<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 33-30999
R.P. SCHERER CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3523163
(State of Incorporation) (I.R.S. Employer Identification Number)
2075 WEST BIG BEAVER ROAD, TROY, MICHIGAN 48084
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (810) 649-0900
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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of the registrant's common stock as of August 11,
1994: 23,287,043 shares of common stock, par value $.01.
<PAGE> 2
PART I
ITEM 1 FINANCIAL STATEMENTS
R.P. SCHERER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands, except per share data)
-------------------------------------
For the three months ended June 30,
-------------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Net sales $132,938 $108,454
Cost of sales 83,756 67,746
Selling and administrative expenses 17,528 14,332
Research and development expenses, net 4,391 3,108
------------ ------------
Operating income 27,263 23,268
Interest expense 3,546 5,700
Interest earned and other (409) (590)
------------ ------------
Income from continuing operations before
income taxes and minority interests 24,126 18,158
Income taxes 8,540 6,448
Minority interests 4,161 3,114
------------ ------------
Net income $ 11,425 $ 8,596
============ ============
Per Common and Common Equivalent Share:
Net income $ 0.47 $ 0.36
============ ============
Average number of common and common
equivalent shares 24,312 24,175
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
R.P. SCHERER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(In thousands)
June 30, March 31,
1994 1994
------------- -------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 23,031 $ 16,576
Short-term investments 4,360 6,041
Receivables, less reserves of:
June 30, 1994 - $3.4 million;
March 31, 1994 - $2.9 million 102,670 98,775
Inventories 61,512 56,492
Other current assets 6,401 5,260
------------- -------------
197,974 183,144
------------- -------------
PROPERTY:
Property, plant and equipment, at cost 302,132 284,992
Accumulated depreciation (70,523) (63,277)
------------- -------------
231,609 221,715
------------- -------------
OTHER ASSETS:
Intangibles, net of amortization 188,989 188,396
Deferred financing fees, net of amortization 2,047 1,658
Other assets 17,363 18,501
------------- -------------
208,399 208,555
------------- -------------
$ 637,982 $ 613,414
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 4,001 $ 3,936
Accounts payable 46,903 52,086
Accrued liabilities 37,736 36,802
Accrued income taxes 5,802 1,967
------------- -------------
94,442 94,791
------------- -------------
LONG-TERM LIABILITIES AND OTHER:
Long-term debt 195,344 187,949
Other long-term liabilities 51,547 49,865
Deferred income taxes 31,740 30,745
Minority interests in subsidiaries 33,301 35,354
------------- -------------
311,932 303,913
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Preferred stock, 500,000 shares authorized, none
issued - -
Common stock, $.01 par value, 50,000,000 shares
authorized, 23,287,043 shares issued 233 233
Additional paid-in capital 234,157 234,157
Retained earnings (deficit) 1,568 (9,857)
Currency translation adjustment (4,350) (9,823)
------------- -------------
231,608 214,710
------------- -------------
$ 637,982 $ 613,414
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
R.P. SCHERER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
For the three months ended
June 30,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 11,425 $ 8,596
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 5,002 4,295
Amortization of intangible assets 1,536 1,078
Amortization of deferred financing costs and debt
discount 147 406
Minority interests in net income 4,161 3,114
Deferred tax provision and other 367 (1,215)
(Increase) decrease in receivables 2,552 (3,278)
Increase in inventories and other current assets (2,743) (3,441)
Decrease in accounts payable and accrued expenses (8,056) (12,643)
------------ ------------
Net cash provided (used) by operating activities 14,391 (3,088)
------------ ------------
INVESTING ACTIVITIES:
Purchases of plant and equipment (7,647) (8,483)
Proceeds from sales of plant and equipment 509 154
Other (205) 637
------------ ------------
Net cash used by investing activities (7,343) (7,692)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 33,390 17,194
Long-term debt retirements and payments (27,929) (5,799)
Short-term borrowings, net 325 51
Cash dividends paid to minority shareholders of subsidiaries (7,205) (729)
------------ ------------
Net cash provided (used) by financing activities (1,419) 10,717
------------ ------------
Effect of currency translation on cash and cash equivalents 826 (781)
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,455 (844)
Cash and cash equivalents, beginning of period 16,576 30,389
------------ ------------
Cash and cash equivalents, end of period $ 23,031 $ 29,545
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
R.P. SCHERER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of R.P. Scherer Corporation (the "Company"), a Delaware corporation,
and its wholly-owned subsidiary, R.P. Scherer International Corporation
("Scherer International"). The Company's only operating asset is the common
stock of Scherer International. In the opinion of management, the accompanying
unaudited consolidated financial statements include all adjustments (consisting
only of normal recurring items) necessary for the fair presentation of
financial position and results of operations. These consolidated financial
statements and related notes have been prepared pursuant to the Rules and
Regulations set forth by the Securities and Exchange Commission and should be
read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended March 31, 1994, as
filed with the Securities and Exchange Commission.
