<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
Commission File Number: 1-10432
ROBERTS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2429994
(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
(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
Class Outstanding Shares at
October 31, 1999
Common Stock 32,053,720
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
INDEX
Page
Part I
Item 1 - Financial Statements 2
Item 2 - Management's Discussion and Analysis 10
Part II
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
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.
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
September 30, 1999 December 31, 1998
(Unaudited)
------------------ -----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 31,426 $ 39,280
Marketable securities 31,897 36,062
Accounts receivable, net 41,552 40,412
Inventory 29,186 23,573
Notes receivable, current 4,834 9,426
Deferred tax assets 5,312 5,222
Other current assets 6,862 3,259
-------- --------
Total current assets 151,069 157,234
Fixed assets, net 37,049 34,911
Intangible assets 348,761 315,865
Notes receivable 1,425 2,369
Deferred non-current tax asset 0 3,392
Other assets 12,683 12,465
-------- --------
Total assets $550,987 $526,236
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
September 30, 1999 December 31, 1998
(unaudited)
------------------ -----------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
<S> <C> <C>
long-term debt $ 7,899 $ 11,178
Accounts payable 16,895 21,897
Other current liabilities 35,825 24,612
-------- ---------
Total current liabilities 60,619 57,687
Long-term debt, excluding
current installments 122,188 126,739
Deferred non-current tax liability 840 0
Shareholders' equity:
Common stock, $.01 par,
100,000,000 shares authorized,
31,923,495 and 31,507,442
outstanding 324 320
Additional paid-in capital 386,461 381,631
Accumulated other comprehensive
income (1,775) (2,716)
Deficit (17,433) (37,188)
Treasury stock, 387,594 shares
of common stock, at cost (237) (237)
-------- --------
Total shareholders' equity 367,340 341,810
-------- --------
Total liabilities and
shareholders' equity $550,987 $526,236
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except share and per share data)
(Unaudited)
<TABLE>
For the nine months For the three months
ended September 30, ended September 30,
1999 1998 1999 1998
-------- -------- -------- --------
Sales and Revenue:
<S> <C> <C> <C> <C>
Sales $145,785 $118,720 $51,766 $42,336
Other revenue 1,708 1,205 721 378
-------- -------- -------- --------
Total sales and revenue 147,493 119,925 52,487 42,714
Operating costs and expenses:
Cost of sales 45,517 43,360 17,556 15,099
Research & Development 11,698 8,942 4,425 2,774
Marketing 31,644 25,708 9,481 8,330
Administration 23,067 25,463 7,977 7,378
-------- -------- -------- --------
Total operating costs & expenses 111,926 103,473 39,439 33,581
-------- -------- -------- --------
Operating income 35,567 16,452 13,048 9,133
-------- -------- -------- --------
Other income (expense):
Interest income 2,780 3,260 770 874
Interest expense (7,270) (3,450) (2,394) (2,984)
Foreign currency gain (loss) (51) (79) (13) (54)
Other income(expense), net (398) (113) (201) (14)
-------- -------- -------- --------
Total other income (expense) (4,939) (382) (1,838) (2,178)
-------- -------- -------- --------
Income before income taxes 30,628 16,070 11,210 6,955
Provision for income taxes 10,871 5,862 3,958 2,278
-------- -------- -------- --------
Net income $ 19,757 $ 10,208 $ 7,252 $ 4,677
======== ======== ======== ========
Net income per share of common stock:
Basic $ 0.62 $ 0.33 $ 0.23 $ 0.15
Diluted $ 0.61 $ 0.33 $ 0.22 $ 0.15
Weighted average number of common
shares outstanding:
Basic 31,716,376 30,911,802 31,895,221 31,393,572
Diluted 32,282,579 31,296,771 32,560,789 31,778,542
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
For the nine months
ended September 30,
--------------------------
<S> <C> <C>
1999 1998
-------- --------
Cash flows provided by operating activities: $28,788 $14,722
-------- --------
Cash flows from investing activities:
Redemption (purchase) of marketable securities 4,165 (5,563)
Purchases of intangible assets (40,474) (153,733)
Purchases of fixed assets (2,941) (9,000)
Collection of notes receivable 5,536 356
-------- --------
Net cash used in investing activities (33,714) (167,940)
-------- --------
Cash flows from financing activities:
Debt financing --- 125,000
Payments on notes payable and
long term debt (7,830) (7,496)
Net proceeds from issuance of
common stock 4,834 3,643
Net proceeds from issuance of
5% Preferred stock --- 4,492
5% Preferred stock dividends paid --- (34)
-------- --------
Net cash (used in) provided by
