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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 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
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(Registrant's telephone number)
Securities registered pursuant to Section Name of each exchange on
12(b) of the Act: which registered:
Title of each class
Common Stock, Par Value $0.01 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None (Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock of the Registrant held by
nonaffiliates was approximately $304,815,280 as of June 30, 1997 (assuming
solely for purposes of this calculation that all Directors and Officers of the
Registrant are "affiliates").
Number of shares of Common Stock, Par Value $.01, outstanding as of June 30,
1997: 21,328,098.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S 1997 ANNUAL REPORT TO SHAREHOLDERS ARE INCORPORATED
BY REFERENCE IN PART II AND PART IV HEREOF.
PORTIONS OF THE REGISTRANT'S 1997 PROXY STATEMENT ARE INCORPORATED BY REFERENCE
IN PART III HEREOF.
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PART I
ITEM 1. BUSINESS
Barr Laboratories, Inc. ("Barr" or the "Company") is a leading independent
developer, manufacturer and marketer of high quality generic pharmaceuticals.
The Company ranks among the top ten independent companies in the U.S. generic
pharmaceutical business as measured by net sales and market capitalization.
Barr, which is listed on the American Stock Exchange (AMEX-BRL), also ranks
among the top 50 pharmaceutical companies in the U.S. in terms of overall sales.
Barr manufactures, markets and distributes a wide range of prescription drug
products equivalent to branded pharmaceuticals. The Company's product line is
primarily focused in the following therapeutic categories:
- treatments for cancer (oncologicals);
- hormone replacement therapies (hormonal agents) used in estrogen
replacement and the treatment of menopause;
- pain management products (narcotic analgesics);
- medicines for hypertension and heart disease (cardiovascular agents);
and
- antibiotics and medicine to combat infections (anti-infectives).
Barr also markets several products that represent other therapeutic categories
including a line of products to treat anxiety, depression and other similar
disorders (psychotherapeutics). These products are manufactured in tablet,
capsule and powder form.
Generic pharmaceuticals, such as those made and sold by Barr, represent an
increasing proportion of medicines dispensed in the U.S. In calendar 1996, the
generic pharmaceutical industry had total U.S. sales of approximately $11
billion (according to IMS International), more than twice the amount of sales
reported just five years ago. Although generic pharmaceuticals must meet the
same standards as branded pharmaceuticals, these equivalent medicines are sold
at prices that are typically lower than the branded product. The Company
believes that the industry will benefit from the increasing efforts by
government (both state and federal), employers, third-party payers, and
consumers to control health care costs, as well as from the more than 100 major
branded pharmaceutical products that will come off-patent within the next ten
years.
Company Background
The Company was founded in 1970 by Mr. Edwin A. Cohen and a partner, and
commenced active business in 1972 as a manufacturer of generic drug products.
Current Products
Currently, the Company is marketing approximately 56 drug products, representing
various dosage strengths of 27 chemical entities.
Key among the Company's current products is Tamoxifen. Tamoxifen is a
non-steroidal anti-estrogen used to treat advanced breast cancer, as well as to
delay the recurrence of the cancer following surgery.
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Barr distributes Tamoxifen (which is sold under the Barr label) under an
agreement with the Innovator holding the product's patent. In 1993, as a result
of a settlement of a patent challenge against the Innovator of Tamoxifen, Barr
entered into a non-exclusive Supply and Distribution Agreement ("Agreement").
Under the terms of the Agreement, Barr purchases its Tamoxifen directly from the
Innovator at a discount from the Innovator's average wholesale customer price.
Patent protected until 2002, the total current annual market for Tamoxifen is
approximately $300 million. As a percentage of Barr's total product sales,
Tamoxifen accounted for approximately 76%, 74% and 72% of total fiscal year
1997, 1996, and 1995 net product sales, respectively.
The Company currently has an approved Abbreviated New Drug Application (ANDA) to
manufacture Tamoxifen. Therefore, at the time of patent expiration (or should
another company's patent challenge succeed), Barr would be permitted to begin
manufacturing Tamoxifen. Manufacturing Tamoxifen would significantly lower
Barr's costs and would dramatically improve the Company's profit margins earned
on Tamoxifen sales. Within the last 18 months, a court upheld the Tamoxifen
patent in a challenge brought by another generic pharmaceutical company. In
addition, the Company is aware of two other challenges currently pending against
Tamoxifen. Although the final outcome of any such litigation is uncertain, to
date no other challenge to Tamoxifen has been successful.
Product Development
Barr's long-term growth is expected to be driven by its ability to be the first
or second to market with new generic versions of select, branded
pharmaceuticals. Barr's strategy to maximize opportunities for generic
pharmaceuticals has four components: offering a therapeutically focused product
line; aggressively investing in research and development (R&D) in categories
representing strong potential where Barr has a competitive advantage; adding
significant products through selective patent challenges; and strengthening
market position through licensing, partnering and other innovative business
relationships.
Barr's strategy is focused on the research and development of traditional
generic products, as well as high potential generic product opportunities,
patent challenge cases, and new drugs that offer some level of market
exclusivity. The Company utilizes a complex, multi-tiered modeling approach that
results in the identification of product candidates that meet such criteria as:
complementarity with the Company's core categories of therapeutic focus, special
manufacturing capacity, marketing expertise or that offer unique legal
challenges. By using this model to select generic product candidates, the
Company hopes it will be first to market with products that will face limited
competition and provide a longer life-cycle and enhanced shareholder value.
In addition to developing high potential generic products and identifying patent
challenges, the Company also is developing new products that would have some
period of market exclusivity. These opportunities however, take longer and cost
more to develop than the normal ANDA process. Products resulting from this
development effort are expected to have some period of patent protection or
other form of market exclusivity.
As a complement to its traditional generic and high potential product
development efforts, Barr continually pursues strategic business relationships
to expand the penetration of Barr's products, share developmental risks and
realize operating efficiencies.
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Barr has made a significant investment in processes and equipment that enable it
to develop and manufacture difficult or toxic compounds into profitable
therapies. This investment, a significant barrier to entry for potential
competitors, offers a distinctive advantage for Barr.
For the fiscal years ended June 30, 1997, 1996, and 1995, total research and
development expenditures were approximately $14 million, $11 million and $10
million, respectively. Management anticipates that research and development
expenditures in fiscal 1998 will exceed comparable expenditures in fiscal 1997.
See Item 7, "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
Marketing and Customers
The Company sells its products to customers in the United States and Puerto Rico
through an integrated sales and marketing force. This sales force is
supplemented by customer service representatives who inform the Company's
customers of new Company products, order status and current pricing.
The Company markets its drug products to drug store chains, wholesalers,
distributors and repackagers. The Company's products are sold under the Barr
label as well as the customers' own private labels.
The Company has approximately 300 direct customers. In fiscal 1997 and 1996,
McKesson Drug Company accounted for approximately 13% and 10%, respectively, of
net sales. In fiscal 1995, approximately 10% of net sales were generated by
sales to Cardinal Health, Inc. No other customer accounted for greater than 10%
of sales in any of the last three fiscal years.
During fiscal 1997 the Company's customer base has undergone significant
consolidation, particularly in the chain drug store, distributor and wholesaler
trade classes. To date, this consolidation has had little impact on the
Company's business. The Company believes that it has excellent relationships
with its key customers, but there can be no assurance that continued
consolidation will not impact the Company's business, or that such impact might
not be significant.
Competition
The Company competes in varying degrees with numerous other manufacturers of
pharmaceutical products (both branded and generic). These competitors include
the generic divisions of proprietary pharmaceutical companies (either marketing
units or other generic manufacturers), large independent generic
manufacturers/distributors that seek to provide "one stop shopping" by offering
a full line of products, and generic manufacturers that have targeted select
therapeutic categories and market niches.
The principal competitive factors in the generic pharmaceutical industry are:
- the ability to introduce generic versions of branded products
promptly after the expiration of market exclusivity;
- maintenance of sufficient inventories to ensure timely deliveries;
- price;
- quality; and
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- customer service.
Many of the Company's competitors have greater financial and other resources,
and are therefore able to devote more resources than the Company in such areas
as marketing and product development. In order to ensure its ability to compete
effectively, the Company has:
- focused its product development in areas of historical strength or
competitive advantage;
- targeted products for development that offer significant barriers to
entry for competitors, including: difficulty in sourcing raw
materials; difficulty in formulation or establishing bioequivalence;
manufacturing that requires unique facilities, processes or
expertise; and
- invested in plant and equipment to give it a competitive edge in
manufacturing.
These factors, when combined with the Company's investment in new product
development and its focus on select therapeutic categories, provide the basis
for its belief that it will continue to remain a leading independent generic
pharmaceutical company.
Raw Materials
The active chemical raw materials essential to the Company's business are bulk
pharmaceutical chemicals which are purchased from numerous manufacturers in the
U.S. and throughout the world. All purchases are made in United States dollars,
and therefore, while currency fluctuations do not have an immediate impact on
prices the Company pays, such fluctuations may, over time, have an effect on
prices to the Company. In addition, because prior U.S. Food and Drug
Administration ("FDA") approval of raw material suppliers is required, if raw
materials from an approved supplier were to become unavailable, the required FDA
approval of a new supplier could cause a significant delay in the manufacture of
the drug product affected. However, in some cases, the Company has an FDA
approved alternate supplier which would mitigate the effect of any such delay.
To date, the Company has not experienced any significant delays from lack of raw
material availability. However, there can be no assurance that significant
delays will not occur in the future.
Employees
As of June 30, 1997, the Company had approximately 467 full-time employees. Of
these, approximately one-third are represented by a union which has a collective
bargaining agreement with the Company. The Company's current collective
bargaining agreement with its employees, who are represented by Local 8-149 of
the Oil, Chemical and Atomic Workers International Union ("OCAW"), expires on
April 1, 2001.
GOVERNMENT REGULATION
All pharmaceutical manufacturers, including the Company, are subject to
extensive regulation by the federal government, principally by the FDA, and, to
a lesser extent, by the U.S. Drug Enforcement Administration ("DEA") and state
governments. The Federal Food, Drug and Cosmetic Act, the Controlled Substances
Act and other federal statutes and regulations govern or influence the testing,
manufacturing, safety, labeling, storage, record keeping, approval, pricing,
<PAGE> 6
advertising and promotion of the Company's products. Non-compliance with
applicable requirements can result in fines, recalls and seizure of products.
Under certain circumstances, the FDA also has the authority to revoke drug
approvals previously granted.
FDA
FDA approval is required before any new drug or a generic equivalent to a
previously approved drug can be marketed. The Company generally receives
approval for products by submitting an ANDA to the FDA. When processing an ANDA,
the FDA waives the requirement of conducting complete clinical studies, although
it may require bioavailability and/or bioequivalence studies. "Bioavailability"
indicates the rate and extent of absorption and levels of concentration of a
drug product in the blood stream needed to produce a therapeutic effect.
"Bioequivalence" compares the bioavailability of one drug product with another,
and when established, indicates that the rate of absorption and levels of
concentration of a generic drug in the body are substantially equivalent to the
previously approved drug. An ANDA may be submitted for a drug on the basis that
it is the equivalent to a previously approved drug. Although antibiotic drugs
are classified separately for purposes of FDA approval, the approval procedure
for such drugs substantially conforms to the foregoing outline.
