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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, 1999 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)
<TABLE>
<S> <C>
Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on
Title of each class which registered:
Common Stock, Par Value $0.01
New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 $493,898,290 as of June 30, 1999 (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,
1999: 22,805,628.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S 1999 ANNUAL REPORT TO SHAREHOLDERS ARE INCORPORATED
BY REFERENCE IN PART II AND PART IV HEREOF. PORTIONS OF THE REGISTRANT'S 1999
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 an established
pharmaceutical company engaged in the development, manufacture and marketing of
generic and proprietary prescription pharmaceuticals.
SAFE HARBOR STATEMENT
To the extent that any statements made in this report contain information that
is not historical, these statements are essentially forward-looking. These
statements are subject to risks and uncertainties that cannot be predicted or
quantified and, consequently, actual results may differ materially from those
expressed or implied by such forward-looking statements. Such risks and
uncertainties include: the timing and outcome of legal proceedings; the
difficulty of predicting U.S. Food and Drug Administration ("FDA") approvals;
market and customer acceptance and demand for new pharmaceutical products;
ability to market new proprietary products; the impact of competitive products
and pricing; timing and success of new product development and launch;
availability of raw materials; the regulatory environment; fluctuations in
operating results; and, other risks detailed from time-to-time in the Company's
filings with the Securities and Exchange Commission.
The Company wishes to caution each reader of this report to consider carefully
these factors as well as specific factors that may be discussed with each
forward-looking statement in this report or disclosed in the Company's filings
with the SEC as such factors, in some cases, could affect the ability of the
Company to implement its business strategy and may cause actual results to
differ materially from those contemplated by the statements expressed herein.
OVERVIEW
Barr was founded in 1970 and commenced active business in 1972 as a manufacturer
of generic drug products. Barr is listed on the New York Stock Exchange
(NYSE-BRL). The Company currently markets 70 generic and proprietary products,
representing various dosage strengths and product forms of 32 chemical entities.
The Company's product line is concentrated primarily on six core therapeutic
categories: oncology, female healthcare, cardiovascular, anti-infectives, pain
management and psychotherapeutics.
The Company's business strategy has three core components: (i) the development
and marketing of generic pharmaceuticals that have one or more barriers to
entry, (ii) developing the generic version and then challenging patents
protecting select brand pharmaceuticals where the Company believes that such
patents are either invalid, unenforceable or not infringed by the Company's
product, and (iii) the development and introduction of proprietary
pharmaceuticals.
Generic Products
The majority of the Company's currently marketed products represent generic
forms of brand pharmaceutical products. These products are part of an industry
with annual sales of approximately $9 billion. The Company rarely pursues those
products where it expects that a significant number of its competitors will
successfully develop a generic product. Instead, the Company principally pursues
the development and marketing of generic pharmaceuticals that have one or more
barriers to entry. The Company believes products with such barriers will face
limited competition and, therefore,
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provide longer product life cycles and/or higher profitability than commodity
generic products.
During the fiscal year ended June 30, 1999, the Company introduced seven new
generic products, including a cancer agent, two additional strengths of its
Warfarin Sodium anti-coagulant, two additional strengths of an anti-depressant,
and two strengths of an anti-infective drug.
Generic products introduced within the past two fiscal years, particularly the
Company's Warfarin Sodium anti-coagulant, Naltrexone treatment for alcohol
dependency, Hydroxyurea cancer agent, and members of the Company's portfolio of
hormone replacement products have been the drivers behind sales and earnings
increases.
The Company's largest selling product, Tamoxifen Citrate ("Tamoxifen"), the
generic equivalent of Nolvadex(R), is used to treat advanced breast cancer as
well as impede the recurrence of tumors following surgery. In October 1998, the
FDA approved the use of Tamoxifen for the reduction in incidence of breast
cancer in women at high risk for developing this disease. Tamoxifen accounted
for approximately 66%, 68% and 76% of the Company's product sales during fiscal
1999, 1998 and 1997, respectively.
Warfarin Sodium is the generic equivalent of DuPont Pharmaceutical's
Coumadin(R), an anti-coagulant with U.S. sales of approximately $500 million
during the year ended December 31, 1998. Approved in March 1997, and launched in
July 1997, approximately six million prescriptions for Barr's generic product
had been dispensed as of the close of fiscal 1999. During the fiscal year, an
additional generic competitor entered the market, and by fiscal year end a third
competitor had received FDA approval for this product. Warfarin Sodium accounted
for approximately 15% and 11% of the Company's product sales during fiscal 1999
and 1998, respectively.
Patent Challenges
The second part of Barr's generic product strategy is its patent challenge
strategy. As part of this strategy, the Company identifies patent protected
brand products where it believes the patents are either invalid or will not be
infringed by the Company's product. Then, the Company undertakes the development
and filing with the FDA of its generic version of the product, and engages in
the litigation necessary to resolve the patent issues.
As of the close of fiscal 1999, the Company has engaged in five patent
challenges, of which three have been resolved and two are currently pending. The
Company believes that the pursuit of these products to date has resulted in a
significant consumer benefit, in that the successful outcome of two cases will
ensure significant patient savings through the early introduction of more
affordable versions of the branded products.
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. As a result of this agreement, breast cancer patients have had access
to Barr's more affordable version of Tamoxifen eight years earlier than they
might otherwise have. The Company also has a tentatively approved Abbreviated
New Drug Application ("ANDA") for the manufacture of Tamoxifen. At the time of
patent expiration in August 2002 (or should another company's patent challenge
succeed), Barr will be permitted to begin the direct manufacture of Tamoxifen.
In January 1997, Barr and Bayer AG settled the pending litigation regarding
Bayer's patents protecting CIPRO(R) ("Ciprofloxacin"). Under terms of the
settlement, Barr received a one-time
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payment and entered into a contingent, non-exclusive supply agreement. Under
this agreement, Bayer has the option to make payments to Barr or to provide Barr
with quantities of Ciprofloxacin that Barr could market pursuant to a license
from Bayer. Also as part of the settlement, Barr has the unconditional right to
begin selling Ciprofloxacin no later than six months prior to the expiration of
the patent. As a result of this agreement, the Company believes that consumers
will receive a substantial benefit by having access to a more affordable generic
product in advance of the date when the product would otherwise have been
available for competition.
The Company currently has two patent challenges pending, including a challenge
against Prozac(R) and Ortho-Novum 7/7/7(R) (See Item 3, Legal Proceedings). The
Company will continue to invest heavily in research and development and the
legal costs necessary to identify future patent challenge opportunities.
In August 1999, the FDA published a proposed 180-Day Generic Drug Exclusivity
rule. This proposed rule is designed to clarify the FDA's interpretation of the
180-day generic drug exclusivity provision of the Drug Price Competition and
Patent Term Restoration Act of 1984 ("Hatch-Waxman Act"), in response to
numerous court challenges and citizens petitions. The proposed rule seeks to
more clearly define who is entitled to the exclusivity period and how that
period is "triggered." The comment period on the proposal ends in November 1999,
and final rule-making, which is expected to incorporate comments from a number
of parties including members of the generic industry, could also be the subject
of additional court challenges. As a result, implementation of the FDA's
interpretation could be delayed for a significant period. As such, it is
impossible for the Company to predict what, if any, effect the proposed rule
would have on the "first to file" status of its patent cases. In addition to
Tamoxifen, products for which the Company was "first to file" include
Ciprofloxacin ("CIPRO"), Zidovudine ("AZT(R)") and Fluoxetine ("Prozac").
The patent challenge process is a fundamental component of the Hatch-Waxman Act
that is designed to encourage generic companies to develop versions of brand
products and challenge suspect patents years ahead of patent expiry. The Company
believes that its successful challenges provide more affordable medicine for
consumers who otherwise would have paid higher brand prices for these products
through patent expiry. Recently, the U.S. Department of Justice ("DOJ") and the
Federal Trade Commission ("FTC") have been examining the settlement of such
patent challenges (See Item 3, Legal Proceedings). The Company is confident the
patent challenge provisions under the Hatch-Waxman Act provide a significant
consumer benefit by allowing the introduction of more affordable generic
products earlier than might otherwise be possible. Further, the Company believes
that as the consumer benefits of this process become more apparent to the DOJ
and FTC, any concerns will be resolved.
Proprietary Pharmaceuticals
Barr's focus on the development of proprietary pharmaceutical products, which
was initiated in fiscal 1997, today includes a development portfolio of
approximately ten projects. Under development are four cancer agents, three oral
contraceptive products, one hormonal product, one anti-viral product, and a
psycho-therapeutic agent. Projects in development are expected to compete in
therapeutic categories that have total current annual sales in excess of $6
billion.
The first product from Barr's proprietary product development program, the
PREVEN(TM) Emergency Contraceptive Kit, a contraceptive co-developed with
Gynetics, Inc., was approved in September 1998. Barr helped to develop and
submit the new product application to the FDA and manufactures the oral
contraceptive tablets that are part of the PREVEN Kit. Gynetics is responsible
for marketing
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the product. The development and regulatory experience gained in the approval of
this first proprietary product is expected to strengthen ongoing proprietary
projects.
The Company's proprietary product development strategy is focused on pursuing a
portfolio of products that will result in the introduction in the United States
of innovative dosage forms of existing chemical entities, commercialization of
therapies available outside of the U.S. market, as well as the development of
novel chemical entities that are not currently available. This strategy will
result in the introduction of products in the near-, mid- and long-term that
have varying periods of market exclusivity. Barr estimates that the development
and introduction of its current portfolio of ten proprietary products could
require an investment of $25 to $35 million within the next three to four years.
Research and Development
For the fiscal years ended June 30, 1999, 1998 and 1997, total research and
development expenditures were approximately $23 million, $19 million and $14
million, respectively. Approximately $4 million of the fiscal 1999 expenditures
were in direct support of the Company's proprietary development activities.
Management anticipates that research and development expenditures in fiscal 2000
will significantly exceed comparable expenditures in fiscal 1999, due to
increased activity in generic and proprietary drug development activities.
Marketing and Customers
The Company markets its generic products to customers in the United States and
Puerto Rico through an integrated sales and marketing force that includes a five
person national sales force. The activities of the sales force are supplemented
by three customer service representatives who inform the Company's customers of
new products, process orders and advise of order status and current pricing. All
marketing activities are developed, implemented and coordinated by a product
marketing function consisting of three employees.
The Company's generic product customer base includes drug store chains, food
chains, mass merchandisers, wholesalers, distributors, managed care
organizations, mail order accounts, government/military and repackagers. The
Company's products are primarily sold under the Barr label.
The Company's generic business has approximately 140 direct purchasing customers
and 105 indirect customers that purchase the Company's products via wholesalers.
In fiscal 1999, 1998 and 1997, McKesson Drug Company, the nation's largest
wholesaler, accounted for approximately 14%, 12% and 13%, respectively, of
product sales. No other customer accounted for greater than 10% of product sales
in any of the last three fiscal years.
During the past three years the Company's customer base has undergone
significant consolidation, particularly in the chain drug store, food store,
distributor and wholesaler trade classes. In addition, a number of customers
have instituted single-source programs that limit the number of generic
suppliers that provide products to that customer. This consolidation and changes
in customer buying patterns have resulted in heightened competition among
generic drug marketers. Adding to these market pressures, managed care
organizations have in some cases, limited the number of authorized vendors. In
addition, mail-order prescription services, which typically source product from
a limited number of suppliers, have continued to grow. While the Company
believes that it has excellent relationships with its key customers, there can
be no assurance that continued consolidation will not
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impact the Company's business, or that such impact might not be significant.
The Company's proprietary products are expected to require a sales force to
detail products directly to physicians and healthcare providers. Currently the
Company does not have such a sales force but it expects to develop such sales
capabilities through such activities as partnerships, joint ventures or
strategic acquisitions. For example, Barr's first proprietary product, the
PREVEN Emergency Contraceptive Kit, is marketed by the Company's partner,
Gynetics Inc. As additional proprietary products reach the final stages of
approval, the Company expects to have secured the sales resources necessary to
successfully introduce these products.
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, generic manufacturers that have targeted select
therapeutic categories and market niches, and proprietary pharmaceutical
companies whose patent protected therapies compete with both generic and
proprietary products marketed by the Company.
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 support and product development. In order to ensure its ability to
compete effectively, the Company has:
- focused its proprietary and generic product development in areas of
historical strength or competitive advantage;
- targeted generic 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 specialty
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. Certain products that have historically accounted for a
significant portion of Barr's revenues are currently available only from sole or
limited suppliers. Arrangements with foreign suppliers are subject to certain
additional risks, including the availability of governmental clearances, export
duties, political instability, currency fluctuations and restrictions on the
transfer of funds. Any inability to obtain raw materials on a timely basis, or
any significant price increases that cannot be passed on to customers, could
have a material adverse effect on the Company. Because prior 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
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cause a significant delay in the manufacture of the drug product affected.
