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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 2, 2000
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 May 2, 2000, Alpharma completed the acquisition of the
Medicated Feed Additive Business of Roche ("MFA") for a cash
payment of approximately $258 million and issuance of a $30
million promissory note to Roche. The promissory note is due
December 31, 2000 and will bear interest at the prime rate. The
purchase price will be adjusted based on actual product
inventories as of May 2, 2000. In addition, certain international
inventories will be purchased from Roche during a transition
period of approximately three months. These inventories are
estimated at approximately $10 million.
The MFA business had 1999 sales of over $200 million and consists
of products used in the livestock and poultry industries for
preventing and treating diseases in animals. MFA sales by region
are approximately 56% in North America, 20% in Europe and 12% in
both Latin America and Southeast Asia.
The acquisition includes inventories, five manufacturing and
formulation sites in the United States (two of which will be
operated by Roche until third party consents are received),
global product registrations, licenses, trademarks and associated
intellectual property. Approximately 200 employees primarily in
manufacturing and sales and marketing are included in the
acquisition.
The Company financed the $258 million cash payment under a $225
million bridge financing agreement ("Bridge Financing") with the
balance of the financing being provided under its current $300
million credit facility ("1999 Credit Facility").
The Bridge Financing was arranged by First Union National Bank,
Union Bank of Norway, and a group of other banks. It has an
initial term of 90 days; extendable up to two additional 30 day
periods at the option of the bank group if the Company is in the
active process of refinancing. The Bridge Financing is guaranteed
by substantially all of the Company's U.S. subsidiaries and the
stock in substantially all of the Company's U.S. subsidiaries has
been pledged to the banks.
Under the Bridge Financing the Company has paid a 1% fee for the
banks' commitment and in connection with drawing the funds.
Interest is payable at Libor plus 2.75% to 3.00%.
If the Bridge Financing is not repaid at the end of its term, the
facility will convert to a senior secured facility that will
amortize over the remaining term of the 1999 Facility and be
secured by substantially all of the assets of the Company and its
U.S. subsidiaries. All collateral under the senior secured
facility will be held equally as security for the payment of the
1999 Credit Facility.
The bridge financing agreement and two amendments to the 1999
Credit Facility will be filed with the Form 10-Q for the quarter
ended March 31, 2000. The complete 1999 Credit Facility has
previously been filed with the Securities and Exchange
Commission. Both documents include the names of banks
participating therein.
Note: This Form 8-K/A is being filed due to the restatement of
the Company's 1999 financial statements which were used in the
preparation of the required pro forma information. (See Note 1B
to the Unaudited Pro Forma Condensed Combined Financial
Statements.)
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
(a) Financial Statements of Acquired Assets and Business
(i) Independent Auditors' Report*
(ii) Roche Holding Ltd. Combined Statement of Assets to be
Sold and of Revenues and Direct Operating Expenses of
the MFA Business as of December 31, 1999 and for the
year then ended.*
(b) Pro Forma Financial Information.
i) Alpharma Inc. Unaudited Restated Pro Forma Condensed
Combined Balance Sheet as of December 31, 1999 (F-2).
ii) Alpharma Inc. Unaudited Restated Pro Forma Condensed
Combined Statement of Income for the year ended December 31, 1999
(F-3).
iii) Notes to Unaudited Pro Forma Condensed Combined Financial
Statements (F-4 to F-10).
(c) Exhibits.
2.1 Asset Purchase Agreement, dated as of April 19, 2000
among Roche Vitamins Inc. (RVI) and F.Hoffman-La Roche Ltd.
(Roche Basle) (collectively, Sellers) and Alpharma Inc. and
Alpharma (Luxembourg) SARL (collectively, Buyers).*
23.1 Consent of PricewaterhouseCoopers AG *
* Previously filed with Form 8-K on May 5, 2000
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: December 4, 2000
ALPHARMA INC.
