----------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
--------------------------------------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 November 7, 2000
--------------------- ----------------
$.50 par value 124,806,379
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Statements of Earnings - Three and
Six Months Ended September 30, 2000, and 1999 2
Consolidated Balance Sheets - September 30, 2000,
and March 31, 2000 3
Consolidated Statements of Cash Flows - Six
Months Ended September 30, 2000, and 1999 4
Notes to Consolidated Financial Statements -
Six Months Ended September 30, 2000 5 - 9
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 15
ITEM 3: Quantitative and Qualitative Disclosures
About Market Risk 15
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings 15 - 17
ITEM 4: Submission of Matters to a Vote of
Security Holders 17
ITEM 6: Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
<TABLE>
<CAPTION>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 2000, AND 1999
(In thousands except per share amounts)
UNAUDITED
Three Months Ended Six Months Ended
------------------- ----------------
September 30, September 30,
-------------- -------------
2000 1999 2000 1999
------------ ----------- ---- ----
<S> <C> <C> <C> <C>
NET SALES $207,555 $194,489 $374,810 $371,584
COST AND EXPENSES:
Cost of Sales 111,246 83,677 203,525 164,525
Research and Development 17,263 11,473 33,798 23,264
Selling and Administrative 38,173 38,880 77,256 76,994
--------- ----------- -------- --------
114,808,000 207,617,000
166,682 134,030 314,579 264,783
LITIGATION SETTLEMENT - - (147,000) -
EQUITY IN LOSS OF SOMERSET (103) (989) (2,006) (1,071)
OTHER INCOME (EXPENSE) 11,588 (1,097) 22,244 2,762
-------- ---------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES 52,358 58,373 (66,531) 108,492
INCOME TAXES 18,849 21,307 (23,951) 39,473
-------- -------- -------- --------
NET EARNINGS (LOSS) $ 33,509 $ 37,066 $(42,580) $ 69,019
======== ======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ .27 $ .29 $ (.34) $ .53
======== ======== ======== ========
Diluted $ .27 $ .28 $ (.33) $ .53
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES:
Basic 124,720 129,182 126,711 129,159
======== ======== ======== ========
Diluted 125,654 130,144 127,674 130,227
======== ======== ======== ========
The Company has paid regular quarterly cash dividends of
$.04 per share since October 1995.
See Notes to Consolidated Financial Statements
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share information)
UNAUDITED
ASSETS
September 30, March 31,
------------- ---------
2000 2000
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 219,339 $ 203,493
Marketable securities 35,585 99,557
Accounts receivable - net 173,096 197,760
Inventories:
Raw materials 70,217 64,020
Work in process 27,627 28,459
Finished goods 100,547 53,390
---------- ----------
198,391 145,869
Income tax benefits 53,232 30,792
Other current assets 5,825 6,471
---------- ----------
Total Current Assets 685,468 683,942
Property, Plant and Equipment - at cost 289,012 273,581
Less accumulated depreciation 114,056 105,581
---------- ----------
174,956 168,000
Investment in and Advances to Somerset 27,227 29,461
Intangible Assets - net of accumulated amortization 319,694 332,142
Other Assets 126,868 127,685
---------- ----------
Total Assets $1,334,213 $1,341,230
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 23,942 $ 17,981
Current portion of long-term obligations 11,746 9,874
Income taxes payable - 7,858
Cash dividends payable 4,998 5,194
Other current liabilities 41,228 46,863
Litigation Settlement 147,000 -
---------- ----------
Total Current Liabilities 228,914 87,770
Long-Term Obligations 26,707 30,630
Deferred Income Tax Liability 16,080 19,108
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 130,521,657 shares at
September 30, 2000, and 130,277,568 shares at
March 31, 2000 65,261 65,139
Additional paid-in capital 320,049 316,393
Retained earnings 771,025 823,570
Accumulated other comprehensive income 5,945 6,936
----------
1,162,280 1,212,038
Less treasury stock - at cost, 5,746,865 shares at
September 30, 2000, and 893,498 shares at
March 31, 2000 99,768 8,316
---------- ----------
Total Shareholders' Equity 1,062,512 1,203,722
---------- ----------
