<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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: 005-52501
WARNER CHILCOTT PUBLIC LIMITED COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
IRELAND N/A
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
LINCOLN HOUSE, LINCOLN PLACE, DUBLIN 2, IRELAND
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
353 1 662-4962
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
American Depositary Shares, representing Ordinary Shares, par value $.05
each; Ordinary Shares, par value $.05 each; 12,390,730 Ordinary Shares
outstanding at March 31, 2000.
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
Part I -- Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999......................................... 2
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999............................. 3
Consolidated Statements of Cash Flows for Three Months Ended
March 31, 2000 and 1999................................... 4
Notes to the Unaudited Consolidated Financial Statements.... 5-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11-16
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 16
Part II -- Other Information
Item 4. Legal Proceedings........................................... 16-17
Item 5. Other Information........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
Signatures........................................................... 18
</TABLE>
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 36,112 $ 50,954
Accounts receivable, net............................... 21,753 11,526
Inventories............................................ 6,135 4,025
Prepaid expense and other assets....................... 1,342 864
--------- ---------
Total current assets................................. 65,342 67,369
--------- ---------
Fixed Assets:
Equipment, furniture and fixtures, net................. 1,124 1,177
Intangible assets, net.................................... 236,484 63,865
Other assets.............................................. 8,224 51
--------- ---------
Total assets......................................... $ 311,174 $ 132,462
========= =========
LIABILITIES
Current Liabilities:
Accounts payable....................................... $ 5,733 $ 3,204
Accrued liabilities.................................... 8,722 7,438
Due to Elan Corporation, plc and subsidiaries.......... 172 262
--------- ---------
Total current liabilities............................ 14,627 10,904
--------- ---------
Other Liabilities:
Working capital facility............................... -- 12,098
Long-term debt......................................... 196,370 10,476
--------- ---------
Total liabilities.................................... 210,997 33,478
--------- ---------
SHAREHOLDERS' EQUITY
Ordinary Shares, par value $.05 per share; 50,000,000
shares authorized, 12,390,730 shares issued and
outstanding at March 31, 2000, and 12,377,034 issued
and outstanding at December 31, 1999................... 619 619
Deferred Shares, par value IRL1 per share; 30,000 shares
authorized, 30,000 shares issued and outstanding at
March 31, 2000 and December 31, 1999................... 45 45
Additional paid-in capital................................ 209,520 209,062
Accumulated deficit....................................... (109,698) (110,279)
Deferred compensation..................................... (309) (463)
--------- ---------
Total shareholders' equity............................. 100,177 98,984
--------- ---------
Total liabilities and shareholders' equity........... $ 311,174 $ 132,462
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUES
Branded product sales..................................... $ 14,168 $ 8,300
Generic product sales..................................... 3,367 5,566
Marketing alliance and other revenue...................... 8,544 7,182
---------- ----------
Total revenues......................................... 26,079 21,048
---------- ----------
OPERATING EXPENSES
Cost of goods sold........................................ 6,127 8,449
Selling, general and administrative....................... 12,647 12,111
Depreciation and amortization............................. 2,421 1,412
Research and development.................................. 469 841
---------- ----------
Total operating expenses............................... 21,664 22,813
---------- ----------
OPERATING INCOME (LOSS)..................................... 4,415 (1,765)
---------- ----------
OTHER INCOME (EXPENSE)
Interest income........................................... 565 539
Interest expense.......................................... (3,668) (771)
---------- ----------
Total other income (expense)........................... (3,103) (232)
---------- ----------
INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM........... 1,312 (1,997)
---------- ----------
Income taxes................................................ -- --
---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..................... 1,312 (1,997)
---------- ----------
Extraordinary item.......................................... (731) --
---------- ----------
NET INCOME (LOSS)........................................... $ 581 $ (1,997)
========== ==========
EARNINGS (LOSS) PER SHARE:
Basic
Income (loss) before extraordinary item................... $ 0.11 $ (0.16)
Extraordinary item........................................ $ (0.06) $ --
Net income (loss)......................................... $ 0.05 $ (0.16)
========== ==========
Diluted Income (loss) before extraordinary item............. $ 0.10 $ (0.16)
Extraordinary item........................................ $ (0.05) $ --
Net income (loss)......................................... $ 0.05 $ (0.16)
========== ==========
WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING:
Basic..................................................... 12,382,742 12,366,808
========== ==========
Diluted................................................... 12,726,250 12,366,808
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 581 $(1,997)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation and amortization.......................... 2,421 1,412
Amortization on senior notes........................... 33 --
Deferred financing cost write-off...................... 207 --
Stock compensation expense............................. 495 155
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, prepaid
expense and other assets............................ (10,853) 11,121
(Increase) decrease in inventories................... (2,110) 2,053
Increase (decrease) in accounts payable and accrued
liabilities......................................... 3,813 (1,602)
Decrease in due to/from Elan Corporation, plc and
subsidiaries........................................ (90) (9,060)
--------- -------
Net cash (used in) provided by operating
activities...................................... (5,503) 2,082
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of branded products from Bristol-Myers Squibb.... (175,054) --
Purchase of fixed assets.................................. (26) (54)
--------- -------
Net cash used in investing activities.................. (175,080) (54)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Working capital facility repayment, net................... (12,098) (2,200)
Proceeds from issuance of senior notes due 2008........... 196,337 --
Redemption of senior subordinated discount notes due
2001................................................... (10,476) --
Increase in other assets.................................. (8,139) --
Net proceeds from issuance of share capital -- stock
option exercises....................................... 117 --
--------- -------
Net cash provided by (used in) financing activities.... 165,741 (2,200)
--------- -------
Net decrease in cash and cash equivalents................... (14,842) (172)
Cash and cash equivalents, beginning of period............ 50,954 43,133
--------- -------
Cash and cash equivalents, end of period.................. $ 36,112 $42,961
========= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q. Certain information and footnote
disclosure normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The statements should be read in
conjunction with the accounting policies and notes to the consolidated financial
statements included in Warner Chilcott Public Limited Company's (the "Company")
1999 Annual Report on Form 10-K.
The Company is an Irish public limited company with operations in Dublin,
Ireland and Rockaway, NJ, USA. The Company's financial statements include the
financial statements for Warner Chilcott Public Limited Company and all of its
subsidiaries and are prepared in U.S. dollars in conformity with United States
generally accepted accounting principles.
