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Taro Provides Results for December 31, 2014

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Taro Pharmaceutical Industries Ltd. (NYSE:TARO) (“Taro” or the “Company”) today provided unaudited financial results for the three months and nine months ended December 31, 2014.

Quarter ended December 31, 2014 Highlights – compared to December 31, 2013

  • Net sales of $237.7 million, increased $24.1 million, or 11.3%, with a volume decrease across all markets
  • Gross profit, as a percentage of net sales, was 81.4%, compared to 80.7% – an increase of $21.0 million or 12.2%
  • Research and development expenses decreased $2.3 million to $12.8 million
  • Selling, marketing, general and administrative expenses of $21.3 million, remained relatively flat
  • Operating income increased $24.4 million to $159.3 million, or 67.0% of net sales, compared to $134.9 million, or 63.2% of net sales – represented 18.1% growth over the same period last year
  • As a result of increased sales, increased gross margins and cost containment, net income attributable to Taro was $142.5 million compared to $115.6 million, resulting in diluted earnings per share of $3.33 compared to $2.59, a 28.7% increase

Nine Months ended December 31, 2014 Highlights – compared to December 31, 2013

  • Net sales of $618.8 million, increased $46.7 million, or 8.2%, with a slight decrease in volumes
  • Gross profit, as a percentage of net sales was 77.1%, compared to 76.7% – an increase of $38.3 million or 8.7%
  • Research and development expenses decreased $0.6 million to $41.6 million
  • Selling, marketing, general and administrative expenses were relatively flat at $65.4 million
  • Settlements and loss contingencies was a $4.2 million credit, the net result of two settlements which resulted in the reversal of a portion of the associated reserve on one matter, compared to a $2.6 million expense in 2013 (related to certain price reporting litigations)
  • Operating income increased $45.4 million to $374.1 million, or 60.5% of net sales, compared to $328.7 million, or 57.5% of net sales. Excluding the impact from settlements and loss contingencies, this increase would have been $38.6 million or 11.6%
  • Net income attributable to Taro was $332.0 million compared to $270.7 million, a $61.2 million increase, resulting in diluted earnings per share of $7.75 compared to $6.05, a 28.1% increase

Cash Flow and Balance Sheet Highlights

  • Cash provided by operations for the period ended December 31, 2014 was $192.8 million, as compared to $273.7 million for the period ended December 31, 2013, the result of an increase in working capital usage (see details in Consolidated Statement of Cash Flows)
  • Cash, including marketable securities of $738.0 million, increased $105.6 million from March 31, 2014
  • Total debt decreased $11.8 million, the result of the Company paying-off its debentures with institutional holders

FDA Approvals and Filings

Recently, the Company received an approval for an Abbreviated New Drug Application (“ANDA”) Diclofenac Sodium Topical Solution, 1.5% and filed one ANDA with the U.S. Food and Drug Administration (“FDA”). With this, ANDAs representing thirty products await FDA approval.

Earnings Call

Consistent with the Company’s policy, Taro will conduct its next earnings call when it announces its financial results for the year-ending March 31, 2015.

About Taro

Taro Pharmaceutical Industries Ltd. is a multinational, science-based pharmaceutical company, dedicated to meeting the needs of its customers through the discovery, development, manufacturing and marketing of the highest quality healthcare products. For further information on Taro Pharmaceutical Industries Ltd., please visit the Company’s website at www.taro.com.

SAFE HARBOR STATEMENT

The unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments necessary to present fairly the financial condition and results of operations of the Company. The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 20-F, as filed with the SEC.

Certain statements in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements that do not describe historical facts or that refer or relate to events or circumstances the Company “estimates,” “believes,” or “expects” to happen or similar language, and statements with respect to the Company’s financial performance, availability of financial information, and estimates of financial results and information for fiscal year 2015. Although the Company believes the expectations reflected in such forward-looking statements to be based on reasonable assumptions, it can give no assurances that its expectations will be attained. Factors that could cause actual results to differ include general domestic and international economic conditions, industry and market conditions, changes in the Company’s financial position, litigation brought by any party in any court in Israel, the United States, or any country in which Taro operates, regulatory and legislative actions in the countries in which Taro operates, and other risks detailed from time to time in the Company’s SEC reports, including its Annual Reports on Form 20-F. Forward-looking statements are applicable only as of the date on which they are made. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

TARO PHARMACEUTICAL INDUSTRIES LTD.

