SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Fiscal Year Ended June 30, 1996
Commission File Number: 0-13588
FAULDING INC.
(FORMERLY, PUREPAC, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 04-2769995
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Elmora Avenue, Elizabeth, New Jersey 07207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 527-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. / /
15,064,560
Number of shares outstanding of the Registrant's
Common Stock as of September 16, 1996
$ 36,161,675
Aggregate market value of the voting stock held by nonaffiliates
of the Registrant as of September 16, 1996
PART I
(All dollar references are in thousands, unless otherwise indicated.)
ITEM 1. BUSINESS
(a) & (b) General Development of Business and Financial
Information
About Industry Segments
Faulding Inc. (the "Company"), through Purepac Pharmaceutical Co.
("Purepac"), a wholly-owned subsidiary, is primarily engaged in the
development, manufacture and sale of generic oral drug products. Through
acquisitions, as noted below, the Company recently has expanded its
operations into the generic injectable and medical device businesses.
The Company was incorporated in Delaware on September 2, 1982. On
February 29, 1996, the Company's name was changed to Faulding Inc in
conjunction with the acquisition transaction discussed herein (see
"Acquisitions"). The Company's executive offices and principal research,
manufacturing and distribution facilities are located at 200 Elmora Avenue,
Elizabeth, New Jersey 07207; its telephone number is (908) 527-9100.
A majority of the outstanding common stock of the Company is owned by
Faulding Holdings Inc. ( Holdings ), a wholly-owned subsidiary of F.H.
Faulding & Co. Limited ( Faulding ), a major Australian pharmaceutical
company.
Acquisitions
On February 29, 1996 the Company acquired all of the outstanding capital
stock of each of Faulding Medical Device Co. ("FMD"), Faulding Puerto
Rico, Inc. ("FPR"), and Faulding Pharmaceutical Co. ("FPC"), collectively the
"Acquired Companies," from Holdings in exchange for 2,438,712 shares of
its common stock. As part of the acquisition, the Company created a Class
B Preferred Stock with 150,000 authorized shares, par value at $.01, all of
which were issued to Holdings for a cash purchase price of $100 per share,
resulting in net proceeds to the Company. All subsequent references herein to
the Company shall be deemed to include the Acquired Companies unless otherwise
stated.
Acquired Companies
FMD is engaged in the design, development and commercialization of
disposable medical devices and injectable drug delivery system devices.
FPR operates a parenteral product pharmaceutical manufacturing facility
producing a variety of generic injectable pharmaceuticals in Aguadilla,
Puerto Rico.
2
FPC was established to market the products manufactured by FPR and
certain injectable generic drug products manufactured by Faulding and
licensed to FPC.
(c) Description of Business
Introduction
A generic drug contains the same active drug substances as and is the
therapeutic equivalent of a brand name drug for which patent protection,
granted by the United States Patent Office and/or exclusivity granted by the
United States Food and Drug Administration (the "FDA"), has expired.
Accordingly, a generic drug is marketed under its chemical name or under
a brand name promoted by its generic manufacturer. While subject to the
same government standards as its brand name equivalent, a generic drug
is usually marketed at a substantially lower price.
Sales of generic drugs have increased significantly in recent years, due in
substantial part to greater awareness and acceptance of generic drugs by
physicians, pharmacists and the general public. Among the factors
contributing to such increased awareness and acceptance have been the
enactment and modification of laws in most states permitting (or in some
instances requiring) physicians or pharmacists to substitute generic drugs
for brand name drugs, and the publication by the FDA of a list of
therapeutically equivalent drugs which provides physicians and pharmacists
with the approved sources of generic drug alternatives for each drug
product. In addition, since generic drugs are typically sold at prices
substantially below those of brand name drugs, the prescribing of generic
drugs has been encouraged and, in some instances, required by various
government agencies and private health insurers as a cost-saving measure
in the purchase of, or reimbursement for, drug products.
Products
The Company markets generic prescription drugs in oral solid (tablet and
capsule), and injectable forms. In accordance with FDA requirements, each
dosage strength and form of a generic drug is considered a separate drug
product. Classification of the Company's drug products and their number
can be generally summarized as follows: antibiotic and anti-infective drugs
(6); anti-cancer drugs (6); cardiovascular drugs (37); anti-inflammatories
(14); analgesics (10); anti-depressants and tranquilizers (33); and all others
(24).
Sales of prescription oral drug products and injectable forms represented
84% and 16%, respectively, of the Company's revenue for the year ended
June 30, 1996. For the year ended June 30, 1995, prescription oral drugs,
injectables, and over-the-counter non-prescription drugs ("OTC")
represented 93%, 6% and 1%, respectively. For the year ended June 30,
1994, prescription oral drugs, injectables
3
and OTC represented 96%, 3% and 1%, respectively. A majority of the
Company's oral products is sold under its Purepac(R) label and the balance
is sold under private label agreements with certain pharmaceutical
distributors. The majority of the Company's injectable products is sold
under the Faulding(R) label.
Nifedipine, the generic version of Pfizer's PROCARDIA (R) cardiovascular
product, accounted for 4%, 11% and 13% of the Company's revenue for its
years ended June 30, 1996, 1995 and 1994, respectively. In 1992 and
subsequent years, additional companies received approval from the FDA
to sell nifedipine and entered the market. It is typical in the generic drug
industry for the first companies selling a new generic product to initially
have a relatively high profit margin, which then decreases as selling prices
decline when more companies enter the market. Nifedipine has also
received adverse publicity which has reduced overall demand for the
immediate release form sold by Purepac.
New Product Development
Research and development expenditures for the years ended June 30,
1996, 1995 and 1994 amounted to $10,361, $7,729 and $7,562,
respectively. During the year ended June 30, 1996, the Company's new
product development program remained focused on AB-rated (substitutable)
generic equivalents to a number of immediate-release and modified-release
oral prescription products, injectable products and drug delivery devices.
Purepac:
During the year ended June 30, 1996, Purepac received FDA approval for
three new generic drug products: diclofenac sodium delayed-release tablets
and two immediate release products, indapamide tablets and diflunisal
tablets. Diclofenac, a non-steroidal anti-inflammatory product, accounted for
9% of the Company's revenue during the year ended June 30, 1996. During the
year ended June 30, 1995, Purepac received FDA approval for one new generic
drug product. During the years ended June 30, 1996 and 1995, Purepac filed,
respectively, six and two Abbreviated New Drug Applications ("ANDAs") for
solid oral dose products. At each of June 30, 1996 and 1995, Purepac,
respectively, had seven ANDAs pending approval. No assurance can be given as to
the receipt or timing of ANDA approvals and the commercial significance of
any products so approved. See "Government Regulation."
Acquired Companies:
During the year ended June 30, 1996, the Company, through FPC and
FMD, filed four ANDAs for the approval of new injectable products and two
4
510K submissions for the approval of new medical devices, and received
FDA approval for one anti-cancer drug product, mitomycin, for injection. At
June 30, 1996, the Acquired Companies had four ANDAs and two 510K
submissions pending approvals.
Marketing and Customers
The Company markets its products primarily through a sales force of 15
people.
The Company's customers include drug wholesalers, national and regional
retail drugstore chains, drug distributors and hospitals. At June 30, 1996,
the Company had approximately 241 customers. For the year ended June
30, 1996, three customers each accounted for approximately 11%, 10% and
10% of sales. The Company believes that the loss of any two or more of
these customers could have a material impact on the Company's financial
position, results of operations and cash flow. For the year ended June 30,
1995, three customers each accounted for approximately 12%, 11% and
10% of sales. For the year ended June 30, 1994, two customers each
accounted for approximately 12% and 11% of sales.
The backlog of firm orders at June 30, 1996 was $1,862, compared with
$1,050 at June 30, 1995 and $3,904 at June 30, 1994. The Company does
not believe that its backlog is material in the understanding of its historical
and prospective operations as annual fluctuations are primarily attributable
to unpredictable timing differences in receipt of product orders. The
Company anticipates that it will fill all of its June 30, 1996 backlog during
its year ending June 30, 1997.
Seasonality is not a factor in the Company's business.
Manufacturing and Sources of Supply
The Company manufactures and packages more than 90% of its products
(measured as a percentage of revenue) in its own manufacturing facilities
(Refer to Item 2 hereof, Properties). Approximately 5% is sourced under a
licensing agreement with and manufactured by Faulding for certain generic
injectable products, including anti-cancer products. The balance of the
Company's products are manufactured to its specifications by a number of
outside contractors. Alternative contract manufacturing sources are
available.
Raw materials essential to the conduct of the Company's business are
pharmaceutical chemicals and packaging components which it purchases
in bulk from a variety of sources. Historically, the Company has not
experienced any significant difficulty in obtaining the raw materials it
requires. If raw materials from a current supplier were to become
unavailable, approval for a replacement supplier must be sought from the
FDA. The FDA approval process could cause a delay of several months or
longer in the manufacture of the product so impacted.
5
Environmental Matters
(Dollars in thousands)
The Company's operations require it to comply with a broad variety of laws,
statutes and regulations which are intended to protect both the environment
and the industrial workplace including, among others, the Federal Clean
Water Act, Clean Air Act, Resources Conservation and Recovery Act,
Emergency Planning and Community Right-to-Know Act, Comprehensive
Environmental Response, Compensation and Liability Act and the
Occupational and Safety Health Act, as well as their state and local
equivalents, if any.
The Company believes that it is currently in substantial compliance with all
federal, state and local environmental laws and regulations applicable to its
business as now conducted.
During the years ended June 30, 1996, 1995 and 1994, the Company
expended $106, $55 and $24, respectively, for environmental control
equipment in connection with the expansion of its manufacturing facilities.
Capital expenditures for environmental control equipment for the year
ending June 30, 1997 are estimated to be $170.
Competition
The Company competes with a number of other generic pharmaceutical
companies in a highly competitive and fragmented segment of the health-care
industry. In addition, many brand name companies with substantially
greater financial resources for research, development and marketing are
entering the generic market.
Principal competitive factors in the generic drug market include regulatory
compliance, price, customer service (including prompt fulfillment of orders)
and the ability to introduce generic versions of brand name drugs promptly
after the date of patent expiration granted by the United States Patent Office
and/or exclusivity granted by the FDA.
Government Regulation
Pharmaceutical manufacturers are subject to extensive regulation by the
FDA and other government agencies and authorities. Various federal laws
and regulations govern the testing, manufacturing, safety, labeling,
packaging, storage, pricing, advertising and promotion of the Company's
generic drug products. Failure to comply with such laws and regulations
may result in the imposition of fines, recall and/or seizure of products,
suspension of manufacturing and FDA refusal to approve new drug
applications.
6
Regulatory Approval Process
The Company's product line primarily consists of generic drug
products which contain the same active ingredient as the innovator (brand
name) product. The dosage form, route of administration and strength must
be the same as the innovator's product that was previously approved by the
FDA under a full New Drug Application (NDA). The NDA includes the
results of clinical trials that demonstrate safety and efficacy.
Each generic drug product is subject to prior FDA approval through the
submission of an ANDA or Abbreviated Antibiotic Drug Application
("AADA"). An ANDA must contain essentially the same information as a full
NDA, with the exception of safety and efficacy data. Since a generic drug
product contains the same active ingredient in the same amount as the
innovator product, it is assumed to have the same safety and efficacy
profile. A generic product must be bioequivalent to the innovator product
referenced in the application. Applications for most solid oral dosage forms
must, therefore, contain data which demonstrate that the proposed generic
drug product has the same rate and extent of systemic absorption as the
innovator product. An in-vivo bioavailability study is typically conducted in
healthy human subjects to meet this requirement. In addition, the generic
product must meet appropriate in-vitro (dissolution) criteria. For most
injectable drug products, an in-vivo bioequivalence study is not normally
required. Quality Control testing of all drug products is conducted to ensure
that the product meets compendial (United States Pharmacopeia) standards
and in-house specifications, as applicable.
Recent Trends in FDA Procedures
The FDA has placed greater emphasis on the filing of complete ANDAs by
all generic drug product manufacturers, including the Company, and has
enunciated its position that it will not accept any application that does not
contain all necessary information as specified in the FDA's current
guidelines. In addition, the FDA has imposed more stringent requirements
on various aspects of the product development process, the need for
development of new procedures and increased documentation, all of which
extend the time required for manufacturers, including the Company, to
prepare and file ANDAs. Further, review times are also being affected by
a reduction in staff levels at the FDA.
Another major component of the FDA's review process, applicable to all
generic drug manufacturers, is the product specific pre-approval inspection
in which the FDA focuses on the development of the drug product, the
manufacture of exhibit batches and the applicant's capability to manufacture
that product in accordance
7
with the methods and specifications defined in the ANDA. This manner of
inspection may also potentially lengthen the approval time for ANDAs.
A significant new guideline was issued by the FDA in November 1995.
This guidance relaxed the regulatory requirements for the implementation
of scale-up and post approval changes ("SUPAC"). This guideline is
intended to save the industry considerable time and money in
manufacturing efficiencies.
Good Manufacturing Practices
As a manufacturer of pharmaceutical products, the Company is also subject
to current Good Manufacturing Practices ("cGMP") standards promulgated
by the FDA. Failure to comply with such standards may result in, among
other actions, the suspension of production and possibly the seizure of non-
complying products.
Medicaid Prudent Pharmaceutical Purchasing Act of 1991
Effective January 1, 1991, all generic pharmaceutical manufacturers were
required to pay a rebate, equal to 10% of the manufacturer's average net
selling price, for each prescription of its products reimbursed by the states
under Medicaid. As of January 1, 1994, the rebate percent increased to
11%.
Proposed Health Care Regulation
Numerous proposals for health care regulation and reform have recently
been proposed at both the federal and state levels. These proposals,
generally, seek to reduce the cost of health care and increase its availability
and efficiency. It cannot be determined at this time which, if any, of such
proposals will be enacted and, to the extent enacted, what effect such
proposals will have on the price, distribution and marketing of
pharmaceutical products, including those of the Company.
Employees
At June 30, 1996, the Company employed 465 full-time employees. Of
these, 58 were executive and administrative personnel. Personnel primarily
engaged in research, product development and regulatory activities totaled
77. Marketing and sales personnel totaled 29. Production and distribution
personnel totaled 215, while quality assurance and quality control totaled
86. Collective bargaining agreements between the Company and Locals
575 and 815 of the International Brotherhood of Teamsters expiring in
January 1997 and January 1999, respectively, covered 119 employees as
of June 30, 1996. The Company has not experienced a material work
stoppage in the past five years and believes that its current labor relations
are satisfactory.
8
ITEM 2. PROPERTIES
The Company's executive offices, as well as research, production, principal
warehouse and distribution facilities, are housed in a 245,000 square foot
facility with two adjoining acres of parking space in Elizabeth, New Jersey.
