<PAGE> 1
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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 SEPTEMBER 30, 1995
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 November
10, 1995: 23,361,714 shares of common stock, par value $.01.
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<PAGE> 2
PART I
ITEM 1 FINANCIAL STATEMENTS
R.P. SCHERER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands, except per share data)
------------------------------------------------------------
For the three months ended For the six months ended
September 30, September 30,
-------------------------- ------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $133,511 $121,312 $281,889 $254,250
Cost of sales 89,318 77,113 183,002 160,869
Selling and administrative expenses 17,944 16,815 36,455 34,343
Research and development expenses, net 5,796 4,591 11,796 8,982
-------- -------- -------- --------
Operating income 20,453 22,793 50,636 50,056
Interest expense 3,605 3,674 6,985 7,220
Interest earned and other (179) (293) (799) (702)
-------- -------- -------- --------
Income from continuing operations before
income taxes and minority interests 17,027 19,412 44,450 43,538
Income taxes 5,174 6,890 13,936 15,430
Minority interests 3,530 3,379 8,496 7,540
-------- -------- -------- --------
Net income $ 8,323 $ 9,143 $ 22,018 $ 20,568
======== ======== ======== ========
Per Common and Common Equivalent Share:
Net income $0.34 $0.37 $0.90 $0.84
======== ======== ======== ========
Average number of common and common
equivalent shares 24,533 24,446 24,586 24,421
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
R.P. SCHERER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(In thousands)
September 30, March 31,
1995 1995
------------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,363 $ 33,715
Short-term investments 4,876 5,060
Receivables, less reserves of:
September 30, 1995 - $4.5 million;
March 31, 1995 - $3.9 million 119,899 118,772
Inventories 61,268 66,610
Other current assets 8,586 6,404
-------- --------
218,992 230,561
-------- --------
PROPERTY:
Property, plant and equipment, at cost 388,366 372,237
Accumulated depreciation (101,853) (92,734)
-------- --------
286,513 279,503
-------- --------
OTHER ASSETS:
Goodwill, net of amortization 180,613 183,662
Deferred financing fees, net of amortization 1,531 1,797
Other assets 22,284 15,850
-------- --------
204,428 201,309
-------- --------
$709,933 $711,373
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 7,610 $ 4,635
Accounts payable 54,379 70,549
Accrued liabilities 34,880 38,976
Accrued income taxes 4,078 5,287
-------- --------
100,947 119,447
-------- --------
LONG-TERM LIABILITIES AND OTHER:
Long-term debt 191,584 182,868
Other long-term liabilities 54,730 56,900
Deferred income taxes 36,281 35,806
Minority interests in subsidiaries 33,682 42,706
-------- --------
316,277 318,280
-------- --------
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; shares issued;
September 30, 1995 - 23,361,674 shares;
March 31, 1995 - 23,316,674 shares 234 233
Additional paid-in capital 236,275 235,383
Retained earnings 57,020 35,002
Currency translation adjustment (820) 3,028
-------- --------
292,709 273,646
-------- --------
$709,933 $711,373
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
R.P. SCHERER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
For the six months ended
September 30,
-----------------------------------------------------
1995 1994
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $22,019 $20,568
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,930 10,784
Amortization of intangible assets 3,084 2,984
Amortization of deferred financing costs and debt discount 233 464
Minority interests in net income 8,496 7,540
Deferred tax provision and other 1,965 (142)
(Increase) decrease in receivables (3,758) 5,613
Increase in inventories and other current assets (48) (6,931)
Decrease in accounts payable and accrued expenses (23,203) (8,008)
--------------- --------------
Net cash provided by operating activities 20,718 32,872
--------------- --------------
INVESTING ACTIVITIES:
Purchases of plant and equipment (26,108) (19,002)
Other (2,554) (2,674)
--------------- --------------
Net cash used by investing activities (28,662) (21,676)
--------------- --------------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 22,450 45,259
Long-term debt retirements and payments (11,270) (45,486)
Short-term borrowings, net 1,685 915
Cash dividends paid to minority shareholders of subsidiaries (13,504) (7,073)
--------------- --------------
Net cash used by financing activities (639) (6,385)
--------------- --------------
Effect of currency translation on cash and cash equivalents (769) 894
--------------- --------------
Net increase (decrease) in cash and cash equivalents (9,352) 5,705
Cash and cash equivalents, beginning of period 33,715 16,576
--------------- --------------
Cash and cash equivalents, end of period $24,363 $22,281
=============== ==============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
R.P. SCHERER CORPORATION AND SUBSIDIARIES
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 subsidiaries, some of which are less than wholly-owned. 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 of Form 10-K for the year ended
March 31, 1995, as filed with the Securities and Exchange Commission.
