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UNITED STATES
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 27, 1998
Commission file number 1-14019
SCHEIN PHARMACEUTICAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2726505
- ------------------------------------------------ -------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
100 CAMPUS DRIVE, FLORHAM PARK, NJ 07932
---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
973-593-5500
-------------------------------
(Registrant's telephone number)
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
--- ---
The number of shares outstanding of the registrant's common stock
as of July 30, 1998 was 32,412,561.
================================================================================
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 27,
1998 and December 27, 1997 ............................ 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 27, 1998
and June 28, 1997 ..................................... 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 27, 1998 and
June 28, 1997 ......................................... 5
Notes to Condensed Consolidated Financial Statements .... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .......................... 12
SIGNATURES .............................................................. 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 27, December 27,
1998 1997
--------- -----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents ............................ $ 642 $ 804
Accounts receivable, less allowance for possible
losses of $2,425 and $2,260 ........................ 94,524 88,781
Inventories .......................................... 143,557 119,142
Other current assets ................................. 17,592 14,035
-------- --------
Total current assets ............................ 256,315 222,762
Property, plant and equipment, net ..................... 116,987 110,432
Product rights, licenses and regulatory approvals, net . 106,051 86,564
Goodwill, net .......................................... 96,593 98,366
Other assets ........................................... 15,232 16,002
-------- --------
$591,178 $534,126
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................ $ 98,479 $ 81,478
Income taxes ......................................... 14,369 11,595
Revolving credit and current maturities of
long-term debt ..................................... 93,614 56,440
-------- --------
Total current liabilities ....................... 206,462 149,513
Long-term debt, less current maturities ................ 134,166 198,705
Other non-current liabilities .......................... 43,642 46,193
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 100,000 authorized
shares; issued and outstanding 32,299 shares at
June 27, 1998 and 28,693 shares at December 27,
1997 ............................................... 323 287
Additional paid-in capital ........................... 93,456 38,494
Retained earnings .................................... 113,388 99,483
Accumulated other comprehensive income (loss) ........ (259) 1,502
Other ................................................ -- (51)
-------- --------
Total stockholders' equity ...................... 206,908 139,715
-------- --------
$591,178 $534,126
======== ========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues ............................................ $137,974 $114,441 $284,652 $246,280
Cost of sales ........................................... 91,821 77,873 186,614 164,990
-------- -------- -------- --------
Gross profit ........................................ 46,153 36,568 98,038 81,290
Costs and expenses:
Selling, general and administrative ................. 22,247 19,129 43,819 39,071
Research and development ............................ 7,054 7,434 14,201 14,178
Amortization of goodwill and other intangibles ...... 2,574 2,598 5,148 5,148
-------- -------- -------- --------
Operating income ........................................ 14,278 7,407 34,870 22,893
Interest expense, net ............................... 5,055 6,850 11,047 13,734
Other expenses (income), net ........................ (620) (1,077) (2,142) 17
-------- -------- -------- --------
Income before provision for income taxes and
extraordinary item .................................. 9,843 1,634 25,965 9,142
Provision for income taxes .............................. 3,400 1,315 10,400 4,940
-------- -------- -------- --------
Income before extraordinary item ........................ 6,443 319 15,565 4,202
Extraordinary item: loss on early extinguishment of
debt, net of income tax ............................. (1,660) -- (1,660) --
-------- -------- -------- --------
Net income .............................................. $ 4,783 $ 319 $ 13,905 $ 4,202
======== ======== ======== ========
Earnings per share, basic:
Income before extraordinary item .................... $ 0.20 $ 0.01 $ 0.52 $ 0.15
Extraordinary item .................................. (0.05) -- (0.06) --
-------- -------- -------- --------
Net income .......................................... $ 0.15 $ 0.01 $ 0.46 $ 0.15
======== ======== ======== ========
Earnings per share, diluted:
Income before extraordinary item .................... $ 0.20 $ 0.01 $ 0.51 $ 0.15
Extraordinary item .................................. (0.05) -- (0.06) --
-------- -------- -------- --------
Net income .......................................... $ 0.15 $ 0.01 $ 0.45 $ 0.15
======== ======== ======== ========
Weighted average common shares and equivalents:
Basic ............................................... 31,767 28,693 30,230 28,693
======== ======== ======== ========
Diluted ............................................. 32,617 28,755 30,599 28,755
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended
----------------------
June 27, June 28,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income ......................................... $ 13,905 $ 4,202
