Page 3 of 22
UNITED STATES
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, 1998
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 July 31, 1998:
Class A Common Stock, $.20 par value -- 15,912,251 shares.
Class B Common Stock, $.20 par value -- 9,500,000 shares.
ALPHARMA INC.
INDEX
______________
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet as of
June 30, 1998 and December 31, 1997 3
Consolidated Statement of Operations for the
Three and Six Months Ended June 30, 1998
and 1997 4
Consolidated Condensed Statement of Cash
Flows for the Six Months Ended June 30,
1998 and 1997 5
Notes to Consolidated Condensed Financial
Statements 6-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13-19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders 20
Item 6. Exhibits and reports on Form 8-K 20
Signatures 22
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands of dollars)
(Unaudited)
June 30, December 31,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 18,221 $10,997
Accounts receivable, net 130,255 127,637
Inventories 143,222 121,451
Other 13,465 13,592
Total current assets 305,163 273,677
Property, plant and equipment, net 232,280 199,560
Intangible assets 304,414 149,816
Other assets and deferred charges 12,836 8,813
Total assets $854,693 $631,866
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6,470 $ 10,872
Short-term debt 26,523 39,066
Accounts payable and accrued liabilities 92,633 78,798
Accrued and deferred income taxes 14,442 5,190
Total current liabilities 140,068 133,926
Long-term debt:
Senior 244,531 223,975
Convertible Subordinated Notes 192,850 --
Deferred income taxes 29,290 26,360
Other non-current liabilities 8,610 9,132
Stockholders' equity:
Class A Common Stock 3,238 3,224
Class B Common Stock 1,900 1,900
Additional paid-in-capital 180,987 179,636
Accumulated other comprehensive
loss (14,290) (8,375)
Retained earnings 73,627 68,206
Treasury stock, at cost (6,118) (6,118)
Total stockholders' equity 239,344 238,473
Total liabilities and
stockholders' equity $854,693 $631,866
The accompanying notes are an integral part
of the consolidated condensed financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Total revenue $139,513 $118,986 $266,075 $240,410
Cost of sales 80,351 67,546 153,496 140,848
Gross profit 59,162 51,440 112,579 99,562
Selling, general and
administrative expenses 47,826 41,500 87,833 80,748
Operating income 11,336 9,940 24,746 18,814
Interest expense (6,489) (4,490) (10,979) (9,332)
Other income (expense),
net 383 130 182 (167)
Income before provision
for income taxes 5,230 5,580 13,949 9,315
Provision for income
taxes 2,925 2,110 6,242 3,585
Net income $ 2,305 $ 3,470 $ 7,707 $ 5,730
Average common shares
outstanding:
Basic 25,384 21,826 25,367 21,796
Diluted 25,793 21,868 25,757 21,824
Earnings per common share:
Basic $ 0.09 $ .16 $ 0.30 $ 0.26
Diluted $ 0.09 $ .16 $ 0.30 $ 0.26
Dividends per common share $ 0.045 $ 0.045 $ 0.09 $ 0.09
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,
1998 1997
Operating Activities:
Net income $ 7,707 $ 5,730
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 17,327 15,123
Purchased in-process research &
development 2,081 -
Changes in assets and liabilities,
net of effects from business
acquisitions:
Decrease in accounts receivable 14,216 17,117
(Increase) in inventory (3,788) (9,771)
(Decrease) in accounts
payable and accrued expenses (3,198) (11,810)
Other, net 893 545
Net cash provided by
operating activities 35,238 16,934
Investing Activities:
Capital expenditures (13,652) (11,697)
Purchase of Cox, net of cash acquired (197,044) -
Net cash used in investing activities (210,696) (11,697)
Financing Activities:
Dividends paid (2,286) (2,018)
Proceeds from sale of convertible
subordinated debentures 192,850 -
