Page 4 of 19
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
June 30, 1995
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 August 2, 1995:
Class A Common Stock, $.20 par value -- 13,410,306 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
June 30, 1995 and December 31, 1994 3
Consolidated Statement of Income for the
Three and Six Months Ended June 30, 1995
and 1994 4
Consolidated Condensed Statement of Cash
Flows for the Six Months Ended June 30,
1995 and 1994 5
Notes to Consolidated Condensed Financial
Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders 16
Item 6. Exhibits and reports on Form 8-K
Signatures 17
Exhibit 11 - Computation of Earnings
per Common Share 18-19
A.L. PHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands of dollars)
June 30,
1995 December 31,
(Unaudited) 1994
ASSETS
Current assets:
Cash and cash equivalents $ 8,680 $ 15,512
Accounts receivable, net 103,508 119,084
Inventories 122,282 106,297
Other 9,863 9,606
Total current assets 244,333 250,499
Property, plant and equipment, net 211,009 202,903
Intangible assets 128,302 128,758
Other assets and deferred charges 10,561 10,158
Total assets $594,205 $592,318
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,332 $ 13,288
Short-term debt 52,837 61,196
Accounts payable and accrued liabilities 70,174 77,804
Accrued and deferred income taxes 6,060 2,362
Total current liabilities 136,403 154,650
Long-term debt 222,665 220,036
Deferred income taxes 28,495 27,528
Other non-current liabilities 9,489 8,816
Stockholders' equity:
Class A Common Stock 2,734 2,724
Class B Common Stock 1,646 1,646
Additional paid-in-capital 119,576 118,833
Foreign currency translation
adjustment 18,377 8,125
Retained earnings 60,506 55,482
Treasury stock, at cost (5,686) (5,522)
Total stockholders' equity 197,153 181,288
Total liabilities and
stockholders' equity $594,205 $592,318
The accompanying notes are an integral part
of the consolidated condensed financial statements.
A.L. PHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Total revenue $123,817 $110,958 $249,897 $218,338
Cost of sales 71,393 65,454 144,804 127,604
Gross profit 52,424 45,504 105,093 90,734
Selling, general and
administrative expenses 41,986 37,654 81,870 73,831
Operating income 10,438 7,850 23,223 16,903
Interest expense (5,689) (3,348) (11,259) (6,848)
Other income (expense),
net 221 13 (581) 178
Income before provision
for income taxes 4,970 4,515 11,383 10,233
Provision for income taxes 1,916 1,708 4,404 3,875
Net income $ 3,054 $ 2,807 $ 6,979 $ 6,358
Average common shares
outstanding:
Primary 21,625 21,561 21,616 21,554
Fully diluted 21,746 21,592 21,721 21,590
Earnings per common share:
Primary $ .14 $ .13 $ .32 $ .29
Fully diluted $ .14 $ .13 $ .32 $ .29
Dividends per common share $ .045 $ .045 $ .09 $ .09
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)
Six Months Ended
June 30,
1995 1994
Operating Activities:
Net income $ 6,979 $ 6,358
Adjustments to reconcile net
income to net cash provided
by operating activities, principally
depreciation and amortization 15,498 13,828
Changes in assets and liabilities,
net of effects from business
acquisition:
Decrease in accounts receivable 20,403 9,488
(Increase) in inventory (11,444) (1,710)
(Decrease) in accounts
payable and accrued expenses (10,696) (5,670)
Other 2,363 429
Net cash provided by
operating activities 23,103 22,723
Investing Activities:
Capital expenditures, net (11,225) (22,857)
Net cash used in investing
activities (11,225) (22,857)
Financing Activities:
Dividends paid (1,955) (1,943)
Net borrowings under lines of credit (10,715) 4,735
Proceeds from long-term debt 2,700
Reduction of long-term debt (8,078) (7,305)
Other, net 1,479 (567)
Net cash used by
financing activities (19,269) (2,380)
Exchange Rate Changes:
Effect of exchange rate changes
on cash 1,438 826
Income tax effect of exchange rate
changes on intercompany advances
(879) (463)
Net cash flows from exchange
rate changes 559 363
Decrease in Cash (6,832) (2,151)
Cash and cash equivalents at
beginning of year 15,512 11,647
Cash and cash equivalents at
end of period $ 8,680 $ 9,496
The accompanying notes are an integral part
of the consolidated condensed financial statements.
