SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended June 30, 2000
Commission File Number: 0-24312
VIRBAC CORPORATION
State of Incorporation: Delaware I.R.S. Employer I.D. 43-1648680
3200 Meacham Boulevard
Fort Worth, TX 76137
(817) 831-5030
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 twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
--------------------- -
The number of shares of common stock outstanding at August 11, 2000 is
21,277,984 shares.
<PAGE>
VIRBAC CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Financial information
Financial Statements
Consolidated Balance Sheets -
June 30, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations -
Three months and six months ended June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and 1999 (unaudited) 5
Consolidated Statement of Shareholders' Equity -
Six months ended June 30, 2000 (unaudited) 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Other information
Item 6. Exhibits and Reports on Form 8-K 16
Signature 16
</TABLE>
<PAGE>
PART I - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 243,220 $ 231,297
Accounts receivable 9,102,449 5,555,363
Accounts receivable - Virbac SA 507,479 424,931
Inventories 13,145,313 13,773,605
Prepaid expenses and other assets 1,343,408 919,112
---------------------------------------
Total Current Assets 24,341,869 20,904,308
Property, plant and equipment, net 12,580,013 12,765,120
Goodwill and other intangibles, net 9,518,517 9,953,120
Other assets 119,917 10,470
---------------------------------------
Total Assets $ 46,560,316 $ 43,633,018
=======================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdraft $ 1,039,410 $ 1,059,584
Current portion of long-term debt and notes payable 1,447,991 1,564,080
Accounts payable
Trade 5,488,689 2,520,238
Virbac SA 590,119 776,586
Accrued expenses 1,734,388 2,723,588
---------------------------------------
Total Current Liabilities 10,300,597 8,644,076
Long-term debt and notes payable 8,357,773 9,347,993
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock ($.01 par value; 38,000,000 shares
authorized; 20,975,747 issued) 212,831 209,757
Additional paid-in capital 34,410,214 33,998,794
Treasury stock at cost (8,949 and 42,949 shares,
respectively) (22,850) (97,581)
Accumulated deficit (6,698,249) (8,470,021)
---------------------------------------
27,901,946 25,640,949
---------------------------------------
Total Liabilities and Shareholders' Equity $ 46,560,316 $ 43,633,018
=======================================
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net revenues 13,780,397 14,406,197 27,134,681 22,126,180
Cost of goods sold 7,597,431 8,529,910 15,322,973 12,359,779
------------------------------------ ------------------------------------
Gross profit 6,182,966 5,876,287 11,811,708 9,766,401
Operation expenses:
Selling, general and administrative 4,038,243 4,375,023 7,729,587 7,479,021
Research and development 319,829 367,365 663,038 582,868
Warehouse and distribution 719,890 411,818 1,408,971 865,558
------------------------------------ ------------------------------------
Total Operating Expenses 5,077,962 5,154,206 9,801,596 8,927,447
Income from operations 1,105,004 722,081 2,010,112 838,954
Interest expense (273,022) (123,884) (506,288) (240,528)
Other income (expense) 9,040 (105,462) 267,948 (93,677)
------------------------------------ ------------------------------------
Income before income tax benefit 841,022 492,735 1,771,772 504,749
Income tax benefit - - - -
------------------------------------ ------------------------------------
Net income 841,022 492,735 1,771,772 504,749
==================================== ====================================
Basic income per share $ 0.04 $ 0.02 $ 0.08 $ 0.02
==================================== ====================================
Diluted income per share $ 0.04 $ 0.02 $ 0.08 $ 0.02
==================================== ====================================
Basic shares outstanding 21,261,417 21,250,472 21,143,066 21,975,747
Diluted shares outstanding 21,554,615 21,250,472 21,466,066 21,975,747
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
2000 1999
<S> <C> <C>
Operating activities
Net income $ 1,771,772 $ 504,749
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:-
Depreciation and amortization 671,249 722,318
Changes in operating assets and liabilities:
(Increase) in accounts receivable (3,629,634) (2,581,500)
(Increase) decrease in inventories 628,292 (1,574,343)
(Increase) decrease in prepaid expenses and other (424,296) 419,708
