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
September 30, 1994
A.L. PHARMA 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 November 4, 1994:
Class A Common Stock, $.20 par value -- 13,360,844 shares;
Class B Common Stock, $.20 par value -- 8,226,562 shares
A.L. PHARMA INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet as of
September 30, 1994 and December 31, 1993 3
Consolidated Statement of Income for the
Three and Nine Months Ended September 30,
1994 and 1993 4
Consolidated Condensed Statement of Cash
Flow for the Nine Months Ended September 30,
1994 and 1993 5
Notes to Consolidated Condensed Financial
Statements 6-13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 14-21
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 22
Item 6. Exhibits and Reports on Form 8K 23
Signatures 24
Exhibit 11 - Computation of Earnings 25-26
per Common Share
A.L. PHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands of dollars)
September 30,
1994 December 31,
(Unaudited) 1993
ASSETS
Current assets:
Cash and cash equivalents $ 4,442 $ 8,420
Accounts receivable, net 91,511 84,982
Inventories 97,065 77,829
Other 5,052 5,074
Total current assets 198,070 176,305
Property, plant and equipment, net 146,530 118,012
Intangible assets 118,698 115,445
Other assets and deferred charges 14,077 13,440
Total assets $477,375 $423,202
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,005 $ 8,035
Short-term debt 49,377 55,518
Accounts payable and accrued
liabilities 69,729 57,770
Accrued and deferred income taxes 5,846 3,534
Total current liabilities 128,957 124,857
Long-term debt 120,460 81,713
Deferred income taxes 24,371 23,311
Other non-current liabilities 7,691 8,490
Stockholders' equity:
Class A Common Stock 2,722 2,714
Class B Common Stock 1,646 1,646
Additional paid-in-capital 112,096 111,473
Foreign currency translation
adjustment 8,608 3,302
Retained earnings 76,346 71,194
Treasury stock, at cost (5,522) (5,498)
Total stockholders' equity 195,896 184,831
Total liabilities and
stockholders' equity $477,375 $423,202
The accompanying notes are an integral part
of the consolidated condensed financial statements.
A.L. PHARMA INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Total revenue $101,180 $83,016 $286,550 $242,557
Cost of sales 61,890 53,310 176,481 146,401
Gross profit 39,290 29,706 110,069 96,156
Selling, general and
administrative expenses 31,645 26,936 90,663 79,496
Operating income 7,645 2,770 19,406 16,660
Interest expense (2,240) (1,503) (5,906) (4,758)
Other, net (11) 113 (75) 282
Income from operations
before provision
for income taxes 5,394 1,380 13,425 12,184
Provision for income taxes 2,153 669 5,357 5,017
Net income $ 3,241 $ 711 $ 8,068 $ 7,167
Average common shares
outstanding:
Primary 21,576 21,509 21,562 21,501
Fully diluted 21,633 21,571 21,619 21,585
Earnings per common share:
Primary $.15 $.03 $.37 $.33
Fully Diluted $.15 $.03 $.37 $.33
Dividends per common share $.045 $.045 $.135 $.135
The accompanying notes are an integral part
of the consolidated condensed financial statements.
A.L. PHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Nine Months Ended
September 30,
1994 1993
Operating Activities:
Net income $8,068 $7,167
Adjustments to reconcile net
income to net cash provided
by operating activities, principally
depreciation and amortization 15,359 14,017
Changes in assets and liabilities,
net of effects from business
acquisition:
(Increase) Decrease in
accounts receivable (1,243) 3,718
(Increase) in inventory (13,911) (6,623)
Increase in accounts payable
and accrued expenses 7,906 1,364
Other (2,228) (3,563)
Net cash provided by
operating activities 13,951 16,080
Investing Activities:
Capital expenditures, net (29,630) (13,241)
Unexpended industrial revenue bond proceeds (2,834)
Acquisition of product line and other
intangibles (4,006)
Purchase of acquired businesses,
net of cash acquired (7,599) (12,965)
Net cash used in investing activities (40,063) (30,212)
Financing Activities:
Dividends paid (2,916) (2,848)
Net borrowings under lines of credit 22,681 7,787
Proceeds from long-term debt 6,000 13,000
Reduction of long-term debt (4,248) (4,352)
Other, net 618 300
Net cash used in financing activities 22,135 13,887
Exchange Rate Changes:
Effect of exchange rate changes on cash 808 (237)
Income tax effect of exchange rate
changes on intercompany advances (809) 306
Net cash flows from exchange rate changes (1) 69
Decrease in cash (3,978) (176)
Cash and cash equivalents at beginning
of year 8,420
5,569
Cash and cash equivalents at end
of period $ 4,442 $ 5,393
The accompanying notes are an integral part
of the consolidated condensed financial statements.
