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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended December 31, 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)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of common stock, par value $.01, outstanding as of December 31,
1999: 22,952,409
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BARR LABORATORIES, INC.
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1999 and June 30, 1999 3
Consolidated Statements of Earnings
for the three and six months ended
December 31, 1999 and 1998 4
Consolidated Statements of Cash Flows
for the six months ended
December 31, 1999 and 1998 5
Notes to Consolidated Financial
Statements 6-9
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1999 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 73,960 $ 94,867
Marketable securities 7,916 8,127
Accounts receivable, less allowances of $3,575 and $2,670, respectively 73,897 50,227
Supply agreement receivable 15,833 15,750
Inventories 106,138 77,613
Prepaid expenses 1,734 1,556
--------- ---------
Total current assets 279,478 248,140
Property, plant and equipment, net of accumulated depreciation of $49,864
and $45,725, respectively 95,940 93,764
Other assets 7,534 5,986
--------- ---------
Total assets $ 382,952 $ 347,890
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 94,232 $ 88,982
Accrued liabilities 7,751 9,118
Deferred income taxes 833 833
Current portion of long-term debt 2,144 2,165
Income taxes payable 5,638 179
--------- ---------
Total current liabilities 110,598 101,277
Long-term debt 28,332 30,008
Other liabilities 525 127
Deferred income taxes 2,948 2,771
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 23,070,364 and 22,923,583, respectively 231 229
Additional paid-in capital 79,591 76,903
Retained earnings 161,733 137,846
Accumulated other comprehensive loss (993) (1,258)
--------- ---------
240,562 213,720
Treasury stock at cost: 117,955 shares (13) (13)
--------- ---------
Total shareholders' equity 240,549 213,707
--------- ---------
Total liabilities and shareholders' equity $ 382,952 $ 347,890
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales $113,987 $102,637 $206,090 $191,786
Proceeds from supply agreements 6,833 6,583 13,583 14,583
-------- -------- -------- --------
Total revenues 120,820 109,220 219,673 206,369
Costs and expenses:
Cost of sales 81,326 73,920 143,299 137,828
Selling, general and administrative 10,387 9,824 20,797 19,767
Research and development 9,596 5,452 18,663 10,822
-------- -------- -------- --------
Earnings from operations 19,511 20,024 36,914 37,952
Interest income 989 690 2,169 1,662
Interest expense 655 779 1,289 1,438
Other (expense) income (15) 50 451 36
-------- -------- -------- --------
Earnings before income taxes 19,830 19,985 38,245 38,212
Income tax expense 7,436 7,704 14,358 14,727
-------- -------- -------- --------
Net earnings $12,394 $12,281 $23,887 $23,485
======== ======== ======== ========
Earnings per common share $0.54 $0.55 $1.05 $1.05
======== ======== ======== ========
Earnings per common share - assuming dilution $0.53 $0.52 $1.01 $1.00
======== ======== ======== ========
Weighted average shares 22,876 22,463 22,849 22,399
======== ======== ======== ========
Weighted average shares - assuming dilution 23,606 23,618 23,627 23,538
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings $ 23,887 $ 23,485
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 5,226 4,328
Gain on sale of assets (482) --
Other, net 29 19
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and supply agreement receivable, net (23,753) (12,357)
Inventories (28,525) (16,143)
Prepaid expenses (178) (837)
Other assets (809) (536)
Increase (decrease) in:
Accounts payable, accrued liabilities and other 4,396 (20,570)
Income taxes payable 5,459 (70)
-------- --------
Net cash used in operating activities (14,750) (22,681)
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (7,468) (5,189)
Purchases of strategic investments -- (2,250)
Other, net 318 (474)
-------- --------
Net cash used in investing activities (7,150) (7,913)
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt (1,697) (1,698)
Net borrowings under line of credit -- (2,500)
Proceeds from exercise of stock options and employee stock purchases 2,690 3,147
-------- --------
Net cash provided by (used in) financing activities 993 (1,051)
-------- --------
Decrease in cash and cash equivalents (20,907) (31,645)
Cash and cash equivalents at beginning of period 94,867 72,956
-------- --------
Cash and cash equivalents at end of period $ 73,960 $ 41,311
======== ========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period:
Interest, net of portion capitalized $ 1,289 $ 1,424
======== ========
Income taxes $ 8,053 $ 14,797
======== ========
Non-cash transactions:
Write-off of equipment & leasehold improvements related to closed facility $ 115 $ 83
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Barr
Laboratories, Inc. and its wholly-owned subsidiaries (the "Company" or
"Barr").