Increase in accounts payable 2,781,984 155,062
Increase (decrease) in accrued expense (989,200) 65,068
---------------------------------
Net cash provided, (used) in operating activities 810,167 (2,288,938)
---------------------------------
Investing activities
Purchase of property, plant and equipment (185,136) (144,236)
Other 24,150 71,627
Merger with Agri-Nutrition Group Limited (see Note 1) - (643,979)
---------------------------------
Net cash used in investing activities (160,986) (716,588)
---------------------------------
Financing activities
Proceeds from long-term debt and notes payable 8,732,237 4,734,338
Repayment of long-term debt and notes payable (9,838,546) (12,772,820)
Increase, (decrease) in bank overdraft (20,174)
Cash infusion by Parent in connection with the Merger
(see Note 1) 13,749,897
Repurchase of treasury shares (3,036,674)
Reissuance of treasury shares 74,731
Issuance of common stock 414,494 8,494
---------------------------------
Net cash provided by financing activities (637,258) 2,683,235
---------------------------------
Increase (decrease) in cash and cash equivalents 11,923 (322,291)
Cash and cash equivalents, beginning of period 231,297 412,378
---------------------------------
Cash and cash equivalents, end of period $ 243,220 $ 90,087
=================================
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------------------------ ----------------------------
Number Par Paid In Number Par Accumulated
of Shares Value Capital of Shares Value Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1999 20,975,747 $ 209,757 $ 33,998,794 42,949 $ (97,581) $ (8,470,021) $25,640,949
Issuance of shares to
satisfy stock compensation
plans 286,000 $ 2,860 $ 451,515 $ 454,375
Issuance of shares to
Directors 21,353 214 32,286 $ 32,500
Purchase of Treasury
Shares 34,000 $ (98,900) $ (98,900)
Issuance of shares to
satisfy stock compensation
plans $ (72,381) (68,000) $ 173,631 $ 101,250
Net Income $ 1,771,772 $ 1,771,772
---------------------------------------------------------------------------------------------------------
Balance at
June 30, 2000 21,304,453 $ 212,831 $ 34,410,214 8,949 $ (22,850) $ (6,698,249) $27,901,946
=========================================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Nature of Operations and Basis of Presentation
Virbac Corporation (the "Company" or "Virbac") manufactures and distributes a
wide variety of health, grooming, oral hygiene and parasiticidal products for
pets and other companion animals under the C.E.T., Allerderm, St. JON, Zema,
Mardel, and Francodex brand names.
The Company is the result of the March 5, 1999 merger of Virbac, Inc.,
a subsidiary of Virbac SA, a French veterinary pharmaceutical manufacturer
("VBSA"), and Agri-Nutrition Group Limited ("AGNU"), a publicly held company.
Pursuant to the merger agreement dated October 16, 1998, the merger was
completed by the following series of transactions: (i) VBSA contributed a total
of $15.7 million to Virbac, Inc. consisting of $13.7 million in cash and $2
million in intercompany debt recapitalized as equity; (ii) AGNU issued
12,580,918 shares of AGNU stock to VBSA; and (iii) Virbac, Inc. merged with AGNU
with AGNU being the surviving entity with VBSA its majority stockholder. The
name of the surviving entity was then changed to Virbac Corporation.
For financial statement reporting purposes, the merger is considered a
purchase of AGNU by Virbac, Inc. Accordingly, the accompanying unaudited
consolidated financial statements are the historical financial statements of
Virbac, Inc., which reflect its acquisition of AGNU as of March 5, 1999.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, these
statements include all adjustments (which consist of normal, recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at and for periods ending June 30, 2000 and 1999. The
accompanying consolidated statements of operations reflect the historic
operations of Virbac, Inc. and include the operations of AGNU since the date of
the Merger. The results of operations for the six months ending June 30, 2000
and 1999 are not necessarily indicative of the operating results for the full
year. This interim report should be read in conjunction with the Virbac
Corporation consolidated financial statements and notes related thereto included
in the 1999 Form 10-K as filed with the Securities and Exchange Commission. The
Company's independent accountants have not reviewed these unaudited consolidated
financial statements.
