-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QNc+bMFI8825z1q0O5SGgnjIIPrmoG6f8yWsIvq3C709yZkpbXVehiHj3gQfxaRj gR8oLVL1HJf+2vl70MLs+Q== 0000950109-94-001591.txt : 19940825 0000950109-94-001591.hdr.sgml : 19940825 ACCESSION NUMBER: 0000950109-94-001591 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940720 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19940822 FILER: COMPANY DATA: COMPANY CONFORMED NAME: A L LABORATORIES INC CENTRAL INDEX KEY: 0000730469 STANDARD INDUSTRIAL CLASSIFICATION: 2834 IRS NUMBER: 222095212 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08593 FILM NUMBER: 94545214 BUSINESS ADDRESS: STREET 1: ONE EXECUTIVE DR STREET 2: P O BOX 1399 CITY: FORT LEE STATE: NJ ZIP: 07024 BUSINESS PHONE: 2019477774 8-K/A 1 AMENDMENT TO FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------- Date of Report (Date of earliest event reported) July 20, 1994
A. L. Laboratories, Inc. - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware I-8593 22-2095212 - - ------------------------ ---------------- ------------------- (Commission (IRS Employer (State or other File Number) Identification jurisdiction No.) of incorporation)
- - ------------------------------------------------------------------------------- One Executive Drive, Fort Lee, New Jersey 07024 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (ZipCode) Registrant's telephone number, including area code (201) 947-7774 -------------- Not Applicable - - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On July 21, 1994, A.L. Laboratories, Inc. (the "Company") issued two press releases announcing that it had acquired Wade Jones Company, Inc., a Texas corporation ("Wade Jones"), a distributor of poultry animal health products that is also actively involved in the development, manufacture and sale of its own line of products including animal health pharmaceuticals and feed additives. The Company consummated the acquisition of Wade Jones by acquiring all of the outstanding capital stock of Mikjan Corporation, an Arkansas corporation ("Mikjan"), which is the parent of Wade Jones. The Mikjan capital stock was acquired from Mick Wagner, Jan Powell and certain charitable trusts established by Mr. Wagner and Mr. Powell. Prior to the acquisition, Wade Jones acted as a distributor of the Company's poultry animal health products. The Company intends to continue to operate Wade Jones as a stand-alone business maintaining its historic operations while expanding the scope of such operations. The Company paid aggregate consideration of $8,219,440 as the initial purchase price for the Mikjan capital stock, subject to a potential purchase price adjustment for which certain amounts were retained by the Company. The Company will pay additional consideration specified in the Stock Purchase Agreement (defined below) in the event that regulatory approval is obtained permitting the marketing of certain development stage products and in the event that such products are successfully marketed by Wade Jones. The Company obtained funds for the acquisition from a lender through a line of credit. The identity of such lender has been filed separately with the Securities and Exchange Commission (the "Commission"). ITEM 5. OTHER EVENTS. As announced in its press release dated May 17, 1994, the Company entered into an agreement (the "Restructuring Agreement") with Apothekernes Laboratorium A.S, the beneficial owner of 100% of the Company's Class B Common Stock ("A. L. Oslo"), on May 16, 1994 to combine the pharmaceutical, animal health, bulk antibiotic and aquatic animal health businesses of A. L. Oslo (the "Related Norwegian Businesses") with the Company. The Restructuring Agreement was unanimously approved by the Board of Directors, following a recommendation by a Special Committee of the Board consisting of the Directors elected by the holders of the Company's Class A Common Stock (the "Class A Shares"). The transactions contemplated by the Restructuring Agreement (the "Transactions") will require approval of the shareholders of both corporations, including a majority of the outstanding Class A Shares, voting as a separate class. A proxy statement relating to approval of, among other things, the Restructuring Agreement and the Transactions is being contemporaneously filed with this Form 8-K/A and is being mailed to stockholders on August 22, 1994 (the "Proxy Statement"). The Proxy Statement includes detailed information regarding the Transactions and the Related Norwegian Businesses. In addition to shareholder approval, the Transactions are subject to a number of other conditions including the approval of Norwegian governmental authorities and acceptance of the Exchange Offer (as defined below) by holders of at least 90% of the shares of capital stock of A. L. Oslo. The consideration to be paid by the Company for the Related Norwegian Businesses consists of 170 million Norwegian kroner ("NOK") and warrants to purchase 3.6 million Class A Shares (the "Warrants"). The Warrants will have an exercise price equal to 140% of the average trading price over a specified period prior to closing. The cash portion of the purchase price has been adjusted from NOK 170 million to NOK 160 million as a result of a NOK 10 million dividend which was paid to A. L. Oslo shareholders in June 1994. Using the exchange rate at June 30, 1994, NOK 160 million equals approximately $23.1 million. Prior to the closing of the Transactions, A. L. Oslo will transfer the assets and liabilities of the Related Norwegian Businesses into a new company ("New A. L. Oslo") in a transaction called a demerger. A demerger in Norway is similar to a spin-off in the United States. Each holder of an A. L. Oslo share will be entitled to receive one share of capital stock of New A. L. Oslo for each A. L. Oslo share it holds. The Company will acquire the Related Norwegian Businesses through an offer (the "Exchange Offer") to acquire all shares of New A. L. Oslo which the A. L. Oslo shareholders are entitled to receive in the demerger. The Company is required to account for the acquisition of all of the outstanding shares of New A. L. Oslo (the "RNB Acquisition") as a transfer and exchange between companies under common control. Accordingly, the assets and liabilities of New A. L. Oslo will be combined with the Company at historical cost in a manner similar to a pooling-of-interests; and the Company's historical financial statements will be restated to reflect the combined results of operations, assets, liabilities and net worth of the Company and of the Related Norwegian Businesses. The payment of the cash purchase price will be reflected as a reduction of combined equity when the transactions are consummated. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Business Acquired. i) Report of Independent Accountants (Page F-2) ii) Mikjan Corporation Consolidated Balance Sheets as of October 2, 1993 and October 2, 1992 (Page F-3). iii) Mikjan Corporation Consolidated Statements of Income and Retained Earnings (Accumulated Deficit) for the years ended October 2, 1993 and October 2, 1992 (Page F-5). iv) Mikjan Corporation Consolidated Statements of Cash Flows for the years ended October 2, 1993 and October 3, 1992 (Page F-6). v) Notes to the Mikjan Corporation Consolidated Financial Statements for the years ended October 2, 1993 and October 3, 1992 (Page F- 7). vi) Mikjan Corporation Unaudited Consolidated Condensed Balance Sheet as of June 30, 1994 (Page F-15). vii) Mikjan Corporation Unaudited Consolidated Statement of Income for the three month period and nine month period ended June 30, 1994 (Page F-16). viii) Mikjan Corporation Unaudited Consolidated Condensed Statement of Cash Flows for the nine month period ended June 30, 1994 \ (Page F-17). ix) Notes to the Mikjan Unaudited Corporation Consolidated Condensed Financial Statements (Page F-18). (b) Pro Forma Financial Information. i) Pro Forma Financial Information Reflecting the Acquisition of Mikjan: A) A.L. Laboratories, Inc. Proforma Combined Balance Sheet for the period ended June 30, 1994 (Page F-19). B) A.L. Laboratories, Inc. Proforma Combined Statement of Income for the year ended December 31, 1993 (Page F-20). C) A.L. Laboratories, Inc. Proforma Combined Statement of Income for the six months ended June 30, 1994 (Page F-21). D) Notes to A.L. Laboratories, Inc. Unaudited Proforma Condensed Combined Financial Statements (Page F-22). ii) Pro Forma Financial Information Reflecting the Acquisition of Mikjan and the Planned Acquisition of the Related Norwegian Businesses: A) Unaudited Proforma Condensed Combined Balance Sheet for the period ended June 30, 1994 (Page F-25). B) Unaudited Pro Forma Condensed Combined Statement of Income for the year ended December 31, 1993 (Page F-26). C) Unaudited Pro Forma Condensed Combined Statement of Income for the six months ended June 30, 1994 (Page F-27). D) Notes to Unaudited Pro Forma Condensed Combined Financial Statements (Page F-28). (c) Exhibits. 2.1 Stock Purchase Agreement, dated as of July 20, 1994, by and among Mikjan Corporation, Wade Jones Company, Inc., Mick Wagner, Jan Powell, the Mick Wagner Charitable Remainder Unitrust, the Jan Powell Charitable Remainder Unitrust, A.L. Laboratories, Inc. and G.F. Reilly, Inc. (with respect to Section 9.12 thereof only)(the "Stock Purchase Agreement").* 99.1 Press Release, dated July 21, 1994 (A.L. Laboratories, Inc.).* 99.2 Press Release, dated July 21, 1994 (A.L. Laboratories, Inc. - Animal Health Division).* - - ------ * Previously filed in the Company's Current Report on Form 8-K dated August 4, 1994. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. A. L. Laboratories, Inc. By: /s/ Jeffrey E. Smith ------------------------------ Name: Jeffrey E. Smith Title: Executive Vice President and Chief Financial Officer Dated: August 22, 1994 MIKJAN CORPORATION _______ REPORT ON AUDITS OF THE CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended October 2, 1993 and October 3, 1992 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Mikjan Corporation We have audited the accompanying consolidated balance sheets of Mikjan Corporation and subsidiary (the "Company") as of October 2, 1993 and October 3, 1992, the related consolidated statements of income and retained earnings (accumulated deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mikjan Corporation and subsidiary as of October 2, 1993 and October 3, 1992 and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand Tulsa, Oklahoma December 1, 1993 F-2 MIKJAN CORPORATION CONSOLIDATED BALANCE SHEETS As of October 2, 1993 and October 3, 1992
October 2, October 3, ASSETS 1993 1992 ------ ---------- ---------- Current assets: Cash and cash equivalents $ 86,597 $ 138,124 Accounts and notes receivable, less allowance for doubtful accounts of $23,345 and $24,500, respectively Trade 2,277,459 2,338,078 Related party 10,455 114,132 Inventories 3,144,127 2,942,472 Prepaid and other 17,217 90,847 Income tax receivable - 185,171 Future income tax benefits 100,000 100,000 ---------- ---------- Total current assets 5,635,855 5,908,824 ---------- ---------- Property, plant and equipment: Land 55,689 55,689 Buildings and leasehold improvements 1,217,369 938,137 Machinery and equipment 919,980 585,641 Furniture and fixtures 316,521 300,460 Transportation equipment 590,149 464,781 ---------- ---------- 3,099,708 2,344,708 Less accumulated depreciation and amortization 1,193,769 916,426 ---------- ---------- 1,905,939 1,428,282 ---------- ---------- Other assets: Intangible assets, net 530,897 933,813 Future income tax benefits 177,054 205,429 ---------- ---------- 707,951 1,139,242 ---------- ---------- Total assets $8,249,745 $8,476,348 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-3
LIABILITIES AND STOCKHOLDERS' EQUITY October 2, October 3, 1993 1992 ---------- ---------- Current liabilities: Current maturities of long-term debt and other obligations $1,080,000 $ 956,365 Accounts payable 2,652,822 3,250,826 Accrued liabilities 107,119 510,983 Accrued income taxes 418,094 - ---------- ---------- Total current liabilities 4,258,035 4,718,174 ---------- ---------- Long-term debt and other obligations 3,518,215 4,300,673 Commitments and contingencies (Notes 4, 6, 7 and 9) Stockholders' equity: Common stock, $1 par value, 2,000 shares authorized, 500 shares issued and outstanding 500 500 Retained earnings (accumulated deficit) 472,995 (542,999) ---------- ---------- Total stockholders' equity (deficit) 473,495 (542,499) ---------- ---------- Total liabilities and stockholders' equity $8,249,745 $8,476,348 ========== ==========
F-4 MIKJAN CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (ACCUMULATED DEFICIT) For the Years Ended October 2, 1993 and October 3, 1992
October 2, October 3, 1993 1992 ----------- ----------- Sales $25,907,570 $30,102,783 Cost of sales 21,762,205 26,748,337 ----------- ----------- Gross profit 4,145,365 3,354,446 Selling, general and administrative 1,531,665 1,332,351 Depreciation and amortization 761,200 716,673 ----------- ----------- Operating income 1,852,500 1,305,422 Interest expense 297,235 451,814 Other (income) expense (49,301) 68,359 ----------- ----------- Income before income taxes 1,604,566 785,249 Income taxes 588,572 299,534 ----------- ----------- Net income 1,015,994 485,715 Accumulated deficit (542,999) (1,028,714) ----------- ----------- Retained earnings (accumulated deficit) $ 472,995 $ (542,999) =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-5 MIKJAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended October 2, 1993 and October 3, 1992
October 2, October 3, 1993 1992 ----------- ---------- Net income $1,015,994 $ 485,715 Deferred income tax provision 213,546 107,174 Depreciation and amortization 853,648 813,595 Other - 1,939 Changes in assets and liabilities: Accounts and notes receivable 164,296 565,167 Inventories (201,655) (365,354) Prepaid and other 73,630 (265,108) Accounts payable (598,004) 151,755 Accrued liabilities 14,230 (395,700) ---------- ---------- Cash flows provided by operating activities 1,535,685 1,099,183 ---------- ---------- Cash flows provided by (used in) investing activities: Acquisition of property, plant and equipment (885,074) (375,439) Retirement of property, plant and equipment 49,133 700 ---------- ---------- Cash flows used in investing activities (835,941) (374,739) ---------- ---------- Cash flows provided by (used in) financing activities: Proceeds from issuance of debt 844,469 477,029 Payments on debt (1,595,740) (1,355,143) ---------- ---------- Cash flows provided by (used in) financing activities (751,271) (878,114) ---------- ---------- Net decrease (51,527) (153,670) Cash and cash equivalents, beginning of year 138,124 291,794 ---------- ---------- Cash and cash equivalents, end of year $ 86,597 $ 138,124 ========== ========== Cash paid during the year for: Interest $ 297,235 $ 354,892 ========== ========== Income taxes $ 44,336 $ 435,730 ========== ==========