In the opinion of the Management of the Company, the interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Interim results are not necessarily indicative of the results that may be
expected for a full year. These financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended June 30, 1999 and quarterly report on Form 10-Q for the period
ended September 30, 1999.
2. CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments
(primarily market auction securities with interest rates that are re-set
in intervals of 7 to 35 days) which are readily convertible into cash at
par value (cost).
As of December 31, 1999 and June 30, 1999, approximately $42,427 and
$28,283, respectively, of the Company's cash was held in an interest
bearing escrow account. Such amounts represent the portion of the
Company's payable balance with the Innovator of Tamoxifen, which the
Company has decided to secure in connection with its cash management
policy. The Company pays the Innovator a monthly fee based on a rate
multiplied by the average unsecured monthly Tamoxifen payable balance.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
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<S> <C> <C>
Raw materials and supplies $ 16,240 $ 15,790
Work-in-process 5,030 7,957
Finished goods 84,868 53,866
-------- --------
$106,138 $ 77,613
======== ========
</TABLE>
Tamoxifen Citrate, purchased as a finished product, accounted for
approximately $73,370 and $43,040 of finished goods as of December 31,
1999 and June 30, 1999, respectively.
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4. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators used
to calculate Earnings per common share on the Consolidated Statements of
Earnings:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE:
Net earnings (numerator) $12,394 $12,281 $23,887 $23,485
Weighted average shares (denominator) 22,876 22,463 22,849 22,399
Net earnings $ 0.54 $ 0.55 $ 1.05 $ 1.05
======= ======= ======= =======
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Net earnings (numerator) $12,394 $12,281 $23,887 $23,485
Weighted average shares 22,876 22,463 22,849 22,399
Effect of dilutive options 730 1,155 778 1,139
------- ------- ------- -------
Weighted average shares - assuming
dilution (denominator) 23,606 23,618 23,627 23,538
Net earnings $ 0.53 $ 0.52 $ 1.01 $ 1.00
======= ======= ======= =======
</TABLE>
During the three and six months ended December 31, 1999 and 1998, there
were 914, 914, 226 and 514, respectively, of outstanding options that
were not included in the computation of diluted EPS, because the
options' exercise prices were greater than the average market price of
the common stock for the period.
5. 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 Statement of Financial Accounting Standards ("SFAS") No.
115 purposes as "available for sale". Total comprehensive income for
the three and six months ended December 31, 1999 and 1998 was $12,460,
$24,152, $12,370 and $23,003, respectively.
6. NEW ACCOUNTING PRONOUNCEMENT
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.
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7. STRATEGIC COLLABORATIONS
The Company, from time to time, enters into development or supply
collaborations or makes investments in third parties to support the
Company's business strategies. These collaborations include, but are
not limited to, agreements with suppliers for raw materials, licensing
technologies for generic or proprietary products and making equity or
debt investments in third parties. Financial terms may include cash
payments upon execution of an agreement or upon achieving certain
milestones or upon successful launch and commercialization of the
developed product. Such payments are either capitalized as other assets
and amortized or expensed as research and development, depending upon
the nature of the payment. Many of these arrangements include
termination provisions that allow the Company to withdraw from a
project if it is deemed no longer appropriate by the Company.
8. FACILITY OPTIMIZATION CHARGE
During the quarter ended September 30, 1999, the Company recorded a
$540 restructuring charge, which is included in selling, general and
administrative expenses in the Consolidated Statements of Earnings.
This charge is for severance related costs in conjunction with the
optimization of the New York and New Jersey manufacturing operations.
As of December 31, 1999, the facility optimization has been completed
and all payments have been made.
9. COMMITMENTS AND CONTINGENCIES
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, 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 a
significant period of time to be resolved but an adverse judgement
could have a material impact on the Company's consolidated financial
statements.
Other Litigation
As of December 31, 1999, the Company was involved in other lawsuits
incidental to its business, including patent infringement actions.
Management of the Company, based on the advice of legal counsel,
believes that the ultimate disposition of such other lawsuits will not
have any significant adverse effect 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 complied with the terms of the requests and
since
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then has not received any further requests. 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.
10. SUBSEQUENT EVENT
On January 19, 2000, the Company signed a letter of intent to establish
a strategic relationship with DuPont Pharmaceuticals Company ("DuPont")
to develop, market and promote five different proprietary products and,
upon finalization of the agreements, to terminate all litigation
between the two companies. The Company filed Form 8-K on January 21,
2000.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Comparison of the Three Months Ended December 31, 1999 to the Three Months Ended
December 31, 1998 - (thousands of dollars)
Total revenues increased approximately 11% primarily as a result of increased
Product sales.