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization .................. 13,092 13,299
Deferred income taxes .......................... (1,192) (1,706)
Gain on sale of marketable securities .......... (3,196) (1,729)
Extraordinary item: loss on early
extinguishment of debt, non-cash ............. 1,160 --
Other .......................................... 1,227 2,724
Changes in assets and liabilities:
Accounts receivable ............................ (5,908) 2,202
Inventories .................................... (24,415) 3,344
Prepaid expenses and other assets .............. (3,557) (10,438)
Accounts payable, income taxes, accrued
expenses and other liabilities ............... 6,927 6,235
--------- ---------
Net cash provided by (used in) operating activities .. (1,957) 18,133
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................... (13,585) (5,216)
Product rights and licenses ........................ (8,811) 30
International investments .......................... (6,464) --
Proceeds from the sale of marketable securities .... 4,604 2,184
Other, net ......................................... (965) (1,077)
--------- ---------
Net cash used in investing activities ................ (25,221) (4,079)
--------- ---------
Cash flows from financing activities:
Principal payments on, or repayments of, debt ...... (147,051) (105,044)
Proceeds from issuance of debt ..................... 119,686 90,000
Net proceeds from initial public offering .......... 52,450 --
Proceeds from exercise of stock options ............ 2,048 --
Increase in other non-current assets ............... (117) --
--------- ---------
Net cash provided by (used in) financing activities .. 27,016 (15,044)
--------- ---------
Net decrease in cash and cash equivalents ............ (162) (990)
Cash and cash equivalents, beginning of period ....... 804 2,139
--------- ---------
Cash and cash equivalents, end of period ............. $ 642 $ 1,149
========= =========
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated 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
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results and cash flows for the interim periods
ended June 27, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 26, 1998. For further information refer to
the consolidated financial statements and footnotes thereto for the 1997 fiscal
year included in the Company's Registration Statement on Form S-1 dated April 8,
1998.
Basic earnings per share has been computed using the weighted average number of
shares of common stock outstanding. Diluted earnings per share includes the
assumed exercise of stock options using the treasury stock method that could
potentially dilute earnings per share. The treasury stock method results in an
increase in the number of weighted average common stock equivalents by 850,000
and 369,000 shares in the three month and six month periods ended June 27, 1998,
respectively.
NOTE 2--INVENTORIES
Inventories are summarized as follows:
June 27, December 27,
1998 1997
-------- -----------
(In thousands)
Finished products ............................ $ 44,951 $ 45,568
Work-in-process .............................. 46,906 33,160
Raw materials and supplies ................... 51,700 40,414
-------- --------
$143,557 $119,142
======== ========
NOTE 3--STRATEGIC ALLIANCES
On March 31, 1998, the Company entered into an agreement with Elan Corporation
plc covering several products in various stages of development in the areas of
oral sustained-release and transdermal products. Under the agreement, the
Company is obligated to pay $14 million in license fees through March 1999,
which amount is included in accounts payable and accrued expenses. Additionally,
the Company may be obligated to pay approximately $3.5 million in additional
fees as and when certain milestones are achieved.
6
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 4--COMPREHENSIVE INCOME
Effective in fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." The Company's total
comprehensive income (loss) for the periods indicated were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
------- ------- ------- -------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net income ................................. $ 4,783 $ 319 $13,905 $ 4,202
------- ------- ------- -------
Other comprehensive income, net of tax:
Foreign currency translation adjustment .. (373) -- (407) 27
Unrealized holding gains (losses) arising
during period .......................... (1,188) (1,831) 548 3,197
Less: reclassification adjustment for
gains included in net income ....... (238) -- (1,902) --
------- ------- ------- -------
Other comprehensive income (loss) .......... (1,799) (1,831) (1,761) 3,224
------- ------- ------- -------
Comprehensive income (loss) ................ $ 2,984 $(1,512) $12,144 $ 7,426
======= ======= ======= =======
</TABLE>
Components of accumulated other comprehensive income (loss), included in the
Company's balance sheet, are as follows:
June 27, December 27,
1998 1997
-------- ----------
(In thousands)
Unrealized gains on marketable securities ............ $ 932 $ 2,286
Cumulative foreign currency translation adjustment ... (1,191) (784)
------- -------
$ (259) $ 1,502
======= =======
7
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 5--INITIAL PUBLIC OFFERING
On April 9, 1998, the Company consummated an initial public offering of 3.45
million shares of common stock which generated net proceeds of $52.5 million.
The majority of the proceeds of the offering were used to retire $50 million of
the Company's senior floating rate notes. This resulted in an extraordinary
charge of $1.7 million, net of taxes, related to the early extinguishment of
debt in the second quarter of 1998. This extraordinary item is comprised of a
write-off of non-cash deferred financing fees as well as costs associated with
the reacquisition of the notes.
