SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
/ / Annual Report pursuant to section 13 or 15(d) of theSecurities
Exchange Act of 1934 [Fee Required] for the fiscal year ended March
31,1994 or
/ / Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period
from _________ to _________
Commission File No. 1-9114
MYLAN LABORATORIES INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1211621
(State or other jurisdiction of incorporation ororganization) (IRS Employer Identification No.)
130 Seventh Street
1030 Century Building
Pittsburgh, Pennsylvania 15222
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code: 412-232-0100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $.50 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark 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 12 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/ / No/ /
Indicate by checkmark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of voting stock held by
persons other than Directors and Officers of the registrant computed by reference to the
closing price of such stock as of April 30, 1994:
$1,440,211,990
The number of shares of Common Stock of the registrant outstanding as of April 30, 1994:
79,213,013
Documents incorporated by reference into this Report are:
Annual Report to Shareholders for year ended March 31, 1994...... Parts I and II,
Items 1, 5-8
Proxy Statement for 1994 Annual Meeting of Shareholders. . . . . .Part III, Items 10-13<PAGE>
PART I
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ITEM 1. Business
Mylan Laboratories Inc., a Pennsylvania corporation
incorporated in 1970, and its subsidiaries (herein referred to
collectively as the "Company") are engaged in the development,
manufacturing and distribution of pharmaceutical products for
resale by others. The Company's objective is to become a fully
integrated pharmaceutical company. References herein to fiscal
1994, 1993 and 1992 mean the fiscal years ended March 31,
1994, 1993 and 1992, respectively.
Through its subsidiary, Mylan Pharmaceuticals Inc., the
Company is recognized as one of the leaders in the generic
pharmaceutical industry. Pharmaceutical products initially
sold on an exclusive basis are known in the industry as
proprietary or branded products. Generic drugs are
therapeutically equivalent to their brand name counterparts and
are generally sold at prices significantly less than branded
products. Accordingly, generics provide a safe, effective and
cost efficient alternative to users of these products.
The Company manufactures substantially all of its oral dose
products in either its Mylan Pharmaceuticals subsidiary's
Morgantown, West Virginia facility or its subsidiary
Mylan Inc.'s facility in Caguas, Puerto Rico. To facilitate
timely delivery of products to customers in all fifty states the
Company operates distribution centers in Greensboro, North
Carolina and Reno, Nevada.
Due to the non-exclusive nature of generic products, the
generic industry is comprised of numerous competitors including
manufacturers who market their products under their own
name, distributors who market products manufactured by others and
brand name companies, who in recent years market their products
under both the brand name and as the generic substitute.
Historically, this diversity provides significant price
competition within the generic pharmaceutical industry which
generally results in decreasing prices of generic products over
time to those who supply such products to the retail market.
In June of 1989 the Company acquired a 50% interest in
Somerset Pharmaceuticals, Inc. ("Somerset"). Pursuant to a
license agreement with a Hungarian pharmaceutical company,
Somerset has exclusive marketing rights to the product Eldepryl
in the United States and certain other countries. Commercial
shipments of the product by Somerset commenced in late August,
1989.
Under the Orphan Drug Act, Somerset has exclusivity relating
to marketing the chemical compound Eldepryl for use as a
treatment for late stage Parkinson's disease through June of
1996. Under the Waxman Hatch Act, Somerset has exclusivity for
all uses of the chemical compound through June of 1994. Somerset
is actively involved in research projects regarding additional
uses of the chemical compound.
During September, 1990 Somerset entered into an agreement
with Sandoz Pharmaceuticals Co. Ltd. ("Sandoz") to co-promote the
product Eldepryl . Under the terms of the agreement Somerset
reimburses Sandoz for certain advertising expenses and pays
Sandoz a co-promotion fee predicated upon sales.
In October of 1991, a wholly-owned subsidiary of the Company
merged with Dow Hickam Pharmaceuticals, Inc. ("Hickam"), an
established high quality branded pharmaceutical company located
in Sugar Land, Texas. Hickam currently manufactures and/or
markets specialty pharmaceutical products and devices used
principally as wound care treatments through its nation-wide
sales force.
On February 25, 1993 the Company acquired substantially all
of the net assets of Bertek, Inc. ("Bertek"). Bertek,
headquartered in St. Albans, Vermont is a manufacturer of
transdermal drug delivery systems and also has operations in
laminating, coatings and label manufacturing. Bertek currently
provides components, using internally developed technology
for transdermal patches marketed by other companies. The Company
is actively involved in development projects using Bertek
technology to provide new products for marketing by its
subsidiaries.
In October, 1990 Congress passed the Medicaid Prudent
Pharmaceutical Purchasing Act of 1990. Under the Act, the
Company is required to pay a rebate to each state predicated on
the number of prescriptions for the Company's products reimbursed
by the states under Medicaid. The Act was effective January 1,
1991.
The pharmaceutical industry along with the health care
industry in general has been targeted for reform by the current
administration. The extent or form of any changes which may
affect the pharmaceutical industry are highly speculative at this
time. The Company believes that the Federal government
commitment to contain drug costs along with state substitution
laws, emphasis of cost containment by third party payers,
changing quality perception and a growing elderly population,
will favorably affect the market for generic products.
Products
The information on the Company's product line set forth on
page 2 and 3 of the Annual Report to Shareholders for the year
ended March 31, 1994, is incorporated herein by reference. All
pharmaceutical products presently manufactured by the Company
have been previously developed and marketed by other firms with
the exception of Maxzide and Maxzide -25MG.
The Company is required to secure and maintain approval from
the U.S. Food and Drug Administration ("FDA") for the products
and dosage forms which it manufactures. The number of products
and dosage forms for which the Company is an approved
manufacturer has expanded in recent years. See "New Products
Approvals".
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During fiscal 1994, 1993 and 1992 approximately $21,648,000,
$13,524,000 and $7,885,000 respectively, were applied by the
Company to the development of formulations and procedures for
products which it desires to produce, use or sell. The Company's
research and development efforts are conducted primarily to
qualify the Company to manufacture ethical pharmaceuticals under
FDA standards and approval.
New Product Approvals
During fiscal 1994, eight approvals were received from the
FDA. The Company presently has approximately 16 additional
requests for approval pending before the FDA, representing 31
products of varying strengths.
Customers and Markets
The Company sells its products to proprietary and ethical
pharmaceutical wholesalers and distributors, drug store chains,
drug manufacturers and public and governmental agencies. Sales
to one customer, McKesson, represented 12% and 10% of net sales
in 1993 and 1992 and to Lederle Laboratories which represented
12% of net sales in 1992. No single customer represented more
than 10% of net sales in 1994.
A majority of the Company's products are marketed to food
and drug store chains and to pharmaceutical distributors and
wholesalers, who in turn market to retailers, managed care
entities, hospitals and government agencies. Certain other
products are marketed to institutional accounts who in turn
obtain the products from pharmaceutical distributors and
wholesalers. The Company's sales activities involve limited
public promotion of its products. Approximately 125 employees of
the Company are engaged full-time in selling products and
servicing customers.
Competition
The Company sells to various markets and classes of
customers. With respect to each of the various products it
sells, the Company believes it is subject to active competition
from numerous firms. The four primary means of competition are
services, quality of products, approval for manufacture by the
FDA and price. The competition experienced by the Company varies
among the markets and classes of customers. The Company has
experienced additional competition from brand-name competitors
who have entered the generic pharmaceutical industry through the
creation of generic subsidiaries, purchasing generic companies or
by licensing their products prior to or as their product's
patents expire.
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Product Liability
Product liability suits by consumers represent a continuing
risk to firms in the pharmaceutical industry. The Company
strives to minimize such risks by stringent quality control
procedures. Although the Company carries insurance, it believes
that no reasonable amount of insurance can fully protect it
against all such risks because of the potential liability
inherent in the business of producing pharmaceuticals for human
consumption.
The Company has a 50% investment in a captive insurance
company. This unconsolidated subsidiary provides product
liability insurance for the Company for claims not covered under
other product liability policies, reported or incurred. The
Company's participation in the captive insurance company has
substantially reduced its product liability insurance expense.
Raw Materials
The chemical ingredients and other materials and supplies
used in the Company's pharmaceutical manufacturing operations are
generally available and purchased from many different foreign and
domestic suppliers. However, some products may have only one
source approved by the FDA for certain pharmaceutical ingredients
used in their manufacturing process. If this material was no
longer available, qualifying a new supplier could delay the
manufacturing of such products. The Company experienced no
significant problems in obtaining an adequate supply of raw
materials in fiscal 1994.
Regulation
The Company's operations are subject to regulation under the
Federal Food, Drug and Cosmetic Act, pursuant to which government
standards as to "good manufacturing practice", product content,
purity, labeling, effectiveness and recordkeeping (among other
things) must be observed. In this regard, the FDA has extensive
regulatory powers over the activities of pharmaceutical
manufacturers including the power to seize and prohibit the sale
of noncomplying products and to halt operations of noncomplying
manufacturers.
The Company is also subject to inspection and regulation
under other federal and state legislation relating to drugs,
narcotics and alcohol. Many of its suppliers and customers, as
well as the drug industry in general, are subject to the same or
similar governmental regulations.
In recent years, the United States Congress has passed laws
that increase the regulation of the drug industry beyond the
point of good manufacturing practices. The new regulations
require manufacturers to present substantial evidence for the
efficacy, as well as safety, of their drug products.
It is impossible for the Company to predict the extent to
which its operations will be affected under the regulations
discussed above or any new regulations which may be adopted
by regulatory agencies.
Employees
The Company employs approximately 1240 persons,
approximately 535 of whom serve in clerical, sales and management
capacities. The remainder are engaged in production
and maintenance activities.
The production and maintenance employees at the Company's
manufacturing facilities in Morgantown, West Virginia, are
represented by the Oil, Chemical and Atomic Workers
International Union (AFL-CIO) and its Local Union 8-957
(AFL-CIO).
Backlog
At March 31, 1994, the uncompleted portions of the Company's
backlog of orders was approximately $12,543,000 as compared to
approximately $17,797,000 at March 31, 1993. Because of the
relatively short lead time required in filling orders for its
products, the Company does not believe these interim backlog
amounts bear a significant relation to sales or income for any
full twelve-month period.
ITEM 2. Properties
The Company operates from various facilities in the United
States and Puerto Rico having an aggregate of approximately
830,000 square feet.
Mylan Pharmaceuticals owns production, warehouse, laboratory
and office facilities in four buildings in Morgantown, West
Virginia containing approximately 500,000 square feet and a
distribution center in Greensboro, North Carolina containing
approximately 24,000 square feet with an additional 40,000 square
feet under construction. Mylan Pharmaceuticals also operates a
distribution center in Reno, Nevada containing approximately
25,000 square feet under a lease expiring in 1996.
Mylan Inc. owns a production and office facility in Caguas,
Puerto Rico containing approximately 100,000 square feet and a
production facility in Cidra, Puerto Rico containing
approximately 32,000 square feet.
Dow Hickam Pharmaceuticals, Inc. owns production, warehouse
and office facilities in two buildings in Sugar Land, Texas
containing approximately 70,000 square feet. Hickam also
operates a filling and packaging facility in Sugar Land, Texas
containing approximately 15,000 square feet under a lease
expiring in 1996.
Bertek owns production, warehouse, laboratory and office
facilities in five buildings in Swanton and St. Albans, Vermont
containing approximately 159,000 square feet. Bertek also
operates a coating and extrusion facility in St. Albans
containing approximately 71,000 square feet under a lease
expiring in 2015.
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The Company's production equipment includes that equipment
necessary to produce and package tablet, capsule, aerosol,
transdermal and powder dosage forms. The Company maintains five
analytical testing laboratories for quality control.
The Company's facilities are operated primarily on a two
shift basis. Properties and equipment are well maintained and
adequate for present operations.
The Company's corporate offices, containing approximately
5,800 square feet, are located at 130 Seventh Street, 1030
Century Building, Pittsburgh, Pennsylvania, and are occupied
under a lease expiring in 1996.
ITEM 3. Legal Proceedings
In June, 1989, the Company filed suit under the Federal
Antitrust Laws and 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. The suit asserts that the approval
process for generic drugs at the FDA was corrupted and that the
Company was damaged by the action of the defendants. On December
10, 1992 the Company's suit was dismissed by order of the Court.
The Company appealed this dismissal and its suit was reinstated.
During 1994 settlements were reached with several of the
defendants for approximately $3,375,000. The Company continues
to pursue other defendants in this suit.
On November 20, 1990 the Company filed a complaint against
American Cyanamid Company ("Cyanamid"). Cyanamid, through its
Lederle Laboratories Division is the exclusive distributor of the
Mylan products Maxzide and Maxzide -25MG pursuant to a March,
1984 agreement. The complaint alleged that Cyanamid underpaid
Mylan based on the terms of the agreement and that Cyanamid had
not met certain obligations under the agreement with regards to
marketing of the products. The Company was seeking general
relief in the form of compensatory and punitive damages and was
also seeking to be awarded certain trademark rights to Maxzide
and Maxzide -25MG currently owned by Cyanamid.
On May 30, 1991 Cyanamid filed an Answer and Counterclaim to
the complaint filed by the Company on November 20, 1990. The
counterclaims included allegations of fraudulent inducement and
breach of contract regarding the March, 1984 Maxzide contract
and allegations of defamation. Cyanamid was seeking dismissal of
the Company's complaint and compensatory and punitive damages.
During 1994 the jury in the Company's lawsuit against
Cyanamid ruled in favor of Cyanamid on the Company's complaint
and in favor of the Company on Cyanamid's counterclaims. No
money damages were awarded to either party. Each party has given
notice of appeal.
On November 24, 1992, Marion Merrell Dow Inc. ("MMD") and
Tanabe Seiyaku Co. LTD ("Tanabe") filed suit against the Company,
its wholly-owned subsidiary Mylan Pharmaceuticals Inc., and
another company claiming infringement of Tanabe's patent for the
manufacture of diltiazem. MMD and Tanabe seek permanent
injunctive relief and treble damages to compensate for the
alleged infringement and costs of suits. The Company believes
this suit is without merit and continues to vigorously defend
this lawsuit.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's executive officers
are as follows:
Milan Puskar 59 Chairman, Chief Executive Officer
and President
Dana G. Barnett 53 Executive Vice President
Louis J. DeBone 48 Vice President-Operations
Roderick P. Jackson 54 Senior Vice President
Joseph J. Krivulka 42 Vice President
Dr. John P. O'Donnell 48 Vice President-Research and
Quality Control
Patricia Sunseri 54 Vice President-Investor and
Public Relations
C.B. Todd 60 Senior Vice President
Robert W. Smiley 72 Secretary
Mr. Puskar was employed by the manufacturing subsidiary of
the Company from 1961 to 1972 and served in various positions
including: Secretary-Treasurer, Executive Vice President and
member of the Board of Directors. From 1972 to 1975, Mr. Puskar
served as Vice President and General Manager of the Cincinnati
Division of ICN Pharmaceuticals Inc. In addition, he has served
as a partner in several pharmaceutical firms in foreign countries
and is currently a director of Huntington National Bank West
Virginia. Mr. Puskar has served as President of the Company
since 1976 and as Chairman and Chief Executive Officer since
November of 1993.
Mr. Barnett has been a Vice President of the Company since
1974. His principal occupation since 1966 has been in various
management positions with the manufacturing subsidiary of the
Company. His responsibilities have covered production, quality
control and product development. He became Senior Vice President
in 1978 and Executive Vice President in 1987. Since June of
1991, he also serves as President and Chief Executive Officer of
Somerset Pharmaceuticals, Inc., a joint venture subsidiary of the
Company.
Mr. DeBone has been employed by the Company since September,
1987. Prior to assuming his present position in November, 1991
as Vice President-Operations he served as Vice President-Quality
Control. He was previously employed with the Company from
March, 1976 until June, 1986 and served as Director of
Manufacturing.
Mr. Jackson has been employed by the Company since April,
1986. Prior to assuming his present position in October, 1992 as
Senior Vice President he served as Vice President-Marketing and
Sales. He was previously employed for four years at Lederle
Laboratories as Director of Standard Products.
Mr. Krivulka has been employed by the Company since March,
1990. Prior to assuming his present position in April, 1992 as
Vice President he served as Assistant to the President. Since
April of 1993, he also serves as President of Bertek, Inc., a
subsidiary of the Company. From 1989 to 1990 he was employed by
Janssen Pharmaceutica, a division of Johnson & Johnson, as
Executive Director of Business Unit Management and from 1987 to
1989 was employed by Sandoz Pharmaceuticals as Group Business
Director.
Dr. John O'Donnell has been employed by the Company since
1983. Prior to assuming his present position in November, 1991
as Vice President-Research and Quality Control, he served as Vice
President-Research and Product Development and as Director of
Chemistry and Product Development.
Mrs. Sunseri has been employed by the Company since 1984.
Prior to assuming her present position in October, 1989 as Vice
President-Investor & Public Relations, she served as Director of
Investor Relations.
