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, 1993
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 21, 1994
$.50 par value 79,149,950
MYLAN LABORATORIES INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - December 31, 1993
and March 31, 1993 2A and 2B
Consolidated Statements of Earnings - Three and
Nine Months Ended December 31, 1993 and 1992 3
Consolidated Statements of Cash Flows - Nine
Months Ended December 31, 1993 and 1992 4
Notes to Consolidated Financial Statements -
Three and Nine Months Ended December 31, 1993 5, 6 and 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 and 9
PART II. OTHER INFORMATION 10
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, March 31,
1993 1993
Unaudited Audited
Current Assets
Cash and cash equivalents $103,021,000 $ 98,246,000
Accounts receivable 48,774,000 32,396,000
Inventories:
Raw materials 25,316,000 23,115,000
Work in process 12,153,000 11,553,000
Finished goods 17,262,000 11,281,000
54,731,000 45,949,000
Deferred tax benefit
Other current assets 1,284,000 -
7,090,000 3,891,000
Total Current Assets 214,900,000 180,482,000
Property, Plant and Equipment - at cost 106,160,000 94,950,000
Less accumulated depreciation 30,929,000 26,431,000
75,231,000 68,519,000
Investment in and Advances to Somerset 17,827,000 14,844,000
Intangible Assets
net of accumulated amortization 34,448,000 38,115,000
Other Assets 51,240,000 49,145,000
Total Assets $393,646,000 $351,105,000
See Notes to Consolidated Financial Statements
-2A-<PAGE>
LIABILITIES AND SHAREH0LDERS' EQUITY
[CAPTION]
December 31, March 31,
1993 1993
Unaudited Audited
Current Liabilities
Trade accounts payable $ 5,686,000 $ 6,492,000
Income taxes payable 2,242,000 9,349,000
Other current liabilities 12,783,000 8,293,000
Cash dividend payable 3,168,000 2,348,000
Total Current Liabilities 23,879,000 26,482,000
Acquisition Obligation - 21,303,000
Long-Term Obligations 4,363,000 5,125,000
Deferred Income Taxes 271,000 2,223,000
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
79,624,339 shares at December 31, 1993
78,615,453 shares at March 31, 1993 39,812,000 39,309,000
Additional paid in capital 53,699,000 29,866,000
Retained earnings 274,131,000 227,139,000
367,642,000 296,314,000
Less Treasury stock - at cost, 495,864
shares at December 31, 1993 and 430,206
shares at March 31, 1993 2,509,000 342,000
Net Worth 365,133,000 295,972,000
Total Liabilities and
Shareholders' Equity $393,646,000 $351,105,000
See Notes to Consolidated Financial Statements
-2B-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended December 31, Nine Months Ended December 31,
1993 1992 1993 1992
<S> <C> <C> <C > <C>
NET SALES $ 66,436,000 $ 61,108,000 $182,699,000 $150,966,000
COST AND EXPENSES:
Cost of Sales 32,165,000 24,489,000 90,628,000 64,920,000
Research and Development 5,499,000 3,804,000 16,453,000 10,123,000
Selling and Administrative 14,284,000 10,681,000 36,745,000 26,920,000
Interest Expense 8,000 8,000 23,000 26,000
51,956,000 38,982,000 143,849,000 101,989,000
EQUITY IN EARNINGS OF SOMERSET 6,841,000 6,120,000 18,250,000 15,530,000
OTHER INCOME 4,634,000 1,423,000 7,481,000 2,479,000
EARNINGS BEFORE INCOME TAXES 25,955,000 29,669,000 64,581,000 66,986,000
INCOME TAX RATE 15% 29% 14% 26%
INCOME TAXES 3,832,000 8,494,000 8,908,000 17,751,000
NET EARNINGS $ 22,123,000 $ 21,175,000 $ 55,673,000 $ 49,235,000
EARNINGS PER SHARE $ .28 $ .28 $ .71 $ .64
WEIGHTED AVERAGE COMMON SHARES 79,091,000 76,974,000 78,876,000 76,902,000
The Company paid regular quarterly cash dividends of $.025 per share from July 1990 to
July 1992, $.03 per share from October 1992 to July 1993 and $.04 per share on October 15,
1993 and January 15, 1994.
