SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(mark one)
X Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange
- -
Act of 1934 for the Quarter Ended June 30, 1994.
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
Commission File Number 1-8867
BIOCRAFT LABORATORIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-1734359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18-01 River Road
Fair Lawn, NJ 07410
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 703-0400
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 X No
- -
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at August 10, 1994
----------------------------- ------------------------------
Common Stock, $.01 par value 14,133,074
<PAGE>
PART I
Item 1. Financial Statements
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
June. 30, March 31,
1994 1994
---- ----
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents .................................... $ 8,448 $ 6,020
Marketable securities, at market on June 30
and cost at March 31, 1994 ................................. 648 733
Receivables:
Trade ..................................................... 15,945 21,094
Income taxes .............................................. 391 214
Other ..................................................... 164 159
Inventories .................................................. 54,557 50,407
Other ........................................................ 2,232 1,557
-------- --------
Total current assets ...................................... 82,385 80,184
-------- --------
Property and equipment, net ........................................ 87,349 87,028
Other assets and deferred charges .................................. 868 861
-------- --------
$170,602 $168,073
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current installments of long-term obligations ................ $ 5,566 $ 5,566
Accounts payable-trade ....................................... 12,482 8,369
Accrued expenses ............................................. 4,405 2,993
--------- ---------
Total current liabilities ................................. 22,453 16,928
--------- ---------
Long-term obligations, excluding current installments .............. 46,786 48,582
Deferred income taxes .............................................. 4,867 5,271
Stockholders' equity:
Preferred stock, $1.00 par value.
Authorized 2,000,000 shares; none issued ................... -- --
Common stock, $.01 par value. Authorized
30,000,000 shares; issued 14,189,396 at
June 30 and 14,189,365 at March 31 ........................ 142 142
Additional paid-in capital ................................... 42,228 42,242
Retained earnings ............................................ 55,016 55,910
Unrealized gain on securities ................................ 12 --
Less deductions for treasury stock and
employee stock plans ...................................... (902) (1,002)
--------- ---------
Net stockholders' equity .................................. 96,496 97,292
--------- ---------
Commitments and contingencies
$170,602 $168,073
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months
Ended June 30,
--------------
(In thousands, except per share data)
1994 1993
----------- -----------
<S> <C> <C>
Revenue:
Net sales .................................................... $31,158 $35,823
Other operating income ....................................... 37 93
Interest, dividend and other income .......................... 248 172
------- -------
Total revenue ............................................. 31,443 36,088
------- -------
Costs and expenses:
Cost of sales ................................................ 25,685 27,741
Research and development ..................................... 2,519 2,212
Selling, general and administrative .......................... 3,587 1,941
Interest expense ............................................. 1,136 1,197
------- -------
Total costs and expenses .................................. 32,927 33,091
------- -------
Earnings (loss) before income taxes (benefit)
and cumulative effect of change in method
of accounting for income taxes ............................ (1,484) 2,997
Income taxes (benefit) ....................................... (590) 1,084
------- -------
Earnings (loss) before cumulative effect
of accounting change ...................................... (894) 1,913
Cumulative effect as of April 1,
1993 of change in method of
accounting for income taxes ............................... -- 30
------- -------
Net earnings (loss) ................................................ ($894) $1,943
------- -------
Earnings (loss) per share:
Earnings (loss) before cumulative effect
of accounting change ......................................... ($.06) $0.14
Cumulative effect of accounting change ............................. -- --
------- -------
Net earnings (loss) ................................................ ($.06) $0.14
------- -------
Weighted average number of
shares outstanding ........................................... 14,159 14,141
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Three Months ended June 30,
1994 1993
--------- ---------
(in thousands)
<S> <C> <C>
Cash flows provided by operating activities:
Net earnings (loss) .......................................... ($894) $1,943
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................. 1,748 1,599
Imputed and non-cash interest expense ..................... 187 208
Non-cash compensation ..................................... 86 95
