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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OR THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
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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 9, 2000
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$.50 par value 124,703,913
<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, 2000, and 1999 2
Consolidated Balance Sheets - June 30, 2000,
and March 31, 2000 3
Consolidated Statements of Cash Flows - Three
Months Ended June 30, 2000, and 1999 4
Notes to Consolidated Financial Statements 5 - 9
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 14
ITEM 3: Quantitative and Qualitative Disclosures
About Market Risk 14
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings 14 - 16
ITEM 6: Exhibits and Reports on Form 8-K 16
SIGNATURES 16
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30,
2000, AND 1999 (In thousands
except per share amounts)
UNAUDITED
2000 1999
------------ --------
NET SALES $167,255 $177,095
COST AND EXPENSES:
Cost of Sales 92,279 80,848
Research and Development 16,535 11,791
Selling and Administrative 39,083 38,114
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114,808,000
147,897 130,753
LITIGATION SETTLEMENT (147,000) -
EQUITY IN LOSS OF SOMERSET (1,903) 82)
OTHER INCOME 10,656 3,859
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(LOSS) EARNINGS BEFORE INCOME TAXES (118,889) 50,119
INCOME TAX (BENEFIT) EXPENSE (42,800) 18,166
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NET (LOSS) EARNINGS $(76,089) $ 31,953
======== ========
(LOSS) EARNINGS PER COMMON SHARE:
Basic $( .59) $ .25
======== ========
Diluted $( .59) $ .25
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 128,701 129,136
======== ========
Diluted 129,694 130,309
======== ========
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
(In thousands except share information)
UNAUDITED
ASSETS
June 30, March 31,
2000 2000
---- ----
Current Assets:
Cash and cash equivalents $ 181,304 $ 203,493
Marketable securities 58,472 99,557
Accounts receivable - net 179,517 197,760
Inventories:
Raw materials 71,251 64,020
Work in process 26,977 28,459
Finished goods 110,098 53,390
---------- ----------
208,326 145,869
Income tax benefits 71,112 30,792
Other current assets 8,933 9,275
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Total Current Assets 707,664 686,746
Property, Plant and Equipment - at cost 282,359 273,581
Less accumulated depreciation 109,838 105,581
---------- ----------
172,521 168,000
Investment in and Advances to Somerset 27,437 29,461
Intangible Assets - net of accumulated amortization 326,419 332,142
Other Assets 130,777 124,881
---------- ----------
Total Assets $1,364,818 $1,341,230
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 76,072 $ 17,981
Current portion of long-term obligations 7,925 9,874
Income taxes payable - 7,858
Cash dividends payable 5,007 5,194
Other current liabilities 47,460 46,863
Litigation Settlement 147,000 -
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Total Current Liabilities 283,464 87,770
Long-Term Obligations 32,829 30,630
Deferred Income Tax Liability 17,397 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 130,433,421 shares at
June 30, 2000, and 130,277,568 shares at
March 31, 2000 65,217 65,139
Additional paid-in capital 318,677 316,393
Retained earnings 742,494 823,570
Accumulated other comprehensive income 4,575 6,936
----------
1,130,963 1,212,038
Less treasury stock - at cost, 5,750,715 shares at
June 30, 2000, and 893,498 shares at March 31, 2000 99,835 8,316
---------- ----------
Total Shareholders' Equity 1,031,128 1,203,722
---------- ----------
Total Liabilities and Shareholders' Equity $1,364,818 $1,341,230
========== ==========
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, 2000, AND 1999
(In thousands)
UNAUDITED
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings $(76,089) $ 31,953
Adjustments to reconcile net (loss) earnings to net
cash provided from operating activities:
Depreciation and amortization 9,983 8,669
Income tax benefit (40,759) (4,626)
Equity in loss of Somerset 1,903 82
Cash received from Somerset 121 107
Allowances on accounts receivable (6,220) 10,443
Litigation Settlement 147,000 -
Other noncash items (4,299) 996
Changes in operating assets and liabilities:
Accounts receivable 24,463 (12,771)
Inventories (62,537) (1,925)
Trade accounts payable 58,091 7,507
Income taxes payable (7,858) 16,171
Other operating assets and liabilities 939 (11,988)
-------- --------
Net cash provided from operating activities 44,738 44,618
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (8,778) (5,436)
Increase in intangible and other assets (1,099) (962)
Proceeds from investment securities 52,322 34,302
Purchase of investment securities (14,870) (51,351)
-------- --------
Net cash provided from (used in) investing activities 27,575 (23,447)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term obligations (95) (5,014)
Cash dividends paid (5,174) (5,162)
Repurchase of common stock (91,456) -
Proceeds from exercise of stock options 2,223 954
-------- --------
Net cash used in financing activities (94,502) (9,222)
-------- --------
Net (decrease) increase in cash and cash equivalents (22,189) 11,949
Cash and cash equivalents - beginning of period 203,493 189,849
-------- --------
Cash and cash equivalents - end of period $181,304 $201,798
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest $ 37 $ 189
======== ========
Income Taxes $ 5,815 $ 6,620
======== ========
See Notes to Consolidated Financial Statements
-4-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
A. In the opinion of management, the accompanying unaudited consolidated
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 June 30,
2000, together with the results of operations and cash flows for the three
months ended June 30, 2000, and 1999. The consolidated results of
operations for the three months ended June 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 993,000 and 1,173,000 for
the three months ended June 30, 2000, and 1999.
