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, 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, 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 12, 1996
-------------- --------------------------------
Common Stock, $.01 par value 14,182,382
<PAGE>
PART I
Item 1. Financial Statements
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Dec. 31, March 31,
1995 1995
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,469 $ 2,744
Marketable securities -- 635
Receivables:
Trade 27,818 26,044
Income taxes 1,829 650
Other 1,103 171
Inventories 56,229 48,731
Other current assets 3,686 3,353
--------- ---------
Total current assets 92,134 82,328
--------- ---------
Property and equipment, net 89,919 89,780
Other assets and deferred charges 1,222 837
--------- ---------
$ 183,275 $ 172,945
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Due to bank $ 4,218 $ --
Current installments of long-term obligations 4,848 4,967
Accounts payable 20,922 12,875
Accrued expenses 7,001 4,309
--------- ---------
Total current liabilities 36,989 22,151
--------- ---------
Long-term obligations, excluding current installments 52,402 50,800
Deferred income taxes 4,133 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 14,241,999 at
December 31 and 14,223,547 at March 31 142 142
Additional paid-in capital 43,538 43,456
Retained earnings 47,376 52,102
Unrealized gains on securities -- 7
Less deductions for treasury stock and
employee stock plans (1,305) (1,726)
--------- ---------
Net stockholders' equity 89,751 93,981
--------- ---------
Commitments and contingencies
$ 183,275 $ 172,945
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
-------------------------- --------------------------
(In thousands, except per share data)
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Net sales $ 37,718 $ 32,678 $ 106,729 $ 102,891
Other operating income 24 29 139 98
Interest, dividend and other income 79 78 236 418
--------- --------- --------- ---------
Total revenue 37,821 32,785 107,104 103,407
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 32,900 27,787 92,369 85,357
Research and development 3,567 3,063 8,395 8,376
Selling, general and administrative 3,380 3,882 10,346 10,835
Interest expense 1,335 960 3,569 3,159
--------- --------- --------- ---------
Total costs and expenses 41,182 35,692 114,679 107,727
--------- --------- --------- ---------
Loss before extraordinary item and
income taxes (benefit) (3,361) (2,907) (7,575) (4,320)
Income taxes (benefit) (1,323) (1,197) (2,974) (1,787)
--------- --------- --------- ---------
Loss before extraordinary item (2,038) (1,710) (4,601) (2,533)
Extraordinary loss on early extinguishment -- -- (125) --
of debt, net of taxes
--------- --------- --------- ---------
Net loss ($ 2,038) ($ 1,710) ($ 4,726) ($ 2,533)
========= ========= ========= =========
Loss per share:
Loss before extraordinary item ($ 0.14) ($ 0.12) ($ 0.32) ($ 0.18)
Extraordinary loss -- -- (0.01) --
--------- --------- --------- ---------
Net loss ($ 0.14) ($ 0.12) ($ 0.33) ($ 0.18)
========= ========= ========= =========
Weighted average number of
shares outstanding 14,181 14,166 14,175 14,141
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
BIOCRAFT LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended December 31,
1995 1994
-------- --------
(in thousands)
Cash flows provided by operating activities:
<S> <C> <C>
Net loss ($ 4,726) ($ 2,533)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,812 5,391
Extraordinary loss, net of taxes 125 --
Imputed and non-cash interest expense 520 561
Non-cash compensation 366 297
Equity in net loss of affiliate 8 11
Non-cash refund (259) --
Deferred income taxes (1,880) (973)
Gain on sale of marketable securities (62) (131)
Gain on sale of fixed assets (46) --
Changes in assets and liabilities:
Trade receivables (1,774) (1,711)
Income taxes receivable (1,179) (812)
Inventories (7,498) (2,059)
Accounts payable 8,047 7,023
Accrued expenses 2,692 2,931
Other assets and liabilities (1,879) (321)
-------- --------
Net cash (used in) provided by operating activities (1,733) 7,674
-------- --------
Cash flows provided by (used in) investing activities:
Capital expenditures (5,948) (6,584)
Proceeds from sale of capital assets 67 --
Dispositions of marketable securities 950 234
-------- --------
Net cash used in investing activities (4,931) (6,350)
-------- --------
Cash flows provided by (used in) financing activities:
Proceeds from bank borrowings 4,218 --
Proceeds from long-term obligations 26,269 2,000
Payments of long-term obligations (25,230) (5,100)
Issuance of common stock 113 48
Dividends paid -- (1,413)
Transactions related to stock plans 19 6
-------- --------
Net cash provided by (used in) financing activities 5,389 (4,459)
-------- --------
Net decrease in cash and cash equivalents (1,275) (3,135)
Cash and cash equivalents at beginning of period 2,744 6,020
-------- --------
Cash and cash equivalents at end of period $ 1,469 $ 2,885
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 2,959 $ 2,750
Income taxes -- --
======== ========
</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 December 31, 1995 and the
consolidated results of operations and cash flows for the three-month and
nine-month periods ended December 31, 1995 and 1994. The results of
operations for the three-month and nine-month periods ended December 31,
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 December 31, and March 31, 1995, consisted of:
December 31 March 31
----------- --------
(Unaudited)
(in thousands)
Raw materials and supplies $22,721 $17,731
Work in process 21,777 19,219
Finished goods 5,991 7,461
LIFO adjustment 5,740 4,320
------- -------
$56,229 $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 December 31, and March 31, 1995,
inventories include approximately $7 million and $5 million, respectively
of inventory costs, principally raw materials, relating to products for
which the Company is awaiting regulatory approval.
