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, 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.
------------------------------------------------------------------------------
(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
----------------
New York, New York 10022-4731
------------------ --------------
(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 14, 2000: 87,645,310.
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
September 30, 2000
(In thousands) (Unaudited) March 31, 2000
------------------ --------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash (including cash equivalent
investments of $305,304 in September
and $299,673 in March) $ 313,821 $ 302,600
Marketable securities 47,607 35,019
Accounts receivable, less allowances of
$12,862 in September and $10,698 in
March 70,616 60,570
Inventories 197,751 177,798
Deferred income taxes 101,412 49,568
Refundable income taxes 11,321 11,321
Other current assets 7,291 8,357
---------- ----------
Total current assets 749,819 645,233
---------- ----------
Marketable securities 14,165 17,619
---------- ----------
Property, plant and equipment 174,750 162,536
Less: accumulated depreciation 50,170 45,520
---------- ----------
124,580 117,016
---------- ----------
Other assets:
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $9,681 in September and
$9,368 in March 15,278 15,591
License agreements, product rights
and other intangible assets, less
accumulated amortization of $135,162 in
September and $119,307 in March 269,277 262,676
Deferred income taxes 14,207 19,435
Other 25,149 20,072
---------- ----------
Total other assets 323,911 317,774
---------- ----------
TOTAL ASSETS $1,212,475 $1,097,642
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
September 30, 2000
(In thousands, except for par values) (Unaudited) March 31, 2000
------------------ --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 43,749 $ 71,976
Accrued expenses 77,706 94,523
Income taxes payable 30,386 44,591
---------- ----------
Total current liabilities 151,841 211,090
---------- ----------
Deferred income taxes 1,320 1,862
---------- ----------
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 105,144 shares in
September and 102,364 shares in March 10,514 10,236
Capital in excess of par 528,136 427,318
Retained earnings 825,018 745,022
Accumulated other comprehensive loss ( 20,121) ( 14,312)
---------- ----------
1,343,547 1,168,264
Less common stock in treasury,
at cost (17,709 shares in September
and 17,703 shares in March) 284,233 283,574
---------- ----------
Total shareholders' equity 1,059,314 884,690
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,212,475 $1,097,642
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
(In thousands, except Three Months Ended Six Months Ended
per share amounts) September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $280,963 $201,357 $540,190 $380,150
Other income 6,681 4,947 13,345 13,048
-------- -------- -------- --------
287,644 206,304 553,535 393,198
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold 69,931 50,288 133,872 95,021
Selling, general and
administrative 120,369 100,780 259,480 192,900
Research and development 25,486 15,635 48,859 30,140
-------- -------- -------- --------
215,786 166,703 442,211 318,061
-------- -------- -------- --------
Income before income taxes 71,858 39,601 111,324 75,137
Income tax expense 20,120 11,651 31,328 22,134
-------- -------- -------- --------
Net income $ 51,738 $ 27,950 $ 79,996 $ 53,003
======== ======== ======== ========
Net income per common
and common equivalent share:
Basic $.59 $.33 $.92 $.64
==== ==== ==== ====
Diluted $.57 $.32 $.88 $.61
==== ==== ==== ====
Weighted average number of
common and common equivalent
shares outstanding:
Basic 87,331 83,465 86,538 83,403
====== ====== ====== ======
Diluted 91,346 87,531 90,673 87,490
====== ====== ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
(In thousands) Three Months Ended Six Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $51,738 $27,950 $79,996 $53,003
Other comprehensive income (loss) ( 4,676) 3,253 ( 5,809) ( 265)
------- ------- ------- -------
Comprehensive income $47,062 $31,203 $74,187 $52,738
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended
(In thousands) September 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 79,996 $ 53,003
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 5,008 3,802
Amortization 16,168 7,776
Deferred income tax expense 364 12,272
Foreign currency transactions loss (gain) 16 ( 671)
Tax benefit realized from the exercise of
stock options by employees 15,705
Net change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net ( 10,046) 1,278
Inventories ( 19,953) ( 8,748)
Refundable income taxes 1,090
Other current assets 1,066 ( 942)
Increase (decrease) in:
Accounts payable ( 28,227) ( 21,587)
Accrued expenses ( 16,817) 21,284
Income taxes payable ( 14,205) ( 1,160)
Increase in other assets ( 5,077) ( 2,116)
-------- --------
Net cash provided by
operating activities 23,998 65,281
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment, net ( 12,842) ( 13,196)
Purchase of marketable securities
Available-for-sale ( 11,121)
Redemption of marketable securities
Available-for-sale 1,987 16,430
Purchase of license agreements, product rights
and other intangible assets ( 22,545) ( 96,310)
-------- --------
Net cash used in
investing activities ( 44,521) ( 93,076)
-------- --------
</TABLE>
- Continued -
-6-
<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
- Continued -
<TABLE>
Six Months Ended
(In thousands) September 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from common stock options exercised
by employees under stock option plans $ 37,210 $ 3,282
-------- --------
Effect of exchange rate changes on cash ( 5,466) 541
-------- --------
Increase (decrease) in cash and cash equivalents 11,221 ( 23,972)
Cash and cash equivalents, beginning of period 302,600 200,968
-------- --------
Cash and cash equivalents, end of period $313,821 $176,996
======== ========
Supplemental disclosures of cash flow information:
(In thousands)
Cash paid during the period for:
Income taxes $29,587 $10,382
</TABLE>
See notes to condensed consolidated financial statements.
