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, 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 May 1, 1996:
Class A Common Stock, $.20 par value -- 13,475,713 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
March 31, 1996 and December 31, 1995 3
Consolidated Statement of Income for the
Three Months Ended March 31, 1996 and 1995 4
Consolidated Condensed Statement of Cash
Flows for the Three Months Ended March 31,
1996 and 1995 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
Item 6. Exhibits and reports on Form 8-K
Signatures 14
Exhibit 11 - Computation of Earnings
per Common Share 15
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands of dollars)
March 31,
1996 December 31,
(Unaudited) 1995
ASSETS
Current assets:
Cash and cash equivalents $ 7,319 $ 18,351
Accounts receivable, net 115,855 132,161
Inventories 122,599 120,084
Other 12,172 12,290
Total current assets 257,945 282,886
Property, plant and equipment, net 210,893 212,176
Intangible assets 125,787 128,186
Other assets and deferred charges 10,140 11,605
Total assets $604,765 $634,853
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 13,097 $ 13,160
Short-term debt 49,295 62,695
Accounts payable and accrued liabilities 72,166 86,778
Accrued and deferred income taxes 4,954 6,650
Total current liabilities 139,512 169,283
Long-term debt 218,182 219,451
Deferred income taxes 30,708 30,961
Other non-current liabilities 9,427 9,968
Stockholders' equity:
Class A Common Stock 2,748 2,740
Class B Common Stock 1,646 1,646
Additional paid-in-capital 120,882 120,357
Foreign currency translation
adjustment 13,314 15,884
Retained earnings 74,177 70,385
Treasury stock, at cost (5,831) (5,822)
Total stockholders' equity 206,936 205,190
Total liabilities and
stockholders' equity $604,765 $634,853
The accompanying notes are an integral part
of the consolidated condensed financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
1996 1995
Total revenue $127,810 $126,080
Cost of sales 73,291 73,411
Gross profit 54,519 52,669
Selling, general and
administrative expenses 41,944 39,884
Operating income 12,575 12,785
Interest expense (5,046) (5,570)
Other, net 176 (802)
Income before provision for income taxes 7,705 6,413
Provision for income taxes 2,928 2,488
Net income $ 4,777 $ 3,925
Average common shares outstanding:
Primary 22,405 21,705
Fully diluted 22,405 21,869
Earnings per common share:
Primary $ .21 $ .18
Fully Diluted $ .21 $ .18
Dividend per common share $ .045 $ .045
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)
Three
Months Ended
March 31,
1996 1995
Operating Activities:
Net income $ 4,777 $ 3,925
Adjustments to reconcile net
income to net cash provided
by operating activities, principally
depreciation and amortization 7,937 7,438
Changes in assets and liabilities,
net of effects from business
acquisition:
Decrease in accounts receivable 15,179 15,234
(Increase) in inventory (3,516) (7,688)
(Decrease) in accounts payable
and accrued expenses (13,835) (9,828)
Other (233) 1,551
Net cash provided by
operating activities 10,309 10,632
Investing Activities:
Capital expenditures (6,643) (5,541)
Net cash used in investing
activities (6,643) (5,541)
Financing Activities:
Dividends paid (985) (975)
Net borrowings under lines of credit (13,021) (7,009)
Reduction of long-term debt (350) (6,991)
Other, net (240) 1,022
Net cash used in
financing activities (14,596) (13,953)
Exchange Rate Changes:
Effect of exchange rate changes
on cash (287) 1,138
Income tax effect of exchange rate
changes on intercompany advances 185 (817)
Net cash flows from exchange
rate changes (102) 321
Increase (Decrease) in Cash (11,032) (8,541)
Cash and cash equivalents at
beginning of year 18,351 15,512
Cash and cash equivalents at
end of period $ 7,319 $ 6,971
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
month period ended March 31, 1996 are not necessarily indicative
of the results to be expected for the full year.
