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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 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)
Securities registered Name of each
pursuant to Section exchange on
12(b) of the Act: which registered:
Title of each class
Common Stock, Par Value American Stock
$0.01 Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock of the Registrant
held by nonaffiliates was approximately $112,628,337 as of June
30, 1996 (assuming solely for purposes of this calculation that
all Directors and Officers of the Registrant are "affiliates").
Number of shares of Common Stock, Par Value $.01, outstanding as
of June 30, 1996: 14,037,027.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's 1996 Annual Report to Shareholders
are incorporated by reference in Part II and Part IV hereof.
Portions of the Registrant's 1996 Proxy Statement are
incorporated by reference in Part III hereof.
PART I
Item 1. Business
Barr Laboratories, Inc. ("Barr" or the "Company") is a
leading independent developer, manufacturer and marketer of high
quality generic pharmaceuticals. The Company ranks among the top
ten independent companies in the U.S. generic pharmaceutical
business as measured by net sales and market capitalization.
Barr, which is listed on the American Stock Exchange (AMEX-BRL),
also ranks among the top 50 pharmaceutical companies in the U.S.
in terms of overall sales.
Barr manufactures, markets and distributes a wide range of
prescription drug products equivalent to branded pharmaceuticals.
The Company's product line is primarily focused in the following
therapeutic categories:
- treatments for cancer (oncologicals);
- hormone replacement therapies (hormonal agents) used in
estrogen replacement and the treatment of menopause;
- pain management products (narcotic analgesics);
- medicines for hypertension and heart disease
(cardiovascular agents); and
- antibiotics and medicine to combat infections (anti-
infectives).
Barr also markets several products that represent other
therapeutic categories including a line of products to treat
anxiety, depression and other similar disorders
(psychotherapeutics). These products are manufactured in tablet,
capsule and powder form.
Generic pharmaceuticals, such as those made and sold by
Barr, represent an increasing proportion of medicines dispensed
in the U.S. In calendar 1995, the generic pharmaceutical
industry had total U.S. sales of approximately $7.5 billion
(according to IMS International), more than twice the amount of
sales reported just five years ago. Although generic
pharmaceuticals must meet the same standards as branded
pharmaceuticals, these equivalent medicines are sold at prices
that are typically lower than the branded product. The Company
believes that the industry will benefit from the increasing
efforts by government (both state and federal), employers, third-
party payers, and consumers to control health care costs, as well
as from the more than 100 major branded pharmaceutical products
that will come off-patent within the next ten years.
Company Background
The Company was founded in 1970 by Mr. Edwin A. Cohen and a
partner, and commenced active business in 1972 as a manufacturer
of generic drug products.
Current Products
Currently, the Company is marketing approximately 42 drug
products, representing various dosage strengths of 22 chemical
entities.
Key among the Company's current products is Tamoxifen.
Tamoxifen is a non-steroidal anti-estrogen used to treat advanced
breast cancer, as well as to delay the recurrence of the cancer
following surgery.
Barr distributes Tamoxifen (which is sold under the Barr
label) under an agreement with the Innovator holding the
product's patent. In 1993, as a result of a settlement of a
patent challenge against the Innovator of Tamoxifen, Barr entered
into a non-exclusive Supply and Distribution Agreement
("Agreement"). Under the terms of the Agreement, Barr purchases
its Tamoxifen directly from the Innovator at a discount from the
Innovator's average wholesale customer price.
Patent protected until 2002, the total current annual market
for Tamoxifen is approximately $300 million. As a percentage of
Barr's total sales, Tamoxifen accounted for approximately 74%,
72% and 49% of total fiscal year 1996, 1995, and 1994 sales,
respectively.
The Company currently has an approved Abbreviated New Drug
Application (ANDA) to manufacture Tamoxifen. Therefore, at the
time of patent expiration (or should another company's patent
challenge succeed), Barr would begin to manufacture Tamoxifen.
Manufacturing Tamoxifen would significantly lower Barr's costs
and would dramatically improve the current profit margins earned
by the Company on Tamoxifen sales. One generic competitor was
unsuccessful in challenging the patent during the past fiscal
year. While other companies may pursue similar challenges, the
Company does not believe that the Tamoxifen patent will be
successfully challenged prior to patent expiration.
Product Development
Barr's long-term growth is expected to be driven by its
ability to be the first or second to market with new generic
versions of select, branded pharmaceuticals. Barr's strategy to
maximize opportunities for generic pharmaceuticals has three
components: offering a therapeutically focused product line;
aggressively investing in research and development (R&D) in
categories representing strong potential where Barr has a
competitive advantage; adding significant products through
selective patent challenges; and strengthening market position
through licensing, partnering and other innovative business
relationships.
Barr has made a significant investment in processes and
equipment that enable it to develop and manufacture difficult or
toxic compounds into profitable therapies. This investment, a
significant barrier to entry for potential competitors, offers a
distinctive advantage for Barr.
For the fiscal years ended June 30, 1996, 1995, and 1994,
total research and development expenditures were approximately
$11 million, $10 million and $7 million, respectively.
Management anticipates that research and development expenditures
in fiscal 1997 will exceed comparable expenditures in fiscal
1996. See Item 7. "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."
Marketing and Customers
The Company sells its products to customers in the United
States and Puerto Rico through an integrated sales and marketing
force. This sales force is supplemented by customer service
representatives who inform the Company's customers of new Company
products, order status and current pricing.
The Company markets its drug products to drug store chains,
wholesalers, distributors and repackagers. The Company's
products are sold under the Barr label as well as the customers'
own private labels.
The Company has approximately 300 direct customers. In
fiscal 1996 and 1994, McKesson Drug Company accounted for
approximately 10% and 11% of net sales, respectively. In fiscal
1995, approximately 10% of net sales were generated by sales to
Cardinal Health, Inc. No other customer accounted for greater
than 10% of sales in any of the last three fiscal years.
Competition
The Company competes in varying degrees with numerous other
manufacturers of pharmaceutical products (both branded and
generic). These competitors include the generic divisions of
proprietary pharmaceutical companies (either marketing units or
other generic manufacturers), large independent generic
manufacturers/distributors that seek to provide "one stop
shopping" by offering a full line of products, and generic
manufacturers that have targeted select therapeutic categories
and market niches.
The principal competitive factors in the generic
pharmaceutical industry are:
- the ability to introduce generic versions of branded
products promptly after the expiration of market
exclusivity;
- maintenance of sufficient inventories to ensure
timely deliveries;
- price;
- quality; and
- customer service.
Many of the Company's competitors have greater financial and
other resources, and are therefore able to devote more resources
than the Company in such areas as marketing and product
development. In order to ensure its ability to compete
effectively, the Company has:
- focused its product development in areas of historical
strength or competitive advantage;
- targeted products for development that offer significant
barriers to entry for competitors, including:
difficulty in sourcing raw materials; difficulty in
formulation or establishing bioequivalence;
manufacturing that requires unique facilities,
processes or expertise; and
- invested in plant and equipment to give it a competitive
edge in manufacturing.
These factors, when combined with the Company's investment in new
product development and its focus on select therapeutic
categories, provide the basis for its belief that it will
continue to remain a leading independent generic pharmaceutical
company.
Raw Materials
The active chemical raw materials essential to the Company's
business are bulk pharmaceutical chemicals which are purchased
from numerous manufacturers in the U.S. and throughout the world.
All purchases are made in United States dollars, and therefore,
while currency fluctuations do not have an immediate impact on
prices the Company pays, such
fluctuations may, over time, have
an effect on prices to the Company. In addition, because prior
U.S. Food and Drug Administration (FDA) approval of raw material
suppliers is required, if raw materials from an approved
supplier were to become unavailable, the required FDA approval of
a new supplier could cause a significant delay in the manufacture
of the drug product affected. However, in some cases, the
Company has an FDA approved alternate supplier which would
mitigate substantially the effect of any such delay. To date,
the Company has not experienced any significant delays from lack
of raw material availability. However, there can be no assurance
that significant delays will not occur in the future.
Employees
As of June 30, 1996, the Company had approximately 386 full-
time employees. Of these, approximately one-third are
represented by a union which has a collective bargaining
agreement with the Company. The Company's current collective
bargaining agreement with its employees, who are represented by
Local 8-149 of the Oil, Chemical and Atomic Workers International
Union ("OCAW"), expires on April 1, 2001.
Government Regulation
All pharmaceutical manufacturers, including the Company, are
subject to extensive regulation by the federal government,
principally by the FDA, and, to a lesser extent, by the U.S. Drug
Enforcement Administration ("DEA") and state governments. The
Federal Food, Drug and Cosmetic Act, the Controlled Substances
Act and other federal statutes and regulations govern or
influence the testing, manufacturing, safety, labeling, storage,
record keeping, approval, pricing, advertising and promotion of
the Company's products. Non-compliance with applicable
requirements can result in fines, recalls and seizure of
products. Under certain circumstances, the FDA also has the
authority to revoke drug approvals previously granted.
FDA
FDA approval is required before any new drug or a generic
equivalent to a previously approved drug can be marketed. The
Company generally receives approval for products by submitting an
ANDA to the FDA. When processing an ANDA, the FDA waives the
requirement of conducting complete clinical studies, although it
may require bioavailability and/or bioequivalence studies.
