<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 902(G)
OF REGULATION S-T.
Commission File Number 1-10827
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10--Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
PHARMACEUTICAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-3122182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE RAM RIDGE ROAD, SPRING VALLEY, NEW YORK 10977
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 425-7100
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 twelve 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
-------- --------
14,634,985
Number of shares of Common Stock outstanding as of February 6, 1995
This is page 1 of 13 pages. The exhibit index is on page 11.
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 1,
ASSETS 1994 1994
------ ----------- --------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,121 $ 3,130
Temporary investments 178 176
Accounts receivable, net of allowances of
$2,317,000 and $2,768,000 7,731 9,347
Inventories 16,175 16,352
Prepaid expenses and other current assets 3,950 1,500
Current deferred tax benefit 2,506 3,090
Current assets of discontinued operations 20 20
------- -------
Total current assets 34,681 33,615
Property, plant and equipment, at cost less
accumulated depreciation and amortization 23,307 23,004
Deferred charges and other assets 1,108 1,086
Investment in non-marketable securities 1,000 1,000
Long-term deferred tax benefit 10,070 10,497
------- -------
Total assets $70,166 $69,202
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,267 $ 1,870
Accounts payable 4,962 5,340
Salaries and employee benefits 2,474 2,908
Accrued expenses and other current liabilities 1,198 921
Estimated current liabilities of discontinued
operations 2,838 2,844
------- -------
Total current liabilities 12,739 13,883
Long-term debt, less current portion 5,282 5,490
Pension 553 553
Commitments, contingencies and other matters - -
Shareholders' equity:
Preferred Stock, par value $.0001 per share;
authorized 6,000,000 shares;
issued and outstanding-- 1,033,968 and 1,058,400
shares of Series A Convertible
Preferred Stock (aggregate liquidation
preference-$5,170,000 and $5,292,000) 1 1
Common Stock, par value $.01 per share;
authorized 60,000,000 shares; outstanding
14,591,849 and 14,482,632 shares 146 145
Additional capital 43,570 43,066
Retained earnings 7,975 6,164
Additional minimum liability related to defined
benefit pension plan (100) (100)
------- -------
Total shareholders' equity 51,592 49,276
------- -------
Total liabilities and shareholders' equity $70,166 $69,202
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
DECEMBER 31, JANUARY 1,
1994 1994
---- ----
<S> <C> <C>
Net sales $17,031 $ 17,920
Other revenues 99 205
------ -------
Total revenues 17,130 18,125
Costs and expenses:
Cost of goods sold 10,731 11,785
Research and development 816 689
Selling, general and administrative 4,169 3,390
Interest 128 124
Settlement (2,000) -
------ -------
13,844 15,988
Income before provision for income taxes 3,286 2,137
Provision for income taxes 1,172 699
------ -------
Income before cumulative effect of change in
accounting principle 2,114 1,438
Cumulative effect of change in accounting
principle - 14,128
------ -------
NET INCOME 2,114 15,566
Dividend on preferred stock ($.30 per share) (303) -
Retained earnings (deficit), beginning of
period 6,164 (12,351)
------ -------
Retained earnings, end of period $ 7,975 $ 3,215
====== =======
Income per share of common stock:
Income before cumulative effect
of change in accounting principle $.13 $ .09
Cumulative effect of change in
accounting principle - .84
------ -------
Net income $ .13 $ .93
====== =======
Weighted average number of common and
common equivalent shares outstanding 16,312 16,817
====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
DECEMBER 31, JANUARY 1,
1994 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,114 $ 15,566
Adjustments to reconcile net income
to net cash provided by operating activities:
Cumulative effect of accounting change - (14,128)
Provision for income tax expense 1,172 699
Depreciation and amortization 621 626
Accounts receivable allowances (450) 1,512
Write-off of inventories 279 360
Other 8 275
Changes in assets and liabilities:
Decrease (increase) in accounts receivables 2,066 (328)
(Increase) in inventories (102) (1,421)
(Increase) decrease in prepaid expenses and
other assets (2,480) 211
(Decrease) increase in accounts payable (378) 1,506
(Decrease) in accrued expenses and other
liabilities (461) (1,145)
(Decrease) in settlements - (750)
------ -------
Net cash provided by operating activities 2,389 2,983
Cash flows from financing activities:
Proceeds from issuance of common stock 345 966
Proceeds from issuance of note payable and
other debt - 70
Principal payments under long-term debt and
other borrowings (819) (932)
------ -------
Net cash (used in) provided by financing
activities (474) 104
Cash flows from investing activities:
Capital expenditures (916) (1,143)
Cash (used by) discontinued operations (6) (237)
(Increase) in temporary investments (2) (16)
------ -------
Net cash (used in) investing activities (924) (1,396)
Net increase in cash and cash equivalents 991 1,691
Cash and cash equivalents at beginning of period 3,130 12,134
------ -------
Cash and cash equivalents at end of period $ 4,121 $ 13,825
====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(UNAUDITED)
Pharmaceutical Resources, Inc. ("PRI") operates in one business segment, the
manufacture and distribution of generic pharmaceuticals. Marketed products are
principally in oral solid form (tablet, caplet, and capsule), with a small
number in the form of creams and liquids.