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.
Pharma Inc. and Subsidiaries included in the Company's 1994
Annual Report on Form 10-K. The reported results for the six
month period ended June 30, 1995 are not necessarily indicative
of the results to be expected for the full year.
2. Acquisition of A.L. Oslo and Restatement
As reported in the Company's 1994 Form 10-K, on October 3,
1994 the Company completed the acquisition of the Related
Norwegian Human Pharmaceutical and Animal Health Businesses
("A.L. Oslo") of its controlling shareholder, A.L. Industrier AS.
The Company was required to account for the acquisition of
A.L. Oslo as a transfer and exchange between companies under
common control. Accordingly, the accounts of A.L. Oslo were
combined with the Company at historical cost in a manner similar
to a pooling-of-interests and the Company's financial statements
for all periods prior to December 31, 1994 were restated to
include A.L. Oslo.
The results of operations as reported in the Company's Form
10-Q for the quarter and six months ended June 30, 1994 were
restated as follows:
Three Months Six Months
Ended Ended
June 30, 1994 June 30, 1994
Total revenue
June 30, 1994 Form 10Q $93,997 $185,370
A.L. Oslo 20,775 41,694
Eliminations (a) (3,814) (8,726)
$110,958 $218,338
Net income
June 30, 1994 Form 10Q $2,170 $4,827
A.L. Oslo 735 1,779
Eliminations (a) ( 98) (248)
$2,807 $6,358
(a)Prior to the combination there were transactions
between the Company and A.L. Oslo such as sales,
commissions and license fees. As a result of the
combination such transactions became intercompany
and have been eliminated.
3. Business and Product Line Acquisition:
In July 1994, the Company acquired the Wade Jones Company
Inc. ("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.
Had the acquisition of Wade Jones occurred as of January 1,
1994 pro forma revenues would have been $117,035 and $230,600 for
the three and six month periods ended June 30, 1994. There would
have been no material effect on net income or earnings per share.
The foregoing pro forma information is presented in response
to applicable accounting rules relating to business acquisitions
and is not necessarily indicative of results of operations that
would have been reported had the acquisition been completed at
the beginning of 1994.
4. Inventories
Inventories consist of the following:
June 30, December 31,
1995 1994
Finished product $71,685 $60,443
Work-in-process 16,840 14,075
Raw materials 33,757 31,779
$122,282 $106,297
5. Supplemental Cash Flow Information:
June 30, June 30,
1995 1994
Cash paid for interest $9,272 $4,705
Cash paid for taxes $1,737 $4,187
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - Six Months Ended June 30, 1995
Total revenue increased $31.6 million (14.5%) in the six
months ended June 30, 1995 compared to 1994. Operating income in
1995 was $23.2 million, an increase of $6.3 million, compared to
1994. Net income was $7.0 million ($.32 per share fully diluted)
compared to $6.4 million ($.29 per share fully diluted) in 1994.
The Company operates in two business segments, Human
Pharmaceuticals and Animal Health.
The Human Pharmaceuticals Segment ("HPS") accounted for
slightly less than half of the consolidated revenue increase.
The International Pharmaceuticals Division ("IPD") accounted for
the major portion of the HPS revenue increase. IPD revenues
increased due to volume growth in Northern Europe and Indonesia,
the translation of sales in Norwegian Kroner ("NOK") and Danish
Kroner ("DKK") into the U.S. dollar and, to a lesser extent,
selected price increases where permitted. Current pricing in a
number of European markets continues to be suppressed by
legislation enacted to contain pharmaceutical costs. Sales by the
Fine Chemicals Division ("FCD") of bulk antibiotics were
approximately the same as in 1994.
Revenues increased marginally in the U.S. Pharmaceuticals
Division ("USPD") due to price increases achieved on a number of
products and sales of products introduced in late 1994 including
Cimetidine HCL Solution, Clobetasol Cream and Ointment,
Clemastine Fumerate Syrup and Miconazole Vaginal Suppositories.
The revenue increases were substantially offset by a decline in
the volume of cough and cold products due to an unusually mild
flu season, as well as the discontinuance of products containing
iodinated glycerol in July of 1994.
