<PAGE>
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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
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<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
---------
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
--------------------------------- ------------------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
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.
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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.
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 148,979,000
<SECURITIES> 9,985,000
<RECEIVABLES> 98,059,000
<ALLOWANCES> 10,506,000
<INVENTORY> 100,422,000
<CURRENT-ASSETS> 361,735,000
<PP&E> 187,668,000
<DEPRECIATION> 57,360,000
<TOTAL-ASSETS> 764,888,000
<CURRENT-LIABILITIES> 70,523,000
<BONDS> 0
0
0
<COMMON> 61,295,000
<OTHER-SE> 576,517,000
<TOTAL-LIABILITY-AND-EQUITY> 764,888,000
<SALES> 207,524,000
<TOTAL-REVENUES> 207,524,000
<CGS> 119,615,000
<TOTAL-COSTS> 119,615,000
<OTHER-EXPENSES> 61,502,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 425,000
<INCOME-PRETAX> 44,213,000
<INCOME-TAX> 12,854,000
<INCOME-CONTINUING> 31,359,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,359,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