A.L. PHARMA 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. The year-end condensed balance sheet data was derived
from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
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. On October 3, 1994 the Company changed its name to A.L.
Pharma Inc. The reported results for the nine month period ended
September 30, 1994 are not necessarily indicative of the results
to be expected for the full year.
2. Inventories
Inventories consist of the following:
September 30, December 31,
1994 1993
Finished product $56,428 $40,650
Work-in-process 10,334 10,347
Raw materials 30,303 26,832
$97,065 $77,829
3. Supplemental Cash Flow Information:
September 30, September 30,
1994 1993
Cash paid for interest $4,677 $4,682
Cash paid for taxes 4,213 6,046
4. Long-term Debt
In August 1994 the Company issued Industrial Development
Revenue Bonds for $6,000 in connection with the expansion of the
Lincolnton, North Carolina plant. The bonds require monthly
interest payments at a floating rate approximating the current
money market rate on tax exempt bonds and the payment by the
Company of an annual letter of credit fee of approximately 3/4%.
The bonds require a yearly sinking fund redemption of $500,000
commencing in August 1996. To account for the unexpended bond
proceeds at September 30, 1994, the Company has classified $2,834
of cash, which is restricted for use in the plant expansion, as
construction in progress.
5. Business Acquisition - Wade Jones Company
On July 21, 1994, the Company announced the acquisition of
the Wade Jones Company ("Wade Jones") headquartered in Lowell,
Arkansas. Wade Jones is a major distributor of poultry animal
health products and also manufactures and blends certain animal
health products.
The purchase agreement required a purchase price of
approximately $8,200 subject to adjustments based on actual
financial position on the closing date. In addition, the
agreement provides for contingent payments based on future
product approvals. The Company will account for the acquisition
in accordance with the purchase method. The excess of purchase
price over the underlying estimated fair value of net assets
acquired based on a preliminary purchase price allocation is
being amortized over 20 years.
The purchase price was financed under an acquisition advance
note which bears interest at prime less 1/4%. This note was
repaid in the overall refinancing of the Company. (See Note 6a to
the consolidated condensed financial statements.)
Had the acquisition of Wade Jones occurred as of January 1,
1993 revenues and net income would have been as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1993 1994 1993
Revenues $88,500 $298,800 $260,900
Net income $691 $8,283 $7,392
Earnings per common share
Primary $.03 $.38 $.34
Fully diluted $.03 $.38 $.34
Revenues and net income for the three months ended
September 30, 1994 would have not changed materially since the
acquisition was completed on July 21, 1994 and results of
operations include Wade Jones from that date.
6. Subsequent Events
6a. Refinancing the Company
On September 28, 1994 the Company signed a $185,000 credit
agreement with a consortium of banks arranged by the Union Bank
of Norway and Den norske Bank A.S. The agreement provides funding
for the refinancing of existing indebtedness, the acquisition of
the Related Norwegian Businesses including related transaction
costs, fees and expenses and for general corporate purposes. (See
Note 6b to the consolidated condensed financial statements.)
The credit agreement provides for the loans as follows:
Term Loan Term Loan Revolving Credit
A B Facility
Maximum Amount $ 65,000 $ 72,000 $ 48,000
Term 7 yrs 5 yrs 3 yrs 3 months
Extension No No One year periods
at option of banks
Interest rate Libor plus Libor plus Libor plus
1.375% 1.25% 1.125%
Repayment
commences: 2 yrs 2 yrs 3 yrs 3 months
subject to
extension
Repayment periods: semi-annual semi-annual at maturity
Amount of
Repayment: 5% to 9% 5% to 10% Revolving
of loan of loan 100% at
amount amount maturity
per year per year
30% at 55% at
final final
maturity maturity
Amount borrowed on
October 3, 1994 $65,000 $72,000 $5,000
Interest rate 6.375% 6.25% 6.125%
On October 3, 1994 concurrent with the acquisition of the
Related Norwegian Businesses the Company borrowed $142,000 under
the agreement and subsequently repaid long-term debt of $71,279
and line of credit debt of $30,620.