In the opinion of management, the financial statements reflect all
adjustments necessary for a fair statement of the operations for the interim
periods presented.
2. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
principally on the basis of first-in, first-out or standards that approximate
average cost.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw materials............................................... $ 17 $ 17
Finishing supplies.......................................... 19 3
Work in process............................................. 678 957
Finished goods.............................................. 5,839 3,936
------ ------
6,553 4,913
Less: Reserves for obsolescence............................. 418 888
------ ------
Inventories............................................... $6,135 $4,025
====== ======
</TABLE>
3. DEBT
Issuance of Senior Notes Due 2008
On February 15, 2000 Warner Chilcott, Inc., the Company's wholly-owned U.S.
operating subsidiary ("WCI"), issued $200,000 of 12 5/8% senior notes due 2008
at a discount of $3,663 to yield 13% (the "Notes"). Interest payments on the
Notes are due semi-annually in arrears on each February 15th and August 15th
beginning August 15, 2000. Proceeds from the issuance of the Notes, net of the
discount and estimated transaction expenses, were approximately $188,300, and
were utilized to fund the acquisition of the three branded pharmaceutical
products from Bristol-Myers Squibb (see note 4). The Notes are included in the
Company's Balance Sheet net of the discount. The discount and transaction fees
are being amortized to interest expense over the eight-year term of the Notes.
The Notes are unconditionally guaranteed by Warner Chilcott, plc, WCI's parent
company.
On or after February 15, 2004 the Notes are redeemable at the option of
WCI, in whole or part, prior to maturity at redemption prices which decrease
annually and range from 106.3125% to 100% of the principal amount of the Notes
plus accrued interest. In addition, before February 15, 2003 up to 35% of the
aggregate principal amount of the Notes are redeemable at the option of WCI from
the proceeds of one or more public equity offerings of the Company at a
redemption price of 112.625% plus accrued interest. If the Company were to
undergo a change of control, each Note holder would have the right to require
that WCI repurchase the Notes at a purchase price equal to 101% of the principal
amount plus accrued interest. The Note indenture limits the Company's ability
to incur or guarantee additional debt, as well as pay dividends or distributions
on, or redeem or repurchase, capital stock.
Redemption of Senior Subordinated Discount Notes Due 2001
On February 14, 2000 the Company prepaid all $10,476 of the senior
subordinated discount notes outstanding at a redemption price equal to 105% of
the principal amount outstanding. The redemption
5
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
premium of $524 and the write-off of the deferred financing costs of $93
associated with theses notes are included in the extraordinary item in the
Company's Statement of Operations for the three months ended March 31, 2000.
Amendment to Working Capital Credit Facility
On February 18, 2000 WCI prepaid all amounts outstanding under its senior
secured working capital credit facility. On February 28, 2000 WCI amended its
credit facility to reduce the maximum amount available to $10,000 from $30,000
and to extend the expiration date to February 2, 2002. Warner Chilcott, plc
unconditionally guaranteed WCI's obligation under the amended credit facility.
Other terms of the amended credit facility, provided by PNC Business Credit, are
substantially the same as the previous credit facility. The write-off of the
deferred financing costs of $114 associated with the previous credit facility is
included in the extraordinary item in the Company's Statement of Operations for
the three months ended March 31, 2000.
4. PRODUCT ACQUISITIONS
On February 15, 2000 the Company completed the acquisition of three branded
pharmaceutical products from Bristol-Myers Squibb Company ("BMS") for a purchase
price of $175,054. The products acquired were Estrace(R) cream, Ovcon(R) 35 and
Ovcon(R) 50. In connection with the acquisition, the Company entered into
transitional support and supply agreements with BMS under which BMS will supply
the Company with its requirements for Estrace(R) cream, Ovcon(R) 35 and Ovcon(R)
50 for a period of up to 10 years. The Company acquired all of the intangible
assets associated with the three products including the trademarks, regulatory
files, manufacturing know-how and other intellectual property. The acquisition
of the products is being accounted for as a purchase. Under purchase accounting,
the purchase price is allocated to the tangible and intangible assets acquired
based upon their respective fair values as of the purchase date in accordance
with Accounting Principles Board Opinion No. 16. The allocation of the purchase
price for the branded pharmaceutical products from BMS resulted in an allocation
of $168,000 to the products and $7,054 to goodwill, as there were no tangible
assets acquired. The acquired intangible assets are being amortized over 20
years, their estimated useful life.
The following unaudited pro forma information has been prepared as if the
February 2000 acquisition of the products, the issuance of the senior notes due
2008, the early redemption of senior subordinated discount notes due 2001 and
the prepayment of amounts outstanding under the working capital credit facility
(see note 3) had occurred on January 1, 1999 and does not include cost savings
expected from the transactions. The unaudited pro forma information does not
purport to represent our consolidated results of operations that would have been
achieved had the transaction to which pro forma effect is given been consummated
as the date or period indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------
2000 1999
-------------------- --------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Revenues............................................ $26,079 $26,379 $21,048 $32,788
Income (Loss) before extraordinary item............. $ 1,312 $(3,686) $(1,997) $ 318
Earnings (Loss) per share -- before extraordinary
item -- Basic..................................... $ 0.11 $ (0.30) $ (0.16) $ 0.03
Earnings (Loss) per share -- before extraordinary
item -- Diluted................................... $ 0.10 $ (0.29) $ (0.16) $ 0.03
</TABLE>
5. SCHERING PLOUGH AGREEMENT
During the three months ended March 31, 2000 the Company derived 15% of its
total revenue from the promotion of certain branded pharmaceutical products on
behalf of Schering-Plough. The Company's sales force promotes these
Schering-Plough products to a targeted physician population and in turn receives
a fee based on the market performance of the products. The agreement under which
the Company promotes these products expires in December 2000 but may be
terminated sooner by either party under certain circumstances.