Prior to February 28, 1995, a wholly-owned subsidiary of the Company, R.P.
Scherer International Corporation ("Scherer International"), directly owned all
operations of the Company, and the Company's only asset was its investment in
Scherer International. For administrative reasons, on February 28, 1995,
Scherer International was merged into the Company, through which the assets and
liabilities of Scherer International were assumed by the Company. Such merger
did not have any impact on the Company's results of operations or financial
position.
Certain items in the prior years' consolidated financial statements and notes
thereto have been reclassified to conform with the current year presentation.
2. INCOME TAXES
The effective income tax rate in 1995 is lower than the U.S. Federal income tax
rate due primarily to the anticipated utilization of foreign and other tax
credits generated in the current year as well as carried forward from prior
years. In 1994, the effective tax rate was higher than the U.S. Federal income
tax rate due primarily to anticipated limitations on the use of foreign and
other tax credits, as well as the mix of taxable income in certain higher tax
rate foreign jurisdictions.
3. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
(In thousands) September 30, March 31,
1995 1995
------------- ---------
<S> <C> <C>
Raw materials and supplies $32,962 $32,312
Work in process 11,371 10,235
Finished goods 16,935 24,063
------- -------
$61,268 $66,610
======= =======
</TABLE>
5
<PAGE> 6
R.P. SCHERER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
4. CONTINGENCIES
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 Scherer International
(collectively, the "defendants"), arising out of the defendants' March 25, 1992
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 the 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.
Pre-trial discovery with respect to the action has been substantially
completed, and no date for trial has yet been established. Based upon the
investigation conducted by the Company and its counsel to date, the Company
believes that this action lacks merit and is defending against it vigorously.
In addition, based upon information learned during the discovery process, the
Company recently filed a counterclaim seeking damages as a result of the
termination of the Purchase Agreement. 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 conducted a remedial investigation, and
remedial and removal actions by the Company and the current owner of the
facility are ongoing. The Company will continue to perform additional studies
and remediation of the area, including testing and removal of groundwater,
which may indicate the necessity for additional remedial and removal actions in
the future. 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.
6
<PAGE> 7
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 and six month periods ended September 30, 1995 and 1994. 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 are affected by changes in
foreign currency exchange rates, and as compared to prior periods 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 September 30, 1995 and 1994
Sales were $133.5 million for the three months ended September 30, 1995,
representing a 10% increase from sales of $121.3 million achieved in the same
period of 1994. A majority of the sales increase was provided by the Company's
operations in Europe, largely due to volume increases in Germany and France, as
well as the effects of a weaker U.S. dollar. Consolidated pharmaceutical sales
grew 22% during the quarter, but such growth was offset by declines in
nutritional softgel sales due to continued weakness in the nutritional markets
of the United Kingdom, Australia and Japan. The effects of a weaker U.S. dollar
relative to most foreign currencies had the effect of increasing reported sales
growth. On a constant exchange rate basis, sales increased 6% in the quarter
ended September 30, 1995 compared to the same quarter of the prior year.