Supplemental non-cash transactions: See Note 4 regarding assignment of the option to purchase the warehouse facility to a shareholder. The accompanying notes are an integral part of the consolidated financial statements. F-6 MIKJAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the consolidated accounts of Mikjan Corporation and its wholly-owned subsidiary, Wade Jones Company, Inc. (the "Company"). All significant intercompany accounts and transactions have been eliminated. NATURE OF BUSINESS - The Company is a manufacturer and distributor of various feed additives, poultry medication and antibiotics for animals. The Company extends credit to customers throughout the United States who serve the poultry industry. CONCENTRATIONS OF CREDIT RISK - Assets which potentially subject the Company to a concentration of credit risk consist primarily of accounts receivable and cash in financial institutions in excess of the federal deposit insurance limits of $340,000 at October 2, 1993 and $377,000 at October 3, 1992. The Company generally does not require collateral from its customers. FISCAL YEAR - The Company's fiscal year ends on the Saturday closest to September 30. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost which approximates market value. At October 2, 1993 and October 3, 1992, cash equivalents included repurchase agreements of $440,000 and $477,000, respectively. INVENTORY - Inventory is stated at the lower of cost, using the weighted average cost method, or market. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost and are depreciated over their estimated useful lives. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful lives of the improvements. Annual depreciation is primarily computed using the straight-line method. As assets are disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. F-7 MIKJAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued INCOME TAXES - Deferred income taxes, reflecting timing differences in recognizing income and expenses for tax and financial reporting purposes, relate principally to depreciation, deferred compensation and accrued liabilities. AMORTIZATION - A covenant not to compete was being amortized over five years and became fully amortized in 1993. A licensing agreement and the excess of purchase price over the net assets at the acquisition date of Wade Jones Company of Texas, Inc., is being amortized over a period of forty years. Amortization is computed using the straight-line method. 2. INVENTORIES Inventories consist of the following:
October 2, October 3, 1993 1992 ---------- ---------- Raw materials $1,062,134 $ 847,125 Work in process - 124,164 Finished goods 2,081,993 1,971,183 ---------- ---------- $3,144,127 $2,942,472 ========== ==========
3. LONG-TERM DEBT AND OTHER OBLIGATIONS Long-term debt and other obligations consist of the following:
October 2, October 3, 1993 1992 ---------- ---------- Note payable (A) $2,337,163 $2,712,500 Other obligations (B) 1,240,101 1,733,630 Mortgage payable, bank (C) 174,299 186,299 Note payable (D) 199,594 319,594 Capital lease obligations (Note 4) 226,081 245,170 Installment notes (E) 420,977 59,845 ---------- ---------- 4,598,215 5,257,038 Less current maturities 1,080,000 956,365 ---------- ---------- $3,518,215 $4,300,673 ========== ==========
F-8 MIKJAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. LONG-TERM DEBT AND OTHER OBLIGATIONS, Continued Aggregate annual maturities of long-term debt and other obligations at October 2, 1993 are as follows: $1,080,000 in 1994, $983,029 in 1995, $693,528 in 1996, $1,071,059 in 1997, $131,610 in 1998 and $638,989 thereafter. (A) Due June, 1997; payable approximately $40,000 monthly plus interest at prime plus 1 1/2% (7.5% currently); collateralized by accounts receivable, inventories, equipment, intangibles and an insurance policy on the life of a stockholder in the face amount of not less than $1,000,000. (B) Due by various dates from December, 1993 through February, 2003, payable approximately $30,000 monthly through February, 1996 and then approximately $10,000 monthly through February, 2003 including interest at 8 1/2%, collateralized by vehicles and secondary liens on accounts receivable and inventories to the extent these assets are not collateral for item (A). (C) Due November, 2002, payable approximately $2,300 monthly, including interest at prime plus 1% (8.75% currently) and collateralized by real estate. (D) Due February, 1998, payable $8,000 monthly, noninterest-bearing, imputed at 8.5%, personally guaranteed by officers and stockholders. (E) Various installment notes with interest rates ranging from 6% to 13% and total monthly installments ranging from approximately $19,000 in 1994 to $750 in 1998, collateralized by vehicles and equipment. At October 2, 1993 and October 3, 1992, the unamortized debt discount on certain obligations was $495,768 and $672,577, respectively. Included in interest expense is the amortization of debt discount of $92,448 and $96,922 during fiscal 1993 and 1992, respectively. F-9 MIKJAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. LEASES OPERATING - During 1993, the Company assigned its option to purchase a warehouse facility to a shareholder which was exercised by such shareholder prior to year end. The purchase price approximated $1.1 million and the mortgage note is guaranteed by the Company. The Company also holds a second mortgage on the property in the event of default. The Company signed a 7- year lease with the related party providing for payments of $13,500 per month. The Company also leases tractors on a daily or monthly basis. The leases require that the Company pay all repair costs associated with these vehicles. Total rent expense during 1993 was $242,348 and $191,415 during 1992. Related party rental expense as discussed above totalled $54,000 during 1993. Future lease payments under noncancellable operating leases (including related parties) are as follows:
1994 $349,358 1995 325,826 1996 300,464 1997 279,372 1998 216,623 Thereafter 270,000
CAPITAL - Capital leases included in long-term debt (Note 3), are leases covering office and warehouse facilities, which expire in 2001. Property, plant and equipment includes the following property under capital leases: Land $ 28,000 Buildings 378,693 -------- 406,693 Less accumulated amortization (62,098) -------- $ 344,595 ======== F-10 MIKJAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. LEASES, Continued Future minimum lease payments as of October 2, 1993, were:
1994 $ 34,956 1995 34,956 1996 34,956 1997 34,956 1998 34,956 Later years 113,607 -------- Future minimum lease payments 288,387 Less amount representing interest (62,306) -------- Present value of future minimum lease payments 226,081 Less current maturities (22,682) -------- Noncurrent portion $203,399 ========
5. INCOME TAXES Prior to October 3, 1992, the Company and its affiliates filed separate federal and state income tax returns. The Company currently files a consolidated return. The Company's income tax provision consists of the following:
1993 1992 -------- -------- Current provision $375,026 $192,360 Deferred tax provision 213,546 107,174 -------- -------- Total $588,572 $299,534 ======== ========
6. PROFIT-SHARING PLAN The Company has a profit-sharing plan covering substantially all employees. The Company's contributions to the plan are determined annually by the Board of Directors. Contributions are limited to 15% of total compensation paid participants during the plan year. Participants vest over a period from three to seven years of service. The Company contributed $67,503 to the Plan during fiscal 1993 and $149,325 during fiscal 1992. F-11 MIKJAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. DEFERRED COMPENSATION AGREEMENTS The Company has deferred compensation agreements with its officers and certain key employees providing additional compensation upon death, disability or retirement. Contributions to the plan are made at the discretion of management. If the Company ceases operations, the employees interest would vest immediately. The Company made contributions of approximately $102,000 during 1993 and $71,000 during 1992. 8. INTANGIBLE ASSETS Intangible assets consist of the following:
October 2, October 3, 1993 1992 -------------- ------------ Covenant not-to-compete $ 2,803,264 $ 2,803,264 Excess cost over fair value of net assets acquired 214,472 214,472 Government registrations 278,205 240,000 Other 99,236 98,556 ----------- ----------- 3,395,177 3,356,292 Less accumulated amortization (2,864,280) (2,422,479) ----------- ----------- $ 530,897 $ 933,813 =========== ===========
9. CONTINGENCIES During the months of July through September 1992, the Company allowed certain wastewater from its operations to be dumped on its parking lot. The Company is in direct communication with all appropriate authorities and is engaged in expedited testing and remediation. The Company presently projects approximately $5,000 to $75,000 in future costs, for which it may become liable, relating to this matter. F-12 MIKJAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. FUTURE ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"): "Accounting for Income Taxes" which is effective for fiscal years beginning after December 15, 1992. SFAS No. 109 requires that deferred tax liabilities and assets be recognized for any difference between the tax basis of assets and liabilities and their financial reporting amounts measured by using presently enacted tax laws and rates. The Company has not yet determined the impact of the adoption of SFAS No. 109. F-13 MIKJAN CORPORATION Unaudited Consolidated Financial Statements as of and for the period ended June 30, 1994 F-14 MIKJAN CORPORATION CONSOLIDATED CONDENSED BALANCE SHEET (In thousands of dollars)
June 30, 1994 October 2, (Unaudited) 1993 ----------- ---------- ASSETS Current assets: Cash and cash equivalents $ 60 $ 87 Accounts receivable, net 2,427 2,288 Inventories 3,195 3,144 Other 115 117 ------ ------ Total current assets 5,797 5,636 Property, plant and equipment, net 2,323 1,906 Intangible assets 534 531 Other assets and deferred charges 177 177 ------ ------ Total assets $8,831 $8,250 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 946 $1,080 Accounts payable and accrued liabilities 3,351 2,760 Accrued and deferred income taxes 171 418 ------ ------ Total current liabilities 4,468 4,258 Long-term debt 3,044 3,518 Stockholders' equity: Common Stock, $1 par value 500 shares issued 1 1 Retained earnings 1,318 473 ------ ------ Total stockholders' equity 1,319 474 ------ ------ Total liabilities and stockholders' equity $8,831 $8,250 ====== ======
The accompanying notes are an integral part of the consolidated condensed financial statements. F-15 MIKJAN CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited) (In thousands)
Three Months Ended Nine Months Ended June 30, June 30, ------------------- ------------------ 1994 1993 1994 1993 ------- ------ ------- ------- Total revenue $6,463 $5,879 $19,496 $19,555 Cost of sales 5,422 4,920 16,537 16,468 ------ ------ ------- ------- Gross profit 1,041 959 2,959 3,087 Selling, general and administrative expenses 519 635 1,455 1,726 ------ ------ ------- ------- Operating income 522 324 1,504 1,361 Interest expense (103) (94) (226) (191) Other, net 1 26 1 47 ------ ------ ------- ------- Income before provision for income taxes 420 256 1,279 1,217 Provision for income taxes 138 108 434 487 ------ ------ ------- ------- Net income $ 282 $ 148 $ 845 $ 730 ====== ====== ======= =======
The accompanying notes are an integral part of the consolidated condensed financial statements. F-16 MIKJAN CORPORATION CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (In thousands of dollars) (Unaudited)
Nine Months Ended June 30, ----------------- 1994 1993 ------ ------- Operating Activities: Net income $ 845 $ 730 Adjustments to reconcile net income to net cash provided by operating activities, principally depreciation and amortization 324 588 Changes in assets and liabilities, net of effects from business acquisition: (Increase) Decrease in accounts receivable (139) 558 (Increase) in inventory (51) (299) (Decrease)/increase in accounts payable and accrued expenses 344 (424) Other (124) (23) ------- ------ Net cash provided by operating activities 1,199 1,130 ------- ------ Investing Activities: Capital expenditures, net (618) (647) ------- ------ Net cash used in investing activities (618) (647) ------- ------ Financing Activities: Reduction of long-term debt (608) (573) ------- ------ Net cash used in financing activities (608) (573) ------- ------ Decrease in Cash (27) (90) Cash and cash equivalents at beginning of year 87 138 ------- ------ Cash and cash equivalents at end of period $ 60 $ 48 ======= ======
The accompanying notes are an integral part of the consolidated condensed financial statements. F-17 MIKJAN CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) (In thousands of dollars) 1. General ------- The accompanying consolidated condensed financial statements include all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, considered necessary for a fair presentation of the results for the periods presented. These financial statements should be read in conjunction with the financial statements of Mikjan Corporation for the years ended October 2, 1993 and October 3, 1992 included as an exhibit to the Form 8K. The reported results for the nine month period ended June 30, 1994 are not necessarily indicative of the results to be expected for the full year. F-18
