U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-20424
Hi-Tech Pharmacal Co., Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 11-2638720 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
369 Bayview Avenue, Amityville, New York 11701
(Address of principal executive offices)
631 789-8228
(Registrant’s telephone number)
Not applicable
(Former name, former address and former
fiscal year, if changed since last report)
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 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act). Yes ¨ No x
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
Common Stock, $.01 Par Value—8,078,501 shares outstanding as of March 14, 2004.
HI-TECH PHARMACAL CO., INC.
2
CONDENSED BALANCE SHEETS
| January 31, 2004 |
April 30, 2003 |
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| (unaudited) | (From Audited Financial Statements) |
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| ASSETS |
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| CURRENT ASSETS |
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| Cash and cash equivalents |
$ | 39,207,000 | 15,584,000 | |||||
| Accounts receivable—net |
15,514,000 | 5,609,000 | ||||||
| Inventories |
6,308,000 | 6,824,000 | ||||||
| Prepaid Taxes |
88,000 | 1,881,000 | ||||||
| Deferred taxes |
718,000 | 718,000 | ||||||
| Prepaid expenses and other receivables |
1,549,000 | 947,000 | ||||||
| TOTAL CURRENT ASSETS |
$ | 63,384,000 | 31,563,000 | |||||
| Property, Plant and equipment—net |
12,619,000 | 11,571,000 | ||||||
| Other assets |
907,000 | 694,000 | ||||||
| TOTAL ASSETS |
$ | 76,910,000 | 43,828,000 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| CURRENT LIABILITIES |
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| Current Portion—Long-term debt |
$ | 3,000 | $ | 62,000 | ||||
| Accounts payable and accrued expenses |
9,990,000 | 7,416,000 | ||||||
| TOTAL CURRENT LIABILITIES |
$ | 9,993,000 | $ | 7,478,000 | ||||
| Deferred Taxes |
1,310,000 | 1,310,000 | ||||||
| TOTAL LIABILITIES |
$ | 11,303,000 | $ | 8,788,000 | ||||
| STOCKHOLDERS’ EQUITY |
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| Preferred stock, par value $.01 per share; authorized 3,000,000 shares, none issued |
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| Common stock, par value $.01 per share; authorized 50,000,000 shares, issued 8,380,000 at January 31, 2004 and 7,438,000 at April 30, 2003 |
84,000 | 74,000 | ||||||
| Additional capital |
38,729,000 | 13,479,000 | ||||||
| Retained earnings |
27,792,000 | 22,288,000 | ||||||
| Treasury stock, 303,000 and 292,000 shares of common stock, at cost on January 31, 2004 and April 30, 2003, respectively. |
(998,000 | ) | (801,000 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY |
$ | 65,607,000 | $ | 35,040,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 76,910,000 | $ | 43,828,000 | ||||
See notes to condensed financial statements
3
CONDENSED STATEMENTS OF OPERATIONS (unaudited)
| Three months ended January 31, |
Nine months ended January 31, |
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| 2004 |
2003 |
2004 |
2003 |
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| NET SALES |
$ | 18,035,000 | 15,913,000 | 42,952,000 | 36,507,000 | |||||||||||
| Cost of goods sold |
8,407,000 | 8,250,000 | 19,970,000 | 18,152,000 | ||||||||||||
| GROSS PROFIT |
9,628,000 | 7,663,000 | 22,982,000 | 18,355,000 | ||||||||||||
| Selling, general and administrative expenses |
5,331,000 | 4,114,000 | 12,448,000 | 10,020,000 | ||||||||||||
| Research and product development costs |
998,000 | 555,000 | 2,414,000 | 1,470,000 | ||||||||||||
| Contract research income |
(56,000 | ) | (479,000 | ) | (122,000 | ) | ||||||||||
| Interest expense |
7,000 | 8,000 | 20,000 | 25,000 | ||||||||||||
| Interest income and other |
(78,000 | ) | (84,000 | ) | (199,000 | ) | (167,000 | ) | ||||||||
| TOTAL |
$ | 6,202,000 | 4,593,000 | 14,204,000 | 11,226,000 | |||||||||||
| Income before provision for income taxes |
3,426,000 | 3,070,000 | 8,778,000 | 7,129,000 | ||||||||||||
| Provision for income taxes |
1,277,000 | 1,159,000 | 3,274,000 | 2,673,000 | ||||||||||||
| NET INCOME |
$ | 2,149,000 | 1,911,000 | 5,504,000 | 4,456,000 | |||||||||||
| BASIC EARNINGS PER SHARE |
$ | .27 | $ | .28 | $ | .70 | $ | .65 | ||||||||
| DILUTED EARNINGS PER SHARE |
$ | .24 | $ | .24 | $ | .62 | $ | .58 | ||||||||
| Weighted average common shares outstanding—basic |
8,061,000 | 6,886,000 | 7,808,000 | 6,852,000 | ||||||||||||
| Effect of potential common shares |
936,000 | 1,061,000 | 1,006,000 | 845,000 | ||||||||||||
| Weighted average common shares outstanding—diluted |
8,997,000 | 7,947,000 | 8,814,000 | 7,697,000 | ||||||||||||
See notes to condensed financial statements
4
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
| Nine months ended January 31, |
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| 2004 |
2003 |
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| CASH FLOWS FROM OPERATING ACTIVITIES |
$ | 1,574,000 | 2,608,000 | ||||
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES |
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| Mortgaged property—repayments |
(59,000 | ) | (123,000 | ) | |||
| Issuance of common stock and exercise of options |
23,943,000 | 911,000 | |||||
| Purchase of treasury stock |
(197,000 | ) | |||||
| CASH FROM FINANCING ACTIVITIES |
$ | 23,687,000 | 788,000 | ||||
| CASH FLOWS USED IN INVESTING ACTIVITIES |
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| Purchases of property, plant and equipment |
(1,425,000 | ) | (1,705,000 | ) | |||
| Other assets |
(213,000 | ) | |||||
| CASH USED IN INVESTING ACTIVITIES |
$ | (1,638,000 | ) | (1,705,000 | ) | ||
| NET INCREASE IN CASH |
23,623,000 | 1,691,000 | |||||
| Cash and cash equivalents at beginning of the period |
15,584,000 | 10,487,000 | |||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 39,207,000 | 12,178,000 | ||||
| Supplemental disclosures of cash flow information: Cash paid for |
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| Interest |
$ | 7,000 | 6,000 | ||||
| Income taxes |
$ | 400,000 | 2,974,000 | ||||
See notes to condensed financial statements
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2004
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The preparation of the Company’s financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expense during the reporting periods. Actual results could differ from these estimates and assumptions. Operating results for the three and nine month periods ended January 31, 2004 are not necessarily indicative of the results that may be expected for the year ending April 30, 2004. For further information, refer to the financial statements and footnotes thereto for the year ended April 30, 2003 on Form 10-K.
