Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of report (Date of earliest event reported): May 7, 1998
Alpharma Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-8593 22-2095212
(State or Other
Jurisdiction of (Commission File (I.R.S. Employer
Incorporation) Number) Identification
Number)
One Executive Drive Fort Lee, New Jersey 07024
(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code: (201)947-7774
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Item 2. Acquisition or Disposition of Assets
On May 7, 1998, Alpharma Inc. acquired all of the capital
stock of Cox Investments Limited 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 the 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 the acquisition is 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 intends to continue the operation of the core UK business
of Cox and to achieve benefits from leveraging the Cox business
with the existing European pharmaceutical business of Alpharma.
The Company also intends to expand the scope of Cox's operations
geographically and to add to Cox's UK product base certain other
pharmaceutical products of the Company.
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")(which includes
the names of the banks participating therein) 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 as reported in the Company's current report on
Form 8-K dated March 30, 1998. Such repayment created the
capacity under the RCF to incur the borrowings used to finance
the acquisition of Cox. The RCF has been filed with the
Securities and Exchange Commission as Exhibits 10.1, 10.1A and
10.1B to the Company's 1997 Annual Report on Form 10-K and is
incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
(a) Financial Statements of Acquired Companies.
i) Report of the Independent Chartered Accountants (F-3 to F-4)
ii) Amalgamated Cox Companies Combined Financial Statements for
the year ended December 31, 1997 (F-5 to F-23).
iii) Amalgamated Cox Companies Unaudited Combined Financial
Statements for the periods ended March 31, 1997 and 1998 (F-24 to
F-31).
(b) Pro Forma Financial Information.
i) Alpharma Inc. Unaudited Pro Forma Condensed Combined
Balance Sheet as of March 31, 1998 (F-33).
ii) Alpharma Inc. Unaudited Pro Forma Condensed Combined
Statement of Income for the year ended December 31,
1997 (F-34).
iii) Alpharma Inc. Unaudited Pro Forma Condensed Combined
Statement of Income for the three months ended
March 31, 1998 (F-35).
iv) Notes to Unaudited Pro Forma Condensed Combined Financial
Statements (F-36 to F-41).
(c) Exhibits.
2.1 Agreement for the sale and purchase of the issued share
capital of Cox Investments Limited, dated April 30, 1998 between
Hoechst AG, Alpharma (U.K.) Limited, and Alpharma Inc. (Filed
with Form 8-K on May 7, 1998.)
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: July 21, 1998 /s/ Jeffrey E. Smith
Jeffrey E. Smith
Vice President, Finance and
Chief Financial Officer
AMALGAMATED COX
COMPANIES
Cox Investments Limited - UK
Arthur H Cox & Co Limited - UK
Norcox Pharma AB - Sweden
Norcox Pharma AS - Norway
Nedcox Pharma BV - Netherlands
Cox Pharma Belgium NV-SA
COMBINED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 1997
and for the three month
period ended 31 March 1998
INDEX
Report of independent chartered accountants F-3 to F-4
Profit and loss account F-5
Balance sheet F-6
Cash flow statement F-7
Notes to the financial statements F-8 to F-23
Unaudited combined financial statements for the
periods ended 31 March 1997 and 31 March 1998 F-24 to F-31
REPORT OF THE INDEPENDENT CHARTERED ACCOUNTANTS
To the directors and shareholder of Amalgamated Cox Companies:
We have audited the accompanying combined financial statements of
the Amalgamated Cox Companies for the year ended 31 December 1997
as set out on pages 2 to 18. They have been prepared on the
basis set out in Note 1 to the combined financial statements.
These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards in the UK which do not differ in any material
respect from US auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance as
to whether the combined financial statements are free of material
misstatement. An audit includes examination, on a test basis, of
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the combined financial statements referred to
above present fairly, in all material respects, the combined
financial position of the Amalgamated Cox Companies as at 31
December 1997 and the combined results of their operations and
their cash flows for the year ended 31 December 1997 in
conformity with accounting principles generally accepted in the
UK on the basis set out in Note 1 to these financial statements.
The financial statements have been prepared in accordance with
accounting principles generally accepted in the UK which differ
in certain respects from those generally accepted in the US. The
effects of the major differences in the determination of net
income and shareholders' equity are shown in Note 23 to the
financial statements.
COOPERS & LYBRAND
Chartered Accountants
Plymouth
July 15, 1998
AMALGAMATED COX COMPANIES
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1997
NOTE 1997
BP000
2. Turnover - continuing operations 55,205
3. Net operating costs - continuing operations 48,326
--------
Operating profit - continuing operations 6,879
4. Interest payable (net) 623
--------
Profit on ordinary activities before taxation 6,256
5. Taxation on profit on ordinary activities 2,030
--------
10. Profit retained for the financial year 4,226
=====
The Amalgamated Cox Companies have no recognised gains and losses
other than the profits above and therefore no separate statement
of recognised gains and losses has been presented.
There is no difference between the profit on ordinary activities
before taxation and the retained profit for the period stated
above, and their historical cost equivalents.