Among the requirements for drug approval by the FDA is that the Company's
manufacturing procedures and operations conform to current Good Manufacturing
Practices ("cGMP"), as defined in the U.S. Code of Federal Regulations. The cGMP
regulations must be followed at all times during the manufacture of
pharmaceutical products. In complying with the standards set forth in the cGMP
regulations, the Company must continue to expend time, money and effort in the
areas of production and quality control to ensure full technical compliance.
If the FDA believes a company is not in compliance with cGMP, certain sanctions
are imposed upon that company including (i) withholding from the company new
drug approvals as well as approvals for supplemental changes to existing
applications; (ii) preventing the company from receiving the necessary export
licenses to export its products; and (iii) classifying the company as an
"unacceptable supplier" and thereby disqualifying the company from selling
products to federal agencies. The Company believes it is currently in compliance
with cGMP.
In May of 1992, the Generic Drug Enforcement Act of 1992 (the "Act") was
enacted. This Act, a result of the legislative hearings and investigations into
the generic drug approval process, allows the FDA to impose debarment and other
penalties on individuals and companies that commit certain illegal acts relating
to the generic drug approval process. In some situations, the Act requires the
FDA to debar (i.e., not accept or review ANDAs for a period of time) a company
or an individual that has committed certain violations. It also provides for
temporary denial of approval of applications during the investigation of certain
violations that could lead to debarment and also, in more limited circumstances,
provides for the suspension of the marketing of approved drugs by the affected
company. Lastly, this Act allows for civil penalties and withdrawal of
previously approved applications. Neither the Company nor any of its employees
was or is currently affected by the provisions of this Act.
DEA
Because the Company markets some and intends to reintroduce a wide range of
controlled substances in its analgesic and psychotherapeutic product lines, it
must meet the requirements of
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the Controlled Substances Act and the regulations issued thereunder and
administered by the DEA. These regulations include stringent requirements for
manufacturing controls and security to prevent diversion of or unauthorized
access to the drugs in each stage of the production and distribution process.
The DEA monitors allocation to the Company of raw materials used in the
production of controlled substances based on historical sales data. The Company
believes it is currently in compliance with all applicable DEA requirements.
Government Relations Activities
During the past year, the brand pharmaceutical industry has increased its
efforts to utilize state and federal legislative and regulatory forums to delay
generic competition, or limit the severe market erosion that occurs once
monopoly protection is lost for the branded product. To advance this agenda in
the past year alone, the brand pharmaceutical companies have attempted to use
the Citizen Petition process to amend FDA standards, sought changes in United
States Pharmacopeia requirements, and even sought to attach patent extension
amendments to important federal legislation. The newest facet of the
anti-generic defense strategy involves a state-by-state initiative to enact
legislation that restricts the substitution of generic equivalents of Narrow
Therapeutic Index ("NTI") Drugs. Since January of 1997, Barr has engaged the
resources necessary to fight proposed legislation in a number of major states.
Because this issue is critical to Barr's continued success, the Company has and
will continue to put a major emphasis in terms of management time and financial
resources on government affairs activities.
Patents
The Process Patent Amendments Act of 1988 provides that the use or sale within
the United States, or importation into the United States, of a product that was
made either domestically or abroad by a process covered by a United States
patent, constitutes infringement of the process patent. After proper notice,
this legislation could subject the Company to potential patent infringement
claims if a supplier of an active ingredient to the Company were to infringe a
United States process patent in the manufacture of such ingredient. The Company
has received no such notice.
Medicaid
In November 1990, a law regarding reimbursement for prescribed Medicaid drugs
was passed as part of the Congressional Omnibus Budget Reconciliation Act of
1990. This law basically required drug manufacturers to enter into a rebate
contract with the Federal Government. All generic pharmaceutical manufacturers,
whose products are covered by the Medicaid program, are required to rebate to
each state a percentage (currently 11% in the case of products manufactured by
the Company and 15% for Tamoxifen sold by the Company) of their average net
sales price for the products in question. The Company provides an accrual for
future estimated rebates in its consolidated financial statements.
Effect of the General Agreement on Tariffs and Trade ("GATT")
With the signing of the GATT accord in December 1994, one of the provisions
called for harmonization of patent life throughout GATT countries. U.S. enabling
legislation had
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provisions which in effect offered a limited extension of the period of monopoly
protection for intellectual property including patents. While a number of
patented drugs will receive extended patent protection (the maximum extension
being 36 months) as a result of this enabling legislation, the patent extensions
resulting from the implementation of GATT are not expected to materially impact
any of the product candidates in Barr's current pipeline.
Other
The Company is also governed by federal, state and local laws of general
applicability, such as laws regulating working conditions, equal employment
opportunity, and environmental protection.
ITEM 2. PROPERTIES
Barr's operations are located in Pomona and Blauvelt, New York; Northvale, New
Jersey; and Forest, Virginia.
The Company's analytical and product development laboratories and certain
production facilities are located in Pomona, New York. Barr operates two
facilities totaling approximately 81,000 square feet on 40 acres. The Company
owns these facilities and the land.
The first building consists of a 33,000 square foot facility devoted to the
analytical and product development laboratories as well as the equipment used in
the research and development of new dosage forms. This facility also houses one
of Barr's enclosed-manufacturing suites. With these suites, which include
sophisticated air-handling systems that eliminate the dangers of handling toxic
chemicals, Barr can effectively pursue oncology, hormonal and other product
candidates whose manufacture demands that such facilities be in place. During
fiscal 1997, the Company expanded the use of sophisticated testing technologies
by installing additional robotics workstations and completed a laboratory
devoted to highly sophisticated liquid chromatography for R&D and Quality
Control.
The second building on the Pomona site provides approximately 48,000 square feet
of office and manufacturing space. This building houses the R&D administrative
staff and pharmacy operations team, as well as additional manufacturing and
warehousing capabilities. During fiscal 1997, the Company completed the
construction of a 17,000 square foot manufacturing suite within this facility,
that is used to manufacture products requiring special material handling (such
as cancer treatments and hormonal agents).
In Northvale, New Jersey, about 15 miles from the Pomona site, three buildings
are used for manufacturing, packaging and shipping operations. Manufacturing is
located in a 28,000 square foot building which the Company purchased in 1984
with the aid of funding through the New Jersey Economic Development Authority.
This facility includes pharmaceutical manufacturing equipment, as well as
another of the Company's enclosed-manufacturing suites. The building also has
the necessary vaults, permits, etc. to support the Company's narcotic analgesic
development plans. In 1991, the Company purchased an additional parcel of land
in Northvale for future use.
Across from the manufacturing facility, Barr leases a 40,000 square foot
building that houses manufacturing support staff offices as well as the
Company's automated packaging operations.
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The lease on this building expires on June 30, 1998. The Company has determined
that it will not renew the lease on this building, and has begun the process of
re-incorporating its packaging operations within its other manufacturing
facilities.
The Company's third building in Northvale, a 50,000 square foot leased facility,
serves as the Company's warehousing and distribution facility. This lease
expires in July 1999.
The Company's executive, administrative and sales and marketing operations are
located in two sub-leased facilities of approximately 38,000 square feet in
Blauvelt, New York. This location is approximately 7 miles from both Pomona and
Northvale. The leases on these facilities expire in May 1999.
In January 1996, the Company purchased an existing facility in Forest, Virginia,
on a 50 acre site that will accommodate additional expansion. Construction to
retrofit this 65,000 square foot facility for pharmaceutical manufacturing was
initiated at the end of the prior fiscal year, and it is expected to be
operational during fiscal 1998. During fiscal 1997, the Company formally broke
ground on a 100,000 square foot building adjacent to the existing building, that
will be used for warehouse and packaging operations. This building, which is
expected to be completed by mid-fiscal 1998, will support Virginia-based
manufacturing as well as the Company's product distribution requirements.
ITEM 3. LEGAL PROCEEDINGS
Ciprofloxacin Hydrochloride Patent Challenge
In January 1997, Bayer AG and Bayer Corporation ("Bayer") and the Company
reached an agreement to settle the then pending litigation regarding Bayer's
patent protecting ciprofloxacin hydrochloride ("Settlement Agreement"). As a
result, the U.S. Federal Court for the Southern District of New York entered a
Consent Judgment ending the litigation. (See Note 2 to Consolidated Financial
Statements.)
Fluoxetine Hydrochloride Patent Challenge
In February 1996, Barr filed an ANDA seeking approval from the FDA to market
fluoxetine hydrochloride, the generic equivalent of Eli Lilly Company's
("Lilly") Prozac(R). The Company notified Lilly pursuant to the provisions of
the Waxman-Hatch Act and on April 19, 1996, Lilly filed a patent infringement
action in the United States District Court for the Southern District of Indiana
- - Indianapolis Division seeking to prevent Barr from marketing fluoxetine until
certain U.S. patents expire in 2002. The case is in the discovery stage and the
trial is scheduled for late April 1998.
Miscellaneous
As of June 30, 1997, the Company was involved, as plaintiff and defendant, in
other lawsuits incidental to its business. Management of the Company, based on
the advice of legal counsel, believes that the disposition of such litigation
will not have any significant adverse effect on the Company's consolidated
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by Item 5 is included on page 41 of the 1997 Annual
Report to Shareholders ("Annual Report") and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is included on page 44 of the Annual Report
and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 is included on pages 23 through 26 of the
Annual Report and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is included on pages 27 through 42 of the
Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bruce L. Downey 49 Chairman of the Board, Chief Executive Officer
and President
Paul M. Bisaro 36 Senior Vice President, Strategic Business Development,
General Counsel and Secretary
Timothy P. Catlett 42 Vice President, Sales and Marketing
Ezzeldin A. Hamza 46 Vice President, Research and Development
Catherine F. Higgins 45 Vice President, Human Resources
Bruce W. Hooey 35 Vice President, Chief Information Officer
William T. McKee 36 Chief Financial Officer and Treasurer
Mary E. Petit 48 Senior Vice President, Operations
Gerald F. Price 50 Vice President, Manufacturing and Engineering
</TABLE>
BRUCE L. DOWNEY became the Company's President, Chief Operating Officer
and a member of the Board of Directors in January 1993 and was elected Chairman
of the Board and Chief Executive Officer in February of 1994. Prior to assuming
these positions, from 1981 to 1993, Mr. Downey was a partner in the law firm of
Winston & Strawn and a predecessor firm of Bishop, Cook, Purcell and Reynolds.
PAUL M. BISARO was employed by the Company as General Counsel in July
1992. He was acting General Counsel to the Company since January 1992. Mr.
Bisaro was elected Secretary of the Company in September 1992 and elected a Vice
President in 1993. In August 1994, Mr. Bisaro was elected to the position of
Chief Financial Officer. In September 1996, Mr. Bisaro was elected to the
position of Senior Vice President-Strategic Business Development. Prior to
assuming these positions with the Company, he was associated with the law firm
of Winston & Strawn and a predecessor firm, Bishop, Cook, Purcell and Reynolds.
TIMOTHY P. CATLETT was employed by the Company in February 1995 as Vice
President, Sales and Marketing. Since 1978, Mr. Catlett held a number of
positions with the Lederle Laboratories division of American Cyanamid Company.
