-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TAbhVuPmyJwMI4Ozjvb1Doco5YkvKvManKOeLrWkys0Q7aRE7amYj0hAyoWPuVqu I47+6Q8JYzbDcMZpk+Y6eg== /in/edgar/work/0000069499-00-000030/0000069499-00-000030.txt : 20001114 0000069499-00-000030.hdr.sgml : 20001114 ACCESSION NUMBER: 0000069499-00-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MYLAN LABORATORIES INC CENTRAL INDEX KEY: 0000069499 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 251211621 STATE OF INCORPORATION: PA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09114 FILM NUMBER: 758705 BUSINESS ADDRESS: STREET 1: 130 SEVENTH ST STREET 2: 1030 CENTURY BLDG CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122320100 MAIL ADDRESS: STREET 1: 1030 CENTURY BUILDING STREET 2: 130 SEVENTH STREET CITY: PITTSBURGH STATE: PA ZIP: 15222 FORMER COMPANY: FORMER CONFORMED NAME: FRM CORP DATE OF NAME CHANGE: 19711003 10-Q 1 0001.txt MYLAN LABORATORIES INC. SECOND QUARTER 10Q 2001 - ---------------------------------------------------------------------- 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 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
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 ------------ ----------- ---- ---- 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
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MYLAN LABORATORIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands except share information) UNAUDITED ASSETS September 30, March 31, ------------- --------- 2000 2000 ---- ---- 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
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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 ---- ---- 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
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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 ---- ---- ---- ---- 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.
-5- 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- 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- 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- 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- 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- 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- 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- 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 -13- 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 -14- 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, -15- 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 -16- 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. -17- 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) -18- EX-27 2 0002.txt FDS --
5 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 September 30, 2000, and the Consolidated Statement of Earnings for the six months ended September 30, 2000, and is qualified in its entirety by reference to such financial statements. 0000069499 none 6-MOS MAR-31-2001 SEP-30-2000 219,339 35,585 262,411 89,315 198,391 685,468 289,012 114,056 1,334,213 228,914 26,707 0 0 65,261 997,251 1,334,213 374,810 374,810 203,525 203,525 111,054 586 9 (66,531) (23,951) (42,580) 0 0 0 (42,580) (.34) (.33)
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