_________________________________________________________________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For quarter ended Commission file number 1-8593
March 31, 1994
A. L. LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2095212
(State of Incorporation) (I.R.S. Employer Identification
No.)
One Executive Drive, Fort Lee, New Jersey 07024
(Address of principal executive offices) zip code
(201) 947-7774
(Registrant's Telephone Number Including Area Code)
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 requirements
for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of May 3, 1994:
Class A Common Stock, $.20 par value -- 13,333,855 shares;
Class B Common Stock, $.20 par value -- 8,226,562 shares.
Page 1 of 12<PAGE>
A. L. LABORATORIES, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet as of
March 31, 1994 and December 31, 1993 3
Consolidated Statement of Income for the
Three Months Ended March 31, 1994 and 1993 4
Consolidated Condensed Statement of Cash
Flows for the Three Months Ended March 31,
1994 and 1993 5
Notes to Consolidated Condensed Financial
Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-10
PART II. OTHER INFORMATION
Signatures 11
Exhibit 11 - Computation of Earnings
per Common Share 12
Page 2 of 12<PAGE>
A. L. LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands of dollars)
March 31,
1994 December 31,
(Unaudited) 1993
ASSETS
Current assets:
Cash and cash equivalents $ 9,328 $ 8,420
Accounts receivable, net 72,559 84,982
Inventories 78,847 77,829
Other 4,918 5,074
Total current assets 165,652 176,305
Property, plant and equipment, net 123,231 118,012
Intangible assets 114,456 115,445
Other assets and deferred charges 13,243 13,440
Total assets $416,582 $423,202
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,094 $ 8,035
Short-term debt 49,799 55,518
Accounts payable and accrued liabilities 52,847 57,770
Accrued and deferred income taxes 4,305 3,534
Total current liabilities 115,045 124,857
Long-term debt 81,748 81,713
Deferred income taxes 23,346 23,311
Other non-current liabilities 8,501 8,490
Stockholders' equity:
Class A Common Stock 2,716 2,714
Class B Common Stock 1,646 1,646
Additional paid-in-capital 111,662 111,473
Foreign currency translation
adjustment 4,536 3,302
Retained earnings 72,880 71,194
Treasury stock, at cost (5,498) (5,498)
Total stockholders' equity 187,942 184,831
Total liabilities and
stockholders' equity $416,582 $423,202
======= =======
The accompanying notes are an integral part
of the consolidated condensed financial statements.
Page 3 of 12<PAGE>
A. L. LABORATORIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
1994 1993
Total revenue $91,373 $77,788
Cost of sales 56,326 44,740
Gross profit 35,047 33,048
Selling, general and
administrative expenses 28,866 25,070
Operating income 6,181 7,978
Interest expense (1,816) (1,606)
Other, net 56 156
Income before provision for income taxes 4,421 6,528
Provision for income taxes 1,764 2,611
Net income $ 2,657 $ 3,917
====== ======
Average common shares outstanding:
Primary 21,548 21,492
Fully diluted 21,581 21,601
====== ======
Earnings per common share:
Primary $ .12 $ .18
====== ======
Fully Diluted $ .12 $ .18
====== ======
Dividend per common share $ .045 $ .045
====== ======
The accompanying notes are an integral part
of the consolidated condensed financial statements.
Page 4 of 12<PAGE>
A. L. LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Three Months Ended
March 31,
1994 1993
Operating Activities:
Net income $ 2,657 $ 3,917
Adjustments to reconcile net
income to net cash provided
by operating activities, principally
depreciation and amortization 4,922 4,590
Changes in assets and liabilities,
net of effects from business
acquisition:
Decrease in accounts receivable 13,087 9,814
(Increase) in inventory ( 461) (2,577)
(Decrease) in accounts payable
and accrued expenses (5,360) (1,534)
Other 675 (1,321)
Net cash provided by
operating activities 15,520 12,889
Investing Activities:
Capital expenditures,net (7,698) (2,817)
Acquisition of a manufacturing
facility and other intangibles (14,977)
Net cash used in investing
activities (7,698) (17,794)
Financing Activities:
Dividends paid (971) (968)
Net borrowings under lines of credit (6,142) 4,248
Reduction of long-term debt (33) (228)
Other, net 166 33
Net cash used in
financing activities (6,980) 3,085
Exchange Rate Changes:
Effect of exchange rate changes
on cash 196 17
Income tax effect of exchange rate
changes on intercompany advances (130) (67)
Net cash flows from exchange
rate changes 66 (50)
Increase (Decrease) in Cash 908 (1,870)
Cash and cash equivalents at
beginning of year 8,420 5,569
Cash and cash equivalents at
end of period $ 9,328 $ 3,699
======= =======
The accompanying notes are an integral part
of the consolidated condensed financial statements.
