UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 March 31, 1997 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 March 31, 1997:
21,200,956.
<PAGE 1>
BARR LABORATORIES, INC.
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 and June 30, 1996 3
Consolidated Statements of Earnings
for the three and nine-months ended
March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
for the nine-months ended
March 31, 1997 and 1996 5
Notes to Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars, except per share amounts)
(unaudited)
March 31, June 30,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 54,650 $ 44,893
Accounts receivable, less allowances
of $ 1,651 and $1,799 respectively 31,607 32,065
Inventories 49,270 42,396
Deferred income taxes 2,842 2,771
Prepaid expenses 834 648
Total current assets 139,203 122,773
Property, plant and equipment, net 60,723 45,739
Other assets 824 708
Total assets $ 200,750 $169,220
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,206 $ 58,537
Accrued liabilities 6,072 6,332
Current portion of long-term debt 4,117 3,815
Income tax payable 5,609 1,104
Total current liabilities 80,004 69,788
Long-term debt 18,675 17,709
Other liabilities 222 238
Deferred income taxes 1,306 1,324
Commitments & Contingencies
Shareholders' Equity:
Common Stock $.01 par value per share
Authorized 30,000,000; issued 21,318,912
and 14,115,664, respectively 142 141
Common stock distributable 71 -
Additional paid-in capital 44,987 43,526
Retained earnings 55,356 36,507
100,556 80,174
Treasury stock at cost; 117,955 and
78,637 shares in 1997 and 1996,
respectively (13) (13)
Total shareholders' equity 100,543 80,161
Total liabilities and shareholders'
equity $ 200,750 $169,220
<FN>
See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(thousands of dollars, except per share amounts)
(unaudited)
Three Months Nine Months
Ended Ended
March 31, March 31,
1997 1996 1997 1996
Revenues:
Net product sales $60,164 $60,088 $191,730 $171,729
Proceeds from supply
agreement 24,550 - 24,550 -
Total revenues 84,714 60,088 216,280 171,729
Costs and expenses:
Cost of sales 50,959 49,405 162,120 139,405
Selling, general and
administrative 6,520 5,714 15,119 16,207
Research and development 3,409 3,552 9,356 8,325
Earnings from operations 23,826 1,417 29,685 7,792
Interest income 641 1,003 1,805 2,288
Interest expense (203) (457) (842) (1,361)
Other (expense) income, net 51 - 58 (12)
Earnings before income taxes
and extraordinary loss 24,315 1,963 30,706 8,707
Income tax expense 9,390 694 11,786 3,248
Earnings before extraordinary
loss 14,925 1,269 18,920 5,459
Extraordinary loss on early
extinguishment of debt, net
of taxes - (125) - (125)
Net earnings $14,925 $1,144 $18,920 $5,334
PER COMMON SHARE:
Earnings before extraordinary
loss $ 0.66 $ 0.06 $ 0.85 $ 1.00
Extraordinary loss on early
extinguishment of debt,
net of taxes - (0.01) - (0.01)
Net earnings per common and
common equivalent
shares $ 0.66 $ 0.05 $ 0.85 $ 0.25
Net earnings per common share
assuming full dilution $ 0.66 $ 0.05 $ 0.84 $ 0.24
Weighted average number of
common shares 22,495 20,982 22,279 20,943
Weighted average number of
shares assuming full dilution 22,609 22,056 22,572 22,017
<FN>
See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 1997 and 1996
(thousands of dollars; unaudited)
1997 1996
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings $ 18,920 $ 5,334
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,723 3,681
Deferred income tax benefit (89) (230)
Write-off of deferred financing fees
associated with
early extinguishment of debt - 31
Loss (gain) on disposal of equipment (50) 19
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 458 (2,629)
Inventories (6,874) (5,953)
Prepaid expenses (186) (139)
Other assets (210) (620)
Increase (decrease) in:
Accounts payable and accrued
liabilities 5,393 2,165
Income taxes payable 4,505 991
Net cash provided by operating activities 25,590 2,650
CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES:
Purchases of property, plant and equipment (18,612) (9,843)
Proceeds from sale of property, plant and
equipment 50 179
Net cash used in investing activities (18,562) (9,664)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt (118) (2,032)
Proceeds from borrowings 1,386 -
Costs associated with stock split - (20)
Proceeds from exercise of stock options
and employee stock purchases 1,461 1,153
Net cash provided by (used in) financing
activities 2,729 (899)
Increase (decrease) in cash 9,757 (7,913)
Cash and cash equivalents, beginning of period 44,893 52,987
Cash and cash equivalents, end of period $ 54,650 $ 45,074
Supplemental cash flow data-Cash paid during
the period:
Interest, net of portion capitalized $ 361 $ 906
Income taxes $ 7,370 $ 2,681
<FN>
See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (in thousands, except share information)
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 reports on Form 10-Q for the periods ended
September 30, and December 31, 1996.
