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 December 31, 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 February 10, 1995
----------------------------- --------------------------------
Common Stock, $.01 par value 14,166,319
<PAGE>
PART I
Item 1. Financial Statements
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Dec. 31, March 31,
1994 1994
---- ----
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 2,885 $ 6,020
Marketable securities, at market on December 31
and cost on March 31, 1994 632 733
Receivables:
Trade 22,805 21,094
Income taxes 1,026 214
Other 179 159
Inventories 52,466 50,407
Other 1,741 1,557
---------- ----------
Total current assets 81,734 80,184
---------- ----------
Property and equipment, net 88,245 87,028
Other assets and deferred charges 900 861
---------- ----------
$ 170,879 $ 168,073
---------- ----------
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Current installments of long-term obligations $ 4,966 $ 5,566
Accounts payable-trade 15,392 8,369
Accrued expenses 5,924 2,993
---------- ----------
Total current liabilities 26,282 16,928
---------- ----------
Long-term obligations, excluding current installments 46,596 48,582
Deferred income taxes 4,300 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 14,222,680 at
December 31 and 14,189,365 at March 31 142 142
Additional paid-in capital 43,469 42,242
Retained earnings 51,964 55,910
Unrealized gains on securities 4 --
Less deductions for treasury stock and
employee stock plans (1,878) (1,002)
--------- ---------
Net stockholders' equity 93,701 97,292
Commitments and contingencies --------- ---------
$ 170,879 $ 168,073
--------- ---------
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
------------------ ------------------
(In thousands, except per share data)
1994 1993 1994 1993
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Net sales $ 32,678 $ 36,605 $ 102,891 $ 108,663
Other operating income 29 31 98 150
Interest, dividend and other income 78 122 418 436
--------- --------- --------- ---------
Total revenue 32,785 36,758 103,407 109,249
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 27,787 27,949 85,357 82,834
Research and development 3,063 2,770 8,376 6,999
Selling, general and administrative 3,882 2,880 10,835 7,747
Interest expense 960 1,118 3,159 3,478
--------- --------- --------- ---------
Total costs and expenses 35,692 34,717 107,727 101,058
--------- --------- --------- ---------
Earnings (loss) before income taxes (benefit)
and cumulative effect of change in method
of accounting for income taxes (2,907) 2,041 (4,320) 8,191
Income taxes (benefit) (1,197) 603 (1,787) 2,823
--------- --------- --------- ---------
Earnings (loss) before cumulative effect
of accounting change (1,710) 1,438 (2,533) 5,368
Cumulative effect as of April 1,
1993 of change in method of
accounting for income taxes -- -- -- 30
--------- --------- --------- ---------
Net earnings (loss) ($ 1,710) $ 1,438 ($ 2,533) $ 5,398
========= ========= ========= =========
Earnings (loss) per share:
Earnings (loss) before cumulative effect
of accounting change ($ 0.12) $ 0.10 ($ 0.18) $ 0.38
Cumulative effect of accounting change -- -- -- --
--------- --------- --------- ---------
Net earnings (loss) ($ 0.12) $ 0.10 ($ 0.18) $ 0.38
========= ========= ========= =========
Cash dividends $ 0.10 $ 0.10 $ 0.10 $ 0.10
========= ========= ========= =========
Weighted average number of
shares outstanding 14,166 14,172 14,141 14,160
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
ended December 31,
1994 1993
---- ----
(in thousands)
Cash flows provided by operating activities:
Net earnings (loss) ($ 2,533) $ 5,398
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,391 4,904
Imputed and non-cash interest expense 561 624
Non-cash compensation 297 307
Equity in net loss (earnings) of affiliate 11 (32)
Deferred income taxes (973) 1,557
Cumulative effect of accounting change -- (30)
Gain on sale of marketable securities (131) --
Loss on sale of fixed assets -- 1
Changes in assets and liabilities:
Trade receivables (1,711) (1,310)
Income taxes receivable/payable (812) (1,483)
Inventories (2,059) (5,563)
Accounts payable-trade 7,023 1,618
Accrued expenses 2,931 949
Other assets (321) (6)
--------- ---------
Net cash provided by operating activities 7,674 6,934
--------- ---------
Cash flows provided by (used in) investing activities:
Capital expenditures (6,584) (4,297)
Proceeds from sale of capital assets -- 5
Dispositions of marketable securities 234 --
--------- ---------
Net cash used in investing activities (6,350) (4,292)
--------- ---------
Cash flows provided by (used in) financing activities:
Proceeds from long-term obligations 2,000 1,750
Payments of long-term obligations (5,100) (12,063)
Issuance of common stock 48 126
Dividends paid ($.10 per share) (1,413) (1,412)
Transactions related to stock plans 6 80
--------- ---------
Net cash used in financing activities (4,459) (11,519)
--------- ---------
Net decrease in cash and cash equivalents (3,135) (8,877)
Cash and cash equivalents at beginning of period 6,020 17,286
--------- ---------
Cash and cash equivalents at end of period $ 2,885 $ 8,409
========= =========
Cash paid during the period for:
Interest $ 2,750 $ 2,202
Income taxes -- 2,749
========= =========
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 December 31, 1994 and
the consolidated results of operations and cash flows for the
three-month and nine-month periods ended December 31, 1994 and 1993.
