1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended January 31, 1994
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________to___________
COMMISSION FILE NO. 1-4269
SYNTEX CORPORATION
(Exact name of Registrant as specified in its charter)
Republic of Panama 94-1566146
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3401 HILLVIEW AVENUE, PALO ALTO, CA 94304
(Address of principal executive office)
Registrant's telephone number, including area code: (415) 855-5050
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 of the Registrant's Common Stock outstanding as of
February 28, 1994: 221,083,080.
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PART I -- FINANCIAL INFORMATION
SYNTEX CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
($ and shares in millions)
(Unaudited)
January 31 July 31
1994 1993
----------- --------
ASSETS
Current Assets:
Cash and cash equivalents $396.7 $327.9
Short-term investments 314.9 281.7
Trade receivables, net 226.7 264.2
Inventories, net 349.6 362.1
Other 193.7 153.8
-------- --------
Total current assets 1,481.6 1,389.7
Long-term investments 159.7 180.9
Property, plant and equipment, net 1,078.9 1,085.2
Other assets 273.3 304.9
-------- --------
Total $2,993.5 $2,960.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $104.4 $82.4
Accounts payable and accrued
expenses 206.6 231.8
Income and other taxes 89.3 87.1
Accrued compensation 75.4 97.4
Other 197.5 293.8
-------- --------
Total current liabilities 673.2 792.5
Noncurrent liabilities 425.4 378.0
Long-term debt 590.7 590.8
-------- --------
Total Liabilities 1,689.3 1,761.3
-------- --------
Contingencies (see notes)
Shareholders' Equity:
Common stock (shares issued
--240.9) 240.9 240.9
Retained earnings 1,577.2 1,471.5
Cumulative translation
adjustments (19.8) (16.9)
Common stock in treasury
--at cost (shares in
treasury 1994 and 1993--19.9) (494.1) (496.1)
-------- --------
Total shareholders' equity 1,304.2 1,199.4
-------- --------
Total $2,993.5 $2,960.7
======== ========
See accompanying notes to condensed consolidated financial statements.
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SYNTEX CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(in millions except per-share amounts)
Three Months Ended Six Months Ended
January 31 January 31
----------------- --------------------
1994 1993 1994 1993
------ ------ -------- ------
Net Sales $489.1 $505.5 $1,001.4 $997.7
------ ------ -------- ------
Costs and expenses:
Costs of goods sold 118.5 96.2 229.2 200.3
Selling, general and administrative 170.0 187.6 346.3 390.7
Research and development 99.1 100.1 196.1 197.5
Restructuring charge -- -- -- 180.0
------ ------ -------- ------
Total 387.6 383.9 771.6 968.5
------ ------ -------- ------
Operating income 101.5 121.6 229.8 29.2
------ ------ -------- ------
Nonoperating income (expense):
Interest income 8.8 9.9 17.4 21.5
Interest expense (6.9) (7.4) (13.2) (13.7)
Other -- net (1.5) -- (7.7) (56.0)
------ ------ -------- ------
Total 0.4 2.5 (3.5) (48.2)
------ ------ -------- ------
Income (loss) before taxes on income and
cumulative effect of accounting changes 101.9 124.1 226.3 (19.0)
Provision (benefit) for taxes on income 6.1 5.0 4.2 (132.9)
------ ------ -------- ------
Income before cumulative effect of accounting
changes 95.8 119.1 222.1 113.9
Cumulative effect of accounting changes, net
of tax -- -- -- (0.9)
------ ------ -------- ------
Net income $95.8 $119.1 $222.1 $113.0
====== ====== ======== ======
Shares used in computing earnings per
common share (see Exhibit 11) 221.0 222.3 221.0 223.7
====== ====== ======== ======
Earnings per common share $0.43 $0.54 $1.00 $0.51
====== ====== ======== ======
Dividends per common share $0.26 $0.26 $0.52 $0.52
====== ====== ======== ======
See accompanying notes to condensed consolidated financial statements.