Since 1993 he served as Vice President, Cardiovascular Marketing.
<PAGE> 12
EZZELDIN A. HAMZA was employed by the Company in July 1984 as Director
of Quality Control and thereafter, from August 1987, served as Director of
Scientific Affairs. In December 1988, Mr. Hamza was elected to the position of
Vice President-Technical Affairs. In 1993, he was elected Vice
President-Research and Development.
CATHERINE F. HIGGINS was employed by the Company in January 1992 as
Vice President-Human Resources and was elected an officer in September 1992.
From June 1985 to December 1991, Ms. Higgins served as Vice President-Human
Resources for Inspiration Resources Corporation.
BRUCE W. HOOEY was employed by the Company in December 1993 as Chief
Information Officer. He was elected an officer of the Company in December of
1994 and elected a Vice President of the Company in December 1995. Mr. Hooey
served as a Consultant with Deloitte & Touche Management Consultants from August
1985 until joining Barr.
WILLIAM T. MCKEE was employed by the Company in January 1995 as
Director of Finance and was appointed Treasurer in March 1995. In September 1996
Mr. McKee was elected to the position of Chief Financial Officer. Prior to
joining the Company, Mr. McKee served as Vice President-Finance for Absolute
Entertainment. From January 1990 through June 1993, Mr. McKee was a Senior
Manager for Gramkow & Carnevale, CPAs.
MARY E. PETIT, PHARM. D., was employed by the Company in January 1995
as Vice President, Quality. In September 1996, Dr. Petit was elected to the
position of Senior Vice President-Operations. From June 1992 to January 1995,
Dr. Petit was Vice President, Quality Management with the Lederle Laboratories
division of American Cyanamid. Dr. Petit held positions of increasing
responsibility during her 12 year tenure with Lederle.
GERALD F. PRICE was employed by the Company in January 1990 as Vice
President, Manufacturing and Engineering. He was elected an officer of the
Company in January 1990. Prior to assuming these positions, he served as Group
Vice President-Operations of Del Laboratories.
The Company's directors and executive officers are elected annually to
serve until the next annual meeting or until their successors have been elected
and qualified. The directors of the Company and their business experience are
set forth on pages 2 and 3 of the Company's Notice of Annual Meeting of
Shareholders, dated October 24, 1997 (the "Proxy Statement") and are
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
A description of the compensation of the Company's executive officers is set
forth on pages 7 through 10 of the Proxy Statement and, with the exception of
the section headed "Compensation Committee Report on Executive Compensation" on
page 10, is incorporated herein by reference.
<PAGE> 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A description of the security ownership of certain beneficial owners and
management is set forth on pages 5 and 6 of the Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A description of certain relationships and related transactions is set forth on
page 12 of the Proxy Statement and is incorporated herein by reference.
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statement Schedules:
The consolidated balance sheets as of June 30, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended June 30,
1997 and the related notes to the consolidated financial statements,
together with the Independent Auditors' Report, are incorporated herein
by reference. With the exception of the aforementioned information and
the information incorporated by reference in Items 5 through 8, the
Annual Report is not deemed filed as part of this report. The following
additional financial data should be read in conjunction with the
financial statements in the Annual Report. All other schedules are
omitted because they are not applicable or the required information is
shown in the consolidated financial statements or notes.
Page
----
Independent Auditors' Report 18
Financial Statement Schedule:
II Valuation and Qualifying Accounts 19
Exhibits
3.1 Certificate of Incorporation of Registrant (1)
3.2 By-Laws of the Registrant (2)
4.1 Loan and Security Agreement dated April 12, 1996 (9)
4.2 Loan and Security Agreement dated July 31, 1996 (9)
10.1 Stock Option Plan (3)
10.2 Savings and Retirement Plan (8)
10.3 Economic Development Bond Financing Agreement, dated December 19, 1984,
relating to 265 Livingston Street (2)
10.4 Note Purchase Agreement dated June 28, 1991 - $20,000,000 - 10.15%
Senior Secured Notes dated June 28, 2001 (4)
10.5 Amendments 1, 2 and 3 dated April 1996 to Note Purchase Agreement dated
June 28, 1991 -- $20,000,000 Senior Secured Notes (11)
10.6 Collective Bargaining Agreement, effective April 1, 1996 (4)
<PAGE> 15
10.7 Agreement with Bruce L. Downey (4)
10.8 Agreement with Ezzeldin A. Hamza (4)
10.9 Distribution and Supply Agreement for Tamoxifen Citrate dated March 8,
1993 (4)
10.10 1993 Stock Incentive Plan (5)
10.11 1993 Employee Stock Purchase Plan (6)
10.12 1993 Stock Option Plan for Non-Employee Directors (7)
10.13 Agreement with Edwin A. Cohen and Amendment thereto (8)
10.14 Distribution and Supply Agreement for Ciprofloxacin Hydrochloride dated
January 1997 (10)
11.0 Statement Re: Computation of Per Share Earnings
13.0 1997 Annual Report to Shareholders
21.0 Subsidiaries of the Company (1)
23.0 Consent of Deloitte & Touche LLP
27.0 Financial Data Schedule
-----------------------------------------------------------------------
(1) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1988 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1986 and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Registration Statement on Form S-1 No.
33-13472 and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1993 and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Registration Statement on Form S-8 Nos.
33-73696 and 333-17349 and incorporated herein by reference.
(6) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Registration Statement on Form S-8 No.
33-73700 and incorporated
<PAGE> 16
herein by reference.
(7) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Registration Statement on Form S-8 Nos.
33-73698 and 333-17351 incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1995 and incorporated herein by reference.
(9) The Registrant agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of any instrument defining the rights
of the holders of its long-term debt wherein the total amount of
securities authorized thereunder does not exceed 10% of the total
assets of the Registrant and its subsidiaries on a consolidated basis.
(10) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 and incorporated herein by reference.
(11) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1996 and incorporated herein by reference.
(b) Reports on Form 8-K
None.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature Title Date
--------- ----- ----
BY BRUCE L. DOWNEY Chairman of the Board, Chief September 11, 1997
--------------- Executive Officer & President
(Bruce L. Downey)
BY WILLIAM T. MCKEE Chief Financial Officer and September 11, 1997
---------------- Treasurer
(William T. McKee)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
BRUCE L. DOWNEY Chairman of the Board, Chief September 11, 1997
- --------------------- Executive Officer & President
(Bruce L. Downey)
EDWIN A. COHEN Vice Chairman of the Board September 11, 1997
- ---------------------
(Edwin A. Cohen)
ROBERT J. BOLGER Director September 11, 1997
- ---------------------
(Robert J. Bolger)
MICHAEL F. FLORENCE Director September 11, 1997
- ---------------------
(Michael F. Florence)
WILSON L. HARRELL Director September 11, 1997
- ---------------------
(Wilson L. Harrell)
JACOB M. KAY Director September 11, 1997
- ---------------------
(Jacob M. Kay)
BERNARD C. SHERMAN Director September 11, 1997
- ---------------------
(Bernard C. Sherman)
GEORGE P. STEPHAN Director September 11, 1997
- ---------------------
(George P. Stephan)
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Barr Laboratories, Inc.:
We have audited the financial statements of Barr Laboratories, Inc. and
subsidiaries (the "Company") as of June 30, 1997 and 1996, and for each of the
three years in the period ended June 30, 1997, and have issued our report
thereon dated August 28, 1997; such financial statements and report are included
in your June 30, 1997 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the financial statement schedule of Barr
Laboratories, Inc., listed in Item 14. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
August 28, 1997
<PAGE> 19
SCHEDULE II
BARR LABORATORIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS, RECOVERY
BEGINNING OF COSTS AND AGAINST DEDUCTIONS, BALANCE AT
YEAR EXPENSE WRITE-OFFS WRITE-OFFS END OF YEAR
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1995 $ 800 -- -- $ 400 $ 400
Year ended June 30, 1996 400 95 2 305 192
Year ended June 30, 1997 192 735 22 679 270
Reserve for returns and allowances:
Year ended June 30, 1995 1,200 4,813 -- 4,313 1,700
Year ended June 30, 1996 1,700 5,114 -- 5,207 1,607
Year ended June 30, 1997 1,607 5,105 -- 5,362 1,350
Inventory reserves:
Year ended June 30, 1995 5,743 2,345 -- 4,538 3,550
Year ended June 30, 1996 3,550 2,359 -- 4,630 1,279
Year ended June 30, 1997 1,279 5,334 -- 2,978 3,635
</TABLE>
<PAGE> 20
Exhibit Index
-------------
3.1 Certificate of Incorporation of Registrant (1)
3.2 By-Laws of the Registrant (2)
4.1 Loan and Security Agreement dated April 12, 1996 (9)
4.2 Loan and Security Agreement dated July 31, 1996 (9)
10.1 Stock Option Plan (3)
10.2 Savings and Retirement Plan (8)
10.3 Economic Development Bond Financing Agreement, dated December 19, 1984,
relating to 265 Livingston Street (2)
10.4 Note Purchase Agreement dated June 28, 1991 - $20,000,000 - 10.15%
Senior Secured Notes dated June 28, 2001 (4)
10.5 Amendments 1, 2 and 3 dated April 1996 to Note Purchase Agreement dated
June 28, 1991 -- $20,000,000 Senior Secured Notes (11)
10.6 Collective Bargaining Agreement, effective April 1, 1996 (4)
<PAGE> 21
10.7 Agreement with Bruce L. Downey (4)
10.8 Agreement with Ezzeldin A. Hamza (4)
10.9 Distribution and Supply Agreement for Tamoxifen Citrate dated March 8,
1993 (4)
10.10 1993 Stock Incentive Plan (5)
10.11 1993 Employee Stock Purchase Plan (6)
10.12 1993 Stock Option Plan for Non-Employee Directors (7)
10.13 Agreement with Edwin A. Cohen and Amendment thereto (8)
10.14 Distribution and Supply Agreement for Ciprofloxacin Hydrochloride dated
January 1997 (10)
11.0 Statement Re: Computation of Per Share Earnings
13.0 1997 Annual Report to Shareholders
21.0 Subsidiaries of the Company (1)
23.0 Consent of Deloitte & Touche LLP
27.0 Financial Data Schedule
-----------------------------------------------------------------------
(1) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1988 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1986 and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Registration Statement on Form S-1 No.
33-13472 and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1993 and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Registration Statement on Form S-8 Nos.
33-73696 and 333-17349 and incorporated herein by reference.
(6) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Registration Statement on Form S-8 No.
33-73700 and incorporated
<PAGE> 22
herein by reference.
(7) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Registration Statement on Form S-8 Nos.
33-73698 and 333-17351 incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1995 and incorporated herein by reference.
(9) The Registrant agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of any instrument defining the rights
of the holders of its long-term debt wherein the total amount of
securities authorized thereunder does not exceed 10% of the total
assets of the Registrant and its subsidiaries on a consolidated basis.
(10) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 and incorporated herein by reference.
(11) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1996 and incorporated herein by reference.
<PAGE> 1
EXHIBIT 11
BARR LABORATORIES, INC.