A.L. LABORATORIES, INC. PRO-FORMA COMBINED BALANCE SHEET FOR THE PERIOD ENDED JUNE 30, 1994 (In thousands of dollars) A.L. LABORATORIES MIKJAN PRO FORMA PRO FORMA HISTORICAL CORPORATION ADJUSTMENTS COMBINED ------------ ----------- ----------- --------- ASSETS Current assets: Cash and cash equivalents $ 6,676 $ 60 $ 6,736 Accounts receivable, net 77,312 2,427 (127) (A) 79,612 Inventories 82,053 3,195 85,248 Prepaid expenses and other current assets 6,956 115 (550) (B) 6,521 ----------- --------- --------- ----------- Total current assets 172,997 5,797 (677) 178,117 Property, plant and equipment, net 133,707 2,323 1,000 (C) 137,030 Intangible assets, net 113,731 534 6,280 (C) 120,545 Other assets and deferred charges 12,242 177 (1,507) (B) 10,912 ----------- --------- --------- ----------- Total assets $ 432,677 $ 8,831 $ 5,096 $ 446,604 =========== ========= ========= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 9,560 $ 946 ($550) (B) $ 9,956 Short-term debt 61,365 0 7,719 (C) 69,084 Accounts payable and accrued expenses 54,255 3,351 373 (A),(C) 57,979 Accrued and deferred income taxes 4,090 171 4,261 ----------- --------- --------- ----------- Total current liabilities 129,270 4,468 7,542 141,280 Long-term debt 77,842 3,044 (1,507) (B) 79,379 Deferred income taxes 23,797 0 380 (C) 24,177 Other non-current liabilities 9,798 0 9,798 Stockholders' equity 191,970 1,319 (1,319) (C) 191,970 ----------- --------- --------- ----------- Total liabilities and stockholders' equity $ 432,677 $ 8,831 $ 5,096 $ 446,604 =========== ========= ========= ===========
F-19
A.L. LABORATORIES, INC. PRO-FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993 (In thousands, except per share data) A.L. LABORATORIES MIKJAN PRO FORMA PRO FORMA HISTORICAL CORPORATION ADJUSTMENTS COMBINED ------------ ----------- ----------- ----------- Total revenue $ 338,230 $ 25,907 $ (1,568) (D) $ 362,569 Cost of sales 207,573 21,762 (3,963) (D),(H) 225,372 ------------ ---------- ---------- ----------- Gross profit 130,657 4,145 2,395 137,197 Selling, general and administrative expenses 109,733 2,292 2,809 (D),(F),(H) 114,834 ------------ ---------- ---------- ----------- Operating income 20,924 1,853 (414) 22,363 Interest expense (6,598) (297) (292) (E),(G) (7,187) Other income (expense), net 498 49 (188) (E) 359 ------------ ---------- ---------- ----------- Income before provision for income taxes 14,824 1,605 (894) 15,535 Provision for income taxes 6,203 589 (220) (F), (G) 6,572 ------------ ---------- ---------- ----------- Net income $ 8,621 $ 1,016 $ (674) $ 8,963 ============ ========= ========== =========== Average common shares outstanding: Primary 21,510 21,510 Fully diluted 21,581 21,581 Earnings per share: Primary $ 0.40 $ 0.42 Fully diluted $ 0.40 $ 0.42
F-20
A.L. LABORATORIES, INC. PRO-FORMA COMBINED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1994 (In thousands, except per share data) A.L. LABORATORIES MIKJAN PRO FORMA PRO FORMA HISTORICAL CORPORATION ADJUSTMENTS COMBINED ------------ ----------- ----------- ----------- Total revenue $ 185,370 $ 13,033 $ (771) (D) $ 197,632 Cost of sales 114,591 11,115 (1,951) (D),(H) 123,755 ------------ ----------- ----------- ----------- Gross profit 70,779 1,918 1,180 73,877 Selling, general and administrative expenses 59,018 936 1,387 (D),(F),(H) 61,341 ------------ ----------- ----------- ----------- Operating income 11,761 982 (207) 12,536 Interest expense (3,666) (123) (175) (E),(G) (3,964) Other income (expense), net (64) 0 (85) (E) (149) ------------ ----------- ----------- ----------- Income before provision for income taxes 8,031 859 (467) 8,423 Provision for income taxes 3,204 295 (118) (F),(G) 3,381 ------------ ----------- ----------- ----------- Net income $ 4,827 $ 564 $ (349) $ 5,042 ============ =========== =========== =========== Average common shares outstanding: Primary 21,554 21,554 Fully diluted 21,590 21,590 Earnings per share: Primary $ 0.22 $ 0.23 Fully diluted $ 0.22 $ 0.23
F-21 A.L. LABORATORIES, INC. Notes to Unaudited Pro Forma Condensed Combined Financial Statements (In thousands of dollars) 1. Basis of Presentation --------------------- The unaudited pro forma condensed combined financial statements (pro forma financials) are presented for illustrative purposes only, giving effect to the acquisition, as described and therefore are not necessarily indicative of the operating results and financial position that might have been achieved had the combination occurred as of an earlier date, nor are they necessarily indicative of operating results and financial position which may occur in the future. On July 21, 1994, the Company acquired the stock of the Mikjan Corporation (hereinafter referred to as "Wade Jones Company" or "Wade Jones".) The Wade Jones Company is a major distributor of Poultry Animal Health products with headquarters in Lowell, Arkansas and five other facilities. In addition, Wade Jones manufactures and blends certain Animal Health products. The purchase agreement required a purchase price of approximately $8,200 and provides for contingent payments based on certain product approvals. The acquisition will be accounted for in accordance with the purchase method. The accompanying unaudited pro forma condensed combined financial statements reflect the acquisition as if it occurred as of the beginning of the periods presented for the income statements and as of June 30, 1994 for the balance sheet presented. The Wade Jones Company presently has a fiscal year which ends on the Saturday closest to September 30. Accordingly, the pro forma financials consolidate the results of operations for the fiscal year ended October 2, 1993 with the Company's year ended December 31, 1993 and the results of operations for the period October 3, 1993 to March 31, 1994 with the Company's six month results of operations as of June 30, 1994. For the pro forma balance sheet the unaudited Wade Jones balance sheet dated June 30, 1994 has been consolidated with the balance sheet of the Company dated June 30, 1994. The actual results of Wade Jones will be consolidated with the Company from the date of acquisition. The pro forma balance sheet includes a preliminary allocation of the purchase price which will be adjusted during the allocation period based on a detail review of the assets and liabilities acquired. F-22 Transactions between the Company and Wade Jones Company - - ------------------------------------------------------- The Company and Wade Jones Company have engaged in a number of transactions during prior years including Wade Jones distributing the Company's primary Animal Health products to the poultry industry and blending certain of the Company's products. In addition the Company has provided financing to the Wade Jones Company at market interest rates. In preparing the pro forma financials these transactions are designated intercompany and eliminated. Pro Forma Adjustments Balance Sheet June 30, 1994 - - ------------------------------------------------- The unaudited pro forma balance sheet gives effect to the acquisition as if it had been consummated on June 30, 1994. (A) To eliminate intercompany payables and receivables of $127. (B) To eliminate intercompany loan of $2,057. (Current portion $550.) (C) To record the purchase of Wade Jones and record a preliminary estimated purchase price allocation:
Purchase price: Recorded as ----------- Paid in cash $7,719 Short term debt Hold back amounts 500 Accounts payable ------ 8,219 Wade Jones equity @ 6/30/94 1,319 ------ Amount to be allocated $6,900 ====== Allocated as follows: Property, plant & equipment $1,000 Deferred tax (380) Intangible assets/excess of cost over net book value 6,280 ------ $6,900 ======
F-23 Pro forma adjustments - Income statements for the year ended December 31, ------------------------------------------------------------------------- 1993 and six months ended June 30, 1994. - - ---------------------------------------- The unaudited pro forma income statements assume the purchase as of the beginning of each period presented. The adjustments are as follows:
December June 30 31, 1993 1994 -------- ------- (D) Sales (1,568) (771) Cost of sales (1,163) (551) SG&A (405) (220) To eliminate intercompany transactions. (E) Interest income (188) (85) Interest expense 188 85 To eliminate interest income to A.L. and expense to Wade Jones (F) Depreciation expense 100 50 Tax benefit @ 38% (38) (19) Amortization of intangibles 314 157 To record depreciation on an estimated fixed asset write up based on a 10 year life. To record amortization of intangibles based on a 20 year life. (Both are included in selling, general and administrative expenses.) (G) Interest expense @ 6.0% 1993 (480) @ 6.5% 1994 (260) Tax benefit @ 38% (182) (99) To record interest expense on assumed average borrowings of $8,000 and related tax benefit. For each 1/4% change in interest rates interest expense would increase/decrease by $20. (H) Cost of goods sold (reduction) (2,800) (1,400) Selling general & administrative increase 2,800 1,400 To reclassify certain expenses between cost of goods sold and SG&A to conform Wade Jones classifications to the Company.
F-24 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 1994
The Related Pro Company Norwegian Pro Forma Forma Proforma Businesses Adjustments Combined -------- ---------- ----------- -------- ASSETS Current assets: Cash and cash equivalents $ 6,736 $ 2,820 -- $ 9,556 Accounts receivable, net 79,612 15,698 $(2,201)(a) 93,109 Inventories 85,248 11,528 (1,075)(b) 95,701 Prepaid expenses and other current assets 6,521 1,318 -- 7,839 -------- -------- -------- -------- Total current assets 178,117 31,364 (3,276) 206,205 Property, plant and equipment, net 137,030 57,402 (250)(b) 194,182 Intangible assets, net 120,545 20,659 -- 141,204 Other assets and deferred charges 10,912 6,321 (1,000)(c) 16,233 -------- -------- -------- -------- Total assets $446,604 $115,746 $(4,526) $557,824 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 9,956 $ 7,254 -- $ 17,210 Short-term debt 69,084 215 -- 69,299 Accounts payable, accrued expenses and income taxes 62,240 10,955 $(1,978)(a)(b)(c) 71,217 -------- -------- -------- -------- Total current liabilities 141,280 18,424 (1,978) 157,726 Long-term debt 79,379 65,157 25,115(c) 169,651 Deferred income taxes 24,177 6,733 -- 30,910 Other non-current liabilities 9,798 3,466 -- 13,264 Stockholders' equity 191,970 21,966 (27,663)(d)(e) 186,273 -------- -------- -------- -------- Total liabilities and stockholders' equity $446,604 $115,746 $(4,526) $557,824 ======== ======== ======== ========
See accompanying notes to unaudited pro forma condensed combined financial statements. F-25 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993 (in thousands, except per share amounts)
The Related Company Norwegian Pro Forma Pro Forma Proforma Businesses Adjustments Combined -------- ---------- ----------- --------- Total revenue $362,569 $78,467 $(14,022)(a) $427,014 Cost of sales 225,372 37,890 (12,040)(a)(b)(d) 251,222 -------- ---------- ----------- --------- Gross profit 137,197 40,577 (1,982) 175,792 Selling, general and administrative expenses 114,834 31,978 (2,673)(a) 144,139 -------- ---------- ----------- --------- Operating income 22,363 8,599 691 31,653 Interest expense (7,187) (8,398) -- (15,585) Other income (expense), net 359 1,382 -- 1,741 -------- ---------- ----------- --------- Income before provision for income taxes 15,535 1,583 691 17,809 Provision for income taxes 6,572 575 191 (e) 7,338 -------- ---------- ----------- --------- Net income 8,963 1,008 500 10,471 ======== ========== =========== ========= Average common shares outstanding: Primary 21,510 21,510 Fully diluted 21,581 21,581 Earnings per share: Primary $0.42 $0.49 Fully diluted $0.42 $0.49
See accompanying notes to unaudited pro forma condensed combined financial statements. F-26 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1994 (in thousands, except per share amounts)
The Related Company Norwegian Pro Forma Pro Forma Proforma Businesses Adjustments Combined -------- ---------- ----------- --------- Total revenue $197,632 $41,694 $(8,726)(a) $230,600 Cost of sales 123,755 19,839 (6,826)(a)(b)(d) 136,768 -------- ---------- ----------- --------- Gross profit 73,877 21,855 (1,900) 93,832 Selling, general and administrative expenses 61,341 16,363 (1,550)(a) 76,154 -------- ---------- ----------- --------- Operating income 12,536 5,492 (350) 17,678 Interest expense (3,964) (3,182) -- (7,146) Other income (expense), net (149) 242 -- 93 -------- ---------- ----------- --------- Income before provision for income taxes 8,423 2,552 (350) 10,625 Provision for income taxes 3,381 773 (102)(e) 4,052 -------- ---------- ----------- --------- Net income $ 5,042 $ 1,779 $ (248) $ 6,573 ======== ========== =========== ========= Average common shares outstanding: Primary 21,554 21,554 Fully diluted 21,590 21,590 Earnings per share: Primary $0.23 $0.30 Fully diluted $0.23 $0.30
See accompanying notes to unaudited pro forma condensed combined financial statements. F-27 Notes to Unaudited Pro Forma Condensed Combined Financial Statements (in thousands, except shares and per share data) 1. Basis of Presentation The unaudited pro forma condensed combined financial statements ("pro forma financials") are presented for illustrative purposes only, giving effect to the planned RNB Acquisition and therefore are not necessarily indicative of the financial position that might have been achieved had the combination occurred as of an earlier date, nor are they necessarily indicative of the financial position which may occur in the future. In accordance with the rules of the Commission, the Company has been required to present pro forma combined income statements of the Company combined with the Mikjan Corporation (the Company combined with the Mikjan Corporation is referred to as the "Company Proforma") and the Related Norwegian Businesses as if a pooling of interests was consummated at the beginning of the earliest period presented. The pro forma results of operations presented are therefore not indicative of the results of --- the combined companies that might have been achieved had the combination occurred as of an earlier date nor are they indicative of results which may occur in the future since to effect the RNB Acquisition the cash consideration paid would have resulted in interest expense in each of the periods presented. The pro forma financials give effect to the RNB Acquisition as a transfer and exchange between companies under common control. Accordingly, the assets and liabilities of the Related Norwegian Businesses will be combined