Equity in net earnings of affiliate ....................... (4) (26)
Gain on sale of marketable securities ..................... (131) --
Deferred income taxes ..................................... (412) 104
Cumulative effect of accounting change .................... -- (30)
Changes in assets and liabilities:
Trade receivables ......................................... 5,149 668
Income taxes receivable/payable ........................... (177) (920)
Inventories ............................................... (4,150) (3,699)
Accounts payable-trade .................................... 4,113 3,643
Accrued expenses .......................................... 1,412 296
Other assets .............................................. (705) (817)
------- -------
Net cash provided by operating activities .............. 6,222 3,064
------- -------
Cash flows provided by (used in) investing activities:
Capital expenditures ......................................... (2,062) (1,124)
Dispositions of marketable securities ........................ 234 --
------- -------
Net cash used in investing activities .................. (1,828) (1,124)
------- -------
Cash flows provided by (used in) financing activities:
Proceeds from long-term obligations .......................... -- 1,750
Payments of long-term obligations ............................ (1,967) (1,520)
Issuance of common stock ..................................... 1 62
Transactions related to stock plans .......................... -- 18
------- -------
Net cash (used in) provided by financing activities ... (1,966) 310
------- -------
Net increase in cash and cash equivalents .................... 2,428 2,250
Cash and cash equivalents at beginning of period ................... 6,020 17,286
------- -------
Cash and cash equivalents at end of period ......................... $8,448 $19,536
======= =======
Supplemental cash flow information:
Cash paid during the period for:
Interest .................................................. $216 $292
Income taxes .............................................. -- 1,900
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) Basis of Presentation
The unaudited condensed consolidated financial statements include, in
the opinion of management, all adjustments (consisting of normal and
recurring adjustments) necessary for a fair presentation of the
Company's consolidated financial position as of June 30,1994 and the
consolidated results of operations and cash flows for the three months
ended June 30, 1994 and 1993. The results of operations for the three
months ended June 30, 1994 are not necessarily indicative of the
results to be expected for the entire year.
The statements are presented as permitted by Form 10-Q and do not
contain certain information included in the annual financial
statements and notes of the Company. The statements included herein
should be read in conjunction with the financial statements and notes
included in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1994 filed with the Securities and Exchange
Commission.
(2) Inventories
Inventories at June 30, and March 31, 1994, consisted of:
June 30 March 31
------- ---------
(In thousands)
Raw materials and supplies ........ $ 20,268 $ 18,821
Work in process ................... 20,970 19,498
Finished goods .................... 10,819 9,478
LIFO adjustment ................... 2,500 2,610
----------- -----------
$ 54,557 $ 50,407
========= =========
The Company uses the dollar value LIFO method to cost inventories;
therefore, allocation of the LIFO adjustment among the components of
inventory is impractical.
(3) Change in Methods of Accounting
Effective April 1, 1994, the Company adopted FASB Statement No. 115, "
Accounting for Certain Investments in Debt and Equity Securities." The
change in accounting method increased stockholders' equity as of April
1, 1994 by approximately $87,000 (net of $53,000 of deferred income
taxes) to reflect the net unrealized holding gains on securities
classified as available-for-sale previously carried at the lower of
amortized cost or market. In accordance with the Statement, prior
period financial statements have not been restated. Effective April 1,
1993, the Company adopted FASB Statement No. 109, "Accounting for
Income Taxes." The change in accounting method increased net earnings
by $30,000 or less than $.01 per share for the three month period
ended June 30, 1993.
5
<PAGE>
(4) Earnings Per Share
Earnings per share is the Company's primary earnings per share using
the treasury stock method based on the weighted average number of
common shares as well as common share equivalents (stock options) to
the extent dilutive, outstanding during the three month periods.
Fully-diluted earnings per share for both periods are not presented
because the amount would not differ from the amounts of primary
earnings per share.
(5) Contingencies
The Company is involved in certain litigation and other claims related
to its operations. At June 30, 1994, after consultations with legal
counsel representing the Company in such litigation, management of the
Company believes that it is unlikely that the ultimate resolution of
such matters will have a material adverse effect on the Company's
consolidated financial condition.
6
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table sets forth as a percentage of net sales certain items
appearing in the Company's condensed consolidated statements of operations as
well as the percentage increase (or decrease) in the dollar amount of those
items as compared to the corresponding prior period.