Animal Health Segment revenues increased primarily due to
the acquisition of the Wade Jones Company, Inc. in July 1994. In
addition, revenue increases were recorded due to sales of
products made pursuant to a poultry products distribution
agreement signed in July 1994 with Merck AgVet. Offsetting the
increases, sales volume of BMDr to the swine market was
negatively impacted by adverse economic conditions experienced by
pork producers. The Aquatic Animal Health Division's sales of
fish vaccines were lower than 1994 due to changes in the timing
of vaccination practices by fish producers and increased
competition in the Norwegian salmon farming market.
On a consolidated basis gross profit increased $14.4 million
and the gross margin percent increased marginally to 42.1% in
1995 compared to 41.6% in 1994.
Gross profit dollars in the HPS accounted for a substantial
amount of the dollar increase due to increased sales volume
(especially by the IPD), the effect of translation of gross
profits in DKK and NOK into U.S. Dollars for both IPD and to a
lesser extent, FCD, and selected price increases. Gross profit in
dollars for USPD increased primarily due to price increases and
improved marginally in percent. USPD continues to be affected by
positive factors including higher value-added new products and
raw material price stability which are offset by negative factors
including continued high production and operating costs to
maintain compliance with "Current Good Manufacturing Practices"
("CGMP") and lower than budgeted volume in certain plants which
results in unabsorbed overhead.
Gross profit dollars in the Animal Health Segment increased
at a rate less than the sales increase. The gross profit percent
declined due to sales increases attributable to the Wade Jones
Company, Inc., a distributor to the poultry market, and sales
made pursuant to a poultry product distribution agreement with
Merck AgVet. The composition of Animal Health Division sales has
changed with the addition of these two distribution businesses
which have lower gross margins. In addition, gross profits were
negatively affected due to lower volume of high gross margin fish
vaccine sales.
Operating expenses on a consolidated basis increased $8.0
million or 10.9% compared to the 14.5% revenue increase.
Operating expenses increased due to variable selling expense
increases, additional research and development expenses, the
acquisition of the Wade Jones Company, Inc. in July 1994 and the
effect of translating NOK and DKK expenses into U.S. Dollars. In
addition, the first half of 1994 included $.5 million of expenses
related to the combination with A.L. Oslo which was consummated
in October 1994.
Operating income increased $6.3 million primarily as a
result of increased sales volume and price increases which were
offset to some extent by increased operating expenses. Operating
income as a percentage of sales increased to 9.3% from 7.7% due
to an improved gross margin percent and lower operating expenses
as a percent of sales.
Results of Operations - Three Months Ended June 30, 1995
Total revenue increased $12.9 million (11.6%) in the three
months ended June 30, 1995 compared to 1994. Operating income in
1995 was $10.4 million, an increase of $2.6 million, compared to
1994. Net income was $3.1 million ($.14 per share fully diluted)
compared to $2.8 million ($.13 per share fully diluted) in 1994.
The Animal Health Segment accounted for more than half of
the consolidated revenue increase primarily due to the
acquisition of the Wade Jones Company, Inc. in July 1994. In
addition revenue increases were recorded due to sales of products
made pursuant to a poultry products distribution agreement signed
in July 1994 with Merck AgVet. Offsetting the increases, sales
volume of BMDr was negatively impacted by adverse market
conditions experienced in the second quarter. The Aquatic Animal
Health Division's sales of fish vaccines were lower than in 1994
due to changes in the timing of vaccination practices by fish
producers and increased competition in the Norwegian salmon
farming market.
The HPS accounted for less than half of the consolidated
revenue increase. The IPD accounted for the major portion of the
HPS revenue increase. IPD revenues increased due to volume
growth in Northern Europe and Indonesia, the translation of sales
in NOK and DKK into the U.S. dollar and to a lesser extent
selected price increases where permitted. Sales by the FCD of
bulk antibiotics were approximately the same as 1994.
Revenues decreased marginally in the USPD due to a decrease
in volume of a number of products, including certain cough and
cold products containing iodinated glycerol which were
discontinued in July of 1994. Other cough and cold products, not
containing iodinated glycerol, declined compared to 1994 due to
an unusually mild flu season. Price increases achieved in
selected products and sales of products introduced in late 1994
substantially offset volume declines of cough, cold and other
products.
On a consolidated basis gross profit increased $6.9 million
and the gross margin percent increased marginally to 42.3% in
1995 compared to 41.0% in 1994.