Proceeds from senior long-term debt 187,522 1,506
Reduction of senior long-term debt (180,494) (2,031)
Net repayment under lines of credit (12,074) (28,469)
Payments for debt issuance costs (4,105) -
Proceeds from issuance of common stock 1,365 20,872
Net cash provided by (used in)
financing activities 182,778 (10,140)
Exchange Rate Changes:
Effect of exchange rate changes
on cash (189) (1,270)
Income tax effect of exchange rate
changes on intercompany advances 93 734
Net cash flows from exchange
rate changes (96) (536)
Increase (decrease) in cash 7,224 (5,439)
Cash and cash equivalents at
beginning of year 10,997 15,944
Cash and cash equivalents at
end of period $18,221 $10,505
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 1997
Annual Report on Form 10-K. The reported results for the three
and six month periods ended June 30, 1998 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,
1998 1997
Finished product $78,452 $ 68,525
Work-in-process 22,898 20,009
Raw materials 41,872 32,917
$143,222 $121,451
3. Long-Term Debt
In March 1998, the Company issued $125,000 of 5.75%
Convertible Subordinated Notes (the "Notes") due 2005. The Notes
may be converted into common stock at $28.594 at any time prior
to maturity, subject to adjustment under certain conditions. The
Company may redeem the Notes, in whole or in part, on or after
April 6, 2001, at a premium plus accrued interest.
Concurrently, A.L. Industrier A.S., the controlling
stockholder of the company, purchased at par for cash $67,850
principal amount of a Convertible Subordinated Note (the
"Industrier Note"). The Note has substantially identical
adjustment terms and interest rate.
The Notes are convertible into Class A common stock. The
Industrier Note is automatically convertible into Class B common
stock if at least 75% of the Class A notes are converted into
common stock.
The net proceeds from the combined offering of $189,100 were
used to retire outstanding senior long-term debt. The Revolving
Credit Facility was used in the second quarter, along with an
amount of short term debt, to finance the acquisition of Cox
Pharmaceuticals. (See note 4.)
Long-term debt consists of the following:
June 30, December 31,
1998 1997
Senior debt:
U.S. Dollar Denominated:
Revolving Credit Facility 6.8% -
7.2%:
Revolving credit $180,000 $161,575
A/S Eksportfinans 9,000 9,000
Industrial Development Revenue Bonds 10,765 11,355
Other, U.S. 624 758
Denominated in Other Currencies 50,612 52,159
Total senior debt 251,001 234,847
Subordinated:
5.75% Convertible Subordinated Notes
due 2005 125,000
5.75% Convertible Subordinated
Note due 2005 - Industrier Note 67,850 -
Total subordinated debt 192,850 -
Total long-term debt 443,851 234,847
Less, current maturities 6,470 10,872
$437,381 $223,975
4. Business Acquisition
On May 7, 1998, the Company acquired all of the capital
stock of Cox Investments Ltd. and its wholly owned subsidiary,
Arthur H. Cox and Co., Ltd. and all of the capital stock of
certain related marketing subsidiaries ("Cox") from Hoechst AG
for approximately $192 million in cash, the assumption of bank
debt which was repaid subsequent to the closing, and a further
purchase price adjustment equal to an increase in net assets of
Cox from January 1, 1998 to the date of acquisition. The total
purchase price including the purchase price adjustment and direct
costs of acquisition was approximately $198 million. Cox's main
operations are located in the United Kingdom with distribution
operations located in Scandinavia, the Netherlands and Belgium.
Cox is a generic pharmaceutical manufacturer and marketer of
tablets, capsules, suppositories, liquids, ointments and creams.
Cox distributes its products to pharmacy retailers and
pharmaceutical wholesalers primarily in the United Kingdom.