"Bioavailability" indicates the rate and extent of absorption and
levels of concentration of a drug product in the blood stream
needed to produce a therapeutic effect. "Bioequivalence"
compares the bioavailability of one drug product with another,
and when established, indicates that the rate of absorption and
levels of concentration of a generic drug in the body are
substantially equivalent to the previously approved drug. An ANDA
may be submitted for a drug on the basis that it is the
equivalent to a previously approved drug. Although antibiotic
drugs are classified separately for purposes of FDA approval, the
approval procedure for such drugs substantially conforms to the
foregoing outline.
Among the requirements for drug approval by the FDA is that
the Company's manufacturing procedures and operations conform to
current Good Manufacturing Practices ("cGMP"), as defined in the
U.S. Code of Federal Regulations. The cGMP regulations must be
followed at all times during the manufacture of pharmaceutical
products. In complying with the
standards set forth in the cGMP
regulations, the Company must continue to expend time, money and
effort in the areas of production and quality control to ensure
full technical compliance.
If the FDA believes a company is not in compliance with
cGMP, certain sanctions are imposed upon that company including
(i) withholding from the company new drug approvals as well as
approvals for supplemental changes to existing applications; (ii)
preventing the company from receiving the necessary export
licenses to export its products; and (iii) classifying the
company as an "unacceptable supplier" and thereby disqualifying
the company from selling products to federal agencies. The
Company believes it is currently in
compliance with cGMP.
In May of 1992, the Generic Drug Enforcement Act of 1992
(the "Act") was enacted. This Act, a result of the legislative
hearings and investigations into the generic drug approval
process, allows the FDA to impose debarment and other penalties
on individuals and companies that commit certain illegal acts
relating to the generic drug approval process. In some
situations, the Act requires the FDA to debar (i.e., not accept
or review ANDAs for a period of time) a company or an individual
that has committed certain violations. It also provides for
temporary denial of approval of applications during the
investigation of certain violations that could lead to debarment
and also, in more limited circumstances, provides for the
suspension of the marketing of approved drugs by the affected
company. Lastly, this Act allows for civil penalties and
withdrawal of previously approved applications. Neither the
Company nor any of its employees was or is currently affected by
the provisions of this Act.
DEA
Because the Company markets some and intends to reintroduce
a wide range of controlled substances in its analgesic and
psychotherapeutic product lines, it must meet the requirements of
the Controlled Substances Act and the regulations issued
thereunder and administered by the DEA. These regulations
include stringent requirements for manufacturing controls and
security to prevent diversion of or unauthorized access to the
drugs in each stage of the production and distribution process.
The DEA monitors allocation to the Company of raw materials used
in the production of controlled substances based on historical
sales data. The Company believes it is currently in compliance
with all applicable DEA requirements.
Patents
The Process Patent Amendments Act of 1988 provides that the
use or sale within the United States, or importation into the
United States, of a product that was made either domestically or
abroad by a process covered by a United States patent,
constitutes infringement of the process patent. After proper
notice, this legislation could subject the Company to potential
patent infringement claims if a supplier of an active ingredient
to the Company were to infringe a United States process patent in
the manufacture of such ingredient. The Company has received no
such notice.
Medicaid
In November 1990, a law regarding reimbursement for
prescribed Medicaid drugs was passed as part of the Congressional
Omnibus Budget Reconciliation Act of 1990. This law basically
required drug manufacturers to enter into a rebate contract with
the Federal Government. All generic pharmaceutical
manufacturers, whose products are covered by the Medicaid
program, are required to rebate to each state a percentage
(currently 11% in the case of products manufactured by the
Company and 15% for Tamoxifen sold by the Company) of their
average net sales price for the products in question. The Company
provides an accrual for future estimated rebates in its
consolidated financial statements.
Effect of the General Agreement on Tariffs and Trade ("GATT")
With the signing of the GATT accord in December 1994, one of
the provisions called for harmonization of patent life throughout
GATT countries. U.S. enabling legislation had provisions which
in effect offered a limited extension of the period of monopoly
protection for intellectual property including patents. While a
number of patented drugs will receive extended patent protection
(the maximum extension being 36 months) as a result of this
enabling legislation, the patent extensions resulting from the
implementation of GATT are not expected to materially impact any
of the product candidates in Barr's current pipeline.
Other
The Company is also governed by federal, state and local
laws of general applicability, such as laws regulating working
conditions, equal employment opportunity, and environmental
protection.
Item 2. Properties
Barr's operations are located in Pomona and Blauvelt, New
York; Northvale, New Jersey; and Forest, Virginia.
The Company's analytical and product development
laboratories and certain production facilities are located in
Pomona, New York. Barr operates two facilities totaling
approximately 81,000 square feet on 40 acres. The Company owns
these facilities and the land.
The first building consists of a 33,000 square foot facility
devoted to the analytical and product development laboratories as
well as the equipment used in the research and development of new
dosage forms. This facility houses one of Barr's two enclosed-
manufacturing suites. With these suites, which include
sophisticated air-handling systems that eliminate the dangers of
handling toxic chemicals, Barr can effectively pursue oncology as
well as other product candidates whose manufacture demands that
such facilities be in place. The second building on the Pomona
site provides approximately 48,000 square feet of office and
manufacturing space. This building houses the R&D administrative
staff and pharmacy operations team, as well as additional
manufacturing and warehousing capabilities. During fiscal 1996,
the Company initiated the construction of a 17,000 square foot
manufacturing suite within this facility, that will be used to
manufacture products requiring special material handling (such as
cancer
treatments and hormonal agents). This additional capacity
will be brought on-line during the first half of fiscal 1997.
In Northvale, New Jersey, about 15 miles from the Pomona
site, three buildings are used for manufacturing, packaging and
shipping operations. Manufacturing is located in a 28,000 square
foot building which the Company purchased in 1984 with the aid of
funding through the New Jersey Economic Development Authority.
This facility includes pharmaceutical manufacturing equipment, as
well as the Company's second enclosed-manufacturing suite. The
building also has the necessary vaults, permits, etc. to support
the Company's narcotic analgesic development plans. In 1991, the
Company purchased an additional parcel of land in Northvale for
future use.
Across from the manufacturing facility, Barr leases a 40,000
square foot building that houses manufacturing support staff
offices as well as the Company's automated packaging operations.
The lease on this building expires on June 30, 1998. The Company
has determined that it will not renew the lease on this building,
and has begun the process of re-incorporating its packaging
operations within its other manufacturing facilities.
The Company's third building in Northvale, a 50,000 square
foot leased facility, serves as the Company's warehousing and
distribution facility. This lease expires in July 1999. The
Company can extend this lease for an additional five years.
The Company's executive, administrative and sales and
marketing operations are located in two sub-leased facilities of
approximately 38,000 square feet in Blauvelt, New York. This
location is approximately 7 miles from both Pomona and Northvale.
The leases on these facilities expire in May 1999.
In January 1996, the Company purchased a facility in Forest,
Virginia, that it plans to use for pharmaceutical manufacturing.
Construction to retrofit this 65,000 square foot facility for
pharmaceutical manufacturing was initiated at fiscal year-end,
and it is expected to be operational in late fiscal 1997. The
facility is located on a 50 acre site that will accommodate
additional expansion. At fiscal year-end, the Company was
formalizing plans for the construction of a 100,000 square foot
warehouse and packaging facility to support Virginia-based
manufacturing as well as product distribution.
Item 3. Legal Proceedings
Ciprofloxacin Patent Challenge
On January 6, 1995, the Company received FDA approval to
manufacture and market ciprofloxacin tablets, the generic
equivalent of Miles, Inc.'s CIPRO. A broad spectrum antibacterial
agent, Ciprofloxacin is used to treat lower respiratory, skin,
bone and joint, and urinary tract infections. U.S. sales for
Ciprofloxacin totaled in excess of $500 million for the year
ended December 31, 1995.
The Company is currently challenging the validity of certain
patents held by Bayer AG and Miles Inc. for Ciprofloxacin. In
January 1992, Bayer AG and Miles Inc. filed a patent infringement
action in the United States District Court for the Southern
District of New York,
seeking to block Barr from marketing
Ciprofloxacin until certain U.S. patents expire. The Company
expects to expend significant resources during fiscal 1997, to
prepare for a trial on the merits of the patent challenge. The
FDA approval will become effective with the Company's success in
its patent challenge, or upon expiration of the patents in 2003,
whichever occurs first.
Fluoxetine Hydrochloride Patent Challenge
In February 1996, Barr filed an ANDA seeking approval from the
FDA to market fluoxetine hydrochloride, the generic equivalent of
Eli Lilly Company's ("Lilly") Prozac. The Company notified Lilly
pursuant to the provisions of the Waxman-Hatch Act and on April
19, 1996, Lilly filed a patent infringement action in the United
States District Court for the Southern District of Indiana -
Indianapolis Division seeking to prevent Barr from marketing
fluoxetine until certain U.S. patents expire in 2002. The case
is in the discovery stage and no trial date has been set.
Miscellaneous
As of June 30, 1996, the Company was involved, as plaintiff and
defendant, in other lawsuits incidental to its business.
Management of the Company, based on the advice of legal counsel,
believes that the disposition of such litigation will not have
any significant adverse effect on the Company's consolidated
financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information required by Item 5 is included on page 34 of the
1996 Annual Report to Shareholders ("Annual Report") and is
incorporated herein by reference.
