<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 December 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
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 December 31,
1998: 22,723,448
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BARR LABORATORIES, INC.
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1998 3
Consolidated Statements of Earnings
for the three and six months ended
December 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the six months ended
December 31, 1998 and 1997 5
Notes to Consolidated Financial
Statements 6-9
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
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BARR LABORATORIES, INC.
Consolidated Balance Sheets
(thousands of dollars, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1998
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 41,311 $ 72,956
Marketable securities 7,765 7,320
Accounts receivable, less allowances
of $3,271 and $2,738, respectively 58,534 46,760
Supply agreement receivable 15,250 14,667
Inventories 90,520 74,377
Prepaid expenses 1,643 806
--------- ---------
Total current assets 215,023 216,886
Property, plant and equipment, net 91,519 90,649
Other assets 5,216 3,316
--------- ---------
Total assets $ 311,758 $ 310,851
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 81,710 $ 103,321
Accrued liabilities 10,413 9,460
Deferred income taxes 1,000 1,000
Current portion of long-term debt 1,967 4,467
Income taxes payable 3,287 3,357
--------- ---------
Total current liabilities 98,377 121,605
Long-term debt 30,476 32,174
Other liabilities 167 162
Deferred income taxes 659 981
Commitments & Contingencies
Shareholders' equity
Common stock $.01 par value per share; authorized 100,000,000;
issued 22,841,403 and 22,424,645, respectively 228 224
Additional paid-in capital 71,207 68,064
Retained earnings 112,081 88,596
Accumulated other comprehensive loss (1,424) (942)
--------- ---------
182,092 155,942
Treasury stock at cost: 117,955 shares (13) (13)
--------- ---------
Total shareholders' equity 182,079 155,929
--------- ---------
Total liabilities and shareholders' equity $ 311,758 $ 310,851
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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BARR LABORATORIES, INC.
Consolidated Statements of Earnings
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 102,637 $ 85,911 $ 191,786 $ 175,012
Proceeds from supply agreements 6,583 6,417 14,583 13,583
--------- --------- --------- ---------
Total revenues 109,220 92,328 206,369 188,595
Costs and expenses:
Cost of sales 73,920 68,769 137,828 133,995
Selling, general and administrative 9,824 8,474 19,767 17,607
Research and development 5,452 3,617 10,822 8,815
--------- --------- --------- ---------
Earnings from operations 20,024 11,468 37,952 28,178
Interest income 690 321 1,662 697
Interest expense (779) (198) (1,438) (435)
Other income 50 18 36 35
--------- --------- --------- ---------
Earnings before income taxes and extraordinary loss 19,985 11,609 38,212 28,475
Income tax expense 7,704 4,494 14,727 10,963
--------- --------- --------- ---------
Earnings before extraordinary loss 12,281 7,115 23,485 17,512
Extraordinary loss on early extinguishment
of debt, net of taxes -- (790) -- (790)
--------- --------- --------- ---------
Net earnings $ 12,281 $ 6,325 $ 23,485 $ 16,722
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
Earnings before extraordinary loss $ 0.55 $ 0.33 $ 1.05 $ 0.82
Net earnings $ 0.55 $ 0.29 $ 1.05 $ 0.78
========= ========= ========= =========
EARNINGS PER COMMON SHARE-ASSUMING DILUTION:
Earnings before extraordinary loss $ 0.52 $ 0.31 $ 1.00 $ 0.76
Net earnings $ 0.52 $ 0.27 $ 1.00 $ 0.72
========= ========= ========= =========
Weighted average shares 22,463 21,633 22,399 21,550
========= ========= ========= =========
Weighted average shares-assuming dilution 23,618 23,209 23,538 23,132
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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BARR LABORATORIES, INC.