6
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
Revenue from this arrangement is included in the Statement of Operations under
the caption "Marketing alliance and other revenue."
6. ELAN AGREEMENTS
In March 1999 the Company reached a binding agreement with Elan
Corporation, plc ("Elan") under which Elan agreed to acquire the Company's
marketing rights to an extended-release nifedipine product. Under terms of the
agreement, as of March 31, 1999 Elan was obligated to make a non-refundable
payment, which was received, of $3,000 to the Company and such amount was
recorded as revenue in the first quarter of 1999 under the caption "Marketing
alliance and other revenue." In June 1999 the Company executed the definitive
agreement licensing the extended-release nifedipine product to Elan and received
an additional $4,000 that was recorded as revenue in the second quarter of 1999.
Under the agreement, additional license fees may be earned by the Company upon
the completion of certain milestones including FDA approval of the pending ANDA
for the product. The Company is also entitled to receive royalties based upon
revenues derived from the product. Other than the $7,000 described above, the
Company earned no additional fees or royalties under this agreement during the
year ended December 31, 1999. During the three months ended March 31, 2000 the
Company earned a milestone payment of $2,000 upon the FDA approval of the ANDA
for the product and $600 in royalty fees, both of which are included under the
caption "Marketing alliance and other revenue."
7. SALE OF VECTRIN(R)
During September 1999 the Company completed the sale of its Vectrin(R)
product line including certain inventory, samples and the related FDA approval,
and received $11,000 in cash at closing. The Company reported a pre-tax gain of
$2,744 from the sale. As part of the sale and purchase agreement, the Company is
also entitled to receive royalties and milestone payments based on certain
future events. During the three months ended March 31, 2000 the Company earned
milestone and royalty payments totaling $2,044. Both the milestone and royalty
revenues are included in the Statement of Operations under the caption
"Marketing alliance and other revenue."
8. NET INCOME (LOSS) PER ORDINARY SHARE
Basic net income (loss) per ordinary share has been computed by dividing
net income available to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period. Diluted net income per ordinary
share is computed by adjusting the weighted average number of ordinary shares
outstanding during the period for all potentially dilutive ordinary shares
outstanding during the period, and adjusting net income for any changes in
income or loss that would result from the conversion of such potential ordinary
shares.
The amount of dilution attributable to share options and warrants issued by
the Company is computed under the treasury stock method and depends on the
average market price of the Company's ordinary shares for the period. For the
three months ended March 31, 2000 an additional 343,508 shares were added to the
weighted average number of ordinary shares outstanding in computing diluted
earnings per share. Net income used for computing diluted earnings per share was
the same as that used for computing basic earnings per share for the three
months ended March 31, 2000. Net loss and weighted average shares outstanding
used for computing basic and diluted loss per share for the three months ended
March 31, 1999 were the same. Stock options and warrants were not included in
the diluted calculation since the inclusion of such shares would be
antidilutive.
7
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
9. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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 loss is comprised solely of net
loss.
10. CONTINGENCIES
The Company is involved in various legal proceedings of a nature considered
normal to its business including patent litigation, product liability and other
matters. In the event of the adverse outcome of these proceedings, resulting
liabilities are either covered by insurance, established reserves or, in the
opinion of management, would not have a material adverse effect on the financial
condition or results of operations of the Company.
11. UNITED STATES FEDERAL INCOME TAXES
The Company operates in Ireland and the United States and is subject to
various taxes on income in both jurisdictions. The Company's wholly-owned United
States subsidiary, Warner Chilcott, Inc., is a United States corporation and, as
such, is subject to United States taxation. Ultimate utilization or availability
of net operating losses and certain deferred tax assets may be limited if a
significant change in ownership occurs, as defined by rules enacted with the
United States Tax Reform Act of 1986. The Company did not accrue a liability for
Federal or State income taxes in the three months ended March 31, 2000 as a
result of the anticipated utilization of these net operating loss carryforwards.