Item 6. Selected Financial Data
The information required by Item 6 is included on page 36 of the
Annual Report and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by Item 7 is included on pages 17
through 20 of the Annual Report and is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is included on pages 21
through 35 of the Annual Report and is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company's executive officers are as follows:
NAME AGE POSITION
Bruce L. Downey 48 Chairman of the Board, Chief
Executive Officer and President
Paul M. Bisaro 35 Chief Financial Officer, General Counsel
and Secretary
Timothy P. Catlett 41 Vice President, Sales and
Marketing
Ezzeldin A. Hamza 45 Senior Vice President-Research and
Development
Catherine F. Higgins 44 Vice President-Human Resources
Bruce W. Hooey 34 Vice President, Chief Information
Officer
William T. McKee 35 Director of Finance and Treasurer
Mary E. Petit 47 Vice President, Quality
Gerald F. Price 49 Executive Vice President
Bruce L. Downey became the Company's President, Chief
Operating Officer and a member of the Board of Directors in
January 1993 and was elected Chairman of the Board and Chief
Executive Officer in February of 1994. Prior to assuming these
positions, from 1981 to 1993, Mr. Downey was a partner in the
law firm of Winston & Strawn and a predecessor firm of Bishop,
Cook, Purcell and Reynolds. Mr. Downey served as the Company's
lead attorney throughout its legal proceedings with the FDA.
Paul M. Bisaro was employed by the Company as General
Counsel in July 1992. He was acting General Counsel to the
Company since January 1992. Mr. Bisaro was elected Secretary of
the Company in September 1992 and elected a Vice President in
1993. In August 1994, Mr. Bisaro was elected to the position of
Chief Financial Officer. Prior to assuming these positions with
the Company, he was associated from 1989 to 1992 with the law
firm of Winston & Strawn and a predecessor firm, Bishop, Cook,
Purcell and Reynolds. Prior to that, Mr. Bisaro was a Consultant
with Arthur Andersen & Co.
Timothy P. Catlett was employed by the Company in February
1995 as Vice President, Sales and Marketing. Since 1978, Mr.
Catlett held a number of positions with the Lederle Laboratories
division of American Cyanamid Company. Since 1993 he served as
Vice President, Cardiovascular Marketing.
Ezzeldin A. Hamza was employed by the Company in July 1984
as Director of Quality Control and thereafter, from August 1987,
served as Director of Scientific Affairs. In December 1988, Mr.
Hamza was elected to the position of Vice President-Technical
Affairs. In 1993, he was elected Senior Vice President-Research
and Development.
Catherine F. Higgins was employed by the Company in December
1991 as Vice President-Human Resources and was elected an officer
in September 1992. From June 1985 to December 1991, Ms. Higgins
served as Vice President-Human Resources for Inspiration
Resources Corporation. From August 1979 to May 1985, Ms. Higgins
was employed by Continental Grain Company as Director-Human
Resources.
Bruce W. Hooey was employed by the Company in December 1993
as Chief Information Officer. He was elected an officer of the
Company in December of 1994 and elected a Vice President of the
Company in December 1995. Mr. Hooey served as a Principal with
Deloitte & Touche Management Consultants from August 1985 until
joining Barr.
William T. McKee was employed by the Company in January 1995
as Director of Finance and was appointed Treasurer in March 1995.
Prior to joining the Company, Mr. McKee served as Vice President-
Finance for Absolute Entertainment. From January 1990 through
June 1993, Mr. McKee was a Senior Manager for Gramkow &
Carnevale, CPAs, and from September 1983 through January 1990 was
employed by Deloitte & Touche.
Mary E. Petit, Pharm. D., was employed by the Company in
January 1995 as Vice President, Quality. From June 1992 to
January 1995, Dr. Petit was Vice President, Quality Management
with the Lederle Laboratories division of American Cyanamid. Dr.
Petit held positions of increasing responsibility during her 12
year tenure with Lederle. Prior to Lederle, she held a variety of
academic appointments at the University of Utah Colleges of
Pharmacy and Medicine. She has authored over 20 scientific
publications and presented nationally.
Gerald F. Price was employed by the Company in January 1990
as Executive Vice President. He was elected an officer of the
Company in January 1990. Prior to assuming these positions, he
served as Group Vice President-Operations of Del Laboratories.
He also served as Vice President-Manufacturing for L'Oreal
Corporation, Director of Manufacturing for Amway Corporation and
was associated with The Procter & Gamble Company in a variety of
manufacturing positions.
The Company's directors and executive officers are elected
annually to serve until the next annual meeting or until their
successors have been elected and qualified. The directors of the
Company and their business experience are set forth on pages 2
and 3 of the Company's Notice of Annual Meeting of Shareholders,
dated October 25, 1996 (the "Proxy Statement") and are
incorporated herein by reference.
Item 11. Executive Compensation
A description of the compensation of the Company's executive
officers is set forth on pages 8 through 11 of the Proxy
Statement and, with the exception of the section headed
"Compensation Committee Report on Executive Compensation" on page
11, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
A description of the security ownership of certain beneficial
owners and management is set forth on pages 6 and 7 of the Proxy
Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
A description of certain relationships and related transactions
is set forth on page 14 of the Proxy Statement and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) Financial Statement Schedules:
The consolidated balance sheets as of June 30, 1996 and
1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three
years in the period ended June 30, 1996 and the related
notes to the consolidated financial statements, together
with the Independent Auditors' Report, are incorporated
herein by reference. With the exception of the
aforementioned information and the information incorporated
by reference in Items 5 through 8, the Annual Report is not
be deemed filed as part of this report. The following
additional financial data should be read in conjunction with
the financial statements in the Annual Report. All other
schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial
statements or notes.
Page
Independent Auditors' Report 16
Financial Statement Schedule:
II Valuation and Qualifying Accounts 17
Exhibits:
3.1 Certificate of Incorporation of Registrant (1)
3.2 By-Laws of the Registrant (2)
4.1 Loan and Security Agreement dated April 12, 1996 (9)
10.1 Stock Option Plan (3)
10.2 Savings and Retirement Plan (8)
10.3 Economic Development Bond Financing Agreement, dated
December 19, 1984, relating to 265 Livingston Street (2)
10.4 Note Purchase Agreement dated June 28, 1991 -
$20,000,000 - 10.15% Senior Secured Notes dated June
28, 2001 (4)
10.5 Amendments 1, 2 and 3 dated April 1996 to Note
Purchase Agreement dated June 28, 1991 --
$20,000,000 Senior Secured Notes
10.6 Collective Bargaining Agreement, effective April 1,
1996
10.7 Agreement with Bruce L. Downey (4)
10.8 Agreement with Ezzeldin A. Hamza (4)
10.9 Distribution and Supply Agreement for Tamoxifen
Citrate dated March 8, 1993 (4)
10.10 1993 Stock Incentive Plan (5)
10.11 1993 Employee Stock Purchase Plan (6)
10.12 1993 Stock Option Plan for Non-Employee Directors (7)
10.13 Agreement with Edwin A. Cohen and Amendment thereto (8)
11.0 Statement Re: Computation of Per Share Earnings
13.0 1996 Annual Report to Shareholders
21.0 Subsidiaries of the Company (1)
23.0 Consent of Deloitte & Touche LLP
27.0 Financial Data Schedule
(1) Previously filed with the Securities and Exchange
Commission as an Exhibit to the Registrant's Annual
Report on Form 10-K for the year ended June 30,
1988 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange
Commission as an Exhibit to the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1986
and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange
Commission as an Exhibit to the Registrant's
Registration Statement on Form S-1 No. 33-13472 and
incorporated herein by reference.
(4) Previously filed with the Securities and Exchange
Commission as an Exhibit to the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1993
and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange
Commission as an Exhibit to the Registrant's
Registration Statement on Form S-8 No. 33-73696 and
incorporated herein by reference.
(6) Previously filed with the Securities and Exchange
Commission as an Exhibit to the Registrant's
Registration Statement on Form S-8 No. 33-73700 and
incorporated herein by reference.
(7) Previously filed with the Securities and Exchange
Commission as an Exhibit to the Registrant's
Registration Statement on Form S-8 No. 33-73698 and
incorporated herein by reference.
(8) Previously filed with the Securities and Exchange
Commission as an Exhibit to the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1995
and incorporated herein by reference.
(9) The Registrant agrees to furnish to the Securities
and Exchange Commission, upon request, a copy of any
instrument defining the rights of the holders of its
long-term debt wherein the total amount of
securities authorized thereunder does not exceed 10%
of the total assets of the Registrant and its
subsidiaries on a consolidated basis.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature Title Date
BY BRUCE L. DOWNEY Chairman of the Board, Chief September 12, 1996
(Bruce L.Downey) Executive Officer & President
BY PAUL M. BISARO Chief Financial Officer, September 12, 1996
(Paul M. Bisaro) General Counsel & Secretary
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
BRUCE L. DOWNEY Chairman of the Board, Chief September 12, 1996
(Bruce L. Downey) Executive Officer & President
EDWIN A. COHEN Vice Chairman of the Board September 12, 1996
(Edwin A. Cohen)
ROBERT J. BOLGER Director September 12, 1996
(Robert J. Bolger)
MICHAEL F. FLORENCE Director September 12, 1996
(Michael F. Florence)
WILSON L. HARRELL Director September 12, 1996
(Wilson L. Harrell)
BERNARD C. SHERMAN Director September 12, 1996
(Bernard C. Sherman)
GEORGE P. STEPHAN Director September 12, 1996
(George P. Stephan)
JACOB M. KAY Director September 12, 1996
(Jacob M. Kay)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Barr Laboratories, Inc.:
We have audited the financial statements of Barr Laboratories,
Inc. and subsidiaries (the "Company") as of June 30, 1996 and
1995, and for each of the three years in the period ended June
30, 1996, and have issued our report thereon dated August 28,
1996; such financial statements and report are included in your
June 30, 1996 Annual Report to Shareholders and are incorporated
herein by reference. Our audits also included the financial
statement schedule of Barr Laboratories, Inc., listed in Item 14.
