FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
(Mark One)
----
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
----
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ____________________________
Commission File No. 1-5438
FOREST LABORATORIES, INC.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-1798614
- -------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
909 Third Avenue
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New York, New York 10022-4731
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(address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code 212-421-7850
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- ------
Number of shares outstanding of Registrant's Common Stock as of
November 13, 1995: 45,294,048.
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Part I - Financial Information
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<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1995
(In thousands) (Unaudited) March 31, 1995
----------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalent investments
of $95,898 in September and $103,847
in March) $103,989 $107,611
Marketable securities 20,354 34,570
Accounts receivable, less allowances of
$5,440 in September and $5,016 in March 162,333 149,655
Inventories:
Raw materials 16,727 14,912
Work in process 2,173 2,907
Finished goods 26,496 21,144
-------- --------
45,396 38,963
Deferred income taxes 12,499 12,789
Other current assets 14,692 5,381
-------- --------
Total current assets 359,263 348,969
-------- --------
Long-term marketable securities 148,404 136,674
-------- --------
Property, plant and equipment 102,309 96,779
Less: Accumulated depreciation 25,578 23,751
-------- --------
Net property, plant and equipment 76,731 73,028
-------- --------
Other assets:
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $6,552 in September and
$6,240 in March 18,407 18,719
License agreements, product rights and other
intangible assets, less accumulated amortization
of $45,390 in September and $40,304 in March 201,703 162,174
Deferred income taxes 8,085 8,343
Other 10,789 9,298
-------- --------
Total other assets 238,984 198,534
-------- --------
TOTAL ASSETS $823,382 $757,205
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1995
(In thousands, except for par values) (Unaudited) March 31, 1995
------------------ --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 13,357 $ 14,234
Accrued expenses 31,822 23,924
Income taxes payable 20,728 19,491
-------- --------
Total current liabilities 65,907 57,649
-------- --------
Deferred income taxes 294 222
-------- --------
Shareholders' equity:
Series A junior participating preferred
stock, $1.00 par; 1,000 shares authorized;
no shares issued or outstanding
Common stock, $.10 par; shares authorized
250,000; issued 47,935 shares in 4,794 4,782
September and 47,824 shares in March
Capital in excess of par 299,619 296,925
Retained earnings 493,504 437,760
Cumulative foreign currency
translation adjustments ( 75) 458
-------- --------
797,842 739,925
Less common stock in treasury,
at cost (2,644 shares in September 40,661 40,591
and 2,643 shares in March) -------- --------
Total shareholders' equity 757,181 699,334
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $823,382 $757,205
======== ========
See notes to condensed consolidated financial statements
</TABLE>
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<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except Three Months Ended Six Months Ended
per share amounts) September 30, September 30,
------------------- --------------------
1995 1994 1995 1994
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Net sales $109,685 $95,776 $216,628 $188,330
Other income 3,958 2,407 7,715 4,751
-------- ------- -------- --------
113,643 98,183 224,343 193,081
-------- ------- -------- --------
Costs and expenses:
Cost of sales 21,722 18,217 42,619 35,525
Selling, general and
administrative 37,483 33,709 77,384 68,843
Research and development 8,973 8,019 17,512 15,794
------- ------- -------- --------
68,178 59,945 137,515 120,162
------- ------- -------- --------
Income before income taxes 45,465 38,238 86,828 72,919
Income taxes 16,276 13,673 31,084 26,210
------- ------- -------- --------
Net income $ 29,189 $24,565 $ 55,744 $ 46,709
======== ======= ======== ========
Earnings per common
and common equivalent share:
Primary $.62 $.53 $1.19 $1.01
==== ==== ===== =====
Fully diluted $.62 $.53 $1.19 $1.00
==== ==== ===== =====
Weighted average number of
common and common equivalent
shares outstanding:
Primary 46,881 46,550 46,890 46,438
====== ====== ====== ======
Fully diluted 46,899 46,768 46,890 46,731
====== ====== ====== ======
Dividends per share $-0- $-0- $-0- $-0-
==== ==== ==== ====
See notes to condensed consolidated financial statements
</TABLE>
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<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
(In thousands) September 30,
----------------------- ----
1995 1994
----------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 55,744 $ 46,709
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,267 1,924
Amortization 5,399 5,047
Deferred income tax expense (benefit) 620 ( 1,685)
Foreign currency transactions (gain) loss 218 ( 9)
Net change in operating assets and
liabilities:
Decrease (increase) in:
Accounts receivable, net ( 12,678) ( 17,488)
Inventories ( 6,433) ( 2,167)
Other current assets ( 9,311) 2,539
Increase (decrease) in:
Accounts payable ( 877) 2,147
Accrued expenses 7,898 742
Income taxes payable 1,237 ( 1,684)
Increase in other assets ( 1,491) ( 3,664)
-------- --------
Net cash provided by operating
activities 42,593 32,411
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment,
net ( 6,106) ( 14,198)
Redemption (purchase) of marketable securities 2,486 ( 60,632)
Purchase of license agreements, product rights
and intangible assets ( 44,622) ( 17,757)
-------- --------
Net cash used in investing
activities ( 48,242) ( 92,587)
-------- --------
</TABLE>
- Continued -
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<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
- Continued -
Six Months Ended
(In thousands) September 30,
-------------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from common stock options exercised
by employees under stock option plans $ 2,636 $ 4,762
Tax benefit realized from the exercise of
stock options by employees 5,552
--------
Net cash provided by financing activities 2,636 10,314
-------- --------
Effect of exchange rate changes on cash ( 609) 1,656
-------- --------
Decrease in cash and cash equivalents ( 3,622) ( 48,206)
Cash and cash equivalents, beginning of period 107,611 181,094
-------- --------
Cash and cash equivalents, end of period $103,989 $132,888
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $29,226 $26,234
See notes to condensed consolidated financial statements.
