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 Period Ended September 30, 1996
----
/ / 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
November 14, 1996: 41,959,620.
PAGE
Part I - Financial Information
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1996
(In thousands) (Unaudited) March 31, 1996
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ASSETS
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Current assets:
Cash (including cash equivalent
investments of $152,673 in
September and $78,818
in March) $156,596 $ 83,543
Marketable securities 15,762 40,164
Accounts receivable, less allowance
for possible losses of $5,519
in September and $5,309 in March 153,026 254,708
Inventories 94,201 58,949
Deferred income taxes 21,681 20,411
Other current assets 8,490 12,837
-------- --------
Total current assets 449,756 470,612
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Marketable securities 22,042 22,170
-------- --------
Property, plant and equipment 111,894 106,164
Less accumulated depreciation 30,038 26,807
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81,856 79,357
-------- --------
Other assets:
Investment in unconsolidated affiliate 75,902
Excess of cost of investment in
subsidiaries over net assets
acquired, less accumulated
amortization of $7,178 in September
and $6,866 in March 17,781 18,093
License agreements, product rights and other
intangible assets, less accumulated
amortization of $57,147 in September
and $50,876 in March 210,841 216,078
Deferred income taxes 7,864 7,398
Other 10,026 9,751
-------- --------
Total other assets 246,512 327,222
-------- --------
TOTAL ASSETS $800,166 $899,361
======== ========
See notes to condensed consolidated financial statements.
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1996
(In thousands, except for par values) (Unaudited) March 31, 1996
----------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,260 $ 13,994
Accrued expenses 35,773 50,332
Income taxes payable 8,655 25,245
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Total current liabilities 67,688 89,571
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Deferred income taxes 279 273
-------- -------
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
250,000; issued 48,240 shares in
September and 48,133 shares in March 4,824 4,813
Capital in excess of par 309,756 306,635
Retained earnings 569,444 542,005
Other ( 981) ( 2,985)
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883,043 850,468
Less common stock in treasury,
at cost (5,474 shares in September
and 2,650 shares in March) 150,844 40,951
-------- --------
Total shareholders' equity 732,199 809,517
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $800,166 $899,361
======== ========
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 Six Months Ended
per share amounts) September 30, September 30,
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1996 1995 1996 1995
------- -------- ------- --------
Net sales $90,182 $109,685 $180,498 $216,628
Non-recurring income, net (Note 2) 19,149
Other income 2,009 3,958 4,294 7,715
------- -------- -------- --------
92,191 113,643 203,941 224,343
------- -------- -------- --------
Costs and expenses:
Cost of sales 22,683 21,722 42,488 42,619
Selling, general and
administrative 53,206 37,483 106,356 77,384
Research and development 8,180 8,973 15,426 17,512
------- -------- -------- --------
84,069 68,178 164,270 137,515
------- -------- -------- --------
Income before income taxes 8,122 45,465 39,671 86,828
Income taxes 2,549 16,276 12,232 31,084
------- -------- -------- --------
Net income $ 5,573 $ 29,189 $ 27,439 $ 55,744
======= ======== ======== ========
Earnings per common
and common equivalent share:
Primary $.13 $.62 $.61 $1.19
==== ==== ==== =====
Fully diluted $.13 $.62 $.61 $1.19
==== ==== ==== =====
Weighted average number of
common and common equivalent
shares outstanding:
Primary 44,401 46,881 45,238 46,890
====== ====== ====== ======
Fully diluted 44,401 46,899 45,238 46,890
====== ====== ====== ======
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)
Six Months Ended
(In thousands) September 30,
-----------------------
1996 1995
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Cash flows from operating activities:
Net income $ 27,439 $ 55,744
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,854 2,267
Amortization 6,583 5,399
Gain on sale of investment in unconsolidated
affiliate ( 26,399)
Deferred income tax expense (benefit) ( 1,730) 620
Foreign currency transaction loss 143 218
Net change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 101,682 ( 12,678)
Inventories ( 35,252) ( 6,433)
Other current assets 4,347 ( 9,311)
Increase (decrease) in:
Accounts payable 9,266 ( 877)
Accrued expenses ( 14,559) 7,898
Income taxes payable ( 16,590) 1,237
Decrease (increase) in other assets ( 275) ( 1,491)
-------- --------
Net cash provided by operating
activities 57,509 42,593
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Cash flows from investing activities:
Purchase of property, plant and equipment, net ( 5,010) ( 6,106)
Proceeds from sale of investment in unconsolidated
affiliate 102,301
Purchase of marketable securities
Available-for-sale ( 27,785) ( 75,401)
Redemption of marketable securities
Available-for-sale 50,315 77,887
Held-to-Maturity 2,000
Purchase of license agreements, product rights
and intangible assets ( 1,000) ( 44,622)
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Net cash provided by (used in) investing
activities 120,821 ( 48,242)
-------- --------
- Continued -
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
- Continued -
Six Months Ended
(In thousands) September 30,
--------------------
1996 1995
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Cash flows from financing activities:
Net proceeds from common stock options exercised
by employees under stock option plans $ 3,132 $ 2,636
Purchase of treasury stock, net ( 109,748)
-------- --------
Net cash (used in) provided by financing
activities ( 106,616) 2,636
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Effect of exchange rate changes on cash 1,339 ( 609)
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Increase (decrease) in cash and cash equivalents 73,053 ( 3,622)
Cash and cash equivalents, beginning of period 83,543 107,611
-------- --------
Cash and cash equivalents, end of period $156,596 $103,989
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $30,552 $29,226
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-10Q 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 addition, certain reclassifications have been made to
the financial statements to conform with the current period's
presentation. 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, 1996 are not
necessarily indicative of the results that may be expected for the
year ending March 31, 1997. 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, 1996.
