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, 1994
---
/ / 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.)
150 East 58th Street
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New York, New York 10155-0015
- - -------------------- ----------
(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 10, 1994: 45,015,558.
Part I - Financial Information
- - ------------------------------
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1994
(In thousands) (Unaudited) March 31, 1994
----------------- --------------
ASSETS
- - -----
Current assets:
Cash (including cash equivalent investments
of $130,664 in September and $176,336
in March) $132,888 $181,094
Accounts receivable, less allowances of
$5,035 in September and $4,918 in March 129,158 111,670
Inventories:
Raw materials 12,804 13,250
Work in process 3,058 3,012
Finished goods 23,485 20,918
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39,347 37,180
Deferred income taxes 13,814 12,172
Other current assets 1,274 3,813
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Total current assets 316,481 345,929
------- -------
Long-term marketable securities 108,585 47,953
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Property, plant and equipment 89,235 73,715
Less: Accumulated depreciation 22,856 20,694
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Net property, plant and equipment 66,379 53,021
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Other assets:
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $5,927 in September and
$5,614 in March 19,032 19,345
License agreements, product rights and
intangible assets, less accumulated amortization
of $35,567 in September and $30,833 in March 159,680 146,657
Deferred income taxes 3,842 3,787
Other 6,183 2,519
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Total other assets 188,737 172,308
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TOTAL ASSETS $680,182 $619,211
======== ========
See notes to condensed consolidated financial statements.
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PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1994
(In thousands, except for par values) (Unaudited) March 31, 1994
------------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Accounts payable $ 12,654 $ 10,507
Accrued expenses 26,294 25,552
Income taxes payable 14,480 16,164
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Total current liabilities 53,428 52,223
-------- -------
Deferred income taxes 218 206
-------- -------
Shareholders' equity:
Series A junior participating preferred
stock, $1.00 par; authorized 1,000 shares;
no shares issued or outstanding
Common stock, $.10 par; authorized
250,000 shares; issued 47,257 shares in
September and 46,276 shares in March 4,726 4,628
Capital in excess of par 279,071 266,233
Retained earnings 384,320 337,611
Cumulative foreign currency
translation adjustments ( 1,086) ( 3,817)
-------- --------
667,031 604,655
Less common stock in treasury,
at cost (2,641 shares in September
and 2,587 shares in March) 40,495 37,873
-------- --------
Total shareholders' equity 626,536 566,782
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $680,182 $619,211
======== ========
See notes to condensed consolidated financial statements
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PAGE
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,
------------------ -----------------
1994 1993 1994 1993
------ ------- -------- --------
Net sales $95,776 $82,814 $188,330 $162,065
Other income 2,407 2,885 4,751 5,073
------- ------- -------- --------
$98,183 85,699 193,081 167,138
------- ------- -------- --------
Costs and expenses:
Cost of sales 18,217 15,439 35,525 29,516
Selling, general and
administrative 33,709 33,707 68,843 67,185
Research and development 8,019 6,011 15,794 12,481
------- ------- -------- --------
59,945 55,157 120,162 109,182
------- ------- -------- --------
Income before income taxes 38,238 30,542 72,919 57,956
Income taxes 13,673 10,995 26,210 20,865
------- ------- -------- --------
Net income $24,565 $19,547 $ 46,709 $ 37,091
======= ======= ======== ========
Earnings per common
and common equivalent share:
Primary $.53 $.43 $1.01 $.82
==== ==== ===== ====
Fully diluted $.53 $.43 $1.00 $.81
==== ==== ===== ====
Weighted average number of
common and common equivalent
shares outstanding:
Primary 46,550 45,400 46,438 45,500
Fully diluted 46,768 45,770 46,731 45,772
Dividends per share $-0- $-0- $-0- $-0-
==== ==== ==== ====
See notes to condensed consolidated financial statements
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PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
(In thousands) September 30,
-----------------------------
1994 1993
----------- -----------
Cash flows from operating activities:
Net income $ 46,709 $ 37,091
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,924 1,811
Amortization 5,047 3,307
Deferred income tax expense (credit) ( 1,685) 1,302
Foreign currency transactions gain ( 9) ( 235)
Net change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net ( 17,488) ( 9,510)
