MYLAN LABORATORIES INC - 10-Q Quarterly Report

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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 December 31, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF 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 (State of incorporation)		25-1211621 (I.R.S. Employer Identification No.)

1500 Corporate Drive
Canonsburg, Pennsylvania 15317
(Address of principal executive offices)
(Zip Code)

(724) 514-1800

(Registrant’s telephone number, including area code)

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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	January 29, 2004

$0.50 par value		268,171,822

TABLE OF CONTENTS


	Condensed Consolidated Statements of Earnings
	Condensed Consolidated Balance Sheets
	Condensed Consolidated Statements of Cash Flows
	Notes to Condensed Consolidated Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
Exhibit 10.4.A
Exhibit 10.5.A
Exhibit 10.15.A
Exhibit 10.16.A
Exhibit 10.17.A
Exhibit 10.18
Exhibit 10.19
Exhibit 10.20
Exhibit 10.21
Exhibit 10.22
Exhibit 10.23
Exhibit 10.24
Exhibit 31.1
Exhibit 31.2
Exhibit 32

MYLAN LABORATORIES INC. AND SUBSIDIARIES

FORM 10-Q
For the Quarterly Period Ended
December 31, 2003

INDEX


			Page
			Number
PART I. FINANCIAL INFORMATION
	Item 1: Financial Statements
		Condensed Consolidated Statements of Earnings – Three and Nine Months Ended December 31, 2003 and 2002		3
		Condensed Consolidated Balance Sheets – December 31, 2003 and March 31, 2003		4
		Condensed Consolidated Statements of Cash Flows – Nine Months Ended December 31, 2003 and 2002		5
		Notes to Condensed Consolidated Financial Statements		6
	Item 2: Management’s Discussion and Analysis of Results of Operations and Financial Condition			14
	Item 3: Quantitative and Qualitative Disclosures About Market Risk			28
	Item 4: Controls and Procedures			28
PART II. OTHER INFORMATION
	Item 1: Legal Proceedings			29
	Item 6: Exhibits and Reports on Form 8-K			29
SIGNATURES				31

MYLAN LABORATORIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(unaudited; in thousands, except per share amounts)


			Three Months					Nine Months

Period Ended December 31,			2003			2002		2003			2002

Net revenues			$	349,786		$	320,494	$	1,041,254		$	915,506
Cost of sales				150,602			150,918		456,933			431,596

Gross profit				199,184			169,576		584,321			483,910

Operating expenses:
	Research & development			25,248			22,941		73,933			59,953
	Selling & marketing			18,027			15,173		53,137			48,598
	General & administrative			33,096			28,769		95,016			73,020
	Litigation settlements			(2,676	)		—		(24,345	)		—

		Total operating expenses		73,695			66,883		197,741			181,571

Earnings from operations				125,489			102,693		386,580			302,339
Other income, net				4,194			3,734		14,727			7,335

Earnings before income taxes				129,683			106,427		401,307			309,674
Provision for income taxes				45,065			37,995		141,548			111,164

Net earnings			$	84,618		$	68,432	$	259,759		$	198,510

Earnings per common share:
	Basic		$	0.32		$	0.25	$	0.97		$	0.71

	Diluted		$	0.31		$	0.24	$	0.94		$	0.70

Weighted average common shares:
	Basic			268,560			276,522		269,141			280,661

	Diluted			276,881			279,891		276,478			283,596

Cash dividend declared per common share			$	0.03		$	0.02	$	0.07		$	0.05

See Notes to Condensed Consolidated Financial Statements

MYLAN LABORATORIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited; in thousands)


					December 31,		March 31,
					2003		2003

Assets
	Current assets:
		Cash and cash equivalents			$	130,632	$	258,902
		Marketable securities				569,790		427,904
		Accounts receivable, net				208,647		187,587
		Inventories				311,605		237,777
		Deferred income tax benefit				84,870		104,173
		Other current assets				30,188		11,868

			Total current assets			1,335,732		1,228,211
	Property, plant and equipment, net					250,245		178,330
	Intangible assets, net					139,752		150,256
	Goodwill					102,579		102,581
	Other assets					52,664		85,845

Total assets					$	1,880,972	$	1,745,223

Liabilities and shareholders’ equity
	Liabilities
		Current liabilities:
			Trade accounts payable		$	63,649	$	66,017
			Income taxes payable			69,258		50,600
			Other current liabilities			114,926		149,154

				Total current liabilities		247,833		265,771
		Long-term obligations				19,706		19,943
		Deferred income tax liability				23,048		13,177

	Total liabilities					290,587		298,891

	Shareholders’ equity
		Common stock				151,657		150,452
		Additional paid-in capital				334,985		304,350
		Retained earnings				1,570,656		1,330,933
		Accumulated other comprehensive earnings				3,212		3,718

						2,060,510		1,789,453
		Less:
			Treasury stock at cost			470,125		343,121

	Total shareholders’ equity					1,590,385		1,446,332

Total liabilities and shareholders’ equity					$	1,880,972	$	1,745,223

See Notes to Condensed Consolidated Financial Statements

MYLAN LABORATORIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited; in thousands)