AMALGAMATED COX COMPANIES
BALANCE SHEET AT 31 DECEMBER 1997
NOTE 1997
ASSETS BP000
Fixed assets:
6. Tangible assets 12,815
---------
Current assets:
7. Stocks 11,564
8. Debtors 10,242
Cash at bank and in hand 278
---------
22,084
---------
34,899
=====
LIABILITIES
Capital and reserves:
9. Called up ordinary shares 2,809
Share premium account 3,201
Other reserves 644
10. Profit and loss account 7,143
--------
13,797
---------
11. Provisions for liabilities
& charges 1,361
---------
Creditors:
12. Loans & overdrafts 6,679
13. Other creditors 13,062
---------
19,741
---------
34,899
=====
AMALGAMATED COX COMPANIES
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1997
NOTE 1997 1997
BP000 BP000
15. Net cash inflow from operating
activities 7,671
Returns on investments and servicing
of finance
Interest received 40
Interest paid (663)
---------
(623)
Taxation
Corporation tax paid (519)
Advance corporation tax paid (500)
---------
(1,019)
Capital expenditure & financial investment (1,019)
Payments to acquire fixed assets (1,786)
Receipts from sales of fixed assets 30
---------
(1,756)
---------
Net cash inflow before management
of liquid resources & financing 4,273
Financing
Loan advances 22,997
Loan repaid (28,271)
Issue of shares 195
Other reserves 644
---------
(4,435)
--------
16. (Decrease) in cash in the period (162)
=====
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1997
1. Accounting Policies
The financial statements have been prepared in accordance
with applicable Accounting Standards in the United Kingdom.
Because the combined financial statements combine the
accounts of companies which at the relevant date did not
comprise a group for legal reporting purposes, the financial
statements cannot be consolidated in accordance with
Financial Reporting Standard FRS 2, Accounting for
subsidiary undertakings, and do not constitute statutory
accounts.
The accounts of Cox Investments Limited and its wholly owned
subsidiary Arthur H Cox Limited ("the Cox companies") have
been included by combining their balance sheets and profit
and loss accounts for the full year. The accounts of Norcox
Pharma AB (Sweden), Norcox Pharma AS (Norway), Nedcox Pharma
BV (Netherlands) and Cox Pharma Belgium NV (collectively
"the affiliates") have been included by combining their
balance sheets and profit and loss accounts for the full
year.
All appropriate intercompany transactions have been
eliminated. Such intercompany transactions include the
elimination of intercompany sales, debtors and creditors,
share capital and investments.
On 7 May 1998 the Cox companies and the affiliates were
purchased by Alpharma Inc. ("Alpharma") a United States
company. Prior to their acquisition by Alpharma, the Cox
companies and the affiliates were wholly-owned, but
otherwise unrelated subsidiaries of Hoechst AG ("Hoechst").
Under the terms of the purchase agreement, Alpharma paid to
Hoechst $192 million in cash and assumed certain bank debt
of the Cox companies and the affiliates in exchange for all
outstanding stock of each of the Cox companies and the
affiliates. The financial position and results of operations
of the Cox companies and the affiliates have been combined
to reflect the historical information of the companies
acquired by Alpharma.
The principal accounting policies of the combined accounts
are set out below.
a) Basis of accounting
The financial statements are prepared in accordance with the
historical cost convention.
b) Turnover
Turnover, which excludes value added tax and sales between
the Amalgamated Cox companies, represents the invoiced value
of goods and services supplied.
c) Tangible fixed assets
The cost of tangible fixed assets is their purchase cost,
together with any incidental expenses of acquisition.
Depreciation is calculated to write down the cost of the
following tangible fixed assets by equal annual instalments
over their expected useful economic lives.
The periods generally applicable are:-
Long leaseholds 40 years
Plant & equipment 5 - 10 years
Motor vehicles 4 years
d) Government grants
Grants that relate to specific capital expenditure are
treated as deferred income which is then credited to the
profit and loss account over the related assets' useful
economic life.
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1997
e) Stocks
Stock and work in progress are stated at the lower of cost
and net realisable value.
In the case of raw materials cost comprises purchase price,
calculated on a first in, first out basis. In the case of
work in progress and finished goods, cost consists of
direct materials, direct labour and attributable production
overheads. Attributable overheads have been allocated to
production on the basis of normal activity.
Net realisable value is the estimated selling price less all
further costs to completion and all costs to be incurred in
marketing, selling and distribution.
f) Deferred taxation
Deferred taxation is accounted for on all material timing
differences to the extent that it is probable that an asset
or a liability will crystallise.
g) Research and development expenditure
Research and development expenditure is charged to the
profit and loss account in the year in which it is
incurred.
h) Contributions to pension funds.
Contributions are made for the employees of Arthur H Cox &
Co Limited to The Arthur H Cox & Co Limited Retirement
Benefit Scheme which is administered by Lambert Fenchurch
Financial Services Limited, and the funds are managed by
Mercury Asset Management Limited.
Pension costs are accounted for on the basis of charging
the expected costs of providing pensions over the period
during which the company benefits from the employees'
services. The effects of variations from regular costs are
spread over the expected average remaining service lives of
members of the scheme.