In addition, recent and pending regulatory actions may make it more difficult
for the Company and other generic pharmaceutical manufacturers to obtain
commitments from foreign suppliers prior to the expiration of patents on branded
products. The unavailability of such raw materials could also impede the Company
in its efforts to develop and obtain FDA approval to manufacture and market new
generic pharmaceutical products, including patent challenge candidates.
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, 1999, the Company had approximately 574 full-time employees
including 109 in research and development and 372 in production and quality
assurance/control. Approximately 115 are represented by a union that has a
collective bargaining agreement with the Company. The Company's current
collective bargaining agreement with its employees, who are represented by Local
2-149 of the Paper, Allied, Chemical and Energy (PACE) Union International,
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,
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.
ANDA Process
FDA approval is required before a generic equivalent to a previously approved
drug or a new dosage form of an existing drug can be marketed. The Company
usually receives approval for such 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 or, in the case of a new dosage form, is suitable for use for the
indications specified.
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.
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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. The 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, the Act allows for civil penalties and withdrawal of previously
approved applications. Neither the Company nor any of its employees have ever
been subject to debarment.
NDA Process
FDA approval is required before any new drug can be marketed. A New Drug
Application ("NDA") is a filing submitted to the FDA to obtain approval of a
drug not eligible for an ANDA and must contain complete pre-clinical and
clinical safety and efficacy data or a right of reference to such data. Before
dosing a new drug in healthy human subjects or patients may begin, stringent
government requirements for pre-clinical data must be satisfied. The
pre-clinical data must provide an adequate basis for evaluating both the safety
and the scientific rationale for the initiation of clinical trials.
Clinical trials are typically conducted in three sequential phases, although the
phases may overlap. Data from pre-clinical testing and clinical trials are
submitted to the FDA as a NDA for marketing approval and to other health
authorities as a marketing authorization application. The process of completing
clinical trials for a new drug may take several years and requires the
expenditure of substantial resources. Preparing a NDA or marketing authorization
application involves considerable data collection, verification, analysis and
expense, and there can be no assurance that approval from the FDA or any other
health authority will be granted on a timely basis, if at all. The approval
process is affected by a number of factors, primarily the risks and benefits
demonstrated in clinical trials as well as the severity of the disease and the
availability of alternative treatments. The FDA or other health authorities may
deny a NDA or marketing authorization application if the regulatory criteria are
not satisfied, or such authorities may require additional testing or
information.
Even after initial FDA or other health authority approval has been obtained,
further studies may be required to provide additional data on safety and will be
required to gain approval for the use of a product as a treatment for clinical
indications other than those for which the product was initially tested.
Additionally, the FDA regulates post-approval promotional labeling and
advertising activities to assure that such activities are being conducted in
conformity with statutory and regulatory requirements.
DEA
Because the Company markets some and intends to introduce or reintroduce a wide
range of controlled substances in its analgesic and psychotherapeutic product
lines, it must meet the requirements of the Controlled Substances Act and the
regulations issued thereunder and administered
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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
As a record number of branded pharmaceutical products are scheduled to go off
patent over the next several years, the branded pharmaceutical industry has
increased efforts to utilize state and federal legislative and regulatory arenas
to delay generic competition, or limit the severe market erosion they can
experience once monopoly protection is lost for the branded product. Efforts to
achieve these goals include, but are not limited to, directly petitioning the
FDA to request amendments to FDA standards through the Citizen Petition process,
seeking changes in United States Pharmacopoeia standards and attempting to
extend patents by attaching amendments to important federal legislation. Federal
legislation designed to extend the patents an additional three years on several
drugs, due to perceived delays in the FDA approval process, has been introduced.
State by state initiatives to enact legislation opposing the substitution of
equivalent generic drugs is an additional anti-generic defense strategy.
Using such terminology as Narrow Therapeutic Index ("NTI") and "Critical Care or
Critical Dose Drugs" to define sub-categories of drug products, the brand
industry is attempting to erroneously suggest that there are clinical
differences between brand and generic products that require additional attention
by the prescribing physician or limits on substitution. Since January 1997, Barr
has engaged the resources necessary to fight proposed legislation in over thirty
states.
Some brand companies have expressed interest over the last several years in
reopening the Hatch-Waxman Act and renegotiating some of the compromises reached
between the brand and generic pharmaceutical industries that resulted in the
creation of the modern generic pharmaceutical industry. Reopening the act could
disturb the delicate balance achieved in 1984 but may also offer the generic
industry the opportunity to expand the Hatch-Waxman Act to include drug products
not currently covered under the Act.
Because a balanced and fair legislative and regulatory arena is critical to the
generic pharmaceutical industry, the Company has and will continue to put a
major emphasis in terms of management time and financial resources on government
affairs activities.
Medicaid/Medicare
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.
Over the last year, the extension of prescription drug coverage to all Medicare
recipients has gained support in the Federal legislature. The generic
pharmaceutical industry trade associations are actively
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involved in discussions regarding the structure and scope of any proposed
Medicare prescription drug benefit plans. The Company, as an active member of
two of the three trade associations representing the generic pharmaceutical
industry, supports the development of an industry wide position on Medicare.
The Company believes that federal and/or state governments may continue to enact
measures in the future aimed at reducing the costs of drugs to the public. The
Company cannot predict the nature of such measures or their impact on the
Company's profitability.
Other
The Company is also governed by federal, state and local laws of general
applicability, such as laws regulating intellectual property, including patents
and trademarks; working conditions; equal employment opportunity; and
environmental protection.
ITEM 2. PROPERTIES
Barr has facilities and operations in Pomona and Blauvelt, New York; Northvale,
New Jersey; and Forest, Virginia. The following table presents the facilities
owned or leased by the Company and indicates the location and type of each of
these facilities.
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE STATUS DESCRIPTION
- -------- ------- ------ -----------
<S> <C> <C> <C>
NEW JERSEY
Northvale 26,500 Owned Manufacturing
Northvale 57,000 Leased Warehouse (to be closed October 1999)
NEW YORK
Blauvelt 50,000 Leased Corporate Administration
Pomona 1 33,000 Owned R&D, Laboratories, Manufacturing
Pomona 2 90,000 Owned Laboratories, Administrative Offices,
Manufacturing, Warehouse
VIRGINIA
Forest 168,000 Owned Administrative Offices, Manufacturing,
Warehouse, Packaging, Distribution
</TABLE>
Over the past three fiscal years, the Company has spent approximately $68
million in capital expenditures primarily to expand manufacturing capacity,
extend research and development activities and strengthen certain competitive
advantages.
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ITEM 3. LEGAL PROCEEDINGS
Fluoxetine Hydrochloride Patent Challenge
In February 1996, Barr filed an ANDA seeking approval from the FDA to market
fluoxetine hydrochloride ("Fluoxetine"), the generic equivalent of Eli Lilly
Company's ("Lilly") Prozac. The Company notified Lilly pursuant to the
provisions of the Hatch-Waxman 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 2003.
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. Prior to the trial beginning, 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
dropping their remaining claims, Lilly made a one-time payment of $4 million to
be shared between Barr and its co-defendants.
During the quarter ended March 31, 1999, the Company filed an appeal in the U.S.
Court of Appeals for the Federal Circuit on the issues that were dismissed. The
Company anticipates oral arguments in late calendar 1999 and a decision in early
calendar 2000.
Invamed, Inc./Apothecon, Inc. Lawsuit
In February 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. In May 1999, Apothecon,
Inc. ("Apothecon") filed a similar lawsuit. The two actions have been
consolidated.
The Company believes that the suits filed against it by Invamed and Apothecon
are without merit and intends to defend its position vigorously. These actions
are currently in 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.
DuPont Anti-Trust Suit
On March 9, 1998, the Company filed an anti-trust suit against DuPont Merck
Pharmaceutical Company ("DuPont") in the United States District Court for the
Southern District of New York, charging that DuPont 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's actions
violated federal anti-trust laws, as well as the Lanham Act and the New York
Deceptive Practices Act. This matter is currently in the discovery stage. The
Company intends to prosecute this case vigorously.
Norethindrone and Ethinyl Estradiol Patent Challenge
In October 1998, Barr filed an ANDA seeking approval from the FDA to market the
three different tablet combinations of norethindrone and ethinyl estradiol, the
generic equivalent of Ortho McNeil Pharmaceutical Inc.'s ("Ortho") Ortho-Novum
7/7/7 oral contraceptive regimen. The Company notified Ortho pursuant to the
provisions of the Hatch-Waxman Act and on January 15, 1999, Ortho filed a patent
infringement action in the United States District Court for the District of New
Jersey - Trenton Division, seeking to prevent Barr from marketing the three
different tablet combinations of
11
<PAGE> 12
norethindrone and ethinyl estradiol until certain U.S. patents expire in 2003.
The case is in discovery stage and no trial date has been set.
OTHER LEGAL MATTERS
Department of Justice Investigation Relating to Tamoxifen Citrate
In 1998 and 1999, the Company was contacted by the Department of Justice ("DOJ")
regarding the March 1993 settlement of the Tamoxifen patent litigation. Barr
continues to cooperate with the DOJ in this ongoing examination, and believes
that the DOJ will ultimately determine that the settlement was appropriate and a
benefit to consumers.
Federal Trade Commission ("FTC") Civil Investigative Demand Relating to
Ciprofloxacin
On June 30, 1999, the Company received a demand for interrogatories and a
subpoena for documents relating to the January 1997 settlement of the
Hatch-Waxman Act patent litigation relating to Ciprofloxacin hydrochloride which
had been pending in the U.S. District Court for the Southern District of New
York. The FTC is investigating whether the parties have engaged or are engaging
in unfair methods of competition or affecting commerce in violation of Section 5
of the Federal Trade Commission Act.
The Company believes that the patent challenge process under the Hatch-Waxman
Act represents a pro-consumer and pro-competitive alternative to bringing
generic products to market more rapidly than might otherwise be possible. The
Company is convinced that once all the facts are considered, and the benefits to
consumers are assessed, that the DOJ and FTC investigations described above will
be terminated. However, consideration of these matters could take considerable
time, and while unlikely, any adverse judgement in either matter could have a
material adverse impact on the Company's consolidated financial statements.
Miscellaneous
As of June 30, 1999, 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
None.
12
<PAGE> 13
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 42 of the 1999 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 25 through 29 of the
Annual Report and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for a change in interest rates relates
primarily to the Company's investment portfolio of $103 million and debt
instruments of $32 million. The Company does not use derivative financial
instruments.
The Company's investment portfolio consists of cash and cash equivalents and
marketable securities classified as "available for sale." The primary objective
of the Company's investment activities is to preserve principal while at the
same time maximizing yields without significantly increasing risk. To achieve
this objective, the Company maintains its portfolio in a variety of high credit
quality securities, including U.S. government and corporate obligations,
certificates of deposit and money market funds. Approximately 92% of the
Company's portfolio matures in less than three months and the remaining 8%
matures in less than one year. The carrying value of the investment portfolio
approximates the market value at June 30, 1999. Because the Company's
investments are diversified and are of relatively short maturity, a hypothetical
10% change in interest rates would not have a material effect on the Company's
consolidated financial statements.
Approximately 89% of the Company's debt instruments at June 30, 1999, are
subject to fixed interest rates and principal payments. The related note
purchase agreements permit the Company to prepay these notes prior to their
scheduled maturity, but may require the Company to pay a prepayment fee based on
market rates at the time of prepayment and the note rates. The remaining 11% of
debt instruments are primarily subject to variable interest rates based on LIBOR
and have fixed principal payments. The fair value of all debt instruments is
approximately $32 million at June 30, 1999. Management does not believe that any
risk inherent in the variable-rate nature of these instruments is likely to have
a material effect on the Company's consolidated financial statements.
The Company's $20 million Unsecured Revolving Credit Facility ("Revolver") has
an interest rate based on the prime rate or LIBOR plus 0.75%, at the Company's
option. The Company currently maintains a zero balance on the Revolver. If the
Company were to draw down on the line prior to its expiration in July 2000, and
an unpredicted increase in both alternate rates occurred, it would not be likely
to have a material effect on the Company's consolidated financial statements.
13
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is included on pages 30 through 43 of the
Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
14
<PAGE> 15
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 51 Chairman of the Board, Chief Executive Officer and President
Paul M. Bisaro 38 Senior Vice President, Strategic Business Development,
General Counsel and Secretary
Timothy P. Catlett 44 Senior Vice President, Sales and Marketing
William T. McKee 38 Senior Vice President, Chief Financial Officer and Treasurer
Mary E. Petit 50 Senior Vice President, Operations
Salah U. Ahmed 45 Vice President, Product Development
Ezzeldin A. Hamza 48 Vice President, Research and Development
Catherine F. Higgins 47 Vice President, Human Resources
Gerald F. Price 52 Vice President, Business Development
</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 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.
