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 June 30, 2000
---
/ / 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.
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(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
August 14, 2000: 87,260,980.
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2000
(In thousands) (Unaudited) March 31, 2000
------------- --------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash (including cash equivalent investments
of $297,852 in June and $299,673
in March) $ 301,749 $ 302,600
Marketable securities 37,475 35,019
Accounts receivable, less allowances of
$12,058 in June and $10,698 in March 79,547 60,570
Inventories 174,286 177,798
Deferred income taxes 110,691 49,568
Refundable income taxes 11,321 11,321
Other current assets 9,277 8,357
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Total current assets 724,346 645,233
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Marketable securities 13,175 17,619
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Property, plant and equipment 167,464 162,536
Less: accumulated depreciation 47,857 45,520
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119,607 117,016
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Other assets:
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $9,521 in June and
$9,368 in March 15,438 15,591
License agreements, product rights
and other intangible assets, less accumulated
amortization of $126,919 in June and
$119,307 in March 255,063 262,676
Deferred income taxes 14,487 19,435
Other 20,099 20,072
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Total other assets 305,087 317,774
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TOTAL ASSETS $1,162,215 $1,097,642
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2000
(In thousands, except for par values) (Unaudited) March 31, 2000
------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 54,191 $ 71,976
Accrued expenses 68,484 94,523
Income taxes payable 34,569 44,591
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Total current liabilities 157,244 211,090
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Deferred income taxes 1,367 1,862
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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
500,000; issued 104,943 shares in June
and 102,364 shares in March 10,494 10,236
Capital in excess of par 519,032 427,318
Retained earnings 773,280 745,022
Accumulated other comprehensive loss ( 15,445) ( 14,312)
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1,287,361 1,168,264
Less common stock in treasury,
at cost (17,705 shares in June
and 17,703 shares in March) 283,757 283,574
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Total shareholders' equity 1,003,604 884,690
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,162,215 $1,097,642
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
(In thousands, except per share amounts) June 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales $259,227 $178,793
Other income 6,664 8,101
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265,891 186,894
-------- --------
Costs and expenses:
Cost of goods sold 63,941 44,733
Selling, general and administrative 139,111 92,120
Research and development 23,373 14,505
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226,425 151,358
-------- --------
Income before income taxes 39,466 35,536
Income tax expense 11,208 10,483
-------- --------
Net income $ 28,258 $ 25,053
======== ========
Net income per common and
common equivalent share:
Basic $.33 $.30
==== ====
Diluted $.31 $.29
==== ====
Weighted average number of
common and common equivalent
shares outstanding:
Basic 85,732 83,361
====== ======
Diluted 90,182 87,429
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
<TABLE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
June 30,
-----------------------
2000 1999
(In thousands) ------- -------
<S> <C> <C>
Net income $28,258 $25,053
Other comprehensive loss ( 1,133) ( 3,518)
------- -------
Comprehensive income $27,125 $21,535
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Three Months Ended
June 30,
------------------------
(In thousands) 2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 28,258 $ 25,053
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 2,466 1,841
Amortization 7,765 3,546
Deferred income tax expense (benefit) ( 287) 790
Foreign currency transactions gain ( 237) ( 642)
Net change in operating assets and
liabilities:
Decrease (increase) in:
Accounts receivable, net ( 18,977) 13,461
Inventories 3,512 ( 6,037)
Refundable income taxes 710
Other current assets ( 920) ( 1,195)
Increase (decrease) in:
Accounts payable ( 17,785) ( 6,202)
Accrued expenses ( 26,039) 13,418
Income taxes payable ( 10,022) 4,421
Increase in other assets ( 27) ( 216)
-------- --------
Net cash provided by (used in)
operating activities ( 32,293) 48,948
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment,
net ( 5,170) ( 4,287)
Purchase of marketable securities
Available-for-sale
Redemption of marketable securities
Available-for-sale 1,988 7,399
Purchase of license agreements, product
rights and other intangible assets ( 53,951)
-------- --------
Net cash used in
investing activities ( 3,182) ( 50,839)
-------- --------
</TABLE>
- Continued -
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<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
- Continued -
Three Months Ended
(In thousands) June 30,
------------------------
2000 1999
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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 $ 32,718 $ 1,265
Tax benefit realized from the exercise of
stock options by employees 2,688
-------- --------
Net cash provided by financing
activities 35,406 1,265
-------- --------
Effect of exchange rate changes on cash ( 782) ( 1,669)
-------- --------
Decrease in cash and cash equivalents ( 851) ( 2,295)
Cash and cash equivalents, beginning of
period 302,600 200,968
-------- --------
Cash and cash equivalents, end of period $301,749 $198,673
======== ========
Supplemental disclosures of cash flow
information: (In thousands)
Cash paid during the period for:
Income taxes $18,935 $4,647
</TABLE>
See notes to condensed consolidated financial statements.