Operating income was $20.5 million for the September 30, 1995 quarter, a
decrease of 10% (14% measured in constant exchange rates) from the $22.8
million earned in the same period of the prior year. The current year quarter's
results reflect the previously reported deferral of orders for certain high
margin products in the United States, the continuing weak overseas nutritional
markets, and higher depreciation and other fixed manufacturing costs related to
recently constructed facilities and pharmaceutical GMP upgrades. Also
contributing to the decline in operating income were planned increases in
research and development costs primarily related to the Company's Advanced
Therapeutic Products Group ("ATP") initiative. Excluding research and
development expenses, operating income declined by 4% as compared with the
prior year quarter, resulting in an operating margin of 19.7% for the September
30, 1995 quarter, compared with 22.6% for the same quarter a year ago.
Net research and development costs were $5.8 million for the quarter ended
September 30, 1995, representing a 26% increase from the $4.6 million incurred
during last year's second quarter. Gross research and development costs
increased by 42%, but were offset by a 134% increase in customer
reimbursements, which grew to $1.8 million in the current year quarter.
Approximately $2.0 million of the September 30, 1995 quarter's research and
development spending relates to ATP, representing a significant increase from
ATP expenses of $1.1 million in the same quarter a year ago. ATP was formed
late in fiscal year 1994 to engage in the development of off-patent or soon to
become off-patent drug compounds reformulated utilizing the Company's advanced
drug delivery systems, including Zydis(R), Pulsincap(R) and RP Scherersol(R).
As discussed further below, the Company expects that spending for ATP
activities will likely increase in the foreseeable future.
7
<PAGE> 8
Net income was $8.3 million, or $0.34 per share, for the quarter ended
September 30, 1995, a decline of 9% as compared to $9.1 million, or $0.37 per
share, for the same quarter last year. The investment in ATP represented a per
share cost of $0.06 in the September 30, 1995 quarter, compared to only $0.03
per share in last year's second quarter. The consolidated effective income tax
rate declined to 30.4% from 35.5% between the September 30, 1995 and 1994
quarters. Such decline primarily resulted from geographic shifts in the mix of
income and anticipated improvements in the utilization of foreign and other tax
credits generated in the current year as well as carried forward from prior
years.
Six Months Ended September 30, 1995 and 1994
Consolidated sales for the six month period ended September 30, 1995 were
$281.9 million, amounting to an 11% increase from sales of $254.2 million in
the same period last year. Sales gains were achieved in all of the Company's
geographic segments. The effects of a weaker U.S. dollar relative to most
foreign currencies increased reported sales during the current year period. On
a constant exchange rate basis, the sales increase would have been 4% for the
six months ended September 30, 1995 as compared to the same period of the prior
year.
The Company earned operating income of $50.6 million for the six months ended
September 30, 1995, a 1% increase from the $50.1 million earned in the same
period of the prior year. On a constant exchange rate basis, operating income
declined 5% between these two periods. Operating margin declined to 18.0% of
sales for the current year six months, from 19.7% for the same period a year
ago. Such decline reflects the effects of certain customer order deferrals in
the United States, sub-optimal capacity utilization associated with continuing
weakness in the United Kingdom, Australian, Japanese and other nutritionals
markets, and additional depreciation and other fixed manufacturing cost
increases related to recently constructed facilities. Mitigating this decline
to some extent, however, is the continuing sales mix shift towards higher
margin pharmaceutical softgels, which rose 20% as compared with the prior year
six month period. Health and nutritional products sales increased slightly
between the six month periods ended September 30, 1995 and 1994, despite an 11%
decline in sales of Vitamin E softgels. The Company contained selling and
administrative expenses to $36.5 million in the current year six months,
representing a decline to 12.9% of sales, as compared with 13.5% of sales in
the prior year period.
Research and development costs were $11.8 million for the six months ended
September 30, 1995, representing a 31% increase from the $9.0 million during
last year's six months. Excluding research and development expenses, operating
margin was 22.1% of sales for the September 30, 1995 period, compared to 23.3%
for the same period of the prior year. Approximately $2.2 million of this
increase related to the ATP initiative, as discussed above.