2. Inventories
Inventories consist of the following:
March 31, December 31,
1996 1995
Finished product $ 68,851 $ 68,529
Work-in-process 14,740 16,697
Raw materials 39,008 34,858
$122,599 $120,084
3. Supplemental Cash Flow Information:
March 31, March 31,
1996 1995
Cash paid for interest $5,415 $5,259
Cash paid for taxes $3,870 $1,234
4. Post-Combination Management Actions
The Company continues to consider opportunities to take
actions which will improve its long term profitability.
In 1996, the International Pharmaceuticals Division ("IPD")
has taken and is considering additional actions which are
designed to further strengthen the competitive nature of the
division by lowering costs. In the first quarter of 1996, the 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 operating expenses. In March 1996, the Company
announced that a preliminary study of production rationalization
alternatives between the IPD's Copenhagen, Denmark and Lier,
Norway manufacturing facilities identified potential benefits.
Based on these findings, a detailed study is expected to be
completed in the second quarter of 1996. The Company expects that
the detailed study will result in a formal rationalization
proposal which could result in charges for severance, write downs
of fixed assets, and other exit costs.
In addition in March 1996, the Company announced that the
U.S. Pharmaceuticals Division ("USPD") was studying the
feasibility of accelerating the consolidation of manufacturing
operations within the USPD. The acceleration plan, which will
benefit future operations, could result in additional charges for
personnel actions, write downs of fixed assets and other costs.
Both the IPD and USPD plans for management actions will
require approval by the Board of Directors.
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 - Three Months Ended March 31, 1996
Total revenue increased $1.7 million (1.4%) in the three
months ended March 31, 1996 compared to 1995. Operating income
in 1996 was $12.6 million, a decrease of $.2 million, compared to
1995. Net income was $4.8 million ($.21 per share fully diluted)
compared to $3.9 million ($.18 per share fully diluted) in 1995.
Net income in 1996 is reduced by approximately $1.2 million ($.05
per share) for severance for approximately 30 people incurred in
the 1st quarter related to the reorganization of the
International Pharmaceutical Division ("IPD") sales and marketing
function in the Nordic countries.
Revenues increased marginally in both the business segments
in which the company operates, Human Pharmaceuticals and Animal
Health.
Within the Animal Health Segment, Animal Health division
revenues increased due to higher sales volume of BMDr and other
feed additives offset by some price erosion. Aquatic Animal
Health division revenues were lower due to increased competition
in the Norwegian fish vaccine market.
Revenues in the Human Pharmaceutical Segment were higher
primarily due to increased volume in Scandinavian markets and to
a lesser extent increased prices achieved by the IPD offset by
lower revenues in the U.S. Pharmaceutical division ("USPD") and
the Fine Chemicals Division ("FCD"). USPD revenues declined due
to volume and price reductions in the base product
line(principally cough and cold products), 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.
On a consolidated basis, gross profit increased $1.9 million
and the gross margin percent increased marginally to 42.7 % in
1996 compared to 41.8 % in 1995.
The increase resulted primarily from increased sales and
margin achieved by the IPD in the first quarter. IPD gross
margins are higher than the company average and the increase in
sales has the effect of increasing the overall margin.
Operating expenses on a consolidated basis increased $2.1
million or 5.2% compared to a 1.4% revenue increase. Included in
operating expenses are charges for severance of $1.9 million
relating to the reorganization of the sales and marketing
function for IPD in the Nordic countries. Without the charges
for severance, expenses were essentially the same as the prior
year. The lack of growth reflects an emphasis on cost control, 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
the commencement of R & D and other projects.
Operating income as reported declined $.2 million as a
result of increased gross profit in dollars and percent being
offset by charges for severance incurred in the first quarter.
Operating income in 1996 increased $1.7 million, if compared to
1995 without the severance charges.
Interest expense decreased $.5 million due to decreased debt
levels resulting from scheduled repayments in 1995 and generally
lower interest rates in 1996.