Gross profit dollars in the HPS accounted for a substantial
amount of the dollar increase due to increased sales volume
(especially by the IPD), the effect of translation of gross
profits in DKK and NOK into U.S. Dollars for both IPD and to a
lesser extent, FCD, and selected price increases. Gross profit in
dollars for USPD increased due to price increases and higher
value added new product sales offset by volume declines in sales
of cough, cold and other products.
Gross profit dollars in the Animal Health Segment increased
at a rate less than the sales increase. The gross profit percent
declined due to sales increases attributable to the Wade Jones
Company, Inc., and sales made pursuant to a poultry products
distribution agreement with Merck AgVet. In addition, gross
profits were negatively affected due to lower volume of high
gross margin fish vaccine sales.
Operating expenses on a consolidated basis increased $4.3
million or 11.5% compared to a 11.6% revenue increase. Operating
expenses increased due to variable selling expense increases,
additional research and development expenses, the acquisition of
the Wade Jones Company, Inc. in July 1994 and the effect of
translating NOK and DKK expenses into U.S. Dollars.
Operating income increased $2.6 million (33.0%) primarily as
a result of increased sales volume and price increases offset to
some extent by the higher expenses described above.
Interest Expense and Other, Net
Interest expense increased $4.4 million and $2.3 million for
the six and three month periods ended June 30, 1995,
respectively, due to increased debt levels resulting from the
acquisition of A.L. Oslo in October 1994, increased capital
expenditures in 1994, the acquisition of the Wade Jones Company,
Inc. in July 1994, and increased working capital requirements to
support sales increases. Additionally, interest rates have
generally increased relative to 1994. Comparability is also
affected in that the Company restated the 1994 financials to
reflect the acquisition of A.L. Oslo in a manner similar to a
pooling of interests. The restated six months and three months
ended June 30, 1994 do not include interest expense on either the
cash consideration or actual transaction costs which would have
been incurred had the acquisition taken place in prior periods.
The Company estimates that interest expense calculated on a
comparable basis in 1994 would have been approximately $1.1
million and $.5 million higher for the six and three month
periods, respectively.
Other income (expense), net for the six month period ended
June 30, 1995 includes net foreign exchange transaction losses of
approximately $1.0 million resulting from the translation of non-
functional currency receivables net of non-functional currency
payables and forward foreign exchange contracts. The losses were
recorded by the Company's subsidiaries in Norway and Denmark in
the first quarter of 1995 and primarily relate to sales
denominated in currencies (i.e. U.S. Dollar, Swedish Kroner,
British Pound and Portuguese Escudo) which depreciated
significantly in the first quarter compared to the NOK and DKK.
Post Combination Management Actions in 1994
In December 1994 the Company announced post-combination
management actions which included severing certain employees. As
a result of the personnel actions, the Company believes that
approximately $3.6 million of annual payroll and payroll related
costs have been eliminated. In the six months ended June 30,
1995 the Company estimates approximately one-half of the annual
cost savings were achieved. The Company is continuing to study
other opportunities to rationalize personnel functions and
operations, both selectively and on a location basis, and
accordingly, similar management actions may be initiated in the
future.
As part of the post-combination management actions the
Company provided for the exiting of the U.S. Tablet Business by
the most probable exit plan (i.e. sale). However, if such exit
by sale should fail to be consummated, an adjustment for
additional future costs (including severance for tablet
employees) could be required.
Governmental Actions Affecting the Company
The Company's operations in all countries are subject to
comprehensive government regulation which includes inspection of
and controls over manufacturing and quality control practices and
procedures, 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 in recent years.
The U.S. manufacturing companies included in the Company's
U.S. Pharmaceuticals Division, Barre National, Inc. ("Barre"),
NMC Laboratories, Inc. ("NMC"), and Able Laboratories, Inc.
("Able"), are affected by the more demanding regulatory
environment in that they are required to comply with the FDA's
interpretation of Current Good Manufacturing Practices ("CGMP").
In this regard, Barre and Able are parties to separate consent
decrees with the FDA which define the specific standards they
must achieve in meeting CGMP.
Regulatory compliance has continued to affect costs
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
actions taken with regard to regulatory compliance (which have
increased in recent years) are expected to continue to increase
in the future.
In July 1994, the Company ceased the manufacture and
marketing of products which contain iodinated glycerol. The
cessation was the result of an industry wide prohibition on the
continued sale of such products by the FDA.