</TABLE>
See Notes to Consolidated Financial Statements
-3-
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1992
UNAUDITED
[CAPTION]
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ 55,673,000 $ 49,235,000
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 8,232,000 3,713,000
Deferred income taxes (434,000) (100,000)
Equity in the earnings of Somerset (18,250,000) (15,530,000)
Cash received from Somerset 15,267,000 13,988,000
Other non-cash expenses 8,113,000 5,887,000
Changes in operating
assets and liabilities:
Accounts receivable (21,064,000) (11,091,000)
Inventories (8,737,000) (7,811,000)
Trade accounts payable (806,000) (27,000)
Income taxes payable (8,869,000) 2,560,000
Other operating
assets and liabilities (3,869,000) 3,726,000
NEt cash provided from
operating activities 25,256,000 44,550,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property,
plant and equipment (11,210,000) (7,509,000)
Increase in other assets (1,214,000) (10,977,000)
Net cash used in investing activities (12,424,000) (18,486,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend paid (7,861,000) (6,152,000)
Payments on long-term debt (14,000) (50,000)
Payments on acquisition obligations (977,000) -
Proceeds from exercise of stock options 795,000 9,208,000
Net cash provided from (used in)
financing activities (8,057,000) 3,006,000
Net Increase in Cash
and Cash Equivalents 4,775,000 29,070,000
Cash and Cash Equivalents -
Beginning of Period 98,246,000 60,324,000
Cash and Cash Equivalents -
End of Period $103,021,000 $ 89,394,000
CASH PAID DURING THE PERIOD FOR:
Interest $ 23,000 $ 23,000
Income Taxes $ 11,417,000 $ 15,234,000
See Notes to Consolidated Financial Statements
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MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTH PERIOD ENDED
DECEMBER 31, 1993
Unaudited
A. On November 5, 1993 Roy McKnight, Chairman and Chief
Executive Officer of the Company since 1976, suffered a fatal
heart attack. Mr. McKnight passed away the following day.
On November 9, 1993 Milan Puskar was named Chairman and
C.E.O. in addition to his existing position as President of
the Company. Also, C.B. Todd, President of the Company's
wholly owned subsidiary Mylan Pharmaceuticals Inc., was
appointed to the Board of Directors of the Company.
The Company has certain obligations to the estate and/or
family of Mr. McKnight pursuant to a 1990 salary continuation
agreement. A one time charge against earnings of
approximately $2.8 million is included in Selling and
Administrative expenses in the quarter ended December 31,
1993 relating to these obligations. At December 31, 1993
other accrued liabilities includes a total of $4,306,000
which has been accrued by the Company for this obligation.
B. On November 24, 1993 the Company reached a settlement with
Pharmaceuticals Resources, Inc./Par Pharmaceuticals/Quad
Pharmaceuticals, three defendants in the Company's suit filed
under the Federal Antitrust Laws and the Racketeer Influenced
and Corrupt Organization Act (RICO), against several
pharmaceutical companies, certain employees of those
Companies and certain former employees of the FDA Generic
Drug Division. Under the settlement, Pharmaceutical
Resources, Inc. agreed to pay the Company the sum of
$1,000,000 in cash and $2,000,000 in their common stock.
This settlement is reflected under the caption "Other Income"
for the quarter ended December 31, 1993.
C. On February 25, 1993, a wholly owned subsidiary of the
Company acquired substantially all of the net assets of
Bertek Inc. (Bertek) for approximately $39,112,000 and
assumed liabilities of approximately $10,090,000. The
business combination has been accounted for under the
purchase method of accounting. Goodwill of approximately
$2,686,000 resulting from the acquisition is being amortized
on a straight-line basis over a 20 year period.
