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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OR THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to __________
Commission file number 1-9114
MYLAN LABORATORIES INC.
(Exact Name of registrant as specified in its charter)
Pennsylvania 25-1211621
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 Seventh Street
1030 Century Building
Pittsburgh, Pennsylvania 15222
(Address of principal executive offices) (Zip Code)
412-232-0100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date
Outstanding at
Class of Common Stock August 11, 1999
--------------------- ---------------
$.50 par value 129,186,122
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Statements of Earnings - Three
Months Ended June 30, 1999 and 1998 2
Consolidated Balance Sheets - June 30, 1999
and March 31, 1999 3
Consolidated Statements of Cash Flows - Three
Months Ended June 30, 1999 and 1998 4
Notes to Consolidated Financial Statements -
Three Months Ended June 30, 1999 5 - 9
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 16
ITEM 3: Quantitative and Qualitative Disclosures
About Market Risk 16
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings 16 - 18
ITEM 6: Exhibits and Reports on Form 8-K 18
SIGNATURES 18
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(In thousands except per share amounts)
UNAUDITED
1999 1998
---- ----
NET SALES $177,095 $166,718
COST AND EXPENSES:
Cost of Sales 80,848 81,564
Research and Development 11,791 14,084
Selling and Administrative 38,114 25,009
-------- --------
130,753 120,657
EQUITY IN EARNINGS OF SOMERSET (82) 2,350
OTHER INCOME 3,859 4,034
-------- --------
EARNINGS BEFORE INCOME TAXES 50,119 52,445
INCOME TAXES 18,166 18,263
-------- --------
NET EARNINGS $ 31,953 $ 34,182
======== ========
EARNINGS PER COMMON SHARE:
Basic $ .25 $ .28
======== ========
Diluted $ .25 $ .28
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 129,136 122,295
======== ========
Diluted 130,309 124,078
======== ========
The Company has paid regular quarterly cash dividends of
$.04 per share since October 1995.
See Notes to Consolidated Financial Statements
-2-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
ASSETS
June 30, March 31,
1999 1999
Unaudited Audited
Current Assets:
Cash and cash equivalents $ 201,798 $ 189,849
Marketable securities 87,639 69,872
Accounts receivable - net 151,224 148,896
Inventories:
Raw materials 62,057 57,414
Work in process 23,200 20,813
Finished goods 53,021 58,266
---------- ----------
138,278 136,493
Deferred income tax benefit 21,721 18,199
Other current assets 15,593 19,650
---------- ----------
Total Current Assets 616,253 582,959
Property, Plant and Equipment - at cost 250,229 244,793
Less accumulated depreciation 93,863 90,157
---------- ----------
156,366 154,636
Investment in and Advances to Somerset 33,925 34,114
Intangible Assets-net of accumulated amortization 335,194 336,003
Other Assets 99,368 98,949
---------- ----------
Total Assets $1,241,106 $1,206,661
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 19,649 $ 12,142
Current portion of long-term obligations 14,850 16,941
Income taxes payable 16,942 821
Other current liabilities 48,835 61,279
Cash dividend payable 5,182 5,178
---------- ----------
Total Current Liabilities 105,458 96,361
Long-Term Obligations 24,771 26,827
Deferred Income Tax Liability 22,765 23,568
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 130,039,909 shares at
June 30, 1999 and 129,968,514 shares at March 31, 1999 65,020 64,984
Additional paid-in capital 312,912 311,995
Retained earnings 716,790 690,003
Accumulated other comprehensive income 1,572 1,105
----------
1,096,294 1,068,087
Less treasury stock - at cost, 888,578 shares at
June 30, 1999 and March 31, 1999 8,182 8,182
---------- ----------
Total Shareholders' Equity 1,088,112 1,059,905
---------- ----------
Total Liabilities and Shareholders' Equity $1,241,106 $1,206,661
========== ==========
See Notes to Consolidated Financial Statements
-3-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(Amounts in thousands)
UNAUDITED
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 31,953 $ 34,182
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization 8,669 5,528
Deferred income tax benefit (4,626) (3,145)
Equity in the loss(earnings) of Somerset 82 (2,350)
Cash received from Somerset 107 270
Allowances on accounts receivable 10,443 1,042
Other noncash expense(income) 996 (250)
Changes in operating assets and liabilities:
Accounts receivable (12,771) (1,407)
Inventories (1,925) (4,018)
Trade accounts payable 7,507 2,860
