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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[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
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<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<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 - 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-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CIK> 0000069499
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 108,995,000
<SECURITIES> 15,062,000
<RECEIVABLES> 117,461,000
<ALLOWANCES> 10,432,000
<INVENTORY> 121,274,000
<CURRENT-ASSETS> 380,301,000
<PP&E> 203,793,000
<DEPRECIATION> 64,686,000
<TOTAL-ASSETS> 787,492,000
<CURRENT-LIABILITIES> 81,929,000
<BONDS> 39,744,000
0
0
<COMMON> 61,412,000
<OTHER-SE> 611,215,000
<TOTAL-LIABILITY-AND-EQUITY> 787,492,000
<SALES> 109,188,000
<TOTAL-REVENUES> 109,188,000
<CGS> 61,379,000
<TOTAL-COSTS> 61,379,000
<OTHER-EXPENSES> 31,429,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 758,000
<INCOME-PRETAX> 22,341,000
<INCOME-TAX> 5,743,000
<INCOME-CONTINUING> 16,598,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,598,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