In addition, the Company leases a 13,000 square foot distribution center in
Sparks, Nevada and a 38,000 square foot warehouse and office building in
Linden, New Jersey, a 3,000 square foot office and development laboratory
in Scottsdale, Arizona and a 68,000 square foot facility, comprised of seven
buildings in Aguadilla, Puerto Rico.
The Company believes that its facilities will be sufficient to satisfy its
anticipated needs for the proximate future.
ITEM 3. LEGAL PROCEEDINGS
On September 11, 1995, the United States District Court for the District of
New Jersey granted the Company's motion to dismiss a complaint filed
against the Company and certain of its former senior executives in a lawsuit
entitled Dechter vs. Purepac, Inc., Robert H. Bur and Russell J. Reardon,
94 Civ. 6195. Pursuant to the court's decision, the plaintiffs had the
opportunity to file a motion with the court to submit a proposed amended
complaint. The plaintiffs elected not to file such a motion, thereby
terminating such litigation.
Pursuant to an agreement dated as of December 31, 1995, the Company
has settled certain litigation entitled Merck & Co., Inc. v. Purepac
Pharmaceutical Co. Case No. 95-495 in the United States District Court for
the District of Delaware. In accordance with such agreement, the Company
is to receive a cash settlement. The proceeds will be payable in three equal
annual installments. In addition the Company has agreed not to pursue the
marketing or sale of the pharmaceutical product which was the subject of
the litigation in the United States until the patent expiration, currently
expected in the year 2006.
On August 21, 1996, an action was commenced against the Company,
Purepac, Faulding and Zeneca, Inc. in the United States District Court for
the District of Delaware entitled Purdue Pharma L.P. and the Purdue
Frederick Company vs. F.H. Faulding & Co. Limited, Faulding Inc., Purepac
Pharmaceutical Co. and Zeneca Inc., 96 Civ.427. The complaint alleges that
the manufacture and marketing in the United States of KADIAN (TM) infringes
a patent assigned to one of the plaintiffs and constitutes unfair competitive
practices under Federal and State law. The Company, through Purepac,
manufactures KADIAN (TM) pursuant to a contract manufacturing agreement
with Faulding. Zeneca Inc. is the U.S. distributor of KADIAN (TM).
The complaint seeks, among other things, an order enjoining the Company
and Purepac from the commercial manufacture of KADIAN (TM) and treble and
punitive damages in the event that the defendants have violated Federal or
State unfair competitive and deceptive trade practices law.
9
While the Company has not yet been served in the action , the Company
believes the allegations in the complaint to be entirely without
merit and intends, in cooperation with its co-defendants, to vigorously
defend this action. The commencement of the action did not impact the
launch of KADIAN (TM) .
The Company is involved in litigation incidental to the conduct of its
business, in addition to the above matters, and does not believe that the
ultimate adverse resolutions of any, or all, thereof would have a material
adverse effect on its financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the last
quarter of the fiscal year ended June 30, 1996.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock was traded on the Nasdaq National
Market System ("Nasdaq/NMS") under the symbol PURE through
February 29, 1996.
Effective February 29, 1996, the Company's name was changed from
Purepac, Inc. to Faulding Inc., and the Nasdaq/NMS trading symbol, as
of March 1, 1996, was changed from PURE to FAUL.
The following table sets forth the range of high and low closing sales prices
of the Company's common stock on the Nasdaq/NMS.
FOR THE QUARTER ENDED: HIGH LOW
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Fiscal 1995
September 30, 1994 $ 14.250 $ 8.000
December 31, 1994 16.250 10.125
March 31, 1995 11.625 8.750
June 30, 1995 11.375 8.375
Fiscal 1996
September 30, 1995 10.875 7.750
December 31, 1995 8.750 4.625
March 31, 1996 7.750 5.000
June 30, 1996 7.125 4.125
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10
(b) Holders of Common Stock
The number of holders of record of the Company's common stock at
September 16, 1996 was 455.
(c) Dividends
The Company has neither declared nor paid any dividends on its shares of
common stock since its inception. Any decision as to the future payment of
common stock dividends will depend on the earnings and financial position
of the Company and such other factors as the Board of Directors deems
relevant. No dividends are payable on the common stock until all declared
and accrued dividends have been paid in full on the Company's issued and
outstanding shares of preferred stock, all of which are owned by Holdings.
(Refer to Note 11 of the Notes to Consolidated Financial Statements.)
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in Thousands Except Per Share Amounts)
Year Ended June 30,
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1996 1995 1994 1993 1992
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OPERATING DATA: restated restated
Net sales $ 75,784 $ 64,905 $ 71,952 $ 70,508 $ 64,531
Income (loss)
before preferred
stock dividends (5,001) (1,618) 3,992 9,160 14,979
Preferred stock
dividends 2,307 2,080 2,080 2,080 2,081
Net income
(loss), available
for common stock $ (7,308) $(3,698) $ 6,061(a) $ 7,080 $ 12,776(b)
Net income (loss)
per common share,
primary (.49) $ (.25) $ .41 $ .57 $ 1.05
BALANCE SHEET DATA: restated --- --- ---
Working capital $ 36,296 $ 27,005 $ 24,221 $ 23,150 $ 20,460
Total assets 98,678 85,863 67,267 63,017 52,269
Long-term debt --- --- --- --- ---
Stockholders'
equity $ 82,923 $ 72,079 $ 54,860 $ 48,060 $ 39,699
11
The February 29, 1996 acquisitions of the Acquired Companies (see "Item
1) was accounted for as similar to a pooling of interests. Therefore,
financial operating data presented for the years ended June 30, 1995 and
1994 and balance sheet data as of June 30, 1995 have been restated as if
the acquisitions took place as of July 1, 1993. The data reflects the
accounts of Faulding Inc. and the Acquired Companies.
Financial operating data presented for the years ended June 30, 1993 and 1992
and balance sheet data as of June 30, 1994, 1993 and 1992 has not neen restated
as the restated amounts would not significantly differ the amounts presented.
As FPR and FPC did not commence operations until April 7, 1995, the
Acquired Companies' operations reflect only the results of FMD for the year
ended June 30, 1994. The year ended June 30, 1995 reflects the year's
results of FMD and less than three months' results of FPR and FPC.
(a) Net income available for common stock for the year ended June 30,
1994 included the favorable cumulative effect of a change in accounting
for income taxes of $4,149.
(b) Net income available for common stock for the year ended June 30,
1992 included the unfavorable cumulative effect on prior years of a
change in the method of accounting for income taxes of $122.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands)
Overview: Acquisitions
On February 29, 1996 the Company acquired all of the outstanding capital
stock of each of Faulding Medical Device Co. ("FMD"), Faulding Puerto
Rico, Inc. ("FPR"), and Faulding Pharmaceutical Co. ("FPC"), collectively the
"Acquired Companies," from Faulding Holdings Inc. (the Company's majority
stockholder) in exchange for 2,438,712 shares of its common stock.
This acquisition transaction was accounted for as similar to a pooling
of interests and, therefore, commencing July 1, 1993 financial statements
for the periods presented have been restated as if the acquisition took place
at the beginning of the earliest period presented. The financial statements
reflect the accounts of the Company (including Purepac) and the Acquired
Companies. Since the acquisitions were accounted for as similar to a pooling
of interests, acquisition expenses of $1,043 were charged against the results
of operations during the year ended June 30, 1996.
12
Results of Operations
Year Ended June 30, 1996 Compared with the Year Ended June 30, 1995
The following sets forth the pre-tax operating results of , respectively,
the Company prior to its acquisition of the Acquired Companies.
STATEMENTS OF OPERATIONS - Purepac
Three Months Ended Year Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------
Net Sales $ 19,667 $ 14,319 $ 63,822 $ 61,146
Cost of sales 12,676 11,391 47,112 46,476
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Gross profit 6,991 2,928 16,710 14,670
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Expenses:
Selling, general and
administrative 2,746 2,504 8,997 9,817
Research and development 2,331 1,632 9,054 6,741
Acquisition Expenses 25 --- 1,043 ---
Restructuring Costs 184 --- 842 ---
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Total expenses 5,286 4,136 19,936 16,558
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Income (loss) from operation 1,705 (1,208) (3,226) (1,888)
Other income (expense), net 24 (39) 1,625 (63)
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Income (loss) before income
taxes 1,729 (1,247) (1,601) (1,951)
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12
STATEMENTS OF OPERATIONS - Acquired Companies
Three Months Ended Year Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------
Net Sales $ 3,905 $ 2,066 $ 11,962 $ 3,759
Cost of sales 3,420 1,137 11,285 2,812
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Gross profit 485 929 677 947
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Expenses:
Selling, general and
administrative 880 374 2,867 374
Research and development 289 503 1,307 988
- -----------------------------------------------------------------------------
Total expenses 1,169 877 4,174 1,362
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Income (loss) from operation (684) 52 (3,497) (415)
Other income (expense), net --- (221) (603) (326)
- -----------------------------------------------------------------------------
Income (loss) before income
taxes (684) (169) (4,100) (741)
- -----------------------------------------------------------------------------
The discussion below relates to the segregated results presented above.
Purepac Results of Operations
Net sales for the three and twelve month periods ended June 30, 1996 were
$19,667 and $63,822, respectively, compared with $14,319 and $61,146 for the
13
corresponding 1995 periods. The increase in the fourth quarter's result
of 37% over the prior year's period is primarily due to initial net sales of
diclofenac, which was approved in March 1996. Diclofenac sales in the
fourth quarter represented 23% of the quarter's sales. For the twelve
months ended June 30, 1996, net sales increased by 4%, due principally to
the diclofenac sales offset by competition impacting on Purepac's mature
product line, which includes the product nifedipine. In addition to diclofenac,
FDA approvals of diflunisal and indapamide were received by Purepac,
respectively, in May and June 1996. In addition, initial sales from the
contract manufacturing of KADIAN (TM) for Faulding Services Inc. were recorded
in the quarter ended June 1996. Faulding Services Inc. is a 100% owned
subsidiary of Holdings.
Gross profit for the three and twelve month periods ended June 30, 1996
were $6,991 and $16,710, respectively, compared with $2,928 and $14,670
for the corresponding 1995 periods. Gross profit as a percentage of net
sales for the three and twelve month periods ended June 30, 1996 were
36% and 26%, compared with 20% and 24% for the corresponding periods
in the prior year. For the three and twelve month periods respectively, the
increase in gross profit was due to the sales of diclofenac late in the third
fiscal quarter 1996, partially offset by price erosion due to competition
impacting on Purepac's mature product line.
Selling, general and administrative expenses for the current three and
twelve month periods were $2,746 and $8,997, respectively, compared to
the corresponding prior year's respective amounts of $2,504 and $9,817.
Current period expenses as a percentage of net sales were 14% and 14%,
respectively, compared with 18% and 16% for the corresponding prior year's
periods. In addition, Purepac incurred $1,043 in acquisition expenses in the
twelve months to June 30, 1996 related to the purchase of the Acquired
Companies, and an additional $842 in costs related to the restructuring of
the Purepac business, primarily organizational and personnel changes.
No such acquisition or restructuring costs were incurred in the prior
financial year.
Research and development expenses for the current three and twelve
month periods were $2,331 and $9,054, respectively. This equates to 12%
and 14% of net sales. Expenses for the prior year's corresponding
periods were $1,632 (11%) and $6,741 (11%). The increase in research
and development expenses was mainly due to an increase in biostudies
costs required as part of the ANDA submission process to the FDA, in addition
to the recruitment of key new scientific personnel.
Other income/(expense) for the current three and twelve month periods
were $24 and $1,625, respectively, compared with ($39) and ($63),
respectively, in the prior year's corresponding periods. The $1,625 for the
current twelve month period is mainly attributable to the settlement of a
patent litigation by Purepac which was recorded in the quarter ended
December 31, 1995 and is non-recurrent.
14
Net income/(loss) before income tax for the current three and twelve month
periods were $1,729 and $(1,601), respectively. If the acquisition and
restructuring costs were excluded for the current year's reported periods,
the net income would be $1,938 and $284. These results compare to net
losses before income tax for the prior year's corresponding periods of
$1,247 and $1,951.
The results for the three and twelve month periods ended June 30, 1996
were affected by negative pricing pressures within the oral generic
pharmaceutical industry, partly counterbalanced by new product approvals
for diclofenac, diflunisal, indapamide and contract manufacturing income for
KADIAN (TM). The future financial results will continue to be dependent on the
ability of income from sales of new products to counter ongoing price
erosion within the industry.
Acquired Companies
The Acquired Companies became wholly owned subsidiaries of Faulding
Inc. effective March 1, 1996. FPC and FPR did not commence operations
until April 7, 1995; hence the prior year represents the full-year operating
results of FMD and less than three months operating results for FPC and
FPR. Current and prior year net sales for FMD relate to a distribution
agreement with a third party -- which was terminated as of December 31,
1995 -- for products sourced from F.H. Faulding & Co. Limited ("Faulding"),
the beneficial majority stockholder of Faulding Inc. The products previously
sold under that agreement, together with additional products sourced from
Faulding, are now being sold by FPC. Consequently, comparison with the
prior year is not representative and hence the following analysis principally
relates to current year operating results.
Net sales for the three and twelve month periods ended June 30, 1996 were
$3,905 and $11,962, respectively. Of these net sales, 51% and 70%,
respectively, were related to products manufactured at the FPR production
facility in Aguadilla, Puerto Rico. These products were sold either under
contract manufacturing agreements or by FPC to its customers in the USA.
The majority of the remainder of the net sales comprises products
manufactured by and licensed from Faulding. Net sales in the current three
month period included mitomycin, which sales commenced in the third
quarter, licensed from Faulding, and approved by the FDA for marketing in
November 1995.
Gross profits for the three and twelve month periods ended June 30, 1996
were $485 and $677, respectively. Gross profits were unfavorably impacted
by both under utilization of the production facility in Puerto Rico and
production related expenses incurred by FMD, which did not record any
related net sales during the periods. Gross profit in the current three
month period included earnings from the sales of mitomycin.
15
Selling, general and administrative expenses for the current three and
twelve month periods were $880 and $2,867, respectively, representing
principally selling expenses associated with FPC.
Research and development expenses include the development costs
associated with FMD. Expenses for the current three and twelve months
were $289 and $1,307, respectively.
Net loss before income tax for the three and twelve month periods to June
30, 1996 were $684 and $4,100, respectively. Of the current twelve month
loss before income tax, $3,005 was incurred prior to the Acquired
Companies becoming wholly owned subsidiaries of the Company.
Consolidated Income Tax Benefit
The calculation of the provision (benefit) for income taxes of the Company,
which includes Purepac and the Acquired Companies, has been prepared
in accordance with accounting for the acquisitions as similar to a pooling of
interests consistently applying Statement of Financial Accounting Standard
No. 109 ("SFAS109").
