Page 5 of 23
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, 1996
ALPHARMA 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 1, 1995:
Class A Common Stock, $.20 par value -- 13,498,948 shares;
Class B Common Stock, $.20 par value -- 8,226,562 shares.
ALPHARMA INC.
INDEX
______________
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet as of
June 30, 1996 and December 31, 1995 3
Consolidated Statement of Operations for the
Three and Six Months Ended June 30, 1996
and 1995 4
Consolidated Condensed Statement of Cash
Flows for the Six Months Ended June 30,
1996 and 1995 5
Notes to Consolidated Condensed Financial
Statements 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10-18
PART II. OTHER INFORMATION
Item 2. Changes in the Rights of the Company's
Securities Holders 19
Item 4. Submission of Matters to a Vote
of Security Holders 19
Item 6. Exhibits and reports on Form 8-K 20
Signatures 21
Exhibit 11 - Computation of Earnings
per Common Share 22-23
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands of dollars)
June 30,
1996 December 31,
(Unaudited) 1995
ASSETS
Current assets:
Cash and cash equivalents $ 11,280 $ 18,351
Accounts receivable, net 115,364 132,161
Inventories 124,162 120,084
Other 13,438 12,290
Total current assets 264,244 282,886
Property, plant and equipment, net 206,459 212,176
Intangible assets 123,583 128,186
Other assets and deferred charges 9,792 11,605
Total assets $604,078 $634,853
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 19,658 $ 13,160
Short-term debt 60,169 62,695
Accounts payable and accrued liabilities 73,723 86,778
Accrued and deferred income taxes 1,299 6,650
Total current liabilities 154,849 169,283
Long-term debt 211,075 219,451
Deferred income taxes 29,124 30,961
Other non-current liabilities 9,656 9,968
Stockholders' equity:
Class A Common Stock 2,752 2,740
Class B Common Stock 1,646 1,646
Additional paid-in-capital 121,280 120,357
Foreign currency translation
adjustment 10,832 15,884
Retained earnings 68,695 70,385
Treasury stock, at cost (5,831) (5,522)
Total stockholders' equity 199,374 205,190
Total liabilities and
stockholders' equity $604,078 $634,853
The accompanying notes are an integral part
of the consolidated condensed financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Total revenue $121,219 $123,817 $249,029 $249,897
Cost of sales 71,462 71,393 144,753 144,804
Gross profit 49,757 52,424 104,276 105,093
Selling, general and
administrative expenses 52,180 41,986 94,124 81,870
Operating income (loss) (2,423) 10,438 10,152 23,223
Interest expense (4,964) (5,689) (10,010) (11,259)
Other income (expense),
net 128 221 304 (581)
Income(loss)before provision
for income taxes (7,259) 4,970 446 11,383
Provision for income taxes (2,757) 1,916 171 4,404
Net income (loss) $ (4,502) $ 3,054 $ 275 $ 6,979
Average common shares
outstanding:
Primary 22,045 21,746 22,232 21,721
Fully diluted 22,045 21,746 22,232 21,721
Earnings(loss)per common share:
Primary $ (.20) $ .14 $ .01 $ .32
Fully diluted $ (.20) $ .14 $ .01 $ .32
Dividends per common share $ .045 $ .045 $ .09 $ .09
The accompanying notes are an integral part
of the consolidated condensed financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Six Months Ended
June 30,
1996 1995
Operating Activities:
Net income $ 275 $ 6,979
Adjustments to reconcile net
income to net cash provided
by operating activities, principally
depreciation and amortization 16,134 15,498
Non-current asset write-off 4,316
Changes in assets and liabilities:
Decrease in accounts receivable 14,459 20,403
(Increase) in inventor (6,145) (11,444)
(Decrease) in accounts
payable and accrued expenses (16,587) (10,696)
Other, net (4) 2,363
Net cash provided by
operating activities 12,448 23,103
Investing Activities:
Capital expenditures (16,065) (11,225)
Financing Activities:
Dividends paid (1,965) (1,955)
Net borrowings under lines of credit (1,609) (10,715)
Proceeds from long-term debt 6,110
Reduction of long-term debt (6,569) (8,078)
Other, net 926 1,479
Net cash used by
financing activities (3,107) (19,269)
Exchange Rate Changes:
Effect of exchange rate changes
on cash (655) 1,438
Income tax effect of exchange rate
changes on intercompany advances 308 (879)
Net cash flows from exchange
rate changes (347) 559
Decrease in Cash (7,071) (6,832)
Cash and cash equivalents at
beginning of year 18,351 15,512
Cash and cash equivalents at
end of period $ 11,280 $ 8,680
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
ALPHARMA INC. and Subsidiaries included in the Company's 1995
Annual Report on Form 10-K. The reported results for the three
and six month periods ended June 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
2. Inventories
Inventories consist of the following:
June 30, December 31,
1996 1995
Finished product $73,697 $ 68,529
Work-in-process 15,716 16,697
Raw materials 34,749 34,858
$124,162 $120,084
3. Supplemental Cash Flow Information:
June 30, June 30,
1996 1995
Cash paid for interest $9,864 $9,272
Cash paid for taxes $5,746 $1,737
4. Post-Combination Management Actions
The Company continues to consider opportunities to take
action which are intended to improve its long term profitability.