Income taxes payable 16,171 13,055
Other operating assets and liabilities (11,988) (1,084)
-------- --------
Net cash provided from operating activities 44,618 44,683
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (5,436) (5,430)
Increase in intangible and other assets (962) (1,516)
Proceeds from investment securities 34,302 6,318
Purchase of investment securities (51,351) (5,782)
-------- --------
Net cash used in investing activities (23,447) (6,410)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term obligations (5,014) (15)
Cash dividends paid (5,162) (4,888)
Proceeds from exercise of stock options 954 1,985
-------- --------
Net cash used in financing activities (9,222) (2,918)
Net Increase in Cash and Cash Equivalents 11,949 35,355
Cash and cash equivalents - beginning of period 189,849 103,756
-------- --------
Cash and cash equivalents - end of period $201,798 $139,111
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest $ 189 $ 4
======== ========
Income Taxes $ 6,620 $ 8,354
======== ========
See Notes to Consolidated Financial Statements
-4-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED
JUNE 30, 1999
Unaudited
A. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the
Company as of June 30, 1999 together with the results of operations and
cash flows for the interim periods ended June 30, 1999 and 1998. The
consolidated results of operations for the three months ended June 30,
1999 and 1998 are not necessarily indicative of the results to be expected
for the full year.
B. These interim financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Company's 1999
Annual Report and Report on Form 10-K.
C. Diluted earnings per common share is computed by dividing net earnings
available to common shareholders by the weighted average common shares
outstanding adjusted for the dilutive effect of options granted under the
Company's stock option plans. The effect of dilutive stock options on the
weighted average common shares outstanding was 1,173,000 and 1,783,000 for
the three months ended June 30, 1999 and 1998.
D. Total comprehensive income for the three months ended June 30, 1999 and
1998 is as follows: (in thousands)
Three Months Ended
June 30,
------------------
1999 1998
---- ----
Net earnings $31,953 $34,182
Other comprehensive income, net of tax:
Unrealized gain(loss) on marketable securities 502 (1,395)
Adjustment for gains included in net earnings (35) (97)
------- -------
Comprehensive income $32,420 $32,691
======= =======
Accumulated other comprehensive income, as reflected on the balance sheet,
is comprised solely of the unrealized gain on marketable securities, net
of income taxes.
-5-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED
JUNE 30, 1999
Unaudited
E. The following table presents the comparative operating results for the
Company's two primary operating segments: (in thousands)
Three Months Ended
June 30,
------------------
1999 1998
---- ----
Generic Segment:
Net Sales $151,937 $152,804
Segment Profit 59,217 52,143
Branded Segment:
Net Sales $ 25,158 $ 13,914
Segment Profit 1,701 2,060
Corporate Expenses $(10,799) $ (1,758)
Consolidated:
Net Sales $177,095 $166,718
Pretax Earnings $ 50,119 $ 52,445
Segment net sales represents sales to unrelated third parties. Segment
profit represents segment gross profit less direct research and
development, sales and marketing and administrative expenses. Corporate
expenses include legal costs, amortization of goodwill and other corporate
administrative expenses offset by other income.
F. A subsidiary of the Company is involved in a dispute relating to a license
and supply contract for nitroglycerin transdermal patches which both
parties claim has been breached by the other. The other company seeks
damages in excess of $20 million. The dispute is subject to binding
arbitration before a three member panel which commenced in March 1999.
Although the Company believes that the claims against it are without
merit, there can be no assurance that the Company will prevail in this
matter.
The Company is currently involved in negotiations with a state agency
concerning certain contract pricing matters. Management believes the
resolution of this matter will not have a material adverse effect on the
Company's operations or its financial position.
-6-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED
JUNE 30, 1999
Unaudited
F. (cont.) The Company benefitted from an agreement it had with Genpharm Inc.
"Genpharm" relating to the sale of ranitidine HCl tablets by Novopharm
Limited "Novopharm" under an agreement between Genpharm and Novopharm.