Mr. Downey is also a director of Warner Chilcott, plc.
PAUL M. BISARO became the Company's General Counsel in July 1992, 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. In June 1998, Mr. Bisaro
was elected to the Company's Board of Directors. 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. Prior to his
association with Winston & Strawn, Mr. Bisaro was a Consultant with Arthur
Andersen & Co.
TIMOTHY P. CATLETT was employed by the Company in February 1995 as Vice
President, Sales and Marketing. In September 1997, Mr. Catlett was elected to
Senior Vice President, Sales and Marketing. From 1978 through 1993, Mr. Catlett
held a number of
15
<PAGE> 16
positions with the Lederle Laboratories division of American Cyanamid including
Vice President, Cardiovascular Marketing.
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, in
December 1997 Mr. McKee was elected Vice President and in December 1998 was
elected Senior Vice President. Prior to joining the Company, Mr. McKee served as
Vice President, Finance for Absolute Entertainment Inc. From September 1983
through June 1993, Mr. McKee held management positions in the accounting firms
of Deloitte & Touche LLP and Gramkow & Carnevale, CPAs. Mr. McKee is a C.P.A.
MARY E. PETIT 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.
SALAH U. AHMED was employed by the Company as Director of Research and
Development in 1993. Dr. Ahmed was named Vice President, Product Development in
September 1996. Before joining Barr, Dr. Ahmed was a Senior Scientist with
Forest Laboratories, Inc. from 1989 to 1993.
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.
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 in the section headed "Information on Nominees" of the Company's Notice of
Annual Meeting of Shareholders, dated September 27, 1999 (the "Proxy Statement")
and are incorporated herein by reference.
16
<PAGE> 17
ITEM 11. EXECUTIVE COMPENSATION
A description of the compensation of the Company's executive officers is set
forth in the sections headed "Executive Compensation", "Option Grants", "Option
Exercises and Option Values" and "Executive Agreements" of the Proxy Statement
and is incorporated herein by reference.
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 in the sections headed "Ownership of Securities" 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 in
the section headed "Certain Relationships and Related Transactions" of the Proxy
Statement and is incorporated herein by reference.
17
<PAGE> 18
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, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended June 30,
1999 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 22
Schedule II - Valuation and Qualifying Accounts 23
Exhibits
3.1 Composite Restated Certificate of Incorporation of the
Registrant
3.2 Amended and Restated By-Laws of the Registrant
4.1 Loan and Security Agreement dated April 12, 1996(9)
4.2 Amended and Restated Loan Agreement dated November 18, 1997(9)
4.3 Note Purchase Agreements dated November 18, 1997(1)
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)
10.6 Collective Bargaining Agreement, effective April 1, 1996(12)
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)
18
<PAGE> 19
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)
13.0 1999 Annual Report to Shareholders
21.0 Subsidiaries of the Company (11)
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 Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997 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 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.
19
<PAGE> 20
(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, 1988 and incorporated herein by
reference.
(12) 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.
20
<PAGE> 21
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
BY BRUCE L. DOWNEY Chairman of the Board, Chief August 11, 1999
--------------- Executive Officer & President
(Bruce L. Downey)
BY WILLIAM T. MCKEE Senior Vice President, Chief August 11, 1999
---------------- Financial Officer & Treasurer
(William T. McKee)
</TABLE>
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
BRUCE L. DOWNEY Chairman of the Board, Chief August 11, 1999
- --------------- Executive Officer & President
(Bruce L. Downey)
EDWIN A. COHEN Vice Chairman of the Board August 11, 1999
- --------------
(Edwin A. Cohen)
PAUL M. BISARO Director August 11, 1999
- --------------
(Paul M. Bisaro)
ROBERT J. BOLGER Director August 11, 1999
- ----------------
(Robert J. Bolger)
MICHAEL F. FLORENCE Director August 11, 1999
- -------------------
(Michael F. Florence)
JACOB M. KAY Director August 11, 1999
- ------------
(Jacob M. Kay)
BERNARD C. SHERMAN Director August 11, 1999
- ------------------
(Bernard C. Sherman)
GEORGE P. STEPHAN Director August 11, 1999
- -----------------
(George P. Stephan)
</TABLE>
21
<PAGE> 22
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, 1999 and 1998, and for each of the
three years in the period ended June 30, 1999, and have issued our report
thereon dated August 6, 1999; such financial statements and report are included
in your June 30, 1999 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 6, 1999
22
<PAGE> 23
SCHEDULE II
BARR LABORATORIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<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, 1997 $ 192 $ 735 $ 22 $ 679 $ 270
Year ended June 30, 1998 270 180 1 189 262
Year ended June 30, 1999 262 180 1 44 399
Reserve for returns and allowances:
Year ended June 30, 1997 1,607 5,105 - 5,362 1,350
Year ended June 30, 1998 1,350 5,003 - 3,877 2,476
Year ended June 30, 1999 2,476 7,640 - 7,845 2,271
Inventory reserves:
Year ended June 30, 1997 1,279 5,334 - 2,978 3.635
Year ended June 30, 1998 3,635 8,043 - 6,103 5,575
Year ended June 30, 1999 5,575 5,398 - 4,420 6,553
</TABLE>
23
<PAGE> 24
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
3.1 Composite Restated Certificate of Incorporation of the
Registrant
3.2 Amended and Restated By-Laws of the Registrant
4.1 Loan and Security Agreement dated April 12, 1996(9)
4.2 Amended and Restated Loan Agreement dated November 18, 1997(9)
4.3 Note Purchase Agreements dated November 18, 1997(1)
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)
10.6 Collective Bargaining Agreement, effective April 1, 1996(12)
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)
13.0 1999 Annual Report to Shareholders
21.0 Subsidiaries of the Company (11)
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 Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997 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 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.
<PAGE> 25
(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, 1988 and incorporated herein by
reference.
(12) 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
COMPOSITE
RESTATED CERTIFICATE OF INCORPORATION
OF
BARR LABORATORIES, INC.
(AS CHANGED AND AMENDED JULY 1, 1998)
Under Section 807 of the Business Corporation Law
We, the undersigned, Bruce L. Downey and Paul M. Bisaro, being
respectively the President and the Secretary of Barr Laboratories, Inc., hereby
certify:
1. The name of the corporation is Barr Laboratories, Inc.
2. The Certificate of Incorporation was filed by the Department of
State on May 6, 1970.
3. The text of the Certificate of Incorporation is hereby restated
without amendments or changes to read as herein set forth in full:
FIRST: The name of the corporation is
BARR LABORATORIES, INC.
SECOND: The corporation is formed for the following purpose or purposes:
To conduct and carry on in all its branches the business of
manufacturing, selling, and distributing chemicals, chemical
compounds, drugs, medicines, and chemical, medicinal, and
pharmaceutical preparations, compounds, and materials of every
kind and description, and all articles and products related
thereto; and to purchase, manufacture, produce, refine, mine, or
otherwise acquire, invest in, own, hold, use, mortgage, create
security interests in, pledge, sell, assign, transfer or
otherwise dispose of, trade, deal in, and deal with any and all
kinds of chemicals and source materials, ingredients, mixtures,
derivatives and compounds thereof, and any and all kinds of
products of which any of the foregoing constitute an ingredient
or in the production of which any of the foregoing are used,
including but not limited to medicines, pharmaceuticals, and
industrial chemicals of all kinds.
<PAGE> 2
To carry on a general mercantile, industrial, investing, and trading
business in all its branches; to devise, invent, manufacture, fabricate,
assemble, install, service, maintain, alter, buy, sell, import, export, license
as licensor or licensee, lease as lessor or lessee, distribute, job, enter into,
negotiate, execute, acquire, and assign contracts in respect of, acquire,
receive, grant, and assign licensing arrangements, options, franchises, and
other rights in respect of, and generally deal in and with, at wholesale and
retail, as principal, and as sales, business, special, or general agent,
representative, broker, factor, merchant, distributor, jobber, advisor, and in
any other lawful capacity, goods, wares, merchandise, commodities, and
unimproved, improved, finished, processed, and other real, personal, and mixed
property of any and all kinds, together with the components, resultants, and
by-products thereof; to acquire by purchase or otherwise own, hold, lease,
mortgage, sell, or otherwise dispose of, erect, construct, make, alter, enlarge,
improve, and to aid or subscribe toward the construction, acquisition or
improvement of any factories, shops, storehouses, buildings, and commercial and
retail establishments of every character, including all equipment, fixtures,
machinery, implements and supplies necessary, or incidental to, or connected
with, any of the purposes or business of the corporation; and generally to
perform any and all acts connected therewith or arising therefrom or incidental
thereto, and all acts proper or necessary for the purpose of the business.
To apply for, register, obtain, purchase, lease, take licenses in
respect of or otherwise acquire, and to hold, own, use, operate, develop, enjoy,
turn to account, grant licenses and immunities in respect of, manufacture under
and to introduce, sell, assign, mortgage, pledge or otherwise dispose of, and,
in any manner deal with and contract with reference to:
(a) inventions, devices, formulae, processes and any improvements and
modifications thereof;
(b) letters patent, patent rights, patented processes, copyrights, designs, and
similar rights, trade marks, trade symbols and other indications of origin and
ownership granted by or recognized under the laws of the United States of
America or of any state or subdivision thereof, or of any foreign country or
subdivision thereof, and all rights connected therewith or appertaining
thereunto;
(c) franchises, licenses, grants and concessions.
To have, in furtherance of the corporate purposes, all of the powers conferred
upon corporations organized under the Business Corporation Law subject to any
limitations thereof contained in this certificate of incorporation or in the
laws of the State of New York.
THIRD: The office of the corporation is to be located in Village of Pomona,
Rockland County.
FOURTH: The number of shares of all classes of stock which the corporation shall
have authority to issue is 100,000,000 shares of common stock of the par value
of $.01 per share, entitled to one vote per share, and 2,000,000 shares of
preferred stock of the par value of $1.00
<PAGE> 3
per share. The Board of Directors shall have authority, by amendments to the
Certificate of Incorporation made from time to time by action of the Board of
Directors without stockholder approval, in the manner provided by law, to divide
the shares of Preferred Stock into series, to determine the number of shares of
any such series, and to determine for any series the designation, relative
rights, preferences, and limitations of the shares of any such series to the
extent not fixed by the Certificate of Incorporation. Without limiting the
generality of the foregoing, the authority hereby vested in the Board of
Directors as to each series of Preferred Stock shall include, except to the
extent restricted by law, authority in respect of:
(a) the voting rights, if any, of the shares of such series, whether
full or limited or multiple;
(b) the dividends payable in respect thereof, whether cumulative,
non-cumulative or partially cumulative;
(c) whether the dividends thereon shall be payable on a parity with
or in preference to or contingent upon dividends payable on any
other class or series;
(d) the preferential rights thereof upon dissolution or liquidation
or upon any distribution of assets of the Company;
(e) whether the shares thereof shall be subject to redemption, in
whole or in part, at the option of the Company in cash, in bonds
or other written obligations of the Company for the payment of
money, or property, and at what price or prices, within such
period or periods and under such condition as are stated in any
amendment to the Certificate of Incorporation or in such other
instrument as may be provided by law for the statement thereof;
(f) the requirements of any sinking fund or funds if any, to be
applied to the purchase or redemption of shares of such series
and the amount of or manner of creating such fund or funds and
the manner of application thereof;
(g) the rights, if any, of the holders of shares of such series to
convert the same into, or to exchange the same for, shares of any
other class or classes or of any series of the same, and the
price or prices and rate or rates of exchange at which such
shares shall be convertible or exchangeable, and other terms or
conditions of such conversion or exchange; and
(h) any restriction on an increase in the number of shares of any
series theretofore authorized and any qualifications, limitations
or restrictions of rights or powers to which shares of any future
series shall be subject.
<PAGE> 4
FIFTH: No shareholder of this corporation shall by reason of his holding
shares of any class have any preemptive or preferential right to purchase or
subscribe to any shares of any class of this corporation, now or hereafter to be
authorized, or any notes, debentures, bonds, or other securities convertible
into or carrying options or warrants to purchase shares of any class, now or
hereafter to be authorized (whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely affect the
dividend or voting rights of such shareholder), other than such rights, if any,
as the Board of Directors in its discretion, from time to time may grant; and at
such price as the Board of Directors in its discretion may fix; and the Board of
Directors may issue shares of any class of this corporation, or any notes,
debentures, bonds, or other securities convertible into carrying options or
warrants to purchase shares of any class without offering any such shares of any
class, either in whole or in part, to the existing shareholders of any class.