This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
August 28, 1996
Schedule II
Barr Laboratories, Inc.
Valuation and Qualifying Accounts
Years ended June 30, 1996, 1995, and 1994
Balance at Additions, Recovery Deduct-
Beginning costs and against tions Balance
of Year expense write- write- at end of
offs offs Year
Allowance for
doubtful accounts:
Year ended June 30, 1994 $400 400 20 20 800
Year ended June 30, 1995 800 - - 400 400
Year ended June 30, 1996 400 95 2 305 192
Reserve for returns
and allowances:
Year ended June 30, 1994 1,000 2,021 - 1,821 1,200
Year ended June 30, 1995 1,200 4,813 - 4,313 1,700
Year ended June 30, 1996 1,700 5,114 - 5,207 1,607
Inventory reserves:
Year ended June 30, 1994 6,647 3,447 - 4,351 5,743
Year ended June 30, 1995 5,743 2,345 - 4,538 3,550
Year ended June 30, 1996 3,550 2,359 - 4,630 1,279
Exhibit 13
BARR LABORATORIES INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Fiscal 1996 to Fiscal 1995 (thousands of dollars)
Net sales increased approximately 16% to $232,224 from $199,720.
The increase is primarily attributable to a continued increase in
demand for Tamoxifen, the breast cancer treatment distributed by
the Company, as well as increased sales for the balance of the
Company's product lines.
Net sales of Tamoxifen increased approximately $28,000 to
$171,000 or 74% of net sales, compared to $143,000 or 72% of net
sales in the prior year. This 20% growth resulted from increases
in the Company's market share and price. While the Company's
Tamoxifen revenues increased in fiscal 1996, the rate of growth
between fiscal 1995 and 1996 declined compared to prior years.
This decline in the rate of growth was expected given the
dramatic growth achieved immediately after the Company began
distributing Tamoxifen and given the Company's share of the
current market. 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 six months 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 June 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. Tamoxifen is a patented product
manufactured for the Company by the Innovator and 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.
Net sales of Barr-manufactured products increased by
approximately 8% primarily as a result of increases in volume.
Methotrexate accounted for approximately 10% of the Company's net
sales in 1996 as compared to 14% in 1995. No other Barr-
manufactured product accounted for 10% or more of net sales in
either year.
Gross profit increased to $42,830 from $40,222 due to increased
sales volume. However, gross margin decreased as a percentage of
net sales from 20% to 18%. The decline in gross margin is
primarily attributed to the lower gross margins associated with
the increased distribution of Tamoxifen and price competition on
certain of the Company's manufactured products. The Company
believes that its new product, Megestrol Acetate, which was
introduced in November 1995, will contribute to offsetting lower
margins on certain Barr-manufactured 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.
Due to the nature of the generic pharmaceutical industry, as the
product line matures and competition from other manufacturers
intensifies, selling prices and the related margins on those
products typically decline. The Company's future operating
results are dependent on several factors including its ability to
introduce new products to its product line, customer purchasing
practices and changes in the amount of competition affecting the
Company's products. In addition, the ability to receive
sufficient quantities of raw materials to maintain its production
is critical. While the Company has not experienced any
interruption in sales due to the lack of raw materials, the
Company is in the process of developing alternate raw material
suppliers for its key products in the event raw material
shortages were to occur.
Selling, general and administrative expenses increased to $21,695
from $19,014, yet remained consistent as a percentage of net
sales, as was expected, due to the increase in net sales. The
increase reflects increases in personnel costs; additional
advertising and promotion costs associated with the introduction
of Megestrol Acetate in late November 1995; and a full-year of
depreciation from the December 1994 implementation of a new core
computer system. Fiscal 1996 also included approximately $700 in
non-recurring charges in connection with a voluntary early
retirement program and a legal settlement. During fiscal 1996,
Barr entered into multi-year agreements with another company and
a related party to share in development and litigation costs
associated with certain of its patent challenges. These
agreements resulted in the reimbursement of $1,977 in legal fees.
Research and development expenses increased to $11,274 from
$10,443. This resulted from higher outside testing and raw
material costs associated with an increase in the number of
products under development when compared to the prior year as
well as increases in salaries and related costs associated with
the addition of scientists. These increases were partially
offset by a decrease in fees paid to outside laboratories to
conduct biostudies. Such a decrease was expected since the prior
year's amounts included biostudy costs for conjugated estrogens.
The number, complexity and associated costs of biostudies for
conjugated estrogens are greater than those for other products
currently under development.
Interest income increased 48% to $2,778 from $1,874, due to $485
in interest income received in February 1996 in connection with
an income tax refund from the Internal Revenue Service as well as
an increase in the rate of return earned on cash and cash
equivalents during the year.
Interest expense declined 30% primarily due to a reduction in
long-term debt during the year and an increase in capitalized
interest associated with an increase in capital improvements in
comparison to the prior year. These decreases were partially
offset by an increase in interest expense in connection with the
Company's December 1995 agreement with the Innovator of Tamoxifen
to pay monthly interest on the unsecured Tamoxifen payable
balance in return for the elimination of the cash collateral
requirement.
In fiscal 1996 and 1995, the Company incurred extraordinary
losses on the early extinguishment of debt. In 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. In 1995, the Company incurred
an extraordinary loss primarily from the write-off of deferred
financing costs associated with its $10 million 10.05%
Convertible Subordinated Notes which were converted to common
stock.
Results of Operations
Fiscal 1995 to Fiscal 1994 (thousands of dollars)
Net sales increased approximately 83% to $199,720 from $109,133.
This increase was primarily attributable to continued increase in
demand for Tamoxifen, the breast cancer treatment manufactured by
the Innovator and distributed by the Company.
During the fiscal year ended June 30, 1995, sales of Tamoxifen
accounted for approximately $143,000 or 72% of net sales compared
to approximately $53,000 or 49% of net sales in fiscal 1994. The
growth in Tamoxifen sales was primarily attributable to increases
in the Company's market share. Additionally, fiscal 1995 sales
reflected the inclusion of a full year of Tamoxifen revenues as
compared to 8 months of sales in 1994 as the Company began
distributing Tamoxifen in November 1993.
Net sales of Barr-manufactured products increased by
approximately 1%. An overall increase of 16% in shipments of
Barr-manufactured products helped to offset significant sales
discounts and allowances, particularly reduced prices on certain
products. Methotrexate accounted for approximately 14% of the
Company's net sales in 1995 as compared to 25% in 1994. No other
product accounted for more than 10% of net sales in either year.
Gross profit increased to $40,222 from $31,112 due to increased
sales volume. However, gross margin as a percentage of net sales
decreased to 20% from 29%. This decrease was primarily
attributable to the lower gross margins earned from the
distribution of Tamoxifen compared to margins earned on
manufactured products, price competition on certain of the
Company's manufactured products and, to a lesser extent, higher
manufacturing overhead costs.
Selling, general and administrative expenses decreased slightly
to $19,014 from $19,170 and declined as a percentage of net sales
to 9.5% from 17.6%. This percentage decrease was largely
attributed to the overall growth in the Company's sales exceeding
the rate of growth in operating expenses. The net decrease in
fiscal 1995 occurred despite increases in personnel costs and
costs resulting from the implementation of a new core computer
system. These increases were offset primarily by decreases in
legal expenses, reductions in sales commissions as a result of
the re-negotiation of an outside sales representative's contract
in the third quarter of fiscal 1994, and reductions in the
Company's provision for bad debts.
Research and development expenses increased 54% to $10,443 from
$6,778. This increase reflected the Company's renewed commitment
to its research and development efforts. Increased spending with
outside laboratories to conduct biostudies of products such as
conjugated estrogens as well as increased personnel costs were
the main areas of increased spending.
Interest income increased to $1,874 from $689 due to an increase
in the average short-term investment balance as well as an
increase in the rate of return earned on those investments.
Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The cumulative effect of this accounting change, a one-
time gain of $374 or $0.03 per share, was recorded during fiscal
1994.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $44,893 at June 30,
1996, a decrease from $52,987 at June 30, 1995. However, the
Company's non-escrow cash increased $12,125 to $23,969 from June
30, 1995, as the cash held in a cash collateral account to secure
credit extended to the Company by the Innovator of Tamoxifen
decreased to $20,924 from $41,143 at June 30, 1995. The decrease
in the cash collateral account is a result of an Alternative
Collateral Agreement ("Collateral Agreement") entered into in
December 1995 between the Company and the Innovator of Tamoxifen
(see Note 1). The amount in the cash collateral account at June
30, 1996 represents the portion of its payable which the Company
has decided to secure in connection with its cash management
policy.
Cash provided from operating activities was $5,368 for the year
ended June 30, 1996, which included net earnings of $7,016.
Accounts receivable increased primarily as a result of higher
sales volume. Increases in inventory were primarily due to
increased purchases of Tamoxifen and raw materials for Barr-
manufactured products in anticipation of new product launches.
Accounts payable increased primarily as a result of new
construction and equipment purchases.
During fiscal 1996, the Company invested $16,048 in capital
assets including the purchase of a new manufacturing facility in
Forest, Virginia, the expansion of the Company's existing
manufacturing facilities, and the purchase of new machinery and
equipment. In fiscal 1997, the Company estimates that it will
invest an additional $24 million in construction and new
equipment for its New York and Virginia facilities. Management
believes that purchasing the Virginia facility will be
significantly more cost-effective than constructing a new
facility.