Tamoxifen sales increased 17% from $64,119 to $75,201. The increase is due
primarily to an expansion in the use of Tamoxifen. In October 1998, Tamoxifen
was approved to reduce the incidence of breast cancer in women at high risk of
developing the disease. 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.
The prior year sales included $2,035 of Minocycline sales which the Company
stopped selling in late 1999 because of deteriorating market conditions.
Other product sales increased 6% from $36,483 to $38,786. The increase was lead
by increases in market share for Medroxyprogesterone, Naltrexone, Danazol and
sales of Cefadroxil, which the Company launched in June 1999. While Warfarin
sales increased sequentially, they declined approximately 11% from the prior
year as volume increases were more than offset by increased pricing pressures
due to the entrance of multiple generic competitors and continued activities by
the brand manufacturer to retain its market share.
Cost of sales increased to $81,326 from $73,920, due to increased product sales,
but decreased as a percentage of product sales from 72% to 71%. The decrease in
cost of sales as a percentage of product sales is the result of a more favorable
mix within products manufactured by the Company, partially offset by an
increased percentage of Tamoxifen sales to total sales. Tamoxifen is distributed
by the Company and has lower margins than most of Barr's other products.
Selling, general and administrative expenses increased from $9,824 to $10,387.
The increase was primarily due to an increase in legal spending related to the
Company's federal anti-trust suit against DuPont Pharmaceuticals Company, as
well as patent challenge activities.
Total research and development expenses in the quarter increased from $5,452 to
$9,596. This increase resulted from increased bio-study and clinical trial costs
and higher personnel costs, each supporting an increased number of products in
development. Of the $9,596 in research and development spending, $1,713 was in
support of the Company's proprietary drug development efforts, an increase of
$920 over the prior year quarter.
Interest income increased by $299 primarily due 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. The decrease in the market
rates was primarily the result of the Company investing in a greater amount of
tax-free investments which generally have lower rates than taxable investments,
but reduce the effective tax rate of the Company.
Interest expense decreased $124 due to a decrease in the Company's debt balances
and lower fees paid on the average unsecured Tamoxifen payable balance.
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The effective income tax rate decreased from 38.5% for the three months ended
December 31, 1998 to 37.5% for the same period in the current fiscal year. This
decrease was primarily attributable to the Company investing in a greater amount
of tax-free investments during the quarter, which lowers the overall tax rate
paid by the Company.
Results of Operations:
Comparison of the Six Months Ended December 31, 1999 to the Six Months Ended
December 31, 1998 - (thousands of dollars)
Total revenues increased approximately 6% as a result of increased Product sales
partially offset by a decrease in Proceeds from supply agreements.
Tamoxifen sales increased 9% from $119,373 to $130,471. The increase is due
primarily to an expansion in the use of Tamoxifen.
The prior year sales included $4,028 of Minocycline sales which the Company
stopped selling in late 1999 because of deteriorating market conditions.
Other product sales increased 10% from $68,385 to $75,486. The increase was led
by higher sales of Medroxyprogesterone, Naltrexone, Cefadroxil and Danazol.
These increases were driven mainly by increases in market share which more than
offset price declines on certain existing products. Although market share
increases caused higher volumes, Warfarin sales declined approximately 3% from
the prior year due to the entrance of multiple generic competitors and continued
activities by the brand manufacturer to retain its market share.
Proceeds from supply agreements declined $1,000, as expected, since proceeds
earned in the prior year under a separate contingent supply agreement related to
the ciprofloxacin litigation ceased.
Cost of sales increased from $137,828 to $143,299 primarily related to an
increase in product sales. As a percentage of product sales, cost of sales
declined from 72% to 70%. This percentage decline was attributable to a more
favorable mix within manufactured products, offset slightly by an increased
percentage of sales of Tamoxifen to total sales. Tamoxifen is distributed by the
Company and has lower margins than most of Barr's other products.
Selling, general and administrative expenses increased from $19,767 to $20,797.
The increase was primarily due to increased legal and government affairs costs,
as well as a restructuring charge, partially offset by a decrease in advertising
and promotions. Legal expenses during the six months were primarily related to
the Company's federal anti-trust suit against DuPont Pharmaceuticals Company and
increased patent challenge activities. Government affairs expenses were
primarily related to legislative issues in Florida and Illinois. In the three
months ended September 30, 1999, the Company recorded a $540 restructuring
charge, related to its continued optimization of its New York and New Jersey
manufacturing operations. Advertising and promotional costs declined, primarily
as a result of less media advertising.
Total research and development expenses increased from $10,822 to $18,663. This
increase results from increased bio-study and clinical trial costs and higher
personnel costs, each supporting an increased number of products in development.