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
i) Foreign currencies
Assets and liabilities expressed in foreign currencies are
stated in sterling at the exchange rates ruling at the year
end. Exchange differences relating to foreign currency
transactions are taken to the profit and loss account in
the year in which they arise. The profit and loss accounts
of the affiliates have been translated to sterling using
the average exchange rate for the period.
j) Operating leases
Costs in respect of operating leases are charged on a
straight line basis over the lease term.
2. Turnover and profit on ordinary activities before taxation.
The turnover and profit before taxation is
attributable to one activity, the manufacture and
marketing of pharmaceutical products.
An analysis of turnover by geographical market is given
below:
1997
BP000
United Kingdom 48,571
Overseas 6,634
---------
55,205
=====
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
3. Net operating costs
Net operating costs are made up as follows:
1997
BP000
Change in stocks of finished goods and
work in progress (1,871)
Cost of materials, supplies and other charges 48,605
Depreciation 1,434
Profit on sale of fixed assets (3)
Operating leases - hire of plant and machinery 260
Operating leases - property rental 112
Other operating income (211)
----------
48,326
======
4. Interest
Payable: 1997
BP000
On loans from Hoechst group companies 8
On bank loan, overdraft and other loans
- repayable within 5 years, otherwise
than by instalments 653
Interest on overdue tax 2
---------
663
Receivable: 40
---------
Net interest payable 623
=====
5. Taxation on profit on ordinary activities 1997
BP000
United Kingdom corporation tax
at 31.5% 1,925
Deferred taxation 50
Overseas taxation 55
--------
2,030
=====
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
6. Tangible fixed assets
Land & long Plant & Total
Leaseholds Equipment
BP000 BP000 BP000
Cost
At 31 December 1997 6,004 15,922 21,926
===== ===== =====
Depreciation
Provided in the year 133 1,301 1,434
===== ===== =====
At 31 December 1997 1,080 8,031 9,111
===== ===== =====
Net book value
At 31 December 1997 4,924 7,891 12,815
===== ===== =====
Included in the net book value of land and long leaseholds is
freehold land of BP397,000
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
7. Stocks
1997
BP000
Raw materials 2,436
Work in progress 2,043
Finished goods 7,085
---------
11,564
=====
8. Debtors
1997
BP000
Amounts falling due within one year:
Trade debtors 9,650
Amounts owed by Hoechst group companies 390
Other debtors 6
Prepayments and accrued income 196
---------
10,242
=====
Cox Other
9. Share capital Investments Companies Total
BP000 BP000 BP000
Allotted called up and fully paid
Ordinary shares 2,416 393 2,809
===== ===== =====
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
10. Profit and loss account
Total
BP 000
At 1 January 1997 6,892
Combination adjustment (3,975)
Retained profit for the year 4,226
----
31 December 1997 7,143
=====
The combination adjustment arises on the elimination of
share capital and share premium in Arthur H Cox & Co Limited
and the investment in subsidiary in Cox Investments Limited.
11. Provision for liabilities & charges
1997
BP000
Deferred taxation: the provision represents
the full potential liability
Accelerated capital allowances 1,361
--------
Balance at 31 December 1997 1,361
=====
Balance at 1 January 1997 1,311
Transfer from profit & loss account (Note 5) 50
--------
Balance at 31 December 1997 1,361
=====
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
12. Loans and overdrafts
Repayable within one year:
1997
BP000
Bank overdraft 369
Amounts owed to Hoechst group companies 6,310
---------
Total loans & overdrafts 6,679
=====
13. Other creditors
Amounts falling due within one year
1997
BP000
Trade creditors 9,322
Amounts owed to Hoechst group companies 188
Social security and other taxation 651
Corporation tax 1,772
Accruals and deferred income 1,129
---------
13,062
=====
14. Reconciliation of movements in
shareholders' funds 1997
BP000
Profit for the financial year 4,226
Other reserves 644
Increase in share capital 195
Opening shareholders' funds 8,732
----------
Closing shareholders' funds 13,797
======
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
15. Net cash flow from operating activities
1997
BP000
Operating profit 6,879
Depreciation 1,434
Gain on sale of tangible assets (3)
(Increase) in stocks (1,723)
Increase in creditors 649
Decrease in debtors 525
(Decrease) in provisions (90)
---------
7,671
=====
16. Decrease in cash and cash equivalents
Bank Cash at bank Total
overdraft and in hand
BP000 BP000 BP000
At 1 January 1997 (23) 94 71
Movement (346) 184 (162)
-------- -------- --------
At 31 December 1997 (369) 278 (91)
===== ===== =====
17. Analysis of net debt
At 1 At 1
January 1997 Cash Flow December 1997
BP000 BP000 BP000
Cash in hand and at bank 94 184 278
Overdraft (23) (346) (369)
Debt due within 1 year (11,584) 5,274 (6,310)
---------- ---------- ----------
(11,513) 5,112 (6,401)
====== ====== ======
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
18. Capital commitments
1997
BP000
Future capital expenditure contracted for
but not provided for 3,409
=====
19. Lease commitments
1997
BP000
There are annual commitments under non-
cancellable operating leases as follows:
Land and buildings
Expiring 2 to 5 years inclusive 80
Other
Expiring in 1 year 63
Expiring 2 to 5 years inclusive 83
------
226
====
20. Transactions with directors
There is a collateralized loan of BP6,000 made to Mr D J
Green, a director of Arthur H Cox & Co. Limited, to enable
him to purchase a house following the relocation of the
Company's principal place of operations to Barnstaple. The
loan carries interest at the rate of 5% per annum and is
repayable if Mr Green should leave the service of the
company.