12. CONSOLIDATING SCHEDULE
Following are consolidating schedules reflecting Balance Sheet and
Statement of Operations information for the Company as of March 31, 2000, and
for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
WARNER
WARNER CHILCOTT
CHILCOTT LABORATORIES
WARNER (BERMUDA), WARNER IRELAND ELIMINATION
CHILCOTT, PLC LTD. CHILCOTT, INC. LTD. ENTRIES CONSOLIDATED
------------- ---------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, 2000
BALANCE SHEET INFORMATION:
ASSETS
Cash and cash
equivalents............ $ 17 $ 6,066 $ 30,029 $ -- $ -- $ 36,112
Accounts receivable....... -- -- 20,978 775 -- 21,753
Inventories............... -- -- 6,135 -- -- 6,135
Other assets.............. 45 -- 1,297 -- 1,342
-------- -------- -------- ------ --------- --------
Total current assets... 62 6,066 58,439 775 -- 65,342
-------- -------- -------- ------ --------- --------
Long-term assets.......... -- -- 242,109 3,723 -- 245,832
Investment in
subsidiaries........... 185,594 -- -- -- (185,594) --
-------- -------- -------- ------ --------- --------
Total assets........... $185,656 $ 6,066 $300,548 $4,498 $(185,594) $311,174
======== ======== ======== ====== ========= ========
</TABLE>
8
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
WARNER
WARNER CHILCOTT
CHILCOTT LABORATORIES
WARNER (BERMUDA), WARNER IRELAND ELIMINATION
CHILCOTT, PLC LTD. CHILCOTT, INC. LTD. ENTRIES CONSOLIDATED
------------- ---------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND EQUITY
Current liabilities....... $ 257 $ -- $ 14,258 $ 112 $ -- $ 14,627
Inter-company accounts.... 19,947 (15,676) (3,893) (378) -- --
Working capital
facility............... -- -- -- -- -- --
Long-term debt............ -- -- 196,370 -- -- 196,370
Shareholders' equity...... 165,452 21,742 93,813 4,764 (185,594) 100,177
-------- -------- -------- ------ --------- --------
Total liabilities and
shareholders'
equity............... $185,656 $ 6,066 $300,548 $4,498 $(185,594) $311,174
======== ======== ======== ====== ========= ========
STATEMENT OF OPERATIONS
INFORMATION:
REVENUES
Product sales............. $ -- $ -- $ 17,535 $ -- $ -- $ 17,535
Marketing alliance and
other revenue.......... -- -- 5,975 2,600 (31) 8,544
-------- -------- -------- ------ --------- --------
Total revenues......... -- -- 23,510 2,600 (31) 26,079
-------- -------- -------- ------ --------- --------
OPERATING EXPENSES
Cost of goods sold........ -- -- 6,127 -- -- 6,127
Selling, general &
admin.................. 499 6 12,105 37 -- 12,647
Depreciation and
amortization........... -- -- 2,343 78 -- 2,421
Research and
development............ -- -- 24 476 (31) 469
-------- -------- -------- ------ --------- --------
Total operating
expenses............. 499 6 20,599 591 (31) 21,664
-------- -------- -------- ------ --------- --------
Interest income (expense),
net.................... -- 234 (3,337) -- -- (3,103)
Income taxes.............. -- -- -- -- -- --
Extraordinary item........ -- -- (731) -- -- (731)
-------- -------- -------- ------ --------- --------
NET INCOME (LOSS)...... $ (499) $ 228 $ (1,157) $2,009 $ -- $ 581
======== ======== ======== ====== ========= ========
MARCH 31, 1999
STATEMENT OF OPERATIONS
INFORMATION:
REVENUES
Product sales.......... $ -- $ -- $ 13,866 $ -- $ -- $ 13,866
Marketing alliance and
other revenue........ -- -- 3,853 3,379 (50) 7,182
-------- -------- -------- ------ --------- --------
Total revenues......... -- -- 17,719 3,379 (50) 21,048
-------- -------- -------- ------ --------- --------
</TABLE>
9
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
WARNER
WARNER CHILCOTT
CHILCOTT LABORATORIES
WARNER (BERMUDA), WARNER IRELAND ELIMINATION
CHILCOTT, PLC LTD. CHILCOTT, INC. LTD. ENTRIES CONSOLIDATED
------------- ---------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES
Cost of goods sold........ -- -- 8,449 -- -- 8,449
Selling, general &
admin.................. 270 6 11,487 348 -- 12,111
Depreciation and
amortization........... -- -- 1,334 78 1,412
Research and
development............ -- -- 131 760 (50) 841
-------- -------- -------- ------ --------- --------
Total operating
expenses............. 270 6 21,401 1,186 (50) 22,813
-------- -------- -------- ------ --------- --------
Interest income (expense),
net.................... -- 349 (581) -- -- (232)
Income taxes.............. -- -- -- -- -- --
-------- -------- -------- ------ --------- --------
NET INCOME (LOSS)...... $ (270) $ 343 $ (4,263) $2,193 $ -- $ (1,997)
======== ======== ======== ====== ========= ========
</TABLE>
13. SUBSEQUENT EVENT
On May 4, 2000 the Company entered into an agreement with Galen Holdings,
plc under which the Company would be acquired by Galen Holdings, plc. The
acquisition would be effected through a scheme of arrangement under the laws of
the Republic of Ireland. Under the agreement Galen Holdings, plc proposes to
issue 2.5 new Galen ordinary shares for each of the Company's ordinary shares.
The acquisition is subject to various conditions, including, among other things,
sanction by the High Court of Ireland, regulatory approval, approval by the
Company's and Galen's shareholders and Galen obtaining a listing of its shares,
in American Depositary Share form, on NASDAQ.
The proposed transaction with Galen would constitute a change of control
under the 12 5/8% senior note indenture. Accordingly, holders of the $200,000
face amount of senior notes would have the right to require that WCI repurchase
the senior notes at a purchase price equal to 101% of the principal amount plus
accrued interest (see note 3).
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to
analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
our future prospects, developments and business strategies.
These forward-looking statements are identified by their use of terms and
phrases, such as "anticipate", "believe", "could", "estimate", "expect",
"intend", "may", "plan", "predict", "project", "will", and similar terms and
phrases, including references to assumptions. However, these words are not the
exclusive means of identifying such statements. These statements are subject to
significant risks and uncertainties, including those identified in the section
of this Form 10-Q entitled "Risk Factors" and in our 1999 Annual Report on Form
10-K filed with the Securities and Exchange Commission, which may cause actual
results to differ materially from those discussed in such forward-looking
statements. We do not undertake to update our forward-looking statements to
reflect future events or circumstances.
The following discussion should be read in conjunction with the
consolidated unaudited financial statements and notes thereto, appearing in Item
1 of this Form 10-Q.
OVERVIEW
We develop and market branded prescription pharmaceutical products in the
United States. Our primary area of focus is the large and growing women's health
and urology therapeutic categories. We also participate in the cardiology and
dermatology categories. Through our national sales force of over 260
representatives, we market branded pharmaceutical products directly to physician
specialists across the United States, including obstetrician/gynecologists,
urologists, cardiologists, dermatologists and high-prescribing general/family
practitioners. We have an experienced management team with significant
pharmaceutical industry expertise, specifically in the marketing of prescription
pharmaceutical brands.