Total Liabilities and Shareholders' Equity $1,334,213 $1,341,230
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000, AND 1999
(In thousands)
UNAUDITED
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings $ (42,580) $ 69,019
Adjustments to reconcile net (loss) earnings to net
cash provided from operating activities:
Depreciation and amortization 19,928 17,866
Deferred income tax benefit (24,934) (5,904)
Equity in the loss of Somerset 2,006 1,071
Cash received from Somerset 228 243
Allowances on accounts receivable 9,288 23,338
Litigation Settlement 147,000 -
Other noncash (income)expense (12,107) 10,402
Changes in operating assets and liabilities:
Accounts receivable 12,561 (36,861)
Inventories (52,653) (3,225)
Trade accounts payable 5,961 4,950
Income taxes payable (7,858) -
Other operating assets and liabilities (4,990) (12,510)
-------- --------
Net cash provided from operating activities 51,850 68,389
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (15,431) (12,514)
Decrease (increase)in intangible and other assets 16,182 (8,632)
Proceeds from investment securities 100,313 95,985
Purchase of investment securities (37,865) (85,528)
-------- --------
Net cash provided from (used in)investing activities 63,199 (10,689)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term obligations (1,190) (6,028)
Cash dividends paid (10,161) (10,327)
Repurchase of Common Stock (91,456) -
Proceeds from exercise of stock options 3,604 1,590
-------- --------
Net cash used in financing activities (99,203) (14,765)
-------- --------
Net increase in cash and cash equivalents 15,846 42,935
Cash and cash equivalents - beginning of period 203,493 189,849
-------- --------
Cash and cash equivalents - end of period $219,339 $232,784
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest $ 196 $ 542
======== ========
Income Taxes $ 8,842 $ 47,168
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Mylan
Laboratories Inc. and subsidiaries (the "Company") as of September 30,
2000, and March 31, 2000, together with the results of operations and cash
flows for the interim periods ended September 30, 2000, and 1999. The
consolidated results of operations for the three and six months ended
September 30, 2000, 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 2000
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 934,000 and 962,000 for the
three months ending September 30, 2000, and 1999, and 963,000 and
1,068,000 for the six months ending September 30, 2000, and 1999.
D. Total comprehensive income for the three and six months ended September
30, 2000, and 1999, are as follows: (in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $33,509 $37,066 $(42,580) $69,019
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on
marketable securities 1,437 2,883 (243) 3,385
Adjustment for gains included
in net earnings (loss) (66) (2,439) (748) (2,474)
------- ------- -------- -------
Comprehensive income (loss) $34,880 $37,510 $(43,571) $69,930
======= ======= ======== =======
Accumulated other comprehensive income, as reflected on the balance sheet,
is comprised solely of the unrealized gain on marketable securities, net
of deferred income taxes.
</TABLE>
-5-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
E. The following table presents the comparative operating results for the
Company's operating segments: (in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
----
Generic Segment:
Net Sales $175,286 $163,814 $ 312,017 $315,751
Segment Profit 52,944 68,535 84,789 127,752
Branded Segment:
Net Sales $ 32,269 $ 30,675 $ 62,793 $ 55,833
Segment Profit 1,573 5,483 3,047 7,184
Corporate $ (2,159) $(15,645) $(154,367) $(26,444)
Consolidated:
Net Sales $207,555 $194,489 $ 374,810 $371,584
Pretax Earnings (Loss) $ 52,358 $ 58,373 $ (66,531) $108,492
Segment net sales represent sales to unrelated third parties. Segment
profit represents segment gross profit less direct research and
development, sales and marketing and administrative expenses. Corporate
includes legal costs, goodwill amortization, other corporate
administrative expenses and other income and expense. For the six months
ended September 30, 2000, Corporate includes the expense of $147,000,000
for the tentative settlement of the Federal Trade Commission ("FTC") and
related litigation (See note F).