BASIS OF PREPARATION:
The accompanying financial statements as at December 31, 1994 and for the three-
month periods ended December 31, 1994 and January 1, 1994 are unaudited;
however, in the opinion of management of PRI such statements include all
adjustments (consisting of normal recurring accruals) necessary to a fair
statement of the information presented therein. The balance sheet as at October
1, 1994 was derived from the audited financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, the accompanying financial
statements and these notes do not include all disclosures required by generally
accepted accounting principles for complete financial statements. Accordingly,
these statements should be read in conjunction with PRI's most recent annual
financial statements.
Results of operations for interim periods are not necessarily indicative of
those to be achieved for full fiscal years.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of PRI and its
wholly-owned subsidiaries, Par Pharmaceutical, Inc. ("Par") and seven others,
the activities of which are not significant. References herein to the "Company"
refer to PRI and its subsidiaries.
DISCONTINUED OPERATIONS:
The remaining assets and liabilities of Quad Pharmaceuticals, Inc., discontinued
in a prior year, have been classified on the balance sheet as such to separately
identify them. Estimated current liabilities of discontinued operations as at
December 31, 1994 consist primarily of notes payable $813,000, amounts due to
customers $1,657,000, and accrued expenses and accounts payable of $368,000.
SETTLEMENT:
The Company has resolved claims against former management members for recovery
of, among other things, salaries and monies paid for indemnification. The
settlement valued at $2,000,000, consists of payments in cash and/or securities
of the Company.
TEMPORARY INVESTMENTS:
Investments include certificates of deposit of $178,000 in the quarter ended
December 31, 1994 and $176,000 in the same quarter of the previous fiscal year.
-5-
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS----CONTINUED
DECEMBER 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE:
December 31, October 1,
1994 1994
---- ----
(In Thousands)
<S> <C> <C>
Accounts receivable $10,048 $12,115
Allowances:
Doubtful accounts 89 124
Returns and allowances 334 349
Price adjustments 1,894 2,295
------- -------
2,317 2,768
------- -------
Accounts receivable,
net of allowances $ 7,731 $ 9,347
======= =======
<CAPTION>
INVENTORIES:
December 31, October 1,
1994 1994
---- ----
(In Thousands)
<S> <C> <C>
Raw materials and supplies $ 7,112 $ 7,407
Work in process and finished
goods 9,063 8,945
------- -------
$16,175 $16,352
======= =======
</TABLE>
CONTINGENCIES AND OTHER MATTERS:
Legal Proceedings:
The Company is involved in minor litigation matters, including a certain product
liability action, incidental to the conduct of its business, but does not
believe that the ultimate resolution thereof will have a material adverse effect
on its financial statements, considered as a whole.
The Company received a warning letter in May 1994 from the United States Food
and Drug Administration (the "FDA") setting forth certain alleged deviations
from current good manufacturing practice regulations and alleged violations of
related provisions of the Federal Food, Drug and Cosmetic Act. The warning
letter does not limit the manufacture of the Company's product line nor suspend
the review and approval of applications pending at the FDA. The FDA indicated
that it would shortly complete its review of the Company response and that a
mutually amenable working relationship continues between the FDA and the
Company. No assurances can be given that the outcome of the FDA review will not
have a material adverse effect upon the Company.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES
Net sales of $17,031,000 for the three months ended December 31, 1994 decreased
$889,000, or 5%, from net sales of $17,920,000 for the three months ended
January 1, 1994. Sales of manufactured products increased $1,407,000, or 10%,
due to both an increase in quantities sold and price increases on the existing
product line. These increases in quantities sold, including one product with
decreased competition, and in price have resulted in an increase of manufactured
sales from the comparable period the prior year for three consecutive quarters.
Sales of distributed products decreased $2,296,000, or 61%, principally as a
result of reduced units and lower selling prices due to competition.
