-----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, RjxulqWuHjr7gUygskc+Yd2PngIS5DLwiUDv6Wp1oSgm5ljaadZOI5wmNZug46Jw Nha/D2Dycn2H3hQTGUVPbA== 0000069499-99-000036.txt : 19990817 0000069499-99-000036.hdr.sgml : 19990817 ACCESSION NUMBER: 0000069499-99-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MYLAN LABORATORIES INC CENTRAL INDEX KEY: 0000069499 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [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: 99690690 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 MYLAN LABORATORIES INC. FIRST QUARTER 10Q 2000 - ------------------------------------------------------------------------------- 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 June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to __________ Commission file number 1-9114 MYLAN LABORATORIES INC. (Exact Name of registrant as specified in its charter) Pennsylvania 25-1211621 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 130 Seventh Street 1030 Century Building Pittsburgh, Pennsylvania 15222 (Address of principal executive offices) (Zip Code) 412-232-0100 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date Outstanding at Class of Common Stock August 11, 1999 --------------------- --------------- $.50 par value 129,186,122 MYLAN LABORATORIES INC. AND SUBSIDIARIES INDEX Page Number ------ PART I. FINANCIAL INFORMATION ITEM 1: Financial Statements Consolidated Statements of Earnings - Three Months Ended June 30, 1999 and 1998 2 Consolidated Balance Sheets - June 30, 1999 and March 31, 1999 3 Consolidated Statements of Cash Flows - Three Months Ended June 30, 1999 and 1998 4 Notes to Consolidated Financial Statements - Three Months Ended June 30, 1999 5 - 9 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 16 ITEM 3: Quantitative and Qualitative Disclosures About Market Risk 16 PART II. OTHER INFORMATION ITEM 1: Legal Proceedings 16 - 18 ITEM 6: Exhibits and Reports on Form 8-K 18 SIGNATURES 18 MYLAN LABORATORIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (In thousands except per share amounts) UNAUDITED 1999 1998 ---- ---- NET SALES $177,095 $166,718 COST AND EXPENSES: Cost of Sales 80,848 81,564 Research and Development 11,791 14,084 Selling and Administrative 38,114 25,009 -------- -------- 130,753 120,657 EQUITY IN EARNINGS OF SOMERSET (82) 2,350 OTHER INCOME 3,859 4,034 -------- -------- EARNINGS BEFORE INCOME TAXES 50,119 52,445 INCOME TAXES 18,166 18,263 -------- -------- NET EARNINGS $ 31,953 $ 34,182 ======== ======== EARNINGS PER COMMON SHARE: Basic $ .25 $ .28 ======== ======== Diluted $ .25 $ .28 ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 129,136 122,295 ======== ======== Diluted 130,309 124,078 ======== ======== The Company has paid regular quarterly cash dividends of $.04 per share since October 1995. See Notes to Consolidated Financial Statements -2- MYLAN LABORATORIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands) ASSETS June 30, March 31, 1999 1999 Unaudited Audited Current Assets: Cash and cash equivalents $ 201,798 $ 189,849 Marketable securities 87,639 69,872 Accounts receivable - net 151,224 148,896 Inventories: Raw materials 62,057 57,414 Work in process 23,200 20,813 Finished goods 53,021 58,266 ---------- ---------- 138,278 136,493 Deferred income tax benefit 21,721 18,199 Other current assets 15,593 19,650 ---------- ---------- Total Current Assets 616,253 582,959 Property, Plant and Equipment - at cost 250,229 244,793 Less accumulated depreciation 93,863 90,157 ---------- ---------- 156,366 154,636 Investment in and Advances to Somerset 33,925 34,114 Intangible Assets-net of accumulated amortization 335,194 336,003 Other Assets 99,368 98,949 ---------- ---------- Total Assets $1,241,106 $1,206,661 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 19,649 $ 12,142 Current portion of long-term obligations 14,850 16,941 Income taxes payable 16,942 821 Other current liabilities 48,835 61,279 Cash dividend payable 5,182 5,178 ---------- ---------- Total Current Liabilities 105,458 96,361 Long-Term Obligations 24,771 26,827 Deferred Income Tax Liability 22,765 23,568 Shareholders' Equity: Preferred stock, par value $.50 per share, authorized 5,000,000 shares, issued and outstanding - none - - Common stock, par value $.50 per share, authorized 300,000,000 shares, issued 130,039,909 shares at June 30, 1999 and 129,968,514 shares at March 31, 1999 65,020 64,984 Additional paid-in capital 312,912 311,995 Retained earnings 716,790 690,003 Accumulated other comprehensive income 1,572 1,105 ---------- 1,096,294 1,068,087 Less treasury stock - at cost, 888,578 shares at June 30, 1999 and March 31, 1999 8,182 8,182 ---------- ---------- Total Shareholders' Equity 1,088,112 1,059,905 ---------- ---------- Total Liabilities and Shareholders' Equity $1,241,106 $1,206,661 ========== ========== See Notes to Consolidated Financial Statements -3- MYLAN LABORATORIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Amounts in thousands) UNAUDITED 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 31,953 $ 34,182 Adjustments to reconcile net earnings to net cash provided from operating activities: Depreciation