2. Proceeds from Supply Agreement
In January 1997, Bayer AG and Bayer Corporation ("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 $24.6 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.
3. Inventories
Inventories consisted of the following:
March 31, June 30,
1997 1996
Raw materials and supplies $20,471 $19,648
Work-in-process 7,181 4,920
Finished goods 21,618 17,828
$49,270 $42,396
Tamoxifen Citrate, purchased as a finished product, accounted
for approximately $16,085 and $12,590 of finished goods as of
March 31, 1997 and June 30, 1996, respectively.
4. Earnings Per Common Share and Common Share Equivalents
For the three and nine-month periods ended March 31, 1997,
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 and dilutive common
equivalent shares outstanding during the period.
For the three and nine-month periods ended March 31, 1996,
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.
The shares and per share amounts reflected in the accompanying
Consoldated Balance Sheet as of March 31, 1997 and Statements
of Earnings are calculated after giving effect to the Company's
3-for-2 stock split effected in the form of a 50% stock dividend
which was declared on April 11, 1997 and distributed on May 7,1997.
5. 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 March 31, 1997 and June 30, 1996 approximately $24,947
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.
6. Other
Included within selling, general and administrative expenses
("SG&A") for the three- and nine-months ended March 31, 1996
are certain non-recurring charges of approximately $700 in
connection with a voluntary early retirement program and a
legal settlement. SG&A expenses also include a credit of
$700 in legal costs reimbursed by another company. See
Management's Discussion and Analysis. Interest income for
the three- and nine-months ended March 31, 1996 includes
$485 of interest received in February 1996 in connection
with an income tax refund from the Internal Revenue Service.
7. Extraordinary Item
In the quarter ended March 31, 1996, the Company negotiated
the prepayment of $2 million in principal of its $20 million
10.15% Senior Secured Notes. This prepayment allowed the
Company to complete an equipment financing to support its
ongoing expansion efforts under more favorable terms. The
cash payment of $2,213 included a prepayment penalty of $169
and accrued interest through March 15, 1996 of $44. The
Company successfully negotiated a lower prepayment penalty
than the amount required by the Note Agreement. The
prepayment penalty of $169 and the related write-off of
approximately $31 in previously deferred financing costs
resulted in an extraordinary loss for the three- and nine-
months ended March 31, 1996. This extraordinary loss from
early extinguishment of debt, net of taxes of $76, was $125
or $0.01 per share.
8. Commitments and Contingencies
At March 31, 1997, 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 a significant adverse effect on
the Company's consolidated financial statements.
9. Subsequent Events
On April 11, 1997, the Company's Board of Directors declared
a 3-for-2 stock split effected in the form of a 50% stock
dividend. Approximately 7.1 million additional shares of
common stock were distributed on May 7, 1997 to shareholders
of record as of April 24, 1997. All current and prior year
share and per share amounts have been adjusted for the stock
split.