In 1996, the International Pharmaceuticals Division ("IPD")
has taken additional actions which are designed to further
strengthen the competitive nature of the division by lowering
costs. In the first quarter of 1996, IPD severed approximately 30
sales, marketing and other personnel based primarily in the
Nordic countries and incurred termination related costs of
approximately $1,900. The termination costs are included in
selling, general and administrative expenses. In March 1996, the
Company announced that a preliminary study of production
rationalization alternatives between IPD's Copenhagen, Denmark
and Lier, Norway manufacturing facilities identified potential
benefits.
In May 1996, the Board of Directors approved a production
rationalization plan which includes the transfer of all tablet,
ointment and liquid production from Copenhagen, Denmark to Lier,
Norway. The full transfer will be completed in 1998 and will
result in the net reduction of approximately 100 employees. The
rationalization plan resulted in a charge in the second quarter
for severance for Copenhagen employees, an impairment write off
for certain buildings and machinery and equipment and other exit
costs.
In addition in May 1996, the Board of Directors approved the
U.S. Pharmaceuticals Division ("USPD") plan to accelerate a
previously approved consolidation of manufacturing operations
within USPD.
The plan includes the discontinuing of all activities in two
USPD manufacturing facilities in New York and New Jersey and the
transfer of all pharmaceutical production from those sites to the
facility in Lincolnton, North Carolina. The plan will provide for
complete exit by early 1997 and will result in a net reduction of
approximately 150 employees. The acceleration plan resulted in a
second quarter charge for severance of employees, an impairment
write-off for leasehold improvements and machinery and equipment
and significant exit costs including estimated remaining lease
costs and facility refurbishment costs. The estimate of lease
costs and certain other exit costs could be reduced in the future
if the Company is successful in sub-leasing either of the two
facilities. In addition as previously reported, the Company is
continuing to attempt to sell its tablet business which is
located in the New Jersey location. If such a sale is completed
certain exit costs presently accrued would be reduced.
Due to the time necessary to achieve both transfers of
production the Company, as part of the severance arrangements,
has instituted stay bonus plans. The overall cost of the stay
bonus plans is estimated at $1,900, and will be accrued over the
periods necessary to achieve shut down and transfer. The stay
bonus plans generally require the employee remain until their
position is eliminated to earn the payment.
A summary of the second quarter charges and expenses
resulting from the approved plan which are included in selling
general and administrative expenses follows:
Pre-Tax
Amount Description
$ 4,400 Severance and employee termination benefits
for 172 Copenhagen employees and 200
employees in the United States. All
employees were notified of the plan after
the approval by the Board in May 1996.
200 Stay bonus accrued in the second quarter.
4,300 Impairment of buildings, leasehold
improvements and machinery and equipment.
1,500 Accrual of the non cancelable term of the
operating leases and estimated
refurbishment costs for USPD facilities.
Exit costs for demolition of facilities,
1,700 clean up costs and other.
$12,100
5. Recently Adopted Accounting Standards
Effective January 1, 1996, the Company formally adopted
Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of."
The standard requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The adoption of SFAS No. 121 did not have a
material impact on the Company.
Effective January 1, 1996, the Company formally adopted SFAS
No. 123, "Accounting for Stock-Based Compensation." The standard
establishes a fair value method for accounting for or disclosing
stock-based compensation plans. The Company will adopt this
standard by disclosing the pro forma net income and earnings per
share amounts assuming the fair value method in the year-end 1996
financial statements, as required. As a result, the adoption of
this standard will not have any impact on reported results of
operations and financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Six Months Ended June 30, 1996
Total revenue decreased $.9 million (.3%) in the six months ended June
30, 1996 compared to 1995. Operating income in 1996 was $10.2 million, a
decrease of $13.1 million, compared to 1995. Net income was $.3 million
($.01 per share fully diluted) compared to $7.0 million ($.32 per share
fully diluted) in 1995. Net income in 1996 is reduced by approximately $8.7
million ($.39 per share) for severance incurred in the first quarter
related to the reorganization of the International Pharmaceuticals Division
sales and marketing function in the Nordic countries and for charges and
expenses resulting from production rationalization plans in the IPD and the
U.S. Pharmaceuticals Division ("USPD") in the second quarter. (See section
"Post-Combination Management Actions.")