Page 5 of 12<PAGE>
A. L. LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of dollars)
1. General
The accompanying consolidated condensed financial statements
include all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, considered
necessary for a fair presentation of the results for the periods
presented. These financial statements should be read in
conjunction with the consolidated financial statements of
A. L. Laboratories, Inc. and Subsidiaries included in the
Company's 1993 Annual Report on Form 10-K. The reported results
for the three month period ended March 31, 1994 are not
necessarily indicative of the results to be expected for the full
year.
2. Inventories
Inventories consist of the following:
March 31, December 31,
1994 1993
Finished product $40,645 $40,650
Work-in-process 13,428 10,347
Raw materials 24,774 26,832
$78,847 $77,829
3. Supplemental Cash Flow Information:
March 31, March 31,
1994 1993
Cash paid for interest $ 861 $ 960
Cash paid for taxes 1,467 2,177
4. Potential Business Combination with A. L. Oslo
A Special Committee of the Board of Directors was appointed
in 1992 to evaluate the feasibility of combining the Company and
the related pharmaceutical, animal and aquatic health and bulk
antibiotic businesses of A. L. Oslo. During 1994, the Special
Committee, together with management and the Board of Directors,
has discussed various proposed structures and terms of a
transaction in which the related businesses of A. L. Oslo would
become part of the Company. These discussions are continuing.
It is expected that any such combination, if consummated, would
be accounted for in a manner similar to a pooling of interests
since the Company and A. L. Oslo are under common control. In
Page 6 of 12<PAGE>
A. L. LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of dollars)
addition, any proposed transaction will be submitted for approval
to the Class A shareholders.
During 1994, the Company paid fees to the Special Committee
of the Board of Directors and incurred costs for investment
banking, legal and other related services pertaining to the
possible combination. These costs which were approximately $250
and $500 in the quarters ended March 31, 1993 and 1994,
respectively, were charged to expense.
Page 7 of 12<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Total revenue increased $13.6 million (17.5%) in the first
quarter of 1994 compared to 1993. Operating income in 1994 was
$6.2 million, a decrease of $1.8 million, compared to 1993. Net
income was $2.7 million ($.12 per share fully diluted) compared
to $3.9 million ($.18 per share fully diluted) in 1993.
Revenue in the U.S. Pharmaceutical Group ("USPG") accounted
for the majority of the increase. Revenue from sales of liquids
by Barre National, Inc. ("Barre") and the manufacturing facility
at Lincolnton, N.C. ("Lincolnton"), which was acquired in March
1993, accounted for most of the increase. Sales of cough and
cold products, including products containing iodinated glycerol,
increased due to strong market demand and to a lesser extent
improved pricing. Also contributing to the increase in USPG's
sales were products introduced in late 1993, Epinephrine Mist ,
and Clotrimazole Cream.
Revenue increased for Dumex Ltd. ("Dumex") due to increased
volume and relatively stable currency conditions in most European
markets. Current and future pricing in European markets
continues to be regulated and suppressed by proposed and enacted
legislation in a number of markets.
Animal Health and Bulk Antibiotic revenues increased
primarily due to volume of the BMD antibiotic and products used
in combination with BMD both domestically and internationally.
Offsetting the increases were lower revenues from sales of fish
vaccines for farm raised salmon due to a smaller overall market
than 1993 and increased competition.
On a consolidated basis gross profit increased $2.0 million
while the gross margin percentage declined from 42.5% in 1993 to
38.4% in 1994.
The decline in the gross margin percentage resulted
primarily from the USPG. As previously stated the USPG's
revenues represented a majority of the revenue increase. Overall
USPG gross margins are lower than both the Animal Health and Bulk
Antibiotic segment and Dumex gross margins. The addition of
sales volume at lower than Company average gross margins has the
effect of lowering the overall gross margin percentage.
USPG gross profits increased in amount but declined as a
percent of sales due primarily to continued higher production and
operating costs incurred to maintain regulatory compliance with
"Current Good Manufacturing Practices" ("CGMP"). Due to
increased production and sales volume, Barre absorbed and
recovered a substantial amount of the additional CGMP costs. NMC
and Able however, continue to incur substantial regulatory costs,
both direct and indirect, which had the effect of lowering their
Page 8 of 12<PAGE>
gross profits. Gross profits related to the Lincolnton facility
continue to be negatively affected by unabsorbed overhead
incurred in the first quarter.
Animal Health, Bulk Antibiotic and Dumex gross margins
percentages declined marginally due primarily to the mix of
products sold.
Operating expenses increased $3.8 million or 15.1% compared
to a 17.5% revenue increase. The increases reflect higher
selling expense related to volume and higher research and
development expenses related to planned increases for various
projects. General and administrative expense increases included
higher expenses related to the possible combination transaction
with A. L. Oslo. (See Note 4 to the Consolidated Condensed
Financial Statements.) In addition, the Company continues to
incur significant expenses to build an Oral Health Care ("OHC")
business.