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
21. Ultimate parent company
At 31 December 1997, the directors regarded Hoechst
Aktiengesellschaft, a company incorporated in Germany, to be
the ultimate parent company of the Amalgamated Cox
Companies, until the sale of those companies to Alpharma
Inc. on 7 May 1998.
Copies of the financial statements of Hoechst AG can be
obtained from Hoechst AG, FRW/Kapitalmarkt, Post Fach 80 03
20, D-65926 Frankfurt am Main, Germany.
22. Related party transactions
The Amalgamated Cox Companies have taken advantage of the
exemption under Financial Reporting Standard 8 for 90%
subsidiaries not to disclose intra group transactions.
23. Summary of differences between UK and US Generally Accepted
Accounting Principles (GAAP)
The accompanying combined financial statements have been
prepared in accordance with accounting principles generally
accepted in the United Kingdom ("UK GAAP"), which differ in
certain material respects from generally accepted
accounting principles in the United States ("US GAAP").
The following is a summary of the material adjustments to
profit for the financial year and shareholders' funds which
would have been required if US GAAP had been applied
instead of UK GAAP.
Reconciliation of profit for the financial year
Year ended 31
December
1997
Notes BP000
Profit for the financial year as
reported under UK GAAP 4,226
US GAAP adjustments:
Restructuring costs (i) (90)
Pensions (ii) 9
Capitalised lease adjustment (iii) 5
Interest capitalisation and related
amortisation (iv) (9)
Deferred taxation on US GAAP adjustments 26
______
Net income under US GAAP 4,167
======
Reconciliation of Shareholders' funds At 31
December
Notes 1997
BP000
Shareholders' funds as reported under UK GAAP 13,797
US GAAP adjustments:
Restructuring costs (i) -
Pensions (ii) 480
Capitalised lease adjustments (iii) (51)
Interest capitalisation and related
amortisation (iv) 156
Deferred taxation on US GAAP adjustments (181)
______
Shareholders' funds under US GAAP 14,201
=====
AMALGAMATED COX COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1997
A summary of the principal differences applicable to the
financial statements are set out below:
(i) Restructuring costs
Under UK GAAP, when a decision has been taken to restructure part
of the business, provisions are made for redundancy and any other
costs.
US GAAP requires a number of specific criteria to be met before
such costs can be recognised as an expense. Among these is the
requirement that all the significant actions arising from the
restructuring and their expected completion dates must be
identified by the balance sheet date.
In addition, US GAAP is more prescriptive than UK GAAP with
respect to the nature of items which may be classified as
restructuring or exit costs. Costs which do not qualify are
recognised as liabilities when an obligation exists to pay cash
or otherwise sacrifice assets and are classified as an operating
expense of the business.
The adjustment reflects costs incurred in the 1996 financial
statements that would not have qualified for accrual under U.S.
GAAP and therefore would reduce earnings in 1997.
(ii) Pensions
Under UK GAAP the cost of providing pension benefits is expensed
over the average expected service lives of eligible employees in
accordance with the provisions of SSAP 24 "Accounting for
pensions". SSAP 24 aims to produce an estimate of cost based on
long-term actuarial assumptions. Variations from the regular
pension cost arising from, for example, deficiencies or
surpluses, are charged or credited to the profit and loss account
over the expected average remaining service lives of current
employees in the schemes.
Under US GAAP, Statement of Financial Accountings Standards
("SFAS") No. 87 "Employers Accounting for Pensions" requires the
use of the projected unit credit method to determine pension
costs. Annual valuations must be carried out. The present value
of the pension obligation is determined using a current market
discount rate such as that of a high quality, fixed rate debt
instrument, and the plan assets are valued on a market to market
basis. Actuarial gains and losses that arise within a prescribed
corridor do not have to be amortised; those outside the corridor
are amortised over the average expected remaining service lives.
The corridor is the greater of 10% of the projected benefit
obligation or 10% of the market related value of plan assets at
the beginning of the year.
(iii) Capital leases
Under UK GAAP, the company has a lease arrangement that is
classified as an operating lease as a result of a substance over
form determination that there has been no transfer of the risks
of ownership under the agreement.
Under US GAAP, the decision as to whether the lease is a capital
lease is determined by a series of form driven requirements
focused on the legal form of the agreement that results in the
capitalisation of the related leased assets.
(iv) Interest capitalisation
Under UK GAAP, the capitalisation of interest is optional and
interest has not been capitalised on capital construction
projects.
Under US GAAP, interest incurred on an avoided cost basis during
the construction of fixed assets is capitalised and amortised
over the life of the asset, following its commissioning.