F. A subsidiary of the Company was involved in a dispute with KaiGai
Pharmaceuticals, Co., Ltd. ("KaiGai") relating to a license and supply
contract for nitroglycerin transdermal patches which both parties claimed
was breached by the other. KaiGai sought damages in excess of
$20,000,000. The dispute was subject to binding arbitration, and, in
November 1999, the arbitration panel denied KaiGai's request for damages.
KaiGai filed an appeal in U.S. District Court and the Company's motion to
dismiss the appeal was granted based upon untimely and improper service
of the appeal. KaiGai has appealed the U.S. District Court's decision to
the Court of Appeals, and the appeal is pending.
-6-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
F. (cont.) The Company had an agreement with Genpharm Inc. ("Genpharm") where
it benefitted from the sale of ranitidine HCl tablets by Novopharm Limited
("Novopharm") under a separate agreement between Genpharm and Novopharm.
Based on an independent audit, Genpharm initiated a lawsuit against
Novopharm to resolve contract interpretation issues and collect 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 American Bioscience, Inc. ("ABI"), American Pharmaceutical
Partners, Inc. ("APP") and certain of their directors and officers. The
Company's suit sought various legal and equitable remedies. The Los
Angeles Superior Court issued a preliminary injunction which, among other
things, prohibited 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
another company. In June 1999, the defendants filed an answer to and
cross-complaint against the Company. The cross-complaint alleged
violations of California state laws, interference with contractual
relations and prospective economic advantage, fraud, slander, libel and
other allegations. The cross- complainants sought unspecified compensatory
and punitive damages.
In August 2000, the Company entered into a settlement agreement with ABI,
APP and certain of their directors and officers. The settlement resulted
in the resolution of all differences, disputes and claims raised in the
complaint and cross-complaint mentioned above. Upon settlement, the
Company received payment from ABI for its equity investment in VivoRx Inc.
As defined in the settlement agreement, upon certain events and conditions
the Company will transfer to ABI all shares of the common stock of ABI it
currently owns.
On December 22, 1998, the FTC filed suit in U.S. District Court for the
District of Columbia 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.
-7-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
F. (cont.) The Company is a party to other suits involving the Attorneys
General from 33 states and more than 25 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
statutes.
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. The Company's
motions to dismiss several of the private actions were granted.
In July 2000, the Company reached a tentative agreement to settle the
actions brought by the FTC and the State Attorneys General regarding raw
material contracts for lorazepam and clorazepate. The Company has agreed
to pay $100,000,000, plus up to $8,000,000 in attorneys' fees incurred by
the States Attorneys General. The tentative settlement is subject to court
approval and the approval of the FTC commissioners.
In July 2000, the Company also reached a tentative agreement to settle
private class action lawsuits filed on behalf of consumers and third-party
reimbursers related to the
same facts and circumstances at issue in the FTC and States Attorneys
General cases. The Company has agreed to pay $35,000,000 to settle
the third party reimburser actions, plus up to $4,000,000 in
attorneys' fees incurred by counsel in the consumer actions. The
tentative settlement is subject to court approval.
In total, the Company has agreed to pay up to $147,000,000 to settle these
actions. The tentative settlements also include three companies
indemnified by the Company - Cambrex Corporation, Profarmaco S.r.l. and
Gyma Laboratories, Inc. Lawsuits not included in these tentative
settlements principally involve direct purchasers (such as wholesalers).
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 sought compensatory damages.
The Company's motion to dismiss the federal securities case was granted on
December 22, 1999. The decision was affirmed on appeal.
-8-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
F. (cont.) The Company believes that it has meritorious defenses to the
claims in the remaining matters and will vigorously defend its position.
Should the tentative settlements not be finalized and approved, an adverse
result in the continued litigation of those cases and the remaining
matters could have a material adverse effect on the Company's financial
position and results of its operations.
