<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1997 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 1-9860
BARR LABORATORIES, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 22-1927534
(State or Other Jurisdiction of (I.R.S. - Employer
Incorporation or Organization) Identification No.)
TWO QUAKER ROAD, P. O. BOX 2900, POMONA, NEW YORK 10970-0519
(Address of principal executive offices)
914-362-1100
(Registrant's telephone number)
(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 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
Number of shares of common stock, par value $.01, outstanding as of September
30, 1997: 21,562,473.
Page 1 of 12
<PAGE> 2
BARR LABORATORIES, INC.
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 and June 30, 1997 3
Consolidated Statements of Operations
for the three months ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
for the three months ended
September 30, 1997 and 1996 5
Notes to Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
</TABLE>
Page 2 of 12
<PAGE> 3
BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 JUNE 30, 1997
------------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,432 $ 31,923
Accounts receivable, less allowances
of $2,970 and $1,620, respectively 60,550 35,232
Inventories 48,940 56,216
Deferred income taxes 3,334 3,160
Prepaid expenses 760 568
--------- ---------
Total current assets 136,016 127,099
Property, plant and equipment, net 80,480 75,928
Other assets 5,090 775
--------- ---------
Total assets $ 221,586 $ 203,802
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 70,694 $ 72,685
Accrued liabilities 7,291 5,117
Deferred income taxes 3,698 957
Current portion of long-term debt 4,137 4,139
Income taxes payable 4,903 2,394
--------- ---------
Total current liabilities 90,723 85,292
Long-term debt 14,807 14,941
Other liabilities 204 201
Deferred income taxes 1,264 1,230
Commitments & Contingencies
Shareholders' equity:
Common stock $.01 par value per share
Authorized 30,000,000; issued
21,680,428 and 21,446,053, respectively 217 214
Additional paid-in capital 47,885 46,061
Retained earnings 66,273 55,876
Unrealized gain on investment 226 --
--------- ---------
114,601 102,151
Treasury stock at cost: 117,955 shares (13) (13)
--------- ---------
Total shareholders' equity 114,588 102,138
--------- ---------
Total liabilities and shareholders' equity $ 221,586 $ 203,802
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 3 of 12
<PAGE> 4
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------- --------
<S> <C> <C>
Revenues:
Net product sales $89,101 $ 64,231
Proceeds from supply agreement 7,166 --
------- --------
Total revenues 96,267 64,231
Costs and expenses:
Cost of sales 65,226 53,476
Selling, general and administrative 9,133 5,213
Research and development 5,198 2,841
------- --------
Earnings from operations 16,710 2,701
Interest income 376 479
Interest expense (237) (348)
Other income, net 17 5
------- --------
Earnings before income taxes 16,866 2,837
Income tax expense 6,469 1,070
------- --------
Net earnings $ 10,397 $ 1,767
======= ========
PER COMMON SHARE:
Earnings per common and common equivalent shares $ 0.45 $ 0.08
======= ========
Earnings per common share assuming full dilution $ 0.45 $ 0.08
======= ========
Weighted average number of common and common equivalent shares 23,054 22,140
======= ========
Weighted average number of shares assuming full dilution 23,054 22,239
======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 4 of 12
<PAGE> 5
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30, 1997 and 1996
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings $ 10,397 $ 1,767
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,291 1,203
Deferred income tax expense (benefit) 2,601 (45)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (25,318) 3,519
Inventories 7,276 (2,649)
Prepaid expenses (192) (323)
Other assets (52) (121)
Increase (decrease) in:
Accounts payable and accrued liabilities 186 2,182
Income taxes payable 2,509 1,074
-------- --------
Net cash (used in) provided by operating activities (1,302) 6,607
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,876) (4,675)
Proceeds from sale of property, plant and equipment 65 --
Investment in marketable securities (4,069) --
-------- --------
Net cash used in investing activities (9,880) (4,675)
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt (136) (11)
Proceeds from loans -- 606
Proceeds from revolving line of credit 1,400 --
Payments on revolving line of credit (1,400) --
Proceeds from exercise of stock options
and employee stock purchases 1,827 289
-------- --------
Net cash provided by financing activities 1,691 884
-------- --------
(Decrease) increase in cash (9,491) 2,816
Cash and cash equivalents at beginning of period 31,923 44,893
-------- --------
Cash and cash equivalents at end of period $ 22,432 $ 47,709
======== ========
SUPPLEMENTAL CASH FLOW DATA - CASH PAID DURING THE PERIOD:
Interest, net of portion capitalized $ -- $ 222
Income taxes $ 1,500 $ 30
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 5 of 12
<PAGE> 6
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Barr
Laboratories, Inc. and its wholly-owned subsidiaries (the "Company" or
"Barr").