An important part of our strategy is to acquire established branded
pharmaceutical products and to increase their sales through enhanced promotion
targeted to high-prescribing physicians. We also internally develop branded
products as well as product line extensions for our existing products, such as
new formulations, dosages or new indications. Line extensions are particularly
valuable because they may enable us to extend the growth potential of our
brands.
We currently market a portfolio of branded products including: NataFort(R),
a prescription prenatal vitamin designed to improve patient compliance by virtue
of its smaller size relative to competing products; NataChew(TM), a prescription
strength chewable prenatal vitamin; Estrace(R), a hormone replacement vaginal
cream; Ovcon(R) 35 and Ovcon(R) 50, two oral contraceptives; Pyridium Plus(R),
an orally active urinary tract analgesic antispasmodic agent used for irritative
bladder conditions; Doryx(R), a broad spectrum antibiotic; LoCholest(R), a lipid
regulator for the reduction of LDL cholesterol levels; K-Dur(R), a sustained
release potassium supplement; Nitro-Dur(R), a nitroglycerin patch for the
treatment of angina; and Lotrisone(R), a topical combination
antifungal/corticosteroid. NataFort(R), NataChew(TM), Estrace(R), Ovcon(R) 35,
Ovcon(R) 50, Pyridium Plus(R), Doryx(R) and LoCholest(R)are products owned by
us; K-Dur(R), Nitro-Dur(R), and Lotrisone(R) are products owned by
Schering-Plough and promoted by us under an agreement with Schering-Plough.
As a result of our efforts to expand our branded product sales, gross
margins improved from 39.1% for the three months ended March 31, 1999 to 65.1%
for the current period. Branded products generally generate significantly higher
gross margins than generic products.
HISTORY
We are an Irish public limited company founded in 1992 as Nale Laboratories
Limited. In March 1996 Nale acquired certain assets and assumed certain
liabilities of Warner Chilcott Laboratories, a division of the Warner-Lambert
Company. Following this transaction, Nale changed its name to Warner Chilcott
Public Limited Company and the assets and liabilities acquired from
Warner-Lambert are now organized in the United States in our wholly owned
subsidiary Warner Chilcott, Inc.
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<PAGE> 13
As part of the acquisition of Warner Chilcott Laboratories, we acquired a
portfolio of seventy generic pharmaceutical products. In 1997 we launched our
branded product initiative and switched our primary focus to the development,
acquisition and in-licensing of branded pharmaceutical products, and began to
reduce our generic pharmaceutical business. We have made significant progress
towards the reduction of our generic product portfolio, with less than ten
generic products remaining of the original seventy.
Our revenues are primarily generated in the United States and the U.S.
dollar is our functional currency. Accordingly, our exposure to currency
fluctuation is limited. Product sourcing from vendors and research and
development agreements are normally contracted in U.S. dollars. As a company
operating in multiple jurisdictions, we will be subject to taxation on our
earnings in the jurisdictions in which we operate. At present, such
jurisdictions include Ireland and the United States.
RECENT DEVELOPMENT
On May 4, 2000 we entered into an agreement with Galen Holdings, plc under
which we would be acquired by Galen Holdings, plc. The acquisition would be
effected through a scheme of arrangement under the laws of the Republic of
Ireland. Under the agreement Galen Holdings, plc proposes to issue 2.5 new Galen
ordinary shares for each of our ordinary shares. The acquisition is subject to
various conditions, including, among other things, sanction by the High Court of
Ireland, regulatory approval, approval by our and Galen's shareholders and Galen
obtaining a listing of its shares, in American Depositary Share form, on NASDAQ.
RESULTS OF OPERATIONS
Three months ended March 31, 2000 and 1999
Our first quarter total revenues of $26.1 million increased $5.0 million,
or 23.9%, as compared to the prior year period. During both the first quarter of
2000 and 1999 our revenues were generated from three sources: (1) sales of our
branded products, (2) marketing alliances, and (3) sales of generic products.
The driving force behind the increase in revenues was higher sales of branded
products, which increased 70.7% as compared to 1999.
Our branded product sales increased $5.9 million to $14.2 million from $8.3
million in the first quarter 1999. Combined sales of NataFort(R) and
NataChew(TM), our prenatal multi-vitamin lines, increased significantly from
1999. NataChew(TM), our chewable prenatal vitamin, was launched late in 1999.
Doryx(R) sales were also significantly higher in the current quarter as compared
to 1999. In February 2000 we acquired three branded pharmaceutical products from
Bristol-Myers Squibb Company for a purchase price of $175.1 million. The
products acquired were Estrace(R) cream Ovcon(R) 35 and Ovcon(R) 50. Sales of
these newly acquired branded products are included in our reported branded sales
for the first quarter 2000, and contributed $4.0 million of the increase in
branded product sales as compared to 1999. Sales of generic products of $3.4
million declined $2.2 million, or 39.5%, from $5.6 million as we continued our
planned exit from this low-margin business.
Gross profit on product sales increased $6.0 million to $11.4 million, as
compared with $5.4 million in the first quarter of 1999, driven by a $3.7
million increase in total product sales and a significant improvement in the
average gross profit margin on those sales. Gross margin increased from 39.1% in
the year-ago quarter to 65.1% in the first quarter of 2000 due to the high
margins earned on the three products acquired from Bristol-Myers Squibb during
the quarter and high-margin branded products accounting for a greater percentage
of total product sales.
