-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DYeIahP1AEMTAyVgQ1KNW0hBOwSO6XfogMiXlUocee0M165LTVmrsqTR1yxnC6WK grZjrqHjw/sbg4Xu15c+Tw== 0000950130-96-001670.txt : 19960514 0000950130-96-001670.hdr.sgml : 19960514 ACCESSION NUMBER: 0000950130-96-001670 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960513 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMACEUTICAL RESOURCES INC CENTRAL INDEX KEY: 0000878088 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [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: 96561976 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 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 March 30, 1996 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_______ ------ 18,234,931 Number of shares of Common Stock outstanding as of May 9, 1996 This is page 1 of 13 pages. The exhibit index is on page 11. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
MARCH 30, SEPTEMBER 30, ASSETS 1996 1995 ------ ----------- ------------- (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 13,622 $ 17,986 Temporary investments 186 271 Accounts receivable, net of allowances of $1,599 and $1,588 7,833 9,011 Inventories 17,241 15,364 Prepaid expenses and other current assets 2,067 1,866 Current deferred tax benefit 3,830 4,172 ----------- ------------- Total current assets 44,779 48,670 Property, plant and equipment, at cost less accumulated depreciation and amortization 25,317 24,371 Deferred charges and other assets 1,899 1,883 Investments 8,377 3,520 Investment in joint venture 1,704 2,037 Non-current deferred tax benefit 9,864 10,436 ----------- ------------- Total assets $ 91,940 $ 90,917 =========== ============= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $ 1,687 $ 1,470 Accounts payable 6,262 6,422 Accrued salaries and employee benefits 2,596 2,336 Accrued expenses and other current liabilities 424 705 Estimated current liabilities of discontinued operations 2,825 2,830 ----------- ------------- Total current liabilities 13,794 13,763 Long-term debt, less current portion 3,746 4,259 Accrued pension liability 941 941 Shareholders' equity: Common Stock, par value $.01 per share; authorized 60,000,000 shares; issued and outstanding 18,189,581 and 18,168,625 shares 182 182 Additional paid in capital 65,393 65,276 Retained earnings 5,845 6,783 Additional minimum liability related to defined benefit pension plan (287) (287) Unrealized gain on investment 2,326 - ----------- ------------- Total shareholders' equity 73,459 71,954 ----------- ------------- Total liabilities and shareholders' equity $ 91,940 $ 90,917 =========== =============
The accompanying notes are an integral part of these statements. 2 PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (In Thousands, Except Per Share Amounts) (Unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED -------------------- --------------------- MARCH 30, APRIL 1, MARCH 30, APRIL 1, 1996 1995 1996 1995 --------- -------- --------- --------- Net sales $ 30,220 $ 33,183 $ 15,361 $ 16,152 Cost of goods sold 21,953 21,210 11,191 10,479 --------- -------- --------- --------- Gross margin 8,267 11,973 4,170 5,673 Operating expenses: Research and development 1,582 1,977 1,219 1,161 Selling, general and administrative 8,510 7,988 4,279 3,819 --------- -------- --------- --------- Total operating expenses 10,092 9,965 5,498 4,980 --------- -------- --------- --------- Operating income (loss) (1,825) 2,008 (1,328) 693 Settlements - 2,029 - 29 Other income 471 149 182 50 Interest expense (206) (246) ( 85) (118) --------- -------- --------- --------- Income (loss) before provision (credit) for income taxes (1,560) 3,940 (1,231) 654 Provision (credit) for income taxes (622) 1,405 (491) 233 --------- -------- --------- --------- NET INCOME (LOSS) (938) 2,535 (740) 421 Dividend on preferred stock - (291) - 12 Retained earnings, beginning of period 6,783 6,164 6,585 7,975 --------- -------- --------- --------- Retained earnings, end of period $ 5,845 $ 8,408 $ 5,845 $ 8,408 ========= ======== ========= ========= NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ (.05) $ .16 $ (.04) $ .03 === === === === Weighted average number of common and common equivalent shares outstanding 18,403 16,095 18,434 16,096 ========= ======== ========= =========
The accompanying notes are an integral part of these statements. 3 PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