Accordingly, in the balance sheet of September 30, 1994 all
debt which was refinanced and would have been classified as
current amounting to $37,965, has been classified as long-term.
6b. Acquisition of the Related Norwegian Businesses
On October 3, 1994, the Company completed the acquisition of
the pharmaceutical, animal health, bulk antibiotic and aquatic
animal health businesses of Apothekernes Laboratorium A.S (the
"Related Norwegian Businesses"). Concurrent with the closing of
the acquisition (the "Closing"), the Company changed its name to
"A.L. Pharma Inc."
The combination of the Related Norwegian Businesses of
Apothekernes Laboratorium A.S ("A.L. Oslo") with A. L.
Laboratories was completed pursuant to a Restructuring Agreement
dated as of May 16, 1994 (the "Restructuring Agreement"), which
was approved separately by the shareholders of the Company
(including the holders of the Company's Class A shares voting
separately) and A. L. Oslo. A.L. Oslo is the beneficial owner of
100% of the outstanding shares of the Company's Class B stock and
is able to control the Company through its ability to elect more
than a majority of the Board of Directors and to cast in excess
of a majority of the votes in any vote of the Company's
stockholders. In addition, Einar W. Sissener, a director and the
Chairman and Chief Executive Officer of A.L. Oslo owns or has
authority to vote approximately 50.8% of the outstanding A.L.
Oslo shares. The consideration paid by the Company to the
shareholders of A.L. Oslo was approximately $24 million in cash,
and warrants to purchase 3.6 million shares of the Company's
Class A Common Stock. The warrants expire on January 3, 1999 and
have an exercise price of $21.945. As indicated, the Company
obtained the funds for the acquisition under a credit agreement
and related documents dated September 28, 1994 between the
Company and certain of its subsidiaries and a consortium of
banks.
Commencing in 1992 and continuing through the first quarter
of 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 combination.
Due to the fact that the combination was not reasonably assured
prior to reaching agreement these costs were expensed. Upon
reaching a final agreement the Company has incurred an increased
level of similar expenses relating to the combination.
Accordingly, commencing in the second quarter of 1994 the
Company has deferred costs relating to the combination. Such
costs will be charged to the combined company as of the closing
date. (i.e. the fourth quarter 1994.) The following summarizes
the combination costs expensed and deferred in the periods
presented:
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Combination expenses:
Expensed $ -- $150 $ 500 $650
Deferred $650 $ -- $1,550 $ --
As a result of the closing in the fourth quarter 1994 the
Company will incur additional combination expenses for investment
banking, legal, accounting and other transaction expenses
(including expensing debt issuance costs related to existing debt
refinanced in the fourth quarter) and tax effects related to the
consummation of the combination. Tax effects of the combination
will include the non-deductibility, for tax purposes, of certain
expenses previously incurred or incurred in the fourth quarter to
complete the acquisition.
The Company is required to account for the acquisition of
the Related Norwegian Businesses of A.L. Oslo as a transfer and
exchange between companies under common control. Accordingly, the
assets and liabilities of the Related Norwegian Businesses will
be combined with the Company at historical cost in a manner
similar to a pooling-of-interests; and the Company's historical
financial statements will be restated to reflect the combined
results of operations, assets, liabilities and net worth of the
Company and of the Related Norwegian Businesses. The payment of
the cash purchase price will be reflected as a reduction of
combined equity as of the closing date.
The restated results of operations for the three and nine
months ended September 30, 1994 and 1993 are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Total Revenue $117,438 $97,418 $335,776 $289,708
Gross Profit 48,261 38,402 138,995 124,251
Operating Income 9,904 4,742 26,813 23,131
Net Income 4,001 829 10,363 7,660
Earnings per
Common Share:
Primary .19 .04 .48 .36
Fully Diluted .18 .04 .48 .35
Fully Diluted -
Supplemental .17 .03 .44 .32
The supplemental restated earnings per share presented above
include the effect of the cash consideration and the 3,600,000
warrants which were paid October 3, 1994 to effect the
combination. To be comparative, the Company believes that
restated fully diluted earnings per share should include the
effect of imputed interest expense on the cash consideration
actually paid and the dilutive effect, if any, of the warrants.