SIXTH: The Secretary of State is designated as the agent of the corporation
upon whom process against the corporation may be served. The post office address
within the State of New York to which the Secretary of State shall mail a copy
of any process against the corporation served upon him is: Barr Laboratories,
Inc., 2 Quaker Road, P.O. Box 2900, Pomona, NY 10970-0519.
SEVENTH: The duration of the corporation is to be perpetual.
EIGHTH: Except as may otherwise be specifically provided in this certificate
of incorporation, no provision of this certificate of incorporation is intended
by the corporation to be construed as limiting, prohibiting, denying, or
abrogating any of the general or specific powers or rights conferred under the
Business Corporation Law upon the corporation, upon its shareholders,
bondholders, and security holders, and upon its directors, officers, and other
corporate personnel, including, in particular, the power of the corporation to
furnish indemnification to directors and officers in the capacities defined and
prescribed by the Business Corporation Law and the defined and prescribed rights
of said persons to indemnification as the same are conferred by the Business
Corporation Law.
4. This Restatement of the Certificate of Incorporation was authorized
by the Board of Directors.
IN WITNESS WHEREOF, we have signed this Certificate on this 16th day of
January 1998 and we affirm the statements contained therein as true
under penalties of perjury.
/s/ Paul M. Bisaro /s/ Bruce L. Downey
------------------------ -------------------------
Paul M. Bisaro Bruce L. Downey
Secretary President
<PAGE> 1
AMENDED AND RESTATED
BY-LAWS
OF
BARR LABORATORIES, INC.
AS OF
AUGUST 11, 1999
ARTICLE I - OFFICES
-------------------
The office of the Corporation shall be located in the Village of Pomona, County
of Rockland, and State of New York. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
------------------------------------
SECTION 1 - ANNUAL MEETINGS:
- ----------------------------
An annual meeting of shareholders shall be held each year for the election of
directors at such date, time and place either within or without the State of New
York as shall be designated by the Board of Directors. Any other proper business
may be transacted at the annual meeting of shareholders.
SECTION 2 - SPECIAL MEETINGS:
- -----------------------------
Special meetings of the shareholders may be called at any time by the Board of
Directors, and shall be called by the President or the Secretary at the written
request of the holders of twenty-five per cent (25%) of the shares then
outstanding and entitled to vote thereat, or as otherwise required under the
provisions of the Business Corporation Law.
SECTION 3 - PLACE OF MEETINGS:
- ------------------------------
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places within or without the State of New York as
shall be designated in the notices or waivers of notice of such meetings.
SECTION 4 - NOTICE OF MEETINGS:
- -------------------------------
(a) Written notice of each meeting of shareholders, whether annual or special,
stating the time when and place where it is to be held, shall be served
either personally or by mail, not less than ten or more than sixty days
before the meeting, upon each
<PAGE> 2
shareholder of record entitled to vote at such meeting, and to any other
shareholder to whom the giving of notice may be required by law. Notice of
a special meeting shall also state the purpose or purposes for which the
meeting is called, and shall indicate that it is being issued by, or at
the direction of, the person or persons calling the meeting. If, at any
meeting, action is proposed to be taken that would, if taken, entitle
shareholders to receive payment for their shares pursuant to the Business
Corporation Law, the notice of such meeting shall include a statement of
that purpose and to that effect. If mailed, such notice shall be directed
to each such shareholder at his address, as it appears on the records of
the shareholders of the Corporation, unless he shall have previously filed
with the Secretary of the Corporation a written request that notices
intended for him be mailed to some other address, in which case, it shall
be mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any shareholder who attends
such meeting, in person or by proxy, or to any shareholder who, in person
or by proxy, submits a signed waiver of notice either before or after such
meeting. Notice of any adjourned meeting of shareholders need not be
given, unless otherwise required by statute.
SECTION 5 - QUORUM:
- -------------------
(a) Except as otherwise provided herein, or by statute, or in the Certificate
of Incorporation (such Certificate and any amendments thereof being
hereinafter collectively referred to as the "Certificate of
Incorporation"), at all meetings of shareholders of the Corporation, the
presence at the commencement of such meetings in person or by proxy of
shareholders holding of record a majority of the total number of shares of
the Corporation then issued and outstanding and entitled to vote, shall be
necessary and sufficient to constitute a quorum for the transaction of any
business. The withdrawal of any shareholder after the commencement of a
meeting shall have no effect on the existence of a quorum, after a quorum
has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the
holders of shares entitled to vote thereon, may adjourn the meeting. At
any such adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as
originally called if a quorum had been present.
SECTION 6 - VOTING:
- -------------------
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors,
to be taken by vote of the shareholders, shall be authorized by a majority
of votes cast at a meeting of shareholders by the holders of shares
entitled to vote thereon.
2
<PAGE> 3
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of
stock of the Corporation entitled to vote thereat, shall be entitled to
one vote for each share of stock registered in his name on the books of
the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without
a meeting may authorize another person or persons to act for him by proxy
by any valid means set forth in the Business Corporation Law. No proxy
shall be valid after the expiration of eleven months from the date of its
execution, unless the person executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be
exhibited to the Secretary at the meeting.
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the
effect therein expressed, with the same force and effect as if the same
had been duly passed by unanimous vote at a duly called meeting of
shareholders.
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
SECTION 1 - NUMBER, ELECTION AND TERM OF OFFICE:
- ------------------------------------------------
(a) The number of the directors of the Corporation shall be eight (8), unless
and until otherwise determined by vote of a majority of the entire Board
of Directors. The number of Directors shall not be less than three, unless
all of the outstanding shares are owned beneficially and of record by less
than three shareholders, in which event the number of directors shall not
be less than the number of shareholders.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation,
who need not be shareholders, shall be elected by a plurality of the votes
cast at a meeting of shareholders, by the holders of shares entitled to
vote in the election.
(c) Each director shall hold office until the annual meeting of the
shareholders next succeeding his election, and until his successor is
elected and qualified, or until his prior death, resignation or removal.
SECTION 2 - DUTIES AND POWERS:
- ------------------------------
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
SECTION 3 - ANNUAL AND REGULAR MEETINGS; NOTICE:
- ------------------------------------------------
3
<PAGE> 4
(a) A regular annual meeting of the Board of Directors shall be held
immediately following the annual meeting of the shareholders, at the place
of such annual meeting of shareholders.
(b) The Board of Directors, from time to time, may provide by resolution for
the holding of other regular meetings of the Board of Directors, and may
fix the time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the
meeting; provided, however, that in case the Board of Directors shall fix
or change the time or place of any regular meeting, notice of such action
shall be given to each director who shall not have been present at the
meeting at which such action was taken within the time limited, and in the
manner set forth in paragraph (b) of Section 4 of this Article III, with
respect to special meetings, unless such notice shall be waived in the
manner set forth in paragraph (c) of such Section 4.
SECTION 4 - SPECIAL MEETINGS; NOTICE:
- -------------------------------------
(a) Special meetings of the Board of Directors shall be held whenever called
by one of the directors, at such time and place as may be specified in the
respective notices or waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at his residence or usual place of business, at least two
(2) days before the day on which the meeting is to be held, or shall be
sent to him at such place by telegram, radio or cable, or shall be
delivered to him personally or given to him orally, not later than the day
before the day on which the meeting is to be held. A notice, or waiver of
notice, except as required by Section 8 of this Article III, need not
specify the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or
at its commencement, the lack of notice to him, or who submits a signed
waiver of notice, whether before or after the meeting.
SECTION 5 - CHAIRMAN:
- ---------------------
At all meetings of the Board of Directors, the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
directors shall preside.
SECTION 6 - QUORUM AND ADJOURNMENTS:
- ------------------------------------
4
<PAGE> 5
(a) At all meetings of the Board of Directors, the presence of a majority of
the entire Board shall be necessary and sufficient to constitute a quorum
for the transaction of business, except as otherwise provided by law, by
the Certificate of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from
time to time without notice.
SECTION 7 - MANNER OF ACTING:
- -----------------------------
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he
may hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or by these By-Laws, the action of a majority of the
directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors.
SECTION 8 - VACANCIES:
- ----------------------
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum at any regular meeting or special
meeting of the Board of Directors called for that purpose.
SECTION 9 - RESIGNATION:
- ------------------------
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 10 - REMOVAL:
- ---------------------
Any director may be removed with or without cause at any time by the
shareholders, at a special meeting of the shareholders called for that purpose,
and may be removed for cause by action of the Board.
SECTION 11 - COMPENSATION:
- --------------------------
Unless otherwise provided by the Certificate of Incorporation, the Board of
Directors
5
<PAGE> 6
shall have the authority to fix the compensation of directors, which
compensation may include the reimbursement of expenses incurred in connection
with meetings of the Board of Directors or a committee thereof; provided,
however, that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
SECTION 12 - COMMITTEE:
- -----------------------
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they may deem
desirable, each consisting of one or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
---------------------
SECTION 1 - NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE:
- ----------------------------------------------------------------
(a) The officers of the Corporation shall consist of a President, a Secretary,
a Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may
from time to time deem advisable. Any officer other than the Chairman of
the Board of Directors may be, but is not required to be, a director of the
Corporation. Any two or more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have
been elected and qualified, or until his death, resignation or removal.
SECTION 2 - RESIGNATION:
- ------------------------
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
SECTION 3 - REMOVAL:
- --------------------
Any officer may be removed, either with or without cause, and a successor
elected by the Board at any time.
6
<PAGE> 7
SECTION 4 - VACANCIES:
- ----------------------
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 5 - DUTIES OF OFFICERS:
- -------------------------------
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-Laws, or may from time to time be specifically conferred or imposed by
the Board of Directors.
SECTION 6 - SURETIES AND BONDS:
- -------------------------------
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
SECTION 7 - SHARES OF OTHER CORPORATIONS:
- -----------------------------------------
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
---------------------------
SECTION 1 - CERTIFICATE OF STOCK:
- ---------------------------------
(a) The certificates representing shares of the Corporation shall be in such
form as shall be adopted by the Board of Directors, and shall be numbered
and registered in the order issued. They shall bear the holder's name and
the number of shares, and shall be signed by (i) the Chairman of the Board
or the President or a Vice President, and (ii) the Secretary or Treasurer,
or any Assistant Secretary or Assistant Treasurer, and may bear the
corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
7
<PAGE> 8
(c) The Board of Directors may authorize the issuance of certificates for
fractions of a share which shall entitle the holder to exercise voting
rights, receive dividends and participate in liquidating distributions, in
proportion to the fractional holdings, or it may authorize the payment in
cash of the fair value of fractions of a share as of the time when those
entitled to receive such fractions are determined; or it may authorize the
issuance, subject to such conditions as may be permitted by law, of scrip
in registered or bearer form over the signature of an officer or agent of
the Corporation, exchangeable as therein provided for full shares, but
such scrip shall not entitle the holder to any rights of a shareholder,
except as therein provided.
SECTION 2 - LOST OR DESTROYED CERTIFICATES:
- -------------------------------------------
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
SECTION 3 - TRANSFERS OF SHARES:
- --------------------------------
(a) Transfers of shares of the Corporation shall be made on the share records
of the Corporation only by the holder of record thereof, in person or by
his duly authorized attorney, upon surrender for cancellation of the
certificate or certificates representing such shares, with an assignment
or power of transfer endorsed thereon or delivered therewith, duly
executed, with such proof of the authenticity of the signature and of
authority to transfer and of payment of transfer taxes as the Corporation
or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any
shares as the absolute owner thereof for all purposes, and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
expressly provided by law.
SECTION 4 - RECORD DATE:
- ------------------------
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding sixty days, nor less than ten days, as
the record date for the
8
<PAGE> 9
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
dividends, or allotment of any rights, or for the purpose of any other action.
If no record date is fixed, the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if no notice is given, the day on which the meeting is held; the
record date for determining shareholders for any other purpose shall be at the
close of business on the day on which the resolution of the directors relating
thereto is adopted. When a determination of shareholders of record entitled to
notice of or to vote at any meeting of shareholders has been made as provided
for herein, such determination shall apply to any adjournment thereof, unless
the directors fix a new record date for the adjournment meeting.
ARTICLE VI - DIVIDENDS
----------------------
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
-----------------------------
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
-----------------------
SECTION 1 - BY SHAREHOLDERS:
- ----------------------------
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of directors.
SECTION 2 - BY DIRECTORS:
- -------------------------
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meeting of shareholders or of the Board of
9
<PAGE> 10
Directors, or to change any provisions of the by-laws with respect to the
removal of directors or the filling of vacancies in the Board resulting from the
removal by the shareholders.
