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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 December 31, 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 February 8, 2000
--------------------- ----------------
$.50 par value 129,334,180
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
INDEX
Page
Number
---------
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Statements of Earnings - Three and
Nine Months Ended December 31, 1999 and 1998 2
Consolidated Balance Sheets - December 31, 1999
and March 31, 1999 3
Consolidated Statements of Cash Flows - Nine
Months Ended December 31, 1999 and 1998 4
Notes to Consolidated Financial Statements -
Nine Months Ended December 31, 1999 5 - 8
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 13
ITEM 3: Quantitative and Qualitative Disclosures
About Market Risk 13
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings 13 - 15
ITEM 6: Exhibits and Reports on Form 8-K 16
SIGNATURES 16
<PAGE>
<TABLE>
<CAPTION>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share amounts)
UNAUDITED
Three Months Ended Nine Months Ended
------------------- -----------------
December 31, December 31,
------------- ------------
1999 1998 1999 1998
--------- ---------- ------- ------
<S> <C> <C> <C> <C>
NET SALES $203,877 $186,195 $575,461 $530,505
COST AND EXPENSES:
Cost of Sales 92,725 86,479 257,250 253,591
Research and Development 12,387 12,274 35,651 39,740
Acquired In-Process
Research and Development - 29,000 - 29,000
Selling and Administrative 40,417 35,987 117,411 89,431
-------- ----------- --------- ---------
145,529 163,740 410,312 411,762
EQUITY IN (LOSS) EARNINGS OF SOMERSET (1,548) 1,113 (2,619) 5,605
OTHER INCOME 6,878 4,275 9,640 12,387
-------- -------- -- -------- --------
EARNINGS BEFORE INCOME TAXES 63,678 27,843 172,170 136,735
INCOME TAXES 23,244 19,689 62,717 57,184
-------- ----------- -------- --------
NET EARNINGS $ 40,434 $ 8,154 $109,453 $ 79,551
======== =========== ======== ========
EARNINGS PER COMMON SHARE:
Basic $ .31 $ .06 $ .85 $ .64
======== =========== ======== ========
Diluted $ .31 $ .06 $ .84 $ .63
======== =========== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 129,232 128,644 129,183 124,449
======== =========== ======== ========
Diluted 130,026 130,339 130,160 126,075
======== =========== ======== ========
The Company has paid regular quarterly cash dividends of $.04 per share since October 1995.
See Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share information)
UNAUDITED
ASSETS
December 31, March 31,
1999 1999
<S> <C> <C>
---- ----
Current Assets:
Cash and cash equivalents $ 237,528 $ 189,849
Marketable securities 95,559 69,872
Accounts receivable - net 162,687 148,896
Inventories:
Raw materials 66,977 57,414
Work in process 25,591 20,813
Finished goods 47,651 58,266
---------- ----------
140,219 136,493
Deferred income tax benefit 32,032 18,199
Other current assets 15,837 19,650
---------- ----------
Total Current Assets 683,862 582,959
Property, Plant and Equipment - at cost 266,148 244,793
Less accumulated depreciation 102,295 90,157
---------- ----------
163,853 154,636
Investment in and Advances to Somerset 31,160 34,114
Intangible Assets - net of accumulated amortization 325,225 336,003
Other Assets 104,942 98,949
---------- ----------
Total Assets $1,309,042 $1,206,661
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 16,869 $ 12,142
Current portion of long-term obligations 16,336 16,941
Income taxes payable 11,458 821
Cash dividends payable 5,188 5,178
Other current liabilities 52,476 61,279
---------- ----------
Total Current Liabilities 102,327 96,361
Long-Term Obligations 23,684 26,827
Deferred Income Tax Liability 25,161 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 130,132,593 shares at
December 31, 1999 and 129,968,514 shares at
March 31, 1999 65,066 64,984
Additional paid-in capital 314,714 311,995
Retained earnings 783,952 690,003
Accumulated other comprehensive income 2,320 1,105
----------
1,166,052 1,068,087
Less treasury stock - at cost, 888,578 shares at
December 31, 1999 and March 31, 1999 8,182 8,182
---------- ----------
Total Shareholders' Equity 1,157,870 1,059,905
---------- ----------
Total Liabilities and Shareholders' Equity $1,309,042 $1,206,661
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(In thousands)