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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
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-month period ended June
30, 2000 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2001. 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, 2000.
2. Inventories
-----------
Inventories consist of the following:
<TABLE>
June 30, 2000
(In thousands) (Unaudited) March 31, 2000
------------- --------------
<S> <C> <C>
Raw materials $ 48,665 $ 35,976
Work in process 4,530 12,766
Finished goods 121,091 129,056
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$174,286 $177,798
======== ========
</TABLE>
3. Terminated Development and Marketing Agreement
----------------------------------------------
On March 27, 1998 the Company entered into an agreement with the
Parke-Davis division of the Warner-Lambert Company to co-promote
Celexa-TM-. Under that agreement Warner-Lambert would promote
Celexa for three years and receive residual payments for an
additional three years. Compensation to Warner-Lambert was based on
the profits (as defined) earned on Celexa's sales. As a result of
the planned merger of Warner-Lambert with a company that markets a
competing SSRI, the co-promotion agreement was terminated effective
April 30, 2000. In connection with the termination the Company
paid $14,000,000, included in selling, general and administrative
expenses, which eliminated any future participation by
Warner-Lambert in the profits of Celexa.
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<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. Net income per share
--------------------
A reconciliation of shares used in calculating basic and diluted net
income per share follows (in thousands):
<TABLE>
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Basic 85,732 83,361
Effect of assumed conversion of
employee stock options and warrants 4,450 4,068
------ ------
Diluted 90,182 87,429
====== ======
</TABLE>
There were no outstanding options or warrants excluded from the
computation of diluted earnings per share for the three-month period
ended June 30, 2000 as none were anti-dilutive. Options and warrants
to purchase approximately 445,800 shares of common stock at an
exercise price of $48.34 per share were outstanding during a portion
of the three-month period ended June 30, 1999, but were not included
in the computation of diluted earnings per share because they were
anti-dilutive. These options and warrants expire through 2008.
-9-
<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 increased by $132,959,000 from March 31, 2000. The increase
in accounts receivable resulted primarily from increases in sales of the
Company's principal promoted products, particularly Celexa-TM- (citalopram HBr),
the Company's selective serotonin reuptake inhibitor ("SSRI") for the treatment
of depression. Accrued expenses decreased due to the termination, effective
April 30, 2000, of the Company's co-promotion agreement with Warner-Lambert. At
March 31, 2000, accrued expenses included the co-promotion fees payable to
Warner-Lambert for that period. During the current quarter, the Company paid
Warner-Lambert all its earned co-promotion fees through April 30 and a
$14,000,000 termination payment that will eliminate any future participation by
Warner-Lambert in the profits of Celexa. The increases to deferred income taxes
and capital in excess of par were due primarily to the tax benefits derived from
the exercise of stock options by employees.
Property, plant and equipment increased principally from the expansion of the
Company's worldwide manufacturing and distribution facilities in order to meet
projected demands for Celexa and future products and expansions on Long Island,
New York to facilitate increased activity for research and development projects.
The expansions will continue through 2002 and when complete, should adequately
meet the Company's foreseeable needs for manufacturing, warehousing and
distribution and research activities.