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 1998 and 1997
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings $ 23,485 $ 16,722
Adjustments to reconcile net earnings to net cash from (used in) operating activities:
Depreciation and amortization 4,328 2,565
Deferred income tax expense -- 1,732
Write-off of deferred financing fees associated with early extinguishment of debt -- 195
Other, net 19 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and supply agreement receivable, net (12,357) (29,568)
Inventories (16,143) 14,406
Prepaid expenses (837) (292)
Other assets (536) 233
Increase (decrease) in:
Accounts payable, accrued liabilities and other (20,570) (3,848)
Income taxes payable (70) (982)
-------- --------
Net cash (used in) provided by operating activities (22,681) 1,163
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,189) (13,150)
Purchases of strategic investments (2,250) (4,069)
Other, net (474) 65
-------- --------
Net cash (used in) investing activities (7,913) (17,154)
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt (1,698) (14,673)
Proceeds from loans -- 30,000
Activity on revolving line of credit, net (2,500) --
Proceeds from exercise of stock options and employee stock purchases 3,147 2,826
-------- --------
Net cash (used in) provided by financing activities (1,051) 18,153
-------- --------
(Decrease) increase in cash and cash equivalents (31,645) 2,162
Cash and cash equivalents at beginning of period 72,956 31,923
-------- --------
Cash and cash equivalents at end of period $ 41,311 $ 34,085
======== ========
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the period
Interest, net of portion capitalized $ 1,424 $ 187
======== ========
Income taxes $ 14,797 $ 9,838
======== ========
Non-cash transactions
Write-off of equipment & leasehold improvements related to restructuring $ 83 $ --
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, 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, 1998 and quarterly report on Form 10-Q for the period
ended September 30, 1998.
2. PROCEEDS FROM SUPPLY AGREEMENTS/SUPPLY AGREEMENT RECEIVABLE
In accordance with the Ciprofloxacin 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 $6,583 and $13,083 for
the three and six months ended December 31, 1998. The Company received
payments of $6,250 in September and December 1998, for amounts earned
during the period December 1997 through May 1998.
Also included in Proceeds from supply agreements for the six months ended
December 31, 1998, is the final $1,500 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
every 7 days) which are readily convertible into cash at par value
(cost).
As of December 31, 1998 and June 30, 1998, approximately $23,066 and
$59,321, respectively, of the Company's cash was held in an interest
bearing 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.
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4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ -------
<S> <C> <C>
Raw materials and supplies $17,662 $17,459
Work-in-process 5,338 4,132
Finished goods 67,520 52,786
------- -------
$90,520 $74,377
======= =======
</TABLE>
Tamoxifen Citrate, purchased as a finished product, accounted for
approximately $59,531 and $40,777 of finished goods as of December 31,
1998 and June 30, 1998, respectively.
5. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators used
to calculate Earnings per common share before extraordinary loss on the
Consolidated Statements of Earnings:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE:
Earnings before extraordinary loss (numerator) $12,281 $ 7,115 $23,485 $17,512
Weighted average shares (denominator) 22,463 21,633 22,399 21,550
Earnings before extraordinary loss $ 0.55 $ 0.33 $ 1.05 $ 0.82
======= ======= ======= =======
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Earnings before extraordinary loss (numerator) $12,281 $ 7,115 $23,485 $17,512
Weighted average shares 22,463 21,633 22,399 21,550
Effect of dilutive options 1,155 1,576 1,139 1,582
------- ------- ------- -------
Weighted average shares - assuming
dilution (denominator) 23,618 23,209 23,538 23,132
Earnings before extraordinary loss $ 0.52 $ 0.31 $ 1.00 $ 0.76
======= ======= ======= =======
</TABLE>
(share amounts in thousands)
During the three and six months ended December 31, 1998 and three months
ended December 31, 1997, there were 226,000, 513,750 and 193,000,
respectively, of outstanding options that
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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.
6. COMMITMENTS AND CONTINGENCIES
Invamed, Inc. Lawsuit
On February 25, 1998, Invamed, Inc. ("Invamed") named the Company and
several others as defendants 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 Warfarin
Sodium. The Company believes that the suit filed against it by Invamed is
without merit and intends to defend its position vigorously. This action
is currently in the discovery stage. It is anticipated that this matter
will take several years to be resolved but an adverse judgement could
have a material adverse impact on the Company's consolidated financial
statements.