For the three month period ended June 30, 1996, Purepac's net income
before income taxes resulted in the recording of an income tax provision of
$671. Purepac's net loss before income tax for the twelve month current
period resulted in the recording of an income tax benefit of $252.
For the Acquired Companies, only the net loss before income tax since
acquisition can be consolidated into the Company's income tax returns. As
a result, an income tax benefit of $291 and $449 has been included in the
three and twelve month current periods, respectively. The income tax
benefit of the net losses prior to acquisition have been fully reserved
against as the recovery of these losses is dependent on future taxable income
of each of the respective companies, which at present cannot be assured.
Year Ended June 30, 1995 Compared With the Year Ended June 30, 1994
(As restated)
Net sales for the year ended June 30, 1995 was $64,905 compared with
$71,952 for the prior year ended June 30, 1994. The decrease reflects
lower sales of certain mature products including nifedipine, primarily due to
declines in selling prices and to a lesser degree volume reductions of some
products as a result of competitive pressures, partially offset by increased
sales of several new products. The nifedipine products accounted for 11%
of net sales for the year compared with 13% for the prior year.
16
Gross profit for the year was $15,618 compared with $23,417 for the prior
year, a decline of $7,799 (33%). The gross profit as a percent of net sales
for the year ended June 30, 1995 was 24% compared with 33% for the prior
year ended June 30, 1994. The decline was attributable primarily to lower
sales due to increased competition and to a lesser extent to higher raw
material costs.
The selling, general and administrative expenses for the year ended June
30, 1995 were $10,191 compared with $9,410 for the prior year ended June
30, 1994, an increase of $782 (8%). The expense as a percent of net sales
was 16% compared with 13% for the prior year. The increase was primarily
due to higher personnel expenses.
The research and development expenses for the year remained relatively
constant at $7,729 compared with the prior year expense of $7,562. The
expense as a percent of net sales for the year ended June 30, 1995 was
12% compared with 11% for the prior year ended June 30, 1994. The
steady level of expense reflects the continuing commitment to new product
development.
Other income/(expense) of ($390) for the year ended June 30, 1995
included interest expense of $432 partially offset by interest income of $42.
The corresponding prior year other income of $149 included interest income
of $102 and income of $200 from the sale of the Company's Poroplastic
technology to Faulding, partially offset by interest expense of $153. The
interest income decline was primarily due to the reduction of cash available
for investment. The interest expense for both years primarily includes the
interest expense of the Acquired Companies as well as the revolving credit
agreement fees of the Company.
The effective income tax (benefit) rate for the year ended June 30, 1995
was (40%) compared with 39% for the year ended June 30, 1994 before the
cumulative effect of a change in accounting for income taxes.
Net loss for the year ended June 30, 1995 before preferred stock dividends
was $1,618 compared with net income for the prior year before preferred
stock dividends of $3,992.
Financial Condition, Liquidity and Capital Resources
The Company had $1,897 in cash and cash equivalents at June 30, 1996,
compared with $1,225 at June 30, 1995. The current year's increase of
$672 resulted primarily from $15,000 in cash provided by the issuance of
the Class B preferred stock associated with the February 29, 1996
acquisitions and $4,769 provided by additions to paid-in capital. This was
offset by $13,302 used for operating activities, $3,795 for investments in
property, plant and equipment and $2,000 to repay bank loans.
17
A comparison of the balance sheet accounts at June 30, 1996 to the June
30, 1995 balances shows the following to be noteworthy:
Accounts receivable increased by $6,019 due to the higher sales level,
primarily in the last quarter.
Included in the reserves for doubtful accounts and sales allowances is
the allowance for sales returns, allowances and discounts of $3,135 at
June 30, 1996 compared with $2,497 at June 30, 1995, an increase of
$638. This increase is primarily due to increases of $427 in the
provision for floor stock price adjustments and $195 in the provision
for credits owed to direct source buying groups. The increase in the
provision for such allowances had an adverse effect on net sales and
operations with no effect on cash flows.
Inventory increased by $5,658 primarily in raw materials due to higher
sales volumes and in anticipation of increased production. In addition,
inventory levels within FPC increased to meet anticipated sales of the
products licensed from Faulding.
Due to affiliated companies increased by $2,663 primarily due to the
additional products licensed by and purchased from Faulding by FPC,
primarily during the prior six month period.
The accrued preferred dividends payable to Holdings, of $689 for the three
month period ended June 30, 1996 was subsequently paid on July 1, 1996.
In October 1995, the Company made the decision to restructure certain
aspects of its business. This restructuring was considered necessary to
prepare the Company to be more competitive in the oral generic
pharmaceutical industry. Also, this restructuring is expected to better
position the Company to integrate the Acquired Companies. Costs
associated with this restructuring, including severance payments, totaled
$842.
The Company believes that its current cash resources, anticipated operating
cash flows and funds available under a revolving credit and loan
arrangement with a bank will be sufficient to fund its working capital needs
for the next 24 months. In addition, it is not anticipated that the Acquired
Companies will generate adequate revenues to finance their combined
operating expenses until at least 1998. Depending upon the timing of the
Company's cash flow requirements, which is highly dependent upon the
unpredictable timing of the receipt of FDA product approvals, the future
cash flow needs of the Company could exceed the Company's current cash
resources and its available credit under its existing credit facilities.
As of June 30, 1996, the Company had $1,897 in cash, plus approximately
$15,000 of available borrowings under its existing credit facilities.
18
Accordingly, the Company may need to seek additional credit facilities or to
seek additional funding from sales of its securities or from other sources.
The Company anticipates that it would be able to increase its credit facilities
or obtain financing from other sources, should it require additional cash flow
to support the commercialization of new products following receipt of FDA
approval therefor. However, there can be no assurance that such financing
will be available when required, if at all, or will be available upon terms the
Company may deem commercially reasonable.
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123 "Accounting For Stock
Based Compensation" ("SFAS 123") which requires that an employer's
financial statements include expanded disclosure regarding stock-based
employee compensation arrangements. The Company is evaluating the
requirements of SFAS 123, which must be adopted during the Company's
fiscal year ended June 30, 1997.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 121 Accounting For The Impairment
Of Long-Lived Assets ( SFAS 121 ), which requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstance indicate that the carrying amount of an asset may not be
recoverable. To determine a loss, if any, to be recognized, the book value
of the asset would be compared to the market value or expected future cash
flow value. The Company is required to adopt SFAS 121 for the fiscal years
beginning after December 15, 1995. During fiscal year ended June 30,
1997, the Company will adopt SFAS 121 and anticipates, based upon
information currently available, that it will not have a material impact on
its results of operations and financial position.
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," was issued by the Financial Accounting Standards Board
in February 1992. SFAS 109 is effective for years beginning after
December 15, 1992. The Company adopted SFAS 109, effective July 1,
1993. This statement superseded SFAS 96, "Accounting for Income
Taxes." The cumulative effect of adopting SFAS 109 on the Company's
financial statements, for the year ended June 30, 1994 increased income
by $4,149 with a corresponding increase in the deferred tax asset. (Refer
to Note 14 of the Notes to Consolidated Financial Statements.)
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS Page
Report of Independent Public Accountants
Deloitte & Touche LLP........................................21
Consolidated Balance Sheets
June 30, 1996 and 1995.......................................22
Consolidated Statements of Operations
Year ended June 30, 1996, 1995 and 1994......................23
Consolidated Statements of Stockholders' Equity
Year ended June 30, 1996, 1995 and 1994......................24
Consolidated Statements of Cash Flows
Year ended June 30, 1996, 1995 and 1994..................... 25
Notes to Consolidated Financial Statements...........................26
FINANCIAL STATEMENT SCHEDULE
Schedule II: Valuation and Qualifying Accounts
Year ended June 30, 1996, 1995 and 1994......................47
20
[ LETTERHEAD OF DELOITTE & TOUCHE ]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of Faulding Inc.:
We have audited the accompanying consolidated balance sheets of Faulding
Inc. and subsidiaries as of June 30, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of
the three years in the period ended June 30, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 8. These
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Faulding Inc. and its subsidiaries
at June 30, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles. Also, in our
opinion, such a financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in Note 14 to the financial statements, the Company changed its
method of accounting for income taxes effective July 1, 1993, to conform with
the Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP
August 16, 1996(August 27, 1996 as to Note 16)
Parsippany, New Jersey
21
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
--------------------------------------
1996 1995
- ---------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 1,897 $ 1,225
Accounts receivable, trade
(less reserves for doubtful
accounts and sales allowances
of $3,355 and $2,616 at June 30,
1996 and 1995, respectively) 17,118 11,099
Inventory (Note 3) 26,496 20,838
Due from affiliated companies
(Note 5) --- 1,816
Other current assets 3,315 2,298
Deferred income taxes (Note 14) 3,225 3,513
- ---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 52,051 40,789
- ---------------------------------------------------------------------------
Property, plant and equipment,
net (Note 4) 41,510 40,565
Other assets (Note 5) 4,279 3,595
Deferred income taxes (Note 14) 838 914
- ---------------------------------------------------------------------------
TOTAL ASSETS $ 98,678 $ 85,863
===========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 7,553 $ 5,684
Due to affiliated companies
(Note 5) 847 ---
Loan payable to bank (Note 7) --- 2,000
Accrued expenses (Note 6) 6,666 5,580
Accrued preferred dividends (Note 11) 689 520
- ---------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 15,755 13,784
- ---------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 12) --- ---
- ---------------------------------------------------------------------------
"Stockholders' equity (Notes 8, 9, 10 and 11):
Class A convertible preferred stock;
par value $.01, authorized 1,834,188
shares; issued and outstanding 834,188
(liquidation value $24,475) 8 8
Class B convertible preferred stock;
par value $.01, authorized 150,000
shares; issued and outstanding 150,000
(liquidation value $15,000) 2 ---
Common stock; par value $.01,
authorized 35,000,000 shares;
issued and outstanding 15,064,560
and 15,019,935 at June 30, 1996
and 1995, respectively 151 150
Capital in excess of par value 57,139 44,302
Retained earnings 25,623 27,619
- ---------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 82,923 72,079
- ---------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 98,678 $ 85,863
===========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
22
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
Year Ended June 30,
------------------------------------------------
1996 1995 1994
------------------------------------------------
NET SALES $ 75,784 $ 64,905 $ 71,952
Cost of sales 58,397 49,287 48,535
- -----------------------------------------------------------------------------------------------
Gross profit 17,387 15,618 23,417
- -----------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 11,864 10,191 9,410
Research and development 10,361 7,729 7,562
Acquisition expenses 1,043 --- ---
Restructuring costs 842 --- ---
- -----------------------------------------------------------------------------------------------
Total expenses 24,110 17,920 16,972
- -----------------------------------------------------------------------------------------------
Income (loss) from operations (6,723) (2,302) 6,445
Other income (expense), net 1,021 (390) 149
- -----------------------------------------------------------------------------------------------
Income (loss) before income taxes (5,702) (2,692) 6,594
Provision (benefit) for income taxes
(Note 14) (701) (1,074) 2,602
- -----------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PREFERRED
STOCK DIVIDENDS (5,001) (1,618) (3,992)
Preferred stock dividends 2,307 2,080 2,080
- -----------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING FOR INCOME TAXES (7,308) (3,698) 1,912
Cumulative effect of a change in accounting
for income taxes (Note 14) --- --- 4,149
- -----------------------------------------------------------------------------------------------
NET INCOME (LOSS), AVAILABLE FOR COMMON
STOCK $ (7,308) $ (3,698) $ 6,061
===============================================================================================
PRIMARY EARNINGS PER COMMON SHARE (NOTE 2)
Income (loss) before cumulative effect of
a change in accounting for income taxes $ (.49) $ (.25) $ .13
Cumulative effect of a change in accounting
for income taxes (Note 14) --- --- .28
- -----------------------------------------------------------------------------------------------
Net income (loss) $ (.49) $ .25 $ .41
===============================================================================================
Weighted average number of
common shares outstanding 15,039,391 14,977,248 14,906,896
- -----------------------------------------------------------------------------------------------
EARNINGS PER SHARE ASSUMING FULL DILUTION (NOTE 2):
Income before cumulative effect of
a change in accounting for income taxes $ .20
Cumulative effect of a change
in accounting for income taxes (Note 14) .21
- -----------------------------------------------------------------------------------------------
Net income $ .41
===============================================================================================
Weighted average number of fully diluted shares 19,997,322
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands except share data)
Common Stock Preferred Stock
(Note 10) (Note 11) Capital in
------------------------------------------- Excess of Retained
Shares Amount Shares Amount Par Value Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1993
as previously reported 12,427,848 $ 124 834,188 $ 8 $ 27,909 $ 20,019 $ 48,060
Common stock issued pursuant
to acquisitions (Note 2) 2,438,712 24 --- --- 19,497 --- 19,521
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1993
as restated 14,856,560 $ 148 834,188 $ 8 $ 47,406 $ 20,019 $ 67,581
- ------------------------------------------------------------------------------------------------------------------------------
Common stock issued pursuant
to stock grant plan (Note 9) 82,250 1 --- --- (1) --- ---
Class A preferred stock dividend
(Note 11) --- --- --- --- (2,080) --- (2,080)
Stock grant amortization --- --- --- --- 371 --- 371
Reduction of income tax liability
from exercise of stock options
(Note 8) --- --- --- --- 62 --- 62
Pooling of interest adjustement (Note 2) --- --- --- --- --- 306 306
Net income --- --- --- --- --- 8,141 8,141
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1994 14,948,810 $ 149 834,188 $ 8 $ 45,758 $ 28,466 $ 74,381
- ------------------------------------------------------------------------------------------------------------------------------
Common stock issued pursuant
to stock grant plan (Note 9) 71,125 1 --- --- (1) --- ---
Class A preferred stock dividend
(Note 11) --- --- --- --- (2,080) --- (2,080)
Stock grant amortization --- --- --- --- 367 --- 367
Reduction of income tax liability
from issuance of stock pursuant
to stock grant plan (Note 9) --- --- --- --- 258 --- 258
Pooling of interest adjustment (Note 2) --- --- --- --- --- 771 771
Net income --- --- --- --- --- (1,618) (1,618)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1995 15,019,935 $ 150 834,188 $ 8 $ 44,302 $ 27,619 $ 72,079
- ------------------------------------------------------------------------------------------------------------------------------
Preferred stock Class B issued --- --- 150,000 2 14,998 --- 15,000
Common stock issued pursuant
to stock grant plan 44,625 1 --- --- (1) --- ---
Class A preferred stock dividend
(Note 11) --- --- --- --- (2,080) --- (2,080)
Class B preferred stock dividend --- --- --- --- (227) --- (227)
(Note 11)
Stock grant amortization --- --- --- --- 110 --- 110
Reduction of income tax liability
from issuance of stock pursuant
to stock grant plan (Note 9) --- --- --- --- 37 --- 37
Pooling of interest adjustment (Note 2) --- --- --- --- --- 3,005 3,005
Net income (loss) --- --- --- --- --- (5,001) (5,001)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 15,064,560 $ 151 984,188 $ 10 $ 57,139 $ 25,623 $ 82,923
==============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended June 30,
-------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss), Available for Common Stock $ (7,308) $ (3,698) $ 6,061
Adjustments To Reconcile Net Income (loss)
To Net Cash Provided By (Used For)
OPERATING ACTIVITIES:
Depreciation and amortization 2,862 2,494 2,126
Compensation expense - stock grants 110 366 371
Provision for deferred taxes (including
cumulative effect of accounting change) --- --- (2,834)
Deferred income tax, asset 364 72 ---
INCREASE (DECREASE) IN CASH FROM:
Accounts receivable, trade (6,020) 481 (1,020)
Inventory (5,658) (1,649) (4,272)
Other current assets (928) (661) (188)
Other assets (696) (174) ---
Accounts payable 1,869 (1,383) 99
Accrued expenses 1,086 1,168 (1,063)
Accrued income taxes (51) (1,175) (1,066)
Accrrued dividends 169 --- ---
Due to/from affiliates 899 (4,907) 183
- ------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (5,994) (5,368) (7,664)
- ------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For)
Operating Activities (13,302) (9,066) (1,603)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (3,795) (15,241) (5,880)
- -------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For)
Investing Activities (3,795) (15,241) (5,880)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from bank --- 2,000 ---
Repayments to bank (2,000) --- ---
Proceeds from issuance of
preferred stock 15,000 --- ---
Proceeds from additions to
paid in capital 4,769 20,344 ---
- -------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For)
Financing Activities 17,769 22,344 ---
- -------------------------------------------------------------------------------------------------
Increase (Decrease) In Cash
and Cash Equivalents $ 672 $ (1,963) $ (7,483)
=================================================================================================
Cash and cash equivalents,
beginning of year 1,225 3,188 10,671
- -------------------------------------------------------------------------------------------------
Cash and Cash Equivalents,
End of Year $ 1,897 $ 1,225 $ 3,188
=================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest $ 214 $ 77 $ 29
Income taxes $ (857) $ 89 $ 2,355
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. Organization and Business
The Company is a manufacturer of oral generic drugs for sale primarily to
drug wholesalers, drugstore chains, and distributors in the United States.
