UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended December 31, 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)
914-353-8403
(Registrant's telephone number)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X NO
Number of shares of Common Stock, par value $.01, outstanding as
of December 31, 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
December 31, 1996 and June 30, 1996 3
Consolidated Statements of Earnings
for the three and six-months ended
December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
for the six-months ended
December 31, 1996 and 1995 5
Notes to Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
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BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars, except share amounts)
(unaudited)
December June 30,
31, 1996 1996
ASSETS
Current assets:
Cash and cash equivalents $ 45,636 $ 44,893
Accounts receivable, less allowances
of $2,021 and $1,799, respectively 33,936 32,065
Inventories 39,344 42,396
Deferred income taxes 2,842 2,771
Prepaid expenses 899 648
Total current assets 122,657 122,773
Property, plant and equipment, net 54,389 45,739
Other assets 797 708
Total assets $ 177,843 $ 169,220
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,765 $ 58,537
Accrued liabilities 6,826 6,332
Current installments of Long Term Debt 4,079 3,815
Income taxes payable 2,368 1,104
Total current liabilities 73,038 69,788
Long-term debt 18,810 17,709
Other liabilities 244 238
Deferred income taxes 1,306 1,324
Commitments & Contingencies
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 40,502 36,507
84,458 80,174
Treasury stock at cost: 78,637 shares (13) (13)
Total shareholders' equity 84,445 80,161
Total liabilities and shareholders'equity $ 177,843 $ 169,220
<FN>
See accompanying notes to the consolidated financial statements.
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BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(thousands of dollars, except per share amounts)
(unaudited)
Three Months Six Months
Ended Ended
December 31, December 31,
1996 1995 1996 1995
Net sales $ 67,335 $ 57,465 $ 131,566 $ 111,641
Cost of sales 57,685 46,541 111,161 90,000
Gross Profit 9,650 10,924 20,405 21,641
Costs and expenses:
Selling, general and administrative 3,386 5,433 8,599 10,493
Research and development 3,106 2,529 5,947 4,773
Earnings from operations 3,158 2,962 5,859 6,375
Interest income 685 601 1,164 1,285
Interest expense (291) (432) (639) (904)
Other (expense) income, net 2 5 7 (12)
Earnings before income taxes 3,554 3,136 6,391 6,744
Income tax expense 1,326 1,147 2,396 2,554
Net earnings $ 2,228 $ 1,989 $ 3,995 $ 4,190
PER COMMON SHARE:
Earnings per common and common
equivalent share $ 0.15 $ 0.14 $ 0.27 $ 0.30
Earnings per common share assuming
full dilution $ 0.15 $ 0.14 $ 0.27 $ 0.29
Weighted average number of common
and common equivalent shares 14,803 13,958 14,782 13,949
Weighted average number of shares
assuming full dilution 14,803 14,515 14,814 14,506
<FN>
See accompanying notes to the consolidated financial statements.
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BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 1996 and 1995
(thousands of dollars; unaudited)
1996 1995
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings $ 3,995 $ 4,190
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,443 2,470
Deferred income tax benefit (89) (298)
Loss on disposal of equipment - 19
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,871) (4,940)
Inventories 3,052 (3,425)
Prepaid expenses (251) (290)
Other assets (150) (471)
Increase (decrease) in:
Accounts payable and accrued
liabilities 1,728 4,517
Income taxes payable 1,264 532
Net cash provided by operating activities 10,121 2,304
CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES:
Purchases of property, plant and equipment (11,032) (4,867)
Proceeds from sale of property, plant and
equipment - 179
Net cash used in investing activities (11,032) (4,688)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt (22) (21)
Proceeds from loans 1,387 -
Proceeds from exercise of stock options and
employee stock purchases 289 564
Net cash provided by financing activities 1,654 543
Increase (decrease) in cash 743 (1,841)
Cash and cash equivalents at beginning of 44,893 52,987
period
Cash and cash equivalents at end of period $ 45,636 $ 51,146
Supplemental cash flow data-Cash paid during
the period:
Interest, net of amount capitalized $ 507 $ 903
Income taxes $ 1,221 $ 2,320
<FN>
See accompanying notes to the consolidated financial statements.
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BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(thousands of dollars; 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 and
quarterly report on Form 10-Q for the period ended September
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:
December June 30,
31, 1996 1996
Raw materials and supplies $19,016 $19,648
Work-in-process 5,790 4,920
Finished goods 14,538 17,828
------- -------
$39,344 $42,396
======= =======
Tamoxifen Citrate, purchased as a finished product, accounted
for approximately $9,009 and $12,590 of finished goods as of
December 31, 1996 and June 30, 1996, respectively.
3. Earnings Per Common Share and Common Share Equivalents
For the three and six-month periods ended December 31, 1996,
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.
For the three and six-month periods ended December 31, 1995,
earnings per primary common and common equivalent shares was
computed by dividing the earnings applicable to common stock
by the weighted average number of common shares outstanding
during the period. Fully diluted earnings per share was
calculated including dilutive stock options.
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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 cost.
As of December 31, 1996 and June 30, 1996, approximately
$14,153 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 to 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.