(v) Cash flow information
Under UK GAAP, the combined cash flow statement is presented in
accordance with UK Financial Reporting Standard No. 1, as revised
(FRS 1). The Statements prepared under FRS 1 present
substantially the same information as that required under US GAAP
as interpreted by SFAS No. 95 "Statement of Cash Flows."
Under UK GAAP cash flows are presented for operating activities;
return on investments; taxation; acquisitions and disposals;
equity dividends paid; and management of liquid resources and
financing activities.
US GAAP requires the classification of cash flows as resulting
from operating, investing, and financing activities. Changes in
balances of cash and overdrafts are classified within financing
activities.
A consolidated statement of cash flows is set out below in
accordance with the classification requirements and definition of
cash under US GAAP:
Year ended
31 December
1997
BP000
Cash provided by operating activities 6,029
Cash used in investing activities (1,756)
Cash used in financing activities (4,089)
Increase in cash for the period 184
Cash and cash equivalents at the beginning
of the year 94
Cash and cash equivalents at the end of the
year 278
AMALGAMATED COX COMPANIES
UNAUDITED PROFIT AND LOSS ACCOUNT
FOR THE PERIODS ENDED 31 MARCH 1998 AND 31 MARCH 1997
3 months to 3 months to
31 March 1998 31 March 1997
BP 000 BP 000
Turnover - continuing operations 13,908 12,440
Net operating costs - continuing
operations 12,141 11,150
Operating profit - continuing
operations 1,767 1,290
Interest payable (net) 131 152
Profit on ordinary activities before
taxation 1,636 1,138
Taxation on ordinary activities 517 372
Profit for the financial year 1,119 766
Retained profit for the year 1,119 766
AMALGAMATED COX COMPANIES
UNAUDITED BALANCE SHEET
FOR THE PERIODS ENDED 31 MARCH 1998 AND 31 DECEMBER 1997
31 March 31 December
1998 1997
BP 000 BP 000
ASSETS
Fixed assets:
Tangible assets 13,268 12,815
Current assets:
Stocks 11,935 11,564
Debtors 10,196 10,242
Cash at bank and in hand 329 278
22,460 22,084
35,728 34,899
LIABILITIES
Capital and reserves: - -
Called up ordinary shares 2,785 2,809
Share premium account 3,201 3,201
Other reserves 644 644
Profit and loss account 8,255 7,143
14,885 13,797
Provision for liabilities and
charges 1,361 1,361
Creditors:
Loans and overdrafts 7,873 6,679
Other creditors 11,609 13,062
19,482 19,741
35,728 34,899
AMALGAMATED COX COMPANIES
UNAUDITED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 31 MARCH 1998 AND 31 MARCH 1997
3 months to 3 months to
31 March 1998 31 March 1997
BP 000 BP 000
Net cash in flow from operating
activities (442) 677
Returns on investments and
servicing of finance
Interest paid (118) (152)
Taxation
U.K. corporation tax paid 148 -
Capital expenditure and
financial investment
Payments to acquire fixed assets (794) (62)
Net cash (outflow)/inflow before
management of liquid resources
and financing (1,206) 463
Financing
Loan repayment - (11,074)
Loan advances 1,563 -
1,563 (11,074)
Increase in cash in the period 357 (10,611)
AMALGAMATED COX COMPANIES
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED 31 MARCH 1998 AND 31 MARCH 1997
1. Accounting policies
The financial statements have been prepared in accordance
with applicable Accounting Standards in the United Kingdom.
Because the combined financial statements combine the
accounts of companies which at the relevant date did not
comprise a group for legal reporting purposes, the financial
statements cannot be consolidated in accordance with
Financial Reporting Standard FRS 2, Accounting for
subsidiary undertakings, and do not constitute statutory
accounts.
The accounts of Cox Investments Limited and its wholly owned
subsidiary Arthur H Cox Limited ("the Cox companies") have
been included by combining their balance sheets and profit
and loss accounts for the full year. The accounts of Norcox
Pharma AB (Sweden), Norcox Pharma AS (Norway), Nedcox Pharma
BV (Netherlands) and Cox Pharma Belgium NV (collectively
"the affiliates") have been included by combining their
balance sheets and profit and loss accounts for the full
year.
All appropriate intercompany transactions have been
eliminated. Such intercompany transactions include the
elimination of intercompany sales, debtors and creditors,
share capital and investments.
These unaudited combined condensed financial statements
include all normal and recurring adjustments that are
considered necessary for the fair presentation of the Cox
companies and affiliates financial position and operating
results. Since these financial statements are condensed
certain footnotes and other information has been omitted;
therefore, these financial statements should be read in
conjunction with the combined financial statements of
Amalgamated Cox Companies for the year ended 31 December
1997.
On 7 May 1998 the Cox companies and the affiliates were
purchased by Alpharma Inc. ("Alpharma") a United States
company. Prior to their acquisition by Alpharma, the Cox
companies and the affiliates were wholly-owned, but
otherwise unrelated subsidiaries of Hoechst AG ("Hoechst").