After the February 29, 1996 acquisitions (as discussed herein), the Company
has expanded its operations into the manufacturing and distribution of generic
injectable drugs and medical devices, which products are targeted to be
marketed to hospitals and drug wholesalers.
At June 30, 1996, 1995, and 1994, 61%, 54% and 55%, respectively, of the
outstanding common stock of Faulding Inc. (the "Company") was owned by
Faulding Holdings Inc. ("Holdings"), a wholly-owned subsidiary of F. H.
Faulding & Co. Limited ("Faulding"), a major Australian pharmaceutical
company.
On February 29, 1996, the Company changed its name from Purepac, Inc. to
Faulding Inc.
2. Basis of Presentation and Significant Accounting Policies
Acquisitions
On February 29, 1996 the Company acquired all of the outstanding capital stock
of each of Faulding Medical Device Co. ("FMD"), Faulding Puerto Rico, Inc.
("FPR"), and Faulding Pharmaceutical Co. ("FPC"), collectively the "Acquired
Companies," from Holdings (the Company's principal stockholder) in exchange
for 2,438,712 shares of its common stock. As part of the acquisition, the
Company created a Class B Preferred Stock with 150,000 authorized shares,
par value at $.01, all of which were issued to Holdings for a cash purchase
price of $100 per share, for a total value of $15 million.
At the effective date of acquisition the authorized number of shares of
common stock was increased from 25 million shares to 35 million shares.
Principles of Consolidation
The acquisition transaction was accounted for as similar to a pooling of
interests and, therefore, financial statements for all periods presented have
been restated as if the acquisition took place at the beginning of the earliest
period presented. The financial statements reflect the accounts of Faulding
Inc. (including its wholly owned subsidiary, Purepac Pharmaceutical Co.) and
the Acquired Companies. All intercompany transactions and balances have been
eliminated.
26
The combined operations reported in the Company's consolidated financial
statements are comprised as follows:
Year Ended June 30, Year Ended June 30,
1996 1995
------------------- -------------------
Faulding Inc.
(formerly Purepac, Inc.)
- ------------------------
Net sales $ 63,822 $ 61,146
Cost of sales 47,112 46,476
Operating expenses 19,936 16,558
Net income (loss) before
preferred stock dividends (1,349) (847)
Combined Operations of
Acquired Companies
- -------------------------
Net sales $ 11,962 3,759
Cost of sales 11,285 2,811
Operating expenses 4,174 1,362
Net income (loss) before
preferred stock dividends (3,651) (771)
Consolidated Operations
- --------------------------
Net sales $ 75,784 64,905
Cost of sales 58,397 49,287
Operating expenses 24,110 17,920
Net income (loss) before
preferred stock dividends (5,001) (1,618)
Note: The Acquired Companies' operations for the year ended June 30,
1995 reflect the year's results of FMD and three month's
results of FPR and FPC, as they did not commence operations
until April 7, 1995.
Since the acquisition transaction was accounted for as similar to a pooling of
interests, the acquisition expenses of $1,043 were charged to results of
operations in the year ended June 30, 1996. The expenses include $576 for
financial advisory services and $467 for professional fees.
Summary of Significant Accounting Policies
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements; and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
27
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosure for financial instruments for which it
is practicable to estimate value. The carrying amounts reflected in the
consolidated balance sheets for cash and cash equivalents, trade receivables
and payables approximate their respective fair values due to the short-term
nature of the instruments.
Revenue Recognition
Sales revenue is recognized upon shipment of the Company's products.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, certificates of deposit and
commercial paper having original maturities of three months or less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation and
amortization is computed using the straight-line method over the following
estimated useful lives:
Building and improvements 30 years
Machinery and equipment 4-10 years
Furniture and fixtures 5-10 years
Leasehold improvements remaining term of lease
28
Trademarks and Patents
Trademarks acquired by Purepac, included in other assets, are amortized over
40 years using the straight-line method, consist of the following:
June 30, 1996 June 30, 1995
------------- -------------
Cost $ 500 $ 500
Accumulated amortization (208) (195)
------------- -------------
Net book value $ 292 $ 305
============= =============
Patents acquired by FMD, included in other assets, are amortized over 10
years using the straight-line method, consist of the following:
June 30, 1996 June 30, 1995
------------- -------------
Cost $ 381 $ 381
Accumulated amortization (57) (19)
------------- -------------
Net book value $ 324 $ 362
============= =============
Research and Development Costs
Research and development costs, including charges for such services provided
by Faulding, are charged to operations as incurred and represent the Company's
independent research and development efforts.
Earnings Per Common Share
Primary earnings per common share is calculated by (i) dividing income before
cumulative effect of a change in accounting for income taxes less preferred
dividends by the weighted average number of common shares outstanding
during the year and (ii) by dividing the cumulative effect of a change in
accounting for income taxes, if any, by such average number of common shares.
Common stock equivalents are excluded as the effect is either not material or
anti-dilutive. Earnings per share, assuming full dilution (principally from
convertible preferred shares), is also presented for the year ended June 30,
1994 and is based on the assumption that all contingently issuable shares were
outstanding from the beginning of the year to the extent dilution results. For
the years ended June 30, 1996 and 1995, fully diluted earnings per share is not
presented as the effect would be anti-dilutive.
29
Supplemental Cash Flow Information
During the years ended June 30, 1996 and 1995, the Company recognized a tax
benefit when the Company issued 71,125 and 82,250 shares, respectively, of
common stock to employees pursuant to the Company s 1991 Restricted Stock
Incentive Plan. The transactions provided the Company with tax benefits equal
to the fair market value of the stock on the date of issuance. For financial
reporting purposes, the tax benefits were recorded as a reduction of the
deferred tax asset to the extent previously provided and the remainder of the
benefit was recorded as additional capital in excess of par value.
During the year ended June 30, 1994, the Company recognized a tax benefit
when a holder of nonstatutory stock options purchased 14,000 shares of
common stock at $1.81 per share. This transaction provided the Company a tax
benefit to the extent that the fair market value of the stock issued on the
exercise date exceeded the option price. For financial reporting purposes,
this benefit was recorded as additional capital in excess of par value.
3. Inventory
June 30, 1996 June 30, 1995
------------- -------------
Raw materials $ 11,160 $ 6,078
Work-in-process 4,509 6,114
Finished goods 10,827 8,646
------------- -------------
Total $ 26,496 $ 20,838
============= =============
4. Property, Plant and Equipment
June 30, 1996 June 30, 1995
------------- -------------
Land $ 2,199 $ 2,199
Buildings and improvements 16,311 13,021
Machinery and equipment 29,612 23,037
Leasehold improvements 5,100 4,790
Construction in progress 825 7,308
------------- -------------
Total cost $ 54,047 $ 50,355
Less accumulated
depreciation and
amortization (12,537) (9,790)
------------- -------------
Net book value $ 41,510 $ 40,565
============= =============
30
5. Related-Party Transactions
During the years ended June 30, 1996, 1995 and 1994, the Company paid
Faulding $4,057, $2,289 and $3,789, respectively, for merchandise purchases
(pursuant to agreements to market injectable and oral products, both described
herein), $287, $918 and $1,007, respectively, for research and development
services and $603, $326 and $123, respectively, for interest expense on loan
advances associated with the Acquired Companies prior to the acquisition by the
Company. In addition, the Company paid Faulding Services Inc., $296, $266,
and $186, respectively, for business development services (pursuant to an
agreement with Faulding Services Inc. which terminated on December 31, 1995
and described herein). Faulding Services Inc. is a 100% owned subsidiary of
Holdings.
During the years ended June 30, 1996, 1995, and 1994, the Company was
reimbursed $466, $1,919 and $486, respectively, by Faulding for materials and
services related to research and development projects and $200 during the year
ended June 30, 1994 for the sale to Faulding of the Company s Poroplastic(R)
technology.
30
Additionally, during the year ended June 30, 1996, the Company invoiced
$1,018 to Faulding Services Inc. for contract manufacturing of KADIAN (TM)
(pursuant to an agreement with Faulding Services Inc., described herein).
During the year ended June 30, 1994, the Company paid Faulding Services Inc.
$623 for engineering and consulting services related to the construction
of a manufacturing suite to accommodate the modified-release technology.
Included in other assets at June 30, 1996 and 1995 is $2,903 paid by the
Company to Faulding in June 1992 to acquire the proprietary technology,
including the scientific information and expertise, processes and procedures,
for the manufacture and sale of the generic version of certain modified-
release pharmaceutical products. The acquired technology is restricted to
use, on an exclusive basis, in the United States of America and its
territories. Amortization of this technology will commence in fiscal 1997.
Amounts due from (due to) affiliated companies are payable on demand and
were as follows as of:
June 30, 1996 June 30, 1995
------------- -------------
Faulding $ (1,881) $ 1,843
Holdings --- 10
Faulding Services Inc. 1,034 (37)
------------- -------------
$ (847) $ 1,816
============= =============
31
Purepac entered into an agreement with Faulding as of December 5, 1992,
pursuant to which Purepac agreed to provide services to Faulding for the
tableting of pellets and micropellets on a time and materials basis. During
the year ended June 30, 1996, no related services were provided by Purepac to
Faulding.
In addition, Purepac and Faulding entered into a three-year agreement, also
dated as of December 5, 1992, which is automatically renewable for successive
two-year periods, pursuant to which Faulding granted Purepac a non-exclusive
license to import, distribute and market an erythromycin oral product in the
United States.
On January 1, 1993, Purepac and Faulding Services Inc. entered into a
consulting agreement, which terminated on December 31, 1995, pursuant to
which Purepac retained Faulding Services Inc. to serve as a business
development consultant and advisor on a non-exclusive basis.
On August 1, 1993, Purepac entered into a ten-year agreement with Faulding
Services Inc. to manufacture KADIAN (TM) utilizing Faulding technology,
processes and manufacturing methods licensed to Faulding Services Inc.
Faulding Services Inc., at its sole cost, has sought all necessary approvals
and/or registrations from the appropriate regulatory authority to enable the
sale of the product, which was approved by the FDA on July 3, 1996. Under that
agreement, Purepac had commenced the manufacturing of KADIAN (TM) based on
orders received from Faulding Services Inc. and the initial income from this
contract was recorded in the quarter ending June 30, 1996. The parties
amended this agreement in December 1994 to resolve certain inconsistencies
between this agreement and an agreement with an unrelated third party, to
distribute the product manufactured by Purepac. On June 27, 1995 the
Company and Faulding Services Inc. entered into a Services Agreement
pursuant to which Purepac agreed to provide certain services on Faulding
Services Inc. s behalf that Faulding Services Inc. had agreed to provide under
the agreement with the third party.
On March 15, 1995, Purepac and Faulding entered into a three-year non-exclusive
license agreement for Purepac to import and distribute doxycycline, a
delayed-release product, in the United States in exchange for certain payments
to Faulding for its supply of the product to Purepac.
32
Purepac and Faulding entered into two agreements as of June 26, 1995 for two
products that had been under ongoing development review for several years.
One is a licensing agreement pursuant to which Faulding granted to Purepac an
exclusive ten-year license to utilize certain technology to complete the
development of a modified-release product and manufacture and sell the
product in the United States. Relating to the product development, Purepac
paid to Faulding most of the technology licensing fees prior to June 30, 1994
with the balance paid during the year ended June 30, 1996, all expensed as
research and development costs. In addition, Purepac will be obligated to
pay royalties related to net sales of the product. As of June 30, 1996,
development activity regarding this agreement has not continued.
The second agreement is a ten-year Co-development, Supply and Licensing
Agreement whereby Faulding will develop and deliver a certain component
pellet of a modified-release product for Purepac's use in developing,
manufacturing and distributing such product in the United States. Faulding
will supply Purepac with pellets at a price set forth in the agreement. If
the parties later concur that Purepac will manufacture the pellets, Faulding
will grant Purepac an exclusive license to the pellet technology for the
remainder of the term of the agreement in consideration of a technology
transfer fee of $250 and ongoing royalty payments. As of June 30, 1996,
development activity regarding this agreement has not continued.
On January 23, 1996, FPC and Faulding entered into a Supply Agreement for
injectable products developed and manufactured by Faulding for sale in the
United States. Supply of six anti-cancer products, under this agreement,
commenced in fiscal 1996. ANDA submissions for additional products
covered by this agreement have been filed with the FDA. Additional products
are under development by Faulding.
