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, 1995.
[ ] 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, 1995
------------- --------------------------------
Common Stock, $.01 par value 14,180,354
<PAGE>
PART I
ITEM 1. Financial Statements
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
Sept. 30, March 31,
1995 1995
---- ----
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents ...................... $ 1,519 $ 2,744
Marketable securities .......................... 320 635
Receivables:
Trade ....................................... 25,450 26,044
Income taxes ................................ 1,350 650
Other ....................................... 172 171
Inventories .................................... 56,759 48,731
Other current assets ........................... 4,243 3,353
--------- ---------
Total current assets ...................... 89,813 82,328
--------- ---------
Property and equipment, net .......................... 91,237 89,780
Other assets and deferred charges .................... 3,156 837
--------- ---------
$ 184,206 $ 172,945
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Due to bank .................................... $ 3,869 $ --
Current installments of long-term obligations... 4,847 4,967
Accounts payable ............................... 17,900 12,875
Accrued expenses ............................... 9,586 4,309
--------- ---------
Total current liabilities ................. 36,202 22,151
--------- ---------
Long-term obligations, excluding current installments 51,381 50,800
Deferred income taxes ................................ 4,978 6,013
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 14,239,384 at
September 30 and 14,223,547 at March 31 ..... 142 142
Additional paid-in capital ..................... 43,532 43,456
Retained earnings .............................. 49,414 52,102
Unrealized gains on securities ................. -- 7
Less deductions for treasury stock and
employee stock plans ........................ (1,443) (1,726)
--------- ---------
Net stockholders' equity .................. 91,645 93,981
--------- ---------
Commitments and contingencies
$ 184,206 $ 172,945
========= =========
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended September 30, Ended September 30,
------------------- -------------------
(in thousands, except per share data)
1995 1994 1995 1994
---- ---- ---- ----
Revenue:
Net sales ........................ $ 36,177 $ 39,055 $ 69,011 $ 70,213
Other operating income ........... 77 32 115 69
Interest, dividend and other
income ...................... 58 92 157 340
-------- -------- -------- --------
Total revenue .............. 36,312 39,179 69,283 70,622
-------- -------- -------- --------
Costs and expenses:
Cost of sales ................... 31,053 31,885 59,469 57,570
Research and development ........ 2,530 2,794 4,828 5,313
Selling, general and
administrative .............. 3,560 3,366 6,966 6,953
Interest expense ................ 1,147 1,063 2,234 2,199
-------- -------- -------- --------
Total costs and expenses ... 38,290 39,108 73,497 72,035
-------- -------- -------- --------
Earnings (loss) before extraordinary
item and income taxes (benefit).. (1,978) 71 (4,214) (1,413)
Income taxes (benefit) ................ (701) -- (1,651) (590)
-------- -------- -------- --------
Earnings (loss) before
extraordinary item ............... (1,277) 71 (2,563) (823)
Extraordinary loss on early extinguishment
of debt, net of taxes ........... (125) -- (125) --
-------- -------- -------- --------
Net earnings (loss) ................... ($ 1,402) $ 71 ($ 2,688)($ 823)
======== ======== ======= ========
Earnings (loss) per share:
Earnings (loss) before
extraordinary item ............... ($ 0.09) $ 0.01 ($ 0.18)($ 0.06)
Extraordinary loss .................... (0.01) -- (0.01) --
-------- -------- -------- --------
Net earnings (loss) ................... ($ 0.10) $ 0.01 ($ 0.19)($ 0.06)
======== ======== ======== ========
Weighted average number of
shares outstanding............... 14,176 14,163 14,171 14,161
======== ======== ======== ========
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,
1995 1994
---- ----
(in thousands)
Cash flows provided by operating activities:
Net earnings (loss) ............................. ($ 2,688) ($ 823)
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization .............. 3,838 3,530
Extraordinary loss, net of taxes ........... 125 --
Imputed and non-cash interest expense ...... 326 374
Non-cash compensation ...................... 245 165
Equity in net loss (earnings) of
affiliate .............................. 4 (5)
Deferred income taxes ...................... (1,035) (365)
Gain on sale of marketable
securities.............................. (9) (131)
Gain on sale of fixed assets ............... (52) --
Changes in assets and liabilities:
Trade receivables .......................... 594 (2,746)
Income taxes receivable .................... (700) (224)
Inventories ................................ (8,028) 2,175
Accounts payable ........................... 5,025 2,449
Accrued expenses ........................... 5,277 805
Other assets and liabilities ............... (3,224) (673)
-------- --------
Net cash (used in) provided by operating
activities......................... (302) 4,531
-------- --------
Cash flows provided by (used in) investing activities:
Capital expenditures ............................ (5,300) (3,650)
Proceeds from sale of capital assets ............ 73 --
Dispositions of marketable securities ........... 311 234
-------- --------
Net cash used in investing
activities ........................ (4,916) (3,416)
-------- --------
Cash flows provided by (used in) financing activities:
Proceeds from bank borrowings ................... 3,869 --
Proceeds from long-term obligations ............. 25,213 2,000
Payments of long-term obligations ............... (25,203) (4,633)
Issuance of common stock ........................ 98 2
Transactions related to stock plans ............. 16 --
-------- --------
Net cash provided by (used in) financing
activities ........................ 3,993 (2,631)
-------- --------
Net decrease in cash and cash equivalents........ (1,225) (1,516)
Cash and cash equivalents at beginning of period....... 2,744 6,020
-------- --------
Cash and cash equivalents at end of period ............ $ 1,519 $ 4,504
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest ................................... $ 1,853 $ 2,021
Income taxes ............................... -- --
======== ========
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, 1995 and
the consolidated results of operations and cash flows for the
three-month and six-month periods ended September 30, 1995 and 1994.