Under the terms of the purchase agreement, Alpharma paid to
Hoechst $192 million in cash and assumed certain bank debt
of the Cox companies and the affiliates in exchange for all
outstanding stock of each of the Cox companies and the
affiliates. The financial position and results of operations
of the Cox companies and the affiliates have been combined
to reflect the historical information of the companies
acquired by Alpharma.
2 Stocks
Stock and work in progress are stated at the lower of cost
and net realisable value.
In the case of raw materials cost comprises purchase price,
calculated on a first in, first out basis. In the case of
work in progress and finished goods, cost consists of
direct materials, direct labour and attributable production
overheads. Attributable overheads have been allocated to
production on the basis of normal activity.
Net realisable value is the estimated selling price less all
further costs to completion and all costs to be incurred in
marketing, selling and distribution.
31 March 1998
BP 000
Raw materials 2,196
Work in progress 2,315
Finished goods 7,424
11,935
AMALGAMATED COX COMPANIES
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED 31 MARCH 1998 AND 31 MARCH 1997
3. Summary of differences between UK and US Generally Accepted
Accounting Principles ("GAAP")
The accompanying unaudited combined financial statements
have been prepared in accordance with accounting principles
generally accepted in the United Kingdom ("UK GAAP"), which
differ in certain material respects from generally accepted
accounting principles in the United States ("US GAAP").
The following is a summary of the material adjustments to
profit for the financial period and shareholders' funds
which would have been required if US GAAP had been applied
instead of UK GAAP.
31 March
1998 1997
Notes BP 000 BP 000
Profit for the financial period as
reported under UK GAAP 1,119 766
US GAAP adjustments:
Restructuring (i) - 3
Pensions (ii) (38) 30
Capital lease adjustments (iii) 13 1
Interest capitalisation and related
amortisation (iv) (2) (2)
Deferred taxation on US GAAP adjustments 8 (10)
1,100 788
Reconciliation of shareholders' funds
At 31 March
1998
Notes BP 000
Shareholders' funds as reported under
UK GAAP 14,885
US GAAP adjustments:
Restructuring (i) -
Pensions (ii) 442
Capital lease adjustment (iii) (38)
Interest capitalisation and related
amortisation (iv) 154
Deferred taxation on US GAAP adjustments (173)
Shareholders' funds under US GAAP 15,270
AMALGAMATED COX COMPANIES
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED 31 MARCH 1998 AND 31 MARCH 1997
A summary of the principal differences applicable to the
financial statements is set out below:
(i) Restructuring costs
Under UK GAAP, when a decision has been taken to restructure
part of the Group's business, provisions are made for
redundancy and other costs.
US GAAP requires a number of specific criteria to be met
before such costs can be recognised as an expense. Among
these is the requirement that all the significant actions
arising from the restructuring and their expected completion
dates must be identified by the balance sheet date.
In addition, US GAAP is more prescriptive than UK GAAP with
respect to the nature of items which may be classified as
restructuring or exit costs. Costs which do not qualify are
recognised as liabilities when an obligation exists to pay
cash or otherwise sacrifice assets and are classified as an
operating expense of the business.
(ii) Pensions
Under UK GAAP the cost of providing pension benefits is
expensed over the average expected service lives of eligible
employees in accordance with the provisions of SSAP 24
"Accounting for pensions". SSAP 24 aims to produce an
estimate of cost based on long-term actuarial assumptions.
Variations from the regular pension cost arising from, for
example, deficiencies or surpluses, are charged or credited
to the profit and loss account over the expected average
remaining service lives of current employees in the schemes.
Under US GAAP, SFAS 87 "Employers Accounting for Pensions"
requires the use of the projected unit credit method to
determine pension cost. Annual valuations must be carried
out. The present value of the pension obligation is
determined using a current market discount rate such as that
of a high quality, fixed rate debt instrument, and the plan
assets are valued on a market to market basis. Actuarial
gains and losses that arise within a prescribed corridor do
not have to be amortised; those outside the corridor are
amortised over the average expected remaining service lives.
The corridor is the greater of 10% of the projected benefit
obligation or 10% of the market related value of plan assets
at the beginning of the year.
(iii) Capital leases
Under UK GAAP the company has a lease arrangement that is
classified as an operating lease as a result of a substance
over form determination that there has been no transfer of
the risks of ownership under the agreement.
Under US GAAP the decision as to whether the lease is a
capital lease is determined by a series of form driven
requirements focused on the legal form of the agreement that
results in the capitalisation of the related assets.
(iv) Interest capitalisation
Under UK GAAP, the capitalisation of interest is optional and
the Amalgamated Cox Companies have not capitalised any
interest on capital construction projects.
Under US GAAP, interest incurred on an avoided cost basis
during the construction of fixed assets is capitalised and
amortised over the life of the asset, following its
commissioning.
(v) Cash flow information
Under UK GAAP, the Combined Cash Flow Statement is presented
in accordance with UK Financial Reporting Standard No 1, as
revised (FRS 1). The Statements prepared under FRS 1 present
substantially the same information as that required under US
GAAP as interpreted by SFAS 95.
Under UK GAAP cash flows are presented for operating
activities; return on investments; taxation; acquisitions and
disposals; equity dividends paid; and management of liquid
resources and financing activities.
