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 September 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, New Jersey 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 November 10, 1994
---------------------------- --------------------------------
Common Stock, $.01 par value 14,166,524
<PAGE>
PART I
Item 1. Financial Statements
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September March
30, 31,
1994 1994
----- -----
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 4,504 $ 6,020
Marketable securities, at market on September 30
and cost on March 31, 1994 641 733
Receivables:
Trade 23,840 21,094
Income taxes 438 214
Other 188 159
Inventories 48,232 50,407
Other 2,139 1,557
--------- ----------
Total current assets 79,982 80,184
--------- ----------
Property and equipment, net 87,164 87,028
Other assets and deferred charges 884 861
--------- ----------
$ 168,030 $ 168,073
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current installments of long-term obligations $ 8,342 $ 5,566
Accounts payable-trade 10,818 8,369
Accrued expenses 3,798 2,993
--------- ----------
Total current liabilities 22,958 16,928
--------- ----------
Long-term obligations, excluding current installments 43,516 48,582
Deferred income taxes 4,911 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 14,189,550 at
September 30 and 14,189,365 at March 31 142 142
Additional paid-in capital 42,978 42,242
Retained earnings 55,087 55,910
Unrealized gains on securities 9 --
Less deductions for treasury stock and
employee stock plans (1,571) (1,002)
--------- ----------
Net stockholders' equity 96,645 97,292
--------- ----------
Commitments and contingencies
$ 168,030 $ 168,073
--------- ----------
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Six Months
Ended September 30, Ended September 30,
------------------- -------------------
(In thousands, except per share data)
1994 1993 1994 1993
----- ------ ------ -----
<S> <C> <C> <C> <C>
Revenue:
Net sales $ 39,055 $ 36,235 $ 70,213 $ 72,058
Other operating income 32 26 69 119
Interest, dividend and other income 92 142 340 314
-------- -------- -------- --------
Total revenue 39,179 36,403 70,622 72,491
-------- -------- -------- --------
Costs and expenses:
Cost of sales 31,885 27,144 57,570 54,885
Research and development 2,794 2,017 5,313 4,229
Selling, general and administrative 3,366 2,926 6,953 4,867
Interest expense 1,063 1,163 2,199 2,360
-------- -------- -------- --------
Total costs and expenses 39,108 33,250 72,035 66,341
-------- -------- -------- --------
Earnings (loss) before income taxes (benefit)
and cumulative effect of change in method
of accounting for income taxes 71 3,153 (1,413) 6,150
Income taxes (benefit) 0 1,136 (590) 2,220
-------- -------- -------- --------
Earnings (loss) before cumulative
effect of accounting change 71 2,017 (823) 3,930
Cumulative effect as of April 1,
1993 of change in method of
accounting for income taxes -- -- -- 30
-------- -------- -------- --------
Net earnings (loss) $ 71 $ 2,017 ($ 823) $ 3,960
-------- -------- -------- --------
Earnings (loss) per share:
Earnings (loss) before cumulative
effect of accounting change $ 0.01 $ 0.14 ($ 0.06) $ 0.28
Cumulative effect of accounting change -- -- -- --
-------- -------- -------- --------
Net earnings (loss) $ 0.01 $ 0.14 ($ 0.06) $ 0.28
-------- -------- -------- --------
Weighted average number of
shares outstanding 14,163 14,164 14,161 14,153
-------- -------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months ended
September 30,
1994 1993
----- -----
(in thousands)
Cash flows provided by operating activities:
Net earnings (loss) ($ 823) $ 3,960
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,530 3,228
Imputed and non-cash interest expense 374 416
Non-cash compensation 165 204
Equity in net earnings of affiliate (5) (37)
Deferred income taxes (365) 1,287
Cumulative effect of accounting change -- (30)
Gain on sale of marketable securities (131) --
Gain on sale of fixed assets -- (2)
Changes in assets and liabilities:
Trade receivables (2,746) 725
Income taxes receivable/payable (224) (1,289)
Inventories 2,175 (5,382)
Accounts payable-trade 2,449 (1,117)
Accrued expenses 805 585
Other assets (673) (244)
-------- -------
Net cash provided by operating activities 4,531 2,304
-------- -------
Cash flows provided by (used in) investing activities:
Capital expenditures (3,650) (2,341)
Proceeds from sale of fixed assets -- 2
Dispositions of marketable securities 234 --
-------- -------
Net cash used in investing activities (3,416) (2,339)
-------- -------
Cash flows provided by (used in) financing activities:
Proceeds from long-term obligations 2,000 1,750
Payments of long-term obligations (4,633) (5,041)
Issuance of common stock 2 63
Transactions related to stock plans -- 38
-------- -------
Net cash used in financing activities (2,631) (3,190)
-------- -------
Net decrease in cash and cash equivalents (1,516) (3,225)
Cash and cash equivalents at beginning of period 6,020 17,286
-------- -------
Cash and cash equivalents at end of period $ 4,504 $ 14,061
-------- -------
Supplemental cash flow information: Cash paid
during the period for:
Interest $ 2,021 $ 1,948
Income taxes -- 2,223
-------- -------
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 September 30, 1994 and
the consolidated results of operations and cash flows for the
three-month and six-month periods ended September 30, 1994 and 1993.