ARTICLE X - INDEMNIFICATION
---------------------------
Subject to the conditions and qualifications set forth in the Business
Corporation Law, the Corporation may indemnify any person, made a party to an
action by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he, his testator or intestate, is or was a director
or officer of the Corporation, against the reasonable expenses, including
attorneys fees, actually and necessarily incurred by him in connection with the
defense of such action, or in connection with an appeal therein, except in
relation to matters as to which such director or officer is adjudged to have
breached his duty to the Corporation, as such duty is defined in Section 717 of
the Business Corporation Law. Subject to the conditions and qualifications set
forth in the Business Corporation Law, the Corporation may also indemnify any
person, made or threatened to be made a party to an action or proceeding other
than one by or in the right of the Corporation to procure a judgment in its
favor, whether civil or criminal, including an action by or in the right of any
other corporation, domestic or foreign, which he served in any capacity at the
request of the Corporation, by reason of the fact, that he, his testator or
intestate was a director or officer of the Corporation or served such other
corporation in any capacity, against judgments, fines, amounts paid in
settlement, and reasonable expenses, including attorneys' fees actually and
necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such director or officer acted in good faith for a purpose which he
reasonably believed to be in the best interests of the Corporation and, in
criminal actions or proceedings, in addition, had no reasonable cause to believe
that his conduct was unlawful.
10
<PAGE> 1
EXHIBIT 13
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(thousands of dollars)
Results of Operations
Fiscal 1999 to Fiscal 1998
Total revenues increased approximately 18% from $377,304 to $444,033. This
increase is attributable to increases in product sales offset by a slight
decrease in proceeds from supply agreements.
Product sales increased 20% from $346,638 to $415,950. The increase is the
result of increased sales of Tamoxifen, Warfarin Sodium, Naltrexone, Hydroxyurea
and various hormonal products that were launched throughout fiscal 1998 and
1999.
Tamoxifen sales increased 16% from $236,587 to $275,127 due to increased volume
and, to a lesser extent, higher prices. Increased volumes appear to be related
to investment buying and increased usage in the product from the expansion of
Tamoxifen's indication for the reduction in the incidence of breast cancer in
women at high risk for developing the disease. Higher prices are the result of
4% price increases in April 1998 and May 1999. Tamoxifen is a patent protected
product manufactured for the Company by the Innovator. Currently, Tamoxifen only
competes against the Innovator's product, which is sold under the brand name. In
fiscal 1999, Tamoxifen accounted for 66% of product sales versus 68% in fiscal
1998.
The remaining increase in product sales from $110,051 to $140,823 was the result
of increased sales of Warfarin Sodium as well as products such as Naltrexone,
Hydroxyurea and various hormonal products, which were launched in fiscal 1998
and 1999. During fiscal 1999, the Company implemented additional marketing and
market share incentive programs designed to maintain and increase the Company's
market share of the total Coumadin/Warfarin market. In fiscal 1999, Warfarin
Sodium accounted for approximately 15% of product sales versus 11% in fiscal
1998. Revenue from products launched in fiscal 1999 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.
Proceeds from supply agreements declined $2,583, as expected, since proceeds
earned in the prior year under a separate contingent supply agreement related to
the ciprofloxacin litigation were not repeated (See Note 2 to the Consolidated
Financial Statements).
Cost of sales increased from $266,002 to $301,393, due to increased product
sales, but decreased as a percentage of product sales from 77% to 72%. The
Company's product margins are dependent upon several factors including product
sales mix, manufacturing efficiencies and competition. The decrease in cost of
sales as a percentage of product sales in fiscal 1999 is the result of a more
favorable mix of products including a lower percentage of Tamoxifen sales to
total product sales. Tamoxifen is distributed by the Company and has lower
margins than most of Barr's remaining generic product portfolio.
Selling, general and administrative expenses increased 4% from $38,990 to
$40,439. This increase is
24
<PAGE> 2
primarily due to increased legal and headcount costs, partially offset by a
decrease in advertising and promotions and a decrease in facility
rationalization charges. Higher legal expenses, due to the Company's federal
anti-trust suit against DuPont Merck Pharmaceutical Company ("DuPont"), more
than offset the Company's share of a $4 million payment received from Eli Lilly
& Company, in January, for legal costs incurred as part of the agreement to take
the Prozac(R) case directly to the U.S. Court of Appeals. Higher headcount costs
are due to the significant growth in the Company over the past two years. Lower
advertising and promotions were the result of a decrease in advertising and
promotions in connection with the launch of Warfarin Sodium in the prior year.
The current year includes a $360 restructuring charge versus a $1.2 million
restructuring charge in the prior year, both of which were primarily related to
closing leased facilities.
Total research and development expenses increased 19% from $18,955 to $22,593.
The increase is primarily the result of an increase in the number of outside
clinical studies, increased personnel costs to support the number of products in
development and higher costs associated with the Company's proprietary drug
development efforts. The current year included $646 in expenses related to the
proprietary product collaboration with Eastern Virginia Medical School, whereas
the prior year included $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 $1,004 or 46% due primarily to an increase in the
average cash and cash equivalents balance, partially offset by a slight decrease
in the market rates on the Company's short-term investments.
Interest expense increased $1,839 due to a decrease in capitalized interest over
the prior fiscal year. The amount of interest capitalized declined, as expected,
due to the reduction in capital spending on the Virginia facility, which was
substantially completed by the spring of 1998.
Results of Operations
Fiscal 1998 to Fiscal 1997
Total revenues increased approximately 33% from $284,486 to $377,304. The
increase is the result of increased product sales and higher proceeds from
supply agreements.
Product sales increased 35% from $257,436 to $346,638. The increase is
attributable to increases in demand for Tamoxifen and sales of Minocycline,
which the Company began distributing in October 1997, as well as sales of
Warfarin Sodium, which was launched in July 1997.
Tamoxifen sales increased 21% from $195,734 or 76% of product sales to $236,587
or 68% of product sales. The increase is the result of an expanding Tamoxifen
market, as well as an increased market share for Barr's Tamoxifen. Increased
demand for the 20mg strength of Tamoxifen, which the Company began distributing
in December 1996, also contributed to the increase.
The remaining increase in product sales is primarily attributable to sales of
Warfarin Sodium, which the Company launched in July 1997. Fiscal 1998 sales
include revenues from nine new products compared to five new products in fiscal
1997. These products represented approximately 14% and 4% of product sales in
fiscal 1998 and 1997, respectively. Revenues from these products more than
offset price declines and higher discounts on certain existing products.
Warfarin Sodium accounted for approximately 11% of the Company's product sales
in fiscal 1998.
Proceeds from supply agreements increased 13% from $27,050 to $30,666 primarily
as a result of
25
<PAGE> 3
$4,500 received under a separate contingent supply agreement related to the
ciprofloxacin patent challenge.
Cost of sales increased from $217,196 to $266,002 primarily related to an
increase in product sales. As a percentage of product sales, cost of sales
declined from 84% to 77%. This percentage decline was attributable to a more
favorable mix of products. The improved mix was attributable to the launch of
new products, primarily, Warfarin Sodium, which have higher margins than
Tamoxifen and other existing products.
Selling, general and administrative expenses increased from $23,391 to $38,990.
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 the launching of Warfarin Sodium. The increased
legal fees primarily resulted from lower reimbursements received from patent
challenge partners; the prior year reflected approximately $4,600 in
reimbursement of legal fees. Government affairs expenses were higher in the
current year due to the Company's activities directed at countering DuPont's
continuing anti-competitive efforts to restrict substitution of Warfarin Sodium.
Research and development expenses increased from $13,536 to $18,955. 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 $645, which was
allocated to in-process research and development, for six Abbreviated New Drug
Applications and related technologies.
Interest income decreased by $222 in comparison to the prior year. The decrease
is due to the decrease in the average cash and cash equivalents balance as well
as a slight decrease in the market rates of the Company's short-term
investments.
Interest expense decreased $81 due to an increase in capitalized interest
associated with the facility expansion projects during the fiscal year. The
increase in capitalized interest was partially offset by higher fees paid on the
unsecured Tamoxifen balance.
In fiscal 1998, the Company incurred an extraordinary loss of $790 on the early
extinguishment of debt (See Note 6 to the Consolidated Financial Statements).
Liquidity and Capital Resources
The Company's cash and cash equivalents balance increased to $94,867 at June 30,
1999 from $72,956 at June 30, 1998. 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 its interest-bearing cash collateral account from $59,321 at June 30,
1998 to $28,283 at June 30, 1999.
Cash provided by operating activities was $33,568 for the year ended June 30,
1999, as net earnings of $49,250 and higher depreciation offset increases in
working capital. The working capital increase was led by increases in inventory
and accounts receivable as well as decreases in accounts payable and income
taxes payable. The increase in accounts receivable was attributable to increased
sales and an increase in the receivable related to the proceeds from supply
agreement. The inventory increase was primarily to support increased sales.
Accounts payable decreased as a result of the pay down of
26
<PAGE> 4
the Tamoxifen payable. Income taxes payable decreased as a result of the timing
of estimated tax payments.
Working capital levels varied during the year due to the timing of Tamoxifen
inventory purchases, sales levels and the timing of Tamoxifen payables. During
fiscal 1999, inventory levels increased during the first half of the year and
declined during the second half. The Company expects that a similar trend will
occur in fiscal 2000.
During fiscal 1999, the Company invested $12,333 in capital assets, primarily on
construction and new equipment for its facilities. The decline from the prior
year was anticipated due to the reduction in capital spending on the Virginia
facility, which was substantially completed by the spring of 1998. In fiscal
2000, the Company expects to invest an additional $14,000 to complete a new
warehouse and expand its research and development facilities on its Pomona, New
York campus and continue to invest in technology-related items for its New York,
New Jersey and Virginia facilities.
The Company made strategic investments totaling $2,800 in fiscal 1999 to expand
its growth opportunities and will continue to evaluate and enter into various
strategic collaborations (See Note 5 to the Consolidated Financial Statements).
The timing and amount of cash required to enter into these collaborations is
difficult to predict because it is dependent on several factors, many of which
are outside of the Company's control. However, the Company believes it will
spend between $3 and $5 million by June 2000 on these collaborations. The $3 to
$5 million excludes any cash needed to fund strategic acquisitions the Company
may consider in the future.
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.
Outlook
The following section contains a number of forward-looking statements, all of
which are based on current expectations. Actual results may differ materially.
The generic pharmaceutical industry is characterized by relatively short product
lives and declining prices and margins as competitors launch competing products.
The Company's strategy has been to develop generic products with some barrier to
entry to limit competition and extend product lives and margins. The Company's
expanded efforts in developing and launching proprietary products is also driven
by the desire to market products that will have limited competition and longer
product lives. The Company's future operating results are dependent upon several
factors that impact its stated strategies. These factors include the ability to
introduce new products, patient acceptance of new products and new indications
of existing products, customer purchasing practices, pricing practices of new
competitors and spending levels including research and development. 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 continually identifying
alternate raw material suppliers for many of its key products in the event that
raw material shortages were to occur.
Product revenues are expected to increase in fiscal 2000 compared to fiscal 1999
driven by increasing sales of existing products such as Tamoxifen, Warfarin
Sodium, Medroxyprogesterone and new product launches which should more than
offset declining prices on certain existing products and revenues lost due to
product rationalizations. Fiscal 1999 revenues from products being phased out of
the Company's product line totaled approximately $7 million, though their
elimination will not have a
27
<PAGE> 5
negative impact on operating results.
The Company distributes Tamoxifen in accordance with the terms of a
non-exclusive supply and distribution agreement that expires at the earlier of
patent expiry or upon successful challenge of the Tamoxifen patent by another
company. Barr is aware of two other companies who are challenging the Tamoxifen
patent. Though the outcome of any legal matter is uncertain, the Company
believes the current cases will not impact its fiscal 2000 Tamoxifen revenues.
The Company believes that Tamoxifen sales will increase during fiscal 2000 due
to higher prices and increased volume from the new indication. The extent of
such increase, if any, is dependent upon several factors including the
acceptance of the new indication by physicians and patients and customer buying
patterns.
Warfarin Sodium revenues are expected to increase due to increases in the
Company's market share. Currently, Barr markets its Warfarin Sodium product
against the brand product and another generic product. The potential impact of
current and future competition on Barr's revenues, market share and profits is
impossible to predict because it depends on several factors outside Barr's
control.
Amounts earned in fiscal 2000 from the contingent supply agreement are dependent
upon decisions made by a third party but are expected to approximate amounts
earned in fiscal 1999.
Selling, general and administrative spending is impacted by several factors
including the timing and number of legal matters, including patent challenges
being pursued by the Company, the level of government affairs spending and
promotion and advertising activities. Barr's government affairs spending is, in
part, dependent upon efforts by other companies to restrict generic substitution
and therefore, is difficult to predict. Promotion and advertising spending is
generally related to the number and type of products being launched in a given
year. The Company expects that selling, general and administrative expenses will
be higher in fiscal 2000 than in fiscal 1999 primarily due to higher legal
spending on patent challenges and the Company's anti-trust suit against DuPont.
