-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WRpgzSMfH3S2afgyuSf844fQhuqgZJK2eZBn7VRJtsy2Dat98uOcxPuFzmIhs0Du qWJt0iBXLNoMIq1u7AF24Q== 0000950130-95-000287.txt : 19950517 0000950130-95-000287.hdr.sgml : 19950517 ACCESSION NUMBER: 0000950130-95-000287 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950214 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMACEUTICAL RESOURCES INC CENTRAL INDEX KEY: 0000878088 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 223122182 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10827 FILM NUMBER: 95510992 BUSINESS ADDRESS: STREET 1: ONE RAM RIDGE RD CITY: SPRING VALLEY STATE: NY ZIP: 10977 BUSINESS PHONE: 9144257100 MAIL ADDRESS: STREET 1: ONE RAM RIDGE ROAD CITY: SPRING VALLEY STATE: NY ZIP: 10977 10-Q 1 FORM 10-Q THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 902(G) OF REGULATION S-T. Commission File Number 1-10827 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10--Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1994 PHARMACEUTICAL RESOURCES, INC. (Exact name of registrant as specified in its charter) NEW JERSEY 22-3122182 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ONE RAM RIDGE ROAD, SPRING VALLEY, NEW YORK 10977 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (914) 425-7100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No -------- -------- 14,634,985 Number of shares of Common Stock outstanding as of February 6, 1995 This is page 1 of 13 pages. The exhibit index is on page 11. PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED BALANCE SHEETS (In Thousands)
DECEMBER 31, OCTOBER 1, ASSETS 1994 1994 ------ ----------- -------- (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 4,121 $ 3,130 Temporary investments 178 176 Accounts receivable, net of allowances of $2,317,000 and $2,768,000 7,731 9,347 Inventories 16,175 16,352 Prepaid expenses and other current assets 3,950 1,500 Current deferred tax benefit 2,506 3,090 Current assets of discontinued operations 20 20 ------- ------- Total current assets 34,681 33,615 Property, plant and equipment, at cost less accumulated depreciation and amortization 23,307 23,004 Deferred charges and other assets 1,108 1,086 Investment in non-marketable securities 1,000 1,000 Long-term deferred tax benefit 10,070 10,497 ------- ------- Total assets $70,166 $69,202 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $ 1,267 $ 1,870 Accounts payable 4,962 5,340 Salaries and employee benefits 2,474 2,908 Accrued expenses and other current liabilities 1,198 921 Estimated current liabilities of discontinued operations 2,838 2,844 ------- ------- Total current liabilities 12,739 13,883 Long-term debt, less current portion 5,282 5,490 Pension 553 553 Commitments, contingencies and other matters - - Shareholders' equity: Preferred Stock, par value $.0001 per share; authorized 6,000,000 shares; issued and outstanding-- 1,033,968 and 1,058,400 shares of Series A Convertible Preferred Stock (aggregate liquidation preference-$5,170,000 and $5,292,000) 1 1 Common Stock, par value $.01 per share; authorized 60,000,000 shares; outstanding 14,591,849 and 14,482,632 shares 146 145 Additional capital 43,570 43,066 Retained earnings 7,975 6,164 Additional minimum liability related to defined benefit pension plan (100) (100) ------- ------- Total shareholders' equity 51,592 49,276 ------- ------- Total liabilities and shareholders' equity $70,166 $69,202 ======= =======
The accompanying notes are an integral part of these statements. -2- PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) (In Thousands, Except Per Share Amounts) (Unaudited)
THREE MONTHS ENDED ------------------ DECEMBER 31, JANUARY 1, 1994 1994 ---- ---- Net sales $17,031 $ 17,920 Other revenues 99 205 ------ ------- Total revenues 17,130 18,125 Costs and expenses: Cost of goods sold 10,731 11,785 Research and development 816 689 Selling, general and administrative 4,169 3,390 Interest 128 124 Settlement (2,000) - ------ ------- 13,844 15,988 Income before provision for income taxes 3,286 2,137 Provision for income taxes 1,172 699 ------ ------- Income before cumulative effect of change in accounting principle 2,114 1,438 Cumulative effect of change in accounting principle - 14,128 ------ ------- NET INCOME 2,114 15,566 Dividend on preferred stock ($.30 per share) (303) - Retained earnings (deficit), beginning of period 6,164 (12,351) ------ ------- Retained earnings, end of period $ 7,975 $ 3,215 ====== ======= Income per share of common stock: Income before cumulative effect of change in accounting principle $.13 $ .09 Cumulative effect of change in accounting principle - .84 ------ ------- Net income $ .13 $ .93 ====== ======= Weighted average number of common and common equivalent shares outstanding 16,312 16,817 ====== =======
The accompanying notes are an integral part of these statements. -3- PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
