FORM 10-Q
UNITED STATES
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
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For the quarterly period ended
September 30, 2008
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Commission file number 1-8593 |
Alpharma Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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22-2095212 |
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(State of Incorporation)
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(I.R.S. Employer Identification No.) |
440 Route 22 East, Bridgewater NJ 08807
(Address of principal executive offices) (Zip Code)
(908) 566-3800
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
No þ
Indicate the number of shares outstanding of each of the registrants classes of common stock as of October 26, 2008:
Class A Common Stock, $0.20 par value
41,882,585 shares
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
ALPHARMA
INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands of dollars, except share data)
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September 30, |
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December 31, |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
571,024 |
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$ |
309,690 |
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Accounts receivable, net |
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98,618 |
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93,225 |
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Inventories |
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122,339 |
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93,135 |
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Prepaid expenses and other current assets |
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30,831 |
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20,807 |
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Current assets held for sale |
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67,030 |
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Total current assets |
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822,812 |
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583,887 |
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Property, plant & equipment, net |
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140,649 |
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139,968 |
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Intangible assets, net |
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219,048 |
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235,154 |
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Goodwill |
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115,565 |
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115,107 |
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Other assets and deferred charges |
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55,613 |
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60,248 |
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Non-current assets held for sale |
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161,986 |
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Total assets |
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$ |
1,353,687 |
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$ |
1,296,350 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Short-term debt |
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$ |
5,142 |
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$ |
5,778 |
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Accounts payable |
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62,468 |
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46,211 |
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Accrued expenses |
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103,177 |
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101,103 |
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Accrued and deferred income taxes |
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12,485 |
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12,182 |
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Current liabilities held for sale |
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41,286 |
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Total current liabilities |
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183,272 |
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206,560 |
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Long-term debt |
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300,000 |
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300,000 |
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Deferred income taxes |
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55,443 |
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19,353 |
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Other non-current liabilities |
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30,422 |
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22,699 |
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Non-current liabilities held for sale |
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16,611 |
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Total non-current liabilities |
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385,865 |
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358,663 |
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Commitments and contingencies (see Note 12) |
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Stockholders equity: |
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Class A common stock, $0.20 par value (authorized 75,000,000;
issued 44,792,095 and 41,839,601 outstanding) |
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8,958 |
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8,824 |
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Class B common stock, $0.20 par value (authorized 15,000,000;
issued 11,872,897) |
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2,375 |
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2,375 |
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Preferred stock, $1 par value (authorized 500,000) |
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Additional paid in capital |
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1,150,745 |
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1,130,918 |
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Retained earnings (accumulated deficit) |
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1,580 |
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(166,270 |
) |
Accumulated other comprehensive income |
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(2,151 |
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70,321 |
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Treasury stock, at cost |
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(376,957 |
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(315,041 |
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Total stockholders equity |
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784,550 |
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731,127 |
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Total liabilities and stockholders equity |
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$ |
1,353,687 |
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$ |
1,296,350 |
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The
accompanying notes are an integral part of the unaudited consolidated
financial statements.
3
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands of dollars, except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Total revenues |
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$ |
175,698 |
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$ |
133,182 |
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$ |
500,101 |
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$ |
384,599 |
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Cost of sales
(*Excludes certain product amortization
classified in SG&A expenses) |
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63,119 |
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51,506 |
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180,375 |
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147,680 |
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Gross profit |
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112,579 |
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81,676 |
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319,726 |
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236,919 |
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Selling, general and administrative (SG&A)
expenses |
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89,341 |
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54,903 |
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275,691 |
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170,656 |
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Research and development |
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13,494 |
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14,581 |
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81,782 |
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45,873 |
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Asset impairments and other (income) expense |
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(309 |
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(3,399 |
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Operating income (loss) |
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9,744 |
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12,501 |
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(37,747 |
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23,789 |
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Interest income (expense), net |
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2,714 |
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2,978 |
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5,752 |
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7,586 |
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Other income (expense), net |
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(1,150 |
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221 |
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(833 |
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1,016 |
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Income (loss) from continuing operations, before
income taxes |
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11,308 |
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15,700 |
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(32,828 |
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32,391 |
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Provision for income taxes |
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7,188 |
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10,430 |
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3,011 |
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17,997 |
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Income (loss) from continuing operations |
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4,120 |
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5,270 |
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(35,839 |
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14,394 |
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Income from discontinued operations, net of
taxes |
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9,783 |
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203,689 |
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25,653 |
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Net income |
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$ |
4,120 |
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$ |
15,053 |
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$ |
167,850 |
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$ |
40,047 |
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Basic earnings per common share: |
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Income (loss) from continuing operations |
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$ |
0.10 |
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$ |
0.12 |
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$ |
(0.84 |
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$ |
0.34 |
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Income from discontinued operations |
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$ |
0.23 |
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$ |
4.79 |
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$ |
0.60 |
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Net income |
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$ |
0.10 |
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$ |
0.35 |
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$ |
3.95 |
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$ |
0.94 |
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Diluted earnings per common share: |
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Income (loss) from continuing operations |
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$ |
0.10 |
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$ |
0.12 |
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$ |
(0.84 |
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$ |
0.33 |
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Income from discontinued operations |
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$ |
0.22 |
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$ |
4.79 |
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$ |
0.59 |
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Net income |
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$ |
0.10 |
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$ |
0.34 |
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$ |
3.95 |
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$ |
0.92 |
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* Cost of sales excludes certain product amortization classified within SG&A expenses, as follows:
$4,631 and $3,942 for the three months ended September 30, 2008 and 2007, respectively; and $13,926
and $11,877 for the nine months ended September 30, 2008 and 2007, respectively.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
4
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands of dollars)
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Nine Months Ended |
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September 30, |
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2008 |
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2007 |
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Operating Activities: |
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Net income |
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$ |
167,850 |
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$ |
40,047 |
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Adjustments to reconcile net income to net cash used in
operating activities: |
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Gain from sale of discontinued operations |
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(202,979 |
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Depreciation and amortization |
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30,426 |
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37,746 |
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Amortization of loan costs |
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932 |
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700 |
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Amortization of stock-based compensation |
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7,962 |
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4,126 |
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Other non-cash items |
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645 |
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2,069 |
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Changes in assets and liabilities: |
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(Increase) in accounts receivable |
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(2,250 |
) |
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(11,338 |
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(Increase) in inventories |
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(31,614 |
) |
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(16,905 |
) |
Decrease (increase) in prepaid expenses |
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632 |
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(1,384 |
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(Decrease) in accounts payable and accrued expenses |
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(2,409 |
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(5,050 |
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Increase in taxes payable |
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3,515 |
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6,126 |
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Other, net |
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(8,978 |
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9,887 |
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Net cash provided by (used in) operating activities |
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(36,267 |
) |
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66,024 |
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Investing Activities: |
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Capital expenditures |
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(18,583 |
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(41,793 |
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Purchased intangible assets |
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(969 |
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Proceeds from sale of business |
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384,500 |
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Licensing activities |
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(100,305 |
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Acquisition activities |
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(6,883 |
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Net cash provided by (used in) investing activities |
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365,917 |
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(149,950 |
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Financing Activities: |
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Proceeds from issuance of convertible senior notes |
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292,772 |
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Repayments of short-term debt |
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(1,483 |
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Payment of debt assigned in sale of business |
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(4,990 |
) |
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Proceeds from issuance of short-term debt |
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6,389 |
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Proceeds from issuance of common stock |
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11,999 |
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4,887 |
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Payments for purchases of treasury shares |
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(61,917 |
) |
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(Decrease) increase in book overdraft |
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(2,721 |
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1,037 |
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Net cash provided by (used in) financing activities |
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(59,112 |
) |
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305,085 |
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Net cash flows from exchange rate changes |
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(2,337 |
) |
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(1,569 |
) |
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Increase in cash |
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268,201 |
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219,590 |
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Cash and cash equivalents at beginning of year |
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302,823 |
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113,163 |
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Cash and cash equivalents at end of period |
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$ |
571,024 |
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$ |
332,753 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
6,859 |
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$ |
4,578 |
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Cash paid (refunded) for taxes |
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$ |
4,710 |
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$ |
(2,669 |
) |
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|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
5
ALPHARMA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share data)
(Unaudited)
1. General
These interim unaudited consolidated financial statements have been prepared in accordance
with the requirements of the Securities and Exchange Commission (SEC) and its instructions to the
Quarterly Report on Form 10-Q. They should be read in conjunction with the audited consolidated
financial statements and related notes, which appear in the Alpharma Inc. (Alpharma or the
Company) Annual Report on Form 10-K for the year ended December 31, 2007. The consolidated
results for interim periods do not include all disclosures required by accounting principles
generally accepted in the United States of America (GAAP) for annual financial statements and are
not necessarily indicative of results for the full year or any subsequent period. In the opinion of
Alpharma management, all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation of the consolidated financial position, results of operations and cash
flows at the dates and for the periods presented have been included. All significant intercompany
transactions have been eliminated in consolidation. Where appropriate, certain prior year amounts
have been reclassified to conform to the current presentation.
The Consolidated Balance Sheets and Consolidated Statements of Operations have been presented
for all periods to classify the Active Pharmaceutical Ingredients (API) business as a
discontinued operation in accordance with Statement of Financial Accounting Standards (SFAS) No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). See Note 3.
Consistent with SFAS No. 95, Statement of Cash Flows, the Consolidated Statements of Cash Flows
have not been reclassified for activities of the discontinued operations.
2. Recent Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) Emerging Issues Task Force (EITF) No. 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (EITF 03-6-1). EITF 03-6-1
addresses whether instruments granted in share-based payment transactions, with rights to dividends
or dividend equivalents, are participating securities prior to vesting and, therefore, need to be
included in the earnings allocation in computing earnings per share (EPS) under the two-class
method described in FASB Statement No. 128, Earnings per Share. Unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of EPS pursuant to
the two-class method. In contrast, the right to receive dividends or dividend equivalents that the
holder will forfeit if the award does not vest does not constitute a participation right. EITF
03-6-1 is effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. All prior-period EPS data presented shall be
adjusted retrospectively (including interim financial statements, summaries of earnings, and
selected financial data). Early adoption of EITF 03-6-1 is prohibited. The Company will adopt EITF
03-6-1 as of January 1, 2009, and does not currently believe that the adoption will have a material
impact on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP. SFAS 162 is effective
November 17, 2008. The Company anticipates that the adoption of SFAS 162, as of the effective date,
will not have a material impact on its consolidated financial statements.
6
In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments
that may be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1).
FSP APB 14-1 specifies that issuers of convertible debt instruments should separately account for
the liability and equity components in a manner that will reflect the entitys nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective
for financial statements issued on or after January 1, 2009, with retrospective application. Early
adoption is not permitted.
Upon adoption of FSP APB 14-1, the Companys accounting for its $300,000 Convertible Senior
Notes (the Notes) will be impacted. The Company is currently evaluating the potential impact;
but estimates that implementation would result in an approximate $80,000 reduction in its March 15,
2007 Notes balance outstanding, with a corresponding increase in equity. The Company also
estimates that upon adoption, the retrospective application of the position will result in
increased interest expense of approximately $10,000 for the year ending December 31, 2008. The
Company will adopt FSP APB 14-1 as of January 1, 2009.