2. INCOME TAXES
The Company records income tax expense for interim periods based on an
estimated consolidated effective income tax rate for the fiscal year. The
effective income tax rate in 1994 and 1993 is higher than the U.S. Federal
income tax rate due to higher foreign income tax rates and goodwill
amortization not deductible for income tax purposes.
3. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
(In thousands) June 30, March 31,
1994 1994
--------- ---------
<S> <C> <C>
Raw materials and supplies $33,364 $26,760
Work in process 9,334 10,289
Finished goods 18,814 19,443
--------- ---------
$61,512 $56,492
========= =========
</TABLE>
4. CONTINGENCIES
Three separate actions, which sought damages for, among other things, alleged
violations of state securities laws, fraud, misrepresentation, breach of
contract, conversion and negligence in connection with the 1986 private
placement sale of limited partnership interests and warrants of Paco
Development Partners II, a research and development partnership of which a
former subsidiary of the Company serves as general partner, have been settled
in a class action settlement. These actions include two New Jersey State court
actions which were consolidated (Nelson v. Dean Witter Reynolds, Inc., and
Barrios et al. v. Paco Pharmaceutical Services, Inc., et al.) and a New Jersey
federal court action (Nelson v. Ian Ferrier). The Company recognized during
the fourth quarter of fiscal 1994 a special charge of approximately $3.2
million representing the anticipated amount of all settlement-related costs in
excess of previously provided reserves.
On March 30, 1992, OCAP Acquisition Corp. ("OCAP") commenced an action in the
Supreme Court of the State of New York, County of New York, against Paco,
certain of its subsidiaries, the Company and
5
<PAGE> 6
R.P. SCHERER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Scherer International (collectively, the "defendants"), arising out of the
termination of an Asset Purchase Agreement dated February 21, 1992 (the
"Purchase Agreement") between OCAP and the defendants providing for the
purchase of substantially all the assets of Paco. On May 15, 1992, OCAP served
an amended verified complaint (the "Amended Complaint"), asserting causes of
action for breach of contract and breach of the implied covenant of good faith
and fair dealing, arising out of defendants' March 25, 1992 termination of the
Purchase Agreement, as well as two additional causes of action that were
subsequently dismissed by order of the court. The Amended Complaint seeks $75
million in actual damages, $100 million in punitive damages, as well as OCAP's
attorney fees and other litigation expenses, costs and disbursements incurred
in bringing this action. Discovery with respect to the action has commenced;
however, discovery has been temporarily stayed by OCAP's filing of a motion for
partial summary judgment and the Company's cross-motion for dismissal. The
Court recently denied both motions, and the parties have appealed this
decision. Based upon the investigation conducted by the Company to date, the
Company believes that this action lacks merit and intends to defend against it
vigorously. In the opinion of management, the ultimate outcome of this
litigation will not have a material adverse effect on the Company's business or
financial condition.
The Company was informed in August 1992 that soil at a manufacturing facility
in North Carolina owned and operated by the Company from 1975 to 1985 contained
levels of tetrachlorethene and other substances which exceeded environmental
standards. The Company voluntarily initiated a remedial investigation, and
initial remedial and removal actions have been completed by the Company and the
current owner of the facility for the known soil contamination at such site.