THREE MONTHS ENDED ------------------ DECEMBER 31, JANUARY 1, 1994 1994 ---- ---- Cash flows from operating activities: Net income $ 2,114 $ 15,566 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change - (14,128) Provision for income tax expense 1,172 699 Depreciation and amortization 621 626 Accounts receivable allowances (450) 1,512 Write-off of inventories 279 360 Other 8 275 Changes in assets and liabilities: Decrease (increase) in accounts receivables 2,066 (328) (Increase) in inventories (102) (1,421) (Increase) decrease in prepaid expenses and other assets (2,480) 211 (Decrease) increase in accounts payable (378) 1,506 (Decrease) in accrued expenses and other liabilities (461) (1,145) (Decrease) in settlements - (750) ------ ------- Net cash provided by operating activities 2,389 2,983 Cash flows from financing activities: Proceeds from issuance of common stock 345 966 Proceeds from issuance of note payable and other debt - 70 Principal payments under long-term debt and other borrowings (819) (932) ------ ------- Net cash (used in) provided by financing activities (474) 104 Cash flows from investing activities: Capital expenditures (916) (1,143) Cash (used by) discontinued operations (6) (237) (Increase) in temporary investments (2) (16) ------ ------- Net cash (used in) investing activities (924) (1,396) Net increase in cash and cash equivalents 991 1,691 Cash and cash equivalents at beginning of period 3,130 12,134 ------ ------- Cash and cash equivalents at end of period $ 4,121 $ 13,825 ====== =======
The accompanying notes are an integral part of these statements. -4- PHARMACEUTICAL RESOURCES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 (UNAUDITED) Pharmaceutical Resources, Inc. ("PRI") operates in one business segment, the manufacture and distribution of generic pharmaceuticals. Marketed products are principally in oral solid form (tablet, caplet, and capsule), with a small number in the form of creams and liquids. BASIS OF PREPARATION: The accompanying financial statements as at December 31, 1994 and for the three- month periods ended December 31, 1994 and January 1, 1994 are unaudited; however, in the opinion of management of PRI such statements include all adjustments (consisting of normal recurring accruals) necessary to a fair statement of the information presented therein. The balance sheet as at October 1, 1994 was derived from the audited financial statements at such date. Pursuant to accounting requirements of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the accompanying financial statements and these notes do not include all disclosures required by generally accepted accounting principles for complete financial statements. Accordingly, these statements should be read in conjunction with PRI's most recent annual financial statements. Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation: The consolidated financial statements include the accounts of PRI and its wholly-owned subsidiaries, Par Pharmaceutical, Inc. ("Par") and seven others, the activities of which are not significant. References herein to the "Company" refer to PRI and its subsidiaries. DISCONTINUED OPERATIONS: The remaining assets and liabilities of Quad Pharmaceuticals, Inc., discontinued in a prior year, have been classified on the balance sheet as such to separately identify them. Estimated current liabilities of discontinued operations as at December 31, 1994 consist primarily of notes payable $813,000, amounts due to customers $1,657,000, and accrued expenses and accounts payable of $368,000. SETTLEMENT: The Company has resolved claims against former management members for recovery of, among other things, salaries and monies paid for indemnification. The settlement valued at $2,000,000, consists of payments in cash and/or securities of the Company. TEMPORARY INVESTMENTS: Investments include certificates of deposit of $178,000 in the quarter ended December 31, 1994 and $176,000 in the same quarter of the previous fiscal year. -5- PHARMACEUTICAL RESOURCES, INC. NOTES TO FINANCIAL STATEMENTS----CONTINUED DECEMBER 31, 1994 (Unaudited)
ACCOUNTS RECEIVABLE: December 31, October 1, 1994 1994 ---- ---- (In Thousands) Accounts receivable $10,048 $12,115 Allowances: Doubtful accounts 89 124 Returns and allowances 334 349 Price adjustments 1,894 2,295 ------- ------- 2,317 2,768 ------- ------- Accounts receivable, net of allowances $ 7,731 $ 9,347 ======= ======= INVENTORIES: December 31, October 1, 1994 1994 ---- ---- (In Thousands) Raw materials and supplies $ 7,112 $ 7,407 Work in process and finished goods 9,063 8,945 ------- ------- $16,175 $16,352 ======= =======
CONTINGENCIES AND OTHER MATTERS: Legal Proceedings: The Company is involved in minor litigation matters, including a certain product liability action, incidental to the conduct of its business, but does not believe that the ultimate resolution thereof will have a material adverse effect on its financial statements, considered as a whole. The Company received a warning letter in May 1994 from the United States Food and Drug Administration (the "FDA") setting forth certain alleged deviations from current good manufacturing practice regulations and alleged violations of related provisions of the Federal Food, Drug and Cosmetic Act. The warning letter does not limit the manufacture of the Company's product line nor suspend the review and approval of applications pending at the FDA. The FDA indicated that it would shortly complete its review of the Company response and that a mutually amenable working relationship continues between the FDA and the Company. No assurances can be given that the outcome of the FDA review will not have a material adverse effect upon the Company. -6- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SALES Net sales of $17,031,000 for the three months ended December 31, 1994 decreased $889,000, or 5%, from net sales of $17,920,000 for the three months ended January 1, 1994. Sales of manufactured products increased $1,407,000, or 10%, due to both an increase in quantities sold and price increases on the existing product line. These increases in quantities sold, including one product with decreased competition, and in price have resulted in an increase of manufactured sales from the comparable period the prior year for three consecutive quarters. Sales of distributed products decreased $2,296,000, or 61%, principally as a result of reduced units and lower selling prices due to competition. Sales for the quarters ended December 31, 1994 and January 1, 1994 were derived as follows (dollars in thousands):