In the opinion of the Management of the Company, the interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Interim results are not necessarily indicative of the results that may be
expected for a full year. These financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended June 30, 1997.
Certain amounts in prior years' financial statements have been
reclassified to conform with the current year presentation.
2. CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments
(primarily market auction securities with interest rates that are re-set
in intervals of 7 to 71 days) which are readily convertible into cash at
par value (cost).
As of September 30, 1997 and June 30, 1997, approximately $5,130 and
$11,239, respectively, of the Company's cash was held in an escrow
account. Such amounts represent the portion of the Company's payable
balance with the Innovator of Tamoxifen, which the Company has decided to
secure in connection with its cash management policy. The Company pays
the Innovator a monthly fee based on the average unsecured monthly
Tamoxifen payable balance, as defined in the December 1995 Alternative
Collateral Agreement.
3. ACCOUNTS RECEIVABLE
Accounts receivable includes amounts due under the contingent,
non-exclusive Supply Agreement between Bayer AG and Bayer Corporation and
the Company related to ciprofloxacin hydrochloride. As of September 30,
1997, such receivable totaled $9,666.
Page 6 of 12
<PAGE> 7
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
4. INVENTORIES
Inventories consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- --------
<S> <C> <C>
Raw materials and supplies $20,260 $21,403
Work-in-process 7,218 3,340
Finished goods 21,462 31,473
------- -------
$48,940 $56,216
======= =======
</TABLE>
Tamoxifen Citrate, purchased as a finished product, accounted for
approximately $14,343 and $23,155 of finished goods as of September 30,
1997 and June 30, 1997, respectively.
5. OTHER ASSETS
On August 13, 1997, Barr made a strategic investment in Warner Chilcott
plc. by acquiring 250,000 Ordinary Shares represented by 250,000 American
Depository Shares for $4,069. This amount is included in other assets. In
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", the investment is classified as "available for
sale marketable securities" and is recorded at market value with the
unrealized gain or loss recognized as a separate component of
shareholders' equity, net of income taxes.
6. EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
For the three month periods ended September 30, 1997 and 1996, earnings
per common share were computed by dividing the earnings applicable to
common stock by the weighted average number of common and dilutive common
equivalent shares outstanding during the period.
Page 7 of 12
<PAGE> 8
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share". SFAS No. 128 specifies the computation, presentation and
disclosure requirements for earnings per share ("EPS") and will become
effective for both interim and annual periods ending after December 15,
1997. Earlier application to the Company's financial statements is
prohibited. However, disclosure of pro forma EPS computed using SFAS No.
128 is permitted in the notes to the financial statements. The following
table sets forth unaudited pro forma EPS data computed under the
provisions of SFAS No. 128:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
-------- --------
<S> <C> <C>
Basic EPS $ 0.48 $ 0.08
Diluted EPS $ 0.45 $ 0.08
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Litigation
The Company, at September 30, 1997, was involved in lawsuits incidental
to its business, including patent infringement actions. Management, based
on the advice of legal counsel, believes that the ultimate disposition of
these lawsuits will not have any significant adverse effect on the
Company's consolidated financial statements.
Page 8 of 12
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Comparison of the Quarter Ended September 30, 1997
To the Quarter Ended September 30, 1996 - (thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996 Change
---- ---- ------
<S> <C> <C> <C>
Revenues:
Net product sales:
Distributed $60,444 $48,888 11,556
Manufactured 28,657 15,343 13,314
------- ------- ------
Total net product sales 89,101 64,231 24,870
Proceeds from supply agreement 7,166 -- 7,166
------- ------- ------
Total revenues $96,267 $64,231 32,036
</TABLE>
Total revenues increased approximately 50%, as a result of increased net product
sales and proceeds from supply agreement.
