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 September 30, 1996 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 September 30, 1996: 14,053,673.
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BARR LABORATORIES, INC.
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and June 30, 1996 3
Consolidated Statements of Earnings
for the three months ended
September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
for the three months ended
September 30, 1996 and 1995 5
Notes to Consolidated Financial
Statements 6-7
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 8-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars, except share amounts)
(unaudited)
September 30, June 30,
1996 1996
ASSETS
Current assets:
Cash and cash equivalents $ 47,709 $ 44,893
Accounts receivable, less allowances
of $2,262 and $1,799, respectively 28,546 32,065
Inventories 45,045 42,396
Deferred income taxes 2,807 2,771
Prepaid expenses 971 648
Total current assets 125,078 122,773
Property, plant and equipment, net 49,237 45,739
Other assets 803 708
Total assets $ 175,118 $ 169,220
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 60,527 $ 58,537
Accrued liabilities 6,521 6,332
Current portion of long term debt 3,934 3,815
Income taxes payable 2,178 1,104
Total current liabilities 73,160 69,788
Long-term debt 18,185 17,709
Other liabilities 241 238
Deferred income taxes 1,315 1,324
Commitments & Contingencies
Contingencies (note 6)
Shareholders' Equity:
Common Stock $.01 par value per
share Authorized 30,000,000; issued
14,132,310 and 14,115,664, respectively 141 141
Additional paid-in capital 43,815 43,526
Retained earnings 38,274 36,507
82,230 80,174
Treasury stock at cost: 78,637 shares (13) (13)
Total shareholders' equity 82,217 80,161
Total liabilities and shareholders'equity $ 175,118 $ 169,220
<FN>
See accompanying notes to the consolidated financial statements.
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BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars, except share amounts)
(unaudited)
Three Months Ended
September 30,
1996 1995
Net sales $ 64,231 $ 54,176
Cost of sales 53,476 43,459
Gross Profit 10,755 10,717
Costs and expenses:
Selling, general and administrative 5,213 5,060
Research and development 2,841 2,244
Earnings from operations 2,701 3,413
Interest income 479 684
Interest expense (348) (472)
Other (expense) income, net 5 (17)
Earnings before income taxes 2,837 3,608
Income tax expense 1,070 1,407
Net earnings $ 1,767 $ 2,201
PER COMMON SHARE:
Earnings per common and common equivalent shares $ 0.12 $ 0.15
Earnings per common share assuming full dilution $ 0.12 $ 0.15
Weighted average number of common and common
equivalent shares 14,759,883 14,263,550
Weighted average number of shares assuming full
dilution 14,825,877 14,293,310
<FN>
See accompanying notes to the consolidated financial statements.
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BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30, 1996 and 1995
(thousands of dollars; unaudited)
1996 1995
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings $ 1,767 $ 2,201
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,203 1,225
Deferred income tax benefit (45) (99)
Loss on disposal of asset - 22
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 3,519 (484)
Inventories (2,649) 4,839
Prepaid expenses (323) (318)
Other assets (121) (64)
Increase (decrease) in:
Accounts payable and accrued
liabilities 2,182 (7,433)
Income taxes payable 1,074 1,278
Net cash provided by operating activities 6,607 1,167
CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES:
Purchases of property, plant and equipment (4,675) (1,857)
Proceeds from sale of property, plant and - 176
equipment
Net cash used in investing activities (4,675) (1,681)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt (11) (34)
Proceeds from loans 606 -
Proceeds from exercise of stock options
and employee stock purchases 289 373
Net cash provided by financing activities 884 339
Increase (decrease) in cash 2,816 (175)
Cash and cash equivalents at beginning of 44,893 52,987
period
Cash and cash equivalents at end of period $ 47,709 $ 52,812
SUPPLEMENTAL CASH FLOW DATA - CASH PAID DURING
THE PERIOD:
Interest, net of portion capitalized $ 222 $ 38
Income taxes $ 30 $ 228
<FN>
See accompanying notes to the consolidated financial statements.
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BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1996.
Certain amounts in prior years' financial statements have been
reclassified to conform with the current year presentation.
2. Inventories
Inventories consisted of the following (in thousands of
dollars):
September June 30,
30, 1996 1996
Raw materials and supplies $20,342 $19,648
Work-in-process 6,392 4,920
Finished goods 18,311 17,828
_______ _______
$45,045 $42,396
======= =======
Tamoxifen Citrate, purchased as a finished product, accounted
for approximately $13,095 and $12,590 of finished goods as of
September 30, 1996 and June 30, 1996, respectively.
3. Earnings Per Common Share and Common Share Equivalents
For the three month period ended September 30, 1996 and 1995,
earnings per common share was computed by dividing the
earnings applicable to common stock by the weighted average
number of common and dilutive common equivalent shares
outstanding during the period.
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BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. 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 49 days)
which are readily convertible into cash at par value (cost).
As of September 30, 1996 and June 30, 1996, approximately
$15,977 and $20,924, respectively, of the Company's cash was
held in an 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 monthly interest based on the average
unsecured monthly Tamoxifen payable balance, as defined in
the December 1995 Alternative Collateral Agreement.
5. Accounts Receivable
In August, one of the Company's largest wholesale customers
filed for bankruptcy. Subsequent to the filing, the Company
entered into negotiations with a third party to sell its
outstanding receivable balance at a discount. The Company
expects to finalize this arrangement before the end of the
calendar year. No significant additional reserve was
required to write-down the carrying value of the receivable
to the discounted price. An additional reserve may be
required if the agreement to sell the receivables is not
completed.
6. Commitments and Contingencies
Litigation
The Company, at September 30, 1996, was involved in lawsuits
incidental to its business, including patent infringement
actions. Management, based on the advice of legal counsel,
believes that the ultimate disposition of these lawsuits will
not have any significant adverse effect on the Company's
consolidated financial statements.