In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible
Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a recognized intangible asset
and the disclosure requirements under FASB Statement No. 142, Goodwill and Other Intangibles. FSP
142-3 requires that an entity consider its historical experience in renewing or extending similar
arrangements in determining the useful life of a recognized intangible asset. Determining the
useful life of a recognized intangible asset under FSP 142-3 applies prospectively to intangible
assets acquired after the effective date. The disclosure requirements of FSP 142-3 will be applied
prospectively to all intangible assets recognized as of, and subsequent to, the effective date.
FSP 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.
Early adoption of FSP 142-3 is prohibited. The Company will adopt FSP 142-3 as of January 1, 2009,
and anticipates that such adoption will not have a material impact on its financial statements.
In April 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 changes the
disclosure requirements for derivative and hedging activities. Under SFAS 161, the Company will be
required to provide enhanced disclosures about: how and why an entity uses derivative instruments;
how derivative instruments and related hedging items are accounted for under FASB Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, and its related
interpretations; and how derivative instruments and related hedged items affect an entitys
financial position, financial performance and cash flows. SFAS 161 is effective for financial
statements issued on or after January 1, 2009, and early adoption is permitted. The Company will
adopt SFAS 161 as of January 1, 2009 and anticipates that such adoption will not have a material
impact on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141(R)). SFAS 141(R) establishes principles and requirements for how the acquirer in a business
combination: recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed and any noncontrolling interest in the acquiree; recognizes and measures
goodwill acquired in the business combination or a gain from a bargain purchase; and determines
what information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. Early adoption of SFAS 141(R) is not permitted. SFAS
No. 141(R) applies prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15, 2008.
The Company will adopt SFAS 141(R) as of January 1, 2009.
7
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB 51 (SFAS 160). SFAS 160 requires all entities to
report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial
statements, and eliminates the diversity that currently exists in accounting for transactions
between an entity and noncontrolling interests by requiring they be treated as equity transactions.
SFAS 160 is effective for financial statements issued on or after January 1, 2009, however
applications of SFAS 160s disclosure and presentation requirements are retroactive. The Company
will adopt SFAS 160 as of January 1, 2009. The Company is currently assessing the impact that the
adoption of SFAS 160 will have, if any, on its consolidated financial statements.
In December 2007, the SEC issued Staff Accounting Bulletin No. 110, which provides
interpretative guidance regarding the use of a simplified method in developing an estimate of the
expected term of plain vanilla share options in accordance with SFAS No. 123(R), Share-Based
Payment. Accordingly, the SEC will continue to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007. The Company has concluded that its historical share
option exercise experience does not provide a reasonable basis upon which to estimate the expected
term due to the significant structural changes in its business. Therefore, the Company will
continue to use the simplified method in developing its estimate of the expected term of plain
vanilla share options.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS
159 provides an option to report certain financial assets and liabilities at fair value primarily
to reduce the complexity and level of volatility in the accounting for financial instruments
resulting from measuring related financial assets and liabilities differently under
existing GAAP. SFAS 159 was effective January 1, 2008. The Company has evaluated SFAS 159 and has
chosen to disclose and not record the fair value of its financial
liability for its $300,000 Convertible Senior Notes (see Note 9).
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS
157 establishes a framework for measuring fair value under GAAP and will be applied to existing
accounting and disclosure requirements in GAAP that are based on fair value. SFAS 157 does not
require any new fair value measurements. SFAS 157 emphasizes a market-based as opposed to an
entity-specific measurement perspective, establishes a hierarchy of fair value measurement
methods and expands disclosure requirements about fair value measurements including methods and
assumptions and the impact on earnings. With respect to financial assets and liabilities, the
Company is using the SFAS 157 framework in its disclosure regarding the fair value of its
Convertible Senior Notes (see Note 9). With respect to non-financial assets and liabilities, the
Company is evaluating the potential impact of SFAS 157, the effective date of which is for fiscal
years beginning after November 15, 2008. The Company will adopt
SFAS 157 for non-financial assets and liabilities as of
January 1, 2009.
3. Discontinued Operations
On February 6, 2008, the Company entered into a definitive agreement to sell its API business
to certain investment funds managed by 3i, a global private equity and venture capital company, for
$395,000. The transaction included the sale of manufacturing facilities in Copenhagen, Denmark;
Oslo, Norway; Budapest, Hungary; and Taizhou, China. The API business employed approximately 700
people, substantially all of whom were transferred with the business. The API sale closing occurred
on April 1, 2008, with the transaction effective as of the close of business on March 31, 2008. On
April 1, 2008, in connection with the closing of the transaction, the Company received cash from
the purchaser in the amount of $384,500.
8
The Company recorded an estimated gain of $202,979 on the sale of the business through the
nine month period ended September 30, 2008, net of estimated taxes of $36,268. The final purchase
price, and therefore the gain, is subject to adjustment based on the closing net cash balance and
working capital of the business, as defined in the divestiture agreement. There was no adjustment
to the gain recorded during the three month period ended September 30, 2008.
The following table details selected financial information for discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Total revenues |
|
$ |
42,902 |
|
|
$ |
138,701 |
|
Operating income |
|
$ |
2,430 |
|
|
$ |
29,920 |
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, before
income taxes |
|
$ |
1,186 |
|
|
$ |
29,232 |
|
Provision for income taxes |
|
|
476 |
|
|
|
3,579 |
|
|
|
|
|
|
|
|
Income from discontinued operations, net of
income taxes |
|
|
710 |
|
|
|
25,653 |
|
Gain on sales of discontinued operations, net of taxes |
|
|
202,979 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes |
|
$ |
203,689 |
|
|
$ |
25,653 |
|
|
|
|
|
|
|
|
The assets and liabilities of API, reflected as held for sale as of December 31, 2007, are as
follows:
|
|
|
|
|
Cash and cash equivalents |
|
$ |
(6,867 |
) |
Accounts receivable, net |
|
|
39,406 |
|
Inventories |
|
|
32,828 |
|
Prepaid expenses and other current assets |
|
|
1,663 |
|
|
|
|
|
Total current assets held for sale |
|
|
67,030 |
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment, net |
|
|
143,636 |
|
Goodwill and intangibles, net |
|
|
17,604 |
|
Other non-current assets |
|
|
746 |
|
|
|
|
|
Total non-current assets |
|
|
161,986 |
|
|
|
|
|
Total assets held for sale |
|
$ |
229,016 |
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
5,255 |
|
Accounts payable |
|
|
11,692 |
|
Accrued expenses and other current liabilities |
|
|
24,339 |
|
|
|
|
|
Total current liabilities held for sale |
|
|
41,286 |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
16,611 |
|
|
|
|
|
Total liabilities held for sale |
|
$ |
57,897 |
|
|
|
|
|
The gross $395,000 price for the sale of the API business is based on a cash and debt free
transaction. This amount is subject to adjustment based upon certain liabilities assumed by the
purchaser and based on the closing date net cash balance and closing date working capital of the
business. In addition, the purchaser assumed the outstanding portion,
$4,990 at March 31, 2008, of
the Companys outstanding debt in China
9
related to the API business, subject to a guarantee by the
Company. On April 3, 2008, the Company remitted $4,990 to an affiliate of the purchaser and was
released from the guarantee on the debt in China.
On March 31, 2008, prior to the closing, the Company advanced $5,000 of the estimated cash
overdraft position of the API business to an affiliated entity of the Company acquired by the
purchaser. This amount is repayable, plus accrued interest, upon the final reconciliation of the
closing net cash balance and working capital, in accordance with the terms of the divestiture
agreement. This reconciliation and repayment is expected to occur in the fourth quarter of 2008.
4. License and Collaboration Agreements
IDEA AG (IDEA)
In October 2007, the Companys affiliate, Alpharma Ireland Limited (Alpharma Ireland),
entered into an agreement with IDEA, a privately held biopharmaceutical company with headquarters
in Munich, Germany. The agreement provides the Company with an exclusive license to the United
States rights to ketoprofen in TRANSFERSOME gel (TRANSFERSOME is a registered trademark of IDEA AG
Corporation and licensed to Alpharma Ireland), a prescription topical non-steroidal
anti-inflammatory drug (NSAID) in Phase 3 clinical development. In March 2008, this agreement
was amended to provide the Company with certain joint ownership interests in certain development
and regulatory assets.
The terms of the license agreement between Alpharma Ireland and IDEA include a $60,000 payment
that was made in connection with the October 2007 closing. The terms of the license agreement also
include three milestone payments, as follows: 1) a clinical milestone payment of $18,500 related to
the achievement of certain safety results; 2) a regulatory milestone payment
of $18,500 related to the satisfaction of either: a) (i) written acceptance by the U.S. Food & Drug
Administration (the FDA) of certain protocol assessment(s) of the protocols for the clinical
study or (ii) mutual agreement by the Company and IDEA for protocols for the clinical study(ies)
and such protocols being submitted to an institutional review board to initiate such clinical
studies; or (b) on or after a certain date, the Company and IDEA mutually agreeing on the clinical
study protocols, based on the belief that such protocols will be accepted by the FDA under certain
protocol assessments; and 3) an intellectual property progress milestone payment of $40,000 related
to the issuance of a United States patent meeting certain contractually-specified conditions.
Collectively, these progress milestone payments total $77,000 and are expected to be paid over
the first 18 months of the license agreement. An additional milestone payment of either $45,000 or
$65,000 is conditioned on FDA product approval (with the higher
amount dependent upon the achievement of a specified end point in one of the clinical trials).
Under the terms of the license agreement, IDEA has agreed to pay the costs of specified
studies it is undertaking to obtain FDA approval of ketoprofen in TRANSFERSOME gel.
The terms of the agreement also include the issuance of two series of stock warrants to IDEA
for the purchase of shares of the Companys Class A Common Stock. Both series vest only upon FDA
approval of the product in the United States. The amount and pricing
of the Phase 3 Milestone
(Series A) warrants are tied to positive Phase 3 results, and the Form of Approval (Series B)
warrants are tied to FDA approval. The strike price for the Series A warrants will be determined
by applying a 50% premium to the 30 day average stock price immediately preceding the announcement
of positive Phase 3 results; with a minimum exercise price per share of $22.50. The strike price
for the Series B warrants will be determined by applying a 25% premium to the 30 day average stock
price immediately following the FDA approval date, with a minimum exercise price per share of
$18.75. For both the Series A and B warrants, the number of shares eligible to be purchased under
the warrants will be determined
10
by dividing $50,000 for each series by the respective strike price
for each series. Upon vesting at the time of FDA approval, both series of warrants have a term of
approximately five years, with a limit of ten years from the date of entering into the agreement.
The fair value of these warrants will be recognized upon FDA approval. The warrants are adjustable
in the event of a reorganization, combination or certain other fundamental changes.
The license agreement includes commitments requiring the Company to spend pre-determined
minimum amounts for the commercialization of the product (including selling, marketing and medical
educational expenses) during the first four years following the products launch.
The agreement also requires the future payment of royalties based on annual net sales applied
to a tiered structure. The Companys royalty payments to IDEA will be calculated starting at 5% of
annual net sales of the product up to a maximum royalty rate of 24%, based upon contractually
agreed annual net sales levels.