5. Accounts Receivable
In August 1996, 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. In
December 1996, the Company finalized this arrangement and
received cash for the discounted receivable.
6. Other
As indicated in Part II, Item 1. Legal Proceedings, in
December, 1996, Bayer AG and Bayer Corporation ("Bayer") and
the Company entered into an agreement to extend the date for
filing of certain pre-trial documents from December 20, 1996
to January 13, 1997. In consideration of this extension and
the additional legal expenses incurred by Barr, the Company
earned approximately $1.5 million from Bayer and an
additional $0.8 million from its Ciprofloxacin Partner.
These items have been included in the Consolidated Statements
of Earnings as a reduction of selling, general and
administrative expenses.
7. Commitments and Contingencies
At December 31, 1996, the Company was involved in lawsuits
normal and 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.
8. Subsequent Event
As indicated in Part II, Item 1. Legal Proceedings, in
January 1997, Bayer and the Company reached an agreement to
settle the then pending litigation regarding Bayer's patent
protecting ciprofloxacin hydrochloride ("Settlement
Agreement"). In connection with the Settlement Agreement,
the Company acknowledged the validity and enforceability of
Bayer's world-wide ciprofloxacin patent, received an initial
cash payment of approximately $25 million, and signed a
contingent, non-exclusive Supply Agreement ("Supply
Agreement") which becomes effective in January, 1998 and ends
at patent expiry in December, 2003. During the term of the
Supply Agreement, Bayer has the option of
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supplying Barr and
an unrelated third party with ciprofloxacin hydrochloride to
market and distribute pursuant to a license from Bayer or
making quarterly cash payments to Barr beginning in March
1998.
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison of the Quarter Ended December 31, 1996
to the Quarter Ended December 31, 1995 - (thousands of dollars)
Net sales increased 17% to $67,335 from $57,465. 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 $50,785 or 75% of net sales
compared to $41,433 or 72% 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 and as permitted under the terms of its existing
agreement with the Innovator, the Company began distributing the
20 mg strength in December 1996. Neither the Innovator's nor the
Company's introduction of the 20 mg strength has had a
significant impact on the Company's net sales.
Net sales of Barr-manufactured products increased by
approximately 3% primarily as a result of additional volume.
Barr-manufactured net sales include revenues from four new
products compared to two new products in the same period last
year. Revenues from new products and volume increases on the
Company's existing product line more than offset price declines
and higher discounts on certain existing products. Revenues from
new products represented 12% of total Barr-manufactured sales for
the quarter ended December 31, 1996.
Gross profit decreased to $9,650 from $10,924 and the gross
margin decreased as a percentage of sales to 14% from 19%. 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, as
well as Medroxyprogesterone and Meperidine which were introduced
in the quarter ended December 31, 1996, are currently subject to
less competition and therefore generate margins which help to
offset the declining margins on the Company's more
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established
products. The Company continues to experience competition on
sales of its other products, and it is impossible to predict
whether future price erosion will occur. If further price
erosion were to occur, this could have an adverse effect on the
Company's gross margins and gross profits.
Selling, general and administrative expenses decreased from
$5,433 to $3,386, primarily as a result of approximately $3,000
in reimbursement of legal fees. The reduction in legal fees was
partially offset by increased personnel and advertising costs.
Total research and development expenses increased approximately
$577 or 23% 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 remained relatively constant in comparison to the
prior year. For the quarter ended December 31, 1996, interest
income included interest earned in connection with the
reimbursement of legal fees. This offset lower earnings
associated with a 15% decline in the average cash and cash
equivalent balance in comparison to the same period in the prior
year.
Interest expense declined by $141 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.
Results of Operations: Comparison of the Six Months Ended
December 31, 1996
to the Six Months Ended December 31, 1995 (thousands of dollars)
Net sales increased 18% to $131,566 from $111,641. 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 $99,673 or 76% of net sales
compared to $81,323 or 73% of net sales in the prior year. The
growth primarily resulted from increases in the Company's market
share.
Net sales of Barr-manufactured products increased approximately
5%. Barr manufactured net sales include revenues from four new
products in fiscal 1997 compared to two new products in fiscal
1996. These products represented 10% and 1% of total Barr
manufactured sales in 1997 and 1996, respectively. Revenues from
these new products and volume increases on the Company's existing
product line more than offset price declines on certain existing
products.
Gross profit declined to $20,405 from $21,641 and gross margin
decreased as a percentage of sales to 16% from 19%. The decline
in gross margin is primarily attributed to lower gross margins
associated with an increase in Tamoxifen's share of total Company
revenues and an increase in sales discounts and allowances due to
increased competition. These lower margins were partially offset
by margins earned on new products in the period which are
currently subject to less competition.
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Selling, general and administrative expenses decreased from
$10,493 to $8,599 primarily as a result of approximately $3,400
in reimbursement of legal fees. The reduction in legal fees was
partially offset by increased personnel costs and advertising
costs.
Total research and development expenses increased 25% over the
prior year, consistent with the Company's objective of
researching and developing new products for manufacture and
distribution.