The results of operations for the three-month and six-month periods
ended September 30, 1995 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, 1995 filed with the Securities and Exchange Commission.
(2) Inventories
Inventories at September 30, and March 31, 1995, consisted of:
September 30 March 31
------------ --------
(In thousands)
Raw materials and supplies $ 25,671 $17,731
Work in process 20,182 19,219
Finished goods 5,766 7,461
LIFO adjustment 5,140 4,320
-------- --------
$ 56,759 $ 48,731
======== ========
The Company uses the dollar value LIFO method to cost inventories;
therefore, allocation of the LIFO adjustment among the components of
inventory is impractical. As of September 30, and March 31, 1995,
inventories include approximately $8 million and $5 million,
respectively of inventory costs, principally raw materials, relating to
products for which the Company is awaiting regulatory approval.
(3) Extraordinary Loss on Early Extinguishment of Debt
On August 31, 1995, the Company entered into a three-year $25 million
secured revolving credit facility with General Electric Capital
Corporation. The Company used a portion of the proceeds from this
facility to satisfy in full its indebtedness to NatWest Bank, N.A. and
Commerce Bank, National Association. Unamortized debt issue and related
costs with respect to the retirement of these loans are recorded as an
extraordinary loss from early extinguishment of debt of $125,000, net
of income tax benefits.
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) Contingencies
The Company is involved in certain litigation and other claims related
to its operations. At September 30, 1995, 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>
<CAPTION>
Percentage Period to Period
of Net Sales Increase (Decrease)
------------ ------------------
Three Months Three Months
Ended September 30, Ended September 30,
------------------ -------------------
1995 1994 1995 vs. 1994
---- ---- -------------
<S> <C> <C> <C>
Net sales ............................................ 100.0 % 100.0 % (7.4) %
Other operating income ............................... 0.2 0.1 140.6
Interest, dividend and other income .................. 0.2 0.2 (37.0)
----- -----
Total revenue ........................................ 100.4 100.3 (7.3)
----- -----
Cost of sales ...................................... 85.8 81.6 (2.6)
Research and development ............................. 7.0 7.2 (9.4)
Selling, general and administrative .................. 9.8 8.6 5.8
Interest expense ..................................... 3.2 2.7 7.9
----- -----
Total costs and expenses ............................. 105.8 100.1 (2.1) %
----- -----
Earnings (loss) before extraordinary item
and income taxes (benefit) ...................... (5.4) 0.2 N/A
Income taxes (benefit) ............................... (1.9) 0.0 N/A
----- -----
Earnings (loss) before extraordinary item ............ (3.5) 0.2 N/A
Extraordinary loss ................................... (0.4) N/A N/A
----- -----
Net earnings (loss) .................................. (3.9) % 0.2 % N/A
===== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Six Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 vs. 1994
---- ---- -------------
<S> <C> <C> <C>
Net sales ............................................ 100.0 % 100.0 % (1.7) %
Other operating income ............................... 0.2 0.1 66.7
Interest, dividend and other income .................. 0.2 0.5 (53.8)
----- -----
Total revenue ........................................ 100.4 100.6 (1.9)
----- -----
Cost of sales ...................................... 86.2 82.0 3.3
Research and development ............................. 7.0 7.6 (9.1)
Selling, general and administrative .................. 10.1 9.9 0.2
Interest expense ..................................... 3.2 3.1 1.6
----- -----
Total costs and expenses ............................. 106.5 102.6 2.0
----- -----
Earnings (loss) before extraordinary item
and income taxes (benefit) ...................... (6.1) (2.0) 198.2
Income taxes (benefit) ............................... (2.4) (0.8) 179.8
----- -----
Earnings (loss) before extraordinary item ............ (3.7) (1.2) 211.4
Extraordinary loss ................................... (0.2) N/A N/A
----- -----
Net earnings (loss) .................................. (3.9) % (1.2) % 226.6 %
===== =====
</TABLE>
7
<PAGE>
RESULTS OF OPERATIONS
Net sales for the three-month and six-month periods ended September 30,
1995 decreased by $2.9 million (7%) and $1.2 million (2%) from the corresponding
periods in the prior fiscal year. The decreases in both periods were due to
reduced sales volume and average net prices of two dosage form products and
reduced sales volume of a third dosage form product. The decreased sales volume
of two of the products was due to the Company's inability to obtain supply of
the active ingredient for both products during most of the September 30 quarter.