The results of operations for the three-month and six-month periods
ended September 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 September 30, and March 31, 1994, consisted of:
September 30 March 31
------------ --------
(In thousands)
Raw materials and supplies $18,808 $18,821
Work in process 19,552 19,498
Finished goods 7,432 9,478
LIFO adjustment 2,440 2,610
------- -------
$48,232 $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 six-month period ended
September 30, 1993.
5
<PAGE>
(4) Earnings (Loss) Per Share
Earnings (loss) per share is the Company's primary earnings (loss) 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 and six
month periods. Fully-diluted earnings (loss) per share for all periods
are not presented because the amount would not differ from the amounts
of primary earnings (loss) per share.
(5) Dividend on Common Stock
On August 8, 1994 the Company declared its sixth consecutive annual
cash dividend of $.10 per share on its common stock payable on November
22, 1994 to shareholders of record on October 18, 1994.
(6) Contingencies
The Company is involved in certain litigation and other claims related
to its operations. At September 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 earnings 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 September 30, Ended September 30,
------------------- -------------------
1994 1993 1994 vs. 1993
---- ---- -------------
<S> <C> <C> <C>
Net sales 100.0 % 100.0 % 7.8 %
Other operating income 0.1 0.1 23.1
Interest, dividend and other income 0.2 0.4 (35.2)
------ ------
Total revenue 100.3 100.5 7.6
------ ------
Cost of sales 81.6 74.9 17.5
Research and development 7.2 5.6 38.5
Selling, general and administrative 8.6 8.1 15.0
Interest expense 2.7 3.2 (8.6)
------ ------
Total costs and expenses 100.1 91.8 17.6 %
------ ------
Earnings before income taxes 0.2 8.7 (97.7)
Income taxes 0.0 3.1 (100.0)
------ ------
Net earnings 0.2 % 5.6 % (96.5)%
==== ====
</TABLE>
<TABLE>
Six Months Six Months
Ended September 30, Ended September 30,
------------------- -------------------
1994 1993 1994 vs. 1993
---- ---- -------------
<S> <C> <C> <C>
Net sales 100.0 % 100.0 % (2.6)%
Other operating income 0.1 0.2 (42.0)
Interest, dividend and other income 0.5 0.4 8.3
------ ------
Total revenue 100.6 100.6 (2.6)
------ ------
Cost of sales 82.0 76.2 4.9
Research and development 7.6 5.8 25.6
Selling, general and administrative 9.9 6.7 42.9
Interest expense 3.1 3.3 (6.8)
------ ------
Total costs and expenses 102.6 92.0 8.6 %
------ -----
Earnings (loss) before income
taxes (benefit) and cumulative
effect of accounting change (2.0) 8.6 N/A
Income taxes (benefit) (0.8) 3.1 N/A
------ ------
Earnings (loss) before cumulative
effect of accounting change (1.2) 5.5 N/A
Cumulative effect of accounting change N/A 0.0 N/A
------ ------
Net earnings (loss) (1.2)% 5.5 % N/A
===== ====
</TABLE>
7
<PAGE>
RESULTS OF OPERATIONS
Net sales for the three-month period ended September 30, 1994 increased by
approximately $2.8 million (8%) from the corresponding prior period to a record
level of $39.1 million. The increase resulted primarily from increased sales
volume of Amoxicillin and Cephalexin capsules. Net sales for the six-month
period decreased by $1.8 million (3%) from the corresponding prior period and
the Company's gross profit margin decreased from 25% to 18% during the quarter
ended September 30, 1994 and from 24% to 18% during the six-month period ended
September 30, 1994 compared to the corresponding prior periods. The decreases in
sales for the six-month period as well as profit margins for both periods were
primarily due to 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. The
Company agreed in July to recall select lots of certain products and temporarily
suspend production of five products. It resumed shipment of two of the suspended
products in late September and it anticipates resuming shipment of a third
product before the end of the third fiscal quarter. The Company had, on its own
initiative, previously suspended shipment of the other two of the five products
and it expects that the suspension of those two products will continue through
the end of the third fiscal quarter.
