, 2022 and 2021, the Company recorded $0.2 million of amortization expense within operating profit associated with an intangible asset acquired during the second quarter of 2020. During the three months ended March 31, 2022 and 2021, the Company
recorded $0.5 million of amortization expense in association with an acquisition of increased ownership interest in Daikyo.
RESULTS OF OPERATIONS
We evaluate the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that we consider not representative of ongoing operations. Such items are referred to as other unallocated items for which further information can be found above in the reconciliation
from U.S. GAAP to non-U.S. GAAP financial measures.
Consolidated net sales increased by $49.3 million, or 7.4%, for the three months ended March 31, 2022, as compared to the same period in 2021, including an unfavorable foreign currency translation impact of $24.2 million. Excluding foreign currency translation effects, consolidated net sales for the three months ended March 31,
2022 increased by $73.5 million, or 11.0%, as compared to the same period in 2021.
Proprietary Products – Proprietary Products net sales increased by $57.6 million, or 10.6%, for the three months ended March 31, 2022, as compared to the same period in 2021, including an unfavorable foreign currency translation impact of $20.6 million. Excluding foreign currency translation effects, net sales for the three months ended March 31, 2022 increased by $78.2 million, or 14.4%, as compared to the same period in 2021, primarily due to growth in our high-value product offerings, including our NovaPure® products and our Westar® components, offset by the recognition of approximately $15 million in one-time fees due to COVID supply agreements recorded during the three months
March 31, 2021.
Contract-Manufactured Products –Contract-Manufactured Products net sales decreased by $8.4 million, or 6.6%, for the three months ended March 31, 2022, as compared to the same period in 2021, including an unfavorable foreign currency translation impact of $3.6 million. Excluding foreign currency translation effects, net sales for the three months ended March 31, 2022 decreased by $4.8 million, or 3.8%, as compared to the same period in 2021, due to a decline of sales of components for diagnostic devices, offset by sales
price increases.
The intersegment sales elimination, which is required for the presentation of consolidated net sales, represents the elimination of components sold between our segments.
Consolidated gross profit increased by $12.7 million, or 4.7%, for the three
months ended March 31, 2022, as compared to the same period in 2021, including an unfavorable foreign currency translation impact of $10.3 million for the three months ended March 31, 2022, as compared to the same period in 2021. Consolidated gross profit margin decreased by 1.0 margin point for the three months ended March 31, 2022, as compared to the same period in 2021.
Proprietary Products - Proprietary Products gross profit increased by $8.8 million, or 3.5%, for the three months ended March 31, 2022, as compared to the same period in 2021, including an unfavorable foreign currency translation impact of $9.5 million. Proprietary Products gross profit margin decreased
by 2.9 margin points for the three months ended March 31, 2022, as compared to the same periods in 2021, due to increased overhead costs, primarily within transportation and compensation, that were driven by inflation, higher allocation of functional spend from Selling, General & Administrative expense, as well as the recognition of approximately $15 million in one-time fees due to COVID supply agreements recorded during the three months March 31, 2021.
Contract-Manufactured Products - Contract-Manufactured Products gross profit increased
by $3.9 million, or 19.5%, for the three months ended March 31, 2022, as compared to the same period in 2021, including an unfavorable foreign currency translation impact of $0.8 million. Contract-Manufactured Products gross profit margin increased by 4.4 margin points for the three months ended March 31, 2022, as compared to the same period in 2021, due to sales price increases and production efficiencies, partially offset by increased overhead costs that were driven by inflation.
Research and Development (“R&D”) Costs
The following table presents R&D costs, consolidated and by reportable segment:
Consolidated R&D costs increased by $2.4 million, or 19.7%, for the three months ended March 31, 2022, as compared to the same period in 2021, due to additional research performed in an effort to identify new product opportunities. Efforts remain focused on the continued investment in self-injection systems development, fluid transfer admixture devices, elastomeric packaging components, and formulation development.
All of the R&D costs incurred during the three months ended March 31, 2022 and 2021 related to Proprietary Products.
Selling, General and Administrative (“SG&A”) Costs
The
following table presents SG&A costs, consolidated and by reportable segment and corporate:
Consolidated SG&A costs increased by $3.2 million,
or 4.0%, for the three months ended March 31, 2022, as compared to the same period in 2021, due to an increase in selling expenses and professional fees, offset by higher allocation of functional spend to Cost of Goods Sold and a favorable foreign currency translation impact of $1.8 million.