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SYNTEX CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($ in millions)
Six Months Ended
January 31
-----------------
1994 1993
------ ------
Net Cash Provided from Operating Activities $264.2 $135.4
------ ------
Cash Provided (Used) in Investing Activities:
Capital expenditures (65.3) (100.6)
Purchase of short-term investments (146.0) (148.6)
Proceeds from short-term investments 181.0 306.7
Purchase of long-term investments (47.1) (16.7)
Other investing activities (24.6) 0.0
------ ------
Net Cash Provided (Used) in Investing Activities (102.0) 40.8
------ ------
Cash Provided (Used) in Financing Activities:
Net change in short-term debt 22.3 (93.2)
Repayment of long-term debt (0.1) (103.7)
Proceeds from issuance of long-term debt 0.7 100.8
Payment of dividends (114.9) (117.0)
Common shares repurchased -- (124.7)
Other financing activities 0.6 4.6
------ ------
Net Cash Used in Financing Activities (91.4) (333.2)
------ ------
Effect of exchange rate changes on cash (2.0) (1.5)
------ ------
Increase (Decrease) in Cash and Cash Equivalents 68.8 (158.5)
Cash and Cash Equivalents at Beginning of Period 327.9 296.3
------ ------
Cash and Cash Equivalents at End of Period $396.7 $137.8
====== ======
See accompanying notes to condensed consolidated financial statements.
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SYNTEX CORPORATION AND SUBSIDIARY COMPANIES
SALES BY LOCATION AND BUSINESS SEGMENT
(Unaudited)
($ in millions)
Three Months Six Months
Ended January 31 Ended January 31
---------------- Percent ------------------- Percent
1994 1993 Change 1994 1993 Change
------ ------ ------- -------- ------ ------
LOCATION
U.S. sales $327.9 $348.4 (6) $682.8 $676.6 1
Non-U.S. sales 161.2 157.1 3 318.6 321.1 (1)
------ ------ -------- ------
Total $489.1 $505.5 (3) $1,001.4 $997.7 --
====== ====== ======== ======
BUSINESS SEGMENT
Pharmaceuticals:
Pain and inflammation:
Naproxen/Naproxen Sodium
U.S. sales $126.7 $156.3 (19) $303.7 $303.3 --
Non-U.S. sales 60.6 61.4 (1) 117.5 126.7 (7)
------ ------ -------- ------
Total Naproxen/Naproxen Sodium 187.3 217.7 (14) 421.2 430.0 (2)
------ ------ -------- ------
Ketorolac
U.S. sales
Oral 34.4 31.6 9 66.9 55.8 20
Intramuscular 30.9 31.1 (1) 60.2 59.3 1
Non-U.S. sales 15.0 15.5 (4) 32.3 30.9 4
------ ------ -------- ------
Total Ketorolac 80.3 78.2 3 159.4 146.0 9
------ ------ -------- ------
Subtotal 267.6 295.9 (10) 580.6 576.0 1
------ ------ -------- ------
Reproductivity and endocrinology:
Oral contraceptives 17.7 20.6 (14) 37.5 41.1 (9)
Nafarelin 3.9 5.6 (30) 7.0 12.2 (42)
Other 2.6 2.8 (7) 4.8 5.3 (9)
------ ------ -------- ------
Subtotal 24.2 29.0 (17) 49.3 58.6 (16)
------ ------ -------- ------
Cardio and cerebrovascular:
Nicardipine 20.5 17.8 15 35.2 33.7 5
Ticlopidine 17.7 10.4 70 31.2 18.5 68
------ ------ -------- ------
Subtotal 38.2 28.2 35 66.4 52.2 27
------ ------ -------- ------
Dermatological 18.7 21.7 (14) 36.7 44.3 (17)
Ganciclovir 24.3 19.6 24 44.1 38.7 14
Other human pharmaceuticals 47.6 41.9 14 87.8 81.5 8
Animal Health 18.0 18.2 (1) 35.6 40.7 (13)
------ ------ -------- ------
Total Pharmaceuticals 438.6 454.5 (4) 900.5 892.0 1
------ ------ -------- ------
Diagnostics 50.5 51.0 (1) 100.9 105.7 (5)
------ ------ -------- ------
Total $489.1 $505.5 (3) $1,001.4 $997.7 --
====== ====== ======== ======
WORLDWIDE HUMAN PHARMACEUTICAL SALES
U.S. sales $281.8 $300.9 (6) $591.6 $576.1 3
Non-U.S. sales 138.8 135.4 3 273.3 275.2 (1)
------ ------ -------- ------
Total $420.6 $436.3 (3) $864.9 $851.3 2
====== ====== ======== ======
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SYNTEX CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations for
reporting on Form 10-Q. Accordingly, certain information and footnotes
required by generally accepted accounting principles for complete
financial statements have been omitted. These interim statements should
be read in conjunction with the consolidated financial statements and
notes thereto included in the company's 1993 annual report to
shareholders for the fiscal year ended July 31, 1993.