Since proprietary products require more extensive advertising and promotion
activities than traditional generic products, the future approval and launch of
Barr's proprietary products may impact selling, general and administrative
costs. In addition, some of these proprietary products will require a sales
force detailing directly to physicians. The Company currently does not have an
in-house sales force to sell its products directly to physicians. Generally,
selling, marketing and promotion costs are incurred several months prior to a
product's launch. Therefore, the Company's decision on how it will sell its
proprietary products and the timing of the product launches could have a
significant impact on expense levels.
The Company is exploring several alternatives for marketing its proprietary
products including, licensing out such products to third parties, engaging a
contract sales force or investing in or acquiring companies with an existing
sales force. Selecting the appropriate alternative depends on a variety of
factors including the number of physicians in a particular therapeutic category
and the number of products the Company offers within a therapeutic category.
While the Company believes it will be able to successfully market and sell its
proprietary products using one or more of the alternatives described above,
there is no assurance it will be able to do so on favorable terms.
Research and development costs are expected to increase significantly in fiscal
2000 compared to fiscal 1999 due to substantial increases in both generic and
proprietary product development activities. In its generic development area, the
Company expects to file approximately 15
28
<PAGE> 6
Abbreviated New Drug Applications in fiscal 2000 compared to seven filed in
fiscal 1999. While the number of applications filed is not the only measure of
research and development activity, a higher number of filings generally requires
higher raw material and clinical study costs.
Product development costs associated with many of the proprietary projects are
significantly higher and require more time to develop and receive approval to
market than traditional generic products. The increased time and costs are
primarily related to the clinical trials required for FDA approval. The Company
expects that two of these proprietary products will begin Phase III clinical
trials during the middle to end of fiscal 2000 and should be completed by 2002.
The Company plans to spend an additional $25 to $35 million on certain of its
proprietary products over the next three to four years. The Company may seek
development partners to help fund the costs of some of these projects. However,
there is no assurance that the Company will be able to identify such partners or
will be able to secure the funding on favorable terms. If such partners are not
secured and the Company continues to expand its generic product development
efforts and pursue all its proprietary projects, its operating results may be
adversely impacted.
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 developed a
multi-phase approach to assessing and resolving any Year 2000 issues.
These phases included:
1. Company-wide awareness of Year 2000 implications;
2. Assessment of the Company's information technology ("IT") and
non-IT systems, as well as, evaluation of third parties with
which the Company has a material relationship;
3. Implementation of compliant IT and non-IT systems including
contingency plans related to third parties with which the
Company has a material relationship;
4. Testing/Validation of new and/or updated systems.
As of June 30, 1999, approximately 99% of the Company's critical IT systems,
including the financial, manufacturing and laboratory information systems and
95% of critical non-IT systems, have completed the four phases indicated above.
All costs associated with the Year 2000 project to date have been expensed as
incurred. The Company will continue to incur costs that include internal
resources, external consulting, software and certain equipment upgrades through
the balance of calendar 1999. 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.
The Company's Year 2000 readiness program identified several third parties with
which it has a material relationship. These third parties include certain raw
material suppliers, software providers and customers. The Company's Year 2000
project identified these third parties and determined, based on obtaining
written verification, reviewing publicly available financial statement
disclosures and other means, that such third parties are either in compliance or
expect to be in compliance prior to January 1, 2000.
Barr believes that the most likely worst-case Year 2000 scenarios would relate
to problems with the systems of third parties rather than with the Company's
internal systems or its products. Because the Company has less control over
assessing and remediating the Year 2000 problems of third parties, the Company
believes the risks are greatest with infrastructure (e.g., electricity supply
and water and sewer service), telecommunications and transportation supply
chains.
The Company's operations are conducted in four domestic facilities. Each
location relies on local,
29
<PAGE> 7
private and governmental suppliers for electricity, water, sewer and other
needed supplies. Failure of an electricity grid or an uneven supply of power,
for example, would be a worst-case scenario that would shut down the affected
facilities. The Company does not maintain facilities that would allow it to
generate its own electrical or water supply in place of that supplied by
utilities.
Because the Company's Year 2000 compliance is dependent upon key third parties
also being Year 2000 compliant on a timely basis, there can be no guarantee that
the Company's efforts will prevent a material adverse impact on its results of
operations, financial condition or cash flows. To the extent that key third
parties are not compliant, this could result in delays in the distribution of
finished goods or receipt of raw material, errors in the receipts of customer
orders, disruption of clinical activities or delays in product development.
These consequences could have a material adverse impact on our results of
operations, financial condition and cash flows if the Company is unable to
substantially conduct business in the ordinary course.
The Company continues to evaluate contingency plans to address possible changes
in customer order patterns due to Year 2000 issues. As with suppliers, the
readiness of customers to deal with Year 2000 issues may affect their operations
and their ability to order and pay for products.
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 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.
Environmental Matters
The Company may have 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 of Inflation
Inflation has had only a minimal impact on the operations of the Company in
recent years.
Forward-Looking Statements
Except for the historical information contained herein, this Form 10-K contains
forward-looking statements, all of which are subject to risks and uncertainties.
Such risks and uncertainties include 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 ability of the Company to obtain additional capital,
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. Forward-looking statements can be identified by their use of words
such as "expects," "plans," "will," "believes," "estimates," "intends" and other
words of similar meaning.
30
<PAGE> 8
Should known or unknown risks or uncertainties materialize, or should our
assumptions prove inaccurate, actual results could vary materially from those
anticipated. The Company undertakes no obligation to publicly update any
forward-looking statements.
31
<PAGE> 9
BARR LABORATORIES, INC.
Consolidated Balance Sheets
(in thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 94,867 $ 72,956
Marketable securities 8,127 7,320
Accounts receivable (including receivables from related parties of $1,051 in 1999
and $1,015 in 1998) less allowances of $2,670 and $2,738 in 1999 and 1998, respectively 50,227 46,760
Supply agreement receivable 15,750 14,667
Inventories 77,613 74,377
Prepaid expenses 1,556 806
--------- ---------
Total current assets 248,140 216,886
Property, plant and equipment, net 93,764 90,649
Other assets 5,986 3,316
--------- ---------
Total assets $ 347,890 $ 310,851
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (including payables to a related party of $632 and $ 88,982 $ 103,321
$656 in 1999 and 1998, respectively)
Accrued liabilities 9,118 9,460
Deferred income taxes 833 1,000
Current portion of long-term debt 2,165 4,467
Income taxes payable 179 3,357
--------- ---------
Total current liabilities 101,277 121,605
Long-term debt 30,008 32,174
Other liabilities 127 162
Deferred income taxes 2,771 981
Commitments & Contingencies
Shareholders' equity:
Preferred stock $1 par value per share; authorized 2,000,000; none issued
Common stock $.01 par value per share; authorized 100,000,000;
issued 22,923,583 and 22,424,645, respectively 229 224
Additional paid-in capital 76,903 68,064
Retained earnings 137,846 88,596
Accumulated other comprehensive loss (1,258) (942)
--------- ---------
213,720 155,942
Treasury stock at cost: 117,955 shares (13) (13)
--------- ---------
Total shareholders' equity 213,707 155,929
--------- ---------
Total liabilities and shareholders' equity $ 347,890 $ 310,851
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
32
<PAGE> 10
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Product sales (including sales to related parties of $6,852, $7,537 and
$4,971 in 1999, 1998 and 1997, respectively) $ 415,950 $ 346,638 $ 257,436
Proceeds from supply agreements 28,083 30,666 27,050
--------- --------- ---------
Total revenues 444,033 377,304 284,486
Costs and expenses:
Cost of sales 301,393 266,002 217,196
Selling, general and administrative 40,439 38,990 23,391
Research and development 22,593 18,955 13,536
--------- --------- ---------
Earnings from operations 79,608 53,357 30,363
Interest income 3,180 2,176 2,398
Interest expense (2,697) (858) (939)
Other income (expense) 36 (17) 228
--------- --------- ---------
Earnings before income taxes and extraordinary loss 80,127 54,658 32,050
Income tax expense 30,877 21,148 12,603
--------- --------- ---------
Earnings before extraordinary loss 49,250 33,510 19,447
Extraordinary loss on early extinguishment of debt, net of taxes -- (790) --
--------- --------- ---------
Net earnings $ 49,250 $ 32,720 $ 19,447
========= ========= =========
EARNINGS PER COMMON SHARE:
Earnings before extraordinary loss $ 2.18 $ 1.54 $ 0.92
Net earnings $ 2.18 $ 1.50 $ 0.92
========= ========= =========
EARNINGS PER COMMON SHARE-ASSUMING DILUTION:
Earnings before extraordinary loss $ 2.09 $ 1.45 $ 0.87
Net earnings $ 2.09 $ 1.41 $ 0.87
========= ========= =========
Weighted average shares 22,585 21,811 21,133
========= ========= =========
Weighted average shares-assuming dilution 23,582 23,190 22,430
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
33
<PAGE> 11
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Accumulated
Common Additional other Common stock Total
Stock paid-in Retained comprehensive in treasury Shareholders'
Shares Amount capital Earnings loss Shares Amount Equity
------ ------ ------- -------- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Comprehensive income:
Net earnings 32,720 32,720
Unrealized loss on marketable
securities, net of tax of $604 (942) (942)
---------
Total comprehensive income 31,778
Issuance of common
stock for stock offering 430,000 4 14,517 14,521
Stock issuance costs (353) (353)
Issuance of common stock
for exercised stock options
and employees' stock
purchase plans 548,592 6 7,839 7,845
---------- ---- -------- ---------- ---------- ------- ----- ---------
BALANCE, JUNE 30, 1998 22,424,645 224 68,064 88,596 (942) 117,955 (13) 155,929
Comprehensive income:
Net earnings 49,250 49,250
Unrealized loss on marketable
securities, net of tax of $238 (316) (316)
---------
Total comprehensive income 48,934
Issuance of common stock
for exercised stock options
and employees' stock
purchase plans 498,938 5 8,839 8,844
---------- ---- -------- ---------- ---------- ------- ----- ---------
BALANCE, JUNE 30, 1999 22,923,583 $229 $ 76,903 $ 137,846 $ (1,258) 117,955 $ (13) $ 213,707
========== ==== ======== ========== ========== ======= ===== =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
34
<PAGE> 12
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings $ 49,250 $ 32,720 $ 19,447
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 9,306 5,521 4,989
Deferred income tax expense 1,834 3,585 474
Write-off of deferred financing fees associated with early extinguishment of debt -- 195 --
Loss (gain) on disposal of property, plant & equipment 11 63 (203)
Loss (gain) on sale of marketable securities 6 (2) --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and supply agreement receivable, net (4,550) (26,195) (3,167)
Inventories (3,236) (18,161) (13,820)
Prepaid expenses (750) (238) 80
Other assets (492) (389) (194)
Increase (decrease) in:
Accounts payable, accrued liabilities and other (14,633) 34,940 12,896
Income taxes payable (3,178) 963 1,290
-------- -------- --------
Net cash provided by operating activities 33,568 33,002 21,792
-------- -------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,333) (20,431) (35,087)
Proceeds from sale of property, plant and equipment 1 248 239
Purchases of strategic investments (2,800) (4,069) --
Purchases of marketable securities, net (901) (7,291) --
-------- -------- --------
Net cash used in investing activities (16,033) (31,543) (34,848)
-------- -------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt (1,968) (14,939) (4,081)
Proceeds from loans -- 30,000 1,637
Net borrowings under line of credit (2,500) 2,500 --
Stock issuance costs -- (353) --
Proceeds from stock offering -- 14,521 --
Fees associated with stock split -- -- (21)
Proceeds from exercise of stock options and employee stock purchases 8,844 7,845 2,551
-------- -------- --------
Net cash provided by financing activities 4,376 39,574 86
-------- -------- --------
Increase (decrease) in cash and cash equivalents 21,911 41,033 (12,970)
Cash and cash equivalents, beginning of year 72,956 31,923 44,893
-------- -------- --------
Cash and cash equivalents, end of year $ 94,867 $ 72,956 $ 31,923
======== ======== ========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the year
Interest, net of portion capitalized $ 2,727 $ 855 $ 930
Income taxes 27,869 13,254 10,830
Non-cash transactions
Write-off of equipment & leasehold improvements related to restructuring $ 83 $ -- $ --
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
35
<PAGE> 13
BARR LABORATORIES, INC.
Notes to the Consolidated Financial Statements
(in thousands of dollars, except per 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. owned 43.5% of the outstanding common
stock of the Company at June 30, 1999. Dr. Bernard C. Sherman
is a principal stockholder of Sherman Delaware, Inc. and a
Director of Barr Laboratories, Inc.
Certain amounts in the prior year's financial statements have
been reclassified to conform with the current year
presentation.
