UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 2 to
Quarterly Report Pursuant To Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For quarter ended | Commission file number 1-8593 |
March 31, 2000 |
Alpharma Inc.
(Exact name of registrant as specified in its charter)
Delaware | 22-2095212 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
One Executive Drive, Fort Lee, New Jersey07024
(Address of principal executive offices) zip code
(201) 947-7774
(Registrant's Telephone Number Including Area Code)
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 requirements for the past 90 days.
YES X | NO ______ |
Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of April 28, 2000:
Class A Common Stock, $.20 par value -- 20,252,091 shares;
Class B Common Stock, $.20 par value -- 9,500,000 shares.
This amendment on the Form 10-Q of Alpharma Inc. (the "Company") is being filed solely to reflect changes necessitated by the Company's revision of its audited financial statements for the years ended December 31, 1998, 1999 and 2000 and the first two quarters of 2001. Items 1, 2 and 3 of Part 1 are the only items being amended hereby, and such amendments relate only to the revised financial statements. In all other respects, this amendment presents information as of the original date of the Form 10-Q. Items not being amended are presented for the convenience of the reader only.
ALPHARMA INC.
INDEX
Page No. | |
PART I. FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
Consolidated Condensed Balance Sheet (Revised) | |
as of March 31, 2000 and December 31, 1999 | 3 |
Consolidated Statement of Income (Revised) for | |
the Three Months Ended March 31, 2000 and 1999 | 4 |
Consolidated Condensed Statement of Cash | |
Flows (Revised) for the Three Months Ended | |
March 31, 2000 and 1999 | 5 |
Notes to Consolidated Condensed Financial Statements | 6-14 |
Item 2. Management's Discussion and Analysis of |
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 18 |
PART II. OTHER INFORMATION | |
Item 6. Exhibits and Reports on Form 8-K | 19 |
Signatures | 20 |
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands of dollars)
(Unaudited)
March 31, | ||
2000 | December 31, | |
ASSETS | (Revised) | 1999 |
Current assets: | ||
Cash and cash equivalents | $ 12,841 | $ 17,655 |
Accounts receivable, net | 151,591 | 168,526 |
Inventories | 184,153 | 167,981 |
Prepaid expenses and other current assets | 18,158 | 19,300 |
Total current assets | 366,743 | 373,462 |
Property, plant and equipment, net | 239,114 | 244,413 |
Intangible assets, net | 472,263 | 488,958 |
Other assets and deferred charges | 46,814 | 45,023 |
Total assets | $1,124,934 | $1,151,856 |
LIABILITIES AND STOCKHOLDERS' EQUITY | ||
Current liabilities: | ||
Current portion of long-term debt | $ 13,969 | $ 9,111 |
Short-term debt | 3,980 | 4,289 |
Accounts payable and accrued expenses | 123,461 | 135,281 |
Accrued and deferred income taxes | 12,068 | 15,595 |
Total current liabilities | 153,478 | 164,276 |
Long-term debt: | ||
Senior | 214,739 | 225,110 |
Convertible subordinated notes, including $67,850 | ||
to related party | 368,396 | 366,674 |
Deferred income taxes | 33,920 | 35,065 |
Other non-current liabilities | 15,887 | 17,208 |
Stockholders' equity: | ||
Class A Common Stock | 4,101 | 4,078 |
Class B Common Stock | 1,900 | 1,900 |
Additional paid-in-capital | 301,043 | 297,780 |
Accumulated other comprehensive loss | (52,350) | (34,201) |
Retained earnings | 90,521 | 80,150 |
Treasury stock, at cost | (6,701) | (6,184) |
Total stockholders' equity | 338,514 | 343,523 |
Total liabilities and stockholders' equity | $1,124,934 | $1,151,856 |
The accompanying notes are an integral part