Revenues declined in the Animal Health Segment and increased
marginally in the Human Pharmaceuticals Segment.
Within the Animal Health Segment, Animal Health Division revenues
decreased due to lower sales volume of BMDr and other feed additives
primarily to the poultry market and some price erosion due to competition.
(See section "Animal Health Division Market Conditions.") Aquatic Animal
Health Division revenues were lower due to increased competition in the
Norwegian fish vaccine market.
Revenues in the Human Pharmaceuticals Segment were higher primarily
due to increased volume and prices in Scandinavian markets achieved by IPD
and increased volume and prices in the sales of bulk antibiotics by the
Fine Chemicals Division ("FCD") offset by lower revenues in USPD. USPD
revenues declined as a result of price and volume reductions in the base
product line(principally cough and cold products) due in part to inventory
reductions by certain customers, partially offset by increased sales of
products introduced in 1994 and 1995 including Clobetasol cream and
ointment, Betamethasone Diproprionate Ointment USP (Augmented), Albuterol
Inhalation Solution and Albuterol Sulfate Syrup and sales of Minoxidil
introduced in the second quarter of 1996. (See Section "U.S. Generic
Pharmaceutical Industry.")
On a consolidated basis, gross profit decreased $.8 million and the
gross margin percent decreased marginally to 41.9 % in 1996 compared to
42.1 % in 1995. The decrease resulted from lower volume of sales in the
higher margin Animal Health Segment offset partially by increased sales by
the Human Pharmaceutical Segment.
Operating expenses on a consolidated basis increased $12.3 million or
15.0%. Included in operating expenses are charges incurred in the first
quarter for severance of $1.9 million relating to the reorganization of the
sales and marketing function for IPD in the Nordic countries. In the
second quarter charges and expenses of $12.1 million were incurred in
connection with production rationalization plans being implemented by IPD
and USPD. Without the charges and expenses totaling $14.0 million,
expenses were approximately $80.1 million in 1996 compared to $81.9 million
in 1995. The lack of growth reflects an emphasis on cost control in
response to difficult business conditions in a number of markets, a
reduction of expenses resulting from prior year management actions which
reduced payroll and generally flat selling and marketing expenses which
vary directly with sales (i.e. sales were generally flat). In future
quarters, the company expects operating expenses to increase in line with
sales increases and R & D expenses to continue to be incurred in higher
amounts than the prior year.
Operating income as reported declined $13.1 million as a result of
charges for severance and production rationalization incurred in the six
month period. Operating income in 1996 increased $.9 million, if compared
to 1995 without the charges incurred.
Interest expense decreased $1.2 million due to generally lower
interest rates in 1996 and to a lesser extent decreased average debt levels
resulting from scheduled repayments.
Other, net in 1996 was $.3 million income compared to $.6 million loss
in 1995. Results for 1995 include 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 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
of 1995 compared to the NOK and DKK. Foreign exchange transaction losses
in 1996 were approximately $.1 million.
Results of Operations - Three Months Ended June 30, 1996
Total revenue decreased $2.6 million (2.1%) in the three months ended
June 30, 1996 compared to 1995. The result of operations in 1996 was a
$2.4 million loss, compared to $10.4 million operating income in 1995. The
company recorded a net loss of $4.5 million ($.20 per share) compared to
income of $3.1 million ($.14 per share) in 1995. The net loss in 1996 is
the result of charges and expenses approximately $.34 per share, due to the
approval and commencement of plans for production rationalization by IPD
and USPD in the second quarter.(See section "Post-Combination Management
actions.")
Revenues increased marginally in the Human Pharmaceuticals Segment and
declined in the Animal Health Segment.
Within the Animal Health Segment, Animal Health Division revenues
decreased due to lower sales volume of BMDr and other feed additives and
some price erosion.(See section "Animal Health Division Market
Conditions.")
Revenues in the Human Pharmaceutical Segment were marginally higher
primarily due to increased volume of bulk pharmaceutical sales
internationally, and to a lesser extent increased prices internationally.
USPD revenues were flat reflecting volume and price reductions in the base
product line (principally cough and cold products), offset by increased
sales of products introduced in 1994 and 1995 including Clobetasol cream
and ointment, Betamethasone Diproprionate Ointment USP (Augmented).
