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, 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 February 12, 1996
--------------------- ------------------
$.50 par value 119,444,320
MYLAN LABORATORIES INC. AND SUBSIDIARIES
----------------------------------------
INDEX
----------
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets - December 31, 1995
and March 31, 1995 2A and 2B
Consolidated Statements of Earnings - Three and
Nine Months Ended December 31, 1995 and 1994 3
Consolidated Statements of Cash Flows - Nine
Months Ended December 31, 1995 and 1994 4
Notes to Consolidated Financial Statements -
Nine Months Ended December 31, 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
------
December 31, March 31,
1995 1995
Unaudited Audited
--------- --------
Current Assets
Cash and cash equivalents $192,096,000 $127,280,000
Marketable securities 14,501,000 52,575,000
Accounts receivable 61,277,000 58,343,000
Inventories:
Raw materials 33,364,000 29,795,000
Work in process 17,755,000 17,539,000
Finished goods 32,307,000 30,871,000
------------ ------------
83,426,000 78,205,000
Deferred income tax benefit 9,157,000 10,545,000
Other current assets 5,340,000 4,435,000
------------ ------------
Total Current Assets 365,797,000 331,383,000
Property, Plant and Equipment - at cost
Less accumulated depreciation 155,537,000 132,599,000
44,751,000 40,300,000
------------ ------------
110,786,000 92,299,000
Deferred Income Tax Benefit, non-current 1,986,000 1,043,000
Marketable Securities, non-current 18,762,000 21,958,000
Investment in and Advances to Somerset 26,282,000 22,055,000
Intangible Assets net of accumulated amortization 25,789,000 28,518,000
Other Assets 63,260,000 48,945,000
------------ ------------
Total Assets $612,662,000 $546,201,000
============ ============
See Notes to Consolidated Financial Statements
-2A-
LIABILITIES AND SHAREH0LDERS' EQUITY
------------------------------------
December 31, March 31,
1995 1995
Unaudited Audited
----------- ---------
Current Liabilities
Trade accounts payable $ 12,813,000 $ 10,466,000
Income taxes payable 9,899,000 24,019,000
Other current liabilities 18,867,000 17,890,000
Cash dividend payable 4,779,000 3,976,000
------------ ------------
Total Current Liabilities 46,358,000 56,351,000
Long-Term Obligations 9,786,000 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
120,127,914 shares at December 31,
1995 and 79,972,248 shares at
March 31, 1995 60,064,000 39,986,000
Additional paid in capital 40,153,000 57,577,000
Retained earnings 457,251,000 386,212,000
Unrealized gain on investment 1,433,000 1,374,000
------------ ------------
558,901,000 485,149,000
Less Treasury stock - at cost, 696,006
shares at December 31, 1995 and
476,523 shares at March 31, 1995
Net Worth 2,383,000 2,421,000
------------ ------------
556,518,000 482,728,000
------------ ------------
Total Liabilities and Shareholders' Equity $612,662,000 $546,201,000
============ ============
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,
------------------------------- ------------------------------
1995 1994 1995 1994
------- ------- -------- ------
NET SALES $91,319,000 $104,271,000 $298,226,000 $285,430,000
COST AND EXPENSES:
Cost of Sales 47,620,000 46,702,000 143,107,000 119,920,000
Research and Development 10,948,000 7,927,000 28,560,000 21,134,000
Selling and Administrative 14,106,000 14,982,000 41,769,000 44,323,000
----------- ------------ ------------ ------------
72,674,000 69,611,000 213,436,000 185,377,000
EQUITY IN EARNINGS OF SOMERSET 7,905,000 8,330,000 19,614,000 19,819,000
OTHER INCOME 3,970,000 2,494,000 12,693,000 5,013,000
------------- ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 30,520,000 45,484,000 117,097,000 124,885,000
INCOME TAX RATE 28% 30% 28% 30%
INCOME TAXES 8,596,000 13,645,000 32,530,000 37,258,000
------------ ------------ ------------ ------------
NET EARNINGS $ 21,924,000 $ 31,839,000 $ 84,567,000 $ 87,627,000
============ ============ ============ ============
EARNINGS PER SHARE $ .18 $ .27 $ .71 $ .74
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES 119,388,000 119,004,000 119,322,000 118,912,000
============ ============ ============ ============
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, $.03 per share from October 1994 to July 1995 and $.04 per share on October 13, 1995 and
January 15, 1996. 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 NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------------
UNAUDITED
---------
1995 1994
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ 84,567,000 $ 87,627,000
Adjustments to reconcile net earnings to net
cash from operating activities:
Depreciation and amortization 9,968,000 9,228,000
Deferred income taxes 408,000 (95,000)
Equity in the earnings of Somerset (19,614,000) (19,819,000)
Cash received from Somerset 15,387,000 15,506,000
Other non-cash items 665,000 2,047,000
Changes in operating assets and liabilities:
Accounts receivable - gross 3,042,000 (11,259,000)
Allowances on accounts receivable (5,976,000) 11,298,000
Inventories (5,333,000) (13,213,000)
Trade accounts payable 2,347,000 2,720,000
Income taxes payable (12,965,000) 10,200,000
Other operating assets and liabilities 71,000 12,363,000
----------- -----------
Net cash provided from operating activities 72,567,000 106,603,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (25,444,000) (12,048,000)
Increase in intangible and other assets (12,427,000) (5,853,000)
Proceeds from investment securities 56,752,000 16,252,000
Purchase of investment securities (15,386,000) (20,622,000)
------------ ------------
Net cash provided from (used in) investing
activities 3,495,000 (22,271,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend paid (12,724,000) (10,306,000)
Payments on long-term obligations (21,000) (22,000)
Proceeds from exercise of stock options 1,499,000 1,071,000
------------ -----------
Net cash used in financing activities (11,246,000) (9,257,000)
------------ ------------
Net Increase in Cash and Cash Equivalents 64,816,000 75,075,000
Cash and Cash Equivalents - Beginning of Period 127,280,000 75,526,000
------------- -------------
Cash and Cash Equivalents - End of Period $192,096,000 $150,601,000
============ ============
CASH PAID DURING THE PERIOD FOR:
Interest $ 16,000 $ 21,000
Income Taxes $ 45,089,000 $ 27,153,000
See Notes to Consolidated Financial Statements
-4-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED
DECEMBER 31, 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 December 31, 1995 and March 31, 1995 together with the
results of operations and cash flows for the interim periods ended
December 31, 1995 and 1994. The consolidated results of operations for
the three and nine months ended December 31, 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 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.