with the Company Proforma at their historical costs in a manner similar to a pooling-of- interests. Upon restatement of the combined consolidated balance sheet the initial period presented will reflect the addition of the net equity of the Related Norwegian Businesses as of that date as an increase in consolidated equity and the subsequent payment of consideration by the Company for the Related Norwegian Businesses as a reduction in consolidated equity. The pro forma financials assume that the New A. L. Oslo shareholders will tender 100% of the New A. L. Oslo shares in the Exchange Offer. If, however, less than 100% but more than 90% of the New A. L. Oslo shares were tendered in the Exchange Offer, the Company does not believe that the cost of acquiring the remaining outstanding New A. L. Oslo shares would significantly affect the pro forma financials. Because the Transactions have not been completed and transition plans are not finalized, and the benefits and costs of integrating certain operations cannot be estimated with reasonable assurance, the pro forma combined income statements for the periods exclude the financial impact of benefits expected to be achieved upon combining the resources of the companies and any special charges or other costs to achieve these benefits. As a result of the RNB Acquisition, there may be a restructuring charge taken in the fourth quarter of 1994. Such a charge and its magnitude have yet to be determined. The Company expects to operate as a pharmaceutical and animal health company and will be managed on a global basis through decentralized strategic business units (or divisions) ("SBU's"). It is anticipated that by the end of August 1994 key executives will be named by the Chief Executive Officer of the Company to head the SBU's. Each SBU head will begin a study of their business to determine what actions may be taken to realize potential synergies of the RNB Acquisition and to maximize both the SBU and the Company's global competitive position. Such actions may include rationalization of the combined businesses. At the conclusion of these studies, the head of each SBU working with the Chief Executive Officer of the Company will make appropriate recommendations to the Company's Board of Directors. It is anticipated that the Company's Board of Directors will decide on recommended actions by December 31, 1994. Given the timing of this plan, the financial impact of the actions that may be taken as a result of such studies and the related action of the Company's Board of Directors are not estimable at this time. The pro forma income statements for the periods also exclude investment banking, legal, accounting and other transaction expenses, including the expensing of debt issuance costs related to existing debt expected to be refinanced, and tax effects relating to the combination to be incurred and recorded by the Company subsequent to the signing of the Restructuring Agreement in May 1994, estimated to be F-28 up to $3,600 after tax. Tax effects of the combination will include the non- deductibility for tax purposes of a majority of the expenses previously incurred or to be incurred to complete the RNB Acquisition. The pro forma condensed combined balance sheet as of June 30, 1994 includes, in accordance with the reporting rules of the Commission, the impact of all transactions, whether of a recurring or non-recurring nature, that can be reasonably reflected and should be reflected as of that date. Therefore, current liabilities and long-term debt have been increased by $600 and $2,000, respectively, and other assets and deferred charges have been reduced by $1,000. Such adjustments represent an estimate of the investment banking, legal, accounting and other transaction expenses, including the expensing of debt issuance costs related to existing debt expected to be refinanced, and tax effects relating to the combination expected to be incurred and recorded by the Company subsequent to the signing of the Restructuring Agreement in May 1994 and as a result of the planned refinancing of the existing debt. 2. Transactions between the Company and the Related Norwegian Businesses The Company and the Related Norwegian Businesses have engaged in and will continue to engage in a number of transactions including inventory purchased from the Related Norwegian Businesses, license fees for technology paid to the Related Norwegian Businesses and sales from the Company to the Related Norwegian Businesses. As a result, current amounts are generally payable from the Company to the Related Norwegian Businesses for inventory and license fees. When the companies are combined, the profit related to inventory purchased from either party will be deferred or recognized depending on the amount on hand and the change in the amounts from the preceding period. Upon consummation of the combination these transactions will be intercompany in nature and will be eliminated in preparing the consolidated accounts. Accordingly, in the preparation of the pro forma financials these transactions are designated as "intercompany" and are eliminated. 3. Translation of Related Norwegian Businesses Financial Information The Related Norwegian Businesses financial information is maintained and translated where applicable into Norwegian kroner. For purposes of the pro forma financials, (a) the balance sheet at June 30, 1994 in Norwegian kroner has been translated into United States dollars at the quarter end rate of NOK 6.9219 to $1.00; and (b) the income statements for the year ended December 31, 1993 and for the six-month period ended June 30, 1994 have been translated by first converting the income statements for each quarter in the period presented using the average exchange rate for such quarter and then aggregating the converted income statements for all of the quarters in such period. The average exchange rates for each of the quarters in the year ended December 31, 1993 and the six months ended June 30, 1994 were as follows:
Average Exchange Rate ---------------------- 1993 1994 -------- -------- 1st Quarter.......... 6.8954 7.4070 2nd Quarter.......... 6.8740 7.1239 3rd Quarter.......... 7.2716 4th Quarter.......... 7.3419
F-29 4. Earnings Per Common Share -- Pro Forma The pro forma earnings per common share computations are based on historical average common shares outstanding and income from continuing operations as presented on a pro forma basis. To reflect the effect of the consideration to be paid, the Company has presented a supplemental computation of earnings per common share with earnings being decreased by imputed interest expense net of taxes based on the proposed cash consideration of $23,115 at a 7% interest rate and has reflected the 3,600,000 Warrants to be issued as part of the Transactions as outstanding (assuming an exercise price of $20) for all periods presented. It should be noted that the impact of the Warrants was either antidilutive or not material for all periods presented. Supplemental fully diluted earnings per share for the periods presented is as follows:
Year ended Six Months December 31, 1993 ended June 30, 1994 ----------------- ------------------- Earnings per share -- fully diluted.. $.44 $.28
