-----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, Lx36wtsqmUUNBxX2pzQHNPYlJPUUSM+RACVrR4YmU0ymKS27VaPIE3J1sZmEm+WJ cEYFP6BwmV8NsuflGbCyUw== 0000069499-97-000027.txt : 19970813 0000069499-97-000027.hdr.sgml : 19970813 ACCESSION NUMBER: 0000069499-97-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 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: 97656611 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 1998 10-Q 2ND QUARTER - ------------------------------------------------------------------------------ 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 June 30, 1997 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, 1997 $.50 par value 121,972,656 - ------------------------------------------------------------------------------ MYLAN LABORATORIES INC. AND SUBSIDIARIES INDEX Page Number PART I. FINANCIAL INFORMATION ITEM 1: Financial Statements Consolidated Balance Sheets - June 30, 1997 and March 31, 1997 2A and 2B Consolidated Statements of Earnings - Three Months Ended June 30, 1997 and 1996 3 Consolidated Statements of Cash Flows - Three Months Ended June 30, 1997 and 1996 4 Notes to Consolidated Financial Statements - Three Months Ended June 30, 1997 5 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 6 through 8 PART II. OTHER INFORMATION 9 MYLAN LABORATORIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS June 30, March 31, 1997 1997 Unaudited Audited Current Assets: Cash and cash equivalents $108,995,000 $126,156,000 Marketable securities 15,062,000 13,876,000 Accounts receivable - net 107,029,000 115,303,000 Inventories: Raw materials 66,555,000 51,796,000 Work in process 19,718,000 20,843,000 Finished goods 35,001,000 28,251,000 ------------ ------------ 121,274,000 100,890,000 Prepaid and refundable income tax 11,893,000 - Deferred income tax benefit 5,571,000 13,532,000 Other current assets 10,477,000 9,263,000 ------------ ------------ Total Current Assets 380,301,000 379,020,000 Property, Plant and Equipment - at cost 203,793,000 197,466,000 Less accumulated depreciation 64,686,000 61,637,000 ------------ ----------- 139,107,000 135,829,000 Deferred Income Tax Benefit 3,892,000 - Marketable Securities, non-current 23,460,000 23,668,000 Investment in and Advances to Somerset 24,693,000 25,113,000 Intangible Assets-net of accumulated amortization 135,005,000 137,062,000 Other Assets 81,034,000 76,888,000 ------------ ------------ Total Assets $787,492,000 $777,580,000 ============ ============ See Notes to Consolidated Financial Statements -2A- LIABILITIES AND SHAREH0LDERS' EQUITY June 30, March 31, 1997 1997 Unaudited Audited Current Liabilities: Trade accounts payable $ 16,856,000 $ 18,039,000 Current portion of long-term obligations 18,257,000 17,453,000 Income taxes payable 18,777,000 13,795,000 Other current liabilities 23,146,000 24,566,000 Cash dividend payable 4,893,000 4,893,000 ------------ ------------ Total Current Liabilities 81,929,000 78,746,000 Long-Term Obligations 32,936,000 32,593,000 Deferred Income Tax Liability - 6,501,000 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 122,823,506 shares at June 30, 1997 and 122,814,956 shares at March 31, 1997 61,412,000 61,407,000 Additional paid-in capital 89,349,000 89,262,000 Retained earnings 525,466,000 513,750,000 Net unrealized gain (loss) on investments 144,000 (947,000) ------------ 676,371,000 663,472,000 Less Treasury stock - at cost, 753,700 shares at June 30, 1997 and 752,950 shares at March 31, 1997 3,744,000 3,732,000 ------------ ------------ Net Worth 672,627,000 659,740,000 ------------ ------------ Total Liabilities and Shareholders' Equity $787,492,000 $777,580,000 ============ ============ See Notes to Consolidated Financial Statements -2B- MYLAN LABORATORIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 UNAUDITED 1997 1996 ---- ---- NET SALES $109,188,000 $ 98,543,000 COST AND EXPENSES: Cost of Sales 61,379,000 55,779,000 Research and Development 11,691,000 10,531,000 Selling and Administrative 19,739,000 21,251,000 ------------ ------------ 92,809,000 87,561,000 EQUITY IN EARNINGS OF SOMERSET 4,136,000 5,043,000 OTHER INCOME 1,826,000 3,992,000 ------------ ------------ EARNINGS BEFORE INCOME TAXES 22,341,000 20,017,00 INCOME TAX RATE 26% 30% INCOME TAXES 5,743,000 6,006,000 ------------ ------------ NET EARNINGS $ 16,598,000 $ 14,011,000 ============ ============ EARNINGS PER SHARE $ .14 $ .12 ============ ============ WEIGHTED AVERAGE COMMON SHARES 122,065,000 121,868,000 ============ ============ The Company has paid regular quarterly cash dividends of $.