and amortization 8,669 5,528 Deferred income tax benefit (4,626) (3,145) Equity in the loss(earnings) of Somerset 82 (2,350) Cash received from Somerset 107 270 Allowances on accounts receivable 10,443 1,042 Other noncash expense(income) 996 (250) Changes in operating assets and liabilities: Accounts receivable (12,771) (1,407) Inventories (1,925) (4,018) Trade accounts payable 7,507 2,860 Income taxes payable 16,171 13,055 Other operating assets and liabilities (11,988) (1,084) -------- -------- Net cash provided from operating activities 44,618 44,683 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (5,436) (5,430) Increase in intangible and other assets (962) (1,516) Proceeds from investment securities 34,302 6,318 Purchase of investment securities (51,351) (5,782) -------- -------- Net cash used in investing activities (23,447) (6,410) CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term obligations (5,014) (15) Cash dividends paid (5,162) (4,888) Proceeds from exercise of stock options 954 1,985 -------- -------- Net cash used in financing activities (9,222) (2,918) Net Increase in Cash and Cash Equivalents 11,949 35,355 Cash and cash equivalents - beginning of period 189,849 103,756 -------- -------- Cash and cash equivalents - end of period $201,798 $139,111 ======== ======== CASH PAID DURING THE PERIOD FOR: Interest $ 189 $ 4 ======== ======== Income Taxes $ 6,620 $ 8,354 ======== ======== See Notes to Consolidated Financial Statements -4- MYLAN LABORATORIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED JUNE 30, 1999 Unaudited A. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of June 30, 1999 together with the results of operations and cash flows for the interim periods ended June 30, 1999 and 1998. The consolidated results of operations for the three months ended June 30, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. B. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's 1999 Annual Report and Report on Form 10-K. C. Diluted earnings per common share is computed by dividing net earnings available to common shareholders by the weighted average common shares outstanding adjusted for the dilutive effect of options granted under the Company's stock option plans. The effect of dilutive stock options on the weighted average common shares outstanding was 1,173,000 and 1,783,000 for the three months ended June 30, 1999 and 1998. D. Total comprehensive income for the three months ended June 30, 1999 and 1998 is as follows: (in thousands) Three Months Ended June 30, ------------------ 1999 1998 ---- ---- Net earnings $31,953 $34,182 Other comprehensive income, net of tax: Unrealized gain(loss) on marketable securities 502 (1,395) Adjustment for gains included in net earnings (35) (97) ------- ------- Comprehensive income $32,420 $32,691 ======= ======= Accumulated other comprehensive income, as reflected on the balance sheet, is comprised solely of the unrealized gain on marketable securities, net of income taxes. -5- MYLAN LABORATORIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED JUNE 30, 1999 Unaudited E. The following table presents the comparative operating results for the Company's two primary operating segments: (in thousands) Three Months Ended June 30, ------------------ 1999 1998 ---- ---- Generic Segment: Net Sales $151,937 $152,804 Segment Profit 59,217 52,143 Branded Segment: Net Sales $ 25,158 $ 13,914 Segment Profit 1,701 2,060 Corporate Expenses $(10,799) $ (1,758) Consolidated: Net Sales $177,095 $166,718 Pretax Earnings $ 50,119 $ 52,445 Segment net sales represents sales to unrelated third parties. Segment profit represents segment gross profit less direct research and development, sales and marketing and administrative expenses. Corporate expenses include legal costs, amortization of goodwill and other corporate administrative expenses offset by other income. F. A subsidiary of the Company is involved in a dispute relating to a license and supply contract for nitroglycerin transdermal patches which both parties claim has been breached by the other. The other company seeks damages in excess of $20 million. The dispute is subject to binding arbitration before a three member panel which commenced in March 1999. Although the Company believes that the claims against it are without merit, there can be no assurance that the Company will prevail in this matter. The Company is currently involved in negotiations with a state agency concerning certain contract pricing matters. Management believes the resolution of this matter will not have a material adverse effect on the Company's operations or its financial position. -6- MYLAN LABORATORIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED JUNE 30, 1999 Unaudited F. (cont.) The Company benefitted from an agreement it had with Genpharm Inc. "Genpharm" relating to the sale of ranitidine HCl tablets by Novopharm Limited "Novopharm" under an agreement between Genpharm and Novopharm. Based on an independent audit, Genpharm initiated a lawsuit against Novopharm to resolve contract interpretation issues and collect any additional funds due. In response to Genpharm's suit, Novopharm filed