The license agreement expires upon the later of the expiration of all U.S. patent rights
licensed by IDEA to Alpharma Ireland or 2029.
In connection with the closing in October 2007, Alpharma Ireland paid $60,000 to IDEA in the
fourth quarter of 2007, which was recorded as research and development expense, and the Company
issued both series of stock warrants. In addition, during the third and fourth quarters of 2007,
the Company recorded approximately $2,300 in transaction-related costs. In March 2008, the Company
recorded $37,000 in research and development expense related to IDEAs achievement of the clinical
and regulatory milestones. The $37,000 was paid to IDEA in April 2008.
Institut Biochimique SA (IBSA)
In September 2007, the Companys affiliate, Alpharma Pharmaceuticals LLC (Alpharma
Pharmaceuticals), closed on two license and distribution agreements (the IBSA License and
Distribution Agreements) with IBSA, a privately-owned, global pharmaceutical company headquartered
in Lugano, Switzerland. The agreements have a ten-year term, with automatic renewal options, and
provide the Company with the exclusive license and distribution rights to market: 1) the FLECTOR
Patch (FLECTOR is a registered trademark of IBSA and licensed to Alpharma Pharmaceuticals); and 2)
TIROSINT (synthetic levothyroxine sodium) gel capsules (TIROSINT is a registered trademark of IBSA
and licensed to Alpharma Pharmaceuticals), in the United States. The FLECTOR Patch, which was
approved in the U.S. by the FDA in January 2007, delivers the anti-inflammatory and analgesic
effects of diclofenac epolamine through a patent-protected topical patch, and is indicated for the
topical treatment of acute pain due to minor strains, sprains, and contusions. TIROSINT gel
capsules were approved in the United States by the FDA in October 2006 and are indicated for
thyroid hormone replacement therapy.
The
terms of the IBSA License and Distribution Agreements provided for a total of $100,000 in
upfront payments upon closing. The Company paid IBSA $5,000 of this amount during the second
quarter of 2007 and the remaining $95,000 at closing, in September 2007. In addition, on October
3, 2007, in accordance with the terms of the FLECTOR Patch agreement, the Company issued to IBSA a
warrant for the purchase of up to one million shares of the Companys Class A Common Stock. This
stock warrant was issued with a $35 strike price and a three-year term, through August 16, 2010.
Under
the terms of the IBSA License and Distribution Agreements for TIROSINT gel capsules, as
amended, the Company has undertaken to launch the TIROSINT gel
capsules and based on discussions with IBSA,
estimates launching during the second half of
2009.
11
Commercial supply of the FLECTOR Patch is provided by IBSA, at contractually determined
prices, through a manufacturing agreement IBSA has with a Japanese supplier. It is expected that
IBSA will supply TIROSINT gel capsules, at contractually-determined prices, from its own
manufacturing facility.
The IBSA License and Distribution Agreements include certain annual minimum purchase
commitments for both the FLECTOR Patch and TIROSINT gel capsules. The minimum commitments increase
each year over the first three years from product launch and remain at year three levels (or, in
the case of the TIROSINT agreement, at the slightly reduced year four level) for the remaining
years of the agreements.
The $100,000 cash payments to IBSA and transaction-related costs have been capitalized as an
addition to intangible assets. The Black-Scholes value of the stock warrants ($1,780) was
capitalized in the fourth quarter of 2007 as an addition to intangible assets. These intangible
assets are amortized over the estimated commercial lives of the products, using a
sales-activity-based methodology.
See Note 17 for a description of the Companys development and license agreement with DURECT
Corporation.
5. Earnings Per Share
Basic earnings per share is based upon the weighted average number of common shares
outstanding. Diluted earnings per share reflect the dilutive effect of stock options, stock
warrants and convertible debt, when appropriate.
A
reconciliation of weighted average shares outstanding from basic to diluted is, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
(Shares in thousands) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Average shares outstanding basic |
|
|
41,127 |
|
|
|
43,103 |
|
|
|
42,531 |
|
|
|
42,772 |
|
Dilutive effect of stock options and
restricted stock |
|
|
1,048 |
|
|
|
574 |
|
|
|
|
|
|
|
559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding diluted |
|
|
42,175 |
|
|
|
43,677 |
|
|
|
42,531 |
|
|
|
43,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company excluded the anti-dilutive effect of 154,000 and 1,138,000 shares associated with
stock-based compensation awards from the calculation of average shares outstanding diluted for
the three and nine months ended September 30, 2008, respectively. The exclusion of these shares is
a result of two factors:
1) As a result of the Company recording a loss from continuing operations for the nine months
ended September 30, 2008, the dilutive effect of approximately 901,000 stock options and restricted
shares have been excluded from the calculation of average shares outstanding diluted; and 2) The
amount of dilution attributable to stock options, as determined by the treasury stock method, depends
on the average market price of the Companys common stock for each period. For the three and nine
months ended September 30, 2008, stock options to purchase 154,000 and 237,000 shares,
respectively, were not included in the diluted EPS calculation, because the assumed proceeds, as
calculated under the treasury stock method, resulted in these awards being anti-dilutive.
For the three and nine months ended September 30, 2007, stock options to purchase 710,000 and
379,000 shares, respectively, were not included in the diluted EPS calculation, because the assumed
proceeds, as calculated under the treasury stock method, resulted in these
12
awards being
anti-dilutive.
The numerator for the calculation of basic and diluted EPS is Income (loss) from continuing
operations, Income from discontinued operations, or Net income, as appropriate, for all periods
presented. Stock warrants issued to IBSA and the effects of the 2.125% Convertible Senior Notes
due 2027 were not included in the calculation of diluted EPS for the three and nine months ended
September 30, 2008 and 2007, because the results were anti-dilutive.
Share Repurchase Program
In April 2008, the Companys Board of Directors approved a share repurchase program of up to
$150,000 of its Class A Common Stock, over a twenty-four month period. During the three and nine
months ended September 30, 2008, the Company repurchased 1,516,657 and 2,623,836, shares,
respectively, for an aggregate cost of $35,514 and $61,917, respectively, in open market purchases.
As of September 30, 2008, the Company has up to $88,083 remaining under the repurchase program.
The share repurchase program does not obligate the Company to repurchase any particular number of
shares and the program may be suspended or discontinued at any time.
6. Income Taxes
The Companys effective tax rate for continuing operations is dependent on many factors
including, but not limited to: a) the impact of enacted tax laws in jurisdictions in which the
Company operates; b) the amount of earnings by jurisdiction, due to varying tax rates in each
country; and c) the Companys ability to utilize various tax losses and credits.
The
tax provision for continuing operations for the three and nine months ended September 30, 2008 was
$7,188 and $3,011, respectively. The Companys financial results in the first quarter of 2008 include $37,000 of research
and development expenses accrued by Alpharma Ireland in connection with its license agreement with
IDEA AG (see Note 4), for which no tax benefits are expected to be recorded in 2008. Alpharma
Ireland is a start-up operation for products in development and the Company presently has no basis
to conclude it is more likely than not that the related deferred tax asset will be realized.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (FIN 48), on January 1, 2007. At December 31, 2007, the Company had recorded
$11,817 in gross unrecognized tax benefits as a component of other non-current liabilities. During
the nine months ended September 30, 2008, the Company had no significant changes in its tax
positions and accrued $278 of interest. At September 30, 2008 and December 31, 2007, the Company
had $2,069 and $1,674, respectively, of accrued interest and penalties included within non-current
liabilities.
13
7. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Finished product |
|
$ |
86,905 |
|
|
$ |
60,867 |
|
Work-in-process |
|
|
22,082 |
|
|
|
21,348 |
|
Raw materials |
|
|
13,352 |
|
|
|
10,920 |
|
|
|
|
|
|
|
|
|
|
$ |
122,339 |
|
|
$ |
93,135 |
|
|
|
|
|
|
|
|
8. Intangible Assets and Goodwill
Intangible assets consist principally of licenses and products rights, including regulatory
and/or marketing approvals by relevant government authorities. All intangible assets are subject to
amortization. For the following years ending December 31, the aggregate future annual amortization
expense of intangibles assets is estimated to be:
|
|
|
|
|
Balance of 2008 |
|
$ |
5,100 |
|
2009 |
|
|
20,500 |
|
2010 |
|
|
18,900 |
|
2011 |
|
|
21,700 |
|
2012 |
|
|
21,300 |
|
Thereafter |
|
|
131,548 |
|
|
|
|
|
|
|
$ |
219,048 |
|
|
|
|
|
Intangible assets and accumulated amortization are summarized, as follows:
|
|
|
|
|
Net balance, December 31, 2007 |
|
$ |
235,154 |
|
Additions (reductions), net |
|
|
(961 |
) |
Amortization |
|
|
(15,278 |
) |
Translation adjustment |
|
|
133 |
|
|
|
|
|
Net balance, September 30, 2008 |
|
$ |
219,048 |
|
|
|
|
|
Accumulated amortization, September 30, 2008 |
|
$ |
189,859 |
|
|
|
|
|
The changes in the carrying amount of goodwill attributable to the Companys reportable
segments for the nine months ended September 30, 2008 are, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals |
|
|
AH |
|
|
Total |
|
Balance, December 31, 2007 |
|
$ |
113,973 |
|
|
$ |
1,134 |
|
|
$ |
115,107 |
|
Additions |
|
|
|
|
|
|
396 |
|
|
|
396 |
|
Translation adjustment |
|
|
|
|
|
|
62 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008 |
|
$ |
113,973 |
|
|
$ |
1,592 |
|
|
$ |
115,565 |
|
|
|
|
|
|
|
|
|
|
|
14
9. Debt
Short-Term Debt
During the second quarter of 2007, the Company entered into a revolving credit facility with
Bank of America, N.A. that provided up to a maximum of $10,600 to certain of the Companys entities
in The Peoples Republic of China (the China Credit Facility). During the fourth quarter of 2007,
the Company amended the then-existing revolving credit facility with Bank of America, N.A. to
provide up to a new maximum of $21,600.
At December 31, 2007, the Company had outstanding borrowings under the China Credit Facility
of $10,570, including $4,792 related to the API business, which is classified as Current
liabilities held for sale in the Consolidated Balance Sheet as of December 31, 2007.
On March 31, 2008, in connection with the sale of the API business, $4,990 of the then
outstanding debt under the China Credit Facility was assumed by the purchaser of the API business,
subject to a guarantee by the Company. The Company was released from this guarantee in April 2008
and the maximum loan amount under the China Credit Facility was reduced to $10,600. See Note 3.
As of September 30, 2008, the Companys remaining outstanding borrowings under the China Credit
Facility of $5,142 are classified within Short-term debt. The weighted average interest rate on
these borrowings at September 30, 2008 was 6.50%.
Long-Term Debt
In March 2007, the Company issued $300,000 of Convertible Senior Notes, due March 15, 2027
(the Notes), with interest payable semi-annually, in arrears, on March 15 and September
15, at a rate of 2.125% per annum. The Notes are unsecured obligations and rank subordinate to all
future secured debt and to the indebtedness and other liabilities of the Companys subsidiaries.