-7-
<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 six-month period ended
September 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>
September 30, 2000
(In thousands) (Unaudited) March 31, 2000
------------------ --------------
<S> <C> <C>
Raw materials $ 73,098 $ 35,976
Work in process 5,697 12,766
Finished goods 118,956 129,056
-------- --------
$197,751 $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 in the first quarter of
fiscal 2001, included in selling, general and administrative expenses,
which eliminated any future participation by Warner-Lambert in the
profits of Celexa.
-8-
<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>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic 87,331 83,465 86,538 83,403
Effect of assumed conversion
of employee stock options
and warrants 4,015 4,066 4,135 4,087
------ ------ ------ ------
Diluted 91,346 87,531 90,673 87,490
====== ====== ====== ======
</TABLE>
There were no options or warrants excluded from the computation of
diluted earnings per share for the three-month period ended September
30, 2000 as none were anti-dilutive. Options and warrants to purchase
approximately 342,100 shares of common stock at an exercise price of
$98.69 per share that were outstanding during a portion of the six-month
period ended September 30, 2000 were not included in the
computation of diluted earnings per share because they were anti-
dilutive. Options and warrants to purchase approximately 353,000
shares of common stock at exercise prices ranging from $49.16 to
$50.16 per share and 795,800 shares of common stock at exercise prices
ranging from $48.34 to $50.16 per share that were outstanding during a
portion of the three and six-month periods ended September 30, 1999,
respectively, were not included in the computation of diluted
earnings per share because they were anti-dilutive. These options and
warrants expire through 2008.
5. Recently Issued Accounting Standard
-----------------------------------
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in
Financial Statements." SAB No. 101 is effective for fiscal years
beginning after December 15, 1999. The adoption of this bulletin is
not expected to have an effect on the consolidated financial statements.
-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 $163,835,000 from March 31, 2000 due to on-
going operations, particularly the continued strong performance of 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
first quarter, the Company paid Warner-Lambert all its earned co-promotion
fees through April 30 and a $14,000,000 termination payment that eliminated
any future participation by Warner-Lambert in the profits of Celexa. The
increase in license agreements, product rights and other intangible assets
was due primarily to the agreement the Company entered into during the
current quarter with Rotta Research Laboratorium S.p.A. of Italy for
Dexloxiglumide, a compound under development used for the treatment of
constipation-prone irritable bowel syndrome. 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 for the three-month period ended September 30, 2000 rose 40% to
$280,963,000, an increase of $79,606,000 from the same period last year.
Celexa continued its strong growth, achieving sales of $168,609,000, an
increase of $71,148,000 or 73%, from the prior year's second quarter. During
the quarter Celexa's share of the SSRI market increased to 13.5% of new
prescriptions from 12.5% of new prescriptions at June 30, 2000. 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 $3,291,000, an increase
of $2,819,000 from the same period last year. Sales of the Company's other
products increased $5,639,000 due primarily to the continued growth of
Tiazac-R-.
-10-
<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net sales for the six-month period ended September 30, 2000 rose 42% to
$540,190,000, an increase of $160,040,000 from the same period last year.
Sales of Celexa and Infasurf accounted for $143,486,000 and $5,712,000 of
the increase, respectively. Sales of the Company's other products increased
by $10,842,000 primarily the result of volume increases for Tiazac.
The increase in other income in each of the periods presented was due
primarily to increases in interest income as a result of more funds being
available for investment. The increase for the six-month period ended
September 30, 2000 was offset by the decline in other income reported during
the first quarter which resulted primarily because last year's first quarter
included the final installment of the Company's settlement with Pharmacia &
Upjohn.
Cost of sales as a percentage of sales was 25% for the current quarter and
for the six-month period ending September 30, 2000, unchanged from the same
periods last year.
Selling, general and administrative expenses increased $19,589,000 and
$66,580,000, respectively, during the three and six-month periods ended
September 30, 2000, from the same periods last year. The increases were due
primarily to activities that related to Celexa. 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 eliminated
any future participation by Warner-Lambert in the profits of Celexa.
Research and development expenses increased $9,851,000 and $18,719,000,
respectively, during the three and six-month periods ended September 30,
2000, from the same periods last year. The increases were due 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 Company's single enantiomer form of Celexa, and the Company's
oxycodone/ibuprofen combination for pain, both of which are presently in
Phase III clinical trials. The Company has several other products in
clinical trials including Lu25-109 (aldamoline) for urinary incontinence
which is completing Phase II and Lu28-179 (siramesine), for anxiety, now in
Phase II testing.
Income tax expense as a percentage of income before taxes was 28% for the
three and six-month periods ended September 30, 2000 as compared to 29% for
the same periods 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 is subject
to a favorable tax rate.
-11-
<PAGE>
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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.
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 from 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 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The registrant held its annual meeting of stockholders on
August 14, 2000.
(b) N/A
(c) At the annual meeting, holders of the registrant's Common
Stock voted for the election of seven 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 voted for the ratification of the 2000 Stock
Option Plan as well as BDO Seidman, LLP to serve as the
registrant's independent certified public accountants for
the fiscal year ending March 31, 2001.
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 74,052,852 1,188,184
Kenneth E. Goodman 74,093,798 1,106,292
Phillip M. Satow 74,076,939 1,140,010
William J. Candee III 74,029,769 1,234,350
George S. Cohan 74,185,458 922,972
Dan L. Goldwasser 74,215,285 863,318
Lester B. Salans 74,248,286 797,316
Ratification of
2000 Stock Option Plan 46,700,312 28,088,972 255,093
Ratification of
Independent Public
Accountants: 74,907,720 50,322 86,335
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K. None
Exhibit 27. Financial Data Schedule
-13-
<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: November 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
-14-
<PAGE>