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 September 30, 2000, were $33.5 million,
or $.27 per share, compared to $37.1 million, or $.28 per share, for the same
prior year period. Net earnings for the six month period then ended, excluding
the $147.0 million before tax effect of the tentative settlement as described
below, were $51.5 million, or $.40 per share, compared to $69.0 million, or $.53
per share, for the same prior year period. Including the effect of the tentative
settlements, net loss for the six months ended September 30, 2000, was $42.6
million, or $.33 per share.
The Company reached a tentative settlement with the FTC, State Attorneys
General, and certain private parties ("Tentative Settlement") with regards to
lawsuits filed against the Company relating to raw material contracts on two of
its products. The decision to settle these lawsuits reduced the element of risk
and uncertainty inherent in litigation and enabled the Company to better devote
its resources to the management of its business.
During the quarter ended June 30, 2000, the Company made a strategic business
decision relating to the sales and marketing of its generic products. Within the
generic industry the buying patterns of certain classes of customers resulted in
a disproportionate amount of their purchases to occur late in the quarter. The
Company indirectly supported this practice through discount and incentive
programs. The Company decided to no longer support this practice and
discontinued its related incentive programs. While generic volume of products
shipped along with net sales and earnings were adversely impacted during the
three months ended June 30, 2000, the current three month period ended September
30, 2000, resulted in more normal generic volume and the resultant improvement
in net sales and earnings.
-9-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
All references to per share amounts in Item 2 are based on diluted weighted
average common shares.
The following table presents the comparative operating results for the Company's
operating segments: (dollars in millions)
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30,
------------- -------------
2000 1999 Change 2000 1999 Change
---- ---- ------- ---- ---- ------
Generic Segment:
Net Sales $175.3 $163.8 7% $ 312.0 $315.8 (1%)
Gross Profit 74.3 89.0 (17%) 129.1 168.4 (23%)
Segment Profit 52.9 68.5 (23%) 84.8 127.8 (34%)
Branded Segment:
Net Sales $ 32.3 $ 30.7 5% $ 62.8 $ 55.8 13%
Gross Profit 22.0 21.8 1% 42.2 38.7 9%
Segment Profit 1.6 5.5 (71%) 3.0 7.2 (58%)
Corporate $ (2.2) $(15.6) $(154.4) $(26.4)
Consolidated:
Net Sales $207.6 $194.5 7% $ 374.8 $371.6 1%
Gross Profit 96.3 110.8 (13%) 171.3 207.1 (17%)
Pretax Earnings 52.4 58.4 (10%) (66.5) 108.5 (161%)
Segment net sales represent sales to unrelated third parties. Segment
gross profit represents segment net sales less the corporate wide costs of
manufacturing, warehousing and shipping associated with such sales. Segment
profit represents segment gross profit less direct research and development,
sales and marketing and administrative expenses. Corporate includes legal costs,
goodwill amortization, other corporate administrative expenses and other income
and expense. For the six months ended September 30, 2000, Corporate includes the
expense of $147.0 million for the Tentative Settlement (See note F to the
consolidated financial statements).
Results of Operations
Net Sales and Gross Profit
Net sales for the three months ended September 30, 2000, were $207.6
million compared to $194.5 million for the same prior year period, an increase
of 7%. The increase in net sales for this period is primarily attributable to
growth in the Generic Segment.
-10-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Generic net sales for the current year quarter were $175.3 million compared to
$163.8 million for the same prior year period, an increase of 7%. Generic volume
of 2.173 billion doses was relatively unchanged from 2.135 billion doses for the
same prior year period. Increases related to new product sales were
approximately $62.9 million, with $36.1 million of this increase from
nifedipine. These increases were offset by price deterioration on other
products, primarily lorazepam and clorazepate, which decreased $19.5 million
from the same prior year period.
Net sales for the six months ended September 30, 2000, were $374.8 million
compared to $371.6 million for the same prior year period. Increases in the
Branded Segment were partially offset by decreases in the Generic Segment.