financing activities (2,996) 125,605
-------- --------
Exchange rate changes on cash and
cash equivalents 68 103
-------- --------
Change in cash and cash equivalents (7,854) (27,510)
Beginning cash and cash equivalents 39,280 42,950
-------- --------
Ending cash and cash equivalents $31,426 $15,440
======== ========
Supplemental cash flow information:
Interest paid $10,014 $ 729
Income taxes paid $ 1,456 $ 11
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
1. Summary of Significant Accounting Policies
------------------------------------------
Interim Reporting
- -----------------
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnote disclosures normally
included in complete financial statements prepared in accordance
with generally accepted accounting principles. For further
information, such as significant accounting policies followed by
the Company, refer to the notes to the Company's audited
consolidated financial statements.
In the opinion of management, the unaudited financial statements
include all necessary adjustments (consisting of normal, recurring
accruals) for a fair presentation of the financial position,
results of operations and cash flows for the interim periods
presented. The results of operations for the nine- and three-month
periods ended September 30, 1999 and 1998, are not necessarily
indicative of the operating results to be expected for a full year.
Basis of Presentation
- ---------------------
Roberts Pharmaceutical Corporation is an international
pharmaceutical company which licenses, acquires, develops and
commercializes post-discovery drugs in selected therapeutic
categories. The Company currently markets approved pharmaceutical
products in the United States, Canada, the United Kingdom and
several other European countries. The consolidated financial
statements include the accounts of Roberts Pharmaceutical
Corporation and its wholly-owned subsidiaries. All significant
intercompany transactions are eliminated. All dollar amounts are
presented in thousands, except for earnings per share.
New Accounting Pronouncements
- -----------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This Statement
requires that all derivatives be recorded in the balance sheet as
either an asset or liability measured at its fair value and that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Investments and Hedging Activities - Deferral of the Effective Date
of FASB No. 133". This statement defers for one year the effective
date of SFAS No. 133 to all fiscal quarters beginning after June
15, 2000. The Company has not yet determined the future impact of
this statement on its consolidated financial statements.
- 6 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
2. Inventory
---------
<TABLE>
Inventory consists of: September 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
Raw Materials $ 9,408 $ 6,249
Work in Process 1,636 1,456
Finished Goods 18,142 15,868
-------- --------
Total $29,186 $23,573
======== ========
</TABLE>
3. Earnings per Share
------------------
Net income per share used in the calculation of earnings per share
was calculated as follows:
<TABLE>
For the nine months For the three months
ended September 30, ended September 30
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $19,757 $10,208 $ 7,252 $ 4,677
Preferred dividends --- (34) --- ---
------- ------- ------- -------
Net income for computation
of earnings per share $19,757 $10,174 $ 7,252 $ 4,677
======= ======= ======= =======
</TABLE>
Total common stock and potentially dilutive common stock for the
calculation of diluted earnings per share were calculated as
follows:
<TABLE>
For the nine months For the three months
ended September 30, ended September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Weighted average
common shares
<S> <C> <C> <C> <C>
outstanding 31,716,376 30,911,801 31,895,221 31,393,572
Dilutive effect of:
Stock options 566,203 384,920 665,568 384,920
Common stock
warrants --- 50 --- 50
---------- ---------- ---------- ----------
Total shares for
computation of EPS 32,282,579 31,296,771 32,560,789 31,778,542
========== ========== ========== ==========
</TABLE>
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<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
4. Segment Reporting
-----------------
The Company has three segments, determined geographically which are made up
of the operations of the U.S., Canada, and the U.K. Each segment sells
pharmaceutical products; the Canadian operations also include a manufacturing
plant. Manufacturing revenues were not material to the Canadian operations
or to the consolidated operations. Each segment has its own management team,
markets to different countries and the results of each segment are evaluated
independently.