UNAUDITED
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $109,453 $ 79,551
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization 27,112 18,995
Deferred income tax benefit (13,303) (10,531)
Equity in the loss(earnings)of Somerset 2,619 (5,606)
Cash received from Somerset 335 3,135
Allowances on accounts receivable 32,160 13,954
Acquired in-process research and development - 29,000
Other noncash expense 7,225 154
Changes in operating assets and liabilities:
Accounts receivable (45,901) (27,029)
Inventories (3,669) 1,049
Trade accounts payable 4,727 (4,338)
Income taxes payable 11,853 9,561
Other operating assets and liabilities (8,679) 256
-------- --------
Net cash provided from operating activities 123,932 108,151
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (21,355) (11,267)
Increase in intangible and other assets (11,963) (3,397)
Proceeds from investment securities 112,630 22,801
Purchase of investment securities (135,967) (20,611)
Cost of acquisition net of cash acquired - 1,467
-------- --------
Net cash used in investing activities (56,655) (11,007)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term obligations (6,186) (6,673)
Cash dividends paid (15,494) (14,679)
Proceeds from exercise of stock options 2,082 8,566
-------- --------
Net cash used in financing activities (19,598) (12,786)
-------- --------
Net increase in cash and cash equivalents 47,679 84,358
Cash and cash equivalents - beginning of period 189,849 103,756
-------- --------
Cash and cash equivalents - end of period $237,528 $188,114
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest $ 646 $ 279
======== ========
Income Taxes $ 64,167 $ 58,157
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED
DECEMBER 31, 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 Mylan
Laboratories Inc. and subsidiaries (the "Company") as of December 31,
1999, and March 31, 1999, together with the results of operations and cash
flows for the interim periods ended December 31, 1999 and 1998. The
consolidated results of operations for the three and nine months ended
December 31, 1999, 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 794,000 and 1,695,000 for
the three months ended December 31, 1999 and 1998, and 977,000 and
1,626,000 for the nine months ended December 31, 1999 and 1998.
D. Total comprehensive income for the three and nine months ended December
31, 1999 and 1998, is as follows: (in thousands)
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
Net earnings $40,434 $8,154 $109,453 $79,551
Other comprehensive income, net of tax:
Unrealized (loss) gain on marketable
securities (27) (14) 3,419 (2,015)
Adjustment for loss(gains) included
in net earnings 331 (169) (2,204) (208)
------- ------ ------- ------
Comprehensive income $40,738 $7,971 $110,668 $77,328
======== ======= ========= ========
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.
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<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED
DECEMBER 31, 1999
Unaudited
E. The following table presents the comparative operating results for the
Company's operating segments: (in thousands)
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
Generic Segment:
Net Sales $168,223 $158,159 $483,974 $472,492
Segment Profit 65,495 58,254 193,247 166,413
Branded Segment:
Net Sales $ 35,654 $ 28,036 $91,487 $ 58,013
Segment Profit 5,942 6,410 13,126 12,417
$ (7,759)
Corporate $ (7,759) $(36,821) $(34,203) $(42,095)
Consolidated:
Net Sales $203,877 $186,195 $575,461 $530,505
Pretax Earnings 63,678 27,843 172,170 136,735
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
includes legal costs, goodwill amortization, other corporate
administrative expenses and nonoperating income and expense. For the three
and nine months ended December 31, 1998, Corporate includes a one-time
charge of $29,000,000 for acquired in-process research and development
relating to the Penederm acquisition.
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 claim
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.
In November 1999, the Company and a state agency entered into a settlement
concerning certain contract pricing matters. The settlement was satisfied
without a significant effect on the Company's financial position or
results of operations.