COMPUTATION OF PER SHARE EARNINGS (1)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 21,133 20,968 20,125
Net effect of dilutive stock options -
based on the treasury stock method using
average market price 1,297 789 - (2)
Total 22,430 21,757 20,125
Net earnings $19,447 $ 7,016 $ 6,225
Net earnings per share $ 0.87 $ 0.32 $ 0.31
FULLY DILUTED
Average shares outstanding 21,133 20,968 20,125
Net effect of dilutive stock options -
based on the treasury stock method using
average market price 1,172 504
Fiscal year end market price 1,773
Total 22,906 22,140 20,629
Net earnings $19,447 $ 7,016 $ 6,225
Net earnings per share $ 0.85 $ 0.32 $ 0.30(3)
</TABLE>
(1) 1996 and 1995 have been adjusted for the May 1997 3-for-2 stock split.
(2) Stock options of 468 in 1995 are not included because their inclusion
results in less than 3% dilution.
(3) Results in less than 3% dilution.
<PAGE> 1
EXHIBIT 13
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1997 to Fiscal 1996 (thousands of dollars)
Total revenues increased approximately 23% to $284,486 from $232,224. The
increase was equally attributable to increasing net product sales and earnings
from the contingent non-exclusive Supply Agreement that resulted from the
successful settlement of the Ciprofloxacin patent challenge in January 1997 (See
Note 2 to Consolidated Financial Statements).
Net product sales increased 11% to $257,436 from $232,224. The increase is
primarily attributable to a continued increase in demand for Tamoxifen as well
as increased sales for the balance of the Company's product line.
Net Tamoxifen sales increased 14% to $195,734 or 76% of net product sales from
$171,000 or 74% of net product sales. The growth is primarily attributable to
increases in the Company's market share and price. Tamoxifen is a patented
product manufactured for the Company by the Innovator, and is distributed by the
Company under a non-exclusive license agreement with the Innovator. In January
1996, the Innovator introduced a 20mg strength of this product. As permitted
under the terms of its existing agreement with the Innovator, the Company began
distributing the 20mg strength in December 1996. This introduction did not have
a material impact on Barr's financial statements which is consistent with the
relatively low sales of the branded version of that 20mg product. Currently,
Tamoxifen only competes against the Innovator's products, which are sold under
the brand name.
Net sales of Barr-manufactured products increased approximately 2%.
Barr-manufactured net sales include revenues from four new products in fiscal
1997 compared to two new products in fiscal 1996. These products represented 11%
and 4% of total Barr-manufactured sales in 1997 and 1996, respectively. Revenues
from these products and volume increases on the Company's existing product line
offset price declines and higher discounts on certain existing products.
Cost of sales increased to $217,196 or 84% of net product sales from $189,394 or
82%. The increase in cost of sales as a percentage of net product sales is
primarily the result of two factors. First, an increase in Tamoxifen's share of
total Company revenues and second, an increase in sales discounts and allowances
due to increased competition. The increase in Tamoxifen's portion of net product
sales negatively impacts margins because the profit margin the Company earns as
a distributor is generally below the margin it earns as a manufacturer.
Increased sales discounts and allowances reduce the Company's net selling price
and margins, but are offered by the Company to maintain market share in light of
increased competition.
New products such as Megestrol Acetate and Danazol, which were introduced in
November 1995 and August 1996, respectively, as well as Medroxyprogesterone and
Meperidine which were introduced in the quarter ended December 31, 1996, are
currently subject to less competition and therefore generate margins which help
to offset the declining margins on the Company's
<PAGE> 2
established products. The Company continues to experience competition on sales
of its other products, and it is impossible to predict whether future price
erosion will occur. If further price erosion were to occur, this could have a
material adverse effect on the Company's gross margins.
Due to the nature of the generic pharmaceutical industry, as the product line
matures and competition from other manufacturers intensifies, selling prices and
the related margins on those products typically decline. The Company's future
operating results are dependent on several factors including its ability to
introduce new products to its product line, customer purchasing practices and
changes in the amount of competition affecting the Company's products. In
addition, the ability to receive sufficient quantities of raw materials to
maintain its production is critical. While the Company has not experienced any
interruption in sales due to lack of raw materials, the Company is in the
process of developing alternate raw material suppliers for its key products in
the event raw material shortages were to occur.
Selling, general and administrative expenses increased to $23,391 from $21,695,
yet decreased as a percentage of net product sales from 9.3% to 9.1%. This
percentage decrease was expected due to increased net product sales. The
majority of the dollar increase is attributable to increases in expenses in
preparation for the July launch of Warfarin Sodium and government affairs
expenses, offset by approximately $3,400 of reimbursed legal fees related to the
ciprofloxacin patent challenge.
Research and development expenses increased to $13,536 from $11,274. The
increase is primarily the result of increased salaries and related costs
associated with the addition of scientists and higher outside consulting costs
necessary to support the number of products in development. These increases were
partially offset by a decrease in outside testing services.
Interest income decreased by $380 in comparison to the prior year. The decrease
is primarily the result of $485 in interest income included in the prior year's
amount in connection with interest earned on a income tax refund from the
Internal Revenue Service. The decrease was partially offset by an increased
return earned by the Company on its investments in the current fiscal year.
Interest expense decreased $828 due to an increase in capitalized interest
associated with an increase in capital improvements as compared to the prior
year. The increase in capitalized interest was partially offset by interest on
the Company's equipment financing agreement entered in April 1996 and the fee
paid on the unsecured Tamoxifen balance.
Results of Operations
Fiscal 1996 to Fiscal 1995 (thousands of dollars)
Total revenue increased approximately 16% to $232,224 from $199,720. The
increase is primarily attributable to a continued increase in demand for
Tamoxifen, the breast cancer treatment distributed by the Company, as well as
increased sales for the balance of the Company's product lines.
Net sales of Tamoxifen increased approximately $28,000 to $171,000 or 74% of net
product sales, compared to $143,000 or 72% of net sales in the prior year. This
20% growth resulted from increases in the Company's market share and price.
While the Company's Tamoxifen revenues increased in fiscal 1996, the rate of
growth between fiscal 1995 and 1996 declined compared to prior years. This
decline in the rate of growth was expected given the dramatic
<PAGE> 3
growth achieved immediately after the Company began distributing Tamoxifen and
given the Company's share of the current market.
Net sales of Barr-manufactured products increased by approximately 8% primarily
as a result of increases in volume. Methotrexate accounted for approximately 10%
of the Company's net product sales in 1996 as compared to 14% in 1995. No other
Barr-manufactured product accounted for 10% or more of net sales in either year.
Cost of sales increased to $189,394 from $159,498 due to increased sales volume.
However, cost of sales as a percentage of net sales increased from 80% to 82%.
The increase in cost of sales as a percentage of net sales is primarily
attributed to the lower gross margins associated with the increased distribution
of Tamoxifen and price competition on certain of the Company's manufactured
products.
Selling, general and administrative expenses increased to $21,695 from $19,014,
yet remained consistent as a percentage of net product sales as was expected,
due to the increase in net product sales. The increase reflects increases in
personnel costs; additional advertising and promotion costs associated with the
introduction of Megestrol Acetate in late November 1995; and a full-year of
depreciation from the December 1994 implementation of a new core computer
system. Fiscal 1996 also included approximately $700 in non-recurring charges in
connection with a voluntary early retirement program and a legal settlement.
During fiscal 1996, Barr entered into multi-year agreements with another company
and a related party to share in development and litigation costs associated with
certain of its patent challenges. These agreements resulted in the reimbursement
of $1,977 in legal fees.
Research and development expenses increased to $11,274 from $10,443. This
resulted from higher outside testing and raw material costs associated with an
increase in the number of products under development when compared to the prior
year as well as increases in salaries and related costs associated with the
addition of scientists. These increases were partially offset by a decrease in
fees paid to outside laboratories to conduct biostudies. Such a decrease was
expected since the prior year's amounts included biostudy costs for conjugated
estrogens. The number, complexity and associated costs of biostudies for
conjugated estrogens were greater than those for other products under
development in fiscal 1996.
Interest income increased 48% to $2,778 from $1,874, due to $485 in interest
income received in February 1996 in connection with an income tax refund from
the Internal Revenue Service as well as an increase in the rate of return earned
on cash and cash equivalents during the year.
Interest expense declined 30% primarily due to a reduction in long-term debt
during the year and an increase in capitalized interest associated with an
increase in capital improvements in comparison to the prior year. These
decreases were partially offset by an increase in fees paid in connection with
the Company's December 1995 agreement with the Innovator of Tamoxifen to pay a
monthly fee on the unsecured Tamoxifen payable balance in return for the
elimination of the cash collateral requirement.
In fiscal 1996 and 1995, the Company incurred extraordinary losses on the early
extinguishment of debt. In 1996, the Company negotiated the prepayment of $2
million in principal of its $20 million 10.15% Senior Secured Notes. The Company
recorded an extraordinary loss for the related prepayment penalty and write-off
of deferred financing costs. In 1995, the Company
<PAGE> 4
incurred an extraordinary loss primarily from the write-off of deferred
financing costs associated with its $10 million 10.05% Convertible Subordinated
Notes which were converted to common stock.
Liquidity and Capital Resources
The Company's cash and cash equivalents balance decreased to $31,923 at June 30,
1997 from $44,893 at June 30, 1996. In connection with an Alternative
Collateral Agreement between the Company and the Innovator of Tamoxifen (see
Note 1 to the Consolidated Financial Statements), 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 $20,924 at June 30, 1996 to $11,239 at June 30, 1997.
Cash provided by operating activities was $21,792 for the year ended June 30,
1997, which included net earnings of $19,447. Increases in inventory were offset
by increases in accounts payable and income taxes payable. The inventory
increase is primarily the result of higher Tamoxifen and other new product
inventory to support increased sales. Accounts payable increased as a result of
higher Tamoxifen sales and inventory levels, as well as higher construction
costs and equipment purchases.
In fiscal 1998, Barr anticipates an increased working capital need to support
higher slaes and new product launches, including Warfarin Sodium launched in
July 1997.
During fiscal 1997, the Company invested $35,087 in capital assets, primarily in
connection with the expansion of its manufacturing capacity in the Virginia and
New York facilities. In fiscal 1998, the Company estimates that it will invest
an additional $25 million in construction and new equipment for its New York,
New Jersey and Virginia facilities.
On April 11, 1997, the Company's Board of Directors declared a 3-for-2 stock
split effected in the form of a 50% stock dividend. Approximately 7.1 million
additional shares of common stock were distributed.
As indicated in Note 2 to the Consolidated Financial Statements, in January
1997, Bayer and the Company reached an agreement to settle the then pending
litigation regarding Bayer's patent protecting ciprofloxacin hydrochloride
("Settlement Agreement"). In connection with the Settlement Agreement, the
Company acknowledged the validity and enforceability of Bayer's world-wide
ciprofloxacin patent, received an initial cash payment of $24.6 million, and
signed a contingent, non-exclusive Supply Agreement ("Supply Agreement") which
becomes effective in January, 1998 and 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 elects to continue making cash payments,
the annual value recognized by Barr would be similar to the amount recognized
during fiscal 1997. If Bayer provides Barr with product, the amount Barr could
earn would be dependent on market conditions.