The Notes are convertible into shares of the Companys Class A common stock at an initial
conversion rate of 30.6725 shares per $1,000 principal amount of the Notes. The conversion rate of
the Notes is based on an initial conversion price of approximately $32.60 per share, and is subject
to adjustment in certain circumstances, including for the following events: (a) issued dividends or
distributions on shares of the Companys common stock payable in shares; (b) subdivision,
combination or reclassification of shares of the Companys common stock; and (c) certain
distributions to all or substantially all shareholders of the Companys common stock. The
conversion rate will be adjusted accordingly for the full impact of each of the above events on the
Companys shares of common stock outstanding.
In addition, the conversion rate of the Notes is also subject to adjustment upon the direct or
indirect sale of all or substantially all of the Companys assets or more than 50% of the
outstanding shares of the Companys common stock to a third party (a Fundamental Change). In the
event of a Fundamental Change, the Notes include a make-whole provision that will adjust the
conversion rate by a predetermined number of additional shares of the Companys common stock, up to
a maximum of 10.73 shares, per $1,000 principal amount of Notes, that considers: (1) the effective
date of the Fundamental Change; and (2) the Companys common stock market price as of the effective
date. The maximum number of shares a note-holder may receive as a result of these adjustments is
41.4025 shares per $1,000 of principal amount of the Notes.
The Company may redeem the Notes at its option commencing on or after March 15, 2014. The
holders have one-day put rights on March 15, 2014, 2017 and 2022, to require the Company to
repurchase the Notes at 100% of the principal amount, plus accrued and unpaid interest. Beginning
with the period commencing on March 20, 2014 and during any six-month interest period thereafter,
the Company will pay contingent interest if the average trading price of the Notes is above a
specified level. The net proceeds from the issuance were $292,772 and deferred loan costs in the
amount of $7,228 are being amortized over seven years.
15
The fair value of the publicly-traded Convertible Senior Notes at September 30, 2008 is
estimated at $376,000. This valuation is based on the average of the trades closest to the quarter
ended September 30, 2008. The sensitivity of the fair value of the Notes depends on external
market factors, including the Companys underlying share price. Increases or decreases in the fair
value of the Notes will not have a material impact on the Companys liquidity and capital
resources.
On October 26, 2005, the Company entered into a five-year, Senior Secured Credit Facility
with Bank of America N.A. The total amount available under this facility is $75,000, limited by
certain factors, including amounts contingently liable under open standby letters of credit. At
September 30, 2008 and December 31, 2007, the Company had open standby letters of credit, issued by
its banks in favor of third parties, totaling $10,483 and $5,886, respectively.
The Senior Secured Credit Facility is secured by the accounts receivable, inventory and
certain fixed assets of the U.S. subsidiaries of the Company. The amount that is available to the
Company to be borrowed is determined monthly based upon the calculation of a Borrowing Base. The
interest rate that the Company would pay on outstanding amounts is based upon a spread over LIBOR
or Base Rate. The spread ranges between 1.25% to 2.00% over LIBOR and 0.0% to 0.50% over the Base
Rate. The determination of the spread is based upon the amount of availability under the facility
with a lower spread payable based upon greater availability. As long as the Company does not have
average availability less than $15,000 over a consecutive 10-day period, there are no financial
covenants. There were no financial covenants as the Companys average availability was not less
than $15,000 during the three months ended September 30, 2008.
10. Pension Plans and Postretirement Benefits
U.S.
The U.S. pension plan was frozen effective December 31, 2006.
The net periodic benefit costs for the Companys pension plans and other postretirement plans
are, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
Pension Benefits |
|
|
Benefits |
|
|
|
For the Three Months |
|
|
For the Three Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
26 |
|
|
$ |
32 |
|
Interest cost |
|
|
753 |
|
|
|
713 |
|
|
|
103 |
|
|
|
104 |
|
Expected return on plan assets |
|
|
(853 |
) |
|
|
(856 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost (income) |
|
|
4 |
|
|
|
2 |
|
|
|
|
|
|
|
(34 |
) |
Recognized net actuarial loss |
|
|
(4 |
) |
|
|
3 |
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income) |
|
$ |
(100 |
) |
|
$ |
(138 |
) |
|
$ |
129 |
|
|
$ |
181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
Pension Benefits |
|
|
Benefits |
|
|
|
For the Nine Months |
|
|
For the Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
77 |
|
|
$ |
96 |
|
Interest cost |
|
|
2,259 |
|
|
|
2,139 |
|
|
|
311 |
|
|
|
312 |
|
Expected return on plan assets |
|
|
(2,559 |
) |
|
|
(2,568 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost (income) |
|
|
5 |
|
|
|
6 |
|
|
|
(68 |
) |
|
|
(102 |
) |
Recognized net actuarial loss |
|
|
1 |
|
|
|
9 |
|
|
|
135 |
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income) |
|
$ |
(294 |
) |
|
$ |
(414 |
) |
|
$ |
455 |
|
|
$ |
543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2008, the Company contributed $188 and
$811, respectively, to the U.S. pension plan. The Company does not expect to make any additional
contributions to the U. S. pension plan in 2008.
11. Stock-Based Compensation
Stock-based compensation consists primarily of stock options and restricted stock.
Stock Options
Stock
options are granted to employees with exercise prices equal to the
fair market value (closing price) of
the Companys stock at the dates of grant. Generally, stock options granted to employees vest in
25% increments each year, are fully vested four years from the grant date and have a term of
10 years. The Company recognizes stock-based compensation expense over the requisite service period
of the individual grants, which generally equals the vesting period. The weighted average exercise
price of options granted during the three and nine months ended September 30, 2008 was $27.24 and
$24.39, respectively.
Changes in stock options outstanding for the nine months ended September 30, 2008, are
summarized as follows:
|
|
|
|
|
Balance at December 31, 2007 |
|
|
1,388,893 |
|
Grants |
|
|
901,894 |
|
Exercises |
|
|
(282,808 |
) |
Forfeitures |
|
|
(128,816 |
) |
|
|
|
|
|
Balance at September 30, 2008 |
|
|
1,879,163 |
|
|
|
|
|
|
The Company recognized $1,089 and $384 of stock-based compensation expense for stock options
for the three months ended September 30, 2008 and 2007, respectively. The Company recognized $3,208
and $1,270 of stock-based compensation expense for stock options for the nine months ended
September 30, 2008 and 2007, respectively. As of September 30, 2008, the total remaining
unamortized compensation cost related to non-vested stock options outstanding was $11,465.
Restricted Stock and Restricted Stock Units
Compensation expense for restricted stock and restricted stock units (collectively,
restricted stock) is recorded based on the market value of the stock on the grant date. The fair
value of restricted stock is recorded as deferred compensation (classified as additional paid in
capital) at the time of grant, and amortized to expense over the requisite service period. The
Company recognized $1,398 and $895 of stock-based compensation expense for restricted stock for the
three months ended September 30, 2008 and 2007, respectively. The Company recognized $4,754 and
$2,443 of stock-based compensation expense for restricted stock for the nine months
ended September 30, 2008 and 2007, respectively. Total unamortized deferred compensation related to
restricted stock was $10,688 at September 30, 2008.
17
12. Contingent Liabilities, Litigation and Legal Proceedings
The Company is involved in various legal proceedings of a nature considered normal to its
business. In the opinion of the Company, although the outcome of any legal proceedings cannot be
predicted with certainty, the ultimate liability of the Company in connection with the following
legal proceedings will not have a material adverse effect on the Companys financial position, but
could be material to the results of operations or cash flows in the period in which the resolution
occurs.
The Company accrues for amounts related to these legal matters if it is probable that a
liability has been incurred and an amount is reasonably estimable.
Chicken Litter Litigation
The Company is one of multiple defendants that have been named in several lawsuits that
allege that one of its Animal Health (AH) products causes chickens to produce manure that contains an arsenical
compound which, when used as agricultural fertilizer by chicken farmers, degrades into inorganic
arsenic and causes a variety of diseases in the plaintiffs (who allegedly live in close proximity
to such farm fields). The Company has provided notice to its insurance carriers and its primary
insurance carriers have responded by accepting their obligations to defend or pay the Companys
defense costs, subject to reservation of rights to later reject coverage for these lawsuits. In
addition, one of the Companys carriers has filed a Declaratory Judgment action in state court in
which it has sought a ruling concerning the allocation of its coverage obligations to the Company
among the Companys several insurance carriers and, to the extent the Company does not have full
insurance coverage, to the Company. In addition, this Declaratory Judgment action requests that
the Court rule that certain of the carriers policies provide no coverage because certain policy
exclusions allegedly operate to limit its coverage obligations under said policies. Furthermore,
the Companys insurance carriers may take the position that some, or all, of the applicable
insurance policies contain certain provisions that could limit coverage for future product
liability claims arising in connection with such AH product sold on and after December 16, 2003.
In addition to the potential for personal injury damages to the approximately 155
plaintiffs, the plaintiffs are asking for punitive damages and requesting that the Company be
enjoined from the future sale of the product at issue. In September 2006, in the first trial,
which was brought by three plaintiffs, the Circuit Court of Washington County, Arkansas, Second
Division, entered a jury verdict in favor of the Company. The plaintiffs appealed the verdict,
challenging certain pretrial expert rulings; however, in May 2008, the Supreme Court of Arkansas
denied plaintiffs challenges. In its ruling, the Supreme Court of Arkansas also overturned the
trial courts granting of summary judgment that had the effect of dismissing certain poultry
company co-defendants from the case. The re-trial of the first case against the poultry company
co-defendants is scheduled for April 2009, and subsequent cases are expected to be tried against
both the poultry companies and the Company together. While the Company can give no assurance of
the outcome of any future trial in this litigation, it believes that it will be able to continue to
present credible scientific evidence that its product is not the cause of any injuries the
plaintiffs may have suffered. There is also the possibility of an adverse customer reaction to the
allegations in these lawsuits, as well as additional lawsuits in other jurisdictions where the
product has been sold. Worldwide sales of this product were approximately $22,200 in 2006, $20,400
in 2007 and $14,700 in the first nine months of 2008.
Brazilian Tax Claims
The Company has been the subject of tax claims by the Brazilian authorities relating to
sales and import taxes with respect to the operations of the Companys AH business in Brazil since
1999, and certain disallowed expense deductions, which aggregated
approximately $14,800. On August 25, 2008, the Joint Chambers of the Sao
Paulo State Taxpayers Council rendered its non-appealable decision canceling the largest of such
fines levied against the Company, in the amount of approximately $14,000. The remaining claims are
not material in the aggregate to the Companys financial position, and the Company believes it has meritorious defenses and intends to continue to vigorously defend its position against these
remaining claims.
18
FLSA Class Action
A purported class action lawsuit has been filed with the United States District Court in
New Jersey. The complaint alleges that, among other things, (i) over 200 of the Companys U.S.
based Pharmaceuticals sales representatives were denied overtime pay, in violation of state and
federal labor laws, by being paid for forty hour weeks even though they worked in excess of
fifty-five hours per week, and (ii) the Company violated federal record-keeping requirements.
Based upon the facts as presently known, the Company does not believe that it is likely that the
class action will result in liability that would be material to the Companys financial position.