To facilitate the transaction the Company issued 1,349,975
shares of its common stock and paid cash of $9,375,000
including approximately $8,293,000 paid by the Company at
closing to satisfy certain long-term obligations assumed.
-5-<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
D. Effective April 1, 1993 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes". Prior years financial statements were not
restated. The cumulative effect of adopting this standard
resulted in an increase in net earnings of $1,124,000 ($.01
per share) for the three months ended June 30, 1993. There
was no cash flow impact. Expanded disclosure regarding the
impact of the adoption of SFAS 109 was provided in the Report
on Form 10-Q for the quarter ended June 30, 1993.
SFAS 109 requires an asset and liability approach to
accounting for income taxes. Deferred tax assets and
liabilities reflect the future tax consequences of events
that have already been recognized in the financial statements
or tax returns. Changes in enacted tax rates or laws will
result in adjustments to the recorded tax asset or
liabilities in the period that the tax law is enacted.
In August of 1993, President Clinton signed into law the
Omnibus Budget Reconciliation Act of 1993 ("the Act"). The
Act has several provisions which effect the Company's income
tax expense including a change in the Federal corporate tax
rate and significant changes relating to tax credits for
operations in Puerto Rico. As a direct result of the changes
in the tax code, the Company reassessed its position on the
filing alternatives available under the tax code. Based on
the new tax code provisions, the Company made a decision
which resulted in a reduction of income tax expense of
$3,225,000. This amount represents management's estimate of
the cumulative effect of this change.
E. 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, 1993
and March 31, 1993 together with the results of operations
and cash flows for the interim periods ended December 31,
1993 and 1992. The consolidated results of operations for
the three and nine months ended December 31, 1993 and 1992
are not necessarily indicative of the results to be expected
for the full year. These interim financial statements should
be read in conjunction with the consolidated financial
statements and notes thereto in the Company's 1993 Annual
Report.
-6-<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
F. 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, 1993 and 1992
are as follows: (in thousands)
Three Months Ended Nine Months Ended
December 31, December 31,
1993 1992 1993 1992
Net Sales $36,422 $32,538 $88,107 $77,628
Costs and Expenses (19,470) (15,687) (40,789) (34,840)
Income Taxes (5,070) ( 6,236) (15,220) (15,601)
Net Earnings $11,882 $10,615 $32,098 $27,187
The above information represents 100% of Somerset's
operations of which the Company has a 50% interest.
-7-
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the three months ended December 31, 1993 were a
record high $66,436,000 exceeding the previous record high
quarterly sales for the same quarter a year ago by 9%. For the
nine month period ended December 31, 1993 net sales were
$182,699,000 representing a 21% increase over the same period a
year ago. Sales of five new generic products added to the
Company's product line in December and an overall increase in
generic volume, up 15% quarter to quarter and 25% year to date,
along with sales revenues from Bertek which was acquired in
February 1993, have helped to offset significant price erosion
which continues to effect products added to the generic line
during the last fiscal year.
As a direct result of significant pricing competition in the
generic markets and the addition of Bertek revenues, which
generally provide lower gross margin rates, gross margin as a
percent of sales has decreased from 60% for the December 1992
quarter to 52% this year and from 57% for the nine months ended
December 1992 to 50% this year.
Indicative of the Company's commitment to new and increased
product development to broaden the Company's product line,
current year expenditures for research and development have
increased significantly over prior years. This increase is due
to research projects throughout the Company.
As discussed in footnote A, Selling and Administrative expenses
for the quarter ended December 31, 1993 includes a charge of
$2,800,000 for obligations pursuant to a salary continuation
agreement for Mr. McKnight. Excluding this one time charge,
Selling and Administrative expenses were 17% of net sales for the
quarters ended December 31, 1993 and 1992 and were 19% of sales
for the nine month period ended December 31, 1993 versus 18% last
year. Amortization of intangible assets associated with the
Bertek acquisition of approximately $3,000,000 are included in
the 1993 year to date amount. Other factors contributing to the
increase include advertising and promotion expenses associated
with new products and legal and professional fees associated with
the various court actions to which the Company is a party.