Interest income declined by $121 primarily due to a 15% 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. This decline was partially offset by
approximately $200 in interest income earned in connection with
the reimbursement of legal fees.
Interest expense declined by $265 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 $45,636 at
December 31, 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 $14,153 at
December 31, 1996 (see Note 4).
Cash provided from operating activities was $10,121 for the six
months ended December 31, 1996, which included net earnings of
$3,995. Accounts receivable increased primarily as a result of
higher sales volume and payables increased primarily due to
Tamoxifen purchases. Lower Tamoxifen levels contributed to the
decline in inventories.
The Company purchased $11,032 in capital assets during the six
months ended December 31, 1996 primarily in connection with the
Company's investment in additional manufacturing capacity in its
Virginia and New York facilities. During the remainder of fiscal
1997, the Company estimates that it will invest an additional $16
million in construction and new equipment for these facilities.
During the six months ended December 31, 1996, the Company
utilized $1,387 under its $18,750 equipment financing agreement
with BankAmerica Leasing and Capital Group. As of December 31,
1996, $14,210 of this facility remains available for use through
October 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.
As indicated in Part II, Item 1. Legal Proceedings, in January
1997, Bayer and the Company reached an agreement to settle the
then pending litigation regarding Bayer's patent protecting
ciprofloxacin hydrochloride ("Settlement Agreement"). In
connection with the Settlement Agreement, the Company
acknowledged the validity and enforceability of Bayer's world-
wide ciprofloxacin patent, received an initial cash payment of
approximately $25 million, and signed a contingent, non-exclusive
Supply Agreement ("Supply Agreement") which becomes effective in
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January, 1998 and ends at patent expiry in December, 2003.
During the term of the Supply Agreement, Bayer has the option of
supplying Barr and an unrelated third party with ciprofloxacin
hydrochloride to market and distribute pursuant to a license from
Bayer or making quarterly cash payments to Barr beginning in
March 1998. If Bayer elects to continue making cash payments,
the annual value to Barr would be approximately $25 million. If
Bayer provides Barr with product, the amount Barr could earn
would be dependent on market conditions.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed in the Company's annual report on Form 10-
K for the year ended June 30, 1996, the Company is involved in
certain legal proceedings. The following summarizes significant
developments in previously reported matters.
Ciprofloxacin Patent Challenge
In March 1996, the Company and an unrelated third party
("Ciprofloxacin Partner") entered into several agreements related
to ciprofloxacin hydrochloride ("ciprofloxacin") including an
agreement to share litigation costs associated with the patent
litigation. In return, the third party is entitled to share in
any settlements or in the proceeds from Barr's sale of the
ciprofloxacin product.
In December 1996, Bayer AG and Bayer Corporation ("Bayer") and
the Company entered into an agreement to extend the date for
filing of certain pre-trial documents from December 20, 1996 to
January 13, 1997. In consideration of this extension and the
additional legal expenses incurred by Barr, the Company earned
approximately $1.5 million from Bayer and an additional $0.8
million from its Ciprofloxacin Partner.
In January 1997, Bayer and the Company reached an agreement to
settle the then pending litigation regarding Bayer's patent
protecting ciprofloxacin hydrochloride ("Settlement Agreement").
As a result, the U.S. Federal Court for the Southern District of
New York entered a Consent Judgment ending the litigation. In
connection with the Settlement Agreement, the Company
acknowledged the validity and enforceability of Bayer's world-
wide ciprofloxacin patent, received an initial cash payment of
approximately $25 million, and signed a contingent, non-exclusive
Supply Agreement ("Supply Agreement") which becomes effective in
January, 1998 and ends at patent expiry in December, 2003.
During the term of the Supply Agreement, Bayer has the option of
supplying Barr and an unrelated third party with ciprofloxacin
hydrochloride to market and distribute pursuant to a license from
Bayer or making quarterly cash payments to Barr beginning in
March 1998.
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Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Barr Laboratories, Inc. was
held on December 4, 1996, at the Woodcliff Lake Hilton, Woodcliff
Lake, New Jersey. Of the 14,053,673 shares entitled to
vote, 13,564,175 shares were represented at the meeting by proxy or
present in person. The meeting was held for the following
purposes:
1. To elect a Board of Directors.
All eight nominees were elected based on the following
votes cast:
For Shares
Robert J. Bolger 13,406,110
Edwin A. Cohen 13,403,318
Bruce L. Downey 13,404,618
Michael F. Florence 13,403,968
Wilson L. Harrell 13,404,018
Jacob M. Kay 13,404,868
Bernard C. Sherman 13,404,068
George P. Stephan 13,404,068
2. To consider approval of an amendment to the
Company's 1993 Stock Incentive Plan. The number of
votes cast for, against and abstained were 10,158,563,
2,171,634, and 28,740 respectively.
3. To consider approval of an amendment to the
Company's 1993 Stock Option Plan for Non-Employee
Directors. The number of votes cast for, against and
abstained were 12,079,506, 332,110, and 30,842
respectively.
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 December 31, 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: February 5, 1997 /s/ William T. McKee
William T. McKee
Chief Financial Officer
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