The Company financed the $198 million purchase price and
related debt repayments from borrowings under its existing long-
term Revolving Credit Facility and short-term lines of credit
which had been repaid in March with the proceeds of the
convertible subordinated notes offering(see Note 3). To
accomplish the acquisition the principal members of the bank
syndicate, which are parties to the Company's Revolving Credit
Facility, consented to a change until December 31, 1998 in the
method of calculation of the financial convenant which specifies
an equity to asset ratio of 30%. The change in calculation method
allows the adding back of equity reductions due to foreign
currency translation to equity.
The acquisition was accounted for in accordance with the
purchase method. The fair value of the assets acquired and
liabilities assumed and the results of Cox's operations is
included in the Company's consolidated financial statements
beginning on the acquisition date, May 7, 1998. The Company is
amortizing the acquired goodwill over 35 years using the straight
line method.
The non-recurring charges related to the acquisition of Cox
included in the second quarter of 1998 are summarized below. The
charge for in process R & D is not tax benefited; therefore the
computed tax benefit is below the expected rate.
Inventory write-up $1,300 (Included in cost of sales)
In process R&D 2,100 (Included in selling, general
Severance 200 and administrative expenses)
3,600
Tax benefit (470)
$3,130 ($.12 per share)
The following pro forma information on results of operations
for the periods presented assumes the purchase of Cox as if the
companies had combined at the beginning of each of the respective
periods:
Pro Forma Pro Forma
Three Months Ended Six Months Ended
June 30, June 30,
1998* 1997 1998* 1997
Revenues $149,400 $140,394 $299,202 $282,245
Net income $5,264 $1,987 $9,476 $2,498
Basic EPS $0.21 $0.09 $0.37 $0.11
Diluted EPS $0.20 $0.09 $0.37 $0.11
* 1998 excludes actual non-recurring charges related to the
acquisition of $ 3,130 after tax or $ .12 per share.
5. Earnings Per Share
Basic earnings per share is based upon the weighted average
number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of stock options, warrants and
convertible debt when appropriate.
A reconciliation of weighted average shares outstanding for
basic to diluted weighted average shares outstanding is as
follows:
(Shares in thousands) Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
Average shares
outstanding - basic 25,384 21,826 25,367 21,796
Stock options 174 42 171 28
Warrants 235 - 219 -
Convertible debt - - - -
Average shares
outstanding - diluted 25,793 21,868 25,757 21,824
The amount of dilution attributable to the options and
warrants determined by the treasury stock method depends on the
average market price of the Company's common stock for each
period. Subordinated debt, convertible into 6,744,481 shares of
common stock at $28.59 per share, was outstanding at June 30,
1998 but was not included in the computation of diluted EPS
because the calculation by the if-converted method was
antidilutive for the three and six months ended June 30, 1998.
The numerator for the calculation of both basic and diluted is
net income for all periods.
6. Supplemental Cash Flow Information:
Six Months Ended
June 30, June 30,
1998 1997
Cash paid for interest $9,710 $9,537
Cash paid for income taxes
(net of refunds) $3,043 $(3,157)
Detail of Cox Acquisition:
Fair value of assets $230,740 -
Liabilities 33,229 -
Cash paid 197,511 -
Less cash acquired 467 -
Net cash paid for Cox acquisition $197,044 -
7. Reporting Comprehensive Income
As of January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity.
SFAS 130 requires foreign currency translation adjustments
and certain other items, which prior to adoption were reported
separately in stockholders' equity, to be included in other
comprehensive income (loss). Total comprehensive income (loss)
amounted to approximately $1,792 and ($6,514) for the six months
ended June 30, 1998 and 1997, respectively. Total comprehensive
income (loss) amounted to approximately $1,974 and ($2,855) for
the three months ended June 30, 1998 and 1997, respectively. The
only components of accumulated other comprehensive loss for the
Company are foreign currency transactions.
8. Contingent Liabilities and Litigation
The Company is one of multiple defendants in approximately
50 lawsuits alleging personal injuries resulting from the use of
phentermine distributed by the Company and subsequently
prescribed for use in combination with fenflurameine or
dexfenfluramine manufactured and sold by other defendants (Fen-
Phen Lawsuits). None of the plaintiffs has specified an amount of
monetary damage. Because the Company has not manufactured, but
only distributed phentermine, it has demanded defense and
indemnification from the manufacturers and the insurance carriers
of manufacturers from whom it has purchased the phentermine.