of the consolidated condensed financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended | ||
2000 | 1999 | |
(Revised) | (Revised) | |
Total revenue | $188,817 | $154,193 |
Cost of sales | 97,577 | 87,449 |
Gross profit | 91,240 | 66,744 |
Selling, general and administrative expenses | 63,097 | 50,071 |
Operating income | 28,143 | 16,673 |
Interest expense | (10,860) | (7,466) |
Other, net | 948 | 943 |
Income before provision for income taxes | 18,231 | 10,150 |
Provision for income taxes | 6,522 | 3,723 |
Net income | $11,709 | $ 6,427 |
Earnings per common share: | ||
Basic | $ 0.40 | $ 0.24 |
Diluted | $ 0.37 | $ 0.23 |
Dividend per common share | $ .045 | $ .045 |
The accompanying notes are an integral part
of the consolidated condensed financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Three Months Ended | ||
2000 | 1999 | |
(Revised) | (Revised) | |
Operating Activities: | ||
Net income | $11,709 | $ 6,427 |
Adjustments to reconcile net income to net cash provided | ||
Depreciation and amortization | 14,368 | 10,582 |
Interest accretion on convertible debt | 1,722 | -- |
Changes in assets and liabilities: | ||
Decrease in accounts receivable | 14,190 | 20,170 |
(Increase) decrease in inventory | (19,326) | (7,892) |
(Decrease) in accounts payable, accrued expenses | ||
and taxes payable | (10,846) | (4,273) |
Other, net | (1,091) | (870) |
Net cash provided by operating activities | 10,726 | 24,144 |
Investing Activities: | ||
Capital expenditures | (8,031) | (6,739) |
Loans to Ascent Pediatrics | (1,500) | (4,000) |
Purchase of intangible assets | (3,441) | - |
Net cash used in investing activities | (12,972) | (10,739) |
Financing Activities: | ||
Dividends paid | (1,338) | (1,247) |
Proceeds from senior long-term debt | -- | 187,000 |
Reduction of senior long-term debt | (3,266) | (187,673) |
Net repayments under lines of credit | (246) | (22,777) |
Payments for debt issuance costs | -- | (3,104) |
Proceeds from issuance of common stock | 2,682 | 11,011 |
Purchase of treasury stock | (517) | - |
Net cash used in financing activities | (2,685) | (16,790) |
Exchange Rate Changes: | ||
Effect of exchange rate changes on cash | (543) | (824) |
Income tax effect of exchange rate changes on | ||
intercompany advances | 660 | 1,061 |
Net cash flows from exchange rate changes | 117 | 237 |
Decrease in cash | (4,814) | (3,148) |
Cash and cash equivalents at beginning of year | 17,655 | 14,414 |
Cash and cash equivalents at end of period | $ 12,841 | $ 11,266 |
The accompanying notes are an integral part
of the consolidated condensed financial statements.
1A. General
The accompanying consolidated condensed financial statements include all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, considered necessary for a fair presentation of the results for the periods presented. These financial statements should be read in conjunction with the consolidated financial statements of Alpharma Inc. and Subsidiaries included in the Company's 1999 Annual Report on Form 10-K/A. The reported results for the three month period ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year.
1B. Revision of Financial Statements
In October 2001 the Company announced that it would revise its financial statements. The revision affected the timing of recognition of revenue for certain sales of the Company's Animal Health Division for 1998, 1999, 2000 and the first two quarters of 2001. The revision results predominately from a required modification in recognizing revenue for specific customer orders in 1998, 1999 and 2000 from the time the order was segregated by third party warehouses and billed, to a subsequent period when the order was delivered.
