Page 1 of 4
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): June 18, 1999
ALPHARMA INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-8593 22-2095212
(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification Number)
Incorporation)
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 June 18, 1999, Alpharma Inc. ("The Company") acquired all of
the capital stock of Isis Pharma GmbH and its subsidiary, Isis
Puren ("Isis") from Schwarz Pharma AG for approximately $153
million in cash, and a further purchase price adjustment equal to
any increase (or decrease) in the net assets of Isis from January
1, 1999 to the date of acquisition. Isis operates a generic and
branded pharmaceutical business in Germany. The acquisition
consisted of personnel (approximately 200 employees; 140 of whom
are in the sales force) and product registrations and trademarks.
No plant, property or manufacturing equipment were part of the
acquisition.
The Company financed the $153 million purchase price under its
$300 million Credit Facility ("1999 Credit Facility"). On June 2,
1999, the Company repaid borrowings under the 1999 Credit
Facility with a substantial portion of the proceeds from the
issuance of convertible senior subordinated notes as reported in
the Company's current report on Form 8-K dated June 2, 1999.
Such repayment created the capacity under the 1999 Credit
Facility to incur the borrowings used to finance the acquisition
of Isis. The 1999 Credit Facility has been filed with the
Securities and Exchange Commission, includes the names of banks
participating therein and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
(a) Financial Statements of Acquired Companies.
i) Independent Auditors' Report (F-4)
ii) Isis Pharma GmbH and subsidiary consolidated financial
statements for the years ended December 31, 1997 and
1998 (F-5 to F-20).
(b) Pro Forma Financial Information.
i) Alpharma Inc. Unaudited Pro Forma Condensed Combined
Statement of Income for the year ended December 31, 1998 (F-22).
ii) Alpharma Inc. Unaudited Pro Forma Condensed Combined
Statement of Income for the six months ended June 30, 1999 (F-
23).
iii) Notes to Unaudited Pro Forma Condensed Combined Financial
Statements (F-24 to F-26).
(c) Exhibits.
2.1 Sale and purchase agreement between Schwarz Pharma AG
"Seller" and Alpharma GmbH & Co. KG "Purchaser" and Alpharma Inc.
"Parent" dated June 18, 1999. (Filed with
Form 8-K on July 2, 1999.)
23.1 Consent of Deloitte & Touche GmbH
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 hereunto duly authorized.
ALPHARMA INC.
By: \s\ Jeffrey E. Smith
Jeffrey E. Smith
Executive Vice President
and Chief Financial
Officer
Date: August 30, 1999
ISIS Pharma GmbH, Zwickau
Consolidated Financial Statements
and
Independent Auditors' Report
as of December 31, 1997 and 1998
Financial Section
Contents:
. Report of Management
. Independent Auditors' Report
. Consolidated Statements of Income
. Consolidated Balance Sheets
. Consolidated Statements of Cash Flows
. Notes to Consolidated Financial Statements
Report of Management
The Company's management is responsible for the integrity and
accuracy of the financial information contained in this annual
report. Management believes that the financial statements have
been prepared in conformity with generally accepted accounting
principles appropriate in the circumstances and that the other
information in this annual report is consistent with those
statements. In preparing the financial statements, management
makes informed judgements and estimates where necessary to
reflect the expected effects of events and transactions that have
not been completed.
Management is also responsible for maintaining an internal
control system designed to provide reasonable assurance at
reasonable cost that assets are safeguarded against loss or
unauthorized use and that financial records are adequate and can
be relied upon to produce financial statements in accordance with
generally accepted accounting principles. The system is supported
by written policies and guidelines, by careful selection and
training of financial management personnel and by group
accounting staff which coordinates its activities with the
Company's independent accountants.
Deloitte & Touche GmbH, independent accountants, are retained to
conduct an audit of ISIS Pharma's financial statements in
accordance with generally accepted auditing standards and to
express their opinion as to whether these consolidated financial
statements present fairly, in all material respects, the
Company's financial position, results of operations and cash
flows.
The management, the internal auditors and the independent
accountants have periodic meetings to discuss accounting controls
and the quality of financial reporting.