Based on an independent audit, Genpharm initiated a lawsuit against
Novopharm to resolve contract interpretation issues and collect any
additional funds due. In response to Genpharm's suit, Novopharm filed
counterclaims against both Genpharm and the Company claiming damages of up
to $60,000,000. The Company believes the counterclaims against Genpharm
and the Company are without merit and will vigorously defend its position.
In June 1998, the Company filed suit in the Los Angeles Superior Court
against VivoRx Inc. "VI", VivoRx Diabetes, Inc. "VDI" and certain
directors. The Company's suit alleges the defendants have been guilty of
fraud, mismanagement, abuse of authority, unfairness to the Company and
other shareholders and have wasted and misapplied the property of VI and
VDI. In March 1999, VI, VDI and certain directors filed an answer to and
cross-complaint in Los Angeles Superior Court against the Company.
The cross-complaint alleges negligence, misrepresentation, fraud, breach
of contract, and tortuous inducement of breach of fiduciary duty. The suit
seeks unspecified compensatory and punitive damages. With respect to the
cross-complaint the Company believes the suit is without merit and intends
to vigorously defend its position.
As part of the litigation involving VI and related companies, in June
1998, the Company filed suit in the Los Angeles Superior Court against
American Bioscience, Inc. "ABI", American Pharmaceutical Partners, Inc.
"APP" and certain directors and officers. The Company's suit seeks various
equitable remedies, including but not limited to, appointment of a
receiver over and dissolution of ABI and APP, injunctive relief to stop
the misappropriation of the Company's research funding and equity
investment and the misappropriation of assets and personnel. The Los
Angeles Superior Court issued a preliminary injunction order which, among
other things, prohibits the defendants from transferring or disposing of
funds, assets, technology or property without the Company's consent or
commingling assets, property, technology or personnel with those of VI. In
June 1999, the defendants filed an answer to and cross-complaint against
the Company. The cross-complaint alleges violations of California State
laws,
-7-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED
JUNE 30, 1999
Unaudited
F. (cont.) interference with contractual relations and prospective economic
advantage, fraud, slander, libel and other allegations. The
cross-complainants seek unspecified compensatory and punitive damages. The
Company believes the cross-complaints are without merit and intends to
vigorously defend its position.
On December 22, 1998, the Federal Trade Commission "FTC" filed suit in
U.S. District Court for the District of Columbia "the Court" against the
Company. The FTC's complaint alleges the Company engaged in restraint of
trade, monopolization, attempted monopolization and conspiracy to
monopolize, arising out of certain agreements involving the supply of raw
materials used to manufacture two drugs. The FTC also sued in the same
case the foreign supplier of the raw materials, the supplier's parent
company and its United States distributor. Under the terms of the
agreements related to these raw materials, the Company has agreed to
indemnify these parties.
The Company is a party to other suits involving the Attorneys General from
33 states and more than 20 putative class actions that allege the same
conduct alleged in the FTC suit as well as alleged violations of state
consumer protection laws. A qui tam action was commenced by a private
party in the U.S. District Court for the District of South Carolina
purportedly on behalf of the United States alleging violations of the
False Claims Act and other statues.
The relief sought by the FTC includes an injunction barring the Company
from engaging in the challenged conduct, recision of certain agreements
and disgorgement in excess of $120,000,000.
The states and private parties seek similar relief, treble damages and
attorneys' fees. In addition, a class action suit was filed alleging
violations of federal securities laws by the Company and certain directors
and officers of the Company. Without specifying a dollar amount, the suit
seeks compensatory damages.
-8-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED
JUNE 30, 1999
Unaudited
F. (cont.) The Company had filed motions to dismiss the FTC complaint,
significant portions of the State Attorneys General complaint and the
federal securities case. In July 1999, the Court denied the Company's
motion to dismiss the FTC complaint. The Company has filed a motion
requesting the Court to certify its ruling with respect to the
jurisdictional issue for expedited appeal to the U.S.
Court of Appeals for the District of Columbia.
The Court granted in part and denied in part the Company's motion to
dismiss portions of the State Attorneys General complaint. In so doing,
the Court limited certain theories of recovery asserted by the states.
Some States have filed a motion with the Court requesting that it
reconsider certain claims that were dismissed. The Company's motions to
dismiss the federal securities case and various private actions remain
pending.