Proprietary Products - Proprietary Products SG&A costs decreased by $0.6 million, or 1.1%, for the three months ended March 31, 2022, as compared to the same period in 2021. Proprietary Products SG&A costs decreased primarily due to a higher allocation of functional spend to Cost of Goods Sold and a favorable foreign currency translation impact of $1.5 million, offset by an increase in selling expenses and professional fees.
Contract-Manufactured
Products - Contract-Manufactured Products SG&A costs increased by $1.1 million, or 29.7% for the three months ended March 31, 2022, as compared to the same period in 2021.
Corporate - Corporate SG&A costs increased by $2.7 million, or 13.5%, for the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to an increase in compensation costs and costs related to professional fees.
Other (Income) Expense
The following table presents other income and expense items, consolidated and by reportable segment, corporate
and unallocated items:
Other income and expense items, consisting of foreign exchange transaction gains and losses, gains and losses on the sale of fixed assets, development and licensing income, contingent consideration, fixed asset impairments and miscellaneous
income and charges, are generally recorded within segment results.
Consolidated other (income) expense changed by $7.0 million for the three months ended March 31, 2022, as compared to the same period in 2021, due to the factors described below.
Proprietary Products - Proprietary Products other (income) expense changed by $3.8 million for the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to a $2.8 million gain related to oil hedges recorded during the three months ended March 31, 2022 compared to a loss of $0.5 million for the three months ended March
31, 2021.
Contract-Manufactured Products - Contract-Manufactured Products other (income) expense changed by $0.1 million for the three months ended March 31, 2022, as compared to the same period in 2021.
Corporate and unallocated items - Corporate and unallocated items changed by $3.3 million for the three months ended March 31, 2022, as compared to the same periods in 2021 primarily due to a $2.2 million cost investment impairment charge and restructuring and related charges recorded during the three months ended March
31, 2021 that did not recur in 2022.
Operating Profit
The following table presents operating profit and adjusted operating profit, consolidated and by reportable segment, corporate and unallocated items:
Consolidated operating profit increased by $14.1 million, or 8.0%,
for the three months ended March 31, 2022, as compared to the same period in 2021, including an unfavorable foreign currency translation impact of $8.4 million for the three months ended March 31, 2022, as compared to the same period in 2021.
Proprietary Products - Proprietary Products operating profit increased by $10.8 million, or 5.9%, for the three months ended March 31, 2022, as compared to the same period in 2021, including an unfavorable foreign currency translation impact of $8.0 million, due to the factors described above, most notably the sales increase in our high-value product offerings.
Contract-Manufactured
Products - Contract-Manufactured Products operating profit increased by $2.7 million, or 16.5%, for the three months ended March 31, 2022, as compared to the same period in 2021, including an unfavorable foreign currency translation impact of $0.4 million, due to the factors described above, most notably the sales price increases and product efficiencies.
Corporate- Corporate costs increased by $2.8 million, or 14.1%, for the three months ended March 31,
2022, as compared to the same period in 2021, due to the factors described above.
Unallocated items –Other unallocated items during the three months ended March 31, 2022 consisted $0.2 million of amortization expense associated with an acquisition of an intangible asset in the second quarter of 2020. Other unallocated items during the three months ended March 31, 2021 consisted of $1.2 million in restructuring and related charges, a $2.2 million impairment charge related to one of our cost investments, and $0.2 million of amortization expense associated with an acquisition of an intangible asset in the second quarter of 2020.
Interest Expense, Net
The
following table presents interest expense, net, by significant component:
Three Months Ended March 31,
($ in millions)
2022
2021
Interest
expense
$
2.7
$
2.4
Capitalized interest
(0.5)
(0.5)
Interest income
(0.3)
(0.1)
Interest
expense, net
$
1.9
$
1.8
Interest expense, net, increased by $0.1 million, or 5.6%, for the three months ended March 31, 2022, as compared to the same period in 2021.
Other Nonoperating (Income) Expense
Other nonoperating (income) expense changed by $1.1 million for the three months ended March 31, 2022, as compared
to the same period in 2021, primarily due to a reduction in pension income related to our U.S. qualified defined benefit pension plan. Additionally, in the current year and prior year, we determined that normal-course lump-sum payments for our U.S. qualified defined benefit pension plan exceeded the threshold for settlement accounting under U.S. GAAP for the year.
Income Tax Expense
The provision for income taxes was $21.2 million and $28.7 million for the three months ended March 31, 2022 and 2021, respectively, and the effective tax rate was 11.3% and 16.4%, respectively. The decrease in the effective tax rate is primarily due to the $5.9 million tax benefit recorded as a result of the state tax valuation allowance
reversal for the three months ended March 31, 2022, as compared to the same period in 2021.