The results of operations for the three-month and nine-month periods
ended December 31, 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 December 31, and March 31, 1994, consisted of:
December 31 March 31
----------- --------
(in thousands)
Raw materials and supplies $22,578 $18,821
Work in process 22,360 19,498
Finished goods 5,058 9,478
LIFO adjustment 2,470 2,610
-------- ------
$52,466 $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 nine-month period ended
December 31, 1994.
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
nine-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 November 22, 1994, the Company paid its sixth consecutive annual
cash dividend of $.10 per share of common stock to stockholders of
record on October 18, 1994.
(6) Contingencies
The Company is involved in certain litigation and other claims related
to its operations. At December 31, 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.
Percentage Period to Period
of Net Sales Increase (Decrease)
------------ ------------------
Three Months Three Months
Ended December 31, Ended December 31,
----------------- ------------------
1994 1993 1994 vs.1993
---- ---- ------------
Net sales 100.0 % 100.0 % (10.7)%
Other operating income 0.1 0.1 (6.5)
Interest, dividend and other income 0.2 0.3 (36.1)
----- -----
Total revenue 100.3 100.4 (10.8)
----- -----
Cost of sales 85.0 76.3 (0.6)
Research and development 9.4 7.6 10.6
Selling, general and administrative 11.9 7.9 34.8
Interest expense 2.9 3.1 (14.1)
----- -----
Total costs and expenses 109.2 94.9 2.8 %
Earnings (loss) before income
taxes (benefit) (8.9) 5.5 N/A
Income taxes (benefit) (3.7) 1.6 N/A
----- -----
Net earnings (loss) (5.2)% 3.9 % N/A
===== =====
Nine Months Nine Months
Ended December 31, Ended December 31,
----------------- ------------------
1994 1993 1994 vs. 1993
---- ---- -------------
Net sales 100.0 % 100.0% (5.3)%
Other operating income 0.1 0.1 (34.7)
Interest, dividend and other income 0.4 0.4 (4.1)
----- -----
Total revenue 100.5 100.5 (5.3)
----- -----
Cost of sales 83.0 76.2 3.0
Research and development 8.1 6.4 19.7
Selling, general and administrative 10.5 7.1 39.9
Interest expense 3.1 3.2 (9.2)
----- -----
Total costs and expenses 104.7 92.9 6.6 %
----- -----
Earnings (loss) before income
taxes (benefit) and cumulative
effect of accounting change (4.2) 7.6 N/A
Income taxes (benefit) (1.7) 2.6 N/A
----- -----
Earnings (loss) before cumulative
effect of accounting change (2.5) 5.0 N/A
Cumulative effect of accounting change N/A 0.0 N/A
----- -----
Net earnings (loss) (2.5)% 5.0 % N/A
===== =====
7
<PAGE>
RESULTS OF OPERATIONS
Net sales for the three-month and nine-month periods ended December 31,
1994 decreased by approximately $3.9 million (11%) and $5.8 million (5%),
respectively, from the corresponding prior periods. The decrease in net sales
during the three-month period was principally related to the Company's consent
decree with the Food and Drug Administration (FDA), pursuant to which the
Company temporarily suspended shipment, and the FDA required the revalidation,
of certain products. The decrease in sales for the nine-month period was
primarily due to lower sales volume and unit prices for Ketoprofen capsules, a
product introduced by the Company in December 1992.
The Company's gross profit margin decreased from 24% to 15% during the
three-month period ended December 31, 1994 and from 24% to 17% during the
nine-month period ended December 31, 1994 compared to the corresponding prior
periods. The decrease in profit margin during the three-month period was
primarily due to price erosion on various products and increased costs
associated with FDA regulatory requirements which also resulted in reduced
finished goods production during the quarter, as well as a change in the mix of
products sold. The decrease in profit margin during the nine-month period was
primarily due to lower sales volume and unit prices for Ketoprofen capsules.
When introduced by the Company, Ketoprofen 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.