A summary of the effects of the adjustments on the accompanying balance sheet as of March 31, 2000 and statements of income for the three month periods ended March 31, 2000 and 1999 follows:
March 31, 2000 | ||
Reported | Revised | |
ASSETS: | ||
Accounts receivable | $169,587 | $151,591 |
Inventory | 177,740 | 184,153 |
Other current assets | 26,482 | 30,999 |
Current assets | 373,809 | 366,743 |
Non current assets | 758,191 | 758,191 |
Total assets | $1,132,000 | $1,124,934 |
LIABILITIES AND EQUITY: | ||
Current liabilities | $153,478 | $153,478 |
Long-term debt | 583,135 | 583,135 |
Deferred taxes and other | 49,807 | 49,807 |
Retained earnings | 97,587 | 90,521 |
Stockholders' equity | 247,993 | 247,993 |
Total liabilities & equity | $1,132,000 | $1,124,934 |
Three Months Ended | Three Months Ended | |||
Reported | Revised | Reported | Revised | |
Total revenue | $186,078 | $188,817 | $155,949 | $154,193 |
Cost of sales | 97,042 | 97,577 | 87,941 | 87,449 |
Gross profit | 89,036 | 91,240 | 68,008 | 66,744 |
Selling, general & administrative |
|
|
|
|
Operating income | 25,939 | 28,143 | 17,937 | 16,673 |
Interest expense | (10,860) | (10,860) | (7,466) | (7,466) |
Other, net | 948 | 948 | 943 | 943 |
Income before provision for |
|
|
|
|
Provision for income taxes | 5,662 | 6,522 | 4,216 | 3,723 |
Net income | $ 10,365 | $ 11,709 | $ 7,198 | $ 6,427 |
Earnings per common share: | ||||
Basic | $0.35 | $0.40 | $0.26 | $0.24 |
Diluted | $0.33 | $0.37 | $0.26 | $0.23 |
2. Inventories
Inventories consist of the following:
March 31, 2000 | December 31, 1999 | |
Finished product | $108,194 | $101,137 |
Work-in-process | 28,194 | 28,938 |
Raw materials | 47,765 | 37,906 |
$184,153 | $167,981 |
3. Long-Term Debt
Long-term debt consists of the following:
March 31, | December 31, | |
Senior debt: | 2000 | 1999 |
U.S. Dollar Denominated: | ||
1999 Revolving Credit Facility (7.4 - 7.7%) | $177,500 | $180,000 |
Industrial Development Revenue Bonds | 9,130 | 9,130 |
Other, U.S. | 142 | 172 |
Denominated in Other Currencies: | ||
Mortgage notes payable (NOK) | 36,372 | 38,521 |
Bank and agency development loans (NOK) | 5,564 | 6,398 |
Total senior debt | 228,708 | 234,221 |
Subordinated debt: | ||
3% Convertible Senior Subordinated Notes due 2006 (6.875% yield), including interest accretion | 175,546 | 173,824 |
5.75% Convertible Subordinated Notes due 2005 | 125,000 | 125,000 |
5.75% Convertible Subordinated | ||
Note due 2005 - Industrier Note | 67,850 | 67,850 |
Total subordinated debt | 368,396 | 366,674 |
Total long-term debt | 597,104 | 600,895 |
Less, current maturities | 13,969 | 9,111 |
$583,135 | $591,784 |
4. Earnings Per Share
Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share reflect the dilutive effect of stock options and convertible debt when appropriate.
A reconciliation of weighted average shares outstanding for basic to diluted weighted average shares outstanding is as follows:
(Shares in thousands) | Three Months Ended | |
March 31 | March 31, | |
Average shares outstanding - basic | 29,626 | 27,255 |
Stock options | 325 | 430 |
Convertible debt | 12,039 | -- |
Average shares outstanding - diluted | 41,990 | 27,685 |
The amount of dilution attributable to the stock options, determined by the treasury stock method, depends on the average market price of the Company's common stock for each period.
Subordinated notes issued in March 1998 ("05 Notes"), convertible into 6,744,481 shares of common stock at $28.59 per share, were included in the computation of diluted EPS for the three months ended March 31, 2000. The calculation of the assumed conversion was antidilutive for the same period in 1999.
In addition, subordinated senior notes issued in June 1999 ("06 Notes") convertible into 5,294,301 shares of common stock at $32.11 per share were included in the computation of diluted EPS for the three months ended March 31, 2000. The calculation of the assumed conversion was antidilutive for the same period in 1999.
The numerator for the calculation of basic EPS is net income for all periods. The numerator for diluted EPS includes an add back for interest expense and debt cost amortization, net of income tax effects, related to the Notes.
A reconciliation of revised net income used for basic to diluted EPS is as follows:
Three Months Ended | ||
March 31, 2000 | March 31, 1999 | |
Net income - basic | $11,709 | $6,427 |
Adjustments under the if- converted method, |
|
|
Adjusted net income - diluted | $15,459 | $6,427 |
5. Supplemental Data
Three Months Ended | ||
March 31 | March 31, | |
Other income (expense), net: | ||
Interest income | $ 396 | $ 186 |
Foreign exchange gains (losses), net | 189 | (297) |
Amortization of debt costs | (493) | (279) |
Litigation/Insurance settlements | 483 | 1,000 |
Income from joint venture carried at equity | 503 | 300 |
Other, net | (130) | 33 |
$ 948 | $ 943 | |
Supplemental cash flow information: | ||
Cash paid for interest (net amount capitalized) | $7,274 | $3,521 |
Cash paid for income taxes (net of refunds) | $7,732 | $5,648 |
6. Reporting Comprehensive Income
SFAS 130, "Reporting Comprehensive Income" requires foreign currency translation adjustments and certain other items to be included in other comprehensive income (loss). Total comprehensive loss amounted to approximately $6,440 and $7,880 for the three months ended March 31, 2000 and 1999, respectively. The only components of accumulated other comprehensive loss for the Company are foreign currency translation adjustments.
