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 Period Ended December 31, 1996
---
/ / 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
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(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
February 14, 1997: 41,179,745.
<PAGE>
Part I - Financial Information
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<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 1996
(In thousands) (Unaudited) March 31, 1996
----------------- --------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash (including cash equivalent investments
of $128,083 in December and $78,818 in
March) $133,615 $ 83,543
Marketable securities 12,884 40,164
Accounts receivable, less allowance for
possible losses of $9,021 in December and
$5,309 in March 91,200 254,708
Inventories 93,932 58,949
Deferred income taxes 23,600 20,411
Other current assets 35,011 12,837
-------- --------
Total current assets 390,242 470,612
-------- --------
Marketable securities 4,238 22,170
-------- --------
Property, plant and equipment 115,710 106,164
Less: accumulated depreciation 31,679 26,807
-------- --------
84,031 79,357
-------- --------
Other assets:
Investment in unconsolidated affiliate 75,902
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $7,335 in December and
$6,866 in March 17,624 18,093
License agreements, product rights and other
intangible assets, less accumulated
amortization of $60,271 in December and
$50,876 in March 207,790 216,078
Deferred income taxes 6,217 7,398
Other 9,862 9,751
-------- --------
Total other assets 241,493 327,222
-------- --------
TOTAL ASSETS $720,004 $899,361
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 1996
(In thousands, except for par values) (Unaudited) March 31, 1996
----------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 22,366 $ 13,994
Accrued expenses 35,331 50,332
Income taxes payable 15,471 25,245
-------- --------
Total current liabilities 73,168 89,571
-------- --------
Deferred income taxes 300 273
-------- --------
Shareholders' equity:
Series A junior participating preferred
stock, $1.00 par; shares authorized 1,000;
no shares issued or outstanding
Common stock, $.10 par; shares authorized
250,000; issued 48,332 shares in
December and 48,133 shares in March 4,833 4,813
Capital in excess of par 312,413 306,635
Retained earnings 537,131 542,005
Other 2,082 ( 2,985)
-------- --------
856,459 850,468
Less common stock in treasury,
at cost (7,152 shares in December and
2,650 shares in March) 209,923 40,951
-------- --------
Total shareholders' equity 646,536 809,517
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $720,004 $899,361
======== ========
See notes to condensed consolidated financial statements
</TABLE>
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<PAGE>
<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except Three Months Ended Nine Months Ended
per share amounts) December 31, December 31,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $40,604 $122,870 $221,102 $339,498
Non-recurring income, net
(Note 2) 19,149
Other income 2,058 2,127 6,352 9,842
------- -------- -------- --------
42,662 124,997 246,603 349,340
------- -------- -------- --------
Costs and expenses:
Cost of sales 20,227 26,080 62,715 68,699
Selling, general and
administrative 60,607 50,848 166,963 128,232
Research and development 11,689 9,329 27,115 26,841
------- -------- -------- --------
92,523 86,257 256,793 223,772
------- -------- -------- --------
Income (loss) before income
taxes ( 49,861) 38,740 ( 10,190) 125,568
Income taxes (benefit) ( 17,548) 13,869 ( 5,316) 44,953
------- -------- -------- --------
Net income (loss) ($32,313) $ 24,871 ($ 4,874) $ 80,615
======== ======== ======== ========
Earnings (loss) per common
and common equivalent share:
Primary ($.76) $.53 ($.11) $1.72
==== ==== ==== =====
Weighted average number of
common and common equivalent
shares outstanding:
Primary 42,750 46,855 44,412 46,880
====== ====== ====== ======
Dividends per share $-0- $-0- $-0- $-0-
==== ==== ==== ====
See notes to condensed consolidated financial statements
</TABLE>
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<PAGE>
<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
(In thousands) December 31,
-----------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 4,874) $ 80,615
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 4,320 3,463
Amortization 9,864 8,167
Gain on sale of investment in unconsolidated
affiliate ( 26,399)
Deferred income tax expense (benefit) ( 1,981) 815
Foreign currency transaction loss 114 342
Net change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 163,508 ( 47,812)
Inventories ( 34,983) ( 13,636)
Other current assets ( 22,174) ( 897)
Increase (decrease) in:
Accounts payable 8,372 5,993
Accrued expenses ( 15,001) 18,882
Income taxes payable ( 9,774) ( 1,604)
Increase in other assets ( 111) ( 1,453)
-------- --------
Net cash provided by operating activities 70,881 52,875
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment, net ( 7,355) ( 8,899)
Proceeds from sale of investment in unconsolidated
affiliate 102,301
Purchase of marketable securities
Available-for-sale ( 27,785) ( 55,709)
Redemption of marketable securities
Available-for-sale 70,997 124,824
