10-K
Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended March 31, 2003

Commission File No. 1-9114
 


MYLAN LABORATORIES INC.

(Exact name of registrant as specified in its charter)
     
Pennsylvania
(State of Incorporation)
  25-1211621
(IRS Employer Identification No.)

1500 Corporate Drive
Suite 400
Canonsburg, Pennsylvania 15317
(724) 514-1800

(Address, including zip code, and telephone number,
including area code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

     
    Name of Each Exchange
Title of Each Class:   on Which Registered:

 
Common Stock, par value $0.50 per share   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

     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 12 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 [ü]   No [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ü]   No [  ]

     The aggregate market value of voting stock held by non-affiliates of the registrant as of September 30, 2002, the last business day of the Registrant’s most recently completed second fiscal quarter, was $4,089,809,255, based upon the closing price of the common stock on that date, as reported by the New York Stock Exchange. Shares of common stock known to be owned by directors and executive officers of the registrant subject to Section 16 of the Securities Exchange Act of 1934 are not included in the computation. No determination has been made that such persons are “affiliates” within the meaning of Rule 12b-2 under the Exchange Act.

     The number of outstanding shares of common stock of the registrant as of June 9, 2003, was 178,966,033.

DOCUMENTS INCORPORATED BY REFERENCE

     Incorporated by reference into this Form is the Proxy Statement for the 2003 Annual Meeting of Shareholders, Part III, Items 10-13.



 


TABLE OF CONTENTS

PART I
ITEM 1. Business
Overview of Our Business
Generic Segment
Brand Segment
Product Development
Generic Product Development
Brand Product Development
Patents, Trademarks and Licenses
Customers and Marketing
Competition
Product Liability
Raw Materials
Government Regulation
Seasonality
Environment
Employees
Backlog
Risk Factors
Securities Exchange Act Reports
ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
PART II
ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters
ITEM 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
ITEM 13. Certain Relationships and Related Transactions
ITEM 14. Controls and Procedures
PART IV
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
EX-3.2 2ND AMENDED & RESTATED BYLAWS
Consulting & Counseling Agreement
Subsidiaries
Independent Auditors' Consent
906 Certification


Table of Contents

MYLAN LABORATORIES INC.

INDEX TO FORM 10-K
For the Fiscal Year Ended March 31, 2003

             
            Page
           
PART I    
ITEM 1.   Business     3
        Overview of Our Business     3
        Generic Segment     3
        Brand Segment     4
        Product Development     5
        Generic Product Development     6
        Brand Product Development     7
        Patents, Trademarks and Licenses     8
        Customers and Marketing     8
        Competition     9
        Product Liability   10
        Raw Materials   10
        Government Regulation   10
        Seasonality   11
        Environment   11
        Employees   11
        Backlog   12
        Risk Factors   12
        Securities Exchange Act Reports   21
ITEM 2.   Properties   21
ITEM 3.   Legal Proceedings   22
ITEM 4.   Submission of Matters to a Vote of Security Holders   24
PART II    
ITEM 5.   Market for Registrant’s Common Equity and Related Stockholder Matters   25
ITEM 6.   Selected Financial Data   26
ITEM 7.   Management’s Discussion and Analysis of Results of Operations and Financial Condition   27
ITEM 7A.   Quantitative and Qualitative Disclosures About Market Risk   39
ITEM 8.   Financial Statements and Supplementary Data   40
ITEM 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   66
PART III    
ITEM 10.   Directors and Executive Officers of the Registrant   67
ITEM 11.   Executive Compensation   67
ITEM 12.   Security Ownership of Certain Beneficial Owners and Management   67
ITEM 13.   Certain Relationships and Related Transactions   67
ITEM 14.   Controls and Procedures   67
PART IV    
ITEM 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K   67
Signatures       71

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PART I

ITEM 1. Business

     Mylan Laboratories Inc. (“We” “the Company” or “Mylan”) is engaged in developing, licensing, manufacturing, marketing and distributing generic and brand pharmaceutical products. The Company was incorporated in Pennsylvania in 1970. References herein to a fiscal year shall mean the fiscal year ended March 31.

Overview of Our Business

     We conduct business through our generic (“Generic Segment”) and brand (“Brand Segment”) pharmaceutical operating segments. For fiscal 2003, the Generic Segment represented approximately 80% of net revenues, and the Brand Segment represented approximately 20% of net revenues. For fiscal 2002 and 2001, the Generic Segment represented approximately 88% and 80% of net revenues, respectively, and the Brand Segment represented approximately 12% and 20% of net revenues, respectively. The financial information for our operating segments required by this Item is provided in Note 14 to Consolidated Financial Statements under Part II, Item 8, of this Annual Report on Form 10-K.

     Prescription pharmaceutical products in the United States (“US”) are generally marketed as either brand or generic drugs. Brand products are marketed under brand names through marketing programs that are designed to generate physician and consumer loyalty. Brand products generally are patent protected, which provides a period of market exclusivity during which they are sold with little or no competition. Additionally, brand products may benefit from other periods of non-patent, market exclusivity. Exclusivity generally provides brand products with the ability to maintain their profitability for relatively long periods of time. Brand products generally continue to have a significant role in the market after the end of patent protection or other market exclusivities due to physician and consumer loyalties.

     Generic pharmaceutical products are the chemical and therapeutic equivalents of reference brand drugs. A reference brand drug is an approved drug product listed in the US Food and Drug Administration (“FDA”) publication entitled Approved Drug Products with Therapeutic Equivalence Evaluations, popularly known as the “Orange Book.” The Drug Price Competition and Patent Term Restoration Act of 1984 (“Waxman-Hatch Act”) provides that generic drugs may enter the market after the approval of an Abbreviated New Drug Application (“ANDA”) and the expiration, invalidation or circumvention of any patents on the corresponding brand drug, or the end of any other market exclusivity periods related to the brand drug. Generic drugs are bioequivalent to their brand name counterparts. Accordingly, generic products provide a safe, effective and cost efficient alternative to users of these brand products. Growth in the generic pharmaceutical industry has been driven by the increased market acceptance of generic drugs, as well as the number of brand drugs for which patent terms and/or other market exclusivities have expired.

Generic Segment

     We are recognized as a leader in the generic pharmaceutical industry. The Generic Segment consists of two principal business units, Mylan Pharmaceuticals Inc. (“Mylan Pharm”) and UDL Laboratories, Inc. (“UDL”), both of which are wholly owned subsidiaries. Mylan Pharm is our primary generic pharmaceutical development, manufacturing, marketing and distribution division. Mylan Pharm’s net revenues are derived primarily from the sale of solid oral dosage products. UDL packages and markets generic products, either obtained from Mylan Pharm or purchased from third parties, in unit dose formats, for use primarily in hospitals and other

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institutions. The Generic Segment is augmented by transdermal patch products which are developed and manufactured by Mylan Technologies Inc. (“Mylan Tech”), a wholly owned subsidiary.

     We obtain new products primarily through internal product development. Additionally, we license or co-develop products through arrangements with other companies. New generic product approvals are obtained from the FDA through the ANDA process, which requires us to demonstrate bioequivalence to a reference brand product. Generic products are generally introduced to the marketplace at the expiration of patent protection for the brand product or at the end of a period of non-patent market exclusivity. However, if an ANDA applicant is first to file an ANDA containing a certification of invalidity, non-infringement or unenforceability related to a patent listed with respect to a reference drug product, that generic equivalent may be able to be marketed prior to the expiration of patent protection for the brand product. Such certification, commonly referred to as a Paragraph IV certification, results in a period of generic marketing exclusivity. This exclusivity lasts for 180 days during which the FDA cannot grant final approval to any other generic equivalent.

     We have attained a position of leadership in the generic industry through our ability to obtain ANDA approvals, our uncompromising quality control and our devotion to customer service. We have bolstered our traditional solid oral dose products with unit dose, transdermal and extended release products. We have entered into strategic alliances with several pharmaceutical companies through product development, distribution and licensing agreements that provide us with additional opportunities to broaden our product line.

     We manufacture and market approximately 115 generic pharmaceuticals in capsule or tablet form in an aggregate of approximately 285 dosage strengths. We also manufacture and distribute two generic transdermal patch pharmaceutical products in six dosage strengths. In addition, we are marketing 56 generic products in 105 dosage strengths under supply and distribution agreements with other pharmaceutical companies. We have been successful in developing a number of extended release products with approximately nine extended release products in 19 dosage strengths in our portfolio. In fiscal 2003, Mylan held the first or second market position in new and refilled prescriptions dispensed among all pharmaceutical companies in the US with respect to 96 of the 133 generic pharmaceutical products we marketed, excluding unit-dose products.

     Approximately 20%, 22% and 32% of the Generic Segment’s net revenues in fiscal 2003, 2002 and 2001, respectively, were contributed by calcium channel blockers, primarily nifedipine. In 2002, antianxiety products, primarily buspirone, represented approximately 22% of net revenues.

     The future success of our Generic Segment is dependent upon continued increasing market acceptance of generic products as substitutes for existing products. Additionally, we expect that future growth of our Generic Segment will result from an emphasis on the development or acquisition of new products that may attain FDA first to file status, as well as the pursuit of products that are difficult to formulate or for which the active pharmaceutical ingredient is difficult to obtain. In addition, we intend to continue to seek complementary strategic acquisitions.

Brand Segment

     The Brand Segment consists of two principal business units, Bertek Pharmaceuticals Inc. (“Bertek”) and Mylan Tech, both of which are wholly owned subsidiaries. Bertek’s principal therapeutic areas of concentration include neurology, dermatology and cardiology. The Brand Segment includes pharmaceutical products that have patent protection, have achieved brand recognition in the

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marketplace or represent branded generic pharmaceutical products that are responsive to promotional efforts.

     We expect that the growth of the Brand Segment will be driven through internal development of unique and innovative products, product or business acquisitions and licensing arrangements. Additionally, the growth of the Brand Segment will be impacted by our ability, through continued marketing efforts, to increase prescriptions for our current products.

     Nebivolol, which we licensed in fiscal 2001, is a beta blocker for which we intend to pursue a NDA for the indication of hypertension. We believe that we will be able to demonstrate clinically the unique beta 1-receptor blockade selectivity characteristics of this product, which could result in providing certain competitive advantages. As a result of recent actions taken by the United States Patent Office, the nebivolol compound now has patent protection in the US into 2020, which may be extended under the terms of the Waxman-Hatch Act. We anticipate expending significant funds to support the nebivolol clinical development program for hypertension through fiscal 2004.

     The Brand Segment sales force consists of approximately 200 sales representatives and managers who promote our products to primary care physicians, dermatologists, neurologists and pharmacists. We expect our sales force to increase as the Brand Segment introduces new products to its product line.

Product Development

     Research and development efforts are conducted primarily to enable us to manufacture and market FDA approved pharmaceuticals in accordance with FDA regulations. Research and development expenses were $86.7 million, $58.8 million and $64.4 million in fiscal 2003, 2002 and 2001, respectively. Our research and development strategy focuses on the following product development areas:

    development of controlled-release technologies and the application of these technologies to reference products;
 
    development of NDA and ANDA transdermal and polymer film products;
 
    development of drugs technically difficult to formulate or manufacture because of unusual factors that affect their bioequivalence or because of unusually stringent regulatory requirements;
 
    development of drugs that target smaller, specialized or underserved markets;
 
    expansion of our existing solid oral dosage products with respect to additional dosage strengths; and
 
    successful completion of nebivolol clinical trials and the filing of the related NDA.

     All applications for FDA approval must contain information relating to product formulation, raw material suppliers, stability, manufacturing processes, packaging, labeling and quality control. Information to support the bioequivalence of generic drug products or the safety and effectiveness of new drug products for their intended use is also required to be submitted. There are generally two types of applications used for obtaining FDA approval of new products:

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     New Drug Application (“NDA”). An NDA is filed when approval is sought to market a drug with active ingredients that have not been previously approved by the FDA. NDAs are filed for our newly developed brand products and, in certain instances, for a new dosage form of previously approved drugs.