Marketing alliance and other revenue totaled $8.5 million in the quarter,
up $1.4 million, or 19.0%, from $7.2 million in 1999. In the first quarter of
2000, this revenue was generated from three sources: (1) royalties under our
promotion agreement with Schering Plough Corporation, (2) milestone and
royalties under our license agreement with Elan Corporation, plc for an extended
release nifedipine product, and (3) milestone and royalties under our agreement
with Medicis Pharmaceutical Corp. relating to a 75mg minocycline product. Under
the agreement with Schering Plough, we earn a fixed royalty plus incentive
amounts based upon the market share performance of three branded products:
K-Dur(R), Lotrisone(R) and Nitro-Dur(R). During the first quarter of 2000 we
earned incentive amounts on K-Dur(R) and Lotrisone(R). In March 2000 the
extended
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<PAGE> 14
release nifedipine product received FDA approval and was launched in the United
States. The approval triggered a $2.0 million payment to us and with the launch
we began to accrue a royalty based upon U.S. net sales of the nifedipine
product. Also during the quarter, we achieved certain milestones related to the
75mg minocycline product and continued to earn royalties based upon Medicis'
sales of the product. In the first quarter of 1999, marketing alliance and other
revenue was predominately comprised of royalties earned under our promotion
agreement with Schering Plough, $3.0 million earned by us as part of our
licensing of the extended release nifedipine product to Elan and a modest
royalty related to our promotion of two products, Estrace(R) cream and Ovcon(R)
35, for Bristol Myers Squibb.
Selling, general and administrative expenses of $12.6 million were 4.4%
higher than the $12.1 million incurred in the first quarter of 1999.
Administrative expenses were essentially flat compared with the prior year while
selling costs rose $0.5 million. Our field sales force was approximately the
same size in the first quarter of 2000 as in the year ago quarter. The increase
in selling cost was primarily the result of additional promotional expenses
incurred in support of the three products acquired from Bristol Myers Squibb
during the quarter and high sampling activity related to the launch of
NataChew(TM). Depreciation and amortization of $2.4 million was $1.0 million
higher than in the first quarter of 1999 primarily due to the amortization of
the intangible assets associated with the acquired Estrace(R)and Ovcon(R)
brands.
Research and development costs of $0.5 million were down $0.3 million as
compared with the first quarter of 1999. The decrease in spending was due to the
timing of costs associated with the development of a 75mg minocycline product.
We incurred nearly $0.4 million of such costs in the first quarter of 1999. The
project was completed in the third quarter of 1999 and, accordingly, we did not
incur any costs on this project in the first quarter of 2000. The 75mg
minocycline project was successful and the FDA approved the product in September
1999. That approval triggered milestone and royalties included in marketing
alliance and other revenue beginning in the third quarter of 1999 and continuing
into 2000 as discussed above. We continue to focus on product development
projects with near-term revenue potential and relatively low finding
requirements including, for example, line extensions of our branded products.
Interest income of $0.6 million was consistent with the prior year period.
Interest expense of $3.7 million increased $2.9 million as compared to the prior
year period. This increase was primarily due to the interest expense related to
the issuance in mid-February 2000 of $200 million of 12 5/8% senior notes due
2008. Interest expense related to our working capital credit facility decreased
$0.3 million due to our lower outstanding balance in the current quarter.
Following the issuance of the senior notes, borrowings under our working capital
credit facility during the remainder of the quarter were minimal. Also in
mid-February 2000 we prepaid the outstanding principal balance due on our senior
subordinated discount notes due 2001. Due to this early redemption, related
interest expense for the first quarter 2000 was $0.2 million lower than the
interest expense in the 1999 period. The extraordinary expense item of $0.7
million includes the $0.5 million penalty we incurred in connection with early
redemption of the senior subordinated discount notes, and the write-off of
deferred financing costs.
For the first quarter of 2000 we posted our first quarterly net income of
$0.6 million, or $0.05 per ordinary share on a diluted basis. This is an
improvement of $2.6 million compared to a net loss of $2.0 million, or $0.16 per
ordinary share on a diluted basis, for the same period in 1999. Improved gross
profit on product sales and increased revenues from marketing alliances more
than offset the increased costs associated with our newly acquired Estrace(R)
and Ovcon(R) brands. Income before the extraordinary item was $1.3 million, or
$0.10 per ordinary share on a diluted basis.
LIQUIDITY AND CAPITAL RESOURCES
The first quarter of 2000 is the first reporting period in which we
generated a positive cash flow. Our cash flow (which we define as net
income/loss plus depreciation and amortization) in the quarter was $3.0 million
as compared with a cash outflow of $.06 million in the first quarter of 1999.
This improvement was the result of sales growth from the acquisition of the
Estrace(R) cream and Ovcon(R) brands, sales growth for our existing products and
increased gross profit margins on product sales. Offsetting some of these gains
were modest increases in our selling expenses, mainly for promotion of our
expanded portfolio of
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<PAGE> 15
products, and increased interest costs associated with the financing of the
acquisition of the Estrace(R) and Ovcon(R) brands.
The most significant event during the quarter was the acquisition of the
Estrace(R) cream and Ovcon(R) brands from Bristol-Myers Squibb for an initial
purchase price of $180.0 million. The acquisition was funded through the
issuance by Warner Chilcott, Inc., our wholly owned U.S. operating subsidiary,
of $200.0 million face amount of 12 5/8% senior notes at discount of $3.7
million to yield 13.0%. Interest payments on the senior notes are due
semi-annually in arrears on each February 15th and August 15th beginning August
15th 2000. Warner Chilcott, plc, the parent company of Warner Chilcott, Inc.
unconditionally guaranteed the senior notes on a senior basis.
Proceeds from the issuance of the senior notes, net of the discount and an
estimated $8.0 million of transaction expenses, were approximately $188.3
million. The net proceeds, together with some of our cash on hand, were used:
(i) to acquire the Estrace(R) and Ovcon(R) brands, (ii) to prepay all $10.5
million of the senior subordinated discount notes due 2001, plus a prepayment
penalty of $0.5 million on those notes and (iii) to repay amounts outstanding
under our working capital facility.