counterclaims against both Genpharm and the Company claiming damages of up to $60,000,000. The Company believes the counterclaims against Genpharm and the Company are without merit and will vigorously defend its position. In June 1998, the Company filed suit in the Los Angeles Superior Court against VivoRx Inc. "VI", VivoRx Diabetes, Inc. "VDI" and certain directors. The Company's suit alleges the defendants have been guilty of fraud, mismanagement, abuse of authority, unfairness to the Company and other shareholders and have wasted and misapplied the property of VI and VDI. In March 1999, VI, VDI and certain directors filed an answer to and cross-complaint in Los Angeles Superior Court against the Company. The cross-complaint alleges negligence, misrepresentation, fraud, breach of contract, and tortuous inducement of breach of fiduciary duty. The suit seeks unspecified compensatory and punitive damages. With respect to the cross-complaint the Company believes the suit is without merit and intends to vigorously defend its position. As part of the litigation involving VI and related companies, in June 1998, the Company filed suit in the Los Angeles Superior Court against American Bioscience, Inc. "ABI", American Pharmaceutical Partners, Inc. "APP" and certain directors and officers. The Company's suit seeks various equitable remedies, including but not limited to, appointment of a receiver over and dissolution of ABI and APP, injunctive relief to stop the misappropriation of the Company's research funding and equity investment and the misappropriation of assets and personnel. The Los Angeles Superior Court issued a preliminary injunction order which, among other things, prohibits the defendants from transferring or disposing of funds, assets, technology or property without the Company's consent or commingling assets, property, technology or personnel with those of VI. In June 1999, the defendants filed an answer to and cross-complaint against the Company. The cross-complaint alleges violations of California State laws, -7- MYLAN LABORATORIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED JUNE 30, 1999 Unaudited F. (cont.) interference with contractual relations and prospective economic advantage, fraud, slander, libel and other allegations. The cross-complainants seek unspecified compensatory and punitive damages. The Company believes the cross-complaints are without merit and intends to vigorously defend its position. On December 22, 1998, the Federal Trade Commission "FTC" filed suit in U.S. District Court for the District of Columbia "the Court" against the Company. The FTC's complaint alleges the Company engaged in restraint of trade, monopolization, attempted monopolization and conspiracy to monopolize, arising out of certain agreements involving the supply of raw materials used to manufacture two drugs. The FTC also sued in the same case the foreign supplier of the raw materials, the supplier's parent company and its United States distributor. Under the terms of the agreements related to these raw materials, the Company has agreed to indemnify these parties. The Company is a party to other suits involving the Attorneys General from 33 states and more than 20 putative class actions that allege the same conduct alleged in the FTC suit as well as alleged violations of state consumer protection laws. A qui tam action was commenced by a private party in the U.S. District Court for the District of South Carolina purportedly on behalf of the United States alleging violations of the False Claims Act and other statues. The relief sought by the FTC includes an injunction barring the Company from engaging in the challenged conduct, recision of certain agreements and disgorgement in excess of $120,000,000. The states and private parties seek similar relief, treble damages and attorneys' fees. In addition, a class action suit was filed alleging violations of federal securities laws by the Company and certain directors and officers of the Company. Without specifying a dollar amount, the suit seeks compensatory damages. -8- MYLAN LABORATORIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED JUNE 30, 1999 Unaudited F. (cont.) The Company had filed motions to dismiss the FTC complaint, significant portions of the State Attorneys General complaint and the federal securities case. In July 1999, the Court denied the Company's motion to dismiss the FTC complaint. The Company has filed a motion requesting the Court to certify its ruling with respect to the jurisdictional issue for expedited appeal to the U.S. Court of Appeals for the District of Columbia. The Court granted in part and denied in part the Company's motion to dismiss portions of the State Attorneys General complaint. In so doing, the Court limited certain theories of recovery asserted by the states. Some States have filed a motion with the Court requesting that it reconsider certain claims that were dismissed. The Company's motions to dismiss the federal securities case and various private actions remain pending. The Company believes that it has meritorious defenses to the claims in all remaining suits and intends to vigorously defend