Page 5 of 15
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, 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 May 8, 1995:
Class A Common Stock, $.20 par value -- 13,389,039 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
March 31, 1995 and December 31, 1994 3
Consolidated Statement of Income for the
Three Months Ended March 31, 1995 and 1994 4
Consolidated Condensed Statement of Cash
Flows for the Three Months Ended March 31,
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 9-13
PART II. OTHER INFORMATION
Signatures 14
Exhibit 11 - Computation of Earnings
per Common Share 15
A.L. PHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands of dollars)
March 31,
1995 December 31,
(Unaudited) 1994
ASSETS
Current assets:
Cash and cash equivalents $ 6,971 $ 15,512
Accounts receivable, net 108,473 119,084
Inventories 117,962 106,297
Other 9,775 9,606
Total current assets 243,181 250,499
Property, plant and equipment, net 211,009 202,903
Intangible assets 129,735 128,758
Other assets and deferred charges 11,757 10,158
Total assets $595,682 $592,318
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,339 $ 13,288
Short-term debt 56,329 61,196
Accounts payable and accrued liabilities 71,138 77,804
Accrued and deferred income taxes 4,933 2,362
Total current liabilities 139,739 154,650
Long-term debt 223,895 220,036
Deferred income taxes 28,589 27,528
Other non-current liabilities 9,430 8,816
Stockholders' equity:
Class A Common Stock 2,731 2,724
Class B Common Stock 1,646 1,646
Additional paid-in-capital 119,356 118,833
Foreign currency translation
adjustment 17,550 8,125
Retained earnings 58,432 55,482
Treasury stock, at cost (5,686) (5,522)
Total stockholders' equity 194,029 181,288
Total liabilities and
stockholders' equity $595,682 $592,318
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
March 31,
1995 1994
Total revenue $126,080 $107,380
Cost of sales 73,411 62,150
Gross profit 52,669 45,230
Selling, general and
administrative expenses 39,884 36,177
Operating income 12,785 9,053
Interest expense (5,570) (3,500)
Other, net (802) 165
Income before provision for income taxes 6,413 5,718
Provision for income taxes 2,488 2,167
Net income $ 3,925 $ 3,551
Average common shares outstanding:
Primary 21,606 21,548
Fully diluted 21,869 21,581
Earnings per common share:
Primary $ .18 $ .16
Fully Diluted $ .18 $ .16
Dividend per common share $ .045 $ .045
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)
Three Months Ended
March 31,
1995 1994
Operating Activities:
Net income $ 3,925 $ 3,551
Adjustments to reconcile net
income to net cash provided
by operating activities, principally
depreciation and amortization 7,438 6,871
Changes in assets and liabilities,
net of effects from business
acquisition:
Decrease in accounts receivable 15,234 12,952
(Increase) in inventory (7,688) (575)
(Decrease) in accounts payable
and accrued expenses (9,828) (5,828)
Other 1,551 493
Net cash provided by
operating activities 10,632 17,464
Investing Activities:
Capital expenditures, net (5,541) (8,382)
Net cash used in investing
activities (5,541) (8,382)
Financing Activities:
Dividends paid (975) (971)
Net borrowings under lines of credit (7,009) (6,145)
Reduction of long-term debt (6,991) (5,230)
Proceeds from long-term debt 2,700
Other, net 1,022 512
Net cash used in
financing activities (13,953) (9,134)
Exchange Rate Changes:
Effect of exchange rate changes
on cash 1,138 294
Income tax effect of exchange rate
changes on intercompany advances (817) (130)
Net cash flows from exchange
rate changes 321 164
Increase (Decrease) in Cash (8,541) 112
Cash and cash equivalents at
beginning of year 15,512 11,647
Cash and cash equivalents at
end of period $ 6,971 $11,759
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 three
month period ended March 31, 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.
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
10Q for the quarter ended March 31, 1994 were restated as
follows:
Three Months Ended
March 31, 1994
Total revenue
March 31, 1994 Form 10Q $91,373
A.L. Oslo 20,919
Eliminations (a) (4,912)
$107,380
Net income
March 31, 1994 Form 10Q $2,657
A.L. Oslo 1,044
Eliminations (a) (150)
$3,551
(a)Prior to the combination there were transactions
between A.L. Laboratories, Inc. and A.L. Oslo such
as sales, commissions and license fees. As a
result of the combination such transactions became
intercompany in nature 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 $113,565. 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:
March 31, December 31,
1995 1994
Finished product $ 69,465 $ 60,443
Work-in-process 15,662 14,075
Raw materials 32,835 31,779
$117,962 $106,297
5. Supplemental Cash Flow Information:
March 31, March 31,
1995 1994
Cash paid for interest $5,259 $2,061
Cash paid for taxes $1,234 $1,467
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - Three Months Ended March 31, 1995
Total revenue increased $18.7 million (17.4%) in the three
months ended March 31, 1995 compared to 1994. Operating income
in 1995 was $12.8 million, an increase of $3.7 million, compared
to 1994. Net income was $3.9 million ($.18 per share fully
diluted) compared to $3.6 million ($.16 per share fully diluted)
in 1994.