The Company believes that it has meritorious defenses to the claims in all
remaining suits and intends to vigorously defend them. Although the
Company believes it has meritorious defenses to the claims, an adverse
result in these suits could have a material adverse effect on the
Company's financial position and results of its operations.
-9-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
- ------------
Net earnings for the quarter ended June 30, 1999 were $31,953,000 or $.25
per share compared to $34,182,000 or $.28 per share for the same quarter a year
ago. While sales and gross profits continue to exceed prior year levels,
increased customer credits and higher operating expenses resulting from the
October 1998 Penederm acquisition, expansion of the Company's branded sales
force and continued increases in legal expenses resulted in relatively unchanged
operating income on a year-to-year comparison.
In addition to lower net earnings, earnings per share was diluted as a
result of the issuance of additional shares of common stock to facilitate the
Penederm acquisition.
The following table presents the comparative operating results for the
Company's two primary operating segments: (dollars in millions)
Three Months Ended
June 30,
1999 1998 % Change
---- ---- --------
Generic Segment:
Net Sales $151.9 $152.8 -1%
Gross Profit 79.4 76.6 4%
Segment Profit 59.2 52.1 14%
Branded Segment:
Net Sales $ 25.2 $ 13.9 81%
Gross Profit 16.8 8.6 95%
Segment Profit 1.7 2.1 -19%
Corporate Expenses $(10.8) $ (1.8)
Consolidated:
Net Sales $177.1 $166.7 6%
Gross Profit 96.2 85.2 13%
Pretax Earnings 50.1 52.4 -4%
-10-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
The Generic Segment includes Mylan Pharmaceuticals Inc. and UDL
Laboratories. The Branded Segment includes Bertek Pharmaceuticals Inc. and
Penederm Inc. Segment net sales represents sales to unrelated third parties.
Segment gross profit represents segment net sales less the corresponding
corporate wide acquisition, manufacturing, warehousing and shipping costs
associated with such sales. Segment profit represents segment gross profit less
direct research and development, sales and marketing and administrative
expenses. Corporate expenses include legal costs, amortization of goodwill and
other corporate administrative expenses offset by other income.
Results of Operations
- ---------------------
Net Sales and Gross Profit
Consolidated gross profit increased by 13% from $85.2 million (51.1% of
net sales) last year to $96.2 million (54.3% of net sales) this year. The
increase resulted primarily from the Branded Segment as a result of new product
additions at Bertek Pharmaceuticals and the addition of Penederm in October
1998. Branded sales, which represented 14% of consolidated sales for the quarter
ended June 30, 1999 compared to 8% for the same quarter a year ago, generally
have higher gross profit margins as a percentage of sales than does the generic
product line taken as a whole.
While the Company's branded operations continue to grow, the consolidated
operating results remain primarily influenced by and reflective of the highly
volatile Generic Segment. Gross profit in the Generic Segment increased slightly
in the quarter ended June 30, 1999 to $79.4 million from $76.6 million in the
June 30, 1998 quarter, despite slightly lower net sales. The increase was
primarily driven by price increases on approximately 25 products and to a lesser
extent the elimination of a profit sharing payment on two products and new
products introduced since the quarter ended June 30, 1998. These increases were
substantially offset by significant price deterioration on the top ten products
which accounted for approximately 75% of gross profit in the quarter ended June
30, 1998. Price deterioration ranging from 7% to 56% reduced gross profit in the
quarter ended June 30, 1999 by $21.9 million from the prior year same quarter.
Total generic volume in the current quarter remained relatively consistent with
the quarter ended June 30, 1998 at 1.9 billion units.
-11-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Research and Development
Research and development expenses were $11,791,000 or 7% of net sales for
the quarter ended June 30, 1999 compared to $14,084,000 or 8% of net sales for
the same period a year ago. The current period includes approximately $2.1
million in charges for dermatology related projects incurred by Penederm and
charged to the Branded Segment. All other research and development costs are
incurred by Mylan Pharmaceuticals or Mylan Technologies Inc. (patch related
projects) and are charged to the Generic Segment. Such costs for the current
quarter were substantially lower than a year ago due to the termination of
VivoRx funding and the stage of clinical and bio studies.