Albuterol Inhalation Solution, Albuterol Sulfate Syrup and sales of
Minoxidil introduced in the second quarter of 1996. (See section "U.S.
Generic Pharmaceutical Industry.")
On a consolidated basis, gross profit decreased $2.7 million and the
gross margin percent decreased to 41.0% in 1996 compared to 42.3% in 1995.
The decrease resulted primarily from lower volume of sales in the higher
margin Animal Health Segment.
Operating expenses on a consolidated basis increased $10.2 million.
Included in operating expenses are charges and expenses of $12.1 million
relating to the production rationalization approved for IPD and USPD.
Without the charges for production rationalization, expenses declined by
1.9 million. The reduction reflects an emphasis on cost control in
response to difficult business conditions in a number of markets, a
reduction of expenses resulting from prior year management actions which
reduced payroll and lower selling and marketing expenses which vary
directly with sales (i.e. sales were lower).
As a result of the charges for the production rationalization, the
company incurred an operating loss of $2.4 million in the second quarter.
Operating income in 1996 decreased $.7 million, if compared to 1995 without
the production rationalization charges.
Interest expense decreased $.7 million due to generally lower interest
rates in 1996 and to a lesser extent decreased average debt levels
resulting from scheduled repayments in 1995 and 1996.
Post-Combination Management Actions
Since the completion of the combination in October 1994 the Company
has announced a number of management actions which included staff
reductions, certain product line and facility rationalizations, the sale of
an equity interest in a R & D company, the utilization of significant
consulting resources by IPD and major production rationalization plans in
IPD and USPD.
Certain of the announced management actions are still in process and
have affected the first half of 1996 and will affect 1996 and 1997. The
management actions in process and their current and potential impact are as
follows:
Selling and Marketing Reorganization
In the first quarter of 1996 IPD reorganized its sales and marketing
organization in the Nordic countries and severed approximately 30 personnel
at a cost of $1.9 million. IPD estimates the annual expense reduction by
1997 from this action at over $1.0 million.
Production Rationalization
In the first quarter of 1996, the Company announced that a preliminary
study of production rationalization alternatives between IPD's Copenhagen,
Denmark and Lier, Norway manufacturing facilities had identified potential
benefits. Based on these findings, a detailed study was completed and in
May 1996, the Board of Directors approved a production rationalization plan
which includes the transfer of all tablet, ointment and liquid production
from Copenhagen, Denmark to Lier, Norway. The full transfer will be
completed in 1998 and will result in the net reduction of approximately 100
employees. The rationalization plan resulted in a charge in the second
quarter for severance for Copenhagen employees, an impairment write-off for
certain buildings and machinery and equipment and other exit costs.
In 1995 the Company announced a plan by USPD to move all suppositories
and cream and ointment production from two present locations to the
Lincolnton, N.C. location. The transfer of prescription products requires
the Company to obtain the approval of the FDA for each product transferred.
The company expects to be successful in the product transfer but the time
necessary and ultimate success cannot be predicted with certainty by the
company. Based on results to date USPD prepared a plan to accelerate the
previously approved plan for consolidation of the manufacturing operations
within USPD. The Board of Directors approved the acceleration in May 1996.
The acceleration plan includes the discontinuing of all activities in
two USPD manufacturing facilities in New York and New Jersey and the
transfer of all pharmaceutical production from those sites to the facility
in Lincolnton, North Carolina. The plan will provide for complete exit by
early 1997 and will result in a net reduction of approximately 150
employees. The acceleration plan resulted in a second quarter charge for
severance of employees, an impairment write-off for leasehold improvements
and machinery and equipment and significant exit costs including estimated
remaining lease costs and facility refurbishment costs. The estimate of
lease costs and certain other exit costs could be reduced in the future if
the Company is successful in sub-leasing either of the two facilities. In
addition as previously reported, the Company is continuing to attempt to
sell its tablet business which is located in the New Jersey location. If
such a sale is completed certain exit costs presently accrued would be
reduced.
Because of the time necessary to complete the transfers, the
production rationalization plans include stay bonus plans to keep the
production work force in tact until the transfer is complete. The stay
bonus plans generally require the employee remain until their position is
eliminated to earn a payment. The overall cost of these plans is estimated
at $1.9 million and will be accrued over the periods necessary to achieve
the shut downs.
The production rationalization plans required charges and expenses in
the second quarter of $12.1 million which includes $4.4 million for
severance, $4.3 million for facilities write-offs, $1.5 million for lease
and refurbishment costs, $1.7 million for other exit costs and $.2 million
for accrued stay bonus. Additional charges of up to $2.0 million for stay
bonuses and other related exit costs could be required in the second half
of 1996.
