-----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, BabhQqN6CK0F6zv/cwfcELkcuEHklwcvqhlyaWlhMZQ98pltttqh+0YKY/72hN8L QqpmOVfNSDJ0bUSvYvob5g== 0000038074-97-000001.txt : 19970222 0000038074-97-000001.hdr.sgml : 19970222 ACCESSION NUMBER: 0000038074-97-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: AMEX 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: 1934 Act SEC FILE NUMBER: 001-05438 FILM NUMBER: 97534433 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 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 December 31, 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. - ------------------------------------------------------------------------ (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, 1997: 41,179,745. Part I - Financial Information - ------------------------------ FOREST LABORATORIES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets December 31, 1996 (In thousands) (Unaudited) March 31, 1996 ----------------- -------------- ASSETS - ------ Current assets: Cash (including cash equivalent investments of $128,083 in December and $78,818 in March) $133,615 $ 83,543 Marketable securities 12,884 40,164 Accounts receivable, less allowance for possible losses of $9,021 in December and $5,309 in March 91,200 254,708 Inventories 93,932 58,949 Deferred income taxes 23,600 20,411 Other current assets 35,011 12,837 -------- -------- Total current assets 390,242 470,612 -------- -------- Marketable securities 4,238 22,170 -------- -------- Property, plant and equipment 115,710 106,164 Less: accumulated depreciation 31,679 26,807 -------- -------- 84,031 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 $7,335 in December and $6,866 in March 17,624 18,093 License agreements, product rights and other intangible assets, less accumulated amortization of $60,271 in December and $50,876 in March 207,790 216,078 Deferred income taxes 6,217 7,398 Other 9,862 9,751 -------- -------- Total other assets 241,493 327,222 -------- -------- TOTAL ASSETS $720,004 $899,361 ======== ======== See notes to condensed consolidated financial statements.
-2- FOREST LABORATORIES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets December 31, 1996 (In thousands, except for par values) (Unaudited) March 31, 1996 ----------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 22,366 $ 13,994 Accrued expenses 35,331 50,332 Income taxes payable 15,471 25,245 -------- -------- Total current liabilities 73,168 89,571 -------- -------- Deferred income taxes 300 273 -------- -------- 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 48,332 shares in December and 48,133 shares in March 4,833 4,813 Capital in excess of par 312,413 306,635 Retained earnings 537,131 542,005 Other 2,082 ( 2,985) -------- -------- 856,459 850,468 Less common stock in treasury, at cost (7,152 shares in December and 2,650 shares in March) 209,923 40,951 -------- -------- Total shareholders' equity 646,536 809,517 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $720,004 $899,361 ======== ======== See notes to condensed consolidated financial statements
-3- FOREST LABORATORIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except Three Months Ended Nine Months Ended per share amounts) December 31, December 31, -------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Net sales $40,604 $122,870 $221,102 $339,498 Non-recurring income, net (Note 2) 19,149 Other income 2,058 2,127 6,352 9,842 ------- -------- -------- -------- 42,662 124,997 246,603 349,340 ------- -------- -------- -------- Costs and expenses: Cost of sales 20,227 26,080 62,715 68,699 Selling, general and administrative 60,607 50,848 166,963 128,232 Research and development 11,689 9,329 27,115 26,841 ------- -------- -------- -------- 92,523 86,257 256,793 223,772 ------- -------- -------- -------- Income (loss) before income taxes ( 49,861) 38,740 ( 10,190) 125,568 Income taxes (benefit) ( 17,548) 13,869 ( 5,316) 44,953 ------- -------- -------- -------- Net income (loss) ($32,313) $ 24,871 ($ 4,874) $ 80,615 ======== ======== ======== ======== Earnings (loss) per common and common equivalent share: Primary ($.76) $.53 ($.11) $1.72 ==== ==== ==== ===== Weighted average number of common and common equivalent shares outstanding: Primary 42,750 46,855 44,412 46,880 ====== ====== ====== ====== Dividends per share $-0- $-0- $-0- $-0- ==== ==== ==== ==== See notes to condensed consolidated financial statements