     Abbreviated New Drug Application (“ANDA”). An ANDA is filed when approval is sought to market a generic equivalent of a drug product previously approved under an NDA.

     One requirement for FDA approval of ANDAs and NDAs is that our manufacturing procedures and operations conform to FDA requirements and guidelines, generally referred to as current Good Manufacturing Practices (“cGMP”). The requirements for FDA approval encompass all aspects of the production process, including validation and record keeping, and involve changing and evolving standards.

Generic Product Development

     FDA approval of an ANDA is required before marketing a generic equivalent of a drug approved under an NDA, or for a previously unapproved dosage strength of a drug approved under an ANDA. The ANDA approval process is generally less time-consuming and complex than the NDA approval process. It does not require new preclinical and clinical studies because it relies on the studies establishing safety and efficacy conducted for the drug previously approved through the NDA process. The ANDA process does, however, require one or more bioequivalency studies to show that the ANDA drug is bioequivalent to the previously approved drug. Bioequivalence compares the bioavailability of one drug product with that of another formulation containing the same active ingredient. When established, bioequivalency confirms that the rate of absorption and levels of concentration in the bloodstream of a formulation of the previously approved drug and the generic drug are equivalent. Bioavailability indicates the rate and extent of absorption and levels of concentration of a drug product in the bloodstream needed to produce the same therapeutic effect.

     Supplemental ANDAs are required for approval of various types of changes to an approved application, and these supplements may be under review for six months or more. In addition, certain types of changes may only be approved once new bioequivalency studies are conducted or other requirements are satisfied.

     During fiscal 2003, Mylan received nine application approvals, including seven final ANDA approvals, one tentative ANDA approval, and one NDA approval. In addition, we received an approvable letter for one additional NDA in the dermatological area.

     We have a total of 29 ANDAs pending approval, which represent products with calendar year 2002 brand sales of approximately $20.0 billion. Because generic products have selling prices which are generally lower than their branded counterparts, sales of generic products will not generate the same level of net revenues as sales of an equivalent number of units of branded products.

     Over the next few years, patent protection on a large number of brand drugs is expected to expire. These patent expirations should provide additional generic product opportunities. We intend to concentrate our generic product development activities on brand products with significant US sales in specialized or growing markets, in areas that offer significant opportunities and other competitive advantages. In addition, we intend to continue to focus our development efforts on

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technically difficult-to-formulate products or products that require advanced manufacturing technology. During fiscal 2004, we plan to invest in a significant number of bioequivalency studies for development of generic products or dosage forms.

Brand Product Development

     The process required by the FDA before a previously unapproved pharmaceutical product may be marketed in the US generally involves the following:

    laboratory and preclinical tests;
 
    submission of an investigational new drug application (“IND”), which must become effective before clinical studies may begin;
 
    adequate and well-controlled human clinical studies to establish the safety and efficacy of the proposed product for its intended use;
 
    submission of an NDA containing the results of the preclinical tests and clinical studies establishing the safety and efficacy of the proposed product for its intended use, as well as extensive data addressing such matters as manufacturing and quality assurance; and
 
    FDA approval of an NDA.

     Preclinical tests include laboratory evaluation of the product, its chemistry, formulation and stability, as well as toxicology studies to assess the potential safety and efficacy of the product. The results of these studies are submitted to the FDA as part of the IND. They must demonstrate that the product delivers sufficient quantities of the drug to the bloodstream or intended site of action to produce the desired therapeutic results before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA unless the FDA, during that 30-day period, raises concerns or questions about the conduct of the proposed trials as outlined in the IND. In such cases, the IND sponsor and FDA must resolve any outstanding concerns before clinical trials may begin. In addition, an independent institutional review board must review and approve any clinical study prior to initiation.

     Human clinical studies are typically conducted in three sequential phases, which may overlap:

    Phase I: The drug is initially introduced into a relatively small number of healthy human subjects or patients and is tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion.
 
    Phase II: Studies are performed with a limited patient population to identify possible adverse effects and safety risks, to assess the efficacy of the product for specific targeted diseases or conditions, and to determine dosage tolerance and optimal dosage.
 
    Phase III: When Phase II evaluations demonstrate that a dosage range of the product is effective and has an acceptable safety profile, Phase III trials are undertaken to evaluate further dosage, clinical efficacy and to test further for safety in an expanded patient population at geographically dispersed clinical study sites.

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     The results of the product development, preclinical studies and clinical studies are then submitted to the FDA as part of the NDA. The NDA drug development and approval process could take from three to more than ten years.

     Our brand product development continues to emphasize areas where we have an existing sales and marketing presence, namely dermatology, cardiology and neurology. Products currently in development and/or pending approval include:

                           
Compound   Indication   Phase   Status

 
 
 
Neurology
                       
 
Apomorphine
    “Off” or “Freeze” episodes                  
 
    in late stage Parkinson’s disease     III   Filed - Q4 2003
 
 
MT110
    Pain management       I       *  
 
Dermatology
                       
 
Sertaconazole
    Tinea pedis (athlete’s foot)     III   NDA - Approvable
 
Cardiology
                       
 
Nebivolol
    Hypertension (high blood pressure)     III   Expected Submission - Q4 2004

     *To be determined

     Additionally, we have pending ANDA submissions and products in development that upon FDA approval may require significant promotional efforts and, therefore, may be marketed by the Brand Segment.

     The Company owns a 50% interest in Somerset Pharmaceuticals, Inc. (“Somerset”), a joint venture with Watson Pharmaceuticals, Inc. Currently, Somerset’s only marketed product is Eldepryl®, a drug for the treatment of Parkinson’s disease. In recent years, Somerset has increased its research and development spending to develop additional indications for selegiline, the active ingredient of Eldepryl®, using a transdermal delivery system. Somerset filed an NDA related to a selegiline transdermal delivery system for the treatment of depression in May 2001. In March 2002, the FDA issued a not-approvable letter citing certain deficiencies. Somerset is currently working with the FDA to further support this submission. Any additional requirements by the FDA will determine when, or if, this application may be approved.

Patents, Trademarks and Licenses

     We own or license a number of patents in the US and foreign countries covering certain products, and have also developed brand names and trademarks for other products. Generally, the brand pharmaceutical business relies upon patent protection to ensure market exclusivity for the life of the patent. Following patent expiration, brand products often continue to have market viability based upon the goodwill of the product name, which typically benefits from trademark protection. We consider the overall protection of our patents, trademarks and license rights to be of material value and act to prevent these rights from infringement; however, our business in the Brand Segment is not dependent upon any single patent, trademark or license.

Customers and Marketing

     We market our generic products directly to wholesalers, distributors, retail pharmacy chains, mail order pharmacies and group purchasing organizations within the US. We also market our generic products indirectly to independent pharmacies, managed care organizations, hospitals, nursing homes and pharmacy benefit

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management companies. These customers, called “indirect customers”, purchase our products primarily through our wholesale customers. Approximately 65 employees are engaged in servicing Generic Segment customers.

     Brand pharmaceutical products are marketed directly to health care professionals in order to increase brand awareness and prescriptions written for the product. However, these products are generally sold through the same channels and customers as generic products. Approximately 250 employees are engaged in marketing and selling the Brand Segment’s products, as well as servicing Brand Segment customers.

     Consistent with industry practice, we have a return policy that allows our customers to return product within a specified period of the expiration date. In addition to this policy, we provide credit to certain customers, at our discretion, for decreases that we make to the selling prices of our products that these customers have remaining in their inventory at the time of the price reduction. We also have arrangements with certain indirect customers to establish contract pricing for certain products. The indirect customer then independently selects a wholesaler from which to actually purchase the products at these contracted prices. We provide a chargeback credit to our wholesale customers for the difference between our invoice price to the wholesaler and the indirect customer’s contract price.

     AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson Corporation represented approximately 20%, 16% and 14%, respectively, of net revenues in fiscal 2003. These three customers represented approximately 14%, 15% and 14%, respectively, of net revenues in fiscal 2002. Two of our customers represented approximately 14% and 11% of net revenues in fiscal 2001.

Competition

     The pharmaceutical industry is very competitive. Our competitors vary depending upon therapeutic and product categories. Primary competitors include the major manufacturers of brand name and generic pharmaceuticals.

     The primary means of competition are innovation and development, timely FDA approval, manufacturing capabilities, product quality, marketing, customer service, reputation and price. To compete effectively on the basis of price and remain profitable, a generic drug manufacturer must manufacture its products in a cost effective manner. Our competitors include other generic manufacturers, as well as brand companies that license their products to generic manufacturers prior to or as relevant patents expire. No further regulatory approvals are required for a brand manufacturer to sell its pharmaceutical products directly or through a third party to the generic market, nor do such manufacturers face any other significant barriers to entry into such market.

     The pharmaceutical market is undergoing, and is expected to continue to undergo, rapid and significant technological changes, and we expect competition to intensify as technological advances are made. We intend to compete in this marketplace by developing or licensing brand pharmaceutical products that are either patented or proprietary and that are primarily for indications having relatively large patient populations or that have limited or inadequate treatments available and by developing therapeutic equivalents to brand products that offer unique marketing opportunities.

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Product Liability

     Product liability litigation represents a continuing risk to firms in the pharmaceutical industry. We strive to minimize such risks by adherence to stringent quality control procedures. We maintain insurance to protect against and manage the risks involved in conducting our business. The cost to obtain insurance coverage for such risks has significantly increased due to the environment within the commercial insurance industry. The recent renewals of our policies resulted in increased deductibles and changes in the levels of coverage. The Company has evaluated and will continue to evaluate the types and levels of insurance coverage purchased. In response to the rising cost of commercial insurance, during fiscal 2003, Mylan began to use a wholly owned insurance subsidiary to insure the first $10.0 million of its product liability risk. The Company maintains commercial insurance in excess of these limits.

Raw Materials

     The active pharmaceutical ingredients and other materials and supplies used in our pharmaceutical manufacturing operations are generally available and purchased from many different foreign and domestic suppliers. However, in some cases, the raw materials used to manufacture pharmaceutical products are only available from a single FDA-approved supplier. Even when more than one supplier exists, we may elect to list, and in some cases have only listed, one supplier in our applications with the FDA. Any change in a supplier not previously approved must then be submitted through a formal approval process with the FDA.

Government Regulation

     All pharmaceutical manufacturers are subject to extensive, complex and evolving regulation by the federal government, principally the FDA, and to a lesser extent, state government agencies. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act, the Waxman-Hatch Act, the Generic Drug Enforcement Act and other federal government statutes and regulations govern or influence the testing, manufacturing, packaging, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of products.

     FDA approval is required before any new drug can be marketed. The FDA requires extensive testing of new pharmaceutical products to demonstrate that such products are both safe and effective in treating the indications for which approval is sought. Testing in humans may not be commenced until after an IND exemption is granted by the FDA. An NDA or supplemental NDA must be submitted to the FDA both for new drugs that have not been previously approved by the FDA and for new combinations of, new indications of, or new delivery methods for previously approved drugs.

     FDA approval of an ANDA is required before a generic equivalent of an existing or referenced brand drug can be marketed. The ANDA process is abbreviated in that the FDA waives the requirement of conducting complete preclinical and clinical studies and, instead, relies on bioequivalence studies.

     A sponsor of a NDA is required to identify in its application any patent that claims the drug or a use of the drug, which is the subject of the application. Upon NDA approval, the FDA lists the approved drug product and these patents in the Orange Book. Any applicant who files an ANDA seeking approval of a generic equivalent version of a referenced brand drug before expiration of the referenced patent(s) must certify to the FDA that the listed patent is either not infringed or that it is invalid or unenforceable (a Paragraph IV certification). If the holder of the NDA sues claiming infringement, the FDA may not approve the ANDA application until a court decision favorable to the ANDA applicant has been

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rendered or the expiration of a 30-month litigation period.

