-----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, JVG4DKPzx5eoq0JPfibdYfg2Rx7fZnlkurBchTeUU0NiPbwGhlEfMGz6MelTqnbi 9a3kKuGADHeIfu8KjEUTYA== 0000069499-96-000042.txt : 19961118 0000069499-96-000042.hdr.sgml : 19961118 ACCESSION NUMBER: 0000069499-96-000042 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96665790 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 - ------------------------------------------------------------------------------- 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 September 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 November 8, 1996 $.50 par value 121,914,754 - -------------------------------------------------------------------------------- MYLAN LABORATORIES INC. AND SUBSIDIARIES INDEX ----------- PART I. FINANCIAL INFORMATION ITEM 1: Financial Statements Consolidated Balance Sheets - September 30, 1996 and March 31, 1996 2A and 2B Consolidated Statements of Earnings - Three and Six Months Ended September 30, 1996 and 1995 3 Consolidated Statements of Cash Flows - Six Months Ended September 30, 1996 and 1995 4 Notes to Consolidated Financial Statements - Six Months Ended September 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 ------------------ September 30, March 31, 1996 1996 Unaudited Audited ------------ ------------ Current Assets: Cash and cash equivalents $148,979,000 $176,980,000 Marketable securities 9,985,000 12,460,000 Accounts receivable - net 87,553,000 71,997,000 Inventories: Raw materials 41,143,000 42,983,000 Work in process 22,752,000 19,804,000 Finished goods 36,527,000 37,829,000 ----------- ----------- 100,422,000 100,616,000 Deferred income tax benefit 8,932,000 11,560,000 Other current assets 5,864,000 5,715,000 ------------ ------------ Total Current Assets 361,735,000 379,328,000 Property, Plant and Equipment - at cost 187,668,000 173,445,000 Less accumulated depreciation 57,360,000 51,652,000 ------------- ------------ 130,308,000 121,793,000 Marketable Securities, non-current 23,307,000 20,803,000 Investment in and Advances to Somerset 28,992,000 26,337,000 Intangible Assets-net of accumulated amortization 141,237,000 74,601,000 Other Assets 79,309,000 69,147,000 ------------- ------------ Total Assets $764,888,000 $692,009,000 See Notes to Consolidated Financial Statements -2A- LIABILITIES AND SHAREH0LDERS' EQUITY September 30, March 31, 1996 1996 Unaudited Audited ------------- ------------- Current Liabilities: Trade accounts payable $ 12,356,000 $ 14,039,000 Current portion of long-term obligations 20,379,000 1,400,000 Income taxes payable 7,769,000 10,096,000 Other current liabilities 25,135,000 18,185,000 Cash dividend payable 4,884,000 4,875,000 ----------- ------------- Total Current Liabilities 70,523,000 48,595,000 Long-Term Obligations 48,161,000 18,002,000 Deferred Income Tax Liability 8,392,000 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 122,589,379 shares at September 30, 1996 and 122,524,789 shares at March 31, 1996 61,295,000 61,262,000 Additional paid-in capital 86,663,000 85,996,000 Retained earnings 491,744,000 470,136,000 Net unrealized gain on investments 638,000 1,575,000 ----------- ------------ 640,340,000 618,969,000 Less Treasury stock - at cost, 694,950 shares at September 30, 1996 and March 31, 1996 2,528,000 2,528,000 ------------ ------------ Net Worth 637,812,000 616,441,000 ------------ ------------ Total Liabilities and Shareholders' Equity $764,888,000 $692,009,000 See Notes to Consolidated Financial Statements -2B- MYLAN LABORATORIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED ---------
Three Months Ended September 30, Six Months Ended September 30, --------------------------------- ------------------------------ 1996 1995 1996 1995 ------ ------ ------ ------ NET SALES $ 108,981,000 $ 97,715,000 $ 207,524,000 $ 206,907,000 COST AND EXPENSES: Cost of Sales 63,836,000 44,859,000 119,615,000 95,487,000 Research and Development 10,255,000 9,438,000 20,786,000 17,612,000 Selling and Administrative 19,465,000 13,660,000 40,716,000 27,663,000 ------------ ------------- ----------- ----------- 93,556,000 67,957,000 181,117,000 140,762,000 EQUITY IN EARNINGS OF SOMERSET 5,002,000 6,138,000 10,045,000 11,709,000 OTHER INCOME 3,769,000 4,760,000 7,761,000 8,723,000 EARNINGS BEFORE INCOME TAXES 24,196,000 40,656,000 44,213,000 86,577,000 INCOME TAX RATE 28% 28% 29% 28% INCOME TAXES 6,848,000 11,180,000 12,854,000 23,934,000 ------------ ------------- ----------- ----------- NET EARNINGS $ 17,348,000 $ 29,476,000 $ 31,359,000 $ 62,643,000 ============= ============ ============ ============ EARNINGS PER SHARE $ .14 $ .25 $ .26 $ .53 ============= ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES 121,892,000 119,319,000 121,880,000 119,294,000 ============= ============ ============ ============ 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 SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 UNAUDITED ----------- 1996 1995 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES Net Earnings $ 31,359,000 $62,643,000 Adjustments to reconcile net earnings to net cash provided from operating activities: Depreciation and amortization 8,876,000 5,727,000 Deferred income taxes 2,553,000 2,494,000 Equity in the earnings of Somerset (10,045,000) (11,709,000) Cash received from Somerset 7,390,000 10,207,000 Allowances on accounts receivable (2,053,000) (4,198,000) Other non-cash items (1,349,000) 687,000 Changes in operating assets and liabilities: Accounts receivable (13,503,000) (6,523,000) Inventories 80,000 3,155,000 Trade accounts payable (1,683,000) 627,000 Income taxes payable (2,327,000) (17,704,000) Other operating assets and liabilities 6,800,000 (2,333,000) ------------ ------------- Net cash provided from operating activities 26,098,000 43,073,000 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (14,223,000) (17,017,000) Increase in intangible and other assets (27,949,000) (19,360,000) Proceeds from investment securities 12,848,000 35,848,000 Purchase of investment securities (14,318,000) (10,731,000) ------------ ------------ Net cash used in investing activities (43,642,000) (11,260,000) CASH FLOWS FROM FINANCING ACTIVITIES Cash dividend paid (9,742,000) (7,950,000) Payments on long-term obligations (1,415,000) (15,000) Proceeds from exercise of stock options 700,000 695,000 ------------- ------------ Net cash used in financing activities (10,457,000) (7,270,000) ------------- ------------ Net Increase(Decrease) in Cash and Cash Equivalents (28,001,000) 24,543,000 Cash and Cash Equivalents - Beginning of Period 176,980,000 127,280,000 ------------- ------------ Cash and Cash Equivalents - End of Period $148,979,000 $151,823,000 ============ ============ CASH PAID DURING THE PERIOD FOR: Interest $ 425,000 $ 12,000 Income Taxes $ 12,627,000 $ 39,226,000 See Notes to Consolidated Financial Statements -4- MYLAN LABORATORIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTH PERIOD ENDED SEPTEMBER 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 September 30, 1996 and March 31, 1996 together with the results of operations and cash flows for the interim periods ended September 30, 1996 and 1995. The consolidated results of operations for the three and six months ended September 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 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 SIX MONTH PERIOD ENDED SEPTEMBER 30, 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. During the quarter ended September 30, 1996 the Company recognized $744,000 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, shall be 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 six month periods ended September 30, 1996 and 1995 are as follows: (in thousands) Three Months Ended Six Months Ended September 30, September 30, 1996 1995 1996 1995 ------ ------ ------ ------ Net Sales $26,224 $27,181 $56,367 $50,178 Costs and Expenses (11,733) (11,300) (28,028) (20,153) Income Taxes (5,337) (5,191) (10,144) (9,628) -------- -------- -------- -------- Net Earnings $ 9,154 $10,690 $18,195 $20,297 ======== ======== ======== ======== 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 SIX MONTH PERIOD ENDED SEPTEMBER 30, 1996 Unaudited ----------- E. (con't) Somerset's marketing exclusivity for Eldepry(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 was responsible for the higher than normal sales in the June 1996 quarter and along with increased research and development expenses caused the increase in Costs and Expenses over the prior year's six month period. In August 1996, the Food and Drug Administration ("FDA") approved three companies to market a generic tablet form of Eldeprly(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, a date has yet to be set for a hearing on the preliminary injunction 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") and declared