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FORM 10-Q/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
___ SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934
For the transition period ended from to
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Commission File Number 1-10432
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ROBERTS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2429994
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
MERIDIAN CENTER II
4 INDUSTRIAL WAY WEST
EATONTOWN, NEW JERSEY 07724
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 676-1200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes or
common stock, as of the latest practicable date: 31,933,904 as of October 15,
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1999.
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ROBERTS PHARMACEUTICAL CORPORATION
INDEX Page
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Part I
Item 2 - Management's Discussion and Analysis 3
Signatures 8
FORWARD LOOKING STATEMENTS
Certain statements included in the notes to the Registrant's consolidated
financial statements and Items 2 and 6 of this form 10-Q are intended to be, and
are hereby identified as, forward looking statements for purposes of the safe
harbor provided by Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The
Registrant cautions readers that forward looking statements, including, without
limitation, those relating to the Registrant's research and development, income
taxes, liquidity and capital resources, Euro conversion, and year 2000 readiness
are subject to certain risks and uncertainties, including, without limitation,
the ability of the Registrant to secure regulatory approval in the United States
and in foreign jurisdictions for the Registrant's developmental pipeline drugs,
the efforts of the Registrant's competitors and the introduction of rival
pharmaceutical products which may prove to be more effective than the
Registrant's products, general market conditions, the availability of capital,
and the uncertainty over the future direction of the healthcare industry, that
could cause actual results to differ materially from those indicated in the
forward looking statements.
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Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Results of Operations
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Three and six months ended June 30, 1999 and 1998
Revenues
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Total revenue for the six months and quarter ended June 30, 1999 increased $17.8
million and $6.1 million respectively as compared with the first six months and
quarter ended June 30, 1998. This increase was primarily due to an increase in
revenues from product sales.
Sales
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For the six months ended June 30, 1999, product sales increased $17.6 million
from $76.4 million to $94.0 million due primarily to growth of U.S. sales.
U.S. product sales increased $17.4 million from $59.0 million to $76.4 million.
AGRYLIN, PENTASA and PROAMATINE provided $15.4, $10.1 and $2.2 million,
respectively, of the increase and were offset by a decrease in NOROXIN and
COLACE sales of $5.1 and $1.1 million, respectively. Sales of the Company's
United Kingdom subsidiary, Monmouth Pharmaceuticals and the Company's Canadian
subsidiary remained consistent with prior year.
Product sales in the second quarter increased $6.1 million from $43.8 million in
1998 to $49.9 million in 1999 principally due to an increase in sales of
AGRYLIN. Second quarter product sales in the U.S. increased $6.2 million from
$35.2 million in 1998 to $41.4 million in 1999. Sales in the U.K. increased
$0.3 million to $5.2 million in second quarter 1999 from $4.9 million in 1998.
Canada's second quarter sales decreased to $3.4 million in 1999 from $3.7
million in 1998.
Cost of Sales
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For the six months ended June 30, 1999, cost of sales amounted to 29.7% of
product sales, a 7.3 percentage point decrease as compared to the prior year's
comparable period. This decrease in cost of sales and corresponding increase in
gross profit percentage is primarily the result of a change in product mix.
Sales of low- margin NOROXIN decreased while sales of higher margin products,
particularly AGRYLIN, but also including PROAMATINE and PENTASA increased
significantly.
Research and Development
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Research and Development expenses increased $1.1 million to $7.3 million and
$1.0 million to $4.5 million during the six and three month periods,
respectively, ended June
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30, 1999 as compared to the comparable prior year periods. The largest component
of this change is a $0.7 million spending increase in outside services for the
propiram development project.
Marketing Expenses
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For the six months ended June 30, 1999, marketing expenses increased $4.7
million from $17.4 million to $22.1 million. The largest components of the
increase are compensation and benefit increases of $1.3 million, partially
attributable to timing of bonus accruals, an increase in sample expense of $0.9
million, particularly due to a full years' share of PENTASA samples in 1999, and
television and journal advertising increases of $0.7 million. For the quarter
ended June 30, 1999, marketing expenses increased $3.0 million to $12.5 million.
