UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-------------------------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OR THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to______
Commission file number 1-9114
MYLAN LABORATORIES INC.
(Exact Name of registrant as specified in its charter)
Pennsylvania 25-1211621
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 Seventh Street
1030 Century Building
Pittsburgh, Pennsylvania 15222
(Address of principal executive offices) (Zip Code)
412-232-0100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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 twelve 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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date
Outstanding at
Class of Common Stock November 3, 1995
--------------------- -----------------
$.50 par value 120,063,314
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MYLAN LABORATORIES INC. AND SUBSIDIARIES
----------------------------------------
INDEX
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Page
Number
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PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets - September 30, 1995
and March 31, 1995 2A and 2B
Consolidated Statements of Earnings - Three and
Six Months Ended September 30, 1995 and 1994 3
Consolidated Statements of Cash Flows - Six
Months Ended September 30, 1995 and 1994 4
Notes to Consolidated Financial Statements -
Six Months Ended September 30, 1995 5 and 6
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 and 8
PART II. OTHER INFORMATION 9
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, March 31
1995 1995
Unaudited Audited
------------- -----------
Current Assets
Cash and cash equivalents $151,823,000 $127,280,000
Marketable securities 28,263,000 52,575,000
Accounts receivable 69,064,000 58,343,000
Inventories:
Raw materials 29,132,000 29,795,000
Work in process 16,281,000 17,539,000
Finished goods 29,764,000 30,871,000
----------- -----------
75,177,000 78,205,000
Deferred income tax benefit 7,733,000 10,545,000
Other current assets 6,376,000 4,435,000
----------- -----------
Total Current Assets 338,436,000 331,383,000
Property, Plant and Equipment - at cost
Less accumulated depreciation 149,616,000 132,599,000
43,703,000 40,300,000
----------- -----------
105,913,000 92,299,000
Deferred Income Tax Benefit, non-current 1,032,000 1,043,000
Marketable Securities, non-current 22,253,000 21,958,000
Investment in and Advances to Somerset 23,557,000 22,055,000
Intangible Assets net of accumulated amortization 26,238,000 28,518,000
Other Assets 68,988,000 48,945,000
------------ ------------
Total Assets $586,417,000 $546,201,000
============ ============
See Notes to Consolidated Financial Statements
-2A-
LIABILITIES AND SHAREH0LDERS' EQUITY
------------------------------------
September 30, March 31,
1995 1995
Unaudited Audited
--------- -------
Current Liabilities
Trade accounts payable $ 11,093,000 $ 10,466,000
Income taxes payable 6,315,000 24,019,000
Other current liabilities 17,498,000 17,890,000
Cash dividend payable 4,776,000 3,976,000
----------- ------------
Total Current Liabilities 39,682,000 56,351,000
Long-Term Obligations 8,581,000 7,122,000
Shareholders' Equity:
Preferred stock, par value $.50 per
share, authorized 5,000,000 shares,
issued and outstanding - none - -
Common stock, par value $.50 per share,
authorized 300,000,000 shares, issued
119,360,123 shares at September 30,
1995 and 79,972,248 shares at
March 31, 1995 60,027,000 39,986,000
Additional paid in capital 38,231,000 57,577,000
Retained earnings 440,105,000 386,212,000
Unrealized gain on investment 2,145,000 1,374,000
----------- -----------
540,508,000 485,149,000
Less Treasury stock - at cost, 694,784
shares at September 30, 1995 and
476,523 shares at March 31, 1995 2,354,000 2,421,000
----------- -----------
Net Worth 538,154,000 482,728,000
----------- -----------
Total Liabilities and Shareholders' Equity $586,417,000 $546,201,000
============ ============
See Notes to Consolidated Financial Statements
-2B-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
---------
Three Months Ended September 30, Six Months Ended September 30,
-------------------------------- -----------------------------
1995 1994 1995 1994
---- ---- ---- ----
NET SALES $ 97,715,000 $ 96,013,000 $ 206,907,000 $ 181,159,000
COST AND EXPENSES:
Cost of Sales 44,859,000 40,222,000 95,487,000 73,218,000
Research and Development 9,438,000 6,863,000 17,612,000 13,207,000
Selling and Administrative 13,660,000 14,929,000 27,663,000 29,341,000
----------- ----------- ----------- ------------
67,957,000 62,014,000 140,762,000 115,766,000
EQUITY IN EARNINGS OF SOMERSET 6,138,000 6,141,000 11,709,000 11,489,000
OTHER INCOME 4,760,000 1,580,000 8,723,000 2,519,000
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 40,656,000 41,720,000 86,577,000 79,401,000
INCOME TAX RATE 28% 31% 28% 30%
INCOME TAXES 11,180,000 13,062,000 23,934,000 23,613,000
NET EARNINGS $ 29,476,000 $ 28,658,000 $ 62,643,000 $ 55,788,000
============ ============ ============= =============
EARNINGS PER SHARE $ .25 $ .24 $ .53 $ .47
============ ============ ============= =============
WEIGHTED AVERAGE COMMON SHARES 119,319,000 118,908,000 119,294,000 118,867,000
============ ============ ============= =============
The above Financial Statements give retroactive effect to the three-for-two stock split effective
August 15, 1995 (See Note C).