The information contained herein reflects all adjustments (all of which
are normal and recurring) which are, in the opinion of management,
necessary to a fair statement of the results of operations, financial
condition and cash flows for the interim periods.
2. Note 13 to the consolidated financial statements in the 1993 annual report
to shareholders provides information concerning contingencies related to
certain pending or possible claims, legal actions, and proceedings against
the company and its subsidiaries. No significant changes or developments
have occurred regarding these contingencies.
3. Inventories consist of the following ($ in millions):
January 31 July 31
1994 1993
---------- -------
Finished goods $85.9 $85.4
In process 193.8 198.9
Raw materials and supplies 69.9 77.8
------ ------
Total $349.6 $362.1
====== ======
4. Property, plant and equipment consist of the following ($ in millions):
January 31 July 31
1994 1993
---------- --------
Property, plant and equipment - at cost $1,686.5 $1,643.5
Less accumulated depreciation
and amortization (607.6) (558.3)
-------- --------
Property, plant and equipment - net $1,078.9 $1,085.2
======== ========
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5. Included in operating expenses for the first half of fiscal 1993 is a
first quarter restructuring charge of $180.0 million resulting principally
from a decision to consolidate several of the company's chemical and
pharmaceutical manufacturing plants and to reduce the worldwide workforce.
The restructuring charge resulted in a reduction of $143.1 million in net
income in the first half of fiscal 1993.
6. The company recorded a net provision of $4.2 million for taxes on income
during the first half of fiscal 1994, which included a first quarter
credit of $9.4 million resulting from changes in the U.S. tax law enacted
in August 1993. The company also recorded a net benefit of $132.9 million
for taxes on income during the first half of fiscal 1993, resulting
principally from the first quarter tax benefits of $36.9 million derived
from the restructuring charge and a one-time benefit of $102.5 million
from the reduction of certain tax reserves. Excluding the effect of the
benefit, the effective income tax rate for the second quarter and first
half of fiscal 1994 was 6 percent, which is the company's expected
effective tax rate for the remainder of fiscal 1994. The income tax rate
for the fiscal 1993 second quarter and full year was 4 percent, excluding
the previously-mentioned tax benefits.
7. Effective August 1, 1992, the company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." During the first quarter
of fiscal 1993, the company recorded a charge of $64.6 million ($93.7
million pre-tax) representing the discounted present value of the expected
cost of future healthcare benefits attributed to employees' service
rendered prior to August 1, 1992. This charge represents the cumulative
effect on prior years of the accounting change. The company also recorded
a benefit of $63.7 million during the first quarter of fiscal 1993 as the
cumulative effect on prior years of the change in accounting for income
taxes, principally relating to tax credits which were not recorded under
the prior accounting standard.