Iodinated glycerol products represented approximately 2% of
the Company's full year 1994 sales and the loss of sales of these
products in 1995 has negatively impacted the Company's
operations.
The Company and its subsidiaries have filed applications to
market products with regulatory agencies both in the U.S. and
internationally. The timing of receipt of approvals of these
applications can significantly increase future revenues and
income. The Company cannot control or predict with accuracy
whether such applications will be approved or the timing of their
approval.
European Operations
The fluctuations of European currencies have and will
continue to impact the Company's European operations which
comprised approximately 35% of revenues in the year ended
December 31, 1994. In addition, many European governments have
enacted or are in the process of enacting mechanisms aimed at
lowering the cost of pharmaceuticals. Currency fluctuations and
governmental actions to reduce or not allow increases of prices
have affected revenue. The Company cannot predict future
currency fluctuations or future governmental pricing actions or
their impact on the Company's results.
Financial Condition
Working capital at June 30, 1995 was $107.9 million compared
to $95.8 million at December 31, 1994. The current ratio was
1.79 to 1 at June 30, 1995 compared to 1.62 to 1 at year end.
Long-term debt to stockholders' equity was 1.13:1 at June 30,
1995 compared to 1.21:1 at December 31, 1994.
All balance sheet captions increased as of June 30, 1995
compared to December 31, 1994 in U.S. Dollars as the functional
currencies of the Company's principal foreign subsidiaries, the
NOK and DKK, appreciated versus the U.S. Dollar in the first half
of 1995 by approximately 9% and 11%, respectively. The increases
do impact to some degree the above mentioned ratios. The
approximate increase due to currency translation of selected
captions was: accounts receivable $4.8 million, inventories $4.5
million, accounts payable and accrued expenses $3.2 million, and
total stockholders' equity $10.3 million.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A.L. Pharma Inc. annual meeting was held on June 7, 1995.
(b) Proxies were solicited by A.L. Pharma Inc. and there was no
solicitation in opposition to the nominees listed in the
proxy statement. All such nominees were elected to the
classes indicated in the proxy statement pursuant to the
vote of the stockholders.
(c) An amendment to the Company's 1983 Incentive Stock Option
Plan to increase the number of shares of Class A Common
Stock as to which options may be granted from 1,650,000 to
2,500,000 under the Plan and to permit options to be granted
under the plan until September 26, 2003 and specify that a
maximum number of 100,000 shares may be granted to any
person under the plan in any taxable period was approved by
a vote of:
For 18,274,855
Against 801,745
Abstain 1,257,245
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings per Common Share for the
three and six months ended June 30, 1995 and 1994.
(b) Reports on Form 8-K -- A report on Form 8-K was filed on
May 22, 1995 relating to the first quarter earnings press
release.
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: August 4, 1995 /s/ Jefrey E. Smith
Jeffrey E. Smith
Vice President, Finance 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)
Three Months Ended
June 30,
1995 1994
Computation for Statement of Income
Primary earnings per share:
Net income $ 3,054 $ 2,807
========== ==========
Average common shares outstanding 21,625,000 21,561,000
========== ==========
Earnings per common share - Primary $0.14 $0.13
========== ==========
Fully diluted earnings per share:
Net income $ 3,054 $ 2,807
========== ==========
Average common shares outstanding 21,625,000 21,561,000
Additions:
Dilutive effect of outstanding options
determined by treasury stock method 120,704 30,794
21,745,704 21,591,794
========== ==========
Earnings per common share - Fully diluted $0.14 $0.13
========== ==========
Exhibit 11
A.L. PHARMA INC.
Computation of Earnings per Common Share
Primary and Fully Diluted
(Dollars in thousands, except for per share data)
Six Months Ended
June 30,
1995 1994
Computation for Statement of Income
Primary earnings per share:
Net income $ 6,979 $ 6,358
========== ==========
Average common shares outstanding 21,616,000 21,554,000
========== ==========
Earnings per common share - Primary $0.32 $0.29
========== ==========
Fully diluted earnings per share:
Net income $ 6,979 $ 6,358
========== ==========
Average common shares outstanding 21,616,000 21,554,000
Additions:
Dilutive effect of outstanding options
determined by treasury stock method 105,336 35,772
21,721,336 21,589,772
========== ==========
Earnings per common share - Fully diluted $0.32 $0.29
========== ==========
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