2. The Merger
As discussed in Note 1, the Company is the combination of Virbac, Inc.
and AGNU, the merger of which has been accounted for as a purchase of AGNU by
Virbac, Inc. The purchase price of $13.0 million assigned to the transaction is
the market value of the outstanding Common Stock shares of AGNU at the time of
the merger announcement (9,387,279 shares of AGNU at $1.25 per share, or $11.7
million) plus the direct acquisition cost incurred by Virbac, Inc. The purchase
price has been allocated to the acquired assets and liabilities as follows
($000's)
Working Capital $ (2,970)
Fixed Assets 8,413
Identifiable Intangible Assets 223
Goodwill 7,295
$ 12,961
======
Goodwill is being amortized over twenty years.
The results of the operations of AGNU have been included in the
Company's consolidated financial statements only since the date of the Merger,
March 5, 1999. The following table reflects the pro forma sales, net income, and
net income per share as if the merger had occurred at the beginning of each
period. Adjustments to net income include a reduction in interest expense to
reflect a contribution of $15.7 million from VBSA, which was primarily used to
reduce debt.
PRO FORMA INFORMATION
(in thousands except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
2000 1999
<S> <C> <C>
Net sales $ 27,135 $ 27,314
Net income (loss) $ 1,772 $ 375
Basic and diluted earnings (loss) per share $ 0.08 $ 0.02
Basic weighted average shares outstanding 21,143 21,975
Diluted weighted average shares outstanding 21,466 21,975
</TABLE>
Also pursuant to the Merger Agreement in April 1999, the Company
commenced a public tender offer to purchase 1,000,000 shares of the Company's
outstanding Common Stock for $3.00 per share (the "Mandatory Tender Offer"). The
shares issued to VBSA as part of the merger were excluded from this tender
offer. Following the Mandatory tender Offer, VBSA controls approximately 60% of
the outstanding Common Stock of the Company. In addition, if, during the period
ending on the second anniversary of the merger, the closing sale price of the
Company's Common Stock had not reached at least $3.00 per share for 40
consecutive trading days, the Company would conduct another public tender offer
to purchase up to 1,395,000 shares of the Company's outstanding Common Stock at
a price of $3.00 per share. Pursuant to the Merger Agreement, such tender offer
would be funded by VBSA's direct purchase from the Company of 1,395,000 shares
of unissued Common Stock at a price of $3.00 per share. As of August 4, 2000,
the closing price of the Company's stock was $3.00 per share or greater for 40
consecutive trading days. Therefore, the company will not be conducting a tender
offer as required by the merger agreement.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
<S> <C> <C>
Raw materials $ 4,504,799 $ 6,340,906
Packaging 3,892,302 2,276,927
Finished goods 5,823,013 6,069,769
14,220,114 14,687,602
Less: reserve for excess and obsolete inventories (1,074,801) (913,997)
-------------------- --------------------
$ 13,145,313 $ 13,773,605
=================== ===================
</TABLE>
4. Financing
The Company has a revolving credit facility of $10.2 million at June
30, 2000. Long-term debt and notes payable consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
<S> <C> <C>
Revolving credit facility with a financial institution up to $10.2
million based upon specified percentages of qualified accounts
receivable and inventory, collateralized by accounts receivable,
inventory, equipment, intangibles, and certain real estate, with
interest varying based upon financial
performance (9.5%, as of June 30,2000). $ 9,509,781 $10,616,090
Note payable dated September 25, 1997, interest at prime, due in annual
installments of $97,991, plus accrued interest,
maturity September 25, 2001. 195,983 195,983
Notes payable dated September 25, 1997, due in September 2000, with
$49,000 payable in cash, plus interest at prime,
and $51,000 in shares of the Company's Common stock . 100,000 100,000
-------------- --------------
9,805,764 10,912,073
Less- Current maturities (1,447,991) (1,564,080)
--------------- --------------
$ 8,357,773 $ 9,347,993
============== ==============
</TABLE>
Of the $10.2 million available facility, a $500,000 segment is to be
repaid in July 2000 and the availability of another $2.6 million segment is to
be reduced by $150,000 per quarter.