8. Other nonoperating expense in the first quarter and half of fiscal 1994
included $3.1 million of additions to reserves relating to environmental
matters. Other nonoperating expense in the first half of fiscal 1993
included $42.4 million of additions to reserves related to environmental
matters, of which $42.1 million was recorded in the first quarter. Other
nonoperating expense in the first quarter and half of fiscal 1993 also
included a charge of $10.0 million for reserves related to other
contingencies.
9. There were no repayments of commercial paper with a maturity period of
greater than three months during the first half of either fiscal 1994 or
fiscal 1993.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 1994,
COMPARED WITH THE SAME PERIOD IN FISCAL 1993
Earnings per share in the second quarter of the company's 1994 fiscal year were
$.43 compared with $.54 in the second quarter a year ago. Net sales decreased
3 percent to $489.1 million, down from $505.5 million in the second quarter of
fiscal 1993.
SECOND QUARTER RESULTS
($ in millions, except per share data)
Three Months Ended
January 31
----------------- Percent
1994 1993 Change
------ ------ -------
Net Sales $489.1 $505.5 (3)
Operating Expenses 387.6 383.9 1
Operating Income 101.5 121.6 (17)
Net Income 95.8 119.1 (20)
Earnings Per Share $0.43 $0.54 (20)
The decline in earnings in the second quarter of fiscal 1994 compared with the
second quarter a year ago was due primarily to the loss of U.S. market share
of Naprosyn(R) (naproxen) and Anaprox(R) (naproxen sodium) branded products to
lower-priced generic naproxen and naproxen sodium products, including those
sold by Hamilton Pharma, Inc., a Syntex subsidiary.
The last principal U.S. patent for Naprosyn and Anaprox, the company's leading
products, expired during the fiscal 1994 second quarter on December 21, 1993.
The patents elsewhere in the world expired a number of years ago.
Earnings declined at a greater rate than sales in the fiscal 1994 second
quarter compared with the prior-year quarter due to a shift in product demand
from the higher-margin branded products to the lower-margin generic and bulk
naproxen and naproxen sodium products and to excess production capacity in the
company's chemical and pharmaceutical manufacturing plants. In the fiscal 1994
second quarter, the company's gross profit margin was 75.8 percent, down from
81.0 percent in the second quarter of fiscal 1993.
WORLDWIDE HUMAN PHARMACEUTICAL SALES
($ in millions)
Three Months Ended
January 31
----------------- Percent
1994 1993 Change
------ ------ -------
U.S. Sales $281.8 $300.9 (6)
Non-U.S. Sales 138.8 135.4 3
------ ------
Total $420.6 $436.3 (3)
====== ======
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Worldwide human pharmaceutical sales decreased 3 percent in the second quarter
of fiscal 1994 compared to the prior-year second quarter due primarily to the
decline of Naprosyn and Anaprox sales in the United States. In the fiscal 1994
second quarter, non-United States pharmaceutical sales were $8.3 million lower
than they would have been had currency exchange rates that were in effect in
the second quarter of fiscal 1993 remained constant.
NAPROXEN/NAPROXEN SODIUM SALES
($ in millions)
Three Months Ended
January 31
----------------- Percent
1994 1993 Change
------ ------ -------
U.S. Sales $126.7 $156.3 (19)
Non-U.S. Sales 60.6 61.4 (1)
------ ------
Total $187.3 $217.7 (14)
====== ======
United States sales of naproxen and naproxen sodium include sales of branded
Naprosyn and Anaprox, sales of generic naproxen and naproxen sodium by Hamilton
Pharma, Inc., and sales of the bulk chemicals naproxen and naproxen sodium to
non-related generic manufacturers. Hamilton Pharma, Inc., began selling generic
naproxen and naproxen sodium in October 1993.
January 1994 is the first full month in which non-Syntex generic competition
for naproxen and naproxen sodium occurred in the United States following patent
expiration in the United States in December 1993.