Based on an evaluation of the circumstances as now known,
including but not solely limited to, 1) the fact that the Company
did not manufacture phentermine, 2) it has a diminimus share of
the phentermine market and 3) the presumption of some insurance
coverage, the Company does not expect that the ultimate
resolution of the current Fen-Phen lawsuits will have a material
impact on the financial position or results of operations of the
Company.
The Company and its subsidiaries are, from time to time,
involved in other litigation arising out of the ordinary course
of business. It is the view of management, after consultation
with counsel, that the ultimate resolution of all other pending
suits should not have a material adverse effect on the
consolidation financial position or results of operations of the
Company.
9. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities
(FAS 133). FAS 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). FAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction.
The Company has not yet determined the impact that the
adoption of FAS 133 will have on its earnings or statement of
financial position.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Acquisition of Cox
In May of 1998, the Company acquired all the capital stock
of Cox Investments Ltd. and its wholly owned subsidiary, Arthur
H. Cox and Co. Ltd., and all of the capital stock of certain
related marketing subsidiaries ("Cox") for a total purchase price
including direct costs of acquisition of approximately $198
million. Cox's main operations (which primarily consists of a
manufacturing plant, warehousing facilities and a sales
organization) are located in the United Kingdom with distribution
and sales operations located in Scandinavia, the Netherlands and
Belgium. Cox is a generic pharmaceutical manufacturer and
marketer of tablets, capsules, suppositories, liquids, ointments
and creams. Cox distributes its products to pharmacy retailers
and pharmaceutical wholesalers primarily in the United Kingdom.
The Company financed the $198 million purchase price and
related debt repayments from borrowings under its existing long-
term Revolving Credit Facility and short-term lines of credit.
The $180 million Revolving Credit Facility ("RCF") was used to
fund the principal portion of the purchase price. At the end of
March 1998, the Company repaid approximately $162 million
borrowings under the RCF with the proceeds from the issuance of
convertible subordinated notes. Such repayment created the
capacity under the RCF to incur the borrowings used to finance
the acquisition of Cox.
The acquisition was accounted in accordance with the
purchase method. The fair value of the assets acquired and
liabilities assumed and the results of operations are included
from the date of acquisition.
The purchase of Cox had a significant effect on the results
of operations of the Company for the three and six month periods
ended June 30, 1998. Cox is included in the Human Pharmaceutical
Segment as part of the International Pharmaceutical Division
("IPD").
For the approximate two month period, Cox contributed sales
of $14.8 million and operating income, exclusive of one-time
acquisition charges, of $1.2 million. Interest expense increased
by approximately $2.0 million reflecting the financing of the
acquisition primarily with long-term debt. The Company estimates
the net after tax dilution of Cox on operations was approximately
$ .03 per share.
One time acquisition charges required by generally accepted
accounted principles and recorded in the second quarter included
the write-up of inventory and write-off on the sale of the
inventory of $1.3 million, a write-off of in process research and
development ("R&D") of $2.1 million and severance of certain
employees of the IPD of $0.2 million. Because in process R&D is
not tax benefited the one time charges were $3.1 million after
tax or $.12 per share.
The balance sheet of the Company as of June 30, 1998 is also
significantly affected by the acquisition.
Increases in major categories resulting from the acquisition
were:
($ in millions)
Current assets $40
Property, plant and equipment 36
Intangible assets 159
$235
Short term debt $28
Other current liabilities 27
Long term debt 180
$235
Results of Operations - Six Months Ended June 30, 1998
Total revenue increased $25.7 million (10.7%) in the six
months ended June 30, 1998 compared to 1997. Operating income in
1998 was $24.7 million, an increase of $5.9 million, compared to
1997. Net income was $7.7 million ($.30 per share diluted)
compared to $5.7 million ($.26 per share diluted) in 1997. Net
income in 1998 included charges relating to the acquisition of
Cox which reduced net income by $3.1 million ($.12 per share).