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, 1997 AND 1996 UNAUDITED 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net Earnings $ 16,598,000 $ 14,011,000 Adjustments to reconcile net earnings to net cash provided from operating activities: Depreciation and amortization 5,146,000 4,215,000 Deferred income taxes 871,000 (2,836,000) Equity in the earnings of Somerset (4,136,000) (5,043,000) Cash received from Somerset 4,556,000 2,636,000 Allowances on accounts receivable (4,199,000) (14,000) Other non-cash items 1,538,000 (565,000) Changes in operating assets and liabilities: Accounts receivable 12,223,000 7,547,000 Inventories (20,396,000) (2,236,000) Trade accounts payable (1,183,000) (2,657,000) Income taxes payable (6,911,000) 8,078,000 Other operating assets and liabilities (6,526,000) 5,291,000 ------------ ------------ Net cash (used in) provided from operating activities (2,419,000) 28,427,000 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (6,327,000) (8,514,000) Increase in intangible and other assets (4,307,000) (5,345,000) Proceeds from investment securities 3,005,000 5,909,000 Purchase of investment securities (2,303,000) (6,457,000) ------------ ------------ Net cash used in investing activities (9,932,000) (14,407,000) CASH FLOWS FROM FINANCING ACTIVITIES Cash dividend paid (4,882,000) (4,867,000) Payments on long-term obligations (8,000) (7,000) Proceeds from exercise of stock options 80,000 584,000 ------------ ------------ Net cash used in financing activities (4,810,000) (4,290,000) ------------ ------------ Net (Decrease) Increase in Cash and Cash Equivalents (17,161,000) 9,730,000 Cash and Cash Equivalents - Beginning of Period 126,156,000 176,980,000 ------------ ------------ Cash and Cash Equivalents - End of Period $108,995,000 $186,710,000 ============ ============ CASH PAID DURING THE PERIOD FOR: Interest $ 5,000 $ 5,000 Income Taxes $ 15,698,000 $ 761,000 See Notes to Consolidated Financial Statements -4- MYLAN LABORATORIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTH PERIOD ENDED JUNE 30, 1997 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, 1997 and March 31, 1997 together with the results of operations and cash flows for the interim periods ended June 30, 1997 and 1996. The consolidated results of operations for the three months ended June 30, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. B. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's 1997 Annual Report and Report on Form 10-K. C. 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 month periods ended June 30, 1997 and 1996 are as follows: (in thousands) June 30, June 30, 1997 1996 Net Sales $17,273 $30,143 Costs and Expenses (5,247) (16,295) Income Taxes (4,155) (4,807) ------- ------- Net Earnings $ 7,871 $ 9,041 ======= ======= The above information represents 100% of Somerset's operations of which the Company has a 50% interest. Somerset launched its easy-to-identify capsule in the June 30, 1996 period, this resulted in higher than normal sales and costs and expenses. -5- PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net earnings for the quarter ended June 30, 1997 were $16,598,000 or $0.14 per share representing an 18% increase over last year's first quarter. For the same periods, net sales increased by 11% to $109,188,000 and gross profit dollars increased by 12% to $47,809,000. Gross profit as a percent of net sales was 44% for the quarter ended June 30, 1997, the highest rate since the quarter ended December 31, 1995. These increases are primarily attributable to the addition of 13 generic products since June 30, 1996, including 6 products added during the current quarter, and also to sales of the products Maxzide(R) and Nitrek(TM) by the Company's branded division, Bertek Pharmaceuticals Inc. New products and increased sales volume throughout the Company more than offset the impact of continued price deterioration in the Company's generic product line. Excluding the 13 products added in the past year, the generic product line realized a 20% decrease in aggregate pricing from the first quarter of fiscal 1997 to this year's first quarter. The primary causes of the deterioration relate to