Independent audit data for the United States indicate that the share of new
prescriptions for all forms of naproxen in the prescription, nonsteroidal
anti-inflammatory anti-arthritis market for the month of January 1994 was 17.4
percent; in December 1993, the share was 17.2 percent; and in January 1993,
before any generic products were available, the share was 17.6 percent. Of the
new prescriptions filled for the naproxen molecule in January 1994, 64 percent
were filled with generic naproxen sold by Hamilton Pharma, Inc., 31 percent
were filled with branded Naprosyn and 5 percent were filled with generic
naproxen sold by non-related companies.
The rate of shift from brand to generic in the case of Naprosyn is more rapid
than any previous prescription product after patent expiration as far as the
company is aware. The company believes that changes in the healthcare
environment are contributing to this shift.
Following the expiration of the U.S. patent for Naprosyn and Anaprox, the
company now faces competition from approximately 10 companies marketing generic
naproxen and/or naproxen sodium. This competition has resulted in a shift from
branded to generic products and in a fast and steep decline in the price of
generic naproxen and naproxen sodium, including the price of the products sold
by the company's Hamilton subsidiary.
With the advent of so many companies now supplying naproxen and naproxen
sodium, customer inventories for those products in the United States appear to
be at levels higher than the current market demand. Most of the companies
marketing generic forms of naproxen and naproxen sodium in the United States
are purchasing bulk chemicals from Syntex.
Given the negative impact of the Naprosyn/Anaprox patent expiration, which was
not fully reflected in the fiscal 1994 second quarter because the patent
expired mid-quarter but which is expected to continue, the company expects that
the next two years will be difficult years.
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Syntex and The Procter & Gamble Company received clearance from the United
States Food and Drug Administration in January 1994 to market ALEVE(R), a new
over-the-counter (OTC) pain reliever with naproxen sodium as its key
ingredient, in the United States.
ALEVE has three years of marketing exclusivity from the date of approval.
Heavy up-front marketing expenses will prevent the company from realizing
profits on ALEVE for the first few years, but the company believes that once
established in the marketplace, OTC products have the potential to be
profitable for decades. The U.S. market for OTC analgesics is estimated at $2.7
billion in annual sales.
KETOROLAC
Worldwide sales of Toradol(R) (ketorolac tromethamine) in the second quarter of
fiscal 1994 increased 3 percent over the 1993 second quarter.
In 1993, regulatory authorities in Germany and France suspended the product
license pending further review of available worldwide ketorolac usage data, and
in the case of France, pending further deliberations of the European Committee
for Proprietary Medicinal Products (CPMP). Final results of a U.S. epidemiology
study of 10,000 hospitalized patients treated with intramuscular injectable
ketorolac compared with 10,000 patients treated with injectable opioid
analgesics have been submitted to regulatory agencies and the CPMP. The CPMP
is expected to discuss the worldwide safety data as well as the results of the
epidemiology study data at a meeting in March.
The company believes that the data from controlled clinical trials, from
worldwide post-marketing reports and from the large retrospective U.S.
epidemiological study offer strong evidence that ketorolac has a favorable
risk/benefit profile when prescribed for properly selected patients and used
according to the product label.
OTHER PRODUCTS
Sales of Cytovene(R) (ganciclovir sodium), Cardene(R) (nicardipine
hydrochloride) and Ticlid(R) (ticlopidine hydrochloride) increased in the
fiscal 1994 second quarter over the prior-year second quarter. However, second
quarter fiscal 1994 sales of oral contraceptives, dermatological products and
Synarel(R) (nafarelin acetate) declined from sales levels in the second quarter
last year.
EXPENSES
Selling, general and administrative (SG&A) expense decreased 9 percent to
$170.0 million in the fiscal 1994 second quarter from $187.6 million in the
second quarter a year ago. As a result of efforts to reduce costs, second
quarter fiscal 1994 SG&A spending was at the lowest level since the second
quarter of fiscal 1991.
Research and development expense decreased 1 percent to $99.1 million in the
fiscal 1994 second quarter, compared with $100.1 million in the fiscal 1993
second quarter.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 1994,
COMPARED WITH THE SAME PERIOD IN FISCAL 1993
Earnings per share for the first six months of fiscal 1994 increased 96 percent
to $1.00 compared with $0.51 for the same period a year ago. Sales increased
slightly to $1,001.4 million, up from $997.7 million in the fiscal 1993 period.
