WEST PHARMACEUTICAL SERVICES INC MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

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.
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Contents

In this section, references to “notes” refer to the notes to our condensed (unaudited) consolidated financial statements in Part I, Item 1 of this Form 10-Q, unless otherwise indicated.

Nope-WE GAAP Financial Measures

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 and other macroeconomic factors

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 and higher levels of
production at certain plant locations to meet additional customer demand. 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.




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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.

Through the six months ended June 30, 2022, the war between Russia and Ukraine
has not had a material impact on the Company's business, financial condition or
results of operations as we do not have manufacturing operations or significant
commercial relationships in either country. However, the Company is closely
monitoring the broader impact that this war has on availability of raw
materials, logistics and access to European energy sources.

Summary of 2022 financial performance

The following tables present a reconciliation of WE GAAP to non-WE GAAP financial measures for the three and six months ended June 30, 2022:

                                                                        Income tax
($ in millions, except per share data)       Operating Profit            expense             Net income           Diluted EPS
Three months ended June 30, 2022 GAAP      $           228.4          $      44.2          $     188.5          $       2.48
Unallocated items:
Restructuring and severance related
charges (1)                                             (1.6)                (0.4)                (1.2)                (0.01)
Pension settlement (2)                                     -                  0.2                  0.4                  0.01
Amortization of acquisition-related
intangible assets (3)                                    0.2                    -                  0.7                  0.01

Royalty acceleration (4)                                   -                  1.3                 (1.3)                (0.02)
Three months ended June 30, 2022 adjusted
amounts (non-U.S. GAAP)                    $           227.0          $      45.3          $     187.1          $       2.47



                                                                        Income tax
($ in millions, except per share data)       Operating Profit            expense             Net income           Diluted EPS
Six months ended June 30, 2022 GAAP        $           418.1          $      65.4          $     362.3          $       4.77
Unallocated items:
Restructuring and severance related
charges (1)                                             (1.6)                (0.4)                (1.2)                (0.01)
Pension settlement (2)                                     -                  0.3                  0.9                  0.01
Amortization of acquisition-related
intangible assets (3)                                    0.4                    -                  1.4                  0.02

Royalty acceleration (4)                                   -                  1.3                 (1.3)                (0.02)
Six months ended June 30, 2022 adjusted
amounts (non-U.S. GAAP)                    $           416.9          $      66.6          $     362.1          $       4.77



During the three and six months ended June 30, 2022, we recorded a tax benefit
of $1.3 million and $10.2 million, respectively, associated with stock-based
compensation.





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The following tables present a reconciliation from U.S. GAAP to non-U.S. GAAP
financial measures for the three and six months ended June 30, 2021:

                                                                        Income tax
($ in millions, except per share data)       Operating Profit            expense             Net income           Diluted EPS
Three months ended June 30, 2021 GAAP      $           211.3          $      32.3          $     187.3          $       2.47
Unallocated items:
Restructuring and related charges (1)                    1.0                  0.3                  0.7                  0.01
Pension settlement (2)                                     -                    -                  0.1                     -
Amortization of acquisition-related
intangible assets (3)                                    0.2                    -                  0.7                  0.01
Cost investment activity (5)                            (1.3)                (0.3)                (1.0)                (0.01)
Tax law changes (6)                                        -                  1.4                 (1.4)                (0.02)
Three months ended June 30, 2021 adjusted
amounts (non-U.S. GAAP)                    $           211.2          $      33.7          $     186.4          $       2.46



                                                                        Income tax
($ in millions, except per share data)       Operating Profit            expense             Net income           Diluted EPS
Six months ended June 30, 2021 GAAP        $           386.9          $      61.0          $     338.5          $       4.47
Unallocated items:
Restructuring and related charges (1)                    2.2                  0.5                  1.7                  0.02
Pension settlement (2)                                     -                  0.2                  0.6                  0.01
Amortization of acquisition-related
intangible assets (3)                                    0.4                  0.1                  1.4                  0.02
Cost investment activity (5)                             0.9                 (0.3)                 1.2                  0.01
Tax law changes (6)                                        -                  1.4                 (1.4)                (0.02)
Six months ended June 30, 2021 adjusted
amounts (non-U.S. GAAP)                    $           390.4          $      62.9          $     342.0          $       4.51



During the three and six months ended June 30, 2021, we recorded a tax benefit
of $7.4 million and $18.5 million, respectively, associated with stock-based
compensation.