Other Matters
The Company believes that federal antitrust authorities have undertaken a
review of certain trade practices within the pharmaceutical industry,
specifically patent challenge settlements, unfair trade practices by
brand drug companies and exclusive supply arrangements. The Company has
voluntarily discussed with the Federal Trade Commission its arrangements
with the supplier of the raw material for its Warfarin Sodium and in June
1998, the Company responded to a civil investigative demand from the
Department of Justice by providing documents relating to the settlement
of its Tamoxifen patent challenge. The Company believes that it has
complied with all applicable laws and regulations governing trade and
competition in the marketplace in connection with its arrangements with
its raw material suppliers and its two patent challenge settlements.
Other Litigation
The Company, at December 31, 1998, was involved in other lawsuits
incidental to its business, 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 a
significant adverse effect on the Company's consolidated financial
statements.
7. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income is defined as the total change in shareholders'
equity during the period other than from transactions with shareholders.
For the Company, comprehensive income is comprised of net income and the
net changes in unrealized gains and losses on securities classified for
SFAS No. 115 purposes as "available for sale." Total comprehensive income
for the three and six months ended December 31, 1998 and 1997 was
$12,370, $23,003, $5,499 and $16,122, respectively.
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." As required by the standard, the
Company will begin reporting under SFAS No. 131 in its fiscal 1999 Annual
Report.
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8. SUBSEQUENT EVENT
On January 25, 1999, the Company and two co-defendants reached an
agreement with Eli Lilly & Company ("Lilly") to drop the inequitable
conduct and anticipation claims that were scheduled for trial as part of
the Company's challenge of the patents protecting Lilly's Prozac(R)
antidepressant. As part of the agreement, Lilly has agreed to drop its
claims of willful infringement against the Company and two co-defendants.
The Company and its co-defendants will share a $4 million payment from
Lilly for reimbursement of legal expenses and costs related to the
litigation. The Company's share of approximately $1.7 million was
received on January 29, 1999.
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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 December 31, 1998
to the Quarter Ended December 31, 1997 - (thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997 Change
---- ---- ------
<S> <C> <C> <C>
Revenues:
Product sales:
Distributed $ 66,154 $ 64,147 $ 2,007
Manufactured 36,483 21,764 14,719
-------- -------- --------
Total product sales 102,637 85,911 16,726
Proceeds from supply agreement 6,583 6,417 166
-------- -------- --------
Total revenues $109,220 $ 92,328 $ 16,892
</TABLE>
Total revenues increased approximately 18% primarily as a result of increased
Product sales.
The 19% increase in Product sales was attributable to increased manufactured
sales, primarily sales of Warfarin Sodium.
The 3% increase in Distributed product sales, which primarily represents sales
of Tamoxifen, was the result of an increased demand for the 20 mg strength of
Tamoxifen, which the Company began distributing in December 1996. Tamoxifen is a
patent protected product manufactured for the Company by the Innovator, and is
distributed by the Company under a non-exclusive license agreement with the
Innovator. Currently Tamoxifen only competes against the Innovator's product,
which is sold under the brand name.
Sales of manufactured products increased 68% due to increased sales of Warfarin
Sodium as well as products such as Naltrexone, Estradiol and Estropipate which
were launched during fiscal 1998. Warfarin sales were lower during the second
quarter of fiscal 1998, due to significant quantities purchased by major
wholesalers and chain drug stores in the first quarter of fiscal 1998, when the
product was launched. Revenue from products launched in the most recent four
quarters more than offset lower sales on products being phased out of the
Company's product line and price declines and higher discounts on certain
existing products.