NOTE 6--BORROWINGS
The Company's senior floating rate notes are fully and unconditionally
guaranteed jointly and severally by each of the Company's domestic subsidiaries,
each of which is wholly-owned by the Company. These subsidiaries sell all of
their products to Schein Pharmaceutical, Inc., the parent company. Summarized
financial information for these wholly-owned subsidiary guarantors (using the
push-down method of accounting) is as follows:
June 27, December 27,
1998 1997
-------- -----------
(In thousands)
Current assets:
Inventory .......................................... $ 99,563 $ 74,924
Intercompany receivables ........................... 97,865 119,191
Other current assets ............................... 4,963 4,197
Property, plant and equipment, net ................... 111,292 104,807
Product rights, licenses and regulatory approvals,
goodwill, net and other assets ..................... 171,116 178,548
Current liabilities .................................. 167,511 109,800
Deferred income taxes and other liabilities .......... 42,862 44,921
Long-term debt (pushed down) ......................... 125,000 186,000
Six Months Ended
--------------------
June 27, June 28,
1998 1997
-------- --------
(In thousands)
Net revenues ......................................... $240,965 $187,767
Gross profit ......................................... 75,877 50,753
Operating income ..................................... 24,507 15,955
Net income ........................................... 9,584 2,794
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Form 10-Q constitute "forward looking statements"
within the meaning of The Private Securities Litigation Reform Act of 1995,
including those concerning management's expectations with respect to future
events or results. Such forward looking statements may be identified by such
forward looking terms as expect, believe, may, anticipate, will or similar terms
or variations thereof. These forward looking statements involve certain
significant risks and uncertainties, and actual results may differ materially
from the forward looking statements. Some important factors which may cause
results to differ include: the difficulty of predicting FDA approvals, the
uncertainty of acceptance and demand for the Company's new products, the impact
of competitive products and pricing, the availability of raw materials,
uncertainties associated with litigation (including without limitation patent
challenges) and regulatory matters, and fluctuations in operating results. Other
important factors that may cause actual results to differ materially from the
forward looking statements are discussed in the "Risk Factors" and "Management's
Discussion & Analysis of Financial Condition and Results of Operations" sections
of the Company's prospectus dated April 8, 1998, which is on file with the
Securities and Exchange Commission as part of the Company's Registration
Statement on Form S-1. The Company assumes no duty to update any such forward
looking statements, even if experience or future changes indicate that any such
events or results may not be realized.
RESULTS OF OPERATIONS:
The following table sets forth comparisons of product revenues and
settlement revenues for each of the periods shown:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ -----------------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
--------------- ------------- -------------- -------------
(In millions) (In millions)
<S> <C> <C> <C> <C>
Product revenues................................ $ 138.0 $ 114.4 $ 254.7 $ 221.3
Patent reviews: settlement revenues............ -- -- 30.0 25.0
-------------- ------------- -------------- -------------
Total net revenues......................... $ 138.0 $ 114.4 $ 284.7 $ 246.3
============== ============= ============== =============
</TABLE>
Net revenues for the second quarter of 1998 increased $23.6 million, or 20.6%,
from $114.4 million in 1997 to $138.0 million in 1998. Net revenues for the six
months of 1998 increased $38.4 million, or 15.6%, from $246.3 million in 1997 to
$284.7 million in 1998.
Product revenues for the second quarter increased $23.6 million and for the six
month period increased $33.4 million. The increase in product revenues in the
second quarter is attributable to volume increases of $31.9 million partially
offset by price erosion of $8.3 million. In the six month period volume
increases were $45.6 million and were partially offset by price erosion of $12.2
million. New generic products launched in the past 12 months contributed
revenues of $26.0 million in the second quarter and $41.4 million in the six
month period. Methylphenidate and ketoprofen ER (both launched in the fourth
quarter of 1997) represent the majority of these new product revenues.
Settlement revenues in 1997 and 1998 reflected in the six month period were
funds received from a pharmaceutical company pursuant to an agreement reached
with the company in 1994. Under the agreement the Company received a final
payment of $30 million in the first quarter of 1998, half of which was paid to
the Company's consultant. In
9
<PAGE>
addition to the amounts paid to the consultant, the Company incurs substantial
other costs related to its patent review activities as part of its overall
product development activities.