On January 23, 1996, a Licensing and Supply Agreement was signed between
FMD and Faulding for the medical device products developed by FMD. Though
such products have not yet been launched in the United States, products
utilizing these technologies have received regulatory approval in some other
markets.
6. Accrued Expenses
June 30, 1996 June 30, 1995
------------- -------------
Advertising and promotion programs $ 1,408 $ 1,320
Compensation and payroll taxes 2,446 1,677
Medicaid rebate 668 520
Professional fees 402 848
All other 1,742 1,215
------------- -------------
TOTAL $ 6,666 $ 5,580
============= =============
33
7. Long-Term Debt
On May 24, 1990, the Company entered into an uncollateralized financing
agreement with a commercial bank, which agreement was amended on May 24,
1992 and again amended in August 1994. The agreement permits the
Company to borrow up to $15,000, of which a maximum of $5,000 may be
borrowed under a term loan facility. Borrowings under the term loan facility
mature five years from the date of the borrowing. The difference between the
total financing agreement of $15,000 and any borrowings under the term loan
facility may be utilized as revolving debt. The Company is required to meet
certain financial covenants, including a minimum debt-to-equity ratio and a
minimum aggregate net asset amount.
At June 30, 1996, the Company had no outstanding borrowings from the bank
and no outstanding letters of credit.
At June 30, 1995, the Company had an outstanding loan from the bank of
$2,000 at an interest rate of 6.64% per annum. At June 30, 1995, there were
no outstanding letters of credit.
8. Stock Options
1994 Stock Option Plan
On October 18, 1994, the shareholders approved the 1994 Stock Option Plan
(the 1994 Plan ) which provides for issuance of up to 1,000,000 options to
acquire shares of the Company s authorized common stock. The options are
intended to qualify as Incentive Stock Options (statutory options) as defined
by the Internal Revenue Code or as Nonstatutory Stock Options.
Under the 1994 Plan, the Incentive Stock Options may be granted to key
employees of the Company or a subsidiary of the Company and the Nonstatutory
Stock Options may be granted to any key employee, officer, non-employee
director or consultant to the Company or a subsidiary of the Company, with
the exception that Nonstatutory Stock Options may not be granted to a holder
of more than 10% of the total voting power of the Company.
The exercise price of all Incentive Stock Options must be at least equal to
the fair market value of such shares on the date of grant. The exercise
price of all Nonstatutory Stock Options granted under the 1994 Plan shall be
determined by the Board of Directors of the Company at the time of grant. No
option granted shall be exercisable after the expiration of ten (10) years
from the date of grant.
34
During the year ended June 30, 1995, the Company awarded two employees
33,000 Incentive Stock Options exercisable at $9.25 per share. During the
year ended June 30, 1996, the Company awarded nine employees options to
purchase 507,500 shares, of which 343,323 were Incentive Stock Options and
164,177 were Nonstatutory Stock Options. During the year ended June 30,
1996, due to two resignations and one cancelation, awards totaling 108,000
shares were terminated.
Information on the 1994 stock option plan activity is as follows:
Number of Options Awarded
----------------------------------
Incentive
Number of Exercisable Stock Nonstatutory
Employees Price Range Total Options Stock Options
--------- ----------- ------ --------- -------------
Outstanding at
June 30, 1995 2 $ 9.25 33,000 33,000
- ------------------------------------------------------------------------------
Options Awarded 27 $ 4.625- 675,000 510,823 164,177
$ 10.125
Terminated/
Canceled (3) $ 6.125- (108,000) (98,304) (9,696)
$ 9.25
- ------------------------------------------------------------------------------
Outstanding at
June 30, 1996 26 $ 4.625- 600,000 445,519 154,481
$ 10.125
- ------------------------------------------------------------------------------
9. Restricted Stock Incentive Plan
The shareholders approved the Company's 1991 Restricted Stock Incentive Plan
(the "Plan") for key employees of the Company. The Board of Directors have
allotted 465,000 shares for the plan.
On November 25, 1991, the Company awarded grants aggregating 275,000
shares of the Company's common stock to 15 employees. Such grants were
valued at $8.125 per share, being the market value thereof on the date of
grant. During the year ended June 30, 1993, due to two resignations, grants
totaling 20,000 shares were terminated. During the year ended June 30, 1994,
due to one resignation, grants totaling 20,000 shares were terminated.
During the year ended June 30, 1995, due to two resignations, grants totaling
10,500 shares were terminated. During the year ended June 30, 1996, due to
seven resignations, grants totaling 43,000 shares were terminated.
35
On March 5, 1993, the Company awarded grants aggregating 50,000 shares of
the Company's common stock to six employees. Such grants were valued at
$13.8125 per share, being the market value thereof on the date of grant.
During the year ended June 30, 1994, due to one resignation, grants totaling
7,500 shares were terminated. During the year ended June 30, 1996, due to
one resignation, grants totaling 4,000 shares were terminated.
During the year ended June 30, 1996, the Company issued 44,625 shares of
common stock to employees pursuant to the Plan. As a result of the issuance
of these shares, the Company will have an income tax deduction of $272 in the
year ending June 30, 1997. The deduction will result in a reduction in taxes
payable of approximately $103. In the same year, for financial reporting
purposes, the tax benefit will be recorded as a reduction of the deferred tax
asset to the extent previously provided and the remainder of the benefit will
be recorded as additional capital in excess of par value. It will not be
reflected in the reported earnings or the earnings per share calculations.
During the year ended June 30, 1995, the Company issued 71,125 shares of
common stock to employees pursuant to the Plan. As a result of the issuance
of these shares, the Company had an income tax deduction of $759 in the year
ending June 30, 1996. The deduction resulted in a reduction in taxes payable
of approximately $288. In the same year, for financial reporting purposes,
the tax benefit was recorded as a reduction of the deferred tax asset to the
extent previously provided and the remainder of the benefit was recorded as
additional capital in excess of par value. It was not reflected in the
reported earnings or the earnings per share calculations.
During the year ended June 30, 1994, the Company issued 82,250 shares of
common stock to employees pursuant to the Plan. As a result of the issuance
of these shares, the Company had an income tax deduction of $1,347 in the year
ended June 30, 1995. The deduction resulted in a reduction in taxes payable
of approximately $512. In that year, for financial reporting purposes, the
tax benefit was recorded as a reduction of the deferred tax asset to the extent
previously provided and the remainder of the benefit was recorded as additional
capital in excess of par value. It was not reflected in the reported
earnings or the earnings per share calculations.
36
Information on the Restricted Stock Incentive Plan activity is as follows:
Number of Grants Awarded, by Date
----------------------------------
November 25, 1991 March 5, 1993
----------------- -------------
Outstanding at June 30, 1992 275,000
- --------------------------------------------------------------------------
Terminated (20,000)
Grants awarded --- 50,000
- --------------------------------------------------------------------------
Outstanding at June 30, 1993 255,000 50,000
- --------------------------------------------------------------------------
Terminated (20,000) (7,500)
Shares Issued (82,250) ---
- --------------------------------------------------------------------------
Outstanding at June 30, 1994 152,750 42,500
- --------------------------------------------------------------------------
Terminated (10,500) ---
Shares Issued (56,250) (14,875)
- --------------------------------------------------------------------------
Outstanding at June 30, 1995 86,000 27,625
- --------------------------------------------------------------------------
Terminated (43,000) (4,000)
Shares Issued (34,000) (10,625)
- --------------------------------------------------------------------------
Outstanding at June 30, 1996 9,000 13,000
==========================================================================
10. Common Stock
During the years ended June 30, 1996, 1995 and 1994, the Company issued in
aggregate 44,625, 71,125, and 82,250 shares of common stock to employees,
pursuant to the Company's 1991 Restricted Stock Incentive Plan discussed in
Note 9. The Company received no proceeds from these transactions. During
the years ended June 30, 1996, 1995 and 1994, the Company recognized $110,
$366 and $385, respectively as compensation expense for the 1991 Restricted
Stock Incentive Plan.
During the year ended June 30, 1996, the Company issued 2,438,712 shares of
common stock to Holdings (the Company's principal stockholder) pursuant to
acquisitions of companies discussed in Note 2. The company received no
proceeds from the exchange of shares for the acquisition of the Acquired
Companies.
37
11. Preferred Stock
The authorized but unissued preferred stock may be issued from time to time,
in one or more series, by the Board of Directors.
Class A
In 1987, the Company issued and sold to Holdings 834,188 shares of the Class
A preferred stock at $29.34 per share, or $23,133, net of expenses of $1,342.
These shares provide for a cumulative dividend of 8.5% per annum, which
dividend accrues until such time as the Company shall have profits, surpluses or
other funds legally available for payment of dividends. Dividends accrue on
each share of Class A preferred stock on a daily basis at 8.5% per annum of
liquidation value and are payable quarterly on the first days of January,
April, July and October, beginning in January 1988. If any accrued dividends,
for any reason, are not paid on these days, then such dividend shall be
considered in arrears and, until paid, shall continue to be accrued on the
liquidation value (purchase price less dividends paid) plus dividends in
arrears.
During the years ended June 30, 1996, 1995 and 1994, all current year
preferred dividends totaling $2,080, each year were paid. The quarterly
dividend of $520 was declared and accrued at June 30, 1996 and subsequently
paid on July 1, 1996.
Each share of Class A preferred stock may be converted, at the election of
the holder, into six shares of common stock. At June 30, 1996, 5,005,128
shares of common stock were reserved for issuance under the terms of the
Class A preferred stock.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class A preferred stock shall be entitled to be paid out of
the assets of the Company available for distribution to its stockholders,
whether from capital, surplus or earnings, amounts in cash equal to the sum
of $29.34 per share plus all accrued and unpaid dividends.
On or after December 1, 1997, the Company may, at its election, redeem any or
all shares of Class A preferred stock. For each share of Class A preferred
stock redeemed, the Company shall be obligated to pay a redemption price of
$29.34 per share plus any accrued and unpaid dividends.
38
Class B
On February 29, 1996, as part of the acquisition of the Acquired Companies,
the Company created a Class B preferred stock with 150,000 authorized shares,
par value at $.01, all of which were issued to Holdings for a cash price of
$100 per share or an aggregate of $15 million. These shares pay an annual
dividend of $4.50 per share or an aggregate of $675 per year, and are
convertible into shares of the Company's common stock at a rate of 10.433
shares of common stock for each share of Class B preferred stock. Dividends
accrue on each share of Class B preferred stock on a daily basis at 4.5% per
annum of liquidation value and are payable quarterly on the first days of
January, April, July and October, beginning April 1, 1996. If any accrued
dividends, for any reason, are not paid on these days, then such dividend
shall be considered in arrears and, until paid, shall continue to be accrued
on the liquidation value (purchase price less dividends paid) plus dividends
in arrears.
The initial dividend for the period February 29, 1996 to March 31, 1996, of
$58 was paid on April 1, 1996. The quarterly dividend of $169 was declared
and accrued at June 30, 1996 and subsequently paid on July 1, 1996.
On or after the first anniversary of the date of issuance, each share of
Class B preferred stock may be converted, at the election of the holder, into
10.433 shares of common stock. At June 30, 1996, 1,564,950 shares of common
stock were reserved for issuance under the terms of the Class B preferred
stock.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class B preferred stock shall be entitled to be paid out of
the assets of the Company available for distribution to its stockholders,
whether from capital, surplus or earnings, amounts in cash equal to the sum
of $100.00 per share plus all accrued and unpaid dividends.
On or after February 29, 1999, the Company may, at its election, redeem any
or all shares of Class B preferred stock. For each share of Class B
preferred stock redeemed, the Company shall be obligated to pay a redemption
price of $100.00 per share plus any accrued and unpaid dividends.
12. Commitments and Contingencies
Leases
The Company leases certain of its equipment and property under operating
leases which provide for monthly lease payments and, in certain instances,
provide options to purchase the property at fair market value.
39
The Company through FPR has a long-term lease for a seven building facility
in Aguadilla, Puerto Rico from the Port Authority of the Commonwealth of
Puerto Rico which expires in the year 2020.
For the years ended June 30, 1996, 1995 and 1994, total rental expense for
operating leases amounted to $867, $556 and $350, respectively. The
following is a schedule of future minimum rental payments under such
operating leases:
Fiscal Year Ending June 30,
------------------------------------------
1997 $ 704
1998 531
1999 252
2000 185
2001 178
Thereafter 3,386
Litigation
On September 11, 1995, the United States District Court for the District of
New Jersey granted the Company's motion to dismiss a complaint filed against
the Company and certain of its former senior executives in a lawsuit entitled
Dechter vs. Purepac, Inc., Robert H. Bur and Russell J. Reardon, 94 Civ. 6195.
Pursuant to the court's decision, the plaintiffs had the opportunity to file
a motion with the court to submit a proposed amended complaint. The
plaintiffs elected not to file such a motion, thereby terminating such
litigation.
Pursuant to an agreement dated as of December 31, 1995, the Company has
settled certain litigation entitled Merck & Co., Inc. v. Purepac Pharmaceutical
Co. Case No. 95-495 in the United States District Court for the District of
Delaware. In accordance with such agreement, the Company is to receive a cash
settlement. The proceeds will be payable in three equal annual installments.
In addition the Company has agreed not to pursue the marketing or sale of the
pharmaceutical product which was the subject of the litigation in the United
States until the patent expiration in the year 2006.
40
On August 21, 1996, an action was commenced against the Company, Purepac,
Faulding and Zeneca, Inc. in the United States District Court for the District
of Delaware entitled Purdue Pharma L.P. and the Purdue Frederick Company vs.
F.H. Faulding & Co. Limited, Faulding Inc., Purepac Pharmaceutical Co. and
Zeneca Inc. 96 Civ.427. The complaint alleges that the manufacture and
marketing in the United States of KADIAN (TM) infringes a patent assigned to
one of the plaintiffs and constitutes unfair competitive practices under Federal
and State law. The Company, through Purepac, manufactures KADIAN (TM) pursuant
to a contract manufacturing agreement with Faulding, and Zeneca Inc. is its
U.S. distributor.
While the Company has not yet been served in the action, the complaint seeks,
among other things, an order enjoining the Company from the commercial
manufacture of KADIAN (TM) and treble and punitive damages in the event that
the defendants have violated Federal or State unfair competitive and deceptive
trade practices law.
The Company believes the allegations in the complaint to be entirely without
merit and intends, in cooperation with its co-defendants, to vigorously
defend this action. The commencement of the action did not impact the launch
of KADIAN (TM) .
The Company is involved in litigation incidental to the conduct of its
business, in addition to the above matters, and does not believe that the
ultimate adverse resolutions of any, or all, thereof would have a material
adverse effect on its financial position, results of operations or cash flows.
