<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1998 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
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BARR LABORATORIES, INC.
-----------------------
(Exact name of Registrant as specified in its charter)
New York 22-1927534
-------- ----------
(State or Other Jurisdiction of (I.R.S. - Employer
Incorporation or Organization) Identification No.)
Two Quaker Road, P. O. Box 2900, Pomona, New York 10970-0519
------------------------------------------------------------
(Address of principal executive offices)
914-362-1100
------------
(Registrant's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Number of shares of common stock, par value $.01, outstanding as of March 31,
1998: 22,279,893.
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BARR LABORATORIES, INC.
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1998 and June 30, 1997 3
Consolidated Statements of Earnings
for the three and nine months ended
March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the nine months ended
March 31, 1998 and 1997 5
Notes to Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
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Barr Laboratories, Inc.
Consolidated Balance Sheets
(thousands of dollars, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------- ---------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 64,283 $ 31,923
Marketable securities 2,804 --
Accounts receivable, less allowances
of $2,527 and $1,620, respectively 48,844 32,732
Supply agreement receivable 14,833 2,500
Inventories 47,879 56,216
Deferred income taxes 3,471 3,160
Prepaid expenses 1,192 568
--------- ---------
Total current assets 183,306 127,099
Property, plant and equipment, net 89,338 75,928
Other assets 3,485 775
--------- ---------
Total assets $ 276,129 $ 203,802
========= =========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 81,654 $ 72,685
Accrued liabilities 6,660 5,117
Deferred income taxes 5,675 957
Current portion of long-term debt 1,967 4,139
Income taxes payable 3,536 2,394
--------- ---------
Total current liabilities 99,492 85,292
Long-term debt 32,308 14,941
Other liabilities 159 201
Deferred income taxes 389 1,230
Commitments & Contingencies
Shareholders' equity
Common stock $.01 par value per share; authorized 100,000,000;
issued 22,397,848 and 21,446,053, respectively 224 214
Additional paid-in capital 64,659 46,061
Retained earnings 79,749 55,876
Unrealized loss on investments (838) --
--------- ---------
143,794 102,151
Treasury stock at cost: 117,955 shares (13) (13)
--------- ---------
Total shareholders' equity 143,781 102,138
--------- ---------
Total liabilities and shareholders' equity $ 276,129 $ 203,802
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
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Barr Laboratories, Inc.
Consolidated Statements of Earnings
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 87,637 $ 60,164 $ 262,649 $ 191,730
Proceeds from supply agreements 8,750 24,550 22,333 24,550
--------- --------- --------- ---------
Total revenues 96,387 84,714 284,982 216,280
Costs and expenses:
Cost of sales 70,042 50,959 204,037 162,120
Selling, general and administrative 9,929 6,520 27,536 15,119
Research and development 4,948 3,409 13,763 9,356
--------- --------- --------- ---------
Earnings from operations 11,468 23,826 39,646 29,685
Interest income 475 641 1,172 1,805
Interest expense (164) (203) (599) (842)
Other (expense) income (13) 51 22 58
--------- --------- --------- ---------
Earnings before income taxes and extraordinary loss 11,766 24,315 40,241 30,706
Income tax expense 4,615 9,390 15,578 11,786
--------- --------- --------- ---------
Earnings before extraordinary loss 7,151 14,925 24,663 18,920
Extraordinary loss on early extinguishment
of debt, net of taxes -- -- (790) --
--------- --------- --------- ---------
Net earnings $ 7,151 $ 14,925 $ 23,873 $ 18,920
========= ========= ========= =========
Earnings per common share:
Earnings before extraordinary loss $ 0.33 $ 0.71 $ 1.14 $ 0.90
Net earnings $ 0.33 $ 0.71 $ 1.10 $ 0.90
========= ========= ========= =========
Earnings per common share-assuming dilution:
Earnings before extraordinary loss $ 0.31 $ 0.66 $ 1.07 $ 0.85
Net earnings $ 0.31 $ 0.66 $ 1.04 $ 0.85
========= ========= ========= =========
Weighted average shares 21,857 21,127 21,651 21,090
========= ========= ========= =========
Weighted average shares-assuming dilution 23,118 22,496 23,062 22,279
========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
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Barr Laboratories, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 1998 and 1997