The production rationalization plans are expected to significantly
benefit operations in 1997 for USPD and in 1998 for IPD.
The Company believes the dynamic nature of its business may present
additional opportunities to rationalize personnel functions and operations
to increase efficiency and profitability. Accordingly, similar management
actions or changes to announced management actions may be required in the
future.
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, Alpharma USPD Inc. (formerly known as Barre
National, Inc.), NMC Laboratories, Inc. ("NMC"), and Able Laboratories,
Inc. ("Able"),as well as two of the Company's European facilities (Skoyen,
Norway and Copenhagen, Denmark that manufacture products for export to the
U.S.) 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, Alpharma USPD Inc. and
Able are parties to separate consent decrees with the FDA which define the
specific standards they must achieve in meeting CGMP. Additionally, the
Company is currently responding to the FDA's latest inspection at its
Skoyen, Norway plant.
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) may continue to increase
in the future.
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. With regard to the Company's project to conduct clinical
trials as part of the new drug approval process in the U.S. for Elyzolr
Dental Gel (a product for the treatment of the gum disease periodontitis),
the Company is in the process of clarifying the FDA's current guidelines
for the next phase of clinical trials. Additionally, as previously
reported, the Company is continuing to study alternative marketing
arrangements for the product which include obtaining marketing partners in
some geographical areas.
U.S. Generic Pharmaceutical Industry
The U.S. Generic Pharmaceutical industry has historically been
characterized by intense competition which is evidenced by eroding prices
for products as additional market participants receive approvals for these
products. USPD has been and will continue to be affected by the
competitive nature of this industry. Accordingly, because of competition
and uncertainty of approval timing, USPD is subject to difficulty in
forecasting both sales units and prices. Therefore profitability is
subject to unforeseen fluctuation. The generic industry in general, is
subject to similar fluctuations and as a result stock prices for the group,
in which the Company is considered a member, do fluctuate widely.
Animal Health Division Market Conditions
The Animal Health Division's ("AHD") principal product, BMDr, is a
feed additive used to promote growth and feed efficiency and prevent or
treat diseases in Swine and Poultry. AHD also sells other feed additives
which are used in combination or sequentially with BMDr. In 1996 and
especially in the second quarter, results were negatively impacted by a
steep rise in grain (corn and wheat) prices in the U.S. The record high
prices of the feed grains in the second quarter resulted in intense price
competition and a reduction in the use of feed additives in general,
including AHD products, primarily in the poultry market. The Company does
not believe grain prices will remain at the high levels permanently.
However, until these conditions subside, AHD will be negatively impacted.
European Operations
The fluctuations of European currencies have and will continue to
impact the Company's European operations which comprised approximately 40%
of revenues in the year ended December 31, 1995. 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 nor 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, 1996 was $109.4 million compared to $113.6
million at December 31, 1995. The current ratio was 1.71 to 1 at June 30,
1996 compared to 1.67 to 1 at year end. Long-term debt to stockholders'
equity was 1.06:01 at June 30, 1996 compared to 1.07:01 at December 31,
1995.
All balance sheet captions decreased as of June 30, 1996 compared to
December 31, 1995 in U.S. Dollars as the functional currencies of the
Company's principal foreign subsidiaries, the NOK and DKK, depreciated
versus the U.S. Dollar in the six months of 1996 by approximately 3% and
6%, respectively. The decreases do impact to some degree the above
mentioned ratios. The approximate decrease due to currency translation of
selected captions was: accounts receivable $2.3 million, inventories $2.0
million, accounts payable and accrued expenses $1.6 million, and total
stockholders' equity $5.1 million. Additionally, the accounts receivable
balance at June 30, 1996 was $115.4 million compared to $132.2 million at
December 31, 1995. The reduction reflects the collection of year end
receivables which are higher due to seasonally higher sales in the third
and fourth quarter.
PART II. OTHER INFORMATION
Item 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITIES
HOLDERS
The Company, due to charges incurred in the second quarter for
production rationalization, requested the parties to the $185,000,000
credit agreement to modify the interest coverage ratio therein to allow
for an adjustment of $8,000,000 to operating income for four quarters.
The $8,000,000 adjustment represented approximately one-half of the
charges. All parties to the agreement agreed to modify the interest
coverage ratio. The company satisfied the interest coverage ratio in
the second quarter with and without the adjustment.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) ALPHARMA INC. annual meeting was held on May 30, 1996.