2. Non-recurring Income, net
-------------------------
During the first quarter, the Company reported a net non-recurring
gain of $19,149,000 or $12,687,000 after taxes. The gain results from
the sale of Forest's approximate 21% equity holding in Biovail
Corporation International which resulted in a gain of $26,399,000
or $17,019,000 after taxes partially offset by non-recurring charges
of $7,250,000 or $4,332,000 after tax for expenses relating to the
closing of certain of the Company's facilities and for a reserve for
the estimated cost of settlement of certain litigations.
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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 Net current assets decreased by $1,027,000
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from March 31, 1996. This change was as a result of the following significant
activities. During the first quarter, the Company sold its investment in
Biovail Corporation International for $102,301,000 (net of commissions and
expenses). The balance in accounts receivable declined by approximately
$101,700,000 from the balance at March due principally to collections of trade
accounts which were previously granted extended dating terms. The collections
resulted in an improvement in the accounts receivable days outstanding from 208
days at March 31, 1996 to 155 days at September 30, 1996. The cash generated
from the above activities was used for the share repurchase program.
At September 30, 1996, the Company had repurchased a total of 2,820,200 of the
4,500,000 shares authorized to date at a cost of $109,748,000. Inventories
increased $35,252,000 in connection with the Company's recent launch of
Tiazac-R-, higher inventory levels of the generic product lines,
as a result of reduced sales caused by increased generic competition for
those products, and above average levels of Aerobid-R-, resulting from reduced
sales because of higher trade inventories from prior period sales. Income taxes
payable decreased as a result of annualized tax prepayments which were higher
than the current period's tax liability. Management believes that current cash
levels, coupled with funds to be generated by on-going operations, will
continue to provide adequate liquidity to facilitate potential acquisitions of
products, capital investments and the share repurchase.
RESULTS OF OPERATIONS Net sales for the three months ended September 30, 1996
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decreased $19,503,000 as compared to the three months ended September 30, 1995.
$14,750,000 of the decrease was attributed to volume and $4,753,000 of the
decrease was due to price declines. The principal volume declines, amounting to
$27,537,000, resulted from lower sales of Lorcet-R- (due to generic
competition), the Company's generic products (due to heightened competition)
and Aerobid (due to higher than normal inventory levels at wholesalers following
prior period trade promotions, even though prescriptions were ahead by 13%).
These were somewhat offset due to $12,148,000 of increased volumes of
Cervidil-TM- (launched May 1995) and Tiazac (launched February 1996), which
continue to show growth. Other non-promoted products accounted for the
remaining volume increase of $639,000. Price decreases resulted principally
from lower prices for the Company's generic products, and from lower prices for
Aerobid as a result of a higher amount of sales to managed care customers and
trade discounts. The Company anticipates that high trade inventories will
continue to impact Aerobid sales, that generic substitution rates for Lorcet
will continue to grow and that there will be further declines in the generic
business as a result of continued competition.
Net sales for the six months ended September 30, 1996 decreased $36,130,000 as
compared to the same period of 1995. $27,230,000 of the decrease was attributed
to volume and $8,900,000 was the result of price declines. As with the three
month period, the principal volume declines, amounting to $43,794,000, resulted
from lower sales of Lorcet, the Company's generic product lines and Aerobid.
Continued growth of Cervidil and Tiazac, launched during fiscal 1996,
contributed to volume increases of $20,299,000. Other non-promoted products
accounted for the remaining volume decrease of $3,735,000. Price decreases
resulted from aggressive competition for the Company's generic products, as
well as higher sales to managed care customers and trade discounts.
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FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd.)
Cost of sales as a percentage of sales increased to 25% during the current
quarter and 24% for the six month period as compared to 20% in both similar
fiscal periods of 1996 due to lower prices received on certain products.
The increase in selling, general and administrative expenses for the current
quarter and six month periods as compared with the same periods last year is
mainly the result of expanding the salesforce by 200 representatives and for
costs incurred in conjunction with the launch of Tiazac.
Research and development expenses decreased $793,000 and $2,086,000,
respectively, during the three and six month periods ending September 30, 1996
over the same periods last year, primarily due to the conclusion of Phase III
clinical trials on Synapton-TM-, the Company's acetylcholinesterase inhibitor
for use in the treatment of Alzheimer's Disease.
Income taxes as a percentage of income before taxes was 31% for the current
quarter and six month period versus 36% in the similar periods last year due
principally to a decrease in the proportion of the Company's operating profit
derived from fully taxable operations as compared to tax exempt operations, tax
free interest income and tax credits.
Inflation has not had a material effect on the Company's operations for the
period presented.
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Part II - Other Information
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Item 1. Legal Proceedings
Reference is made to the Company's Annual Report on Form 10-K for
the year ended March 31, 1996, for a description of certain legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The registrant held its annual meeting of stockholders on
August 12, 1996.
(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 the ratification
of BDO Seidman to serve as the registrant's independent certified
public accountants for the fiscal year ending March 31, 1997.
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 35,396,550 593,725
William J. Candee III 35,397,627 592,648
Dan L. Goldwasser 35,424,940 565,335
George S. Cohan 35,405,744 584,531
Joseph M. Schor 35,404,627 585,648
Ratification of
Independent Public
Accountants: 35,840,387 87,684 62,204
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 has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1996
Forest Laboratories, Inc.
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(Registrant)
/s/ Howard Solomon
--------------------------
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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