The increase in net product sales is primarily attributable to the July 1997
launch of Warfarin Sodium as well as an increased demand for Tamoxifen.
The 24% increase in distributed product sales, which represents sales of
Tamoxifen, is the result of heavy buying by certain customers at the end of
September in anticipation of a price increase that did not occur, as well as
increases in demand for the 20 mg strength of Tamoxifen, which the Company began
distributing in December 1996. Tamoxifen is a patent protected product
manufactured for the Company by the Innovator, and is distributed by the Company
under a non-exclusive license agreement with the Innovator. Currently Tamoxifen
only competes against the Innovator's products, which are sold under the brand
name.
Net sales of manufactured products increased 87% primarily as a result of the
Company's July launch of Warfarin Sodium and, to a lesser extent, sales of other
new products such as Medroxyprogesterone and Meperidine. Manufactured net sales
include revenues from four new products in fiscal 1998 compared to two new
products in fiscal 1997. These products represented approximately 53% and 15% of
total manufactured sales in fiscal 1998 and 1997, respectively. Revenues from
these products more than offset price declines and higher discounts on certain
existing products.
Page 9 of 12
<PAGE> 10
Proceeds from supply agreement are earned in accordance with a contingent,
non-exclusive Supply Agreement ("Supply Agreement") between Bayer AG and Bayer
Corporation ("Bayer") and the Company which ends at patent expiry in December
2003. During the term of the Supply Agreement, Bayer has the option of supplying
Barr and an unrelated third party with ciprofloxacin hydrochloride to market and
distribute pursuant to a license from Bayer or making quarterly cash payments to
Barr beginning in March 1998. If Bayer does not supply Barr with product, the
Company expects its 1998 earnings related to the Supply Agreement to approximate
the $24.6 million initial payment received in January 1997. If Bayer elects to
provide Barr with product, the amount Barr could earn would be dependent on
market conditions.
Cost of sales increased to $65,226 from $53,476, but decreased as a percentage
of net product sales from 83% to 73%. The decrease in cost of sales as a
percentage of net product sales is primarily attributable to manufactured
product sales representing a larger portion of total net product sales. This
positively impacts margins because the profit margin the Company earns on
manufactured products is generally greater than the margins it earns on
distributed products.
Selling, general and administrative expenses increased to $9,133 from $5,213.
The largest components of the increase related to legal and government affairs
activities as well as higher expenses in promotions and advertising from the
July launch of Warfarin Sodium. The increased legal fees resulted primarily from
lower reimbursements received from patent challenge partners. The prior year
expense reflected approximately $650 more in reimbursed legal fees from such
partners. Government affairs expenses were higher in the current year due to the
Company's increased activities directed at countering DuPont-Merck's efforts to
restrict substitution of Warfarin Sodium.
Total research and development expenses in the current quarter were $5,198, as
compared to $2,841 in the prior fiscal year. The increase is the result of
increased bio-studies and raw material purchases; a strategic investment of more
than $600, which was allocated to in-process research and development, for six
Abbreviated New Drug Applications and related technologies; increased personnel
costs to support the number of products in development; and investments to
support the Company's New Drug development efforts.
Interest income declined by $103 primarily due to a decrease in the average cash
and cash equivalents balance.
Interest expense decreased $111 due to an increase in capitalized interest
associated with increased capital improvements over the corresponding quarter of
the prior fiscal year. The increase in capitalized interest was partially offset
by interest on the Company's equipment financing agreement as well as the fee
paid on the unsecured Tamoxifen balance (See Note 2).
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased to $22,432 at September 30,
1997 from $31,923 at June 30, 1997. In connection with an Alternative Collateral
Agreement between the Company and the Innovator of Tamoxifen, the Company has
continued to reduce the cash held in a cash collateral account to secure
extension of credit to it by the Innovator. The amount of cash held in the cash
collateral account declined from $11,239 at June 30, 1997 to $5,130 at September
30, 1997.