SIX MONTHS ENDED ---------------------- MARCH 30, APRIL 1, 1996 1995 ---------- --------- Cash flows from operating activities: Net income (loss) $ (938) $ 2,535 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision (credit) for income tax expense (622) 1,405 Joint venture research and development 353 - Common stock for research and development - 150 Depreciation and amortization 1,417 1,233 Allowances against accounts receivable (11) (905) Write-off of inventories 629 805 Other (10) (2) Changes in assets and liabilities: Decrease in accounts receivable 1,189 3,755 (Increase) in inventories (2,506) (822) (Increase) in prepaid expenses and other assets (268) (2,344) Increase (decrease) in accounts payable (160) 184 (Decrease) in accrued expenses and other liabilities (21) (336) ---------- --------- Net cash provided by (used in) operating activities (948) 5,658 Cash flows from investing activities: Capital expenditures (2,314) (1,813) (Increase) in investments (1,000) - (Increase) decrease in temporary investments 85 (5) Cash (used in) discontinued operations (4) (8) ---------- --------- Net cash (used in) investing activities (3,233) (1,826) Cash flows from financing activities: Proceeds from issuance of capital stock 118 716 Proceeds from issuance of notes payable and other debt 4,307 - Principal payments under long-term debt and other borrowings (4,603) (1,131) Preferred dividends paid - (310) Payments due to stock conversion (5) - ---------- --------- Net cash (used in) financing activities (183) (725) Net increase (decrease) in cash and cash equivalents (4,364) 3,107 Cash and cash equivalents at beginning of period 17,986 3,130 ---------- --------- Cash and cash equivalents at end of period $ 13,622 $ 6,237 ========== =========
The accompanying notes are an integral part of these statements. 4 PHARMACEUTICAL RESOURCES, INC. NOTES TO FINANCIAL STATEMENTS MARCH 30, 1996 (UNAUDITED) Pharmaceutical Resources, Inc. (the "Company" or "PRI") operates in one business segment, the manufacture and distribution of generic pharmaceuticals. Marketed products are principally sold in oral solid (tablet, caplet and capsule) form, with a small number of products in the form of creams and liquids. BASIS OF PREPARATION: The accompanying financial statements at March 30, 1996 and for the six month and three month periods ended March 30, 1996 and April 1, 1995 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 at September 30, 1995 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 audited 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. INVESTMENTS: The Company has a distribution agreement with Sano Corporation ("Sano") which gives the Company the right of first refusal to exclusively distribute Sano's generic transdermal products in the United States, Canada, and several other international markets. As part of the agreement, the Company invested $3,500,000 in the preferred stock of Sano during fiscal 1994 and 1995. In November 1995, Sano sold common stock through an initial public offering and the Company's preferred stock of Sano converted into 513,888 shares of common stock. The investment is classified as an "available for sale security" pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). This Standard requires that certain investments in debt and equity securities be adjusted to fair market value at the end of each accounting period and unrealized gains or losses, net of tax, recorded as a separate component of shareholders' equity. In accordance with SFAS No. 115, the investment is recorded at its fair market value on March 30, 1996 of $14 3/8 per share, or $7,377,000, and the unrealized gain on the investment of $3,877,000, recorded net of taxes of $1,551,000, as a separate component in shareholders' equity. Additionally, the Company advanced Sano $1,075,000 in the current six month period and $2,429,000 in prior fiscal years as funding for the research and development costs of certain generic transdermal products. Due to the uncertainty with respect to the collectability of such advances, the Company has expensed them and will offset research and development costs if repaid. In November 1995, the Company received $1,500,000 from the proceeds of Sano's initial public offering in repayment of a portion of outstanding advances from the Company. The Company has reflected this as a reduction of research and development cost in the six month period ended March 30, 1996. Until outstanding advances to Sano are repaid in full, the Company is entitled to receive a greater share of gross profits than it would otherwise be entitled to on products distributed under its agreement with Sano. Any such greater share of gross profits paid to the Company will be applied to offset the advances to Sano. As of March 30, 1996, there were outstanding advances to Sano of $2,000,000. In December 1995, the Company purchased a 10% interest in Fine-Tech Ltd., an Israeli pharmaceutical research and development company in which Clal Pharmaceutical Industries Ltd. has a significant ownership interest, for $1,000,000. Clal Pharmaceutical Industries Ltd. is a significant stockholder of the Company and, through its subsidiary, owns 51% of a research and development joint venture in which the Company, through its subsidiary, owns 49%. In addition, the Company obtained certain exclusive rights to purchase products from Fine-Tech Ltd. not commonly sold in North America, South America or the Caribbean. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS GENERAL The Company incurred operating losses for the six month and three month periods ended March 30, 1996 of $1,825,000 and $1,328,000, respectively, compared to operating income of $2,008,000 and $693,000 in the corresponding periods of the prior fiscal year. The losses are principally due to sales and gross margin declines, as described below. Due principally to increased competition, the Company expects a continued decline in sales of its currently distributed products and in manufactured products which, if not offset by increased sales of other currently manufactured products or sales of new distributed or manufactured products, will result in continued declines in net sales and gross margins and, accordingly, result in further losses. The Company plans to increase investments in research and development efforts. In addition, the Company is pursuing additional products for sale through new and existing distribution agreements and research and development joint ventures. The Company anticipates introducing one or more new products in the next fiscal year as a result of its research and development efforts and distribution agreements. No assurance can be given that any additional products for sale by the Company will result or that sales of additional products will reduce expected losses or return the Company to profitability. This Management's Discussion and Analysis of Results of Operations and Financial Condition contains forward-looking statements, including those concerning management's expectations regarding future financial performance and future events. Actual results may differ materially from those anticipated by such forward-looking statements. NET SALES Net sales of $30,220,000 for the six months ended March 30, 1996 decreased $2,963,000, or 9%, from the corresponding period of the prior fiscal year. The decline is primarily due to decreased sales of manufactured products which resulted in large part from lower pricing and decreased volumes of one of the Company's significant products. The sales decline was caused principally by the introduction of competitive products by other drug manufacturers. Increased sales of a lower margin distributed product partially offset the decline in sales of manufactured products. Net sales for the current quarter are $15,361,000 compared to $16,152,000 (or 5% lower) in the corresponding quarter of last year. The decline is principally attributable to the lower sales of a certain significant manufactured product, as discussed above, partially offset by increased sales of a lower margin distributed product. Levels of sales are principally dependent upon, among other things, (i) pricing levels and competition, (ii) market penetration for the existing product line, (iii) approval of Abbreviated New Drug Applications ("ANDAs") and introduction of new manufactured products, (iv) introduction of new distributed products and (v) the level of customer service. GROSS MARGIN The Company's gross margin of $8,267,000 (27% of net sales) for the six months ended March 30, 1996 decreased $3,706,000 from $11,973,000 (36% of net sales) in the prior fiscal year. The gross margin decline is primarily due to lower selling prices and decreased volumes of certain significant manufactured products resulting from increased competition. Gross margins on distributed products for the current six month period also decreased from the comparable period of last year principally due to lower sales levels of higher margin products and increased sales of a lower margin product. 