-----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, J+dVTEQoSM4HZq+LviGmj38PIz/lYty7okViFMG47lL3r9jyVrRsQf3JF0AW8cY3 PHria1JgugyHJYvg1dWotQ== 0000069499-97-000006.txt : 19970203 0000069499-97-000006.hdr.sgml : 19970203 ACCESSION NUMBER: 0000069499-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970131 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MYLAN LABORATORIES INC CENTRAL INDEX KEY: 0000069499 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 251211621 STATE OF INCORPORATION: PA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09114 FILM NUMBER: 97514967 BUSINESS ADDRESS: STREET 1: 130 SEVENTH ST STREET 2: 1030 CENTURY BLDG CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122320100 MAIL ADDRESS: STREET 1: 1030 CENTURY BUILDING STREET 2: 130 SEVENTH STREET CITY: PITTSBURGH STATE: PA ZIP: 15222 FORMER COMPANY: FORMER CONFORMED NAME: FRM CORP DATE OF NAME CHANGE: 19711003 10-Q 1 10-Q FILING 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- EX-27 2
5 Financial Data Schedule Mylan Laboratories Inc. and Subsidiaries Article 5 of Regulation S-X The schedule contains summary financial information extracted from the Consolidated Balance Sheets at December 31, 1996 and the Consoldated Statement of Earnings for the nine months ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 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
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