West Pharmaceutical Services to Cut 250 Jobs, Sees $12 Million Charge
LIONVILLE, Pa., Dec. 12 -- West Pharmaceutical Services today announced that its Board of Directors unanimously approved a restructuring plan for its Tech Group segment. The restructuring proactively addresses the recent reduction in business due to changes in customers' marketing plans by reducing the operating costs and increasing the manufacturing efficiency of the segment. The Tech Group continues to have a very strong market presence and the restructuring aligns the plant capacity and workforce with the current business outlook and longer- term strategy of focusing the business on proprietary products.
The Company will be able to reduce spending throughout the Tech Group segment by consolidating two tool production operations into one facility, in Scottsdale, AZ, and by reductions and consolidations at other production, engineering and administrative operations in North America. The plan is expected to be completed by December, 2008. As a result of the restructuring, the Tech Group workforce will be reduced by approximately 250 workers, or 13%.
The Company estimates that it will incur up to $12 million in restructuring charges, including an estimated $2.5 million, or $0.05 per diluted share in 2007 and an estimated $9.5 million, or $0.19 per diluted share, in 2008. The expected charges consist primarily of severance costs and fixed asset write-downs. The Company expects to realize $3 million of cost savings in 2008 and annual operating savings thereafter are expected to be approximately $7 million.
"These actions, while difficult, are essential to West to create the right operational footprint for the level of business we have today and ensure we remain competitive and financially strong for the future," said Donald E. Morel, Jr. Ph.D., West's Chairman and Chief Executive Officer. "The restructuring will match the size of our operations to Tech's forecasted business and allows us to focus our human and financial resources on our strategic goal of expanding Tech's proprietary product portfolio."
On October 18, 2007 Pfizer, Inc. announced its decision to exit the Exubera inhaled insulin product. Nektar, the product's innovator and Tech Group's customer, has stopped ordering the Exubera inhalation device that the Tech Group produces. As a result, the Company has concluded that a $13.1 million intangible asset, which is its investment in the Nektar contract, is substantially impaired and expects to recognize an impairment charge of between $11 million and $13.1 million in the fourth quarter of 2007. The Company's inhalation device production facility is not directly affected by the restructuring plan and the Company continues to expect that the cost of that facility, including any costs related to a curtailment of that operation, are recoverable under its supply agreement.
In connection with the announcement of the restructuring and impairment charges and, except for the effects of those charges, West reaffirmed earlier revenue and earnings guidance statements for 2007 and 2008, as these were reported in the Company's November 1, 2007 announcement of its third quarter 2007 results.
About West Pharmaceutical Services, Inc.
West Pharmaceutical Services, Inc. is a global manufacturer of components and systems for injectable drug delivery, including stoppers and seals for vials, and closures and disposable components used in syringe, IV and blood collection systems. The Company also provides products with application to the personal care, food and beverage markets. Headquartered in Lionville, Pennsylvania, West Pharmaceutical Services supports its partners and customers from 50 locations throughout North America, South America, Europe, Mexico, Japan, Asia and Australia. For more information, visit West at www.westpharma.com.
Safe Harbor Statement
This press release contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management's beliefs and assumptions, current expectations, estimates and forecasts. Statements that are not historical facts, including statements that are preceded by, followed by, or that include, words such as "estimate," "expect," "intend," "believe," "plan," "anticipate" and other words and terms of similar meaning are forward-looking statements. West's estimated or anticipated future results, product performance or other non-historical facts are forward-looking and reflect our current perspective on existing trends and information.
Many of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict. These statements are subject to known or unknown risks or uncertainties, and therefore, actual results could differ materially from past results and those expressed or implied in any forward-looking statement. You should bear this in mind as you consider forward-looking statements. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.
Important factors that may affect future results include, but are not limited to, the following:
Revenue and profitability: -- sales demand and our ability to meet that demand; -- competition from other providers in the Company's 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; -- the timing, regulatory approval and commercial success of customer products that incorporate our products, including relevant third-party reimbursement for prescription products, medical devices and components and medical procedures in which those products are employed or consumed; -- the ability of Nektar Therapeutics to market the Exubera® Inhalation-Powder insulin device and product and the resolution of the parties' obligations under the supply contract between the Company and Nektar consistent with the Company's current expectations; -- the timely and successful negotiations of sales contracts with four of the Company's largest customers during the fourth quarter of 2007; -- average profitability, or mix, of products sold in any reporting period; -- maintaining or improving production efficiencies and overhead absorption; -- the timeliness and effectiveness of capital investments, particularly capacity expansions, including the effects of delays and cost increases associated with construction, availability and cost of capital goods, and necessary internal, governmental and customer approvals of planned and completed projects, and the demand for goods to be produced in new facilities ; -- dependence on third-party suppliers and partners, including our Japanese partner Daikyo Seiko, Ltd.; -- the availability and cost of skilled employees required to meet increased production, managerial, research and other needs of the Company, including professional employees and persons employed under collective bargaining agreements; -- interruptions or weaknesses in our supply chain, which could cause delivery delays or restrict the availability of raw materials and key bought-in components and finished products; -- raw-material price escalation, particularly petroleum-based raw materials, and our ability to pass raw-material cost increases on to customers through price increases;
Other Risks: -- the development, regulatory approval and marketing of new products as a result of the Company's research and development efforts; -- the defense of self-developed or in-licensed intellectual property, including patents, trade and service marks and trade secrets; -- dependence of normal business operations on information and communication systems and technologies provided, installed or operated by third parties; -- the relative strength of the U.S. dollar in relation to other currencies, particularly the Euro, British Pound, and Japanese Yen; -- changes in tax law or loss of beneficial tax incentives; -- the conclusion of unresolved tax positions consistent with currently expected outcomes; -- the timely execution and realization of savings anticipated by the restructuring plan announced today; and other risks and uncertainties detailed in West's filings with the Securities and Exchange Commission, including our Registration Statement on Form 10-K filed with the SEC on March 1, 2007. You should evaluate any statement in light of these important factors.
Exubera® is a registered trademark of Pfizer, Inc.