- ------------------------------------------------------------------------------
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, 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 February 9, 1998
--------------------- ----------------
$.50 par value 122,149,289
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
INDEX
Page
Number
-----------
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets - December 31, 1997
and March 31, 1997 2A and 2B
Consolidated Statements of Earnings - Three and
Nine Months Ended December 31, 1997 and 1996 3
Consolidated Statements of Cash Flows - Nine
Months Ended December 31, 1997 and 1996 4
Notes to Consolidated Financial Statements -
Nine Months Ended December 31, 1997 5 through 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
December 31, March 31,
1997 1997
Unaudited Audited
Current Assets:
Cash and cash equivalents $115,130,000 $126,156,000
Marketable securities 18,492,000 13,876,000
Accounts receivable - net 108,044,000 115,303,000
Inventories:
Raw materials 67,783,000 51,796,000
Work in process 23,531,000 20,843,000
Finished goods 44,287,000 28,251,000
------------ ------------
135,601,000 100,890,000
Prepaid refundable income taxes 4,887,000 -
Deferred income tax benefit 6,778,000 13,532,000
Other current assets 10,029,000 9,263,000
------------ ------------
Total Current Assets 398,961,000 379,020,000
Property, Plant and Equipment - at cost 217,169,000 197,466,000
Less accumulated depreciation 71,329,000 61,637,000
------------ ------------
145,840,000 135,829,000
Deferred Income Tax Benefit 2,625,000 -
Marketable Securities, non-current 21,907,000 23,668,000
Investment in and Advances to Somerset 28,178,000 25,113,000
Intangible Assets-net of accumulated amortization 131,267,000 137,062,000
Other Assets 86,205,000 76,888,000
------------ ------------
Total Assets $814,983,000 $777,580,000
============ ============
See Notes to Consolidated Financial Statements
-2A-
<PAGE>
LIABILITIES AND SHAREH0LDERS' EQUITY
December 31, March 31,
1997 1997
Unaudited Audited
Current Liabilities:
Trade accounts payable $ 14,996,000 $ 18,039,000
Current portion of long-term obligations 16,336,000 17,453,000
Income taxes payable 7,701,000 13,795,000
Other current liabilities 22,880,000 24,566,000
Cash dividend payable 4,896,000 4,893,000
------------ ------------
Total Current Liabilities 66,809,000 78,746,000
Long-Term Obligations 31,996,000 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 123,022,547 shares at
December 31, 1997 and 122,814,956
shares at March 31, 1997 61,511,000 61,407,000
Additional paid-in capital 92,093,000 89,262,000
Retained earnings 568,069,000 513,750,000
Net unrealized gain (loss) on investments 646,000 (947,000)
------------
722,319,000 663,472,000
Less Treasury stock - at cost, 887,358
shares at December 31, 1997 and
752,950 shares at March 31, 1997 6,141,000 3,732,000
------------ ------------
Net Worth 716,178,000 659,740,000
------------ ------------
Total Liabilities and Shareholders' Equity $814,983,000 $777,580,000
============ ============
See Notes to Consolidated Financial Statements
-2B-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended December 31, Nine Months Ended December 31,
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
Net Sales $129,517,000 $113,981,000 $365,838,000 $321,505,000
Other Revenues - - 26,822,000 -
------------ ------------ ------------ ------
Total Revenues 129,517,000 113,981,000 392,660,000 321,505,000
COST AND EXPENSES:
Cost of Sales 75,077,000 66,729,000 207,657,000 186,344,000
Research and Development 7,891,000 10,775,000 31,707,000 31,561,000
Selling and Administrative 21,239,000 19,566,000 72,460,000 60,282,000
------------ ------------ ------------ ------------
104,207,000 97,070,000 311,824,000 278,187,000
EQUITY IN EARNINGS OF SOMERSET 1,839,000 4,462,000 8,431,000 14,507,000
OTHER INCOME 3,923,000 2,505,000 10,186,000 10,266,000
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 31,072,000 23,878,000 99,453,000 68,091,000
INCOME TAX RATE 29% 24% 31% 27%
INCOME TAXES 9,089,000 5,797,000 30,482,000 18,651,000
------------ ------------ ------------ ------------
NET EARNINGS $ 21,983,000 $ 18,081,000 $ 68,971,000 $ 49,440,000
============ ============ ============ ============
EARNINGS PER SHARE-basic and diluted $ .18 $ .15 $ .57 $ .41