them. Although the Company believes it has meritorious defenses to the claims, an adverse result in these suits could have a material adverse effect on the Company's financial position and results of its operations. -9- MYLAN LABORATORIES INC. AND SUBSIDIARIES PART 1 - FINANCIAL INFORMATION ------------------------------ ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction - ------------ Net earnings for the quarter ended June 30, 1999 were $31,953,000 or $.25 per share compared to $34,182,000 or $.28 per share for the same quarter a year ago. While sales and gross profits continue to exceed prior year levels, increased customer credits and higher operating expenses resulting from the October 1998 Penederm acquisition, expansion of the Company's branded sales force and continued increases in legal expenses resulted in relatively unchanged operating income on a year-to-year comparison. In addition to lower net earnings, earnings per share was diluted as a result of the issuance of additional shares of common stock to facilitate the Penederm acquisition. The following table presents the comparative operating results for the Company's two primary operating segments: (dollars in millions) Three Months Ended June 30, 1999 1998 % Change ---- ---- -------- Generic Segment: Net Sales $151.9 $152.8 -1% Gross Profit 79.4 76.6 4% Segment Profit 59.2 52.1 14% Branded Segment: Net Sales $ 25.2 $ 13.9 81% Gross Profit 16.8 8.6 95% Segment Profit 1.7 2.1 -19% Corporate Expenses $(10.8) $ (1.8) Consolidated: Net Sales $177.1 $166.7 6% Gross Profit 96.2 85.2 13% Pretax Earnings 50.1 52.4 -4% -10- MYLAN LABORATORIES INC. AND SUBSIDIARIES The Generic Segment includes Mylan Pharmaceuticals Inc. and UDL Laboratories. The Branded Segment includes Bertek Pharmaceuticals Inc. and Penederm Inc. Segment net sales represents sales to unrelated third parties. Segment gross profit represents segment net sales less the corresponding corporate wide acquisition, manufacturing, warehousing and shipping costs associated with such sales. Segment profit represents segment gross profit less direct research and development, sales and marketing and administrative expenses. Corporate expenses include legal costs, amortization of goodwill and other corporate administrative expenses offset by other income. Results of Operations - --------------------- Net Sales and Gross Profit Consolidated gross profit increased by 13% from $85.2 million (51.1% of net sales) last year to $96.2 million (54.3% of net sales) this year. The increase resulted primarily from the Branded Segment as a result of new product additions at Bertek Pharmaceuticals and the addition of Penederm in October 1998. Branded sales, which represented 14% of consolidated sales for the quarter ended June 30, 1999 compared to 8% for the same quarter a year ago, generally have higher gross profit margins as a percentage of sales than does the generic product line taken as a whole. While the Company's branded operations continue to grow, the consolidated operating results remain primarily influenced by and reflective of the highly volatile Generic Segment. Gross profit in the Generic Segment increased slightly in the quarter ended June 30, 1999 to $79.4 million from $76.6 million in the June 30, 1998 quarter, despite slightly lower net sales. The increase was primarily driven by price increases on approximately 25 products and to a lesser extent the elimination of a profit sharing payment on two products and new products introduced since the quarter ended June 30, 1998. These increases were substantially offset by significant price deterioration on the top ten products which accounted for approximately 75% of gross profit in the quarter ended June 30, 1998. Price deterioration ranging from 7% to 56% reduced gross profit in the quarter ended June 30, 1999 by $21.9 million from the prior year same quarter. Total generic volume in the current quarter remained relatively consistent with the quarter ended June 30, 1998 at 1.9 billion units. -11- MYLAN LABORATORIES INC. AND SUBSIDIARIES Research and Development Research and development expenses were $11,791,000 or 7% of net sales for the quarter ended June 30, 1999 compared to $14,084,000 or 8% of net sales for the same period a year ago. The current period includes approximately $2.1 million in charges for dermatology related projects incurred by Penederm and charged to the Branded Segment. All other research and development costs are incurred by Mylan Pharmaceuticals or Mylan Technologies Inc. (patch related projects) and are charged to the Generic Segment. Such costs for the current quarter were substantially lower than a year ago due to the termination of VivoRx funding and the stage of clinical and bio studies. The Company expects research and development expenses to remain at the current quarterly level until certain ongoing projects progress to Phase III clinical stage or new projects are initiated. Additionally, the Company is actively pursuing joint development projects in an effort to broaden its scope of capabilities in bringing to market new innovative products. Such arrangements generally provide for payments by