The Company continues to perform additional studies and remediation of the
area, including testing and removal of groundwater, which may also indicate the
necessity for additional remedial and removal actions. On the basis of the
results of investigations performed to date, the Company does not believe that
potential future costs associated with either the investigation or any
potential remedial or removal action will ultimately have a materially adverse
impact on the Company's business or financial condition.
The Company is a party to various other legal proceedings arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on the Company's financial position, results of operations,
liquidity or capital resources.
5. BUSINESS ACQUISITION
On July 1, 1993, the Company acquired all outstanding capital stock of
Pharmagel S.p.A. (Italy) and Pharmagel S.A. (France) (jointly "Pharmagel"), a
manufacturer of softgels which had been privately held. The Company accounted
for the acquisition as a purchase for financial reporting purposes, and has
included the net assets and results of operations of Pharmagel in the Company's
consolidated financial statements beginning July 1, 1993. The aggregate
purchase price, which approximated $30 million, was allocated to assets and
liabilities based on their fair values as of the date of acquisition, as well
as to a five year, $3.0 million non-compete agreement with the former owners of
Pharmagel. The purchase was funded primarily by borrowings under the Company's
bank credit facility, plus an additional amount payable to the sellers during
the next six years not to exceed $4.5 million plus interest.
6
<PAGE> 7
R.P. SCHERER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The allocation of the purchase price to the assets and liabilities of Pharmagel
was based upon various valuations and studies. The adjustments to the
historical net assets of Pharmagel are summarized as follows (amounts in
thousands):
<TABLE>
<S> <C>
Historical net assets of Pharmagel at July 1, 1993 $ 5,242
Adjustments of assets and liabilities:
Current assets (675)
Plant and equipment 1,321
Covenant not to compete 3,000
Goodwill 27,200
Current liabilities (3,764)
Long-term liabilities (2,324)
---------
$30,000
=========
</TABLE>
The cost of the covenant not to compete is being amortized over the life of the
agreement. Goodwill is being amortized on a straight-line basis over forty
years.
The following unaudited pro forma summary presents the consolidated results of
operations of the Company and Pharmagel as if the acquisition had occurred at
the beginning of the periods presented after giving effect to certain
adjustments, including amortization of goodwill, increased interest expense on
acquisition borrowings, and related income tax effects. The pro forma
information is not necessarily indicative of what would have occurred had the
acquisition been made as of those dates, and is not intended to be a projection
of future results or trends.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) For the quarter ended
June 30, 1993
---------------------
<S> <C>
Net sales $115,591
Net income 8,449
Net income per share 0.35
</TABLE>
As of September 1, 1993, the Company also acquired certain tangible and
intangible assets of Gayoso Wellcome S.A., a softgel manufacturer in Spain, for
a purchase price of approximately $9.5 million. Gayoso Wellcome's operations
are not material in relation to the Company's consolidated financial
statements, and pro forma information for this acquisition is therefore not
presented.
7
<PAGE> 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion and analysis of financial results and condition covers
the three month periods ended June 30, 1994 and 1993. A majority of the
Company's sales, income and cash flows is derived from its international
operations. With the exception of operations in highly inflationary economies,
which are measured in U.S. dollars, the financial position and the results of
operations of the Company's foreign operations are measured using the local
currencies of the countries in which they operate, and are translated into U.S.
dollars. Although the effects of foreign currency fluctuations are mitigated
by the fact that expenses of foreign subsidiaries are generally incurred in the
same currencies in which sales are generated, the reported results of
operations of the Company's foreign subsidiaries will be higher or lower
depending upon a weakening or strengthening of the U.S. dollar. In addition, a
substantial portion of the Company's net assets are based in its foreign
operations, and are translated into U.S. dollars at foreign currency exchange
rates in effect as of the end of each period. Accordingly, the Company's
consolidated shareholders' equity will fluctuate depending upon the
strengthening or weakening of the U.S. dollar.