Index to Unaudited Pro Forma
Condensed Combined Financial Statements
Unaudited Restated Pro Forma Condensed Combined
Balance Sheet at December 31, 1999 F - 2
Unaudited Restated Pro Forma Condensed Combined
Statement of Income for the Year Ended
December 31, 1999 F - 3
Notes to the Unaudited Pro Forma Condensed
Combined Financial Statements F-4 to F-10
Alpharma Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 1999
(Dollars in thousands)
Pro Forma Unaudited
Alpharma MFA Adjust- Pro Forma
Restated Historic ments Combined
al
ASSETS
Current assets:
Cash and cash $ 17,655 $17,655
equivalents
Accounts receivable, 189,261 189,261
net
Inventories 161,033 39,950 9,500 210,483
(a)
Prepaid expenses and
other current assets 13,923 13,923
Total current 381,872 39,950 9,500 431,322
assets
Property, plant and
equipment, net 244,413 94,631 339,044
Intangible assets, net 488,958 97,674 50,865 637,497
(a)
Other assets and
deferred 45,023 45,023
charges
Total assets $1,160,266 $232,255 $60,365 $1,452,886
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt $ 9,111 $ 9,111
Short-term debt 4,289 4,289
Accounts payable 51,621 51,621
Accrued expenses 83,660 83,660
Accrued and deferred
income taxes 15,595 15,595
Total current
liabilities 164,276 164,276
Long-term debt:
Senior 225,110 292,620 517,730
(a)
Convertible
subordinated
notes, including
$67,850 to related 366,674 366,674
party
Deferred income taxes 35,065 35,065
Other non-current
liabilities 17,208 17,208
Stockholders' equity 351,933 232,255 (232,255) 351,933
(a)
Total liabilities
and $1,160,266 $232,255 $ 60,365 $1,452,886
stockholders'
equity
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, 1999
(In thousands, except per share data)
Pro Forma Unaudited
Alpharma MFA Adjust- Pro Forma
Restated Historica ments Combined
l
Total revenue $732,443 $213,614 $(2,600)(d) $943,457
Cost of sales 392,316 152,708 (2,500)(d) 542,524
Gross profit 340,127 60,906 (100) 400,933
Selling, general
and administrative (a) (c)
expenses 244,775 84,639 (11,310) 318,104
Operating income 95,352 (23,733) 11,210 82,829
Interest expense (39,174) (29,260)(b) (68,434)
Other income
(expense), net 1,450 (40) - 1,410
Income before
provision 57,628 (23,773) (18,050) 15,805
for income taxes
Provision for income (e)
taxes 20,656 (15,040) 5,616
Net income $36,972 $( 3,010) $ 10,189
Average common shares
outstanding:
Basic 27,745 27,745
Diluted 34,848 28,104
Earnings per share:
Basic $1.33 $0.37
Diluted $1.27 * $0.36
* 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.
1A. 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 indicative of the operating results that might
have been achieved had the combination occurred as of an earlier
date, nor are they indicative of operating results which may
occur in the future.
On May 2, 2000 Alpharma's Animal Health Division ("AHD")
purchased the Medicated Feed Additives (MFA) business of Roche
Holdings AG and Subsidiaries ("Roche"). The MFA business was a
fully integrated business unit of Roche. The business produces
Medicated Feed Additives (MFAs) used by food producers
(livestock, poultry and aquaculture) for the purpose of treating
or preventing disease in animals, or for promoting more efficient
growth. MFAs are currently marketed in more than 100 countries.
As an integrated business unit of Roche, the business relied
on Roche to provide significant administrative management and
other services including, but not limited to, management
information systems, accounting and financial reporting,
treasury, cash management, human resources, employee benefit
administration, payroll, legal and other support. Costs for such
services were charged or allocated by Roche directly to the
operating units utilizing such services. However, these costs are
not indicative of costs that would have been incurred had the MFA
business operated autonomously or as a business within AHD.
The acquisition will be accounted for in accordance with the
purchase method. The purchase price is expected to be allocated
to the intangible assets, goodwill, inventory and plant, property
and equipment. (Plant, property and equipment includes two
facilities which will be operated by Roche until third party
consents are received.) The final allocation and actual lives to
be assigned will be determined by a professional valuation to be
completed within one year of purchase. The accompanying unaudited
pro forma condensed combined income statement reflects the
acquisition as if it occurred as of the beginning of the period
presented. A balance sheet is required since the accounts of MFA
are not included in the Company Form 10-K filed as of
December 31, 1999. The financial statements of MFA, consisting
of statements of assets acquired and revenues and direct
expenses, were prepared in accordance with the accounting
principles generally accepted in the United States for inclusion
in this Form 8-K and for pro forma purposes.