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net earnings $ 23,873 $ 18,920
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,917 3,723
Deferred income tax expense (benefit) 4,084 (89)
Write-off of deferred financing fees associated with early
extinguishment of debt 195 --
Loss (gain) on disposal of equipment 17 (50)
Changes in assets and liabilities:
(Increase) decrease in:
Total receivables, net (28,445) 458
Inventories 8,337 (6,874)
Prepaid expenses (624) (186)
Other assets (268) (210)
Increase (decrease) in:
Accounts payable and accrued liabilities 10,470 5,393
Income taxes payable 1,142 4,505
-------- --------
Net cash provided by operating activities 22,698 25,590
-------- --------
Cash flows from (used in) investing activities:
Purchases of property, plant and equipment (17,327) (18,612)
Proceeds from sale of property, plant and equipment 65 50
Investment in marketable securities (6,879) --
-------- --------
Net cash used in investing activities (24,141) (18,562)
-------- --------
Cash flows from (used in) financing activities:
Principal payments on long-term debt (14,805) (118)
Proceeds from loans 30,000 1,386
Proceeds from revolving line of credit 6,600 --
Payments on revolving line of credit (6,600) --
Stock issuance costs (353) --
Proceeds from stock offering 14,521 --
Proceeds from exercise of stock options and employee stock purchases 4,440 1,461
-------- --------
Net cash provided by financing activities 33,803 2,729
-------- --------
Increase in cash and cash equivalents 32,360 9,757
Cash and cash equivalents at beginning of period 31,923 44,893
-------- --------
Cash and cash equivalents at end of period $ 64,283 $ 54,650
======== ========
Supplemental cash flow data - Cash paid during the period
Interest, net of portion capitalized $ 661 $ 361
======== ========
Income taxes $ 9,859 $ 7,370
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
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BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Barr
Laboratories, Inc. and its wholly-owned subsidiaries (the "Company" or
"Barr").
In the opinion of the Management of the Company, the interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Interim results are not necessarily indicative of the results that may be
expected for a full year. These financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended June 30, 1997 and quarterly reports on Form 10-Q for the periods
ended September 30, and December 31, 1997.
Certain amounts in prior years' financial statements have been
reclassified to conform with the current year presentation.
2. Proceeds from Supply Agreements/Supply Agreement Receivable
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"). 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 $24,550, and
signed a contingent, non-exclusive Supply Agreement ("Supply Agreement")
which ends at patent expiry in December 2003. The three months ended March
31, 1997 reflect the initial cash payment of $24,550.
In accordance with the Supply Agreement, the Company recognizes income and
a related receivable on a monthly basis, as certain contingencies are met.
Collection of certain of these receivables occurs quarterly. The Company
has recognized revenue of $6,250 and $19,833 for the three and nine months
ended March 31, 1998, respectively. The Company received payment of $7,500
in March 1998 for amounts earned in June, July and August 1997.
Also included in Proceeds from supply agreements is $2,500 earned under a
separate contingent supply agreement related to the ciprofloxacin
litigation.
3. 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 49 days) which are readily convertible into cash at
par value (cost).
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As of March 31, 1998 and June 30, 1997, approximately $33,841 and $11,239,
respectively, of the Company's cash was held in an escrow account. Such
amounts represent the portion of the Company's payable balance with the
Innovator of Tamoxifen, which the Company has decided to secure in
connection with its cash management policy. The Company pays the Innovator
a monthly fee based on the average unsecured monthly Tamoxifen payable
balance, as defined in the December 1995 Alternative Collateral Agreement.
4. Marketable Securities/Other Assets
The Company accounts for investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Marketable securities includes investments in a short duration portfolio
of corporate and government debt. Other assets includes the Company's
investment in Warner Chilcott plc. The Company's investments are
classified as "available for sale" and, accordingly, are recorded at
current market value with offsetting adjustments to shareholders' equity,
net of income taxes.
5. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------- ---------
<S> <C> <C>
Raw materials and supplies $ 18,597 $ 21,403
Work-in-process 7,469 3,340
Finished goods 21,813 31,473
--------- ---------
$ 47,879 $ 56,216
========= =========
</TABLE>
Tamoxifen Citrate, purchased as a finished product, accounted for
approximately $10,710 and $23,155 of finished goods as of March 31, 1998
and June 30, 1997, respectively.
6. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share". SFAS No. 128 specifies the computation, presentation and
disclosure requirements for earnings per share ("EPS") and became
effective for both interim and annual periods ending after December 15,
1997. All prior period EPS data have been restated to conform with the
provisions of SFAS No. 128. The following is a reconciliation of the
numerators and denominators used to calculate Earnings per share before
extraordinary loss in the Consolidated Statements of Earnings:
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Earnings per common share:
Earnings before extraordinary loss (numerator) $ 7,151 $14,925 $24,663 $18,920
Weighted average shares (denominator) 21,857 21,127 21,651 21,090
Earnings before extraordinary loss $ 0.33 $ 0.71 $ 1.14 $ 0.90
======= ======= ======= =======
Earnings per common share - assuming dilution:
Earnings before extraordinary loss (numerator) $ 7,151 $14,925 $24,663 $18,920
Weighted average shares 21,857 21,127 21,651 21,090
Effect of Dilutive Options 1,261 1,369 1,411 1,189
------- ------- ------- -------
Weighted averages shares -
assuming dilution (denominator) 23,118 22,496 23,062 22,279
Earnings before extraordinary loss $ 0.31 $ 0.66 $ 1.07 $ 0.85
======= ======= ======= =======
</TABLE>
During the three months ended March 31, 1998 there were 193 outstanding
options which were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market price of
the common stock for the period.
7. Commitments and Contingencies
Litigation
The Company, at March 31, 1998, was involved in lawsuits incidental to its
business, including patent infringement actions. Management, based on the
advice of legal counsel, believes that the ultimate disposition of these
lawsuits will not have any significant adverse effect on the Company's
consolidated financial statements.
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Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations:
Comparison of the Quarter Ended March 31, 1998
to the Quarter Ended March 31, 1997 - (thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997 Change
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Net product sales:
Distributed $ 64,561 $ 44,846 $ 19,715
Manufactured 23,076 15,318 7,758
-------- -------- --------
Total net product sales 87,637 60,164 27,473
Proceeds from supply agreements 8,750 24,550 (15,800)
-------- -------- --------
Total revenues $ 96,387 $ 84,714 $ 11,673
</TABLE>
Total revenues increased approximately 14% as a result of increased net product
sales offset by a decrease in Proceeds from supply agreements.
The increase in net product sales was attributable to an increase in both
distributed products and manufactured products. The distributed product sales
increase was fueled by increases in demand for Tamoxifen and sales of
Minocycline, which the Company began distributing in October 1997. Manufactured
sales growth was primarily attributable to sales of Warfarin Sodium, which was
launched in July 1997.
The 44% increase in distributed product sales, which primarily represents sales
of Tamoxifen, was the result of accelerated buying by customers during the
period, which the Company believes was attributable in part to, customers
anticipating a price increase for Barr's Tamoxifen, which occurred on April 1,
1998. Increased demand for the 20 mg strength of Tamoxifen, which the Company
began distributing in December 1996, and sales of Minocycline, which the Company
began distributing in October 1997, also contributed to the increase. Tamoxifen
is a patent protected product manufactured for the Company by the Innovator, and
is distributed by the Company under a non-exclusive license agreement with the
Innovator. Currently Tamoxifen only competes against the Innovator's products,
which are sold under the brand name.
Net sales of manufactured products increased 51% primarily attributable to sales
of Warfarin Sodium, which the Company launched in July 1997. Manufactured net
sales include revenues from five new products in fiscal 1998 compared to four
new products in fiscal 1997. These products represented approximately 33% and
13% of total manufactured sales in fiscal 1998 and 1997, respectively. Revenues
from these products more than offset price declines and higher discounts on
certain existing products.