Inventories ( 2,167) ( 3,860)
Other current assets 2,539 ( 382)
Increase (decrease) in:
Accounts payable 2,147 327
Accrued expenses 742 ( 434)
Income taxes payable ( 1,684) ( 510)
Increase in other assets ( 3,664) ( 382)
-------- --------
Net cash provided by operating activities 32,411 28,525
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment, net ( 14,198) ( 4,705)
Redemption (purchase) of long-term marketable
securities ( 60,632) 7,000
Purchase of license agreements, product rights
and intangible assets ( 17,757) ( 36)
-------- --------
Net cash provided by (used in) investing
activities ( 92,587) 2,259
-------- --------
- Continued -
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PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
- Continued -
Six Months Ended
(In thousands) September 30,
-------------------------
1994 1993
---------- ----------
Cash flows from financing activities:
Net proceeds from common stock options exercised
by employees under stock option plans $ 4,762 $ 1,699
Tax benefit realized from the exercise of
stock options by employees 5,552 1,261
-------- -------
Net cash provided by financing activities 10,314 2,960
-------- -------
Effect of exchange rate changes on cash 1,656 ( 733)
-------- -------
Increase (decrease) in cash and cash equivalents ( 48,206) 33,011
Cash and cash equivalents, beginning of period 181,094 172,286
-------- --------
Cash and cash equivalents, end of period $132,888 $205,297
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $26,234 $18,822
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. 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, 1994 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1995. 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, 1994. Certain
reclassifications have been made to conform March 31, 1994 data
with current presentation.
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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 was principally the result
of the Company investing a portion of its cash in long-term marketable
securities maturing over a period of one to two years in order to improve
its yield. Accounts receivable and inventories, as well as accounts
payable and accrued expenses increased due to the continued strong growth
of the Company's principal promoted products and an increase in the level of
the Company's overall operations. The increase in license agreements,
product rights and intangible assets resulted from a payment made to
acquire the product rights for the Company's controlled release generic
propranolol and indomethacin under the 1984 Prutech Agreement, pursuant to
which all future royalty obligations are extinguished.
Property, plant and equipment increased during the period principally from
the expansion of the Company's United States and Irish facilities. This
expansion will continue through fiscal 1995 in order to adequately meet
the Company's needs for the manufacturing, warehousing and distribution of
its existing and future products. Management believes that current cash
levels, coupled with funds to be generated by on-going operations, will
sufficiently support these capital expenditures and would facilitate
potential acquisitions of products or companies.
RESULTS OF OPERATIONS Net sales for the three and six month periods ended
- - ---------------------
September 30, 1994, increased $12,962,000 and $26,265,000, respectively,
as compared with the same periods last year, principally due to the
continued growth of the Company's principal promoted products and specialty
controlled release generic products. Net volume growth of those products,
including Flumadine-R- which was launched during the third quarter of fiscal
1994, amounted to $18,732,000 for the quarter and $33,196,000 for the
six months. Volume declines of the Company's older umpromoted product
lines increased $1,013,000. The remainder of the net sales was due
to price and was primarily the result of increases in the volume of sales to
managed care customers.
Cost of sales as a percentage of sales remained constant at 19% for the
current quarter compared with the same period last year. For the six month
period, cost of sales increased to 19% from 18% due mostly to increases in
costs related to the Company's facilities expansion and the absence of
corresponding price increases.
Selling, general and administrative expense for the current quarter compared
with the same period last year did not change due to a reduction in royalty
expense caused by the acquisition from Prutech of the product rights to
controlled release generic propranolol and indomethacin and the absence of
Flumadine launch costs, some of which were incurred during this quarter
last year. For the six months, selling, general and administrative expense
increased primarily due to the costs related to the consolidation of the
Company's Jackson, Mississippi and St Louis, Missouri facilities in St. Louis,
which will result in future savings. As a percentage of sales,
selling, general and administrative expense decreased for both the three
and six month periods.