(b) Credit and Market Risk
Financial instruments that potentially subject the Company to
credit risk consist principally of interest-bearing
investments and trade receivables. The Company performs
ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its
customers.
(c) 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 28 days) which are
readily convertible into cash at par value (cost). As of June
30, 1999 and 1998, $28,283 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.
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 into
by both parties in March 1993. Under the Collateral Agreement,
extensions of credit to the Company are no longer required 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 unsecured monthly Tamoxifen payable balance, as
defined in the Collateral Agreement, and maintain compliance
with certain financial covenants. The Company was in
compliance with such covenants at June 30, 1999. In March
1999, the Innovator reduced the rate
36
<PAGE> 14
charged on the average unsecured Tamoxifen payable based on
the Company's improved financial condition and lower market
rates.
(d) Inventories
Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
(e) 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.
The estimated useful lives of the major classification of
depreciable assets are:
<TABLE>
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.
(f) Research and Development
Research and development costs, which consist principally of
product development costs, are charged to operations as
incurred.
(g) Earnings Per Share
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "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 Operations:
37
<PAGE> 15
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE:
Earnings before extraordinary loss (numerator) $49,250 $33,510 $19,447
Weighted average shares (denominator) 22,585 21,811 21,133
Earnings before extraordinary loss $ 2.18 $ 1.54 $ 0.92
======= ======= =======
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Earnings before extraordinary loss (numerator) $49,250 $33,510 $19,447
Weighted average shares 22,585 21,811 21,133
Effect of dilutive options 997 1,379 1,297
------- ------- -------
Weighted averages shares- assuming dilution (denominator) 23,582 23,190 22,430
Earnings before extraordinary loss $ 2.09 $ 1.45 $ 0.87
======= ======= =======
</TABLE>
(h) Deferred Financing Fees
All debt issuance costs are being amortized on a straight-line
basis over the life of the related debt, which matures in
2002, 2004 and 2007. The unamortized amounts of $305 and $398
at June 30, 1999 and 1998, respectively, are included in Other
Assets in the Consolidated Balance Sheets.
In connection with the November 1997 early extinguishment of
the remaining $14,400 of the 10.15% Senior Secured Notes, the
Company wrote off $195 in deferred financing fees in the year
ended June 30, 1998 (See Note 6 to the Consolidated Financial
Statements).
(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.
Marketable Securities - Marketable securities are recorded at
their fair value (See Note 5 to the Consolidated Financial
Statements).
Other Assets - Investments in strategic collaborations that do
not have a readily determinable market value are recorded at
cost as it is a reasonable estimate of fair value (See Note 5
to the Consolidated Financial Statements).
Long-Term Debt - The fair value at June 30, 1999 and 1998 is
estimated at $32 million and $34 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
38
<PAGE> 16
to management as of June 30, 1999. 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.
(l) New Accounting Pronouncements
Comprehensive Income
Effective July 1, 1998, the Company adopted 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."
In accordance with this Statement, comprehensive income is
included in the Consolidated Statements of Shareholders'
Equity. Application of this statement did not change
recognition or measurement of net income and, therefore, did
not affect the Company's consolidated financial position or
results of operations.
Segment Reporting
Effective July 1, 1998, the Company adopted SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 requires segment information to be
reported based on how management internally evaluates the
operating performance of its business. The Company operates in
one reportable segment - the development, manufacture and
distribution of generic pharmaceuticals. Implementation of
SFAS No. 131 had no impact on the Company's consolidated
financial position or results of operations.
The Company's manufacturing plants are located in New Jersey,
New York and Virginia and its products are sold throughout the
United States and Puerto Rico, primarily to wholesale and
retail distributors. In fiscal 1999, 1998 and 1997, a customer
accounted for approximately 14%, 12% and 13% of product sales,
respectively. No other customer accounted for greater than 10%
of product sales in any of the last three fiscal years.
39
<PAGE> 17
Derivative Instruments
On June 15, 1998, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which becomes effective
for financial statements beginning after June 15, 2000. SFAS
No. 133 requires that companies recognize all derivatives as
either assets or liabilities on the balance sheet and
measure those instruments at fair value. The Company is
currently evaluating this statement and its impact on the
Company's existing accounting policies and financial
reporting disclosures.
(2) PROCEEDS FROM SUPPLY AGREEMENTS
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.
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 these receivables occurs quarterly.
Also included in Proceeds from supply agreements for the years ended
June 30, 1999 and 1998 is $1,500 and $4,500, respectively, received
under a separate contingent supply agreement with an unrelated party
relating to the Ciprofloxacin patent challenge.
(3) INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
June 30,
---------------------
1999 1998
------- -------
<S> <C> <C>
Raw materials and supplies $15,790 $17,459
Work-in-process 7,957 4,132
Finished goods 53,866 52,786
------- -------
$77,613 $74,377
======= =======
</TABLE>
Tamoxifen Citrate, purchased as a finished product, accounted for
$43,040 and $40,777 of finished goods inventory at June 30, 1999 and
1998, respectively.
40
<PAGE> 18
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Land $ 3,256 $ 3,257
Buildings and improvements 57,669 48,950
Machinery and equipment 69,789 56,550
Leasehold improvements 1,665 1,858
Automobiles and trucks 68 68
Construction in progress 7,041 18,380
-------- --------
139,488 129,063
Less: Accumulated
depreciation & amortization 45,724 38,414
-------- --------
$ 93,764 $ 90,649
======== ========
</TABLE>
For the years ended June 30, 1999, 1998 and 1997, $205, $2,047 and
$1,801 of interest was capitalized, respectively.
(5) MARKETABLE SECURITIES & OTHER ASSETS
The Company accounts for investments in marketable securities in
accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." 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.
Marketable securities include investments in a short duration portfolio
of corporate and government debt. The debt securities will be held for
less than one year and are therefore, recorded as a Current Asset in
the Consolidated Balance Sheets. Equity securities represent the
Company's investment in Warner Chilcott plc. ("Warner Chilcott").
The amortized cost and estimated market values of the securities at
June 30, 1999 and 1998 are as follows:
41
<PAGE> 19
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
JUNE 30, 1999 COST GAINS LOSSES VALUE
- ----------------------------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Government securities $ 5,954 $ -- $ 55 $ 5,899
Corporate bonds 2,235 1 8 2,228
------- ------- ------- -------
Total debt securities 8,189 1 63 8,127
Equity securities 4,069 -- 2,038 2,031
------- ------- ------- -------
Total securities $12,258 $ 1 $ 2,101 $10,158
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
JUNE 30, 1998 COST GAINS LOSSES VALUE
- ----------------------------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Government securities $ 4,930 $ 35 $ 6 $ 4,959
Corporate bonds 2,363 -- 2 2,361
------- ------- ------- -------
Total debt securities 7,293 35 8 7,320
Equity securities 4,069 -- 1,600 2,469
------- ------- ------- -------
Total securities $11,362 $ 35 $ 1,608 $ 9,789
======= ======= ======= =======
</TABLE>
Proceeds of $9,446 and $600, which include a loss of $6 and a gain of
$2, were received on the sales of marketable securities in the years
ended June 30, 1999 and 1998, respectively. The cost of investments
sold is determined by the specific identification method.
Strategic Collaborations
On August 13, 1997, Barr made a strategic investment in Warner
Chilcott, 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 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. The Company
elected not to exercise the first portion of the warrants, and as a
result, such portion of the warrants terminated. The investment in
Warner Chilcott is recorded in Other Assets in the Consolidated Balance
Sheets.
Also included in Other Assets are the Company's investments of $2,250
in Gynetics, Inc., a developer and marketer of pharmaceutical products
and medical devices to advance the healthcare of women and an
investment of $550 in another private company with whom the Company
will work in connection with one of its proprietary products. Since
these investments do not have a readily determinable market value they
are recorded at cost in the Consolidated Balance Sheets.
42
<PAGE> 20
(6) LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
June 30,
---------------------
1999 1998
------- -------
<S> <C> <C>
New Jersey Economic Development
Authority Bond (a) $ 241 $ 285
Senior Unsecured Notes (b) 28,571 30,000
Equipment Financing (c) 3,361 3,856
Unsecured Revolving Credit Facility (d) -- 2,500
------- -------
32,173 36,641
Less: Current Installments of Long-Term Debt 2,165 4,467
------- -------
Total Long-Term Debt $30,008 $32,174
======= =======
</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 7.75% and 8.5% at June 30, 1999
and 1998, 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 November 1997, the Company refinanced $14,400 of
outstanding Senior Secured Notes with $30,000 of Senior
Unsecured Notes with an average interest rate of 6.88% per
year. The cash payment of $16,055 included the outstanding
principal of $14,400, a prepayment penalty of $1,087 and
accrued interest through November 18, 1997 of $568. The
prepayment penalty of $1,087 and the related write-off of
approximately $195 in previously deferred financing costs
resulted in an extraordinary loss. This extraordinary loss
from early extinguishment of debt, net of taxes of $492, was
$790 or $0.04 per share. The new Senior Unsecured Notes of
$30,000 include a $20,000, 7.01% Note due November 18, 2007
and $10,000, 6.61% Notes due November 18, 2004. Annual
principal payments under the Notes total $1,429 through
November 2002, $5,429 in 2003 and 2004, and $4,000 in 2005
through 2007.
The Senior Unsecured Notes contain certain financial covenants
including restrictions on dividend payments not to exceed $10
million plus 75% of consolidated net income subsequent to June
30, 1997. The Company was in compliance with all such
covenants as of June 30, 1999.
(c) In April 1996, the Company signed a Loan and Security
Agreement with BankAmerica Leasing and Capital Group that
provided 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 5.368% and 5.719% at June
30,
43
<PAGE> 21
1999 and June 30, 1998, respectively.
(d) In November 1997, the Company replaced its $10,000 Secured
Revolving Credit Facility with Bank of America, National
Association with a $20,000 Unsecured Revolving Credit Facility
("Revolver"). In addition, the term of the Revolver was
extended one year to July 31, 2000. Borrowings under this
facility bear interest at either prime or LIBOR plus 0.75%. In
addition, the Company is required to pay a commitment fee
equal to .25% of the difference between the outstanding
borrowings and $20,000.
Principal maturities of existing long-term debt for the next five years
and thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30,
--------
<S> <C>
2000 $ 2,165
2001 1,924
2002 3,184
2003 2,043
2004 5,428
Thereafter 17,429
</TABLE>
(7) RELATED-PARTY TRANSACTIONS
The Company's related-party transactions were with affiliated companies
of Dr. Bernard C. Sherman. During the years ended June 30, 1999, 1998
and 1997, the Company purchased $1,134, $1,799 and $1,800,
respectively, of bulk pharmaceutical material from such companies. In
addition, the Company sold certain of its pharmaceutical products and
bulk pharmaceutical materials to two other companies owned by Dr.
Sherman. During fiscal 1996, the Company also entered into 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, 1999, 1998 and 1997, the Company recorded $1,438, $1,170 and
$987, respectively, in connection with such agreement as a reduction to
selling, general and administrative expenses.
During the years ended June 30, 1999, 1998 and 1997, the Company's
founder and Vice Chairman, Edwin A. Cohen, earned $200, $250 and $250,
respectively, under a consulting agreement.
44
<PAGE> 22
(8) INCOME TAXES
A summary of the components of income tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $25,173 $15,504 $10,757
State 3,870 1,567 1,372
------- ------- -------
29,043 17,071 12,129
------- ------- -------
Deferred:
Federal 1,588 3,103 294
State 246 482 180
------- ------- -------
1,834 3,585 474
------- ------- -------
Total $30,877 $20,656 $12,603
======= ======= =======
</TABLE>
Income tax expense for the years ended June 30, 1999, 1998 and 1997 is
included in the financial statements as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Continuing operations $ 30,877 $ 21,148 $ 12,603
Extraordinary loss on early
extinguishment of debt -- (492) --
-------- -------- --------
$ 30,877 $ 20,656 $ 12,603
======== ======== ========
</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,
-----------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Federal income taxes at statutory rate $28,044 $18,681 $11,214
State income taxes,
net of federal income tax effect 2,675 1,332 1,070
Other, net 158 643 319
------- ------- -------
$30,877 $20,656 $12,603
======= ======= =======
</TABLE>
45
<PAGE> 23
The temporary differences that give rise to deferred tax assets and
liabilities as of June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Receivable reserves $ 900 $ 1,152
Inventory reserves 2,290 1,589
Inventory capitalization 385 208
Investments 842 631
Other operating reserves 2,471 1,934
-------- --------
Total deferred tax assets 6,888 5,514
Deferred tax liabilities:
Plant and equipment (4,173) (1,612)
Proceeds from supply agreement (6,319) (5,883)
-------- --------
Total deferred tax liabilities (10,492) (7,495)
-------- --------
Net deferred tax liability $ (3,604) $ (1,981)
======== ========
</TABLE>
Internal Revenue Service ("IRS")
As of June 30, 1999, the U.S. Internal Revenue Service has completed
its examination of the Company's tax returns for all years through 1992
and there are no unresolved issues outstanding for those years.