Sales for the quarters ended December 31, 1994 and January 1, 1994 were derived
as follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
December 31, 1994 January 1, 1994
----------------- ---------------
Amount % of Total Amount % of Total
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Manufacturing activities $15,541 91% $14,134 79%
Distribution activities $ 1,490 9% $ 3,786 21%
</TABLE>
Increases in sales are dependent on, among other things, (i) successful approval
of additional Abbreviated New Drug Applications, (ii) increased market
penetration of the existing product line, (iii) continued introduction of new
distributed product, (iv) reintroduction of previously manufactured product, and
(v) the level of customer service.
GROSS MARGIN
The Company's gross margin for the quarter ended December 31, 1994 was
$6,300,000 (37% of net sales) compared to $6,135,000 (34% of net sales) for the
corresponding period of the prior fiscal year. The gross margins for
manufactured and distributed products were 38% and 22%, respectively, for the
first quarters of both fiscal 1995 and 1994. Total gross margin improved because
of the greater weight of manufacturing sales as a percentage of total sales this
quarter compared to the same quarter last year.
Both gross margin and sales have been negatively impacted by the trend of major
branded pharmaceutical companies to directly launch their patented drugs as
generics prior to patent expiration. This added competition has had a negative
impact on the Company's sales and margins as distribution channels are either
closed or severely limited, and the Company lowers its prices in response to
these additional competitive pressures.
Inventory write-offs, which reduce gross margin and are taken in the normal
course of business, amounted to $279,000 (2% of net sales) during the quarter
ended December 31, 1994, a reduction of $81,000 from the $360,000 (2% of net
sales) in write-offs taken during the first quarter of fiscal year 1994.
OPERATING EXPENSES
Research and Development
Research and development costs for the quarter ended December 31, 1994 were
$816,000 (5% of net sales) versus $689,000 (4% of net sales) for the quarter
ended January 1, 1994. Management made a commitment to increase its annual
investments in research and development efforts. These costs include personnel,
biostudies, and other such expenses necessary to develop new products. In
addition, the Company continues to pursue alternatives to internal product
development efforts, such as joint ventures, licensing agreements and additional
distribution agreements. Included in research and development expenses during
the first quarter of fiscal 1995 was $228,000 which the Company advanced to Sano
Corporation. The Company now has three products under development for
transdermal delivery systems.
-7-
<PAGE>
Selling, General and Administrative
Selling, general and administrative costs increased $779,000, or 23%, to
$4,169,000 (24% of net sales) for the quarter ended December 31, 1994 from
$3,390,000 (19% of net sales) for the corresponding period of the prior fiscal
year. The increase in the level of expenses was primarily related to
nonrecurring expenses amounting to $397,000 incurred in connection with the
Company's response to the FDA's warning letter (see "Notes to Financial
Statements -- Contingencies and Other Matters"). The Company also incurred
expenses with the initiation of an estimated eighteen-month process of
installing a new software system, the phase-out in the quarter of a previously
used independent sales organization, and higher selling expenses related to the
additional internal sales staff.
Settlement
The Company was the plaintiff in proceedings against individuals in connection
with their actions as former managers of Par. A settlement was reached wherein
the Company will receive $2,000,000 (see "Notes to Financial Statements --
Settlement").
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital of $21,942,000 represents an increase of $2,210,000 from the
last fiscal year-end principally as a result of the settlement of the lawsuit
brought by the Company against former members of management. The working capital
ratio of 2.7:1 improved from 2.4:1 at year-end. Working capital for the quarter
ended January 1, 1994, was $21,172,000 and the working capital ratio was 2.0:1.
The Company's obligations, in the short term, to fund research and development
under various option and joint development agreements are not expected to have a
material effect upon cash flow or liquidity. The Company revised the terms of
its exclusive option from Bio-Pharma, Inc. and CT Holdings S.A., and paid
$200,000 plus 15,000 shares of common stock of the Company in January 1995, to
enable further evaluation of the compound and will pay additional amounts as
various testing stages are completed. If the Company exercises its option, it
will be required to pay $3,000,000 and incur significant additional expenses for
the necessary clinical trials and biostudies in order to file a New Drug
Application with the FDA. If the Company incurs this capital commitment, it
expects to fund any obligations with cash provided by operations to the extent
that such cash is available. In the absence of sufficient cash from operations,
the Company may be required to seek funds from other sources.