Equity in Net Income of Affiliated Companies
Equity in net income of affiliated companies increased by $2.2 million for the three months ended March 31, 2022, as compared to the same period in 2021, due to favorable operating results at Daikyo and the Mexico affiliates.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following table presents cash flow data for the three months ended March 31:
($ in millions)
2022
2021
Net cash provided by operating activities
$
151.2
$
88.7
Net
cash used in investing activities
$
(68.3)
$
(54.5)
Net cash used in financing activities
$
(172.7)
$
(156.4)
Net Cash Provided by Operating Activities – Net cash provided by operating activities increased by $62.5 million for the three months ended March 31, 2022, as compared to the same period
in 2021, primarily due to improved operating results and decreases in the change of working capital.
Net Cash Used in Investing Activities – Net cash used in investing activities increased by $13.8 million for the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to an increase in capital expenditures in 2022.
Net Cash Used in Financing Activities – Net cash used in financing activities increased by $16.3 million for the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to increases in purchases under our share repurchase programs.
Liquidity and Capital Resources
The
table below presents selected liquidity and capital measures:
Cash and cash equivalents include all instruments that have maturities of ninety days or less when purchased. Working capital is defined as current assets less current liabilities.
Cash and cash equivalents – Our cash and cash equivalents balance at March 31, 2022 consisted of cash held in depository accounts with banks around the world and cash invested in high-quality, short-term investments. The cash and cash equivalents balance at March 31, 2022
included $253.6 million of cash held by subsidiaries within the U.S., and $414.1 million of cash held by subsidiaries outside of the U.S. During the three months ended March 31, 2022, we purchased 390,000 shares of our common stock under our calendar-year 2022 share repurchase program at a cost of $147.1 million, or an average price of $377.23 per share.
Working capital – Working capital at March 31, 2022 decreased by $42.2 million, or 3.7%, as compared to December 31, 2021, which includes an unfavorable foreign currency translation impact of $3.7 million.
Excluding the impact of currency exchange rates, cash and cash equivalents and total current liabilities decreased by $89.8 million and $5.6 million, respectively, while accounts receivable and inventories increased by $14.0 million and $41.3 million, respectively.
The decrease in cash and cash equivalents was due to share repurchases and payment of annual incentive compensation during the three months ended March 31, 2022. The decline in the accrued salaries, wages and benefits caused the decrease in total current liabilities. The increase in accounts receivable was due to increased sales activity. The increase in
inventories was to ensure we have sufficient inventory on hand to support the needs of our customers.
Debt and credit facilities – The $0.5 million decrease in total debt at March 31, 2022, as compared to December 31, 2021, resulted from debt repayments under our Term Loan.
Our sources of liquidity include our Credit Facility. At March 31, 2022, we had no outstanding borrowings under the Credit Facility. At March 31, 2022, the borrowing capacity available under the Credit Facility, including outstanding letters of credit of $2.4 million, was $497.6 million. We do not expect any significant limitations on our ability to access
this source of funds.
Pursuant to the financial covenants in our debt agreements, we are required to maintain established interest coverage ratios and not to exceed established leverage ratios. In addition, the agreements contain other customary covenants, none of which we consider restrictive to our operations. At March 31, 2022, we were in compliance with all of our debt covenants.
We believe that cash on hand and cash generated from operations, together with availability under our Credit Facility, will be adequate to address our foreseeable liquidity needs based on our current expectations of our business operations, capital expenditures and scheduled payments of debt obligations.
Commitments and Contractual Obligations
A
summary of future material cash payments resulting from commitments and contractual obligations was provided in our 2021 Annual Report. During the three months ended March 31, 2022, there were no material changes outside of the ordinary course of business to our commitments and contractual obligations.
OFF-BALANCE SHEET ARRANGEMENTS
At March 31, 2022, we had no off-balance sheet financing arrangements other than unconditional purchase obligations incurred in the ordinary course of business and outstanding letters of credit related to various insurance programs, as noted in our 2021 Annual Report.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There
have been no changes to the Critical Accounting Policies and Estimates disclosed in Part II, Item 7 of our 2021 Annual Report.
NEW ACCOUNTING STANDARDS
For information on new accounting standards that were adopted, and those that were issued but not yet adopted, during the three months ended March 31, 2022, and the impact, if any, on our financial position or results of operations, see Note 2, New Accounting Standards.
Our disclosure and analysis in this Form 10-Q contains some
forward-looking statements that are based on management’s beliefs and assumptions, current expectations, estimates and forecasts. We also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements. Such statements provide our current expectations or forecasts of future events. They do not relate strictly to historical or current facts.