(9) SHAREHOLDERS' EQUITY
Employee Stock Option Plans
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 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).
The Company's other option plan was approved by the shareholders in
1986 (the "1986 Option Plan"). Effective June 30, 1996, options are no
longer granted under this Plan. For fiscal 1999, 1998 and 1997, there
were no options that expired under this plan.
All options granted prior to June 30, 1996, under the 1993 Option Plan
and 1986 Option Plan, 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 after June 30, 1996 are exercisable between one and
three years from the date of grant. To date, no option has been granted
under either the 1993 Option Plan or the 1986
46
<PAGE> 24
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
May 1997 3-for-2 stock split, is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NO. OF SHARES OPTION PRICE
------------- ------------
<S> <C> <C>
Outstanding at 6/30/96 1,838,048 $ 7.91
Granted 330,406 19.53
Canceled (1,125) 10.52
Exercised (181,938) 8.57
---------
Outstanding at 6/30/97 1,985,391 12.83
Granted 195,500 39.58
Canceled (38,992) 22.60
Exercised (467,411) 7.23
---------
Outstanding at 6/30/98 1,674,488 13.58
Granted 278,000 34.13
Canceled (32,576) 32.53
Exercised (429,711) 7.00
---------
Outstanding at 6/30/99 1,490,201 $18.89
=========
Available for Grant (4,162,500 authorized) 846,617
Exercisable at 6/30/99 1,018,936 $12.54
</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 that increased the number of shares of common stock
that 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 1998, the number of shares
which each non-employee director is optioned was decreased from 11,250
to 7,500 shares on the grant date. Effective October 1999, the number
of shares which each non-employee director is optioned will be
decreased to 5,000 on the grant date.
47
<PAGE> 25
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 the 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 May 1997
3-for-2 stock split, for the three fiscal years ended June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NO. OF SHARES OPTION PRICE
------------- ------------
<S> <C> <C>
Outstanding at 6/30/96 216,000 $ 9.95
Granted 67,500 17.25
Exercised (40,000) 9.16
-------
Outstanding at 6/30/97 243,500 12.10
Granted 67,500 36.00
Canceled (11,250) 36.00
Exercised (38,000) 9.90
-------
Outstanding at 6/30/98 261,750 17.55
Granted 37,500 48.63
Exercised (29,250) 11.82
-------
Outstanding at 6/30/99 270,000 $22.49
=======
Available for Grant (562,500 authorized) 185,250
Exercisable at 6/30/99 232,500 $18.27
</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. 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 39,977, 43,181 and
50,916 for the years ended June 30, 1999, 1998 and 1997, respectively.
Accounting for Stock-Based Compensation Plans
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
48
<PAGE> 26
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>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income As reported $ 49,250 $ 32,720 $ 19,447
Pro forma $ 46,940 $ 30,752 $ 18,120
Net earnings per share As reported $ 2.18 $ 1.50 $ 0.92
Pro forma $ 2.08 $ 1.41 $ 0.86
Net earnings per share- As reported $ 2.09 $ 1.41 $ 0.87
assuming dilution Pro forma $ 1.99 $ 1.33 $ 0.81
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions for 1997, 1998 and 1999, respectively: dividend yield of
0%; expected volatility of 42.6%, 42.1% and 48.9%; weighted-average
risk-free interest rates of 6.3%, 5.9% and 4.7%; 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, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------- -----------------------------
Weighted
Range of Number Average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices at 6/30/99 Contractual Life Exercise Price at 6/30/99 Exercise Price
------ ---------- ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.72 - 9.64 454,776 3.88 $ 8.07 454,776 $ 8.07
10.33 - 17.79 540,154 6.35 11.62 532,155 11.54
19.29 - 39.03 553,105 8.29 28.04 207,150 23.86
39.66 - 48.63 212,166 8.43 41.33 57,355 39.66
--------- ---------
1,760,201 1,251,436
========= =========
</TABLE>
(10) 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. 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.
49
<PAGE> 27
The Company's contributions to the 401(k) Plan were $2,292, $2,194 and
$1,745 for the years ended June 30, 1999, 1998 and 1997, respectively.
The Board of Directors recently approved a non-qualified plan ("Excess
Plan") that enables certain executives to defer up to 10% of their
compensation in excess of the qualified plan. The Company may, at its
discretion, contribute a percentage of the amount contributed by the
individuals covered under this Excess Plan to a maximum of 10% of such
individual's compensation.
(11) OTHER INCOME (EXPENSE)
A summary of other income (expense) is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net (loss) gain on sale of property,
plant and equipment $(11) $(63) $203
Other 47 46 25
---- ---- ----
Other income (expense) $ 36 $(17) $228
==== ==== ====
</TABLE>
(12) 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
believes it will be able to extend such leases, if necessary. Rent
expense charged to operations was $1,099, $1,493 and $1,314 in fiscal
1999, 1998 and 1997, 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>
2000 $832
2001 519
2002 15
</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 judgement was not covered by insurance or exceeded the
policy limits.
Invamed, Inc./Apothecon, Inc. Lawsuit
In February 1998 and May 1999, Invamed, Inc. ("Invamed") and Apothecon,
Inc. ("Apothecon"), respectively, 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,
50
<PAGE> 28
charging that the Company unlawfully blocked access to the raw material
source for Warfarin Sodium. The Company believes that the suit is
without merit and intends to defend its position vigorously. These
actions are currently in discovery stage. It is anticipated that this
matter will take several years to be resolved but an adverse judgement
could have a material impact on the Company's consolidated financial
statements.
Administrative Matters
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 ("FTC") its arrangements
with the supplier of the raw material for its Warfarin Sodium. The
Company has voluntarily responded to requests from the Department of
Justice by providing documents relating to the settlement of its
Tamoxifen patent challenge. On June 30, 1999, the Company received a
subpoena and civil investigative demand from the FTC relating to its
March 1997 patent litigation settlement regarding Ciprofloxacin
hydrochloride. 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
As of June 1999, the Company was involved with 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 any significant adverse effect on the Company's consolidated
financial statements.
(13) FOURTH QUARTER CHARGE FOR FISCAL 1998
During the quarter ended June 1998, the Company recorded a $1.2 million
restructuring charge which is included in Selling, General and
Administrative Expenses in the Consolidated Statements of Operations.
Approximately half of this charge related to the write-off of equipment
and leasehold improvements in connection with the closing of a leased
New Jersey packaging facility, for which the operations have been
relocated to other company facilities. The remainder related to
severance related expenses for certain operations employees, primarily
those affiliated with the closed facility. As of June 30, 1999, the
1998 fourth quarter restructuring plan has been completed and all
payments have been made.
51
<PAGE> 29
(14) QUARTERLY DATA (UNAUDITED)
A summary of the quarterly results of operations is as follows:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
-----------------------------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal Year 1999:
Total revenues(1) $ 97,149 $ 109,220 $ 122,572 $ 115,092
Cost of sales 63,908 73,920 87,968 75,597
Net earnings 11,204 12,281 12,662 13,103
EARNINGS PER COMMON SHARE - ASSUMING DILUTION
Net earnings(2) $ 0.48 $ 0.52 $ 0.54 $ 0.56
=========== =========== =========== ===========
PRICE RANGE OF COMMON STOCK(3)
High $ 39.75 $ 49.75 $ 48.56 $ 40.50
Low 24.69 24.88 28.38 28.50
FISCAL YEAR 1998:
Total revenues(4) $ 96,267 $ 92,328 $ 96,387 $ 92,322
Cost of sales 65,226 68,769 70,042 61,965
Earnings before extraordinary loss on early
extinguishment of debt 10,397 7,115 7,151 8,847
Net earnings 10,397 6,325 7,151 8,847
EARNINGS PER COMMON SHARE - ASSUMING DILUTION
Earnings before extraordinary loss on early
extinguishment of debt(2) $ 0.45 $ 0.31 $ 0.31 $ 0.38
=========== =========== =========== ===========
Net earnings(2) $ 0.45 $ 0.27 $ 0.31 $ 0.38
=========== =========== =========== ===========
PRICE RANGE OF COMMON STOCK
High $ 49.00 $ 40.13 $ 41.75 $ 46.94
Low 37.00 32.50 33.25 37.81
</TABLE>
(1) Amounts include Proceeds from supply agreements of $8,000, $6,583,
$6,750 and $6,750 for the quarters ended September 30, 1998, December
31, 1998, March 31, 1999 and June 30, 1999, 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 New York Stock
Exchange (BRL). At June 30, 1999, there were approximately 688
shareholders of record of common stock. The Company believes that a
significant number of beneficial owners hold their shares in street
names.
(4) Amounts include Proceeds from supply agreements of $7,166, $6,417,
$8,750 and $8,333 for the quarters ended September 30, 1997, December
31, 1997, March 31, 1998 and June 30, 1998, respectively.
52
<PAGE> 30
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, 1999 and
1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 at June 30, 1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1999
in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
August 6, 1999
53
<PAGE> 31
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 judgements.
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
54
<PAGE> 32
ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $444,033(1) $377,304(2) $284,486(4) $232,224 $199,720
Earnings before income taxes and
extraordinary loss 80,127 54,658 32,050 11,509 10,222
Income tax expense 30,877 21,148 12,603 4,368 3,852
Earnings before extraordinary loss 49,250 33,510 19,447 7,141 6,370
Net earnings 49,250 32,720(3) 19,447 7,016(5) 6,225(8)
Earnings per common share:
Earnings before extraordinary loss 2.18 1.54 0.92 0.34(6) 0.32(7)
Earnings per common share -
assuming dilution:
Earnings before extraordinary loss 2.09 1.45 0.87 0.33(6) 0.31(7)
Net earnings(9) 2.09 1.41(3) 0.87 0.32(5)(6) 0.30(7)(8)
BALANCE SHEET DATA 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------
Working capital $146,863 $ 95,281 $ 41,807 $ 52,985 $ 58,364
Total assets 347,890 310,851 202,845 169,220 155,953
Long-term debt(10) 30,008 32,174 14,941 17,709 20,371
Shareholders' equity(11) 213,707 155,929 102,138 80,161 71,853
</TABLE>
(1) Includes $28,083 in Proceeds from supply agreements.
(2) Includes $30,666 in Proceeds from supply agreements.
(3) Fiscal 1998 includes the effect of a $790 ($0.04 per share)
extraordinary loss (net of tax of $492) on early
extinguishment of debt (See Note 6 to the Consolidated
Financial Statements).
(4) Includes $27,050 in Proceeds from supply agreement.
(5) Fiscal 1996 includes the effect of a $125 ($0.01 per share)
extraordinary loss (net of tax of $76) on early extinguishment
of debt.
(6) Amounts have been adjusted for the May 1997 3-for-2 stock
split effected in the form of a 50% stock dividend.
(7) Amounts have been adjusted for the March 1996 and May 1997
3-for-2 stock splits effected in the form of 50% stock
dividends.
(8) Fiscal 1995 includes the effect of a $145 ($0.01 per share)
extraordinary loss (net of tax of $92) on early extinguishment
of debt.
(9) Fiscal 1997, 1996 and 1995 earnings per share amounts have
been restated to conform with the provisions of Statement of
Financial Accounting Standards No. 128 "Earnings per Share."
(10) Excludes current installments (See Note 6 to the Consolidated
Financial Statements).
(11) The Company has not paid a cash dividend in any of the above
years.
55
<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 6, 1999, appearing in and incorporated
by reference in the Annual Report on Form 10-K of Barr Laboratories, Inc. for
the year ended June 30, 1999.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
August 25, 1999
56
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 94,867
<SECURITIES> 8,127
<RECEIVABLES> 65,977<F1>
<ALLOWANCES> 0
<INVENTORY> 77,613
<CURRENT-ASSETS> 248,140
<PP&E> 93,764<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 347,890
<CURRENT-LIABILITIES> 101,277
<BONDS> 30,008
0
0
<COMMON> 229
<OTHER-SE> 213,478
<TOTAL-LIABILITY-AND-EQUITY> 347,890
<SALES> 415,950
<TOTAL-REVENUES> 444,033
<CGS> 301,393
<TOTAL-COSTS> 301,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,697
<INCOME-PRETAX> 80,127
<INCOME-TAX> 30,877
<INCOME-CONTINUING> 49,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,250
<EPS-BASIC> 2.18<F2>
<EPS-DILUTED> 2.09
<FN>
<F1>Accounts Receivable and PP+E are net
<F2>Earnings per share are simple, not primary
</FN>
</TABLE>