At June 30, 1997 the Company's debt structure included a $14,400 Secured Note
with a fixed interest rate of 10.15% and $3,600 principal payments due annually
from June 28, 1998 through June 28, 2001. The Company made its first principal
payment under the Note on June 28, 1997. The Company also maintains two bank
credit facilities including a $10 million Revolving Credit Facility and an
$18,750 Equipment Financing Facility ("Equipment Line"). At June 30, 1997
<PAGE> 5
there were no borrowings under the Revolving Credit Facility and $4,352 was
outstanding under the Equipment Line.
The Company is currently seeking to replace its existing Secured Note with an
Unsecured Note with a longer term and lower rate. In addition, the Company is
seeking to increase its $10 million Revolving Credit Facility to $20 million and
to extend its Equipment Line. While the Company believes these changes will be
accomplished, there can be no assurances that they will be completed on the
terms sought by the Company.
In August, 1997 Barr invested approximately $4,000 in Warner Chilcott plc. by
acquiring 250,000 Ordinary Shares, represented by American Depository Shares
("ADSs") in an initial public offering ("Offering") and received warrants to
purchase an additional 250,000 shares in the form of ADSs at an exercise price
per share equal to the initial public offering price less underwriting discounts
and commissions. Beginning on the first anniversary of the Offering and annually
thereafter for the next three years, one fourth of the warrant will be
exercisable by Barr. If Barr does not exercise in full the portion of the
warrant exercisable during any one year, such portion of the warrant will
terminate. This investment in Warner Chilcott plc. represents a potential use of
cash of $1,000 per year over the next four years.
The Company also continues to evaluate other growth opportunities including
additional strategic investments, acquisitions and joint ventures, which could
require significant capital resources.
The Company believes that cash flow from operations and existing borrowing
capacity under its Revolving Credit Facility and Equipment Line will be adequate
to meet its operating needs and to capitalize on certain strategic
opportunities. To the extent that additional capital resources are required,
such capital may be raised by additional bank borrowings, equity offerings or
other means.
Environmental Matters
The Company has obligations for environmental safety and clean-up under various
state, local and federal laws, including the Comprehensive Environmental
Response, Compensation and Liability Act, commonly known as Superfund. Based on
information currently available, environmental expenditures have not had, and
are not anticipated to have, any material effect on the Company's consolidated
financial statements.
Effects on Inflation
Inflation has had only a minimal impact on the operations of the Company in
recent years.
<PAGE> 6
BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 31,923 $ 44,893
ACCOUNTS RECEIVABLE (INCLUDING RECEIVABLES FROM RELATED PARTIES OF
$1,358 IN 1997 AND $886 IN 1996) LESS ALLOWANCES
OF $1,620 AND $1,799 IN 1997 AND 1996, RESPECTIVELY 35,232 32,065
INVENTORIES 56,216 42,396
DEFERRED INCOME TAX 3,160 2,771
PREPAID EXPENSES 568 648
--------- ---------
TOTAL CURRENT ASSETS 127,099 122,773
PROPERTY, PLANT AND EQUIPMENT, NET 75,928 45,739
OTHER ASSETS 775 708
--------- ---------
TOTAL ASSETS $ 203,802 $ 169,220
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 72,685 $ 58,537
ACCRUED LIABILITIES 6,074 6,332
CURRENT PORTION OF LONG-TERM DEBT 4,139 3,815
INCOME TAXES PAYABLE 2,394 1,104
--------- ---------
TOTAL CURRENT LIABILITIES 85,292 69,788
LONG-TERM DEBT 14,941 17,709
OTHER LIABILITIES 201 238
DEFERRED INCOME TAXES 1,230 1,324
COMMITMENTS & CONTINGENCIES
SHAREHOLDERS' EQUITY:
CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A, $1 PAR VALUE
PER SHARE; AUTHORIZED 2,000,000 SHARES; NONE ISSUED
COMMON STOCK, $.01 PAR VALUE PER SHARE;
AUTHORIZED 30,000,000 SHARES; ISSUED 21,446,053 AND
14,115,664 IN 1997 AND 1996, RESPECTIVELY 214 141
ADDITIONAL PAID-IN CAPITAL 46,061 43,526
RETAINED EARNINGS 55,876 36,507
--------- ---------
102,151 80,174
TREASURY STOCK AT COST; 117,955 AND 78,637 SHARES IN 1997
AND 1996, RESPECTIVELY (13) (13)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 102,138 80,161
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 203,802 $ 169,220
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 7
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
NET PRODUCT SALES (INCLUDING SALES TO RELATED PARTIES OF $4,971, $4,296, AND $ 257,436 $ 232,224 $ 199,720
$2,585 IN 1997, 1996 AND 1995, RESPECTIVELY)
PROCEEDS FROM SUPPLY AGREEMENT 27,050 -- --
--------- --------- ---------
TOTAL REVENUES 284,486 232,224 199,720
COSTS AND EXPENSES:
COST OF SALES 217,196 189,394 159,498
SELLING, GENERAL AND ADMINISTRATIVE 23,391 21,695 19,014
RESEARCH AND DEVELOPMENT 13,536 11,274 10,443
--------- --------- ---------
EARNINGS FROM OPERATIONS 30,363 9,861 10,765
INTEREST INCOME 2,398 2,778 1,874
INTEREST EXPENSE (939) (1,767) (2,535)
OTHER INCOME 228 637 118
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 32,050 11,509 10,222
INCOME TAX EXPENSE 12,603 4,368 3,852
--------- --------- ---------
EARNINGS BEFORE EXTRAORDINARY LOSS 19,447 7,141 6,370
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT,
NET OF TAXES -- (125) (145)
--------- --------- ---------
NET EARNINGS $ 19,447 $ 7,016 $ 6,225
========= ========= =========
PER COMMON SHARE:
EARNINGS BEFORE EXTRAORDINARY LOSS $ 0.87 $ 0.33 $ 0.32
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT,
NET OF TAXES -- (0.01) (0.01)
--------- --------- ---------
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES $ 0.87 $ 0.32 $ 0.31
NET EARNINGS PER COMMON SHARE ASSUMING FULL DILUTION 0.85 0.32 0.31
========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 22,430 21,757 20,125
WEIGHTED AVERAGE NUMBER OF SHARES ASSUMING FULL DILUTION 22,906 22,140 20,125
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 8
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995 (IN THOUSANDS OF DOLLARS,
EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Additional Common stock Total
Stock paid-in Retained in treasury Shareholders'
Shares Amount capital Earnings Shares Amount Equity
--------- ------ ---------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994 8,783,737 $ 88 $31,591 $23,318 52,425 $ (13) $54,984
Net earnings 6,225 6,225
Issuance of common
stock for exercised
stock options and
employees' stock
purchase plans 40,757 -- 661 661
Issuance of common
stock upon conversion
of convertible
subordinated notes 510,358 5 9,978 9,983
---------- ---- ------- ------- ------- ---- --------
BALANCE, JUNE 30, 1995 9,334,852 93 42,230 29,543 52,425 (13) 71,853
Net earnings 7,016 7,016
Issuance of common
stock for exercised
stock options and
employees' stock
purchase plans 80,757 1 1,310 1,311
Stock split (3-for-2) 4,700,055 47 (14) (52) 26,212 (19)
---------- ---- ------- ------- ------- ---- --------
BALANCE, JUNE 30, 1996 14,115,664 141 43,526 36,507 78,637 (13) 80,161
Net earnings 19,447 19,447
Issuance of common
stock for exercised
stock options and
employees' stock
purchase plans 220,526 2 2,549 -- 2,551
Stock split (3-for-2) 7,109,863 71 (14) (78) 39,318 -- (21)
---------- ---- ------- ------- ------- ---- --------
BALANCE, JUNE 30, 1997 21,446,053 $214 $46,061 $55,876 117,955 $(13) $102,138
========== ==== ======= ======= ======= ==== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 9
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(THOUSANDS OF DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET EARNINGS $ 19,447 $ 7,016 $ 6,225
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION AND AMORTIZATION 4,989 4,920 4,429
DEFERRED INCOME TAX (BENEFIT) EXPENSE 474 777 (407)
WRITE-OFF OF DEFERRED FINANCING FEES ASSOCIATED
WITH EARLY EXTINGUISHMENT OF DEBT -- 31 188
(GAIN) LOSS ON DISPOSAL OF EQUIPMENT (203) 63 (113)
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE, NET (3,167) (4,758) (5,674)
INVENTORIES (13,820) (6,506) (6,540)
PREPAID EXPENSES 80 30 (35)
OTHER ASSETS (194) (107) 198
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 12,896 4,047 23,303
INCOME TAXES PAYABLE 1,290 (145) 320
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,792 5,368 21,894
-------- -------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
PURCHASES OF PROPERTY, PLANT AND EQUIPMENT (35,087) (16,048) (6,328)
PROCEEDS FROM SALE OF PROPERTY, PLANT AND EQUIPMENT 239 184 340
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (34,848) (15,864) (5,988)
-------- -------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
PRINCIPAL PAYMENTS ON LONG-TERM DEBT (4,081) (2,043) (62)
PROCEEDS FROM LOANS 1,637 3,153 --
FEES ASSOCIATED WITH STOCK SPLIT (21) (19) --
FEES ASSOCIATED WITH CONVERSION OF DEBT TO EQUITY -- -- (17)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS
AND EMPLOYEE STOCK PURCHASES 2,551 1,311 661
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 86 2,402 582
-------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (12,970) (8,094) 16,488
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 44,893 52,987 36,499
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 31,923 $ 44,893 $ 52,987
======== ======== ========
SUPPLEMENTAL CASH FLOW DATA-CASH PAID DURING THE YEAR:
INTEREST, NET OF PORTION CAPITALIZED $ 930 $ 1,727 $ 2,541
INCOME TAXES 10,830 3,930 3,766
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY:
ISSUANCE OF 1,148,305 SHARES OF COMMON STOCK UPON CONVERSION
OF $10,000 CONVERTIBLE SUBORDINATED NOTES $ 10,000
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 10
BARR LABORATORIES, INC.
Notes to the Consolidated Financial Statements
(in thousands of dollars, except share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Other Matters
The consolidated financial statements include the accounts of
Barr Laboratories, Inc. (the "Company") and its wholly-owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Sherman Delaware, Inc., and affiliated companies owned 64.1%
of the common stock of the Company at June 30, 1997. Dr.
Bernard C. Sherman is a principal stockholder of Sherman
Delaware, Inc. and a Director of Barr Laboratories, Inc.
(b) Credit and Market Risk
The Company operates in one industry segment; it manufactures,
markets and distributes a wide range of generic pharmaceutical
products. The Company also distributes a patented breast
cancer agent, Tamoxifen Citrate, under an agreement with the
Innovator. The Company's manufacturing plants are located in
New Jersey, New York and Virginia and its products are sold
throughout the United States primarily to wholesale and retail
distributors. In addition, the Company manufactures and sells
many products to other companies that resell these
pharmaceuticals under their own (private) label. In fiscal
1997 and 1996 McKesson Drug Company accounted for
approximately 13% and 10% of net product sales, respectively.