On February 28, 2000 Warner Chilcott, Inc. amended its working capital
facility to reduce the maximum amount available from $30.0 million to $10.0
million. In connection with the amendment of the working capital facility the
parent company, Warner Chilcott, plc, unconditionally guaranteed Warner
Chilcott, Inc.'s obligation under the working capital facility. At March 31,
2000 no amounts were outstanding under the working capital facility. We intend
to utilize the working capital facility to provide for short-term liquidity
requirements and expect average borrowings under the facility to be modest.
In March 2000 the purchase price we paid for the Estrace(R) and Ovcon(R)
brands was reduced by $4.9 million from $180.0 million to $175.1 million. Under
the terms of the asset purchase agreement the purchase price was subject to
downward adjustment based on estimates of the amount of inventory of the
acquired brands held by wholesalers and distributors as of January 31, 2000. The
$4.9 million adjustment was recorded as of March 31, 2000 and on April 13, 2000
we received payment of that amount from Bristol-Myers Squibb.
The acquisition of the Estrace(R) and Ovcon(R) brands was accounted for as
a purchase and the $175.1 million purchase price was allocated as follows:
$168.0 million to intangible assets identified with the brands and $7.1 million
to goodwill. No hard assets were acquired in the transaction. Both the
intangible assets and goodwill are being amortized over 20 years, their
estimated useful lives.
Our investment in adjusted working capital (current assets other than cash
and equivalents minus current liabilities) increased from $5.5 million at
December 31, 1999 to $14.6 million at March 31, 2000. Accounts receivable
increased by $10.2 million due to several factors including: (1) the increased
level of sales activity, (2) our granting of extended terms to ensure that
NataChew(TM) obtained adequate distribution in its launch phase, (3) the timing
of amounts earned under our license agreements with Elan and Medicis, and (4)
the inclusion at March 31st of the $4.9 million receivable from Bristol-Myers
Squibb arising from the adjustment to the purchase price described above.
Inventories increased $2.1 million mainly due to the purchase of inventory to
support the sales of Estrace(R) cream and Ovcon(R), but also reflecting the
higher investment in inventory required to support the growth in sales of our
other products. Current liabilities increased $3.7 million from December 31,
1999 due to the interest accrual for the 12 5/8% senior notes and the timing of
purchases of inventory to support our sales growth, which were offset in part by
a decrease in our incentive plan accrual. We accrue the cost of our incentive
plans throughout the year with the payout made in the first quarter of the
following year. Accordingly, the incentive accrual is near its peak at year-end.
We ended the quarter with $36.1 million of cash on hand as compared with
$51.0 million at December 31, 1999. We became profitable and cash flow positive
from operations during the quarter and expect to continue to be profitable and
cash flow positive. We intend to fund our future liquidity needs through a
combination of cash generated from operations, cash balances on hand and
availability under our working capital facility. We believe that these sources
will be sufficient to fund our anticipated working capital needs for the
foreseeable future.
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<PAGE> 16
However, in the event that we make significant future acquisitions, we may
be required to raise additional funds through the issuance of additional debt or
equity securities.
INFLATION
Inflation had no material impact on our operations during the three months
ended March 31, 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999 the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101). SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 requires a company to follow its guidance not
later than the second quarter of its fiscal year beginning after December 15,
1999 through a cumulative effect of a change in accounting principle. We do not
expect adoption of this standard to have a material impact on our financial
statements.
RISK FACTORS
Following is a discussion of some of the risks and historical facts that
should be considered when evaluating our current and future results. This
discussion is not intended to include all risks and historical facts that could
produce adverse results.
We have a history of operating losses. Prior to the first quarter of 2000,
operating losses were posted since the formation of the Company in 1992. As of
March 31, 2000 our accumulated deficit was $109.7 million. Our ability to
maintain profitability will depend upon, among other things, the success of our
branded product portfolio, including the Estrace(R) cream and Ovcon(R) brands
acquired in February 2000, and the continuation of our marketing alliance with
Schering-Plough.
With the issuance of the $200.0 million face amount of 12 5/8% senior notes
on February 15, 2000 we have a significant amount of indebtedness. Our
substantial indebtedness could limit our ability to raise additional funding
needed to execute our growth strategy. Although we may seek additional funding
through the public or private capital markets, there can be no assurance that
any such funding will be available to us, if needed. Our ability to pay
principal and interest on our indebtedness depends on our financial and
operating performance, each of which is subject to prevailing economic
conditions and financial, business and other factors, some of which are beyond
our control.
Intense competition exists within the pharmaceutical industry. Many
companies, some with greater financial, marketing and development capabilities
than us, are engaged in developing, marketing and selling products that compete
with the products we offer. Other products now in use or under development by
others may be more effective or have fewer side effects than our current or
future products. The industry is characterized by rapid technological change,
and competitors may develop their products more rapidly than us. Competitors may
also be able to complete the regulatory process sooner and, therefore, may begin
to market their products in advance of our products. Product developments by
others may render one or more of our products obsolete or otherwise
noncompetitive.
The clinical development, manufacture, marketing and sale of pharmaceutical
products is subject to extensive federal, state and local regulation in the
United States and similar regulation outside the United States. FDA approval is
required before most drug products can be marketed. FDA filings can be time
consuming and expensive without assurance that the results will be adequate to
justify approval. There can be substantial delays in the process, including the
need to provide additional data. There can be no assurance that approvals for
filings already made by us, or to be made in the future, can be obtained in a
timely manner, if at all, or that the regulatory requirements for any such
proposed products can be met. In addition, new regulations may adversely affect
our operations or competitive position in the future.