(b) Proxies were solicited by ALPHARMA 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 as follows:
VOTES
Class A Directors: For Withheld
Thomas G. Gibian 11,362,354 145,327
Peter G. Tombros 11,363,054 144,627
Class B Directors:
I. Roy Cohen 32,906,248
Glen E. Hess 32,906,248
Gert W. Munthe 32,906,248
Einar W. Sissener 32,906,248
Erik G. Tandberg 32,906,248
(c) A Non-Employee Director Option Plan was approved by a vote of:
For 43,314,645
Against 249,884
Abstain 789,043
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(iii)A. "The Non-Employee Director Option Plan" dated as
of May 30, 1996.
11. Computation of Earnings per Common Share for the three and
six months ended June 30, 1996 and 1995.
(b) Reports on Form 8-K -- None.
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.
ALPHARMA INC.
(Registrant)
Date: August 9, 1996 /s/ Jeffrey E. Smith
Jeffrey E. Smith
Vice President, Finance and
Chief Financial
Officer
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0
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</TABLE>
1
APPENDIX I
ALPHARMA INC.
NON-EMPLOYEE DIRECTOR OPTION PLAN
1. Purpose of the Plan
The purpose of this Plan is to promote the interests of the
Company (i) by tying more directly the compensation of directors
to the performance of the Company as measured by the market price
of its stock and (ii) through aligning more closely the interests
of directors with the interests of the Company's stockholders.
2. Administration
This Plan shall be administered by a committee of the Board
of Directors of the Company consisting of one or more directors
(the "Director Options Committee") appointed for such purpose by
the Compensation Committee of the Board of Directors. All
questions of interpretation and application of this Plan to
options granted hereunder (the "Director Options") and of this
Plan and any related agreements and instruments shall be subject
to the good faith determination of the Director Options
Committee, which shall be final and binding on all persons. No
member of the Committee shall be liable for anything done or
omitted to be done by him or her or by any other member of the
Committee in connection with the Plan, except for his or her own
willful misconduct or as expressly provided by statute.
3. Director Option Shares
The stock subject to the Director Options and other
provisions of this Plan shall be shares of the Company's Class A
Common Stock, with $.20 par value (hereinafter referred to as the
"Class A Stock"). The aggregate number of shares of Class A
Stock authorized to be issued upon exercise of Director Options
and reserved for issuance under the Plan is 150,000. In the
event that application of any provision of this Plan would result
in the issuance of, or the right to purchase, any fractioned
share of Class A Stock, the fraction shall be rounded to a full
share.
4. Granting of Director Options
Each director shall receive an option to purchase 2,000
shares of Class A Stock immediately following each annual meeting
of stockholders of the Company at which such director is elected
to serve on the Board of Directors of the Company. If a director
is elected or appointed to the Board of Directors other than at
the annual meeting of stockholders, such director shall receive
as of the date of such election or appointment an option to
purchase a number of shares of Class A Stock equal to (i) 2,000
multiplied by (ii) a fraction, the numerator of which is the
number of days remaining from the date of such election or
appointment until the anniversary of the preceding annual meeting
of the stockholders and the denominator of which is 365. The
price at which shares may be purchased pursuant to any Director
Option shall be the fair market value of the shares on the date
that the Director Option is granted. The grant of options
provided for hereto shall be automatic and shall not require any
action of the Board of Directors or the Director Options
Committee.
5. Eligibility
The individuals who will be eligible to receive Director
Options will be each person elected or appointed as a director of
the Company who is not also an employee of the Company or any of
its subsidiaries at the time such person is so elected or
appointed. A Director Option granted to a director under this
Plan shall continue to be effective in accordance with its terms
notwithstanding that prior to or subsequent to the grant of such
option such director was or becomes an employee of the Company or
its subsidiaries.
6. Terms of Director Options; Vesting
Each Director Option shall have a term of ten years from the
date of grant (the "Option Term"); provided that if a director
ceases to be a director for any reason, all Director Options held
by such Director shall terminate on the first anniversary of the
date on which such individual ceases to serve as a Director (the
"Early Termination Date"). Each Director Option which has become
vested (as described below) may be exercised from time to time
until the earlier of (i) the end of the Option Term or (ii) the
Early Termination Date, in part or in whole, subject to such
limitations that the Director Options Committee, in its
discretion, may specify at or prior to the time of grant. The
exercise price of each Director Option may be paid in cash or by
delivery of shares of Class A Stock previously acquired by the
optionee having a fair market value equal to the exercise price
of the Director Option being exercised. Each Director Option
shall vest in full on the date of the first annual meeting of
stockholders following the date of grant of such option; provided
that if a person ceases to be a director for reason of disability
or death prior to such vesting date, a portion of any unvested
Director Options held by such director shall vest as of the day
preceding the date such person ceases to be a director for such
reason, which portion shall be equal to (i) the number of
unvested Director Options held by such director multiplied by
(ii) a fraction, the numerator of which is the number of days
such Director has held such unvested option and the denominator
of which is 365. If a Director is removed from the Board or
resigns other than for reasons of disability or death, the
unvested Director Options held by such director shall not vest
following such removal or resignation.