The launch of a second generic version of Warfarin Sodium in October 1998 did
not have a significant impact on the Company's operations for the quarter ended
December 31, 1998. The future impact on Barr's operations from this competing
product is difficult to determine because it is dependent upon several factors
outside the Company's control. However, the Company believes that generic
substitution of Warfarin Sodium will continue to grow and that the Company's
Warfarin Sodium will continue to be a significant source of revenues and
profits.
Cost of sales increased to $73,920 from $68,769, but decreased as a percentage
of product sales from 80% to 72%. The decrease in cost of sales as a percentage
of product sales is the result of a more favorable mix within manufactured
products and a better mix of manufactured products to distributed
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products. This improved mix within manufactured products and between
manufactured products and distributed products was the result of sales of
Warfarin Sodium as well as products launched in the previous twelve months which
generally have higher margins than certain existing products and distributed
products. Offsetting this improved mix were lower distributed product margins,
which were expected as the Company depleted its lower cost inventory.
Selling, general and administrative expenses increased to $9,824 from $8,474.
The largest component of the dollar increase related to legal expenses. The
increased legal fees resulted from the Company's federal anti-trust suit against
DuPont Pharmaceutical Company, the Company's Prozac(R) patent challenge trial,
as well as development of additional patent challenges.
Total research and development expenses in the quarter increased 51% to $5,452.
The increase is primarily the result of an increase in the number and cost of
bio-studies, increased personnel costs to support the number of products in
development and higher raw material costs. Additionally, the prior year amount
included $400 in reimbursements from a proprietary drug collaborator for certain
development costs.
Interest income increased by $369 primarily due to an increase in market rates
of the Company's short-term investments as well as an increase in the average
cash and cash equivalents balance.
Interest expense increased $581 due to a decrease in capitalized interest over
the corresponding quarter of the prior fiscal year. The amount of interest
capitalized declined due to the reduction in capital spending on the Virginia
facility, which was substantially completed by the spring of 1998.
Results of Operations:
Comparison of the Six Months Ended December 31, 1998
to the Six Months Ended December 31, 1997 - (thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1998 1997 Change
---- ---- ------
<S> <C> <C> <C>
Revenues:
Product sales:
Distributed $123,401 $124,591 $ (1,190)
Manufactured 68,385 50,421 17,964
-------- -------- --------
Total product sales 191,786 175,012 16,774
Proceeds from supply agreements 14,583 13,583 1,000
-------- -------- --------
Total revenues $206,369 $188,595 $ 17,774
</TABLE>
Total revenues increased approximately 9% as a result of increased Product sales
and Proceeds from supply agreements.
The increase in Product sales was attributable to an increase in sales of
manufactured products offset by a slight decrease in distributed product sales.
Distributed product sales declined 1% as sales of Minocycline, which the Company
began distributing in October 1997, partially offset lower sales of Tamoxifen.
The decrease in sales of Tamoxifen was the result
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of accelerated buying by customers during the first three quarters of the prior
year, which was attributable, in part, to customers anticipating a price
increase for Barr's Tamoxifen, which occurred on April 1, 1998.
Sales of manufactured products increased approximately 36% primarily
attributable to increased sales of Warfarin Sodium as well as products such as
Naltrexone, Estradiol and Estropipate, which were launched in fiscal 1998.
Proceeds from supply agreements increased 7% primarily from the $1,500 proceeds
earned under a separate contingent supply agreement related to the ciprofloxacin
litigation (See Note 2 to the Consolidated Financial Statements).
Cost of sales increased to $137,828 from $133,995, but decreased as a percentage
of product sales from 77% to 72%. The decrease in cost of sales as a percentage
of product sales is the result of a more favorable mix within manufactured
products, a better mix of manufactured products to distributed products, and
higher margins on distributed products. This improved mix within manufactured
products and between manufactured products and distributed products was the
result of sales of Warfarin Sodium as well as products launched in the previous
twelve months which generally have higher margins than certain existing products
and distributed products. The increase in distributed product margins was due to
the April 1998 price increase on Tamoxifen by the Innovator.
Selling, general and administrative expenses increased to $19,767 from $17,607.