(1)During the three and six months ended June 30, 2022, the Company recorded a
benefit of $1.6 million in restructuring and related costs in connection with
its 2020 plan related to revised severance estimates. During the three and six
months ended June 30, 2021, the Company recorded $1.0 million and $2.2 million
of restructuring and related costs.

(2)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.

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(3)During the three and six months ended June 30, 2022, the Company recorded
$0.2 million and $0.4 million, respectively, of amortization expense within
operating profit associated with an intangible asset acquired during the second
quarter of 2020. During the three and six months ended June 30, 2022, the
Company recorded $0.5 million and $1.0 million, respectively, of amortization
expense in association with an acquisition of increased ownership interest in
Daikyo. During the three and six months ended June 30, 2021 the Company recorded
$0.2 million and $0.4 million, respectively, of amortization expense within
operating profit associated with an intangible asset acquired during the second
quarter of 2020. During the three and six months ended June 30, 2021, the
Company recorded $0.5 million and $1.0 million, respectively, of amortization
expense in association with an acquisition of increased ownership interest in
Daikyo.

(4)During the three and six months ended June 30, 2022, the Company increased
its expected tax benefit related to the prepayment of future royalties from one
of its subsidiaries by $1.3 million.

(5)During the three months ended June 30, 2021, we recorded a net gain on the
sale of one of the Company's cost investments. During the six months ended
June 30, 2021, we recorded an impairment charge on one of our cost investments,
partially offset by the gain on the sale of a cost investment.

(6) During the three and six months ended June 30, 2021the Company recorded a tax benefit of $1.4 million due to the impact of UK legislative changes adopted during this period.

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.

Percentages in the following tables and throughout the Results of Operations section may reflect rounding adjustments.

Net sales

The following table shows net sales, consolidated and by reportable segment, for the three months ended June 30, 2022 and 2021:

                                      Three Months Ended
                                           June 30,                      Percentage Change
($ in millions)                        2022            2021          As-Reported         Organic
Proprietary Products             $    653.7          $ 587.3                 11.3  %      18.3  %
Contract-Manufactured Products        117.8            136.4                (13.6) %      (8.9) %
Intersegment sales elimination         (0.2)            (0.1)                   -            -
Consolidated net sales           $    771.3          $ 723.6                  6.6  %      13.1  %



Consolidated net sales increased by $47.7 million, or 6.6%, for the three months
ended June 30, 2022, as compared to the same period in 2021, primarily due to
increased volume and product mix of $71.7 million and sales price increases of
$23.4 million, offset by an unfavorable foreign currency translation impact of
$47.4 million. Excluding foreign currency translation effects, consolidated net
sales for the three months ended June 30, 2022 increased by $95.1 million, or
13.1%, as compared to the same period in 2021.

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Proprietary Products - Proprietary Products net sales increased by $66.4
million, or 11.3%, for the three months ended June 30, 2022, as compared to the
same period in 2021, including an unfavorable foreign currency translation
impact of $41.0 million. Excluding foreign currency translation effects, net
sales for the three months ended June 30, 2022 increased by $107.4 million, or
18.3%, as compared to the same period in 2021, primarily due to growth in our
high-value product offerings, including our NovaPure® products.

Contract-Manufactured Products - Contract-Manufactured Products net sales
decreased by $18.6 million, or 13.6%, for the three months ended June 30, 2022,
as compared to the same period in 2021, including an unfavorable foreign
currency translation impact of $6.4 million. Excluding foreign currency
translation effects, net sales for the three months ended June 30, 2022
decreased by $12.2 million, or 8.9%, 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.