RESULTS OF OPERATIONS
Quarters Ended June 30, 1994 and 1993
Sales of $132.9 million for the three months ended June 30,1994 established a
new quarterly sales record, and represent a 23% increase from sales of $108.5
million achieved in the same period of 1993. Sales for this year's first
quarter include $2.9 million from the former Pharmagel operations, which were
acquired July 1, 1993 (see Note 5 to the consolidated financial statements). A
somewhat stronger U.S. dollar, on average, had the effect of reducing reported
sales for the current year quarter. On a constant exchange rate basis, sales
increased 25% in the quarter ended June 30, 1994 compared to the same quarter
of the prior year.
The Company's 12-month sales order backlog amounted to $147.6 million at June
30,1994, a 44% increase from backlog at the same time last year. Sales backlog
increased 38% as measured using constant exchange rates. The increase in
backlog reflects continuing strong orders for the Company's products, most
notably in North America and Germany.
Operating income was $27.3 million for the June 30, 1994 quarter, a 17% gain
from the $23.3 million earned in the same period of the prior year. On a
constant exchange rate basis, operating income rose 19% between these two
quarters. Operating margin, however, was 20.5% for the June 30, 1994 quarter,
compared to 21.5% for the same quarter last year. The current quarter's
results reflect changes in product sales mix and a $3.2 million, or 22%,
increase in selling and administrative expenses, as well as anticipated
increases in research and development costs. As described further below, the
Company continues to experience disproportionate sales growth of lower margin
nutritional products, as well as over-the-counter ("OTC") pharmaceutical
products, where the Company sources directly a majority of the softgel fill
material content. The significant increase in selling and administrative
expenses is attributable to the addition of Pharmagel operations and additional
investments in marketing staffs and related costs in the United States and
Germany.
An intensification of research and development efforts further contributed to
the decline in operating income and margin. Excluding the increase in research
and development expenses in the current year quarter, operating income
increased nearly 23% compared to the same quarter a year ago. Research and
development costs were $4.4 million for the quarter ended June 30, 1994,
representing a 41% increase from the $3.1 million incurred during last year's
first quarter. A majority of this increase relates to the
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<PAGE> 9
Advanced Therapeutic Products ("ATP") Group, which was formed in fiscal 1994 to
engage in the development of off-patent or soon to become off-patent drug
compounds reformulated utilizing the Company's advanced delivery systems. The
Company expects that spending for the ATP Group's activities will continue to
increase at a significant rate for the foreseeable future.
Net income reached an all-time quarterly record of $11.4 million, or $0.47 per
share, for the quarter ended June 30, 1994, compared to $8.6 million, or $0.36
per share, for the same quarter last year. In addition to the improvement in
operating income discussed above, the Company realized the benefit of a $2.0
million reduction in net interest expense, primarily associated with the
January 1994 refinancing of $125 million of 14% subordinated debentures with a
combination of $100 million 6 3/4% senior notes and bank debt. Partially
offsetting the gain in net income was a $1.0 million increase in minority
interests in income of subsidiaries as a result of a substantial improvement in
earnings of the Company's 51%-owned German operation. The consolidated
effective income tax rate remained relatively constant between the June 30,
1994 and 1993 quarters, amounting to just over 35% of pretax income.
Results by Geographic Segment
The following sets forth operating results for each of the Company's geographic
segments for the quarters ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
(In thousands) Sales Operating Income Operating Margin
----------------------- ----------------------- -----------------------
1994 1993 1994 1993 1994 1993
-------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
United States $ 32,993 $ 28,346 $ 7,511 $ 8,031 22.8% 28.3%
Europe 74,226 56,662 17,151 11,866 23.1 20.9
Other International 25,719 23,446 5,417 5,098 21.1 21.7
Unallocated (1) - - (2,816) (1,727) - -
-------- --------- -------- -------- -------- --------
$132,938 $108,454 $27,263 $23,268 20.5% 21.5%
======== ========= ======== ======== ======== ========
</TABLE>
(1) Includes general Corporate expenses and, in 1994, expenses associated
with the ATP Group.
