FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
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/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - ---- SECURITIES EXCHANGE ACT OF 1934
For the Period Ended December 31, 1994
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/ / 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.)
150 East 58th Street
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New York, New York 10155-0015
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(address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code 212-421-7850
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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
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Number of shares outstanding of Registrant's Common Stock as of February 14,
1995: 45,093,310.
Part I - Financial Information
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 1994
(In thousands) (Unaudited) March 31, 1994
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ASSETS
Current assets:
Cash (including cash equivalent investments
of $156,519 in December and $176,336 in
March) $158,059 $181,094
Accounts receivable, less allowances
of $5,123 in December and $4,918 in March 143,017 111,670
Inventories:
Raw materials 14,442 13,250
Work in process 2,131 3,012
Finished goods 22,485 20,918
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39,058 37,180
Deferred income taxes 17,340 12,172
Other current assets 5,131 3,813
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Total current assets 362,605 345,929
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Long-term marketable securities 109,860 47,953
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Property, plant and equipment 97,106 73,715
Less: Accumulated depreciation 23,124 20,694
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Net property, plant and equipment 73,982 53,021
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Other assets:
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $6,083 in December
and $5,614 in March 18,876 19,345
License agreements, product rights and other
intangible assets, less accumulated amortization
of $37,933 in December and $30,833 in March 157,646 146,657
Deferred income taxes 3,916 3,787
Other 3,806 2,519
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Total other assets 184,244 172,308
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TOTAL ASSETS $730,691 $619,211
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See notes to condensed consolidated financial statements.
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 1994
(In thousands, except for par values) (Unaudited) March 31, 1994
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 15,699 $ 10,507
Accrued expenses 30,580 25,552
Income taxes payable 19,412 16,164
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Total current liabilities 65,691 52,223
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Deferred income taxes 216 206
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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 47,697 shares in
December and 46,276 shares in March 4,769 4,628
Capital in excess of par 291,946 266,233
Retained earnings 410,040 337,611
Cumulative foreign currency
translation adjustments ( 1,433) ( 3,817)
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705,322 604,655
Less common stock in treasury,
at cost (2,642 shares in December and
2,587 shares in March) 40,538 37,873
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Total shareholders' equity 664,784 566,782
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $730,691 $619,211
======== ========
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,
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1994 1993 1994 1993
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Net sales $107,280 $96,996 $295,610 $259,062
Other income 3,027 2,003 7,778 7,075
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110,307 98,999 303,388 266,137
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Costs and expenses:
Cost of sales 20,735 17,571 56,260 47,087
Selling, general and
administrative 40,309 40,553 109,152 107,737
Research and development 9,012 8,208 24,806 20,690
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70,056 66,332 190,218 175,514
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Income before income taxes 40,251 32,667 113,170 90,623
Income taxes 14,531 11,858 40,741 32,723
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Net income $ 25,720 $20,809 $ 72,429 $ 57,900
======== ======= ======== ========
Earnings per common
and common equivalent share:
Primary $.55 $.45 $1.56 $1.27
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Fully diluted $.55 $.45 $1.55 $1.25
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Weighted average number of
common and common equivalent
shares outstanding:
Primary 46,863 46,161 46,5710 45,757
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Fully diluted 46,863 46,443 46,642 46,437
Dividends per share $-0- $-0- $-0- $-0-
==== ==== ==== ====
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,
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1994 1993
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Cash flows from operating activities:
Net income $ 72,429 $ 57,900
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,884 2,728
Amortization 7,569 5,121
Deferred income tax expense (benefit) ( 5,287) 1,009
Foreign currency transactions gain ( 8) ( 346)
Net change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net ( 31,347) ( 24,016)
Inventories ( 1,878) ( 668)
Other current assets ( 1,318) ( 755)
Increase (decrease) in:
Accounts payable 5,192 6,458
Accrued expenses 5,028 5,053
Income taxes payable 3,248 ( 5,742)
Increase in other assets ( 1,287) ( 569)
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Net cash provided by operating activities 55,225 46,173
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Cash flows from investing activities:
Purchase of property, plant and equipment, net ( 22,893) ( 6,615)
Redemption (purchase) of long-term marketable
securities ( 61,907) 7,439
Purchase of license agreements, product rights
and other intangible assets ( 18,089) ( 13,787)
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Net cash used in investing activities ( 102,889) ( 12,963)
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- 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,
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1994 1993
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Cash flows from financing activities:
Net proceeds from common stock options exercised
by employees under stock option plans $ 13,933 $ 4,109
Tax benefit realized from the exercise of
stock options by employees 9,256 7,203
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Net cash provided by financing activities 23,189 11,312
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Effect of exchange rate changes on cash 1,440 ( 1,102)
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Increase (decrease) in cash and cash equivalents ( 23,035) 43,420
Cash and cash equivalents, beginning of period 181,094 172,286
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Cash and cash equivalents, end of period $158,059 $215,706
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $49,294 $30,282
See notes to condensed consolidated financial statements.
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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 nine month periods
ended December 31, 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.
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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
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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 growth of the
Company's principal promoted and specialty controlled release generic
products and an increase in the level of the Company's overall operations.
The increase in deferred income taxes resulted from the recognition of
expense items in different periods for financial reporting and tax purposes.
License agreements, product rights and intangible assets increased due to
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 nine month periods ended
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December 31, 1994, increased $10,284,000 and $36,548,000, respectively, as
compared with the same periods last year principally due to the continued
growth of the Company's principal promoted and specialty controlled release
generic products. For the three months, net volume growth of these products
amounted to $17,970,000. Sales of Flumadine-R- during this period were lower
than last year's sales due to a weak flu season and initial stocking of
Flumadine during this period last year. While the nine month period was
similarly affected by the reduction in Flumadine sales, volume growth of
$51,577,000 was achieved. Sales decreases of certain of the Company's
unpromoted product lines resulted in a net volume decline of $4,516,000
for the quarter and $3,492,000 for the nine months. The remainder of the
net sales change 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 increased to 19% during the current
three and nine month periods as compared to 18% for the same periods last
year due mostly to increases in costs related to the Company's facilities
expansion and lower net received prices on certain products.
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FOREST LABORATORIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Selling, general and administrative expense for the current quarter compared
with the same period last year decreased slightly 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, most of which were incurred
during last year's third quarter. For the nine 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 nine month periods.
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 and nine 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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Part II - Other Information
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Item 6 (b) A Current Report on Form 8-K was filed on October 11, 1994.
The Report described the adoption by the registrant of a new
Preferred Share Purchase Rights Plan.
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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, 1995
Forest Laboratories, Inc.
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(Registrant)
/s/ Howard Solomon
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Howard Solomon
President and Chief
Executive Officer
/s/ Kenneth E. Goodman
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Kenneth E. Goodman
Vice President - Finance
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