7. Contingent Liabilities and Litigation
The Company was originally named as one of multiple defendants in 62 lawsuits alleging personal injuries and six class actions for medical monitoring resulting from the use of phentermine distributed by the Company and subsequently prescribed for use in combination with fenflurameine or dexfenfluramine manufactured and sold by other defendants (Fen-Phen Lawsuits). None of the plaintiffs have specified an amount of monetary damage. Because the Company has not manufactured, but only distributed phentermine, it has demanded defense and indemnification from the manufacturers and the insurance carriers of manufacturers from whom it has purchased the phentermine. The Company has received a partial reimbursement of litigation costs from one of the manufacturer's carriers. The Company has been dismissed in all the class actions and the plaintiffs in 52 of the lawsuits have agreed to dismiss the Company without prejudice. Based on an evaluation of the circumstances as now known, including but not s olely limited to, 1) the fact that the Company did not manufacture phentermine, 2) it had a diminimus share of the phentermine market and 3) the presumption of some insurance coverage, the Company does not expect that the ultimate resolution of the current Fen-Phen lawsuits will have a material impact on the financial position or results of operations of the Company.
Bacitracin zinc, one of the Company's feed additive products has been banned from sale in the European Union (the "EU") effective July 1, 1999. While initial efforts to reverse the ban in court were unsuccessful, the Company is continuing to pursue initiatives based on scientific evidence available for the product, to limit the effects of this ban. In addition, certain other countries, not presently material to the Company's sales of bacitracin zinc have either followed the EU's ban or are considering such action. The existing governmental actions negatively impact the Company's business but are not material to the Company's financial position or results of operations. However, an expansion of the ban to additional countries where the Company has material sales of bacitracin based products could be material to the financial condition and results of operations of the Company.
The United Kingdom Office of Fair Trading ("OFT") is conducting an investigation into the pricing and supply of medicine by the generic industry in the United Kingdom. As part of this investigation, Cox received in February 2000 a request for information from the OFT. The request states that the OFT is particularly concerned about the sustained rise in the list price of a range of generic pharmaceuticals over the course of 1999 and is considering this matter under competition legislation. In December 1999 Cox received a request for information from the Oxford Economic Research Association ("OXERA"), an economic research company which has been commissioned by the United Kingdom Department of Health to carry out a study of the generic drug industry. The requests related to certain specified drugs and the Company has responded to both requests for information. The Company is unable to predict what impact the OFT investigation or OXERA study will have on the operations of Cox and the pricing o f generic pharmaceuticals in the United Kingdom.
The Company and its subsidiaries are, from time to time, involved in other litigation arising out of the ordinary course of business. It is the view of management, after consultation with counsel, that the ultimate resolution of all other pending suits should not have a material adverse effect on the consolidated financial position or results of operations of the Company.
8. Business Acquisitions
I.D. Russell:
On September 2, 1999, the Company's AHD acquired the business of I.D. Russell Company Laboratories ("IDR") for approximately $23,500 in cash (including a purchase price adjustment and other direct costs of acquisition). IDR is a US manufacturer of animal health products primarily soluble antibiotics and vitamins. The acquisition consisted of working capital, an FDA approved manufacturing facility in Colorado, product registrations, trademarks and 35 employees. The Company has preliminarily allocated the purchase price to the manufacturing facility and identified intangibles and goodwill (approximately $13,000) which will be generally amortized over 15 years. The fair value of the net assets acquired was based on preliminary estimates and may be revised at a later date. The purchase agreement provides for up to $4,000 of additional purchase price if two product approvals currently pending are received in the next four years.