In December 1995, the Company received a "30-day" letter from
the IRS disallowing approximately $750 in research and
development tax credits, originating from the fiscal years
ended June 30, 1987 through June 30, 1992, on the grounds
that research and development tax credits taken in developing
generic drugs for approval under the ANDA procedure are
excluded from the definition of the term "qualified research"
by the duplication exclusion contained in section 41(d)(4)(C)
of the IRS Code, and other grounds. On May 12, 1997 the
Company settled the claim with the IRS, without agreeing that
the Company's activities do not qualify for credit, for
approximately $822 including interest. A provision for an
estimate of the settlement amount had been previously
included in the Company's 1996 consolidated financial
statements, and therefore the payment will not have any signif-
icant adverse effect on the Company's consolidated financial
statements.
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 March 31,
1997
to the Quarter Ended March 31, 1996 - (thousands of dollars)
Total revenues increased to $84,714 from $60,088. This increase
is primarily the result of $24,550 in proceeds from supply
agreement (See Note 3 to consolidated financial statements).
Net product sales increased to $60,164 from $60,088. The
increase is attributable to slight increases in Tamoxifen Citrate
("Tamoxifen"), the breast cancer treatment distributed by the
Company, offset by a slight decrease in Barr-manufactured
products.
Third quarter sales of Tamoxifen totaled $44,846 and were
consistent with the prior year, the result of heavy buying by
several customers during the end of the second quarter in
anticipation of a price increase that did not occur at the
beginning of the third quarter, even though the Company's market
share continued to increase during the quarter. Tamoxifen
represented approximately 75% of total net product sales in the
current quarter compared to 74% in the prior year. Tamoxifen is
a patent protected 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 Innovators products, which
are sold under the brand name.
Net sales of Barr-manufactured products remained consistent with
prior years. Barr-manufactured net sales include revenues from
five 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 offset price declines and
higher discounts on certain existing products. Revenues from new
products represented approximately 13% of total Barr-manufactured
sales for the quarter ended March 31, 1997.
Cost of sales increased to $50,959 or 85% of net product sales
from $49,405 or 82%. The increase in cost of sales as a
percentage of net product sales is primarily the result of two
factors. First, an increase in Tamoxifen's share of the total
Company revenues and second, lower net product sales due to
increases in sales discounts and allowances, the result of
increased competition. The increase in Tamoxifen's portion of
total revenues negatively impacts the cost of sales percentage
because the cost of distributed products is generally greater
than that of manufactured products. Increased sales discounts
and allowances 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
offset the declining margins on the Company's more established
products. The Company continues to experience competition on
sales of its other products, and it is impossible to predict
whether further price erosion will occur. If further price
erosion were to occur, this could have a material adverse effect
on the Company's gross margins and gross profits.
Selling, general and administrative expenses increased from
$5,714 to $6,520 and increased as a percentage of net product
sales from 10% to 11%. The majority of the increase in both
dollars and percentage is attributable to costs associated with
the Company's pre-launch activities for Warfarin Sodium
and increased legal expenses. The prior year quarter also
included approximately $700 in non-recurring charges in
connection with a voluntary early retirement program and a legal
settlement. These non-recurring charges were offset by a
reduction in legal fees of approximately $700. During the
quarter ended March 31, 1996, Barr entered into an agreement with
another company to share in the development and litigation costs
associated with one of its patent challenges. This agreement
resulted in the above mentioned reduction of $700 in legal fees
which were reimbursed by the other company.
Research and development expenses decreased from $3,552 to
$3,409. This decrease is primarily the result of lower outside
testing, due to the cyclical nature of the research and
development program, partially offset by increases in salaries
and related costs associated with the addition of scientists and
higher outside consulting costs necessary to support the number
of products in development.
Interest income decreased by $362 in comparison to the prior
year. The decrease is primarily the result of $485 in interest
income included in the prior year amounts in connection with
interest earned on an income tax refund from the Internal Revenue
Service. This was offset by a 27% increase in the average cash
and cash equivalent balance in comparison to the same period in
the prior year.
