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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 

 
þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
 
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 0-20045
 

 
WATSON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
 

 
Nevada
 
95-3872914
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
311 Bonnie Circle
Corona, CA 92880-2882
(Address of principal executive offices, including zip code)
 
(909) 493-5300
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ¨
 
The number of shares outstanding of the Registrant’s only class of common stock as of August 7, 2002 was approximately 106,846,877.
 


Table of Contents
 
WATSON PHARMACEUTICALS, INC.
 
TABLE OF CONTENTS
 
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
 
PART I. FINANCIAL INFORMATION
    
Item 1. Consolidated Financial Statements:
  
PAGE
    
  
1
  
2
  
3
  
4
  
10
  
17
 
PART II. OTHER INFORMATION AND SIGNATURES
  
19
  
20
  
20
  
21


Table of Contents
WATSON PHARMACEUTICALS, INC.
 
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share amounts)
 
    
June 30,
2002

  
December 31, 2001

ASSETS
             
Current Assets:
             
Cash and cash equivalents
  
$
268,444
  
$
193,731
Marketable securities
  
 
69,385
  
 
135,688
Accounts receivable, net
  
 
177,948
  
 
173,085
Assets held for disposition
  
 
27,085
  
 
45,496
Inventories
  
 
278,491
  
 
252,325
Prepaid expenses and other current assets
  
 
44,720
  
 
32,710
Current deferred tax assets
  
 
48,837
  
 
56,703
    

  

Total current assets
  
 
914,910
  
 
889,738
               
Property and equipment, net
  
 
258,720
  
 
234,911
Investments and other assets
  
 
84,458
  
 
113,086
Deferred tax assets
  
 
21,675
  
 
21,675
Product rights and other intangibles, net
  
 
868,612
  
 
825,936
Goodwill
  
 
442,988
  
 
442,988
    

  

Total Assets
  
$
2,591,363
  
$
2,528,334
    

  

LIABILITIES AND STOCKHOLDERS’ EQUITY
             
Current liabilities:
             
Accounts payable and accrued expenses
  
$
166,713
  
$
159,809
Income taxes payable
  
 
89,340
  
 
10,766
Current portion of long-term debt
  
 
76,103
  
 
68,102
Current liability incurred for acquisitions of products and businesses
  
 
5,288
  
 
6,448
    

  

Total current liabilities
  
 
337,444
  
 
245,125
               
Long-term debt
  
 
374,786
  
 
415,703
Long-term liability incurred for acquisitions of products and businesses
  
 
6,212
  
 
9,311
Deferred tax liabilities
  
 
146,422
  
 
186,145
    

  

Total liabilities
  
 
864,864
  
 
856,284
    

  

Commitments and contingencies
             
Stockholders’ equity:
             
Preferred stock; no par value per share; 2,500,000 shares authorized; none issued
  
 
—  
  
 
—  
Common stock; $0.0033 par value per share; 500,000,000 shares authorized; 106,658,700 and 106,458,800 shares outstanding
  
 
352
  
 
351
Additional paid-in capital
  
 
793,757
  
 
790,742
Retained earnings
  
 
915,095
  
 
823,054
Accumulated other comprehensive income
  
 
17,295
  
 
57,903
    

  

Total stockholders’ equity
  
 
1,726,499
  
 
1,672,050
    

  

Total liabilities and stockholders’ equity
  
$
2,591,363
  
$
2,528,334
    

  

 
See accompanying Notes to Consolidated Financial Statements.