Gross profit for the second quarter increased $9.6 million, or 26.2%, from $36.6
million in 1997 to $46.2 million in 1998. Gross profit for the six month period
increased $16.7 million, or 20.6%, from $81.3 million in 1997 to $98.0 million
in 1998. The gross margin improved 1.5% from 32.0% in the second quarter 1997 to
33.5% in 1998 and in the six month period gross margin increased 1.4% from 33.0%
in 1997 to 34.4% in 1998. The increase in gross profit was principally the
result of the volume increases, improvement in the mix of products sold and an
increase in settlement revenues, partially offset by price erosion.
Selling, general and administrative expenses for the second quarter increased
$3.1 million, or 16.3%, from $19.1 million in 1997 to $22.2 million in 1998.
Selling, general and administrative expenses for the six month period increased
$4.7 million, or 12.2%, from $39.1 million in 1997 to $43.8 million in 1998. The
increase in selling, general and administrative expenses was primarily due to
higher brand selling and marketing expenses to support pre-launch activities for
Ferrlecit(R) and certain generic marketing programs associated with new product
launches.
Research and development expenses in the second quarter decreased $0.4 million,
or 5.1%, from $7.4 million in 1997 to $7.0 million in 1998. Research and
development expenses in the six month period of $14.2 million are equal to 1997.
However, it is currently expected that research and development expenses for the
full year may exceed 1997 levels.
Amortization of goodwill and other intangibles was unchanged from the comparable
periods in 1997.
Operating income for the second quarter increased $6.9 million, or 92.8%, from
$7.4 million in 1997 to $14.3 million in 1998. Operating income for the six
month period increased $12.0 million, or 52.3%, from $22.9 million in 1997 to
$34.9 million in 1998.
Interest expense, net, in the second quarter decreased $1.8 million, or 26.2%,
from $6.9 million in 1997 to $5.1 million in 1998. Interest expense, net, in the
six month period decreased $2.7 million, or 19.6%, from $13.7 million in 1997 to
$11.0 million in 1998. In the second quarter the Company retired $50 million of
senior floating rate notes with proceeds from its April 1998 initial public
offering which resulted in interest expense savings of $0.9 million. Additional
factors contributing to lower interest expense in the second quarter and six
month period were lower overall debt levels, lower borrowing rates due to higher
cost subordinated debt being exchanged for lower cost senior floating rate notes
in December 1997 and lower interest rate spreads under the bank agreement.
Other expenses (income), net, in the second quarter changed by $0.5 million from
an income of $1.1 million in 1997 to income of $0.6 million in 1998. Other
income, net, in the six month period was $2.1 million in 1998. The change in
other expenses (income), net, in the six month period is due to a gain on the
divestiture of an international joint venture and higher gains on the sales of
marketable securities in the 1998 period.
Extraordinary item of $1.7 million in the second quarter and six month period of
1998 related to the write-off of deferred financing fees in connection with the
retirement of $50 million of the Company's senior floating rate notes with
proceeds the Company received from its April 1998 initial public offering.
The Company's effective tax rate is impacted by the effect of significant
non-deductible expenses, which are largely comprised of amortization of
intangibles. The effective tax rate decreased from 80.4% in the second quarter
of 1997 to 34.5% in 1998 and decreased for the six month period from 54.0% in
1997 to 40.0% in 1998, primarily as a result of higher income offsetting fixed
non-deductible expenses.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On April 9, 1998, the Company consummated an initial public offering of 3.45
million shares of common stock which generated net proceeds of $52.5 million.
The majority of the proceeds of the offering were used to retire $50 million of
the Company's senior floating rate notes.
Net cash used in operating activities was $2.0 million for the six months ended
June 1998. The net cash used in operating activities during 1998 was
attributable to net income as adjusted for the effects of non-cash items of
$25.0 million, and an increase in accounts receivable, inventories and prepaid
expenses and other assets of $33.9 million, partially offset by an increase in
liabilities, excluding debt, of $6.9 million. The increase in inventories is
primarily the result of a seasonal increase in raw materials as well as
increases in work in process inventories.
Net cash used in investing activities was $25.2 million for the six months ended
June 1998. Cash used in investing activities consisted of international
investments of $6.5 million, product rights and licenses of $8.8 million, and
capital expenditures of $13.6 million. Capital expenditures includes a $5.1
million purchase of land and a building located at the Company's Cherry Hill
facility which was previously leased. In February 1998, the Company entered into
a strategic alliance agreement with Cheminor Drugs Limited and its subsidiaries
("Cheminor") and Dr. Reddy's Laboratories Limited and its subsidiaries
("Reddy"). As part of the arrangement, the Company purchased 2 million shares of
Cheminor (12.79% of the currently outstanding shares of Cheminor) and other
rights for $10 million, of which $6.2 million represents the fair value of the
stock and $3.8 million represents product rights. These cash outlays were
partially offset by proceeds from the sale of marketable securities of $4.6
million.
