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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 July 25, 1996
$.50 par value 121,890,874
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MYLAN LABORATORIES INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets - June 30, 1996
and March 31, 1996 2A and 2B
Consolidated Statements of Earnings - Three
Months Ended June 30, 1996 and 1995 3
Consolidated Statements of Cash Flows - Three
Months Ended June 30, 1996 and 1995 4
Notes to Consolidated Financial Statements -
Three Months Ended June 30, 1996 5, 6 and 7
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 and 9
PART II. OTHER INFORMATION 10
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, March 31,
1996 1996
Unaudited Audited
------------ -----------
Current Assets
Cash and cash equivalents $186,710,000 $176,980,000
Marketable securities 10,633,000 12,460,000
Accounts receivable - net 64,464,000 71,997,000
Inventories:
Raw materials 44,641,000 42,983,000
Work in process 18,682,000 19,804,000
Finished goods 39,454,000 37,829,000
----------- -----------
102,777,000 100,616,000
Deferred income tax benefit 14,166,000 11,560,000
Other current assets 5,771,000 5,715,000
----------- -----------
Total Current Assets 384,521,000 379,328,000
Property, Plant and Equipment - at cost 181,959,000 173,445,000
Less accumulated depreciation 54,467,000 51,652,000
----------- -----------
127,492,000 121,793,000
Marketable Securities, non-current 22,236,000 20,803,000
Investment in and Advances to Somerset 28,744,000 26,337,000
Intangible Assets-net of accumulated amortization 73,291,000 74,601,000
Other Assets 75,457,000 69,147,000
------------ ------------
Total Assets $711,741,000 $692,009,000
============ ============
See Notes to Consolidated Financial Statements
-2A-
LIABILITIES AND SHAREH0LDERS' EQUITY
June 30, March 31,
1996 1996
Unaudited Audited
---------- ----------
Current Liabilities
Trade accounts payable $ 11,382,000 $ 14,039,000
Current portion of long-term debt 1,400,000 1,400,000
Income taxes payable 18,174,000 10,096,000
Other current liabilities 23,531,000 18,185,000
Cash dividend payable 4,883,000 4,875,000
---------- ----------
Total Current Liabilities 59,370,000 48,595,000
Long-Term Obligations 18,411,000 18,002,000
Deferred Income Tax Liability 8,412,000 8,971,000
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
122,579,199 shares at June 30, 1996
and 122,524,789 shares at
March 31, 1996 61,289,000 61,262,000
Additional paid-in capital 86,553,000 85,996,000
Retained earnings 479,272,000 470,136,000
Unrealized gain on investments 962,000 1,575,000
----------- -----------
628,076,000 618,969,000
Less Treasury stock - at cost, 694,950
shares at June 30, 1996 and
March 31, 1996 2,528,000 2,528,000
----------- -----------
Net Worth 625,548,000 616,441,000
----------- -----------
Total Liabilities and Shareholders' Equity $711,741,000 $692,009,000
============ ============
See Notes to Consolidated Financial Statements
-2B-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
------------ ------------
NET SALES $ 98,543,000 $109,192,000
COST AND EXPENSES:
Cost of Sales 55,779,000 50,628,000
Research and Development 10,531,000 8,174,000
Selling and Administrative 21,251,000 14,003,000
---------- ----------
87,561,000 72,805,000
EQUITY IN EARNINGS OF SOMERSET 5,043,000 5,571,000
OTHER INCOME 3,992,000 3,963,000
---------- ----------
EARNINGS BEFORE INCOME TAXES 20,017,000 45,921,000
INCOME TAX RATE 30% 28%
INCOME TAXES 6,006,000 12,754,000
------------ ------------
NET EARNINGS $ 14,011,000 $ 33,167,000
============ ============
EARNINGS PER SHARE $ .12 $ .28
============ ============
WEIGHTED AVERAGE COMMON SHARES 121,868,000 119,265,000
============ ============
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 $.03 per share from
October 1994 to July 1995 and $.04 per share since October 1995.