The revolving credit facility contains financial covenants, including
but not limited to, tangible net worth and interest coverage ratios, and
restricts the payment of dividends. At March 31, 2000, the Company was not in
compliance with these covenants. However, the Company received a waiver from the
bank related to such non-compliance. In addition, the bank amended the debt
covenants and the Company was in compliance with such amended covenants at June
30, 2000.
5. Stock Options and Common Stock Transactions
During the six months ended June 30, 2000, options to purchase 82,000
shares of the Company's Common Stock were granted to employees. The
weighted-average exercise price of $2.71 was determined based upon the fair
value of the shares on the date of grant. These options vest ratably over three
years from the dates of grant and will expire ten years from the grant date.
Options to purchase an additional 38,000 shares of the Company's Common Stock at
an exercise price of $2.75 were contingently granted, with the final granting of
the stock conditional upon the Company's performance in 2000. During the same
period, non-qualified options to purchase 354,000 shares of the Company's Common
Stock were exercised. Of the options exercised, 286,000 shares were issued from
previously unissued shares and 68,000 shares were issued from treasury shares
During the six months ended June 30, 2000, the Company purchased on the
open market 34,000 shares of its Common Stock. During the same period, 68,000
shares of treasury stock were reissued and 286,000 of authorized but previously
unissued shares were issued to satisfy distributions under stock compensation
plans. In addition, 21,353 shares of authorized but previously unissued shares
were issued to outside directors of the Company.
6. Contingencies
The Company is subject to certain litigation and claims arising out of
the conduct of its business. While the final outcome of any litigation or claim
cannot be determined with certainty, management believes that the final outcome
of any current litigation or claim will not have a material adverse effect on
the Company's financial position, cash flows or results of operations.
Pursuant to the merger agreement between Virbac, Inc. and AGNU, if,
during the period ending on the second anniversary of the merger, the closing
price of the Company's Common Stock had not reached $3.00 per share for 40
consecutive trading days, the Company would conduct another public tender offer
to purchase up to 1,395,000 shares of the Company's outstanding Common Stock at
a price of at least $3.00 per share. Pursuant to the merger agreement, such
tender offer would be funded by VBSA's direct purchase, from the Company, of
1,395,000 shares of unissued Common Stock at a price of $3.00 per share. As of
August 4, 2000, the closing price of the Company's stock was $3.00 per share or
greater for 40 consecutive trading days. Therefore, the company will not be
conducting a tender offer as required by the merger agreement.
In order to maintain VBSA's 60% ownership interest in the Company until
the expiration, termination or exercise of all options to purchase the Company's
Common Stock outstanding as of the date of the merger and until the Company's
last issuance of Common Stock pursuant to the "Mardel Merger Agreement", the
Company will contemporaneously, with the issuance of Common Stock upon the
exercise of pre-merger AGNU options or pursuant to the Mardel Merger Agreement,
issue to VBSA a number of additional shares of Common Stock equal to the product
of (a) the aggregate number of shares of Common Stock issued upon the exercise
of such AGNU options or pursuant to the Mardel Merger Agreement and (b) 1.5.
Each such post-Merger adjustment will dilute the voting power of current
stockholders. As of June 30, 2000, 374,025 pre-merger options were outstanding.
The Company will issue additional shares of Common Stock with an aggregate value
of $51,000 pursuant to the Mardel Merger Agreement in September 2000. No shares
will be issued to VBSA in the event that treasury shares are reissued to satisfy
these pre-merger obligations.