Revenues increased in both the business segments in which
the company operates, Human Pharmaceuticals and Animal Health.
The increase in revenues was reduced by over $14.0 million due to
translation of sales in foreign currency into the U.S. dollar.
Within the Human Pharmaceutical Segment ("HPS"), Fine
Chemicals Division ("FCD") revenues increased primarily due to
increased volume of vancomycin and polymyxin, including volume
related to the polymyxin business purchased in the fourth quarter
of 1997. Revenues increased in the U.S. Pharmaceutical Division
("USPD") as a result of increased net prices, due to lower sales
deductions relative to 1997. Volume of products introduced since
1996 increased and was partially offset by volume declines of
certain other products. In the IPD, revenues increased as a
result of increased volume and sales of Cox, offset partially by
the effect of translation of sales in Scandinavian currencies
into the U.S. dollar.
Within the Animal Health Segment ("AHS"), Animal Health
division ("AHD") revenues were higher due to sales of Deccox
products (acquired in September of 1997) and generally higher
prices in base products partially offset by lower volume in
certain products and the effect of translation of sales in
foreign currencies into the U.S. dollar. Revenues in the Aquatic
Animal Health division increased mainly due to the introduction
of two new products.
On a consolidated basis, gross profit increased $13.0
million and the gross margin percent increased to 42.3% in 1998
compared to 41.4% in 1997. The increase resulted from higher net
sales prices particularly in the USPD and AHD which directly
increased margins as well as increased volume in all divisions
only partially offset by decreases due mainly to currency
translation effects primarily in the IPD. Gross profit in 1998
was reduced by the one time charge for inventory of $1.3 million
associated with the Cox acquisition.
Operating expenses on a consolidated basis increased $7.1
million. Operating expenses increased mainly due to higher
selling and marketing expenses for new and existing products,
normal operating expenses related to Cox, and acquisition charges
of $2.3 million related to Cox with such increase being partially
offset by the effects of currency translation.
Operating income increased $5.9 million as a result of
increased volume including products acquired in 1997, normal
operating income earned by Cox and to a lesser extent higher net
prices partially offset by an increase in operating expenses
which include one-time Cox acquisition expenses of $3.6 million.
Interest expense increased $1.6 million due to increased
debt balances in the second quarter of 1998 compared to 1997
primarily related to Cox acquisition.
Other, net in 1998 was a $.2 million income compared to $.2
million loss in 1997. Foreign exchange transaction losses in 1998
and 1997 were approximately $.5 million and $.4 million,
respectively. The losses in both periods were primarily the
result of the continued strengthening of the U.S. dollar. Other,
net in 1998 also included income from property sales of
approximately $.7 million.
On a year to date basis the effective tax rate is 44.8% in
1998 compared to 38.5% in 1997. The primary reason for the rate
increase is the recording of a charge for in process R&D in the
second quarter of 1998 which is not tax benefited.
Results of Operations - Three Months Ended June 30, 1998
Total revenue increased $20.5 million (17.3%) in the three
months ended June 30, 1998 compared to 1997. Operating income in
1998 was $11.3 million, an increase of $1.4 million, compared to
1997. Net income was $2.3 million ($.09 per share diluted)
compared to $3.5 million ($.16 per share diluted) in 1997. The
second quarter of 1998 includes Cox acquisition related charges
which lowered operating income by $3.6 million, and net income by
$3.1 million ($.12 per share diluted).
Revenues increased in both the business segments in which
the company operates, Human Pharmaceuticals and Animal Health.
The increase in revenues was reduced by over $5.0 million due to
translation of sales in foreign currency into the U.S. dollar.