The Company believes it has meritorious defenses and intends to vigorously defend its positions in
this lawsuit. Numerous other pharmaceutical companies are defendants in similar lawsuits.
Average Wholesale Price Litigation
The Company, and in certain instances, Alpharma Pharmaceuticals, are defendants in
various lawsuits in state, city and county courts, based upon allegations that fraudulent Average
Wholesale Prices (AWP) were reported primarily in connection with KADIAN capsules for varying
numbers of years under governmental Medicaid reimbursement programs. The plaintiffs in these cases
include state government entities that made Medicaid payments for the drug at issue based on AWP.
These lawsuits vary with respect to the particular causes of action and relief sought. The relief
sought in these lawsuits includes statutory causes of action including civil penalties and treble
damages, common law causes of action, and declaratory and injunctive relief, including, in certain
lawsuits, disgorgement of profits. The Company believes it has meritorious defenses and intends to
vigorously defend its positions in these lawsuits. Numerous other pharmaceutical companies are
defendants in similar lawsuits.
Shareholder Litigations
New Jersey Actions:
In August and September of 2008, five purported class action lawsuits were filed in New Jersey
against the Company and its directors by alleged shareholders of the Company. Each of the five
complaints alleges that the Companys directors breached their fiduciary duties in connection with
the tender offer by Albert Acquisition Corp. (Albert), a Delaware corporation and wholly owned
subsidiary of King Pharmaceuticals, Inc. (King), to purchase all outstanding Class A common stock
of the Company (the Offer), including by adopting and
maintaining the Companys Rights Agreement, dated as of
September 1, 2008 (the Rights Agreement), and seeks declaratory, injunctive and other relief. In
October 2008, the Court issued an Order consolidating the five lawsuits into one action, and
appointing lead plaintiff and lead plaintiffs counsel. The Company and its directors anticipate
that plaintiffs will file a consolidated amended complaint, and the Company and its directors have
no obligation to answer or otherwise respond to the current complaints in the meantime.
Delaware Actions:
In September 2008, King and Albert filed a lawsuit in Delaware against the Company and its
directors. The complaint alleges that the Companys directors breached their fiduciary duties in
connection with the Offer by adopting and maintaining the Rights Agreement and seeks declaratory,
injunctive and other relief. In October 2008, the Court approved a stipulation among the parties
extending the deadline for the Company and its directors to respond to the complaint until mid
November 2008.
19
Also in September 2008, a purported class action lawsuit was filed in Delaware against the
Company and its directors by an alleged shareholder of the Company. The complaint alleges that the
Companys directors breached their fiduciary duties in connection with the Offer, including by
adopting and maintaining the Rights Agreement, and seeks injunctive and other relief. In October 2008,
the Company and its directors filed a motion to dismiss or, in the alternative, stay the action.
The Court has not yet set a briefing schedule.
The Company and its directors believe that the claims made in each of the seven foregoing
lawsuits are without merit and they intend to defend vigorously against these lawsuits.
DOJ Information Request / Investigation
On February 28, 2007, the Company received a subpoena from the U.S. Department of Justice
(DOJ) requesting certain documents in connection with its investigation into various marketing
practices with respect to KADIAN capsules (KADIAN is a registered trademark of Alpharma
Pharmaceuticals), an extended-release formulation of morphine sulfate. The Company has learned
that the DOJ has requested an interview with at least one former Company employee, and has
subpoenaed records from several physicians who performed research on KADIAN and/or wrote articles
about KADIAN. The Company has also learned that the government has subpoenaed records from at
least two third-party vendors who were retained to provide services relating to clinical studies of
KADIAN. The DOJ has also asked the Company to provide documents relating to post-approval studies
of KADIAN that were submitted to the FDA. The Company and its subsidiary, Alpharma
Pharmaceuticals, have responded and are continuing to respond to this subpoena and additional
information requests and are fully cooperating with the DOJ. At this
time, the Company cannot predict or determine the outcome of this
matter or reasonably estimate the amount or range of amounts of
fines or penalties, if any, that might result from an adverse outcome.
Other Commercial Disputes and Litigation
Any further responsibilities for substantially all of the material contingent liabilities
related to the Companys divestiture of its human generic pharmaceutical business in 2005 and its
API business in 2008 have been transferred to the respective purchasers of such businesses (Actavis
Group hf or entities owned by Actavis, in the case of the generics business, and certain affiliates
of 3i, in the case of the API business) subject to certain representations or warranties made by
the Company to such purchasers as part of the transactions to the extent such representations and
warranties were incorrect. The Company has retained certain specified liabilities that it believes
are not material to the Company and it is possible that the Company may be held responsible for
certain liabilities of the Generics business and the API business that were transferred to the
respective purchasers in the event such purchasers fail or are unable to satisfy such liabilities.
The Company and its subsidiaries are, from time-to-time, involved in other litigation
arising out of the ordinary course of business. It is the view of management, after consultation
with counsel, that the ultimate resolution of all other pending suits on an individual basis should
not have a material adverse effect on the consolidated financial position, results of operations or
cash flows of the Company.
Guarantees
The Company provides guarantees to certain European governments for value-added tax. At
September 30, 2008 and December 31, 2007, guarantees totaled $3,334 and $2,649, respectively.
13. Shareholder Rights Agreement
On September 1, 2008, the Company entered into a Rights Agreement dated as of September 1,
2008, between the Company and Computershare Trust Company, N.A., as Rights Agent (the Rights
Agreement). On September 1, 2008, the Board of Directors of the Company declared a dividend of
one preferred stock purchase right (a Right) for each
outstanding share of Class A Common Stock
20
of the Company.
Each Right entitles the registered holder, at any time after (i) the tenth day after the first
date of a public announcement that a person or group of affiliated or associated persons (an
Acquiring Person) has acquired beneficial ownership of 15% or more of the outstanding shares of
Class A Common Stock or (ii) the tenth business day (or such later date as may be determined by
action of the Board of Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) after the date of commencement of, or the first public announcement of
an intention to commence, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of the outstanding shares of
Class A Common Stock, to purchase from the Company one one-thousandth of a share of Series B Junior
Participating Preferred Stock (the Series B Preferred Stock) of the Company at a price of $65.00
per one-thousandth of a share of Series B Preferred Stock (as the same may be adjusted pursuant to
the Rights Agreement, the Purchase Price).
In the event that an Acquiring Person has acquired beneficial ownership of 15% or more of the
outstanding shares of Class A Common Stock, each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to
receive upon exercise of a Right and payment of the Purchase Price, that number of shares of
Class A Common Stock having a market value of two times the Purchase Price. In the event that,
after a person or group has become an Acquiring Person, the Company is acquired in a merger or
other business combination transaction or 50% or more of its consolidated assets or earning power
are sold, proper provision will be made so that each holder of a Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will thereafter have the
right to receive, upon the exercise thereof at the then-current exercise price of the Right, that
number of shares of common stock of the person with whom the Company has engaged in the foregoing
transaction (or its parent), which number of shares at the time of such transaction will have a
market value of two times the Purchase Price. At any time after any person or group becomes an
Acquiring Person and prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Class A Common Stock or the occurrence of an event described in the prior
sentence, the Board of Directors of the Company may exchange the Rights (other than Rights owned by
such person or group which will have become void), in whole or in part, at an exchange ratio of one
share of Class A Common Stock, or a fractional share of Series B Preferred Stock (or of a share of
a similar class or series of the Companys preferred stock having similar rights, preferences and
privileges) of equivalent value, per Right (subject to adjustment).
On September 23, 2008, the Companys Board of Directors passed a
resolution delaying the distribution date of the Rights as a result
of King Pharmaceuticals, Inc.s unsolicited tender offer for the
Companys Class A Common Stock until such later date (prior to a
person or group becoming an Acquiring Person) as the Board of
Directors may determine in the future by resolution.
The Rights will expire on September 1, 2009, unless the Rights are earlier redeemed or
exchanged by the Company or the Rights Agreement is amended or terminated.
The foregoing summary description of the Rights Agreement is qualified in its entirety by
reference to the Rights Agreement filed as Exhibit 4.1 to the Companys Registration Statement on
Form 8-A filed with the SEC on September 5, 2008.
14. Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, requires foreign currency translation
adjustments and certain other items, which were reported separately in stockholders equity, to be
included in Accumulated Other Comprehensive Income (Loss). Included within Accumulated
Other Comprehensive Income (Loss) as of September 30, 2008, are foreign currency translation
adjustments and previously unrecognized actuarial gains and losses as a result of implementing SFAS
No. 158, Employers Accounting for Defined Benefit Pension and other Postretirement Plans.
21
The components of comprehensive income and accumulated other comprehensive income
include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Other Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
4,120 |
|
|
$ |
15,053 |
|
|
$ |
167,850 |
|
|
$ |
40,047 |
|
Change in Foreign Currency Translation |
|
|
(7,443 |
) |
|
|
5,201 |
|
|
|
(72,545 |
) |
|
|
7,345 |
|
Change in unrealized gain on pension, net |
|
|
36 |
|
|
|
68 |
|
|
|
73 |
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,287 |
) |
|
$ |
20,322 |
|
|
$ |
95,378 |
|
|
$ |
47,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2008 |
|
Accumulated Other Comprehensive Income: |
|
|
|
|
Cumulative translation adjustment |
|
$ |
1,077 |
|
Prior service not yet recognized in cost |
|
|
(22 |
) |
Actuarial loss not yet recognized in cost, net |
|
|
(3,206 |
) |
|
|
|
|
|
|
$ |
(2,151 |
) |
|
|
|
|
15. Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Interest income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
4,699 |
|
|
$ |
4,927 |
|
|
$ |
11,801 |
|
|
$ |
11,375 |
|
Interest expense |
|
|
(1,675 |
) |
|
|
(1,639 |
) |
|
|
(5,118 |
) |
|
|
(3,087 |
) |
Amortization of debt issuance costs |
|
|
(310 |
) |
|
|
(310 |
) |
|
|
(931 |
) |
|
|
(701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,714 |
|
|
$ |
2,978 |
|
|
$ |
5,752 |
|
|
$ |
7,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses), net |
|
$ |
(941 |
) |
|
$ |
299 |
|
|
$ |
(626 |
) |
|
$ |
1,359 |
|
Other, net |
|
|
(209 |
) |
|
|
(78 |
) |
|
|
(207 |
) |
|
|
(343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,150 |
) |
|
$ |
221 |
|
|
$ |
(833 |
) |
|
$ |
1,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16. Business Segment Information
The Companys businesses are organized in two reportable segments, as follows:
|
|
|
Pharmaceuticals |
|
|
|
|
Animal Health |
The operations of both segments are evaluated based on key financial metrics including
revenue and operating income. Unallocated costs include corporate expenses for administration,
finance, legal and certain unallocated expenses primarily related to stock-based compensation and
other long-term incentive compensation, as well as certain costs related to business development
activities and the amortization of the company-wide enterprise resource planning system.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
Revenues |
|
|
Operating Income (loss) |
|
Pharmaceuticals |
|
$ |
82,057 |
|
|
$ |
42,435 |
|
|
$ |
9,106 |
|
|
$ |
4,549 |
|
Animal Health |
|
|
93,641 |
|
|
|
90,747 |
|
|
|
16,604 |
|
|
|
18,327 |
|
Unallocated and eliminations |
|
|
|
|
|
|
|
|
|
|
(15,966 |
) |
|
|
(10,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
175,698 |
|
|
$ |
133,182 |
|
|
$ |
9,744 |
|
|
$ |
12,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
Revenues |
|
|
Operating Income (loss) |
|
Pharmaceuticals (a) |
|
$ |
229,343 |
|
|
$ |
119,499 |
|
|
$ |
(45,109 |
) |
|
$ |
5,496 |
|
Animal Health |
|
|
270,758 |
|
|
|
265,100 |
|
|
|
44,568 |
|
|
|
52,681 |
|
Unallocated and eliminations |
|
|
|
|
|
|
|
|
|
|
(37,206 |
) |
|
|
(34,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
500,101 |
|
|
$ |
384,599 |
|
|
$ |
(37,747 |
) |
|
$ |
23,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Operating income (loss) for the nine months ended September 30, 2008 includes $37,000 in
research and development expenses related to the achievement of the first and second progress
milestones related to the clinical advancement of ketoprofen in TRANSFERSOME gel. |
17. Subsequent Event
On
October 25, 2008, the Companys affiliate, Alpharma
Ireland, effected a development and
license agreement (the Agreement) with DURECT Corporation (DURECT) whereby the Company was
granted the exclusive worldwide rights to develop and commercialize an investigational transdermal
bupivacaine patch currently under development for the treatment of pain associated
with post-herpetic neuralgia. Under the terms of
the Agreement, in connection with the closing of the
transaction, Alpharma Ireland paid to DURECT an upfront license fee of $20,000, with additional
payments to be made upon achievement of predefined development, regulatory and sales milestones, as
well as royalties on future sales. The Company will control and fund the development program and
the Agreement includes the right to use the trademark ELADUR in connection with the product
candidate.