The Human Pharmaceuticals Segment ("HPS") accounted for
slightly more 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 enacted
legislation to contain pharmaceutical costs. Sales by the Fine
Chemicals Division ("FCD") of bulk antibiotics were approximately
the same as 1994.
Revenues increased in the U.S. Pharmaceuticals Division
("USPD") due to increased volume of liquids (not including cough
and cold products), topicals and suppositories. Some portion of
the volume increase may have been the result of an announced
price increase to be effective April 1, 1995. Cough and cold
product sales (including products containing iodinated glycerol
which were discontinued in July of 1994) declined compared to
1994 due to an unusually mild flu season.
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 distribution agreement signed in July 1994
with Merck AgVet. Offsetting the increases, BMD sales volume in
the swine market was negatively impacted by adverse economic
conditions experienced by pork producers in the first quarter.
The Aquatic Animal Health Division's sales of fish vaccines were
lower than 1994 due to changes in vaccination schedules by fish
producers and increased competition in the Norwegian Salmon
farming market.
On a consolidated basis gross profit increased $7.4 million
while the gross margin percent declined marginally to 41.8% in
1995 compared to 42.1% 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 volume 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 Costs" ("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 significantly 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 distribution agreement with
Merck AgVet for poultry products. The composition of Animal
Health Division sales has changed with the addition of these
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 $3.7
million or 10.2% compared to a 17.4% 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 quarter of 1994 included $.5 million of expenses
related to the combination with A.L. Oslo which was consummated
in October 1994.
Operating income increased $3.7 million (41.2%) primarily as
a result of increased sales. In addition, the Company estimates
that the effect of translation of NOK and DKK into the U.S.
Dollar increased operating income by approximately $.6 million.
Interest expense increased $2.1 million 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 quarter ended March 31, 1994 does 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 $.6 million higher.
Other, net in 1995 includes foreign exchange transaction
losses of approximately $1.1 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 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.
U.S. Tablet Business
As reported in the Company's Form 10-K for the year ended
December 31, 1994, the Company provided for the exiting of the
U.S. Tablet Business by the most probable exit plan (i.e. sale).
At this date the Company still believes that a sale will be
achieved. However, if the exit by sale is not achieved, an
adjustment for additional future costs could be required.
Governmental Actions Affecting the Company
The Company's operations in all countries 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.
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 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.
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 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 banning 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 March 31, 1995 was $103.4 million
compared to $95.8 million at December 31, 1994. The current
ratio was 1.74 to 1 at March 31, 1995 compared to 1.62 to 1 at
year end. Long-term debt to stockholders' equity was 1.15:1 at
March 31, 1995 compared to 1.21:1 at December 31, 1994.
All balance sheet captions increased as of March 31, 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
quarter by approximately 10%. The increases do impact to some
degree the above mentioned ratios. The approximate increase due
to currency translation of selected captions was: accounts
receivable $4.6 million, inventories $4.0 million, accounts
payable and accrued expenses $3.2 million, and total
stockholders' equity $9.4 million.
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, 1995 and 1994.
(b) Reports on Form 8-K -- There were no reports on Form 8-K
filed during the three months ended March 31, 1995.
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: May 12, 1995 /s/ Jeffrey 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
March 31,
1995 1994
Computation for Statement of Income
Primary earnings per share:
Net income $ 3,925 $ 3,551
Average common shares outstanding 21,606,000 21,548,000
Earnings per common share - Primary $0.18 $0.16
Fully diluted earnings per share:
Net income $ 3,925 $ 3,551
Average common shares outstanding 21,606,000 21,548,000
Additions:
Dilutive effect of outstanding
warrants determined by treasury
stock method 146,000
Dilutive effect of outstanding
options determined by treasury
stock method 117,493 32,947
21,869,493 21,580,947
Earnings per common share - Fully diluted $0.18 $0.16
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