Other, net in 1996 was $.2 million income compared to $.8
million loss in 1995. Results for the first quarter of 1995
include 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 of 1995 compared to the NOK
and DKK. Foreign exchange transaction losses in 1996 were
approximately $.1 million.
As a result of the lower interest expense in 1996 and the
positive change in foreign exchange losses between the years,
pretax income as reported increased $1.3 million. The estimated
effective tax rate used to calculate the provision for taxes in
both periods was approximately the same, and accordingly, net
income is approximately $.9 million higher in 1996.
Post-Combination Management Actions
In 1994 and 1995 the Company 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, and the utilization of significant
consulting resources by the IPD.
Certain of the announced management actions are still in
process and have affected the first quarter of 1996 and will
affect future quarters in 1996 and 1997. The management actions
in process and their current and potential impact are as follows:
1. In the first quarter of 1996 the IPD reorganized its sales
and marketing organization in the Nordic countries and severed
approximately 30 personnel at a cost of $1.9 million. The IPD
estimates the annual expense reduction by 1997 from this action
at over $1.0 million.
2. In the first quarter, the Company announced that a
preliminary study of production rationalization alternatives
between the IPD's Copenhagen, Denmark and Lier, Norway
manufacturing facilities had identified potential benefits.
Based on these findings, a detailed study was initiated which is
expected to be completed in the second quarter of 1996. The
Company expects that the detailed study will result in a formal
rationalization proposal which may result in charges for
severance, write downs of fixed assets, and other exit costs.
Any such plan will require approval by the Board of Directors.
3. In 1995 the Company announced a plan by USPD to move all
suppositories and cream and ointment production from two present
locations (one in New York and the other in New Jersey) 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 entire approval process was expected to
take from 18 to 24 months. The process, however, may take longer
due to the time necessary to obtain the required FDA approval
which cannot be predicted with certainty by the Company. Because
of the time factor involved in achieving the transfer, the
Company has instituted a retention/severance program which
assures each employee of the New York facility a payment if the
employee remains employed until terminated by the Company. The
Company is accruing the estimated retention payment over the
period which employees are expected to be employed. The company
has recently begun considering alternative plans to accelerate
the closing of the New York facility by increasing current
production and inventory levels to bridge the period between
closing and the expected receipt of approvals. The alternative
plan should lower future costs but will require an increase and
acceleration in the retention and severance payments, require the
write off of certain machinery and equipment and the accrual of
exit costs for a non-cancelable lease and other commitments. Any
plan change and the resultant charges will require approval by
its Board of Directors.
4. As part of the post-combination management actions in 1994
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 business
employees and other exit costs) could be required. The Company
was not successful in selling the tablet business in 1995
although extensive negotiations were held with prospective
buyers. Efforts to sell the tablet business are continuing in
1996. The Company expects a final decision on the U.S. Tablet
business will be reached in the second quarter of 1996.
5. The Company believes the dynamic nature of its business will
require it to continue to study 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, 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) 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.
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 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, 1996 was $118.4 million
compared to $113.6 million at December 31, 1995. The current
ratio was 1.85 to 1 at March 31, 1996 compared to 1.67 to 1 at
year end. Long-term debt to stockholders' equity was 1.05:1
at March 31, 1996 compared to 1.07:1 at December 31, 1995.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. Employment agreement dated February 26, 1996 between
the Company and Phil Corke.
11. Computation of Earnings per Common Share for the three
months ended March 31, 1996 and 1995.
(b) Reports on Form 8-K -- There were no reports on Form 8-K
filed during the three months ended March 31, 1996.