Generic net sales for the current six month period were $312.0 million compared
to $315.8 million for the same prior year period. Increases relating to new
product sales were approximately $116.0 million, with $68.9 of this increase
from nifedipine. These increases were offset by price deterioration on other
products with lorazepam and clorazepate decreasing $40.8 million from the same
prior year period. Generic volume decreased 5% from 4.060 billion doses to 3.864
billion doses for the current six month period. The decrease in generic volume
primarily related to the change in sales and marketing strategy implemented in
the three month period ended June 30, 2000.
Branded net sales were $32.3 million and $62.8 million for the three and six
month periods ended September 30, 2000, compared to $30.7 million and $55.8
million for the same prior year periods. The increases from the prior year
periods were primarily attributable to increased sales for Digitek(R),
Acticin(R) and Mentax(R).
Gross profits were $96.3 million and $171.3 million for the three and six month
periods ended September 30, 2000, a decrease of $14.5 million and $35.8 million
from the same prior year periods. The decreases in gross profits for both
periods were mainly attributable to the Generic Segment. Gross margins (gross
profit as a percent of net sales) decreased to 46% from 57% and 56% for the same
prior year three and six month periods. For the three and six month periods, the
decrease in gross margins to 42% and 41% for the Generic Segment were primarily
related to price deterioration and significant nifedipine sales, which has lower
than normal generic gross margins. Generic gross profit for the current six
month period was also affected by lower generic volume from the prior six month
period. Branded gross profits increased 1% and 9% for the current three and six
month periods over comparable prior year periods, while gross margins decreased
from the prior year periods to 68% and 67% due primarily to product mix.
Research and Development
Research and development expenses for the three months ended September
30, 2000, were $17.3 million, a $5.8 million increase over the same period last
year. For the six months
-11-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
ended September 30, 2000, research and development expenses were $33.8 million,
a $10.5 million increase over the same period last year.
Research and development increased principally due to increased studies and
increased license expense associated with the execution of distribution
agreements. Such expenses contributed $4.1 million to the current three month
period and $8.6 million for the current six month period. Additionally, research
and development expenses incurred by the Branded Segment increased $2.3 million
and $3.0 million for the current three and six month periods compared to the
same periods last year.
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 $38.2 million for the three
months ended September 30, 2000, compared to $38.9 million for the same period
last year. For the six months ended September 30, 2000, selling and
administrative expenses were $77.3 million, compared to $77.0 million for the
same prior year period. The decrease for the current three month period compared
to the same period last year was mainly attributable to decreased legal and
professional fees, which were partially offset by increased payroll and related
expenses.
Other Income
Other income for the three months ended September 30, 2000, was $11.6
million compared to a loss of $1.1 million for the same prior year period. The
Company recognized earnings of $11.2 million on its investment in a limited
partnership compared to a loss of $8.5 million in the same prior year period.
Other income was also impacted by higher interest rates on investment cash
balances and write downs on certain investments.
Other income for the six months ended September 30, 2000, was $22.2 million
compared to $2.8 million for the same prior year period. The Company recognized
earnings of $16.0 million on its investment in a limited partnership compared to
a loss of $8.5 million in the same prior year period. Other items that impacted
other income for the current six months were the gain on the partial sale of an
investment, write downs on certain investments and higher interest rates on cash
investment balances.
-12-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Income Taxes
The Company's effective tax rate of 36% remained relatively unchanged
from the same prior year periods and is expected to remain at approximately this
level throughout fiscal year 2001.
Other Factors
The addition of nifedipine to the Company's product line resulted in an
increase in finished goods inventory due to significant purchases of this
product from the supplier.
The tentative settlement with the FTC, State Attorneys General, and certain
private parties resulted in the increase in income tax benefits and also to the
increase in total current liabilities.
During the three month period ended June 30, 2000, the Company completed the
Stock Repurchase Program authorized and announced by the Board of Directors in
April 1997. The Company repurchased 4,855,100 shares of common stock for
approximately $91.5 million.
The Company has initiated the consolidation of its Branded Segment. In addition
to strengthening the management team, the Branded Segment will be relocating
certain functions from three current locations to one location in Raleigh, North
Carolina. The costs associated with the consolidation are expected to be
recognized over the next year.
Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The effective date of this standard has
been delayed to fiscal years beginning after June 15, 2000. The Company is
currently evaluating the prospective impact of this standard on its financial
position and results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 - Revenue Recognition in Financial Statements ("SAB No. 101").
The implementation date of SAB No. 101 has been delayed to the fourth fiscal
quarter of fiscal years after December 15, 1999. The Company is currently
evaluating the impact of SAB No. 101 on its financial position and results of
operations.
Liquidity, Capital Resources and Financial Condition
Working capital decreased to $456.6 million at September 30, 2000, from
$596.0 million at March 31, 2000. The ratio of current assets to current
liabilities decreased to 3.0 to 1
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MYLAN LABORATORIES INC. AND SUBSIDIARIES
at September 30, 2000, from 7.8 to 1 at March 31, 2000. The Tentative Settlement
and the completion of the Stock Repurchase Program primarily caused the
significant change in the Company's current ratio.
The decrease in working capital was primarily caused by the Company's net loss,
along with net fluctuations in accounts receivable, inventories, income taxes
and other noncash expenses which primarily relate to earnings on its limited
partnership. While the Tentative Settlement impacted working capital and cash
provided from operating activities, the repositioning of certain investments in
anticipation of the payment has resulted in the increase in cash provided from
investing activities. The cash used for the completion of the Stock Repurchase
Program also affected working capital.
In July 2000, the Company entered into a tentative settlement with the FTC,
State Attorneys General and certain private parties. If the settlements are
approved, the Company will pay up to $147.0 million from currently available
funds.
During the three month period ended June 30, 2000, the Company completed the
Stock Repurchase Program authorized and announced by the Board of Directors in
April 1997. The Company repurchased 4,855,100 shares of common stock for
approximately $91.5 million through the use of currently available funds.
The result of the payments mentioned above will affect the amount of interest
income the Company may record in future periods. The Company does not expect
these payments to adversely affect the future operation of its business.
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 one or more of such acquisitions.
The Company believes that it has meritorious defenses to the claims in the
remaining litigation matters and will vigorously defend its position. Should the
tentative settlements not be finalized and approved, an adverse result in the
continued litigation of those cases and the remaining matters could have a
material adverse effect on the Company's financial position and results of
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, potential trends that may impact future results of operations, and
its beliefs or expectations about future 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, an acceleration
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MYLAN LABORATORIES INC. AND SUBSIDIARIES
in the erosion of prices of the Company's generic pharmaceutical products, the
Company's inability to obtain timely FDA approval for its new generic or branded
products, the failure of the Company's branded products to find acceptance in
the marketplace, continuing litigiousness by branded manufacturers designed to
delay the introduction of the Company's generic products, the failure of the
parties to finalize the tentative settlement of the FTC and related
anti-competition cases against the Company, the failure of the Company to
favorably litigate or resolve the remaining cases that are not a part of such
tentative settlement, and 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, 2000.
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 Annual Report on Form 10-K for the year ended March 31, 2000. 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
for the year ended March 31, 2000, there have been no material new legal
proceedings involving the Company or any material developments to such
proceedings, except as described below.
A subsidiary of the Company was involved in a dispute with KaiGai
Pharmaceuticals, Co., Ltd.("KaiGai") relating to a license and supply contract
for nitroglycerin transdermal patches which both parties claimed was breached by
the other. KaiGai sought damages in excess of $20,000,000. The dispute was
subject to binding arbitration, and, in November 1999, the arbitration panel
denied KaiGai's request for damages. KaiGai filed an appeal in U.S. District
Court and the Company's motion to dismiss the appeal was granted based upon
untimely and improper service of the appeal. KaiGai has appealed the U.S.
District Court's decision to the Court of Appeals, and the appeal is pending.