Net cash of $27.0 million provided by financing activities for the six months
ended June 1998 was derived primarily from net proceeds from the Company's
initial public offering of $52.5 million, reduced by net repayments of debt of
$27.4 million.
During the second quarter of 1998, a Qualified Public Offering Date occurred
under the terms of the Restructuring Agreements which are described in the
Company's prospectus dated April 8, 1998. As a consequence, Bayer Corporation's
consent is no longer required in connection with the Company's taking certain
actions relating to debt, dividends and distributions on Common Stock.
The Company currently believes that cash generated from operations and existing
credit facilities are sufficient to finance its current level of operations
through the next twelve months. In the event that the Company undertakes any
acquisitions or any other commitments which require a material expenditure or
outlay of cash or capital resources, it may be required to obtain additional
funds. There can be no assurance that such funds, if required, would be
available or, if available, would be on terms acceptable to the Company.
REGULATORY MATTERS
The Food and Drug Administration (FDA) recently completed an inspection of
Steris Laboratories, Inc., the Company's subsidiary located in Phoenix, Arizona.
The inspectional observations included deficiencies concerning manufacturing
process validation and controls, some of which were noted in past inspections
and cited in the previously reported warning letter Steris received early this
year. In discussions with the FDA, Steris has been apprised that it has not yet
satisfactorily addressed the FDA's concerns in these and certain other areas.
Steris recently provided the FDA with its action plan to resolve validation and
other open issues. The FDA may request modifications to the plan. One or more
FDA inspections to evaluate Steris's performance of the plan are anticipated.
The Company expects that it will incur certain incremental costs at the facility
in the near term as it addresses the matters raised by the FDA and prepares for
such inspections. During the course of the recent inspection, Steris voluntarily
placed on distribution hold a number of smaller volume products pending
completion of validation studies on the processes used to manufacture these
products. These products represented approximately 2-3% of the Company's sales
and gross profits for the last twelve months.
11
<PAGE>
YEAR 2000 COMPLIANCE
Companies are anticipating that they may experience operational difficulties as
a result of automated systems that utilize two digits rather than four digits to
represent the applicable year. The Company's Year 2000 ("Y2K") compliance plan
includes compliance verification of vendor supplied software used by the
Company, modification and testing of internally supported applications, and
remediation of non-compliant embedded technology utilized in computer, network,
telecommunications, office and manufacturing equipment. The Company's plan also
includes communication with its trading partners (customers and suppliers) to
determine their readiness for Y2K compliance. The Company currently plans to
complete its Y2K compliance for computer transaction-based applications in late
1998 or early 1999, and for equipment utilizing embedded technology in 1999. All
costs associated with Y2K compliance are being expensed as incurred and are not
expected to have a material adverse effect on the Company's business, financial
condition and results of operations. Nevertheless, there is uncertainty
concerning the potential costs and effects associated with Y2K compliance. Thus,
any Y2K compliance problems of the Company or its trading partners could
possibly have a material effect on the Company's business, financial condition
and results of operations.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
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.
Schein Pharmaceutical, Inc.
(Registrant)
By: /s/ MARTIN SPERBER
---------------------------------
Martin Sperber
Chairman of the Board,
Chief Executive Officer and
President
(Principal Executive Officer)
By: /s/ DARIUSH ASHRAFI
--------------------------------
Dariush Ashrafi
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: August 11, 1998
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 27,
1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS CONTAINED THEREIN.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> JUN-27-1998
<CASH> 642
<SECURITIES> 0
<RECEIVABLES> 96,949
<ALLOWANCES> 2,425
<INVENTORY> 143,557
<CURRENT-ASSETS> 256,315
<PP&E> 195,582
<DEPRECIATION> 78,595
<TOTAL-ASSETS> 591,178
<CURRENT-LIABILITIES> 206,462
<BONDS> 134,166
0
0
<COMMON> 323
<OTHER-SE> 206,585
<TOTAL-LIABILITY-AND-EQUITY> 591,178
<SALES> 284,652
<TOTAL-REVENUES> 284,652
<CGS> 186,614
<TOTAL-COSTS> 186,614
<OTHER-EXPENSES> 61,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,047
<INCOME-PRETAX> 25,965
<INCOME-TAX> 10,400
<INCOME-CONTINUING> 15,565
<DISCONTINUED> 0
<EXTRAORDINARY> (1,660)
<CHANGES> 0
<NET-INCOME> 13,905
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.45
</TABLE>