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SIX MONTH RESULTS
($ in millions, except per share data)
Six Months Ended
January 31
------------------- Percent
1994 1993 Change
-------- ------ -------
Net Sales $1,001.4 $997.7 --
Operating Expenses
excluding restructuring charge 771.6 788.5 (2)
Restructuring Charge -- 180.2 (100+)
Operating Income 229.8 29.2 100+
Net Income 222.1 113.0 97
Earnings Per Share $1.00 $0.51 96
The increase in worldwide sales in the first half of fiscal 1994 was primarily
due to higher sales of human pharmaceutical products in the United States,
partially offset by lower sales outside the United States. United States sales
of naproxen and naproxen sodium were $303.7 million in the first half of fiscal
1994 compared with $303.3 million in the first half of fiscal 1993. However,
the last patent on these products expired in the United States on December 21,
1993, and sales during the second fiscal quarter of fiscal 1994 were lower than
fiscal 1993. (See previous discussion.) Sales of ketorolac intramuscular
injectable and oral tablets, nicardipine, ticlopidine, and ganciclovir
increased in the first half of fiscal 1994 compared with the prior year period.
However, sales of dermatologic, reproductive and endocrinology products
declined in the first half of fiscal 1994 as compared with the prior year
period.
WORLDWIDE HUMAN PHARMACEUTICAL SALES
($ in millions)
Six Month Ended
January 31
----------------- Percent
1994 1993 Change
------ ------ -------
U.S. Sales $591.6 $576.1 3
Non-U.S. Sales 273.3 275.2 (1)
------ ------
Total $864.9 $851.3 2
====== ======
NAPROXEN/NAPROXEN SODIUM SALES
($ in millions)
Six Month Ended
January 31
----------------- Percent
1994 1993 Change
------ ------ -------
U.S. Sales $303.7 $303.3 --
Non-U.S. Sales 117.5 126.7 (7)
------ ------
Total $421.2 $430.0 (2)
====== ======
Sales of diagnostic products decreased 5 percent to $100.9 million in the first
half of fiscal 1994 compared with sales of $105.7 million in the year earlier
period.
The company's gross margin percentage was 77.1 percent in the first half of
fiscal 1994, compared with 79.9 percent in the first half of fiscal 1993. As
discussed under Second Quarter Results, the decrease is primarily due to a
shift in product demand from the higher-margin branded products to the
lower-margin
-11-
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generic and bulk naproxen and naproxen sodium products and to excess capacity
in the company's chemical and pharmaceutical manufacturing plants.
Operating expenses for the first half of fiscal 1993 included a restructuring
charge of $180.0 million resulting principally from a decision to consolidate
several of the company's chemical and pharmaceutical manufacturing plants and
to reduce the company's worldwide workforce. The restructuring charge resulted
in a reduction of $143.1 million in net income in the first half of fiscal
1993.
Other nonoperating expense in the first half of fiscal 1994 included $3.1
million for additions to reserves related to environmental matters.
Nonoperating items in the first half of fiscal 1993 included $42.4 million of
additions to reserves related to environmental matters and a charge of $10.0
million for reserves related to other contingencies.
The company recorded a net provision for taxes on income of $4.2 million during
the first half of fiscal 1994, which included a first quarter credit of $9.4
million resulting from changes in the U.S. tax law enacted in August 1993. The
company also recorded a net benefit for taxes on income of $132.9 million
during the first half of fiscal 1993, resulting principally from the first
quarter tax benefits of $36.9 million derived from the restructuring charge and
a one-time benefit of $102.5 million from the reduction of certain tax
reserves. Excluding the effect of the benefit, the fiscal 1994 first half tax
rate was 6 percent, which is the company's expected effective tax rate for the
remainder of fiscal 1994. The tax rate for the fiscal 1993 first half and full
year was 4 percent, excluding the previously-mentioned tax benefits.