the Company only upon the attainment of certain milestones. While such arrangements help to reduce the Company's financial risk for unsuccessful projects, attainment of milestones may result in fluctuations in quarterly research and development expenses. Selling and Administrative Expenses Selling and administrative expenses were $38,114,000 or 22% of net sales for the quarter ended June 30, 1999 compared to $25,009,000 or 15% of net sales for the same quarter a year ago. Corporate administrative expenses were $14,575,000 this year compared to $8,142,000 last year. The increase is attributable to higher goodwill amortization resulting from the Penederm acquisition and higher legal expenses primarily from the FTC litigation commenced in December 1998. Branded Segment selling and administrative expenses were $13,026,000 this year compared to $6,500,000 last year. Approximately $4 million of the increase results from the inclusion of Penederm in 1999. The remainder relates primarily to the expansion of the Bertek Pharmaceuticals sales force. Generic Segment selling and administrative expenses were $10,513,000 for the quarter ended June 30, 1999, virtually unchanged from the same period a year ago. -12- MYLAN LABORATORIES INC. AND SUBSIDIARIES The Company continually evaluates opportunities to control selling and administrative expenses. However, the Company will continue to defend its positions on various legal matters and is committed to building an appropriate operational infrastructure for the future, including the expansion of its branded sales force. Equity in earnings of Somerset was lower than a year ago primarily as a result of generic competition on Eldepryl(R), the only commercial product sold by the Company's 50% owned and unconsolidated subsidiary, Somerset Pharmaceuticals, Inc. Income Taxes The effective tax rate for the quarter ended June 30, 1999 was 36.2% compared to 34.8% for the same period a year ago. The primary cause of the change relates to nondeductible goodwill amortization resulting from the acquisition of Penederm. The Company expects the tax rate to remain at approximately the current level throughout fiscal year 2000. Liquidity, Capital Resources and Financial Condition - ---------------------------------------------------- Working capital increased from $486,598,000 at March 31, 1999 to $510,795,000 at June 30, 1999. The ratio of current assets to current liabilities was 5.8 to 1 at June 30, 1999 compared to 6.0 to 1 at March 31, 1999. Net cash provided from operating activities was $44,618,000 for the three months ended June 30, 1999 and primarily results from the Company's net earnings and other noncash items. The Company continues to invest a portion of these additional funds in short term government and corporate securities which accounts for the increase in cash used in investing activities. The Company continues to examine opportunities to expand its business through product and company acquisitions. The Company's capital resources, financial condition and results of operations could be materially impacted if the Company were to complete such acquisitions. Although the Company believes it has meritorious defenses to the claims in the FTC and related suits, an adverse result in these suits could have a material adverse effect on the Company's business and financial condition, due to the size of the FTC's disgorgement claim and the threat of treble damages sought by the states, as well as possible damages in the other related suits. The Company expects to incur substantial costs in defending itself in these actions. -13- MYLAN LABORATORIES INC. AND SUBSIDIARIES Year 2000 - --------- The Company has completed a review of its critical information technology "IT" and non-IT operating systems for Year 2000 "Y2K" compliance. Y2K compliance refers to the issue of systems and equipment having date sensitive components being able to recognize the year 2000. On the basis of this review and the processes described below, management believes that the costs of remediation and potential losses related to Y2K issues are unlikely to have a material effect on the Company's financial position, results of operations or cash flows. In assessing potential Y2K issues, the Company has taken or is taking the following steps to address its IT and non-IT operating systems: o Formed a project team across functional departments to complete a review and identify nonconforming systems. o Communicated to employees throughout the Company to increase awareness of issues and activate the identification process. o Identified critical IT and non-IT nonconforming operating systems and developed a plan to bring these systems into compliance. o Established a testing program to ensure that such systems are compliant. o Corresponded with customers, vendors, service suppliers and financial institutions to verify their readiness. o Developed contingency plans where practical in the event of system failures. Because of the continued growth of the Company over the last several years and prior to the formation of the project team, the Company initiated major system conversions to accommodate the physical