the consolidation of the Company's customers through mergers and acquisitions, the emergence of large buying groups which represent many independent pharmacies and increased competition by brand-name competitors who have entered the generic industry. Research and development expenses of $11,691,000 are 11% higher than the first quarter of last year, and consistent with the steady quarterly increase realized throughout the fiscal year ended March 31, 1997. Based on the current status of the various research projects in progress, including generic, innovative and transdermal patch related projects, the Company expects that quarterly expenditures for research and development to increase to approximately $14,000,000 by the quarter ending March 31, 1998. Selling and administrative expenses were $19,739,000 for the quarter ended June 30, 1997, down 7% from the same quarter a year ago but in line with quarterly levels for the last three quarters. The June 1996 quarter was abnormally high due to accruals for certain legal matters. With the addition of Maxzide(R) and Nitrek(TM), the Company has begun to expand its branded sales initiative through its Bertek Pharmaceuticals Inc. division resulting in higher selling and administrative expenses. The Company intends to continue to expand this area in preparation for the addition of new branded products. Equity in Earnings of Somerset includes the Company's 50% portion of the net earnings of Somerset Pharmaceuticals, Inc. ("Somerset"), which are generated exclusively from the sale of Eldepryl(R). In May of 1996, Somerset withdrew its tablet form of Eldepryl(R) from the market and replaced it with an easy-to-identify Eldepryl(R) capsule. Despite the withdrawal of the tablet form of the innovator product, in August 1996 the Food and Drug Administration approved several generic versions of Eldepryl(R) in tablet form. -6- The impact of generic competition has and will continue to adversely affect Somerset's contribution to the Company's net earnings. The reduction in Somerset's revenues resulting from generic competition may also impact Somerset's ability to continue research and development expenditures at historical levels. Other income is derived principally from investment earnings on the Company's cash and marketable securities and also includes the impact of certain strategic alliances investments and gains and losses from the disposal of assets. The amount of other income recognized by the Company has been affected by statutory accounting treatment of strategic alliance investments and changes in the amount of and yields on cash and marketable securities available for investment. The effective tax rate for the quarter ended June 30, 1997 was 26% compared to 30% for the quarter ended June 30, 1996 and 28% for the year ended March 31, 1997. The lower rate in the current quarter resulted primarily from a favorable settlement during the quarter with the Internal Revenue Service regarding an audit of the Company's tax returns for the fiscal years 1992 through 1995. Under the terms of the settlement, the Company has agreed to change the method it employs to determine tax credits for operating in Puerto Rico for tax years after the audit period. This agreement coupled with other changes in the Federal Tax Code will continue to reduce the amount of tax credits otherwise available to the Company for operating in Puerto Rico. Liquidity, Capital Resources and Financial Condition The Company's balance sheet remains very strong with working capital of $298,372,000, total assets of $787,492,000 and total equity of $672,627,000. The ratio of current assets to current liabilities was 4.6 to 1 as of June 30, 1997 compared to 4.8 to 1 at March 31, 1997. Significant changes in balance sheet accounts between March 31, 1997 and June 30, 1997 relate principally to the settlement of the Internal Revenue Service audit during the quarter and increased inventory levels attributable to continued higher demand for the Company's products. These timing items are also responsible for the significant change in cash flows from operating activities between the current quarter and the same period a year ago. In March 1997 the Company's Board of Directors authorized the repurchase of up to five million shares of the Company's outstanding common stock. The Company intends to purchase shares throughout the remainder of fiscal 1998 and believes that this use of funds will not have an adverse affect on the Company's operations. Other Matters In June 1997 the Company's subsidiary Mylan Pharmaceuticals Inc.