The proforma condensed combined balance sheet as of
September 30, 1994 includes estimated transaction expenses,
refinancing of the Company's long-term debt, the payment of the
cash purchase price, and the issuance of the warrants. The
comparative condensed combined balance sheet as of December 31,
1993 includes the accounts of the Related Norwegian businesses
and the Company as restated.
Balance Sheet Data (at end of period):
September 30, December 31,
1994 1993
Current assets $226,845 $202,913
Non-current assets 356,814 324,704
Total assets $583,659 $527,617
Current liabilities $145,704 $139,205
Long-term debt, less
current maturities 204,612 144,350
Deferred taxes and other
non-current liabilities 42,940 40,129
Stockholders' equity 190,403 203,933
Total liabilities and equity $583,659 $527,617
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - Nine Months Ended September 30, 1994
Total revenue increased $44.0 million (18.1%) in the nine
months ended September 30, 1994 compared to 1993. Operating
income in 1994 was $19.4 million, an increase of $2.7 million,
compared to 1993. Net income was $8.1 million ($.37 per share
fully diluted) compared to $7.2 million ($.33 per share fully
diluted) in 1993.
Revenue increases in the U.S. Pharmaceutical Group ("USPG")
accounted for the majority of the overall revenue increase.
Revenue increased in all units included in USPG with most of the
increase accounted for by sales of liquids by Barre National,
Inc. ("Barre") and the manufacturing facility at Lincolnton, N.C.
("Lincolnton"), which was acquired in March 1993. 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 approximately $9.9
million to the increase in USPG's sales were products introduced
in late 1993, (Epinephrine Mistr, and Clotrimazole Cream) and
products introduced in 1994 (Cimetidine HCL Oral Solution,
Clobetasol Cream and Ointment and Miconazole Vaginal
Suppositories).
Revenue increased for Dumex Ltd. ("Dumex") due to increased
volume in most European markets. Current pricing in European
markets continues to be regulated and suppressed by enacted
legislation to lower pharmaceutical costs in a number of markets.
Animal Health and Bulk Antibiotics revenues increased due to
the acquisition of Wade Jones Company in July 1994, higher volume
sales of BMDr antibiotic, and international and domestic sales of
products commonly used in combination with BMD domestically. In
addition sales volume of bulk pharmaceuticals and antibiotics
increased. Offsetting the increases were marginally lower
revenues from sales of fish vaccines for farm raised salmon due
to a smaller overall market than 1993.
On a consolidated basis gross profit increased $13.9 million
while the gross margin percentage declined from 39.6% in 1993 to
38.4% in 1994.
The overall decline in the gross margin percentage resulted
from lower overall Animal Health gross margins and the impact of
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 Antibiotics 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 significantly in amount and on
an overall basis increased marginally as a percent of sales due
to continued production and operating costs incurred to maintain
regulatory compliance with "Current Good Manufacturing Practices"
("CGMP") offset by increased production and sales volume. Barre
accounted for the majority of the increase in gross profit
dollars and improved its margin percentage. NMC and Able
Laboratories, Inc. ("Able") however, continue to incur regulatory
costs, both direct and indirect, which had the effect of lowering
their gross profits. Gross profits related to the Lincolnton
facility continue to be negatively affected by unabsorbed
overhead incurred in the nine month period.
Overall, Animal Health gross margins were marginally lower
in percentage than 1993 as a result of lower revenues from high
margin fish vaccines, competition in the poultry market which
lowered prices, and an increase in volume of products which have
lower than the Company average gross margins including the gross
margin on products sold by Wade Jones (acquired in July 1994).
Bulk Antibiotics and Dumex gross margin percentages declined
minimally primarily due to the mix of products sold. Gross margin
dollars for Animal Health and Bulk Antibiotics and Dumex
increased due to higher volume.
Operating expenses increased $11.2 million or 14.1% compared
to a 18.1% revenue increase. The increases reflect higher
selling expense related to volume, higher research and
development expenses related to planned increases for various
projects, and general and administrative expense increases for
personnel to support growth and additional amortization of
intangible assets due to 1993 additions. In addition, the
Company continues to incur significant expenses to build an Oral
Health Care ("OHC") business.