E. In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 123 "Accounting for Stock-Based Compensation".
The new standard defines a fair value method of accounting for stock
options which results in compensation cost based on hypothetical changes
in the future price of the Company's stock and other assumptions.
Pursuant to the new standard, the Company is not required to adopt such
standard and may continue to account for these transactions under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees". The Company has not yet determined if it will elect to
change to the fair value method nor has it determined the effect the new
standard will have on net income and earnings per share should it elect to
make such a change.
-5-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED
DECEMBER 31, 1995
------------------------------------------
Unaudited
---------
F. 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 paid to Mylan was recorded as Other Income in the second
quarter.
G. 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.
H. 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, 1995 and 1994 are as follows: (in
thousands)
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
------ ------ ------ ------
Net Sales $31,916 $44,208 $82,094 $100,703
Costs and Expenses (12,230) (21,744) (32,423) (49,881)
Income Taxes (5,700) ( 8,017) (15,288) (16,573)
-------- -------- -------- --------
Net Earnings $13,986 $14,447 $34,383 $34,249
======== ======== ======== ========
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 nine months ended December 31, 1995 were
$91,319,000 and $298,226,000 representing a 12% decrease and a 4% increase
over the prior year comparable periods. Volume increases in all areas of the
Company's business were offset in the current quarter by continued pricing
pressures on the generic products particularly those introduced during
fiscal 1995.
Gross margin as a percent of net sales decreased from 55% and 58% for the
three and nine months ended December 31, 1994 to 48% and 52% for the three
and nine months ended December 31, 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 nine months ended December 31, 1995 are not necessarily indicative of the
results to be expected in future quarters.
Research and development expenditures for the three and nine month periods
ended December 31, 1995 increased 38% to $10,948,000 and 35% to $28,560,000
over the prior year comparable periods. These increases are indicative of
commitments to product development throughout the Company.
Selling and administrative expenses were 15% and 14% of net sales for the
three and nine months ended December 31, 1995 as compared to 14% and 16% for
the three and nine months ended December 31, 1994.
Somerset's contribution to net earnings per share for the three and nine
month periods was $.06 and $.15 in both 1995 and 1994. Due to changes in a
co-promotion agreement the decrease in net sales of Eldepryl has been offset
by a decrease in co-promotion expense for the three and nine month periods
ended December 31, 1995. The amended co-promotion agreement expires on
March 31, 1996.
-7-
Liquidity and Capital Resources and Financial Condition
- ---------------------------------------------------------
Working capital increased from $275,032,000 at March 31, 1995 to
$319,439,000 at December 31, 1995 as a result of continued strong operations.
The ratio of current assets to current liabilities was 7.9 to 1 at December
31, 1995 and 5.9 to 1 at March 31, 1995.
Net cash provided from operating activities was $72,567,000 for the nine
months ended December 31, 1995 compared to $106,603,000 for the same period
last year. The change is primarily related to the timing of income tax
payments, increased research and development expenditures and reduced gross
profit dollars resulting from generic price deterioration.
Additions to property, plant and equipment amounted to $25,444,000 for the
nine months ended December 31, 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 and has started expansion of 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 G 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 - There were no reports on Form 8-K during the
three months ended December 31, 1995.
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 02/14/96 /s/ Milan Puskar
- ------------------------------ ---------------------------------------
Milan Puskar
Chairman of the Board, Chief
Executive Officer and President
DATE 02/14/96 /s/ Frank A. DeGeorge
- ------------------------------ ---------------------------------------
Frank A. DeGeorge
Director of Corporate Finance
-9-