See Notes to Consolidated Financial Statements
-3-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ 14,011,000 $ 33,167,000
Adjustments to reconcile net earnings to net
cash from operating activities:
Depreciation and amortization 4,215,000 3,455,000
Deferred income taxes (2,836,000) 868,000
Equity in the earnings of Somerset (5,043,000) (5,571,000)
Cash received from Somerset 2,636,000 5,133,000
Allowances on accounts receivable (14,000) (1,392,000)
Other non-cash items (565,000) (200,000)
Changes in operating assets and liabilities:
Accounts receivable 7,547,000 (5,985,000)
Inventories (2,236,000) 1,745,000
Trade accounts payable (2,657,000) (6,379,000)
Income taxes payable 8,078,000 1,926,000
Other operating assets and liabilities 5,291,000 (460,000)
---------- -----------
Net cash provided from operating activities 28,427,000 26,307,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (8,514,000) (5,172,000)
Increase in intangible and other assets (5,345,000) (1,408,000)
Proceeds from investment securities 5,909,000 5,041,000
Purchase of investment securities (6,457,000) (6,613,000)
------------- ------------
Net cash used in investing activities (14,407,000) (8,152,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend paid (4,867,000) (3,974,000)
Payments on long-term obligations (7,000) (7,000)
Proceeds from exercise of stock options 584,000 338,000
------------ -----------
Net cash used in financing activities (4,290,000) (3,643,000)
------------ -----------
Net Increase in Cash and Cash Equivalents 9,730,000 14,512,000
Cash and Cash Equivalents - Beginning of Period 176,980,000 127,280,000
------------ ------------
Cash and Cash Equivalents - End of Period $186,710,000 $141,792,000
============== =============
CASH PAID DURING THE PERIOD FOR:
Interest $ 5,000 $ 6,000
Income Taxes $ 761,000 $ 9,959,000
See Nots to Consolidated Financial Statements
-4-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED
JUNE 30, 1996
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 June 30, 1996 and March 31, 1996 together with the results
of operations and cash flows for the interim periods ended June 30, 1996
and 1995. The consolidated results of operations for the three months
ended June 30, 1996 and 1995 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 1996
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 February 28, 1996 the Company acquired 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, was accounted for under the purchase method of
accounting. Payment of approximately $47,500,000 was made through the
issuance of newly registered common stock of the Company.
E. On June 14, 1996, the Company executed a series of agreements with
American Home Products Corporation ("AHP"), relating to the products
Maxzide(R) and Maxzide-25MG(R).In general these agreements will terminate
the existing license agreements between the Company and AHP which had
previously marketed the products through its Lederle Laboratories Division
("Lederle").The Company will record this transaction and commence
marketing Maxzide(R) and Maxzide-25MG(R)upon receipt of antitrust
clearance.
-5-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED
JUNE 30, 1996
Unaudited
E. (con't) Under the terms of the agreement, the Company shall pay to AHP
specified amounts over a five year period commencing at the effective
date. In addition, the Company shall pay to AHP a royalty predicated on
sales for use of certain trademarks during a five year period with
specified minimum annual royalty payments. At the end of such period all
royalty obligations will cease and ownership of the trademarks will be
transferred to the Company.
The companies have agreed that AHP will retain marketing rights in certain
foreign countries under a modified International Supply Agreement.
Additionally, the companies have agreed that for a three year period the
Company shall pay AHP certain amounts predicated on the gross profit
realized by the Company on its sales of a generic Dyazide(R) product to
unrelated parties. The terminated agreements prevented the Company from
marketing such products without first attempting to negotiate a supply
agreement with Lederle. In connection with these agreements, the Company
and AHP agreed to terminate certain litigation.
F. During 1996 Bertek was involved in an arbitration matter unrelated to the
pharmaceutical business. On May 2, 1996 the arbitration panel issued a
decision against Bertek for approximately $4,000,000. The Company has
appealed the arbitration ruling. Additionally, the Company was a
defendant in a suit filed by Upsher-Smith Laboratories alleging breach of
contract related to the sale and distribution of one of the Company's
generic pharmaceutical products. The suit claimed damages in excess of
$13,000,000. The Company entered into a settlement agreement with
Upsher-Smith Laboratories on July 10, 1996 for payment of an agreed upon
amount.
As of June 30, 1996 the Company has accrued all amounts to be paid in the
latter case and amounts which the Company believes to be sufficient to
cover any payments which may result from the ultimate resolution of the
Bertek arbitration matter. The amounts accrued for these litigation
matters were included in selling and administrative expenses for the
quarter ended June 30, 1996.
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.
-6-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED
JUNE 30, 1996
Unaudited
G. (con't) Condensed unaudited financial information of Somerset for the
three month periods ended June 30, 1996 and 1995 are as follows: (in
thousands)
June 30, June 30,
1996 1995
---------- -----------
Net Sales $ 30,143 $ 22,997
Costs and Expenses (16,295) (8,853)
Income Taxes (4,807) (4,437)
---------- -----------
Net Earnings $ 9,041 $ 9,707
========== ===========
The above information represents 100% of Somerset's operations of which
the Company has a 50% interest.