Nine Months Ended December 31,				2003			2002

Cash flows from operating activities:
	Net earnings			$	259,759		$	198,510
		Adjustments to reconcile net earnings to net cash provided from operating activities:
			Depreciation and amortization		32,718			30,130
			Deferred income tax expense (benefit)		25,942			(14,439	)
			Net earnings from equity method investees		2,774			6,725
			Cash received from Somerset		10,000			—
			Changes in estimated sales allowances		(6,773	)		55,608
			Gain on sale of building		(5,000	)		—
			Other non-cash items		(1,643	)		(3,342	)
			Gain from litigation settlements		(24,345	)		—
			Receipts from litigation settlements		16,000			—
			Payments of litigation settlements		(32,630	)		—
		Changes in operating assets and liabilities:
			Accounts receivable		(13,039	)		(82,210	)
			Inventories		(73,828	)		(21,264	)
			Trade accounts payable		(2,368	)		18,384
			Income taxes		34,328			45,118
			Other operating assets and liabilities, net		(12,910	)		20,784

Net cash provided from operating activities					208,985			254,004

Cash flows from investing activities:
		Capital expenditures			(88,979	)		(22,154	)
		Purchase of marketable securities			(581,139	)		(604,284	)
		Proceeds from sale of marketable securities			441,791			621,482
		Liquidation of equity investment			7,269			—
		Proceeds from sale of building			12,000			—
		Other items, net			(1,498	)		(1,870	)

Net cash used in investing activities					(210,556	)		(6,826	)

Cash flows from financing activities:
		Cash dividends paid			(17,980	)		(15,073	)
		Purchase of common stock			(133,088	)		(155,573	)
		Proceeds from exercise of stock options			24,369			16,140

Net cash used in financing activities					(126,699	)		(154,506	)

Net(decrease)increase in cash and cash equivalents					(128,270	)		92,672
Cash and cash equivalents - beginning of period					258,902			160,790

Cash and cash equivalents - end of period				$	130,632		$	253,462

Additional disclosures:
		Cash paid for income taxes		$	81,279		$	80,486

Non-cash financing activities:
		Issuance of restricted stock		$	11,740		$	—

See Notes to Condensed Consolidated Financial Statements

MYLAN LABORATORIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited; in thousands, except share and per share amounts)

1. General

     In the opinion of management, the accompanying unaudited condensed consolidated financial statements (interim financial statements) of Mylan Laboratories Inc. and subsidiaries (“Mylan” or “the Company”) were prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes or other financial information included in audited financial statements were condensed or omitted. The interim financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.

     These interim financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2003.

     Certain prior year amounts were reclassified to conform to the current year presentation. Such reclassifications had no impact on reported net earnings, earnings per share or shareholders’ equity.

     The interim results of operations for the three and nine months ended December 31, 2003, and the interim cash flows for the nine months ended December 31, 2003, are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.

     On October 8, 2003, the Company effected a three-for-two split of its common stock. All share and per share amounts have been adjusted for all periods to reflect the stock split.

2. Revenue Recognition and Accounts Receivable

Revenue is recognized for product sales upon shipment when title and risk of loss transfer to the Company’s customers and when provisions for estimates, including discounts, rebates, price adjustments, returns, chargebacks and other promotional programs are reasonably determinable. Accounts receivable are presented net of allowances relating to these provisions. Such allowances were $276,127 and $283,013 as of December 31, 2003, and March 31, 2003. Other current liabilities include $33,209 and $33,096 at December 31, 2003, and March 31, 2003, for certain rebates and other adjustments that are payable to indirect customers. Included in net revenues for the three months ended December 31, 2003, was $13,243 representing income related to the sale of the United States (“U.S.”) and Canadian rights for sertaconazole nitrate 2% cream.

3. Balance Sheet Components

Selected balance sheet components consist of the following:


		December 31,		March 31,
		2003		2003

Inventories:
	Raw materials	$	126,781	$	107,731
	Work in process		40,043		33,990
	Finished goods		144,781		96,056

		$	311,605	$	237,777

Property, plant and equipment:
	Land and improvements	$	9,704	$	9,089
	Buildings and improvements		131,200		108,156
	Machinery and equipment		239,080		195,300
	Construction in progress		40,261		20,346

			420,245		332,891
Less - accumulated depreciation			170,000		154,561

		$	250,245	$	178,330

Other current liabilities:
	Accrued rebates	$	33,209	$	33,096
	Payroll and employee benefit plan accruals		34,206		18,371
	Royalties and product license fees		14,642		34,465
	Cash dividends payable		8,087		6,031
	Current portion of long-term obligations		1,586		1,586
	Litigation settlements		—		32,630
	Other		23,196		22,975

		$	114,926	$	149,154

4. Earnings per Common Share

Basic earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is comp

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	In the opinion of management, the accompanying unaudited condensed consolidated financial statements (interim financial statements) of Mylan Laboratories Inc. and subsidiaries (“Mylan” or “the Company”) were prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes or other financial information included in audited financial statements were condensed or omitted. The interim financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.

	These interim financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2003. Certain prior year amounts were reclassified to conform to the current year presentation. Such reclassifications had no impact on reported net earnings, earnings per share or shareholders’ equity. The interim results of operations for the three and nine months ended December 31, 2003, and the interim cash flows for the nine months ended December 31, 2003, are not necessarily indicative of the results to be expected for the full fiscal year or any other future period. On October 8, 2003, the Company effected a three-for-two split of its common stock. All share and per share amounts have been adjusted for all periods to reflect the stock split.