(3) 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
<PAGE>
(4) Contingencies
The Company is involved in certain litigation and other claims related to
its operations. At December 31, 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 December 31, Ended December 31,
----------------------- ------------------
1995 1994 1995 vs. 1994
----- ----- -------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 15.4%
Other operating income 0.1 0.1 (17.2)
Interest, dividend and other income 0.2 0.2 1.3
----- -----
Total revenue 100.3 100.3 15.4
----- -----
Cost of sales 87.2 85.0 18.4
Research and development 9.5 9.4 16.5
Selling, general and administrative 9.0 11.9 (12.9)
Interest expense 3.5 2.9 39.1
----- -----
Total costs and expenses 109.2 109.2 15.4
----- -----
Loss before income
taxes (benefit) (8.9) (8.9) 15.6
Income taxes (benefit) (3.5) (3.7) 10.5
----- -----
Net loss (5.4%) (5.2%) 19.2%
===== =====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended December 31, Ended December 31,
----------------------- ------------------
1995 1994 1995 vs. 1994
----- ----- -------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 3.7%
Other operating income 0.1 0.1 41.8
Interest, dividend and other income 0.2 0.4 (43.5)
----- -----
Total revenue 100.3 100.5 3.6
----- -----
Cost of sales 86.5 83.0 8.2
Research and development 7.9 8.1 0.2
Selling, general and administrative 9.7 10.5 (4.5)
Interest expense 3.3 3.1 13.0
----- -----
Total costs and expenses 107.4 104.7 6.5
----- -----
Loss before income taxes
(benefit) and extraordinary item (7.1) (4.2) 75.3
Income taxes (benefit) (2.8) (1.7) 66.4
----- -----
Loss before extraordinary item (4.3) (2.5) 81.6
Extraordinary item (0.1) N/A N/A
----- -----
Net loss (4.4%) (2.5%) 86.6%
===== =====
</TABLE>
-7-
<PAGE>
RESULTS OF OPERATIONS
Net sales for the three-month and nine-month periods ended December 31,
1995 increased by approximately $5 million (15%) and $3.8 million (4%),
respectively, from the corresponding prior periods. The increases in both
periods were primarily due to increased sales volume of bulk pharmaceuticals
and, to a lesser extent, increased sales volume of Sulfamethoxazole and
Trimethoprim Tablets. Such increases were partially offset by lower sales prices
on several finished dosage products.
The Company's gross profit margin decreased from 15% to 13% during the
three-month period ended December 31, 1995 and from 17% to 14% during the
nine-month period ended December 31, 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; bulk pharmaceuticals are generally sold at a lower profit margin than
dosage form products. In addition, during the quarter ended December 31, 1995
the Company had charges to cost of sales relating to the net realizable value of
certain products and the disposal of unusable inventory.
Research and development expenses for the three-month and nine-month
periods ended December 31, 1995 increased from the corresponding prior periods
due to the increased use, expiration and disposal, during the current periods,
of materials for new products awaiting FDA approval. Such increases were
partially offset by reduced research and development activity during the current
periods.
Selling, general and administrative expenses decreased by approximately
$500,000 during both the three-month and nine-month periods ended December 31,
1995 compared to the corresponding prior periods. During the quarter ended
December 31, 1994 the Company incurred substantial expenses in connection with
exploring strategic options to enhance the value of the Company to its
stockholders; such expenses were substantially lower in the quarter ended
December 31, 1995. As previously reported, on January 29, 1996, the Company
entered into a merger agreement to merge with Teva Pharmaceutical Industries
Limited. See "PART II - OTHER INFORMATION - Item 5. Other Information."
Interest expense increased by approximately $400,000 during both the
three-month and nine-month periods ended December 31, 1995, compared to the
corresponding prior periods. The increases were primarily attributable to the
Company's higher amount of funded debt, as well as higher interest rates on its
new credit facilities.
The Company's effective tax rate (benefit) for the three-month and
nine-month periods ended December 31, 1995 was a 39% benefit, compared to a 41%
benefit in the corresponding prior periods.
For the various reasons noted above, the Company incurred losses of
approximately $2 million and $4.7 million during the three-month and nine-month
periods ended December 31, 1995, respectively, compared to losses of $1.7
million and $2.5 million, respectively, in the corresponding prior periods.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by approximately $1.3
million during the nine-month period ended December 31, 1995. During the
nine-month period, the Company increased its funded and other long-term debt by
approximately $5.7 million which it used, together with cash on hand to finance
its operations and approximately $6 million of capital expenditures.