     In addition to patent exclusivity, the holder of the NDA for the listed drug may be entitled to a period of non-patent, market exclusivity, during which the FDA cannot approve an application for a bioequivalent product. If the listed drug is a new chemical entity, the FDA may not accept an ANDA for a bioequivalent product for up to five years following approval of the NDA for the new chemical entity. If it is not a new chemical entity but the holder of the NDA conducted clinical trials essential to approval of the NDA or a supplement thereto, the FDA may not approve an ANDA for a bioequivalent product before expiration of three years. Certain other periods of exclusivity may be available if the listed drug is indicated for treatment of a rare disease or is studied for pediatric indications.

     Facilities, procedures, operations and/or testing of products are subject to periodic inspection by the FDA, the Drug Enforcement Administration and other authorities. In addition, the FDA conducts pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in compliance with cGMP and other FDA regulations. Certain suppliers are subject to similar regulations and periodic inspections.

     Medicaid, Medicare and other reimbursement legislation or programs govern reimbursement levels and require all pharmaceutical manufacturers to rebate a percentage of their revenues arising from Medicaid-reimbursed drug sales to individual states. The required rebate is currently 11% of the average manufacturer’s price for sales of Medicaid-reimbursed products marketed under ANDAs. Sales of Medicaid-reimbursed products marketed under NDAs require manufacturers to rebate the greater of approximately 15% of the average manufacturer’s price or the difference between the average net sales price and the lowest net sales price during a specific period. We believe that federal or state governments may continue to enact measures aimed at reducing the cost of drugs to the public. For example, the extension of prescription drug coverage to all Medicare recipients has gained significant political support.

Seasonality

     Our business is not materially affected by seasonal factors.

Environment

     We believe that our operations comply in all material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not expected to have, a material adverse effect on our earnings or competitive position.

Employees

     We employ approximately 2,450 persons, approximately 1,260 of whom serve in clerical, sales and management capacities. The remaining employees are engaged in production and maintenance activities.

     The production and maintenance employees at our manufacturing facility in Morgantown, West Virginia, are represented by the Paper, Allied-Industrial Chemical and Energy Workers International Union (P.A.C.E.)(AFL-CIO) and its Local Union 5-957-AFL-CIO under a contract that expires on April 15, 2007.

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Backlog

     At March 31, 2003, open orders were approximately $50.7 million as compared to $43.9 million at March 31, 2002, and $22.1 million at March 31, 2001. Because of the relatively short lead time required in filling orders for our products, we do not believe these backlog amounts bear a significant relationship to sales or income for any full 12-month period.

Risk Factors

     The following risk factors could have a material adverse effect on our business, financial position or results of operations. These risk factors may not include all of the important factors that could affect our business or our industry or that could cause our future financial results to differ materially from historic or expected results or cause the market price of our common stock to fluctuate or decline.

OUR FUTURE REVENUE GROWTH AND PROFITABILITY ARE DEPENDENT UPON OUR ABILITY TO DEVELOP AND LICENSE, OR OTHERWISE ACQUIRE, AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS IN RELATION TO OUR COMPETITORS’ PRODUCT INTRODUCTIONS. OUR FAILURE TO DO SO SUCCESSFULLY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     Our future revenues and profitability will depend, to a significant extent, upon our ability to successfully develop and license, or otherwise acquire, and commercialize new generic and patent or statutorily protected (usually brand) pharmaceutical products in a timely manner. Product development is inherently risky, especially for new drugs for which safety and efficacy have not been established, and the market is not yet proven. The development and commercialization process, particularly with regard to new drugs, also requires substantial time, effort and financial resources. We may not be successful in commercializing any of the products that we are developing on a timely basis, if at all, which could adversely affect our product introduction plans, financial position and results of operations and could cause the market value of our common stock to decline.

     FDA approval is required before any drug product, including generic drug products, can be marketed. The process of obtaining FDA approval to manufacture and market new and generic pharmaceutical products is rigorous, time-consuming, costly and largely unpredictable. We may be unable to obtain requisite FDA approvals on a timely basis for new generic or brand products that we may develop, license or otherwise acquire. The timing and cost of obtaining FDA approvals could adversely affect our product introduction plans, financial position and results of operations and could cause the market value of our common stock to decline.

     The ANDA process often results in the FDA granting final approval to a number of ANDAs for a given product at the time a patent claim for a corresponding brand product or other market exclusivity expires. This often forces us to face immediate competition when we introduce a generic product into the market. Additionally, ANDA approvals often continue to be granted for a given product subsequent to the initial launch of the generic product. These circumstances generally result in significantly lower prices, as well as reduced margins, for generic products compared to brand products. New generic market entrants generally cause continued price and margin erosion over the generic product life cycle.

     The Waxman-Hatch Act provides for a period of 180 days of generic marketing exclusivity for each ANDA applicant that is first to file an ANDA containing a certification of invalidity, non-infringement or unenforceability related to a

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patent listed with respect to a reference drug product, commonly referred to as a Paragraph IV certification. During this exclusivity period, the FDA cannot grant final approval to any other generic equivalent. If an ANDA containing a Paragraph IV certification is successful, it generally results in higher market share, net revenues and gross margin for that applicant. Even if we obtain FDA approval for our generic drug products, if we are not the first ANDA applicant to challenge a listed patent for such a product, we may lose significant advantages to a competitor who filed its ANDA containing such a challenge. Such a situation could have a material adverse effect on our ability to market that product profitably, our financial position and results of operations, and the market value of our common stock could decline.

OUR APPROVED PRODUCTS MAY NOT ACHIEVE EXPECTED LEVELS OF MARKET ACCEPTANCE, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR PROFITABILITY, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DELCINE.

     Even if we are able to obtain regulatory approvals for our new pharmaceutical products, generic or brand, the success of those products is dependent upon market acceptance. Levels of market acceptance for our new products could be impacted by several factors, including:

    the availability of alternative products from our competitors;
 
    the price of our products relative to that of our competitors;
 
    the timing of our market entry;
 
    the ability of our customers to market our products effectively to the retail level; and
 
    the acceptance of our products by government and private formularies.

     Some of these factors are not within our control. Our new products may not achieve expected levels of market acceptance. Additionally, continuing studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others. Such studies, which increasingly employ sophisticated methods and techniques, can call into question the utilization, safety and efficacy of previously marketed products. In some cases, these studies have resulted, and may in the future result, in the discontinuance of product marketing. These situations, should they occur, could have a material adverse effect on our profitability, financial position and results of operations, and the market value of our common stock could decline.

A RELATIVELY SMALL GROUP OF PRODUCTS MAY REPRESENT A SIGNIFICANT PORTION OF OUR NET REVENUES OR NET EARNINGS FROM TIME TO TIME. IF THE VOLUME OR PRICING OF ANY OF THESE PRODUCTS DECLINES, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     Sales of a limited number of our products often represent a significant portion of our net revenues and net earnings. If the volume or pricing of our largest selling products decline in the future, our business, financial position and results of operations could be materially adversely affected, and the market value of our common stock could decline.

WE FACE VIGOROUS COMPETITION FROM OTHER PHARMACEUTICAL MANUFACTURERS THAT THREATENS THE COMMERCIAL ACCEPTANCE AND PRICING OF OUR PRODUCTS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     Our competitors may be able to develop products and processes competitive with or superior to our own for many reasons, including that they may have:

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    proprietary processes or delivery systems;
 
    larger research and development and marketing staffs;
 
    larger production capabilities in a particular therapeutic area;
 
    more experience in preclinical testing and human clinical trials;
 
    more products; or
 
    more experience in developing new drugs and financial resources, particularly with regard to brand manufacturers.

     Each of these factors and others could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

BECAUSE THE PHARMACEUTICAL INDUSTRY IS HEAVILY REGULATED, WE FACE SIGNIFICANT COSTS AND UNCERTAINTIES ASSOCIATED WITH OUR EFFORTS TO COMPLY WITH APPLICABLE REGULATIONS. SHOULD WE FAIL TO COMPLY WE COULD EXPERIENCE MATERIAL ADVERSE EFFECTS ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK COULD DECLINE.

     The pharmaceutical industry is subject to regulation by various federal and state governmental authorities. For instance, we must comply with FDA requirements with respect to the manufacture, labeling, sale, distribution, marketing, advertising, promotion and development of pharmaceutical products. Failure to comply with FDA and other governmental regulations can result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production and/or distribution, suspension of FDA’s review of NDAs or ANDAs, enforcement actions, injunctions and criminal prosecution. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Although we have internal regulatory compliance programs and policies and have had a favorable compliance history, there is no guarantee that these programs, as currently designed, will meet regulatory agency standards in the future. Additionally, despite our efforts at compliance, there is no guarantee that we may not be deemed to be deficient in some manner in the future. If we were deemed to be deficient in any significant way, it could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

     In addition to the new drug approval process, the FDA also regulates the facilities and operational procedures that we use to manufacture our products. We must register our facilities with the FDA. All products manufactured in those facilities must be made in a manner consistent with current Good Manufacturing Practices (“cGMP”). Compliance with cGMP regulations requires substantial expenditures of time, money and effort in such areas as production and quality control to ensure full technical compliance. Failure to comply with cGMP regulations could result in an enforcement action brought by the FDA, which periodically inspects our manufacturing facilities for compliance, which could include withholding the approval of NDAs, ANDAs or other product applications of a facility if deficiencies are found at that facility. FDA approval to manufacture a drug is site-specific. If the FDA would cause one of our manufacturing facilities to cease or limit production, our business could be adversely affected. Delay and cost in obtaining FDA approval to manufacture at a different facility also could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

     We are subject, as are generally all manufacturers, to various federal, state and local laws of general applicability, such as laws regulating working conditions, as well as environmental protection laws and regulations, including those governing the discharge of materials into the environment. Although we have not incurred significant costs associated with complying with such environmental

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provisions in the past, if changes to such environmental provisions are made in the future that require significant changes in our operations or if we engage in the development and manufacturing of new products requiring new or different environmental controls, we may be required to expend significant funds. Such changes could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE EXPEND A SIGNIFICANT AMOUNT OF RESOURCES ON RESEARCH AND DEVELOPMENT EFFORTS THAT MAY NOT LEAD TO SUCCESSFUL PRODUCT INTRODUCTIONS. FAILURE TO SUCCESSFULLY INTRODUCE PRODUCTS INTO THE MARKET COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK COULD DECLINE.

     Much of our development effort is focused on technically difficult-to-formulate products and/or products that require advanced manufacturing technology. Research and development efforts are conducted primarily to enable us to manufacture and market FDA-approved pharmaceuticals in accordance with FDA regulations. Typically, research expenses related to the development of innovative compounds and the filing of NDAs are significantly greater than those expenses associated with ANDAs. As we continue to develop new products, our research expenses will likely increase. Because of the inherent risk associated with research and development efforts in our industry, particularly with respect to new drugs, our research and development expenditures may not result in the successful introduction of FDA approved new pharmaceutical products. Also, after submission, the FDA may request that additional studies be conducted, and as a result, we may be unable to reasonably determine the total research and development costs to develop a particular product. Finally, we cannot be certain that any investment made in developing products will be recovered, even if we are successful in commercialization. To the extent that we expend significant resources on research and development efforts and are not able, ultimately, to introduce successful new products as a result of those efforts, our business, financial position and results of operations may be materially adversely affected, and the market value of our common stock could decline.

A SIGNIFICANT PORTION OF OUR NET REVENUES ARE DERIVED FROM SALES TO A LIMITED NUMBER OF CUSTOMERS. ANY SIGNIFICANT REDUCTION OF BUSINESS WITH ANY OF THESE CUSTOMERS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK COULD DECLINE.