INDEPENDENT AUDITORS' REPORT
To the shareholders of ISIS Pharma GmbH, Zwickau:
We have audited the accompanying consolidated balance sheets of
ISIS Pharma GmbH and subsidiary as of December 31, 1997 and 1998,
and the related consolidated statements of income and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, 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 financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of ISIS
Pharma GmbH and subsidiary as of December 31, 1997 and 1998, and
the results of their operations and their cash flows for the
years then ended in conformity with accounting principles
generally accepted in the United States of America.
August 9, 1999
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
Consolidated Statements of Income
ISIS Pharma GmbH and Subsidiary
Year ended December 31
(DM in thousands) 1997 1998
Net sales 151,270 150,605
Cost of goods sold 42,795 49,466
Gross profit 108,475 101,139
Selling expense 43,736 37,200
General and administrative 12,916 11,781
expense
Research and development 1,992 2,687
expense
Amortization of intangible 20,114 19,094
assets
Operating income 29,717 30,377
Interest income 343 201
Interest expense 4,085 3,903
Other income - net 128 3,519
Income before income taxes 26,103 30,194
Income tax 13,378 11,450
Net income 12,725 18,744
Consolidated Balance Sheets
ISIS Pharma GmbH and Subsidiary
December 31 (DM in thousands) 1997 1998
Assets
Current assets
Cash and cash equivalents 3,606 2,707
Marketable securities 0 1,502
Accounts receivable, less 17,058 56,537
allowances
(1997: DM 113; 1998: DM 158)
Inventories 18,316 809
Total current assets 38,980 61,555
Property, plant and equipment
Land and buildings 597 0
Machinery and equipment 21,124 2,732
Construction in progress 356 0
Less accumulated depreciation (12,792) (2,148)
Total 9,285 584
Goodwill and other intangible assets
net of accumulated amortization 94,735 81,312
(1997: DM 53,014; 1998: DM 69,766)
Long-term investments and other assets 1,945 389
Deferred income taxes 0 520
144,945 144,360
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt 0 10,000
Accounts payable 15,839 10,792
Accrued and other liabilities 3,369 5,133
Income and other tax liabilities 7,992 14,611
Deferred income taxes 843 272
Total current liabilities 28,043 40,808
Long-term debt 50,000 40,000
Pensions 1,740 1,784
Other accrued and noncurrent 947 1,272
liabilities
Deferred income taxes 4,280 0
Shareholders' equity
Common stock 15,000 15,000
Additional paid-in capital 0 1,817
Retained earnings 44,935 43,679
Total shareholders' equity 59,935 60,496
144,945 144,360
Consolidated Statements of Cash Flows
ISIS Pharma GmbH and Subsidiary
Year ended December 31
(DM in thousands) 1997 1998
Cash Flow from Operating Activities
Net income 12,725 18,744
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 22,485 21,507
Gains on sales of tangible and (48) (3,242)
intangible assets
Deferred income taxes (1,222) (5,371)
Net changes in assets and
liabilities:
Accounts receivable 4,004 (39,479)
Inventories (845) 17,506
Other assets 358 54
Accounts payable 6,195 (5,046)
Accrued and other liabilities (11,733) 8,752
Net Cash Provided by Operating Activities 31,919 13,425
Cash Flow from Investing Activities
Capital expenditures (4,227) (9,117)
Proceeds of sales of property, plant
and equipment 86 12,976
and intangible assets
Net Cash Used for Investing Activities (4,141) 3,859
Cash Flow from Financing Activities
Repayments of long-term debt (11,000) 0
Additional paid-in capital 0 1,817
Dividends paid (15,000) (20,000)
Net Cash Provided by (Used in) Financing (26,000) (18,183)
Activities
Change in cash and cash equivalents 1,778 (899)
Cash and cash equivalents at beginning 1,828 3,606
of year
Cash and cash equivalents at end of 3,606 2,707
year
Cash paid for interest 3,380 3,369
Notes to Consolidated Financial Statements
(DM in thousands, unless otherwise noted)
1. Description of the Business
The Company is a wholly-owned subsidiary of Schwarz Pharma AG, a
German pharmaceutical company. ISIS Pharma operates in Germany
and is engaged in the discovery, development, manufacturing, and
marketing of a diversified range of pharmaceutical products and
services. The Company's products include both prescription drugs
and over-the-counter products and are generally sold directly to
retailers, wholesalers, hospitals, health care facilities,
physicians' offices and government agencies in Germany.