D. Total comprehensive income for the three months ended June 30, 2000, and
1999, is as follows: (in thousands)
Three Months Ended
June 30,
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2000 1999
---- ----
Net (loss) earnings $(76,089) $31,953
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on marketable securities (1,679) 502
Adjustment for gains included in net earnings (682) (35)
-------- -------
Comprehensive (loss) income $(78,450) $32,420
======== ========
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.
-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
June 30,
2000 1999
---- ----
Generic Segment:
Net Sales $ 136,731 $151,937
Segment Profit 31,845 59,217
Branded Segment:
Net Sales $ 30,524 $ 25,158
Segment Profit 1,474 1,701
Corporate $(152,208) $(10,799)
Consolidated:
Net Sales $ 167,255 $177,095
Pretax Earnings $(118,889) $ 50,119
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 three months
ended June 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).
-6-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
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 and the Company's motion to dismiss the appeal was granted based
upon timely and improper service of the appeal.
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-complaint is without merit and intends to
vigorously defend its position.
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
-7-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
F. (cont.) 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.
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 appealed. An oral argument concerning
the appeal was heard by the court on July 20, 2000.
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.
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 proposed 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
-8-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
F. (cont.) 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 proposed settlement is
subject to court approval.
In total, the Company has agreed to pay up to $147,000,000 to settle these
actions. The proposed settlements also include three companies indemnified
by the Company - Cambrex Corporation, Profarmaco S.r.l. and Gyma
Laboratories, Inc. Lawsuits not included in these proposed settlements
principally involve institutional purchasers (such as wholesalers).
The Company believes that it has meritorious defenses to the claims in the
remaining matters and will vigorously defend its position. Should the
proposed 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 June 30, 2000, excluding the $147.0
million before tax effect of the tentative litigation settlement, were $18.0
million, or $.14 per diluted share. Including the effect of the tentative
litigation settlement, net loss for the quarter ended June 30, 2000, was $76.1
million, or $.59 per diluted share, compared to $32.0 million, or $.25 per
diluted share, for the same quarter a year ago.
The Company reached tentative settlements with the FTC, State Attorneys General,
and certain private parties (the "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, 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
-9-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
occur late in the quarter. The Company indirectly supported this practice
through discount and incentive programs. The Company has decided to no longer
support this practice and has discontinued its related incentive programs. This
decision is expected to favorably impact the Company through: improved customer
service levels, decreased levels of products on backorder and decreased expenses
associated with filling these backorders, and increased net sales, on the same
level of orders, through the reduction of discounts and incentive programs. The
Company believes the impact of this decision will not materially impact future
quarters and generic volume will return to more normal levels.
The following table presents the comparative operating results for the
Company's operating segments: (dollars in millions)
Three Months Ended
June 30,
----------
2000 1999 Change
---- ---- ------
Generic Segment:
Net Sales $ 136.7 $151.9 (10%)
Gross Profit 54.8 79.4 (31%)
Segment Profit 31.8 59.2 (46%)
Branded Segment:
Net Sales $ 30.6 $ 25.2 21%
Gross Profit 20.2 16.8 20%
Segment Profit 1.5 1.7 (12%)
Corporate $(152.2) $(10.8)
Consolidated:
Net Sales $ 167.3 $177.1 (6%)
Gross Profit 75.0 96.2 (22%)
Pretax Earnings (118.9) 50.1
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 three months ended June 30, 2000, Corporate includes the
expense of $147.0 million for the Tentative Settlement (See note F to the
consolidated financial statements).
-10-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Results of Operations
----------------------
Net Sales and Gross Profit
Net sales for the quarter ended June 30, 2000, were $167.3 million compared
to $177.1 million for the same quarter a year ago. The majority of this decrease
resulted from the decision relating to the sales and marketing of generic
products as previously described. Generic volume for the current quarter
decreased approximately 12% compared to the same quarter a year ago. Price
deterioration continues to contribute to lower net sales, with clorazepate and
lorazepam still experiencing significant downward pricing pressure. Net sales
for clorazepate and lorazepam decreased approximately $21.2 million for the
current quarter compared to the same quarter a year ago. These decreases were
partially offset by products launched subsequent to June 30, 1999, primarily
nifedipine, amounting to approximately $54.1 million in net sales for the
quarter ended June 30, 2000.