As announced in December, 1994, the Company has signed a three-year supply
agreement with Eli Lilly and Company. The agreement became effective January 1,
1995 and calls for the Company to supply Lilly with a product manufactured at
its Missouri facility. The Company expects this arrangement to double its
production of that product. The contract also calls for Lilly to supply the
Company with substantial quantities of a raw material at a fixed exchange ratio.
As a result of this contract, the Company anticipates improved gross profit
margins in fiscal 1996.
Research and development expenses during the three-month and nine-month
periods ended December 31, 1994 increased by approximately $300,000 and $1.4
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 $1
million during the three-month and $3.1 million during the nine-month period
compared to the corresponding prior periods. The increase during the three-month
period resulted primarily from costs incurred in connection with exploring
strategic options to enhance the value of the Company to its shareholders,
including discussions regarding a possible sale of the Company. Although the
Company continues to be engaged in active discussions, no assurances can be
given that such discussions will result in any transaction. The Company does not
anticipate making any further announcement unless and until an agreement is
reached or the exploration of alternatives is terminated. The increase during
the nine-month period was primarily attributable to the resolution of regulatory
matters with the FDA referred to above, which resulted in increased payroll,
legal fees and other professional expenses.
8
<PAGE>
Interest expense decreased by approximately $160,000 and $320,000,
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 bonds at a substantially reduced interest rate. The
Company anticipates continued 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.
The Company's effective tax rate (benefit) for the three-month and
nine-month periods ended December 31, 1994 was a 41% benefit. The Company
incurred a loss in the three-month and nine-month periods ended December 31,
1994 and its tax exempt income and tax credits therefore increased rather than
decreased its income tax rate/benefit. The Company's effective tax rate for the
three-month and nine-month periods ended December 31, 1993 was 30% and 34%,
respectively. 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 nine-month
period ended December 31, 1993.
For the various reasons noted above, the Company incurred a loss of
approximately $1.7 million and $2.5 million for the three-month and nine-month
periods ended December 31, 1994, respectively, compared to earnings of
approximately $1.4 million and $5.4 million, respectively, in the corresponding
periods of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by approximately $3.1
million during the nine months ended December 31, 1994 as a result of the net
repayment of approximately $3.1 million of debt. During the nine-month period
the Company generated approximately $7.7 million of cash from operating
activities which it used to finance capital expenditures, as well as the payment
of its sixth consecutive annual cash dividend.
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 NatWest Bank, N.A.
9
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
On November 22, 1994, the Company paid its sixth consecutive annual cash
dividend of $.10 per share of common stock to stockholders of record on October
18, 1994.
As previously reported, in July 1994 the Company entered into an agreement
with FDA to resolve outstanding regulatory issues with respect to its dosage
form facilities. The Company believes it has provided FDA with all submissions,
including expert certifications, required under the agreement as of this date.
In addition, in connection with the five products that the Company agreed to
suspend shipments of, two were returned to the market in September 1994. The FDA
has also notified the Company that it may commence manufacturing a third
product, Nystatin Liquid, and may ship certain batches of this product, but
shipments of batches manufactured after the date of the agreement must await
further review of information by FDA. The Company had, on its own initiative,
suspended shipments of the remaining two products prior to entering into the
agreement. The Company anticipates requesting FDA to reinspect its dosage form
facilities in the Company's fourth fiscal quarter. A satisfactory reinspection
is necessary to obtain new product approvals of dosage form products. The
Company is also responding to FDA observations resulting from an inspection in
January of its Waldwick Bulk Pharmaceutical Chemical facility.
Item 6. Exhibits and Reports on Form 8-K
NONE
10
<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: February 13, 1995 /s/ Harold Snyder
--------------------
Harold Snyder
President, Chairman and
Chief Executive Officer
Date: February 13, 1995 /s/ Brian S. Snyder
----------------------
Brian S. Snyder
Vice President and
Controller
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1994
<CASH> 2,885
<SECURITIES> 632
<RECEIVABLES> 23,215
<ALLOWANCES> 410
<INVENTORY> 52,466
<CURRENT-ASSETS> 81,734
<PP&E> 128,004
<DEPRECIATION> 39,759
<TOTAL-ASSETS> 170,879
<CURRENT-LIABILITIES> 26,282
<BONDS> 46,596
<COMMON> 142
0
0
<OTHER-SE> 93,559
<TOTAL-LIABILITY-AND-EQUITY> 170,879
<SALES> 102,891
<TOTAL-REVENUES> 103,407
<CGS> 85,357
<TOTAL-COSTS> 85,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,159
<INCOME-PRETAX> (4,320)
<INCOME-TAX> (1,787)
<INCOME-CONTINUING> (2,533)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,533)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