13. Employee Benefit Plans
In January 1990, the Company adopted a defined benefit pension plan (the
"Plan"). The Plan covers employees who have one year or more of credited
service and whose employment is not governed by a collective bargaining
agreement. Net periodic pension cost is comprised of the components listed
below, as determined using the projected unit credit actuarial cost method.
The Company's funding policy is to make annual contributions to the Plan in
such amounts necessary to fund benefits provided under the Plan on the basis
of information furnished by the Company's actuary.
41
Year Ended June 30,
--------------------------------
Net Periodic Pension Cost 1996 1995 1994
------ ------ ------
Service cost for benefits earned
during the period $ 506 $ 305 $ 338
Interest cost on projected
benefit obligation 194 154 121
Return on plan assets (138) (88) (63)
Amortization of prior service cost 19 19 29
Amortization of actuarial loss 34 1 33
------ ------ ------
Total $ 615 $ 391 $ 458
====== ====== ======
June 30, June 30,
Funded Status and Obligation of the Plan 1996 1995
-------- --------
Actuarial present value of accumulated
benefit obligations $ 1,703 $ 1,111
Vested benefits included in above 1,538 993
- -------------------------------------------------------------------------
Projected benefit obligation $ 3,373 $ 2,388
Plan assets at fair value (2,191) (1,462)
Unrecognized prior service cost (155) (175)
Unrecognized net gain (loss) (709) (201)
Additional Liability 2 4
-------- --------
Accrued pension obligation $ 320 $ 554
======== ========
The discount rate used in determining the projected benefit obligations was
7.25% at June 30, 1996, a decrease of .75% from June 30, 1995. The rate of
increase in future compensation levels used in the determination was 5.5% for
both June 30, 1996 and 1995. The expected long-term rate of return on the
Plan's assets used in determining pension cost was 8% for both years.
42
The Company also has a 401(k) savings and investment plan established
January 1, 1990, which allows employees to defer up to 15% of their salary,
with the Company matching 25% of employees' contributions not exceeding 5% of
their salary. The plan was amended, effective January 1, 1991, to increase
the Company match from 25% to 50% of the first 5% of employees' contribution
and, effective July 1, 1991, to increase the Company matching contribution to
50% of each employee's contribution not exceeding 6% of an employee's salary.
The Company's contribution charged to operations for the years ended June 30,
1996, 1995, and 1994 was $230, $224 and $196, respectively.
14. Income Taxes
The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS 109"), effective July 1, 1993. This
statement superseded Statement of Financial Accounting Standard No. 96,
"Accounting for Income Taxes". The cumulative effect of adopting SFAS 109 on
the Company's financial statements for the year ended June 30, 1994, was to
increase income by $4,149 ($.28 per primary common share and $.21 per share
on a fully diluted basis) with a corresponding increase in the deferred tax
asset.
Beginning with the adoption of SFAS 109, the income tax expense provision
does not include the benefit of recognizing available loss carryforwards to
the extent they have already been recognized as a deferred tax asset.
Instead, there will be a reduction in the deferred tax asset when such
benefits are utilized to reduce taxes payable.
Deferred income tax assets, both current and non-current, reflect the net tax
effects of (a) temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) operating loss and tax credit carryforwards.
The decrease in the current year s deferred tax assets resulted primarily
from the recognition of tax deductible items in the current year.
43
Net deferred tax assets consisted of the following as of:
June 30, June 30,
1996 1995
------------ ------------
Current Deferred Tax Asset:
Reserve for doubtful accounts $ 989 $ 779
Reserve for inventory obsolescence 298 509
Sundry accruals 542 557
Federal operating loss carryforwards 1,197 1,021
Federal tax credit carryforwards 707 707
State operating loss carryforwards 168 198
------------ ------------
3,901 3,771
------------ ------------
Current Deferred Tax Liability:
Stock grant amortization 336 158
Receivables 216 ---
Prepaids 68 96
Property, plant and equipment 56 4
------------ ------------
676 258
------------ ------------
NET CURRENT DEFERRED TAX ASSET $ 3,225 $ 3,513
============ ============
Non-Current Deferred Tax Asset:
Stock grant amortization $ 359 $ 392
Federal operating loss carryforwards 4,677 3,416
State operating loss carryforwards 63 ---
------------ ------------
5,099 3,808
------------ ------------
Non-Current Deferred Tax Liability:
Receivables 217 ---
Property, plant and equipment 2,919 2,609
License amortization 385 285
------------ ------------
3,521 2,894
------------ ------------
Valuation Allowance (740) ---
------------ ------------
NET NON-CURRENT DEFERRED TAX ASSET $ 838 $ 914
============ ============
44
The provision for income taxes was comprised of the following:
Year Ended June 30,
--------------------------------
1996 1995 1994
------- -------- -------
Current
Federal $ (624) $(1,026) $ 1,047
State (77) (120) 366
------- -------- -------
(701) (1,146) 1,413
Deferred
Federal 61 1,149
State 11 40
------- -------- -------
Total provision (benefit) $ (701) $ 1,074 $ 2,602
======= ======== =======
The Company has net operating losses and tax credits available as
carryforwards to reduce future federal income taxes. State tax losses are
also available as carryforwards. At June 30, 1996, for federal tax purposes,
the net operating loss and tax credit carryforwards amounted to $14,870 and
$707, respectively; they expire through year 2003. The future utilization of
the net operating loss carryforwards by the Company is subject to limitation
under provisions of the Internal Revenue Code.
In addition, the Company will carryback its current year's federal net
operating loss and recover approximately $1,340 of federal income tax.
The benefit of net operating losses generated by the Acquired Companies prior
to acquisition by the Company cannot be realized until the individual company
generates taxable income to utilize such benefit. As of June 30, 1996 this
had not occurred, a valuation allowance has been provided fully for these net
operating losses.
45
A reconciliation of the statutory federal rate to the effective tax rate is
as follows:
Year Ended June 30,
--------------------------
1996 1995 1994
----- ----- ----
Statutory federal rate (34%) (34%) 34%
State taxes net of federal benefit (4) (4) 4
Loss of benefit of utilizing pre-
acquisition net operating loss
carryforwards 20 --- --
Non deductible acquisition expenses 6 --- --
Other (2) 1
---------------------------
Effective tax rate (12%) (40%) 39%
===== ===== ====
15. Segment Information
The Company operates in one business segment, the pharmaceutical industry.
Primarily, the Company manufactures and sells oral generic pharmaceutical
products and, since the February 29, 1996 acquisitions, the Company has
expanded into the manufacturing, distribution and commercialization of
generic injectable drugs and medical devices.
For the year ended June 30, 1996, three customers each accounted for
approximately 11%, 10%, and 10% of sales. Sales to the three customers were
$8.7 million, $7.4 million and $7.4 million, respectively. For the year
ended June 30, 1995, three customers each accounted for approximately 12%,
11% and 10% of sales. Sales to the three customers were $7.8 million, $6.9
million and $6.3 million, respectively. For the year ended June 30, 1994,
two customers each accounted for approximately 12% and 11% of sales. Sales
to the two customers were $8.3 million and $8.1 million, respectively.
16. Subsequent Events
On August 27, 1996, a customer of the Company, FoxMeyer Drug Co., filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. The accounts
receivable balance owed by FoxMeyer to the Company was approximately $1.4
million and $1.5 million on June 30, 1996 and August 27, 1996, respectively.
Due to the uncertainties surrounding the bankruptcy filing, the impact on
future results of operations and financial position cannot be determined.
46
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance at Charged to Balance
For the Year Ended Beginning Costs and at End
June 30, 1996: of Year Expenses Deductions of Year
- -----------------------------------------------------------------------------------
Allowance for sales returns,
allowances and discounts $ 2,497 $ 17,324 $ 16,686 $ 3,135
Allowance for doubtful
accounts 119 101 --- 220
- -----------------------------------------------------------------------------------
TOTAL $ 2,616 $ 17,425 $ 16,686 $ 3,355
===================================================================================
Balance at Charged to Balance
For the Year Ended Beginning Costs and at End
June 30, 1995: of Year Expenses Deductions of Year
- -----------------------------------------------------------------------------------
Allowance for sales returns,
allowances and discounts $ 1,365 $ 12,874 $ 11,742 $ 2,497
Allowance for doubtful
accounts 187 (68) --- 119
- -----------------------------------------------------------------------------------
TOTAL $ 1,552 $ 12,806 $ 11,742 $ 2,616
===================================================================================
Balance at Charged to Balance
For the Year Ended Beginning Costs and at End
June 30, 1994: of Year Expenses Deductions of Year
- -----------------------------------------------------------------------------------
Allowance for sales returns,
allowances and discounts $ 2,195 $ 9,016 $ 9,846 $ 1,365
Allowance for doubtful
accounts 254 (67) --- 187
- -----------------------------------------------------------------------------------
TOTAL $ 2,449 $ 8,949 $ 9,846 $ 1,552
===================================================================================
47
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
(All dollar references are in thousands, unless otherwise indicated.)
ITEM 10. DIRECTORS, OFFICERS AND SIGNIFICANT EMPLOYEES
DIRECTORS
- ---------
The directors of the Company are as follows:
Common Stock
Beneficially
Company Owned as of
Name Office(s) Since Age Sept. 20 1996
- ------------------ ----------------- ----- --- -------------
Edward D. Tweddell Director/Chairman 1990 55 -0-(2)
Alan G. McGregor Director 1988 60 -0-(2)
David Beretta (1) Director 1989 68 -0-
Bruce C. Tully Director 1989 47 -0-
Richard F. Moldin President, Chief 1995 48 10,000(3)
Executive Officer,
Chief Operating
Officer
(1) Mr. Beretta died on September 16, 1996.
(2) Mr. McGregor and Dr. Tweddell are directors of Faulding, the parent of
Holdings, the principal stockholder of the Company. See "Principal
Stockholders" of the Company and "Compensation Committee Interlocks and
Insider Participation."
(3) Excludes 200,000 shares issuable upon the exercise of stock option
awards, not presently exercisable, that have been made to Mr. Moldin
under the Company's 1994 Stock Option Plan. See "Compensation of
Executive Officers."
Edward D. Tweddell, M.D., was elected a director in November 1990 and
was subsequently elected Chairman of the Board. He joined Faulding as
Managing Director of its Faulding Pharmaceuticals Division in September
1988. He was elected to the Board of Directors of Faulding in March 1989
and served as Executive Director of the Faulding Pharma Group from
1990 to November 1993 when he was appointed Group Managing
Director and Chief Executive Officer of Faulding. From July 1987, until
joining Faulding, he held the position of Chairman and Chief Executive
Officer of Pharmol Pacific Ltd., an Australian biotechnology company.
Prior thereto and from April 1986, he was President and Chief Executive
48
Officer of Homecare Japan, LTD. Dr. Tweddell, who holds a Bachelor of
Science degree in addition to an honors degree in Medicine, spent his
early career in medical practice and, in 1976, joined the multinational
pharmaceutical company, Pfizer International Inc. ("Pfizer"), where he
held a number of senior management positions.
Alan G. McGregor, a director of the Company since June 1988, is
Chairman of Faulding. Mr. McGregor is also a director of James Hardie
Industries Ltd., Burns, Philp & Co. Ltd. and other companies. He has
served as a partner in two major Adelaide, South Australia law firms and
was a Crown Prosecutor with the South Australian Crown Solicitor's
Office.
David Beretta, a director of the Company since April 1989, was President
of Executive Consulting Inc., a business consulting firm in Jamestown,
Rhode Island until his death on September 16, 1996. From April 1991,
Mr. Beretta was Vice Chairman and President of Amtrol Inc., a concern
engaged in the manufacture of products used in flow control, storage,
heating and other treatment of fluids in the water systems market and
selected sectors of the heating, ventilating and air conditioning market in
West Warwick, Rhode Island. Until 1982, he was Chairman of the Board
of Uniroyal, Inc. and remained a director until 1987. He was also a
director of Chartel Power Systems Inc.
Bruce Tully, a director of the Company since April 1989, has been a
Managing Director of BT Securities Corporation, a subsidiary of Bankers
Trust New York Corporation in New York, New York, since September
1989. Prior thereto and from October 1986, he was Managing Director of
Bankers Trust Company and for four years prior thereto, was a Vice
President thereof.
Richard F. Moldin, was appointed President and Chief Executive Officer
of the Company and President of Purepac on July 17, 1995 and was
appointed to serve as a director and Chief Operating Officer of the
Company on July 24, 1995. Prior to joining the Company and from
October 1994 he served as Managing Director, Australia & New Zealand
for Wellcome Australia Limited. From May 1993 until his appointment as
Managing Director, he was Divisional Manager, Primary Manufacturing,
for Wellcome Foundation Limited, U.K. Prior thereto and from September
1979, he served in various executive positions at Burroughs Wellcome
Co., U.S.A., including from October 1991 to February 1993 as Vice
President, Logistics & Primary Manufacturing.
49
EXECUTIVE OFFICERS
- ------------------
Set forth below is certain information with respect to the Company's
executive officers who are not serving as a director.
Lee Craker, age 41, was appointed Chief Financial Officer of the
Company on May 26, 1995 and was appointed Treasurer on October 11,
1995. Mr. Craker has held various positions with Faulding, or certain
of its affiliates, dating from his initial employment by Faulding in 1973.
From May 1985 to May 1990 he served as Finance and Administration Manager
of David Bull Laboratories Pty. Ltd., a wholly-owned subsidiary of
Faulding. From May 1990 to June 1994, he was Finance and
Administration Manager of the Faulding Pharma Group and from July
1994 until joining the Company in May 1995 he was Finance and
Administration Manager of Faulding Services Inc.
Garth Boehm, Ph.D., age 46, joined the Company as Vice President -
Scientific Affairs in April 1990 and was elected Executive Vice President in
October 1991. He was Deputy Research Director of Faulding
Pharmaceuticals, a division of Faulding, from July 1989 to April 1990.
From 1985 to June 1989, he held senior management positions at
Enterovax Limited, a joint venture of Faulding, the University of Adelaide
and the Australian Industry Development Corporation. Prior thereto and
from 1981, he was Development Scientist of the R&D Division of
Faulding.
William R. Griffith, age 48, was elected Secretary of the Company in
October 1993. Mr. Griffith is a member of Parker Duryee Rosoff & Haft,
counsel to the Company. Mr. Griffith has been a practicing attorney for
more than ten years.