The Company evaluates performance based on profit or loss from operations
before income taxes, with intercompany revenues, shown below, eliminated.
The accounting policies of the reportable segments are consistent with the
corporate accounting policies except that the results of the foreign
operations are translated at the budgeted rate rather than the actual rate
with the differences accumulated and shown separately as an adjustment to
operating income.
The changes in total assets by segment for the U.S. and U.K. segments between
December 31, 1998, and September 30, 1999, were not material. The assets of
the Canadian subsidiary increased by $5.2 million due primarily to inventory
purchases in third quarter.
Selected operating results of the reportable segments for the nine month
periods ended September 30, 1999 and 1998 are as follows:
<TABLE>
1999 U.S. Canada U.K. Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $118,844 $11,803 $17,223 $147,870
Segment profit 25,949 430 4,248 30,627
Intersegment revenues 11,479 4,614 --- 16,093
1998 U.S. Canada U.K. Total
-------- -------- -------- --------
Revenues $94,087 $11,394 $14,598 $120,079
Segment profit 9,505 2,042 4,523 16,070
Intersegment revenues 7,395 2,155 --- 9,550
Selected operating results of the reportable segments for the three month
periods ended September 30, 1999 and 1998 are as follows:
1999 U.S. Canada U.K. Total
-------- -------- -------- --------
Revenues $42,249 $4,012 $6,387 $52,648
Segment profit 9,116 (249) 2,342 11,209
Intersegment revenues 4,082 1,841 --- 5,923
1998 U.S. Canada U.K. Total
-------- -------- -------- --------
Revenues $34,297 $4,512 $4,196 $43,005
Segment profit 2,756 1,490 2,708 6,954
Intersegment revenues 1,925 1,350 --- 3,275
</TABLE>
- 8 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
5. Comprehensive Income
--------------------
Presented below is a reconciliation of net income to comprehensive
income:
<TABLE>
For the nine months For the three months
ended September 30, ended September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 19,757 $ 10,208 $ 7,252 $ 4,677
Foreign currency
translation adjustment 941 (1,281) 585 (817)
-------- -------- -------- --------
Comprehensive income $ 20,698 $ 8,927 $ 7,837 $ 3,860
======== ======== ======== ========
</TABLE>
6. Arbitration Proceeding
----------------------
The Company is a party to an arbitration proceeding before the
American Arbitration Association in which Staticon International
GmbH ("Staticon") has asserted approximately $16 million in claims
against the Company, relating to the sale of the Company's contract
clinical research subsidiary, VRG, in May 1998. The Company has
asserted approximately $3.5 million in claims against Staticon,
relating primarily to the remaining balance due under a promissory
note issued by Staticon to the Company in connection with the sale
of VRG. The Company is not able to make a reasonable estimate of
the possible outcome of this matter, however, the Company believes
that it has meritorious defenses, and will prevail in this matter.
The Company is vigorously defending the claims that have been
asserted against it and it pursuing the claims it has made against
Staticon.
7. Investment in RiboGene, Inc.
----------------------------
Roberts Pharmaceutical Corporation has an investment of $10 million
in convertible preferred stock of RiboGene, Inc, a biotechnology
company. If the convertible preferred stock owned in RiboGene was
converted on September 30, 1999, the market value of the resulting
common stock would have been approximately $2.9 million. As of
September 30, 1999, under the Preferred Stock agreement, only one-third
of the preferred shares can be, at the Company's option, converted to
common shares of RiboGene. The Company has considered the valuation
of Roberts' investment and concluded that, in light of the preferred
nature of Roberts'investment, RiboGene's prospects, current strong
financial position, its ongoing merger discussions, and the long term
nature of this investment, the investment should continue to be carried
at cost. Roberts also has an agreement with RiboGene whereby Roberts
is developing one of RiboGene's pipeline products for which
RiboGene is reimbursing Roberts an amount of $7.0 million.