The Company is currently exploring various possible strategic business
transactions designed to strengthen and expand its operations, including joint
ventures, equity infusions by third parties and business combinations. If the
Company were to consummate any such strategic transaction, it could have a
material effect on the Company's operations and/or financial condition. There
can be no assurances that any such transaction will be effected in the
reasonably foreseeable future or, if a transaction is effected, what the terms
and conditions thereof would be.
While it is anticipated that operating activities during fiscal year 1995 will
generate cash, the Company expects to expend significant funds for increased
research and development efforts and further capital improvements. Although the
Company expects cash to be generated from operating activities to be sufficient
to fund its operations and research and development efforts, it obtained an
intermediate term bank financing to ensure implementation of its plans (see
"--Financing").
FINANCING
At December 31, 1994, the Company's debt of $6,549,000 is on a long-term basis
and $5,766,000 is scheduled to be repaid in monthly installments through fiscal
1999. The Company maintains a $7,000,000 revolving credit facility with a bank
which expires March 1996. At December 31, 1994, no borrowings were outstanding
under the revolving credit facility. The Company and the bank which provides the
revolving credit facility have entered into a $4,000,000 secured term loan, for
capital expenditures, which may be borrowed during the second quarter of fiscal
1995.
-8-
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
------ -----------------
Reference is made to "Notes to Financial Statements--Settlement" in Part
I of this Quarterly Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
------ --------------------------------
(a) Exhibits:
11 - Computation of per share data;
27 - Financial data schedule.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Registrant during
the quarter ended December 31, 1994.
-9-
<PAGE>
SIGNATURE
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.
PHARMACEUTICAL RESOURCES, INC.
------------------------------
(Registrant)
February 13, 1995 /s/ Kenneth I. Sawyer
______________________________________
Kenneth I. Sawyer
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Robert I. Edinger
______________________________________
February 13, 1995 Robert I. Edinger
Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
-10-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Description Page Number
<S> <C> <C>
11 Computation of per share data 12
27 Financial data schedule 13
</TABLE>
-11-
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 31, January 1,
1994 1994
---- ----
<S> <C> <C>
Income applicable to common stock before
cumulative effect of change in accounting
principle $ 2,114,000 $ 1,438,000
Cumulative effect of change in accounting - 14,128,000
principle ----------- -----------
Net income applicable to common stock $ 2,114,000 $15,566,000
=========== ===========
Primary:
Weighted average number of common shares
outstanding 14,549,749 13,847,700
Shares issuable upon conversion of Series A
Convertible Preferred Stock 1,033,968 1,247,982
Shares issuable upon exercise of dilutive
stock options and warrants --
net of shares assumed to be repurchased
(at the average market price
for the period) from exercise proceeds 728,468 1,721,180
----------- -----------
Shares used for computation 16,312,185 16,816,862
=========== ===========
Income per share of common stock (primary):
Income before cumulative effect of change in
accounting principle $ .13 $ .09
Cumulative effect of change in accounting
principle - .84
----------- -----------
Net income $ .13 $ .93
=========== ===========
Assuming full dilution:
Weighted average number of common shares
outstanding 14,549,749 13,847,700
Shares issuable upon conversion of Series A
Convertible Preferred Stock 1,033,968 1,247,982
Shares issuable upon exercise of dilutive
stock options and warrants --
net of shares assumed to be repurchased
(at the higher of period-end
market price or the average market price
for the period) from
exercise proceeds 728,468 1,750,945
----------- -----------
Shares used for computation 16,312,185 16,846,627
=========== ===========
Income per share of common stock (assuming full
dilution)
Income before cumulative effect of change in
accounting principle $ .13 $ .08
Cumulative effect of change in accounting
principle - .84
----------- -----------
Net income $ .13 $ .92
=========== ===========
</TABLE>
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 4,121
<SECURITIES> 178
<RECEIVABLES> 10,048
<ALLOWANCES> (2,317)
<INVENTORY> 16,175
<CURRENT-ASSETS> 34,681
<PP&E> 40,021
<DEPRECIATION> (16,714)
<TOTAL-ASSETS> 70,166
<CURRENT-LIABILITIES> 12,739
<BONDS> 6,549
<COMMON> 146
0
1
<OTHER-SE> 51,445
<TOTAL-LIABILITY-AND-EQUITY> 70,166
<SALES> 17,031
<TOTAL-REVENUES> 17,130
<CGS> 10,731
<TOTAL-COSTS> 5,020
<OTHER-EXPENSES> (2,000)
<LOSS-PROVISION> (35)
<INTEREST-EXPENSE> 128
<INCOME-PRETAX> 3,286
<INCOME-TAX> 1,172
<INCOME-CONTINUING> 2,114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,114
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