Mr. Todd has been employed by the Company since 1970. Prior
to assuming his present position in October, 1987 as Senior Vice
President, Mr. Todd served as Vice President-Quality Control. He
also serves as President of Mylan Pharmaceuticals Inc., a
subsidiary of the Company.
Mr. Smiley has been Secretary of the Company for
approximately nineteen years and on December 12, 1975, he was
elected to the Board of Directors. His principal occupation
is and for approximately 40 years has been an attorney-at-law in
Pittsburgh, Pennsylvania. He was a partner in the law firm of
Smiley, McGinty and Steger, general counsel to the Company. On
October 1, 1992 Mr. Smiley joined the law firm of Doepken
Keevican Weiss & Medved Professional Corporation.
There is no family relationship between any of the above
executive officers. Officers of the Company serve at the
pleasure of the Board of Directors.
Messrs. Puskar, Barnett, Todd and Smiley serve as members of
the Executive Committee of the Board.
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters
The information required by item 5 is hereby incorporated by
reference to pp. 24 and 40 of the accompanying Annual Report to
Shareholders for the year ended March 31, 1994.
ITEM 6. Selected Financial Data
The information required by item 6 is hereby incorporated by
reference to p. 24 of the accompanying Annual Report to
Shareholders for the year ended March 31, 1994.
ITEM 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations
The information required by item 7 is hereby incorporated by
reference to pp. 25-27 of the accompanying Annual Report to
Shareholders for the year ended March 31, 1994.
ITEM 8. Financial Statements and Supplementary Data
The information required by item 8 is hereby incorporated by
reference to pp. 28-40 of the accompanying Annual Report to
Shareholders for the year ended March 31, 1994.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information as to directors required by item 10 is
hereby incorporated by reference to pp. 1-3 of the Company's 1994
Proxy Statement. Information concerning executive officers is
provided in Part I of this report under the caption "Executive
Officers of the Registrant".
ITEM 11. Executive Compensation
The information required by item 11 is hereby incorporated
by reference to pp. 3-8 of the Company's 1994 Proxy Statement.
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management
The information required by item 12 is hereby incorporated
by reference to p. 8 of the Company's 1994 Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions
The information required by item 13 is hereby incorporated
by reference to p. 3 of the Company's 1994 Proxy Statement.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
A. List of Financial Statements and Schedules
Page
Number
INCLUDED IN ANNUAL REPORT TO
SHAREHOLDERS:
Consolidated Balance Sheets . . . . . . . . . 28-29
Consolidated Statements of Earnings . . . . . 30
Consolidated Statements of Shareholders' Equity . 31
Consolidated Statements of Cash Flows . . . . 32-33
Notes to Consolidated Financial Statements. . 34-39
Independent Auditors' Report. . . . . . . . . 40
INCLUDED IN 1994 FORM 10-K REPORT
Independent Auditors' Report on Schedules . . S-1
Schedules Furnished Pursuant to the Requirements
of Form 10-K:
I-Marketable Securities-Other Investments . . S-2
II-Amounts Receivable-Related Parties. . . S-3
X-Supplementary Income Statement Information. S-4
Schedules other than those referred to above are omitted
because they are not required or the information is included in
Notes to Consolidated Financial Statements.
B. Reports on Form 8-K
The Company was not required to file a report on Form
8-K during the quarter ended March 31, 1994.
C. Exhibits filed as part of this Report
(3)(a) Amended and Restated Articles of Incorporation of the
registrant, filed as Exhibit (3)(a) to Form 10-Q for quarter
ended June 30, 1992 and incorporated herein by reference.
(b) By-laws of the registrant, as amended to date, filed as
Exhibit 3(b) to Form 10-Q for the quarter ended June 30, 1992 and
incorporated herein by reference.
(10)(a) Employment contract with Roy McKnight dated July 31,
1981, filed as an Exhibit to Form 10-K for fiscal year ended
March 31, 1982 and incorporated herein by reference.
(b) 1986 Incentive Stock Option Plan, as amended to date,
filed as Exhibit 10(b) to Form 10-K for fiscal year ended March
31, 1993 and incorporated herein by reference.
(c) "Salary Continuation Plan" with Roy McKnight, Milan
Puskar, Dana G. Barnett and C.B. Todd each dated as of April 1,
1989, filed as Exhibit (10)(c) to Form 10-K for fiscal year ended
March 31, 1990 and incorporated herein by reference.
(d) "Salary Continuation Plan" with Roderick P. Jackson
dated April 1, 1989, filed as Exhibit 10(d) to Form 10-K for the
fiscal year ended March 31, 1993 and incorporated herein by
reference.
(e) "Salary Continuation Plan" with Louis J. DeBone dated
April 1, 1989 filed herewith.
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made and entered into effective April 1, 1989,
between MYLAN LABORATORIES INC. (hereinafter referred to as the
Company) a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania, with its principal office at 1030
Century Building, 130 Seventh Street, Pittsburgh, Pennsylvania
15222, and Louis J. DeBone (hereinafter referred to as the
Employee).
WHEREAS, the Employee is and has been an employee of MYLAN
LABORATORIES INC. and/or its subsidiary, MYLAN PHARMACEUTICALS,
INC. for approximately 2 years.
WHEREAS, the Employee does now and has rendered valuable services
to the Company and as a result is now making a substantial
contribution to the success and growth of the Company; and
WHEREAS, the Company feels that the Employee's services are
invaluable to the continued pattern of growth and success of the
Company; and
WHEREAS, the Company wishes to reward and retain the future
services of the Employee and to assist him in providing for the
contingencies of disability, death and retirement.
IT IS THEREFORE AGREED:
(1) RETIREMENT BENEFIT
a. That in exchange for continued and loyal service by the
Employee the Company shall pay to the Employee from the
general assets of the Company, an annual amount payable
for ten years in the amount of $60,000.
This benefit shall be payable on the first day of the
month on the later of the employee's sixtieth birthday or
April 1, 1999. If the employee's sixty-fifth birthday
occurs prior to April 1, 1999 the benefit will be payable
the first of the month following the sixty-fifth birthday
or on such later date as the parties may mutually agree.
b. If the Executive Committee of the Company gives written
consent, the Employee may retire prior to his retirement
date as defined in (1)(a). above and receive reduced
benefits as determined by the Executive Committee.
Benefit payment shall be paid in 120 consecutive monthly
installments commencing on the first day of the month
immediately following the Employee's Early Retirement.
(2) DISABILITY BENEFITS
If the Employee shall become totally and permanently
disabled as hereinafter defined in Section 14, and on
account thereof, his employment with the Company shall be
terminated, the Employee shall be entitled to benefits
payable as stated in (1)(a) above.
a. Notwithstanding the foregoing provision, the Company may
in its sole discretion commence disability payments at
anytime prior to the Employee's retirement age.
b. In determining total and permanent disability, the
Company may from time to time require certification by a
licensed physician of its choice, that the Employee
remains disabled.
c. In the event the Company elects to commence payments
pursuant to this Section, these payments shall cease
under the following circumstances.
1. Employee resumes his position with the Company;
2. Employees fails to accept his former position after
being declare no longer disabled by a licensed
physician selected by the Company;
3. Employee accepts employment from any other company,
person or entity which is in any way similar in
income or status to his former position with the
company.
4. Employee refuses to submit to an examination by a
licensed physician selected by the company;
d. Payments made pursuant to this Section, in no event,
shall exceed the total payments to which the Employee
would have been entitled under Section 1. If payments do
commence pursuant to this Section and later cease
pursuant to Section 2(d), payments may commence again
upon attainment of retirement age; however, the total
number of payments made to the Employee pursuant to this
Section shall reduce the aggregate total of payments due
under Section 1.
(3) DEATH BENEFIT AFTER RETIREMENT OR DISABILITY
If the Employee dies after retirement or disability but prior
to receiving 120 monthly installments of benefits as herein
provided, the balance of the monthly installments shall be
paid to the named beneficiary designated by the Employee. Said
beneficiary designation shall be in writing and filed with the
Company. If no beneficiary has been designated by the
Employee, the Company may elect to pay the total of such
monthly installments to his estate in one lump-sum, discounted
to present value at date of death applying Pittsburgh National
Bank's prime rate plus one percent (1%).
(4) DEATH PRIOR TO RETIREMENT
a. If the Employee dies prior to retirement as provided in
Section 1 hereof, while in the employ of the Company, the
Company shall pay 100% of the Average Total Compensation
(Average Total Compensation being based on the last 3
year's total compensation) in 120 consecutive monthly
installments in lieu of the benefit payments above
provided by Section 1, to the beneficiary designated by
the Employee in writing and filed with the Company.
Payments shall commence on the first day of the month
following the Employee's death.
If no beneficiary has been so designated by the Employee,
the Company may elect to pay the total of such monthly
installments to the estate of the Employee in one lump
sum discounted to present value at date of death applying
Pittsburgh National Bank's prime rate plus one percent
(1%).
b. Suicide
If the Employee commits suicide, while sane or insane,
within two years after the effective date of this
agreement, no benefits shall be payable under this or any
other section of this agreement.
(5) TERMINATION OF EMPLOYMENT
If the Employee's employment with the Company terminates (for
any reason whatsoever other than death or disability) before
retirement as provided in Section 1, or prior to becoming
entitled to benefits under the provisions of Section 2,
whether said termination of employment is by the act of the
Employee or the Company, the Executive Committee of the
Company shall have the absolute, sole and exclusive authority
to determine and to grant benefits payable under this
agreement, if any, or to terminate this agreement as of the
date of termination of employment with no benefits payable
hereunder.
(6) INDEPENDENT AGREEMENT
Under no circumstances shall this agreement be construed as an
employment contract. Neither shall this agreement, or any part
thereof, be construed in such a manner so as to restrict the
Employee's right to terminate his employment.
Any benefit payable pursuant to this agreement shall not be
deemed salary or other compensation to the Employee for the
purpose of computing benefits to which he may be entitled
under any pension or profit sharing plan or other arrangement
of the Company for the benefit of its Employees.
(7) BENEFITS AND BURDENS
This agreement shall, to the extent herein provided, be
binding upon the heirs, executors, administrators, successors
and assignments of any and all parties hereto, present and
future. Transfers of the Employee within the Company or its
subsidiaries and successor organization shall not terminate
this agreement.
(8) FORFEITURES AND CONDITION
During the two year period following retirement from active
service, the Employee shall not engage, directly or
indirectly, in any business which is substantially similar to
the business of the Company at such time within the
continental limits of the United States either as proprietor,
partner, officer, board member, employee, consultant or
otherwise, unless the Company shall first consent thereto in
writing.
a. Forfeiture
The payments provided under Section 1 are
conditioned upon the employee fulfilling the
foregoing requirements and, in the event the
employee at anytime materially breaches the
foregoing requirements, the Executive Committee of
the Company may suspend or eliminate payments
during the period of such breach. The definition of
material breach shall be within the sole discretion
of the Executive Committee of the Company.
b. Consulting Services
It is mutually agreed that during the ten year
period beginning on the first day following
retirement from active service, the Employee shall,
at the request of the Company act in the capacity
of a Consultant for the Company, performing such
services consistent with those during the
Employee's employment as may be designed by the
President of the Company, or his authorized
representative, without being restricted to
devoting any minimum hours or days in such services
as Consultant.
The Company shall pay the Employee for such
services as Consultant an hourly rate to be
determined by the parties at such time, but not
less than $50 per hour, payable monthly. In
addition to the foregoing, the Company shall
reimburse the Employee monthly for any and all out-
of-pocket expenses incurred by the Employee
directly for the benefit of the business of the
Company.
(9) COMMUNICATION
All communications regarding this plan by and between the
Company and the Employee shall be in writing and shall be
deemed duly given, made, delivered or transmitted when mailed
first class with postage prepaid and addressed to the
appropriate party at the address last appearing on the books
of the Company. The Employee may change his address from time
to time by giving written notice to the Company.
The Company may rely upon all such information so furnished
including the Employee's current mailing address.
(10) RESTRICTION OF ALIENABILITY
Benefits payable to the Employee or beneficiary of the
Employee shall not be subject to assignment, transfer,
attachment, execution, garnishment, sequestration, or any
other seizure under any legal or equitable process, whether on
account of the Employee's act or by operation of the law.
(11) RIGHT OF THE COMPANY TO REDUCE BENEFITS
The Company shall have the right to reduce any amount payable
to the Employee by the amount of any indebtedness of, or other
charges arising against the Employee pursuant to this
agreement during the payout period and subtracting therefrom
the amount of indebtedness or other charges. That result,
divided by the total number of payments due will be the
monthly benefit payment.
(12) ACCELERATION OF BENEFIT PAYMENTS
The Company hereby reserves the rights to accelerate the
payment of any sums specified in paragraph 1, 2, or 3 above
without the consent of the Employee, his estate,
beneficiaries, or any other person claiming through or under
him.
(13) CLAIMS PROCEDURE
Benefits are due under the plan as set forth in the specific
section dealing with benefit payments. If a claim is wholly or
partially denied, the plan administrator shall provide a
written notice to the claimant setting forth:
a. The specific reason or reasons for the denial;
b. Specific reference to the pertinent plan provision upon
which denial is based;
c. A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
d. Appropriate information as to the steps to be taken if
the claimant wishes to submit the claim for review.
This notification shall take place within 90 days of the
denial of the claim. If the claimant has received no
notification that the claim has been accepted within the 90
day limitation, the claimant can assume that the claim is
denied and proceed to the review state.
A claimant or his duly authorized representative shall
request in writing, within 60 days following denial of the
claim or expiration of the 90 day period outlined above, his
intent to review pertinent documents and/or submit issues or
comments in writing.
The decision on review shall be made within 60 days following
the Employee's request for review and communicated to the
Employee in writing setting forth the reasons for the
decision. If no written notice is received within 60 days, the
claim shall be deemed denied on review.
(14) ACCEPTANCE BY COMPANY OF PHYSICIAN'S CERTIFICATION AND
COMPANY'S DETERMINATION OF TERMINATION FOR CAUSE.
The Employee stipulates and agrees that the certification of
a licensed physician as to the Employee's total and permanent
disability, as provided in Section 2 hereof and the Company's
determination of Employee's termination for cause as provided
in Section 5 hereof are unequivocally binding upon the
Employee and the Employee dies and shall accept such
certification of physician and determination of the Company as
binding upon the Employee with no right of the employee of any
redetermination thereof or right of appeal to any court having
jurisdiction thereof.
(15) PLAN ADMINISTRATOR
The Vice President of Finance of the Company, or other officer
of the Company designated by the Executive Committee of the
Company is hereby named the Plan Administrator for purposes of
submitting claims for initial processing or for denial review.
(16) SUPERSEDING AGREEMENT
This agreement supersedes and makes null and void all prior
agreements, oral or written, relative to any subject matter
contained herein.
(17) AMENDMENT
This agreement may be amended or revoked at any time, in whole
or in part, by the mutual agreement of all parties.
(18) LAWS GOVERNING
This agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
In witness whereof the parties have executed this agreement.
Attest: Mylan Laboratories Inc.
By: /s/ Roy McKnight
/s/ Robert Smiley
(Secretary)
/s/ Louis J. DeBone
(Name of Employee)
(f) Employment contract with Milan Puskar dated April 28,
1983, as amended to date, filed as Exhibit 10(e) for fiscal year
ended March 31, 1993 and incorporated herein by reference.
(g) Split Dollar Life Insurance Arrangement with McKnight
Irrevocable Trust filed herewith.
SPLIT DOLLAR
LIFE INSURANCE AGREEMENT
This Agreement made as of the 24th day of June, 1993 by
and between STEPHEN H. McKNIGHT and ROBERT G. McKNIGHT, Trustees
under Irrevocable Life Insurance Trust Agreement, dated April 1,
1992 ("Trust"), between them as Trustees ("Owners") and ROY
McKNIGHT and BEATRICE B. McKNIGHT, his wife, ("Donors"),
A
N
D
MYLAN LABORATORIES INC., a Pennsylvania Corporation
("Company").
Whereas, in recognition of the unique and essential
services of ROY McKNIGHT ("Employee") to the Company, his
contributions to the Company and as an inducement to the
continued employment of the Employee, the Company has determined that its
best interest would be served by entering into a split-dollar
life insurance arrangement with the Owners, whereby the Company will
assist the Owners in maintaining certain life insurance for the
benefit of the beneficiaries under the Trust by contributing from
time to time the payment of premiums due on survivorship whole
life policies of the Owners on the life of the Employee and Beatrice
B. McKnight his wife ("Insureds"), subject to the condition that
such policies be assigned to the Company as security only for
repayment of amounts to which the Company may become entitled pursuant to
the terms of this Split Dollar Life Insurance Agreement
("Agreement").
NOW, THEREFORE, in consideration of the foregoing and
the covenants and agreements hereinafter set forth, the parties
intending to be legally bound hereby, agree as follows:
<PAGE>
ARTICLE I
APPLICATION FOR INSURANCE
1.1 Owners have applied to various life insurance
companies for survivorship whole life insurance policies
(collectively "Policies" and individually "Policy") on the lives
of ROY McKNIGHT and BEATRICE B. McKNIGHT, his wife. These life
insurance companies, policy numbers, face amounts and other
information with respect to the Policies is designated on
Schedule "A" attached hereto, as such Schedule may exist from time to
time.