     A significant portion of our net revenues are derived from sales to a limited number of customers. As such, a reduction in or loss of business with one customer, or if one customer were to experience difficulty in paying us on a timely basis, our business, financial position and results of operations could be materially adversely affected, and the market value of our common stock could decline.

THE USE OF LEGAL, REGULATORY AND LEGISLATIVE STRATEGIES BY COMPETITORS, BOTH BRAND AND GENERIC, MAY INCREASE OUR COSTS ASSOCIATED WITH THE INTRODUCTION OR MARKETING OF OUR GENERIC PRODUCTS OR COULD DELAY OR PREVENT SUCH INTRODUCTION. THESE FACTORS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     Our competitors often pursue strategies to prevent or delay competition from generic alternatives to brand products. These strategies include, but are not limited to:

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    seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate bioequivalence;
 
    initiating legislative efforts in various states to limit the substitution of generic versions of brand pharmaceuticals;
 
    filing suits for patent infringement that automatically delay FDA approval of many generic products;
 
    introducing “second-generation” products prior to the expiration of market exclusivity for the reference product, which often materially reduces the demand for the first generic product for which we seek FDA approval;
 
    obtaining extensions of market exclusivity by conducting trials of brand drugs in pediatric populations as discussed below;
 
    persuading the FDA to withdraw the approval of brand name drugs for which the patents are about to expire, thus allowing the brand name company to obtain new patented products serving as substitutes for the products withdrawn;
 
    seeking to obtain new patents on drugs for which patent protection is about to expire; and
 
    filing a citizen petition with the FDA, which often results in delays of our approvals.

     The Food and Drug Modernization Act of 1997 includes a pediatric exclusivity provision that may provide an additional six months of market exclusivity for indications of new or currently marketed drugs if certain agreed-upon pediatric studies are completed by the applicant. Brand companies are utilizing this provision to extend periods of market exclusivity.

     Some companies have lobbied Congress for amendments to the Waxman-Hatch legislation that would give them additional advantages over generic competitors. For example, although the term of a company’s drug patent can be extended to reflect a portion of the time an NDA is under regulatory review, some companies have proposed extending the patent term by a full year for each year spent in clinical trials, rather than the one-half year that is currently permitted. If proposals like these were to become effective, our entry into the market and our ability to generate revenues associated with new products may be delayed, which could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE DEPEND ON THIRD-PARTY SUPPLIERS AND DISTRIBUTORS FOR THE RAW MATERIALS, PARTICULARLY THE CHEMICAL COMPOUND(S) COMPRISING THE ACTIVE PHRARMACEUTICAL INGREDIENT, THAT WE USE TO MANUFACTURE OUR PRODUCTS, AS WELL AS CERTAIN FINISHED GOODS. A PROLONGED INTERRUPTION IN THE SUPPLY OF SUCH PRODUCTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK COULD DECLINE.

     The active ingredient(s) i.e. the chemical compound(s), which produces the desired therapeutic effect, and other materials and supplies that we use in our pharmaceutical manufacturing operations, as well as certain finished products, are generally available and purchased from many different foreign and domestic suppliers. Additionally, we maintain safety stocks in our raw materials inventory, and in certain cases where we have listed only one supplier in our applications with the FDA, have received FDA approval to use alternative suppliers should the need arise. However, there is no guarantee that we will always have timely and sufficient access to a critical raw material or finished product. A prolonged interruption in the supply of a single-sourced active ingredient or finished product could cause our financial position and results of operations to be materially adversely affected, and the market value of our common stock could decline. In addition, our manufacturing capabilities could be impacted by quality

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deficiencies in the products which our suppliers provide, which could have a material adverse effect on our business, financial position and results of operations, and the market value of our common stock could decline.

WE USE SEVERAL MANUFACTURING FACILITIES TO MANUFACTURE OUR PRODUCTS. HOWEVER, A SIGNIFICANT NUMBER OF OUR GENERIC PRODUCTS ARE PRODUCED AT ONE LOCATION. PRODUCTION AT THIS FACILITY COULD BE INTERRUPTED, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     Although we have other facilities, a significant amount of our generic products are produced at our largest manufacturing facility. A significant disruption at that facility, even on a short-term basis, could impair our ability to produce and ship products to the market on a timely basis, which could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE MAY EXPERIENCE DECLINES IN THE SALES VOLUME AND PRICES OF OUR PRODUCTS AS THE RESULT OF THE CONTINUING TREND TOWARD CONSOLIDATION OF CERTAIN CUSTOMER GROUPS, SUCH AS THE WHOLESALE DRUG DISTRIBUTION AND RETAIL PHARMACY INDUSTRIES, AS WELL AS THE EMERGENCE OF LARGE BUYING GROUPS. THE RESULT OF SUCH DEVELOPMENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     A significant amount of our sales are made to a relatively small number of drug wholesalers and retail drug chains. These customers represent an essential part of the distribution chain of generic pharmaceutical products. Drug wholesalers and retail drug chains have undergone, and are continuing to undergo, significant consolidation. This consolidation may result in these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures facing our business. Additionally, the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions potentially enable those groups to attempt to extract price discounts on our products. The result of these developments may have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL AND OTHER PROPRIETARY PROPERTY IN AN EFFECTIVE MANNER, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     Our patents on our brand products may not prevent other companies from developing functionally equivalent products or from challenging the validity or enforceability of our patents. If our patents are found to be non-infringed, invalid or not enforceable, we could experience an adverse effect on our ability to commercially promote patented products. We could be required to enforce our patent or other intellectual property rights through litigation, which can be protracted and involve significant expense and an inherently uncertain outcome. Any negative outcome could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

OUR COMPETITORS MAY ALLEGE THAT WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, FORCING US TO EXPEND SUBSTANTIAL RESOURCES IN RESULTING LITIGATION, THE OUTCOME OF WHICH IS UNCERTAIN. ANY UNFAVORABLE OUTCOME OF SUCH LITIGATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

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     Companies that produce brand pharmaceutical products routinely bring litigation against ANDA applicants who seek FDA approval to manufacture and market generic forms of their branded products. These companies allege patent infringement or other violations of intellectual property rights as the basis for filing suit against an ANDA applicant. Litigation often involves significant expense or can delay or prevent introduction of our generic products.

     There may also be situations where the Company uses its business judgment and decides to market and sell products, notwithstanding the fact that allegations of patent infringement(s) by our competitors have not been finally resolved by the courts. The risk involved in doing so can be substantial because the remedies available to the owner of a patent for infringement include, among other things, damages measured by the profits lost by the patent owner and not by the profits earned by the infringer. In the case of a willful infringement, the definition of which is unclear, such damages may be trebled. Moreover, because of the discount pricing typically involved with bioequivalent products, patented brand products generally realize a substantially higher profit margin than bioequivalent products. An adverse decision in a case such as this or in other similar litigation could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE MAY EXPERIENCE REDUCTIONS IN THE LEVELS OF REIMBURSEMENT FOR PHARMACEUTICAL PRODUCTS BY GOVERNMENTAL AUTHORITIES, HMOS OR OTHER THIRD-PARTY PAYERS. ANY SUCH REDUCTIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     Various governmental authorities and private health insurers and other organizations, such as HMOs, provide reimbursement to consumers for the cost of certain pharmaceutical products. Demand for our products depends in part on the extent to which such reimbursement is available. Third-party payers increasingly challenge the pricing of pharmaceutical products. This trend and other trends toward the growth of HMOs, managed healthcare and legislative healthcare reform create significant uncertainties regarding the future levels of reimbursement for pharmaceutical products. Further, any reimbursement may be reduced in the future, perhaps to the point that market demand for our products declines. Such a decline could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

LEGISLATIVE OR REGULATORY PROGRAMS THAT MAY INFLUENCE PRICES OF PRESCRIPTION DRUGS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     Current or future federal or state laws and regulations may influence the prices of drugs and could therefore adversely affect the prices that we receive for our products. Programs in existence in certain states seek to set prices of all drugs sold within those states through the regulation and administration of the sale of prescription drugs to Medicaid and other recipients. Expansion of these programs could adversely affect the price we receive for our products and could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE ARE INVOLVED IN VARIOUS LEGAL PROCEEDINGS AND MAY EXPERIENCE UNFAVORABLE OUTCOMES OF SUCH PROCEEDINGS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

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     We are involved in various legal proceedings including, but not limited to, product liability, breach of contract and claims involving Medicaid and Medicare reimbursements, some of which are described in our periodic reports and involve claims for substantial amounts of money or for other relief. If any of these legal proceedings were to result in an adverse outcome, the impact could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

     With respect to product liability, the Company maintains commercial insurance to protect against and manage the risks involved in conducting its business. Although we carry insurance, we believe that no reasonable amount of insurance can fully protect against all such risks because of the potential liability inherent in the business of producing pharmaceuticals for human consumption. To the extent that a loss occurs, depending on the nature of the loss and the level of insurance coverage maintained, it could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE ENTER INTO VARIOUS AGREEMENTS IN THE NORMAL COURSE OF BUSINESS WHICH PERIODICALLY INCORPORATE PROVISIONS WHEREBY WE INDEMNIFY THE OTHER PARTY TO THE AGREEMENT. IN THE EVENT THAT WE WOULD HAVE TO PERFORM UNDER THESE INDEMNIFICATION PROVISIONS, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     In the normal course of business, we periodically enter into employment, legal settlement, and other agreements which incorporate indemnification provisions. We maintain insurance coverage which we believe will effectively mitigate our obligations under these indemnification provisions. However, should our obligation under an indemnification provision exceed our coverage or should coverage be denied, it could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

OUR ACQUISITION STRATEGIES INVOLVE A NUMBER OF INHERENT RISKS. THESE RISKS COULD CAUSE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE A DECLINE IN THE MARKET VALUE OF OUR COMMON STOCK.

     We continually seek to expand our product line through complementary or strategic acquisitions of other companies, products and assets, through joint ventures, licensing agreements or other arrangements. Acquisitions, joint ventures and other business combinations involve various inherent risks, such as assessing accurately the values, strengths, weaknesses, contingent and other liabilities, regulatory compliance and potential profitability of acquisition or other transaction candidates. Other inherent risks include the potential loss of key personnel of an acquired business, our inability to achieve identified financial and operating synergies anticipated to result from an acquisition or other transaction and unanticipated changes in business and economic conditions affecting an acquisition or other transaction. International acquisitions, and other transactions, could also be affected by export controls, exchange rate fluctuations, domestic and foreign political conditions and the deterioration in domestic and foreign economic conditions.

     We may be unable to realize synergies or other benefits expected to result from acquisitions, joint ventures and other transactions or investments we may undertake, or be unable to generate additional revenue to offset any unanticipated inability to realize these expected synergies or benefits. Realization of the anticipated benefits of acquisitions or other transactions could take longer than expected, and implementation difficulties, market factors and the deterioration in

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domestic and global economic conditions could alter the anticipated benefits of any such transactions. These factors could cause a material adverse effect on our business, financial position and results of operations and could cause a decline in the market value of our common stock.