Within the HPS, IPD revenues increased due to the Cox
acquisition offset partially by the effect of translation of
sales in Scandinavian currencies into the U.S. dollar. FCD
revenues increased primarily due to increased volume of
vancomycin and polymyxin, including volume related to the
polymyxin business purchased in the fourth quarter of 1997.
Revenues increased in the USPD mainly as a result of increased
volume of products introduced since 1996.
Within the AHS, AHD revenues were higher due to sales of
Deccox products (acquired in September of 1997) and generally
higher prices in base products partially offset by lower volume
in certain products and the effect of translation of sales in
foreign currencies into the U.S. dollar. Revenues in the Aquatic
Animal Health division increased mainly due to the introduction
of two new products.
On a consolidated basis, gross profit increased $7.7 million
and the gross margin percent was 42.4% in 1998 compared to 43.2%
in 1997. The 1998 gross profit, in both dollars and percent, was
negatively impacted by the inventory write up and write off
related to the Cox acquisition. Without the $1.3 million charge
the gross profit percent would have been 43.3%.
The increase in gross profit dollars resulted from higher
volume in all divisions including the effect of the Cox
acquisition only partially offset by decreases due mainly to
translation effects primarily in the IPD and the inventory write
up related to Cox which was expensed in the second quarter.
Operating expenses on a consolidated basis increased $6.3
million mainly due to higher selling and marketing and R&D
expenses, Cox operating expenses and one time Cox acquisition
charges with such increase being partially offset by the effects
of currency translation.
Operating income increased $1.4 million as a result of
increased sales volume and the inclusion of Cox operations from
May 1998 partially offset by an increase in operating expenses
and the $3.6 million of one time acquisition charges.
Interest expense increased $2.0 million due to higher debt
balances in 1998 compared to 1997 resulting from the Cox
acquisition.
Other, net in 1998 was a $.4 million income compared to $.1
million income in 1997. Foreign exchange transaction losses in
1998 and 1997 were approximately $.3 million and $0.0 million,
respectively. The loss in 1998 was primarily the result of the
continued strengthening of the U.S. dollar. Other, net in 1998
includes income from property sales of $.7 million.
For the second quarter the effective tax rate is 55.9% in
1998 compared to 37.8% in 1997. The primary reason for the
increase is the recording of a charge for in process R&D in the
second quarter of 1998 which is not tax benefited.
Financial Condition
Working capital at June 30, 1998 was $165.1 million
compared to $139.8 million at December 31, 1997. The current
ratio was 2.18 to 1 at June 30, 1998 compared to 2.04 to 1 at
year end. Long-term debt to stockholders' equity was 1.83:1 at
June 30, 1998 compared to .94:1 at December 31, 1997. The primary
difference in the ratios at June 30, 1998 compared to
December 31, 1997 is the acquisition of Cox. (See section
"Acquisition of Cox").
To accomplish the acquisition the principal members of the
bank syndicate, which are parties to the Company's Revolving
Credit Facility, consented to a change until December 31, 1998 in
the method of calculation of the convenant which requires the
equity to asset ratio to be 30% (the "Waiver"). The change
permitted the Company to meet the required ratio. The Company has
a commitment, subject to agreement on final documentation, to
amend and restate the existing Revolving Credit Facility to
provide the financial and convenant flexibility which will make a
further extension of the Waiver unnecessary.
In addition, all balance sheet captions decreased as of June
30, 1998 compared to December 1997 in U.S. Dollars as the
functional currencies of the Company's principal foreign
subsidiaries, the Norwegian Krone and Danish Krone, depreciated
versus the U.S. Dollar in the six months of 1998 by approximately
4% and 1%, respectively. In addition, the Company's operations
in Indonesia were negatively affected due to the continued
decline of the Rupiah versus the U.S. Dollar. The decreases do
impact to some degree the above mentioned ratios. The approximate
decrease due to currency translation of selected captions was:
accounts receivable $0.9 million, inventories $1.0 million,
accounts payable and accrued expenses $0.6 million, and total
stockholders' equity $5.9 million. The $5.9 million decrease in
stockholder's equity represents accumulated other comprehensive
loss for the six months ended June 30, 1998 resulting from the
continued strengthening of the U.S. dollar.