The Company paid regular quarterly cash dividends of $.027 per share from October 1993 to
July 1994 and $.033 per share from October 1994 to July 1995. On October 13, 1995, the
Company paid a regular quarterly cash dividend of $.04 per share. In addition, the Company
paid a special one-time dividend of $.067 per share on January 13, 1995.
See Notes to Consolidated Financial Statements
-3-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
UNAUDITED
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ 62,643,000 $ 55,788,000
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization 5,727,000 6,002,000
Deferred income taxes 2,494,000 608,000
Equity in the earnings of Somerset (11,709,000) (11,489,000)
Cash received from Somerset 10,207,000 10,221,000
Other non-cash items (3,511,000) 14,117,000
Changes in operating assets and liabilities:
Accounts receivable (6,523,000) (12,002,000)
Inventories 3,155,000 (13,885,000)
Trade accounts payable 627,000 4,255,000
Income taxes (17,704,000) 10,171,000
Other operating assets and liabilities (2,333,000) 6,866,000
------------ ------------
Net cash provided from operating activities 43,073,000 70,652,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (17,017,000) (7,765,000)
Increase in intangible and other assets (19,360,000 (9,245,000)
Proceeds from investment securities 35,848,000 12,953,000
Purchase of investment securities (10,731,000) (7,935,000)
------------ ------------
Net cash used in investing activities (11,260,000) (11,992,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend paid (7,950,000) (6,339,000)
Payments on long-term obligations (15,000) (16,000)
Proceeds from exercise of stock options 695,000 709,000
----------- -----------
Net cash used in financing activities (7,270,000) (5,646,000)
----------- -----------
Net Increase in Cash and Cash Equivalents 24,543,000 53,014,000
Cash and Cash Equivalents - Beginning of Period 127,280,000 75,526,000
------------ ------------
Cash and Cash Equivalents - End of Period $151,823,000 $128,540,000
============ ============
CASH PAID DURING THE PERIOD FOR:
Interest $ 12,000 $ 13,000
Income Taxes $ 39,226,000 $ 12,835,000
See Notes to Consolidated Financial Statements
-4-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED
SEPTEMBER 30, 1995
Unaudited
---------
A. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial
position of the Company as of September 30, 1995 and March 31,
1995 together with the results of operations and cash flows for
the interim periods ended September 30, 1995 and 1994. The
consolidated results of operations for the three and six months
ended September 30, 1995 and 1994 are not necessarily indicative
of the results to be expected for the full year. Certain prior
year amounts have been reclassified to conform to the current year
presentation.
B. These interim financial statements should be read in conjunction
with the consolidated financial statements and notes thereto in
the Company's 1995 Annual Report and Report on Form 10-K.
C. On June 28, 1995 the Company announced a three-for-two stock split
of the Company's common stock effective August 15, 1995 for
shareholders of record at the close of business on July 31, 1995.
The par value of the new shares issued totaled $20,004,000 and has
been transferred from additional paid in capital to the common
stock account. The weighted average shares outstanding and the
earnings and dividends per share reflected in these financial
statements give effect to the stock split.
D. On September 29, 1995 the Company entered into a settlement
agreement with Hoechst Marion Roussel Inc. (HMR) (formerly known
as Marion Merrell Dow Inc.) and Tanabe Seiyaku Co. LTD (Tanabe) as
discussed in Item 3 of the Report on Form 10-K for the year ended
March 31, 1995. The agreement releases all parties from any
further actions and suits as it relates to the manufacture of
diltiazem. In consideration for such settlement HMR and Tanabe
agreed to reimburse all of Mylan's defense costs incurred to date.
The amount payable to Mylan is recorded as Other Income in the
current quarter.
E. On September 12, 1995 the Company enhanced its strategic alliance
with VivoRx, Inc. (VivoRx), a California biotechnology company.
VivoRx has developed a diabetes control technology, which is in
FDA Phase I/II clinical trials.
The Company has been funding VivoRx's research for encapsulated
pancreatic islet cell transplants based on the attainment of
milestones contained in equity and licensing agreements. The
licensing agreement grants the Company exclusive rights to market
and sell this product in North America. Following significant
product development accomplishments, the Company expanded its
commitment by investing $15,000,000 in convertible preferred stock
of VivoRx. The Company's investment is recorded at cost in Other
Assets.
-5-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED
SEPTEMBER 30, 1995
Unaudited
---------
F. On October 11, 1995 the Company entered into a definitive
agreement to acquire UDL Laboratories, Inc. (UDL). UDL is the
premier supplier of unit dose generic pharmaceuticals to the
institutional and long term care markets. UDL has its corporate
headquarters in Rockford, Illinois and maintains manufacturing,
research and development and distribution facilities in Rockford,
Illinois as well as Largo, Florida.