OUR FUTURE SUCCESS IS HIGHLY DEPENDENT ON OUR CONTINUED ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL. ANY FAILURE TO ATTRACT AND RETAIN KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     Because our success is largely dependent on the scientific nature of our business, it is imperative that we attract and retain qualified personnel in order to develop new products and compete effectively. If we fail to attract and retain key scientific, technical or management personnel, our business could be affected adversely. Additionally, while we have employment agreements with certain key employees in place, their employment for the duration of the agreement is not guaranteed. If we are unsuccessful in retaining all of our key employees, it could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE MAY MAINTAIN INVESTMENTS IN MARKETABLE DEBT AND/OR EQUITY SECURITIES, OTHER INVESTMENTS, BOTH PUBLICLY AND PRIVATELY HELD, AND MAY MAINTAIN DEPOSIT BALANCES AT FINANCIAL INSTITUTIONS IN EXCESS OF FEDERALLY INSURED AMOUNTS. WE MAY EXPERIENCE DECLINES IN THE MARKET VALUE OF THESE SECURITIES, AND/OR LOSSES OF PRINCIPAL INVESTED OR AN UNINSURED LOSS OF DEPOSITED FUNDS. SIGNIFICANT DECLINES OR LOSSES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     To the extent that we maintain investments in marketable debt securities, marketable equity securities, and/or investments in other securities, both publicly and privately held, we are subject to many risks. Such risks include market risk associated with declines in the market values of such securities, interest rate risk and the risk of default. As a result of such risks, we could experience a substantial loss, or may even lose all, of the basis or principal we have invested in such securities. Any such declines or losses could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

THERE ARE INHERENT UNCERTAINTIES INVOLVED IN ESTIMATES, JUDGMENTS AND ASSUMPTIONS USED IN THE PREPARATION OF FINANCIAL STATEMENTS IN ACCORDANCE WITH GAAP. ANY CHANGES IN ESTIMATES, JUDGMENTS AND ASSUMPTIONS USED COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

     The consolidated and condensed consolidated financial statements included in the periodic reports we file with the Securities and Exchange Commission (“SEC”) are prepared in accordance with accounting principles generally accepted in the United States of America, (“GAAP”). The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities, revenues, expenses and income. This includes, but is not limited to, estimates, judgments and assumptions used in the adoption of the provisions of SFAS No. 142, Goodwill and Other Intangible Assets; and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible assets), liabilities, revenues, expenses and income. Any such changes

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could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

Securities Exchange Act Reports

     The Company maintains an Internet website at the following address: www.mylan.com. We make available on or through our Internet website certain reports and amendments to those reports that we file with the SEC in accordance with the Securities Exchange Act of 1934. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. The contents of our website are not incorporated by reference in this Annual Report on Form 10-K and shall not be deemed “filed” under the Securities Exchange Act of 1934.

ITEM 2. Properties

     We maintain various facilities in the US and Puerto Rico. These facilities are used for research and development, manufacturing, warehousing, distribution and administrative functions and consist of both owned and leased properties.

     The following summarizes the properties used to conduct our operations:

             
Primary Segment   Location   Status   Primary Use

 
 
 
Generic:   North Carolina   Own   Distribution
            Warehousing
             
    West Virginia   Own   Manufacturing
            Warehousing
            Research and Development
            Administrative
        Lease   Warehousing
             
    Illinois   Own   Manufacturing
            Warehousing
            Administrative
        Lease   Warehousing
            Administrative
             
    Puerto Rico   Own   Manufacturing
            Warehousing
            Administrative
             
Brand:   North Carolina   Lease   Administrative
             
    Texas   Own   Manufacturing
            Warehousing
             
    Vermont   Own   Manufacturing
            Research and Development
            Administrative
            Warehousing
             
Corporate/Other   Pennsylvania   Lease   Administrative

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     All facilities are in good operating condition. The machinery and equipment are well maintained, and the facilities are suitable for their intended purposes and have capacities adequate for current operations.

ITEM 3. Legal Proceedings

Legal Proceedings

     While it is not possible to determine with any degree of certainty the ultimate outcome of the following legal proceedings, the Company believes that it has meritorious defenses with respect to the claims asserted against it and intends to vigorously defend its position. An adverse outcome in any of these proceedings could have a material adverse effect on the Company’s financial position and results of operations.

Paclitaxel

     In June 2001, NAPRO Biotherapeutics Inc. (“NAPRO”) and Abbott Laboratories Inc. (“Abbott”) filed suit against the Company in the U.S. District Court for the Western District of Pennsylvania. Plaintiffs allege that the Company’s manufacture, use and sale of its paclitaxel product infringes certain patents owned by NAPRO and allegedly licensed to Abbott. Plaintiffs seek unspecified damages plus interest, a finding of willful infringement which could result in treble damages, injunctive relief, attorneys’ fees, costs of litigation and such equitable and other relief as the court deems just and proper. The Company began selling its paclitaxel product in July 2001.

Nifedipine

     In February 2001, Biovail Laboratories Inc. (“Biovail”) filed suit against the Company and Pfizer Inc. (“Pfizer”) in the U.S. District Court for the Eastern District of Virginia alleging antitrust violations with respect to agreements entered into between the Company and Pfizer regarding nifedipine. The Company filed a motion to transfer the case to the U.S. District Court for the Northern District of West Virginia, which was granted. The Company has been named as a defendant in five other putative class action suits alleging antitrust claims based on the same alleged conduct. Two of the class actions have been dismissed in their entirety, and the remaining actions have been dismissed in part and consolidated into a single proceeding. The plaintiffs in the remaining actions, as well as Biovail, are seeking unspecified compensatory and treble damages, attorneys’ fees, costs of litigation, restitution, disgorgement, and declaratory and injunctive relief.

Average Wholesale Price Litigation

     The Company, along with a number of other pharmaceutical manufacturers, has been named as a defendant in four lawsuits filed in the state courts of California in which the plaintiffs allege the defendants unlawfully, unfairly and fraudulently manipulated the reported average wholesale price of various products, allegedly to increase third-party reimbursements to others for their products. One of these lawsuits was voluntarily dismissed by the plaintiff. None of the three remaining cases has been certified as a class action, although all three cases seek class action and representative status. Plaintiffs seek equitable relief in the form of disgorgement and restitution, attorneys’ fees and costs of litigation.

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Other Litigation

     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 other proceedings, the Company believes that the ultimate outcome of such other proceedings will not have a material adverse effect on its financial position or results of operations.

Previously Reported Matters That Have Been Resolved

Verapamil ER

     In July 2001, Biovail filed a demand for arbitration against the Company with the American Arbitration Association. The dispute related to a supply agreement under which the Company supplied extended-release verapamil to Biovail. The Company previously identified this matter as a case in which an adverse outcome could have had a material adverse effect on the Company’s financial position and results of operations. On March 31, 2003, the Company announced that an award had been entered by the arbitrators in Biovail’s favor in the amount of approximately $4.2 million, plus interest, and the transfer to Biovail of certain know-how relating to the manufacture of verapamil. This amount was accrued for at March 31, 2003.

Zagam®

     The Company filed suit against Aventis Pharmaceuticals, Inc., successor in interest to Rhone-Poulenc Rorer Pharmaceuticals, Inc.; Rhone-Poulenc Rorer Pharmaceuticals, LTD; Rorer Pharmaceutical Products, Inc.; Rhone-Poulenc Rorer, S.A., and their affiliates in the U.S. Federal District Court for the Western District of Pennsylvania in May 2001, and the defendants counterclaimed against the Company. The Company previously identified this matter as a case in which an adverse outcome could have had a material adverse effect on the Company’s financial position and results of operations. In April 2003, the Company entered into a settlement of the matter pursuant to which the Company is to receive a payment of $12.5 million, the dismissal of the defendants’ counterclaims and termination of the agreements in question.

Buspirone

     In fiscal 2003, the Company reached an agreement in principle with Bristol-Myers Squibb (“BMS”) which would resolve all disputes between the companies related to buspirone and paclitaxel, BMS’ Buspar® and Taxol®, respectively, when finalized. That settlement has now become final and the Company has received a one-time payment of approximately $35.0 million, and non-exclusive, paid-up, royalty free, irrevocable licenses under any applicable BMS patents to manufacture, market and sell buspirone and paclitaxel. The $35.0 million is included in litigation settlements, net in the Consolidated Statements of Earnings.

Lorazepam and Clorazepate

     On March 31, 2003, the Company announced a tentative settlement of a direct purchaser class action related to the sale of lorazepam and clorazepate for a total amount of $35.0 million. Mylan’s co-defendants agreed to an initial contribution of approximately $7.0 million toward the $35.0 million settlement. Mylan’s obligation was accrued at March 31, 2003. The co-defendants’ contribution was subsequently increased by agreement with Mylan by an additional $10.0 million, which reduces Mylan’s share of the total settlement to approximately $18.0 million. Mylan is to receive the $10.0 million in five annual payments of $2.0 million each. On April 11, 2003, the U.S. District Court for the District of Columbia granted tentative approval of the settlement of the class action. This

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settlement does not include several related cases, and the Company does not believe that an adverse result in any of the remaining lorazepam and clorazepate cases, collectively or individually, would have a material adverse effect on the Company’s financial position or results of operations.

ITEM 4. Submission of Matters to a Vote of Security Holders

     None.

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PART II

ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters

     Our common stock is traded on the New York Stock Exchange under the symbol “MYL”. All share and per share amounts for all periods presented in this Annual Report on Form 10-K have been adjusted to reflect a three-for-two stock split which was effected on January 27, 2003. The following table sets forth the quarterly high and low common share price information for the periods indicated:

                 
Fiscal 2003   High   Low

 
 
First quarter
  $ 21.27     $ 16.77  
Second quarter
    22.62       18.33  
Third quarter
    23.27       19.73  
Fourth quarter
    29.04       23.66  
                 
Fiscal 2002   High   Low

 
 
First quarter
  $ 21.21     $ 16.01  
Second quarter
    23.77       18.87  
Third quarter
    25.27       20.90  
Fourth quarter
    24.13       19.64  

     As of May 23, 2003, there were approximately 125,051 holders of record of our common stock.

     We have paid dividends since April 1992. For fiscal 2002 the Company paid quarterly cash dividends of 2.67 cents per share. Beginning with the dividend for the third quarter of fiscal 2003, the Company increased the quarterly cash dividend rate to 3.33 cents per share. We expect to continue the practice of paying regular cash dividends.

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ITEM 6. Selected Financial Data

     The selected consolidated financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Results of Operations and Financial Condition”, the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

(in thousands, except per share data)

                                             
Fiscal year ended March 31,   2003   2002   2001   2000   1999

 
 
 
 
 
Statements of Earnings:
                                       
 
Net revenues
  $ 1,269,192     $ 1,104,050     $ 846,696     $ 790,145     $ 721,123  
 
Cost of sales
    597,756       480,111       464,521       369,377       339,342  
 
   
     
     
     
     
 
 
Gross profit
    671,436       623,939       382,175       420,768       381,781  
 
Operating expenses:
                                       
   
Research and development
    86,748       58,847       64,385       49,121       61,843  
   
Selling and administrative
    173,070       169,913       151,212       148,688       122,468  
   
Acquired in-process research and development
                            29,000  
   
Litigation settlements, net
    (2,370 )           147,000              
 
   
     
     
     
     
 
 
Earnings from operations
    413,988       395,179       19,578       222,959       168,470  
 
Equity in (loss) earnings of Somerset
    (4,573 )     (4,719 )     (1,477 )     (4,193 )     5,482  
 
Other income, net
    17,098       17,863       39,912       23,977       18,342  
 
   
     
     
     
     
 
 
Earnings before income taxes
    426,513       408,323       58,013       242,743       192,294  
 
Provision for income taxes
    154,160       148,072       20,885       88,497       76,885  
 
   
     
     
     
     
 
 
Net earnings
  $ 272,353     $ 260,251     $ 37,128     $ 154,246     $ 115,409  
 
   
     
     
     
     
 
March 31,
                                       
Selected balance sheet data:
                                       
 
Total assets
  $ 1,745,223     $ 1,619,880     $ 1,472,500     $ 1,343,865     $ 1,208,433  
 
Working capital
    962,440       891,598       589,955       600,249       476,259  
 
Long-term obligations
    19,943       23,883       25,263       31,903       27,958  
 
Total shareholders’ equity
    1,446,332       1,402,239       1,132,536       1,203,722       1,059,905  
Per common share data:
                                       
 
Net earnings
                                       
   
Basic
  $ 1.47     $ 1.38     $ 0.20     $ 0.80     $ 0.61  
   
Diluted
  $ 1.45     $ 1.36     $ 0.20     $ 0.79     $ 0.61  
 
Shareholders’ equity - diluted
  $ 7.68     $ 7.34     $ 5.96     $ 6.16     $ 5.56  
 
Cash dividends declared and paid
  $ 0.12     $ 0.11     $ 0.11     $ 0.11     $ 0.11  
Weighted average common shares outstanding:
                                       
 
Basic
    185,859       188,288       188,682       193,830       188,376  
 
Diluted
    188,220       191,052       190,124       195,336       190,734  

In fiscal 2003, we settled three outstanding legal matters for a net gain of $2,370. In fiscal 2001, we reached a tentative settlement with the Federal Trade Commission, States Attorneys General and certain private parties with regard to lawsuits filed against the Company relating to lorazepam and clorazepate. Excluding the litigation settlement of $147,000, net earnings for fiscal 2001 were $131,208, or $0.69 per diluted share. This settlement was approved by the court and made final in February 2002.