- 9 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
8. Merger
------
On July 26, 1999, the Company announced its intention to enter into
a merger with Shire Pharmaceuticals Group plc, a specialty
pharmaceutical company located in the United Kingdom with
subsidiaries in the United States. In the transaction, a tax-free
exchange of Shire shares, Shire will exchange no more than 1.2802
Shire ADSs for each share of Roberts. The merger is expected to
close in the fourth quarter of 1999, subject to shareholder
approval.
- 10 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Results of Operations
Three and nine months ended September 30, 1999 and 1998
Revenues
- --------
Total revenue for the nine months and quarter ended September 30,
1999 increased $27.6 million and $9.8 million respectively as
compared with the first nine months and quarter ended September 30,
1998. This increase was primarily due to an increase in revenues
from product sales.
Sales
- -----
For the nine months ended September 30, 1999, product sales
increased $27.1 million from $118.7 million to $145.8 million due
primarily to growth of U.S. sales.
U.S. product sales increased $25.4 million from $92.9 million to
$118.3 million. AGRYLIN, PENTASA and PROAMATINE provided $8.9,
$22.8 and $5.7 million, respectively, of the increase and were
offset by a decrease in NOROXIN and COLACE sales of $9.5 and $1.1
million, respectively. Sales of the Company's United Kingdom
subsidiary, Monmouth Pharmaceuticals, increased $1.3 million from
$15.2 million to $16.5 million due to increased sales of LODINE.
Sales of the Company's Canadian subsidiary remained consistent with
prior year.
Product sales in the third quarter increased $9.5 million from
$42.3 million in 1998 to $51.8 million in 1999. Third quarter
product sales in the U.S. increased $8.8 million from $33.9 million
in 1998 to $42.7 million in 1999 due to a $12.7 million increase in
PENTASA sales and a $3.5 million increase in PROAMATINE sales
offset by a $6.4 million decrease in AGRYLIN sales due to timing of
promotions. Sales in the U.K. increased $1.2 million to $6.1
million in third quarter 1999 from $5.0 million in 1998 due to
increased sales of MEPTID. Canada's third quarter sales decreased
to $2.9 million in 1999 from $3.4 million in 1998.
Cost of Sales
- -------------
For the nine months ended September 30, 1999, cost of sales
amounted to 31.2% of product sales, a 5.3 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 the higher
margin products, AGRYLIN, PROAMATINE and PENTASA, increased
significantly.
- 11 -
<PAGE>
Research and Development
- ------------------------
Research and Development expenses increased $2.8 million to $11.7
million and $1.6 million to $4.4 million during the nine and three
month periods, respectively, ended September 30, 1999 as compared
to the comparable prior year periods. The largest components of
the year to date change are a $1.7 million spending increase in
outside services for the DIRAME development project, a $0.4 million
increase in milestone fees for HISTRELIN, and a $0.4 million
increase in drug supplies, particularly for DIRAME. The expenses
for the quarter increased due to these same factors.
Marketing Expenses
- ------------------
For the nine months ended September 30, 1999, marketing expenses
increased $5.9 million from $25.7 million to $31.6 million. The
largest components of the increase are compensation and benefit
increases of $2.0 million, partially attributable to timing of
bonus accruals, an increase in sample expense of $0.7 million, due
partially to a full years' share of PENTASA samples in 1999,
advertising and sales aids increases of $1.8 million and an
increase in market research of $0.7 million due to PENTASA and new
projects. For the quarter ended September 30, 1999, marketing
expenses increased $1.2 million to $9.5 million.
Administrative Expenses
- -----------------------
For the nine months ended September 30, 1999, administrative
expense decreased $2.4 million from $25.4 million to $23.0 million.
The largest components of the decrease are a $3.3 million decrease
in stock appreciation rights (SAR) expense offset by a $1.1 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 nine months expense related
to PENTASA compared to six months in 1998.
Administrative expenses increased $0.6 million from the third
quarter 1998 to $8.0 million in the third quarter 1999 due to the
same factors causing the year to date decrease.