In fiscal 1995, approximately 10% of net product sales were
generated by sales to Cardinal Health, Inc. No other customer
accounted for greater than 10% of sales in any of the last
three fiscal years. The Company performs ongoing credit
evaluations of its customers' financial condition and
generally requires no collateral from its customers.
(c) Inventories
Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
(d) Property, Plant and Equipment
Property, Plant and Equipment is recorded at cost.
Depreciation is provided for on a straight-line basis over the
estimated useful lives of the related assets. Leasehold
improvements are amortized on a straight-line basis over the
shorter of their useful lives or the terms of the respective
leases.
<PAGE> 11
The estimated useful lives of the major classification of
depreciable assets are:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings 45
Building Improvements 10
Machinery and Equipment 3-10
Leasehold Improvements 3-10
Automobiles and Trucks 3-5
</TABLE>
Maintenance and repairs are charged to operations as incurred;
renewals and betterments are capitalized.
(e) Research and Development
Research and development costs, which consist principally of
product development costs, are charged to operations as
incurred.
(f) Earnings Per Share
Earnings per common share in 1997 and 1996 were computed using
the weighted average number of common and dilutive common
equivalent shares outstanding during the year. Earnings per
common share in 1995 was computed by dividing earnings by the
weighted average number of shares outstanding during the
period. In 1995, the effects of stock options outstanding
resulted in less than 3% dilution.
On April 11, 1997, the Company's Board of Directors declared a
3-for-2 stock split effected in the form of a 50% stock
dividend. Approximately 7.1 million additional shares of
common stock were distributed on May 7, 1997 to shareholders
of record as of April 24, 1997. On February 21, 1996, the
Company's Board of Directors declared a 3-for-2 stock split
effected in the form of a 50% stock dividend. Approximately
4.7 million additional shares of common stock were distributed
on March 25, 1996 to shareholders of record as of March 4,
1996. All prior year share and per share amounts have been
adjusted for the stock splits.
(g) 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 June
30, 1997 and 1996, $11,239 and $20,924, respectively, of the
Company's cash was held in a cash collateral account to secure
extension of credit to it by the Innovator of Tamoxifen
Citrate in accordance with the Distribution and Supply
Agreement between the Company and the Innovator.
In December 1995, the Company and the Innovator of Tamoxifen
entered into an Alternative Collateral Agreement ("Collateral
Agreement") which suspends certain sections of the Supply and
Distribution Agreement ("Distribution Agreement") entered by
both parties in March, 1993. Under the Collateral
<PAGE> 12
Agreement, extensions of credit to the Company will no longer
need to be secured by a letter of credit or cash collateral.
However, the Company may at its discretion maintain a balance
in the escrow account based on its short-term cash
requirements. All remaining terms of the Distribution
Agreement remain in place. In return for the elimination of
the cash collateral requirement and in lieu of issuing letters
of credit, the Company has agreed to pay the Innovator monthly
interest based on the average monthly Tamoxifen payable
balance, as defined in the agreement, and maintain compliance
with certain financial covenants. The Company was in
compliance with such covenants at June 30, 1997.
(h) Deferred Financing Fees
All costs associated with the issuance of debt are being
amortized on a straight-line basis over the life of the
related debt which matures in 2001 and 2002. The unamortized
amounts of $492 and $524 at June 30, 1997 and 1996,
respectively, are included in Other Assets in the Consolidated
Balance Sheets.
In connection with the early extinguishment of $2,000 of the
10.15% Senior Secured Notes and the 10.05% convertible
subordinated notes, the Company wrote off $31 and $188 in
deferred financing fees in 1996 and 1995, respectively. See
Note (5) Long-Term Debt.
(i) Fair Value of Financial Instruments
Cash, Accounts Receivable and Accounts Payable - The carrying
amounts of these items are a reasonable estimate of their fair
value.
Long-Term Debt - The fair value of debt at June 30, 1997 and
1996 is estimated at $20 million and $23 million,
respectively. Estimates were determined by discounting the
future cash flows using rates currently available to the
Company.
The fair value estimates presented herein are based on
pertinent information available to management as of June 30,
1997. Although management is not aware of any factors that
would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for
purposes of these financial statements since that date, and
current estimates of fair value may differ significantly from
the amounts presented herein.
(j) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and use assumptions that affect certain
reported amounts and disclosures; actual results may differ.
(k) Revenue Recognition
The Company recognizes revenue when goods are shipped.
<PAGE> 13
(l) Stock-Based Compensation
Effective January 1, 1996, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
123 ("SFAS No. 123") "Accounting for Stock-Based
Compensation." SFAS No. 123 requires the Company to either
record compensation expense or provide additional disclosures
with respect to stock awards and stock option grants made
after December 31, 1994. The accompanying Notes to
Consolidated Financial Statements include the disclosures
required by SFAS No. 123. No compensation expense is
recognized pursuant to the Company's stock option plans under
SFAS No. 123 which is consistent with prior treatment under
Accounting Principles Board Opinion No. 25 ("APB No. 25")
"Accounting for Stock Issued to Employees."
(2) Proceeds from Supply Agreement
In January 1997, Bayer AG and Bayer Corporation ("Bayer") and the
Company reached an agreement to settle the then pending litigation
regarding Bayer's patent protecting ciprofloxacin hydrochloride
("Settlement Agreement"). As a result, the U.S. Federal Court for the
Southern District of New York entered a Consent Judgment ending the
litigation. In connection with the Settlement Agreement, the Company
acknowledged the validity and enforceability of Bayer's world-wide
ciprofloxacin patent, received an initial cash payment of $24.6
million, and signed a contingent, non-exclusive Supply Agreement
("Supply Agreement") which becomes effective in January, 1998 and 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. Under terms of the Supply Agreement,
Barr accrued revenue of $2.5 million in June 1997.
(3) INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Raw Materials and Supplies $21,403 $19,648
Work-in-Process 3,340 4,920
Finished Goods 31,473 17,828
------- -------
$56,216 $42,396
======= =======
</TABLE>
Tamoxifen Citrate, purchased as a finished product, accounted for
$23,155 and $12,590 of finished goods inventory at June 30, 1997 and
1996, respectively.
<PAGE> 14
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
June 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Land $ 2,338 $ 2,338
Buildings and Improvements 23,653 21,639
Machinery and Equipment 40,209 36,528
Leasehold Improvements 1,841 1,659
Automobiles and Trucks 68 68
Construction in Progress 41,686 13,396
-------- -------
109,795 75,628
Less: Accumulated
Depreciation & Amortization 33,867 29,889
-------- -------
$ 75,928 $45,739
======== =======
</TABLE>
For the years ended June 30, 1997, 1996 and 1995, $1,801, $526, and
$176 of interest was capitalized, respectively.
(5) LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
June 30,
------------------
1997 1996
---- ----
<S> <C> <C>
New Jersey Economic Development
Authority Bond (a) $ 328 $ 371
10.15% Senior Secured Notes Due June
28, 2001 (b) 14,400 18,000
Equipment Financing (c) 4,352 3,153
------- -------
19,080 21,524
Less Current Installments of Long-Term
Debt 4,139 3,815
------- -------
Total Long-Term Debt $14,941 $17,709
======= =======
</TABLE>
(a) The New Jersey Economic Development Authority Bond is payable
to a bank. Such loan is secured by a first mortgage on land,
building and improvements on the facility located at 265
Livingston Street. Interest is charged at 75% of the bank's
prime rate. The prime rate was 8.5% and 8.25% at June 30, 1997
and 1996, respectively. Monthly installments are $3.6 plus
interest, through December 1999. Upon maturity in January
2000, there will be a final installment equal to the then
remaining principal balance of $220.
(b) In June 1991, the Company entered into a note purchase
agreement and issued $20,000 of Senior Secured Notes bearing
interest at a rate of 10.15%, payable semiannually. In March
1996, the Company negotiated the prepayment of $2,000 of these
Notes. The cash payment of $2,213 included a prepayment
penalty of
<PAGE> 15
$169 and accrued interest through March 15, 1996 of $44. The
prepayment penalty of $169 and the related write-off of
approximately $31 in previously deferred financing costs
resulted in an extraordinary loss, which net of taxes of $76,
was $125 or $0.01 per share. The Company began making
principal payments in June 1997. The annual amount of these
payments are $3,600, and will continue through the maturity
date of June 28, 2001. These notes are collateralized by a
first mortgage on the Pomona, New York facility and all
machinery and equipment other than machinery and equipment in
the Forest, Virginia facility.
The Senior Secured Notes contain certain financial covenants
including restrictions on dividend payments not to exceed $5
million plus 50% of net earnings subsequent to July 1, 1991.
The Company was in compliance with all such covenants as of
the year ended June 30, 1997.
The note purchase agreement permits the Company to prepay
these notes prior to their scheduled maturity. Such a
prepayment would require the Company to pay a prepayment fee
based on current market rates and the note rate. Despite this
prepayment fee, the Company is evaluating refinancing options
that would result in lower rates and improved borrowing terms.
(c) In April 1996, the Company signed a Loan and Security
Agreement with BankAmerica Leasing and Capital Group which
provides the Company up to $18,750 in financing for equipment
to be purchased through October 1997. Notes entered into under
this agreement require no principal payment for the first two
quarters; bear interest quarterly at a rate equal to the
London Interbank Offer Rate (LIBOR) plus 125 basis points; and
have a term of 72 months. LIBOR was 5.813% and 5.625% at June
30, 1997 and June 30, 1996, respectively. The Agreement
contains certain financial covenants with which the Company
was in compliance as of June 30, 1997.
In June 1991, the Company entered into a note purchase agreement and
issued $10,000 of convertible subordinated notes bearing interest at
the rate of 10.05%, payable semiannually. In February 1995, these notes
were converted into 1,148,305 shares of common stock, as adjusted for
the 3-for-2 stock splits in March 1996 and May 1997; and the Company
incurred an extraordinary loss resulting primarily from the write-off
of deferred financing costs. This extraordinary loss from early
extinguishment of debt, net of taxes of $92, was $145 or $0.01 per
share for the year ended June 30, 1995.
The Company currently has no borrowings outstanding under its $10
million revolving credit facility with Bank of America Illinois.
Borrowings under this facility bear interest at LIBOR plus 1%. In
addition the Company is required to pay a commitment fee equal to .25%
of the difference between the outstanding borrowings and $10 million.
Any borrowings under the revolving credit facility are secured by
certain accounts receivable and inventory. The Company is in compliance
with the financial covenants under this facility.
Principal maturities of existing long-term debt for the next five years
and thereafter are as follows:
<PAGE> 16
<TABLE>
<CAPTION>
Year Ending
June 30,
--------
<S> <C>
1998 $4,139
1999 4,139
2000 4,337
2001 4,095
2002 1,756
Thereafter 614
</TABLE>
(6) RELATED-PARTY TRANSACTIONS
The Company's related party transactions were with affiliated companies
of Dr. Bernard C. Sherman. During the years ended June 30, 1997, 1996,
and 1995, the Company purchased $1,800, $1,800, and $435, respectively,
of bulk pharmaceutical material from such companies. In addition, the
Company sold certain of its pharmaceutical products and bulk
pharmaceutical materials to five other companies owned by Dr. Bernard
Sherman and was paid an aggregate of approximately $4,971, $4,296 and
$2,585 upon such sales during the years ended June 30, 1997, 1996, and
1995, respectively. During fiscal 1996, the Company also entered a
multi-year agreement with a Company owned by Dr. Sherman to share
litigation costs in connection with one of its patent challenges. For
the years ended June 30, 1997 and 1996 the Company received $987 and
$570 respectively, in connection with such agreement which was recorded
as a reduction to selling, general and administrative expenses.