All share and per share amounts for all periods presented have been adjusted to reflect a three-for-two stock split which was effected on January 27, 2003.

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ITEM 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition

     The following discussion and analysis should be read in conjunction with the fiscal 2003 Consolidated Financial Statements and related Notes to Consolidated Financial Statements included elsewhere in this report. All references to fiscal years shall mean the twelve-month period ended March 31. All share and per share amounts for all periods presented have been adjusted to reflect a three-for-two stock split which was effected on January 27, 2003.

Overview

     Mylan Laboratories Inc. and its subsidiaries (“the Company” or “Mylan”) develop, manufacture, market and distribute generic and brand pharmaceutical products. Results for fiscal 2003 surpassed the record year that the Company experienced in fiscal 2002, achieving new highs in net revenues, earnings and earnings per share. The Company’s record earnings were driven by increased earnings from operations and were achieved as we increased our investment in research and development by nearly $28.0 million over the prior year. Net revenues exceeded the $1.00 billion mark for the second straight year, reaching $1.27 billion compared to $1.10 billion in fiscal 2002. This revenue growth was driven by both of the Company’s operating segments: the Generic Segment, which represented 80% of total net revenues for fiscal 2003, and the Brand Segment, which represented 20% of total net revenues for fiscal 2003.

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     The following table presents the results of operations for each of our business segments:

                                           
      FISCAL   CHANGE
     
 
(in thousands)   2003   2002   2001   2003/2002   2002/2001

 
 
 
 
 
Consolidated:
                                       
 
Net revenues
  $ 1,269,192     $ 1,104,050     $ 846,696       15 %     30 %
 
Gross profit
    671,436       623,939       382,175       8 %     63 %
 
Research and development
    86,748       58,847       64,385       47 %     -9 %
 
Selling and marketing
    65,625       59,913       59,238       10 %     1 %
 
General and administrative
    107,445       110,000       91,974       -2 %     20 %
 
Litigation settlements, net
    (2,370 )           147,000             -100 %
 
Earnings from operations
    413,988       395,179       19,578       5 %     1918 %
 
Other income, net
    17,098       17,863       39,912       -4 %     -55 %
 
Equity in loss of Somerset
    (4,573 )     (4,719 )     (1,477 )     3 %     -219 %
 
Pretax earnings
    426,513       408,323       58,013       4 %     604 %
Generic Segment:
                                       
 
Net revenues
    1,012,617       971,075       675,118       4 %     44 %
 
Gross profit
    531,106       552,736       273,111       -4 %     102 %
 
Research and development
    44,562       33,814       47,204       32 %     -28 %
 
Selling and marketing
    11,160       12,430       14,342       -10 %     -13 %
 
General and administrative
    21,341       23,424       24,450       -9 %     -4 %
 
Earnings from operations
    454,043       483,068       187,115       -6 %     158 %
Brand Segment:
                                       
 
Net revenues
    256,575       132,975       171,578       93 %     -22 %
 
Gross profit
    140,330       71,203       109,064       97 %     -35 %
 
Research and development
    42,186       25,033       17,181       69 %     46 %
 
Selling and marketing
    54,465       47,483       44,896       15 %     6 %
 
General and administrative
    10,997       14,899       20,841       -26 %     -29 %
 
Earnings from operations
    32,682       (16,212 )     26,146       302 %     -162 %
Corporate/Other:
                                       
 
General and administrative
    75,107       71,677       46,683       5 %     54 %
 
Litigation settlements, net
    (2,370 )           147,000             -100 %
 
Other income, net
    17,098       17,863       39,912       -4 %     -55 %
 
Equity in loss of Somerset
    (4,573 )     (4,719 )     (1,477 )     3 %     -219 %

Segment net revenues represent revenues from unrelated third parties. For the Generic and Brand Segments, earnings from operations represent segment gross profit less direct research and development, selling and marketing, and general and administrative expenses. Corporate/Other includes legal costs, goodwill amortization, other corporate administrative expenses, and other income and expense. Additionally, in fiscal 2003, Corporate/Other includes a net gain of $2,370 for litigation settlements. In fiscal 2001, Corporate/Other includes expense of $147,000 for the settlement with the Federal Trade Commission and related litigation.

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Results of Operations

Fiscal 2003 Compared to Fiscal 2002

Net Revenues and Gross Profit

     Net revenues for fiscal 2003 were $1.27 billion compared to $1.10 billion for fiscal 2002, an increase of 15% or $165.1 million. Both the Generic Segment and the Brand Segment contributed to the overall increase in net revenues. Generic Segment net revenues increased $41.5 million or 4% over the prior year while Brand Segment net revenues increased $123.6 million or 93% over the prior year.

     Generic Segment net revenues exceeded one billion dollars for the first time in the Company’s history, reaching $1.01 billion compared to $971.1 million in fiscal 2002. The increase in net revenues is the result of new products launched in fiscal 2003, which contributed net revenues of $79.5 million, as well as increased volume on existing products. These increases were partially offset by unfavorable pricing as a result of the loss of exclusivity on buspirone in February 2002. Following the entrance into the market of other generic competition, both price and volume erosion are considered normal in the pharmaceutical industry.

     Excluding buspirone, Generic Segment net revenues increased $188.9 million, or 24% over the prior year. Generic volume shipped, excluding unit dose, was approximately 11.2 billion doses in fiscal 2003, compared to 10.2 billion doses in fiscal 2002.

     Fiscal 2003 was a strong year for Mylan’s Brand Segment as well. The Brand Segment generated net revenues of $256.6 million, an increase of $123.6 million or 93% over fiscal 2002. Approximately 50% or $61.2 million of this increase is the result of the launch of Amnesteem® in the third quarter of fiscal 2003. Amnesteem is prescribed for the treatment of severe recalcitrant nodular acne. Amnesteem was able to achieve a market share of approximately 45% into May of 2003 despite the entrance into the market of other generic competition in March 2003 and April 2003. However, as a result of this competition, revenue and earnings from Amnesteem could be negatively impacted during fiscal 2004.

     In addition to Amnesteem, the increase in Brand Segment net revenues was driven by increased volume and favorable pricing. These increases were the result of continued growth of products in the Company’s existing product portfolio, primarily Digitek® and phenytoin.

     Consolidated gross profit for fiscal 2003 was $671.4 million, or 53% of net revenues, compared to $623.9 million, or 57% of net revenues in fiscal 2002. For the Generic Segment, gross profit for fiscal 2003 decreased by $21.6 million to $531.1 million from $552.7 million in fiscal 2002 and decreased as a percentage of net revenues from 57% to 52%. The decrease is primarily due to the loss of exclusivity on buspirone, which resulted in sales of buspirone contributing less to gross profit in fiscal 2003 and at lower gross margins. Margins on the Generic Segment’s remaining core products were relatively stable.

     Brand Segment gross profit for fiscal 2003 increased by $69.1 million to $140.3 million from $71.2 million in fiscal 2002 and increased as a percentage of net revenues from 54% to 55% on the strength of the Company’s existing product portfolio. The increase in gross profit percentage was realized despite the fact that sales of Amnesteem contribute lower gross margins than the majority of the Brand Segment’s other core products due to royalties paid under a supply and distribution agreement.

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Research and Development

     Research and development expenses for fiscal 2003 were $86.7 million or 7% of net revenues compared to $58.8 million, or 5% of net revenues, in fiscal 2002, which represents an increase of $27.9 million or 47%. The increase was realized in both the Generic Segment (increase of $10.7 million or 32%) and the Brand Segment (increase of $17.2 million or 69%).

     The increase in the Generic Segment is the result of increased studies, an increase in the amount and timing of ANDA submissions, including planned submissions, during fiscal 2003, and the expansion of the research and development infrastructure.

     The Brand Segment currently is incurring significant research and development expenses related to ongoing clinical studies on nebivolol, a product for the treatment of hypertension. As the clinical development program for nebivolol progresses and clinical development programs for other products are initiated, it is expected that Brand Segment research and development expenses will increase.

Selling and Marketing

     Selling and marketing expenses for fiscal 2003 were $65.6 million compared to $59.9 million in fiscal 2002. As a percentage of sales, selling and marketing expenses were 5% in both years. Generic Segment selling and marketing expenses for fiscal 2003 decreased $1.3 million or 10%. Brand Segment selling and marketing expenses increased $7.0 million or 15% to $54.5 million in fiscal 2003 from $47.5 million in fiscal 2002. This increase was the result of increased promotion of existing products, as well as costs associated with the launch of Amnesteem.

General and Administrative

     General and administrative expenses were $107.4 million or 8% of net revenues in fiscal 2003, a decrease of $2.6 million or 2% from fiscal 2002. This decrease is attributed to lower expenses in both the Generic and Brand Segments, partially offset by increased Corporate expenses.

     Generic Segment general and administrative expenses decreased $2.1 million or 9% to $21.3 million in fiscal 2003. Brand Segment general and administrative expenses decreased $3.9 million or 26% to $11.0 million in fiscal 2003. The decrease in general and administrative expenses is primarily the result of the absence of certain costs incurred in the prior year with respect to the write-off of uncollectible accounts and the Brand Segment’s relocation of its corporate offices.

     Corporate general and administrative expenses for fiscal 2003 were $75.1 million compared to $71.7 million in fiscal 2002. This increase is due primarily to higher legal costs and increased payroll and related costs, partially offset by lower amortization expense as goodwill no longer is amortized as a result of the adoption of Statement of Financial Accounting Standards (SFAS) No. 142,“Goodwill and Intangible Assets,” on April 1, 2002.

Litigation Settlements

     A net gain of $2.4 million was recorded in fiscal 2003 with respect to the settlement of various lawsuits. This net gain is composed of a $35.0 million gain on a settlement with Bristol-Myers Squibb, which resolved all disputes between the companies related to buspirone and paclitaxel. This gain was partially offset by a loss of $27.9 million plus interest related to the settlement of a class action

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lawsuit filed against the Company concerning the Company’s 1998 lorazepam and clorazepate litigation and an unfavorable arbitration decision of $4.2 million plus interest in connection with a dispute involving verapamil ER.

Earnings from Operations

     Consolidated earnings from operations were $414.0 million or 33% of net revenues in fiscal 2003, compared to $395.2 million or 36% of net revenues in fiscal 2002. The Generic Segment generated earnings from operations of $454.0 million or 45% of net revenues in fiscal 2003 compared to $483.1 million or 50% of net revenues in fiscal 2002. For the Brand Segment, earnings from operations in fiscal 2003 were $32.7 million compared to a loss from operations of $16.2 million in fiscal 2002. Operating margin for the Brand Segment in fiscal 2003 was 13%. Because of the additional investment in research and development and selling and marketing that generally is required for branded products, the Brand Segment’s operating margin tends to be lower than that of the Generic Segment.