The largest component of the dollar increase related to legal expenses. The
increased legal fees resulted from the Company's federal anti-trust suit against
DuPont Pharmaceutical Company, the Company's Prozac(R) trial, as well as
development of additional patent challenges.
Total research and development expenses in the quarter increased 23% to $10,822.
The increase is primarily the result of an increase in the number and cost of
bio-studies, increased personnel costs to support the number of products in
development and higher raw material costs. Additionally, the prior year amount
included $400 in reimbursements from a proprietary drug collaborator for certain
development costs, as well as $645 for the acquisition of six Abbreviated New
Drug Applications and related technologies to expand the Company's line of
female healthcare products.
Interest income increased by $965 primarily due to an increase in market rates
of the Company's short-term investments as well as an increase in the average
cash and cash equivalents balance.
Interest expense increased $1,003 due to a decrease in capitalized interest over
the prior fiscal year. The amount of interest capitalized declined due to the
reduction in capital spending on the Virginia facility, which was substantially
completed by the spring of 1998.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased from $72,956 at June 30, 1998
to $41,311 at December 31, 1998. During the six months ended December 31, 1998,
the Company decreased the cash held in its interest bearing escrow account from
$59,321 at June 30, 1998 to $23,066.
Cash used in operating activities totaled $22,681 for the six months ended
December 31, 1998 as working capital increases more than offset net earnings.
The working capital increase was led by increases in inventory and accounts
receivable and a decrease in accounts payable. Accounts receivable increased due
to the increase in product sales. The increase in inventory is primarily a
result of the Company's increased investment in Tamoxifen inventory in
anticipation of the U.S. Food and Drug Administration's ("FDA") approval of
Tamoxifen for the reduction in the incidence of
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breast cancer in women at high risk for developing the disease. The FDA approval
for this indication occurred in October 1998. The decline in accounts payable
relates to the pay down of the Tamoxifen payable.
During the first six months of fiscal 1999, the Company invested approximately
$5.2 million in capital expenditures primarily on construction and new equipment
for its facilities. This decline from the prior year was anticipated and was
related to the reduction in capital spending on the Virginia facility, which was
substantially completed by the spring of 1998. The Company expects to invest an
additional $8 million in capital assets in fiscal 1999.
The Company expects to significantly expand its proprietary drug development
activities over the next several quarters. The development costs associated with
these products are higher than costs to develop generic products. The Company is
exploring external R&D funding arrangements to help fund certain of these
projects. There is no assurance that the Company will be able to secure such
funding or will be able to secure the funding on favorable terms. If the Company
is unable to obtain such funding and continues to pursue all its proprietary
drug programs, its results from operations could be adversely affected.
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 its current cash balances, cash flows from operations
and existing borrowing capacity under its Revolving Credit Facility will be
adequate to meet its 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
Market Risk Disclosure
As discussed in the 1998 Annual Report on Form 10-K, the Company's exposure to
market risk from changes in interest rates, in general, is not material.
Year 2000
As disclosed in the 1998 Annual Report on Form 10-K, during 1998, the Company
established a project team to assess the impact of the Year 2000 issue on the
Company's operations. The project team continues to verify that third parties,
with which it has a material relationship, are in compliance or expect to be in
compliance prior to January 1, 2000. In addition, the project team continues to
review its information technology ("IT") and non-IT systems for compliance and
will make modifications to these systems as necessary. To date the Company has
spent less than $100 in remediation efforts and believes that the cost to gain
company-wide compliance will not be material.
To date the Company has not completed a formal contingency plan for
non-compliance, but continues to develop such plans based on the information
obtained from the third parties with which it has a material relationship and
the on-going evaluation of its IT and non-IT systems.
The foregoing discussion regarding the Year 2000 project's timing,
effectiveness, implementation, and cost, contains forward-looking statements,
which are based on management's best estimates, derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those contemplated estimates. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of
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<PAGE> 14
personnel trained in this area, the ability to locate and correct all relevant
computer codes and similar uncertainties and remediation success of the
Company's customers and suppliers.