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: May 13, 1996 /s/ Jeffrey E. Smith
Jeffrey E. Smith
Vice President, Finance and
Chief Financial Officer
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
March 31,
1996 1995
Computation for Statement of Income
Primary earnings per share:
Net income $ 4,777 $ 3,925
Average common shares outstanding 21,686,000 21,606,000
Additions:
Dilutive effect of outstanding
warrants determined by treasury
stock method 532,000
Dilutive effect of outstanding
options determined by treasury
stock method 187,248 98,821
22,405,248 21,704,821
Earnings per common share - Primary $0.21 $0.18
Fully diluted earnings per share:
Net income $ 4,777 $ 3,925
Average common shares outstanding 21,686,000 21,606,000
Additions:
Dilutive effect of outstanding
warrants determined by treasury
stock method 532,000 146,000
Dilutive effect of outstanding
options determined by treasury
stock method 187,248 117,493
22,405,248 21,869,493
Earnings per common share - Fully diluted $0.21 $0.18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7319
<SECURITIES> 0
<RECEIVABLES> 115855
<ALLOWANCES> 0
<INVENTORY> 122599
<CURRENT-ASSETS> 257945
<PP&E> 210893
<DEPRECIATION> 0
<TOTAL-ASSETS> 604765
<CURRENT-LIABILITIES> 139512
<BONDS> 0
0
0
<COMMON> 119445
<OTHER-SE> 87491
<TOTAL-LIABILITY-AND-EQUITY> 604765
<SALES> 127810
<TOTAL-REVENUES> 127810
<CGS> 73291
<TOTAL-COSTS> 73291
<OTHER-EXPENSES> 41944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5046
<INCOME-PRETAX> 7705
<INCOME-TAX> 2928
<INCOME-CONTINUING> 4777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4777
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
February 26, 1996
PERSONAL & CONFIDENTIAL
Mr. Phil Corke
125 Westfield Drive
East Greenwich, Rhode Island 02818
Dear Phil:
It is my pleasure to extend to you the offer to join
ALPHARMA as Vice President - Human Resources based at their
Fort Lee headquarters. Details of their offer are as
follows:
Salary: $200,000
Bonus: 40% target, same plan as
peers
Stock Options: 15,000 special (same
terms as business heads and CFO) plus 5,000 company stock option plan.
Share price to be set as of first day of employment.
Pension: company plan (comparable to DC and GB
arrangements).
Car allowance: $15,000 per year.
Vacation: 4 weeks per year
Employment Period and Severance: Employment at will,
except that salary and benefits continuance for the first 15
months of employment is guaranteed. Severance (salary and
benefits continuation) will be provided for at least 9
months, and would include outplacement assistance. Both of
the above apply in the event of dismissal "without cause".
Relocation of family home:
- temporary housing costs reimbursed through September
1996. You have agreed to consider as temporary housing a
home currently leased by ALPHARMA, if appropriate for your
needs.
- airfare or automobile reimbursement between existing
home and Fort Lee location through September, plus
reasonable house hunting trips for family to the area.
- reimbursement of direct moving expenses.
- reimbursement of brokerage commission and closing costs
on sale of present home.
- Relocation assistance bonus: A one time payment of
$90,000 less the total of the above reimbursed expenses,
payable when existing home is sold. This amount would be
reimbursable to ALPHARMA on a pro-rate basis if you
voluntarily resign your employment within the first 12
months.
- Total payment for the above five items will not exceed
$90,000.
- To the extent that the payments/reimbursements for the
above first four items increase your personal taxes,
ALPHARMA will "gross-up" your compensation: i.e., provide
additional compensation to you to cover the additional taxes
incurred.
Any of the above would be improved to the extent
ALPHARMA's U.S. practices or policies are more attractive.
All other standard benefits/insurances made available
to ALPHARMA employees for this level position.
* * *
This offer is contingent on your acceptance of the offer by
Monday, March 4, upon satisfactory completion of references
once we receive your acceptance, and upon your plan to start
as an employee not later than April 1, 1996. You may accept
this offer by initialing below and returning a copy of this
to me by fax.
On behalf of Einar Sissener and the other members of the
Management Committee of ALPHARMA, we are very pleased with
your intention to take on this responsibility with the
Company, and expect a highly successful future cooperation
for all.
Very best wishes.
Sincerely,
T. Lee Pomeroy II
Accepted:
/s/ Phil Corke
Phil Corke
February 29, 1996
Date