-6-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED
DECEMBER 31, 1999
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 seeks various legal and equitable remedies. 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
another company. 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.
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 25 putative class actions that allege the same
conduct alleged in the FTC suit as well as alleged violations of state
consumer protection laws.
-7-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED
DECEMBER 31, 1999
Unaudited
F. (cont.) 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.
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. A notice of appeal has been filed.
The Company had filed motions to dismiss the FTC complaint and significant
portions of the State Attorneys General complaint. In July 1999, the Court
denied the Company's motion to dismiss the FTC complaint. The Company
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. This motion was denied. 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, and, in December 1999, the Court reinstated certain
claims.
In February 2000, the Company received notice of threatened litigation by
another generic manufacturer. The potential complaint is based on similar
factors alleged in the FTC litigation relating to the generic product
clorazepate.
The Company believes that it has meritorious defenses to the claims in
these matters 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.
-8-
<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 December 31, 1999, were $40.4 million
or $.31 per share compared to $8.2 million or $.06 per share for the same prior
year period. Net earnings for the nine month period then ended were $109.5
million or $.84 per share compared to $79.6 million or $.63 per share for the
same prior year period. Prior year earnings were affected by a one-time charge
of $29 million for acquired in-process research and development ("IPR&D")
relating to the acquisition of Penederm Inc. ("Penederm") in October 1998.
Excluding the one-time charge for acquired IPR&D, net earnings for the quarter
ended December 31, 1998, were $37.2 million or $.29 per share and the net
earnings for the nine months ended December 31, 1998, were $108.6 million or
$.86 per share.
All references to per share amounts in Item 2 are based on diluted
weighted average common shares outstanding.
The following table presents the comparative operating results for the
Company's operating segments: (dollars in millions)
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
1999 1998 % Change 1999 1998 % Change
---- ---- --------- ---- ---- --------
Generic Segment:
Net Sales $ 168.2 $158.2 6% $ 484.0 $ 472.5 2%
Gross Profit 86.0 80.5 7% 254.4 238.7 7%
Segment Profit 65.5 58.2 13% 193.2 166.4 16%
Branded Segment:
Net Sales $ 35.7 $ 28.0 27% $ 91.5 $ 58.0 58%
Gross Profit 25.2 19.2 31% 63.8 38.2 67%
Segment Profit 5.9 6.4 (8%) 13.1 12.4 6%
Corporate $ (7.7) $(36.8) $ (34.1) $ (42.1)
Consolidated:
Net Sales $ 203.9 $186.2 10% $ 575.5 $ 530.5 8%
Gross Profit 111.2 99.7 12% 318.2 276.9 15%
Pretax Earnings 63.7 27.8 129% 172.2 136.7 26%
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Segment net sales represents 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 nonoperating
income and expense. For the three and nine months ended December 31, 1998,
Corporate includes a one-time charge of $29,000,000 for acquired in-process
research and development relating to the Penederm acquisition.
Results of Operations
Net Sales and Gross Profit
Net sales for the three months ended December 31, 1999, were $203.9
million compared to $186.2 million for the same prior year period, an increase
of 10%. Net sales for the nine months ended December 31, 1999, were $575.5
million compared to $530.5 million for the same prior year period, an increase
of 8%. The increase in net sales for the three month period relates principally
to increases in dermatology product sales, generic volume and new generic
products. The increase in net sales for the nine month period relates
principally to an additional six months of dermatology product sales related to
Penederm, an increase in generic volume, new generic products and price
increases on selected generic products.
Gross profits increased $11.5 million over the prior year three month
period to $111.2 million and $41.3 million to $318.2 million over the prior year
nine month period. Gross margins (gross profit as a percentage of net sales)
were 55% for the current year three and nine month periods compared to 54% and
52% in the prior year comparable periods.