REVENUE RECOGNITION
Revenue is recognized for product sales upon shipment to the customer and when estimates of discounts, rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments are reasonably determinable, collection is reasonably assured and the Company has no further performance obligations. These estimates are presented in the financial statements as reductions to net revenues and accounts receivable.
Net sales for generic pharmaceutical products, which include some private label contract manufacturing, for the three months ended January 31, 2004 and January 31, 2003 were $15.4 million and $13.4 million, respectively. The Company’s Health Care Products division, which markets the Company’s branded products, for the three months ended January 31, 2004 and January 31, 2003 had net sales of $2.6 million and $2.5 million, respectively.
CUSTOMER DEPOSITS AND CONTRACT RESEARCH INCOME
Contract research income is recognized as work is completed and as billable costs are incurred. In certain cases, contract research income is based on attainment of designated milestones. Advance payments may be received to fund certain development costs.
NET EARNINGS PER SHARE
Net income per common share is computed based on the weighted average number of common shares outstanding for basic earnings per share and on the weighted average number of common shares and share equivalents (stock options) outstanding for diluted earnings per share.
WORKING CAPITAL REVOLVING LOAN
The Company has a three year $8,000,000 revolving credit facility dated January 23, 2002. The revolving credit facility bears interest at a rate selected by the Company equal to the Prime Rate or LIBOR plus 1.50%. Loans are collateralized by inventory, accounts receivable and other assets. The agreement contains covenants with respect to working capital, net worth and certain ratios, as well as other covenants and prohibits the payment of cash dividends. For the nine months ended January 31, 2004 there were no borrowings under the credit facility.
6
HI-TECH PHARMACAL CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
January 31, 2004
INVENTORIES
The components of inventory consist of the following:
| January 31, 2004 |
April 30, 2003 | ||||
| Raw materials |
$ | 3,361,000 | 3,955,000 | ||
| Finished products and work in process |
2,947,000 | 2,869,000 | |||
| $ | 6,308,000 | 6,824,000 | |||
FIXED ASSETS
The components of net plant and equipment consist of the following:
| January 31, 2004 |
April 30, 2003 | |||||
| Land and Building |
$ | 7,800,000 | $ | 7,037,000 | ||
| Machinery and equipment |
15,324,000 | 14,239,000 | ||||
| Transportation equipment |
29,000 | 29,000 | ||||
| Computer equipment |
1,203,000 | 990,000 | ||||
| Furniture and fixtures |
734,000 | 651,000 | ||||
| 25,090,000 | 22,946,000 | |||||
| Accumulated depreciation and amortization |
12,471,000 | 11,375,000 | ||||
| TOTAL FIXED ASSETS |
$ | 12,619,000 | $ | 11,571,000 | ||
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses consist of the following:
| January 31, 2004 |
April 30, 2003 | ||||
| Accounts payable |
$ | 6,297,000 | 5,237,000 | ||
| Accrued expenses |
3,693,000 | 2,179,000 | |||
| TOTAL ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
$ | 9,990,000 | 7,416,000 | ||
Common Stock
On July 17, 2003 the Company entered into a definitive agreement with certain accredited investors with respect to the private placement of 860,000 shares of its common stock at a purchase price of $29.21 per share, for net proceeds of approximately $23.8 million. The net proceeds will be used mainly for the funding of future acquisitions, research and development and for general corporate purposes.
7
HI-TECH PHARMACAL CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
January 31, 2004
Stock-based compensation:
Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, encourages the use of the fair value based method of accounting for stock-based employee compensation. Alternatively, SFAS No. 123 allows entities to continue to apply the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees”, and related interpretations and provide pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting had been applied to employee awards. The Company has elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangements as defined by APB Opinion 25 and provide the disclosures required by SFAS No. 123 and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, which was released in December 2002 as an amendment of SFAS No. 123. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions to stock-based employee compensation.
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