Isis:
Effective June 15, 1999, the Company's IPD acquired all of the capital stock of Isis Pharma GmbH and its subsidiary, Isis Puren ("Isis") from Schwarz Pharma AG for a total cash purchase price of approximately $153,000, including purchase price adjustments and direct costs of acquisition. Isis operates a generic and branded pharmaceutical business in Germany. The acquisition consisted of personnel (approximately 200 employees; 140 of whom are in the sales force) and product registrations and trademarks. No plant, property or manufacturing equipment were part of the acquisition. The Company is amortizing the acquired intangibles and goodwill based on lives which vary from 7 to 20 years (average approximately 16 years) using the straight-line method.
Jumer:
On April 16, 1999, the Company's IPD acquired the generic pharmaceutical business Jumer Laboratories SARL and related companies of the Cherqui group ("Jumer") in Paris, France for approximately $26,000, which includes the assumption of debt which was repaid subsequent to closing. Based on product approvals received additional purchase price of approximately $3,000 may be paid in the next 3 years. The acquisition consisted of products, trademarks and registrations. The Company is amortizing the acquired intangibles and goodwill based on lives which vary from 16 to 25 years (average approximately 22 years) using the straight line method.
Pro forma Information:
The following unaudited pro forma information on results of operations assumes the purchase of all businesses discussed above as if the companies had combined at the beginning of 1999:
Pro Forma | ||
Three Months Ended | ||
1999 | ||
Revenue | $176,944 | |
Net income | $6,241 | |
Basic EPS | $0.24 | |
Diluted EPS | $0.22 | |
These unaudited pro forma results have been prepared for comparative purposes only and include restated amounts where appropriate, and certain adjustments, such as additional amortization expense as a result of acquired intangibles and goodwill and increased interest expense on acquisition debt. They do not purport to be indicative of the results of operations that actually would have resulted had the acquisitions occurred at the beginning of the period, or of future results of operations of the consolidated entities.
9. Business Segment Information
The Company's reportable segments are five divisions (i.e. International Pharmaceuticals Division ("IPD"), Fine Chemicals Division ("FCD"), U.S. Pharmaceuticals Division ("USPD"), Animal Health Division ("AHD") and Aquatic Animal Health Division ("AAHD"). Each division has a president and operates in distinct business and/or geographic area. Segment data includes immaterial intersegment revenues which are eliminated in the consolidated accounts.
The operations of each segment are evaluated based on earnings before interest and taxes. Corporate expenses and certain other expenses or income not directly attributable to the segments are not allocated.
Three Months Ended March 31, | ||||||||
2000 | 1999 | 2000 | 1999 | |||||
Revenues | Income | |||||||
IPD | $85,151 | $60,145 | $14,603 | $5,457 | ||||
USPD | 43,859 | 39,436 | 3,534 | 2,121 | ||||
FCD | 15,859 | 15,433 | 5,868 | 5,754 | ||||
AHD (1) | 42,114 | 37,905 | 10,301 | 7,702 | ||||
AAHD | 2,981 | 2,112 | (1,289) | (920) | ||||
Unallocated and eliminations | (1,147) | (838) | (3,926) | (2,498) | ||||
$188,817 | (1) | $154,193 | (1) | |||||
Interest expense | (10,860) | (7,466) | ||||||
Pretax income | $18,231 | (1) | $10,150 | (1) | ||||
(1) Revised
10. Strategic Alliance
Ascent Loan Agreement and Option:
On February 4, 1999, the Company entered into a loan agreement with Ascent Pediatrics, Inc. ("Ascent") under which the Company will provide up to $40,000 in loans to Ascent to be evidenced by 7 1/2% convertible subordinated notes due 2005. Pursuant to the loan agreement, up to $12,000 of the proceeds of the loans can be used for general corporate purposes, with $28,000 of proceeds reserved for projects and acquisitions intended to enhance growth of Ascent. All potential loans are subject to Ascent meeting a number of terms and conditions at the time of each loan. As of March 31, 2000, the Company has advanced $12,000 to Ascent under the agreement.
In addition, Ascent and the Company have entered into an amended agreement under which the Company will have the option during the first half of 2003 to acquire all of the then outstanding shares of Ascent for cash at a price to be determined by a formula based on Ascent's operating income during its 2002 fiscal year. The amended agreement which extended the option from 2002 to 2003 and altered the formula period from 2001 to 2002 is subject to approval by Ascent's stockholders.