Administrative Expenses
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For the six months ended June 30, 1999, administrative expense decreased $3.0
million from $18.1 million to $15.1 million. The largest components of the
decrease are a $3.3 million decrease in stock appreciation rights (SAR) expense
offset by a $0.5 million increase in amortization expense. There was no SAR
expense in 1999 due to the exercise of all SARs in second quarter 1998.
Amortization expense in 1999 includes six months expense related to PENTASA
compared to three months in 1998.
Administrative expenses decreased $3.3 million from the second quarter 1998 to
$7.6 million in the second quarter 1999 due to the same factors causing the year
to date decrease.
Interest Income and Expense
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Interest income for the six months ended June 30, 1999, decreased $0.4 million
as a result of a decrease in invested marketable securities due to utilization
of funds for the purchase of the distribution facility and improvements made to
the Canadian manufacturing facility as well as debt payments on purchased
products. Interest expense for the same period increased $4.4 million as a
result of the debt incurred in connection with the acquisition of PENTASA.
For the three months ended June 30, 1999 interest income decreased $0.1 million
and interest expense increased $2.1 million, both due to the same factors
causing the changes in the year to date results.
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Income Taxes
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For the six months ended June 30, 1999 and 1998, income tax expense was
calculated using the expected effective statutory rates except for certain taxes
related to foreign operations.The Company has recorded net deferred tax assets
of approximately $5.5 million. Realization is dependent upon generating
sufficient taxable income to utilize such items. Although realization is not
assured, management believes it is more likely than not that the deferred tax
assets for which a valuation allowance has not been provided, will be realized.
The amount of the deferred tax assets considered realizable, however, could be
reduced at any time if estimated of future taxable income are reduced.
Liquidity and Capital Resources
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For the year to date June 30, 1999, operating cash inflows amounted to $12.8
million as a result of the Company's net income of $12.5 million enhanced by
non-cash charges, primarily depreciation and amortization and offset by changes
in accounts receivable and payable and inventory. As of June 30, 1998, the
Company had cash, cash equivalents and marketable securities of $46.8 million.
Investing activities used $32.6 million, comprised of $4.6 million in marketable
securities redemptions, fixed and intangible asset purchases of $1.4 and $40.5
million, respectively, and collections of notes receivable of $4.6 million. The
expenditure for intangible assets included $35.0 million paid in cash for the
purchase of the worldwide rights to AGRYLIN. This allows the Company to retain
all rights to the product with no royalty liability for the future.
Financing activities used $4.0 million, comprised of $7.7 million of payments on
notes payable offset by proceeds from the issuance of Common Stock of $3.7
million resulting primarily from the exercise of stock options.
The Company's funding requirements depend on a number of factors, including the
Company's product development programs, product acquisitions, the level of
resources required for the expansion of marketing capabilities as the product
base expands, increased investment in accounts receivable and inventory which
may arise from increased sales levels, competitive and technological
developments, the timing and cost of obtaining required regulatory approvals for
new products, relationships with parties to collaborative agreements, the
success of acquisition activities and the continuing revenues generated from
sales of PROAMATINE, AGRYLIN and PENTASA.
Existing cash and securities balances and cash generated from operations are
expected to be sufficient to fund the Company's operating activities for the
foreseeable future, as well as support near and long term debt obligations,
completion of the capital improvements to the manufacturing facility,
development of the existing pipeline compounds and to fund future acquisitions
of products. Cash equivalents and marketable securities currently consist of
immediately available money market funds, balances and investment grade
securities.
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Foreign Currency Fluctuations
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Roberts has subsidiary operations outside the United States. As a result,
Roberts is subject to fluctuations in revenues and costs reported in United
States dollars as a consequence of changing currency exchange rates, especially
rates for the British pound and Canadian dollar. Fluctuations in foreign
currency exchange rates were not material for the period ended June 30, 1999.
Euro Conversion
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On January 1, 1999, a majority of the European Union member countries converted
to a common currency, the "Euro". The existing national currencies of the
participating countries will continue to be acceptable until January 1, 2002
after which the Euro will be the sole legal tender for the participating
countries. The Company is currently evaluating the economic and operational
impact, including competition, pricing, contracts, taxation and foreign currency
exchange rate risk, of the Euro conversion but does not expect it to have a
material effect on its financial condition or results of operations.