7. Segment and Related Information
The Company has three reportable segments. The Veterinary segment
distributes pet health care products mainly to veterinarian offices. The
over-the-counter (OTC) segment manufactures and distributes pet health products
to pet stores, farm and fleet stores, and the mass retail market. PMR
manufactures and distributes animal health and specialty chemicals under private
label brands and for third parties. There has been no material change from the
1999 Annual Report in total assets by segment, in the basis of segmentation, nor
in the basis of measuring segment profit. Summarized financial information
concerning the Company's reportable segments is shown in the following table
(dollars in thousands):
<TABLE>
<CAPTION>
Manufacturing
And Consolidated
Veterinary OTC PMR Administration Total
<S> <C> <C> <C> <C> <C>
For the six months ended June 30, 2000
Revenues from external customers $ 12,625 $ 7,979 $ 6,531 $ $ 27,135
Income (loss) from operations 3,649 1,436 658 (3,733) 2,010
Interest (expense) and other income, net (238)
Net income 1,772
For the six months ended June 30, 1999
Revenues from external customers $ 10,848 $ 6,100 $ 5,064 $ 114 $ 22,126
Income (loss) from operations 2,627 (67) 509 (2,231) 838
Interest (expense) and other income, net (333)
Net income 505
</TABLE>
8. Sale of UK Operations to VBSA
The Company has reached an agreement to sell VRx U.K., its distribution
subsidiary in the United Kingdom, to VBSA at net book value. In addition the
Company has signed a distribution agreement with VBSA that grants VBSA the
distribution rights for all products the company manufactures to be sold outside
of the United States and Canada. The effective date of this transaction is
January 1, 2000. Accordingly, the accompanying consolidated financial statements
do not include the results of operations for the six months ended June 30, 2000
nor the balance sheet at June 30, 2000 for VRx U.K.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Virbac Corporation (the "Company") manufactures and distributes
companion animal health products. The Company is a leader in dermatological and
oral hygiene products for companion animals, or pets, and provides a broad array
of health care products to its customers under the C.E.T., Allerderm, St. JON,
Zema, Mardel, and Francodex brand names.
On March 5, 1999, the Company, formerly named Agri-Nutrition Group
Limited, merged with Virbac, Inc., with the Company being the surviving
corporation. VBSA, the parent of Virbac, Inc., received 60% of the voting equity
of the Company; therefore, Virbac, Inc. is considered to be the acquirer for
financial statement purposes. Accordingly, the merger has been accounted for as
a purchase of Agri-Nutrition Group Limited by Virbac, Inc.
The Management's Discussion and Analysis that follows contains forward
looking information made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements may
be affected by certain risks and uncertainties described in the Company's
filings with the Securities and Exchange Commission. Projections of gross margin
improvements anticipated due to the consolidation of manufacturing and
distribution facilities and of expense reductions that should result from actual
or planned headcount reductions may not be achieved if unforeseen difficulties
arise in executing the plans or if assumptions made in the plans are inaccurate.
Forward-looking statements regarding future sales may be affected by new
competitive or technological entries into the market or by lack of acceptance of
the Company's products by the market. Therefore, the Company's actual results
could differ materially from such forward-looking statements. Results of
Operations
The actual results of operations for the quarters ended June 30, 1999
and June 30, 2000 as presented in the Consolidated Statements of Operations
include the operations of Virbac, Inc. plus the results of Agri-Nutrition.
However, the actual results of operations for the six months ended June 30, 1999
as presented in the Consolidated Statements of Operations, only include the
Agri-Nutrition results since March 5, 1999 and Virbac, Inc for the entire
period, while the results of operations for the period ended June 30, 2000
include both companies for the entire period. For comparative purposes,
management believes that an analysis upon which 1999 results are presented on a
basis that is equivalent to 2000 will provide a more meaningful discussion of
the results of operations. To that end, the actual results for the six month
period ending June 30, 1999 have been adjusted to include the results of
Agri-Nutrition since January 1999 in order to be comparable with the actual
results of 2000. The 1999 amounts have also been adjusted to reflect the effects
of the merger, primarily adjustments to reduce interest expense reflecting the
repayment of debt in conjunction with the merger and adjustments to depreciation
and amortization related to certain purchase accounting adjustments.