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, impact of competition on
sales and profitability of key products, fluctuations in operating results,
capital spending, obtaining funding for certain R&D projects, 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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BARR LABORATORIES, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Fluoxetine Hydrochloride Patent Challenge
In rulings on pretrial motions on January 12, 1999, the U.S. District
Court, Southern District of Indiana, dismissed several of the claims that
the Company was to present at the trial scheduled to begin January 25,
1999. Prior to the trial beginning, on January 25, 1999, Barr, two
co-defendants and Lilly reached an agreement pursuant to which Barr and
Lilly have agreed to drop all the remaining claims in the litigation. In
addition to all parties dropping their remaining claims, Lilly made a
one-time payment of $4 million to be shared between Barr and its
co-defendants.
The Company intends to proceed to the U.S. Court of Appeals for the
Federal Circuit on the issues that were dismissed on January 12, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Barr Laboratories, Inc. was held on
December 9, 1998, at the Sheraton Crossroads, Mahwah, New Jersey. Of the
22,379,847 shares entitled to vote, 20,599,371 shares were represented at the
meeting by proxy or present in person. The meeting was held for the purpose of
electing a Board of Directors.
All eight nominees were elected based on the following votes cast:
<TABLE>
<CAPTION>
FOR SHARES
<S> <C>
Paul M. Bisaro 20,450,034
Robert J. Bolger 20,567,831
Edwin A. Cohen 20,454,249
Bruce L. Downey 20,450,609
Michael F. Florence 19,296,016
Jacob M. Kay 20,568,284
Bernard C. Sherman 20,448,256
George P. Stephan 20,569,059
</TABLE>
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number Exhibit
3.2 Amended and Restated By-laws
27.0 Financial data schedule
(b) There were no reports filed on Form 8-K in the quarter ended
December 31, 1998.
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: February 3, 1999 /s/ William T. McKee
--------------------
William T. McKee
Chief Financial Officer
16
<PAGE> 1
Exhibit 3.2
CERTIFICATE
I, Paul M. Bisaro, the duly elected Secretary of Barr Laboratories, Inc.
(the "Company") hereby certify that the following resolution was adopted by the
Company's Board of Directors at a duly held and authorized meeting of the Board
of Directors held September 10, 1998, and that said resolution is in full force
and effect on the date hereof:
RESOLVED, that the first sentence of Section 4 of the Company's By-Laws
is hereby amended so that, as amended, such sentence shall read as follows:
"In lieu of closing the share records of the Corporation, the Board of
Directors may fix, in advance, a date not exceeding sixty (60) days, nor
less that ten (10) days, as the record date for the determination of
shareholders entitled to receive notice of, or to vote at, any meeting of
shareholders, or to consent to any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any
dividend, or allotment of any rights, or for the purpose of any other
action."
IN WITNESS WHEREOF, I have set my hand this 22nd day of September, 1998.
/s/ Paul M. Bisaro
------------------
Paul M. Bisaro
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 41,311
<SECURITIES> 7,765
<RECEIVABLES> 73,784<F1>
<ALLOWANCES> 0
<INVENTORY> 90,520
<CURRENT-ASSETS> 215,023
<PP&E> 91,519<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 311,758
<CURRENT-LIABILITIES> 98,377
<BONDS> 30,476
0
0
<COMMON> 228
<OTHER-SE> 181,851
<TOTAL-LIABILITY-AND-EQUITY> 311,758
<SALES> 191,786
<TOTAL-REVENUES> 206,369
<CGS> 137,828
<TOTAL-COSTS> 137,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,438
<INCOME-PRETAX> 38,212
<INCOME-TAX> 14,727
<INCOME-CONTINUING> 23,485
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,485
<EPS-PRIMARY> 1.05<F2>
<EPS-DILUTED> 1.00
<FN>
<F1>Accounts Receivable and PP&E are net.
<F2>Earnings per share are simple, not primary.
</FN>
</TABLE>