US GAAP requires the classification of cash flows as
resulting from operating, investing, and financing
activities. Changes in balances of cash overdrafts are
classified within financing activities.
Alpharma Inc.
Index to Unaudited Pro Forma
Condensed Combined Financial Statements
Balance Sheet as of March 31, 1998 F-33
Statement of Income for the Year Ended
December 31, 1997 F-34
Statement of Income for the Three Months
Ended March 31, 1998 F-35
Notes to the Unaudited Pro Forma Condensed
Combined Financial Statements F-36 to F-41
Alpharma Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 1998
(In thousands)
Pro Forma Pro
Alpharma Cox Adjust- Forma
Historical Actual ments Combined
Assets
Current assets:
Cash and cash $ 10,499 $550 $ - $11,049
equivalents
Accounts receivable, net 113,429 17,041 - 130,470
Inventories 124,606 19,947 1,300(b) 145,853
Prepaid expenses and
other current assets 12,942 738 - 13,680
Total current assets 261,476 38,276 1,300 301,052
Property, plant and
equipment, net 195,943 22,369 12,100(b) 230,412
Intangible assets, net 146,255 - 161,100(b) 307,355
Other assets and deferred
charges 12,776 - - 12,776
Total assets $616,450 $60,645 $174,500 $851,595
Liabilities and
Stockholders' Equity
Current liabilities:
Current portion of
long-term debt $ 6,616 $ - $ - $
6,616
Short-term debt 8,600 - 31,158(a) 39,758
Accounts payable and
accrued expenses 71,355 19,423 - 90,778
Accrued and deferred
income taxes 5,529 2,564 400(b) 8,493
Total current
liabilities 92,100 21,987 31,558 145,645
Long-term debt 252,349 13,158 166,842(a) 432,349
Deferred income taxes 25,926 - 3,700(b) 29,626
Other non-current
liabilities 8,227 - - 8,227
Stockholders' equity 237,848 25,500 (27,600)(c) 235,748
Total liabilities and
stockholders' equity $616,450 $60,645 $174,500 $851,595
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
Alpharma Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the year ended December 31, 1997
(In thousands, except per share data)
Pro Forma Pro
Alpharma Cox Adjust- Forma
Historical Actual ments Combined
Total revenue $500,288 $91,370 $ - $591,658
Cost of sales 289,235 68,162 - 357,397
Gross profit 211,053 23,208 - 234,261
Selling, general and
administrative 164,155 11,948 5,200(d) 181,303
expenses
Operating income 46,898 11,260 (5,200) 52,958
Interest expense (18,581) (1,046) (11,900)(e) (31,527)
Other income (expense), (567) - - (567)
net
Income before provision
for 27,750 10,214 (17,100) 20,864
income taxes
Provision for income 10,342 3,317 (4,946)(f) 8,713
taxes
Net income $ 17,408 $ 6,897 $(12,154) $12,151
Average common share
outstanding:
Basic 22,695 22,695
Diluted 22,780 22,780
Earnings per share:
Basic $0.77 $0.54
Diluted $0.76 $0.53
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
Alpharma Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the three months ended March 31, 1998
(In thousands, except per share data)
Pro Forma
Alpharma Cox Adjust- Pro
Historical Actual ments Forma
Combined
Total revenue $126,562 $ 22,948 $ - $149,510
Cost of sales 73,145 17,119 - 90,264
Gross profit 53,417 5,829 - 59,246
Selling, general and
administrative 40,007 2,955 1,300(d) 44,262
expenses
Operating income 13,410 2,874 (1,300) 14,984
Interest expense (4,490) (219) (2,975)(e) (7,684)
Other income (expense), (201) - - (201)
net
Income before provision
for 8,719 2,655 (4,275) 7,099
income taxes
Provision for income 3,317 840 (1,237)(f) 2,920
taxes
Net income $ 5,402 $ 1,815 $ (3,038) $ 4,179
Average common share
outstanding:
Basic 25,350 25,350
Diluted 25,713 25,713
Earnings per share:
Basic $0.21 $0.16
Diluted $0.21 $0.16
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
Alpharma Inc.
Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
(In thousands of dollars)
1. Basis of Presentation
The unaudited pro forma condensed combined financial
statements (pro forma financials) are presented for illustrative
purposes only, giving effect to the acquisition, as described and
therefore are not necessarily indicative of the operating results
and financial position that might have been achieved had the
combination occurred as of an earlier date, nor are they
necessarily indicative of operating results and financial
position which may occur in the future.
On May 7, 1998, Alpharma Inc. acquired all of the capital
stock of Cox Investments Limited 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 the 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 the acquisition is 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 intends to operate Cox by continuing its core U.K.
operations with the addition of certain efficiencies resulting
from the leveraging of the Cox business with the historic
European pharmaceutical business of Alpharma while expanding the
scope of Cox's operations geographically and adding to Cox's U.K.
sales base certain other pharmaceuticals products of the Company.
The acquisition will be accounted for in accordance with the
purchase method. The accompanying unaudited pro forma condensed
combined financial statements reflect the acquisition as if it
occurred as of the beginning of the periods presented for the
income statements and as of March 31, 1998 for the balance sheet.