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES-basic 122,127,000 121,916,000 122,074,000 121,892,000
============ ============ ============ ============
The Company has paid regular quarterly cash dividends of $.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 NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
UNAUDITED
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ 68,971,000 $ 49,440,000
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization 15,983,000 13,896,000
Deferred income tax benefit (2,243,000) (312,000)
Equity in the earnings of Somerset (8,431,000) (14,507,000)
Cash received from Somerset 5,366,000 15,546,000
Allowances on accounts receivable 2,967,000 (805,000)
Other non-cash items (401,000) 949,000
Changes in operating assets and liabilities:
Accounts receivable 4,042,000 (23,934,000)
Inventories (34,567,000) 3,223,000
Trade accounts payable (3,043,000) (2,758,000)
Income taxes payable (11,316,000) (1,767,000)
Other operating assets and liabilities (2,450,000) 7,125,000
----------- -----------
Net cash provided from operating activities 34,878,000 46,096,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (19,703,000) (20,094,000)
Increase in intangible and other assets (6,760,000) (29,257,000)
Proceeds from investment securities 12,086,000 17,078,000
Purchase of investment securities (12,489,000) (20,952,000)
----------- -----------
Net cash used in investing activities (26,866,000) (53,225,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (14,651,000) (14,617,000)
Payments on long-term obligations (4,187,000) (1,423,000)
Repurchase of Common Stock (2,459,000) -
Proceeds from exercise of stock options 2,259,000 912,000
----------- -----------
Net cash used in financing activities (19,038,000) (15,128,000)
----------- -----------
Net Decrease in Cash and Cash Equivalents (11,026,000) (22,257,000)
Cash and Cash Equivalents - Beginning of Period 126,156,000 176,980,000
----------- -----------
Cash and Cash Equivalents - End of Period $115,130,000 $154,723,000
============ ============
CASH PAID DURING THE PERIOD FOR:
Interest $ 1,187,000 $ 433,000
Income Taxes $ 44,015,000 $ 20,728,000
See Notes to Consolidated Financial Statements
-4-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED
DECEMBER 31, 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 December 31, 1997 and March 31, 1997 together with the
results of operations and cash flows for the interim periods ended
December 31, 1997 and 1996. The consolidated results of operations for
the three and nine months ended December 31, 1997 and 1996 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 1997
Annual Report and Report on Form 10-K and subsequent filings under the
Securities Exchange Act of 1934.
C. In June 1997, the Company's subsidiary Mylan Pharmaceuticals Inc.
("Mylan") entered into 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. Ranitidine
is the generic version of Glaxo's Zantac(R).
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 agreement with any
third party, which would affect either the marketing of ranitidine or
Genpharm's ability to supply product to Mylan.
Due to unresolved legal matters with Glaxo, on July 31, 1997, Genpharm
entered into an agreement with Novopharm Limited, a Canadian Corporation,
and its United States subsidiary Granutec Inc. ("Novopharm"). Under the
terms of the agreement between Genpharm and Novopharm, Genpharm is
entitled to receive compensation from Novopharm predicated upon
Novopharm's sales of the product through December 31, 1997 and a profit
allocation factor which is significantly reduced after the exclusivity
period. Under the terms of the agreement between Mylan and Genpharm, Mylan
is entitled to share in the compensation received by Genpharm from
Novopharm.
-5-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED
DECEMBER 31, 1997
Unaudited
C. (con't) During the quarter ended September 30, 1997, the Company
recognized income of $26,822,000 related to the Genpharm Novopharm
agreement. Such income was recorded under the caption "Other Revenue" and
increased net earnings for the quarter ended September 30, 1997 by
approximately $16,388,000 or $.13 per share. The Company collected the
entire receivable recorded as of September 30, 1997 during the quarter
ended December 31, 1997.