Interest Income and Expense
- ---------------------------
Interest income for the nine months ended September 30, 1999,
decreased $0.5 million as a result of a decrease in invested
marketable securities due to utilization of funds for the purchase
of the worldwide rights to AGRYLIN as well as debt payments on
purchased products. Interest expense for the same period increased
$3.8 million as a result of the debt incurred in connection with
the acquisition of PENTASA.
For the three months ended September 30, 1999 interest income
decreased $0.1 million due to lower invested balances and interest
expense decreased $0.6 million due to a decrease in the interest
rate on the PENTASA acquisition debt.
- 12 -
<PAGE>
Income Taxes
- ------------
For the nine months ended September 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 $4.8 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
- -------------------------------
For the year to date September 30, 1999, operating cash inflows
amounted to $29.8 million as a result of the Company's net income
of $19.8 million enhanced by non-cash charges of $9.6 million,
primarily depreciation and amortization. As of September 30, 1999,
the Company had cash, cash equivalents and marketable securities of
$63.3 million.
Investing activities used $33.7 million, comprised of $4.2 million
in marketable securities redemptions, fixed and intangible asset
purchases of $2.9 and $40.5 million, respectively, and collections
of notes receivable of $5.5 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 $3.0 million, comprised of $7.8 million
of payments on long-term debt offset by proceeds from the issuance
of Common Stock of $4.8 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
- 13 -
<PAGE>
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.
Foreign Currency Fluctuations
- -----------------------------
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 September 30, 1999.
Euro Conversion
- ---------------
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
- --------------------
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.
- 14 -
<PAGE>
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.
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 $5,000, in fourth 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.
- 15 -
<PAGE>
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.
Merger
- ------
On July 26, 1999, the Company announced its intention to enter into
a merger with Shire Pharmaceuticals Group plc, a specialty
pharmaceutical company located in the United Kingdom with
subsidiaries in the United States. In the transaction, a tax-free
exchange of Shire shares, Shire will exchange no more than 1.2802
Shire ADSs for each share of Roberts. The merger is expected to
close in the fourth quarter of 1999, subject to shareholder
approval.
Following the merger, it is anticipated that Shire will be the
continuing registrant and will adopt U.S. GAAP as the basis for
financial reporting. Although Roberts' shareholders will
experience a reduction in earnings per share on a proforma basis,
the principal benefits of the merger are expected to be:
- Broadening of current product portfolios and areas
of therapeutic focus;
- Addition of late stage products in development with
significant potential;
- Realization of significant operating benefits;
- Increased critical mass in the U.S., the U.K. and
Ireland and the addition of a Canadian presence to
Shire's direct marketing effort;
- Larger base from with to build European infrastructure;
- Increased attractiveness to obtain product licenses
from others;
- Complementary research and development and sales
and marketing infrastructures;
- Increased shareholder base and liquidity; and
- Greater financial resources to pursue product
and/or company acquisitions.
- 16 -
<PAGE>
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. 27 Financial Data Schedule
(b) Reports on Form 8-K
During the third quarter ended September 30, 1999, the following
reports on Form 8-K were filed by the Company with the Securities
and Exchange Commission:
Form 8-K (Item 5. Other Events), date of earliest event reported
July 26, 1999 with respect to the announcement of a Plan of Merger
between the Company and Shire Pharmaceuticals Group plc.
Form 8-K (Item 5. Other Events), date of earliest event reported
September 8, 1999 with respect to acquisition of the U.S. marketing
rights to FARESTON from Orion Corporation of Finland.
- 17 -
<PAGE>
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.
Roberts Pharmaceutical Corporation
(Registrant)
Date: October 29, 1999 /s/ Peter M. Rogalin
---------------- -----------------------------
Peter M. Rogalin
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
- 18 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Form 10-Q for the Quarter ended September 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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<PP&E> 37,049
<DEPRECIATION> 0
<TOTAL-ASSETS> 550,987
<CURRENT-LIABILITIES> 60,619
<BONDS> 122,188
0
0
<COMMON> 324
<OTHER-SE> 367,016
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<TOTAL-REVENUES> 147,493
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<FN>
<F1>Includes raw material and work in process inventory of $11,044.
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</TABLE>