ARTICLE II
OWNERSHIP OF INSURANCE
2.1 The Owners shall retain possession of the Policies
and shall have the sole and all exclusive rights of ownership
with respect to the Policies, which rights shall at all times be
exercisable only by the Owners and without the consent of any
other person or party.
2.2 The Company shall have no rights of ownership with
respect to the Policies, but the Policies are subject to the
terms of this Agreement and the provisions of collateral assignment
agreements by the Owners securing Owners' obligation to the
Company under this Agreement, the form of which is attached hereto as
Schedule "B" ("Collateral Assignments").
ARTICLE III
PAYMENT OF PREMIUMS ON POLICY
3.1 On or before the due date of each annual premium
on the Policies, the Company will advance to the Owners an amount
equal to the annual premiums.
3.2 Upon receipt of the amount which the Company shall
contribute under paragraph 3.1 of this ARTICLE III, the Owners
will pay the full amount of the premiums due, or with the consent of
the Owners, the net premiums due on the Policies to the respective
life insurance companies. The payment of the premiums shall be made
by the Owners on or before the date the premium is due and within
the grace period allowed by the Policies for the payment of the
premium. Notwithstanding the preceding sentence of this
paragraph 3.2 of this ARTICLE III, the Company may make the premium
payments directly to the life insurance companies; provided, however, that
it promptly notifies the Owners of such payments.
ARTICLE IV
OWNERS' OBLIGATION TO COMPANY
4.1 Unless paid pursuant to a Collateral Assignment,
the Owners shall be obligated and hereby agree to pay or repay to the
Company the aggregate amount which become due to the Company as
provided in ARTICLE VI, ARTICLE VII and ARTICLE VIII of this
Agreement, as the case may be.
ARTICLE V
ASSIGNMENT
5.1 The Owners will enter Collateral Assignments
assigning the Policies to the Company as security of the
repayment of the amounts which become due to the Company as provided in
ARTICLE VI, ARTICLE VII, and ARTICLE VIII of this Agreement, as
the case may be.
ARTICLE VI
RETIREMENT, DISABILITY, DEATH OF EMPLOYEE; DEATH OF THE SURVIVOR
6.1 Unless the Policy or Policies have otherwise been
surrendered under paragraph 7.1 of ARTICLE VII, the Company shall
continue to advance all premium payments pursuant to ARTICLE III
notwithstanding the retirement, disability or death of the
Employee; provided further, however, that the Company shall not
be required to continue such advances beyond the death of the
survivor of the Insureds.
6.2 Upon the death of the survivor of the Insureds,
the Company shall be entitled to receive a portion of the death
benefits payable under the Policies. The amount which the
Company will be entitled to receive shall be the aggregate amount of
advances made by it pursuant to paragraph 3.1 of ARTICLE III of
this Agreement for the repayment of premiums due on the Policies.
The receipt of this amount by the Company shall constitute full
accord and satisfaction of the Owners' obligation under ARTICLE
IV of this Agreement, whereupon the Company shall release and
deliver to the Owners the Collateral Assignment and this Agreement shall
terminate.
6.3 When the survivor of the Insureds dies, the
beneficiaries named by the Owners and recognized as such by the
life insurance companies shall be entitled to receive the amount
of the death benefits provided under the Policy in excess of the
amount payable to the Company under paragraph 6.2 of this ARTICLE
VI.
ARTICLE VII
SURRENDER OR CANCELLATION OF THE POLICIES
7.1 In the event the Owners exercise their sole and
exclusive right to surrender or cancel a Policy or the Policies,
then the Company shall be entitled to receive the greater of (i)
the net cash surrender value of the Policy at such time of
surrender or (ii) the aggregate amount of advances made by it
pursuant to paragraph 3.1 of ARTICLE III of the Agreement with
respect to such Policy or Policies surrendered, whereupon receipt
thereof shall be full accord and satisfaction of the obligation
of the Company to the Owners as set forth in ARTICLE IV hereof with
respect to such Policy or Policies surrendered, and the Company
shall release and deliver to the Owners the Collateral Assignment
with respect to such Policy or Policies surrendered.
7.2 In the event the net cash surrender value of a
Policy or Policies surrendered or cancelled pursuant to paragraph
7.1 of this ARTICLE VII at such time is less than the aggregate
amount of advances made by the Company pursuant to paragraph 3.1
of ARTICLE III hereof with respect to such Policy or Policies
surrendered, then the Company shall be entitled to receive an
amount equal to the said net cash surrender value of the Policy
or Policies and the Owners shall, from the assets of the Irrevocable
Life Insurance Trust, pay the Company the difference between the
net cash surrender value and aggregate amount of advances made by
the Company pursuant to paragraph 3.1 of ARTICLE III. At the
Owners' election, such amount may be paid in five (5) equal
annual installments bearing interest at the prime rate as established
from time to time by PNC Bank. The first installment shall be due on
the first anniversary of the payment to the Company of the net
cash surrender value. The obligations of the Owners set forth in the
previous sentences of this paragraph 7.2 may be secured by a
surety bond from a recognized surety licensed to do business in the
Commonwealth of Pennsylvania or by the several guarantees of the
beneficiaries of the Irrevocable Life Insurance Trust.
7.3 Notwithstanding the provisions of paragraph 7.2 of
this ARTICLE VII, the Company and the Owners (for themselves on
behalf of the Irrevocable Life Insurance Trust and for any surety
or guarantor of the obligations hereunder) agree that should the
amount received or receivable due upon the surrender of any or
all of the Policies be less than the amount otherwise due the Company
pursuant to paragraph 3.1 of ARTICLE III and such reduced amount
is due, in whole or in part, to the bankruptcy, insolvency,
receivership, reorganization, conservatorship or similar
impairment of a life insurance company, then the obligation of the Owners to
make payment to the Company with respect to such Policy or
Policies shall, at the Owners' election, be limited to the net cash
surrender value or net amount otherwise payable with respect to
such Policy or Policies, and the Owners, sureties and guarantors
shall be released from any further obligation to pay the Company
with respect to such Policy or Policies.
ARTICLE VIII
RELEASE
8.1 The Owners, at their election, may from time to
time be released from their obligations to repay the Company such
amounts that are owed to the Company upon the death of the
survivor of the insured (pursuant to the provisions of paragraph 4.1 of
ARTICLE IV) or upon the surrender of a Policy or the Policies
(pursuant to the terms of ARTICLE VII) upon tendering to the
Company with respect to a Policy or Policies the aggregate amount
of advances made by the Company with respect to such Policy or
Policies. Upon tendering the payment computed in accordance with
the preceding sentence, the Policy or Policies to which such
payment relates shall be released from the Collateral Assignment.
<PAGE>
ARTICLE IX
INSURANCE COMPANY NOT A PARTY
9.1 The life insurance companies (a) shall not be
deemed to be parties to this Agreement for any purpose nor in any way
responsible for its validity; (b) shall not be obligated to
inquire as to the distribution of any monies payable or paid by it under
the Policy on the Insureds' lives acquired pursuant to the terms
of the Agreement; and (c) shall be fully discharged from any and all
liability under the terms of the Policy upon payment or other
performance of their respective obligations in accordance with
the terms of the Policy issued by such life insurance company.
ARTICLE X
AMENDMENT OF AGREEMENT
10.1 This Agreement shall not be modified or amended
except by a writing signed by the Company and the Owners. This
Agreement shall inure to the benefit of and shall be binding upon
the successors and assignees of each party to this Agreement.
ARTICLE XI
APPLICABLE LAW
11.1 This Agreement shall be subject to and shall be
construed under the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Company, pursuant to the proper
corporate authority, has caused this Agreement to be signed on
its behalf and its seal to be affixed and attested by its proper
officers and the Owners, Trustees, have hereunto subscribed their
names, all as of the day and year first above written.
/s/James E. Abraham /s/Stephen H.McKnight
Witness Stephen H. McKnight, Trustee
/s/James E. Abraham /s/Robert G. McKnight
Witness Robert G. McKnight, Trustee
(SEAL)
ATTEST: MYLAN LABORATORIES INC.
By:/s/Robert W. Smiley By:/s/Milan Puskar
Robert W. Smiley Milan Puskar
Secretary President
<PAGE>
SCHEDULE "A"
INSURER POLICY NUMBER TYPE OF POLICY FACE AMOUNT
Connecticut 4985869 Survivorship $9,500,000
Mutual Life Whole Life
Insurance
Company
Manulife 5175537-9 Survivorship $7,500,000
Whole Life
Prudential 79-801-108 Survivorship $5,000,000
Whole Life
Manulife 5184046-0 Survivorship $3,000,000
(added effective Whole Life
7/1/93)
<PAGE>
MCGRADY
JEM/3753_1.WP
06/06/93 / 4:15p.m. / drd / JEA / sp
06/07/93 / 12:20 p.m. / bal / JEA / nsp
12/10/93 / 9:25 a.m. / ewd / JEA / sp
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
MYLALA/MCK
(h) 1992 Nonemployee Director Stock Option Plan filed as
Exhibit 10(g) to Form 10-K for fiscal year ended March 31, 1993
and incorporated herein by reference.
(13) Fiscal 1994 Annual Report to the Shareholders (only
those portions which are incorporated in this Report by reference
are being filed herewith).
Mylan Laboratories Inc.
1994 Annual Report
Description of Business.
Mylan Laboratories Inc. and its subsidiaries are engaged
primarily in manufacturing a variety of pharmaceutical products
in finished tablet, capsule and powder dosage forms.
TABLE OF CONTENTS
Product Collection 1
Divisional Product Listing 2
Letter to Shareholders 4
Tribute to Roy McKnight 6
Company History 10
The Year in Review 12
The Mylan Directory 20
Financial Highlights 22
Selected Financial Data 24
Management's Discussion 25
Consolidated Balance Sheets 28
Consolidated Statements of Earnings 30
Consolidated Statements of Shareholders' Equity 31
Consolidated Statements of Cash Flows 32
Notes to Consolidated Financial Statements 34
Independent Auditors' Report 40
Market Prices 40
Quarterly Financial Data 40
Mylan Product Guide 41
Shareholder Information Inside Back Cover
Directors and Officers Inside Back Cover
Dow Hickam Pharmaceuticals
Granulex-TM
Granulex-TM is an aerosol topical vasculatory stimulant used as
an aid in the management of pressure ulcers. Topical application
stimulates the capillary beds of chronic wounds and helps prevent
the deterioration of Stage I ulcers to deeper stages. Granulex-TM
contains trypsin, a mild debriding agent, which helps keep the
wound site free of necrotic tissue once debrided.
Proderm-TM
Proderm-TM is a non-prescription topical wound spray which
stimulates the capillary beds of chronic wounds to help prevent
the deterioration of Stage I ulcers to deeper stages. Proderm-TM
also helps promote tissue granulation in deeper chronic ulcers.
Unifiber-TM
A tasteless, non-gelling cellulose powder which offers a
concentrated source of fiber to patients whose diets are
unavoidably low in fiber-rich foods. Unifiber-TM can be mixed in
liquids or soft foods, and contains no sodium, potassium or
phosphorus.
Quick!-TM
A safe, non-irritating, cost effective cleanser for use on
patients who are urine or fecal incontinent. Quick!-TM emulsifies
fecal matter on contact and instantly eliminates unpleasant fecal
or urine odors.
Sorbsan-TM
Sorbsan-TM is a unique calcium alginate dressing which transforms
into a highly absorbent, readily conformable, easy-to-use
hydrophilic sodium alginate gel. This is accomplished through a
sodium ion exchange, which occurs when the dressing is in contact
with sodium-rich wound exudate. Indicated for use on all wet
wounds, Sorbsan-TM is virtually painless upon application and
removal, and is easily changed by medical professionals and
patients alike.
Flexzan-TM
Flexzan-TM is a sterile, ultra-thin, highly conformable,
semi-occlusive polyurethane foam adhesive dressing which protects
wounds from exogenous contamination and trauma while maintaining
a moist environment for rapid wound healing.
Sulfamylon-R Cream
Sulfamylon-R Cream is a soft, white, non-staining, water miscible
broad spectrum topical antimicrobial cream containing the
antibacterial agent, mafenide, as an acetate. Sulfamylon-R is
indicated for use as adjunctive antimicrobial burn therapy of
patients with partial or full-thickness burns.
Biobrane-R II
Biobrane-R II is an adherent, flexible, virtually painless
temporary wound dressing intended for one-time application to
donor sites, and clean, debrided or excised superficial and
medium depth partial-thickness wounds. Biobrane-R II is also used
as a protective covering for meshed autografts and full-thickness
wounds.
Bertek, Inc.
Transdermal Drug Delivery Systems
Bertek's Medical Products Division, a leader in Transdermal Drug
Delivery Systems, represents a unique integration of R & D and
the manufacturing know-how and full integration of production
facilities to make raw materials and finished patches.
Wound Care Products
Bertek now stands as an established leader in the design,
development and manufacture of both critical component materials
and custom-designed products for use in wound management.
The MEDIFILM-R SERIES of extruded, controlled high moisture vapor
permeable films offers a complete range of design flexibility for
use in wound and I.V. site dressings, ulcer dressings, burn
dressings, surgical drape and ostomy barrier applications.
Health Care Products and Materials
Surgical Incise Drape
Prolonged surgical procedures require the use of securely adhered
incise drape films with a high degree of breathability to
eliminate the possibility of perspiration-induced channeling and
contamination of the wound site.
Films & Laminates for Ostomy Care & Skin Barriers
Bertek has developed a family of soft, conformable urethane and
copolyester skin barrier films specifically for ostomy care.
GMP Converting and Labeling
As a printer of pharmaceutical labels, Bertek has established
full capabilities for designing labels from typesetting to
finished artwork by our in-house design team.
Somerset Joint-Venture
Antiparkinson's
Eldepryl-R
Mylan Pharmaceuticals Inc. Generic Products
Generic Name Trade Name
Analgesics
Indomethacin Indocin-R
Propoxyphene HCL &
Acetaminophen Wygesic-R
Propoxyphene
Napsylate & Darvocet-
Acetaminophen N-100-R
Antiangina
Atenolol Tenormin-R
*Nadolol Corgard-R
Nitroglycerin Transdermal
System (Patch) Nitro Bid-R
Verapamil HCL Isoptin-R
Antianxiety
*Alprazolam Xanax-R
Diazepam Valium-R
Lorazepam Ativan-R
Perphenazine &
Amitriptyline HCL Triavil-R
Antibiotics
Amoxicillin Amoxil-R
Ampicillin Polycillin-R
Doxycycline Hyclate Vibramycin-R
Erythromycin Ethylsuccinate E.E.S.-R
Erythromycin Erythrocin
Stearate Stearate-R
Penicillin V Potassium V-cillin-K-R
Tetracycline HCL Achromycin-R
Antidepressant
Amitriptyline HCL Elavil-R
Chlordiazepoxide &
Amitriptyline Limbitrol-R
Doxepin HCL Adapin-R
Sinequan-R
Maprotiline HCL Ludiomil-R
*Nortriptyline Pamelor-R
Antidiabetic
Chlorpropamide Diabinese-R
Tolazamide Tolinase-R
Tolbutamide Orinase-R
Antidiarrheal
Diphenoxylate HCL &
Atropine Sulfate Lomotil-R
Loperamide HCL Imodium-R
Antigout
Allopurinol Zyloprim-R
Antihistamine
Cyproheptadine Periactin-R
Antihypertensive
Amiloride HCL &
Hydrochlorothiazide Moduretic-R
Clonidine HCL Catapres-R
Clonidine HCL &
Chlorthalidone Combipres-R
Methyldopa Aldomet-R
Methyldopa &
Hydrochlorothiazide Aldoril-R
Metoprolol Lopressor-R
Prazosin HCL Minipres-R
Propranolol Inderal-R
Propranolol HCL &
Hydrochlorothiazide Inderide-R
Anti-Inflammatory
Fenoprofen Nalfon-R
Ibuprofen Motrin-R
Rufen-R
Meclofenamate Meclomen-R
*Naproxen Naprosyn-R
Piroxicam Feldene-R
*Sulindac Clinoril-R
*Tolmetin Tolectin-R
Antineoplastic
Methotrexate Methotrexate-R
Rheumatrex-R
Antipsychotic
Fluphenazine HCL Prolixin-R
Haloperidol Haldol-R
Thioridazine HCL Mellaril-R
Thiothixene Navane-R
Anxiolytic
Clorazepate Dipotassium Tranxene-R
Beta Blocker
*Atenolol and Chlorthalidone Tenoretic-R
Pindolol Visken-R
Timolol Maleate Blocadren-R
Bronchial Dilator
Albuterol Sulfate Proventil-R
Calcium Channel Blocker
Diltiazem HCL Cardizem-R
Diuretics
Chlorothiazide Diuril-R
Chlorthalidone Hygroton-R
Furosemide Lasix-R
Methyclothiazide Enduron-R
Reserpine & Chlorothiazide Diupres-R
Spironolactone Aldactone-R
Spironolactone &
Hydrochlorothiazide Aldactazide-R
Hypnotic Agent
Flurazepam Dalmane-R
Temazepam Restoril-R
H2 Antagonist
*Cimetidine Tagamet-R
Muscle Relaxant
Cyclobenzaprine HCL Flexeril-R
Uricosuric
Probenecid Benemid-R
Proprietary Products
Antihypertensive
Maxzide-R
Maxzide-R-25MG
(Licensed to Lederle
Laboratories for Marketing)
To Our Shareholders
Milan Puskar
Chairman of the Board, C.E.O. and President of the Company
Fiscal 1994 has been an intriguing year...filled with challenges
and accomplishments.