Generic gross profit increased 7% for both the current three and nine
month periods as a result of price increases on selected products, sales of new
products approved after December 31, 1998, termination of certain royalty
arrangements in January 1999 and increased generic volume. Generic units shipped
(excluding unit dose shipments) were 2.4 billion units and 6.4 billion units for
the current three and nine month periods, up 13% and 8% from the prior year
periods. The increases during these periods were offset by normal price
deterioration and a 10% and 8% decrease in gross profit for the current three
and nine month periods related to clorazepate and lorazepam.
Branded gross profit increased 31% and 67% for the current three and nine
month periods over the same prior year three and nine month periods. The
increase in gross profit for the current three month period is due principally
to growth for existing dermatology products. The increase for the current nine
month period is due principally to an additional six months
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<PAGE>
of sales of Penederm and the additional growth previously mentioned for the
three month period.
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Research and Development
The Company is actively pursuing and is involved in joint development
projects in an effort to broaden its scope of capabilities in bringing to market
new and 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, fulfillment of milestones may result in fluctuations in quarterly
research and development expense.
Expenditures for research and development were $12.4 million and $35.7
million for the three and nine month periods ended December 31, 1999, compared
to $12.3 million and $39.7 million for the comparable periods ended December 31,
1998. The decrease for the current nine month period over the prior year nine
month period is due to the fulfillment of milestones for product licensing and
development agreements reached in the prior year. This decrease was partially
offset by an additional six months of research expenditures for branded products
of Penederm. Core internal research costs are expected to increase as the
Company progresses into the advance stages of development for certain projects
in future periods.
Selling and Administrative Expenses
Selling and administrative expenses were $40.4 million for the three
months ended December 31, 1999, compared to $36.0 million for the same period in
the prior year. Expenses for the nine months ended December 31, 1999, were
$117.4 million compared to $89.4 million for the same period in the prior year.
Corporate administrative expenses were $13.1 million and $41.2 million for
the current three and nine month periods compared to $13.2 million and $31.8
million for the comparable prior year periods. For the nine month period, the
increase is primarily due to higher goodwill amortization related to Penederm
and legal expenses related to the FTC investigation.
Branded Segment selling and administrative expenses were $16.6 million and
$43.8 million for the current three and nine month periods compared to $11.4
million and $24.3 million for the comparable prior year periods. The increase in
the three month period over the prior year period is primarily due to the
expansion of the sales and support staff. The increase for the nine month period
is due to the expansion of the sales and support staff, as previously mentioned,
and the inclusion of an additional six months of expenses of Penederm.
-10-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Generic Segment selling and administrative expenses decreased 6% to $10.7
million and 5% to $32.4 million for the three and nine month periods ended
December 31, 1999. The decrease for both the three and nine month periods is
primarily related to reduced expenses related to new product launches and
promotional campaigns in the current year periods.
Equity in Earnings
The equity in the loss of Somerset in the current periods was primarily
the result of lower sales due to generic competition on Eldepryl(R) and
increased expenditures for research and development. Somerset Pharmaceuticals,
Inc. is continuing its research for alternative uses for Eldepryl(R), which is
expected to result in continued losses in the near term.
Other Income
The increase in the current quarter is primarily due to income related to
an investment in a limited partnership. The Company also recorded losses on
certain investments, which were deemed to be permanently impaired, that offset a
portion of the above income. The decrease for the current nine month period over
the comparable prior nine month period is primarily related to the fluctuations
in income of the previously mentioned limited partnership.
Income Taxes
The Company's effective tax rate was 36.5% for both the three and
nine month periods ended December 31, 1999. The effective tax rate for the prior
year comparable periods was significantly impacted by the one-time charge for
acquired IPR&D.
Liquidity, Capital Resources and Financial Condition
Working capital increased to $581.5 million at December 31, 1999, from
$486.6 million at March 31, 1999. The ratio of current assets to current
liabilities increased to 6.7 to 1 at December 31, 1999, from 6.0 to 1 at March
31, 1999. The increase in working capital was primarily due to the
Company's net earnings. In addition to net earnings, net cash provided
from operating activities was affected by changes in accounts receivable and its
related allowance. The increase in cash used in investing activities principally
resulted from the Company's increased investment in marketable securities
which primarily are short term in nature.