Net income for the first six months of fiscal 1996 reached $22.0 million, or
$0.90 per share, compared to net income of $20.6 million, or $0.84 per share,
for the same period last fiscal year. In addition to the operating income
changes discussed above, the Company realized the benefit of a reduction in the
effective income tax rate to 31.4% for the current year six months, compared to
35.4% for the same period a year ago. The lower effective income tax rate
primarily resulted from geographic shifts in the mix of income and anticipated
improvements in the utilization of foreign and other tax credits in the current
year. Minority interests in income of subsidiaries for the six month ended
September 30, 1995, increased by $1.0 million as a result of increased earnings
of the Company's 51%-owned German operation.
8
<PAGE> 9
Results by Geographic Segment
The following sets forth operating results for each of the Company's geographic
segments for the six month periods ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands) Sales Operating Income Operating Margin
------------- ---------------- ----------------
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United States $ 64,280 $ 60,524 $15,353 $14,798 23.9% 24.4%
Europe 164,126 142,487 35,060 31,043 21.4 21.8
Other International 53,483 51,239 9,078 10,186 17.0 19.9
Unallocated(1) -- -- (8,855) (5,971) -- --
-------- -------- ------- ------- ---- ----
$281,889 $254,250 $50,636 $50,056 18.0% 19.7%
======== ======== ======= ======= ==== ====
</TABLE>
(1) Includes general Corporate expenses and expenses associated with the ATP
Group.
The Company's United States operations generated a 6% sales gain for the six
months ended September 30, 1995. Sales of pharmaceutical softgels increased by
16.5%, principally as a result of first quarter sales of Abbot Laboratories'
Hytrin(R) (terazosin HCI), used for the treatment of hypertension and benign
prostate enlargement. Weak demand for Vitamin E and other anti-oxidant softgels
continued in the current fiscal year. However, total nutritional softgel sales
increased by 12% between the current and prior year periods, as moderate growth
in sales of other nutritional products offset a 4% decline in lower margin
Vitamin E sales. Cosmetic products sales declined by 11%, as a result of
previously disclosed customer order deferrals of certain high margin softgel
products. As a result of the shifts in product mix and increases in fixed costs
resulting from recent facility upgrades and expansion, operating income grew by
only 4%, or $0.6 million, yielding a 23.9% operating margin as compared with
24.4% in the prior year quarter.
Sales in Europe increased 15% for the six months ended September 30, 1995, as
compared to the same period last year. On a constant exchange rate basis, this
sales increase amounted to 4%. Strong sales gains throughout most of continental
Europe were partially offset by sales declines due to soft demand for
nutritional softgels in the United Kingdom. The Company's German operations
realized continued growth of sales to Sandoz of Sandimmune(R) and Neoral(R)
(cyclosporin A) softgels, which are performing well in the expanding
immuno-suppressant drug category. In addition, during the first quarter of the
current fiscal year Neoral(R) was approved for use in the United States for the
prevention of organ rejection in kidney, liver, and heart transplants. As a
result of the sales increases, operating income increased 13% between the two
years. Operating margin decreased to 21.4% for the current year six months
compared to 21.8% a year ago, largely due to the softness of the United Kingdom
nutritionals market and, to a lesser extent, increases in research and
development expenses for softgel, Zydis(R) and Pulsincap(R) operations.
The Company's Other International segment contributed a $2.3 million, or 4%,
increase in reported sales for the six months ended September 30, 1995, as a
result of increases in Japan, Korea and South America. The softness of the
Australian nutritionals market and the presence of the first Australian-based
competitor resulted in a decline in sales and margin levels at the Company's
Australian operation. An 11% decline in operating income for the segment was
experienced, as income from the reported sales gains in other operations was
offset by reduced operating margins in Australia and increased research and
development expenses in Canada.