<PAGE>
MANAGEMENT DISCUSSION (CONTINUED)
<TABLE>
<CAPTION>
(in thousands of dollars) For the Three Months Ended June 30 For the Six Months Ended June 30
1999
2000 1999 2000 (as adjusted)
---- ---- -------------
<S> <C> <C> <C> <C>
Net Revenues $ 13,780 $ 14,406 $ 27,135 $ 27,314
Gross Profit 6,183 5,876 11,812 11,211
Gross Profit % 45% 41% 44% 41%
Operating Expenses 5,078 5,154 9,802 10,467
Interest and other (income) 264 229 238 334
Net income (loss) $ 841 $ 493 $ 1,772 $ 410
</TABLE>
Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999
The $626 thousand or 4% decrease in sales for the quarter ended June 30 is
attributed to declines in the PMR and export sales. Sales for PMR were down $710
thousand due to the timing of orders received in the second quarter in 1999 but
expected to be received in the third quarter 2000. Sales increased approximately
$187 thousand or 3% in the veterinary division and approximately $197 thousand
or 5% in the OTC division. Export sales were down $326 thousand due to the sale
of VRx UK to VBSA. Effective January 1, 2000, VRx UK has been sold to VBSA, and
none of its sales have been included in the 2000 results of operations. (See
Note 8 to the Unaudited Consolidated Financial Statements).
The gross profit percentage improved by 4 percentage points. This is
due to a favorable mix of veterinary products, lower impact of PMR, and the
result of consolidation efforts undertaken in 1999. The company usually earns
significantly higher gross profit margins on the veterinary products compared to
the PMR division.
Operating expenses have decreased $76 thousand or 1% compared to 1999.
The operating expenses include costs related to the completion of the audit of
the Company's 1999 financial results that totaled approximately $500 thousand.
These non-recurring costs were more than offset by synergies resulting from
cost-cutting efforts initiated in the second half of 1999 in the veterinary and
OTC divisions.
The Company did not record an income tax benefit in connection with its
operating income in 2000 nor in 1999 due to the uncertainty of the realization
of the tax benefit because of the historical losses incurred by Virbac, Inc. and
Agri-Nutrition over the last several years.
The Company has reached an agreement to sell VRx U.K., its distribution
subsidiary in the United Kingdom, to VBSA at net book value. The effective date
of this transaction is January 1, 2000. Accordingly, the accompanying
consolidated financial statements do not include the results of operations for
the six months ended June 30, 2000 nor the balance sheet at June 30, 2000 for
VRx UK.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO PRO FORMA SIX MONTHS ENDED JUNE 30,
1999
Sales were mostly flat for the period reflecting small increases in the
veterinarian division and OTC that were offset by a sales decline in PMR.
Veterinarian sales were up $667 thousand (up 3%) and OTC sales were up $197
thousand (up 4%). These were offset by a sales decline in PMR of $369 thousand
(or 7%) and declines in export sales of $674 thousand. The sales decline in PMR
is due to the timing of orders produced in the second quarter in 1999 that are
expected to be produced in the third quarter in 2000. The export sales decline
is attributed to the transition of VBSA handling the Company's export
distribution and the sale to VBSA of VRx UK (sales for VRx UK for the six months
ended June 30, 1999 were approximately $490 thousand).
The gross profit percentage for 2000 improved by 3 percentage points
compared to 1999.This was caused by a more favorable product mix, lower impact
of PMR during the period and due to cost efficiencies implemented in 1999.
Margins for the sales segments of the Company typically range:
Gross Profit
Division Percentage Range
-------- ----------------
Veterinary 50% - 60%
OTC 40% - 45%
PMR 15% - 23%
Operating expenses have declined by $665 thousand. Almost all of the
reduction is due to the synergies resulting from the consolidation of operations
that took place in 1999. Somewhat offsetting these operational efficiencies were
approximately $600 thousand of costs associated with completing the audit of the
Company's financial records for 1999. The company anticipates that most of the
audit related costs would not be incurred in the future.
Included in other income is approximately $190 thousand in one-time
fees earned from granting a third party the use of registration data on the
Company's bromethalin rodenticide.
The Company did not record an income tax benefit in connection with its
operating income in 2000 nor in 1999 due to the uncertainty of the realization
of the tax benefit because of the historical losses incurred by Virbac, Inc. and
Agri-Nutrition over the last several years.