In February 1996, the Company's Board of Directors declared a 3-
for-2 stock split effected in the form of a 50% stock dividend.
Approximately 4.7 million additional shares of common stock were
distributed.
In April 1996, the Company signed a Loan and Security Agreement
("Equipment Agreement") with BankAmerica Leasing and Capital
Group which will provide the Company up to $18,750 in financing
for equipment purchased over the 12 months ending April 1996. As
of June 30, 1996, the Company has utilized $3,153 of this
facility for the acquisition of certain of its machinery and
equipment. In July 1996, the Company obtained for future use a
3-year, $10 million revolving credit facility ("Revolver") with
BankAmerica Illinois which provides Barr with additional
borrowing power and flexibility to capitalize on strategic
opportunities as they develop. Any borrowings under the Revolver
will be secured by certain accounts receivable and inventory.
The Company has not yet drawn upon the Revolver. The Company
will be required to meet certain financial covenants under both
arrangements. Management believes that existing capital
resources will be adequate to meet its needs for the foreseeable
future.
Environmental Matters
The Company has obligations for environmental safety and clean-up
under various state, local and federal laws, including the
Comprehensive Environmental Response, Compensation and Liability
Act, commonly known as Superfund. Based on information currently
available, environmental expenditures have not had, and are not
anticipated to have, any material effect on the Company's
consolidated financial statements.
Effects of Inflation
Inflation has had only a minimal impact on the operations of the
Company in recent years.
BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995 (in thousands of dollars, except share amounts)
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $44,893 $ 52,987
Accounts receivable (including
receivables from related parties of
$886 in 1996 and $925 in 1995) less 32,065 27,307
allowances
of $1,799 and $2,100 in 1996 and
1995, respectively
Inventories 42,396 35,890
Deferred income taxes 2,771 3,601
Prepaid expenses 648 678
Total current assets 122,773 120,463
Property, plant and equipment, net 45,739 34,799
Other assets 708 691
Total assets $169,220 $155,953
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (including
payables to a related $ 58,537 $ 55,355
party of $250 in 1995)
Accrued liabilities 6,332 5,452
Current portion of long-term debt 3,815 43
Income taxes payable 1,104 1,249
Total current liabilities 69,788 62,099
Long-term debt 17,709 20,371
Other liabilities 238 253
Deferred income taxes 1,324 1,377
Commitments & contingencies
Contingencies (note 6)
Shareholders' equity:
Shareholders' Equity:
Cumulative convertible preferred
stock, Series A, $1 par value
per share; authorized 2,000,000
shares: none issued Common stock,
$.01 par value per share;
authorized 30,000,000 shares; issued
14,115,664 and 9,334,852 in 1996 and
1995, respectively 141 93
Additional paid-in capital 43,526 42,230
Retained earnings 36,507 29,543
80,174 71,866
Treasury stock at cost; 78,637 and
52,425 shares in 1996 and 1995,
respectively (13) (13)
Total shareholders' equity 80,161 71,853
Total liabilities and shareholders' $169,220 $155,953
equity
See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(thousands of dollars, except share amounts)
(unaudited)
1996 1995 1994
Net sales (including sales to related
parties of $4,296, $2,585, and $1,850
in 1996, 1995 and 1994, respectively) $ 232,224 $ 199,720 $ 109,133
Cost of sales 189,394 159,498 78,021
Gross profit 42,830 40,222 31,112
Costs and expenses:
Selling, general and administrative 21,695 19,014 19,170
Research and development 11,274 10,443 6,778
Earnings from operations 9,861 10,765 5,164
Interest income 2,778 1,874 689
Interest expense (1,767) (2,535) (2,683)
Other income 637 118 575
Earnings before income taxes, extrordinary
loss and cumulative effect of accounting 11,509 10,222 3,745
change
Income tax expense 4,368 3,852 1,461
Earnings before extraordinary loss and
cumulative effect of accounting change 7,141 6,370 2,284
Extraordinary loss on early extinguishment
of debt,net of taxes (125) (145) -
Earnings before cumulative effect of 7,016 6,225 2,284
accounting change
Cumulative effect of accounting change - - 374
Net earnings $ 7,016 $ 6,225 $ 2,658
PER COMMON SHARE:
Earnings before extraordinary loss and
cumulative effect of accounting change $ 0.49 $ 0.47 $ 0.17
Extraordinary loss on early extinguishment
of debt, net of taxes (0.01) (0.01) -
Earnings before cumulative effect of
accounting change 0.48 0.46 0.17
Cumulative effect of accounting change - - 0.03
Net earnings per common and common
equivalent shares $ 0.48 $ 0.46 $ 0.20
Net earnings per common share assuming
full dilution 0.48 0.46 0.20
Weighted average number of common shares 14,504,948 13,417,038 13,331,879
Weighted average number of shares assuming
full dilution 14,760,064 13,417,038 13,363,401
See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (in
thousands of dollars, except share amounts)
Common Additional Common Stock Total
Stock Paid-in Retained in Treasury Shareholders'
Shares Amount capital Earnings Shares Amount Equity
Balance, June 30, 1993 8,690,237 $ 87 $30,764 $20,660 52,425 $(13) $51,498
Net earnings 2,658 2,658
Issuance of common
stock for exercised
stock options and
employees'stock
purchase plans 93,500 1 827 828
Balance, June 30, 1994 8,783,737 88 31,591 23,318 52,425 (13) 54,984
Net earnings 6,225 6,225
Issuance of common
stock for exercised
stock options and
employees'stock
purchase plans 40,757 661 661
Issuance of common
stock upon conversion
of convertible
subordinated notes 510,358 5 9,978 9,983
Balance, June 30, 1995 9,334,852 93 42,230 29,543 52,425 (13) 71,853
Net earnings 7,016 7,016
Issuance of common
stock for exercised
stock options and
employees'stock
purchase plans 80,757 1 1,310 1,311
Stock split
(3 for 2) 4,700,055 47 (14) (52) 26,212 (19)
Balance, June 30, 1996 14,115,664 $141 $43,526 $36,507 78,637 $(13) $80,161
See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1996, 1995
and 1994
(thousands of dollars, except share
information)
1996 1995 1994
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES:
Net earnings $ 7,016 $ 6,225 $ 2,658
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,920 4,429 3,613
Deferred income tax (benefit) expense 777 (407) 523
Cumulative effect of accounting change - - (374)
Write-off of deferred financing fees
associated with early extinguishment
of debt 31 188 -
(Gain) loss on disposal of equipment 63 (113) 24
Gain on disposal of investment property - - (548)
Write-off of discontinued capital projects - - 53
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (4,758) (5,674) (13,049)
Inventories (6,506) (6,540) (7,050)
Prepaid expenses 30 (35) (329)
Other assets (107) 198 (55)
Increase (decrease) in:
Accounts payable and accrued liabilities 4,047 23,303 28,584
Income taxes payable (145) 320 534
Net cash provided by operating activities 5,368 21,894 14,584
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (16,048) (6,328) (4,752)
Proceeds from sale of investment property - - 900
Proceeds from sale of property, plant and equipment 184 340 36
Net cash used in investing activities (15,864) (5,988) (3,816)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt (2,043) (62) (145)
Proceeds from loans 3,153 - -
Fees associated with stock split (19) - -
Fees associated with conversion of debt to equity - (17) -
Proceeds from exercise of stock options
and employee stock purchases 1,311 661 828
Net cash provided by financing activities 2,402 582 683
(Decrease)/Increase in cash and cash equivalents (8,094) 16,488 11,451
Cash and cash equivalents, beginning of year 52,987 36,499 25,048
Cash and cash equivalents, end of year $ 44,893 $ 52,987 $ 36,499
Supplemental cash flow data-Cash paid during the year:
Interest, net of portion capitalized $ 1,727 $ 2,541 $ 3,072
Income taxes 3,930 3,766 705
Supplemental disclosure of non-cash financing activity:
Issuance of 765,537 shares of common stock upon conversion
of $10,000 Convertible Subordinated Notes $ 10,000
See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC.
Notes to the Consolidated Financial Statements
(in thousands of dollars, except share amounts)
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Other Matters
The consolidated financial statements include the
accounts of Barr Laboratories, Inc. (the "Company") and
its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been
eliminated in consolidation.
Sherman Delaware, Inc., and affiliated companies
controlled 64.9% of the common stock of the Company at
June 30, 1996. Dr. Bernard C. Sherman is a principal
stockholder of Sherman Delaware, Inc. and a Director of
Barr Laboratories, Inc.
(b) Credit and Market Risk
The Company operates in one industry segment; it
manufactures, markets and distributes a wide range of
generic pharmaceutical products. The Company also
distributes a patented breast cancer agent, Tamoxifen
Citrate, under an agreement with the Innovator. The
Company's current manufacturing plants are located in
New Jersey and New York and its products are sold
throughout the United States primarily to wholesale and
retail distributors. In addition, the Company
manufactures and sells many products to other companies
that resell these pharmaceuticals under their own
(private) label. In fiscal 1996 and 1994 McKesson Drug
Company accounted for approximately 10% and 11% of net
sales, respectively. In fiscal 1995, approximately 10%
of net sales were generated by sales to Cardinal
Health, Inc. No other customer accounted for greater
than 10% of sales in any of the last three fiscal
years. The Company performs ongoing credit evaluations
of its customers' financial condition and generally
requires no collateral from its customers.