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 of their directors and officers. The Company's suit sought
various legal and equitable remedies. The Los Angeles Superior Court issued a
preliminary injunction which, among other things, prohibited 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 another company. In June 1999, the defendants filed an answer to and
cross-complaint against the Company. The cross-complaint alleged violations of
California state laws, interference with contractual relations and prospective
economic advantage,
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MYLAN LABORATORIES INC. AND SUBSIDIARIES
fraud, slander, libel and other allegations. The cross-complainants sought
unspecified compensatory and punitive damages.
In August 2000, the Company entered into a settlement agreement with ABI, APP
and certain of their directors and officers. The settlement resulted in the
resolution of all differences, disputes and claims raised in the complaint and
cross-complaint mentioned above. Upon settlement, the Company received payment
from ABI for its equity investment in VivoRx Inc. As defined in the settlement
agreement, upon certain events and conditions the Company will transfer to ABI
all shares of the common stock of ABI it currently owns.
On December 22, 1998, the FTC filed suit in U.S. District Court for the District
of Columbia 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 25 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 statutes.
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. The Company's motions to
dismiss several of the private actions were granted.
In July 2000, the Company reached a tentative agreement to settle the
actions brought by the FTC and the State Attorneys General regarding raw
material contracts for lorazepam and clorazepate. The Company has agreed to pay
$100,000,000, plus up to $8,000,000 in attorneys' fees incurred by the States
Attorneys General. The tentative settlement is subject to court approval and the
approval of the FTC commissioners.
In July 2000, the Company also reached a tentative agreement to settle
private class action lawsuits filed on behalf of consumers and third-party
reimbursers related to the same facts
and circumstances at issue in the FTC and States Attorneys General cases. The
Company has agreed to pay $35,000,000 to settle the third party reimburser
actions, plus up to
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MYLAN LABORATORIES INC. AND SUBSIDIARIES
$4,000,000 in attorneys' fees incurred by counsel in the consumer actions.
The tentative settlement is subject to court approval.
In total, the Company has agreed to pay up to $147,000,000 to settle these
actions. The tentative settlements also include three companies indemnified by
the Company - Cambrex Corporation, Profarmaco S.r.l. and Gyma Laboratories, Inc.
Lawsuits not included in these tentative settlements principally involve direct
purchasers (such as wholesalers).
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 sought compensatory damages. The Company's
motion to dismiss the federal securities case was granted on December 22, 1999.
The decision was affirmed on appeal.
The Company believes that it has meritorious defenses to the claims in the
remaining matters and will vigorously defend its position. Should the tentative
settlements not be finalized and approved, an adverse result in the continued
litigation of those cases and the remaining matters 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 27, 2000, the annual meeting of the shareholders of the Company
was held. At this meeting, the shareholders overwhelmingly elected the seven
directors nominated (Milan Puskar, Dana G. Barnett, Laurence S. DeLynn, John C.
Gaisford, M.D., Douglas J. Leech, Patricia A. Sunseri, and C. B. Todd), with no
less than 97,545,984 votes for and no more than 17,501,290 votes withheld. In
addition, the shareholders approved the appointment of Deloitte & Touche LLP as
the Company's independent auditors upon a vote of 114,244,398 for and 499,498
against and approved the Company's Employee Stock Purchase Plan upon a vote of
79,765,073 for and 33,369,789 against.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - On July 13, 2000, the Company filed a
report on Form 8-K covering Item 5 thereof regarding the
announcement of a tentative settlement with the FTC, State
Attorneys General and certain private parties.
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MYLAN LABORATORIES INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report filed on Form 10-Q for the quarter ended
September 30, 2000, to be signed on its behalf by the undersigned thereunto duly
authorized.
Mylan Laboratories Inc.
(Registrant)
DATE 11/13/2000
---------------- /s/ Milan Puskar
Milan Puskar
Chairman of the Board and
Chief Executive Officer
DATE 11/13/2000
---------------- /s/ Richard F. Moldin
Richard F. Moldin
President and Chief Operating Officer
DATE 11/13/2000
---------------- /s/ Donald C. Schilling
Donald C. Schilling
Vice President of Finance and
Chief Financial Officer
(Principal financial officer)
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