The transaction, which is expected to be completed by early 1996,
will be accounted for under the purchase method of accounting.
Payment of approximately $47,500,000 will be made through the
issuance of newly registered common stock of the Company.
G. Equity in Earnings of Somerset includes the Company's 50% portion
of the net earnings of Somerset Pharmaceuticals Inc. (Somerset),
certain management fees and amortization of intangible assets
resulting from the acquisition of Somerset. Such intangible
assets are being amortized over a 15 year period using the
straight line method.
Condensed unaudited financial information of Somerset for the
three and six month periods ended September 30, 1995 and 1994 are
as follows: (in thousands)
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Net Sales $27,181 $31,474 $50,178 $56,495
Costs and Expense (11,300) (15,897) (20,153) (28,137)
Income Taxes (5,191) (4,864) (9,628) (8,556)
Net Earnings $10,690 $10,713 $20,297 $19,802
The above information represents 100% of Somerset's operations of
which the Company has a 50% interest.
Under the Orphan Drug Act, Somerset has exclusivity relating to
marketing the chemical compound Eldepryl for use as a treatment
for late stage Parkinson's disease through June of 1996.
-6-
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Results of Operations
- ---------------------
Net sales for the three and six months ended September 30, 1995
were $97,715,000 and $206,907,000 representing increases over the
prior year comparable periods of 2% and 14% respectively. Volume
increases in all areas of the Company's business along with the
addition of acebutolol to the generic product line continue to offset
the normal pricing pressures on generic products introduced during
fiscal 1995.
Gross margin as a percent of net sales decreased from 58% and 60%
for the three and six months ended September 30, 1994 to 54% for the
three and six months ended September 30, 1995. The higher rates for
the prior periods was due to the launch of three significant
products, cimetidine, glipizide and flurbiprofen. Due to the
competitive nature of the generic pharmaceutical industry the sales
and gross margin recognized for the three and six months ended
September 30, 1995 are not necessarily indicative of the results to
be expected in future quarters.
Research and development expenditures for the three and six month
periods ended September 30, 1995 increased 38% to $9,438,000 and 33%
to $17,612,000 over the prior year comparable periods. These
increases are indicative of the Company's commitment to product
development throughout the Company.
Selling and administrative expenses were 14% and 13% of net sales
for the three and six months ended September 30, 1995 as compared to
16% for the three and six months ended September 30, 1994.
Equity in earnings of Somerset continues to provide a solid return
for the Company. Somerset's contribution to net earnings per share
for the three and six month periods was $.05 and $.09 in both 1995
and 1994.
-7-
Liquidity and Capital Resources and Financial Condition
-------------------------------------------------------
Working capital increased from $275,032,000 at March 31, 1995 to
$298,754,000 at September 30, 1995 as a result of continued strong
operations. The ratio of current assets to current liabilities was
8.5 to 1 at September 30, 1995 and 5.9 to 1 at March 31, 1995.
Net cash provided from operating activities was $43,073,000 for
the six months ended September 30, 1995 compared to $70,652,000 for
the same period last year. The change is primarily related to the
timing of income tax payments. The Company paid $39,226,000 for
income taxes in the six months ended September 30, 1995 compared to
$12,835,000 for the same period a year ago.
Additions to property, plant and equipment amounted to $17,017,000
for the six months ended September 30, 1995. Capital expenditures
are principally related to the replacement of older properties with
more updated equipment and facility expansion including ongoing
construction of a 150,000 square foot research facility in
Morgantown, West Virginia. Additionally the Company has acquired
land adjacent to its existing manufacturing facility in Morgantown
with the intent of expanding that facility to meet the continued
increase in demand for the Company's product.
The increase in intangible and other assets is due principally to
the investment in VivoRx as described in Note E to the financial
statements.
-8-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 required by Item 601(c) of Regulation S-X filed
herewith.
(b) Reports on Form 8-K - On September 22, 1995 the Company filed
a report on Form 8-K dated September 12, 1995 covering Item 5
thereof regarding the announcement of a strategic alliance
with VivoRx, Inc.
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.
Mylan Laboratories Inc.
(Registrant)
DATE 11/14/95 /s/ Milan Puskar
------------------- ---------------------------------------
Milan Puskar
Chairman of the Board, Chief Executive
Officer and President
DATE 11/14/95 /s/ Frank A DeGeorge
-------------------- -------------------------------------
Frank A. DeGeorge
Director of Corporate Finance
-9-
5
3-MOS
MAR-31-1996
SEP-30-1995
151,823,000
28,263,000
79,643,000
10,579,000
75,177,000
338,436,000
149,616,000
43,703,000
586,417,000
39,682,000
0
60,027,000
0
0
478,336,000
586,417,000
206,907,000
206,907,000
95,487,000
95,487,000
45,275,000
0
12,000
86,577,000
23,934,000
62,643,000
0
0
0
62,643,000
.53
.53