Interest expense decreased $254 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 equipment financing agreement entered in April 1996 and
interest on the unsecured Tamoxifen balance.
In the quarter ended March 31, 1996, the Company incurred an
extraordinary loss on the early extinguishment of debt. In March
1996, the Company negotiated the prepayment of $2 million in
principal of its $20 million 10.15% Senior Secured Notes. The
Company recorded an extraordinary loss for the related prepayment
penalty and write-off of deferred financing costs.
Results of Operations: Comparison of the Nine Months Ended March
31, 1997
to the Nine Months Ended March 31, 1996 (thousands of dollars)
Total revenues increased to $216,280 from $171,729. This
increase is attributable to $24,550 in proceeds from supply
agreement (see Note 3 to consolidated financial statements); 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 15% to $144,531 or 75% of net product
sales from $126,038 or 73% of net product 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
3%. Barr-manufactured products included revenues from five new
products in fiscal 1997 compared to two new products in fiscal
1996. These products represent approximately 11% and 2% of total
Barr-manufactured
sales in 1997 and 1996, respectively. Revenues
from these products and volume increases on the Company's
existing product line more than offset price declines on certain
existing products.
Cost of sales increased to $162,120 or 85% of net product sales
from $139,405 or 81%. The increase is primarily attributable to
higher product costs associated with an increase in Tamoxifen's
share of total Company revenues and an increase in sales
discounts and allowances due to increased competition. The
resulting lower margins were partially offset by higher margins
earned on new products which are currently subject to less
competition.
Research and development expenses increased 12% to $9,356. The
increase is primarily the result of increases in salaries and
related costs associated with the addition of scientists and
higher outside consulting costs necessary to support the number
of products in development.
Selling, general and administrative expenses decreased to $15,119
from $16,207 primarily as a result of approximately $3,400
of reimbursed legal fees related to the ciprofloxacin patent
challenge. The reduction in legal fees was partially offset by
increased personnel and marketing costs.
Interest income decreased $483 to $1,805. The decrease is
primarily the result of $485 in interest income included in the
prior year's amount in connection with interest earned on an
income tax refund from the Internal Revenue Service.
Interest expense decreased $519 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 equipment
financing agreement entered in April 1996 and interest on the
unsecured Tamoxifen balance.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased to $54,650 at
March 31, 1997 from $44,893 at June 30, 1996. The Company's
unrestricted portion of this balance increased from $20,924 at
June 30, 1996 to $24,947 at March 31, 1997.
Cash provided from operating activities was $25,590 for the nine
months ended March 31, 1997, which included net earnings of
$18,920. The increase in inventory is offset by increases in
accounts payable and income taxes payable. The inventory
increase is primarily the result of an increase in Tamoxifen and
other new product inventory. Accounts payable increased
primarily as a result of increased purchases of Tamoxifen and
income taxes payable increased due to increased earnings.
The Company invested $18,612 in capital assets during the nine
months ended March 31, 1997 primarily in connection with the
Company's expansion of its manufacturing capacity in its Virginia
and New York facilities. During the remainder of fiscal 1997,
the Company estimates that it will invest an additional $10
million in construction and new equipment for these facilities.
During the nine months ended March 31, 1997 the company utilized
$1,386 under its $18,750 equipment financing agreement with
BankAmerica Leasing and Capital Group. As of March 31, 1997,
$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
$24.6 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. 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 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
$24.6 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.
Item 6. Exhibits
(a) Exhibit
Number Exhibit
11 Computation of per share earnings
27 Financial data schedule
10.14 Supply Agreement for ciprofloxacin
hydrochloride dated January, 1997
(portions of this exhibit
have been omitted pursuant to a request
for confidential treatment.)
(b) There were no reports filed on Form 8-K in the
quarter ended March 31, 1997.
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: May 14, 1997 /s/ William T. McKee
Chief Financial Officer and Treasurer