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BARR LABORATORIES, INC.
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison of the Quarter Ended September 30, 1996
to the Quarter Ended September 30, 1995 - (thousands of dollars)
Net sales increased 19% to $64,231 from $54,176. The increase is
attributable to a continued increase in demand for Tamoxifen
Citrate ("Tamoxifen"), the breast cancer treatment distributed by
the Company, as well as increased sales for the balance of the
Company's product lines.
Tamoxifen sales increased 23% to $48,888 or 76% of net sales
compared to $39,890 or 74% of net sales in the prior year. The
growth primarily resulted from increases in the Company's market
share. Tamoxifen is a patented product manufactured for the
Company by the Innovator, and is distributed by the Company under
a non-exclusive license agreement with the Innovator. Currently
Tamoxifen only competes against the Innovator's products, which
are sold under a brand name. Prior to December 1995, the Company
competed against the Innovator's 10 mg dosage strength only. In
January 1996, the Innovator introduced a 20 mg strength of this
product. While the Company may experience some decline in its
market share during the last quarter of calendar year 1996 as
some consumers switch to the new dosage strength, the new dosage
strength has not had a material adverse effect on the Company's
sales through September 30, 1996. As permitted under the terms
of its existing agreement with the Innovator, the Company will
begin distributing the 20 mg strength in December 1996. Based on
the relatively low current sales of the branded product, it does
not appear that such an introduction will have a material impact
on Barr's financial statements. Net sales of Barr-manufactured
products increased by approximately 7% primarily as a result of
additional volume. Volume increases on the Company's existing
product line and revenues from new products more than offset
price declines on certain existing products.
Gross profit increased to $10,755 from $10,717 due to increased
sales volume. However, the gross margin decreased as a
percentage of sales to 16.7% from 19.8%. The decrease in margins
is generally attributable to two factors. First, an increase in
Tamoxifen's share of total Company revenues and second, an
increase in sales discounts and allowances due to increased
competition. The increase in Tamoxifen's portion of total
revenues negatively impacts margins because the profit margin the
Company earns as a distributor is generally below the margin it
earns as a manufacturer. Increased sales discounts and
allowances reduce the Company's net selling price and margins,
but are offered by the Company to maintain and increase market
share in light of increased competition.
New products such as Megestrol Acetate and Danazol, which were
introduced in November 1995 and August 1996, respectively, are
currently subject to less competition and therefore generate
margins which help to offset the declining margins on the
Company's more established products, including Methotrexate. The
Company continues to experience competition on sales of
Methotrexate, and it is impossible to predict whether future
price erosion will occur. If it were to occur, this could have
an adverse effect on the Company's gross margins and gross
profits.
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Selling, general and administrative expenses increased to $5,213
from $5,060 but declined as a percentage of net sales. The
higher expenses reflect increased personnel costs and increased
legal fees in connection with Barr's patent challenges. These
increased costs were offset in part by approximately $740 in
reimbursement of legal fees. The Company has entered into multi-
year agreements with another company and a related party to share
in product development and litigation costs associated with
certain of its patent challenges.
Total research and development expenses increased approximately
$600 or 27% over the prior year. Contributing factors include
increases in salaries and related costs associated with the
addition of scientists; increases in amounts paid to outside
laboratories to conduct biostudies; and higher outside consulting
costs necessary to support the number of products in development.
Interest income declined by $206 primarily due to a 17% decline
in the average cash and cash equivalent balance in comparison to
the same period in the prior year as well as a shift in the
investment mix. Throughout the quarter ended September 30, 1995,
the Company invested primarily in taxable securities. However,
in the quarter ended December 31, 1995, the Company began
investing a portion of its cash and cash equivalents in federal
income tax exempt securities which earn a lower rate of return
than equivalent taxable securities. In exchange for these lower
returns, the Company reduced its overall effective tax rate.
Interest expense declined by $123 primarily due to an increase in
capitalized interest associated with an increase in capital
improvements as compared to the prior year. The increase in
capitalized interest was partially offset by interest on the
Company's unsecured Tamoxifen balance (see Note 4) and interest
on its equipment financing agreement entered in April 1996.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased to $47,709 at
September 30, 1996, from $44,893 at June 30, 1996. The Company's
unrestricted portion of this balance also increased as the escrow
account declined from $20,924 at June 30, 1996 to $15,977 at
September 30, 1996 (see Note 4).
Cash provided from operating activities was $6,607 for the three
months ended September 30, 1996, which included net earnings of
$1,767. Accounts receivable decreased from improved collection
efforts and payables increased primarily due to Tamoxifen
purchases. Tamoxifen, as well as Danazol and
Medroxyprogesterone, for which the Company received new product
approvals during the quarter, contributed to the higher inventory
levels.
The Company spent $4,675 on capital assets during the three
months ended September 30, 1996 primarily in connection with the
Company's investment in additional manufacturing capacity in its
New York and Virginia facilities. During the remainder of fiscal
1997, the Company estimates that it will invest an additional $20
million in construction and new equipment for these facilities.
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During the three months ended September 30, 1996, the Company
utilized $606 under its $18,750 equipment financing agreement
with BankAmerica Leasing and Capital Group. As of September 30,
1996, $14,991 of this facility remains available for use through
April 1997. The Company has not drawn upon its 3-year $10
million revolving credit facility with Bank of America Illinois.
Management believes that existing capital resources will be
adequate to meet its needs for the foreseeable future.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit Number Exhibit
11 Computation of per share earnings
27 Financial data schedule
(b) There were no reports filed on Form 8-K in the quarter
ended September 30, 1996.
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:October 29, 1996 /s/ William T. McKee
William T. McKee
Chief Financial Officer
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