2. Significant Accounting Policies
Principles of Consolidation - The consolidated financial
statements include the accounts of ISIS Pharma GmbH and its
wholly-owned subsidiary ISIS Puren Arzneimittel GmbH & Co. KG.
All material intercompany balances and transactions have been
eliminated.
Revenue Recognition - Revenues are generally recognized when
finished products are shipped or services have been rendered to
unaffiliated customers.
Cash and Cash Equivalents - The Company considers all highly
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. Cash and cash equivalents consist
primarily of commercial papers carried at cost, which
approximates fair value.
Inventories - Inventories are stated at the lower of cost or
market. Cost is generally determined in accordance with the
"first-in, first out" method. Provision for potentially obsolete
or slow-moving inventory is made based on management's analysis
of inventory levels and future sales forecasts.
Investments in Marketable Securities - The Company classifies its
investments as held to maturity. Investments held to maturity
consist primarily of certificates of deposit with financial
institutions and federal and municipal bonds having maturities of
three years or less and are recorded at amortized cost.
Property, Plant and Equipment and Depreciation - Property, plant
and equipment are recorded at cost. Depreciation is provided
principally using the straight-line method based on estimated
useful lives of the assets as follows:
years
Buildings 15
Machinery and equipment 5 to 10
Improvements which extend the useful life of property are
capitalized, and maintenance and repairs are expensed.
Intangible Assets - The excess of the cost over the fair value of
net assets of purchased businesses is recorded as goodwill and is
amortized using the straight-line method over 15 years. Other
intangibles include trademarks, tradenames and distribution
rights and are being amortized using the straight-line method
with estimated lives of 5 to 20 years.
Long-Lived Assets - The Company periodically evaluates the
carrying value of property, plant and equipment and intangible
assets in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". Long-lived
assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss would be recognized when the
expected undiscounted cash flows derived from the asset is less
than its carrying value. During the year ended December 31, 1997,
the Company recorded an impairment loss of DM 1,207 for
intangible assets related to trademarks no longer used. No
further impairment loss was recorded in 1998.
Income Taxes - Deferred income taxes reflect the future tax
consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Foreign Currency Translation - Exchange gains and losses from
transactions in a currency other than the local currency of the
entity involved are included in income (1998 losses DM 8 and 1997
gains DM 37).
Research and Development - Research and development costs consist
of expenditures incurred during the course of planned search and
investigation aimed to discover new knowledge which will be
useful in developing new products or processes, or significantly
enhancing existing products or production processes, and the
implementation of such through design or testing of product
alternatives.
Use of Estimates - The preparation of financial estimates in
conformity with generally accepted accounting principles requires
management to make estimates and use assumptions that affect
certain reported amounts and disclosures. Actual results could
differ from these estimates.
New Accounting Pronouncements - Effective January 1, 1998, the
Company adopted SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" and SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits".
SFAS No. 130 establishes standards for the reporting and display
of comprehensive income and its components. The implementation of
SFAS No. 131 did not have a material impact on the Company's
reportable operating segments. SFAS No. 132 standardizes the
disclosure requirements about pensions and other postretirement
benefits.
In June 1998 the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognizes all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
This standard will be effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Due to the Company's
current limited use of derivative instruments, the adoption of
this statement is not expected to have a material effect on the
Company's consolidated financial condition or results of
operations.
Effective January 1, 1998, ISIS Pharma adopted the American
Institute of Certified Public Accountants Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". This SOP requires
entities to capitalize certain costs incurred for internal-use
computer software. Adoption of the statement did not have a
material effect on ISIS Pharma's consolidated financial
statements.
3. Related Party Transactions
Some functions (e. g. market research, electronic data processing
and financial accounting) are segregated in order to centralize
certain tasks at Schwarz Pharma AG's corporate headquarters in
Monheim/Germany. Schwarz Pharma Group provides ISIS Pharma with
necessary services and charged DM 2,652 and DM 2,690 in 1998 and
1997, respectively.