We have licensed new products, formed new alliances and received
new generic approvals from the FDA. Our product line now consists
of 70 different chemical entities covering 22 therapeutic
categories.
Eldepryl-R, the product of our joint-venture subsidiary Somerset
Pharmaceuticals, continues to gain market share and has been a
constant contributor to our profits. During this fiscal year,
Somerset received approval from the FDA to manufacture Eldepryl-R
at the Mylan plant in Caguas, Puerto Rico. This move has proven
to be much more efficient and cost effective.
In November your company reached a settlement with Pharmaceutical
Resources, Inc./Par Pharmaceuticals, defendants in Mylan's
R.I.C.O. lawsuit. Under the settlement, Pharmaceuticals
Resources, Inc. agreed to pay Mylan $1 million cash and $2
million in their common stock. We are pleased to have this issue
settled and are pursuing settlement with the remainder of the
defendants in this lawsuit.
An increase to the quarterly dividend was announced at the
shareholders' meeting in June of 1993, which raised the annual
total to sixteen cents per share from twelve cents. Mylan has
distributed $11 million in cash dividends to its shareholders
through this dividend program. Also, net worth of the company
increased from $296 million to $380 million.
Although competition in the generic field is tough and pricing
pressures are severe at the moment, the industry continues to
grow. Mylan is planning and building for the future and has
positioned itself to remain a leader in the generic industry.
Most sincerely,
Milan Puskar
Chairman, C.E.O. and President
In Memory of Roy McKnight
Roy McKnight touched the lives of all who knew him...it was just
his way. He loved people, and whether it was at a business
meeting or on the golf course, he always had a good time.
Roy lived life to its fullest...He enjoyed his work thoroughly
and business associates knew they could call late in the evening or
on weekends and find him in the office.
His Mylan career began in 1975 when he was elected to the Board
of Directors of a small, troubled company. True to his style, Roy
immediately began investigating Mylan's problems and found
ineffective management was the culprit.
He also found that one of the founders of the company, Milan
(Mike) Puskar, had left in 1972 because of his displeasure with
management policies being adopted. Roy brought Mike back to the
company and on May 13, 1976 the two acquired control of Mylan
from a management team that had run the company into financial
difficulty.
These co-architects designed the plan that took Mylan from a
negative balance sheet and questionable credibility to being the
leading independent generic drug manufacturer whose word can be
banked upon and whose integrity is beyond question.
Under their leadership, Mylan has grown from one small
manufacturing facility of 120,000 square feet in Morgantown to a
multi location fully integrated pharmaceutical company. The
Morgantown plant has increased to 500,000 square feet of
manufacturing and office space; there are two plants in Puerto
Rico, one in Caguas and one in Cidra; a subsidiary with
manufacturing capabilities in Sugar Land, Texas; a subsidiary
with two manufacturing sites in Vermont, one in St. Albans and
one in Swanton; two distribution centers, one in Greensboro,
North Carolina and one in Reno, Nevada; corporate headquarters
in Pittsburgh, Pennsylvania and regional sales offices throughout
the United States.
Mylan was the first generic company to pay a dividend to its
shareholders. They were by declaration at first, but evolved into
the regular quarterly dividend program which is presently in
place. Shareholders have also enjoyed the benefit of eight stock
splits under the guidance of this duo.
If you ever visited Roy McKnight at his office, you would have
seen a small wooden sign that read "PPPPP". It was Roy's
motto...he conducted his business life and his personal life by
it...he preached it to his wife, taught it to his children, and
instilled it in all of us at Mylan. It simply means "Prior
Planning Prevents Poor Performance".
Roy and Mike were constantly planning for the future of this
company and Roy took great pride in the management team they have
assembled. If you ever heard one of Roy's speeches you know how
he delighted in talking about the capabilities and expertise of
"the rest of the team". Roy was confident that Mylan has a great
future because Mylan has great people!
Roy had great courage...he always fought for what he believed in
and for him life was very simple...you simply do what is right!
For
Roy and Mike there is no other way...so when Mike Puskar realized
that something improper was going on in the industry, Roy fought
side by side with him for justice and eventually testified before
the Dingell Committee.
On a personal level, you would never know of his great wealth and
accomplishment. Roy was always down to earth with everyone. When
anyone addressed him as Mr. McKnight, he would quickly reply,
"Just call me Roy, Mr. McKnight was my father." His friends
ranged from postmen to presidents...he talked to them all and
there was no pretense in his manner. He was a warm, sensible, caring
human being. He gave unselfishly of himself to his family,
friends, employees, shareholders and management of the company he
loved.
His accomplishments won him numerous awards locally and
nationally including the Pittsburgh Vectors' David L. Lawrence
"Man of the Year" Award and three consecutive "C.E.O. of the
Year" Awards from Wall Street Transcript.
Roy had the unique quality of being able to find time to do
everything he enjoyed and he would arrange his schedule
accordingly...he worked hard and played hard.
He was an avid golfer and looked forward to 'relaxing' with his
clubs. His enjoyment of the game was legendary and the potential
of meeting new people and renewing old acquaintances on the
course was ever exciting to him.
He was a fan of all sports, but his favorite spectator game was
ice hockey. He had season tickets to the Pittsburgh Penguin games
and probably enjoyed the winning of the two Stanley Cups as much
as the team did.
Roy McKnight was a special man...and no one realizes that more
than his Mylan family. He possessed that rare blend of profundity and
wit; of business acumen and the common touch.
Mylan Laboratories will continue in the tradition of Roy's
leadership which has made the company a respected and recognized
industry leader. He challenged us daily to be the very best we
could be and inspired us by his example.
We miss his quick smile and his encouragement, but his
inspiration lives on in each of us. His goodness and character
has touched our lives and given us a bright future.
Thank you, Roy!
"PPPPP"
[PICTURE OF ROY MCKNIGHT][PAGE 6]
Roy McKnight was born March 13, 1921 in Pittsburgh, Pennsylvania.
He was elected to the Mylan board in 1975 and was elected
Chairman in 1976.
[PICTURE OF MYLANS' REGIONS IN THE U.S.][PAGE 7]
Under Roy and Mike's management, Mylan facilities have expanded
in number and size.
[PICTURE OF ROY MCKNIGHT AND MIKE PUSKAR][PAGE 7]
Roy and Mike believed in a 'hands on' style of management.
[PICTURE OF ROY MCKNIGHT AND RONALD REAGAN][PAGE 8]
Roy enjoyed talking to everyone, from postmen to presidents. Here
he enjoys a handshake with Mr. Reagan.
[PICTURE OF ROY MCKNIGHT ON 20/20][PAGE 8]
Roy McKnights testimony before the Dingell Committee was
featured on 20/20.
[PICTURE OF ROY MCKNIGHT AT THE MAN OF THE YEAR CEREMONY]
[PAGE 9]
Roy McKnight loved Pittsburgh...and so it was a fitting tribute
that he was named Man of the Year--for best representing the city
he loved so much.
[PICTURE OF ROY MCKNIGHT GOLFING][PAGE 9]
Relaxing on the 'greens' was Roy's favorite hobby.
Mylan began in 1961 as a privately owned company founded by our
Chairman, C.E.O. and President, Milan Puskar, and an associate
in White Sulphur Springs, West Virginia. Initially the company
did not manufacture product, but operated as a 'distributor'
buying finished goods and reselling to pharmacies, doctors, and
etc.
In 1963 Mylan relocated to Princeton, West Virginia and then in
1965 to its present location in Morgantown. The company began
manufacturing vitamins in 1965, and in 1966 received approval to
start manufacturing Penicillin G tablets. In July 1968 production
was expanded to include Tetracycline after receiving FDA
approval.
It was at this point that Mylan became recognized in the industry
as a very competent manufacturer of quality products and in 1969
Parke-Davis was the first major drug company to purchase finished
goods from Mylan. The company continued to expand its list of
approved products with the addition of Erythromycin in 1971 and
Ampicillin in 1973, and its list of major drug companies
purchasing product under private label continued to increase.
But Mylan's growth was not limited to product line and customers,
for on February 15, 1973 the first shares of stock were traded on
the Over-the-Counter Market, and Mylan became a 'public' company.
_Under the expert guidance of the present management team, which
took over May 13, 1976, the company experienced unbelievable
growth and soon became eligible to be traded on the
National-Over-the-Counter (NASDAQ) Market. The 'marriage' of
Mylan and NASDAQ was a phenomenal combination. The rapidly
growing generic manufacturer rewarded its shareholders with six
stock splits in the short time span from July, 1979 through
February, 1985, gaining the title of "The Nation's Largest
Independent Drug Manufacturer". With 24 million shares of stock
trading in the marketplace, management felt continued growth
could only happen through a broader and more liquid yet closely
regulated market. On April 14, 1986 Mylan became a member of the
Big Board--THE NEW YORK STOCK EXCHANGE--and its new symbol became
MYL.
Once again management's decision proved to be a wise one and with
the new stable growth enjoyed on NYSE shareholders were rewarded
with the seventh stock split in eight years. On August 1, 1986 a
three-for-two stock dividend was forwarded to all Mylan investors
and the company's outstanding shares grew to 36 million.
In 1984 Mylan introduced its first proprietary
product--MAXZIDER, an antihypertensive drug that competes
successfully with Smith Kline Beecham's DyazideR, one of the most
widely prescribed drugs in the United States. In May of 1988,
after three years of clinical testing, Mylan received approval on
half strength MaxzideR, known as MaxzideR-25MG. This product
further strengthens Mylan's position in the mild to moderate
hypertensive market. Both of these MaxzideR products are licensed
to Lederle Laboratories Division of American Cyanamid for
distribution.
In November of 1988 Mylan announced the joint-venture purchase of
Somerset Pharmaceuticals with another generic company. Somerset
is a small research company who was working on a drug for the
treatment of Parkinson's disease. The product, EldeprylR, was
approved by the Food and Drug Administration in June of 1989 and
was launched in mid-September. It is an extremely effective drug
widely recognized by physicians and is adding nicely to the Mylan
bottom line.
In May of 1989, Mylan's then Chairman and C.E.O. Roy McKnight
testified before the House Oversight and Investigations Committee
on behalf of the company regarding improprieties at the FDA
uncovered by Mylan's investigative work. This prompted an all out
investigation of the generic drug industry and has exposed
cheating, payoffs and fraud. Overall the industry has been
shaken, but one thing remains solid...the honesty and integrity
of
Mylan! For thirty-three years the company has had one creed--we
either do it right or we don't do it at all.
At the annual shareholders meeting in June of 1991 Mylan
announced the signing of a definitive agreement and plan of
merger with Dow B. Hickam of Sugar Land, Texas. They are an
established high quality branded pharmaceutical company with a
highly skilled, aggressive marketing force...A necessary element
in Mylan's strategic plan to become a fully integrated
pharmaceutical company. The merger was completed on October 30,
1991.
Another strategic step was taken in January of 1993 when Mylan
announced that it had reached a definitive agreement to acquire
the assets of Bertek, Inc. headquartered in St. Albans, Vermont.
Bertek is an important manufacturer and innovator of
state-of-the-art transdermal drug delivery systems. They also
have substantial operations in laminating and label
manufacturing.
The acquisition was completed February 25, 1993.
Mylan's code of ethics has positioned it as the leader in the
generic field with a record of solid growth in a very
unpredictable market.
The other 'secret' to Mylan's success is its 'family' of
employees whose dedication to their work and pride in the company
have been the backbone of this remarkable story. From maintenance
to management it has been a blend of ideas, hard work and mutual
respect, and continues to be the key to Mylan's ongoing success
and growth.
The Year In Review
The past twelve months have been very interesting...we have seen
changes in marketing styles...we have seen consolidation of
companies...we have seen increased pricing pressure...and we have
handled each of these challenges with the same successful
teamwork that continues to allow Mylan to enjoy a position of
leadership in the industry. Our sales have increased to a record
$251,773,000 and our net earnings increased to a record
$73,067,000. Mylan continues to increase its market share...we
are now the sixth most dispensed pharmaceutical company in
America. According to recent survey results, 19 of Mylan's
products rank number one in prescriptions dispensed and 22 rank
number two...that's 68% of our product line...and that is a
result of teamwork! From the moment a product becomes an idea in
Mylans mind to the moment it gets approved and becomes a part of
our product line, it is the creativity, dedication and production
of all of our people, from maintenance to management, that allows
us to enjoy this continued growth.
Your company has received eight new approvals this year from the
Food and Drug Administration, which further expands our ever
growing line of products. Presently, Mylan has submitted 16
different chemical entities to the FDA for approval, representing
31 products of varying strengths, and we have many more in
development.
In April of 1993 we announced the signing of a license agreement
with Ferrer Internacional S.A. of Barcelona, Spain for all rights
to its patented compound, Dotarizine, for the United States and
Canada. The agreement grants Mylan exclusivity for Dotarizine in
the treatment of migraine and vertigo. It also promises Mylan the
first right of refusal on all other indications, analogues and
derivatives of Dotarizine.
We signed a second licensing agreement with Survival Technology
Inc. (STI) for the development and production of a non-narcotic
prescription product for the management of pain, using STI's
patented Q-Pen-R Auto-Injector.
Under terms of the September agreement, STI will develop and
produce the new product which will be marketed by Mylan to family
physicians, neurologists, pain specialists, hospitals, health
maintenance and managed care organizations. It is our hope that
this will be the first in a series of new products to be marketed
by Mylan incorporating STI Auto-Injector drug delivery systems.
Our third licensing agreement this fiscal year was announced on
February 7, 1994, when we advised that our Mylan Pharmaceuticals
Division had acquired the exclusive rights to AndaSR's technology
for a sustained release formulation of
terfenadine/pseudoephedrine hydrochloride, commonly known as
Seldane-D-R.
The product will be jointly developed by Mylan and AndaSR, but
manufacturing will be done by Mylan in our own facilities.
Our most recent 'alliance' is with Eli Lilly and Company...one of
the major drug companies with whom we have been speaking over the
past several months. This particular arrangement is for the
co-promotion of cimetidine, Mylan's generic version of Tagamet-R,
an anti-ulcer drug. Under the terms of the agreement, Lilly and
Mylan will co-promote cimetidine to managed-care and related
distribution networks. The co-promotion will focus on cimetidine
as an economic and therapeutic choice for treatment of
uncomplicated gastrointestinal diseases such as ulcers.
All of these new relationships and the opportunities they bring
are significant steps in Mylan's continuing evolution into a
fully integrated pharmaceutical company.
We are extremely proud of the recognition Mylan has received
throughout the year in major publications. The March 28, 1994
issue of Business Week featured Mylan as number 378 in their list
of "America's 1000 Most Valuable Companies" and the November,
1993 issue of Forbes included Mylan in their list of "The best
small companies in the world." Med Ad News did a feature story on
Mylan and its role in the generic marketplace, and the December,
1993 issue of Executive Report Magazine heralded Mylan as number
two in its list of top ten growth companies for 1993.
We are proud of these feature articles and we thank all of the
publications for their kind remarks.
But we are really busting our vest buttons with pride at the
accomplishments of our sales and marketing team, they have
outdone their previous award winning performance and gathered
even more accolades for Mylan. They have received a 'Pharm/alert
Award of Excellence' for superior pharmacy communication on their
Diltiazem promotion, and they were chosen from over 400 others.
Alco Health Services chose Mylan as their #1 generic multi-source
trading partner manufacturer, an honor that makes us very proud!
The Art Directors Club of New Jersey has honored Mylan with the
Bronze award for our advertisement "A Delicate Balance of Science
and Nature". This is an extremely prestigious award...the ad was
selected from among more than 1,100 entries. We are pleased with
this honor and the recognition of our commitment to the
environment which is expressed in this advertisement.
And, of course, the piece de resistance...the DIANA award...the
industry equivalent to an Emmy or an Oscar in the entertainment
world.
Every year since 1959 The National Wholesale Druggists'
Association has recognized manufacturer excellence in new product
introductions and promotional programs. The DIANA award
recognizes superior marketing efforts that enhance the
marketability of products through the drug distribution system.
The competition also focuses on the overall relationship between
manufacturers and their drug wholesaler trading partners.
Mylan Pharmaceuticals was chosen, Best Overall Pharmaceutical
Manufacturer, in its class...and on November 16, 1993 Mylan was
presented with the beautiful gold DIANA trophy. It was a night to
remember!