The Company expects research and development expenses to remain at the
current quarterly level until certain ongoing projects progress to Phase III
clinical stage or new projects are initiated. Additionally, the Company is
actively pursuing joint development projects in an effort to broaden its scope
of capabilities in bringing to market new innovative products. Such arrangements
generally provide for payments by the Company only upon the attainment of
certain milestones. While such arrangements help to reduce the Company's
financial risk for unsuccessful projects, attainment of milestones may result in
fluctuations in quarterly research and development expenses.
Selling and Administrative Expenses
Selling and administrative expenses were $38,114,000 or 22% of net sales
for the quarter ended June 30, 1999 compared to $25,009,000 or 15% of net sales
for the same quarter a year ago.
Corporate administrative expenses were $14,575,000 this year compared to
$8,142,000 last year. The increase is attributable to higher goodwill
amortization resulting from the Penederm acquisition and higher legal expenses
primarily from the FTC litigation commenced in December 1998.
Branded Segment selling and administrative expenses were $13,026,000 this
year compared to $6,500,000 last year. Approximately $4 million of the increase
results from the inclusion of Penederm in 1999. The remainder relates primarily
to the expansion of the Bertek Pharmaceuticals sales force.
Generic Segment selling and administrative expenses were $10,513,000 for
the quarter ended June 30, 1999, virtually unchanged from the same period a year
ago.
-12-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
The Company continually evaluates opportunities to control selling and
administrative expenses. However, the Company will continue to defend its
positions on various legal matters and is committed to building an appropriate
operational infrastructure for the future, including the expansion of its
branded sales force.
Equity in earnings of Somerset was lower than a year ago primarily as a
result of generic competition on Eldepryl(R), the only commercial product sold
by the Company's 50% owned and unconsolidated subsidiary, Somerset
Pharmaceuticals, Inc.
Income Taxes
The effective tax rate for the quarter ended June 30, 1999 was 36.2%
compared to 34.8% for the same period a year ago. The primary cause of the
change relates to nondeductible goodwill amortization resulting from the
acquisition of Penederm. The Company expects the tax rate to remain at
approximately the current level throughout fiscal year 2000.
Liquidity, Capital Resources and Financial Condition
- ----------------------------------------------------
Working capital increased from $486,598,000 at March 31, 1999 to
$510,795,000 at June 30, 1999. The ratio of current assets to current
liabilities was 5.8 to 1 at June 30, 1999 compared to 6.0 to 1 at March 31,
1999. Net cash provided from operating activities was $44,618,000 for the three
months ended June 30, 1999 and primarily results from the Company's net earnings
and other noncash items. The Company continues to invest a portion of these
additional funds in short term government and corporate securities which
accounts for the increase in cash used in investing activities.
The Company continues to examine opportunities to expand its business
through product and company acquisitions. The Company's capital resources,
financial condition and results of operations could be materially impacted if
the Company were to complete such acquisitions.
Although the Company believes it has meritorious defenses to the claims in
the FTC and related suits, an adverse result in these suits could have a
material adverse effect on the Company's business and financial condition, due
to the size of the FTC's disgorgement claim and the threat of treble damages
sought by the states, as well as possible damages in the other related suits.
The Company expects to incur substantial costs in defending itself in these
actions.
-13-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Year 2000
- ---------
The Company has completed a review of its critical information technology
"IT" and non-IT operating systems for Year 2000 "Y2K" compliance. Y2K compliance
refers to the issue of systems and equipment having date sensitive components
being able to recognize the year 2000. On the basis of this review and the
processes described below, management believes that the costs of remediation and
potential losses related to Y2K issues are unlikely to have a material effect on
the Company's financial position, results of operations or cash flows.
In assessing potential Y2K issues, the Company has taken or is taking the
following steps to address its IT and non-IT operating systems:
o Formed a project team across functional departments to complete a
review and identify nonconforming systems.
o Communicated to employees throughout the Company to increase
awareness of issues and activate the identification process.
o Identified critical IT and non-IT nonconforming operating systems and
developed a plan to bring these systems into compliance.
o Established a testing program to ensure that such systems are
compliant.
o Corresponded with customers, vendors, service suppliers and financial
institutions to verify their readiness.
o Developed contingency plans where practical in the event of system
failures.