The actual results of MFA will be consolidated with the
Company from the date of acquisition, May 2, 2000.
1B. Restatement of Financial Statements
In the third quarter of 2000 the Company discovered that
with respect to its Brazilian AHD operations, which reported
revenues of approximately $1,800, $6,000 and $13,700 for the
years 1997, 1998, and 1999, respectively, a small number of
employees collaborated to circumvent established company policies
and controls to create invoices that were either not supported by
underlying transactions or for which the recorded sales were
inconsistent with the underlying transactions.
A full investigation of the matter with the assistance of
counsel and the company's independent auditors was initiated and
completed. As a result, the individuals responsible have been
removed, new management has been appointed to supervise AHD
Brazilian operations and the Company has restated all affected
periods, comprising all four quarters of 1999 and the first two
quarters of 2000.
A summary of the effects of the restatement adjustment on
the 1999 consolidated balance sheet and statement of income used
in the Pro Forma is as follows:
December 31, 1999
As
previously
reported in
1999 Restatement
Form 10-K Adjustment As restated
ASSETS
Cash $ 17,655 $ - $ 17,655
Accounts Receivable, net 199,207 (9,946) 189,261
Inventories 155,338 5,695 161,033
Prepaid expenses & other 13,923 - 13,923
Current assets 386,123 (4,251) 381,872
Property, Plant &
Equipment, net 244,413 - 244,413
Intangible assets, net 488,958 - 488,958
Other assets 45,023 - 45,023
Total assets $1,164,517 $ (4,251) $1,160,266
LIABILITIES AND EQUITY
Current portion of long-
term debt $ 9,111 $ - $ 9,111
Short term debt 4,289 - 4,289
Accounts payable &
accrued 135,281 - 135,281
expenses
Accrued and deferred 17,175 (1,580) 15,595
taxes
Current liabilities 165,856 (1,580) 164,276
Long term debt 591,784 - 591,784
Deferred income taxes 35,065 - 35,065
Other non-current
liabilities 17,208 - 17,208
Stockholders' equity 354,604 (2,671) 351,933
Total
liabilities $1,164,517 $ (4,251) $1,160,266
and equity
Year Ended December 31, 1999
As
previously
reported in
1999 Restatement
Form 10-K Adjustments As restated
Total revenue $742,176 $(9,733) $732,443
Cost of Sales 397,890 (5,574) 392,316
Gross profit 344,286 (4,159) 340,127
Selling, general and
administrative 244,775 - 244,775
expenses
Operating income 99,511 (4,159) 95,352
Interest expense (39,174) - (39,174)
Other, net 1,450 - 1,450
Income before provision
for income taxes 61,787 (4,159) 57,628
Provision for income 22,236 (1,580) 20,656
taxes
Net income $ 39,551 $ (2,579) $36,972
Earnings per common
share
Basic $ 1.43 $ 1.33
Diluted $ 1.34 $ 1.27
2. Pro Forma adjustments - Balance Sheet at December 31, 1999
The unaudited pro forma balance sheet gives effect to the
acquisition as if it had been consummated at December 31, 1999.
(a) To record purchase of MFA business based on a preliminary
estimate of the purchase price allocation. The purchase price
paid in cash and an issuance of a $30,000 promissory note to
Roche is calculated as follows:
Recorded as
Purchase price per
agreement $287,620
Additional estimated
direct costs of
acquisition 5,000
Purchase price assumed
borrowed $292,620 Long-term debt
Net book value of
MFA assets acquired 232,255
Amount to be allocated $ 60,365
Allocated as follows:
Record inventory at
estimated fair value 9,500 Inventory
Intangible assets/excess
of cost over net book
value* 50,865 Intangible assets
$ 60,365
* Net amount resulting from elimination of Roche historical
intangibles and establishment of Alpharma intangibles and goodwill.