Our shareholders are very important members of the Mylan family
and we strive to keep you informed of all of the happenings at
your company. We appreciate your letters and thoroughly enjoy
your phone calls. We now have 83,637 people who own a part of
Mylan, and no matter what the size of the ownership is...we are
grateful for your interest and your support.
We also appreciate the honor bestowed on us again by the United
Shareholders Association who ranks the top 1000 Companies in the
United States based on their treatment of shareholders as well as
return on shareholder investment. We are pleased to say that for
the fourth year in a row we rank number 10 nationally and number
one in Pittsburgh. Mylan was ranked highest among all
pharmaceutical firms in the United Shareholders 1993 list
of 1,000 companies.
Tragedy struck the Mylan family in June of 1993 when Roger
Dieterich succumbed to cancer. Roger was one of our first
regional sales managers and what a job he did. His territory
included the states of: Washington, Montana, Oregon, Idaho,
Wyoming, Nebraska, Northern California, Nevada, Utah, Colorado,
Kansas, Arizona, New Mexico, Oklahoma, Texas and Alaska...1/3 of
the entire United States and we had no Mylan accounts in any of
these areas. Roger was a marvelous man...he worked out a schedule
and faithfully followed it.
He laid the ground work and established Mylan's reputation with
wholesalers and chains in his region...and that foundation
continues to be built upon by our current sales force. Mylan has
grown substantially throughout that territory and we recognize
that it was the pioneer work done by Roger Dieterich that
initiated this growth.
Dedication, hard work, loyalty, integrity, courage, happy, fun
loving...are all adjectives that describe Roger Dieterich...but
none of them completely...because he was so much more than words
can explain. He was a friend, a confidant, a teacher, an
employee, aloving father and husband...and one of God's great
gifts to us. It was our privilege to spend some time with Roger
Dieterich...we miss him...but we are much better for having known
him!
On November 6, 1993, tragedy struck the Mylan family a second
time when our beloved Chairman and C.E.O., Roy McKnight, was
stricken with a fatal heart attack while in Florida. As with
Roger, there are not enough words to describe the emptiness we
feel from the loss of Roy, but we have tried to give you some
insight into his life and accomplishments in the memorial on the
previous pages. He was truly special!
November 9, 1993, the Board of Directors unanimously elected Mr.
McKnight's dear friend and teammate for the past 18 years, Milan
Puskar, as Chairman and C.E.O. C.B. Todd, President, Mylan
Pharmaceuticals, was appointed to the Board of Directors at that
same meeting.
Our Board of Directors is another important component of our
Mylan family. The members are all intelligent, skilled and
knowledgeable men. They realize the gravity of their
responsibility and are dedicated to the common good of the
company, its employees and its shareholders. We appreciate their
intensity and thank them for their guidance.
It has been a challenging year...but a successful one. We have
grown our product line...our market share...our earnings...and our
shareholder equity. We have had the pleasure of meeting more
shareholders, talking with analysts and brokers, making new
business partners, and welcoming new customers into the Mylan
fold. It has been a period of growth, obstacles and opportunity.
The entire Mylan team, from maintenance to management, accepts
the challenge and is dedicated to the creativity, hard work and
integrity needed to continue the high level of quality and
performance for which Mylan is known.
We look forward to the new year!
[PICTURES OF THESE MEN LISTED][PAGE 12]
Some of the Mylan Management Team.
Dana Barnett, Sonny Todd, Rod Jackson, Carlos Machin
[PICTURES OF THE MEN LISTED][PAGE 13]
John O'Donnell, Tom Clark, Joe Krivulka, Bill Richardson, David
Satter
[PICTURE OF THE SALES STAFF][PAGE 14]
Morgantown's sales support staff.
[PICTURE OF MANY MAGAZINES WHERE MYLAN GETS RECOGNITION][PAGE 14]
Mylan continues to receive recognition from major publications.
[PICTURE OF MYLAN AWARDS][PAGE 15]
Sales awards for outstanding performance.
[PICTURE OF CAGUAS ADMINISTRATION STAFF][PAGE 15]
Our Caguas, Puerto Rico administration staff.
[PICTURE BOB LOMBARDI AND DAN DORSEY][PAGE 15]
Bob Lombardi, Dan Dorsey
[PICTURE OF THE REGIONAL SALES MANAGERS][PAGE 16]
Mylan Pharmaceuticals Inc. Regional Sales Managers
Front Row:
Linda Antonini
Tina Charles
Drew Blowess
Back Row:
Dennis Brown
Bob Potter
Dan King
Michael Doan
Tim O'Brien
[PICTURE OF A FEW MEMBERS OF THE MYLAN SALES STAFF][PAGE 17]
A few of the members of the Mylan sales staff
Jack Walsh
Dan Hill
Steve Krinke
Dale Martin
Lynn Cayton
Mark Jordan
Brad Cunningham
[PICTURE OF ROGER DIETERICH, ROD JACKSON, AND MIKE PUSKAR]
[PAGE 18]
Roger Dieterich seated with Rod Jackson and Mike Puskar.
[PICTURE OF THE BOARD OF DIRECTORS][PAGE 19]
Board of Directors
Mylan Laboratories Inc.
Front Row:
Dana G. Barnett
Milan Puskar
C.B. Todd
Back Row:
Robert W. Smiley, Esq.
Richard A. Graciano
Laurence S. DeLynn
John C. Gaisford, M.D.
Mylan Directory
Mylan Pharmaceuticals Inc.
Morgantown, West Virginia
President
C. B. Todd
Executive Vice President
Louis J. DeBone
Executive Vice President
Dr. John P. O'Donnell
Vice President, Purchasing
Richard F. Stupar
Vice President, Quality Control
D. Byron Witt
Vice President, Manufacturing
Charles H. Crunkleton
Vice President, Pharmacokinetics and
Regulatory Affairs
Patrick K. Noonan
Vice President, Marketing and Sales
Robert A. Lombardi
Mylan Inc.--Caguas, Puerto Rico
Vice President and General Manager
Carlos Machin
Somerset Pharmaceuticals, Inc.--Tampa, Florida
President and Chief Executive Officer
Dana G. Barnett
Vice President
Dr. Cheryl Blume
Dow Hickam Pharmaceuticals--Sugar Land, Texas
President
William W. Richardson
Executive Vice President and Chief Financial Officer
David M. Satter
Vice President, Technical Affairs
Robin F. Scamuffa
Vice President, Manufacturing
E. Dwayne Dickey
Bertek, Inc.--St. Albans, Vermont
President
Joe Krivulka
Vice President, Manufacturing Pharmaceutical Division
John Campbell
Vice President, Pharmaceutical Development
Dr. Sharad Govil
Mylan Laboratories is a growth company...Carefully evolving from
asmall generic firm into a fully integrated pharmaceutical
company. We continue to increase our product line, expand our
sales base and multiply our facilities. Our parent organization
is Mylan Laboratories Inc. headquartered in Pittsburgh,
Pennsylvania. Subsidiaries are Mylan Pharmaceuticals Inc. located
in Morgantown, West Virginia; Mylan Inc. in Caguas, Puerto Rico;
Dow Hickam Pharmaceuticals in Sugar Land, Texas and Bertek, Inc.
headquartered in St. Albans, Vermont. There are two distribution
centers--one located in Greensboro, North Carolina and a second
in Reno, Nevada, as well as eight regional sales offices
throughout the United States. Our joint-venture subsidiary,
Somerset Pharmaceuticals, is located in Tampa, Florida.
[PICTURE OF A FEW EMPLOYEES FROM PUERTO RICO][PAGE 21]
A few of the employees from our Mylan family in Puerto Rico
Financial Highlights
March 31 1994 1993
Net Sales $251,773,000 $211,964,000
Net Earnings $ 73,067,000 $ 70,621,000
Earnings Per Share $ .93 $ .92
Working Capital $191,647,000 $154,000,000
Current Ratio 11.7 to 1 6.8 to 1
Total Assets $403,325,000 $351,105,000
Shareholders' Equity $379,969,000 $295,972,000
Book Value Per Share $ 4.81 $ 3.84
The above financial data gives retroactive effect to the
two-for-one stock split effective August 1, 1992.
Financial Highlights
Net Earnings
(In millions)
FY NET EARNINGS
---- ------------
1990 26.6
1991 33.0
1992 40.1
1993 70.6
1994 73.1
Shareholders' Equity
(In millions)
FY SHAREHOLDERS' EQUITY
---- ------------
1990 141.33
1991 167.5
1992 203.5
1993 296.0
1994 380.0
Net Sales
(In millions)
FY NET SALES
---- ------------
1990 107.4
1991 104.5
1992 131.9
1993 212.0
1994 251.8
<TABLE>
<CAPTION>
Selected Financial Data
Year ended March 31 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $251,773 $211,964 $131,936 $104,524 $107,435 $ 99,558 $107,840
Net Earnings $ 73,067 $ 70,621 $ 40,114 $32,952 $ 26,573 $ 19,265 $ 26,361
Earnings Per Share $ .93 $ .92 $ .52 $ .43 $ .35 $ .25 $ .35
Shares Used In Computation 78,949 77,101 76,484 76,368 76,226 76,140 76,012
At year end
Working Capital $191,647 $154,000 $102,105 $ 81,571 $ 65,393 $ 73,022 $ 73,067
Total Assets $403,325 $351,105 $226,720 $186,955 $156,911 $131,246 $126,120
Long-Term Obligations $ 4,609 $ 5,125 $ 3,600 $ 3,398 $ 2,705 $ 3,946 $ 9,738
Shareholders' Equity $379,969 $295,972 $203,452 $167,531 $141,262 $117,945 $102,332
Book Value Per Share $ 4.81 $ 3.84 $ 2.66 $ 2.19 $ 1.85 $ 1.55 $ 1.35
Numbers in thousands except per share amounts.
From June of 1985 through June of 1990 the Company paid asemi-annual cash
dividend of $.05 per share per year. From June of 1990 through July of 1992 the Company had a quarterly
dividend program totaling $.10 per share per year. From October of 1992 to July of 1993 the Company had a quarterly dividend program
totaling $.12 per share per year. Since October of 1993 the Company has a quarterly dividend program
totaling $.16 per share per year.
The above financial data gives retroactive effect to the October 30, 1991 business combination of Mylan
Laboratories Inc. and Dow Hickam Pharmaceuticals and the two-for-one stock split effective August 1,
1992.
</TABLE>
Management's Discussion and Analysis of Results
Of Operations and Financial Position
Overview
Fiscal 1994 operations provided record high net sales and net
earnings for the third consecutive year. Since 1992 Mylan has increased
by 91% and net earnings by 82%.
Net earnings of the Company during fiscal 1994 were directly
affected by new accounting requirements relating to income taxes,passage of a
new federal income tax bill, non-recurring charges resulting from the
unexpected death of the Company's Chairman and Chief Executive Officer and
the impactof the Company's expansion into new areas of product research and
development.
At the same time, the entire pharmaceutical industry has undergone rapid
change in response to both governmental and private sector efforts to
reform health care in America. Part of this response has been the increased
participation by major branded pharmaceutical companies in the generic side of
the business through either the addition of newly formed generic subsidiaries
or the acquisition of significant interests in existing generic firms.
These entries into an already competitive market resulted in intensive price
competition during the year.
Despite the significant price competition, the Company realized a
24% increase in volume of generic product shipments in fiscal
1994, thusallowing the Company to increase by 60% its investment in the
future through research and development.
Results of Operations
Net Sales and Gross Margin
Net sales for the years ended March 31, 1994, 1993 and 1992 were
$251,773,000,$211,964,000 and $131,936,000 respectively. The growth of 19%
from 1993 to 1994 is attributable to the addition of eight products to the
Company's generic product line during the year and an overall increase of 24% in
the volume of generic product shipments which helped to offset significant
price deterioration, particularly related to products added to our line
in fiscal 1993 and 1992. Net sales for fiscal 1994 also reflect a full year
of sales from Bertek which was acquired in February of 1993.
The 61% increase in net sales from 1992 and 1993 was in large
part due to increased sales of generic products including the effect of
adding to our product line five new products during fiscal 1992 and four new
products during fiscal 1993.
Gross margins as a percent of net sales for fiscal years 1994,
1993 and 1992 were 50%, 57% and 47% respectively. The fluctuation in these
rates is indicative of new product additions and significant price
competition in the generic product line, particularly for products added to
the line during the last three fiscal years. The 1994 rate was also affected by
the recognition of sales from Bertek which generally provides lower gross margin
rates. Due to the competitive nature of the generic pharmaceutical industry and
the continued pressures on the pharmaceutical industry in general, the net
sales and gross margin percentages recognized in fiscal 1994 are not necessarily
indicative of the results to be expected in future periods.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL POSITION
Research and Development
Research and Development expenses were $21,648,000 in 1994
compared to $13,524,000 in 1993 and $7,885,000 in 1992. These
amounts represent approximately 9% of net sales in 1994 and 6% of
net sales in both 1993 and 1992. Fiscal 1994 expenditures include
amounts for transdermal delivery system development in addition
to increased expenditures for ongoing research and development of
both innovative and generic products. The Company continues its
commitment to new and increased product development.
Selling and Administrative
Selling and Administrative expenses were $49,143,000 in fiscal
1994 compared to $36,650,000 in fiscal 1993 and $27,832,000 in
1992, which represent approximately 20%, 17% and 21% of
corresponding net sales. The fiscal 1994 amount includes
approximately $3,143,000 in amortization of intangible assets
associated with the Bertek acquisition and $3,229,000 in expenses
resulting from the death of Mr. McKnight, the former Chairman and
Chief Executive Officer of the Company. Other changes from 1993
to 1994 and the change in expenses incurred in 1993 from 1992 are
attributable in large part to compensation and related expenses,
selling/marketing expenses associated with new products including
sales commissions, and legal and professional fees associated
with the various court actions to which the Company has been
involved.
Equity in Earnings of Somerset
Somerset's contribution to the Company's pretax earnings (in
thousands) and earnings per share are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
Quarter Pretax Earnings Pretax Earnings Pretax Earnings
Ended Earnings Per Share Earnings Per Share Earnings Per
Share
<S> <C> <C> <C> <C> <C> <C>
6/30 $ 5,682 $.06 $ 4,309 $.05 $ 4,335 $.05
9/30 5,727 .07 5,101 .06 4,520 .05
12/31 6,841 .08 6,120 .07 4,708 .06
3/31 5,346 .06 5,606 .06 5,101 .06
Fiscal
Year $23,596 $.27 $21,136 $.24 $18,664 $.22
</TABLE>
Under the Orphan Drug Act, Somerset has exclusivity relating to
marketing the chemical compound Eldepryl-R for use as a treatment
for late stage Parkinson's disease through June of 1996. Under
the Waxman Hatch Act, Somerset has exclusivity for all uses of
the chemical compound through June of 1994. Somerset is actively
involved in research projects regarding additional uses of the
chemical compound.
Other Income
Other income for the year ended March 31, 1994 was $8,148,000
compared to $3,879,000 in 1993 and $5,490,000 in 1992. The 1994
amount includes $3,375,000 in legal settlements. Other changes
are indicative of market fluctuations affecting the yields on
investments.
Income Taxes
The effective tax rates for 1994, 1993 and 1992 were 16%, 27% and
20% respectively. The 1994 effective tax rate was reduced by 5%
as a result of recording the cumulative effects of changes in
financial reporting requirements and changes in the Federal tax
code.
The Company recognized tax credits which reduced the effective
tax rates by approximately 8% in 1994, 2% in 1993 and 5% in 1992.
The tax credits result pricipally from operations in Puerto Rico
and also from credits for increasing research and development
activities. Changes in the federal tax code enacted in 1993 will
reduce future tax credits otherwise available for operating in
Puerto Rico by 40% in fiscal 1995 with additional 5% reductions
in the following four fiscal years. In addition, recent tax
rulings may reduce the amount of credit otherwise available to
the Company for future research and development activities.
Liquidity and Capital Resources
Total assets increased by 15% to $403,325,000 at March 31, 1994
and total liabilities decreased by 58% to $23,356,000. Working
capital of $191,647,000 represents 50% of net worth at March 31,
1994 versus $154,000,000 or 52% of net worth at March 31, 1993.
The ratio of current assets to current liabilities was 11.7 to 1
at March 31, 1994 versus 6.8 to 1 at March 31, 1993.
Cash flows from operating activities dropped from 1993 to 1994
primarily due to build ups in accounts receivable and inventories
and also due to higher levels of tax payments in the current
year.
The Company used considerably higher amounts of cash during
fiscal 1994 for investments in property, plant and equipment and
both long-term and short-term financial investments. Property,
plant and equipment additions included significant expansion and
renovation of facilities in Puerto Rico and Vermont and a
recently initiated expansion project for the Greensboro
distribution center. During 1994 the Company acquired aircraft
which were previously leased on a flight by flight basis. All
capital additions during fiscal 1994 were made with the general
funds of the Company and without incurring additional borrowings.