-8-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Research and development expense increased during the current quarter over
the same period last year due to 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, the Company filed a New Drug Application for Monurol-R-, a
single dose antibiotic for the treatment of uncomplicated urinary tract
infections. In addition, during the current quarter and six months,
the Company continued its research efforts on several new products,
including Synapton-TM-, the Company's controlled release formulation of
physostigmine being tested for the treatment of Alzheimer's Disease.
The Company anticipates further increases in research and development
expense as a result of continued clinical studies on Synapton and other
products in development.
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PAGE
Part II - Other Information
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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, 1994 for a description of Wilson,
-------
et al, v. Forest Laboratories, Inc., et al., 91 Civ. 5185 (S.D.N.Y.)
-------------------------------------------
In August of 1994, the Company's motion for summary judgement in
this action was denied. A status conference is expected to be held
in December 1994. The Company continues to believe the claim
in this case is without merit and intends to vigorously defend the
action.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The registrant held its annual meeting of stockholders on
August 15, 1994.
(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 voted for adoption of
the registrant's 1994 Employee Stock Option Plan 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, 1995.
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:
Withhold Broker
Matter For Against Abstain Authority Non-Votes
Election of Directors:
Howard Solomon 35,392,770 178,744
Joseph M. Schor 35,394,136 177,378
William J. Candee 35,395,960 175,554
Dan L. Goldwasser 35,496,456 75,058
George S. Cohan 35,492,997 78,517
1994 Employee Stock
Option Plan 19,659,735 11,907,667 231,710 3,718,402
Ratification of
Independent Public
Accountants: 35,169,072 120,086 282,356 -0-
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 hasduly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: November 10, 1994
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
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 10, 1994
Forest Laboratories, Inc.
-------------------------
(Registrant)
-------------------------
Howard Solomon
President and Chief
Executive Officer
-------------------------
Kenneth E. Goodman
Vice President - Finance
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EXHIBIT 27
Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
Item Number Item Description September 30, 1994
- - ----------- ---------------- ------------------
5-02(1) cash and cash items $132,888
5-02(2) marketable securities 0
5-02(3)(a)(1) notes and accounts receivable trade 129,158
5-02(4) allowances for doubtful accounts 5,035
5-02(6) inventory 39,347
5-02(9) total current assets 319,357
5-02(13) property, plant and equipment 89,235
5-02(14) accumulated depreciation 22,856
5-02(18) total assets 680,182
5-02(21) total current liabilities 53,428
5-02(22) bonds, mortgages and similar debt 0
5-02(28) preferred stock-mandatory redemption 0
5-02(29) preferred stock-no mandatory redemption 0
5-02(30) common stock 4,726
5-02(31) other stockholders' equity 621,810
5-02(32) total liabilities and stockholders' equity 680,182
Six Months Ended
September 30, 1994
------------------
5-03(b)1(a) net sales of tangible products 188,330
5-03(b)1 total revenues 193,081
5-03(b)2(a) cost of tangible goods sold 35,525
5.03(b)2 total costs and expenses applicable to
sales and revenues 104,368
5.03(b)3 other costs and expenses 15,794
5.03(b)5 provision for doubtful accounts and notes 540
5.03(b)(8) interest and amortization of debt discount 0
5.03(b)(10) income before taxes and other items 72,919
5.03(b)(11) income tax expense 26,210
5.03(b)(14) income/loss continuing operations 46,709
5.03(b)(15) discontinued operations 0
5.03(b)(17) extraordinary items 0
5.03(b)(18) cumulative effect-changes in accounting
principles 0
5.03(b)(19) net income or loss 46,709
5.03(b)(20) earnings per share - primary 1.01
5.03(b)(20) earnings per share - fully diluted 1.00