Because of the continued growth of the Company over the last several years
and prior to the formation of the project team, the Company initiated major
system conversions to accommodate the physical expansion and increased
transaction volume associated with this growth. Many factors were considered
during the selection process. While Y2K compliance was one of the factors
considered, other factors were equally and significantly more important. Any new
systems selected were expected to be and are believed to be Y2K compliant.
The Company has recently completed the system conversions for all major
operating and financial systems. All such systems have been certified by the
vendor to by Y2K compliant. The Company has substantially completed its own
testing on these systems and verified their Y2K compliance.
Due to the recent independent upgrades and replacements of its computer
systems to accommodate its growth, the Company has neither delayed, nor
anticipates delaying, any significant information system projects prior to the
year 2000.
-14-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
The project team continues to evaluate and update contingency plans. These
plans are developed based on correspondence with customers, vendors, raw
material suppliers, service suppliers and financial institutions regarding the
status of their Y2K readiness and the results of testing performed on the
Company's internal systems. Contact is nearly complete with all of the Company's
significant business partners. As part of this process and due to the critical
nature of the Company's products, the Company has also initiated steps to
monitor customers' orders and buying patterns. The Company has taken these steps
to ensure the availability of its products to all its customers as the
millennium approaches.
While the project team continues to develop contingency plans for the more
likely scenarios of possible business interruptions, there can be no assurance
that the project team will identify and develop successful contingency plans for
all of the business interruptions that could possibly occur.
Management believes that the Company has acted with appropriate diligence
to address potential Y2K issues. The Company is, however, dependent on third
parties, such as its customers, vendors, raw material suppliers, service
suppliers which include energy, water, communication and transportation and
financial institutions, to make their own systems Y2K compliant. If these
entities fail to remedy their Y2K issues, the Company could potentially suffer
interruptions in its business operations. These interruptions could potentially
delay the Company in its manufacturing or distribution of some or all its
products for an undeterminable amount of time. In addition, the Company could
experience the corruption of data in its own internal information systems. Such
corruption could lead to temporary interruptions in certain isolated business
operations. These interruptions may or may not lead to an adverse impact on the
Company's overall business operations.
Forward-Looking Statements
- --------------------------
The statements set forth in this Item 2 under Results of Operations
concerning the manner in which the Company intends to conduct its future
operations and potential trends that may impact future results of operations,
are forward-looking statements. The Company may be unable to realize its plans
and objectives due to various important factors, including, but not limited to,
the factors described under Forward Looking Statements in Item 7 of the
Company's Annual Report on Form 10-K for the year ended March 31, 1999 and under
Year 2000 in this Item 2.
-15-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
The information required by Item 3 has been disclosed in Item 7A of the
Company's 1999 Annual Report on Form 10-K. There has been no material change in
the disclosure regarding market risk.
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
Since the date of the filing of the Company's Annual Report on Form 10-K
or the year ended March 31, 1999, there have been no material new legal
proceedings involving the Company or any material developments to such
proceedings, except as described below.
As described in the Form 10-K for the year ended March 31, 1999, in June
1998, the Company filed a suit in Los Angeles Superior Court against VivoRx Inc.
"VI" and VivoRx Diabetes, Inc. "VDI", alleging fraud, mismanagement, abuse of
authority, waste and misappropriation of property. As part of the litigation
involving VI and related companies, in June 1998, the Company filed suit in the
Los Angeles Superior Court against American Bioscience, Inc. "ABI", American
Pharmaceutical Partners, Inc. "APP" and certain directors and officers. The
Company's suit seeks various equitable remedies, including but not limited to,
appointment of a receiver over and dissolution of ABI and APP, injunctive relief
to stop the misappropriation of the Company's research funding and equity
investment and the misappropriation of assets and personnel. The Los Angeles
Superior Court issued a preliminary injunction order which, among other things,
prohibits the defendants from transferring or disposing of funds, assets,
technology or property without the Company's consent or commingling assets,
property, technology or personnel with those of VI. In June 1999, the defendants
filed an answer to and cross-complaint against the Company. The cross-complaint
alleges violations of California State laws, interference with contractual
relations and prospective economic advantage, fraud, slander, libel and other
allegations. The cross-complainants seek unspecified compensatory and punitive
damages. The Company believes the cross-complaints are without merit and intends
to vigorously defend its position.