23
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of
Operations |
(In millions of dollars, except per share data)
Overview
We are a global specialty pharmaceutical company that develops, manufactures and markets
pharmaceutical products for humans and animals. Our businesses are organized in two business
segments: Pharmaceuticals and Animal Health (AH). We currently market two branded human
pharmaceutical prescription products that are manufactured by third parties: an extended release
morphine sulfate pain medication sold in the United States under the trademark KADIAN
and a topical non-steroidal anti-inflammatory (NSAID) patch product marketed in the United
States under the trademark FLECTOR. We manufacture and market animal health products, consisting
primarily of medicated feed additives (MFAs) and water soluble therapeutics for production
animals (principally, poultry, cattle and swine).
On
October 25, 2008, our affiliate, Alpharma Ireland Limited
(Alpharma Ireland), effected a
development and license agreement with
DURECT Corporation (DURECT), for the exclusive worldwide rights to develop and commercialize an
investigational transdermal bupivicaine patch, currently in Phase 2 clinical development, for the
treatment of pain associated with post-herpetic neuralgia. Under the
terms of the agreement, in connection with the closing of the
transaction, Alpharma Ireland paid to DURECT an upfront license fee
of $20.0 million. See Note 17 to our unaudited
consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
On September 1, 2008, we adopted a Rights Agreement, granting one preferred stock purchase
right for each outstanding share of our Class A Common Stock. Upon the acquisition by a person or
group of beneficial ownership of 15% or more of our Class A Common Stock, each holder of a right
(other than the rights beneficially owned by such acquiring person or group, which will have become
void) is entitled, upon payment of a purchase price, to receive shares of our Class A Common Stock
having a market value of two times the purchase price. See Note 13 to our unaudited consolidated
financial statements included in Item 1 of this Quarterly Report
on Form 10-Q.
On August 22, 2008, King Pharmaceuticals, Inc. (King) publicly announced its offer to
purchase all issued and outstanding shares of our Class A Common Stock for $33.00 per share. On
September 11, 2008, King announced that it had increased its offer to $37.00 per share. On
September 12, 2008, King, through its wholly-owned subsidiary,
Albert Acquisition Corp. (Purchaser), launched an unsolicited tender offer
for all issued and outstanding shares of our Class A Common Stock for $37.00 per share, subject to
a number of terms and conditions described in the Tender Offer
Statement on Schedule TO filed by Purchaser with the United States Securities
and Exchange Commission (SEC) on September 12, 2008 (the King Offer). On September 26, 2008, we issued a press release announcing
we had filed documents with the SEC in which our Board of Directors
urged shareholders not to tender shares pursuant to the King Offer while we continue to pursue a
previously announced process to explore all strategic alternatives to maximize shareholder value,
including a possible sale of our Company to King or to another party. On October 13, 2008, King extended the
King Offer through November 21, 2008. For additional information related to the tender offer and
this process, refer to our Solicitation/Recommendation Statement on Schedule 14D-9, as amended,
filed with the SEC.
On February 6, 2008, we entered into a definitive agreement to sell our Active Pharmaceutical
Ingredients (API) business to certain investment funds managed by 3i, a global private equity and
venture capital company, for $395.0 million. The transaction included the sale of manufacturing
facilities in: Copenhagen, Denmark; Oslo, Norway; Budapest, Hungary; and Taizhou, China. The API
business employed approximately 700 people, substantially all of whom were transferred with the
business. The API sale closing occurred on April 1, 2008, with the transaction effective as of the
close of business March 31, 2008.
24
The financial statements have been presented for all periods to classify the API business as a
discontinued operation. We have reclassified the December 31, 2007 assets and liabilities of API
as held for sale in the Consolidated Balance Sheet presented in Item 1 of this Quarterly Report on
Form 10-Q.
Discontinued Operations
Effective March 31, 2008, we completed the sale of our API business and have classified the
current year financial results, and reclassified the historical financial results of API, as
results from discontinued operations. Reported financial results for API for the nine months ended
September 30, 2008 and 2007 are summarized below. Results in 2008 include the period from January
1, 2008 through March 31, 2008, the effective date of the transaction.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, |
|
|
2008 |
|
2007 |
Total revenues |
|
$ |
42.9 |
|
|
$ |
138.7 |
|
Operating income |
|
$ |
2.4 |
|
|
$ |
29.9 |
|
Income from discontinued operations, net of
income taxes |
|
$ |
0.7 |
|
|
$ |
25.7 |
|
Through the first nine months of 2008, we recorded $203.0 million of gain on sales of
discontinued operations, net of taxes. The final purchase price of the API divestiture, and
therefore the gain, is subject to adjustment based on the closing net cash balance and working
capital of the business, as defined in the divestiture agreement.
See Note 3 to our unaudited consolidated financial statements included in Item 1 of this
Quarterly Report on Form 10-Q.
Results of Continuing Operations Three months ended September 30, 2008
Total revenues increased 31.9% to $175.7 million for the quarter ended September 30,
2008, compared to $133.2 million for the third quarter of 2007. We reported third quarter 2008
operating income of $9.7 million, compared to $12.5 million of operating income in 2007. Diluted
earnings per share was $0.10 for the three months ended September 30, 2008, compared to diluted
earnings per share of $0.12 for the three months ended September 30, 2007.
The following summarizes revenues and operating income (loss) by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
|
|
|
|
Revenues |
|
|
|
|
|
(Loss) |
|
|
|
|
Three Months Ended September 30, |
|
2008 |
|
|
2007 |
|
|
% |
|
2008 |
|
|
2007 |
|
|
% |
Pharmaceuticals |
|
$ |
82.1 |
|
|
$ |
42.4 |
|
|
93.6 |
% |
|
$ |
9.1 |
|
|
$ |
4.6 |
|
|
97.8 |
% |
Animal Health |
|
|
93.6 |
|
|
|
90.8 |
|
|
3.1 |
% |
|
|
16.6 |
|
|
|
18.3 |
|
|
(9.3 |
)% |
Unallocated and Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.0 |
) |
|
|
(10.4 |
) |
|
(53.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
175.7 |
|
|
$ |
133.2 |
|
|
31.9 |
% |
|
$ |
9.7 |
|
|
$ |
12.5 |
|
|
(22.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Revenues:
Pharmaceuticals revenues increased $39.7 million, or 93.6%, to $82.1 million in the third
quarter of 2008, compared to $42.4 million in the third quarter of 2007. The revenue growth was
primarily attributable to the January 2008 launch of the FLECTOR Patch. Third quarter 2008 FLECTOR
Patch revenues totaled $30.9 million, reflecting third quarter prescription demand. The remainder,
$8.8 million, of the year-over-year increase in Pharmaceutical revenues relates to sales of KADIAN
Capsules which was primarily attributable to increased pricing and increased volumes due to
prescription growth.
AH revenues increased $2.8 million, or 3.1%, to $93.6 million in the third quarter of
2008, compared to $90.8 million in the third quarter of 2007. Translation of revenues into U.S.
dollars increased AH revenues by approximately $1.2 million compared to the third quarter of 2007.
Excluding the year-over-year effects of currency, AH revenues increased 1.8% versus the prior year,
reflecting increased year-over-year sales in U.S. Poultry and Livestock markets, and in Asian
markets, partially offset by declines in Latin American markets.
Gross Profit:
On a consolidated basis, gross profit in the third quarter of 2008 increased $30.9
million compared to the third quarter of 2007. As a percentage of revenue, overall gross profit
margin was 64.1% in the third quarter of 2008, versus 61.3% in the third quarter of 2007. The
year-over-year increase in gross profit margin is attributable to the higher revenue growth from
our higher gross margin Pharmaceuticals business.
Operating Expenses:
On a consolidated basis, selling, general and administrative (SG&A) expenses in the
third quarter of 2008 increased $34.4 million, compared to the third quarter of 2007 and include
$4.2 million of costs associated with the King Offer. Excluding costs associated with the King
Offer, SG&A expenses as a percentage of revenues increased to 48.4% in the third quarter of 2008,
from 41.2% in the third quarter of 2007. The increase principally relates to the sales force
expansion and other investments required in our Pharmaceuticals business to support the January
2008 launch of the FLECTOR Patch and the growing business.
Research and development expenses in the third quarter of 2008 decreased to $13.5 million
compared to $14.6 million in the third quarter of 2007, which included costs associated with the
completion of the Phase 3 studies for EMBEDA capsules. As a percentage of revenue, R&D expense
decreased to 7.7% in the third quarter of 2008 versus 11.0% in the third quarter of 2007, primarily
due to increased sales in the third quarter of 2008 versus the same period of 2007.
Asset impairments and other (income) expense amounted to $0.3 million of income in the
third quarter of 2007 and consisted of facility exit cost adjustments and asset sales related to
previously closed AH facilities.