Page 10 of 12
<PAGE> 11
Cash used in operating activities was $1,302 for the three months ended
September 30, 1997, which included net earnings of $10,397. Accounts receivable
increased by nearly $25 million due in part to higher sales and to the
increasing receivable related to the Supply Agreement. This increase was
partially offset by a decrease in inventory related to increasing Tamoxifen and
other new product sales, and an increase in income taxes payable resulting from
higher earnings.
In the first quarter of fiscal 1998, the Company invested $5,876 in capital
assets, primarily in connection with the expansion of its manufacturing capacity
in the Virginia and New York facilities, as well as $4,069 in connection with a
strategic investment (see Note 5). The Company began manufacturing validation
batches of pharmaceutical products at the Virginia facility in October 1997, and
expects to begin warehouse operations in December 1997. The Company expects to
invest an additional $15 to $20 million in capital assets in fiscal 1998.
The Company is also negotiating several changes to its debt structure.
Specifically, the Company is seeking to replace its existing Senior Secured
Notes which have an unpaid principal balance of $14,400 at September 30, 1997
and an interest rate of 10.15% with $30,000 of Unsecured Notes with market
interest rates. The Company is also seeking to extend and increase its existing
$10,000 Revolving Credit Facility ("Revolver").
As part of the Company's overall growth strategy, the Company has evaluated and
continues to evaluate strategic relationships including investments, product
line acquisitions and acquisitions of other companies in the generic industry.
The Company believes its capital resources, including use of additional equity,
are adequate to meets its financial needs.
Forward Looking Statements
Except for the historical information contained herein, the Management's
Discussion and Analysis contains forward looking statements that involve a
number of risks and uncertainties, including the ability of the Company to
refinance its Senior Secured Notes and to increase and extend the Revolver, the
regulatory environment, fluctuations in operating results, capital spending and
other risks detailed from time-to-time in the Company's filings with the
Securities and Exchange Commission.
Page 11 of 12
<PAGE> 12
BARR LABORATORIES, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Number Exhibit
(a) -------------- -------
11 Computation of per share earnings
27 Financial data schedule
(b) There were no reports filed on Form 8-K in the quarter ended
September 30, 1997.
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.
BARR LABORATORIES, INC.
Dated: November 13, 1997 /s/ William T. McKee
--------------------
William T. McKee
Chief Financial Officer
Page 12 of 12
<PAGE> 1
EXHIBIT 11
BARR LABORATORIES, INC.
COMPUTATION OF PER SHARE EARNINGS(1)
QUARTER ENDED SEPTEMBER 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
QUARTER QUARTER
------- -------
<S> <C> <C>
PRIMARY
Average shares outstanding 21,467 21,064
Net effect of dilutive stock options-based on treasury stock method using:
Average market price 1,587 1,076
------- -------
Total 23,054 22,140
======= =======
Net earnings $10,397 $ 1,767
======= =======
Net earnings per share $ 0.45 $ 0.08
======= =======
FULLY DILUTED
Average shares outstanding 21,467 21,064
Net effect of dilutive stock options-based on treasury stock method using:
Average market price 1,587
Quarter-end market price 1,175
------- -------
Total 23,054 22,239
======= =======
Net earnings $10,397 $ 1,767
======= =======
Net earnings per share $ 0.45 $ 0.08
======= =======
</TABLE>
(1) 1996 has been adjusted for the May 1997 3-for-2 stock split.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 22,432
<SECURITIES> 0
<RECEIVABLES> 60,550<F1>
<ALLOWANCES> 0
<INVENTORY> 48,940
<CURRENT-ASSETS> 136,016
<PP&E> 80,480<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 221,586
<CURRENT-LIABILITIES> 90,723
<BONDS> 14,807
0
0
<COMMON> 217
<OTHER-SE> 114,371
<TOTAL-LIABILITY-AND-EQUITY> 221,586
<SALES> 89,101
<TOTAL-REVENUES> 96,267
<CGS> 65,226
<TOTAL-COSTS> 65,226
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> 16,866
<INCOME-TAX> 6,469
<INCOME-CONTINUING> 10,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,397
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
<FN>
<F1>ACCOUNTS RECEIVABLE AND PP&E ARE NET.
</FN>
</TABLE>