Other Income, Net

     Other income, net of other expenses, was $17.1 million in fiscal 2003 compared to $17.9 million in fiscal 2002. This decrease of $0.8 million is the result of lower earnings from our limited liability partnership investments, which yielded a loss of $2.1 million in fiscal 2003 compared to net income of $7.2 million in fiscal 2002 and a $5.7 million impairment charge recorded on an investment which Mylan holds in a foreign entity, partially offset by net realized gains of $12.8 million on the sale of marketable securities.

Equity in Loss of Somerset

     We own a 50% equity interest in Somerset Pharmaceuticals, Inc. (“Somerset”) and account for this investment using the equity method of accounting. The recorded loss in Somerset for fiscal 2003 was $4.6 million compared to a loss of $4.7 million in fiscal 2002.

     Somerset is engaged in the manufacturing and marketing of Eldepryl® (selegiline), its sole commercial product, which is used for the treatment of Parkinson’s disease. Somerset continues to conduct research and development activities related to new indications and delivery technologies for selegiline and other products. As Somerset continues these research and development activities, its earnings may continue to be adversely affected.

Income Taxes

     The effective tax rate for fiscal 2003 was 36.1% compared to 36.3% for fiscal 2002. The decrease in the effective tax rate was primarily due to the favorable tax impact of the adoption of SFAS No. 142.

Fiscal 2002 Compared to Fiscal 2001

Net Revenues and Gross Profit

     Net revenues for fiscal 2002 were $1.10 billion compared to $846.7 million for fiscal 2001, an increase of 30% or $257.4 million. This increase in net revenues is attributed to increased net revenues for the Generic Segment of $296.0 million, which was partially offset by a decrease in net revenues for the Brand Segment of $38.6 million.

     Generic Segment net revenues for fiscal 2002 increased 44% to $971.1 million from $675.1 million for fiscal 2001. This increase is primarily attributed to sales of our buspirone products, as well as the launch of new products (excluding

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buspirone 5mg, 10mg and 30mg) in fiscal 2002. The buspirone products contributed net revenues of $167.7 million or 57% of fiscal 2002’s growth, while new products contributed net revenues of $69.7 million or 24% of fiscal 2002’s growth. The remaining increase is attributed to the growth of core generic products of $77.8 million, which was partially offset by lost revenues of $19.2 million due to the sale of the liquids facility in Florida. The growth of core generic products is partially attributed to the elimination of end of quarter promotional programs in the prior year.

     The 180-day market exclusivity period, as provided by the Waxman-Hatch Act, for buspirone 15mg expired in late September 2001. However, the FDA withheld additional approvals for generics until late February 2002. Generic Segment net revenues in fiscal 2002 benefited significantly from the extended exclusivity period. Since other generic pharmaceutical companies entered the buspirone market, the Generic Segment experienced substantial pricing and volume pressures.

     Because of the significant uncertainties surrounding when the FDA would approve additional buspirone 15mg ANDAs, we could not reasonably estimate the amount of potential price adjustments that would occur as a result of the additional approvals. For the quarterly periods ended September 2001 and December 2001, revenues on certain shipments were deferred until such uncertainties were resolved. Such uncertainties were resolved either upon our customers’ sale of this product or when the FDA approved additional generics in late February 2002. For the quarterly period ended March 2002, we were able to estimate potential price adjustments on the remaining deferred shipments and, therefore, recognized revenue related to such shipments.

     Brand Segment net revenues for fiscal 2002 decreased 22% to $133.0 million from $171.6 million for the prior year. This decrease is primarily attributed to the decision to discontinue end of quarter promotional programs in an effort to normalize our customer buying patterns and more effectively manage our business.

     Gross profit for fiscal 2002 was $623.9 million or 57% of net revenues compared to $382.2 million or 45% of net revenues for fiscal 2001. This increase of 63% or $241.7 million is attributed to increased gross profit for our Generic Segment of $279.6 million, primarily contributed by buspirone and new products, which was partially offset by decreased gross profit for our Brand Segment of $37.9 million.

Research and Development

     Research and development expenses for fiscal 2002 were $58.8 million or 5% of net revenues compared to $64.4 million or 8% of net revenues in fiscal 2001, a decrease of 9% or $5.6 million. This decrease is largely due to the timing of projects currently in development by our Generic Segment, as well as a decrease in in-licensing milestones compared to the prior year.

Selling and Marketing

     Selling and marketing expenses for fiscal 2002 were $59.9 million or 5% of net revenues, relatively unchanged compared to $59.2 million or 7% of net revenues in fiscal 2001.

General and Administrative

     General and administrative expenses were $110.0 million or 10% of net revenues for fiscal 2002 compared to $92.0 million or 11% of net revenues for fiscal 2001. This increase is attributed to an increase in Corporate general and administrative expenses of $25.0 million, partially offset by a decrease of $5.9 million in the Brand Segment general and administrative expenses.

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     Corporate general and administrative expenses for fiscal 2002 were $71.7 million compared to $46.7 million in fiscal 2001. This increase is largely due to increases in expenses relating to retirement benefits for executives and management employees of $10.6 million, as well as the expense associated with the funding of a charitable foundation of $5.0 million.

     Brand general and administrative expenses for fiscal 2002 were $14.9 million compared to $20.8 million in fiscal 2001. This decrease is largely due to a $7.8 million impairment charge in fiscal 2001 for the intangible assets associated with our brand product Zagam®, partially offset by increased relocation expenses as our Brand Segment completed its move to Research Triangle Park, North Carolina.

Litigation Settlement

     In fiscal 2001, the Company recorded expense of $147.0 million for a settlement with the Federal Trade Commission, States Attorneys General and certain private parties with regard to lawsuits filed against the Company relating to lorazepam and clorazepate. No such expense was recorded in fiscal 2002.

Other Income, Net

     Other income, net of other expenses, was $17.9 million in fiscal 2002 compared to $39.9 million in fiscal 2001. This decrease of $22.0 million is primarily attributed to a $9.2 million favorable litigation settlement and a $4.4 million gain from the sale of certain intangible assets in fiscal 2001. Additionally, investment income from our limited liability partnership investments was $6.8 million less in fiscal 2002 than was recognized in fiscal 2001. In fiscal 2002 and 2001, we liquidated $9.5 million and $52.2 million, respectively, in our investment in a certain limited liability partnership.

Equity in Loss of Somerset

     The recorded loss in Somerset for fiscal 2002 was $4.7 million compared to a loss of $1.5 million in fiscal 2001. This $3.2 million increase in loss is primarily attributed to decreased sales, which were partially offset by reduced operating expenses, and the prior year loss being reduced by a recapture of income tax expenses as a result of a favorable Internal Revenue Service audit.

Income Taxes

     The effective tax rate for fiscal 2002 was 36.3% compared to 36.0% for fiscal 2001. This increase in the effective tax rate was due to increased domestic taxable income, partially offset by favorable increases in certain tax credits.

Liquidity and Capital Resources

     Cash provided from operations continues to be the primary source of funds to operate and expand our business. Cash flows from operations were $313.1 million in fiscal 2003. Included in cash flows from operations for fiscal 2003 were net increases in working capital of $70.8 million to $962.4 million from $891.6 million in fiscal 2002. We believe that our working capital and cash provided by operating activities are sufficient to meet operating needs. Of the $1.75 billion in total assets, 39% or $686.8 million is held in cash, cash equivalents and marketable securities. The table below summarizes cash and cash equivalents and marketable securities at March 31, 2003 and 2002:

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(in thousands)   2003   2002
   
 
Cash and cash equivalents
  $ 258,902     $ 160,790  
Marketable securities
    427,904       456,266  
 
   
     
 
 
  $ 686,806     $ 617,056  
 
   
     
 

     Investments in marketable securities are primarily high-quality government and commercial paper. These investments are highly liquid and available for operating needs. Upon maturity, they generally are reinvested in instruments with similar characteristics.

     During fiscal 2003, we received $35.0 million as the result of a settlement with Bristol-Myers Squibb resolving all disputes between the companies with respect to buspirone and paclitaxel. Additionally during fiscal 2003, two other lawsuits were resolved which resulted in a liability of $32.6 million, which is included on the balance sheet in other current liabilities (see Note 17 to the Consolidated Financial Statements). Subsequent to March 31, 2003, a tentative settlement was reached between Mylan and the co-defendants in one of the above cases, whereby the co-defendants agreed to pay an additional $10.0 million. Mylan will receive this $10.0 million in five annual installments of $2.0 million. Also subsequent to March 31, 2003, Mylan reached a settlement with Aventis Pharmaceuticals, Inc. (“Aventis”), whereby Mylan will receive $12.5 million from Aventis in return for its agreement to settle claims related to contracts for the marketing and manufacturing of Zagam®.

     In fiscal 2001, a deposit of $135.0 million was placed into escrow, and a liability of $147.0 million was recorded as a result of a tentative settlement of the FTC litigation. With the final court approval in February 2002, the amount held in escrow and the liability were relieved from the consolidated balance sheet. Final payments representing attorneys’ fees of $8.0 million and $4.0 million were made in March 2002 and May 2002, respectively.

     In May 2002, the Board of Directors (the “Board”) approved a Stock Repurchase Program that authorized the purchase of up to 15,000,000 shares of the Company’s outstanding common stock. Such purchases could have a material effect on cash, cash equivalents and marketable securities. In fiscal 2003, 10.7 million shares of common stock were purchased for $240.5 million. Subsequent to March 31, 2003 and through May 28, 2003, 2.0 million shares of common stock were purchased for $55.4 million. The Company expects to purchase the remaining 2.3 million shares authorized under this program in fiscal 2004. In fiscal 2001, 7,282,650 shares of common stock were purchased for $91.5 million under a program approved by the Board in April 1997.

     In order to provide additional operating leverage if necessary, the Company maintains a revolving line of credit with a commercial bank providing for borrowings of up to $50.0 million (see Note 8 to Consolidated Financial Statements). As of March 31, 2003, no funds had been advanced under this line of credit. The acquisition of new products, as well as other companies, will play a strategic role in our growth. Consequently, such acquisitions may require additional indebtedness, which would impact future liquidity.

     Capital expenditures during fiscal 2003 were $32.6 million compared to $20.6 million during fiscal 2002. These expenditures were primarily made to acquire machinery and equipment for our production facilities. In fiscal 2004, capital expenditures will increase significantly primarily as the result of planned expansions of our manufacturing facilities.

     Subsequent to March 31, 2003, the Company sold its ownership interest in a foreign entity back to that entity for approximately $15.0 million. According to

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the agreement, Mylan will receive $10.0 million in fiscal 2004 and the remainder in fiscal 2005.

     The Company continues to pay quarterly cash dividends. In fiscal 2003, the Board of Directors voted to increase the quarterly dividend from 2.67 cents per share to 3.33 cents per share. Dividend payments totaled $21.2 million during fiscal 2003 and $20.2 million during fiscal 2002. In fiscal 2003, we received $30.4 million from the exercise of stock options issued through our stock option plans compared to $20.9 million in fiscal 2002.

     Payments for state and federal income taxes increased to $171.4 million during fiscal 2003 compared to $152.1 million for fiscal 2002.

     The Company is involved in various legal proceedings (see Note 17 to Consolidated Financial Statements). While it is not feasible to predict the outcome of such proceedings, an adverse outcome in any of these proceedings could materially affect our cash flows.

Application of Critical Accounting Policies

     Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements, which were prepared in accordance with accounting principles generally accepted in the United States of America. Included within these policies are certain policies which contain critical accounting estimates and, therefore, have been deemed to be “critical accounting policies.” Critical accounting estimates are those which require management to make assumptions about matters that were uncertain at the time the estimate was made and for which the use of different estimates, which reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur from period to period, could have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. The Company has identified the following to be its critical accounting policies: the determination of revenue provisions; the determination of impairment of goodwill and intangibles; and the impact of existing legal matters. These critical accounting policies affect each of the operating segments.