Equity in earnings of Somerset continues to provide a solid
return for the Company. Somerset's contribution to net earnings
per share for the three and nine month periods was $.08 and $.21
in 1993 and $.07 and $.18 in 1992.
-8-<PAGE>
Effective April 1, 1993 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes" which resulted in a reduction of income tax expense
and a corresponding increase in net earnings during the quarter
ended June 30, 1993 of $1,124,000 or $.01 per share.
During the quarter ended September 30, 1993, as a direct result
of changes in the Federal Tax Code enacted in August of 1993, the
Company reassessed its position on the filing alternatives
available under the tax code. Based on the new tax code
provision the Company made a decision which resulted in a
reduction of income tax expense of $3,225,000. Excluding the
effects of adoption of FAS 109 and the management decision
predicated on the changes in the tax code, the effective tax rate
for the nine months ended December 31, 1993 is roughly 21%
compared to 25% for the same period a year ago. This decrease is
due to higher levels of production at the Company's Puerto Rico
facility.
Liquidity and Capital Resources and Financial Condition
Working capital increased from $154,000,000 at March 31, 1993
to $191,021,000 at December 31, 1993 as a result of continued
strong operations. The ratio of current assets to current
liabilities was 6.8 to 1 at March 31, 1993 and 9.0 to 1 at
December 31, 1993.
Cash flows from operating activities remain strong but have
decreased from the prior year due principally to the timing of
new product sales and increased levels of operating expenditures
and inventory purchases.
Additions to property, plant and equipment amounted to
$11,210,000 in the current year including construction projects
at the Company's West Virginia and Puerto Rico facilities and new
projects at the Bertek facility in Vermont.
-9-<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 24, 1993 the Company reached a settlement with
Pharmaceuticals Resources, Inc./Par Pharmaceuticals/Quad
Pharmaceuticals, three defendants in the Company's suit filed
under the Federal Antitrust Laws and the Racketeer Influenced and
Corrupt Organization Act (RICO), against several pharmaceutical
companies, certain employees of those Companies and certain
former employees of the FDA Generic Drug Division. Under the
settlement, Pharmaceutical Resources, Inc. agreed to pay the
Company the sum of $1,000,000 in cash and $2,000,000 in their
common stock.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - On November 15, 1993 the Company
filed a report on Form 8-K dated November 6, 1993 covering Item 5
thereof regarding the death of Roy McKnight and the appointments
of Milan Puskar as Chairman and Chief Executive Officer and C.B.
Todd as a member of the board of directors.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) November 6,1993
MYLAN LABORATORIES INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 1-9114 25-1211621
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
130 Seventh Street
1030 Century Building
Pittsburgh, PA 15222
(Address of principal executive offices)
Registrant's telephone number, including area code (412) 232-0100
Item 5. Other Events.
On November 9, 1993, the board of directors of Mylan
Laboratories Inc.(the "Registrant") named Milan Puskar, age 59,
as its Chairman and Chief Executive Officer, in addition to his
current position as President, and named C.B. Todd as a member of
its board of directors. Mr. Puskar succeeds Roy McKnight, who
was stricken by a fatal heart attack the previous weekend, and
Mr. Todd's election fills the resulting vacancy on the board. Mr.
Todd, age 59, is a Senior Vice President of the Registrant, a
member of its Executive Committee and President of Mylan
Pharmaceuticals, Inc., a wholly-owned subsidiary of the
Registrant. He has served in various positions with the
Registrant since 1970.
Signature
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 hereunto duly authorized.
MYLAN LABORATORIES INC.
By: /S/ Milan Puskar
Milan Puskar, Chairman,
Chief Executive Officer and
President
Date: November 12,1993
Pittsburgh, Pennsylvania
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 /S/ Milan Puskar 2/3/94
Milan Puskar
Chairman, President & C.E.O.
DATE /S/ Frank A. DeGeorge 2/3/94
Frank A. DeGeorge
Director of Accounting and Taxation
-10-