Generic gross margins (gross profit as a percent of net sales) decreased to 40%
for the current quarter from 52% for the same quarter a year ago. This is mainly
attributable to the sale of nifedipine, which has lower than normal generic
gross margins, lower generic volume, and price deterioration as previously
mentioned.
For the Branded Segment, net sales for the quarter ended June 30, 2000,
increased from $25.2 million for the quarter ended June 30, 1999, to $30.6
million. The increase in net sales resulted primarily from the addition of
Digitek(R) and increased sales related to dermatology products. Gross profit for
the current quarter remained consistent with the prior comparable quarter.
Research and Development
Research and development expenses were $16.5 million for the quarter ended
June 30, 2000, compared to $11.8 million for the same quarter a year ago. Such
increase reflects increased costs associated with additional studies and
includes the cost associated with the execution of a distribution agreement in
the current quarter.
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.
-11-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Selling and Administrative Expenses
Selling and administrative expenses were $39.1 million for the quarter
ended June 30, 2000, compared to $38.1 million for the same quarter a year ago.
Increases in payroll and payroll related expenses for the Branded Segment were
partially offset by decreases in payroll and payroll related expenses for the
Generic Segment.
Equity in loss of Somerset
The equity in loss of Somerset Pharmaceuticals, Inc. in the current quarter
is primarily the result of lower sales and increased research and development
expenses as compared to the same quarter a year ago.
Other Income
Other income for the quarter ended June 30, 2000, was $10.7 million, up
from $3.9 million for the same quarter a year ago. This increase resulted from
increased earnings on the Company's investment in a limited partnership, gains
realized on the partial sale of an investment, and increased interest income due
to higher interest rates and higher average investment cash balances.
Income Taxes
The Company's effective tax rate was 36% for the quarter ended June 30,
2000, 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
increases in trade accounts payable and finished goods inventory due to
significant purchases during the quarter. Finished goods inventory also
increased due to the Company's decision to change its approach to sales and
marketing within its Generic Segment.
The Tentative Settlement resulted in the increase in income tax benefits and to
the increase in total current liabilities.
The Company completed the Stock Repurchase Program, authorized by the Board of
Directors in April 1997, which resulted in a decrease of cash and an increase in
treasury stock.
-12-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
Liquidity, Capital Resources and Financial Condition
Working capital decreased to $424.2 million at June 30, 2000, from
$599.0 million at March 31, 2000. The ratio of current assets to current
liabilities decreased to 2.5 to 1 at June 30, 2000, from 7.8 to 1 at March 31,
2000. The significant change in the Company's current ratio was primarily caused
by the Tentative Settlement and the completion of the Company's Stock Repurchase
Program.
The decrease in working capital was primarily caused by the Company's net loss
along with the net fluctuations in accounts receivable, inventories, accounts
payable and income taxes. The significant fluctuations in these accounts
primarily related to the tax impact of the Tentative Settlement, the sales and
marketing decision regarding generic products and the addition of nifedipine to
the Company's product line. Working capital was also affected by the cash used
for the completion of the Stock Repurchase Program.
For the quarter ended June 30, 2000, the Company entered into tentative
settlement agreements with the FTC, State Attorneys General and certain private
parties with regard to lawsuits filed against the Company relating to raw
material contracts on two of its products. If the settlements are approved, the
Company will pay up to $147.0 million from currently available funds.
During the current quarter, 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 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 matters and will vigorously defend its position. Should the proposed
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.
-13-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
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 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 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. KaiGai filed an appeal and the Company's
motion to dismiss the appeal was granted based upon timely and improper service
of the appeal.
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
-14-
<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
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.
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 appealed. An oral argument concerning the appeal was heard by
the court on July 20, 2000.
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.
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 proposed 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 proposed settlement is subject
to court approval.
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<PAGE>
MYLAN LABORATORIES INC. AND SUBSIDIARIES
In total, the Company has agreed to pay up to $147,000,000 to settle these
actions. The proposed settlements also include three companies indemnified by
the Company - Cambrex Corporation, Profarmaco S.r.l. and Gyma Laboratories, Inc.
Lawsuits not included in these proposed settlements principally involve
institutional purchasers (such as wholesalers).
The Company believes that it has meritorious defenses to the claims in the
remaining matters and will vigorously defend its position. Should the proposed
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 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, 2000.
SIGNATURES
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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
June 30, 2000, to be signed on its behalf by the undersigned thereunto duly
authorized.
Mylan Laboratories Inc.
(Registrant)
DATE 8/14/00 /s/ Milan Puskar
-------------- -------------------------------------
Milan Puskar
Chairman and Chief Executive Officer
DATE 8/14/00 /s/ Donald C. Schilling
-------------- -------------------------------------
Donald C. Schilling
Vice President of Finance and
Chief Financial Officer
(Principal financial officer)
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