11. Subsequent Event - Business Acquisition/Bridge Financing
On May 2, 2000, Alpharma announced the completion of the acquisition of the Medicated Feed Additive Business of Roche Ltd.("MFA") for a cash payment of approximately $258 million and issuance of a $30 million promissory note to Roche. The Note is due December 31, 2000 and bears interest at the Prime rate. The purchase price will be adjusted based on actual product inventories as of May 2, 2000. In addition certain international inventories will be purchased from Roche during a transition period of approximately three months.
The MFA business had 1999 sales of over $200 million and consists of products used in the livestock and poultry industries for preventing and treating diseases in animals. MFA sales by region are approximately 56% in North America, 20% in Europe and 12% in both Latin America and Southeast Asia.
The acquisition includes inventories, five manufacturing and formulation sites in the United States (two of which will be operated by Roche until third party consents are received), global product registrations, licenses, trademarks and associated intellectual property. Approximately 200 employees primarily in manufacturing and sales and marketing are included in the acquisition.
The Company financed the $258 million cash payment under a $225 million Bridge Financing agreement ("Bridge Financing") with the balance of the financing being provided under its current $300 million credit facility ("1999 Credit Facility").
The Bridge Financing was arranged by First Union National Bank, Union Bank of Norway, and a group of other banks. It has an initial term of 90 days; extendable up to two additional 30 day periods at the option of the bank group if the Company is in the active process of refinancing. The Bridge Financing is guaranteed by substantially all of the Company's U.S. subsidiaries and the stock in substantially all of the Company's U.S. subsidiaries has been pledged to the banks.
Under the Bridge Financing the Company has paid a 1% fee for the banks commitment and in connection with drawing the funds. Interest is payable at Libor plus 2.75% to 3.00%.
If the Bridge Financing is not repaid at the end of its term, the facility will convert to a senior secured facility that will amortize over the remaining term of the 1999 Facility and be secured by substantially all of the assets of the Company and its U.S. subsidiaries. All collateral under the senior secured facility will be held equally as security for the payment of the 1999 Credit Facility.
The acquisition will be accounted for in accordance with the purchase method. The fair value of the assets acquired and liabilities assumed and the results of the acquired businessoperations will be included in the Company's consolidated financial statements beginning on the acquisition date.
The impact on cost of sales of the write up of inventory to net realizable value pursuant to Accounting Principles Board Opinion No. 16 "Business Combinations" (estimated at between $2,000 - $3,000) will be reflected in cost of sales as inventory is sold during the second and third quarters. In addition, certain employees of AHD have been severed as a result of the acquisition. This will result in an approximate $500 non-recurring charge in the second quarter.
Due to the timing of the closing, balance sheet and income statement information for the acquired business as of March 31, 2000 is not presently available. The Company estimates the purchase will result in the following consolidated elements of financial position compared to March 31, 2000:
Alpharma Inc. | ||
(Dollars in millions) | Pre-Acquisition | Post-Acquisition |
Total assets | $1,124.9 | $1,417.5 |
Long- term debt | $583.1 | $875.7 |
Stockholders' equity | $338.5 | $338.5 |
Audited financial statements for MFA and the required pro-forma statements for 1999 were presented as required in a Form 8-K filed in May of 2000.
12. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. SFAS 133 is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(All amounts have been revised as appropriate. See Note 1B to the Condensed Financial Statements.)
Most comparisons of 2000 results to 1999 are affected by the Company's 1999 acquisition program and the financing required to implement the program. The 1999 acquisitions increased revenue by approximately $22.8 million, gross profit by approximately $14.0 million, operating expenses by approximately $11.6 million and operating income by approximately $2.4 million. Estimated interest on the financings more than offset the acquisitions' operating income.
Results of Operations - Three Months Ended March 31, 2000
Total revenue increased $34.6 million (22.5%) in the three months ended March 31, 2000 compared to 1999. Operating income in 2000 was $28.1 million, an increase of $11.5 million, compared to 1999. Net income was $11.7 million ($.37 per share diluted) compared to $6.4 million ($.23 per share diluted) in 1999.