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
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operations could be materially impacted if the Company were to complete one or
more of such acquisitions.
MYLAN LABORATORIES INC. AND SUBSIDIARIES
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.
Year 2000
As described in the Company's annual report on Form 10-K for the year
ended March 31, 1999, and its quarterly reports on Form 10-Q for the quarters
ended June 30, 1999, and September 30, 1999, the Company had examined its
critical information ("IT") and non-IT operating systems for Year 2000 ("Y2K")
compliance. Since entering the year 2000, the Company has not experienced any
significant disruptions to its business either directly or by reason of Y2K
related problems affecting the Company's customers or suppliers. The Company
will continue to monitor its critical IT and non-IT systems over the next
several months, but does not anticipate any significant Y2K impact on its
business. As previously disclosed, the Company significantly upgraded its
computing systems over the last several years, principally for reasons unrelated
to Y2K issues. Consequently, the Company did not incur significant incremental
costs in seeking to become Y2K compliant.
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, 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.
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, 1999. There
has been no material change in the disclosure regarding market risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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<PAGE>
Since the date of the filing of the Company's report on Form 10-Q for the
period ended September 30, 1999, there have been no material new legal
proceedings involving the Company or any material developments to such
proceedings, except as described below. See Note F to the Company's consolidated
financial statements and/or "Legal Proceedings" in the Company's
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Annual Report on Form 10-K for the year ended March 31, 1999, and Quarterly
Reports on Form 10-Q for the quarters ended June 30, 1999, and September 30,
1999, for a discussion of certain other legal proceedings involving the Company
as to which there have been no material developments since the filing of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
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 claim 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.
In November 1999, the Company and a state agency entered into a settlement
concerning certain contract pricing matters. The settlement was satisfied
without a significant effect on the Company's financial position or results of
operations.
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 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.
-13-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
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.
A notice of appeal has been filed.
The Company had filed motions to dismiss the FTC complaint and significant
portions of the State Attorneys General complaint. In July 1999, the Court
denied the Company's motion to dismiss the FTC complaint. The Company 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. This motion was denied. 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,
and, in December 1999, the Court reinstated certain claims.
In February 2000, the Company received notice of threatened litigation by
another generic manufacturer. The potential complaint is based on similar
factors alleged in the FTC litigation relating to the generic product
clorazepate.
The Company believes that it has meritorious defenses to the claims in
these matters 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.
-14-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
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 December 31, 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 2/14/00
__________________ /s/ Milan Puskar
Chairman of the Board, Chief
Executive Officer and President
(Principal executive officer)
DATE 2/14/00
___________________ /s/ Donald C. Schilling
Vice President of Finance and
Chief Financial Officer
(Principal financial officer)
-15-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
Financial Data Schedule
Mylan Laboratories Inc. and Subsidiaries
Article 5 of Regulation S-X
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1999, and the Consolidated Statement
of Earnings for the nine months ended December 31, 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000069499
<NAME> none
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 237,528
<SECURITIES> 95,559
<RECEIVABLES> 238,431
<ALLOWANCES> 75,744
<INVENTORY> 140,219
<CURRENT-ASSETS> 683,862
<PP&E> 266,148
<DEPRECIATION> 102,295
<TOTAL-ASSETS> 1,309,042
<CURRENT-LIABILITIES> 102,327
<BONDS> 23,684
0
0
<COMMON> 65,066
<OTHER-SE> 1,092,804
<TOTAL-LIABILITY-AND-EQUITY> 1,309,042
<SALES> 575,461
<TOTAL-REVENUES> 575,461
<CGS> 257,250
<TOTAL-COSTS> 257,250
<OTHER-EXPENSES> 153,062
<LOSS-PROVISION> 32,160
<INTEREST-EXPENSE> 442
<INCOME-PRETAX> 172,170
<INCOME-TAX> 62,717
<INCOME-CONTINUING> 109,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,453
<EPS-BASIC> .85
<EPS-DILUTED> .84
</TABLE>