The Company's United States operations generated a 16% sales gain for the
quarter ended June 30,1994. Sales of pharmaceutical softgels, both prescription
and OTC, were particularly strong, enhanced by planned customer launches of
products such as Alka-Seltzer Plus from Miles Laboratories and Drixoral from
Schering-Plough. Sales of nutritional softgels also continued to increase, led
by the introduction earlier in 1994 of branded antioxidant softgels by two
major U.S. consumer products companies. The increase in sales yielded little
in incremental margin as the Company experienced an overall shift in its mix of
sales towards products with higher material cost content, such as health and
nutritional softgels. Operating income declined $0.5 million as the
incremental profit from the additional product sales was more than offset by
the costs of increased marketing staffs and development resources to meet the
increasing demand for the Company's products.
Sales in Europe increased 31% for the June 30, 1994 quarter, as compared to the
same quarter last year. On a constant exchange rate basis, this sales increase
amounted to 35%. While sales were strong throughout Europe, the most
significant increase was achieved in Germany, where the Company continues to
rebound from the effects of last year's government healthcare reforms. As
previously mentioned, the acquisition of Pharmagel in July 1993 also
contributed to the sales gain. Primarily as a result of the recent strength of
the German pharmaceutical market, operating income increased 45% between the
two quarters, and operating margin increased to 23.1% compared to 20.9% in the
prior year.
The Company's Other International segment contributed a $2.3 million, or 10%,
increase in sales for the quarter ended June 30, 1994, as a result of strong
demand for both pharmaceutical and nutritional softgels in Japan and Canada, as
well as hardshell capsules produced by the Company's Pharmaphil division
9
<PAGE> 10
located in Canada. A relatively modest 6% increase in operating income was
achieved, as recent softness in the Australian nutritionals market offset the
gains in Japan and Canada.
CASH FLOWS
Cash and cash equivalents increased by $6.5 million for the quarter ended June
30, 1994, as compared with a decrease of $0.8 million in the same period in
1993. Operating activities provided cash of $14.4 million and used cash of
$3.1 million for the current and prior year periods, respectively. For the
period ended June 30, 1994, cash generated from continued strong earnings was
partially offset by a $8.2 million increase in net working capital. Such
increase is related primarily to the timing of payments for interest and
dividends to minority shareholders. For the prior year period, cash generated
from operating earnings was offset by a $19.4 million increase in net working
capital. Decreases in current liabilities primarily related to the timing of
interest and other payments contributed to the prior year net working capital
increase.
Capital expenditures for the current year quarter amounted to $7.6 million,
compared to the prior year period's capital expenditures of $8.5 million.
Current quarter capital spending consisted primarily of expenditures in North
America related to the construction of a new satellite softgel production
facility, in the United Kingdom related to the continuing expansion of the
Zydis(R) production facility and in Australia for the construction of a
replacement manufacturing facility, as well as general facility and equipment
additions and improvements. In the prior year, capital expenditures were
related primarily to the construction in the United Kingdom of the Zydis(R)
production and Pulsincap(R) development facilities, and other general facility
and equipment additions and improvements.
Financing activities for the quarter ended June 30, 1994, reflect a net $5.1
million of borrowings under the Company's bank credit facility used to fund
capital expenditures. Other significant financing uses include $7.2 million of
dividends paid to minority shareholders of subsidiaries. In the prior year
period, financing activities reflect $10.9 million of net borrowings under the
Company's bank credit facility to fund working capital needs and capital
expenditures.
LIQUIDITY AND FINANCIAL CONDITION
During the next several years, a significant portion of the Company's cash flow
will be used to reduce and service indebtedness and fund capital expenditures.
The Company believes that its future cash flows from operations, together with
cash and short-term investments aggregating $27.4 million at June 30, 1994 and
amounts available under bank credit facilities will be adequate to meet
anticipated debt service, capital investment and operating cash requirements.
The Company actively reviews drug delivery systems businesses and technologies
for potential investment, consistent with its strategic objectives. An example
is the Company's fiscal 1994 acquisition of an ophthalmic drug delivery
technology from Zeneca Limited, and an agreement to fund feasibility studies
for a dry-powder inhaler device and a controlled-release tablet product with
another UK-based drug research concern. Management presently anticipates that
any acquisition requiring significant funding would be financed largely through
the issuance of common stock, depending upon market conditions, so as not to
increase the Company's debt to equity relationship.
