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 December 31, 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 February
14, 2001: 176,174,972.
PART I - FINANCIAL INFORMATION
------------------------------
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 2000
(In thousands) (Unaudited) March 31, 2000
----------------- --------------
ASSETS
------
Current assets:
Cash (including cash equivalent
investments of $414,303 in December
and $299,673 in March) $ 419,048 $ 302,600
Marketable securities 39,864 35,019
Accounts receivable, less allowances of
$12,010 in December and $10,698 in
March 72,996 94,903
Inventories 250,162 177,798
Deferred income taxes 44,102 49,568
Refundable income taxes 40,518 11,321
Other current assets 11,977 8,357
---------- ----------
Total current assets 878,667 679,566
---------- ----------
Marketable securities 30,743 17,619
---------- ----------
Property, plant and equipment 181,982 162,536
Less: accumulated depreciation 52,870 45,520
---------- ----------
129,112 117,016
---------- ----------
Other assets:
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $9,837 in December and
$9,368 in March 15,122 15,591
License agreements, product rights
and other intangible assets, less
accumulated amortization of $143,089 in
December and $119,307 in March 262,894 262,676
Deferred income taxes 13,754 19,435
Other 24,582 20,072
---------- ----------
Total other assets 316,352 317,774
---------- ----------
TOTAL ASSETS $1,354,874 $1,131,975
========== ==========
See notes to condensed consolidated financial statements.
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 2000
(In thousands, except for par values) (Unaudited) March 31, 2000
----------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 63,510 $ 71,976
Accrued expenses 128,237 128,856
Income taxes payable 19,504 44,591
---------- ----------
Total current liabilities 211,251 245,423
---------- ----------
Deferred income taxes 1,287 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 211,467 shares in
December and 204,728 shares in March 21,147 20,473
Capital in excess of par 532,699 417,081
Retained earnings 890,931 745,022
Accumulated other comprehensive loss ( 16,401) ( 14,312)
---------- ----------
1,428,376 1,168,264
Less common stock in treasury,
at cost (35,448 shares in December
and 35,406 shares in March) 286,040 283,574
---------- ----------
Total shareholders' equity 1,142,336 884,690
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,354,874 $1,131,975
========== ==========
See notes to condensed consolidated financial statements.
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except Three Months Ended Nine Months Ended
per share amounts) December 31, December 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $310,086 $234,413 $850,276 $614,563
Other income 7,643 6,432 20,988 19,480
-------- -------- -------- --------
317,729 240,845 871,264 634,043
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold 73,855 58,671 207,727 153,692
Selling, general and
administrative 125,947 119,732 385,427 312,632
Research and development 26,381 17,747 75,240 47,887
-------- -------- -------- --------
226,183 196,150 668,394 514,211
-------- -------- -------- --------
Income before income taxes 91,546 44,695 202,870 119,832
Income tax expense 25,633 12,939 56,961 35,073
-------- -------- -------- --------
Net income $ 65,913 $ 31,756 $145,909 $ 84,759
======== ======== ======== ========
Net income per common
and common equivalent share:
Basic $.38 $.19 $.84 $.51
==== ==== ==== ====
Diluted $.36 $.18 $.80 $.48
==== ==== ==== ====
Weighted average number of
common and common equivalent
shares outstanding:
Basic 175,667 167,742 173,941 167,106
======= ======= ======= =======
Diluted 184,225 175,602 182,731 175,170
======= ======= ======= =======
See notes to condensed consolidated financial statements.
-4-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands) Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -------------------
2000 1999 2000 1999
------- ------- -------- -------
Net income $65,913 $31,756 $145,909 $84,759
Other comprehensive income (loss) 3,720 ( 4,772) ( 2,089) ( 5,037)
------- ------- -------- -------
Comprehensive income $69,633 $26,984 $143,820 $79,722
======= ======= ======== =======
See notes to condensed consolidated financial statements.
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
(In thousands) December 31,
---------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $145,909 $ 84,759
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 7,690 5,817
Amortization 24,251 13,494
Deferred income tax expense 2,020 12,128
Foreign currency transactions loss (gain) 157 ( 1,108)
Tax benefit realized from the exercise of
stock options by employees 79,849 12,240
Net change in operating assets and
liabilities:
Decrease (increase) in:
Accounts receivable, net 21,907 ( 9,671)
Inventories ( 72,364) ( 24,130)
Refundable income taxes ( 29,197) ( 398)
Other current assets ( 3,620) 267
Increase (decrease) in:
Accounts payable ( 8,466) ( 28,344)
Accrued expenses ( 619) 45,870
Income taxes payable ( 25,087) ( 1,229)
Increase in other assets ( 4,510) ( 2,421)
-------- --------
Net cash provided by
operating activities 137,920 107,274
-------- --------
Cash flows from investing activities:
Purchase of property, plant and
equipment, net ( 19,947) ( 19,672)
Purchase of marketable securities
Available-for-sale ( 27,668)
Redemption of marketable securities
Available-for-sale 9,699 26,535
Purchase of license agreements, product
rights and other intangible assets ( 24,030) ( 100,231)
-------- --------
Net cash used in
investing activities ( 61,946) ( 93,368)
-------- --------
- Continued -
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
- Continued -
Nine Months Ended
(In thousands) December 31,
---------------------
2000 1999
-------- --------
Cash flows from financing activities:
Net proceeds from common stock options
exercised by employees under stock
option plans $ 42,529 $ 12,717
-------- --------
Effect of exchange rate changes on cash ( 2,055) ( 1,845)
-------- --------
Increase in cash and cash equivalents 116,448 24,778
Cash and cash equivalents, beginning of period 302,600 200,968
-------- --------
Cash and cash equivalents, end of period $419,048 $225,746
======== ========
Supplemental disclosures of cash flow
information: (In thousands)
Cash paid during the period for:
Income taxes $29,607 $13,046
See notes to condensed consolidated financial statements.
