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 December 31, 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 January 28, 1997
$.50 par value 122,005,085
- -------------------------------------------------------------------------------
MYLAN LABORATORIES INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets - December 31, 1996
and March 31, 1996 2A and 2B
Consolidated Statements of Earnings - Three and
Nine Months Ended December 31, 1996 and 1995 3
Consolidated Statements of Cash Flows - Nine
Months Ended December 31, 1996 and 1995 4
Notes to Consolidated Financial Statements -
Nine Months Ended December 31, 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
December 31, March 31,
1996 1996
Unaudited Audited
Current Assets:
Cash and cash equivalents $154,723,000 $176,980,000
Marketable securities 12,069,000 12,460,000
Accounts receivable - net 97,081,000 71,997,000
Inventories:
Raw materials 40,028,000 42,983,000
Work in process 22,127,000 19,804,000
Finished goods 35,113,000 37,829,000
------------ ------------
97,268,000 100,616,000
Deferred income tax benefit 12,797,000 11,560,000
Other current assets 6,364,000 5,715,000
------------ ------------
Total Current Assets 380,302,000 379,328,000
Property, Plant and Equipment - at cost 193,539,000 173,445,000
Less accumulated depreciation 60,282,000 51,652,000
------------ ------------
133,257,000 121,793,000
Marketable Securities, non-current 25,137,000 20,803,000
Investment in and Advances to Somerset 25,299,000 26,337,000
Intangible Assets-net of accumulated amortization 139,278,000 74,601,000
Other Assets 77,191,000 69,147,000
------------ ------------
Total Assets $780,464,000 $692,009,000
============ ============
See Notes to Consolidated Financial Statements
-2A-
LIABILITIES AND SHAREH0LDERS' EQUITY
December 31, March 31,
1996 1996
Unaudited Audited
Current Liabilities:
Trade accounts payable $ 11,281,000 $ 14,039,000
Current portion of long-term obligations 21,430,000 1,400,000
Income taxes payable 10,457,000 10,096,000
Other current liabilities 25,959,000 18,185,000
Cash dividend payable 4,888,000 4,875,000
------------ ------------
Total Current Liabilities 74,015,000 48,595,000
Long-Term Obligations 49,042,000 18,002,000
Deferred Income Tax Liability 6,538,000 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 122,640,913 shares at December 31,
1996 and 122,524,789 shares at
March 31, 1996 61,321,000 61,262,000
Additional paid-in capital 87,400,000 85,996,000
Retained earnings 504,946,000 470,136,000
Net unrealized gain (loss) on investments (331,000) 1,575,000
------------ ------------
653,336,000 618,969,000
Less Treasury stock - at cost, 677,950
shares at December 31, 1996 and
694,950 shares at March 31, 1996 2,467,000 2,528,000
------------ ------------
Net Worth 650,869,000 616,441,000
------------ ------------
Total Liabilities and Shareholders' Equity $780,464,000 $692,009,000
============ ============
See Notes to Consolidated Financial Statements
-2B-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
Three Months Ended December 31, Nine Months Ended December 31,
------------------------------- ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
NET SALES $113,981,000 $91,319,000 $321,505,000 $298,226,000
COST AND EXPENSES:
Cost of Sales 66,729,000 47,620,000 186,344,000 143,107,000
Research and Development 10,775,000 10,948,000 31,561,000 28,560,000
Selling and Administrative 19,566,000 14,106,000 60,282,000 41,769,000
------------ ----------- ------------ ------------
97,070,000 72,674,000 278,187,000 213,436,000
EQUITY IN EARNINGS OF SOMERSET 4,462,000 7,905,000 14,507,000 19,614,000
OTHER INCOME 2,505,000 3,970,000 10,266,000 12,693,000
------------ ----------- ------------ ------------
EARNINGS BEFORE INCOME TAXES 23,878,000 30,520,000 68,091,000 117,097,000
INCOME TAX RATE 24% 28% 27% 28%
INCOME TAXES 5,797,000 8,596,000 18,651,000 32,530,000
------------ ----------- ------------ ------------
NET EARNINGS $ 18,081,000 $21,924,000 $ 49,440,000 $ 84,567,000
============ =========== ============ ============
EARNINGS PER SHARE $ .15 $ .18 $ .41 $ .71
============ =========== ============ ============
WEIGHTED AVERAGE COMMON SHARES 121,916,000 119,388,000 121,892,000 119,322,000
============ =========== ============ ============
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 NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
UNAUDITED
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ 49,440,000 84,567,000
Adjustments to reconcile net earnings to net
cash from operating activities:
Depreciation and amortization 13,896,000 9,968,000
Deferred income tax expense(benefit) (312,000) 408,000
Equity in the earnings of Somerset (14,508,000) 19,614,000)
Cash received from Somerset 15,546,000 15,387,000
Allowances on accounts receivable (805,000) (5,976,000)
Other non-cash items 949,000 665,000
Changes in operating assets and liabilities:
Accounts receivable (23,934,000) 3,042,000