expansion and increased transaction volume associated with this growth. Many factors were considered during the selection process. While Y2K compliance was one of the factors considered, other factors were equally and significantly more important. Any new systems selected were expected to be and are believed to be Y2K compliant. The Company has recently completed the system conversions for all major operating and financial systems. All such systems have been certified by the vendor to by Y2K compliant. The Company has substantially completed its own testing on these systems and verified their Y2K compliance. Due to the recent independent upgrades and replacements of its computer systems to accommodate its growth, the Company has neither delayed, nor anticipates delaying, any significant information system projects prior to the year 2000. -14- MYLAN LABORATORIES INC. AND SUBSIDIARIES The project team continues to evaluate and update contingency plans. These plans are developed based on correspondence with customers, vendors, raw material suppliers, service suppliers and financial institutions regarding the status of their Y2K readiness and the results of testing performed on the Company's internal systems. Contact is nearly complete with all of the Company's significant business partners. As part of this process and due to the critical nature of the Company's products, the Company has also initiated steps to monitor customers' orders and buying patterns. The Company has taken these steps to ensure the availability of its products to all its customers as the millennium approaches. While the project team continues to develop contingency plans for the more likely scenarios of possible business interruptions, there can be no assurance that the project team will identify and develop successful contingency plans for all of the business interruptions that could possibly occur. Management believes that the Company has acted with appropriate diligence to address potential Y2K issues. The Company is, however, dependent on third parties, such as its customers, vendors, raw material suppliers, service suppliers which include energy, water, communication and transportation and financial institutions, to make their own systems Y2K compliant. If these entities fail to remedy their Y2K issues, the Company could potentially suffer interruptions in its business operations. These interruptions could potentially delay the Company in its manufacturing or distribution of some or all its products for an undeterminable amount of time. In addition, the Company could experience the corruption of data in its own internal information systems. Such corruption could lead to temporary interruptions in certain isolated business operations. These interruptions may or may not lead to an adverse impact on the Company's overall business operations. Forward-Looking Statements - -------------------------- The statements set forth in this Item 2 under Results of Operations concerning the manner in which the Company intends to conduct its future operations and potential trends that may impact future results of operations, are forward-looking statements. The Company may be unable to realize its plans and objectives due to various important factors, including, but not limited to, the factors described under Forward Looking Statements in Item 7 of the Company's Annual Report on Form 10-K for the year ended March 31, 1999 and under Year 2000 in this Item 2. -15- MYLAN LABORATORIES INC. AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------ The information required by Item 3 has been disclosed in Item 7A of the Company's 1999 Annual Report on Form 10-K. There has been no material change in the disclosure regarding market risk. PART II. OTHER INFORMATION -------------------------- ITEM 1. LEGAL PROCEEDINGS - ------------------------- Since the date of the filing of the Company's Annual Report on Form 10-K or the year ended March 31, 1999, there have been no material new legal proceedings involving the Company or any material developments to such proceedings, except as described below. As described in the Form 10-K for the year ended March 31, 1999, in June 1998, the Company filed a suit in Los Angeles Superior Court against VivoRx Inc. "VI" and VivoRx Diabetes, Inc. "VDI", alleging fraud, mismanagement, abuse of authority, waste and misappropriation of property. As part of the litigation involving VI and related companies, in June 1998, the Company filed suit in the Los Angeles Superior Court against American Bioscience, Inc. "ABI", American Pharmaceutical Partners, Inc. "APP" and certain directors and officers. The Company's suit seeks various equitable remedies, including but not limited to, appointment of a receiver over and dissolution of ABI and APP, injunctive relief to stop the misappropriation of the Company's research funding and equity investment and the misappropriation of assets and personnel. The Los Angeles Superior Court issued a preliminary injunction order which, among other things, prohibits the defendants from transferring or disposing of funds, assets, technology or property without the Company's consent or