Proceeds from supply agreements include amounts earned in accordance with a
contingent, non-exclusive Supply Agreement ("Supply Agreement") between Bayer AG
and Bayer Corporation ("Bayer") and the Company, which ends with the 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
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<PAGE> 10
ciprofloxacin hydrochloride to market and distribute pursuant to a license from
Bayer or making quarterly cash payments to Barr and such third party, the first
of which occurred in March 1998. If Bayer does not supply Barr with product, the
Company expects its 1998 earnings related to the Supply Agreement to approximate
the $24,550 initial payment received by Barr in January 1997. If Bayer elects to
provide Barr with product, the amount Barr could earn would be dependent on
market conditions.
Proceeds from supply agreements for the three months ended March 31, 1998 also
includes $2,500 earned under a separate contingent supply agreement related to
the ciprofloxacin litigation. If certain contingencies are satisfied, the
Company will recognize an additional $2,000 and $1,500 under this separate
agreement for the three months ended June 30, 1998 and September 30, 1998,
respectively.
Cost of sales increased to $70,042 from $50,959 primarily related to an increase
in net product sales. As a percentage of net product sales, cost of sales
declined from 85% to 80%. This percentage decline is attributable to the launch
of new manufactured products, which have higher margins than distributed
products and other manufactured products.
Selling, general and administrative expenses increased to $9,929 from $6,520,
but remained consistent at 11% of net product sales. The largest components of
the dollar increase relate to legal and government affairs activities as well as
higher expenses in promotions, advertising and clinical trial costs associated
with Warfarin Sodium. The increased legal fees resulted from increased patent
challenge activity. Government affairs expenses were higher in the current year
due to the Company's activities directed at countering DuPont-Merck's continuing
efforts to restrict substitution of Warfarin Sodium.
Total research and development expenses in the quarter increased 45% to $4,948
and remained consistent at 6% of net product sales. The increase is primarily
the result of increased personnel costs to support the number of products in
development, increased bio studies and higher raw material costs.
Interest income declined by $166 primarily due to a decrease in the average cash
and cash equivalents balance.
Interest expense decreased $39 due to an increase in capitalized interest over
the corresponding quarter of the prior fiscal year. The increase in capitalized
interest was partially offset by higher interest expense and fees associated
with the increase in total debt.
The tax rate of 39.2% is greater than the prior year due to the increase in
government affairs expenditures, a portion of which are not deductible for
taxes.
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Results of Operations:
Comparison of the Nine Months Ended March 31, 1998
to the Nine Months Ended March 31, 1997 - (thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
1998 1997 Change
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Net product sales:
Distributed $189,152 $144,531 $ 44,621
Manufactured 73,497 47,199 26,298
-------- -------- --------
Total net product sales 262,649 191,730 70,919
Proceeds from supply agreements 22,333 24,550 (2,217)
-------- -------- --------
Total revenues $284,982 $216,280 $ 68,702
</TABLE>
Total revenues increased approximately 32% as a result of increased net product
sales.
The increase in net product sales was attributable to an increase in both
distributed products and manufactured products. The distributed product sales
increase was fueled by increases in demand for Tamoxifen and sales of
Minocycline, which the Company began distributing in October 1997. Manufactured
sales growth was primarily attributable to sales of Warfarin Sodium, which was
launched in July 1997.
The 31% increase in distributed product sales, which primarily represents sales
of Tamoxifen, was the result of accelerated buying by customers during the
period, which the Company believes was attributable in part to, customers
anticipating a price increase for Barr's Tamoxifen which occurred on April 1,
1998. Increased demand for the 20 mg strength of Tamoxifen, which the Company
began distributing in December 1996, also contributed to the increase.
Net sales of manufactured products increased 56% primarily attributable to sales
of Warfarin Sodium, which the Company launched in July 1997. Manufactured net
sales include revenues from five new products in fiscal 1998 compared to four
new products in fiscal 1997. These products represented approximately 37% and
11% of total manufactured sales in fiscal 1998 and 1997, respectively. Revenue
from these products more than offset price declines and higher discounts on
certain existing products.