9
<PAGE> 10
CASH FLOWS
Cash and cash equivalents decreased by $9.4 million for the six months ended
September 30, 1995, as compared with an increase of $5.7 million in the same
period in 1994. Operating activities provided cash of $20.7 million and $32.8
million for the current and prior year periods, respectively. For the period
ended September 30, 1995, increased cash generated from continued strong
earnings was significantly offset by a $27.0 million increase in net working
capital. Such net working capital increase resulted primarily from seasonal
reductions in current liabilities related to the timing of foreign tax payments
and capital asset purchases, timing of dividend and interest payments to
minority shareholders, and other accrued liability reductions, as well as by
increases in customer receivables. For the prior year period, cash generated
from earnings was partially offset by a $9.3 million increase in net working
capital. Such increase was related primarily to the timing of payments for
interest and income taxes, as well as increases in raw materials inventories
related to higher order levels. Reductions in receivables largely due to the
timing of collections from certain major customers offset the other working
capital increases in the prior year period.
Capital expenditures for the current year period amounted to $26.1 million,
compared to the prior year period's capital expenditures of $19.0 million.
Current period capital spending consisted primarily of expenditures in the
United Kingdom related to the continuing expansion of the Zydis(R) production
facility, in Germany and France for the ongoing expansion and renovation of
pharmaceutical softgel facilities, and general facility and equipment additions
and improvements. In the prior year, capital expenditures were related
primarily to the construction of a new satellite softgel production facility in
North America, expansion of the Zydis(R) production facility in the United
Kingdom, and in Australia for the construction of a replacement manufacturing
facility, as well as other general facility and equipment additions and
improvements.
Financing activities for the six months ended September 30, 1995, principally
reflect the payment of $13.5 million of dividends to minority shareholders, as
well as a net $9.7 million of borrowings under the Company's bank credit
facility used principally to fund capital and research expenditures in the
United Kingdom. In the prior year period, financing activities include $7.1
million of dividends paid to minority shareholders of subsidiaries.
LIQUIDITY AND FINANCIAL CONDITION
During the next several years, a significant portion of the Company's cash flow
will be used to fund capital expenditures, increased investments in research
and development, and to service and reduce indebtedness. Capital expenditures
are anticipated to approximate $60 to $70 million for the fiscal year ended
March 31, 1996, down from the previously anticipated $75 to $85 million for
fiscal 1996, as a result of deferrals of spending into fiscal 1997 for a major
plant expansion in Japan and for further expansions of the Zydis(R) production
facilities. Such expenditures will be used to continue the expansion of softgel
production capacity to meet anticipated customer demand, as well as to ensure
continuing compliance with pharmaceutical Good Manufacturing Practices (GMP)
standards for the Company's facilities. In addition, such expenditures will
include further major expansions of production facilities for Zydis(R). As of
September 30, 1995, the Company had approximately $10.2 million of commitments
for future capital expenditures.
The Company will also continue to invest a significant portion of its cash flow
in research and development activities for its advanced drug delivery systems,
including the RP Scheresol(R), Zydis(R) and Pulsincap(R) technologies, as well
as to develop new drug delivery technologies and to fund the Company's ATP
initiative. The Company believes that changes currently affecting worldwide
pharmaceutical markets will enhance the commercial value of products which can
demonstrate therapeutic and cost benefits over existing therapies, and through
ATP intends to capitalize upon these trends by creating new products which
reformulate existing compounds utilizing the Company's proprietary drug
delivery technologies. The Company expects that expenses associated with ATP
will represent a significant portion of the Company's research and development
spending over the next several years. Revenues from ATP product sales and
royalties are expected to begin no earlier than fiscal 1997, assuming the
development and commercialization of such products in successful.
10
<PAGE> 11
The Company actively reviews drug delivery systems businesses and technologies
for potential investment, consistent with its strategic objectives. Generally,
such investments are not expected to involve significant initial funding or
financial commitments on the part of the Company. Management intends that any
acquisition which would require significant funding would be financed largely
through the issuance of common stock, depending upon market conditions, so as
not to materially increase the Company's debt to equity ratio.
At September 30, 1995, the Company's outstanding long-term indebtedness
consisted of approximately $99.4 million of 6-3/4% senior notes (net of a $0.6
million discount), $75.2 million of borrowings under the Company's bank credit
facility, $6.4 million of industrial development revenue bonds, and
approximately $14.3 million of other indebtedness.