As a result of a dispute between Genpharm and Novopharm relating to
contract interpretation, the Company did not recognize any additional
revenue during the quarter ended December 31, 1997. The amount of revenue
to be recognized by the Company in the future will be determined by a
final accounting of the net sales and expenses incurred by Novopharm
during the contract period and resolution of the dispute between Genpharm
and Novopharm.
D. For the quarter ended December 31, 1997, the Company adopted the
provisions of Statement of Accounting Standards No. 128, "Earnings per
Share." The diluted per-share computations for the three and nine months
ended December 31, 1997 and 1996, include 1,287,000 and 885,000, and
909,000 and 1,030,000, of potential shares of common stock from the
exercise of stock options, respectively.
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.
-6-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED
DECEMBER 31, 1997
Unaudited
E. (con't) Condensed unaudited financial information of Somerset for the
three and nine month periods ended December 31, 1997 and 1996 are as
follows: (in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
Net Sales $12,301 $19,685 $44,684 $76,052
Costs and Expenses (6,865) (7,378) (20,119) (35,406)
Income Taxes (1,910) (3,904) (8,550) (14,048)
------- ------- ------- -------
Net Earnings $ 3,526 $ 8,403 $16,015 $26,598
======= ======= ======= =======
The above information represents 100% of Somerset's operations of which
the Company has a 50% interest.
Somerset's marketing exclusivity for Eldepryl(R) under the Orphan Drug Act
expired on June 6, 1996, Somerset has experienced increased competition
since August 1996, due to the approval of several generic tablet forms of
Eldepryl(R) by the FDA. This has resulted in the decrease in sales and net
earnings from 1996 to 1997.
-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 for the three months ended December 31, 1997 were $21,983,000
($.18 per share)representing a 22% increase over the same quarter a year ago and
for the nine months then ended were $68,971,000($.57 per share) representing a
40% increase over the same period a year ago. Net earnings for the nine month
period ending December 31, 1997 includes approximately $.13 per share relating
to revenue recognized by the Company as a result of the sale of generic
ranitidine by an unrelated party during the period(see note C)and was reduced by
approximately $.07 per share as a result of unusual promotional expense
associated with the launch of new generic products by the Company, primarily the
launch of generic ranitidine.
In addition to the unusual items identified above, net earnings for both
the three and nine month periods ended December 31, 1997 were favorably impacted
by the addition of 14 products to the Company's generic product line since
December 31, 1996 including 11 during the current fiscal year. The addition of
the new generic products, continued volume increases throughout the generic
product line and selective price increases have offset the price deterioration
that exists in the generic industry. Generic volume of almost 2.0 billion
tablets, capsules and patches for the quarter and 5.4 billion year to date,
represents 15% growth over the same periods a year ago.
As a result of the items identified in the previous paragraph, net sales
for the three and nine month periods ended December 31, 1997 were a record high
$129,517,000 and $365,838,000, respectively. This represents a 14% increase over
the prior year comparable periods. Gross profit(net sales less cost of sales)as
a percentage of net sales remained relatively unchanged from the prior year
comparable periods.
Due to the competitive nature of the generic pharmaceutical industry, the
Company has long been subject to price deterioration particularly on new
products. Historically the Company has offset price deterioration by increasing
volume and introducing new generic products.
Recently, branded pharmaceutical companies have significantly increased
legal procedures aimed at delaying the introduction of generic versions of their
compounds. While the vast majority of these legal challenges prove to be without
merit they have caused the Company to incur additional research and development
costs and significant legal costs. More importantly they have delayed the
introduction of several products.
As a direct result of the increased cost involved in bringing new products
to market, the Company has selectively increased prices on certain of its
generic products. Mylan had to choose between discontinuing some money-losing
items or increasing prices. We have chosen to increase prices and continue
providing low-cost, effective, quality generic alternatives.