The Company has reached an agreement to sell VRx U.K., its distribution
subsidiary in the United Kingdom, to VBSA at net book value. The effective date
of this transaction is January 1, 2000. Accordingly, the accompanying
consolidated financial statements do not include the results of operations for
the six months ended June 30, 2000 nor the balance sheet at June 30, 2000 for
VRx U.K.
Liquidity and Capital Resources
During the six months ended June 30, 2000, $ 0.8 million of cash was
provided in operations. Although $ 2.4 million was generated by the Company's
net income before depreciation and amortization, working capital needs consumed
$ 1.6 million. The increase in working capital reflects increases in accounts
receivable, which arises from the seasonal increase in sales.
Cash flows used in investing activities include cash costs related to
capital improvements at the Company's St. Louis and Fort Worth facilities.
Cash flows from financing activities reflect primarily reductions in
borrowing under a revolving credit facility. Additional cash flows from
financing activities were the purchases and subsequent reissuance of treasury
shares and the issuance of previously unissued shares in order to satisfy
distributions under stock compensation plans.
On September 7, 1999, the Company replaced all of its then-existing
credit facilities with a three-year, $10 million facility. In December 1999, the
Company obtained a temporary $2.5 million increase to its line of credit to fund
acquisition fees related to the in-licensing of a product and to fund working
capital increases related to the consolidation of the Company's production
facilities. This temporary increase is to be repaid in installments from
February to July 2000. Of the remaining $10 million, $7 million is subject to a
borrowing formula based upon eligible accounts receivable and inventory and
serves as a revolving line of credit. The availability of the remaining $3
million will be reduced by $150,000 per quarter. At June 30, 2000, $0.7 million
was available under the credit facility. The interest rate and fees vary based
upon the financial performance of the Company as measured by the ratio of EBITDA
to interest expense paid and current maturities due. Interest rates can vary
from prime plus 25 basis points to prime minus 75 basis points. At June 30,
2000, the Company is paying prime (9.50%).
The revolving credit facility contains financial covenants, including
but not limited to, tangible net worth and interest coverage ratios, and
restricts the payment of dividends. At March 31, 2000, the Company was not in
compliance with these covenants. However, the Company received a waiver from the
bank related to such non-compliance. In addition, the bank amended the debt
covenants and the Company was in compliance with such amended covenants at June
30, 2000.
Management believes that the Company will have sufficient cash to meet
the needs of its current operations for at least the next twelve months from
cash flows from current operations, up-front fees to be realized from the
out-licensing of certain products under development, from existing financing
facilities, and, if necessary, from short-term advances from VBSA.
The Company has no current plans to significantly increase capacity of
any of its plant facilities or to expend significant capital in modifying them.
During 1999, the Company acquired the rights to manufacture and sell
products currently in development by a third party. The Company has paid
$2,000,000 in partial payment for those rights, and, depending upon the third
party reaching certain milestones in the registration process, is committed to
paying up to an additional $2,250,000 in 2000 and 2001.
The Company was committed to conduct a public tender offer to purchase
up to 1,395,000 of the Company's outstanding Common Stock at a price of $3.00
per share if, during the period ending on the second anniversary of the merger,
the closing sale price of the Company's Common Stock had not reached at least
$3.00 per share for a period of 40 consecutive trading days. Pursuant to the
merger agreement, such tender offer, if necessary, would be funded by VBSA's
direct purchase, from the Company, of 1,395,000 shares of Common Stock at $3.00
per share. As of August 4, 2000 the Company's outstanding common stock had
traded at or above $3.00 per share for 40 consecutive days and therefore no
tender offer will be conducted.
The Company has no plans to pay dividends to stockholders in the
foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
b. Reports of Form 8-K.
No reports on Form 8-K were filed during the three-month period ended
June 30, 2000.
Signature
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.
VIRBAC CORPORATION
/s/ Joseph A. Rougraff
Joseph A. Rougraff
Vice President and Chief Financial Officer
August 11, 2000