Operating income decreased $1.8 million due primarily to
lower operating income in the Pharmaceutical segment primarily
due to lower gross profits percentages, higher expenses primarily
for R&D projects and continued expenses incurred to build an OHC
infrastructure. Animal Health and Bulk Antibiotic operating
income increased marginally on a comparative basis.
In the first quarter of 1994 the OHC business, which is
included in the Pharmaceutical segment, continued to incur
expenses in excess of revenues. However, revenues continue to
increase and on a comparative basis the loss was approximately
the same as the first quarter of 1993.
Interest expense increased $.2 million due to increased debt
compared to the first quarter of 1993.
Animal Health Business
The Company's Animal Health division's principal product is
the BMD antibiotic. In the first quarter and continuing to date
the competition has lowered prices for products which directly
compete with BMD to gain market share. The Company has been
affected in that volume has been reduced and certain prices have
softened. The Company believes this competition may reduce
operating margins in 1994.
Governmental Actions affecting the Company
The Company's operations are subject to regulation which
includes inspections of manufacturing facilities, requires
approvals to market products, and can result in the recall of
products and suspension of production. In the United States the
Food and Drug Administration (FDA), has imposed more stringent
regulatory requirements on the pharmaceutical industry.
Page 9 of 12<PAGE>
The U.S. manufacturing companies included in the Company's
Pharmaceutical Segment, Barre, NMC, and Able, are affected in
that they are required to comply with the FDA's interpretation of
CGMP. In this regard, Barre and Able are parties to separate
consent decrees with the FDA which define the specific standards
they must meet to comply with CGMP.
In 1994, regulatory compliance has continued to effect cost
directly by requiring the addition of personnel, programs and
capital and indirectly by adding activities without directly
increasing efficiency. The costs both direct and indirect of
regulatory compliance (which have increased in recent years) are
expected to continue to increase in the future.
In April 1993, Barre, ParMed and Able, together with other
marketers, were requested by the FDA to discontinue marketing
products to treat respiratory congestion which contain iodinated
glycerol. The Company believes these products should remain on
the market. During the period May 1993 - October 1993 the
Company did not ship these products. As a result of the
Company's support of its position to the FDA that these products
should remain on the market and the fact that the innovator
company was allowed to continue shipping, the Company resumed
marketing of these products on a limited basis in late October
1993.
In the first quarter of 1994 the sales and income from these
products exceeded the first quarter of 1993 and reflected strong
market demand for these products. Any future impact on sales and
earnings will depend on the ultimate FDA decision on the
iodinated glycerol product line. However, if the product line is
discontinued and/or a recall is required, the immediate impact
will be negative.
Financial Condition
Working capital at March 31, 1994 was $50.6 million compared
to $51.4 million at December 31, 1993. The current ratio was
1.44 to 1 at March 31, 1994 compared to 1.41 to 1 at year end.
Long-term debt to stockholders' equity was .43:1 at March 31,
1994 compared to .44:1 at December 31, 1993.
The Company is presently considering its requirements for
long-term financing for both capital expenditures and
acquisitions including the possible combination with the related
businesses of A. L. Oslo. In this regard, the Company is
considering long-term financing options with financial
institutions and in public markets both domestic and foreign.
The Company expects it will be able to obtain the required long-
term financing as needed.
Page 10 of 12<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings per Common Share for the three
months ended March 31, 1994 and 1993.
(b) Reports on Form 8-K -- There were no reports on Form 8-K
filed during the three months ended March 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
A. L. LABORATORIES, INC.
(Registrant)
Date: May 12, 1994 /s/ Jeffrey E. Smith
Jeffrey E. Smith
Executive Vice President,
Member of the Office of the
Chief Executive and Chief
Financial Officer
Page 11 of 12<PAGE>
Exhibit 11
A. L. Laboratories, Inc.
Computation of Earnings per Common Share
Primary and Fully Diluted
(Dollars in thousands, except for per share data)
Three Months Ended
March 31,
1994 1993
Computation for Statement of Income
Primary earnings per share:
Net income $ 2,657 $ 3,917
========== ==========
Average common shares outstanding 21,548,000 21,492,000
========== ==========
Earnings per common share - Primary $0.12 $0.18
========== ==========
Fully diluted earnings per share:
Net income $ 2,657 $ 3,917
========== ==========
Average common shares outstanding 21,548,000 21,492,000
Additions:
Dilutive effect of outstanding options
determined by treasury stock method 32,947 109,205
21,580,947 21,601,205
========== ==========
Earnings per common share - Fully diluted $0.12 $0.18
========== ==========
Page 12 of 12<PAGE>