(c) Inventories
Inventories are stated at the lower of cost, determined
on a first-in, first-out (FIFO) basis, or market.
(d) Property, Plant and Equipment
Property, Plant and Equipment is recorded at cost.
Depreciation is provided for on a straight-line basis
over the estimated useful lives of the related assets.
Leasehold improvements are amortized on a straight-line
basis over the shorter of their useful lives or the
terms of the respective leases.
The estimated useful lives of the major classification
of depreciable assets are:
Years
Buildings 45
Building Improvements 10
Machinery and Equipment 3-10
Leasehold Improvements 3-10
Automobiles and Trucks 3-5
Maintenance and repairs are charged to operations as
incurred; renewals and betterments are capitalized.
(e) Income Taxes
Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109, Accounting for
Income Taxes ("SFAS No. 109"). Under SFAS No. 109,
deferred tax assets and liabilities are recognized for
the differences between the financial statement
carrying amounts of existing assets and liabilities and
their respective tax bases.
(f) Research and Development
Research and development costs, which consist
principally of product development costs, are charged
to operations as incurred.
(g) Earnings Per Share
Earnings per common share in 1996 and 1994 was computed
using the weighted average number of common and
dilutive common equivalent shares outstanding during
the year. In 1994, the inclusion of other potentially
dilutive securities was anti-dilutive. Earnings per
common share in 1995 was computed by dividing earnings
by the weighted average number of shares outstanding
during the period. In 1995, the effects of stock
options outstanding resulted in less than 3% dilution.
On February 21, 1996, the Company's Board of Directors
declared a 3-for-2 stock split effected in the form of
a 50% stock dividend. Approximately 4.7 million
additional shares of common stock were distributed on
March 25, 1996 to shareholders of record as of March 4,
1996. All prior year share and per share amounts have
been adjusted for the stock split.
(h) 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 71
days) which are readily convertible into cash at par
value (cost). As of June 30, 1996 and 1995, $20,924
and $41,143, respectively, of the Company's cash was
held in a cash collateral account to secure extension
of credit to it by the Innovator
of Tamoxifen Citrate
in accordance with the Distribution and Supply
Agreement between the Company and the Innovator.
In December 1995, the Company and the Innovator of
Tamoxifen entered into an Alternative Collateral
Agreement ("Collateral Agreement") which suspends
certain sections of the Supply and Distribution
Agreement ("Distribution Agreement") entered by both
parties in March, 1993. Under the Collateral
Agreement, extensions of credit to the Company will no
longer need to be secured by a letter of credit or cash
collateral. However, the Company may at its discretion
maintain a balance in the escrow account based on its
short-term cash requirements. All remaining terms of
the Distribution Agreement remain in place. In return
for the elimination of the cash collateral requirement
and in lieu of issuing letters of credit, the Company
has agreed to pay the Innovator monthly interest based
on the average monthly Tamoxifen payable balance, as
defined in the agreement, and maintain compliance with
certain financial covenants. The Company was in
compliance with such covenants at June 30, 1996.
(i) Deferred Financing Fees
All costs associated with the issuance of debt are
being amortized on a straight-line basis over the life
of the related debt. The unamortized amounts of $533
and $369 at June 30, 1996 and 1995, respectively, are
included in Other assets in the Consolidated Balance
Sheets.
In connection with the early extinguishment of $2,000
of the 10.15% Senior Secured Notes and the 10.05%
convertible subordinated notes, the Company wrote off
$31 and $188 in deferred financing fees in 1996 and
1995, respectively. See Note (4) Long-Term Debt.
(j) Fair Value of Financial Instruments
Cash, Accounts Receivable and Accounts Payable - The
carrying amounts of these items are a reasonable
estimate of their fair value.
Long-Term Debt - The fair value of debt at June 30,
1996 and 1995 is estimated at $23 million and $22
million, respectively. Estimates were determined by
discounting the future cash flows using rates currently
available to the Company.
The fair value estimates presented herein are based on
pertinent information available to management as of
June 30, 1996. Although management is not aware of any
factors that would significantly affect the estimated
fair value amounts, such amounts have not been
comprehensively revalued for purposes of these
financial statements since that date, and current
estimates of fair value may differ significantly from
the amounts presented herein.
(k) Use of Estimates in the Preparation of Financial
Statements
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and use assumptions that
affect certain reported amounts and disclosures; actual
results may differ.
(l) Revenue Recognition
The Company recognizes revenue when goods are shipped.
(m) Reclassifications
Certain amounts in prior year financial statements
have been reclassified to conform with the current year
presentation.
2) Inventories
A summary of inventories is as follows:
June 30,
---------------------
1996 1995
Raw Materials and
Supplies $19,648 $17,470
Work-in-Process 4,920 4,520
Finished Goods 17,828 13,900
------- -------
$42,396 $35,890
======= =======
Tamoxifen Citrate, purchased as a finished product,
accounted for $12,590 and $9,966 of finished goods inventory
as of June 30, 1996 and 1995, respectively.
(3) Property, Plant and Equipment
A summary of property, plant and equipment is as follows:
June 30,
------------------------
1996 1995
Land $ 2,338 $ 1,814
Buildings and
Improvements 21,639 19,109
Machinery and
Equipment 36,528 35,243
Leasehold
Improvements 1,659 1,659
Automobiles and
Trucks 68 81
Construction in
Progress 13,396 2,460
------ ------
75,628 60,366
Less: Accumulated
Depreciation &
Amortization 29,889 25,567
------- -------
$45,739 $34,799
======= =======
For the years ended June 30, 1996, 1995 and 1994, $526,
$176, and $388 of interest was capitalized, respectively.
(4) Long-Term Debt
A summary of long-term debt is as follows:
June 30,
-----------------
1996 1995
New Jersey Economic
Development
Authority Bond (a) $ 371 $ 414
10.15% Senior Secured Notes
Due June
28, 2001 (b) 18,000 20,000
Equipment Financing (c) 3,153 -
------ ------
21,524 20,414
Less: Current Installments of
Long-Term Debt 3,815 43
------- -------
Total Long-Term Debt $17,709 $20,371
======= =======
(a) The New Jersey Economic Development Authority Bond is
payable to a bank. Such loan is secured by a first
mortgage on land, building and improvements on the
facility located at 265 Livingston Street. Interest is
charged at 75% of the bank's prime rate. The prime
rate was 8.25% and 9% at June 30, 1996 and 1995,
respectively. Monthly installments are $3.6 plus
interest, through December 1999. Upon maturity in
January 2000, there will be a final installment equal
to the then remaining principal balance of $220.
(b) In June 1991, the Company entered into a note purchase
agreement and issued
$20,000 of senior secured notes bearing interest at a
rate of 10.15%, payable semiannually. In March 1996,
the Company negotiated the prepayment of $2,000 of
these Notes. The cash payment of $2,213 included a
prepayment penalty of $169 and accrued interest through
March 15, 1996 of $44. The prepayment penalty of $169
and the related write-off of approximately $31 in
previously deferred financing costs resulted in an
extraordinary loss, which net of taxes of $76, was $125
or $0.01 per share. Principal payments of $3,600 per
year are due beginning in June 1997 through the
maturity date of June 28, 2001. These notes are
collateralized by a first mortgage on the Pomona, New
York facility and all machinery and equipment other
than machinery and equipment in the Forest, Virginia
facility.
The senior notes contain certain financial covenants
including restrictions on dividend payments not to
exceed $5 million plus 50% of net earnings subsequent
to July 1, 1991. The Company was in compliance with
all such covenants as of June 30, 1996.
The note purchase agreement permits the Company to
repay these notes prior to their scheduled maturity.
However, this would require a substantial prepayment
fee which is calculated based on current market rates
and the note rate. Based on current market rates
available to the Company, refinancing such notes
currently is considered prohibitive.
(c) In April 1996, the Company signed a Loan and Security
Agreement with
BankAmerica Leasing and Capital Group which will
provide the Company up to $18,750 in financing for
equipment to be purchased over the 12 months ending
April 1997. Notes entered into under this agreement
require no principal payment for the first two
quarters; bear interest quarterly at a rate equal to
the London Interbank Offer Rate (LIBOR) plus 125 basis
points; and have a term of 72 months. LIBOR was 5.625
at June 30, 1996. The Agreement contains certain
financial covenants with which the Company was in
compliance as of June 30, 1996.
In June 1991, the Company entered into a note purchase
agreement and issued $10,000 of convertible
subordinated notes bearing interest at the rate of
10.05%, payable semiannually. In February 1995, these
notes were converted into 765,537 shares of common
stock, as adjusted for the 3-for-2 stock split in March
1996, and the Company incurred an extraordinary loss
resulting primarily from the write-off of deferred
financing costs. This extraordinary loss from early
extinguishment of debt, net of taxes of $92, was $145
or $0.01 per share for the year ended June 30, 1995.
Principal maturities of existing long-term debt for the next
five years and thereafter are as follows:
Year Ending
June 30,
1997 $3,815
1998 3,987
1999 3,987
2000 4,185
2001 3,944
Thereafter 1,606
(5) Related-Party Transactions
The Company's related party transactions were with
affiliated companies of Dr. Bernard C. Sherman. During the
years ended June 30, 1996, 1995, and 1994, the Company
purchased $1,800, $435, and $124, respectively, of bulk
pharmaceutical material from such companies. During fiscal
1996, the Company also entered a multi-year agreement with a
Company controlled by Dr. Sherman to share litigation costs
in connection with one of its patent challenges. For the
year ended June 30, 1996, the Company received $570 in
connection with such agreement which was recorded as a
reduction to selling, general and administrative expenses.