The financial statements of Cox which were originally prepared on
a U.K. basis have been adjusted to U.S. GAAP for pro forma
purposes.
The actual results of Cox will be consolidated with the
Company from the date of acquisition (May 7, 1998).
The pro forma balance sheet includes a preliminary
allocation of the purchase price which will be adjusted during
the allocation period based on a detail review of the assets and
liabilities acquired.
2. Translation of Cox's financial statements.
The British pound is the functional currency for Cox's
operations. The exchange rate of the British pound into United
States dollars as of March 31, 1998 was GBP 1.6713 to $1.00. The
average exchange rates for the year ended December 31, 1997 and
the three month period ended March 31, 1998 were GBP 1.6551 to
$1.00 and GBP 1.6500 to $1.00, respectively.
3. Pro Forma Adjustments - Balance Sheet at March 31, 1998
The unaudited pro forma balance sheet gives effect to the
acquisition as if it had been consummated on March 31, 1998.
To record the purchase of Cox and record a preliminary
purchase price allocation:
Purchase price:
Paid in cash (including required purchase
price adjustment and direct costs of $198,000(a)
acquisition)
Cox equity at 3/31/98 25,500(c)
Amount to be allocated $172,500
Allocated as follows:
Inventory $ 1,300(b)
Property, plant and equipment 12,100(b)
In-process research and development costs 2,100(c)
(R&D)
Deferred taxes (4,100)(b)
Intangible assets and goodwill 161,100(b)
$172,500
(a) Purchase price financed with:
Short term debt $ 31,158
Long term debt -
Revolving credit agreement 180,000
Long term debt - Cox (repaid) (13,158)
$198,000
(b) Allocation of purchase price in excess of Cox net book
value:
Inventory write up $1,300
Property, plant and equipment
(PP&E) write up $12,100
Deferred taxes on write-up of
inventory and PP&E $(4,100)
Intangible assets and goodwill $161,100
(c) Elimination of Cox Equity $25,500
Allocated in process R&D which
is written off immediately
after acquisition 2,100
$27,600
4. Pro forma adjustments - Statements of Income for the year
ended December 31, 1997 and three months ended March 31, 1998
The unaudited pro forma income statements assume the
purchase as of the beginning of each period presented. The
adjustments are as follows:
For the Year For the
Ended three months
December 31, ended March
1997 31,
1998
(d) Depreciation expense $600 $150
(f) Tax benefit @ 31% $186 $47
To record depreciation on an
estimated fixed asset write up
based on an approximate composite
20 year life.
(d) Amortization of intangibles $4,600 $1,150
To record amortization of
intangibles based on a 35 year
life.
(Both are included in selling,
general and administrative
expenses.)
(e) Interest expense @ 6.0% $11,900 $2,975
(f) Tax benefit @ 40% $4,760 $1,190
To record interest expense on
assumed average borrowings of
$198,000 and related tax
benefit.
For each 1/4% change in interest
rates interest expense would
increase/decrease by
approximately $500.
The interest rate of 6% used for the pro forma condensed
combined statements of income is supported by the fact that the
purchase was made possible from the Company's issuance of
convertible subordinated debt. The purchase price of Cox of
approximately $198,000 was in effect financed primarily through
$192,850 from the convertible subordinated notes with the
remainder through short-term borrowings.
5. Items excluded from pro forma combined statements of income
The impact on cost of sales of the write up of inventory to
net realizable value pursuant to Accounting Principles Board
Opinion No. 16 "Business Combinations" ("APB16") is not reflected
in the pro forma statements of income. This non-recurring charge
of $1,300 will be reflected in cost of sales during the second
quarter. Also, in accordance with APB16, in process research and
development ("R&D") costs were valued in the purchase price
allocation ($2,100) and will be written off immediately after
acquisition. The valuation and write off of in process R&D is not
tax effected.
In addition, certain employees of IPD have been severed as a
result of the acquisition. This will result in an approximate
$200 charge in the second quarter. If further savings are
identified, additional employees may be severed in the second
half of 1998.
The non-recurring charges related to the acquisition of Cox
to be included in the second quarter of 1998 are summarized as
follows:
Inventory write-up $1,300
In process R&D 2,100
Severance 200
3,600
Tax benefit (470)
$3,130 ($.12 per share)
6. Cost savings and synergies
The Company, in its evaluation of the Cox acquisition,
identified various cost savings which could be achieved through
the elimination of duplicate positions (both within
Cox and the IPD division) and combining certain functional
organizations (e.g. purchasing and selling) for greater
efficiencies and leveraging purchasing power to obtain lower
costs for raw materials and supplies. In addition, the cross
marketing of Cox and IPD products by the respective companies in
their respective markets is expected to increase overall sales
and related production volume. While the amount of savings and
synergies cannot be assured, it is expected, when combined with
the projected growth of Cox, to offset the dilutive effect of the
acquisition by the second half of 1999.
___________________
Statements made in this Form 8-K/A, 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
under the caption "Risk Factors" its Form 10-K for the year ended
December 31, 1997.