-8-
<PAGE>
Research and development expenditures for the three and nine month periods
ended December 31, 1997 were $7,891,000 and $31,707,000 compared to $10,775,000
and $31,561,000 for the three and nine month periods ended December 31, 1996.
The decrease in the three months ended December 31, 1997 was primarily
attributable to the Company's funding to VivoRx Inc. being substantially
reduced due to various federal grants obtained by VivoRx Inc. relating to its
diabetes research. The Company expects research and development expenses to
return to levels experienced in prior quarters.
Selling and administrative expenses were $21,239,000 and $72,460,000 for
the three and nine month periods ended December 31, 1997 compared to $19,566,000
and $60,282,000 for the three and nine month periods ended December 31, 1996.
Approximately 60% of the increase for the three month period and 86% of the
increase for the nine month period relate to promotional expenses for customers
associated with the launch of new generic products including ranitidine.
Somerset's contribution to the Company's earnings per share
was $.01 and $.06 for the three and nine month periods ended December 31, 1997
compared to $.03 and $.11 for the three and nine month periods ended December
31, 1996. Generic competition continues to adversely affect Somerset's
contribution to the Company's net earnings per share.
For the three month period ended December 31, 1997 the increase in the
effective tax rate over the same period a year ago is primarily attributable to
the increase in domestic earnings versus Puerto Rico earnings. In addition, the
effective tax rate for the nine month period ended December 31, 1997 was further
impacted by the Other Revenue recognized during the period which is subjected to
the full Federal and State tax rates.
Liquidity, Capital Resources and Financial Condition
Working capital increased from $300,274,000 at March 31, 1997 to
$332,152,000 at December 31, 1997. The ratio of current assets to current
liabilities improved from 4.8 to 1 at March 31, 1997 and 6.0 to 1 at December
31, 1997.
Net cash provided from operating activities was $34,878,000 for the nine
months ended December 31, 1997 compared to $46,096,000 for the same period last
year. Significant changes in balance sheet accounts between March 31, 1997 and
December 31, 1997 relate principally to the settlement of the Internal Revenue
Service audit and increased inventory levels attributable to continued higher
demand for the Company's products. These timing items, partially offset by
the increase in earnings, are primarily responsible for the change in cash flows
from operating activities between the current period and the same period a year
ago.
Additions to property, plant and equipment amounted to $19,703,000 for the
nine months ended December 31, 1997. Capital expenditures are principally
related to the completion of a new distribution facility in Greensboro, North
Carolina and expansion of the manufacturing facility in Morgantown, West
Virginia. The acquisition of Maxzide(R) in the prior period is primarily
responsible for the decrease in cash used in investing activities.
-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 - There were no reports on Form 8-K filed
during the three months ended December 31, 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 2/13/98 /s/ Milan Puskar
------------------------ ---------------------------------
Milan Puskar
Chairman of the Board, Chief
Executive Officer and President
DATE 2/13/98 /s/ Milan Puskar
------------------------ --------------------------
Donald C. Schilling
Vice President of Finance
-10-
<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 Sheet at December 31, 1997 and the
Consolidated Statement of Earnings for the nine months ended
December 31, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000069499
<NAME> none
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 115,130,000
<SECURITIES> 18,492,000
<RECEIVABLES> 125,642,000
<ALLOWANCES> 17,598,000
<INVENTORY> 135,601,000
<CURRENT-ASSETS> 398,961,000
<PP&E> 217,169,000
<DEPRECIATION> 71,329,000
<TOTAL-ASSETS> 814,983,000
<CURRENT-LIABILITIES> 66,809,000
<BONDS> 36,767,000
0
0
<COMMON> 61,511,000
<OTHER-SE> 654,667,000
<TOTAL-LIABILITY-AND-EQUITY> 814,983,000
<SALES> 365,838,000
<TOTAL-REVENUES> 392,660,000
<CGS> 207,657,000
<TOTAL-COSTS> 207,657,000
<OTHER-EXPENSES> 104,167,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,243,000
<INCOME-PRETAX> 99,453,000
<INCOME-TAX> 30,482,000
<INCOME-CONTINUING> 68,971,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,971,000
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