Management believes that current cash levels, coupled with funds to be generated
by ongoing operations, will continue to provide adequate liquidity to facilitate
potential acquisitions of products and capital investments.
Results of Operations
---------------------
Net sales increased $80,434,000 or 45% as compared to the same period last year.
Celexa continued its strong growth, achieving sales of $149,850,000, an increase
of $72,338,000 or 93%, from the prior year's first quarter. At June 30, 2000,
Celexa had achieved a 12.5% share of new prescriptions in the SSRI market. Sales
of Infasurf-R-, the Company's lung surfactant for the prevention and treatment
of respiratory distress syndrome in premature infants, which was launched during
the third quarter of fiscal 2000, amounted to $2,893,000. Sales of the Company's
other products increased $5,203,000 due primarily to the continued growth of
Tiazac-R-.
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<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Other income decreased from the same period last year primarily because last
year's quarter included the final installment of the Company's settlement with
Pharmacia & Upjohn. Interest income was higher in the current quarter as
compared to last year as a result of more funds being available for investment.
Cost of sales as a percentage of sales was 25% in the quarter, unchanged from
the same period last year.
Selling, general and administrative expenses were $46,991,000 higher during the
current quarter than the same period last year. The current quarter included the
costs of the Company's newly expanded salesforce as well as co-promotion fees
and the termination payment to Warner-Lambert. During the second half of fiscal
2000, the Company increased its salesforce by almost 70%, from 850
representatives and managers to 1,425 persons. This expansion was necessitated
by the termination of the co-promotion arrangement with Warner-Lambert. The
termination payment to Warner-Lambert of $14,000,000 will eliminate any future
participation by Warner-Lambert in the profits of Celexa.
The increase in research and development expense during the current quarter as
compared to the same period last year, was due primarily to costs associated
with clinical trials conducted to obtain approval for new products and from
staff increases and associated costs required to support currently marketed
products and products in various stages of development. During the quarter,
particular emphasis was placed on clinical studies for Escitalopram oxalate, the
single enantiomer form of Celexa and the Company's oxycodone/ibuprofen
combination for pain, both of which are presently in Phase III clinical trials.
Income tax expense as a percentage of income before taxes was 28% for the
quarter as compared to 29% during the same period last year. The decrease
resulted principally from a decrease in the proportion of operating profit
derived from fully taxable U.S. operations as compared to lower taxed foreign
operations. Celexa is licensed and manufactured in Ireland and a portion of its
profits are subject to a favorable tax rate.
The Company expects to continue its profitability during the current fiscal year
with continued growth of Celexa and its other principal promoted products.
Inflation has not had a material effect on the Company's operations for the
periods presented.
-11-
<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Forward Looking Statements
--------------------------
Except for the historical information contained herein, the Management
Discussion and other portions of this Form 10-Q contain forward looking
statements that involve a number of risks and uncertainties, including the
difficulty of predicting FDA approvals, acceptance and demand for new
pharmaceutical products, the impact of competitive products and pricing, the
timely development and launch of new products and the risk factors listed from
time to time in the Company's SEC reports, including the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 2000.
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
In the normal course of business, operations of the Company may be exposed to
fluctuations in currency values and interest rates. These fluctuations can vary
the costs of financing, investing and operating transactions. Because the
Company had no debt and only minimal foreign currency transactions, there was no
material impact on earnings of fluctuations in interest and currency exchange
rates.
-12-
<PAGE>
Part II - Other Information
---------------------------
Item 1. Legal Proceedings
-----------------
Reference is hereby made to the Company's Annual Report on Form 10-
K for the fiscal year ended March 31, 2000, for a description of
certain legal proceedings to which the Company is a party.
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: August 14, 2000
Forest Laboratories, Inc.
-------------------------
(Registrant)
/s/ Kenneth E. Goodman
----------------------
Kenneth E. Goodman
President and Chief
Operating Officer
/s/ John E. Eggers
----------------------
John E. Eggers
Vice President-Finance and
Chief Financial Officer
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