As of March 31, 1994 the Company has commitments for future
capital expenditures of approximately $2,200,000.
Payments of long-term obligations in 1994 represents a final
settlement with the estate of Roy McKnight in connection with Mr.
McKnight's salary continuation agreement. Prior year payments
were primarily for obligations assumed in the business
combinations of Bertek in 1993 and Hickam in 1992.
The Company paid cash dividends of $.14 per share in 1994
totalling $11,026,000 compared to $.11 per share in 1993 which
totalled $8,476,000.
The Financial Accounting Standards Board has issued a new
statement, Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", which will become effective for
the Company beginning in fiscal 1995. Management does not believe
that the adoption of this statement will have a material impact
on the financial position or results of operations of the
Company.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
March 31 1994 1993
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 75,526,000 $ 98,246,000
Short-term investments 12,925,000 --
Accounts receivable 55,430,000 32,396,000
Inventories 57,996,000 45,949,000
Prepaid income taxes 1,265,000 --
Deferred income tax benefit 2,082,000 --
Other current assets 4,349,000 3,891,000
- - - -----------------------------------------------------------------------------
Total Current Assets 209,573,000 180,482,000
Property, Plant and Equipment
- - - --Net of accumulated depreciation 82,514,000 68,519,000
Intangible Assets
- - - --Net of accumulated amortization 33,228,000 38,115,000
Other Assets 60,247,000 49,145,000
Investment In and Advances to Somerset 17,763,000 14,844,000
- - - -----------------------------------------------------------------------------
Total Assets $403,325,000 $351,105,000
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
March 31 1994 1993
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Trade accounts payable $ 6,699,000 $ 6,492,000
Income taxes payable -- 9,349,000
Other current liabilities 8,056,000 8,293,000
Cash dividend payable 3,171,000 2,348,000
Total Current Liabilities 17,926,000 26,482,000
Acquisition Obligation -- 21,303,000
Long-Term Obligations 4,609,000 5,125,000
Deferred Income Tax Liability 821,000 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 79,697,295 shares at March 31, 1994
and 78,615,453 shares at March 31, 1993 39,849,000 39,309,000
Additional paid-in capital 54,272,000 29,866,000
Retained earnings 288,357,000 227,139,000
382,478,000 296,314,000
Less treasury stock at cost--
495,864 shares at March 31, 1994 and
430,206 shares at March 31, 1993 2,509,000 342,000
Net Worth 379,969,000 295,972,000
Total Liabilities and Shareholders' Equity $403,325,000 $351,105,000
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
Year ended March 31 1994 1993 1992
<S> <C> <C> <C>
Net Sales $251,773,000 $211,964,000 $131,936,000
Cost and Expenses
Cost of Sales 125,631,000 89,400,000 69,877,000
Research and development 21,648,000 13,524,000 7,885,000
Selling and administrative 49,143,000 36,650,000 27,832,000
Interest 30,000 64,000 354,000
196,452,000 139,638,000 105,948,000
Equity in Earnings of Somerset 23,596,000 21,136,000 18,664,000
Other Income 8,148,000 3,879,000 5,490,000
Earnings Before income Taxes 87,065,000 97,341,000 50,142,000
Income Taxes 13,998,000 26,720,000 10,028,000
Net Earnings $ 73,067,000 $ 70,621,000 $ 40,114,000
Earnings Per Share $ .93 $ .92 $ .52
Weighted Average Common Shares 78,949,000 77,101,000 76,484,000
</TABLE>
See notes to consolidated financial statements.
Consolidated Statements of Shareholders Equity
<TABLE>
<CAPTION>
Common Stock Common Stock Additional Retained
Shares Amount Paid-In Capital Earnings
<S> <C> <C> <C> <C>
April 1, 1991 $38,383,065 $19,193,000 $ 4,572,000 $144,138,000
Stock options exercised 248,308 124,000 3,127,000 --
Cash dividend $.10 per share -- -- -- (7,463,000)
Net earnings -- -- -- 40,114,000
March 31, 1992 $38,631,373 $19,317,000 $ 7,699,000 $176,789,000
Stock options exercised 713,857 357,000 12,732,000 --
Cash dividend $.115 per share -- -- -- (8,902,000)
Stock split (2 for 1) 38,654,343 19,327,000 (7,958,000) (11,369,000)
Bertek acquisition 615,880 308,000 17,393,000 --
Net earnings -- -- -- 70,621,000
March 31, 1993 $78,615,453 $39,309,000 $29,866,000 $227,139,000
Stock options exercised 347,747 173,000 4,447,000 --
Cash dividend $.15 per share -- -- -- (11,849,000)
Bertek acquisition 734,095 367,000 19,959,000 --
Net earnings -- -- -- 73,067,000
March 31, 1994 $79,697,295 $39,849,000 $54,272,000 $288,357,000
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
<S> <C> <C> <C>
Year ended March 31 1994 1993 1992
Cash Flows from Operating Activities
Net earnings $73,067,000 $70,621,000 $40,114,000
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization 11,154,000 5,089,000 5,060,000
Deferred income tax benefit (656,000) (888,000) (1,336,000)
Equity in earnings of Somerset (23,596,000) (21,136,000) (18,664,000)
Cash received from Somerset 20,676,000 19,966,000 22,461,000
Other noncash expenses 4,192,000 3,758,000 2,238,000
Changes in operating assets and liabilities:
Accounts receivable (23,485,000) (9,073,000) (5,622,000)
Inventories (12,002,000) (9,825,000) (3,571,000)
Trade accounts payable 207,000 1,911,000 876,000
Income taxes payable (11,111,000) 6,263,000 3,689,000
Other operating assets and liabilities(2,813,000) 1,651,000 109,000
Net cash provided from
operating activities 35,633,000 68,337,000 45,354,000
Cash Flows from Investing Activities
Additions to property,
plant and equipment (20,164,000) (12,294,000) (10,041,000)
Repayment of advances to Somerset -- -- 574,000
Increase in intangible and other assets (15,147,000) (10,833,000) (13,399,000)
Increase in short-term investments (12,925,000) -- --
Other investment proceeds 4,800,000 -- --
Net cash used in investing activities (43,436,000) (23,127,000) (22,866,000)
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Year ended March 31 1994 1993 1992
Cash Flows from Financing Activities
<S> <C> <C> <C>
Payments on long-term obligations $ (4,320,000) $ (8,373,000) $ (7,081,000)
Cash dividend paid (11,026,000) (8,476,000) (7,355,000)
Proceeds from long-term debt -- -- 6,000,000
Payments on acquisition obligation (977,000) -- --
Proceeds from exercise of stock options 1,406,000 9,561,000 2,650,000
Net cash used in financing activities (14,917,000) (7,288,000) (5,786,000)
Net Increase (Decrease) in Cash
and Cash Equivalents (22,720,000) 37,922,000 16,702,000
Cash and Cash Equivalents--
Beginning of Year 98,246,000 60,324,000 43,622,000
Cash and Cash Equivalents--
End of Year $ 75,526,000 $ 98,246,000 $ 60,324,000
</TABLE>
For purposes of presentation in the statements of cash flows,
cash, overnight deposits and money market funds with maturities
of less than three months have been classified as cash and cash
equivalents. The carrying value of these items approximates fair
value.
Cash payments for interest were $30,000 in 1994, $64,000 in 1993
and $355,000 in 1992. Cash payments for income taxes were
$27,055,000 in 1994, $21,345,000 in 1993 and $7,667,000 in 1992.
During fiscal 1993 the Company acquired substantially all of the
assets of Bertek, Inc. (Bertek) (see note B) for approximately
$39,112,000 and assumed liabilities of approximately $10,090,000.
During the years ended March 31, 1994 and 1993, $20,326,000 and
$17,701,000 of the purchase price was satisfied through the
issuance of the Company's common stock. At the closing of this
transaction, the Company repaid with cash approximately
$8,293,000 in long-term debt obligations assumed.
During fiscal 1993 the Company declared a 2 for 1 stock split
effected in the form of a stock dividend (see note K).
Certain stock option transactions result in a reduction of income
taxes payable and a corresponding increase in additional paid in
capital. The amount for the years ended March 31, 1994, 1993 and
1992 were $1,040,000, $3,528,000 and $601,000 respectively.
During fiscal 1994 the Company received and recorded into
treasury stock 75,658 shares of common stock valued at $2,174,000
in consideration for the exercise of stock options.
A. Summary of Significant Accounting Policies
1. Principles of Consolidation and Business
The consolidated financial statements include the accounts
of Mylan Laboratories Inc. (the Company) and its wholly-owned
subsidiaries, Mylan Pharmaceuticals Inc., Milan Holding Inc.,
Mylan Inc., Dow Hickam Pharmaceuticals, Inc. and Bertek, Inc.
(see note B). All intercompany accounts and transactions have
been eliminated in consolidation. The Company's principal line of
business is the manufacturing of pharmaceutical products. The
Company had sales to one customer which represented 12% and 10%
of net sales in 1993 and 1992 and to another customer which
represented 12% of net sales in 1992.
No single customer represented more than 10% of net sales in
1994.
2. Short-Term Investments
The Company's portfolio of short-term investments is
recorded at the lower of aggregate cost or market at the balance
sheet date and consists of preferred stocks, bonds and other
marketable securities. Dividends and interest income are accrued
as earned. At March 31, 1994, the Company has recorded net
unrealizable losses of approximately $800,000, based on quoted
market prices. In May of 1993, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities". This statement is effective for fiscal year 1995.
Management does not believe that the adoption of this statement
will have a material impact on the financial position or results
of operations of the Company.
3. Accounts Receivable
Accounts receivable are presented net of allowances which
amounted to $3,449,000 at March 31, 1994 and $2,999,000 at March
31, 1993.
4. Inventories
Inventories are stated at the lower of cost (principally,
first-in, first-out) or market.
5. Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation is provided in amounts sufficient to relate cost of
depreciable assets to operations over the estimated service
lives, principally on a straight-line basis.
6. Research and Development
Research and development expenses are charged to operations
as incurred.
7. Income Taxes
Effective April 1, 1993 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes". The statement requires that deferred income taxes
reflect the tax consequences on future years of events that have
already been recognized in the financial statements or tax
returns. Prior to April 1, 1993 deferred income taxes were
provided for the difference between income and expense
recognition for financial reporting purposes and income tax
purposes.
8. Earnings Per Share
Earnings per share of common stock are based on the weighted
average number of shares outstanding during each year. The effect
on earnings per share, resulting from the assumed exercise of
outstanding stock options, is not material.
B. Business CombinationBertek
On February 25, 1993 a wholly-owned subsidiary of the
Company acquired substantially all of the net assets of Bertek,
Inc. (Bertek). Bertek, headquartered in St. Albans, Vermont, is a
manufacturer of transdermal drug delivery systems and also has
operations in laminating and label manufacturing.
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.
The results of Bertek's operations have been included in the
Company's Consolidated Statements of Earnings from the date of
acquisition. Unaudited proforma information assuming the
acquisition had occurred on April 1, 1991 is as follows: (in
thousands except per share data)
Year Ended March 31, 1993 1992
Net sales $231,480 $153,764
Net earnings $ 69,049 $ 38,859
Earnings per share $ .88 $ .50
C. Inventories
Inventories consist of the following components: (in thousands)
March 31, 1994 1993
Raw materials $ 26,138 $ 23,115
Work in process 14,978 11,553
Finished goods 16,880 11,281
$ 57,996 $ 45,949
D. Property, Plant and Equipment
Property, plant and equipment consists of the following
components: (in thousands)
March 31, 1994 1993
Land and land improvements $ 5,088 $ 5,088
Buildings and improvements 41,705 36,530
Machinery and equipment 59,178 45,758
Construction in progress 9,143 7,574
115,114 94,950
Less accumulated depreciation 32,600 26,431
$ 82,514 $ 68,519
E. Investment In and Advances to Somerset
On June 21, 1989 the Company acquired 50% of all the
outstanding common and preferred stock of Somerset
Pharmaceuticals, Inc. (Somerset). On June 5, 1989 Somerset
received approval from the Food and Drug Administration to market
the product EldeprylR. Sales of this product, which is used in
the treatment of late stage Parkinson's disease, commenced in
late August 1989. The Company uses the equity method of
accounting for the investment in Somerset.
Equity in Earnings of Somerset includes the Company's 50%
portion of Somerset net earnings and expense for amortization of
intangible assets resulting from the acquisition of Somerset.
Such intangible assets are amortized over a 15 year period.
Amortization expense amounted to $924,000 in 1994, 1993 and 1992.
Additionally, the Company's charges to Somerset for management
services and product development activities are included in
Equity in Earnings of Somerset. These charges have been recorded
by Somerset as a reduction of its net earnings.
Condensed unaudited balance sheet information of Somerset is as
follows: (in thousands)
March 31, 1994 1993 1992
Current assets $ 27,931 $ 30,409 $ 24,597
Non-current assets 6,043 2,760 2,791
Current liabilities 14,918 20,675 15,413
Payable to owners 1,002 1,796 1,490
Other liabilities 642 808 975
Condensed unaudited income statement information of Somerset is
as follows: (in thousands)
Year Ended March 31, 1994 1993 1992
Net sales $111,970 $108,518 $ 93,513
Costs and expenses 50,465 49,872 42,041
Income taxes 19,547 21,789 18,806
Net earnings $ 41,958 $ 36,857 $ 32,666
The above information represents 100% of Somerset's operations
of which the Company has a 50% interest.
F. Intangible Assets
Intangible Assets include $22,324,000 and $23,771,000
related to values assigned to acquired patents and technology at
March 31, 1994 and 1993, respectively, net of accumulated
amortization.
The remaining amounts consist principally of values assigned
to licenses, agreements and goodwill.
Amortization is provided on a straight-line basis over
periods ranging from 14 to 17 years for patents and technology
and 2 to 20 years for other intangible assets.
Intangible assets are stated net of accumulated amortization
of $8,874,000 and $3,888,000 at March 31, 1994 and 1993
respectively.
G. Other Assets
Other assets consist of the following components: (in thousands)
March 31, 1994 1993
Long-term investments $30,284 $28,220
Cash surrender value 16,254 8,402
Captive insurance company 7,712 6,776
Other assets 5,997 5,747
$60,247 $49,145
Long-term investments include fixed income securities and
notes, carried at cost, and pooled asset funds, carried at the
lower of cost or market which consist of common and preferred
stocks, bonds, and money market funds. Earnings on these
investments included under the caption _"Other Income" amounted
to $1,467,000 in 1994, $340,000 in 1993 and $3,175,000 in 1992.
At March 31, 1994 and 1993 the carrying amounts of these
investments approximated fair value based on quoted market
prices.
Cash Surrender Value represents insurance policies on
certain officers and key employees and the value of a split
dollar life insurance arrangement with the estate of
the former Chairman and Chief Executive Officer of the Company.
(See note N for
further discussion.)
The Company's interest in a captive insurance company is
accounted for by the equity method of accounting. Earnings from
this investment included under the caption _Other Income_
amounted to $937,000 in 1994, $940,000 in 1993 and $905,000 in
1992.
H. Other Current Liabilities
Other current liabilities includes payroll and employee
benefit plan accruals which amounted to $5,388,000 at March 31,
1994 and $4,459,000 at March 31, 1993, and accruals for Medicaid
Reimbursements of $1,479,000 at March 31, 1994 and $2,141,000
at March 31, 1993.
I. Long-Term Obligations
Long-term obligations represent accruals for post-retirement
compensation pursuant to agreements with certain key employees.
Under these agreements, benefits are to be paid over periods of
10 to 15 years commencing at retirement.
J. INCOME TAXES
Effective April 1, 1993 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes". Prior years' financial statements have not been
restated to apply the provisions of SFAS No. 109. The cumulative
effect of adopting this standard resulted in an increase in net
earnings of $1,124,000 or $.01 per share in the 1994 Consolidated
Statement of Earnings. There was no cash flow impact.
SFAS No. 109 requires an asset and liability approach to
accounting for income taxes. Deferred income 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.
Income taxes consist of the following components: (in thousands)
Year Ended March 31, 1994 1993 1992
Federal
Current $11,888 $25,325 $10,927
Deferred 61 (888) (1,336)
11,949 24,437 9,591
State
Current 2,766 2,283 437
Deferred (717) -- --
2,049 2,283 437
Income taxes $13,998 $26,720 $10,028
Pre-tax earnings $87,065 $97,341 $50,142
Effective tax rate 16.1% 27.4% 20.0%
A reconciliation of the statutory tax rate to the effective tax
rate is as follows:
Year Ended March 31, 1994 1993 1992
Statutory tax rate 35.0% 34.0% 34.0%
State income taxes--net 1.7% 1.5% 0.6%
Tax exempt earnings--
primarily dividend exclusion (7.7%) (5.9%) (10.1%)
Tax credits (7.6%) (2.2%) (4.7%)
SFAS 109 (1.3%) -- --
Changes in tax code (3.7%) -- --
Other items (0.3%) -- 0.2%
Income taxes 16.1% 27.4% 20.0%
Tax credits result principally from operations in Puerto Rico.