a dividend distribution to be 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 earnings per share were $.14 for the three months ended September 30, 1996 compared to the record high $.25 for the same quarter a year ago and $.12 for the quarter ended June 30, 1996. This ended five quarters of decreasing earnings. Net earnings per share for the six month period were $.26 compared to $.53 for the same period a year ago. Net sales for the three and six months ended September 30, 1996 were $108,981,000 and $207,524,000 representing increases over the prior year comparable periods of 12% and .3%. The increases are primarily attributable to increased volume, the addition of UDL, the launch of Maxzide(R) late in the quarter and three new generic approvals, including the approval of the Bertek nitroglycerin patch. Gross margin as a percent of net sales decreased from 54% for the three and six months ended September 30, 1995 to 41% and 42% for the three and six months ended September 30, 1996. The decrease in rates from the prior periods is due to the continued pricing pressures in the generic industry. Research and development expenditures for the three and six month periods ended September 30, 1996 increased 9% to $10,255,000 and 17% to $20,786,000 over the prior year comparable periods. These increases are indicative of the Company's aggressive research programs aimed at both generic products and innovative compounds. Selling and administrative expenses were $19,465,000 and $40,716,000 for the three and six month periods ended September 30, 1996 compared to $13,660,000 and $27,663,000 for the three and six month periods ended September 30, 1995. The increases over the prior periods is due to recurring expenses associated with the UDL and Maxzide acquisitions along with non- recurring charges relating to provisions for legal settlements and the bankruptcy of a customer in the current periods. Somerset's contribution to the Company's earnings per share were $.04 and $.08 for the three and six month periods ended September 30, 1996 compared to $.05 and $.09 for the three and six month periods ended September 30, 1995. The Company expects that the introduction of generic competition on Eldepryl(R) coupled with higher levels of research and development expenditures by Somerset will 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 $291,212,000 at September 30, 1996. The ratio of current assets to current liabilities was 7.8 to 1 at March 31, 1996 and 5.1 to 1 at September 30, 1996. The change in the current ratio is primarily attributable to the AHP agreements 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 $26,098,000 for the six months ended September 30, 1996 compared to $43,073,000 for the same period last year. The change is primarily related to the decrease in gross profit dollars resulting from generic price deterioration and the timing of tax payments. Additions to property, plant and equipment amounted to $14,223,000 for the six months ended September 30, 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 AHP 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 - On September 3, 1996 the Company filed a report on Form 8-K dated August 23, 1996 covering Item 5 thereof regarding an announcement by the Board of Directors of a Shareholder Rights Plan. 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 11/12/96 /s/ Milan Puskar ------------------------------------ ---------------------------------- Milan Puskar Chairman of the Board, Chief Executive Officer and President DATE 11/12/96 /s/ Frank A. Degeorge ------------------------------------ ---------------------------------- Frank A. DeGeorge Director of Corporate Finance -10- EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. Exhibit 27 Financial Data The schedule contains summary financial information extracted from the Consolidated Balance Sheets at September 30, 1996 and the Consolidated Statement of Earnings for the six months ended September 30, 1996 and is qualified in its entirety by reference to such financial statements.
5 6-MOS MAR-31-1997 SEP-30-1997 148,979,000 9,985,000 98,059,000 10,506,000 100,422,000 361,735,000 187,668,000 57,360,000 764,888,000 70,523,000 0 0 0 61,295,000 576,517,000 764,888,000 207,524,000 207,524,000 119,615,000 119,615,000 61,502,000 0 425,000 44,213,000 12,854,000 31,359,000 0 0 0 31,359,000 .26 .26
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