-4- FOREST LABORATORIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended (In thousands) December 31, ----------------------- 1996 1995 -------- --------- Cash flows from operating activities: Net income (loss) ($ 4,874) $ 80,615 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 4,320 3,463 Amortization 9,864 8,167 Gain on sale of investment in unconsolidated affiliate ( 26,399) Deferred income tax expense (benefit) ( 1,981) 815 Foreign currency transaction loss 114 342 Net change in operating assets and liabilities: Decrease (increase) in: Accounts receivable, net 163,508 ( 47,812) Inventories ( 34,983) ( 13,636) Other current assets ( 22,174) ( 897) Increase (decrease) in: Accounts payable 8,372 5,993 Accrued expenses ( 15,001) 18,882 Income taxes payable ( 9,774) ( 1,604) Increase in other assets ( 111) ( 1,453) -------- -------- Net cash provided by operating activities 70,881 52,875 -------- -------- Cash flows from investing activities: Purchase of property, plant and equipment, net ( 7,355) ( 8,899) Proceeds from sale of investment in unconsolidated affiliate 102,301 Purchase of marketable securities Available-for-sale ( 27,785) ( 55,709) Redemption of marketable securities Available-for-sale 70,997 124,824 Held-to-maturity 2,000 Purchase of license agreements, product rights and intangible assets ( 1,000) ( 120,915) -------- -------- Net cash provided by (used in) investing activities 139,158 ( 60,699) -------- -------- - Continued -
-5- FOREST LABORATORIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) - Continued - Nine Months Ended (In thousands) December 31, ---------------------- 1996 1995 -------- -------- Cash flows from financing activities: Net proceeds from common stock options exercised by employees under stock option plans $ 4,255 $ 4,431 Purchase of treasury stock ( 168,729) Tax benefit realized from the exercise of stock options by employees 1,300 1,100 -------- -------- Net cash (used in) provided by financing activities ( 163,174) 5,531 -------- -------- Effect of exchange rate changes on cash 3,207 ( 1,146) -------- -------- Increase (decrease) in cash and cash equivalents 50,072 ( 3,439) Cash and cash equivalents, beginning of period 83,543 107,611 -------- -------- Cash and cash equivalents, end of period $133,615 $104,172 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes $33,388 $45,741 See notes to condensed consolidated financial statements.
-6- 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 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 nine month periods ended December 31, 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. -7- 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 $63,967,000 - --------------------------------- 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 $163,508,000 from the balance at March due primarily to collections of trade accounts which were previously granted extended dating terms, and an increase in the provision for doubtful accounts of which $3,528,000 represents a write down of the amount owed Forest from Foxmeyer Drug which is in bankruptcy proceedings. The collections resulted in an improvement in the accounts receivable days outstanding from 208 days at March 31, 1996 to 117 days at December 31, 1996. The cash generated from the above activities and maturities of marketable securities was used for the share repurchase program and for normal recurring operating expenses. At December 31, 1996, the Company had repurchased a total of 4,496,000 of the 6,500,000 shares authorized to date at a cost of $168,729,000. Inventories increased $34,983,000 in connection with the Company's recent launch of Tiazac-TM-, higher inventory levels of generic product lines as a result of reduced sales caused by increased competition for those products, and above average levels of Aerobid-R- resulting from reduced sales due to reduction of trade inventories as described below. Other current assets increased $22,174,000 as a result of reclassifying income tax prepayments which are now in excess of the current period's tax liability and the tax benefit from the current period's net operating loss. The decrease in income taxes payable is due to lower taxable income. 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 program. RESULTS OF OPERATIONS In December 1996, the Company announced that it had - --------------------- decided toeliminate trade incentives for all of its branded products in order to reduce high trade inventory levels, principally of Aerobid, Forest's inhaled steroid product used in treating asthma. The result of this policy change is that distributors are deferring purchases of products until such time as they have reduced their inventories to minimal levels, thereby resulting in lower sales despite the continuing growth in prescriptions for the Company's promoted branded products. Lower sales resulting from this policy change are principally responsible for the quarterly loss reported herein. Net sales for the three months ended December 31, 1996 decreased $82,266,000 as compared to the three months ended December 31, 1995. $71,147,000 of the decrease was attributed to volume and $11,119,000 of the decrease was due to price declines. The principal volume declines, amounting to $53,508,000, resulted from lower sales of Aerobid (as discussed above), Lorcet and the Company's generic products (due to heightened competition). Other non-promoted products accounted for the remaining net volume decrease of $17,639,000, also due primarily to the inventory reductions. 