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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 nine-month period ended
December 31, 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.
Certain amounts as previously reported have been reclassified to
conform to current classifications.
2. Inventories
-----------
Inventories consist of the following:
December 31, 2000
(In thousands) (Unaudited) March 31, 2000
----------------- --------------
Raw materials $112,796 $ 35,976
Work in process 5,036 12,766
Finished goods 132,330 129,056
-------- --------
$250,162 $177,798
======== ========
3. Terminated Co-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-
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):
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
Basic 175,667 167,742 173,941 167,106
Effect of assumed conversion
of employee stock options
and warrants 8,558 7,860 8,790 8,064
------- ------- ------- -------
Diluted 184,225 175,602 182,731 175,170
======= ======= ======= =======
Options and warrants to purchase approximately 2,355,400 shares of
common stock at exercise prices ranging from $65.84 to $66.91 per
share that were outstanding during a portion of the three and nine-
month periods ended December 31, 2000 were not included in the
computation of diluted earnings per share because they were anti-
dilutive. Options and warrants to purchase approximately 2,425,000
shares of common stock at an exercise price of $26.30 per share and
3,113,000 shares of common stock at exercise prices ranging from
$24.58 to $26.30 per share that were outstanding during a portion of
the three and nine-month periods ended December 31, 1999,
respectively, were not included in the computation of diluted earnings
per share because they were anti-dilutive. These options and warrants
expire through 2010.
The two-for-one stock split effected as a 100% stock dividend in
December 2000 has been reflected retroactively for all outstanding
common stock and stock options.
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 summarizes certain of the SEC's
views in applying generally accepted accounting principles to revenue
recognition in the financial statements. In October 2000, the SEC issued
additional written guidance to further supplement SAB No. 101. The
adoption of this bulletin is not expected to have an effect on the
consolidated financial statements.
-9-
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 $233,273,000 from March 31,
2000 due to ongoing operations, particularly the continued
strong performance of Celexa-TM- (citalopram HBr), the
Company's selective serotonin reuptake inhibitor ("SSRI")
for the treatment of depression. The increase in license
agreements, product rights and other intangible assets was
due to several product license agreements entered into by the
Company during the period. These agreements include dexloxiglumide
for the treatment of irritable bowel syndrome, lercanidipine
for the treatment of hypertension and memantine for the treatment
of Alzheimer's Disease and neuropathic pain. The increase to
capital in excess of par was due primarily to 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 December 31, 2000
rose 32% to $310,086,000, an increase of $75,673,000 from
the same period last year. Celexa continued its strong
growth, achieving sales of $189,854,000, an increase of
$71,633,000 or 61%, from the prior year's third quarter.
During the quarter Celexa's share of the SSRI market
increased to over 14% of new prescriptions. 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 $3,165,000, an increase of $1,069,000 or 51%
-10-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
from the same period last year. Sales of the Company's
other products increased $2,971,000 due primarily to the
continued growth of Tiazac-R-.
Net sales for the nine-month period ended December 31, 2000
rose 38% to $850,276,000, an increase of $235,713,000 from
the same period last year. Sales of Celexa and Infasurf
accounted for $215,119,000 and $6,781,000 of the increase,
respectively. Sales of the Company's other products
increased by $13,813,000 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 nine-month period ended December 31,
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 24% for the
current quarter and for the nine-month period ending
December 31, 2000, as compared to 25% for the same periods
last year due to product mix, the largest component of which
was Celexa.
Selling, general and administrative expenses increased
$6,215,000 and $72,795,000, respectively, during the three
and nine-month periods ended December 31, 2000, from the
same periods last year. The increases were due primarily to
activities 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 the Warner-Lambert Company on
April 30, 2000. A termination payment of $14,000,000 was
paid to Warner-Lambert during the first quarter that
eliminated any future participation by Warner-Lambert in the
profits of Celexa.
Research and development expenses increased $8,634,000 and
$27,353,000, respectively, during the three and nine-month
periods ended December 31, 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, of which Phase III clinical trials have been
completed and the Company's oxycodone/ibuprofen combination
for pain which is presently in Phase III clinical trials.
The Company has several other ongoing clinical trials
-11-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
including Lu28-179 (siramesine), for anxiety, and ML3000 for
osteoarthritis now in Phase II testing.
Income tax expense as a percentage of income before taxes
was 28% for the three and nine-month periods ended December
31, 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.
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-
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) The Company filed a report on form 8-K on January 4, 2001
reporting the a two-for-one stock split effected as a 100% stock
dividend paid on January 11, 2001 to the holders of record of the
Company's common stock on December 26, 2000.
-13-
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, 2001
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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