1


Table of Contents
WATSON PHARMACEUTICALS, INC.
 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in thousands, except per share amounts)
 
    
Three Months Ended
June 30,

    
Six Months Ended
June 30,

 
    
2002

    
2001

    
2002

    
2001

 
Net revenues
  
$
300,074
 
  
$
298,978
 
  
$
585,764
 
  
$
595,824
 
Cost of sales
  
 
131,995
 
  
 
109,980
 
  
 
261,530
 
  
 
242,738
 
    


  


  


  


Gross profit
  
 
168,079
 
  
 
188,998
 
  
 
324,234
 
  
 
353,086
 
    


  


  


  


Operating expenses:
                                   
Research and development
  
 
19,633
 
  
 
14,159
 
  
 
38,015
 
  
 
28,504
 
Selling, general and administrative
  
 
59,102
 
  
 
54,516
 
  
 
120,668
 
  
 
104,709
 
Amortization
  
 
14,542
 
  
 
20,327
 
  
 
27,836
 
  
 
40,263
 
Loss on assets held for disposition
  
 
6,759
 
  
 
—  
 
  
 
13,745
 
  
 
—  
 
    


  


  


  


Total operating expenses
  
 
100,036
 
  
 
89,002
 
  
 
200,264
 
  
 
173,476
 
    


  


  


  


Operating income
  
 
68,043
 
  
 
99,996
 
  
 
123,970
 
  
 
179,610
 
    


  


  


  


Other income (expense):
                                   
Equity in losses of joint ventures
  
 
(755
)
  
 
(770
)
  
 
(1,814
)
  
 
(1,780
)
Gain on sales of securities
  
 
—  
 
  
 
16,398
 
  
 
—  
 
  
 
47,673
 
Gain from legal settlement
  
 
32,000
 
  
 
—  
 
  
 
32,000
 
  
 
—  
 
Interest and other income
  
 
1,664
 
  
 
611
 
  
 
3,292
 
  
 
1,603
 
Interest expense
  
 
(5,783
)
  
 
(6,960
)
  
 
(10,943
)
  
 
(14,678
)
    


  


  


  


Total other income (expense), net
  
 
27,126
 
  
 
9,279
 
  
 
22,535
 
  
 
32,818
 
    


  


  


  


Income before income tax provision
  
 
95,169
 
  
 
109,275
 
  
 
146,505
 
  
 
212,428
 
Provision for income taxes
  
 
35,213
 
  
 
43,030
 
  
 
54,464
 
  
 
83,727
 
    


  


  


  


Net income
  
$
59,956
 
  
$
66,245
 
  
$
92,041
 
  
$
128,701
 
    


  


  


  


Earnings per share:
                                   
Basic
  
$
0.56
 
  
$
0.63
 
  
$
0.86
 
  
$
1.22
 
    


  


  


  


Diluted
  
$
0.56
 
  
$
0.61
 
  
$
0.86
 
  
$
1.19
 
    


  


  


  


Weighted average shares outstanding:
                                   
Basic
  
 
106,515
 
  
 
105,965
 
  
 
106,491
 
  
 
105,836
 
    


  


  


  


Diluted
  
 
107,229
 
  
 
108,367
 
  
 
107,315
 
  
 
108,231
 
    


  


  


  


 
See accompanying Notes to Consolidated Financial Statements.

2


Table of Contents
WATSON PHARMACEUTICALS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
    
Six Months Ended
June 30,

 
    
2002

    
2001

 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net income
  
$
92,041
 
  
$
128,701
 
    


  


Reconciliation to net cash provided by operating activities:
                 
Depreciation
  
 
12,399
 
  
 
12,744
 
Amortization
  
 
27,836
 
  
 
40,263
 
Deferred income tax (benefit) provision
  
 
(3,774
)
  
 
18,303
 
Equity in losses of joint ventures
  
 
1,497
 
  
 
1,919
 
Gain on sales of securities
  
 
—  
 
  
 
(47,673
)
Tax benefits related to exercises of stock options
  
 
1,240
 
  
 
7,400
 
Other
  
 
997
 
  
 
(271
)
Changes in assets and liabilities:
                 
Accounts receivable
  
 
(4,863
)
  
 
(113,555
)
Assets held for disposition
  
 
18,411
 
  
 
(7,679
)
Inventories
  
 
(26,166
)
  
 
(27,486
)
Prepaid expenses and other current assets