-16-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
As described in the Form 10-K for the year ended March 31, 1999, in
December 1998, the Federal Trade Commission "FTC" filed suit in U.S. District
Court for the District of Columbia "the Court" against the Company. The FTC's
complaint alleges the Company engaged in restraint of trade, monopolization,
attempted monopolization and conspiracy to monopolize, arising out of certain
agreements involving the supply of raw materials used to manufacture two drugs.
The FTC also sued in the same case the foreign supplier of the raw materials,
the supplier's parent company and its United States distributor. Under the terms
of the agreements related to these raw materials, the Company has agreed to
indemnify these parties.
The Company is also a party to other suits involving the Attorneys General
from 33 states and more than 20 putative class actions that allege the same
conduct alleged in the FTC suit as well as alleged violations of state consumer
protection laws. A qui tam action was commenced by a private party in the U.S.
District Court for the District of South Carolina purportedly on behalf of the
United States alleging violations of the False Claims Act and other statues. The
relief sought by the FTC includes an injunction barring the Company from
engaging in the challenged conduct, recision of certain agreements and
disgorgement in excess of $120,000,000. The states and private parties seek
similar relief, treble damages and attorneys' fees. In addition, a class action
suit was filed alleging violations of federal securities laws by the Company and
certain directors and officers of the Company. Without specifying a dollar
amount, the suit seeks compensatory damages.
The Company had filed motions to dismiss the FTC complaint, significant
portions of the State Attorneys General complaint and the federal securities
case. In July 1999, the Court denied the Company's motion to dismiss the FTC
complaint. The Company has filed a motion requesting the Court to certify its
ruling with respect to the jurisdictional issue for expedited appeal to the U.S.
Court of Appeals for the District of Columbia.
The Court granted in part and denied in part the Company's motion to
dismiss portions of the State Attorneys General complaint. In so doing, the
Court limited certain theories of recovery asserted by the states. Some States
have filed a motion with the Court requesting that it reconsider certain claims
that were dismissed. The Company's motions to dismiss the federal securities
case, along with various private actions, remain pending.
-17-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
The Company believes that it has meritorious defenses to the claims in all
FTC and related suits and intends to vigorously defend them. Although the
Company believes it has meritorious defenses to the claims, an adverse result in
these suits could have a material adverse effect on the Company's financial
position and results of its operations.
The Company is involved in various other legal proceedings 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 of these suits will not have a material adverse effect on the Company's
operations, financial position, or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
during the three months ended June 30, 1999.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mylan Laboratories Inc.
(Registrant)
DATE 08/16/99 /s/ Milan Puskar
------------------------ ------------------------
Milan Puskar
Chairman of the Board, Chief
Executive Officer and President
(Principal executive officer)
DATE 08/16/99 /s/ Donald C. Schilling
------------------------ -------------------------
Donald C. Schilling
Vice President of Finance
(Principal financial officer)
-18-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule
Mylan Laboratories Inc. and Subsidiaries
Article 5 of Regulation S-X
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 30, 1999 and the Consolidated Statement of
Earnings for the three months ended June 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000069499
<NAME> none
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 201,798
<SECURITIES> 87,639
<RECEIVABLES> 205,251
<ALLOWANCES> 54,027
<INVENTORY> 138,278
<CURRENT-ASSETS> 616,253
<PP&E> 250,229
<DEPRECIATION> 93,863
<TOTAL-ASSETS> 1,241,106
<CURRENT-LIABILITIES> 105,458
<BONDS> 24,771
0
0
<COMMON> 65,020
<OTHER-SE> 1,023,092
<TOTAL-LIABILITY-AND-EQUITY> 1,241,106
<SALES> 177,095
<TOTAL-REVENUES> 177,095
<CGS> 80,848
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<OTHER-EXPENSES> 49,905
<LOSS-PROVISION> 10,443
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> 50,119
<INCOME-TAX> 18,166
<INCOME-CONTINUING> 31,953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,953
<EPS-BASIC> .25
<EPS-DILUTED> .25
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