-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QOR2O//42tN1jGpHQLQSVHiOoS+bO0d+tgYVq4vEsRxDvH/RPd64lvtHNhW2P25Y OZP+KZvykjwRhiWIeC0qWQ== 0000038074-01-000004.txt : 20010223 0000038074-01-000004.hdr.sgml : 20010223 ACCESSION NUMBER: 0000038074-01-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREST LABORATORIES INC CENTRAL INDEX KEY: 0000038074 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 111798614 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05438 FILM NUMBER: 1541532 BUSINESS ADDRESS: STREET 1: 909 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124217850 MAIL ADDRESS: STREET 1: 909 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 0001.txt 10-Q DECEMBER 31, 2000 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. -2- 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. -3- 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. -5- 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 - -6- 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. -7- 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 -14- -----END PRIVACY-ENHANCED MESSAGE-----