In June 1992, a shareholder action was filed against the
Company and Edwin A. Cohen, then President of the Company,
and Louis J. Guerci, who was a Vice President of the
Company. In November 1994, the Company agreed to settle
this matter. Management strongly believed that the case was
without merit, but determined that it was in the
Company's
best interest to settle rather than participate in continued
litigation. In December 1994, the court approved the
settlement. As of June 30, 1996, the final payment amount
(on the "claims made basis") has not been determined or
paid. In connection with this action, the Company has
separately agreed to indemnify Mr. Guerci in connection
therewith. As of June 30, 1996, the Company has made
advances of approximately $288 and $35 in legal fees and
expenses to legal counsel on behalf of Mr. Guerci and Mr.
Cohen, respectively.
During the years ended June 30, 1996, 1995 and 1994, Mr.
Cohen earned $213, $250 and $83, respectively, under a
consulting agreement.
(6) Income Taxes
Effective July 1, 1993, the Company adopted SFAS 109. The
cumulative effect of this accounting change was a one-time
gain of $374 or $0.03 per share which is reported separately
in the Consolidated Statement of Operations for fiscal 1994.
A summary of the components of income tax expense is as
follows:
Year Ended June 30,
1996 1995 1994
Federal:
Current $3,110 $3,680 $ 821
Deferred 617 (242) 412
_____ _____ _____
3,727 3,438 1,233
State:
Current 405 487 117
Deferred 160 (165) 111
565 322 228
------ ------ ------
$4,292 $3,760 $1,461
====== ====== ======
Income tax expense for the years ended June 30, 1996 and
1995 is included in the financial statements as follows:
1996 1995
Continuing operations $ 4,368 $ 3,852
Extraordinary loss on early
extinguishment of debt (76) (92)
------- -------
$ 4,292 $ 3,760
======= =======
The provision for income taxes differs from amounts computed
by applying the statutory federal income tax rate to income
before taxes due to the following:
Year Ended June 30
1996 1995 1994
Federal Income Taxes at Statutory
Rate $ 3,958 $ 3,475 $ 1,274
State Income Taxes, Net
of Federal Income Tax Effect 360 212 151
Other, Net (26) 73 36
------- ------- -------
$ 4,292 $ 3,760 $ 1,461
======= ======== =======
The temporary differences that give rise to deferred tax
assets and liabilities as of June 30, 1996 and 1995 are as
follows:
Deferred Tax Assets 1996 1995
Receivable Reserves $ 776 $ 1,036
Inventory Reserves 187 848
Inventory Capitalization 552 593
Other Operating Reserves 1,256 1,124
----- -----
2,771 3,601
Deferred Tax Liability:
Plant and Equipment (1,324) (1,377)
------- --------
Net Deferred Tax Asset $ 1,447 $ 2,224
======= =======
(7) Shareholders' Equity
Preferred Stock
The cumulative convertible preferred stock, Series A has
voting rights equal to the number of shares of common stock
of the Company into which each share may be converted (with
a conversion basis of one share of common stock for each
share of preferred stock). As of June 30, 1996, none have
been issued.
Employee Stock Option Plans
The Company has stock option plans, which were approved by
the shareholders and which authorize the granting of options
to officers and certain key employees to purchase the
Company's common stock at a price equal to the market price
on the date of grant.
During fiscal 1994, the shareholders ratified the adoption
by the Board of Directors of the 1993 Stock Incentive Plan
("the 1993 Option Plan") in order to ensure, among other
things, that the Company would continue to have an adequate
number of shares of common stock available for grants of
incentive and unqualified stock options.
The Company's other option plan was approved by the
shareholders in 1986 ("the 1986 Option Plan"). As of June
30, 1996, options will no longer be granted under this Plan.
All options granted to date under the 1993 Option Plan and
1986 Option Plan are exercisable between one and two years
from the date of grant and expire ten years after the date
of grant except in cases of death or termination of
employment as defined in each Plan. Also, to date, no
option has been granted under either the 1993 Option Plan or
the 1986 Option Plan at a price below the current market
price of the Company's common stock on the date of grant.
A summary of the activity resulting from all plans, adjusted
for the 3-for-2 stock split, is as follows:
No. of Option
Shares Price
Outstanding at 6/30/93 779,700 $2.91-11.66
Granted 112,875 11.33-13.50
Canceled (49,944) 6.00-11.50
Exercised (140,250) 2.91-11.50
--------
Outstanding at 6/30/94 702,381 2.91-13.50
Granted 288,750 14.46-16.87
Canceled (14,260) 6.00-14.46
Exercised (27,000) 2.91-11.50
-------
Outstanding at 6/30/95 949,871 2.91-16.87
Granted 382,494 15.79-15.96
Canceled (33,375) 4.25-15.79
Exercised (73,625) 3.66-16.25
---------
Outstanding at 6/30/96 1,225,365 2.91-16.87
=========
Exercised to date through 455,000
6/30/96
Expired under 1986 Plan 42,748
Available for Grant 301,887
(2,025,000 authorized)
Exercisable at 6/30/96 616,373 2.91-16.87
Non-Employee Directors' Stock Option Plan
During fiscal year 1994, the shareholders ratified the
adoption by the Board of Directors of the 1993 Stock Option
Plan for Non-Employee Directors (the "Directors' Plan"). An
aggregate of 225,000 shares of common stock were available
under the Directors' Plan. This formula plan, among other
things, enhances the Company's ability to attract and retain
experienced directors. Each eligible non-employee director
on any grant date is optioned 4,500 shares except in the
case of the first grant date (which was the date of the 1993
Annual Meeting) where each eligible director was optioned
18,000 shares. Effective December 1995, the number of
shares which each non-employee director will be optioned was
increased from 4,500 to 7,500 on grant date.
All options granted under the Directors' Plan have ten-year
terms and are exercisable at an option exercise price equal
to the market price of common stock on the date of grant.
Each option is exercisable on the date of the first annual
shareholders' meeting immediately following the date of
grant of the option, provided there has been no interruption
of the optionee's service on the Board before that date.
The following is a summary of activity, adjusted for the
stock split, for the three fiscal years ended June 30, 1996:
No. of Option Price
Shares
Outstanding at
6/30/93 0
Granted 72,000 $13.75
Outstanding at
6/30/94 72,000 13.75
Granted 27,000 17.08
------
Outstanding at
6/30/95 99,000 13.75-17.08
Granted 45,000 15.50
-------
Outstanding at
6/30/96 144,000 13.75-17.08
=======
Available for Grant
(225,000
authorized) 81,000
======
Exercisable at
6/30/96 99,000 13.75-17.08
======
Employee Stock Purchase Plan
During fiscal 1994, the shareholders ratified the adoption
by the Board of Directors of the 1993 Employee Stock
Purchase Plan (the "Purchase Plan") to offer employees an
inducement to acquire an ownership interest in the Company.
The Purchase Plan permits
eligible employees to purchase,
through regular payroll deductions, an aggregate of 300,000
shares of common stock at approximately 85% of the fair
market value of such shares. During fiscal 1995, the
initial year of the plan, 34,135 shares were purchased under
the plan. In fiscal 1996, an additional 39,985 shares were
purchased under the plan.
(8) Savings and Retirement Plan
The Company has a savings and retirement plan (the "401(k)
Plan") which is intended to qualify under Section 401(k) of
the Internal Revenue Code. Employees are eligible to
participate in the 401(k) Plan in the first month following
the month of hire. Prior to June 30, 1995, under the terms
of the 401(k) Plan, participating employees could contribute
up to a maximum of 15% of their earnings (9% of their
earnings before taxes and up to 6% of after-tax earnings).
Beginning July 1, 1995, participating employees may
contribute up to a maximum of 12% of their earnings before
or after taxes. The Company is required, pursuant to the
terms of its union contract, to contribute to each union
employee's account an amount equal to the 2% minimum
contribution made by such employee. The Company may, at its
discretion, contribute a percentage of the amount
contributed by an employee to the 401(k) Plan up to a
maximum of 10% of such employee's compensation. Participants
are always fully vested with respect to their own salary and
cash contributions and any profits arising therefrom.
Participants become vested with respect to 20% of the
Company's contributions to their accounts and any profits
arising therefrom for each full year of employment with the
Company and thus become fully vested after five full years
of employment.
The Company's contributions to the 401(k) Plan were $1,488,
$1,173, and $945, for the years ended June 30, 1996, 1995,
and 1994 respectively.
In January 1994, after an extensive review of certain
administrative aspects of the 401(k) Plan, the Company
submitted an application to the Internal Revenue Service
(IRS) under the Voluntary Compliance Review (VCR) program.
On September 14, 1995, the Company received a Compliance
Statement from the IRS indicating that the IRS would not
pursue the sanction of plan disqualification provided that
the Company's proposed corrective actions, which were
included in the VCR application, were completed by December
13, 1995. The Company completed the corrective actions
within the required time-frame.
(9) Other Income
A summary of other income is as follows:
Year Ended June 30,
1996 1995 1994
Net Gain (Loss) on Sale of
Property(a) $(63) $113 $524
Joint Venture Litigation(b) 694 - -
Other 6 5 51
---- ---- ----
Other Income $637 $118 $575
(a) The Company sold unused manufacturing equipment in 1995
and undeveloped investment property in 1994 and
recognized gains of $113 and $548, respectively, from
such sales.