In January 1996, the Company increased its credit line with General
Electric Capital Corporation (GECC) from $25 million to $40 million. As of
December 31, 1995, approximately $25 million was due to GECC under this credit
line. Management believes that the Company's operating needs can be met with its
existing credit facilities.
Substantially all of the remaining balance of the Company's long-term debt
is its $30 million ($26.2 million outstanding) bond. The bond is secured by a
letter of credit issued by Bank of Tokyo, which expires on September 15, 1996.
Although management believes that the Company will be able to obtain an
appropriate letter of credit, there can be no assurance that the Company will be
able to do so. In the event such letter of credit is not obtained, the Company
would be required to obtain alternate financing to repay the bond which would be
payable upon the expiration of the letter of credit. In such event, the Company
may be required to modify its fiscal 1997 operating and capital expenditure
plans.
PART II - OTHER INFORMATION
Item 5. Other Information
On January 29, 1996 the Company announced the signing of an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which the Company would
become a wholly owned subsidiary of Teva Pharmaceutical Industries Limited
("Teva") in a merger. Pursuant to the merger, each outstanding share of Biocraft
common stock will be converted into the right to receive 0.461 Teva American
Depository Shares (Teva "ADSs"), each Teva ADS representing 10 Ordinary Shares,
par value NIS 0.01, of Teva.
The transaction is structured to be tax-free to Biocraft stockholders and
to be accounted for as a pooling of interests. Completion of the transaction,
which has been approved by the Board of Directors of both companies, is subject
to, among other things, the receipt of regulatory approvals and approval by
Biocraft stockholders. The affirmative vote of holders of two-thirds (66 2/3%)
of the outstanding shares of Biocraft Common Stock is necessary to approve and
adopt the Merger Agreement providing for the Merger. The holders of
approximately 60% of the outstanding shares of Biocraft Common Stock have
executed an irrevocable proxy appointing Teva as agent to vote such shares in
favor of the Merger Agreement and the Merger. It is anticipated that the
transaction will be completed in the second calendar quarter of 1996.
The preceding description of the Merger Agreement is qualified in its
entirety by reference to the Merger Agreement, which has been filed as Exhibit 2
to Teva's Report on Schedule 13D dated January 29,1996, which is incorporated
herein by reference.
9
<PAGE>
As previously reported, in November 1995 the Food and Drug Administration
("FDA"), having earlier completed its inspection of the Company's research and
development laboratories in connection with new product submissions, provided
the Company with inspectional observations in an FDA Form 483. The Company
believes it appropriately responded to the 483. On February 13, 1996 the Company
received FDA approval to manufacture and market Captopril Tablets, the generic
version of Capoten(R) Tablets manufactured by Bristol Myers Squibb. However, the
Company cannot predict the timing of its receipt of any additional new drug
approvals.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 1. Agreement and Plan of Merger dated as of January 29, 1996 among Teva
Pharmaceuticals Industries Limited, GENCO Merger Company and Biocraft
Laboratories, Inc. (incorporated by reference to Exhibit 1 to the Report on
Schedule 13D dated January 29, 1996 filed by Teva Pharmaceutical Industries
Limited with respect to the common stock, par value $.01 of Biocraft
Laboratories, Inc.)
Exhibit 2. Irrevocable Proxy dated as of January 29, 1996 between Teva
Pharmaceutical Industries Limited and the Stockholders, as defined therein
(incorporated by reference to Exhibit 1 to the Report on Schedule 13D dated
January 29, 1996 filed by Teva Pharmaceutical Industries Limited with respect to
the common stock, par value $.01 of Biocraft Laboratories, Inc.)
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 14, 1996 /s/ Harold Snyder
----------------------------
Harold Snyder
President, Chairman and
Chief Executive Officer
Date: February 14, 1996 /s/ Steven J. Sklar
----------------------------
Steven J. Sklar
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 1,469
<SECURITIES> 0
<RECEIVABLES> 28,248
<ALLOWANCES> 430
<INVENTORY> 56,229
<CURRENT-ASSETS> 92,134
<PP&E> 137,148
<DEPRECIATION> 47,229
<TOTAL-ASSETS> 183,275
<CURRENT-LIABILITIES> 36,989
<BONDS> 52,402
0
0
<COMMON> 142
<OTHER-SE> 89,609
<TOTAL-LIABILITY-AND-EQUITY> 183,275
<SALES> 106,729
<TOTAL-REVENUES> 107,104
<CGS> 92,369
<TOTAL-COSTS> 92,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,569
<INCOME-PRETAX> (7,575)
<INCOME-TAX> (2,974)
<INCOME-CONTINUING> (4,601)
<DISCONTINUED> 0
<EXTRAORDINARY> (125)
<CHANGES> 0
<NET-INCOME> (4,726)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