The Company's senior notes bear interest at 6-3/4% of face value, payable
semi-annually, and mature in full in February 2004. The 6-3/4% senior notes are
noncallable and unsecured, ranking pari passu with all other unsecured and
senior indebtedness of the Company. Annual interest expense on the senior notes
is approximately $6.8 million (excluding amortization of the original issue
discount and deferred financing fees), payable semi-annually. The indenture
under which the senior notes were issued restricts the Company's ability to
incur additional liens, enter into sale-leaseback transactions, engage in
certain transactions with affiliates, and consummate certain business
combinations.
In March 1994, the Company entered into a bank credit facility which 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 .575%, with a further reduction in the interest rate spread to LIBOR plus
.475% anticipated later during the term of the facility 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 of the Company and certain of its subsidiaries. The bank
credit facility requires the Company to satisfy various annual and quarterly
financial tests, including maintenance on a consolidated basis of specified
levels 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. As of September 30, 1995, 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 approximately $25.0 million. As of September 30,
1995, the Company had outstanding approximately $3.9 million under these
revolving credit arrangements.
The Company believes that its future cash flows from operations, together with
cash and short-term investments aggregating $28.2 million at September 30, 1995
and amounts available under bank credit facilities will be adequate to meet
anticipated capital investment, operating, and debt service requirements.
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.
11
<PAGE> 12
PART II
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of R.P. Scherer Corporation was held on
September 12, 1995, for the purpose of electing a Board of Directors,
approving the appointment of independent auditors, and voting on the
proposal described below.
The shareholders elected the Company's entire Board of Directors. The
persons elected to the Company's Board of Directors and the number of shares
cast for, and the number of shares withheld, with respect to each of these
persons were as follow:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
John P. Cashman 18,073,483 29,735
---------- ------
Aleksandar Erdeljan 18,073,483 29,735
---------- ------
Lori G. Koffman 18,073,083 30,135
---------- ------
Frederick Frank 18,073,083 30,135
---------- ------
James A. Stern 18,073,083 30,135
---------- ------
Louis Lasagna 18,073,183 30,035
---------- ------
Robert H. Rock 18,073,083 30,135
---------- ------
John E. Avery 18,073,183 30,035
---------- ------
</TABLE>
The shareholders ratified the appointment of Arthur Andersen LLP as auditors
of the Company by the following vote: 18,042,124 shares having voted "for",
51,134 shares having voted "against", 9,960 shares having abstained from
voting, and zero shares having not voted.
The proposal for adoption of the ratification of the Second Amendment to the
Company's 1992 Stock Option Plan was approved by the following vote:
16,328,953 shares having voted "for", 1,723,330 shares having voted
"against", 50,935 shares having voted "abstaining", and zero shares
represented either in person or via proxy having not voted.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27 Financial Data Schedule. Filed herewith.
(b) REPORTS ON FORM 8-K: None.
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: November 13, 1995 By: /s/ Nicole S. Williams
------------------------- ---------------------------------
Nicole S. Williams
Executive Vice President, Finance
and Chief Financial Officer,
Treasurer, and Secretary
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from R.P. Scherer
Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995, and is qualified in its entirety by reference to such Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 24,363
<SECURITIES> 4,876
<RECEIVABLES> 124,399
<ALLOWANCES> 4,500
<INVENTORY> 61,268
<CURRENT-ASSETS> 218,992
<PP&E> 388,366
<DEPRECIATION> 101,853
<TOTAL-ASSETS> 709,933
<CURRENT-LIABILITIES> 100,947
<BONDS> 191,584
<COMMON> 234
0
0
<OTHER-SE> 292,475
<TOTAL-LIABILITY-AND-EQUITY> 709,933
<SALES> 281,889
<TOTAL-REVENUES> 281,889
<CGS> 183,002
<TOTAL-COSTS> 231,253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,985
<INCOME-PRETAX> 44,450
<INCOME-TAX> 13,936
<INCOME-CONTINUING> 22,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,018
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.90
</TABLE>