Held-to-maturity 2,000
Purchase of license agreements, product rights
and intangible assets ( 1,000) ( 120,915)
-------- --------
Net cash provided by (used in)
investing activities 139,158 ( 60,699)
-------- --------
- Continued -
</TABLE>
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<PAGE>
<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
- Continued -
Nine Months Ended
(In thousands) December 31,
----------------------
1996 1995
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<S> <C> <C>
Cash flows from financing activities:
Net proceeds from common stock options exercised
by employees under stock option plans $ 4,255 $ 4,431
Purchase of treasury stock ( 168,729)
Tax benefit realized from the exercise of
stock options by employees 1,300 1,100
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Net cash (used in) provided by
financing activities ( 163,174) 5,531
-------- --------
Effect of exchange rate changes on cash 3,207 ( 1,146)
-------- --------
Increase (decrease) in cash and cash equivalents 50,072 ( 3,439)
Cash and cash equivalents, beginning of period 83,543 107,611
-------- --------
Cash and cash equivalents, end of period $133,615 $104,172
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $33,388 $45,741
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
---------------------
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 addition, certain reclassifications have been made to the
financial statements to conform with the current period's
presentation. 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 nine month periods ended December 31, 1996 are
not necessarily indicative of the results that may be expected for
the year ending March 31, 1997. 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, 1996.
2. Non-recurring Income, net
-------------------------
During the first quarter, the Company reported a net non-recurring
gain of $19,149,000 or $12,687,000 after taxes. The gain results
from the sale of Forest's approximate 21% equity holding in Biovail
Corporation International which resulted in a gain of $26,399,000
or $17,019,000 after taxes partially offset by non-recurring
charges of $7,250,000 or $4,332,000 after tax for expenses relating
to the closing of certain of the Company's facilities and for a
reserve for the estimated cost of settlement of certain litigations.
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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 Net current assets decreased by $63,967,000
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from March 31, 1996. This change was as a result of the following significant
activities. During the first quarter, the Company sold its investment in
Biovail Corporation International for $102,301,000 (net of commissions and
expenses). The balance in accounts receivable declined by approximately
$163,508,000 from the balance at March due primarily to collections of trade
accounts which were previously granted extended dating terms, and an increase
in the provision for doubtful accounts of which $3,528,000 represents a write
down of the amount owed Forest from Foxmeyer Drug which is in bankruptcy
proceedings. The collections resulted in an improvement in the accounts
receivable days outstanding from 208 days at March 31, 1996 to 117 days at
December 31, 1996. The cash generated from the above activities and maturities
of marketable securities was used for the share repurchase program and for
normal recurring operating expenses. At December 31, 1996, the Company
had repurchased a total of 4,496,000 of the 6,500,000 shares authorized to
date at a cost of $168,729,000. Inventories increased $34,983,000 in
connection with the Company's recent launch of Tiazac-TM-, higher inventory
levels of generic product lines as a result of reduced sales caused by
increased competition for those products, and above average levels of
Aerobid-R- resulting from reduced sales due to reduction of trade
inventories as described below. Other current assets increased $22,174,000
as a result of reclassifying income tax prepayments which are now in excess of
the current period's tax liability and the tax benefit from the current period's
net operating loss. The decrease in income taxes payable is due to lower
taxable income. Management believes that current cash levels, coupled with
funds to be generated by on-going operations, will continue to provide
adequate liquidity to facilitate potential acquisitions of products,
capital investments and the share repurchase program.
RESULTS OF OPERATIONS In December 1996, the Company announced that it had
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decided toeliminate trade incentives for all of its branded products in order
to reduce high trade inventory levels, principally of Aerobid, Forest's inhaled
steroid product used in treating asthma. The result of this policy change is
that distributors are deferring purchases of products until such time as they
have reduced their inventories to minimal levels, thereby resulting in lower
sales despite the continuing growth in prescriptions for the Company's promoted
branded products. Lower sales resulting from this policy change are principally
responsible for the quarterly loss reported herein.