26
Operating Income:
Operating income (OI) decreased $2.8 million in the third quarter of 2008 as compared
to the third quarter of 2007. The change in operating income is summarized, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/ |
|
|
|
|
|
|
Pharmaceuticals |
|
|
AH |
|
|
Unallocated |
|
|
Total |
|
2007 as reported |
|
$ |
4.6 |
|
|
$ |
18.3 |
|
|
$ |
(10.4 |
) |
|
$ |
12.5 |
|
Research and development |
|
|
0.8 |
|
|
|
0.3 |
|
|
|
|
|
|
|
1.1 |
|
Facility exit cost adjustments and
asset sales in 2007 |
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
(0.3 |
) |
Favorable settlement of contract
dispute in 2007 |
|
|
|
|
|
|
(2.7 |
) |
|
|
|
|
|
|
(2.7 |
) |
Expenses associated with King Offer |
|
|
|
|
|
|
|
|
|
|
(4.2 |
) |
|
|
(4.2 |
) |
(Increase)/decrease in other SG&A |
|
|
(26.8 |
) |
|
|
(0.5 |
) |
|
|
(1.4 |
) |
|
|
(28.7 |
) |
Net OI increase (decrease) due to
volume, price, new products, costs,
and foreign exchange |
|
|
30.5 |
|
|
|
1.5 |
|
|
|
|
|
|
|
32.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 as reported |
|
$ |
9.1 |
|
|
$ |
16.6 |
|
|
$ |
(16.0 |
) |
|
$ |
9.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net:
An analysis of the components of interest income and interest expense is, as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Interest income |
|
$ |
4.7 |
|
|
$ |
5.0 |
|
Interest expense |
|
|
(1.7 |
) |
|
|
(1.7 |
) |
Amortization of debt issuance costs |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
$ |
2.7 |
|
|
$ |
3.0 |
|
|
|
|
|
|
|
|
Interest income:
Interest income for the quarter ended September 30, 2008 decreased by $0.3 million as compared
to the three months ended September 30, 2007, due to lower interest rates on cash investments,
partially offset by higher cash and cash equivalent balances on hand.
Interest expense:
Interest expense for the quarter ended September 30, 2008 remained consistent with the third
quarter of 2007 as year-over-year debt levels were relatively unchanged and interest rates on
outstanding debt are predominantly fixed. See Note 9 to our unaudited consolidated financial
statements included in Item 1 of this Quarterly Report on Form 10-Q.
27
Other income (expense), net:
A detail of Other income (expense), net follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Foreign exchange gains (losses), net |
|
$ |
(0.9 |
) |
|
$ |
0.3 |
|
Other, net |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
$ |
(1.1 |
) |
|
$ |
0.2 |
|
|
|
|
|
|
|
|
Tax Provision
Our effective tax rate is dependent on many factors including: a) the impact of
enacted tax laws in jurisdictions in which we operate; b) the amount of earnings by jurisdiction,
due to varying tax rates in each country; and c) our ability to utilize various tax losses and
credits.
The tax provision for continuing operations for the three months ended September 30, 2008
was $7.2 million, representing an effective tax rate of 63.6% of pre-tax income of $11.3 million. The tax provision for the
third quarter of 2007 was $10.4 million or 66.2%
of pre-tax income of $15.7 million.
The third quarter effective tax rate is based on full year projections
and the rate percentage in excess of the statutory U.S. federal rate
reflects, among other factors, permanent tax differences and increases
in certain deferred tax asset valuation allowances.
Results of Continuing Operations Nine months ended September 30, 2008
Total revenues increased 30.0% to $500.1 million for the first nine months of 2008
compared to the same period of 2007. We reported an operating loss of $37.7 million for the first
nine months of 2008, compared to $23.8 million of operating income in 2007. Diluted loss per share
was $0.84 for the nine months ended September 30, 2008, compared to diluted earnings per share of
$0.33 for the nine months ended September 30, 2007. Results for the nine months ended September
30, 2008 include $37.0 million of research and development expense in the Pharmaceutical business
associated with the achievement, in March 2008, of the first and second progress milestones related
to the clinical advancement of ketoprofen in TRANSFERSOME gel.
The following summarizes revenues and operating income (loss) by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
Operating Income (Loss) |
|
| |
|
Nine Months Ended September 30, |
|
2008 |
|
|
2007 |
|
|
% |
|
2008 |
|
|
2007 |
|
|
% |
Pharmaceuticals |
|
$ |
229.3 |
|
|
$ |
119.5 |
|
|
|
91.9 |
% |
|
$ |
(45.1 |
) |
|
$ |
5.5 |
|
|
|
N/M |
|
Animal Health |
|
|
270.8 |
|
|
|
265.1 |
|
|
|
2.2 |
% |
|
|
44.6 |
|
|
|
52.7 |
|
|
|
(15.4 |
)% |
Unallocated and Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37.2 |
) |
|
|
(34.4 |
) |
|
|
(8.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
500.1 |
|
|
$ |
384.6 |
|
|
|
30.0 |
% |
|
$ |
(37.7 |
) |
|
$ |
23.8 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M Not meaningful
28
Revenues:
Pharmaceuticals revenues increased $109.8 million, or 91.9%, to $229.3 million in the
first nine months of 2008, compared to $119.5 million in the first nine months of 2007. The
revenue growth was principally attributable to the January 2008 launch of the FLECTOR Patch.
FLECTOR Patch revenues totaled $92.9 million for the first nine months of 2008. The remainder,
$16.9 million, of the year-over-year increase in Pharmaceutical revenues relates to sales of KADIAN
Capsules driven by higher year-over-year pricing and increased volumes due to prescription growth.
AH revenues increased $5.7 million, or 2.2%, to $270.8 million in the first nine months
of 2008, compared to $265.1 million in the first nine months of 2007. Translation of revenue into
U.S. dollars increased AH revenue by approximately $6.3 million compared to the first nine months
of 2007. Excluding the year-over-year effects of currency, AH revenue decreased slightly versus
the prior year. The decrease in revenue primarily reflects lower year-over-year sales in the U.S.
livestock markets, partially offset by increased U.S. Poultry revenues and increased sales in
international markets.
Gross Profit:
On a consolidated basis, gross profit in the first nine months of 2008 increased $82.8
million compared to the first nine months of 2007. As a percentage of revenue, overall gross
profit margin was 63.9% in the first nine months of 2008, versus 61.6% in the first nine months of
2007. The year-over-year increase in gross profit margin is attributable to the higher revenue
growth from our higher gross margin Pharmaceuticals business.
Operating Expenses:
On a consolidated basis, SG&A expenses in the first nine months of 2008 increased $105.0
million, compared to the first nine months of 2007 and include $4.2 million of costs associated
with the King Offer. Excluding these costs, SG&A as a percentage of revenues increased to 54.3%
in the first nine months of 2008, from 44.4% in the comparable period of 2007. The increase
principally relates to the sales force expansion and other investments required in our
Pharmaceuticals business to support the January 2008 launch of the FLECTOR Patch and the growing
business.
Research and development expenses increased $35.9 million in the first nine months of
2008 compared to 2007, due to the $37.0 million of research and development expense in the
Pharmaceuticals business associated with the achievement, in March 2008, of the first and second
progress milestones related to the clinical advancement of ketoprofen in TRANSFERSOME gel.
Excluding the $37.0 million in progress milestones, R&D expense was 9.0% of revenues in the first
nine months of 2008, compared to 11.9% for the first nine months of 2007. The decline in R&D
expense as a percentage of revenues primarily reflects increased revenues in the first nine months
of 2008, versus the same period of 2007.
Asset impairments and other (income) expense amounted to $3.4 million of income in the
first nine months of 2007 and consisted of facility exit cost adjustments and asset sales related
to previously closed AH facilities.
29
Operating Income:
OI decreased $61.5 million in the first nine months of 2008 as compared to 2007. The
change in operating income is summarized, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/ |
|
|
|
|
|
|
Pharmaceuticals |
|
|
AH |
|
|
Unallocated |
|
|
Total |
|
2007 as reported |
|
$ |
5.5 |
|
|
$ |
52.7 |
|
|
$ |
(34.4 |
) |
|
$ |
23.8 |
|
Research and development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Progress milestones to IDEA AG |
|
|
(37.0 |
) |
|
|
|
|
|
|
|
|
|
|
(37.0 |
) |
- Other research and development |
|
|
2.5 |
|
|
|
(1.4 |
) |
|
|
|
|
|
|
1.1 |
|
Facility exit cost adjustments and asset sales
in 2007 |
|
|
|
|
|
|
(3.4 |
) |
|
|
|
|
|
|
(3.4 |
) |
Favorable settlement of contract dispute in 2007 |
|
|
|
|
|
|
(2.7 |
) |
|
|
|
|
|
|
(2.7 |
) |
Expenses associated with King Offer |
|
|
|
|
|
|
|
|
|
|
(4.2 |
) |
|
|
(4.2 |
) |
(Increase)/decrease in other SG&A |
|
|
(98.6 |
) |
|
|
(2.0 |
) |
|
|
1.4 |
|
|
|
(99.2 |
) |
Net OI increase (decrease) due to volume,
price, new products, costs,
and foreign
exchange |
|
|
82.5 |
|
|
|
1.4 |
|
|
|
|
|
|
|
83.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 as reported |
|
$ |
(45.1 |
) |
|
$ |
44.6 |
|
|
$ |
(37.2 |
) |
|
$ |
(37.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net:
An analysis of the components of interest income and interest expense is, as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Interest income |
|
$ |
11.8 |
|
|
$ |
11.4 |
|
Interest expense |
|
|
(5.1 |
) |
|
|
(3.1 |
) |
Amortization of debt issuance costs |
|
|
(0.9 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
$ |
5.8 |
|
|
$ |
7.6 |
|
|
|
|
|
|
|
|
Interest income:
Interest income for the nine months ended September 30, 2008 increased by $0.4 million as
compared to the nine months ended September 30, 2007, primarily due to higher average cash and cash
equivalent balances on hand, partially offset by lower interest rates on cash investments.
Interest expense:
Interest expense and amortization of debt issuance costs increased by $2.2 million for the
first nine months of 2008, as compared to the first nine months of 2007, primarily attributable to
a full nine months of interest expense in 2008 related to the convertible debt issued in March
30
2007, and nine months of interest on outstanding borrowings on our debt in China, initiated in the
second quarter of 2007. See Note 9 to our unaudited consolidated financial statements included in
Item 1 of this Quarterly Report on Form 10-Q.
Other income (expense), net:
A detail of Other income (expense), net follows:
|
|
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|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Foreign exchange gains (losses), net |
|
$ |
(0.6 |
) |
|
$ |
1.4 |
|
Other, net |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
$ |
(0.8 |
) |
|
$ |
1.0 |
|
|
|
|
|
|
|
|
Tax Provision:
Our
effective tax rate is dependent on many factors including: a) the impact of enacted tax laws in
jurisdictions in which we operate; b) the amount of earnings by jurisdiction, due to varying tax
rates in each country; and c) our ability to utilize various tax losses and credits.
The tax provision for continuing operations for the nine months ended September 30, 2008
was a provision of $3.0 million on a pre-tax loss of $32.8 million. Our nine months ended
September 30, 2008 results include $37.0 million of research and development expenses incurred by
our Irish subsidiary for the first and second progress milestones related to the clinical
advancement of ketoprofen in TRANSFERSOME gel. We are recording a deferred tax asset for the future
potential tax benefits associated with these research and development expenses and we are recording
a corresponding valuation allowance for this deferred tax asset, as our Irish subsidiary is a
start-up operation for a product in development, and we presently have no basis to conclude it is
more likely than not that this deferred tax asset will be realized.
The tax provision for the nine months ended September 30, 2007 was $18.0 million on pre-tax
income of $32.4 million.