Year 2000 Conversion
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The year 2000 conversion problem arises from the inability of some information
systems and other date-sensitive equipment with embedded chips or processors to
properly recognize and process information after January 1, 2000. The Company's
project to identify and remediate year 2000 issues is proceeding on schedule.
The four main areas that have been or are being addressed are financial systems,
non-financial systems, customers and suppliers readiness and other date-
sensitive equipment.
Over the past year, the Company has replaced or upgraded much of its software
and systems in the normal course of business. The financial system was replaced
with an Enterprise Resource Planning System which is year 2000 compliant based
on the Company's review of the developer's certification documentation. The
system was implemented in the U.S. in April, 1998, due to the need for an
integrated, more advanced system to link the Finance and Sales departments
located at headquarters with the new distribution facility. The Canadian and
U.K. subsidiary implementations were completed as of January 4, 1999. These
upgrades are also due to the new integrated reporting system and not year 2000
compliance. Due to the completion of the implementation, the three financial
locations are electronically linked, enabling more timely completion of
financial requirements. Non-financial software and hardware were also replaced
in the normal course of business as the previous systems were outdated.
The manufacturing plant, located in Canada, which was purchased by the Company
in 1997, required various upgrades to its operating systems. New hardware and
upgraded software were installed. The hardware was installed to replace
outdated processing equipment. The software was installed to ensure year 2000
compliance. The Company's investment in this software was approximately
$225,000 U.S. dollars.
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One of the Company's customers requires the Company to meet certain electronic
data interface (EDI) requirements related to year 2000 compliance in order for
the customer to continue its relationship with the Company. The Company
completed the testing and implementation of the compliant version in 1998 and is
now listed on a national database of Y2K compliant trading partners in the
healthcare pharmaceutical industry. The cost of meeting these EDI requirements
was approximately $1,000. Approximately 50 to 60 percent of the Company's sales
are currently made through EDI, through primarily one clearinghouse. This
clearinghouse is year 2000 compliant and upgrades non-year 2000 compliant
incoming transmissions to compliant transmissions. In the event that a non-
compliant customer could not interface electronically, orders can be transmitted
via phone, fax or mail, and therefore no disruption of sales would be expected.
The Company is continuing its efforts to ascertain the compliance of other
customers and suppliers through the means of a survey. Results to date indicate
acceptable compliance levels. This program is ongoing and assessments regarding
additional work, if necessary, will be made as responses are received. To
assist in the effort, the Company has developed a tracking database to help
monitor which business partners have taken part in the Company's survey,
surveyed the Company or received a compliance letter from the Company. In the
event that any of the Company's significant customers or suppliers do not
achieve compliance on a timely basis, the Company's business or operations could
be adversely impacted if new customers or alternate suppliers can not be found.
Other date-sensitive equipment includes primarily telephones and the building
security system. The telephone system at the U.S. headquarters was replaced in
1998 in the normal course of business as the lease on the former system expired.
The new system is year 2000 compliant. The phone systems at the Canadian and
U.K. locations and at the U.S. distribution facility have been replaced in order
to be year 2000 compliant. The total cost of these new systems was
approximately $70,000 U.S. dollars. The Company's security systems software
will be upgraded, at a cost of approximately $6,000, in third quarter 1999 to
assure compliance.
In accordance with the Company's fixed asset capitalization policy, the
hardware, software and phone systems purchased are added to fixed assets and
amortized over the appropriate useful life. The Company has not retained any
consultants nor hired additional employees to assist in achieving compliance.
Other IT projects have not been delayed by the Company's year 2000 readiness
project.
Based on the Company's progress to date and timeline to complete the work on the
Year 2000 compliance issue, the Company does not foresee significant financial
or operational risks associated with its compliance at this time. However,
these expectations are subject to uncertainties. These include, but are not
limited to the ability to assess suppliers and customers readiness, failure to
identify all susceptible systems and the availability and cost of personnel
necessary to remediate any unforeseen problems.
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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.
Date: November 11, 1999 Roberts Pharmaceutical Corporation
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(Registrant)
/s/ Peter M. Rogalin
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Peter M. Rogalin
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Anthony A. Rascio
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Anthony A. Rascio
Vice President & General Counsel
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