Research and development expenses during the three-month and six-month
periods ended September 30, 1994 increased by approximately $800,000 and $1.1
million, respectively, compared to the corresponding prior periods 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 $400,000 during the
three-month and $2.1 million during the six-month periods compared to the
corresponding prior periods, 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
administrative expenses are expected to continue to be affected by such expenses
through the end of the third fiscal quarter.
Interest expense decreased by approximately $100,000 and $160,000,
respectively, compared to the corresponding prior periods. The decreases were
due to reduced long-term debt, as well as the remarketing in September 1994 of
the Company's $30 million bond at a substantially reduced interest rate. The
Company anticipates further interest expense reductions during the balance of
the 1995 fiscal year compared to the 1994 fiscal year as a result of the reduced
interest rate on its bonds.
8
<PAGE>
The Company's pretax income was $71,000 and its tax liability was offset by
tax credits for the three-month period ended September 30, 1994, compared to an
effective tax rate of 36% for the corresponding prior period. The Company's
effective tax rate (benefit) for the six-month period ended September 30, 1994
was 42% compared to 36% for the corresponding prior period. The Company incurred
a loss in the six-month period ended September 30, 1994 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 six-month
period ended September 30, 1993.
For the various reasons noted above, the Company's net earnings decreased
from approximately $800,000 to $100,000 for the three-month period ended
September 30, 1994 compared to the corresponding prior period and the Company
incurred a loss of approximately $800,000 compared to $4 million of earnings for
the six-month period ended September 30, 1994 compared to the corresponding
prior period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by approximately $1.5
million during the six-month period ended September 30, 1994. During the
six-month period the Company generated $4.5 million of cash from operating
activities which it used to finance its capital expenditures and make its
initial $2.2 million bond principal payment. In September, the Company
remarketed its $30 million bond reducing its effective interest rate to
approximately 6% from approximately 10%.
The Company has available $6.8 million under its $10 million line of credit
with Commerce Bank of St. Louis and $1 million under its $10 million line of
credit with National Westminister Bank, NJ.
PART II - OTHER INFORMATION
Item 5. Other Information
On August 8, 1994, the Company's Board of Directors declared the Company's
sixth consecutive annual cash dividend of $.10 per share of common stock payable
on November 22, 1994 to stockholders of record on October 18, 1994.
Item 6. Exhibits and Reports on Form 8-K
NONE
9
<PAGE>
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: November 11, 1994 /s/ Harold Snyder
------------------
Harold Snyder
President, Chairman and
Chief Executive Officer
Date: November 11, 1994 /s/ Steven J. Sklar
--------------------
Steven J. Sklar
Vice President, Treasurer
and Chief Financial Officer
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1994
<CASH> 4,504
<SECURITIES> 641
<RECEIVABLES> 24,180
<ALLOWANCES> 340
<INVENTORY> 48,232
<CURRENT-ASSETS> 79,982
<PP&E> 125,071
<DEPRECIATION> 37,907
<TOTAL-ASSETS> 168,030
<CURRENT-LIABILITIES> 22,958
<BONDS> 43,516
<COMMON> 142
0
0
<OTHER-SE> 96,503
<TOTAL-LIABILITY-AND-EQUITY> 168,030
<SALES> 70,213
<TOTAL-REVENUES> 70,622
<CGS> 57,570
<TOTAL-COSTS> 57,570
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,199
<INCOME-PRETAX> (1,413)
<INCOME-TAX> (590)
<INCOME-CONTINUING> (823)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (823)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