Due to the implementation of the "European Production Strategy"
(EPS 2000) during 1998 ISIS Pharma introduced material structural
and organizational changes which will be effective beginning
1999. The functions "production" and "inventory management" will
be segregated from corporate ISIS Pharma and will be transferred
to Schwarz Pharma AG. Due to this, major parts of the Company's
fixed assets and all of its inventories were sold to Schwarz
Pharma. The Company recorded additional paid-in capital of DM
1,817 net of related income tax of DM 2,369 from these transfers.
Pursuant to the "Manufacturing and Supply Agreement" dated
December 18, 1998 Schwarz Pharma AG agreed to manufacture for or
to otherwise provide the Company with certain products ready for
sale beginning 1999. Schwarz Pharma AG will charge the Company
with agreed upon transfer prices. Freight and insurance costs
will be assumed by ISIS Pharma. The agreement matures on December
31, 2001 but will be renewed automatically for the term of
another calender year if not terminated in writing six months
before maturity.
In 1998 and 1997 sales to Schwarz Pharma amounted to DM 1,439 and
DM 1,688, respectively.
The Company licenses various product rights from Schwarz Pharma
to sell these products to third parties. ISIS Pharma is obligated
to pay license fees which amount to 3.5 % of gross sales
generated from these products. Fees for 1998 were DM 63 and for
1997 DM 43.
On December 1, 1993 the Company enterd into a "Lease Agreement"
with Schwarz Pharma covering an office and production building in
Zwickau. The agreement matures on December 31, 1999. Annual rent
expense amounts to DM 3,113.
Since February 1996 the Company participates in the central cash
management system of Schwarz Pharma Group. Pursuant to the "Cash
Management Agreement" dated February 15, 1996 all cash balances
have to be transferred to a target account to be administered
centrally on a daily basis. The Company's stand alone bank
balances are subject to interest based on current bank rates
plus/minus 0.25 %.
On June 3, 1991 ISIS Pharma entered into an agreement with
Schwarz Pharma AG which regulates the interest payments on mutual
trade receivables and payables. The interest rate is based on
current bank rates and was 5.75 % and 6.00 % in 1998 and 1997,
respectively.
With respect to other borrowings and credit arrangements with
related parties see note 8.
On December 31, 1998 and 1997 the Company had outstanding
liabilities with Schwarz Pharma Group amounting to DM 6,939 and
DM 13,343 and receivable balances of DM 40,653 and DM 1,211,
respectively. Total interest expense to Schwarz Pharma was DM
3,701 in 1998 and DM 3,945 in 1997.
4. Income Taxes
The components of income tax expense charged to operations were:
1997 1998
Current:
German federal 6,332 7,442
German local 8,268 9,379
14,600 16,821
Deferred:
German federal (839) (3,471)
German local (383) (1,900)
(1,222) (5,371)
Total 13,378 11,450
Deferred income taxes related to:
1997 1998
Liabilities:
Property, plant and 4,003 129
equipment
Intangible assets 714 0
Inventories 560 12
Accounts receivable 27 78
Other 369 182
Total deferred tax 5,673 401
liabilities
Assets:
Intangible assets 0 129
Pension accruals 306 287
Other 244 233
Total deferred tax assets 550 649
Net deferred tax assets (5,123) 248
(liabilities)
Current deferred income (843) (272)
tax liability
Net long-term deferred tax (4,280) 520
asset (liability)
At December 31, 1998 and 1997, the subsidiary of the Company had
available net operating loss carryforwards for local income tax
purposes, which are not subject to expiration of approximately DM
1 million and DM 3 million, respectively. Whenever the Company
considers it more likely than not that some or all of the
deferred income tax assets will not be realized a valuation
allowance is established. A valuation allowance has been
established for the resulting deferred tax assets. Cash paid for
income taxes in 1998 and 1997 were DM 20.3 million and DM 14.4
million, respectively.