50
ITEM 11. EXECUTIVE COMPENSATION
(Dollars in thousands)
Summary Compensation
Set forth below is the aggregate compensation for services rendered in all
capacities to the Company during its fiscal years ended June 30, 1996,
1995 and 1994 by each of its executive officers who served as an
executive officer on June 30, 1996 and whose compensation exceeded
$100 during its fiscal year ended June 30, 1996:
Summary Compensation Table
Annual Compensation
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
- ----------------- ------ ------ ----- ------------
Richard F. Moldin 1996 $ 285 $ 105 (1)
Chief Executive Officer, 1995 --- --- ---
President and Chief 1994 --- --- ---
Operating Officer
Lee Craker 1996 $ 158 $ 38 (1)
Chief Financial Officer 1995 --- --- ---
and Treasurer 1994 --- --- ---
Garth Boehm 1996 $ 164 $ 31 (1)
Executive Vice President 1995 $ 161 $ 7 (1)
1994 $ 156 $ 30 (1)
- ------------------
(1) Such amounts for each of the named executive officers listed in the
Summary Compensation Table are less than 10% of the total annual salary and
bonus reported for each such executive officer.
51
Stock Options and Bonus Plans
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by
the Board of Directors on August 16, 1994 and by a majority in interest of
the stockholders of the Company on October 18, 1994. The 1994 Plan
provides for the granting of up to 1,000,000 options which are intended to
qualify either as incentive stock options ("Incentive Stock Options") within
the meaning of Section 422 of the Internal Revenue Code of 1986 or as
options which are not intended to meet the requirements of such section
("Nonstatutory Stock Options"). The total number of shares of Common
Stock reserved for issuance under the 1994 Plan is 1,000,000. Options to
purchase shares may be granted under the 1994 Plan to persons who, in
the case of Incentive Stock Options, are employees (including officers) of
the Company, or, in the case of Nonstatutory Stock Options, are
employees (including officers) or non-employee directors of the Company.
The 1994 Plan is administered by a committee appointed by the Board of
Directors, which has discretionary authority, subject to certain restrictions,
to determine the number of shares issued pursuant to Incentive Stock
Options and Nonstatutory Stock Options and the individuals to whom, the
time at which, and the exercise price for which options will be granted.
The exercise price of all Incentive Stock Options granted under the 1994
Plan must be at least equal to the fair market value of such shares on the
date of the grant or, in the case of Incentive Stock Options granted to the
holder of more than ten percent of the Company's Common Stock, at
least 110% of the fair market value of such shares on the date of the
grant. The maximum exercise period for which Incentive Stock Options
may be granted is ten years from the date of grant (five years in the case
of an individual owning more than 10% of the Company's Common
Stock). The aggregated fair market value (determined at the date of the
option grant) of shares with respect to which Incentive Stock Options are
exercisable for the first time by the holder of the options during any
calendar year shall not exceed $100.
52
The following table sets forth certain information concerning grants of stock
options to the executive officers of the Company under the 1994 Plan during
the fiscal year ended June 30, 1996.
Option Grants in Last Fiscal Year
Potential
Realizable
Value at
Assumed
Annual
Rates of
Stock Price
Individual Appreciation
Grants for Option Term
- -----------------------------------------------------------------------------------------------
% of Total
Options
Granted
to Employees
Number of in Fiscal
Options Year Ended Exercise Expiration
Name Granted June 30, 1996 Price Date 5%($) 10%($)
- -------------------- --------- ------------- -------- --------- ----- ------
Richard F. Moldin
Chief Executive 150,000 25% $ 10.125 7/16/2005 6.555 17.285
Officer, President
and Chief Operating 50,000 8.3% $ 6.25 4/21/2006 4.04 10.67
Officer
Garth Boehm
Executive Vice 30,000 5% $ 6.125 2/28/2006 3.965 10.455
President
53
The following table sets forth certain information with respect to options
granted to officers, directors and employees of the Company and its
subsidiaries under the 1994 Plan during the fiscal year ended June 30, 1996.
The dollar value set forth below reflects the difference between the
aggregate exercise price of the options and the estimated value of the
Company's Common Stock at June 30, 1996.
Fiscal Year End Option Values
Number of Unexercised
Options at June 30, 1996 Value of
----------------------------- Unexercised Options
Name Exercisable Unexercisable at June 30, 1996
- ------------------- ----------- ------------- -------------------
Richard F. Moldin -0- 200,000 $ -0-
Chief Executive Officer,
President and Chief
Operating Officer
Garth Boehm -0- 30,000 $ -0-
Executive Vice President
All Non-Executive
Employees as a -0- 370,000 $ -0-
Group
1991 Restricted Stock Incentive Plan
The Company's 1991 Restricted Stock Incentive Plan (the "1991 Plan")
was adopted by the Board of Directors on November 25, 1991 and ratified
by a majority in interest of the stockholders of the Company on October
21, 1992. The stated intent of the 1991 Plan is to induce persons of
outstanding ability and potential to join and remain with the Company and
to enable key employees, who make substantial contribution to the
Company, to acquire proprietary equity interests in the Company.
The Board of Directors chooses the Committee, whose members are
ineligible to receive stock awards under the 1991 Plan, to administer the
Plan. The Committee determines the employees to whom awards of
Common Stock will be granted and the amount, size and terms of each
such award.
54
A total of 465,000 shares of Common Stock of the Company were
reserved for issuance under the 1991 Plan, of which aggregate grants of
275,000 and 50,000 were awarded in November 1991 and March 1993,
respectively, at the respective values of $8.125 and $13.8125, being the
respective market value thereof on the date of the grant. During the year
ended June 30, 1994, due to two resignations, grants totaling 27,500
shares were terminated and 82,250 shares were issued. During the year
ended June 30, 1995, due to two resignations, 10,500 shares were
terminated and 71,125 shares were issued. During the year ended June
30, 1996, due to eight terminations, grants totaling 47,000 shares were
terminated and 44,625 shares were issued.
Pension Plan
The Company maintains a defined benefit pension plan, fully paid for by
the Company, for the benefit of eligible employees. All non-union
employees become eligible for participation in the pension plan on
January 1 or July 1, as applicable, following completion of one year of
service. 161 persons were participants in the pension plan as of June 30,
1996.
A participant in the Company's pension plan will receive retirement
income based on .91% of his final average annual compensation, defined
in the pension plan as including salary, bonuses, overtime and
commissions, plus .52% of his final average annual compensation in
excess of Social Security covered compensation, multiplied by years of
credited service up to 35 years. Years of service for benefit accrual
purposes are only after January 1, 1976. Final average compensation is
defined in the pension plan as the average of a participant's total
compensation received during the highest paid five consecutive plan
years during the last 10 consecutive plan years immediately prior to
retirement. A participant is 100% vested in his accrued pension benefit
after five years of service as defined in the plan. The vested benefit of
many participants employed prior to October 31, 1989, are provided
through both the Purepac pension plan and the Solvay Group Pension
Plan, the predecessor Company's plan.
55
The following table indicates the estimated annual plan benefits payable
upon retirement as of June 30, 1996 at age sixty-five after fifteen, twenty,
twenty-five, thirty and thirty-five years of credited service to the Company:
PENSION PLAN TABLE
(Dollars in thousands)
Average
Compensation Annual Benefit Based on Years of Service
- ------------------ ----------------------------------------
15 20 25 30 35
-- -- -- -- --
$ 125,000 ........ $25 $33 $41 $50 $ 58
150,000 ........ 30 40 50 60 70
175,000 ........ 30 40 50 60 70
200,000 ........ 30 40 50 60 70
225,000 ........ 30 40 50 60 70
250,000 ........ 30 40 50 60 70
300,000 ........ 30 40 50 60 70
350,000 ........ 30 40 50 60 70
400,000 ........ 30 40 50 60 70
450,000 ........ 30 40 50 60 70
500,000 ........ 30 40 50 60 70
At June 30, 1996, the credited years of service under the pension plan for
Mr. Moldin was one. Mr. Craker and Dr. Boehm are not participants in the
pension plan.
Savings Plan
The Company has a savings plan, implemented as of January 1, 1990,
covering all non-union employees of the Company and its subsidiaries.
Under the savings plan, employees may defer up to 15% of their salary, to
a maximum of $9 per annum. The Company makes an annual matching
contribution equal to 50% of an employee's contribution, not exceeding
6% of the employee's salary. Matching contributions are vested at the
rate of 20% per annum commencing upon one year's participation in the
savings plan. All vested amounts in a participant's account, including
earnings, may be distributed only following hardship, retirement, death,
permanent or total disability or termination of employment.
For the three year period ended June 30, 1996, the Company had
contributed an aggregate of $650,000 to the savings plan (net of
forfeitures of non-vested amounts), for the respective accounts of 193
participants. Of such $650,000, an aggregate of $11 has been credited
to the accounts of all current executive officers as a group, being $ -0-,
$11, and $ -0- for the respective accounts of Mr. Moldin, Dr. Boehm and
Mr. Craker.
56
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General Compensation Policies
The Company's Compensation Committee (the "Committee") is
responsible for establishing, approving and administering the policies
which govern annual executive salary levels, increases/adjustments,
incentive payments, the award of stock grants under the Company's 1991
Restrictive Stock Incentive Plan and the award of stock options under the
Company's 1994 Stock Option Plan. During the year ended June 30, 1996 and
until the death of David Beretta on September 16, 1996, the Committee was
composed of three members, all of whom were non-employee directors. See
"Compensation Committee Interlocks and Insider Participation." It is
anticipated that the Board of Directors will appoint a replacement member for
Mr. Beretta in the near future.
In setting salary levels, providing incentives and granting stock and option
incentives, the objectives of the Committee are to encourage profitable
growth of the Company in a mutuality of interest between the Company's
executives and stockholders and to balance competitive pay with the
Company's overall performance. Specifically, the Committee attempts to
provide levels of compensation to the President/CEO and the Company's other
executive officers which reflect the contribution of such executives to the
Company's growth in sales, earnings and market share, the development of
stockholder value as reflected in the increase in the Company's stock price
and the implementation of corporate strategies consistent with the growth of
the Company.
Growth in earnings is a significant factor in determining compensation. In
addition, contribution to the development of new product opportunities, the
progress of bioavailability and other studies and of development activities
required to bring products to market and the successful marketing of the
Company's primary products are evaluated in setting compensation
policy. As well, to assure the Company's ability to attract, motivate and
retain talented executives, the Committee attempts to keep the
Company's levels of executive compensation competitive with that of
other health care companies of comparable size and performance.
President/CEO and Executive Officers Compensation
The Company's executive compensation program consists of three key
components: base salary, a cash incentive scheme and long term
incentives through the awards of restricted stock grants and stock options.
57
The incentive payments have two performance components, each with a 50%
weighting: (a) a financial budget achievement target based on net profit
before taxes and (b) achievement of specific job-related objectives. The
underlying principle for the design and implementation of the Company's
incentive scheme is based on the concept that the Company commit in advance
to predetermined annual levels of performance. Actual results achieved are
measured against that commitment.
The Company's long term incentives to date have been in the form of
restricted stock and stock option grants. The object of this program has
been to advance the longer term interest of the Company and its
stockholders. Equity compensation is an important element of the perfor-
mance-based compensation of the executive officers and helps to ensure
that management's interests remain closely aligned with those of the
Company's stockholders. The Committee is of the view that Restricted
stock awards and stock option grants provide the Company's key
employees an opportunity for increased equity ownership and help to
create an incentive to remain with the Company for the long term, since
the grants vest over a four to six year period.
During the approximate five month period from January to July 17, 1995
Michael R.D. Ashton held the position of President and Chief Executive
Officer of the Company. His yearly salary as President of Faulding Services
Inc. had already been established, was not altered upon his acceptance of
additional responsibilities as President and CEO of the Company and was
paid by Faulding Services Inc.
On July 17, 1995, the Company appointed Richard F. Moldin as its President
and Chief Executive Officer. Mr. Moldin's initial compensation package
reflected the Company's determination to recruit experienced executive officers
who had considerable experience in the pharmaceutical industry by offering them
compensation cometitive with that of health care companies of comparable size
and performance. He received an initial base salary of $285,000 and a grant
of 150,000 stock options under the 1994 Stock Option Plan.
Mr. Moldin received an additional grant of 50,000 stock options in April, 1996
and a cash incentive award of $105,000 in September, 1996. His additional
compensation reflected the Committee's assessment of Mr. Moldin's leadership in
strengthening the position of the Company, his efforts in broadening the
Company's base of operations to include the generic injectable business and
his leadership contribution in implementing the Company's programs during the
fiscal year ended June 30, 1996.
58
$1,000,000 Limit On Tax Deductible Compensation
As part of the Omnibus Budget Reconciliation Act passed by Congress in
1993, a new limit has been created for the deductibility of compensation
paid to certain officers. These officers are the Chief Executive Officer and
the next four most highly compensated officers in office at the end of the
year. Compensation paid to these officers in excess of $1,000,000, that is
not performance-based, cannot be claimed by the Company as a tax
deduction.
It is the Committee's intention to continue to utilize performance-based
compensation. Accordingly, these regulations should not impact the
compensation paid by the Company to its officers.
Edward D. Tweddell ) Members of the
Alan G. McGregor ) Compensation Committee
September 23, 1996
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Tweddell is Group Managing Director and Chief Executive Officer and
a Director of Faulding. He is also a Director of Holdings, which owns
approximately 61.6% of the Company's Common Stock, plus preferred
stock convertible into additional shares of the Company's Common Stock.
Alan McGregor is Chairman of the Board and a Director of Faulding. See
"Principal Stockholders" and "Certain Relationships and Related
Transactions."
59
Set forth below is a line graph comparing the cumulative stockholder
return on the Company's Common Stock against the cumulative total
return of the NASDAQ United States Index and the NASDAQ
Pharmaceutical Index for the Company's fiscal years ended June 30,
1996, June 30, 1995, June 30, 1994, June 30, 1993 and June 30, 1992,
respectively.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG PUREPAC, INC.,
THE NASDAQ UNITED STATES INDEX AND THE NASDAQ
PHARMACEUTICAL INDEX
Measurement Period NASDAQ NASDAQ
(Fiscal Year Covered) Faulding Inc. United States Pharmaceutical
- --------------------- ------------- ------------- --------------
FYE 6/30/91 100 100 100
FYE 6/30/92 256 120 125
FYE 6/30/93 174 151 108
FYE 6/30/94 151 153 91
FYE 6/30/95 188 204 120
FYE 6/30/96 82 261 177
- --------------
* $100 Invested on 6/30/91 in Stock or Index.
60
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS OF PUREPAC
The following table sets forth certain information regarding shares of the
Company's outstanding Common Stock beneficially owned on September
19, 1995, (i) by each person who is known by the Company to beneficially
own or exercise voting or dispositive control over more than 5% of the
Company's Common Stock, (ii) by each of the Company's Directors, and
(iii) by all executive officers and Directors of the Company as a group:
Name of Number of Shares Percentage
Beneficial Owner Beneficially Owned of Class
- ---------------------------------------------------------------------
Faulding Holdings Inc. 15,848,770(1) 73.3%(1)
529 Fifth Avenue
8th Floor
New York, New York 10017
All executive officers 19,876(2) *
and directors as a Group
(9 persons)
- --------------
(1) Includes 5,005,128 shares issuable upon conversion of 834,188
shares of the Company's Class A Preferred Stock and 1,564,950
shares issuable under conversion of 150,000 share of the Company's
Class B Preferred Stock.