The sources of deferred income taxes are summarized as follows:
(in thousands)
Year Ended March 31, 1993 1992
Earnings of Somerset $ 430 $ (674)
Depreciation and amortization (74) (73)
Asset valuation allowances (778) (300)
Deferred compensation (514) (433)
Other items 48 144
$(888) $(1,336)
Temporary differences and carryforwards which give rise to the
deferred income tax assets and liabilities are as follows: (in
thousands)
March 31, 1994
Deferred Tax Assets:
Employee benefits $1,745
Deferred revenue 868
Asset allowances 1,279
Inventory 829
Investments 1,022
Total Deferred Tax Assets 5,743
Deferred Tax Liabilities:
Property 3,379
Investments 1,103
Total Deferred Tax Liabilities 4,482
Deferred Tax Assets--Net $1,261
Classification in the Consolidated Balance Sheet:
Deferred Income Tax Benefit--Current $2,082
Deferred Income Tax Liability--Non-Current (821)
Deferred Tax Assets--Net $1,261
In August of 1993, President Clinton signed into law the
Omnibus Budget Reconciliation Act of 1993 ("the Act"). The Act
has several provisions which affect 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.
K. Common Stock
During fiscal year 1993 the Company declared a 2 for 1 stock
split effected in the form of a stock dividend. The par value of
the new shares issued totaled $19,327,000 and has been
transferred from additional paid-in capital and retained earnings
to the common stock account. Per share amounts and stock options
have been adjusted for the stock split.
On April 7, 1993, the shareholders of the Company approved
an increase in the number of shares of common stock authorized to
300,000,000.
L. Stock Option Plans
On December 1, 1986 the Board of Directors adopted the
"Mylan Laboratories Inc. 1986 Incentive Stock Option Plan" ("the
Plan") which was approved by the Shareholders on June 24, 1987. A
total of 6,000,000 shares of the Company's common stock are
reserved for issuance upon exercise of stock options. Options,
which may be granted at not less than fair market value on the
date of the grant may be exercised within ten years from
the date of grant. As of March 31, 1994, options for 2,770,300
shares have been granted pursuant to the Plan.
In connection with the October 30, 1991 business combination
with Hickam, all unexercised options granted pursuant to various
Hickam option plans were converted to options to acquire the
Company's common stock at a conversion rate of .85524 Mylan
option shares for each Hickam option outstanding. A total of
535,124 shares of the Company's common stock were reserved for
issuance pursuant to the Hickam plans as of the October 30, 1991
(date of conversion).
On June 23, 1992 the Board of Directors adopted the "1992
Nonemployee Director Stock Option Plan"(the"Directors' Plan")
subject to shareholder approval, which was obtained on April 7,
1993. A total of 400,000 shares of the Company's common stock are
reserved for issuance upon exercise of stock options which may be
granted at not less than fair market value on the date of grant.
Shares are granted, based on a formula as described in the
Directors' Plan, upon the nonemployee director's initial and
subsequent election to the Board of Directors. Options may be
exercised within ten years from the date of grant. As of March
31, 1994, 166,000 shares have been granted pursuant to the
Directors' Plan.
As of March 31, 1994 options for 1,311,179 shares are
exercisable under all plans at option prices ranging from $4.24
to $28.125 per share.
A summary of the activity resulting from all plans adjusted for
the stock split is as follows:
Number of shares under option Option price per share
Outstanding
April 1, 1991 1,362,660 $ 4.125--8.915
Options granted 254,460 5.555--16.00
Options exercised (496,616) 4.125--8.915
Outstanding
March 31, 1992 1,120,504 $ 4.125--16.00
Options granted 1,778,000 18.00
Options exercised (713,857) 4.125--18.00
Options cancelled or surrendered (64,398) 4.75--16.00
Outstanding
March 31, 1993 2,120,249 $ 4.125--18.00
Options granted 6,000 26.125--28.125
Options exercised (347,747) 4.125--18.00
Options cancelled or surrendered (6,875) 16.00
Outstanding
March 31, 1994 1,771,627 $ 4.24--28.125
M. Profit Sharing and 401(k) Plans
The Company has a noncontributory trusteed profit sharing
plan covering essentially all employees who are not covered by
401(k) plans, a 401(k) plan covering essentially all Hickam
employees; a profit sharing plan with a 401(k) provision covering
all employees of Bertek; and a 401(k) plan covering all
employees of the bargaining unit.
Contributions to the profit sharing plan and the Bertek plan
are made at the discretion of the Board of Directors.
Contributions to the Hickam plan are based upon a formula
matching the employees salary deferral. Contributions to the
bargaining unit plan are based upon the union agreement. Total
contributions to all plans for the years ended March 31, 1994,
1993 and 1992 were $2,300,000, $1,860,000 and $1,315,000
respectively.
N. Related Party Transactions
Pursuant to a salary continuation agreement between Mr.
McKnight, former Chairman and Chief Executive Officer, and the
Company, a one time payment of $4,306,000 was made on March 31,
1994 of which $2,861,000 was expensed during 1994. The Company
also purchased aircraft, which it previously leased on a flight
by flight basis, from the estate of Mr. McKnight for $5,900,000.
In addition, the Company will continue to fund life insurance
premiums pursuant to a split-dollar life insurance agreement
whereby the Company has rights to the cash surrender value of the
insurance policies.
O. Legal Matters
The Company is involved in various claims, principally
intellectual property and product liability cases, that are
considered normal to its business. While it is not feasible to
predict the ultimate outcome of such proceedings it is the
opinion of management that the outcome will have no material
adverse effect on the Company's operations or financial position.
During fiscal 1994 the Company settled certain legal matters
relating to the Company's suit filed under the Federal Antitrust
Laws and the Racketeer Influence and Corrupt Organization Act
(RICO), and received approximately $3,375,000. Additionally
during fiscal 1994 the jury in the Company's lawsuit against
American Cyanamid ruled in favor of Cyanamid on the Company's
complaint and in favor of the Company on Cyanamid's
counterclaims. No money damages were awarded to either party.
Each party has given notice of appeal to the U.S. Court of
Appeals for the Fourth Circuit.
(auditor's report40)
Independent Auditors' Report
Board of Directors and Shareholders
Mylan Laboratories Inc.
Pittsburgh, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Mylan Laboratories Inc. and subsidiaries as of March 31, 1994 and
1993, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the three years
in the period ended March 31, 1994, appearing on pages 28 through
39. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Mylan
Laboratories Inc. and subsidiaries as of March 31, 1994 and 1993,
and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 1994, in
conformity with generally accepted accounting principles.
Pittsburgh, Pennsylvania
April 22, 1994
Market Prices
Fiscal 1994 High Low
First Quarter 30 3/4 23 5/8
Second Quarter 30 3/8 19 5/8
Third Quarter 33 1/4 23 1/2
Fourth Quarter 25 1/8 15 7/8
Fiscal 1993 High Low
First Quarter 19 3/4 16 7/8
Second Quarter 27 1/2 19 3/8
Third Quarter 31 7/8 24
Fourth Quarter 37 5/8 23 3/4
New York Stock Exchange Symbol: MYL
On April 30, 1994 the Company had approximately 83,637
shareholders.
Quarterly Financial Data
(Amounts in thousands, except per share amounts)
1st Quarter 1994 1993
Net sales $ 58,507 $ 38,838
Gross profit 29,952 19,573
Net earnings 16,108 11,353
Earnings per share .21 .14
2nd Quarter
Net sales $ 57,756 $ 51,020
Gross profit 27,848 29,854
Net earnings 17,442 16,707
Earnings per share .22 .22
3rd Quarter
Net sales $ 66,436 $ 61,108
Gross profit 34,271 36,619
Net earnings 22,123 21,175
Earnings per share .28 .28
4th Quarter
Net sales $ 69,074 $ 60,998
Gross profit 34,071 36,518
Net earnings 17,394 21,386
Earnings per share .22 .28
Year
Net sales $251,773 $ 211,964
Gross profit 126,142 122,564
Net earnings 73,067 70,621
Earnings per share .93 .92
Notice of Annual Meeting
The annual meeting of shareholders of the Company will be held on
Wednesday, June 29, 1994 at 10:30 AM at the Lakeview Resort &
Conference Center, Morgantown, West Virginia. A formal notice
together with a proxy statement and form of proxy will be mailed
to shareholders entitled to vote in advance of the meeting.
Shareholder Information
A copy of the Mylan Laboratories Inc. Annual Report to the
Securities and Exchange Commission on Form 10-K is available to
shareholders on request. For a copy of Form 10-K, please write
to:
Mylan Laboratories Inc.
1030 Century Building
130 Seventh Street
Pittsburgh, Pennsylvania 15222
Shareholder Contact
Patricia Sunseri
(412) 232-0100
Directors
Milan Puskar
Chairman of the Board, C.E.O. and
President of the Company
Dana G. Barnett
Executive Vice President of the Company
Laurence S. DeLynn
Retail Consultant
Morgantown, West Virginia
John C. Gaisford, M.D.
Director of Burn Research
West Penn Hospital
Pittsburgh, Pennsylvania
Richard A. Graciano
Associate/Partner
Graciano Enterprises
Pittsburgh, Pennsylvania
Robert W. Smiley, Esq.
Doepken, Keevican, Weiss & Medved
Attorneys-At-Law
Pittsburgh, Pennsylvania
C. B. Todd
Senior Vice President of the Company
Officers
Milan Puskar
Chairman, C.E.O. and President
Dana G. Barnett
Executive Vice President
Louis J. DeBone
Vice President--Operations
Roderick P. Jackson
Senior Vice President
Joseph J. Krivulka
Vice President
Dr. John P. O'Donnell
Vice President--Research and
Quality Control
Robert W. Smiley, Esq.
Secretary
Patricia Sunseri
Vice President--Investor and Public Relations
C. B. Todd
Senior Vice President
Corporate Directory
Mylan Laboratories Inc.
1030 Century Building
130 Seventh Street
Pittsburgh, Pennsylvania 15222
(412) 232-0100
Registrar and Transfer Agent
American Stock Transfer Co.
New York, New York
Certified Public Accountants
Deloitte & Touche
Pittsburgh, Pennsylvania
Financial Consultants
PDA Associates, Inc.
Ironia, NJ
Securities Traded
New York Stock Exchange
Mylan Laboratories Inc.
Common Stock
MYL
Mylan Laboratories Inc.
1030 Century Building
130 Seventh Street
Pittsburgh, Pennsylvania 15222
(22) Subsidiaries of the registrant, filed herewith.
EXHIBIT 22
Subsidiaries
Name State of Incorporation
- - - ---- ----------------------
Milan Holding, Inc. Delaware
Mylan Inc. Delaware
Mylan Pharmaceuticals Inc. West Virginia
Dow Hickam Pharmaceuticals, Inc. Texas
Bertek, Inc. West Virginia
(24) Consents of Independent Auditors', filed herewith.
EXHIBIT 24
Independent Auditors' Consent
We consent to the incorporation by reference in Registration
Statement No. 33-65916 and No. 33-65918 of Mylan Laboratories
Inc. on Form S-8 of our reports dated April 22, 1994,
incorporated by reference of appearing in this Annual Report on
Form 10-K of Mylan Laboratories Inc. for the year ended March 31,
1994.
Deloitte & Touche
Pittsburgh, Pennsylvania
June 7, 1994
<PAGE>
EXHIBIT 24
Independent Auditors' Consent
We consent to the incorporation by reference in Registration
Statement No. 33-65916 and No. 33-65918 of Mylan Laboratories
Inc. on Form S-8 of our report dated February 4, 1994, on the
audit of the consolidated financial statements of Somerset
Pharmaceuticals, Inc. and subsidiaries for the three years in the
period ended December 31, 1993, included as an exhibit to the
Annual Report on Form 10-K of Mylan Laboratories Inc. for the
year ended March 31, 1994.
Deloitte & Touche
Pittsburgh, Pennsylvania
(28) Consolidated financial statements of Somerset
Pharmaceuticals, Inc. for Years ended December 31, 1993, 1992 and
1991, filed herewith.
SOMERSET PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Financial Statements for the
Years Ended December 31, 1993, 1992 and 1991, and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Somerset Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of
Somerset Pharmaceuticals, Inc. and subsidiaries as of December
31, 1993 and 1992, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Somerset Pharmaceuticals, Inc. and subsidiaries as of December
31, 1993 and 1992, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted
accounting principles.
February 4, 1994
<PAGE>
SOMERSET PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $10,281,000 $6,141,000
Investment securities 3,470,000 5,476,000
Accounts receivable (net of allowance for doubtful
accounts of $100,000) 16,095,000 14,223,000
Inventory 3,820,000 2,242,000
Prepaid expenses and other current assets 1,582,000 1,934,000
---------- ----------
Total Current Assets 35,248,000 30,016,000
PROPERTY AND EQUIPMENT -Net 2,762,000 164,000
Intangible Assets-Net 1,987,000 2,180,000
OTHER ASSETS 1,416,000 348,000
$41,413,000 $32,708,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY 1993 1992
CURRENT LIABILITIES
Accounts Payable $ 205,000 $ 432,000
Note payable 253,000 -
Royalty Payable 4,780,000 4,590,000
Accrued Marketing Costs 9,100,000 7,714,000
Other accrued expenses 4,116,000 2,934,000
Income Taxes Payable 2,900,000 2,330,000
Amounts due to related parties 2,063,000 10,585,000
----------- -----------
Total Current Liabilities 23,417,000 28,585,000
DEFERRED REVENUE 458,000 625,000
REDEEMABLE PREFERRED STOCK:
CLASS A - 556,000
CLASS B - 754,000
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, 13,719
shares authorized, 11,297 shares issued - -
Retained Earnings 17,990,000 2,640,000
Less treasury stock, 644 shares at cost (452,000) (452,000)
----------- ------------
Total Stockholders' Equity 17,538,000 2,188,000
----------- ------------
$41,413,000 $32,708,000
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SOMERSET PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,1993,1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
NET SALES $118,998,000 $104,071,000 $ 85,057,000
------------ ------------ ------------
COST AND EXPENSES:
Cost of sales 13,991,000 12,552,000 11,603,000
Marketing and Administrative 33,826,000 30,151,000 22,786,000
Research and Development 9,134,000 5,580,000 2,851,000
Interest Expense 5,000 - -
------------ ------------ ------------
56,956,000 48,283,000 37,240,000
------------ ------------ ------------
62,042,000 55,788,000 47,817,000
OTHER INCOME 1,131,000 1,017,000 1,128,000
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 63,173,000 56,805,000 48,945,000
PROVISION FOR INCOME TAXES 21,408,000 20,736,000 17,865,000
------------ ------------ ------------
NET INCOME $ 41,765,000 $ 36,069,000 $ 31,080,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SOMERSET PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,1990 11,297 $ - 644 $(452,000) $ 6,392,000 $ 5,940,000
Accretion of the carrying
value of the redeemable
preferred stock - - - - (365,000) (365,000)
Dividends - - - - (29,207,000) (29,207,000)
Net Income - - - - 31,080,000 31,080,000
-------- --- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31,1991 11,297 - 644 (452,000) 7,900,000 7,448,000
Accretion of the carrying
value of the redeemable
preferred stock - - - - (122,000) (122,000)
Dividends - - - - (41,207,000) (41,207,000)
Net Income - - - - 36,069,000 36,069,000
-------- --- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31,1992 11,297 - 644 (452,000) 2,640,000 2,188,000
Accretion of the carrying
value of the redeemable
preferred stock - - - - (15,000) (15,000)
Dividends - - - - (26,400,000) (26,400,000)
Net Income - - - - 41,765,000 41,765,000
-------- --- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31,1993 11,297 $ - 644 $ (452,000) $17,990,000 $17,538,000
======== === ======= =========== ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SOMERSET PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $41,765,000 $36,069,000 $31,080,000
Adjustments to reconsile net income to net cash
provided by operating activities:
Depreciation and amortization 285,000 229,000 217,000
Deferred tax expense (benefit) (800,000) 20,000 14,000
Deferred revenue (167,000) (166,000) (167,000)
Changes in Operating assets and liabilities:
Accounts receivable (1,872,000) (3,989,000) (3,177,000)
Inventory (1,578,000) 614,000 (1,025,000)
Prepaid expenses and other current assets 352,000 (249,000) 743,000
Accounts Payable (227,000) (1,121,000) (133,000)
Royalty Payment 190,000 901,000 528,000
Accrued Marketing costs 1,386,000 2,074,000 3,204,000
Other accrued expenses 1,182,000 1,338,000 854,000
Income taxes payable 570,000 (177,000) 3,397,000
Amounts due to related parties 278,000 542,000 (5,860,000)
---------- ---------- ----------
Net cash provided by operating activities 41,364,000 36,085,000 29,675,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in investment securities
2,006,000 (1,685,000) 5,585,000
Purchase of property and equipment (2,690,000) (127,000) (14,000)
Purchase of intangible assets - - (150,000)
(Increase) decrease in other assets (268,000) 23,000 (16,000)
---------- --------- ---------
Net cash (used in) provided by investing activities
(952,000) (1,789,000) 5,405,000
---------- --------- ---------
</TABLE>
SOMERSET PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993,1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of preferred stock $(1,149,000) $(1,149,000) $(1,241,000)
Dividends paid on preferred stock (176,000) (85,000) (183,000)
Dividends paid on note payable (35,200,000) (36,300,000) (29,000,000)
Borrowings on note payable 253,000 - -
----------- ----------- -----------
Net cash used in financing activities (36,272,000) (37,534,000) (30,424,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,140,000 (3,238,000) 4,656,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 6,141,000 9,379,000 4,723,000
----------- ---------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $10,281,000 $ 6,141,000 $ 9,379,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 5,000 $ - $ -
=========== =========== ===========
Income taxes $21,259,000 $20,992,000 $14,454,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
During 1992 and 1991, the Company recorded $8,800,000 and $4,000,000 of
dividends payable on common stock which had not been paid as of
the end of the respective years.
see notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. PRINCIPLES OF CONSOLIDATION AND OPERATIONS
The consolidated financial statements include the accounts
of Somerset Pharmaceuticals, Inc. (the Company) and its wholly owned
subsidiaries, Somerset Pharmaceuticals Holding Company and Somerset Caribe, Inc.