Somerset's marketing exclusivity for Eldepryl under the Orphan Drug Act
expired on June 6, 1996. In late May 1996 Somerset received FDA approval
to market an easy-to-identify capsule which was launched immediately by
Somerset. This launch was responsible for the higher than normal sales
and along with increased research and development expenses caused the
increase in Costs and Expenses over last year's first quarter.
-7-
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net earnings per share were $.12 for the quarter ended June 30, 1996
compared to the record high $.28 for the same quarter a year ago and $.15 for
the quarter ended March 31, 1996. Net sales of $98,543,000 and gross profit
of $42,764,000 representing 43% of net sales for the current quarter are down
from last year's $109,192,000 net sales and $58,564,000 gross profit which
represented 54% of net sales. Severe price competition in the generic drug
industry and the lack of significant new product approvals for the Company
over the last 15 months is the primary cause of the decreases from last
year's first quarter to the current quarter. The modest increase in sales
and gross profits over the quarter ended March 31, 1996 is due to the
addition of UDL in March of 1996 and changes in product mix including the
addition of three new products, two of which were launched in late March 1996
and one which was added during the quarter ended June 30, 1996.
Research and development expense of $10,531,000 for the current quarter
represents a 29% increase over the prior year first quarter. The current
quarter amount is consistent with expenditures in the third and fourth
quarter of fiscal 1996 and is indicative of the Company's increased and
aggressive research programs aimed at both generic products and innovative
compounds. The Company expects future expenses for research and development
to be at or higher than the current quarter level.
Selling and administrative expenses were $21,251,000 for the quarter ended
June 30, 1996 compared to $14,003,000 for the same quarter a year ago. The
Company initiated cost containment efforts throughout fiscal 1996 which
resulted in quarterly expenses of roughly $14 million in each of the four
quarters of fiscal 1996. The current quarter includes expenses from UDL,
including amortization of intangible assets acquired which will be recurring,
and non-recurring expenses resulting from the settlement of and provisions
for certain legal matters as discussed in footnote R in the Company's
financial statements for the year ended March 31, 1996. The Company expects
that future selling and administrative expenses will be less than the current
quarter but higher than previous quarters as a result of the UDL and Maxzide
acquisitions.
Somerset's contribution to the Company's earnings per share remained at
$.04 despite the increase in sales of Eldepryl by Somerset. This is
primarily due to costs associated with the change from tablets to capsules
during the current quarter and also to continued increases in research and
development expenses by Somerset. The switch from tablets to capsules has
had the effect of extending, at least temporarily, Somerset's exclusivity on
the compound for use in the treatment of late stage Parkinson's disease,
which enables Somerset to continue its aggressive research efforts without
diluting its contribution to the Company's earnings per share.
The effective tax rate of 30% for the first quarter represents the
Company's expected rate for fiscal 1997 which is up from last year's
effective tax rate of 28%. The increase is due to changes in tax credits and
expected changes in the mix of domestic versus Puerto Rican source income.
-8-
Liquidity and Capital Resources and Financial Condition
Working capital decreased from $330,733,000 at March 31, 1996 to
$325,151,000 at June 30, 1996. The ratio of current assets to current
liabilities was 7.8 to 1 at March 31, 1996 and 6.5 to 1 at June 30, 1996.
The decrease in the current ratio is primarily attributable to increases in
income taxes payable and other current liabilities.
Net cash provided from operating activities was $28,427,000 for the three
months ended June 30, 1996 compared to $26,307,000 for the same period last
year. The decrease in net earnings was offset by the timing of tax payments
and the collection of accounts receivable.
Additions to property, plant and equipment amounted to $8,514,000 for the
three months ended June 30, 1996 compared to $5,172,000 for the same period a
year ago. Current quarter capital expenditures are principally related to
ongoing construction projects relating to a research and development facility
and a sustained release production facility, both in Morgantown, West
Virginia.
-9-
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 - There were no reports on Form 8-K during the
three months ended June 30, 1996.
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 8/1/96 /s/ Milan Puskar
------------------------
Milan Puskar
Chairman of the Board, Chief
Executive Officer and President
DATE 8/1/96 /s/ Frank A. DeGorge
-------------------------
Frank A. DeGeorge
Director of Corporate Finance
-10-
5
3-MOS
MAR-31-1997
JUN-30-1996
186,710,000
10,633,000
77,009,000
12,545,000
102,777,000
384,521,000
181,959,000
54,467,000
711,741,000
59,370,000
0
0
0
61,289,000
564,259,000
711,741,000
98,543,000
98,543,000
55,779,000
55,779,000
31,782,000
0
5,000
20,017,000
6,006,000
14,011,000
0
0
0
14,011,000
.12
.12