At June 30, 1994, the Company's outstanding long-term indebtedness consisted of
approximately $99.3 million of 6 3/4% senior notes (net of a $0.7 million
discount), $72.0 million of borrowings under the Company's bank credit
facility, $12.0 million of industrial development revenue bonds, and
approximately $13.0 million of other indebtedness. The senior notes bear
interest at 6 3/4% of face value, payable semi-annually, and mature in full in
February 2004. Annual interest expense on the senior notes outstanding is
approximately $6.8 million (excluding amortization of the original issue
discount and deferred financing fees). The senior notes have been listed on
the New York Stock Exchange.
10
<PAGE> 11
In March 1994, the Company entered into a new bank credit facility as a
replacement for the Company's previous bank credit agreement. This credit
facility allows for revolving credit borrowings up to an aggregate of $175.0
million in various currencies, and expires April 1, 1999. Interest is payable
quarterly at LIBOR plus .675% as of June 30, 1994, with further reductions
expected to be realized throughout the remainder of fiscal 1995 based on
certain financial performance criteria, or at the bank's prime rate. Unused
borrowing availability is subject to annual commitment fees of 1/4%.
Borrowings under this agreement are unsecured, and rank pari passu with all
other unsecured and senior indebtedness.
The bank credit facility requires the Company to satisfy various annual and
quarterly financial tests, including maintenance on a consolidated basis of a
specified minimum or maximum current level of tangible net worth and cash flow
coverage, leverage, and fixed charge ratios. The agreement also restricts the
Company's ability to incur additional indebtedness or liens, make investments
and loans, dispose of assets, or consummate a business combination, and limits
the ability of the Company to pay dividends. The indenture under which the
senior notes were issued also restricts the Company's ability to incur
additional liens, enter into sale-leaseback transactions, engage in certain
transactions with affiliates, and engage in certain business combinations. As
of June 30, 1994, the Company does not currently have plans to declare or pay
any cash dividends.
Pursuant to other revolving credit arrangements, the Company and certain of its
subsidiaries may borrow up to $15.5 million. As of June 30, 1994, the Company
had outstanding approximately $3.0 million under these revolving credit
arrangements.
Capital expenditures in fiscal 1995 are expected to approximate $50 million and
will include facilities expansions or replacement in Australia, Europe, and
North America, continuing expenditures for the expansion of manufacturing
capacity for Zydis(R) fast dissolving dosage products, and general facility and
equipment upgrade and replacement costs worldwide. The Company expects to fund
such capital expenditures primarily from operating cash flows and, to the
extent necessary, from its bank credit facility. As of June 30, 1994, the
Company has approximately $4.0 million of commitments for future capital
expenditures.
Inflation and Accounting Policies
In the view of management, the effects of inflation and changing prices on the
Company's net results of operations and financial condition were not
significant.
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, Employer's Accounting for
Postemployment Benefits, which must be adopted for the Company's 1995 fiscal
year. This statement requires the use of the accrual method to recognize
liabilities for postemployment benefits. The Company has determined that the
adoption of this statement will not significantly affect the Company's future
financial results or position.
11
<PAGE> 12
PART II
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - None.
(b) REPORTS ON FORM 8-K: One report on Form 8-K was filed with the
Securities and Exchange Commission during the period for which this
report is filed. Such report, dated May 18, 1994, contained the press
release in which the Company reported its fourth quarter and full fiscal
year operating results for the period ended March 31, 1994. The press
release also discussed special operating charges recognized in the fourth
quarter of fiscal 1994 for an anticipated litigation settlement and for
costs associated with a planned plant relocation.
12
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
R.P. SCHERER CORPORATION
Date: August 12, 1994 By: /s/ Nicole S. Williams
Nicole S. Williams
Executive Vice President, Finance
and Chief Financial Officer,
Treasurer, and Secretary
13