SUMMARY CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(U.S. dollars in thousands, except share data)

Quarter Ended

Nine Months Ended

December 31,

December 31,

2014

2013 2014 2013
Sales, net $ 237,700 $ 213,598 $ 618,764 $ 572,109
Cost of sales 44,206 41,136 141,814 133,461
Gross Profit 193,494 172,462 476,950 438,648

Operating Expenses (Income):

Research and development 12,829 15,124 41,645

42,263
Selling, marketing, general and administrative 21,345 21,904 65,415 65,086
Settlements and loss contingencies - 540 (4,200 ) 2,590
Operating income 159,320 134,894 374,090 328,709

Financial Expenses, net:

Interest and other financial income, net (2,968 ) (1,436 ) (6,590 ) (3.926 )
Foreign exchange income (8,264 ) (2,513 ) (9,153 ) (3,221 )
Other income, net 362 436 2,343 962
Income before income taxes 170,914 139,279 392,176 336,818
Tax expense 28,174 23,514 59,187 65,296
Income from continuing operations 142,740 115,765 332,989 271,522
Net loss from discontinued operations (126 ) (50 ) (473 ) (222 )
Net income 146,614 115,715 332,516 271,300
Net income attributable to non-controlling interest 132 100 551 553
Net income attributable to Taro $ 142,482 $ 115,615 $ 331,965 $ 270,747
Net income per ordinary share from continuing operations attributable to Taro:
Basic $ 3.33 $ 2.59 $ 7.76 $ 6.06
Diluted $ 3.33 $ 2.59 $ 7.76 $ 6.05
Net loss per ordinary share from discontinued operations attributable to Taro:

Basic

($ 0.00

)*

($ 0.00

)*

($ 0.01 ) ($ 0.01 )
Diluted

($ 0.00

)*

($ 0.00

)*

($ 0.01 )

($ 0.00

)*

Net income per ordinary share attributable to Taro:
Basic $ 3.33 $ 2.59 $ 7.75 $ 6.05
Diluted $ 3.33 $ 2.59 $ 7.75 $ 6.05
Weighted-average number of shares used to compute net income per share:
Basic 42,833,533 44,700,460 44,833,162 44,749,065
Diluted 42,833,533 44,703,837 44,833,452 44,752,633
* Amount is less than $0.01.
May not foot due to rounding.

TARO PHARMACEUTICAL INDUSTRIES LTD.

SUMMARY CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

December 31,

March 31,

2014 2014
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 283,219 $ 209,967
Short-term bank deposits 451,157 418,946
Restricted short-term bank deposits 204 227
Marketable securities 3,417 3,255
Accounts receivable and other:
Trade, net 225,653 138,772
Other receivables and prepaid expenses 262,782 162,392
Inventories 125,077 117,639
Long-term assets held for sale, net 64 73
TOTAL CURRENT ASSETS 1,351,573 1,051,271
Long-term receivables and other assets 67,976 52,894
Property, plant and equipment, net 153,488 151,416
Other assets 25,981 28,795
TOTAL ASSETS $ 1,599,018 $ 1,284,376
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 898 $ 11,974
Trade payables and other current liabilities 265,623 241,330
TOTAL CURRENT LIABILITIES 266,521 253,304
Long-term debt, net of current maturities 5,209 5,888
Deferred taxes and other long-term liabilities 4,857 4,591
TOTAL LIABILITIES 276,587 263,783
Taro shareholders’ equity 1,316,794 1,015,507
Non-controlling interest 5,637 5,086

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$ 1,599,018 $ 1,284,376

TARO PHARMACEUTICAL INDUSTRIES LTD.

SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(U.S. dollars in thousands)

Nine Months Ended December 31,

2014

2013

Operating Activities:

Net income $ 332,516 $ 271,300
Adjustments required to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,933 12,408
Gain on sale of long-lived assets and marketable securities, net (199 ) (5 )
(Decrease) increase in long-term debt due to currency fluctuations (1,030 ) 1,260
Increase in trade receivables, net (87,406 ) (7,542 )
Change in derivative instruments, net 4,965 2,426
Increase in other receivables, prepaid expenses and other assets (68,213 ) (37,741 )
Increase in inventories, net (9,063 ) (11,646 )
Effect of exchange differences on inter-company balances (11,436 ) (6,858 )
Increase in trade and other payables and liabilities 20,775 50,113
Net cash provided by operating activities 192,842 273,715
Investing Activities:
Purchase of property, plant & equipment (14,019 ) (16,646 )

Proceeds from (investment in) property, plant & equipment and intangible assets

60 (4,401 )
Investment in other assets (31,050 )
Investment in long-term security deposits and other assets (17,810 ) (25,076 )
Investment in short-term bank deposits (42,321 ) (56,581 )
Proceeds from restricted bank deposits 23 7,430
Proceeds from (investment in) marketable securities 81 (50 )
Net cash used in investing activities (105,036 ) (95,324 )
Financing Activities:
Purchase of treasury shares (192,993 )
Excess tax benefits from share-based payment arrangements 97
Proceeds from issuance of shares, net 26 1,189
Repayments of long-term debt (10,725 ) (11,668 )
Net cash used in financing activities (10,699 ) (203,375 )
Effect of exchange rate changes (3,855 ) (4,845 )
Net increase (decrease) in cash 73,252 (29,829 )
Cash at beginning of period 209,967 237,284
Cash at end of period $ 283,219 $ 207,445

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