<TABLE>
Percentage Period to Period
of Net Sales Increase (Decrease)
------------ -------------------
Three Months Three Months
Ended June 30, Ended June 30,
-------------- --------------
1994 1993 1994 vs. 1993
---- ---- -------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% (13.0)%
Other operating income 0.1 0.2 (60.2)
Interest, dividend and other income 0.8 0.5 44.2
----- -----
Total revenue 100.9 100.7 (12.9)
----- -----
Cost of sales 82.4 77.4 (7.4)
Research and development 8.1 6.2 13.9
Selling, general and administrative 11.5 5.4 84.8
Interest expense 3.7 3.4 (5.1)
----- -----
Total costs and expenses 105.7 92.4 (0.5)%
----- -----
Earnings (loss) before income taxes (benefit)
and cumulative effect of accounting change (4.8) 8.3 N/A
Income taxes (benefit) (1.9) 3.0 N/A
----- -----
Earnings (loss) before cumulative
effect of accounting change (2.9) 5.3 N/A
Cumulative effect of accounting change N/A 0.1 N/A
----- -----
Net earnings (loss) (2.9)% 5.4% N/A
------ -----
</TABLE>
7
<PAGE>
RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1994 decreased by approximately
$4.7 million (13%) and the Company's gross profit margin decreased from 23% to
18% from the corresponding prior period. Substantially all of the decrease in
net sales and gross profit margin resulted from lower sales volume and unit
prices for Ketoprofen capsules. Ketoprofen was introduced by the Company in
December 1992 and was the first available generic substitute for the brand name
product, Orudis(R). Although the Company initially obtains higher sales prices
for new products, intensified competition typically forces the Company to lower
its sales price and reduce its profit margin. Net sales were also affected by
action taken by the Company in connection with the resolution of certain
regulatory matters with the FDA, which decreased net sales for the quarter by
approximately $700,000. The Company agreed in July to recall select lots of
certain products and temporarily suspend production of five products. Shipments
of two of the five products had previously been suspended by the Company on its
own initiative. Aggregate fiscal 1994 sales of all five products accounted for
approximately 6% of the Company's total sales for the year. Although the Company
cannot gauge the prospective impact on sales of these suspended products due to
varying timetables affecting the resumption of production, the Company expects
that the suspension will continue, at least in part, through the end of the
second fiscal quarter (see Item 6).
Research and development expenses during the three-month period ended June
30, 1994 increased by approximately $300,000 compared to the corresponding prior
period due to increased research activity as well as increased costs associated
with FDA regulatory requirements affecting new products. Selling, general and
administrative expenses increased by approximately $1.6 million during the
three-month period compared to the corresponding prior period primarily in
connection with the resolution of regulatory matters with the FDA referred to
above, which resulted in increased payroll, legal fees and other professional
expenses. Selling, general and adminstrative expenses are expected to continue
to be affected by such expenses at least through the second fiscal quarter.
The Company's effective tax rate (benefit) for the three-month period ended
June 30, 1994 was 40% compared to 36% for the corresponding prior period. The
Company incurred a loss in the current quarter and its tax exempt income and tax
credits therefore increased rather than decreased its income tax rate/benefit.
Effective April 1, 1993, the Company adopted FASB Statement 109, "Accounting for
Income Taxes." The adoption of Statement 109 resulted in increased net earnings
of $30,000 (less than $.01 per share) for the quarter ended June 30, 1993.
For the various reasons noted above, the Company had a net loss of
approximately $900,000 for the three-month period ended June 30, 1994 compared
to net earnings of $1.9 million for the three-month period ended June 30, 1993.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased by approximately $2.4
million during the three months ended June 30, 1994. During the three-month
period the Company generated $6.2 million of cash from operating activities
after using $4.2 million to finance its increased inventories. Operating cash
flow was used by the Company to finance capital expenditures, as well as the
repayment of approximately $2 million of long-term debt.
The Company has available $6.8 million under its $10 million line of credit
with Commerce Bank of St. Louis and $3 million under its $10 million line of
credit with National Westminster Bank, NJ.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) The Company filed a report on Form 8-K on July 25, 1994, reporting
on a consent decree with the U.S. Food and Drug Administration. The consent
decree was included as an exhibit to the report.
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.
BIOCRAFT LABORATORIES, INC.
(registrant)
Date: August 12, 1994 /s/ Harold Snyder
------------------
Harold Snyder
President, Chairman and
Chief Executive Officer
Date: August 12, 1994 /s/ Steven J. Sklar
--------------------
Steven J. Sklar
Vice President, Treasurer
and Chief Financial Officer
10
<PAGE>