The Company is jointly owned by Mylan Laboratories, Inc. and Circa
Pharmaceuticals, Inc., with each owning 50% of all the outstanding capital stock
of the Company.
Significant intercompany accounts and transactions have been
eliminated in consolidation. The Company, incorporated in February 1986, is
engaged in the development, testing and marketing of drugs to be used in the
treatment of various human disorders. Currently, the Company markets and
sells Eldepryl, which is used as a treatment for Parkinson's Disease.
The Company is party to an exclusive 14-year agreement
(through November 22, 2003) with Chinoin Pharmaceutical Company (Chinoin) of
Budapest, Hungary under which Eldepryl and other new potential drugs
resulting from Chinoin research are made available for licensing by the
Company. The license agreement requires the Company to pay royalties equal to
7% of net sales of Eldepryl including sub-license revenues. The Company
incurred royalty expense of approximately $9,224,000, $8,105,000 and $5,843,000
for the years ended December 31, 1993, 1992 and 1991, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Cash and Cash Equivalents -The Company generally considers
debt instruments purchased with a maturity of three months or less to
be cash equivalents. Included in cash and cash equivalents at December
31, 1993 is approximately $1.5 million that is held as collateral against the
Company's line of credit (see Note 7).
b. Investment Securities -Investment securities include both
long and short-term debt and equity instruments. These securities are
classified as current and are valued at the lower of cost or market. At
December 31, 1993 and 1992, cost approximated market.
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The Company will be
required to adopt this new standard in 1994. Management believes that the
adoption of this new accounting standard will not have a material effect on the
Company's financial position or results of operations.
c. Inventory - Inventory is stated at the lower of cost or
market, with cost determined on a first-in, first-out basis.
d. Property and Equipment -Property and equipment are stated at
cost. Depreciation is provided over the estimated useful lives of the
assets by thestraight-line method. Estimated useful lives are five to seven
years for machinery and equipment and thirty-five years for the building.
e. Intangible Assets -Intangible assets are amortized on a
straight-line basis over 14 years.
f. Research and Development -Research and development costs are
expensed as incurred.
3. INVENTORY
Inventory consists of the following at December 31:
1993 1992
Raw material $ 2,864,000 $ -
Work in process 470,000 -
Finished goods 486,000 2,242,000
----------- ------------
Total $ 3,820,000 $2,242,000
=========== ===========
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1993 1992
Land $ 300,000 $ -
Building 1,638,000 -
Machinery and Equipment 963,000 58,000
Furniture and Fixtures 65,000 218,000
----------- -----------
2,966,000 276,000
Less accumulated depreciation (204,000) (112,000)
----------- -----------
Property and equipment - net $ 2,762,000 $ 164,000
5. SUB-LICENSE OF RIGHTS
On February 9, 1988, the Company granted a sub-license to
its exclusiveright and license to use its technology to Deprenyl Research
Limited (Deprenyl) to commercialize certain drugs in Canada for 15 years. The
Company receives a royalty of 11% of Deprenyl's net sales over the license
period.
Royalty income, less related royalty expense to Chinoin,
included in other income for the years ended December 31, 1993, 1992 and 1991
wasapproximately $357,000, $414,000 and $484,000, respectively.
6. INTANGIBLE ASSETS
Intangible assets primarily represent the cost of a
modification to the terms of the Chinoin Agreement, less accumulated
amortization of $868,000 and $704,000 at December 31, 1993 and 1992,
respectively.
7. NOTE PAYABLE
On June 30, 1993, the Company entered into a one-year
$1,500,000 line of credit agreement with a bank in conjunction with the
renovationof the Company's research facility. Interest on amounts drawn on the
line of credit is payable monthly at the bank's prime rate less 0.25%. The
bank's prime rate was 6.0% at December 31, 1993. Principal is due in full at
maturity. The line of credit is collateralized by $1,500,000 of cash and cash
equivalents held by the bank. At December 31, 1993, the outstanding balance
on the line of credit was $253,000.
8. CO-PROMOTIONAL AGREEMENT
Effective October 1, 1990, the Company entered into an
agreement with Sandoz Pharmaceuticals Corporation (Sandoz) to co-promote the
product Eldepryl.
Under the terms of the agreement, the Company is required to make
certain payments to Sandoz in the event sales of Eldepryl exceed certain
predefined minimums. The agreement requires Sandoz, among other things, to
expend, at a minimum, a predetermined amount for advertising during each year
of the agreement. Once the predetermined levels of sales are exceeded,
the Company is required to pay Sandoz for advertising expenditures made on
behalf of the Company. After Sandoz's advertising expenses are reimbursed, any
additional amounts are shared by Sandoz and the Company based upon the terms
of the agreement. During 1993, 1992 and 1991, the Company expensed
approximately $24,260,000, $22,321,000 and $15,600,000, respectively, pursuant
to the agreement. Additionally, certain co-promotional fees paid by
Sandoz at the commencement of the agreement are being recognized ratably by the
Company during the term of the agreement (six years), and certain costs
associated with the procurement, negotiation and execution of the agreement by
the owners of the Company are being incurred by the Company in approximately
the same amount.
9. REDEEMABLE PREFERRED STOCK
The Class A and B redeemable preferred stock were fully
redeemed during1993.
The Class A stock, ($.10 par value, 1,950 shares authorized
and 488 shares outstanding at December 31, 1992) was carried at redemption value
plus undeclared dividends. Undeclared dividends in arrears on the
cumulative Class A stock outstanding totaled approximately $68,000 or $139 per
share at December 31, 1992.
The Class B stock ($.10 par value, 2,850 shares authorized
and issued and 661 shares outstanding at December 31, 1992) was convertible into
common stock based on a conversion price set by the Board of Directors and
subject to adjustment from time to time. Undeclared dividends in arrears on
the cumulative Class B stock outstanding totaled approximately
$92,000 or $139 pershare at December 31, 1992.
<PAGE>
10. INCOME TAXES
The Company adopted Statement of Financial Accounting
Standards (SFAS) No.109, "Accounting for Income Taxes" effective January 1,
1993. As permitted by SFAS No. 109, prior-year financial statements have not
been restated to reflect the change in accounting method. The cumulative
effect ofadopting SFAS No.109 on the Company's financial statements was not
material.
The income tax provision consists of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Current tax expense:
Federal $17,938,000 $18,540,000 $14,897,000
State 4,124,000 2,050,000 2,850,000
Foreign 146,000 126,000 104,000
----------- ----------- -----------
22,208,000 20,716,000 17,851,000
Deferred tax expense (benefit):
Federal (700,000) 20,000 12,000
State (100,000) - 2,000
----------- ----------- -----------
(800,000) 20,000 14,000
----------- ----------- -----------
Total provision for income taxes $21,408,000 $20,736,000 $17,865,000
=========== =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The taxeffects of significant items comprising the Company's deferred taxes
(which are included in "Other Assets" in the balance sheet) as of December 31,
1993 are as follows:
1993
Deferred Tax Assets:
Deferred revenue $ 172,000
Tax basis inventory adjustment 871,000
Chargeback allowance 229,000
Capitalization of overhead cost to inventory 53,000
Other 37,000
-----------
1,362,000
-----------
Deferred Tax Liabilities:
Excess of tax amortization over reporting amortization (133,000)
-----------
Net Deferred Tax Asset $1,229,000
===========
<PAGE>
The statutory federal income tax rate is reconciled to the
effective taxrate as follows for the years ended December 31:
1993 1992 1991
Tax at statutory rate 35.0% 34.0% 34.0%
State income tax (net of federal benefit) 4.1 2.4 3.8
Tax credit (7.2) (.2) (.2)
Research and development credit - - (.6)
Other 2.0 .3 (.5)
----- ----- -----
Effective tax rate 33.9% 36.5% 36.5%
Tax credits result principally from operations in Puerto Rico.
11. RELATED PARTY TRANSACTIONS
The Company incurs expenses for ongoing management services
and over asix-year period for specific services related to the procurement,
negotiation and execution of the co-promotion agreement by the owners of the
Company. Such expenses amounted to approximately $5,950,000, $5,204,000 and
$4,253,000 forthe years ended December 31, 1993, 1992 and 1991, respectively.
Additionally, the owners of the Company are also owners of a captive insurance
company which provides product liability insurance to the Company. Product
liability insurance expense for the years ended December 31, 1993, 1992 and
1991 was $675,000, $675,000 and $669,000, respectively. The Company also
incurs an inventory handling and distribution fee, payable to one of its
owners. Total handling and distribution fee expense for the years ended
December 31, 1993, 1992 and 1991 was $750,000, $331,000 and $951,000,
respectively. During 1993, the Company purchased $696,000 of equipment from and
paid $647,000 in rent to one of the owners. During 1993, 1992 and 1991, the
Company incurred $835,000, $239,000 and $940,000, respectively, in expenses
related to research and development activities performed by its owners.
At December 31, 1993 and 1992, the balance of amounts due to
related parties represents rent, research and development, distribution
and management fees payable to the owners of the Company. Additionally, the
1992 balance included dividends.
<PAGE>
12. SIGNIFICANT CUSTOMERS
The Company had sales to certain customers which
individually exceeded 10% of net sales. Two customers represented 45%, 41% and
38% of net sales for the years ended December 31, 1993, 1992 and 1991,
respectively.
13. COMMITMENTS
As of December 31, 1993, the Company is committed to fund
approximately $3,800,000 for various research and development studies through
1995.
* * * * * *
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
Date: June 7, 1994 MYLAN LABORATORIES INC.
by /s/ Milan Puskar
-------------------------
Milan Puskar
Chairman, Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Milan Puskar June 7,1994 /s/ Dana G. Barnett June 7,1994
- - - ----------------------------- -------------------------------
Milan Puskar Dana G. Barnett
Chairman, Chief Executive Officer Executive Vice President
and President and Director
/s/ Laurence S. DeLynn June 7,1994 /s/ Robert W. Smiley June 7,1994
- - - -----------------------------
Laurence S. DeLynn Robert W. Smiley
Director Secretary and Director
/s/ Richard A. Graciano June 7,1994 /s/ John C. Gaisford, M.D. June 7, 1994
- - - ------------------------------ ---------------------------------------
Richard A. Graciano John C. Gaisford, M.D.
Director Director
/s/ C.B. Todd June 7,1994 /s/ Frank A. DeGeorge June 7,1994
- - - ------------------------------ ---------------------------------
C.B. Todd Frank A. DeGeorge
Senior Vice President Director of Accounting and
and Director and Taxation
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Mylan Laboratories Inc.
Pittsburgh, Pennsylvania
We have audited the consolidated financial statements of Mylan
Laboratories Inc. and subsidiaries as of March 31, 1994 and 1993,
and for each of the three years in the period ended March 31,
1994, and have issued our report thereon dated April 22, 1994;
such financial statements and report are included in your 1994
Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial statement
schedules of Mylan Laboratories Inc. and subsidiaries, listed in
the accompanying index at Item 14A. These financial statement
schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material
respects the information set forth therein.
Deloitte & Touche
Pittsburgh, Pennsylvania
April 22, 1994
SCHEDULE I
MYLAN LABORATORIES INC. AND SUBSIDIARIES
MARKETABLE SECURITIES--OTHER INVESTMENTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Amount at Which
Number Each Portfolio of
of Shares Market Value Equity Security
or Units, of Each Issue and Each
Name of Issuer Principal Issue at Other Security Issue
and Title of Amount of Cost of BalanceSheet Carried in the
Each Issue Bonds and Notes Each Issue Date Balance Sheet
---------- --------------- ---------- ---- -------------
March 31, 1994
<S> <C> <C> <C> <C>
Short Term Investments:
Pharmaceutical Resources, Inc.
Common Stock . . . . . . . . 111,111 $ 2,000,000 $ 958,000 $ 958,000
Preferred Stock Closed-end Municipal Bond Funds:
InterCapital. . . . . . . . . 90 4,510,000 4,510,000 4,510,000
Van Kampen . . . . . . . . . 64 3,208,000 3,208,000 3,208,000
MuniVest . . . . . . . . . . 40 2,007,000 2,007,000 2,007,000
MuniYield . . . . . . . . . . 40 2,000,000 2,000,000 2,000,000
Other Assets:
American Triumvirate Insurance Co.
Common Stock . . . . . . . . 150 3,333,000 7,713,000(1) 7,713,000
Somerset Pharmaceuticals, Inc.
Common Stock . . . . . . . . . 5327 16,231,000 17,763,000(2) 17,763,000
Managed Funds (3) . . . . . . N/A 10,104,000 8,904,000 10,104,000
Government Development Bank for Puerto Rico
Promissory Notes 1989 Series C 10,000,000 10,025,000 10,484,000 10,000,000
Akers Laboratories Inc.
Common Stock . . . . . . 2,825,925 4,000,000 4,000,000 4,000,000
Glenmark Associates Inc.
Series B Preferred Stock . . 200 1,000,000 1,000,000 1,000,000
Preferred Stock Closed-end Municipal Bond Funds:
MuniYield. . . . . . . . . . . . 40 2,000,000 2,000,000 2,000,000
</TABLE>
(1) Represents Company's portion of investee's net worth.
(2) Represents Company's portion of investee's net worth and unamortized
intangible assets.
(3) Represents primarily investments in pooled asset funds.
SCHEDULE II
MYLAN LABORATORIES INC.AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES
OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
Column E - Balance
Column A Column B Column C Column D -Deductions at end of period
-------- -------- -------- --------------------- ----------------
Balance at Amounts Amounts Not
Name of Debtor of period Additions collected written off Current Current
-------------- --------- --------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1994:
McKnight Irrevocable Trust $854,000 $1,308,000 0 0 $0 $2,162,000
March 31, 1993:
McKnight Irrevocable Trust -0- $854,000 0 0 $854,000 0
</TABLE>
Note: The amount above represents an unsecured advance issued in
connection with a split dollar arrangement.
SCHEDULE X
MYLAN LABORATORIES INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Column A Column B
-------- --------
Charged to Costs and Expenses
Year ended March 31,
--------------------
Item
---- 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Maintenance and Repairs .............. $ 5,525,000 $3,339,000 $2,953,000
Depreciation and Amortization of Intangibles $11,318,000 $6,261,000 $5,060,000
Advertising Costs..................... $ 2,621,000 * *
NOTE: Other captions called for under Rule 12-11 did notexceed 1%
of net sales and accordingly, are not applicable.
* Less than 1% of Net Sales
<PAGE>
EXHIBIT 22
Subsidiaries
Name State of Incorporation
- - - ---- ----------------------
Milan Holding, Inc. Delaware
Mylan Inc. Delaware
Mylan Pharmaceuticals Inc. West Virginia
Dow Hickam Pharmaceuticals, Inc. Texas
Bertek, Inc. West Virginia
<PAGE>
EXHIBIT 24
Independent Auditors' Consent
We consent to the incorporation by reference in Registration
Statement No. 33-65916 and No. 33-65918 of Mylan Laboratories Inc. on Form S-8
of our reports dated April 22, 1994, incorporated by reference of appearing in
this Annual Report on Form 10-K of Mylan Laboratories Inc. for the year ended
March 31, 1994.
Deloitte & Touche
Pittsburgh, Pennsylvania
June 7, 1994
<PAGE>
EXHIBIT 24
Independent Auditors' Consent
We consent to the incorporation by reference in Registration
Statement No. 33-65916 and No. 33-65918 of Mylan Laboratories Inc. on Form S-8
of our report dated February 4, 1994, on the audit of the consolidated
financial statements of Somerset Pharmaceuticals, Inc. and subsidiaries for the
three years in the period ended December 31, 1993, included as an exhibit to
the Annual Report on Form 10-K of Mylan Laboratories Inc. for the year ended
March 31, 1994.
Deloitte & Touche
Pittsburgh, Pennsylvania
June 7, 1994
</TABLE>