7. Exercise of Director Options
Director Options shall be exercised by the delivery of
written notice to the Company (Attention: Treasurer) setting
forth the number of shares with respect to which the Director
Option is to be exercised and the address to which the
certificates for such shares are to be mailed, together with (i)
cash (including checks, bank drafts or postal or express money
orders payable to the order of the Company) or (ii), shares of
Class A Stock, previously acquired, having an aggregate value
equal to the option price of such shares. As promptly as
practicable after receipt of such written notification and
payment, the Company shall deliver to the optionee certificates
for the number of shares with respect to which such Director
Option has been so exercised ("Option Shares"), issued in the
optionee's name; provided, that such delivery shall be deemed
effected for all purposes when such certificates shall have been
deposited in the United States mail, addressed to the optionee,
at the address specified pursuant to this paragraph. For all
purposes, an optionee shall be deemed to have exercised a
Director Option and to have purchased and become the holder of
the Option Shares as of the date the Company receives written
notification of exercise and payment as provided herein.
8. Transferability of Director Options
Director Options shall not be transferable otherwise than by
will or the laws of descent and distribution and shall be
exercisable during the optionee's lifetime only by him or by his
guardian or legal representative.
9. Requirements Imposed by Law and Director Options Committee
The Company shall not be required to sell or issue any
shares under any Director Option if the issuance of such shares
shall constitute a violation by the optionee or by the Company of
any provisions of any law or regulation of any governmental
authority. Any determination in this connection by the Director
Options Committee shall be final, binding and conclusive.
The Company shall not be required to issue any shares upon
exercise of any option unless the Company has received the
optionee's representation or other evidence satisfactory to it to
the effect that the holder of such Director Option will not
transfer such Option Shares in any manner which could constitute
a violation of any securities or other law, or which would not be
in compliance with such other conditions as the Director Options
Committee may deem appropriate.
The Director Options Committee may impose such other
limitations on the exercise of Director Options as it concludes
are necessary to comply with applicable law and carry out the
intent and purpose of the Plan.
10. No Rights as Stockholder
No optionee shall have rights as a stockholder with respect
to shares covered by a Director Option until the date of exercise
of such Director Option; and, except as otherwise provided in
paragraph 12 hereof, no adjustment for dividends, or otherwise,
shall be made if the record date therefore is prior to the date
of exercise of such option.
11. No Obligation to Retain Director
The granting of any option shall not impose upon Company,
its stockholders or the Board of Directors any obligation to
elect, appoint or retain any person as a member of the Board of
Directors; and the right to remove any director as provided by
applicable law shall not be diminished or affected by reason of
the fact that a Director Option has been granted to such
Director.
12. Changes in the Company's Capital Structure
The existence of outstanding Director Options shall not
affect in any way the right of power of the Company or its
stockholders to make or authorize any or all adjustment,
recapitalizations, reorganization, or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures
or preferred or prior preference stock senior to or otherwise
affecting the Class A Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character
or otherwise.
If the Company shall effect a subdivision or consolidation
of shares or other capital readjustment, or pay a dividend in
shares of its Class A or Class B Common Stock, then (a) the
number, type, and per share price of shares of stock subject to
outstanding Director Options hereunder shall be appropriately
adjusted in such a manner as to entitle each optionee to receive
upon exercise of his Director Option, for the same aggregate
consideration, the same total number and type of shares as he
would have received as a result of the event requiring the
adjustment had he exercise his Director Option in full
immediately prior to such event; provided, however, that if any
such adjustment would result in the right to purchase a
fractional share, the number of shares subject to the Director
Option will be decreased to the next lower whole number; and
(b) the number and type of shares then reserved for issuance
under the Plan shall be adjusted by substituting for the total
number of shares of Class A Stock then reserved that number and
type of shares of stock that would have been received by the
owner of an equal number of outstanding shares of Class A Stock
as the result of the event requiring the adjustment.