6 The gross margin in the current quarter of $4,170,000 (27% of net sales) is $1,503,000 lower than the margin of $5,673,000 (35% of net sales) in the corresponding quarter of the prior year. The decline is primarily attributable to the lower sales of a certain significant manufactured product discussed above. Inventory write-offs, taken in the normal course of business, amounted to $629,000 and $313,000 for the six and three month periods, respectively, ended March 30, 1996 compared to $805,000 and $526,000 in the corresponding periods of the prior year. The inventory write-offs are related to the disposal of products due to short shelf life and inventory not meeting the Company's standards. OPERATING EXPENSES Research and Development Gross research and development expenses for the six months ended March 30, 1996 were $3,082,000 versus $1,977,000 for the six months ended April 1, 1995. The increase is primarily the result of payments made to Sano Corporation ("Sano") of $1,075,000 for the development of certain generic transdermal products. During the first quarter of fiscal 1996, the Company received from Sano a reimbursement of $1,500,000 for advances made to them in prior fiscal years for research and development expenses. As a result of this reimbursement, net research and development expenses for the six months ended March 30, 1996 equalled $1,582,000. The Company has a distribution agreement with Sano to distribute generic transdermal products developed by Sano (see "Notes to Financial Statements - Investments"). Research and development expenses in the current three month period of $1,219,000 are comparable to $1,161,000 for the corresponding period in the prior year. To further expand its product line, the Company continues to pursue alternatives to internal research and development, including joint ventures, licensing agreements and distribution agreements. In May 1995, the Company formed an alliance with Clal Pharmaceutical Industries Ltd. ("Clal") to develop, manufacture and distribute generic pharmaceuticals worldwide. A research and development joint venture, formed in Israel and owned 49% by the Company and 51% by Clal, has commenced operations and identified approximately 35 products for research. The Company recorded its share of such joint venture's research and development expenses of $353,000 and $201,000 in the current six and three month periods, respectively. Selling, General and Administrative Selling, general and administrative costs were $8,510,000 (28% of net sales) for the six month period ended March 30, 1996 versus $7,988,000 (24% of net sales) for the corresponding period in the prior fiscal year. The increase in the period is primarily attributable to severance costs, costs related to implementing information systems, increased marketing costs and professional fees. The corresponding period for last year included certain non-recurring charges incurred in connection with the Company's response to FDA inquiries with respect to current Good Manufacturing Practices and costs associated with the termination of the broker network used by the Company to sell its products. In the current quarter, selling, general and administrative costs of $4,279,000 (28% of net sales) increased $460,000 from $3,819,000 (24% of net sales) in the corresponding quarter of last year. The increase is primarily the result of marketing costs related to the planned introduction of two new products and the implementation of information systems to support the Company's sales, marketing, and manufacturing operations. Settlements In fiscal 1995, the Company resolved claims against former management members for recovery of, among other items, salaries and monies paid for indemnification. The settlements, in the form of cash and securities of the Company, were valued at $2,029,000. 7 Other Income Other income for the six and three month periods increased to $471,000 and $182,000, respectively, from $149,000 and $50,000 in the corresponding periods of the prior fiscal year primarily due to interest income on short term treasury obligations. Income Taxes As a result of the operating losses incurred for the six and three month periods ended March 30, 1996, the Company recorded an income tax benefit of $622,000 and $491,000, respectively, which had the effect of reducing the Company's operating losses. In the corresponding periods of the prior year, the Company recorded income tax expense of $1,405,000 and $233,000, respectively. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Working capital of $30,985,000 at March 30, 1996 represents a decrease of $3,922,000 from September 30, 1995 principally due to cash used for capital expenditures and for its investment in Fine-Tech Ltd., as discussed below. The working capital ratio of 3.2x declined from 3.5x at fiscal year end. As part of the alliance formed with Clal, the Company invested $1,960,000 in the research and development joint venture in fiscal 1995. The Company is required to invest an additional $5,390,000 in the joint venture during fiscal years 1996 and 1997. The Company also estimates that it could spend up to $2,000,000, subject to certain contingent events, in further research and development expenses with Sano during the third and fourth fiscal quarters of 1996. In December 1995, the Company purchased 10% of the shares of Fine-Tech Ltd., an Israeli pharmaceutical research and development company in which Clal has a significant ownership interest, for $1,000,000 and obtained certain exclusive rights to purchase products from Fine-Tech Ltd. not commonly sold in North America, South America or the Caribbean. If the Company incurs additional funding obligations under the existing or any new distribution and product development agreements, the Company expects to fund such obligations with its working capital, including cash provided by operations, and if necessary by borrowings against its line of credit (see"--Financing"). The Company also intends to fund future possible acquisitions to expand its product line out of working capital, current borrowing capacity or additional sources of funding which may be available at such time. There can be no assurance that the Company will complete any acquisition in the future. FINANCING In December 1995, the Company entered into a three-year, $16,000,000 unsecured revolving credit agreement and two three-year term loans totalling $4,000,000, replacing a prior revolving credit facility and certain outstanding term loans and outstanding industrial revenue bonds totalling approximately $4,000,000. The two term loans are secured by certain machinery and equipment. The interest rates charged on the revolving credit and one term loan are based on either Libor, the bank's cost of funds or the prime rate, all at the Company's option. Any borrowings at Libor or cost of funds will incur additional interest at spreads ranging from 3/4% to 1 1/4% based on certain Company financial ratios. The interest rate on the second term loan is based on Libor plus 1 3/4%. At March 30, 1996, the Company had borrowed $427,000, secured by certain assets of the Company purchased under a line of credit maintained at a second bank. At March 30, 1996, the Company's debt of $5,433,000 is being repaid in monthly installments through 2001 and consists of the above described loans, a mortgage on one of the Company's properties, and capital leases. 8 PART II. OTHER INFORMATION 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: None. 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) May 13, 1996 /s/ Kenneth I. Sawyer ------------------------------------- Kenneth I. Sawyer President and Chief Executive Officer (Principal Executive Officer) May 13, 1996 /s/ Robert I. Edinger ------------------------------------- Robert I. Edinger Executive Vice President - Chief Financial Officer and Secretary (Principal Accounting and 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)
SIX MONTHS ENDED THREE MONTHS ENDED ------------------------------------- ------------------------- MARCH 30, APRIL 1, MARCH 30, APRIL 1, 1996 1995 1996 1995 ----------------- ------------------ ------------ ----------- NET INCOME (LOSS) $ (938,000) $ 2,535,000 $ (740,000) $ 421,000 =========== =========== =========== =========== Primary: Weighted average number of common common shares outstanding 18,178,205 14,630,161 18,183,750 14,665,090 Shares issuable upon conversion of Series A Convertible Preferred Stock - 995,751 - 995,751 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 224,638 468,852 249,850 434,993 ----------- ----------- ----------- ----------- Shares used for computation 18,402,843 16,094,764 18,433,600 16,095,834 =========== =========== =========== =========== NET INCOME (LOSS) PER SHARE OF COMMON STOCK $(.05) $.16 $(.04) $.03 === === === === Assuming full dilution: Weighted average number of common shares outstanding 18,178,205 14,630,161 18,183,750 14,665,090 Shares issuable upon conversion of Series A Convertible Preferred Stock - 995,751 - 995,751 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 224,638 694,201 249,850 684,177 ----------- ----------- ----------- ----------- Shares used for computation 18,402,843 16,320,113 18,433,600 16,345,018 =========== =========== =========== =========== NET INCOME (LOSS) PER SHARE OF COMMON STOCK $(.05) $.16 $(.04) $.03 === === === ===
12 EX-27 3 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS INCLUDED IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-1995 MAR-30-1996 13,622 186 9,432 (1,599) 17,241 44,779 44,884 (19,567) 91,940 13,794 3,746 0 0 182 73,277 91,940 30,220 30,691 21,953 9,963 0 129 206 (1,560) (622) (938) 0 0 0 (938) (.05) (.05)
-----END PRIVACY-ENHANCED MESSAGE-----