The following table shows net sales, consolidated and by reportable segment, for the six months ended June 30, 2022 and 2021:

                                         Six Months Ended
                                             June 30,                    Percentage Change
   ($ in millions)                     2022           2021           As-Reported         Organic
   Proprietary Products             $ 1,255.0      $ 1,131.0                 11.0  %      16.4  %
   Contract-Manufactured Products       236.5          263.5                

(10.2)% (6.5)%

   Intersegment sales elimination        (0.2)          (0.2)                   -            -
   Consolidated net sales           $ 1,491.3      $ 1,394.3                  7.0  %      12.1  %



Consolidated net sales increased by $97.0 million, or 7.0%, for the six months
ended June 30, 2022, as compared to the same period in 2021, primarily due to
increased volume and product mix of $121.6 million and sales price increases of
$47.0 million, offset by an unfavorable foreign currency translation impact of
$71.6 million. Excluding foreign currency translation effects, consolidated net
sales for the six months ended June 30, 2022 increased by $168.6 million, or
12.1%, as compared to the same period in 2021.

Proprietary Products - Proprietary Products net sales increased by $124.0
million, or 11.0%, for the six months ended June 30, 2022, as compared to the
same period in 2021, including an unfavorable foreign currency translation
impact of $61.6 million. Excluding foreign currency translation effects, net
sales for the six months ended June 30, 2022 increased by $185.6 million, or
16.4%, 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.

Contract-Manufactured Products - Contract-Manufactured Products net sales
decreased by $27.0 million, or 10.2%, for the six months ended June 30, 2022, as
compared to the same period in 2021, including an unfavorable foreign currency
translation impact of $10.0 million. Excluding foreign currency translation
effects, net sales for the six months ended June 30, 2022 decreased by $17.0
million, or 6.5%, as compared to the same period in 2021, due to a decline of
sales of components for diagnostic devices, offset by sales price increases.
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Gross profit

The following table presents gross margin and related gross margins, consolidated and by reportable segment:

                                        Three Months Ended            Six Months Ended
                                             June 30,                     June 30,
($ in millions)                         2022           2021          2022          2021
Proprietary Products:
Gross profit                        $   302.3       $ 292.3       $ 563.0       $ 544.2
Gross profit margin                      46.2  %       49.8  %       44.9  %       48.1  %
Contract-Manufactured Products:
Gross profit                        $    19.2       $  22.8       $  43.1       $  42.8
Gross profit margin                      16.3  %       16.7  %       18.2  %       16.2  %
Consolidated gross profit           $   321.5       $ 315.1       $ 606.1  

$587.0
Consolidated gross margin 41.7% 43.5% 40.6% 42.1%



Consolidated gross profit increased by $6.4 million, or 2.0%, for the three
months ended June 30, 2022, as compared to the same period in 2021, including an
unfavorable foreign currency translation impact of $19.0 million for the three
months ended June 30, 2022, as compared to the same period in 2021. Consolidated
gross profit margin decreased by 1.8 margin points for the three months ended
June 30, 2022, as compared to the same period in 2021.

Consolidated gross profit increased by $19.1 million, or 3.3% for the six months
ended June 30, 2022, as compared to the same period in 2021, including an
unfavorable foreign currency translation impact of $29.4 million for the six
months ended June 30, 2022, as compared to the same period in 2021. Consolidated
gross profit margin decreased by 1.5 margin points for the six months ended
June 30, 2022, as compared to the same period in 2021.

Proprietary Products - Proprietary Products gross profit increased by $10.0
million, or 3.4%, for the three months ended June 30, 2022, as compared to the
same period in 2021, including an unfavorable foreign currency translation
impact of $17.8 million. Proprietary Products gross profit margin decreased by
3.6 margin points for the three months ended June 30, 2022, as compared to the
same periods in 2021, due to increased plant spend to meet ongoing product
demand increases, increased labor and overhead costs, primarily within
transportation and compensation, that were driven by inflation, and higher
allocation of functional spend from Selling, General and Administrative expense.
This was offset by favorable sales mix and approximately $11 million, net, in
one-time fees received due to COVID-19 supply agreements during the three months
ended June 30, 2022 as compared to the same period in 2021.

Proprietary Products gross profit increased by $18.8 million, or 3.5%, for the
six months ended June 30, 2022, as compared to the same period in 2021,
including an unfavorable foreign currency translation impact of $27.4 million.
Proprietary Products gross profit margin decreased by 3.2 margin points for the
six months ended June 30, 2022, as compared to the same period in 2021, due to
increased plant spend to meet ongoing product demand increases, increased labor
and overhead costs, primarily within transportation and compensation, that were
driven by inflation, and higher allocation of functional spend from Selling,
General and Administrative expense. This was offset by favorable sales mix in
the six months ended June 30, 2022 as compared to the same period in 2021.