If the Company shall be a party to any merger or
consolidation or effect any recapitalization which causes a
change in the Class A Stock which does not effect an adjustment
under the prior paragraph, the Director Options Committee, in its
discretion, may, if it considers it to be appropriate to carry
out the intent and purpose of the Plan, make such adjustments in
the nature or amount of securities subject to the Director
Options or the Director Option price as it considers appropriate,
and such adjustments shall be binding and conclusive of all
holders of Options.
Except as expressly provided herein, the issue by the
Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or
property, or for labor or services either upon sale, or upon the
exercise or rights or warrants to subscribe therefore, or upon
conversion of other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number or price of shares of Class A Stock then subject to
outstanding Director Options.
13. Amendment or Termination of Plan
The Board of Directors of the Company may modify, revise or
terminate this Plan at any time and from time to time, except
that none of the term of the Plan, the eligibility of grantees,
the aggregate number of shares reserved for issuance pursuant to
this Plan, the amount of Directors Options to be granted to any
director or the minimum option price shall, other than by
operation of paragraph 12 hereof, be modified or revised without
the consent of the holders of Class A and Class B Common Stock
having a majority of the voting power. The termination of the
Plan by the Board of Directors shall not affect any Director
Options granted prior to such termination. The terms upon which
Directors Options are granted may not be amended more frequently
than once every six months (except to comply with applicable tax
or other laws).
14. Written Option Agreements
Each Director Option granted hereunder may be embodied in a
written option agreement which shall contain such other
provisions as the Director Options Committee in its discretion
shall deem advisable. The failure to provide a written option
agreement shall not affect the validity of Director Options
provided for herein or the rights of directors to receive and
exercise such options as herein provided.
15. Director and Stockholder Approval; Duration of Plan
This Plan has been duly adopted by the Board of Directors on
March 14, 1996 and approved by the stockholders of the Company on
May 30, 1996. This Plan shall terminate on December 31, 2005 or
by earlier action of the Board of Directors pursuant to
paragraph 13 hereof provided such termination shall not affect
any Director Options granted prior to such termination.
16. Election to Receive Shares If Subject to Detrimental Non-
U.S. Income Tax Consequences
If a person would be subject to significantly detrimental
income tax consequences as a result of receiving Director Options
under any non-United States income tax provisions, such person
may elect (by written notice to the Director Options Committee
prior to the date of grant) to receive in lieu thereof one share
of Class A stock for every ten shares purchasable under the
Director Options such person would otherwise have received.
17. Reference to Employee Stock Option Plan ("Employee Plan")
To the extent not inconsistent with the terms of this Plan,
the terms and provisions of the Employee Plan shall apply to any
options granted hereunder.
Exhibit 11
ALPHARMA INC.
Computation of Earnings per Common Share
Primary and Fully Diluted
(Dollars in thousands, except for per share data)
Six Months Ended
June 30,
1996 1995
Computation for Statement of Income
Primary earnings per share:
Net income $ 275 $ 6,979
Average common shares outstanding 21,697,000 21,616,000
Additions:
Dilutive effect of outstanding
warrants determined by treasury
stock method 379,000
Dilutive effect of outstanding
options determined by treasury
stock method 156,420 105,336
22,232,420 21,721,336
Earnings per common share - Primary $0.01 $0.18
Fully diluted earnings per share:
Net income $ 275 $ 6,979
Average common shares outstanding 21,697,000 21,616,000
Additions:
Dilutive effect of outstanding
warrants determined by treasury
stock method 379,000
Dilutive effect of outstanding
options determined by treasury
stock method 156,420 105,336
22,232,420 21,721,336
Earnings per common share - Fully diluted $0.01 $0.18
Exhibit 11
ALPHARMA INC.
Computation of Earnings per Common Share
Primary and Fully Diluted
(Dollars in thousands, except for per share data)
Three Months Ended
June 30,
1996 1995
Computation for Statement of Income
Primary earnings per share:
Net income (loss) $ (4,502) $ 3,054
Average common shares outstanding 21,708,000 21,625,000
Additions:
Dilutive effect of outstanding
warrants determined by treasury
stock method 200,000
Dilutive effect of outstanding
options determined by treasury
stock method 136,975 120,704
22,044,975 21,745,704
Earnings (loss) per common share - Primary $(0.20) $0.14
Fully diluted earnings per share:
Net income (loss) $ (4,502) $ 3,054
Average common shares outstanding 21,708,000 21,625,000
Additions:
Dilutive effect of outstanding
warrants determined by treasury
stock method 200,000
Dilutive effect of outstanding
options determined by treasury
stock method 136,975 120,704
22,044,975 21,745,704
Earnings (loss) per common share -
Fully diluted $(0.20) $0.14