Cost of sales increased to $204,037 from $162,120 primarily related to an
increase in net product sales. As a percentage of net product sales, cost of
sales declined from 85% to 78%. This percentage decline is attributable to the
launch of new manufactured products that have higher margins than distributed
products and other existing products.
Selling, general and administrative expenses increased to $27,536 from $15,119.
The largest components of the increase related to legal and government affairs
activities as well as higher expenses in promotions, advertising and clinical
trial costs associated with Warfarin Sodium. The increased legal fees resulted
primarily from lower reimbursements received from patent challenge partners; the
prior year expense reflected approximately $4,400 in reimbursement of legal
fees. Government affairs expenses were higher in the current year due to the
Company's activities directed at countering DuPont-Merck's continuing efforts to
restrict substitution of Warfarin Sodium.
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<PAGE> 12
Total research and development expenses increased to $13,763 from $9,356. The
increase is the result of increased personnel costs to support the number of
products in development; higher raw material and outside clinical study costs
including costs associated with the Company's proprietary drug program which was
not in place in the prior year; and a strategic investment of more than $600,
which was allocated to in-process research and development, for six Abbreviated
New Drug Applications and related technologies. These increases were partially
offset by reimbursements from a proprietary drug collaborator for certain
development costs.
Interest income declined by $633 primarily due to a decrease in the average cash
and cash equivalents balance.
Interest expense decreased $243 due to an increase in capitalized interest over
the corresponding fiscal year. The increase in capitalized interest was
partially offset by higher fees paid on the unsecured Tamoxifen balance (See
Note 3).
The tax rate of 38.7% is slightly higher than the previous year due to increased
government affairs spending, a portion of which are not deductible for taxes.
In the quarter ended December 31, 1997, the Company incurred an extraordinary
loss of $790 on the early extinguishment of debt.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased to $64,283 at March 31, 1998
from $31,923 at June 30, 1997. During the nine months ended March 31, 1998, the
Company increased the cash held in its interest bearing cash collateral account
from $11,239 at June 30, 1997 to $33,841. The Company expects to allocate more
of its cash to this account during the next three months to reduce the fees it
pays to the Innovator of Tamoxifen (see Note 3 to the Consolidated Financial
Statements).
Cash provided by operating activities totaled $22,698 for the nine months ended
March 31, 1998 as increases in accounts receivable were offset by net income of
$23,873, inventory declines and higher accounts payable. The increase in
accounts receivable and decrease in inventory were driven by a 37% increase in
net product sales. Accounts receivable also increased due to the continuing
accrual of revenue earned under the contingent, non-exclusive Supply Agreement
("Supply Agreement") entered into by the Company as part of its settlement with
Bayer AG and Bayer Corporation. The first quarterly payment due under the Supply
Agreement was received in March 1998.
During the first nine months of fiscal 1998, the Company invested approximately
$17 million in capital expenditures primarily on its Virginia manufacturing and
distribution facilities. Certain areas of the facility, including the warehouse
and distribution area, became operational during the quarter. As a result, the
Company expects its capital spending in the fourth quarter to be less than the
average spending during the previous three quarters.
In August 1997, Barr made a strategic investment of $4,069 in Warner Chilcott
plc. by acquiring 250,000 Ordinary Shares, represented by American Depository
Shares ("ADSs") in an initial public offering and received warrants to purchase
an additional 250,000 shares in the form of ADSs at an exercise price per share
equal to $16.25. Beginning on the first anniversary of Warner Chilcott plc.'s
initial public offering and annually thereafter for the next three years, one
fourth of the warrants 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. Exercising its warrant at the stated price
represents a potential use of cash of $1,000 per year over the next four years.
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<PAGE> 13
In November 1997, the Company refinanced its $14,400, 10.15% Senior Secured
Notes due June 28, 2001 with $30,000 of Senior Unsecured Notes with an average
interest rate of 6.88% per year. The new Senior Unsecured Notes include a
$20,000, 7.01% Note due November 18, 2007 and a $10,000, 6.61% Note due November
18, 2004. The refinancing reduces the Company's principal payments by
approximately $2,200 per year over the next four years.