Research and development spending in support of the Company's proprietary drug
development efforts increased approximately $2,233 to $3,133.
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Interest income increased by $507 primarily due 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. The decrease in the market
rates was primarily the result of the Company investing in a greater amount of
tax-free investments which generally have lower rates than taxable investments,
but reduce the effective tax rate of the Company.
Interest expense decreased $149 due to a decrease in the Company's debt balances
and lower fees paid on the average unsecured Tamoxifen payable balance.
Other income increased $415 primarily due to the gain recognized on the warrants
received from Halsey Drug Co., Inc.
The effective income tax rate decreased from 38.5% for the six months ended
December 31, 1998 to 37.5% for the same period in the current fiscal year. This
decrease was primarily attributable to the Company investing in a greater amount
of tax-free investments, which lowers the overall tax rate paid by the Company.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased from $94,867 at June 30, 1999
to $73,960 at December 31, 1999. During the six months ended December 31, 1999,
the Company increased the cash held in its interest bearing escrow account from
$28,283 at June 30, 1999 to $42,427.
Cash used in operating activities totaled $14,750 for the six months ended
December 31, 1999 as working capital increases more than offset net earnings and
non-cash charges such as depreciation. The working capital increase was led by
increases in inventory and accounts receivable which were partially offset by
increases in accounts payable and income taxes payable. Accounts receivable at
December 31, 1999 were $73,897 or $23,670 higher than those at June 30, 1999.
This increase was primarily attributable to increased product sales. The
significant increase in inventory and accounts payable was almost entirely
related to an increase in Tamoxifen purchases. Higher Tamoxifen inventories
resulted from higher purchases in anticipation of increased usage due to
Tamoxifen's approval for the reduction in the incidence of breast cancer in
women at high risk for developing the disease. Income taxes payable increased
due to the timing of estimated tax payments.
During the first six months of fiscal 2000, the Company invested approximately
$7 million in capital expenditures primarily related to the construction of its
new 48,000 square foot warehouse and 13,500 square foot laboratory facility at
its Pomona, New York campus. The Company expects to invest an additional $5 to
$8 million in capital assets in fiscal 2000.
To expand its growth opportunities, the Company has and will continue to
evaluate and enter into various strategic collaborations (See Note 7 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, that based on arrangements in place at December 31, 1999,
it could spend between $2 and $4 million over the next twelve months for these
collaborations. The $2 to $4 million excludes any cash needed to fund strategic
acquisitions the Company may consider in the future.
As part of the Company's Year 2000 planning, the Company temporarily increased
its Revolving Credit Facility by $10,000 through June 30, 2000. In addition, the
Company extended the term of the Revolving Credit Facility from June 30, 2000 to
December 31, 2001. The Company believes that its
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current cash balances, cash flows from operations and borrowing capacity,
including unused amounts under its existing 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 Company's product sales are dependent upon several factors including the
timing of new product launches, increases or decreases in market share, changes
in prices and customer buying patterns. As a result, forecasting product sales
from period to period is difficult. However, product revenues are expected to
increase next quarter due to expected increases in Tamoxifen sales.
Historically, Tamoxifen sales have fluctuated significantly among the Company's
quarters. These fluctuations are based on several factors including the buying
patterns of several large customers. The buying patterns have been influenced by
the anticipated timing of price increases. Tamoxifen's last price increase
occurred in May 1999, however, because Barr distributes Tamoxifen, the timing
and extent of any price increases in the current year is unknown and is
determined by the innovator. The Company believes that such quarterly
fluctuations in Tamoxifen sales could occur during the remainder of fiscal 2000
and believes that overall Tamoxifen usage will increase compared to last year
due to Tamoxifen's approval, in October 1998, for the reduction in the incidence
of breast cancer in women at high risk for developing the disease.
The Company's profit margins on product sales are impacted by numerous factors
such as product pricing, product sales mix, including the percentage of
Tamoxifen sales to total product sales, and manufacturing efficiencies. Overall
margins declined in the second quarter compared to the first quarter primarily
due to Tamoxifen's increased percentage of total sales. Overall margins in the
third quarter are expected to be lower than in the second quarter due to the
expected increase in Tamoxifen sales described above.
In September, the Company publicly disclosed that it expected its investments in
research and development to be between $40 and $45 million during fiscal 2000.
The Company continues to believe that its research and development spending will
reach these levels. The strategic alliance with DuPont, as outlined in the
letter of intent signed on January 19, 2000, provides for DuPont to fund up to
$45 million for certain of the Company's proprietary products. Upon finalization
of these agreements, such funding could offset a portion of the Company's
expected research and development expenses. While the Company expects to
finalize the agreements described in the letter of intent, there is no assurance
that such agreements will be successfully completed or that the research and
development funding will be provided.