The first half of fiscal 1993 included a $0.9 million charge from the
cumulative effect on prior years of the adoption of two new accounting
standards. The adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," resulted in a benefit of $63.7 million.
This was more than offset by an after-tax charge of $64.6 million ($93.7
million pre-tax) related to the adoption of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions", for post-retirement healthcare benefits.
PATENTS
The patents and patent applications owned by the company and its subsidiaries
cover a variety of products and chemical processes. In addition, the company
has a number of patent licenses from others.
The last principal United States patent on naproxen and naproxen sodium expired
in December 1993.
FINANCIAL CONDITION
The company continues to maintain a strong financial position and a highly
liquid balance sheet. At January 31, 1994, the company had $711.6 million in
cash and cash equivalents and short-term investments, which provide it with
ample capacity to satisfy its cash requirements. In the first half of fiscal
1994, net cash of $264.2 million was provided from operating activities.
Capital expenditures in the first half of fiscal 1994, primarily in the
pharmaceuticals business segment, totaled $65.3 million compared with $100.6
million in the first half of fiscal 1993. The company plans to fund capital
spending of approximately $175.0 million in fiscal 1994 through cash generated
by operations and borrowings.
-12-
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Dividends paid on common shares amounted to $114.9 million in the first half of
fiscal 1994, a decrease of 2 percent from the first half of fiscal 1993, as a
result of the share repurchase program undertaken in fiscal 1993. The current
dividend rate paid on an annualized basis is $1.04 per share.
Management believes the company has sufficient borrowing capacity to meet its
needs. The company has an A1+ rating for its commercial paper and an AA- bond
rating from Standard and Poor's. The company has a P1 rating for its
commercial paper from Moody's. As of March 9, 1994, Moody's revised the
company's bond rating to A2.
At January 31, 1994, commercial paper borrowings of $114.5 million were
outstanding. The company has unused bank lines of credit totaling $461.0
million, of which $100 million is available for the support of commercial paper
borrowings classified as long-term debt. The company's earnings for the first
six months of fiscal 1994 were sufficient to cover fixed charges.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See notes 2 and 8 to the Condensed Consolidated Financial Statements
appearing on pages 6 and 7 of this report on Form 10-Q for a discussion of
certain matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following votes were cast for and withheld from the nominees for
director at the annual meeting of shareholders held on December 6, 1993:
Shares Voted
Nominee For Withheld
- ------- ------------ ---------
Dana G. Leavitt 179,980,951 4,410,852
Robert S. Miller, Jr. 179,747,902 4,643,903
Miriam Stoppard 179,657,476 4,734,329
James N. Wilson 180,093,207 4,298,598
Two proposals were submitted to the shareholders at the annual
meeting. The first proposal, to amend the Syntex Corporation 1984 Stock Option
and Stock Appreciation Rights Plan, was approved by a vote of 168,134,142
shares in favor, 14,104,662 shares opposed, and 2,153,001 shares abstaining.
The second proposal, to adopt the Syntex Corporation Call-to-Action Incentive
Plan, was approved by a vote of 168,324,169 shares in favor, 13,937,068 shares
opposed, and 2,130,568 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit
3. Articles and By-Laws
By-Laws of Syntex Corporation, as last amended December 6, 1993,
10. Material Contracts
a) Syntex Corporation 1984 Stock Option and Stock Appreciation Rights
Plan (As Amended July 29, 1993)
b) Amendment to Syntex US Employee Supplemental Retirement Savings
Plan (Effective as of January 1, 1994)
11. Statement re computation of earnings per common share
12. Calculation of ratio of earnings to fixed charges
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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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.
SYNTEX CORPORATION
(Registrant)
By /s/ Richard P. Powers
-------------------------------
Richard P. Powers
Senior Vice President and
Chief Financial Officer
and Duly Authorized Officer
of the Registrant
DATE: March 11, 1994
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