2) Mr. McGregor is Chairman and a director, and Dr. Tweddell is Group
Managing Director, Chief Executive Officer and a director, respectively, of
Faulding, the sole stockholder of Holdings. Dr. Tweddell is also a director
of Holdings. Each of Dr. Tweddell and Mr. McGregor, however, disclaims
any beneficial interest in or voting or dispositive control over the shares of
the Company's Common Stock owned by Holdings. Excludes 190,124 shares
issuable to, but not presently exercisable by, Mr. Moldin under the
1994 Plan. Includes 9,876 shares exercisable by Mr. Moldin as of July 17, 1996
under the 1994 Plan.
* Equals a percentage less than 1% of the outstanding shares of the
Company's stock.
61
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related-Party Transactions
See Item 1. "BUSINESS: Acquisitions" for information with respect to the
Company's acquisition of all of the outstanding capital stock of each of
FMD, FPR, and FPC, from Holdings in exchange for 2,438,712 shares of its
common stock and the contemporaneous sale to Holdings of $15.0 million of
Class B Preferred Stock.
During the years ended June 30, 1996, 1995 and 1994, the Company paid
Faulding $4,057, $2,289 and $3,789, respectively, for merchandise
purchases (pursuant to agreements to market injectable and oral products,
both described herein), $287, $918 and $1,007, respectively, for research
and development services and $603, $326 and $123, respectively, for
interest expense on loan advances associated with the Acquired Companies
prior to the acquisition by the Company. In addition, the Company paid
Faulding Services Inc., $296, $266, and $186, respectively, for business
development services (pursuant to an agreement with Faulding Services Inc.
which terminated on December 31, 1995 and described herein). Faulding
Services Inc. is a 100% owned subsidiary of Holdings.
During the years ended June 30, 1996, 1995, and 1994, the Company was
reimbursed $466, $1,919 and $486, respectively, by Faulding for materials
and services related to research and development projects and $200 during
the year ended June 30, 1994 for the sale to Faulding of the Company s
Poroplastic(R) technology.
Additionally, during the year ended June 30, 1996, the Company invoiced
$1,018 to Faulding Services Inc. for contract manufacturing of KADIAN (TM)
(pursuant to an agreement with Faulding Services Inc., described herein).
During the year ended June 30, 1994, the Company paid Faulding Services
Inc. $623,000 for engineering and consulting services related to the
construction of a manufacturing suite to accommodate the modified-release
technology.
Included in other assets at June 30, 1996 and 1995 is $2,903 paid by the
Company to Faulding in June 1992 to acquire the proprietary technology,
including the scientific information and expertise, processes and procedures,
for the manufacture and sale of the generic version of certain modified-
release pharmaceutical products. The acquired technology is restricted to
use, on an exclusive basis, in the United States of America and its
territories. Amortization of this technology will commence in fiscal 1997.
62
Amounts due from (due to) affiliated companies are payable on demand and
were as follows as of:
June 30, 1996 June 30, 1995
------------- -------------
Faulding $ (1,881) $ 1,843
Holdings --- 10
Faulding Services Inc. 1,034 (37)
----------- -------------
$ (847) $ 1,816
=========== =============
Purepac entered into an agreement with Faulding as of December 5, 1992,
pursuant to which Purepac agreed to provide services to Faulding for the
tableting of pellets and micropellets on a time and materials basis. During
the year ended June 30, 1996, no related services were provided by Purepac to
Faulding.
In addition, Purepac and Faulding entered into a three-year agreement, also
dated as of December 5, 1992, which is automatically renewable for
successive two-year periods, pursuant to which Faulding granted Purepac a
non-exclusive license to import, distribute and market an erythromycin oral
product in the United States.
On January 1, 1993, Purepac and Faulding Services Inc. entered into a
consulting agreement, which terminated on December 31, 1995, pursuant to
which Purepac retained Faulding Services Inc. to serve as a business
development consultant and advisor on a non-exclusive basis.
On August 1, 1993, Purepac entered into a ten-year agreement with Faulding
Services Inc. to manufacture KADIAN (TM) utilizing Faulding technology,
processes and manufacturing methods licensed to Faulding Services Inc.
Faulding Services Inc., at its sole cost, has sought all necessary approvals
and/or registrations from the appropriate regulatory authority to enable the
sale of the product, which was approved by the FDA on July 3, 1996. Under
that agreement, Purepac had commenced the manufacturing of KADIAN (TM)
based on orders received from Faulding Services Inc. and the initial income
from this contract was recorded in the quarter ending June 30, 1996. The
parties amended this agreement in December 1994 to resolve certain
inconsistencies between this agreement and an agreement with an unrelated
third party, to distribute the product manufactured by Purepac. On June 27,
1995 the Company and Faulding Services Inc. entered into a Services
Agreement pursuant to which Purepac agreed to provide certain services on
Faulding Services Inc.'s behalf that Faulding Services Inc. had agreed to
provide under the agreement with the third party.
63
On March 15, 1995, Purepac and Faulding entered into a three-year non-
exclusive license agreement for Purepac to import and distribute doxycycline,
a delayed-release product, in the United States in exchange for certain
payments to Faulding for its supply of the product to Purepac.
Purepac and Faulding entered into two agreements as of June 26, 1995 for
two products that had been under ongoing development review for several
years. One is a licensing agreement pursuant to which Faulding granted to
Purepac an exclusive ten-year license to utilize certain technology to
complete the development of a modified-release product and manufacture
and sell the product in the United States. Relating to the product
development, Purepac paid to Faulding most of the technology licensing fees
prior to June 30, 1994 with the balance paid during the year ended June 30,
1996, all expensed as research and development costs. In addition, Purepac
will be obligated to pay royalties related to net sales of the product.
As of June 30, 1996, development activity regarding this agreement has not
continued.
The second agreement is a ten-year Co-development, Supply and Licensing
Agreement whereby Faulding will develop and deliver a certain component
pellet of a modified-release product for Purepac s use in developing,
manufacturing and distributing such product in the United States. Faulding
will supply Purepac with pellets at a price set forth in the agreement. If
the parties later concur that Purepac will manufacture the pellets, Faulding
will grant Purepac an exclusive license to the pellet technology for the
remainder of the term of the agreement in consideration of a technology
transfer fee of $250 and ongoing royalty payments. As of June 30, 1996,
development activity regarding this agreement has not continued.
On January 23, 1996, FPC and Faulding entered into a Supply Agreement for
injectable products developed and manufactured by Faulding for sale in the
United States. Supply of six anti-cancer products, under this agreement,
commenced in January 1996. ANDA submissions for additional products
covered by this agreement have been filed with the FDA. Additional products
are under development by Faulding.
On January 23, 1996, a Licensing and Supply Agreement was signed
between FMD and Faulding for the medical device products developed by
FMD. Though such products have not yet been launched in the United
States, products utilizing these technologies have received regulatory
approval in some other markets.
The Company believes that the terms of the foregoing agreements are at
least as favorable as those it could have obtained in comparable
nonaffiliated third party transactions.
64
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents Filed as a Part of This Report
1. FINANCIAL STATEMENTS
Report of Independent Public Accountants - Deloitte & Touche LLP.
Consolidated Balance Sheets - June 30, 1996 and 1995.
Consolidated Statements of Operations - Year ended June 30, 1996, 1995,
and 1994.
Consolidated Statements of Stockholders' Equity - Year ended June 30,
1996, 1995, and 1994.
Consolidated Statements of Cash Flows - Year ended June 30, 1996, 1995,
and 1994.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULE
Schedule II: Valuation and Qualifying Accounts - Year ended June 30, 1996,
1995, and 1994.
All other schedules to the consolidated financial statements are omitted
since the required information is either inapplicable or the information is
presented in the financial statements or related notes.
65
3. EXHIBITS
Exhibit Number Description of Document
(3) (i) Certificate of Incorporation filed September 2, 1982
(1).
(ii) Certificate of Amendment to Certificate of
Incorporation filed June 30, 1983 (1).
(iii) Certificate of Amendment to Certificate of
Incorporation filed November 13, 1987 (3).
(iv) Certificate of Amendment to Certificate of
Incorporation filed February 29, 1996.
(v) By-laws (1).
(4) (i) Copy of Specimen Stock Certificate (1).
(iv) Forms of Series A and Series B Warrants sold to Allen
& Company Incorporated (5).
(10) (i) Stock Purchase and Stockholders' Agreement dated
September 2, 1987, among the Company, Moleculon
Research Company, Arthur S. Obermayer and Faulding
Holdings Inc., formerly Faulding U.S.A. Inc. (4).
(vii) 1991 Restricted Stock Incentive Plan (7).
(viii) Agreement dated as of December 5, 1992, between F. H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(8).
(ix) Agreement dated December 5, 1992, between F. H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(8).
(x) Agreement dated as of December 5, 1992, between F. H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(8).
(xi) Consulting Agreement dated January 1, 1993, between
Purepac Pharmaceutical Co. and Faulding Services Inc.,
formerly Faulding Inc. (8).
66
(xii) Toll Manufacturing Agreement dated as of August 1, 1993
between Faulding Services Inc., formerly Faulding Inc.
and Purepac Pharmaceutical Co., as amended as of
December 22, 1994 (9).
(xiii) Letter agreement dated as of June 29, 1994, between
Faulding Inc., formerly Purepac, Inc. and F.H.
Faulding & Co. Limited (10).
(xiv) 1994 Stock Option Plan (11).
(xv) Agreement dated as of March 15, 1995 between F.H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(13)
(xvi) License Agreement dated June 26, 1995 between F.H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(13)
(xvii) Services Agreement dated as of June 26, 1995 between
Faulding Pharmaceutical Co., formerly Faulding
Hospital Products, Inc. and Purepac Pharmaceutical
Co. (13)
(xviii) Services Agreement dated as of June 26, 1995 between
Faulding Services Inc., formerly Faulding Inc. and
Purepac Pharmaceutical Co. (13)
(xix) Co-Development, Supply and Licensing Agreement dated
as of June 26, 1995 between F.H. Faulding & Co.
Limited and Purepac Pharmaceutical Co. (13)
(xx) Letter of Intent between F.H. Faulding & Co. Limited
and the Company dated August 9, 1995 (12).
(xxi) Stock Purchase Agreement, dated as of January 23, 1996
between Faulding Holdings Inc. and Purepac, Inc. (14)
(xxii) Preferred Stock Purchase Agreement, dated as of January
23, 1996 between Faulding Holdings Inc. and Purepac, Inc.
(14)
(xxiii) Development and Distribution Agreement, dated as of
January 23, 1996 between F.H. Faulding & Co. Limited
and Faulding Pharmaceutical Co.
67
(xxiv) Licensing and Supply Agreement, dated as of January 23,
1996 between F.H. Faulding & Co. Limited and Faulding
Medical Device Co.
(xxv) License Agreement, dated as of February 29, 1996 between
F.H. Faulding & Co. Limited and Purepac, Inc.
(11) Computation of Earnings Per Share.
(11.1) Computation of Earnings Per Share Assuming Full
Dilution.
(21) Subsidiaries of Registrant.
(27) Financial Sata Schedule
__________________________________
(1) Previously filed as an Exhibit to Registration Statement 2-87116
on Form S-1, filed with the Securities and Exchange Commission
(the "Commission") on October 12, 1983 and incorporated herein by
reference.
(2) Previously filed as an Exhibit to Annual Report on Form 10-K for
the fiscal year ended November 30, 1984 and incorporated herein by
reference.
(3) Previously filed as an Exhibit to Current Report on Form 8-K filed
with the Commission on November 25, 1987 and incorporated herein by
reference.
(4) Previously filed as Exhibit to Schedule 13D filed with the Commission
by Faulding Holdings Inc. (formerly Faulding U.S.A. Inc.) on or about
September 15, 1987 and incorporated herein by reference.
(5) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended November 30, 1986 and incorporated herein by
reference.
(6) Previously filed as Exhibit to Annual Report on Form 10-K for the
transition period ended June 30, 1990 and filed with the Commission
on or about September 26, 1990 and incorporated herein by reference.
68
(7) Previously filed as Exhibit to Registration Statement on Form S-8
filed with the Commission on or about August 18, 1993 and
incorporated herein by reference.
(8) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended June 30, 1993 and incorporated herein by reference.
(9) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended June 30, 1994 and incorporated herein by reference.
Amendment dated as of December 22, 1994 filed herewith.
(10) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended June 30, 1994 and incorporated herein by reference.
(11) Previously filed as an Exhibit to the Proxy Statement filed with the
Commission on September 17, 1994 and incorporated herein by reference.
(12) Previously filed as an Exhibit to Current Report on Form 8-K filed
with the Commission on August 17, 1995 and incorporated herein by
reference.
(13) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended June 30, 1995 and incorporated herein by reference.
(14) Previously filed as an Exhibit to the Proxy Statement filed with the
Commission on January 30, 1996 and incorporated herein by reference.
(b) Reports on Form 8-K
Current Reports on Form 8-K filed with the Commission during July 1,
1995 through June 30, 1996:
Financial
Report Items Reported Statements
------ -------------- ----------
1. Filed August 17, 1995 Item 5 None
69
INDEX TO EXHIBITS
(3) (iv) Certificate of Amendment of Certificate of Incorporation
filed February 29, 1996.
(10) (xxiii) Development and Distribution Agreement, dated as of
January 23, 1996 between F.H. Faulding & Co. Limited
and Faulding Pharmaceutical Co.
(xxiv) Licensing and Supply Agreement, dated as of January 23,
1996 between F.H. Faulding & Co. Limited and Faulding
Medical Device Co.
(xxv) License Agreement, dated as of February 29, 1996 between
F.H. Faulding & Co. Limited and Purepac, Inc.
(11) Computation of Earnings Per Share.
(11.1) Computation of Earnings Per Share Assuming Full
Dilution.
(21) Subsidiaries of Registrant.
(27) Financial Sata Schedule
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PUREPAC, INC.
Date: September 26, 1996 /s/ Edward D. Tweddell
Edward D. Tweddell,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Date: September 26, 1996 /s/ Richard F. Moldin
Richard F. Moldin,
President and Chief Executive
Officer (Principal Executive Officer)
Date: September 26, 1996 /s/ Lee H. Craker
Lee H. Craker,
Chief Financial Officer
(Principal Accounting Officer)
Date: September 26, 1996 /s/ Alan G. McGregor
Alan G. McGregor
Director
Date: September 26, 1996 /s/ Bruce C. Tully
Bruce C. Tully,
Director
68