Operating income increased $2.7 million due primarily to
higher operating income in the pharmaceutical segment due
primarily to volume increases.
In the nine months ended September 30, 1994 the OHC
business, which is included in the Pharmaceutical segment,
continued to incur expenses in excess of revenues. However, on a
comparative basis the operating loss improved approximately $1.2
million compared to the nine months ended September 30, 1993.
Interest expense increased $1.1 million due to increased
debt to fund acquisitions, capital expenditures and sales growth
and higher interest rates compared to 1993.
Results of Operations - Three Months Ended September 30, 1994
Total revenue increased $18.2 million (21.9%) in the third
quarter of 1994 compared to 1993. Operating income in 1994 was
$7.6 million, an increase of $4.9 million, compared to 1993. Net
income was $3.2 million ($.15 per share fully diluted) compared
to $.7 million ($.03 per share fully diluted) in 1993.
Revenue in the U.S. Pharmaceutical Group ("USPG") increased
primarily due to sales of liquids by Barre, including products
containing iodinated glycerol, and to a lesser extent improved
pricing. Contributing approximately $5.3 million to the increase
in USPG's sales were products introduced in late 1993,
(Epinephrine Mistr, and Clotrimazole Cream) and products
introduced in 1994 (Cimetidine, Clobetasol Cream and Ointment and
Miconazole Vaginal Suppositories). In addition, sales by ParMed,
a generic distributor, increased due to generally increased
demand for generics and the introduction of other new generic
products (not manufactured by the Company).
Revenue increased for Dumex due to increased volume in most
European markets. Current pricing in European markets continues
to be regulated and suppressed by enacted legislation to lower
pharmaceutical costs in a number of markets.
Animal Health and Bulk Antibiotics revenues increased
primarily due to the acquisition of Wade Jones Company in July
1994 and also due to volume of products used in combination with
BMD both domestically and internationally. Revenues for the BMD
antibiotic were essentially unchanged as lower revenues in the
poultry segment due to lower prices and volume were offset by
volume increases in the swine segment, and the Mexican and
Canadian markets.
On a consolidated basis gross profit dollars increased $9.6
million and the gross margin percentage increased from 35.8% in
1993 to 38.8% in 1994.
The increase in the gross margin percentage resulted mainly
from higher gross profit dollars and gross margin percentages
occurring in the USPG division. Barre margins increased in the
third quarter as a result of leverage achieved due to volume
increases and sales of higher margin products. NMC and Able
however, continue to incur substantial regulatory costs, both
direct and indirect, which had the effect of lowering their gross
margins. Gross profits related to the Lincolnton facility
continue to be negatively affected by unabsorbed overhead
incurred in the third quarter.
Dumex and Animal Health gross margin dollars increased due
to volume while percentages declined marginally due primarily to
the mix of products sold and the acquisition by Wade Jones by
Animal Health.
Operating expenses increased $4.7 million or 17.6% compared
to a 21.9% revenue increase. The increases reflect higher
selling expense related to volume and higher research and
development expenses related to planned increases for various
projects. In addition 1994 includes operating expenses incurred
by the Wade Jones Company acquired in July 1994.
Operating income increased $4.9 million due primarily to
higher operating income in the Pharmaceutical segment resulting
from operating leverage which increased gross profit amounts and
percentages at a rate exceeding variable selling expenses. Animal
Health operating income increased on a comparative basis as a
result of the acquisition of Wade Jones and higher volume.
In the third quarter of 1994 the OHC business, which is
included in the Pharmaceutical segment, continued to incur
expenses in excess of revenues. However, on a comparative basis
the loss was approximately $.6 million improved compared to the
third quarter of 1993.
Interest expense increased $.7 million due to increased debt
to fund acquisitions, capital expenditures and sales growth and
higher interest rates compared to the third quarter of 1993.
Animal Health Business
The Company's Animal Health division's principal product is
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 incentive programs to protect market share were
introduced in the second quarter which had the effect of
increasing volume and lowering prices in certain markets. The
Company believes the competition and the programs instituted to
meet the competition have had the effect of lowering overall
margins in 1994. In addition, the Company believes that the
programs instituted may have moved some volume from the third to
the second quarter.