We have attempted, wherever possible, to identify forward-looking statements by using words such as “plan,”“expect,”“believe,”“intend,”“will,”“estimate,”“continue” and other words of similar
meaning in conjunction with, among other things, discussions of future operations and financial performance, as well as our strategy for growth, product development, market position and expenditures. All statements that address operating performance or events or developments that we expect or anticipate will occur in the future - including statements relating to sales and earnings per share growth, cash flows or uses, and statements expressing views about future operating results - are forward-looking statements.
Forward-looking statements are based on current expectations of future events. The forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events and operating performance, and speak only as of their dates. Investors should realize that, if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results
could vary materially from our expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements.
The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements:
•sales demand and our ability to meet that demand;
•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;
•customers’ changing inventory requirements and manufacturing plans that alter existing orders or ordering patterns for the products we supply to them;
•interruptions
or weaknesses in our supply chain, including from reasons beyond our control such as extreme weather, longer-term climate changes, natural disasters, pandemic, war, accidental damage, or unauthorized access to our or our customers’ information and systems, which could cause delivery delays or restrict the availability of raw materials, key purchased components and finished products;
•the timing, regulatory approval and commercial success of customer products that incorporate our products and systems;
•whether customers agree to incorporate our products and delivery systems with their new and existing drug products, the ultimate timing and successful commercialization of those products and systems, which involves substantial evaluations of the functional, operational, clinical and economic viability of our products, and the rate, timing
and success of regulatory approval for the drug products that incorporate our components and systems;
•the timely and adequate availability of filling capacity, which is essential to conducting definitive stability trials and the timing of first commercialization of customers’ products in Crystal Zenith prefilled syringes;
•average profitability, or mix, of the products sold in any reporting period, including lower-than-expected sales growth of our high-value proprietary product offerings;
•maintaining or improving production efficiencies and overhead absorption;
•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;
•the loss of key personnel or highly-skilled employees;
•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;
•the successful and timely implementation of price increases necessary to offset rising production costs, including raw material prices, particularly petroleum-based raw materials;
•the
cost and progress of development, regulatory approval and marketing of new products;
•our ability to obtain and maintain licenses in any jurisdiction in which we do business;
•the relative strength of USD in relation to other currencies, particularly the Euro, SGD, the Danish Krone, Yen, Colombian Peso, Brazilian Real, and the South Korean Won; and
•the potential adverse effects of global healthcare legislation on customer demand, product pricing and profitability.
This list sets forth many, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements. Investors should understand that it is not possible to predict or identify all of the factors and
should not consider this list to be a complete statement of all potential risks and uncertainties. For further discussion of these and other factors, see the risk factors disclosed in Part I, Item 1A of our 2021 Annual Report as well as Part II, section 1A of this quarterly report.
Except as required by law or regulation, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk or the information provided in Part II, Item 7A of our 2021 Annual Report.
ITEM
4. CONTROLS AND PROCEDURES
Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of
our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our CEO and CFO have concluded that, as of March 31, 2022, our disclosure controls and procedures are effective.
Changes in Internal Controls
During the quarter ended March 31, 2022, there have been no changes to our internal control
over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
There are no material changes to the risk factors disclosed in Part I, Item 1A of our 2021 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table shows information with respect to purchases of our common stock made during the three months ended March 31, 2022 by us or any of our “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Exchange Act:
Period
Total
number of shares purchased (1)
Average price paid per share (1)
Total number of shares purchased as part of publicly announced plans or programs (1)
Maximum number of shares that may yet be purchased under the plans or programs (1)
January 1 - 31, 2022
390,000
$
377.23
390,000
260,000
February
1 - 28, 2022
—
—
—
260,000
March 1 - 31, 2022
—
—
—
260,000
Total
390,000
$
377.23
390,000
260,000
(1)In
December 2021, our Board of Directors approved a share repurchase program for calendar-year 2022 authorizing the repurchase of up to 650,000 shares of our common stock from time to time on the open market as permitted under Exchange Act Rule 10b-18 or in privately-negotiated transactions. The number of shares to be repurchased and the timing of such transactions will depend on a variety of factors, including market conditions. This share repurchase program is expected to be completed by December 31, 2022.
Pursuant to the requirements of the Securities Exchange Act of 1934, West Pharmaceutical Services, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.
(1) We agree
to furnish to the SEC, upon request, a copy of each instrument with respect to issuances of long-term debt of the Company and its subsidiaries.
* Furnished, not filed.
F-1
Dates Referenced Herein and Documents Incorporated by Reference