("Mylan") entered in to an exclusive supply and distribution agreement with Genpharm Inc.("Genpharm") a Canadian corporation, relating to the sale of ranitidine HCL tablets ("ranitidine") in the United States subject to the -7- favorable resolution of several legal issues. Ranitidine is the generic version of Glaxo's Zantac(R). Both Mylan and Genpharm have received tentative approval from the FDA to market ranitidine; however, both companies are currently involved in separate court actions with Glaxo regarding patent related issues, which prevent either company from marketing the product. Under the terms of the agreement Mylan and Genpharm will share in the combined profits resulting from the sale, by Mylan, of ranitidine tablets manufactured by either Mylan or Genpharm. In addition, the agreement provides that Mylan shall be entitled to share in any benefit received by Genpharm as a result of Genpharm entering into any ageement with any third party, which would affect either the marketing of ranitidine or Genpharm's ability to supply product to Mylan. As announced by the Company on July 24, 1997, after a series of court decisions, Genpharm received notice from the FDA on July 23, 1997 that Genpharm is entitled to generic marketing exclusivity with regard to ranitidine tablets through August 29, 1997. While Glaxo's initial patent exclusivity relating to the product expired on July 25, 1997, neither Genpharm nor Mylan have resolved their respective legal matters with Glaxo and accordingly both are prohibited from marketing their respective products. On July 31, 1997, Genpharm announced that it had reached an agreement with Novopharm Limited and its subsidiary Granutec Inc. ("Novopharm"), a Canadian corporation, whereby Genpharm has agreed to waive its generic marketing exclusivity period in favor of Novopharm. Novopharm had previously settled its patent issues with Glaxo. Based on the agreement between Genpharm and Novopharm, the FDA, on August 1, 1997 approved the Novopharm generic ranitidine product for sale in the United States. Presently the FDA will not approve any other generic ranitidine until after August 29, 1997. Under the terms of the agreement between Genpharm and Novopharm, Genpharm will be entitled to receive compensation from Novopharm predicated upon Novopharm's sales of the product. Under the terms of the agreement between Mylan and Genpharm, Mylan will be entitled to share in the compensation due to Genpharm. In terms of branded product sales, ranitidine is recognized as the largest branded product to encounter generic competition to date. The Company expects to recognize earnings as a result of these aggreements beginning in the quarter ending September 30, 1997. However, due to the various legal actions currently pending, legal actions which may result from the marketing of the product by Novopharm, the complexity of the contractual agreements described above and competition which will occur at the expiration of the generic marketing exclusivity period, the Company cannot at this time reasonably project the extent, timing or duration of such future earnings. -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 filed on Form 8-K during the three months ended June 30, 1997. 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__08/12/97________________________ _ /s/ Milan Puskar_________________ Milan Puskar Chairman of the Board, Chief Executive Officer and President DATE__08/12/97_______________________ __/s/ Frank A. DeGeorge____________ Frank A. DeGeorge Director of Corporate Finance -9- EX-27 2 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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 June 30, 1997 and the Consolidated Statement of Earnings for the three months ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000069499 3-MOS MAR-31-1998 JUN-30-1997 108,995,000 15,062,000 117,461,000 10,432,000 121,274,000 380,301,000 203,793,000 64,686,000 787,492,000 81,929,000 39,744,000 0 0 61,412,000 611,215,000 787,492,000 109,188,000 109,188,000 61,379,000 61,379,000 31,429,000 0 758,000 22,341,000 5,743,000 16,598,000 0 0 0 16,598,000 .14 .14
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