Contract-Manufactured Products - Contract-Manufactured Products gross profit
decreased by $3.6 million, or 15.8%, for the three months ended June 30, 2022,
as compared to the same period in 2021, including an unfavorable foreign
currency translation impact of $1.2 million. Contract-Manufactured Products
gross profit margin decreased by 0.4 margin points for the three months ended
June 30, 2022, as compared to the same period in 2021, due to an unfavorable mix
of products sold, offset by price increases.

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Contract-Manufactured Products gross profit increased by $0.3 million, or 0.7%,
for the six months ended June 30, 2022, as compared to the same period in 2021,
including an unfavorable foreign currency translation impact of $2.0 million.
Contract-Manufactured Products gross profit margin increased by 2.0 margin
points for the six months ended June 30, 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 and an unfavorable mix
of products sold.

Research and development (“R&D”) costs

The following table presents R&D costs, consolidated and by reportable segment:
                                       Three Months Ended               Six Months Ended
                                            June 30,                        June 30,
($ in millions)                         2022             2021           2022            2021
Proprietary Products             $     14.4            $ 13.8      $    29.0          $ 26.0
Contract-Manufactured Products            -                 -              -               -
Consolidated R&D costs           $     14.4            $ 13.8      $    29.0          $ 26.0



Consolidated R&D costs increased by $0.6 million, or 4.3%, and $3.0 million, or
11.5% for the three and six months ended June 30, 2022, respectively, as
compared to the same period in 2021, due to additional research performed to
identify new product opportunities. Efforts remain focused on the continued
investment in elastomeric packaging components, formulation development, drug
containment systems, self-injection systems and drug administration consumables.


Selling, general and administrative (“SG&A”) expenses

The following table presents SG&A costs, consolidated and by reportable segment
and corporate:
                                     Three Months Ended            Six Months Ended
                                          June 30,                     June 30,
($ in millions)                      2022           2021          2022          2021
Proprietary Products             $    55.4        $ 65.0       $ 111.3       $ 121.5
Contract-Manufactured Products         4.9           3.8           9.7           7.5
Corporate                             21.2          23.9          43.9          43.9
Consolidated SG&A costs          $    81.5        $ 92.7       $ 164.9       $ 172.9
SG&A as a % of net sales              10.6   %      12.8  %       11.1  %       12.4  %



Consolidated SG&A costs decreased by $11.2 million, or 12.1%, for the three
months ended June 30, 2022, as compared to the same period in 2021, due to lower
incentive compensation, favorable foreign currency translation impact of $2.5
million and a higher allocation of functional spend to Cost of Goods Sold.

Consolidated SG&A costs decreased by $8.0 million, or 4.6%, for the six months
ended June 30, 2022, as compared to the same period in 2021, due to lower
incentive compensation, higher allocation of functional spend to Cost of Goods
Sold and a favorable foreign currency translation impact of $4.4 million, offset
by an increase in selling expenses and professional fees.

Proprietary Products - Proprietary Products SG&A costs decreased by $9.6
million, or 14.8%, for the three months ended June 30, 2022, as compared to the
same period in 2021. Proprietary Products SG&A costs decreased primarily due to
lower incentive compensation, favorable foreign currency translation impact of
$2.3 million and a higher allocation of functional spend to Cost of Goods Sold.

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Proprietary Products SG&A costs decreased by $10.2 million, or 8.4%, for the six
months ended June 30, 2022, as compared to the same period in 2021. Proprietary
Products SG&A costs decreased primarily due to a decline in incentive
compensation, higher allocation of functional spend to Cost of Goods Sold and a
favorable foreign currency translation impact of $3.8 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 28.9% for the three months ended June 30, 2022, as
compared to the same period in 2021, and increased by $2.2 million, or 29.3% for
the six months ended June 30, 2022, as compared to the same period in 2021.

Corporate – General, general and administrative expenses decreased by $2.7 millionor 11.3%, for the three months ended June 30, 2022compared to the same period in 2021, mainly due to lower incentive compensation.

General, general and administrative expenses of the company have not changed during the six months ended June 30, 2022compared to the same period in 2021.

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