(b) In May 1996, the Company and an affiliated company
reached an agreement with a former partner in a
proposed joint venture and received on June 10, 1996,
$694 of a $1,000 deposit which was paid in escrow in
furtherance of the possible joint venture. The Company
had previously written off the $1,000 investment in the
fourth quarter of fiscal 1992.
(10) Commitments and Contingencies
The Company is party to various operating leases which
relate to the rental of office and plant facilities and of
equipment. The Company is satisfied with its ability to
extend such leases, if necessary. Rent expense charged to
operations was $1,126, $1,217 and $1,007 in 1996, 1995 and
1994, respectively. Future minimum rental payments,
exclusive of taxes, insurance and other costs under
noncancellable long-term operating lease commitments, are as
follows:
Minimum
Year Rental
Ending Payments
June 30,
1997 $ 1,049
1998 1,087
1999 745
2000 147
2001 49
Thereafter -
Product Liability
The Company maintains product liability insurance coverage
in the amount of $10,000. No significant product liability
suit has ever been filed against the Company, however, if
one were filed and such a case were successful against the
Company, it could have a material adverse effect upon the
business and financial condition of the Company to the
extent such judgment was not covered by insurance or
exceeded the policy limits.
Shareholder Action
On November 16, 1994, the Company agreed to settle a 1992
shareholder action, filed against the Company and two former
officers, which alleged the violation of certain SEC
regulations. In December 1994, the Court approved the
settlement.
Management strongly believed that the case was without
merit, but determined that it was in the Company's best
interest to settle rather than participate in continued
litigation. The total settlement, valued at approximately
$1.8 million, will be shared equally by the Company and its
insurers. A provision for the Company's estimated share of
the cost of the action had been previously included in
the Company's 1994 consolidated financial statements, and
therefore the final payment is not expected to have any
significant
adverse effect on the Company's future
operations. As of June 30, 1996, the final payment amount
(on the "claims made basis") has not been determined or
paid.
Internal Revenue Service ("IRS")
In December 1995, the Company received a letter from the IRS
disallowing approximately $750 in research and development
tax credits, originating from the fiscal years ended June
30, 1989 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. The Company intends to vigorously defend its
position and has filed a written protest requesting a
conference with the Office of the Regional Director of
Appeals to review the case. If the Company does not reach
an agreement with the appeals office, the Company will
petition the tax court. The ultimate disposition of this
matter is not expected to have a significant adverse effect
on the Company's consolidated financial statements.
Other Litigation
As of June 1996, the Company was involved with other
lawsuits incidental to its business, including patent
infringement actions. Management of the Company, based on
the advice of legal counsel, believes that the ultimate
disposition of such other lawsuits will not have any
significant adverse effect on the Company's consolidated
financial statements.
(11) Subsequent Event
On July 31, 1996, the Company obtained for future use a 3-
year, $10 million revolving credit facility with BankAmerica
Illinois which the Company has yet to draw down. Any
borrowings under the revolving credit facility will be
secured by accounts receivable and inventory. The Company
will be required to meet certain financial covenants under
this facility.
(12) Quarterly Data (Unaudited)
A summary of the quarterly results of operations is as
follows:
(in thousands of dollars,
except per share amounts)
Three-Month Period Ended
Sept. 30 Dec. 31 Mar. 31 June 30
Fiscal Year 1996:
Net sales $54,176 $57,465 $60,088 $60,495
Gross profit 10,717 10,924 10,683 10,507
Earnings before
extraordinary loss on
early extinguishment of
debt 2,201 1,989 1,269 1,682
Net earnings 2,201 1,989 1,144 1,682
Earnings before
extraordinary loss on
early extinguishment of
debt per common share
and common share equivalent(1)$0.15 $0.14 $0.09 $0.11
Net earnings per common
share and common
equivalent share (1) 0.15 0.14 0.08 0.11
Net earnings assuming full
dilution(1) 0.15 0.14 0.08 0.11
Price Range of Common
Stock:(2)
High $16.41 $20.50 $27.50 $31.25
Low 13.66 14.00 17.08 24.63
Fiscal Year 1995:
Net sales $44,047 $50,878 $49,286 $55,509
Gross profit 9,944 11,021 9,727 9,530
Earnings before
extraordinary loss on
early extinguishment of
debt 1,845 2,248 1,041 1,236
Net earnings 1,845 2,248 896 1,236
Earnings before
extraordinary loss on
early extinguishment of
debt per common share and
common share equivalent(1) $ 0.14 $ 0.16 $ 0.08 $ 0.08
Net earnings per common
share and common
equivalent share (1) 0.14 0.16 0.06 0.08
Net earnings assuming full
dilution (1) 0.14 0.16 0.06 0.08
Price Range of Common
Stock:(2)
High $16.00 $17.83 $17.08 $14.91
Low 12.25 15.00 12.91 11.33
(1) The sum of the individual quarters may not equal the full
year amounts due to the effects of the market prices in the
application of the treasury stock method. Amounts reflect
adjustment for March 1996 3-for-2 stock split. During its two
most recent fiscal years, the Company paid no cash dividends
(2) The Company's common stock is listed and traded on the
American Stock Exchange. At June 30, 1996, there were
approximately 704 record holders of common stock. The Company
believes that a significant number of beneficial owners hold
their shares in street names.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Barr Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of
Barr Laboratories, Inc. and subsidiaries (the "Company") as of
June 30, 1996 and June 30, 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Barr
Laboratories, Inc. and subsidiaries at June 30, 1996 and June 30,
1995, and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements,
effective July 1, 1993, the Company changed its method of
accounting for income taxes to conform with Statement of
Financial Accounting Standards No. 109.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
August 28, 1996
RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the preparation and accuracy of the
consolidated financial statements and other information included
in this report. The consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles using, where appropriate, management's best estimates
and judgments.
In meeting its responsibility for the reliability of the
financial statements, management has developed and relies on the
Company's system of internal accounting control. The system is
designed to provide reasonable assurance that assets are
safeguarded and that transactions are executed as authorized and
are properly recorded.
The Board of Directors reviews the financial statements and
reporting practices of the Company through its Audit Committee,
which is composed entirely of directors who are not officers or
employees of the Company. The committee meets with the
independent auditors and management to discuss audit scope and
results and also to consider internal control and financial
reporting matters. The independent auditors have direct
unrestricted access to the Audit Committee. The entire Board of
Directors reviews the Company's financial performance and
financial plan.
/s/ Bruce L. Downey
Chairman of the Board, Chief Executive Officer and President
Selected Financial Data
(in thousands of dollars, except per share amounts)
Statements of Year Ended June 30,
Operations 1996 1995 1994 1993 1992
Net Sales $232,224 $199,720 $109,133 $ 58,047 $100,790
Earnings (loss)
before income
taxes,
extraordinary loss
and cumulative
effect of
accounting change 11,509 10,222 3,745 12,827(1) (3,464)
Income tax expense
(benefit) 4,368(7) 3,852(5) 1,461 5,040 (1,555)
Earnings (loss)
before
extraordinary loss
and cumulative
effect of
accounting change 7,141 6,370 2,284 7,787 (1,909)
Net earnings (loss) 7,016(7) 6,225(5) 2,658(6) 7,787 (1,909)
Earnings (loss)
before
extraordinary loss
and cumulative
effect of
accounting change
per common and
common equivalent
share(8): 0.49 0.47 0.17 0.60 (0.15)
Earnings (loss) per
common and common
equivalent share(8) 0.48(7) 0.46(5) 0.20(6) 0.60 (0.15)
Earnings (loss) per
common share
assuming full
dilution(8) 0.48(7) 0.46(5) 0.20(6) 0.60 (0.15)
Balance Sheet Data 1996 1995 1994 1993 1992
Working capital (2) 52,985 58,364 53,227 51,371 12,168
Total Assets 169,220 155,953 125,907 94,283 88,467
Long-term Debt (2)(3) 17,709 20,371 30,433 30,498 543
Shareholders'
Equity (4) 80,161 71,853 54,984 51,498 42,844
(1) Fiscal 1993 includes $21,690 of pre-tax income from lawsuit settlements.
(2) Includes effects of reclassification of $30,000 of debt to long-term debt
in 1993 and $30,000 of debt to current liabilities in 1992.
(3) Excludes current installments (See Note 4 to Consolidated Financial
Statements).
(4) The Company has not paid a cash dividend in any of the above years.
(5) Fiscal 1995 includes the effect of a $145 ($0.01 per share) extraordinary
loss (net of tax of $92) on early extinguishment of debt.
(See Note 4 to the Consolidated Financial Statements).
(6) Includes the effect of a $374 ($0.03 per share) gain from the cumulative
effect of an accounting change. (See Note 6 to the Consolidated Financial
Statements).
(7) Fiscal 1996 includes the effect of a $125 ($0.01 per share) extraordinary
loss (net of tax of $76) on early extinguishment
of debt. (See Note 4 to the Consolidated Financial Statements).
(8) Amounts have been adjusted for the March 1996 3-for-2 stock split effected
in the form of a 50% stock dividend.
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Post-
Effective Amendment to Registration Statement No. 33-13901, and
in Registration Statement Nos. 33-73696, 33-73698 and 33-73700 of
Barr Laboratories, Inc. on Form S-8 of our reports dated August
28, 1996, appearing and incorporated by reference in the Annual
Report on Form 10-K of Barr Laboratories, Inc. for the year ended
June 30, 1996.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
September 24, 1996