3. Pro Forma adjustments - Statement of Income
The unaudited pro forma income statement assumes the
purchase as of the beginning of the period presented. The
adjustments which follow are those which are required by Article
11 of Regulation S-X. The Company believes the business will be
run as part of the AHD in a much different manner than in 1999 as
part of Roche. The resulting pro forma income statement is
therefore not indicative of the results had the business been
purchased as of the beginning of the respective period. The
required adjustments are as follows:
Year Ended
December 31,
1999
(a) Amortization of intangibles $13,000
To record amortization of
estimated intangibles based on
5 to 15 year lives and residual
goodwill based on a 20 year life.
Amortization of intangibles (18,610)
To reverse historical amortization
included in MFA financial
statements
(Net amounts are included
in selling, general and
administrative expenses.)
(b) Interest expense $29,260
To record interest expense at
10.00% on assumed average
borrowings of $292,600.
(c) Selling general and administrative (5,700)
expense
To reduce expenses for MFA
employees not assumed by AHD under
the terms of the purchase
agreement. These employees
primarily consist of sales,
regulatory, and manufacturing
personnel, whose positions were
deemed redundant due to significant
overlap of Alpharma's and MFA's
customer base. (See Note 5a)
(d) Sales (2,600)
Cost of goods sold (2,500)
To reduce sales and cost of sales
for sales made by Alpharma to MFA
in 1999.
(e) Tax benefit 15,040
To record estimated income tax
effect of pro forma adjustments
and non-tax effected financial
results of MFA. (Loss of $41,823 at
an approximate combined federal,
state and foreign rate of 36%.)
The interest rate of 10.00% used for the pro forma condensed
combined statement of income is based on the Company's financing
from Roche and the bridge financing agreement both of which bear
interest at approximately 9.00% plus debt amortization expenses
not expected to exceed 1.00%. For each 1/8% change in interest
rates interest expense would increase/decrease by approximately
$365 for a full year. No effect of refinancing the Bridge with a
combination of debt and equity has been included in the pro forma
income statement.
4. Items excluded from pro forma combined statement 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" is not reflected in the
pro forma statement of income. This non-recurring charge is
estimated at between $2,000 - $3,000 and will be reflected in
cost of sales as inventory is sold during the second and third
quarters of 2000.
In addition, certain employees of AHD will be severed as a
result of the acquisition. This will result in a non-recurring
charge of approximately $500 in the second quarter.
Under the Bridge Financing the Company has paid a 1% fee for
the banks commitment and in connection with drawing the funds.
These non-recurring fees and other related expenses will be
amortized over the term of the bridge loan.
5. Cost savings and future synergies
The Company in its evaluation of the MFA acquisition
identified significant cost savings resulting from the operation
of the business as a important part of the AHD as opposed to MFA
being a small part of the Roche organization. Cost savings and
synergies include the following:
a) Included in the pro forma statement of income.
Under the terms of the asset purchase agreement, AHD was not
obligated to offer employment to all of MFA's employees. Prior to
the closing, the Company has determined that due to the
significant overlap in sales, regulatory and production
activities of the AHD and MFA, 65 MFA employees were redundant
and are not required for the on-going conduct of the business.
These employees remained with Roche. Should Roche terminate any
of these employees, AHD will reimburse Roche for the portion of
the severance specified in the agreement. The Company estimates
$5,700 in direct salary and benefit expenses have been eliminated
as a result of this determination.
b) Not included in the pro forma statement of income.
As part of the worldwide Roche organization and the vitamins
division the MFA was allocated expenses for manufacturing,
marketing, distribution and administration in 1999 of
approximately $36,000. The Company, based on its due diligence
review of MFA, believes it can replace the allocated services by
utilizing resources already existing in its organization or by
adding incremental expenses at a significantly reduced amount.
MFA as part of Roche in 1999 engaged in discovery research
costing over $11,000 and a significant clinical study costing
approximately $6,000. The Company does not intend to actively
continue the discovery research and no employees relating to the
research will be employed by AHD. Certain development projects
will be continued by outside parties at a significantly reduced
level. The clinical study has been evaluated and will not be
continued.
The amount and timing of savings and synergies cannot be
assured. The Company estimates that the acquisition before one-
time charges for severance, inventory write up and bridge
financing fees will be neutral to slightly accretive in 2000.
_______________
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 included
under the caption "Risk Factors" in its Form 10-K for the years
ended December 31, 1999.