5. Pro Forma Adjustments -- Balance Sheet at June 30, 1994 The unaudited pro forma balance sheet gives effect to the RNB Acquisition as if it had been consummated on June 30, 1994. The adjustments are as follows: (a) To eliminate intercompany receivable and payable of $2,201. (b) To eliminate profit in inventory on intercompany sales of $1,075, profit on intercompany sale of equipment of $250, and the tax effect related thereto of $377. (c) To reflect additional long-term debt expected to be incurred by the Company as part of a refinancing in order to pay the Cash Purchase Price pursuant to the Restructuring Agreement, NOK 160,000 ($23,115 at June 30, 1994 exchange rates), and estimated transaction expenses, including the expensing of debt issuance costs related to existing debt expected to be refinanced, of $3,600 after tax. The Company expects to obtain long-term financing to complete the Transactions by the Closing Date. For purposes of the pro forma financials, $2,000 of the $3,600 transaction expenses are assumed to be financed at Closing. The $3,600 of transaction expenses are reflected as a decrease in other assets and deferred charges of $1,000, an increase in accounts payable, accrued expenses and income taxes of $600, and an increase in long-term debt of $2,000. F-30 (d) To reflect the reduction of stockholders' equity relating to the consideration paid of $29,667 by the Company to the holders of New A. L. Oslo shares to acquire the Related Norwegian Businesses. The reduction of stockholders' equity is offset by the recording of the Warrants as an increase to stockholders' equity. The net effect is a reduction of stockholders' equity of $23,115 (as detailed below). Calculation of Consideration Paid:
Entries in Stockholders' Equity --------------------------------- Additional Consideration Retained Paid in Paid Earnings Capital Total ------------- -------- ---------- -------- (reduction) increase Cash (NOK 160,000, at exchange rate of NOK 6.9219 to $1.00)......... $23,115 -- $(23,115) $(23,115) Warrants (3,600,000 @ $1.82)..................... 6,552 $(6,552) 6,552 0 ------------- -------- ---------- -------- $29,667 $(6,552) $(16,563) $(23,115) ======== ========== Net book value of Related Norwegian Businesses....... 21,966 21,966 ------------- -------- Excess of total consideration paid over Excess of cash paid over net book value of the net book value of the Related Norwegian Related Norwegian Businesses................ $ 7,701 Businesses.............. $ 1,149 ============= ========
The actual amount by which the total consideration and cash to be paid will exceed the net book value of the Related Norwegian Businesses at the date the RNB Acquisition is consummated will be determined by the exchange rate in effect on such date and the actual net book value of the Related Norwegian Businesses on such date. For purposes of the pro forma financials, the Warrants have been valued at $1.82 each. The $1.82 value is the average of the range ($1.36 to $2.27) determined by the Special Committee's financial advisor, Lehman Brothers, based on the 26-week observed volatility of the Class A Shares assuming up to a 40% discount. Based on different hypothetical assumptions, Lehman Brothers observed additional Black-Scholes Model ranges for valuation of the Warrants of between $.90 and $3.41. The Company chose the average of $1.82 because it was based on actual Class A Share volatility and on generally recognized variations between Black-Scholes theoretical values and actual trading values. A wide range of different valuations is possible depending on the chosen assumptions. A. L. Oslo's financial advisor, Bear, Stearns & Co. Inc., had estimated the value of the Warrants to be in a range of $2.93 to $3.30 using the Black-Scholes Model, assuming a $14.00 market price of the Class A Shares and a 4.5 year exercise period for the Warrants. The difference in the Warrant valuation is primarily due to varying assumptions relating to the expected future volatility of the market price of Class A Shares and discounts attributable to marketability. Each $.25 change in the value of the Warrants will result in a $900 corresponding change in the consideration to be paid by the Company for the Related Norwegian Businesses. However, the final value attributed to the Warrants for accounting purposes will not result in any change in total --- stockholders' equity since the difference in the value will be reflected as a change in the amount of the stockholder's equity reduction related to the RNB Acquisition offset by the change in the increase in equity relating to recording the F-31 issuance of the Warrants. The actual value of the Warrants will be determined by the actual performance of the Class A Shares as traded in the public market over the period that the Warrants are outstanding. (e) To record the net effect after tax to retained earnings of: Profit in inventory and intercompany equipment sale elimination (948) Transaction expenses including related taxes (3,600) ------ (4,548) ======
F-32 6. Pro Forma Adjustments - Income Statements for the Year Ended December 31, 1993 and Six Months Ended June 30, 1994. The unaudited pro forma income statements give effect to the RNB Acquisition as if it were a pooling of interests. The adjustments are as follows:
December 31, 1993 June 30, 1994 ----------------- ------------- (a) To eliminate intercompany transactions: Sales and other revenues $(14,022) $(8,726) Cost of sales (11,349) (7,176) Selling, general and administrative (2,673) (1,550) (b) To record rollover of profit in inventory at period end Cost of goods sold - (reduction) increase $ (617) $ 426 (c) To reverse the intercompany profit realized on the sale of certain equipment by the Related Norwegian Businesses to the Company -- -- (d) To reverse depreciation on the equipment purchased from the Related Norwegian Businesses $ (74) $ (76) (e) Estimated tax effect related to the cost of goods sold adjustment and the profit and depreciation related to the equipment sales. $ (191) $ 102
As previously disclosed the unaudited pro forma income statements do not include an adjustment for interest expense related to the cash consideration to be paid by the Company to the shareholders of New A. L. Oslo. Assuming cash consideration of $23,115 and an interest rate of 7%, interest expense after tax would have decreased net income by approximately $1,000 in 1993 and $500 for the six months ended June 30, 1994. F-33 EXHIBIT INDEX
Exhibit No. Document Page - - ------------ --------------------------------- ---- 2.1 Stock Purchase Agreement, dated * as of July 20, 1994, by and among Mikjan Corporation, Wade Jones Company, Inc., Mick Wagner, Jan Powell, the Mick Wagner Charitable Remainder Unitrust, the Jan Powell Charitable Remainder Unitrust, A.L. Laboratories, Inc. and G.F. Reilly, Inc. (with respect to Section 9.12 thereof only). 99.1 Press Release, dated July 21, * 1994 (A.L. Laboratories, Inc.). 99.2 Press Release, dated July 21, * 1994 (A.L. Laboratories, Inc. - Animal Health Division).
- - ------------ * Previously filed in the Company's Current Report on Form 8-K dated August 4, 1994. -----END PRIVACY-ENHANCED MESSAGE-----