Net sales for the three months ended December 31, 1996 decreased $82,266,000
as compared to the three months ended December 31, 1995. $71,147,000 of the
decrease was attributed to volume and $11,119,000 of the decrease was due to
price declines. The principal volume declines, amounting to $53,508,000,
resulted from lower sales of Aerobid (as discussed above), Lorcet and the
Company's generic products (due to heightened competition). Other
non-promoted products accounted for the remaining net volume decrease of
$17,639,000, also due primarily to the inventory reductions. Price decreases
resulted principally from lower prices for the Company's generic products
and from lower prices for Aerobid as a result of a higher amount of sales
to managed care customers. The Company anticipates that high trade
inventories will continue to impact Aerobid sales during the next two
quarters, that generic substitution rates for Lorcet will continue to grow
and that there will be further declines in the generic business as a result
of continued competition.
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<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net sales for the nine months ended December 31, 1996 decreased $118,396,000
as compared to the same period of 1995. $98,418,000 of the decrease was
attributed to volume and $19,978,000 was the result of price declines. As
with the three month period, the principle volume declines, amounting to
$93,780,000, resulted from lower sales of Aerobid, Lorcet, and the Company's
generic products lines. Continued growth of Cervidil-TM- and Tiazac,
launched during fiscal 1996, contributed to volume increases of $19,049,000.
Other non-promoted products accounted for the remaining volume decrease of
$23,687,000. Price decreases resulted from higher sales to managed care
customers and trade discounts, as well as aggressive competition for the
Company's generic products.
Cost of sales as a percentage of sales increased to 50% during the current
quarter and 28% for the nine month period as compared to 21% and 20% in
comparable fiscal periods of 1996. The increase in cost of goods sold
resulted from minimal sales of high margin branded products due to the trade
inventory reductions, a higher percentage of low margin generic products,
which were not affected by the trade inventory reductions, lower prices on
generic products and underabsorbed overhead, resulting from lower
production levels due the reduced sales volume.
The increase in selling, general and administrative expenses for the current
quarter and nine month periods as compared with the same periods last year
is mainly the result of expanding the sales force by 200 representatives, for
costs incurred in conjunction with the launch of Tiazac and for a write down
of monies owed to Forest by Foxmeyer Drug to amounts anticipated to be
recoverable.
Research and development expenses increased $2,360,000 and $274,000,
respectively, during the three and nine month periods ending
December 31, 1996 over the same periods last year. The increase during the
three month period was due primarily to the cost of conducting comparative
clinical studies for Aerobid and Tiazac. The increase for the nine month
period is lower than the three month period since the first six months of
fiscal 1996 (prior fiscal year) included Phase III clinical trials on
Synapton-TM-, the Company's acetylcholinesterase inhibitor for use in the
treatment of Alzheimer's Disease which have concluded, and studies on
AF102B, an alternative Alzheimer's treatment, which is no longer being
developed.
The income tax benefit of the current quarter reflects a year-to-date
reversal of U.S. taxes on income and a credit for the net operating losses
of the Company's U.S. operating companies which can be carried back to prior
fiscal periods to yield tax refunds. The income tax benefit of the
nine-month period reflects taxes on the income of the Company's
United Kingdom operating companies, on the income of the Company's partially
tax exempt operations and for state and local taxes (which are not solely
payable on taxable income), offset by the net operating losses of the
Company's U.S. operating companies, which can be carried back to prior fiscal
periods to yield tax refunds.
Inflation has not had a material effect on the Company's operations for the
period presented.
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<PAGE>
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, 1996 for a description of certain legal
proceedings.
Item 6 Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K. None.
Exhibit 27. Financial Data Schedule.
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<PAGE>
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: February 14, 1997
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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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000038074
<NAME> JAMES A. BRAJA
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 133,615
<SECURITIES> 17,122
<RECEIVABLES> 100,221
<ALLOWANCES> 9,021
<INVENTORY> 93,932
<CURRENT-ASSETS> 390,242
<PP&E> 115,710
<DEPRECIATION> 31,679
<TOTAL-ASSETS> 720,004
<CURRENT-LIABILITIES> 73,168
<BONDS> 0
0
0
<COMMON> 4,833
<OTHER-SE> 641,703
<TOTAL-LIABILITY-AND-EQUITY> 720,004
<SALES> 221,102
<TOTAL-REVENUES> 246,603
<CGS> 62,715
<TOTAL-COSTS> 229,678
<OTHER-EXPENSES> 27,115
<LOSS-PROVISION> 3,870
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,190)
<INCOME-TAX> (5,316)
<INCOME-CONTINUING> (4,874)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,874)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