The reconciliation of income tax from continuing operations
computed at the German federal statutory tax rate to the
Company's effective income tax rate is as follows:
1997 1998
% %
German federal statutory rate 45.0 45.0
German local tax 30.2 24.8
Credit for dividend distributions (13.2) (22.5)
Federal tax benefit on local taxes (13.6) (11.1)
Nondeductable expenses 2.4 0.9
Other 0.4 0.8
51.2 37.9
5. Inventories
Inventories at December 31 consisted of the following:
1997 1998
Raw materials and
work in process 4,361 0
Finished products 4,521 109
Merchandise goods 9,434 700
18,316 809
6. Intangible Assets, net
1997 1998
Concessions 3,265 1,642
Patents and patent rights 223 164
Trademarks 37,806 29,307
Licenses and similar 2,405 3,089
rights
Goodwill 51,036 47,110
94,735 81,312
7. Investments
Information regarding the Company's investment in debt securities
follows:
1997 1998
Amortized cost and fair value of
held-to-maturity debt securities* 1,504 1,502
* Gross unrealized gains and losses are immaterial
As of December 31, 1998 these investments are included in the
caption "Marketable securities, current" and have been
reclassified from "Long-term investments and other assets because
the remaining term of the investment is less than one year.
8. Borrowings and Credit Arrangements
On February 7, 1996 the Company entered into a loan agreement
with Schwarz Pharma AG for DM 50 million. The loan is repayable
in fixed rates of DM 5 million every 6 months commencing on June
30, 1999. As of December 31 the loan consisted of the following:
Interest Due Date 1997 1998
Rates %
Fixed rate loan 6.5 1999-2003 50,00 50,000
0
Less current portion 0 10,000
of long-term debt
Long-term debt, net 50,00 40,000
0
9. Concentrations of Credit Risk
The Company periodically reviews the creditworthiness of
counterparties to foreign exchange and other agreements and does
not expect to incur a loss from failure of any counterparties to
perform under the agreements. Concentrations of credit risk with
respect to trade receivables are limited due to the large number
of customers comprising the Company's customer base. Ongoing
credit evaluations of customers' financial condition are
performed and, generally, no collateral is required.
10.Retirement Benefits
The Company has noncontributory defined benefit pension plans
covering eligible employees. Plans for most employees provide
benefits based on flat DM-amounts and years of service.
Pension cost for all plans were DM 180 and DM 190 for 1998 and
1997, respectively. Pension plan information for fiscal years
ending December 31, 1998 and 1997 was as follows:
1997 1998
Change in benefit obligation
Benefit obligation at 1,553 1,740
beginning of year
Service Cost 89 76
Interest Cost 101 104
Actuarial (gain)/loss (3) (136)
Benefit obligation at end of 1,740 1,784
the year
Change in plan assets 0 0
Funded status (1,740) (1,784)
Prepaid (accrued) benefit cost (1,740) (1,784)
Components of net periodic
pension cost
Service Cost 89 76
Interest Cost 101 104
Net periodic pension cost 190 180
1997 1998
Weighted-average assumptions
as of December 31,
Discount rate 6.5% 6.5%
Rate of compensation increase 3.5% 3.5%
11. Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments", requires disclosure of the following information
about the fair value of certain financial instruments for which
it is practicable to estimate that value. For the purposes of
this disclosure, the fair value of financial instruments is the
amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale
or liquidation. However, considerable judgement is necessary in
interpreting market data to develop the estimates of fair value.
The financial instruments portfolio of ISIS Pharma includes cash
and cash equivalents as well as long term debt instruments. For
fiscal years ending December 31, 1998 and 1997 the fair values of
these instruments approximated their carrying values in the
aggregate.
12. Shareholders' Equity
ISIS Pharma GmbH and Subsidiary. ISIS Pharma GmbH is a German
limited liability company with an authorised and issued share
capital of DM 15,000.