Revenues increased in the Human Pharmaceuticals business by $29.9 million and in the Animal Pharmaceuticals business by $5.1 million. The increase in revenues was reduced by over $4.0 million due to changes in exchange rates used in translating sales in foreign currencies into the U.S. Dollar, primarily in the IPD. Changes in revenue and major components of change for each division in the three month period ended March 31, 2000 compared to March 31, 1999 are as follows:
Revenues in IPD increased by $25.0 million due primarily to the 1999 acquisitions ($17.6 million) and higher pricing in the U.K. offset partially by effects of currency translation. The pricing in the U.K. market was higher relative to the first quarter of 1999, but was relatively flat compared to the third and fourth quarters of 1999. U.K. revenues grew in 1999 primarily as a result of higher pricing due in large part to conditions affecting the market which are not expected to continue through the second half of 2000. In this regard, the UK government has publicly proposed a reduction in the prices of certain generic drugs using late 1998 / early 1999 as a reference period. There is presently an ongoing comment period during which the Company, working through its trade association, is presenting certain key factors, including substantial government-imposed cost increases, that it believes should be taken into consideration in any final regulation. It is anticipated that formal regulati ons will be implemented later this year.(See also Note 7 to the consolidated condensed financials). USPD revenues increased $4.4 million due to volume increases in new and existing products offset slightly by lower net pricing. Revenues in FCD increased by $.4 million due mainly to volume increases in vancomycin. AHD revenues increased $4.2 million mainly due to 1999 acquisitions. AAHD sales increased by $.9 million primarily due to their 1999 acquisition of Vetrepharm.
On a consolidated basis, gross profit increased $24.5 million and the gross margin percent increased to 48.3% in 2000 compared to 43.3% in 1999.
A major portion of the increase in dollars and percentage results from the 1999 acquisitions (primarily Isis), higher pricing in the U.K. IPD market and to a lesser extent sales of new products in USPD. Partially offsetting increases were volume decreases, certain IPD markets, and the effects of foreign currency translation.
Operating expenses increased $13.0 million and represented 33.4% of revenues in 2000 compared to 32.5% in 1999. Most of the increase is attributable to the 1999 acquisitions (primarily Isis). Other increases included professional and consulting expenses for strategic planning and acquisitions, and annual increases in compensation including increased incentive programs.
Operating income increased $11.5 million (68.8%). IPD accounted for the majority of the increase primarily due to higher pricing in the U.K. market and to a lesser extent the Isis acquisition. Increases recorded by AHD, USPD and to a lesser extent by FCD due to increased volume were partially offset by increased operating expenses.
Interest expense increased in 2000 by $3.4 million due primarily to debt incurred to finance the 1999 acquisitions and to a lesser extent, higher interest rates in 2000.
Financial Condition
Working capital at March 31, 2000 was $213.3 million compared to $209.2 million at December 31, 1999. The current ratio was 2.39 to 1 at March 31, 2000 compared to 2.27 to 1 at year end. Long-term debt to stockholders' equity was 1.72:1 at March 31, 2000 and December 31, 1999.
All balance sheet captions decreased as of March 31, 2000 compared to December 1999 in U.S. Dollars as the functional currencies of the Company's principal foreign subsidiaries, the Norwegian Krone, Danish Krone, British Pound and German Mark, depreciated versus the U.S. Dollar in the three months of 2000 by approximately 6%, 5%, 2% and 5%, respectively. The decreases do impact to some degree the above mentioned ratios. The approximate decrease due to currency translation of selected captions was: accounts receivable $2.7 million, inventories $3.2 million, accounts payable and accrued expenses $2.8 million, and total stockholders' equity $18.1 million. The $18.1 million decrease in stockholder's equity represents accumulated other comprehensive loss for the three months ended March 31, 2000 resulting from the continued strengthening of the U.S. dollar.
At March 31, 2000, the Company had $12.8 million in cash, available short term lines of credit of $41.0 million and approximately $120.0 million available under its $300.0 million credit facility ("1999 Credit Facility"). The credit facility has several financial covenants, including an interest coverage ratio, total debt to EBITDA ratio, and equity to total asset ratio. Interest on borrowings under the facility is at LIBOR plus a margin of between .875% and 1.6625% depending on the ratio of total debt to EBITDA. As of March 31, 2000 the margin was 1.375%. The Company believes that the combination of cash from operations and funds available under existing lines of credit will be sufficient to cover its currently planned operating needs.
On May 2, 2000, Alpharma completed the acquisition of the Medicated Feed Additive Business of Roche ("MFA") for a cash payment of approximately $258.0 million and issuance of a $30.0 million promissory note to Roche due December 31, 2000 bearing interest at the prime rate. The purchase price will be adjusted based on actual product inventories as of May 2, 2000. In addition certain international inventories will be purchased from Roche during a transition period of approximately three months. The inventories are estimated at approximately $10.0 million.