The Company is considering additional complementary
acquisitions that can provide new products and market
opportunities as well as leverage existing assets. In order to
complete such acquisitions the Company will require additional
financing of a long-term nature which will require the consent of
its existing lenders or additional equity financing. There is no
assurance that any acquisition or the required acquisition
financing will be available on terms suitable to the Company.
Regarding potential equity financing, the Company's outstanding
warrants for the issuance of common stock expire on January 3,
1999. The Company is considering an offering in the fourth
quarter of 1998 to exchange its Class A Common Stock for the
outstanding warrants based on the difference between the exercise
price of the warrants and the then current market price for the
stock plus a premium. No final decision as to this warrant offer
has yet been made. However, if such offer is made, the Company
would not receive the approximately $ 79.0 million due if the
warrants were exercised.
___________
Statements made in this Form 10Q, are forward-looking statements
made pursuant to the safe harbor provisions of the Securities
Litigation Reform Act of 1995. Such statements involve certain
risks and uncertainties that could cause actual results to differ
materially from those in the forward looking statements.
Information on other significant potential risks and
uncertainties not discussed herein may be found in the Company's
filings with the Securities and Exchange Commission including its
Form 10K for the year ended December 31, 1997.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Alpharma Inc. annual meeting was held on May 8, 1998.
(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 13,968,639 585,698
Peter G. Tombros 13,969,992 584,345
Erik Hornnaess 13,970,801 583,536
Class B Directors
I. Roy Cohen 9,500,000 0
Glen E. Hess 9,500,000 0
Gert W. Munthe 9,500,000 0
Einar W. Sissener 9,500,000 0
Erik G. Tandberg 9,500,000 0
Oyvin A. Broymer 9,500,000 0
(c) An Amendment to the Company's 1997 Incentive Stock Option
and Appreciation Right Plan, as amended, was approved by a vote
of:
For 20,966,330
Against 1,777,509
Abstain 41,288
No Vote 1,269,210
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
(1) On May 22, 1998, the Company filed a report on Form 8-K
dated May 7, 1998 reporting the acquisition of all of the
capital stock of Cox Investments Ltd. and its wholly owned
subsidiary, Arthur H. Cox and Co. Ltd. ("Cox") from Hoechst AG.
The financial statements of Cox and required pro forma financials
were not available at that time.
(2) On July 21, 1998, the Company filed a report on Form 8-K/A
dated May 7, 1998 reporting Item 2. "Acquisition or
Disposition of Assets".
The event reported was the acquisition of Cox from Hoechst
AG. The Form 8-K/A included the audited financial statements
of Cox and required pro forma financials.
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 11, 1998 /s/ Jeffrey E. Smith
Jeffrey E. Smith
Vice President, Finance and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,221
<SECURITIES> 0
<RECEIVABLES> 130,255
<ALLOWANCES> 0
<INVENTORY> 143,222
<CURRENT-ASSETS> 305,163
<PP&E> 384,566
<DEPRECIATION> (152,286)
<TOTAL-ASSETS> 854,693
<CURRENT-LIABILITIES> 140,068
<BONDS> 437,381
0
0
<COMMON> 5,138
<OTHER-SE> 234,206
<TOTAL-LIABILITY-AND-EQUITY> 854,693
<SALES> 266,075
<TOTAL-REVENUES> 266,075
<CGS> 153,496
<TOTAL-COSTS> 153,496
<OTHER-EXPENSES> 87,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,979
<INCOME-PRETAX> 13,949
<INCOME-TAX> 6,242
<INCOME-CONTINUING> 7,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,707
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