The distribution network for pharmaceutical products has in recent years
been subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market. In addition, the number
of independent drug stores and small chains has decreased as retail pharmacy
consolidation has occurred. Continued consolidation of either wholesale
distributors or retail pharmacies may adversely effect our operations.
We depend on third parties for the manufacture of our products, including
the Estrace(R) cream and Ovcon(R) brands acquired in February 2000. Currently we
do not possess the facilities or resources needed for these activities. Our
strategy for development, commercialization and manufacturing of certain of our
products entails entering into various arrangements with corporate
collaborators, licensors and others. If any of our corporate collaborators were
unable to satisfy their contractual obligations to us, there can be no assurance
that we would be able to negotiate similar arrangements with other third
parties.
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<PAGE> 17
Many of the principal components of our products are available only from
single source suppliers. There can be no assurance that we will establish or, if
established, maintain good relationships with such suppliers or that such
suppliers will continue to exist or be able to supply ingredients in conformity
with regulatory requirements.
We are engaged in the manufacture and marketing of products that may give
rise to the development of certain legal actions and proceedings. We carry
product liability insurance and umbrella liability insurance. There can be no
assurance that this coverage is adequate to cover potential liability claims or
that additional insurance coverage will be available in the future if we
manufacture and market new products. Our financial condition and results of
operations could be materially adversely affected by the unfavorable outcome of
legal actions and proceedings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our exposure in market risk of financial
instruments contains forward-looking statements. Actual results may differ
materially from those described.
Our holdings of financial instruments are comprised of U.S. corporate debt,
foreign corporate debt, U.S. and state government debt, foreign
government/agency guaranteed debt, bank deposits and certificates of deposit,
and commercial paper. All such instruments are classified as securities
available for sale. We do not invest in portfolio equity securities or
commodities or use financial derivatives for trading purposes. Our debt security
portfolio represents funds held temporarily pending use in our business and
operations. We manage these funds accordingly. We seek reasonable assuredness of
the safety of principal and market liquidity by investing in rated fixed income
securities while at the same time seeking to achieve a favorable rate of return.
Our market risk exposure consists principally of exposure to changes in interest
rates. Our holdings are also exposed to the risks of changes in the credit
quality of issuers. We invest in the shorter-end of the maturity spectrum, and
at March 31, 2000 100% of such holdings matured in one year or less.
We financed the February 2000 acquisition of the Bristol-Myers Squibb
products through the sale of senior notes by our Warner Chilcott, Inc.
subsidiary. On February 15, 2000 Warner Chilcott, Inc. issued $200 million of
12 5/8% senior notes due 2008 at a discount of $3.7 million to yield 13%.
Interest payments on the senior notes are due semi-annually in arrears on each
February 15th and August 15th beginning August 15, 2000.
PART II -- OTHER INFORMATION
ITEM 4. LEGAL PROCEEDINGS
We are involved in litigation relating to claims arising out of our
operations in the normal course of business, including product liability claims.
On April 6, 1998 our Warner Chilcott, Inc. subsidiary was sued by Abbott
Laboratories in the United States District Court for the Northern District of
Illinois for an alleged patent infringement related to our ANDA filing for
terazosin hydrochloride. Abbott markets terazosin hydrochloride under the brand
name Hytrin(R). On August 28, 1998 the judge hearing a case Abbott had commenced
against another terazosin hydrochloride ANDA applicant, Geneva Pharmaceuticals,
Inc., granted summary judgment against Abbott. On September 9, 1998 we moved for
partial summary judgment dismissing the action based on the summary judgment of
the Geneva case. The court granted our motion and entered a final judgment in
favor of us dismissing the action. Abbott appealed dismissal of both the Geneva
action and our action to the U.S. Court of Appeals for the Federal Circuit. By
judgment effective December 15, 1999, the Court of Appeals affirmed the District
Court's judgment dismissing both actions. Abbott filed a petition for certiorari
seeking review of the Court of Appeals decision in the Geneva case by the U.S.
Supreme Court and on January 10, 2000, the Supreme Court denied Abbott's
petition for certiorari. Abbott's time to file a petition for certiorari in
their case against us expired on March 15, 2000 with Abbott having filed no
petition.
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<PAGE> 18
There have been no other significant developments in the proceedings
described in the our 1999 Annual Report on Form 10-K filed with the Securities
and Exchange Commission, and we have not become involved in any additional
material proceedings.
ITEM 5. OTHER INFORMATION
Pursuant to newly adopted rules of the Securities and Exchange Commission,
any company shareholder who intends to present a proposal at our Annual General
Meeting of shareholders in 2001 without requesting that we include such proposal
in our proxy materials should be aware that he or she must notify us not later
than January 25, 2001 of his or her intention to present such proposal.
Otherwise, we may exercise discretionary voting with respect to such shareholder
proposal pursuant to authority conferred on us by proxies delivered to us in
connection with the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS -- THE FOLLOWING EXHIBIT IS FILED WITH THIS DOCUMENT:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
B. REPORTS ON FORM 8-K:
On February 29, 2000 we filed a Form 8-K Report, dated February 15, 2000,
which announced our purchase of three branded pharmaceutical products from
Bristol-Myers Squibb Company and our Warner Chilcott Inc. subsidiary's issuance
of $200 million aggregate principal amount of debt securities.
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<PAGE> 19
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
WARNER CHILCOTT PUBLIC LIMITED COMPANY
(Registrant)
<TABLE>
<S> <C>
May 15, 2000 /s/ PAUL S. HERENDEEN
--------------------------------------------------------------
Paul S. Herendeen
Executive Vice President & Chief Financial Officer
(Principal Financial Officer)
May 15, 2000 /s/ DAVID G. KELLY
--------------------------------------------------------------
David G. Kelly
Group Vice President, Finance
(Principal Accounting Officer)
</TABLE>
18
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