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 continued to impose more
stringent regulatory requirements on the pharmaceutical industry.
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 affect 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 all
other manufacturers and marketers, were requested by the FDA to
discontinue marketing products to treat respiratory congestion
which contain iodinated glycerol. 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 July 1994, the innovator company reached agreement with
the FDA for the orderly cessation of sales of these products. In
late July the Company advised the FDA that it ceased the
manufacture and distribution of these products.
Through July 1994 sales of iodinated glycerol products
exceeded the corresponding period in 1993 and reflected strong
market demand (i.e. 1994 sales were approximately 3% of the
Company's year to date sales). The prospective loss of sales of
iodinated glycerol will negatively impact the Company's future
operations. Due to the Company's anticipation of the possible
cessation of sales and the FDA's current position allowing an
orderly cessation without recalls, the current impact of the
discontinuance of iodinated glycerol products has been minimized
and is included in the results of operations. Should the FDA
ultimately require a recall additional expense amounts would be
required.
The iodinated glycerol product line was used to treat
respiratory congestion resulting from coughs and colds. The
Company has a broad line of other cough and cold remedies which
may provide alternative therapies to the iodinated glycerol
product line. The Company cannot predict the extent, if any,
which the alternative products will be substituted.
Combination with the Related Businesses of A. L. Oslo
In connection with the combination with the related
businesses of A. L. Oslo in October 1994 (See Note 5 to the
condensed financial statements), the Company will expense in the
fourth quarter 1994 up to $3.6 million for investment banking,
legal, accounting and other transaction expenses, including the
expensing of debt issuance costs related to existing debt which
was refinanced, and tax effects relating to the combination to be
incurred and recorded by the Company subsequent to the signing of
the agreement in May 1994. Tax effects of the combination will
include the non-deductibility for tax purposes of certain
expenses previously incurred or to be incurred to complete the
combination. The Company is presently deferring combination
expenses and will charge them to the combined Company on the
closing date (i.e. in the fourth quarter).
As a result of the acquisition, there may be a restructuring
charge taken in the fourth quarter of 1994. Such a charge and
its magnitude has yet to be determined. Subsequent to a closing,
the Company will operate as a pharmaceutical and animal health
company and will be managed on a global basis through
decentralized strategic business divisions. Key executives have
been named by the Chief Executive Officer to head the various
divisions. Each division head has begun a study of their
business to determine what actions may be taken to realize
potential synergies of the acquisition and to maximize both the
divisions and the Company's global competitive position. Such
actions may include facilities rationalization and reduction of
personnel. At the conclusion of the studies, the head of each
division working with the Chief Executive Officer, will make
appropriate recommendations to the Board of Directors. It is
anticipated that the Board will decide on the recommended actions
by December 31, 1994. Given the timing of this plan, the
financial impact of the actions that may be taken as a result of
such studies and the related actions of the Board of Directors is
not estimable at this time.
Financial Condition
Relative to year end 1993, the Company has increased its
working capital requirements, (in particular for inventory and
accounts receivable), primarily as a result of increased sales
levels. In addition, the 1994 capital expenditure program
includes a major expansion of the Animal Health facility in
Chicago Heights, Illinois and the USPG expansion of the
Lincolnton, North Carolina facility.
As indicated in Footnote 6 to the Condensed Consolidated
Financial Statements, subsequent to the end of the third quarter
the Company concluded the refinancing of the Company to meet its
current capital needs and acquired the Related Norwegian
Businesses of A.L. Oslo.
As a result of the acquisition, on a proforma combined basis
the Company has incurred increased levels of long-term debt. A
comparison of certain of the combined amounts and ratios is as
follows:
Proforma Historical
Combined Company
September 30, 1994
Working capital $81.1 million $69.1 million
Current ratio 1.56 to 1 1.54 to 1
Long-term debt
to equity 1.07:1 .61:1
The Company believes that the structure of the recently
concluded refinancing and normal operating cash flows will allow
it to meet its current and anticipated capital and operating
requirements.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A. L. Laboratories, Inc. Special meeting of stockholders was
held on September 27, 1994.
(b) Proxies were solicited by A. L. Laboratories, Inc. to act on
the following proposals with the resulting votes.
