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Previous: WATSON PHARMACEUTICALS INC, 10-Q/A, 1997-01-13 |
Next: WATSON PHARMACEUTICALS INC, 10-Q/A, 1997-01-13 |
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
COMMISSION FILE NUMBER 0-20045
WATSON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 95-3872914
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
311 BONNIE CIRCLE
CORONA, CA 91720
(Address of principal executive offices) (Zip Code)
909-270-1400
(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 twelve 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 _______
The number of shares outstanding of the Registrant's only class of common stock
as of August 1, 1996 was 36,771,139 shares.
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WATSON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $119,346 $92,214
Marketable securities 33,952 26,038
Accounts receivable, net of allowances for
doubtful accounts of $1,375 and $1,320 24,168 25,081
Royalty receivable 6,125 8,205
Inventories:
Raw materials 12,579 11,483
Work-in-process 4,368 5,112
Finished goods 10,014 6,042
Prepaid expenses and other current assets 3,565 2,344
Current deferred tax assets 13,364 21,115
-------- --------
Total current assets 227,481 197,634
Property and equipment, net 73,147 69,999
Investments in joint ventures and
other long-term investments 62,756 49,355
Other assets 4,970 5,133
-------- --------
Total assets $368,354 $322,121
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 3
WATSON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 19,683 $ 25,215
Income taxes payable 3,560 2,985
Current portion of long-term debt 621 622
-------- --------
Total current liabilities 23,864 28,822
Long-term debt 3,273 3,577
Other liabilities 228 687
-------- --------
Total liabilities 27,365 33,086
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock; no par; 2,500,000 shares
authorized; none outstanding
Common stock; par value of $.0033; 500,000,000
shares authorized; 36,699,609 and 36,368,725
shares issued and outstanding 121 120
Additional paid-in capital 153,916 146,439
Retained earnings 177,662 142,711
Unrealized holding gain on marketable securities 9,645 621
Unearned compensation-stock awards (355) (856)
-------- --------
Total stockholders' equity 340,989 289,035
-------- --------
Total liabilities and stockholders' equity $368,354 $322,121
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
WATSON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended For the three months ende
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $80,546 $60,625 $40,990 $31,700
Royalty income 12,602 10,493 6,616 5,293
-------- -------- -------- --------
Total revenues 93,148 71,118 47,606 36,993
-------- -------- -------- --------
Operating expenses:
Cost of revenues 37,649 30,174 18,933 15,447
Research and development 8,458 9,690 4,002 4,920
Selling, general and
administrative 8,891 8,511 4,629 4,313
-------- -------- -------- --------
Total operating expenses 54,998 48,375 27,564 24,680
-------- -------- -------- --------
Operating income 38,150 22,743 20,042 12,313
Other income:
Equity in earnings of joint ventures 9,353 10,204 4,709 4,993
Investment and other income 3,568 2,560 1,705 1,473
-------- -------- -------- --------
Total other income 12,921 12,764 6,414 6,466
-------- -------- -------- --------
Income before provision
for income taxes 51,071 35,507 26,456 18,779
Provision for income taxes 16,120 9,803 8,490 5,465
-------- -------- -------- --------
Net income $34,951 $25,704 $17,966 $13,314
======= ======= ======= =======
Per share data:
Earnings per share $0.93 $0.70 $0.48 $0.36
======= ======= ======= =======
Weighted average number of
common and common
equivalent shares outstanding 37,648 36,846 37,670 36,929
======= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
WATSON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
June 30,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,951 $ 25,704
--------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,966 2,477
Provision for doubtful accounts 55 92
Amortization of unearned compensation-stock awards 501 793
Amortization of deferred income (458) (458)
Equity in earnings of joint ventures (7,497) (8,432)
Dividends received from Somerset 6,500 9,000
Decrease in deferred partnership liability (10,493)
Tax benefit related to stock option plan 3,428 1,760
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 859 (2,020)
Decrease in royalty receivable 2,080
(Increase) in inventories (4,325) (3,332)
(Increase) decrease in other current assets (1,222) 418
Decrease in deferred tax assets 7,750 2,668
(Increase) decrease in other assets 163 (5,304)
Increase (decrease) in accounts payable and
accrued expenses (5,531) 4,367
Increase in income taxes payable 575 263
--------- ---------
Total adjustments 5,844 (8,201)
--------- ---------
Net cash provided by operating
activities 40,795 17,503
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,159) (10,536)
Disposal of property and equipment 46
Purchase of marketable securities (358,550) (113,359)
Proceeds from sale of marketable securities 349,714 117,118
Investments in joint ventures (2,460)
--------- ---------
Net cash used in investing
activities (17,409) (6,777)
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
WATSON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
June 30,
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 4,051 2,376
Principal payments on long-term debt (305) (352)
--------- --------
Net cash provided by
financing activities 3,746 2,024
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 27,132 12,750
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 92,214 71,165
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $119,346 $83,915
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $165 $189
Income taxes $4,301 $4,290
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 7
WATSON PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
NOTE A - MERGER WITH CIRCA PHARMACEUTICALS, INC. ("CIRCA")
On July 17, 1995, the stockholders of Watson Pharmaceuticals, Inc. (the
"Company") and Circa approved the merger in which Circa became a wholly-owned
subsidiary of the Company. Under the terms of the merger agreement, Circa
stockholders received 0.86 of a share of the Company's common stock for each
Circa share. Accordingly, the Company issued approximately 18.7 million shares
of its common stock for all of the outstanding common shares of Circa. The
merger qualified as a tax-free reorganization and was accounted for as a
pooling-of-interests. The Company's financial statements have been
retroactively restated to include the results of Circa for all periods
presented.