commingling assets, property, technology or personnel with those of VI. In June 1999, the defendants filed an answer to and cross-complaint against the Company. The cross-complaint alleges violations of California State laws, interference with contractual relations and prospective economic advantage, fraud, slander, libel and other allegations. The cross-complainants seek unspecified compensatory and punitive damages. The Company believes the cross-complaints are without merit and intends to vigorously defend its position. -16- MYLAN LABORATORIES INC. AND SUBSIDIARIES As described in the Form 10-K for the year ended March 31, 1999, in December 1998, the Federal Trade Commission "FTC" filed suit in U.S. District Court for the District of Columbia "the Court" against the Company. The FTC's complaint alleges the Company engaged in restraint of trade, monopolization, attempted monopolization and conspiracy to monopolize, arising out of certain agreements involving the supply of raw materials used to manufacture two drugs. The FTC also sued in the same case the foreign supplier of the raw materials, the supplier's parent company and its United States distributor. Under the terms of the agreements related to these raw materials, the Company has agreed to indemnify these parties. The Company is also a party to other suits involving the Attorneys General from 33 states and more than 20 putative class actions that allege the same conduct alleged in the FTC suit as well as alleged violations of state consumer protection laws. A qui tam action was commenced by a private party in the U.S. District Court for the District of South Carolina purportedly on behalf of the United States alleging violations of the False Claims Act and other statues. The relief sought by the FTC includes an injunction barring the Company from engaging in the challenged conduct, recision of certain agreements and disgorgement in excess of $120,000,000. The states and private parties seek similar relief, treble damages and attorneys' fees. In addition, a class action suit was filed alleging violations of federal securities laws by the Company and certain directors and officers of the Company. Without specifying a dollar amount, the suit seeks compensatory damages. The Company had filed motions to dismiss the FTC complaint, significant portions of the State Attorneys General complaint and the federal securities case. In July 1999, the Court denied the Company's motion to dismiss the FTC complaint. The Company has filed a motion requesting the Court to certify its ruling with respect to the jurisdictional issue for expedited appeal to the U.S. Court of Appeals for the District of Columbia. The Court granted in part and denied in part the Company's motion to dismiss portions of the State Attorneys General complaint. In so doing, the Court limited certain theories of recovery asserted by the states. Some States have filed a motion with the Court requesting that it reconsider certain claims that were dismissed. The Company's motions to dismiss the federal securities case, along with various private actions, remain pending. -17- MYLAN LABORATORIES INC. AND SUBSIDIARIES The Company believes that it has meritorious defenses to the claims in all FTC and related suits and intends to vigorously defend them. Although the Company believes it has meritorious defenses to the claims, an adverse result in these suits could have a material adverse effect on the Company's financial position and results of its operations. The Company is involved in various other legal proceedings that are considered normal to its business. While it is not feasible to predict the ultimate outcome of such proceedings, it is the opinion of management that the outcome of these suits will not have a material adverse effect on the Company's operations, financial position, or liquidity. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ---------------------------------------- (a) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K - There were no reports on Form 8-K filed during the three months ended June 30, 1999. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Mylan Laboratories Inc. (Registrant) DATE 08/16/99 /s/ Milan Puskar ------------------------ ------------------------ Milan Puskar Chairman of the Board, Chief Executive Officer and President (Principal executive officer) DATE 08/16/99 /s/ Donald C. Schilling ------------------------ ------------------------- Donald C. Schilling Vice President of Finance (Principal financial officer) -18- EX-27 2 FDS --
5 Financial Data Schedule Mylan Laboratories Inc. and Subsidiaries Article 5 of Regulation S-X The schedule contains summary financial information extracted from the Consolidated Balance Sheet at June 30, 1999 and the Consolidated Statement of Earnings for the three months ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000069499 none 3-MOS MAR-31-2000 JUN-30-1999 201,798 87,639 205,251 54,027 138,278 616,253 250,229 93,863 1,241,106 105,458 24,771 0 0 65,020 1,023,092 1,241,106 177,095 177,095 80,848 80,848 49,905 10,443 174 50,119 18,166 31,953 0 0 0 31,953 .25 .25
-----END PRIVACY-ENHANCED MESSAGE-----