</TABLE>
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion
of Management, all adjustments (consisting of only normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods
ended September 30, 1995 are not necessarily indicative of the
results that may be expected for the year ending March
31, 1996. For further information refer to the consolidated
financial statements and footnotes thereto incorporated by
reference in the Company's Annual Report on Form 10-K for
the year ended March 31, 1995.
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<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY The financial condition of the Company
- ---------------------------------
continues to be strong. The decrease in cash and marketable securities,
as well as the corresponding increase in long-term marketable securities,
was principally the result of the movement of funds to capture optimum
market yields. Accounts receivable and inventories, as well as
accrued expenses increased due to the continued growth of the Company's
principal promoted products and an increase in the Company's overall level
of operations. License agreements, product rights and intangible assets
increased as a result of payments made to Berlex Laboratories to acquire
certain product rights to Climara-R-, a transdermal estrogen patch approved
for marketing by the FDA, and as a result of payments made to Biovail
Corporation to aquire product rights to Tiazac-TM- , a once daily calcium
channel blocker. Other current assets increased due to a note receivable
issued in connection with the acquisition of a minority interest in Biovail
Corporation. The acquisition will be completed in the December
1995 fiscal quarter. The Company has tendered for 1,800,000 or approximately
22% of the fully diluted shares of Biovail Corporation at $42 per share.
Company operations have historically provided a
strong positive cash flow and management believes that on-going operations,
when combined with the Company's strong cash position, will continue to
provide adequate liquidity to facilitate potential acquisitions of products
or companies and capital investments.
RESULTS OF OPERATIONS Net sales for the three and six month periods ended
- ---------------------
September 30, 1995 increased $13,909,000 and $28,298,000 respectively, as
compared with the same periods last year. This was primarily due to the
continued strong growth of the Company's principal promoted products.
Net volume growth of those products amounted to $10,864,000 for the
quarter and $32,635,000 for the six months. Net volume growth of the
Company's unpromoted products in the quarter amounted to $1,361,000. For
the six month period net volume of the Company's older unpromoted product
lines declined $6,249,000. The remainder of the net sales change was
primarily due to price and foreign exchange fluctuations.
Cost of sales as a percentage of sales increased to 20% during the current
quarter and six month period compared to 19% for the same periods last year.
The increase was primarily a result of overhead costs related to
the Company's facilities expansion and lower net prices received on certain
products.
The increase in selling, general and administrative expense for the current
quarter and six month period compared to the prior year is primarily due
to expenses related to co-promotion agreements entered into by the Company
during the third and fourth quarters of fiscal 1995.
Research and development expense increased during the current quarter
and six month period over the same period last year principally as a result
of the cost of conducting clinical trials in order to obtain approval of
new products and the cost of developing products using the Company's
controlled release technology. During the current quarter and six month
period, there was particular emphasis on Methoxatone, AF102B and Synapton-TM- .
Methoxatone is being developed for the treatment of brain trauma and
AF102B is an Ml agonist for the treatment of Alzheimer's Disease.
Synapton is the Company's controlled release formulation of physostigmine
being tested for the treatment of Alzheimer's Disease.
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Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings
Reference is made to the Company's Annual Report on Form 10-K for
the year ended March 31, 1995, for a description of certain legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The registrant held its annual meeting of stockholders on
August 14, 1995.
(b) N/A
(c) At the annual meeting, holders of the registrant's Common
Stock voted for the election of five members of the
registrant's Board of Directors to serve until the next
annual meeting and until their successors are duly elected
and qualified. In addition, holders of the registrant's
Common Stock rejected a proposed resolution requesting
cumulative voting in the election of directors and voted
for the ratification of BDO Seidman to serve as the
registrant's independent certified public accountants for
the fiscal year ending March 31, 1996.
At the meeting, the following votes for and against, as well
as the number of abstentions and broker non-votes were
recorded for each matter as set forth below:
<TABLE>
Withhold Broker
Matter For Against Abstain Authority Non-Votes
<S> <C> <C> <C> <C> <C>
Election of Directors:
Howard Solomon 37,945,039 200,213
William J. Candee 38,013,258 131,994
Dan L. Goldwasser 38,019,815 125,437
George S. Cohan 38,013,213 132,039
Joseph M. Schor 37,928,932 216,320
Proposed resolution
requesting cumulative
voting in the election
of directors 10,069,347 23,367,491 318,243 4,390,171
Ratification of
Independent Public
Accountants: 37,984,742 84,067 76,443
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1995
Forest Laboratories, Inc.
-------------------------
(Registrant)
/s/ Howard Solomon
-------------------------
Howard Solomon
President and Chief
Executive Officer
/s/ Kenneth E. Goodman
-------------------------
Kenneth E. Goodman
Vice President - Finance
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000038074
<NAME> JAMES A. BRAJA
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 103,989
<SECURITIES> 20,354
<RECEIVABLES> 167,773
<ALLOWANCES> 5,440
<INVENTORY> 45,396
<CURRENT-ASSETS> 359,263
<PP&E> 102,309
<DEPRECIATION> 25,578
<TOTAL-ASSETS> 823,382
<CURRENT-LIABILITIES> 65,907
<BONDS> 0
<COMMON> 4,794
0
0
<OTHER-SE> 752,387
<TOTAL-LIABILITY-AND-EQUITY> 823,382
<SALES> 216,628
<TOTAL-REVENUES> 224,343
<CGS> 42,619
<TOTAL-COSTS> 120,003
<OTHER-EXPENSES> 17,512
<LOSS-PROVISION> 257
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 86,828
<INCOME-TAX> 31,084
<INCOME-CONTINUING> 55,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,744
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