In June 1992, a shareholder action was filed against the Company and
Edwin A. Cohen, then President of the Company, and Louis J. Guerci, who
was a Vice President of the Company. In November 1994, the Company
agreed to settle this matter. Management strongly believed that the
case was without merit, but determined that it was in the Company's
best interest to settle rather than participate in continued
litigation. In December 1994, the court approved the settlement. As of
June 30, 1997, the final payment amount (on the "claims made basis") of
$1.5 million has been paid, approximately one-half by the Company and
one-half by the Company's insurance company.
During the years ended June 30, 1997, 1996 and 1995, Mr. Cohen earned
$250, $213 and $250, respectively, under a consulting agreement.
<PAGE> 17
(7) INCOME TAXES
A summary of the components of income tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $10,757 $3,110 $ 3,680
Deferred 294 617 (242)
------- ------ -------
11,051 3,727 3,438
------- ------ -------
State:
Current 1,372 405 487
Deferred 180 160 (165)
------- ------ -------
1,552 565 322
------- ------ -------
$12,603 $4,292 $ 3,760
======= ====== =======
</TABLE>
Income tax expense for the years ended June 30, 1997, 1996 and 1995 is
included in the financial statements as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Continuing operations $12,603 $ 4,368 $ 3,852
Extraordinary loss on early
extinguishment of debt -- (76) (92)
------- ------- -------
$12,603 $ 4,292 $ 3,760
======= ======= =======
</TABLE>
The provision for income taxes differs from amounts computed by
applying the statutory federal income tax rate to income before taxes
due to the following:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal Income Taxes at Statutory Rate $11,214 $ 3,958 $3,475
State Income Taxes,
Net of Federal Income Tax Effect 1,070 360 212
Other, Net 319 (26) 73
------- ------- ------
$12,603 $ 4,292 $3,760
======= ======= ======
</TABLE>
<PAGE> 18
The temporary differences that give rise to deferred tax assets and
liabilities as of June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
------------------
Deferred Tax Assets: 1997 1996
------- -------
<S> <C> <C>
Receivable Reserves $ 561 $ 776
Inventory Reserves 990 187
Inventory Capitalization 706 552
Other Operating Reserves 903 1,256
------- -------
Total Deferred Tax Assets 3,160 2,771
Deferred Tax Liabilities:
Plant and Equipment (1,230) (1,324)
Proceeds from Supply
Agreement (957) --
------- -------
Total Deferred Tax
Liabilities (2,187) (1,324)
------- -------
Net Deferred Tax Asset $ 973 $ 1,447
======= =======
</TABLE>
Internal Revenue Service ("IRS")
In December 1995, the Company received a "30-day" letter from the IRS
disallowing approximately $750 in research and development tax credits,
originating from the fiscal years ended June 30, 1987 through June 30,
1992, on the grounds that research and development tax credits taken in
developing generic drugs for approval under the ANDA procedure are
excluded from the definition of the term "qualified research" by the
duplication exclusion contained in section 41(d)(4)(C) of the IRS
codes, and other grounds. On May 12, 1997 the Company settled the claim
with the IRS, without agreeing that the Company's activities do not
qualify for credit, for approximately $822 including interest. A
provision for an estimate of the settlement amount had been previously
included in the Company's 1996 consolidated financial statements, and
therefore the payment did not have a significant adverse effect on the
Company's 1997 consolidated financial statements.
(8) SHAREHOLDERS' EQUITY
Preferred Stock
The cumulative convertible preferred stock, Series A has voting rights
equal to the number of shares of common stock of the Company into which
each share may be converted (with a conversion basis of one share of
common stock for each share of preferred stock). As of June 30, 1997,
none have been issued.
Employee Stock Option Plans
<PAGE> 19
The Company has stock option plans, which were approved by the
shareholders and which authorize the granting of options to officers
and certain key employees to purchase the Company's common stock at a
price equal to the market price on the date of grant.
During fiscal 1994, the shareholders ratified the adoption by the Board
of Directors of the 1993 Stock Incentive Plan ("the 1993 Option Plan")
in order to ensure, among other things, that the Company would continue
to have an adequate number of shares of common stock available for
grants of incentive and unqualified stock options.
The Company's other option plan was approved by the shareholders in
1986 ("the 1986 Option Plan"). As of June 30, 1996, options will no
longer be granted under this Plan.
In December, 1996 the shareholders ratified an amendment to the 1993
Option Plan which increased the number of shares of Common stock which
may be granted by 1,125,000 to a total of 2,812,500 (after giving
effect to the May 1997 3-for-2 stock split).
All options granted under the 1993 Option Plan and 1986 Option Plan
through June 30, 1996 are exercisable between one and two years from
the date of grant and expire ten years after the date of grant except
in cases of death or termination of employment as defined in each Plan.
Options issued during the fiscal year ended June 30, 1997 are
exercisable between 1 and 3 years from the date of grant. Also, to
date, no option has been granted under either the 1993 Option Plan or
the 1986 Option Plan at a price below the current market price of the
Company's common stock on the date of grant.
A summary of the activity resulting from all plans, adjusted for the
March 1996 and May 1997 3-for-2 stock splits, is as follows:
<TABLE>
<CAPTION>
NO. OF SHARES OPTION PRICE
------------- ------------
<S> <C> <C>
Outstanding at 6/30/94 1,053,571 $1.94-9.00
Granted 433,125 9.64-11.24
Canceled (21,390) 4.00-9.64
Exercised (40,500) 1.94-7.66
---------
Outstanding at 6/30/95 1,424,806 1.94-11.24
Granted 573,741 10.52-10.64
Canceled (50,062) 2.83-10.52
Exercised (110,437) 2.44-10.83
---------
Outstanding at 6/30/96 1,838,048 1.94-11.24
Granted 330,406 17.54-37.38
</TABLE>
<PAGE> 20
<TABLE>
<S> <C> <C>
Canceled (1,125) 10.52
Exercised (181,938) 1.94-10.94
---------
Outstanding at 6/30/97 1,985,391 1.94-37.38
=========
Exercised to date through 6/30/97 864,395
Expired under 1986 Plan 64,165
Available for Grant (4,162,500 authorized) 1,248,549
Exercisable at 6/30/97 1,289,942 $1.94-$11.24
</TABLE>
Non-Employee Directors' Stock Option Plan
During fiscal year 1994, the shareholders ratified the adoption by the
Board of Directors of the 1993 Stock Option Plan for Non-Employee
Directors (the "Directors' Plan"). An aggregate of 337,500 shares of
common stock were authorized to be granted under the Directors' Plan.
In December, 1996 the shareholders ratified an amendment to the
Directors' Plan which increased the number of shares of common stock
which may be granted by 225,000 to a total of 562,500. This formula
plan, among other things, enhances the Company's ability to attract and
retain experienced directors. In December 1995, the number of shares
which each non-employee director is optioned was increased from 6,750
to 11,250 shares on the grant date, except in the case of the first
grant date (which was the date of the 1993 Annual Meeting) where each
eligible director was optioned 27,000 shares.
All options granted under the Directors' Plan have ten-year terms and
are exercisable at an option exercise price equal to the market price
of common stock on the date of grant. Each option is exercisable on the
date of the first annual shareholders' meeting immediately following
the date of grant of the option, provided there has been no
interruption of the optionee's service on the Board before that date.
The following is a summary of activity, adjusted for the March 1996 and
May 1997 3-for-2 stock splits, for the three fiscal years ended June
30, 1997:
<TABLE>
<CAPTION>
No. of
Shares Option Price
------ ------------
<S> <C> <C>
Outstanding at 6/30/94 108,000 $9.16
Granted 40,500 11.38
-------
Outstanding at 6/30/95 148,500 9.16-11.38
Granted 67,500 10.33
-------
Outstanding at 6/30/96 216,000 9.16-11.38
</TABLE>
<PAGE> 21
<TABLE>
<S> <C> <C>
Granted 67,500 17.25
Exercised (40,000) 9.16
-------
Outstanding at 6/30/97 243,500 9.16-17.25
=======
Available for Grant
(562,500 authorized) 279,000
-------
Exercisable at 6/30/97 176,000 $9.16-11.38
-------
</TABLE>
Employee Stock Purchase Plan
During fiscal 1994, the shareholders ratified the adoption by the Board
of Directors of the 1993 Employee Stock Purchase Plan (the "Purchase
Plan") to offer employees an inducement to acquire an ownership
interest in the Company. After giving effect for the May, 1997 stock
split the Purchase Plan permits eligible employees to purchase, through
regular payroll deductions, an aggregate of 450,000 shares of common
stock at approximately 85% of the fair market value of such shares.
Under the Plan, purchases were 50,916, 59,977 and 51,202 for the years
ended June 30, 1997, 1996 and 1995, respectively.
The Company applies APB No. 25 and related Interpretations in
accounting for its stock-based compensation plans. Accordingly, no
compensation cost has been recognized for its stock option plans and
its stock purchase plan. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the
method of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Net income As reported $19,447 $7,016
Pro forma $18,120 $6,637
Primary earnings per share As reported $0.87 $0.32
Pro forma $0.81 $0.31
Fully diluted earnings per share As reported $0.85 $0.32
Pro forma $0.79 $0.30
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes
<PAGE> 22
option-pricing model with the following assumptions for 1996 and 1997,
respectively: dividend yield of 0% in both years; expected volatility
of 38.5% and 42.6%; weighted-average risk-free interest rates of 5.8%
and 6.3%; and expected option life of 3 years for the 1993 Option Plan
and 4 years for the Directors' Plan.
The following table summarizes information about stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------------------------- --------------------------------
Range of Number Weighted Average Weighted Number Weighted
Exercise Prices Outstanding Remaining Average Exercisable Average
at 6/30/97 Contractual Life Exercise Price at 6/30/97 Exercise Price
<S> <C> <C> <C> <C> <C>
$1.94-6.00 554,164 4.8 years $4.16 470,915 $4.08
7.55-11.38 1,276,821 7.2 years 9.77 995,027 9.56
17.25-19.29 387,406 9.3 years 18.82 - -
22.12-37.38 10,500 9.9 years 30.84 - -
--------- ---------
2,228,891 1,465,942
========= =========
--------------------------------------------------------------------------------------------------------
</TABLE>
(9) SAVINGS AND RETIREMENT PLAN
The Company has a savings and retirement plan (the "401(k) Plan") which
is intended to qualify under Section 401(k) of the Internal Revenue
Code. Employees are eligible to participate in the 401(k) Plan in the
first month following the month of hire. Prior to June 30, 1995, under
the terms of the 401(k) Plan, participating employees could contribute
up to a maximum of 15% of their earnings (9% of their earnings before
taxes and up to 6% of after-tax earnings). Beginning July 1, 1995,
participating employees may contribute up to a maximum of 12% of their
earnings before or after taxes. The Company is required, pursuant to
the terms of its union contract, to contribute to each union employee's
account an amount equal to the 2% minimum contribution made by such
employee. The Company may, at its discretion, contribute a percentage
of the amount contributed by an employee to the 401(k) Plan up to a
maximum of 10% of such employee's compensation. Participants are always
fully vested with respect to their own salary and cash contributions
and any profits arising therefrom. Participants become vested with
respect to 20% of the Company's contributions to their accounts and any
profits arising therefrom for each full year of employment with the
Company and thus become fully vested after five full years of
employment.