The acquisition includes inventories, manufacturing and formulation sites in the United States, global product registrations, licenses, trademarks and associated intellectual property.
The Company financed the $258 million cash payment under a $225.0 million bridge financing agreement ("Bridge Financing") with the balance of the financing being provided under its current $300.0 million credit facility ("1999 Credit Facility").
The Bridge Financing was arranged by First Union National Bank, Union Bank of Norway, and a group of other banks. It has an initial term of 90 days; extendable up to two additional 30 day periods at the option of the bank group if the Company is in the active process of refinancing. The Bridge Financing is guaranteed by substantially all of the Company's U.S. subsidiaries and the stock in substantially all of the Company's U.S. subsidiaries have been pledged to the banks.
Under the Bridge Financing the Company has paid a 1% fee for the banks commitment and in connection with drawing the funds. Interest is payable at Libor plus 2.75% to 3.00%.
If the Bridge Financing is not repaid at the end of its term, the facility will convert to a senior secured facility that will amortize over the remaining term of the 1999 Facility and be secured by substantially all of the assets of the Company and its U.S. subsidiaries. All collateral under the senior secured facility will be held equally as security for the payment of the 1999 Credit Facility. The Company expects to refinance the Bridge within the initial term by a combination of debt and equity.
The Bridge Financing was agreed to by the syndicate of banks who are parties to the 1999 Credit Facility. (All banks in the bridge financing are part of the 1999 Credit Facility Syndicate). In future quarters the Company will be required to meet the covenants included in the 1999 Credit Facility, as amended, which may require additional equity financings and/or the issuance of long-term debt subordinate to the 1999 Credit Facility.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. SFAS 133 is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows.
On December 3, 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial Statements" which summarizes some of the staff's interpretations of the application of generally accepted accounting standards to revenue recognition. The Company adopted SAB101 in the first quarter of 2000. The adoption did not have a material impact on financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Quantitative Disclosure - There has been no material changes in the Company's market risk during the three months ended March 31, 2000.
Qualitative Disclosure - This information is set forth under the caption "Derivative Financial Instruments" included in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
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Statements made in this Form 10Q, are forward-looking statements made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Information on other significant potential risks and uncertainties not discussed herein may be found in the Company's filings with the Securities and Exchange Commission including its Form 10K for the year ended December 31, 1999.
PART II. OTHER INFORMATION
Item 6. Exhibits And Reports On Form 8-K
4.0 $225 million Credit Agreement ("Bridge Financing") dated as of May 2, 2000, among Alpharma U.S. Inc. as borrower, Alpharma Inc. as parent guarantor, the subsidiary guarantors and First Union National Bank, Summit Bank, Den norske Bank ASA, Union Bank of Norway and First Union Securities Inc.*
4.1 Parent Guaranty made by the Company in favor of the Banks party to the Bridge Financing Agreement dated May 2, 2000.*
4.2 Amendment No. 2 to the 1999 Credit Facility and Amendment No. 3 to Parent Guaranty and Consent dated as of April 19, 2000 between the Company and the Banks that are parties to the original agreement.*
4.3 Form of Consent Amendment No. 3 to the 1999 Credit Facility and Amendment No. 4 to the Parent Guaranty dated as of May 2, 2000 by and among Union Bank of Norway, as Agent, First Union National Bank, Den norske Bank ASA, Banque Nationale de Paris Oslo Branch, Landesbank Schleswig-Holstein Girozentrale Copenhagen Branch, and Summit Bank, as Working Capital Agent and Documentation Agent, Alpharma U.S. Inc. and Alpharma Inc.*
27. Financial Data Schedule (electronic filing only)
* Previously filed with Form 10-Q for period end March 31, 2000.
(b) Reports on Form 8-K
On May 5, 2000, the Company filed a report on Form 8-K dated May 2, 2000 reporting Item 2. "Acquisition or Disposition of Assets." The event reported was the acquisition of the MFA business. The Form 8-K included the audited financial statements of the MFA business and required pro forma financials.
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.
Alpharma Inc. | |
(Registrant) |
Date: December 21, 2001 | /s/ Jeffrey E. Smith |
Jeffrey E. Smith | |
Vice President, Finance and | |
Chief Financial Officer |