THREE MONTHS ENDED ------------------ December 31, 1994 January 1, 1994 ----------------- --------------- Amount % of Total Amount % of Total ------ ---------- ------ ---------- Manufacturing activities $15,541 91% $14,134 79% Distribution activities $ 1,490 9% $ 3,786 21%
Increases in sales are dependent on, among other things, (i) successful approval of additional Abbreviated New Drug Applications, (ii) increased market penetration of the existing product line, (iii) continued introduction of new distributed product, (iv) reintroduction of previously manufactured product, and (v) the level of customer service. GROSS MARGIN The Company's gross margin for the quarter ended December 31, 1994 was $6,300,000 (37% of net sales) compared to $6,135,000 (34% of net sales) for the corresponding period of the prior fiscal year. The gross margins for manufactured and distributed products were 38% and 22%, respectively, for the first quarters of both fiscal 1995 and 1994. Total gross margin improved because of the greater weight of manufacturing sales as a percentage of total sales this quarter compared to the same quarter last year. Both gross margin and sales have been negatively impacted by the trend of major branded pharmaceutical companies to directly launch their patented drugs as generics prior to patent expiration. This added competition has had a negative impact on the Company's sales and margins as distribution channels are either closed or severely limited, and the Company lowers its prices in response to these additional competitive pressures. Inventory write-offs, which reduce gross margin and are taken in the normal course of business, amounted to $279,000 (2% of net sales) during the quarter ended December 31, 1994, a reduction of $81,000 from the $360,000 (2% of net sales) in write-offs taken during the first quarter of fiscal year 1994. OPERATING EXPENSES Research and Development Research and development costs for the quarter ended December 31, 1994 were $816,000 (5% of net sales) versus $689,000 (4% of net sales) for the quarter ended January 1, 1994. Management made a commitment to increase its annual investments in research and development efforts. These costs include personnel, biostudies, and other such expenses necessary to develop new products. In addition, the Company continues to pursue alternatives to internal product development efforts, such as joint ventures, licensing agreements and additional distribution agreements. Included in research and development expenses during the first quarter of fiscal 1995 was $228,000 which the Company advanced to Sano Corporation. The Company now has three products under development for transdermal delivery systems. -7- Selling, General and Administrative Selling, general and administrative costs increased $779,000, or 23%, to $4,169,000 (24% of net sales) for the quarter ended December 31, 1994 from $3,390,000 (19% of net sales) for the corresponding period of the prior fiscal year. The increase in the level of expenses was primarily related to nonrecurring expenses amounting to $397,000 incurred in connection with the Company's response to the FDA's warning letter (see "Notes to Financial Statements -- Contingencies and Other Matters"). The Company also incurred expenses with the initiation of an estimated eighteen-month process of installing a new software system, the phase-out in the quarter of a previously used independent sales organization, and higher selling expenses related to the additional internal sales staff. Settlement The Company was the plaintiff in proceedings against individuals in connection with their actions as former managers of Par. A settlement was reached wherein the Company will receive $2,000,000 (see "Notes to Financial Statements -- Settlement"). FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Working capital of $21,942,000 represents an increase of $2,210,000 from the last fiscal year-end principally as a result of the settlement of the lawsuit brought by the Company against former members of management. The working capital ratio of 2.7:1 improved from 2.4:1 at year-end. Working capital for the quarter ended January 1, 1994, was $21,172,000 and the working capital ratio was 2.0:1. The Company's obligations, in the short term, to fund research and development under various option and joint development agreements are not expected to have a material effect upon cash flow or liquidity. The Company revised the terms of its exclusive option from Bio-Pharma, Inc. and CT Holdings S.A., and paid $200,000 plus 15,000 shares of common stock of the Company in January 1995, to enable further evaluation of the compound and will pay additional amounts as various testing stages are completed. If the Company exercises its option, it will be required to pay $3,000,000 and incur significant additional expenses for the necessary clinical trials and biostudies in order to file a New Drug Application with the FDA. If the Company incurs this capital commitment, it expects to fund any obligations with cash provided by operations to the extent that such cash is available. In the absence of sufficient cash from operations, the Company may be required to seek funds from other sources. The Company is currently exploring various possible strategic business transactions designed to strengthen and expand its operations, including joint ventures, equity infusions by third parties and business combinations. If the Company were to consummate any such strategic transaction, it could have a material effect on the Company's operations and/or financial condition. There can be no assurances that any such transaction will be effected in the reasonably foreseeable future or, if a transaction is effected, what the terms and conditions thereof would be. While it is anticipated that operating activities during fiscal year 1995 will generate cash, the Company expects to expend significant funds for increased research and development efforts and further capital improvements. Although the Company expects cash to be generated from operating activities to be sufficient to fund its operations and research and development efforts, it obtained an intermediate term bank financing to ensure implementation of its plans (see "--Financing"). FINANCING At December 31, 1994, the Company's debt of $6,549,000 is on a long-term basis and $5,766,000 is scheduled to be repaid in monthly installments through fiscal 1999. The Company maintains a $7,000,000 revolving credit facility with a bank which expires March 1996. At December 31, 1994, no borrowings were outstanding under the revolving credit facility. The Company and the bank which provides the revolving credit facility have entered into a $4,000,000 secured term loan, for capital expenditures, which may be borrowed during the second quarter of fiscal 1995. -8- PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. ------ ----------------- Reference is made to "Notes to Financial Statements--Settlement" in Part I of this Quarterly Report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. ------ -------------------------------- (a) Exhibits: 11 - Computation of per share data; 27 - Financial data schedule. (b) Reports on Form 8-K: There were no reports on Form 8-K filed by the Registrant during the quarter ended December 31, 1994. -9- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHARMACEUTICAL RESOURCES, INC. ------------------------------ (Registrant) February 13, 1995 /s/ Kenneth I. Sawyer ______________________________________ Kenneth I. Sawyer President and Chief Executive Officer (Principal Executive Officer) /s/ Robert I. Edinger ______________________________________ February 13, 1995 Robert I. Edinger Vice President, Chief Financial Officer and Secretary (Principal Financial Officer) -10- EXHIBIT INDEX -------------
Exhibit Number Description Page Number 11 Computation of per share data 12 27 Financial data schedule 13
-11- EX-11 2 COMPUTATION OF PER SHARE DATA EXHIBIT 11 COMPUTATION OF PER SHARE DATA (UNAUDITED)
Three Months Ended ------------------ December 31, January 1, 1994 1994 ---- ---- Income applicable to common stock before cumulative effect of change in accounting principle $ 2,114,000 $ 1,438,000 Cumulative effect of change in accounting - 14,128,000 principle ----------- ----------- Net income applicable to common stock $ 2,114,000 $15,566,000 =========== =========== Primary: Weighted average number of common shares outstanding 14,549,749 13,847,700 Shares issuable upon conversion of Series A Convertible Preferred Stock 1,033,968 1,247,982 Shares issuable upon exercise of dilutive stock options and warrants -- net of shares assumed to be repurchased (at the average market price for the period) from exercise proceeds 728,468 1,721,180 ----------- ----------- Shares used for computation 16,312,185 16,816,862 =========== =========== Income per share of common stock (primary): Income before cumulative effect of change in accounting principle $ .13 $ .09 Cumulative effect of change in accounting principle - .84 ----------- ----------- Net income $ .13 $ .93 =========== =========== Assuming full dilution: Weighted average number of common shares outstanding 14,549,749 13,847,700 Shares issuable upon conversion of Series A Convertible Preferred Stock 1,033,968 1,247,982 Shares issuable upon exercise of dilutive stock options and warrants -- net of shares assumed to be repurchased (at the higher of period-end market price or the average market price for the period) from exercise proceeds 728,468 1,750,945 ----------- ----------- Shares used for computation 16,312,185 16,846,627 =========== =========== Income per share of common stock (assuming full dilution) Income before cumulative effect of change in accounting principle $ .13 $ .08 Cumulative effect of change in accounting principle - .84 ----------- ----------- Net income $ .13 $ .92 =========== ===========
-12- EX-27 3 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS SEP-30-1995 DEC-31-1994 4,121 178 10,048 (2,317) 16,175 34,681 40,021 (16,714) 70,166 12,739 6,549 146 0 1 51,445 70,166 17,031 17,130 10,731 5,020 (2,000) (35) 128 3,286 1,172 2,114 0 0 0 2,114 .13 .13
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