Liquidity and Capital Resources
At September 30, 2008, we had $571.0 million in cash and cash equivalents, with
approximately $261.0 million of this balance located outside of the U.S. Cash and cash
equivalents include institutional money market funds and bank time deposits. All investments are highly liquid and, therefore, available to us on a
daily basis. Our cash and cash equivalents are available for, but not limited to, business
development opportunities, our previously announced share repurchase program, as well as for
general corporate purposes. Interest income earned on cash investments was $11.8 million for the
nine months ended September 30, 2008.
31
Our total outstanding debt at September 30, 2008, was $305.1 million, consisting
primarily of $300 million of Convertible Senior Notes, due March 2027. Interest expense, including
amortization of debt issue costs, for the nine months ended September 30, 2008 was $6.0 million.
Including our discontinued operations, cash (used in) operating activities for the nine
months ended September 30, 2008 was $(36.3) million, compared to $66.0 million of cash provided by
operations for the first nine months of 2007. Cash used in operating activities during the first
nine months of 2008 includes the $37.0 million of progress milestone payments related to the
clinical advancement of ketoprofen in TRANSFERSOME gel. Cash used in the first nine months of 2008
also reflects investments in the Pharmaceuticals business to expand its sales force and in support
of the launch of the FLECTOR Patch. Cash provided by operating activities in the nine months ended
September 30, 2007 includes the operating cash flow generated by our API business. During the first
nine months of 2008, we made net cash tax payments of $4.7 million compared to net cash tax refunds
of $2.7 million during the first nine months of 2007.
Cash flows provided by (used in) investing activities for the nine months ended September 30,
2008 and 2007 were $365.9 and $(150.0), respectively. Cash flows provided by investing activities
in the first nine months of 2008 include $384.5 million of proceeds from the sale of the API
business offset in part by capital expenditures of $18.6 million. Cash flows used in investing
activities for the first nine months of 2007 included $100.0 of payments related to the IBSA
license and distribution agreements and $41.8 million of capital expenditures.
Cash flows provided by (used in) financing activities for the nine months ended September
30, 2008 and 2007 were $(59.1) million and $305.1 million, respectively. Cash flows used in
financing activities for the nine months ended September 30, 2008 include $61.9 million used to
repurchase 2,623,836 shares of our common stock in open market purchases. Cash flows provided by
financing activities for the nine months ended September 30, 2007 include the net proceeds of
$292.8 million from the issuance of our $300 million Convertible Senior Notes.
Working capital at September 30, 2008 was $639.5 million compared to $377.3 million at
December 31, 2007. Working capital is defined as current assets less current liabilities. The
increase in working capital is primarily related to the $384.5 million we received from the
purchaser of our API business on April 1, 2008, partially offset by our milestone payments and
share repurchases.
Stockholders equity at September 30, 2008 was $784.6 million compared to $731.1 million at
December 31, 2007. The increase in Stockholders equity at September 30, 2008 resulted primarily
from the recognition of the gain on the sale of the API divestiture, partially offset by the net
loss from continuing operations for the first nine months of 2008. At September 30, 2008,
Accumulated Other Comprehensive Income decreased $72.5 million, to $(2.2) million, from $70.3
million at December 31, 2007, due primarily to the portion of cumulative translation adjustment
that was attributable to the API divestiture.
32
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and Qualitative Disclosure This information is included in Item 7a of the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company has implemented and maintains disclosure controls and procedures designed to
ensure that information required to be disclosed in reports the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions (SEC) rules and forms and that such
information is accumulated and communicated to the Companys President and Chief Executive Officer
(CEO) and Executive Vice President and Chief Financial Officer (CFO) as appropriate to allow
timely decisions regarding disclosure. The disclosure controls and procedures involve
participation by various individuals in the Company having access to material information relating
to the operations of the Company. It should be noted that any system of controls, however well
designed and operated, can provide only reasonable, and not absolute, assurance that the objectives
of the system are met. In addition, the design of any control system is based in part upon certain
assumptions about the likelihood of future events.
The Companys CEO and CFO completed an evaluation of the effectiveness of the design and
operation of the Companys disclosure controls and procedures pursuant to Exchange Rule 13a-15 as
of September 30, 2008. Based on this evaluation, they concluded that the Companys disclosure
controls and procedures were effective as of September 30, 2008.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in the Companys internal control over financial reporting during
the three-months ended September 30, 2008, that have materially affected, or are reasonably likely
to materially affect, the registrants internal control over financial reporting.
***************
Statements
made in this Form 10-Q, are forward-looking statements made in
reliance upon the safe harbor
provisions of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. The
statements contained herein that are not historical facts are
considered forward-looking statements under federal securities laws. Such forward-looking statements are based on the beliefs of our management, as well as
assumptions made by and information currently available to them and involve certain risks
and uncertainties and other factors that could cause actual results
to differ materially from those in the forward-looking statements.
The Company has no obligation to update such forward-looking
statements.
Information on other important potential risks and uncertainties not discussed
herein may be found in the Companys filings with the SEC including its Annual Report on Form 10-K
for the year ended December 31, 2007. All forward-looking
statements are qualified by these cautionary statements and are made
only as of the date they are made.
Important
Legal Information
In
connection with the tender offer commenced by King Pharmaceuticals,
Inc. (King), the Company has filed with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9.
33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12 to the Companys Consolidated Financial Statements included in Part 1 of this
Quarterly Report on Form 10-Q for a discussion of material developments in the Companys legal
proceedings.
Item 1A. Risk Factors
The tender offer by King Pharmaceuticals may create a distraction for the Companys management and
uncertainty that may adversely affect the Companys business.
On September 12, 2008, King Pharmaceuticals, Inc. (King), through a wholly-owned subsidiary,
launched an unsolicited tender offer for all issued and outstanding shares of the Companys Class A
Common Stock, subject to a number of terms and conditions contained in Kings tender offer
documents. On September 26, 2008, the Company issued a press release announcing it had filed
documents with the Securities and Exchange Commission in which the Companys Board of Directors
recommended that the Companys shareholders reject the King
offer and not tender shares to King pursuant to Kings offer while the Company continues to
pursue a previously announced process to explore strategic alternatives to maximize shareholder
value, including a possible sale of the Company to King or another party.
There can be no assurance whether a transaction will occur with King or any other party, or at
what price.
The
review and consideration of Kings tender offer (and any alternate proposals
that may be made by other parties in connection with the Companys review of strategic
alternatives) have become and may continue to be a significant distraction for the Companys
management and employees and has required, and may continue to require, the expenditure of
significant time and resources by the Company. While the Company has retention programs in place,
Kings offer has created uncertainty for the Companys
employees and we believe this uncertainty
has adversely affected the Companys ability to hire new talent and may, in the future, adversely
affect the Companys ability to retain key employees and to hire
new talent. In addition, stockholder
litigation in connection with Kings unsolicited offer has resulted and may continue to result in
significant costs of defense, indemnification and liability. These consequences, alone or in
combination, may harm the Companys business and have a material adverse effect on the Companys
results of operations.
The Companys stock price has been volatile and may continue to fluctuate significantly.
As a result of Kings unsolicited tender offer, and speculation concerning a potential sale of
the Company, as well as the recent volatility in general market conditions, the market price of the
Companys common stock has been subject to significant fluctuations. The future trading price of
the Companys common stock is likely to be volatile and could be subject to wide price
fluctuations. There can be no assurance whether a transaction will occur with King or any other
party or at what price.
34
Litigation directly or indirectly resulting from Kings unsolicited tender offer may negatively
impact the Companys business, results of operations and financial condition.
Shareholder purported class action lawsuits have been filed against the Company and its
directors in New Jersey and Delaware contending that the Companys directors breached their
fiduciary duties in connection with Kings unsolicited tender offer, including by adopting and
maintaining the Rights Agreement, dated as of September 1, 2008. Other lawsuits may
continue to be filed against the Company and its directors with similar or additional allegations.
Such claims and any resultant litigation could subject the Company to liability, could be time
consuming and expensive to defend, and could result in the diversion of the Companys time and
attention, any of which could materially and adversely affect the Companys business, results of
operations and financial condition.
In addition to the above and the other information set forth in this Report, see also the
factors discussed in Part I, Item 1A Risk Factors in the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2007. These collective risks could materially affect the
Companys business, financial condition and future results. These risks are not the only risks
facing the Company. Additional risks and uncertainties not currently known to the Company, or that
the Company currently deems to be immaterial, also may materially and adversely affect the
Companys business, financial condition or operating results. Other than those set forth above,
there have been no material changes in the Companys risk factors as set forth in its Annual Report
on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
This table provides certain information with respect to the Companys purchases of shares of
its common stock during the third fiscal quarter of 2008:
Issuer Purchases of Equity Securities(a) (dollar amounts in thousands, except amounts per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Value of Shares that |
|
|
|
Total Number of |
|
|
Average Price |
|
|
Purchased as |
|
|
May Yet Be |
|
|
|
Shares |
|
|
Paid per |
|
|
Part of Publicly |
|
|
Purchased |
|
Period |
|
Purchased |
|
|
Share |
|
|
Announced Plan |
|
|
Under the Plan(b) |
|
July 1, 2008 through
July 31, 2008 |
|
|
1,516,657 |
|
|
$ |
23.42 |
|
|
|
1,516,657 |
|
|
$ |
|
|
August 1, 2008 through
August 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1, 2008
through
September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,516,657 |
|
|
$ |
23.42 |
|
|
|
1,516,657 |
|
|
$ |
88,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On April 14, 2008, the Company announced that its Board of Directors
approved a stock repurchase program, authorizing the Company to buy
back up to $150 million of the Companys common stock. According to
the program, share repurchases take place on the open market from
time-to-time based on market conditions. The repurchase program began
in May 2008 and has a maximum duration of twenty-four months. Any
shares acquired will be available for general corporate purposes. |
|
(b) |
|
Net of commissions paid to the Companys agent. |
35
Item 6. Exhibits
10.1g |
|
Letter Amendment amending the Amended and Restated Loan and Security Agreement, dated March
10, 2006, as amended, among the Company, certain of its subsidiaries, various financial
institutions party thereto from time to time and Bank of America, N.A., in its capacity as a
lender and collateral and administrative agent, dated October 7, 2008. |
|
10.98 |
|
Alpharma Inc. Executive Change in Control Plan, Amended and Restated effective September 1,
2008. |
|
10.99* |
|
Development and License Agreement between DURECT Corporation and Alpharma Ireland Limited,
dated as of September 19, 2008. |
|
31.1 |
|
Certification by the Chief Executive Officer under Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
31.2 |
|
Certification by the Chief Financial Officer under Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
32 |
|
Certifications by the Chief Executive Officer and the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Portions of this Exhibit have been omitted pursuant to a request for confidential treatment. |
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Alpharma Inc. |
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
Date: October 29, 2008 |
/s/ Jeffrey S. Campbell
|
|
|
Jeffrey S. Campbell |
|
|
Executive Vice President and Chief Financial
Officer |
|
|
|
|
|
Date: October 29, 2008 |
/s/ Donald I. Buzinkai
|
|
|
Donald I. Buzinkai |
|
|
Vice President, Controller and Principal
Accounting Officer |
|
|
37