Common Additiona Retained Total
stock l paid-in earnings equity
capital
Balance per January 15,000 0 47,210 62,210
1, 1997
Comprehensive income
net
income/comprehensive
income 12,725 12,725
Total comprehensive 12,725
income
Dividend to (15,000) (15,000)
shareholders
Balance December 31, 15,000 0 44,935 59,935
1997
Comprehensive income
net
income/comprehensive
income 18,744 18,744
Total comprehensive 18,744
income
Capital contribution 1,817 1,817
Dividend to (20,000) (20,000)
shareholders
Balance December 31, 15,000 1,817 43,679 60,496
1998
13.Commitments
The Company leases automobiles, certain equipment, office and
warehouses facilities under various lease agreements. Rental
expense under these leases was approximately DM 3,682 and DM
3,748 in 1998 and 1997, respectively. The Company has certain
obligations related to future capital expenditures, licensing and
other purchase commitments totaling DM 6,400 as of December 31,
1998. Aggregate future minimum annual rental payments required
under the operating leases at December 31, 1998, are as follows:
DM
1999 5,040
2000 1,405
2001 812
2002 0
2003 0
Total 7,257
14.Contingencies
The Company is involved in various litigation arising in the
normal course of business, including proceedings based on product
liability claims, workers' compensation claims and alleged
violations of various environmental laws. The Company is self-
insured for health care, workers' compensation, general
liability and product liability up to predetermined amounts,
above which third party insurance applies. The Management
regularly reviews the probable outcome of these proceedings, the
expenses expected to be incurred, the availability and limits of
the insurance coverage, and the established accruals for
uninsured liabilities. While the outcome of pending proceedings
cannot be predicted with certainty, management believes that
liabilities which may result from these proceedings are not
reasonably likely to have a material effect on the Company's
liquidity, financial condition or results of operations.
15.Segment Reporting
All of the Company's business is conducted through its
phamaceutical segment, almost solely in Germany.
The Company sells to various customers, of which four
individually accounted for approximately 24%, 19%, 17% and 12% of
the Company's total revenues for the year ended December 31,
1998. Those same four customers accounted for approximately 28%,
18%, 16% and 12% for the year ended December 31, 1997. No other
customer accounted for more than 10% of the Company's annual
total revenues.
16.Other Income - net
In 1998 other income includes a profit of DM 3,201 from the sale
of a trademark.
17.Subsequent Events
On June 18, 1999, all of the capital stock of ISIS Pharma GmbH
was acquired by Alpharma Inc., Fort Lee, NJ/USA.
ALPHARMA INC.
Index to Unaudited Pro Forma
Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined
Statement of Income for the Year Ended
December 31, 1998 F - 22
Unaudited Pro Forma Condensed Combined
Statement of Income for the Six Months Ended
June 30, 1999 F - 23
Notes to the Unaudited Pro Forma Condensed
Combined Financial Statements F-24 to F-26
Alpharma Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the year ended December 31, 1998
(In thousands, except per share data)
Pro Forma Unaudited
Alpharma Isis Adjust- Pro Forma
Actual Actual ments Combined
Total revenue $604,584 $85,508 $ - $690,092
Cost of sales 351,324 28,085 - 379,409
Gross profit 253,260 57,423 - 310,683
Selling, general
and administrative
expenses 188,264 40,176 309 (a) 228,749
Operating income 64,996 17,247 (309) 81,934
Interest expense (25,613) (2,216) (8,799 (36,628)
)(b)
Other income
(expense), net (400) 2,112 - 1,712
Income before
provision 38,983 17,143 (9,108) 47,018
for income taxes
Provision for income
taxes 14,772 6,501 (4,099 17,174
)(c)
Net income $24,211 $10,642 $(5,009) $29,844
Average common shares
outstanding:
Basic 25,567 25,567
Diluted 26,279 31,379
Earnings per share:
Basic $0.95 $1.17
Diluted $0.92 $1.12 *
* Includes addback to net income for adjustments required under
the if-converted method applicable to dilution of convertible
notes.