The Company's contributions to the 401(k) Plan were $1,745, $1,488 and
$1,173, for the years ended June 30, 1997, 1996, and 1995,
respectively.
(10) OTHER INCOME
A summary of other income is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Gain (Loss) on Sale of Equipment $203 $ (63) $113
Joint Venture Litigation (a) -- 694 --
Other 25 6 5
---- ----- ----
Other Income $228 $ 637 $118
==== ===== ====
</TABLE>
<PAGE> 23
(a) In May 1996, the Company and an affiliated company reached an
agreement with a former partner in a joint venture and
received on June 10, 1996, $694 of a $1,000 deposit which was
paid in escrow in furtherance of the possible joint venture.
The Company had previously written off the $1,000 investment
in the fourth quarter of fiscal 1992.
(11) COMMITMENTS AND CONTINGENCIES
The Company is party to various operating leases which relate to the
rental of office and plant facilities and of equipment. The Company is
satisfied with its ability to extend such leases, if necessary. Rent
expense charged to operations was $1,314, $1,126 and $1,217 in 1997,
1996 and 1995, respectively. Future minimum rental payments, exclusive
of taxes, insurance and other costs under noncancellable long-term
operating lease commitments, are as follows:
<TABLE>
<CAPTION>
Minimum
Year Ending Rental
June 30, Payments
----------- --------
<S> <C>
1998 $ 1,168
1999 806
2000 161
2001 49
Thereafter --
</TABLE>
Product Liability
The Company maintains product liability insurance coverage in the
amount of $20,000. No significant product liability suit has ever been
filed against the Company, however, if one were filed and such a case
were successful against the Company, it could have a material adverse
effect upon the business and financial condition of the Company to the
extent such judgment was not covered by insurance or exceeded the
policy limits.
Shareholder Action
On November 16, 1994, the Company agreed to settle a 1992 shareholder
action, filed against the Company and two former officers, which
alleged the violation of certain SEC regulations. In December 1994, the
Court approved the settlement.
Management strongly believed that the case was without merit, but
determined that it was in the Company's best interest to settle rather
than participate in continued litigation. As of June 30, 1997, the
total settlement, valued at approximately $1.5 million, was shared
equally by the Company and its insurers. A provision for the Company's
estimated share of the cost of the action had been previously included
in the Company's 1994 consolidated financial statements.
Other Litigation
As of June 1997, the Company was involved with other lawsuits
incidental to its business,
<PAGE> 24
including patent infringement actions. Management of the Company, based
on the advice of legal counsel, believes that the ultimate disposition
of such other lawsuits will not have any significant adverse effect on
the Company's consolidated financial statements.
<PAGE> 25
(12) SUBSEQUENT EVENT
On August 13, 1997 Barr made a strategic investment in Warner Chilcott plc., a
developer, marketer and distributor of specialty pharmaceutical products. In
connection with Warner Chilcott's Initial Public Offering ("Offering"), the
Company acquired 250,000 Ordinary Shares represented by 250,000 American
Depository Shares ("ADSs") at a price equal to the initial public offering price
less underwriting discounts and commissions. The initial investment totaled
$4,069. In addition, the Company was granted warrants to purchase an additional
250,000 shares in the form of ADSs. Beginning on the first anniversary of the
Offering and annually thereafter for the next three years, one-fourth of the
warrant will be exercisable by Barr. If Barr does not exercise in full the
portion of the warrant exercisable during any one year, such portion of the
warrant will terminate. Finally, in connection with two product agreements
signed with Warner Chilcott plc., the Company has the opportunity to receive an
additional 425,000 shares upon receipt of certain product approvals by Barr.
<PAGE> 26
(13) QUARTERLY DATA (UNAUDITED)
A summary of the quarterly results of operations is as follows:
<TABLE>
<CAPTION>
(in thousands of dollars, except per share amounts)
THREE-MONTH PERIOD ENDED
-------------------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL YEAR 1997:
Total revenues(1) $ 64,231 $ 67,335 $ 84,714 $ 68,206
Cost of sales 53,476 57,685 50,959 55,076
Net earnings 1,767 2,228 14,925 527
Net earnings per common share
and common equivalent share(2) $ 0.08 $ 0.10 $ 0.66 $ 0.02
========== ========== ========== ==========
Net earnings assuming full dilution(2) $ 0.08 $ 0.10 $ 0.66 $ 0.02
========== ========== ========== ==========
PRICE RANGE OF COMMON STOCK (3)
High $ 20.00 $ 19.33 $ 28.00 $ 49.75
Low 14.75 16.83 16.42 24.38
FISCAL YEAR 1996:
Total revenues $ 54,176 $ 57,465 $ 60,088 $ 60,495
Cost of sales 43,459 46,541 49,405 49,989
Earnings before extraordinary loss on
early extinguishment of debt 2,201 1,989 1,269 1,682
Net earnings 2,201 1,989 1,144 1,682
Earnings before extraordinary loss on
early extinguishment of debt per
common share and common share
equivalent(2) 0.10 0.09 0.06 0.07
Net earnings per common share and common
equivalent share(2) $ 0.10 $ 0.09 $ 0.05 $ 0.07
========== ========== ========== ==========
Net earnings assuming full dilution(2) $ 0.10 $ 0.09 $ 0.05 $ 0.07
========== ========== ========== ==========
PRICE RANGE OF COMMON STOCK(3)
High $ 10.94 $ 13.67 $ 18.33 $ 20.83
Low 9.11 9.33 11.39 16.42
</TABLE>
(1)Amounts include Proceeds from Supply Agreement of $24,550 and $2,500 for the
quarters ended March 31, 1997 and June 30, 1997, respectively.
(2)The sum of the individual quarters may not equal the full year amounts due to
the effects of the market prices in the application of the treasury stock
method. During its two most recent fiscal years, the Company paid no cash
dividend.
(3) The Company's common stock is listed and traded on the American Stock
Exchange. At June 30, 1997, there were approximately 723 record shareholders
of common stock. The Company believes that a significant number of beneficial
owners hold their shares in street name.
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Barr Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Barr
Laboratories, Inc. and subsidiaries (the "Company") as of June 30, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Barr Laboratories, Inc. and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
August 28, 1997
<PAGE> 28
RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the preparation and accuracy of the consolidated
financial statements and other information included in this report. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles using, where appropriate, management's
best estimates and judgments.
In meeting its responsibility for the reliability of the financial statements,
management has developed and relies on the Company's system of internal
accounting control. The system is designed to provide reasonable assurance that
assets are safeguarded and that transactions are executed as authorized and are
properly recorded.
The Board of Directors reviews the financial statements and reporting practices
of the Company through its Audit Committee, which is composed entirely of
directors who are not officers or employees of the Company. The committee meets
with the independent auditors and management to discuss audit scope and results
and also to consider internal control and financial reporting matters. The
independent auditors have direct unrestricted access to the Audit Committee. The
entire Board of Directors reviews the Company's financial performance and
financial plan.
/s/ Bruce L. Downey
Chairman of the Board, Chief Executive Officer and President
<PAGE> 29
ITEM 6.
SELECTED FINANCIAL DATA
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Year Ended June 30,
STATEMENTS OF OPERATIONS 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $284,486(9) $232,224 $199,720 $109,133 $58,047
Earnings before income taxes,
extraordinary loss and cumulative
effect of accounting change 32,050 11,509 10,222 3,745 12,827(1)
Income tax expense 12,603 4,368(7) 3,852(5) 1,461 5,040
Earnings before extraordinary loss
and cumulative effect of
accounting change 19,447 7,141 6,370 2,284 7,787
Net earnings 19,447 7,016(7) 6,225(5) 2,658(6) 7,787
Earnings before extraordinary loss
and cumulative effect of
accounting change per common and
common equivalent share(8): 0.87 0.33 0.32 0.11 0.40
Earnings per common and common
equivalent share(8) 0.87 0.32(7) 0.31(5) 0.13(6) 0.40
Earnings per common share assuming
full dilution(8) 0.85 0.32(7) 0.31(5) 0.13(6) 0.40
BALANCE SHEET DATA 1997 1996 1995 1994 1993
-------- ------- ------- ------- ------
Working capital (2) $ 41,807 $ 52,985 $ 58,364 $ 53,227 $51,371
Total Assets 203,802 169,220 155,953 125,907 94,283
Long-term Debt (2) (3) 14,941 17,709 20,371 30,433 30,498
Shareholders' Equity (4) 102,138 80,161 71,853 54,984 51,498
</TABLE>
(1) Fiscal 1993 includes $21,690 of pre-tax income from lawsuit
settlements.
(2) Includes effects of reclassification of $30,000 of debt to long-term
debt in 1993.
(3) Excludes current installments (See Note 5 to Consolidated Financial
Statements).
(4) The Company has not paid a cash dividend in any of the above years.
(5) Fiscal 1995 includes the effect of a $145 ($0.01 per share)
extraordinary loss (net of tax of $92) on early extinguishment of debt.
(See Note 5 to the Consolidated Financial Statements).
(6) Includes the effect of a $374 ($0.02 per share) gain from the
cumulative effect of an accounting change.
(7) Fiscal 1996 includes the effect of a $125 ($0.01 per share)
extraordinary loss (net of tax of $76) on early extinguishment of debt.
(See Note 5 to the Consolidated Financial Statements).
(8) Amounts have been adjusted for the March 1996 and May 1997 3-for-2
stock splits effected in the form of 50% stock dividends.
(9) Includes $27,050 in Proceeds from supply agreement.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Post-Effective Amendment to
Registration Statement No. 33-13901, and in Registration Statement Nos.
33-73696, 33-73698, 33-73700, 333-17349 and 333-17351 of Barr Laboratories, Inc.
on Form S-8 of our reports dated August 28, 1997, appearing and incorporated by
reference in the Annual Report on Form 10-K of Barr Laboratories, Inc. for the
year ended June 30, 1997.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
September 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 31,923
<SECURITIES> 0
<RECEIVABLES> 35,232<F1>
<ALLOWANCES> 0
<INVENTORY> 56,216
<CURRENT-ASSETS> 127,099
<PP&E> 75,928<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 203,802
<CURRENT-LIABILITIES> 85,292
<BONDS> 19,080
0
0
<COMMON> 214
<OTHER-SE> 101,924
<TOTAL-LIABILITY-AND-EQUITY> 203,802
<SALES> 257,436
<TOTAL-REVENUES> 284,486
<CGS> 217,196
<TOTAL-COSTS> 217,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 939
<INCOME-PRETAX> 32,050
<INCOME-TAX> 12,603
<INCOME-CONTINUING> 19,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,447
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.85
<FN>
<F1>Accounts Receivable and PP&E are Net
</FN>
</TABLE>