NOTE B - GENERAL
The unaudited, consolidated financial statements as of June 30, 1996 and for
the three and six months ended June 30, 1996 and 1995, as well as related notes
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments), necessary to present fairly the Company's financial position as
of June 30, 1996, and the results of operations for the three and six months
ended June 30, 1996 and 1995 and cash flows for the six months ended June 30,
1996 and 1995. The results of operations and cash flows for the three and six
months ended June 30, 1996 are not necessarily indicative of the results of
operations or cash flows which may be reported for the remainder of 1996. The
accounting policies followed during the three and six months ended June 30,
1996 were the same as those disclosed in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
NOTE C - INVESTMENT IN ANDRX CORPORATION ("ANDRX")
The Company owns 2,091,790 shares of the outstanding common stock of Andrx and
holds warrants to purchase an additional 337,079 shares of Andrx common stock.
Andrx completed its initial public offering in June 1996. Pursuant to Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities", the Company considers its investment in Andrx
as an "available-for-sale" security and has recorded an unrealized holding gain
of $9.9 million to adjust the cost of this investment to its fair value at
June 30, 1996.
NOTE D - JOINT VENTURES
SOMERSET PHARMACEUTICALS INC. ("Somerset"). The Company maintains a 50% interest
in the outstanding common stock of Somerset and utilizes the equity interest
method to account for this investment. Somerset markets the product Eldepryl(R),
which is used in the treatment of Parkinson's diease. Income recognized from
Somerset was $5.3 million for the quarter ended June 30, 1996 and $10.5 million
for the six months ended June 30, 1996. Income includes 50% of Somerset's
earnings, ongoing management fees and amortization of deferred income, offset by
goodwill. The excess cost of this investment over the Company's proportionate
share of Somerset's net assets was $8.9 million at June 30, 1996 and $9.4
million at December 31, 1995 and is being amortized on a straight-line basis
over 15 years.
Condensed balance sheets and income statements of Somerset are as follows:
<TABLE>
<CAPTION>
June 30, 1996 Dec. 31, 1995
------------- -------------
<S> <C> <C>
(in thousands)
Cash $34,806 $43,993
Other assets 38,169 7,127
------- -------
Total assets $72,975 $51,120
======= =======
Current liabilities $33,730 $17,057
Other liabilities 0 63
Stockholders' equity 39,245 34,000
------- -------
Total liabilities and
stockholders' equity $72,975 $51,120
======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $30,143 $22,997 $55,603 $48,269
Costs and expenses 16,295 8,853 27,784 19,242
Income taxes 4,807 4,437 9,574 9,349
------- ------- ------- -------
Net income $ 9,041 $ 9,707 $18,245 $19,678
======= ======= ======= =======
</TABLE>
ANCIRC. In July 1994, the Company and Andrx Corporation ("Andrx") formed a joint
venture, ANCIRC, to develop off-patent pharmaceutical products utilizing Andrx's
controlled-release technology. During 1995, the terms of the joint venture were
amended whereby the Company and Andrx became equal partners in sharing of costs
and profits in the ANCIRC joint venture. Previously, the Company was
responsible for 40% of the costs and profits of ANCIRC. The Company utilizes
the equity method to account for this joint venture and recognized losses from
ANCIRC of approximately $486,000 for the quarter ended June 30, 1996 and $1.0
million for the six months ended June 30, 1996.
Condensed balance sheets and income statements of ANCIRC are as follows:
<TABLE>
<CAPTION>
June 30, 1996 Dec. 31, 1995
------------- -------------
<S> <C> <C>
Cash $ 4 $ 85
Other assets 28 0
------- -------
Total assets $ 32 $ 85
======= =======
Current liabilities $ 894 $ 1,285
Partners' deficit (862) (1,200)
------- -------
Total liabilities and
partners' deficit $ 32 $ 85
======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Research & development expenses $ 976 $ 899 $ 2,066 $ 1,360
------- ------- ------- -------
Net loss $ (973) $ (898) $(2,062) $(1,357)
======= ======= ======= =======
</TABLE>
7
<PAGE> 8
WATSON PHARMACEUTICALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WATSON PHARMACEUTICALS, INC.
(Registrant)
By: /s/ ALLEN CHAO, PH.D
-------------------------------------
Allen Chao, Ph.D.
Chairman and Chief Executive Officer
(Principal Executive and Financial Officer)
Dated: January 10, 1997
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