Inventories 3,223,000 (5,333,000)
Trade accounts payable (2,758,000) 2,347,000
Income taxes payable (1,767,000) (12,965,000)
Other operating assets and liabilities 7,126,000 71,000
----------- -----------
Net cash provided from operating activities 46,096,000 72,567,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (20,094,000) (25,444,000)
Increase in intangible and other assets (29,257,000) (12,427,000)
Proceeds from investment securities 17,078,000 56,752,000
Purchase of investment securities (20,952,000) (15,386,000)
----------- -----------
Net cash provided from (used in) investing activities (53,225,000) 3,495,000
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend paid (14,617,000) (12,724,000)
Payments on long-term obligations (1,423,000) (21,000)
Proceeds from exercise of stock options 912,000 1,499,000
----------- -----------
Net cash used in financing activities (15,128,000) (11,246,000)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (22,257,000) 64,816,000
Cash and Cash Equivalents - Beginning of Period 176,980,000 127,280,000
------------ ------------
Cash and Cash Equivalents - End of Period $154,723,000 $192,096,000
============ ============
CASH PAID DURING THE PERIOD FOR:
Interest $ 433,000 $ 16,000
Income Taxes $ 20,728,000 $ 45,089,000
See Notes to Consolidated Financial Statements
-4-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED
DECEMBER 31, 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 December 31, 1996 and March 31, 1996 together with the
results of operations and cash flows for the interim periods ended
December 31, 1996 and 1995. The consolidated results of operations for
the three and nine months ended December 31, 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 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.
D. 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). These agreements were subject to
regulatory approval which was received on August 2, 1996. Since 1984 these
products, which were developed and manufactured by Mylan, were marketed by
AHP's Lederle Laboratories Division under a worldwide license arrangement.
Under the terms of the new agreements the Company is now marketing the
products in the United States. AHP retained marketing rights in a few
select foreign countries and will continue to purchase product from the
Company. AHP also retains ownership of certain trademarks and trade dress
which have been licensed to the Company for a period of five years. At the
end of the five year period ownership of these intangibles will be
transferred to the Company. In connection with the new agreements both
parties agreed to terminate all legal actions between the companies
relating to Maxzide(R) and Maxzide-25mg(R).
-5-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED
DECEMBER 31, 1996
Unaudited
D. (con't) As a result of the transaction the Company has recorded an
intangible asset of approximately $70 million representing the present
value of the minimum payments due to AHP and liabilities of approximately
$50 million representing such amount less the payment made by the Company
to AHP upon consummation of the transaction. The Company will recognize
expense of approximately $2.8 million annually through the amortization of
this intangible asset over the estimated useful life of the asset.
Additionally the Company will recognize interest expense on the
outstanding obligation to AHP. From consumation of the transaction
(August 2, 1996) through December 31, 1996 the Company recognized
$2,587,000 in amortization and interest expense.
In connection with the transaction, the Company also began selling a
generic version of Dyazide(R). The previous license arrangement with AHP
prevented the Company from marketing this product. Mylan has agreed to pay
to AHP certain amounts predicated upon the gross profits realized by the
Company resulting from the sales of this generic product for a period of
three years. Such payments, along with any trademark license royalties in
excess of the agreed upon minimums, are being expensed as incurred by the
Company.
E. 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
nine month periods ended December 31, 1996 and 1995 are as follows: (in
thousands)
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
Net Sales $19,685 $31,916 $76,052 $82,094
Costs and Expenses (7,378) (12,230) (35,406) (32,423)
Income Taxes (3,904) (5,700) (14,048) (15,288)
------- ------- ------- -------
Net Earnings $ 8,403 $13,986 $26,598 $34,383
======= ======= ======= =======
The above information represents 100% of Somerset's operations of which
the Company has a 50% interest.
-6-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED
DECEMBER 31, 1996
Unaudited
E. (con't) Somerset's marketing exclusivity for Eldepryl(R) 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 along with increased research and
development expenses was responsible for the increase in Costs andExpenses
over the prior year's nine month period.