Proposals
1. Approval of a Restructuring Agreement dated as of May 16,
1994 by and between Apothekernes Laboratorium A.S, ("A.L.
Oslo"), and the Company and the transactions contemplated
thereby, including, among other things, (I) the acquisition
(the "Acquisition") by the Company of the pharmaceutical,
animal health, aquatic animal health and bulk antibiotics
businesses of A.L. Oslo and (ii) the transfer of
substantially all of the Company's operations to a newly
formed subsidiary of the Company.
2. If the matter referred to in item 1 is approved, approval of
an amendment to the Company's Certificate of Incorporation
to increase the percentage of directors elected by holders
of the Company's Class A Common Stock (the "Class A
Stockholders") from 25% to 33 1/3% of the Company's Board of
Directors (rounded to the nearest whole number, but not less
than two members of the Company's Board of Directors).
3. If the matter referred to in item 1 is approved, approval of
an amendment to the Company's Certificate of Incorporation
to change the Company's name to "A.L. Pharma Inc."
4. If the matter referred to in item 1 is approved, election by
the Class A Stockholders of Peter Tombros to the Company's
Board of Directors to hold office effective upon
consummation of the Acquisition until the 1995 Annual
Meeting of Stockholders and until such person's successors
shall be elected and shall qualify.
Votes of Class A Shares
Shares Voted Shares Voted Shares Shares
Proposal For "Against" Abstaining Not Voted
1. 11,871,211 75,230 28,651 1,374,468
2. 11,873,662 67,760 33,670 1,374,468
3. 11,887,323 52,809 34,960 1,374,468
4. 11,926,990 9,447 38,655 1,374,468
(The 8,226,562 Class B shares were voted for the first three
proposals.)
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings per Common Share for the three
and nine months ended September 30, 1994 and 1993.
(b) On August 4, 1994, the Company filed a report on Form 8-K
dated July 20, 1994 reporting Item 2."Acquisition or Dispositions
of Assets" and Item 7."Financial statements of businesses
acquired, proforma financial information and exhibits relating to
the acquisition of the Wade Jones Company.
On August 22, 1994, the Company filed a report on Form 8-KA dated
July 20, 1994 amending the previously filed Form 8-K on August 4,
1994 to include the possible acquisition of the Related Norwegian
Businesses.
On October 17, 1994, the Company filed a report on Form 8-K dated
October 3, 1994 reporting Item 2."Acquisition or Disposition of
Assets" and Item 7."Financial statements of businesses acquired,
proforma financial information and exhibits relating to the
acquisition of the Related Norwegian businesses.
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. PHARMA INC.
(Registrant)
Date: November 10, 1994 /s/ Jeffrey E. Smith
Jeffrey E. Smith
Vice President,
and Chief
Financial Officer
Exhibit 11
A.L. PHARMA INC.
Computation of Earnings per Common Share
Primary and Fully Diluted
(Dollars in thousands, except for per share data)
Nine Months Ended
September 30,
1994 1993
Computation for Statement of Income
Primary earnings per share:
Net income $ 8,068 $ 7,167
Average common shares
outstanding 21,562,000 21,501,000
Earnings per common share -
Primary $0.37 $0.33
Fully diluted earnings per share:
Net income $8,068 $7,167
Average common shares outstanding 21,562,000 21,501,000
Additions:
Dilutive effect of outstanding
options determined by treasury
stock method 56,830 84,399
21,618,830 21,585,399
Earnings per common share -
Fully diluted $0.37 $0.33
Exhibit 11
A.L. PHARMA INC.
Computation of Earnings per Common Share
Primary and Fully Diluted
(Dollars in thousands, except for per share data)
Three Months Ended
September 30,
1994 1993
Computation for Statement of Income
Primary earnings per share:
Net income $ 3.241 $ 711
Average common shares
outstanding 21,576,000 21,509,000
Earnings per common share -
Primary $0.15 $0.03
Fully diluted earnings per share:
Net income $3,241 $ 711
Average common shares outstanding 21,576,000 21,509,000
Additions:
Dilutive effect of outstanding
options determined by treasury
stock method 56,830 62,433
21,632,830 21,571,433
Earnings per common share -
Fully diluted $0.15 $0.03
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