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. The Company anticipates that high trade inventories will continue to impact Aerobid sales during the next two quarters, 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. -8- FOREST LABORATORIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales for the nine months ended December 31, 1996 decreased $118,396,000 as compared to the same period of 1995. $98,418,000 of the decrease was attributed to volume and $19,978,000 was the result of price declines. As with the three month period, the principle volume declines, amounting to $93,780,000, resulted from lower sales of Aerobid, Lorcet, and the Company's generic products lines. Continued growth of Cervidil-TM- and Tiazac, launched during fiscal 1996, contributed to volume increases of $19,049,000. Other non-promoted products accounted for the remaining volume decrease of $23,687,000. Price decreases resulted from higher sales to managed care customers and trade discounts, as well as aggressive competition for the Company's generic products. Cost of sales as a percentage of sales increased to 50% during the current quarter and 28% for the nine month period as compared to 21% and 20% in comparable fiscal periods of 1996. The increase in cost of goods sold resulted from minimal sales of high margin branded products due to the trade inventory reductions, a higher percentage of low margin generic products, which were not affected by the trade inventory reductions, lower prices on generic products and underabsorbed overhead, resulting from lower production levels due the reduced sales volume. The increase in selling, general and administrative expenses for the current quarter and nine month periods as compared with the same periods last year is mainly the result of expanding the sales force by 200 representatives, for costs incurred in conjunction with the launch of Tiazac and for a write down of monies owed to Forest by Foxmeyer Drug to amounts anticipated to be recoverable. Research and development expenses increased $2,360,000 and $274,000, respectively, during the three and nine month periods ending December 31, 1996 over the same periods last year. The increase during the three month period was due primarily to the cost of conducting comparative clinical studies for Aerobid and Tiazac. The increase for the nine month period is lower than the three month period since the first six months of fiscal 1996 (prior fiscal year) included Phase III clinical trials on Synapton-TM-, the Company's acetylcholinesterase inhibitor for use in the treatment of Alzheimer's Disease which have concluded, and studies on AF102B, an alternative Alzheimer's treatment, which is no longer being developed. The income tax benefit of the current quarter reflects a year-to-date reversal of U.S. taxes on income and a credit for the net operating losses of the Company's U.S. operating companies which can be carried back to prior fiscal periods to yield tax refunds. The income tax benefit of the nine-month period reflects taxes on the income of the Company's United Kingdom operating companies, on the income of the Company's partially tax exempt operations and for state and local taxes (which are not solely payable on taxable income), offset by the net operating losses of the Company's U.S. operating companies, which can be carried back to prior fiscal periods to yield tax refunds. Inflation has not had a material effect on the Company's operations for the period presented. -9- Part II - Other Information - --------------------------- 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 6 Exhibits and Reports on Form 8-K. (b) Reports on Form 8-K. None. Exhibit 27. Financial Data Schedule. -10- 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, 1997 Forest Laboratories, Inc. ------------------------- (Registrant) /s/ Howard Solomon ------------------------- Howard Solomon President and Chief Executive Officer /s/ Kenneth E. Goodman -------------------------- Kenneth E. Goodman Vice President - Finance -11- EX-27 2
5 0000038074 JAMES A. BRAJA 9-MOS MAR-31-1997 DEC-31-1996 133,615 17,122 100,221 9,021 93,932 390,242 115,710 31,679 720,004 73,168 0 0 0 4,833 641,703 720,004 221,102 246,603 62,715 229,678 27,115 3,870 0 (10,190) (5,316) (4,874) 0 0 0 (4,874) (0.11) (0.11)
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