The Company obtained the active ingredient for one of the products and resumed
shipping that product during the last week of September, but does not anticipate
resuming shipment of the other product for the balance of its fiscal year. Sales
of that other product accounted for less than 3% of the Company's fiscal 1995
sales. The decreases in finished dosage product sales were partially offset by
increased sales volume of bulk pharmaceuticals.
The Company's gross profit margin decreased from 18% to 14% during both
the three-month and six-month periods ended September 30, 1995 compared to the
corresponding periods in the prior fiscal year. The decreases resulted from a
change in the Company's product mix and the relative profitability of different
products sold by the Company. The products referred to above are sold at a
higher profit margin than bulk products, which are generally sold at a lower
profit margin than dosage form products.
Research and development expenses during the three-month and six-month
periods ended September 30, 1995 decreased by approximately $260,000 and
$500,000, respectively, from the corresponding prior periods due to reduced
research and development activity during the current periods. Selling, general
and administrative expenses increased by approximately $200,000 and $10,000
during the three-month and six-month periods ended September 30, 1995,
respectively, compared to the corresponding prior periods. During the six-month
period ended September 30, 1994 the Company incurred significant expenses in
connection with the resolution of certain regulatory matters with the Food and
Drug Administration ("FDA"); the decrease which would have resulted from the
non-recurrence of substantially all of these expenses was offset by expenses
incurred during the quarter ended September 30, 1995 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, the Company
can give no assurance that such discussions will result in any transaction. The
Company does not anticipate that it will comment further unless and until an
agreement is reached or the exploration of alternatives is terminated.
Interest expense increased by approximately $80,000 and $40,000 during
the three-month and six-month periods ended September 30, 1995, respectively,
from the corresponding prior periods. In addition, the Company incurred an
extraordinary expense of $125,000, net of tax benefits, as a result of its early
extinguishment of certain bank debt at the time it entered into a new revolving
credit facility. The Company anticipates higher interest expense for the balance
of its fiscal year in connection with its new credit facilities and its
generally higher amount of funded debt.
8
<PAGE>
For the various reasons noted above, the Company incurred net losses of
approximately $1.4 million and $2.7 million in the three-month and six-month
periods ended September 30, 1995, respectively, compared to a $71,000 net profit
and an $823,000 loss in the three-month and six-month periods ended September
30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by approximately $1.2
million during the six-month period ended September 30, 1995. During the
six-month period, the Company increased its funded and other long-term debt by
$3.9 million which it used, together with cash on hand, to finance $5.3 million
of capital expenditures.
As described in the Form 8-K filed on September 8,1995, the Company
repaid its credit facilities with NatWest and Commerce Bank with the proceeds
from a new three-year $25 million secured credit line from General Electric
Capital Corporation. As of September 30, 1995, approximately $1 million is
available under this credit facility. In addition, the Company obtained a $5
million credit line from Valley National Bank, of which $3 million was available
on September 30, 1995. The Company is in the process of seeking additional
financing for its working capital and related needs. Such financing may be
needed by the Company to satisfy its fiscal 1996 operating requirements and
capital expenditure plans. Although management believes that the Company will be
able to obtain appropriate financing, there can be no assurance that the Company
will be able to do so. In the event such financing is not obtained, the Company
may be required to modify its current operating and capital expenditures plans.
PART II - OTHER INFORMATION
Item 5. Other Information
As previously reported, the FDA inspected the Company's research and
development laboratories in connection with new product submissions, including
certain products which had not previously been inspected by the FDA. On November
3, 1995, the FDA provided the Company with inspectional observations in an FDA
Form 483. The Company is in the process of preparing its responses to the FDA's
observations and anticipates that it will be able to submit such responses and
take other required action on a timely basis. However, the Company is not in a
position to predict the extent to which new drug approvals will continue to be
delayed by this ongoing process.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a report on Form 8-K on September 8, 1995, reporting
on a three-year $25 million revolving credit facility with GECC.
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 13, 1995 /s/ Harold Snyder
---------------------------------
Harold Snyder
President, Chairman and
Chief Executive Officer
Date: November 13, 1995 /s/ Steven J. Sklar
---------------------------------
Steven J. Sklar
Vice President, Treasurer and
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 1,519
<SECURITIES> 320
<RECEIVABLES> 25,830
<ALLOWANCES> 380
<INVENTORY> 56,759
<CURRENT-ASSETS> 89,813
<PP&E> 136,482
<DEPRECIATION> 45,245
<TOTAL-ASSETS> 184,206
<CURRENT-LIABILITIES> 36,202
<BONDS> 51,381
<COMMON> 142
0
0
<OTHER-SE> 91,503
<TOTAL-LIABILITY-AND-EQUITY> 184,206
<SALES> 69,011
<TOTAL-REVENUES> 69,283
<CGS> 59,469
<TOTAL-COSTS> 59,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,234
<INCOME-PRETAX> (4,214)
<INCOME-TAX> (1,651)
<INCOME-CONTINUING> (2,563)
<DISCONTINUED> 0
<EXTRAORDINARY> (125)
<CHANGES> 0
<NET-INCOME> (2,688)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