Selling, general and administrative expenses in the second quarter were
consistent with first quarter amounts. While the strategic alliance with DuPont,
if finalized, is expected to lower legal costs related to the DuPont litigation,
such reduction is not expected to be realized until the fourth quarter. In the
third quarter, the Company expects higher headcount costs and higher sales and
marketing costs. Higher sales and marketing costs are expected primarily due to
the timing of various trade shows. As a result, selling, general and
administrative costs are expected to be higher in the third quarter before
declining in the fourth quarter. In addition, the Company expects to incur
certain one-time charges associated with finalizing its strategic alliance with
DuPont. In connection with finalizing the DuPont alliance, the Company will
issue two warrants, each granting DuPont the right to purchase 500,000 shares of
the Barr's common stock. Each warrant has a four-year term. The weighted average
strike price of the two warrants represented a 34% premium to Barr's closing
stock price on January 19, 2000. The Company expects the issuance of such
warrants to result in a one-time, non-cash charge equal to the fair value of the
warrants on the date of grant. That value, calculated using the Black-
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Scholes pricing model, could be $10 to $15 million, though the actual value will
depend on several factors including the price of Barr's common stock on the day
the warrants are issued.
The effective income tax rate is expected to remain at approximately 37.5% for
the balance of the fiscal year.
Year 2000
The Company has completed implementation of its year 2000 remediation plan on a
timely basis and such remediation plan as implemented addresses all mission
critical systems. The Company is not aware of any adverse effects of year 2000
issues on the Company, including its systems and operations. The Company has no
information that indicates that a significant vendor may be unable to sell to
the Company; a significant customer may be unable to purchase from the Company;
or a significant service provider may be unable to provide services to the
Company, because of year 2000 compliance problems.
Forward-Looking Statements
Except for the historical information contained herein, this Form 10-Q 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,
the timing or occurrence of price increases on key products, the finalization of
the letter of intent signed with DuPont Pharmaceuticals Company, the timing of
FDA approvals and product launches, capital spending, 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. 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.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed in the 1999 Annual Report on Form 10-K, the Company's exposure to
market risk from changes in interest rates, in general, is not material.
14
<PAGE> 15
BARR LABORATORIES, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
DuPont Anti-Trust Suit
As disclosed in the Company's Annual Report on Form 10-K, 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. On
January 19, 2000, the Company signed a letter of intent to
establish a strategic relationship with DuPont Pharmaceuticals
Company to develop, market and promote five different
proprietary products and, upon finalization of the agreements,
to terminate all litigation between the two companies. The
Company filed Form 8-K on January 21, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Barr Laboratories, Inc. was held on
October 28, 1999, at the Plaza Hotel in New York City. Of the 22,829,884 shares
entitled to vote, 21,369,423 shares were represented at the meeting by proxy or
present in person. The meeting was held for the purpose of electing a Board of
Directors.
All eight nominees were elected based on the following votes cast:
<TABLE>
<CAPTION>
FOR SHARES
<S> <C>
Paul M. Bisaro 21,149,059
Robert J. Bolger 21,119,091
Edwin A. Cohen 21,099,597
Bruce L. Downey 21,103,984
Michael F. Florence 21,166,337
Jacob M. Kay 21,172,843
Bernard C. Sherman 21,111,804
George P. Stephan 21,168,422
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number Exhibit
-------------- -------
27.0 Financial data schedule
(b) There were no reports filed on Form 8-K in the quarter ended
December 31, 1999.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARR LABORATORIES, INC.
Dated: January 31, 2000 /s/ William T. McKee
--------------------
William T. McKee
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 73,960
<SECURITIES> 7,916
<RECEIVABLES> 89,730<F1>
<ALLOWANCES> 0
<INVENTORY> 106,138
<CURRENT-ASSETS> 279,478
<PP&E> 95,940<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 382,952
<CURRENT-LIABILITIES> 110,598
<BONDS> 28,332
0
0
<COMMON> 231
<OTHER-SE> 240,318
<TOTAL-LIABILITY-AND-EQUITY> 382,952
<SALES> 206,090
<TOTAL-REVENUES> 219,673
<CGS> 143,299
<TOTAL-COSTS> 143,299
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,289
<INCOME-PRETAX> 38,245
<INCOME-TAX> 14,358
<INCOME-CONTINUING> 23,887
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,887
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.01
<FN>
<F1>Accounts receivable and PP&E are net.
</FN>
</TABLE>
