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Previous: WATSON PHARMACEUTICALS INC, 10-K/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 MARCH 31, 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
incorporation or organization) Identification No.)
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 March 31, 1996 was 36,607,989 shares.
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WATSON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $105,623 $ 92,214
Marketable securities 29,235 26,038
Accounts receivable, net of allowances for
doubtful accounts of $1,300 and $1,320 24,508 25,081
Royalty receivable 5,986 8,205
Inventories 28,274 22,637
Prepaid expenses and other current assets 2,389 2,344
Current deferred tax assets 17,414 21,115
-------- --------
Total current assets 213,429 197,634
Property and equipment, net 71,806 69,999
Investments in joint ventures 49,220 49,355
Other assets 4,550 5,133
-------- --------
Total assets $339,005 $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>
March 31, December 31,
1996 1995
--------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 20,569 $ 25,215
Income taxes payable 3,363 2,985
Current portion of long-term debt 621 622
-------- --------
Total current liabilities 24,553 28,822
Long-term debt 3,426 3,577
Other liabilities 458 687
-------- --------
Total liabilities 28,437 33,086
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock; no par; 2,500,000 shares
authorized; none outstanding
Common stock; par value of $.0033; 100,000,000
shares authorized; 36,607,989 and 36,368,725
shares issued and outstanding 121 120
Additional paid-in capital 151,507 146,439
Retained earnings 159,696 142,711
Unrealized holding gain (loss) on marketable securities (151) 621
Unearned compensation-stock awards (605) (856)
-------- --------
Total stockholders' equity 310,568 289,035
-------- --------
Total liabilities and stockholders' equity $339,005 $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 three months
ended March 31,
-----------------------------
1996 1995
---------- -----------
<S> <C> <C>
Revenues:
Product sales $39,556 $28,924
Royalty income 5,986 5,200
------- -------
Total revenues 45,542 34,124
------- -------
Operating expenses:
Cost of revenues 18,716 14,727
Research and development 4,456 4,770
Selling, general and administrative 4,262 4,198
------- -------
Total operating expenses 27,434 23,695
------- -------
Operating income 18,108 10,429
Other income:
Equity in earnings of joint ventures 4,644 5,211
Investment and other income 1,863 1,088
------- -------
Total other income 6,507 6,299
------- -------
Income before provision for income taxes 24,615 16,728
Provision for income taxes 7,630 4,338
------- -------
Net income $16,985 $12,390
======= =======
Per share data:
Earnings per share $ 0.45 $ 0.34
======= =======
Weighted average number of common and
common equivalent shares outstanding 37,626 36,735
======= =======
</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 three months
ended March 31,
--------------------------
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,985 $ 12,390
--------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,429 1,268
Provision for doubtful accounts (20) 20
Amortization of unearned compensation-stock awards 251 397
Amortization of deferred income (229) (229)
Equity in earnings of joint ventures (3,770) (4,243)
Dividends received from Somerset 4,500 4,500
Decrease in deferred partnership liability (5,200)
Tax benefit related to stock option plan 2,350 1,469
Changes in assets and liabilities:
Decrease in accounts receivable 593 451
Decrease in royalty receivable 2,219
(Increase) in inventories (5,637) (1,964)
(Increase) decrease in other current assets (46) 259
Decrease in deferred tax assets 3,700 666
(Increase) decrease in other assets 583 (302)
Increase (decrease) in accounts payable and
accrued expenses (4,645) 2,287
Increase in income taxes payable 377 1,828
--------- --------
Total adjustments 1,655 1,207
--------- --------
Net cash provided by operating activities 18,640 13,597
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,276) (3,618)
Disposal of property and equipment 40
Purchases of marketable securities (174,586) (62,261)
Proceeds from sales of marketable securities 170,617 62,708
Investment in other joint ventures (595)
--------- --------
Net cash used in investing activities (7,800) (3,171)
--------- --------
</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 three months
ended March 31,
-----------------------------
1996 1995
--------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options $ 2,721 $ 1,826
Principal payments on long-term debt (152) (173)
-------- -------
Net cash provided by financing activities 2,569 1,653
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,409 12,079
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 92,214 71,165
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $105,623 $83,244
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $ 84 $ 96
Income taxes $ 986 $ 40
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 7
WATSON PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 March 31, 1996 and for
the three months ended March 31, 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 March 31, 1996, and the results of operations and cash flows for the three
months ended March 31, 1996 and 1995. The results of operations and cash flows
for the three months ended March 31, 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 months ended March 31,
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 - 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 disease. Income
recognized from Somerset was $5.2 million for the quarter ended March 31, 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
$9.2 million at March 31, 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>
Mar. 31, 1996 Dec. 31, 1995
------------- -------------
(in thousands)
<S> <C> <C>
Cash $27,938 $43,993
Other assets 24,598 7,127
------- -------
Total assets $52,536 $51,120
======= =======
Current liabilities $18,295 $17,057
Other liabilities 0 63
Stockholders' equity 34,241 34,000
------- -------
Total liabilities and
stockholders' equity $52,536 $51,120
======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---- ----
<S> <C> <C>
Net revenues $25,460 $25,272
Costs and expenses 11,489 10,389
Income taxes 4,767 4,912
------- -------
Net income $ 9,204 $ 9,971
======= =======
</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 $544,000 for the quarter ended March 31,
1996.
Condensed balance sheets and income statements of ANCIRC are as follows:
<TABLE>
<CAPTION>
Mar. 31, 1996 Dec. 31, 1995
------------- -------------
(in thousands)
<S> <C> <C>
Cash $ 16 $ 85
Other assets 30 0
------ -------
Total assets $ 46 $ 85
====== =======
Current liabilities $1,035 $ 1,285
Partners' deficit (989) (1,200)
------ -------
Total liabilities and
partners' deficit $ 46 $ 85
====== =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---- ----
<S> <C> <C>
Research & development expenses $ 1,090 $ 461
======= =====
Net loss $(1,089) $(459)
======= =====
</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
8
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