In August 1996, the Food and Drug Administration ("FDA") approved three
companies to market a generic tablet form of Eldepryl(R). Somerset filed a
complaint against the FDA requesting injunctive and declaratory relief and
a review of agency action, and simultaneously requested a temporary
restraining order in connection with these approvals by the FDA. Somerset
maintains that such approval should not have been granted by the FDA
because the tablets were not approved in accordance with law. While the
Court denied Somerset's request for a temporary restraining order, the
evidentiary hearing on the preliminary injunction has been set for mid
February 1997, and a motion regarding discovery is pending.
F. On August 23, 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan ("the Plan"). A dividend distribution was made to
Shareholders of record on September 5, 1996 of one Preferred Share
Purchase Right ("the Right") on each outstanding share of the Company's
common stock. The Plan was adopted to provide the Company's Directors
with sufficient time to assess and evaluate any takeover bid, and explore
and develop a reasonable response. The Company is entitled to redeem the
Rights at $.001 per Right at any time prior to ten days after the time any
person acquires 15% or more of the Company's common stock. The Rights
will expire on September 5, 2006 unless previously redeemed or exercised.
-7-
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales were a record high $113,981,000 and $321,505,000 for the three
and nine months ended December 31, 1996 . This represents a 25% and 8% increase
over the prior year comparable periods. The increases are primarily attributable
to increased generic volume, the addition of UDL and the launch of the Company's
branded products Maxzide(R) and Nitrek(TM).
Gross margin as a percent of net sales decreased from 48% and 52% for the
three and nine months ended December 31, 1995 to 41% and 42% for the three and
nine months ended December 31, 1996. The decrease in rates from the prior
periods is due to the continued pricing pressures in the generic industry and
sales of UDL product which generally have a lower gross profit ratio.
Research and development expenditures for the three and nine month periods
ended December 31, 1996 were $10,775,000 and $31,561,000 compared to $10,948,000
and $28,560,000 for the three and nine month periods ended December 31, 1995.
These amounts are indicative of the Company's commitment to aggressive research
programs for both generic and innovative compounds.
Selling and administrative expenses were $19,566,000 and $60,282,000 for
the three and nine month periods ended December 31, 1996 compared to $14,106,000
and $41,769,000 for the three and nine month periods ended December 31, 1995.
The increases over the prior periods is due to recurring expenses associated
with the UDL and Maxzide(R) acquisitions along with non-recurring charges
relating to provisions for legal settlements, launch costs associated with
Maxzide(R) and the bankruptcy of a customer in the current year.
Somerset's contribution to the Company's earnings per share was $.03 and
$.11 for the three and nine month periods ended December 31, 1996 compared to
$.06 and $.15 for the three and nine month periods ended December 31, 1995. The
introduction of generic competition on Eldepryl(R) coupled with higher levels of
research and development expenditures has and will continue to adversely affect
Somerset's contribution to the Company's net earnings per share (see note E).
-8-
Liquidity and Capital Resources and Financial Condition
Working capital decreased from $330,733,000 at March 31, 1996 to
$306,287,000 at December 31, 1996. The ratio of current assets to current
liabilities was 7.8 to 1 at March 31, 1996 and 5.1 to 1 at December 31, 1996.
The change in the current ratio is primarily attributable to the Maxzide(R)
acquisition agreements (see note D) which resulted in an increase in the current
portion of long-term debt and a decrease in cash and cash equivalents.
Net cash provided from operating activities was $46,096,000 for the nine
months ended December 31, 1996 compared to $72,567,000 for the same period last
year. The change is primarily attributable to decreased earnings, the timing of
accounts receivable collections, and payment of income taxes.
Additions to property, plant and equipment amounted to $20,094,000 for the
nine months ended December 31, 1996. Capital expenditures are principally
related to the completion of a research and development facility and
construction of a sustained release facility, both in Morgantown, West Virginia.
The increases in intangible assets and long-term obligations are due
principally to the Maxzide(R) transaction as described in Note D.
-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 December 31, 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 1/30/97 /s/ Milan Puskar
----------------------------- --------------------------------------
Milan Puskar
Chairman of the Board, Chief
Executive Officer and President
DATE 1/30/97 /s/ Frank A. DeGeorge
----------------------------- --------------------------------------
Frank A. DeGeorge
Director of Corporate Finance
-10-
5
9-mos
MAR-31-1997
DEC-31-1997
154,723,000
12,069,000
108,835,000
11,754,000
97,268,000
380,302,000
193,539,000
60,282,000
780,464,000
74,015,000
0
0
0
61,321,000
589,548,000
780,464,000
321,505,000
321,505,000
186,344,000
186,344,000
91,843,000
0
433,000
68,091,000
18,651,000
49,440,000
0
0
0
49,440,000
.41
.41