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
Alpharma Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the six months ended June 30, 1999
(In thousands, except per share data)
Pro Forma Unaudited
Alpharma Isis Adjust- Pro Forma
Actual Actual ments Combined
Total revenue $320,598 $32,559 $ - $353,157
Cost of sales 178,395 11,819 - 190,214
Gross profit 142,203 20,740 - 162,943
Selling, general
and administrative
expenses 102,814 18,043 163(a) 121,020
Operating income 39,389 2,697 (163) 41,923
Interest expense (16,323) (653) (4,343 (21,319)
)(b)
Other income
(expense), net 921 225 - 1,146
Income before
provision 23,987 2,269 (4,506) 21,750
for income taxes
Provision for income
taxes 8,779 1,021 (2,028 7,772
)(c)
Net income $15,208 $ 1,248 $(2,478) $13,978
Average common shares
outstanding:
Basic 27,379 27,379
Diluted 27,759 27,759
Earnings per share:
Basic $0.56 $0.51
Diluted $0.55 $0.50
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
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
that might have been achieved had the combination occurred as of
an earlier date, nor are they necessarily indicative of operating
results which may occur in the future.
On June 18, 1999, Alpharma Inc. acquired all of the capital
stock of Isis Pharma GmbH and its subsidiary, Isis Puren ("Isis")
from Schwarz Pharma AG for approximately $153 million in cash and
a further purchase price adjustment equal to any increase (or
decrease) in the net assets of Isis from January 1, 1999 to the
date of acquisition. Isis operates a generic and branded
pharmaceutical business in Germany. The acquisition consisted of
personnel (approximately 200 employees; 140 of who are in the
sales force) and product registrations and trademarks. No plant,
property or manufacturing equipment were part of the acquisition.
The acquisition will be accounted for in accordance with the
purchase method. The purchase price is expected to be primarily
allocated to the intangible assets and goodwill. The final
allocation and actual lives to be assigned will be determined by
a professional valuation to be completed by year end 1999. The
accompanying unaudited pro forma condensed combined income
statements reflect the acquisition as if it occurred as of the
beginning of the periods presented. No balance sheets are
required since the accounts of Isis are included in the Company
Form 10-Q filed as of June 30, 1999. The financial statements of
Isis were prepared on a U.S. GAAP basis for inclusion in this
Form 8-K and for pro forma purposes.
The actual results of Isis are consolidated with the Company
and included in Alpharma actual from the date specified in the
sale and purchase agreement (June 15, 1999). For the six months
ended June 30, 1999, Isis unaudited actual amounts include
operations for the stub period January 1 to June 15, 1999.
2.
Translation of Isis' financial statements
The German Mark ("DM") is the functional currency for Isis'
operations. The average exchange rate for the year ended December
31, 1998 was DM .5678 to $1.00. The average exchange rate for
the six months ended June 30, 1999 was DM .5557 to $1.00.
3. Pro Forma adjustments - Statement of Income
The unaudited pro forma income statements assume the
purchase as of the beginning of each period presented and are
translated, where applicable, using average exchange rates for
the given period. The adjustments are as follows:
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
(a) Amortization of intangibles $11,150 $4,998
To record amortization of
estimated goodwill and
intangibles based on 5 to 20
year lives.
Amortization of intangibles ($10,841) ($4,835)
To reverse amortization included
in Isis local financial
statements (at average exchange
rate for the period).
(Net amounts are included
in selling, general and
administrative expenses.)
(b) Interest expense $10,900 $4,996
To record interest expense at
7.125% on assumed average
borrowings of $153,000.
Interest expense ($2,101) ($653)
To reverse Isis related party
interest expense included in
local financial statements. (All
related party debt was forgiven
upon sale to Alpharma.)
(c) Tax benefit $4,099 $2,028
To record income tax effect of
pro forma adjustments above. Note
all adjustments were made using
the statutory German tax rate
of 45%.
For each 1/8% change in interest
rates interest expense would
increase/decrease by
approximately $200 for a full
year.
The interest rate of 7.125% 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 senior subordinated debt. The purchase price of Isis
of approximately $153,000 was in effect financed through the
issuance of $170,000 convertible senior subordinated notes.
_______________
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 years
ended December 31, 1998.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-57501 and 333-70229) and Form S-
8 (No. 33-60495) of our report dated August 9, 1999 relating to
the financial statements of ISIS Pharma GmbH, Zwickau as of and
for the years ended December 31, 1997 and 1998 which appear in
the Current Report on Form 8-K/A of Alpharma Inc. dated August
30, 1999.
Dusseldorf
August 30, 1999
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