In addition, the Company replaced its $10,000 Secured Revolving Credit facility
with a $20,000 Unsecured Revolving Credit facility, and the Company opted not to
renew its $18,750 Equipment leasing facility. There were no borrowings
outstanding under the Revolving Credit Facility at March 31, 1998.
In March 1998, the Company and its largest shareholder completed a secondary
stock offering in which the Company sold 430,000 common shares that provided
funds to the Company of $14,521. The funds will be used for general corporate
purposes including expansion of working capital and potential acquisitions of
companies and/or selected products that are complementary to the existing
business.
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 will be adequate to meet its
operating needs and to take advantage of strategic opportunities as they occur.
To the extent that additional capital resources are required, such capital may
be raised by additional bank borrowings, equity offerings or other means.
Other Matters
New Accounting Pronouncement
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share". This Statement
requires companies to replace the presentation of primary earnings per share
("EPS") with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the Statements of Earnings and a
reconciliation of the basic EPS computation to the diluted EPS computation. All
prior period EPS data has been restated to conform with the provisions of SFAS
No. 128. See Note 6 to the Consolidated Financial Statements for the
reconciliation.
Year 2000
Over the past several years the Company has installed new computer systems which
are Year 2000 compliant. Currently, the Company is reviewing its other internal
systems to determine the impact, if any, of the Year 2000. The Company believes
it will achieve Year 2000 compliance in advance of the year 2000, and does not
anticipate any material disruption in its operations as the result of any
failure by the Company to be in compliance. The Company is currently developing
a plan to evaluate the Year 2000 compliance status of its suppliers and
customers.
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Forward Looking Statements
Except for the historical information contained herein, this Form 10-Q contains
forward looking statements that involve a number of risks and uncertainties
including the timing and outcome of legal proceedings, the regulatory
environment, fluctuations in operating results, capital spending, the impact of
Year 2000 issues on the business and other risks detailed from time-to-time in
the Company's filings with the Securities and Exchange Commission.
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<PAGE> 15
BARR LABORATORIES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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. The Company notified Lilly
pursuant to the provisions of the Waxman-Hatch Act. As previously
indicated in the Company's Annual Report on Form 10-K for the year
ended, June 30, 1997, on April 19, 1996, Lilly filed a patent
infringement seeking to prevent Barr from marketing fluoxetine until
certain U.S. patents expire in 2003. The Company is vigorously
pursuing this case and is anticipating a trial in 1999.
Invamed, Inc. Lawsuit
On February 25, 1998, Invamed, Inc. ("Invamed") named the Company as
a defendant in a lawsuit filed in the United States District Court
for the Southern District of New York, charging that the Company
unlawfully blocked access to the raw material source for generic
Warfarin Sodium. The Company believes that the suit filed against it
by Invamed is without merit and intends to vigorously defend its
position.
DuPont Merck Anti-Trust Suit
On March 9, 1998, the Company filed an anti-trust suit against
DuPont Merck Pharmaceutical Company ("DuPont Merck") in the United
States District Court for the Southern District of New York,
charging that DuPont Merck has acted unlawfully to impede the
marketplace acceptance of Barr's generic version of the
anti-coagulant Coumadin. The Company's suit charges that DuPont
Merck's actions violated federal anti-trust laws, as well as the
Lanham Act and the New York Deceptive Acts and Practices Act. The
Company intends to vigorously prosecute this case.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Exhibit
-------------- -------
27.1 Financial data schedule
27.2 Financial data schedule
27.3 Financial data schedule
(b) The following reports were filed by the Company on Form 8-K in the
quarter ended March 31, 1998.
Report Date Item Reported
----------- -------------
February 25, 1998 Company's response to lawsuit filed by
Invamed, Inc.
March 9, 1998 Company's anti-trust suit against DuPont
Merck Pharmaceutical Company
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARR LABORATORIES, INC.
Dated: May 8, 1998 /s/ William T. McKee
--------------------
William T. McKee
Chief Financial Officer
16
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