Revenue Provisions

     Revenue is recognized for product sales upon shipment when title and risk of loss have transferred to the customer and when provisions for estimates, including discounts, rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments are reasonably determinable. Accruals for these provisions are presented in the Consolidated Financial Statements as reductions to net revenues and accounts receivable and within other current liabilities. Accounts receivable are presented net of allowances relating to these provisions, which were $283.0 million and $210.1 million at March 31, 2003 and 2002, respectively. Other current liabilities include $33.1 million and $26.1 million at March 31, 2003 and 2002, respectively, for certain rebates and other adjustments that are paid to indirect customers. Provisions for estimated discounts, rebates, promotional and other credits require a limited degree of subjectivity and are simple in nature, yet combined represent a significant portion of the provisions. These provisions are estimated based on historical payment experience, historical relationship to revenues, estimated customer inventory levels and contract terms. Such provisions are determinable due to the limited number of assumptions and consistency of historical experience. Others, such as price adjustments, returns and chargebacks, require management to make more subjective judgments. These provisions are discussed in further detail below.

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     Price Adjustments – Price adjustments, also referred to as “shelf stock adjustments,” are credits issued to reflect decreases in the selling prices of our products that our customers have remaining in their inventories at the time of the price reduction. Decreases in our selling prices are discretionary decisions made by us to reflect market conditions. Amounts recorded for estimated shelf stock adjustments are based upon specified terms with direct customers, estimated launch dates of competing products, estimated declines in market price and estimates of inventory held by the customer. We regularly monitor these and other factors and evaluate our reserves and estimates as additional information becomes available.

     Returns – Consistent with industry practice, we maintain a return policy that allows our customers to return product within a specified period prior to and subsequent to the expiration date. Our estimate of the provision for returns is based upon our historical experience with actual returns. While such experience has allowed for reasonable estimations in the past, history may not always be an accurate indicator of future returns. We continually monitor our provision for returns and make adjustments when we believe that actual product returns may differ from established reserves.

     Chargebacks – The provision for chargebacks is the most significant and complex estimate used in the recognition of revenue. The Company markets products directly to wholesalers, distributors, retail pharmacy chains, mail order pharmacies and group purchasing organizations. The Company also markets products indirectly to independent pharmacies, managed care organizations, hospitals, nursing homes and pharmacy benefit management companies, collectively referred to as “indirect customers.” Mylan enters into agreements with its indirect customers to establish contract pricing for certain products. The indirect customers then independently select a wholesaler from which to actually purchase the products at these contracted prices. Mylan will provide credit to the wholesaler for any difference between the contracted price with the indirect party and the wholesaler’s invoice price. Such credit is called a chargeback. The provision for chargebacks is based on expected sell-through levels by our wholesaler customers to indirect customers, as well as estimated wholesaler inventory levels. We continually monitor our provision for chargebacks and make adjustments when we believe that actual chargebacks may differ from established reserves.

Impairment of Goodwill and Intangible Assets

     The Company has recorded on its balance sheet both goodwill and intangible assets, which consist of patents and technologies, product rights, brand names and trademarks. Historically, goodwill and intangible assets were reviewed for impairment when events or other changes in circumstances had indicated that the carrying amount of the assets may not be recoverable. In conjunction with the adoption of the Financial Accounting Standards Board (“FASB”) SFAS No. 142 and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, in fiscal 2003, the Company tested all goodwill and intangible assets for impairment. Impairment of goodwill and indefinite-lived intangibles is determined to exist when the fair value is less than the carrying value of the assets being tested. Impairment of definite-lived intangibles is determined to exist when undiscounted cash flows related to the assets are less than the carrying value of the assets. In assessing impairment, valuations were prepared with the assistance of third parties. Because this process involved management making estimates with respect to future sales volumes, pricing, new product launches, anticipated cost environment and overall market conditions and because these estimates formed the basis for the determination of whether or not an impairment charge should be recorded, these estimates were considered to be critical accounting estimates. As of April 1, 2002, the implementation date for SFAS No. 142 and SFAS No. 144, the Company determined through its estimates that no impairment of goodwill or intangible assets existed. As such, no impairment was recorded. The Company will

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continue to assess the carrying value of its goodwill and intangible assets in accordance with SFAS No. 142 and SFAS No. 144 or when conditions merit.

Legal Matters

     The Company is involved in various legal proceedings, some of which involve claims for substantial amounts. An estimate is made to accrue for a loss contingency relating to any of these legal proceedings if it is probable that a liability was incurred at the date of the financial statements and the amount of loss can be reasonably estimated. Because of the subjective nature inherent in assessing the outcome of litigation and because the potential that an adverse outcome in a legal proceeding could have a material impact on the Company’s financial position or results of operations, such estimates are considered to be critical accounting estimates. After review it was determined at March 31, 2003 that for each of the various unresolved legal proceedings in which we are involved, the conditions mentioned above were not met. As such, no accrual was recorded. The Company will continue to evaluate all legal matters as additional information becomes available.

Recent Accounting Pronouncements

     In June 2001, the FASB issued SFAS No. 142, which provides that goodwill and intangible assets with indefinite lives no longer will be amortized, but will be subject to at least annual impairment tests. Intangible assets with finite lives will continue to be amortized over their useful lives. Furthermore, SFAS No. 142 requires that the useful lives of intangible assets acquired before June 30, 2001 be reassessed and the remaining amortization periods adjusted accordingly.

     We adopted the provisions of SFAS No. 142 effective April 1, 2002. Goodwill and other indefinite-lived intangible assets no longer are amortized. Intangible assets determined to have indefinite lives were tested for potential impairment, and no impairments were indicated. The transitional assessment of goodwill for impairment, as of April 1, 2002, was completed during the quarter ended September 30, 2002, with no indication of impairment. An independent valuation specialist assisted in the determination of the fair values used to test for impairment. Assuming the adoption of SFAS No. 142 had occurred on April 1, 2000 and goodwill and other indefinite-lived assets no longer were amortized, net earnings for fiscal 2002 and 2001 would have increased by $7.2 million for both fiscal years, and earnings per basic and diluted share would have increased by $0.04 per share and $0.03 per share, respectively.

     SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a commitment to an exit plan is made. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not believe that the adoption of this statement will have a material effect on its financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure an amendment of FASB Statement No. 123, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternatives for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the existing disclosure requirements for all companies with stock-based compensation plans and establishes disclosure requirements for interim periods. In accordance with SFAS No. 123, Mylan will continue to account for its stock option plan using the intrinsic-value-based method as defined in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. The disclosure provisions of SFAS No. 148 have been adopted.

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     The FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”). This interpretation elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued, and it requires the recognition of a liability at fair value by a guarantor at the inception of a guarantee. The disclosure requirements of FIN 45 have been adopted by the Company (see Note 15 to the Consolidated Financial Statements). The initial recognition and measurement provisions of FIN 45 are effective on a prospective basis for all guarantees issued or modified after December 31, 2002. Mylan has not issued or modified any material guarantees since December 31, 2002.

     In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 provides guidance with respect to the consolidation of certain entities, referred to as variable interest entities (“VIE”), in which an investor is subject to a majority of the risk of loss from the VIE’s activities, or is entitled to receive a majority of the VIE’s residual returns. This interpretation also provides guidance with respect to the disclosure of VIEs in which an investor maintains an interest, but is not required to consolidate. The provisions of FIN 46 are effective immediately for all VIEs created after January 31, 2003 or in which the Company obtains an interest after that date. For VIEs created before February 1, 2003, the provisions are effective July 1, 2003. The Company has not acquired an interest in or created a VIE after January 31, 2003. Management is currently assessing the impact that further adoption of this interpretation will have on the Company’s Consolidated Financial Statements.

Forward-Looking Statements

     The statements set forth in this Annual Report concerning the manner in which we intend to conduct our future operations, potential trends that may impact future results of operations, and our beliefs or expectations about future operations are forward-looking statements. The following statements that we make in this Annual Report, in other filings made with the SEC, in press releases, on our website, or in other contexts (including statements made by our authorized representatives, either orally or in writing), are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995:

  (i)   any statement regarding possible or assumed future results of operations of our business, the markets for our products, anticipated expenditures, regulatory developments or competition;
 
  (ii)   any statement preceded by, followed by or that includes the words “intends,” “estimates,” “believes,” “expects,” “anticipates,” “should,” “could,” or the negative or other variations of these or other similar expressions; and
 
  (iii)   other statements regarding matters that are not historical facts.

     Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. We undertake no duty to update these forward-looking statements, even though our situation may change in the future.

     Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company’s business, including the discussion under the caption “Risk Factors” in Item I of the Company’s Annual Report on Form 10-K.

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ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

     The Company is subject to market risk primarily from changes in the market values of investments in marketable debt and equity securities. Additional investments are made in overnight deposits, money market funds and marketable securities with maturities of less than three months. These instruments are classified as cash equivalents for financial reporting purposes and have minimal or no interest rate risk due to their short-term nature. Professional portfolio managers manage the majority of our investments. We also invest in nonpublic securities that are classified as other assets on our balance sheet and do not consider these investments to be market risk sensitive.

     The following table summarizes the investments in marketable debt and equity securities which subject the Company to market risk at March 31, 2003 and 2002:

                 
(in thousands)   2003   2002
   
 
Marketable debt securities
  $ 419,135     $ 435,499  
Marketable equity securities
    8,769       20,767  
 
   
     
 
 
  $ 427,904     $ 456,266  
 
   
     
 

Marketable Debt Securities

     The primary objectives for the marketable debt securities investment portfolio are liquidity and safety of principal. Investments are made to achieve the highest rate of return while retaining principal. The investment policy limits investments to certain types of instruments issued by institutions and government agencies with investment-grade credit ratings. Of the $419.1 million invested in marketable debt securities at March 31, 2003, $192.0 million will mature within one year. This short duration to maturity creates minimal exposure to fluctuations in market values for these investments. A significant change in current interest rates could affect the market value of the remaining $227.1 million of marketable debt securities that mature after one year. A 5% change in the market value of the marketable debt securities that mature after one year would result in an $11.4 million change in marketable debt securities.

Marketable Equity Securities

     Marketable equity securities are primarily managed by professional portfolio managers whose investment objective is to increase fund value through purchasing undervalued common stocks and holding these securities for a period of time. These portfolio managers are continually evaluating the portfolio to ensure that it meets our investment objectives. As of March 31, 2003, a 10% change in the market value of these investments would result in a $0.9 million change in marketable equity securities.

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ITEM 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements and
Supplementary Financial Information

         
    Page
   
Consolidated Balance Sheets as of March 31, 2003 and 2002
    41  
Consolidated Statements of Earnings for the fiscal years ended March 31, 2003, 2002 and 2001
    42  
Consolidated Statements of Shareholders’ Equity for the fiscal years ended March 31, 2003, 2002 and 2001
    43  
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2003, 2002 and 2001
    44  
Notes to Consolidated Financial Statements
    45  
Independent Auditors’ Report
    65  
Supplementary Financial Information
    66  

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Mylan Laboratories Inc.
Consolidated Balance Sheets

(in thousands, except share and per share data)

                         
March 31,   2003   2002

 
 
Assets
               
 
Current assets:
               
   
Cash and cash equivalents
  $ 258,902     $ 160,790  
   
Marketable securities
    427,904       456,266  
   
Accounts receivable, net
    187,587       150,054  
   
Inventories
    237,777       195,074  
   
Deferred income tax benefit
    104,173       92,642  
   
Prepaid expenses and other current assets
    11,868       11,819  
 
   
     
 
     
Total current assets
    1,228,211       1,066,645  
 
Property, plant and equipment, net
    178,330       166,531  
 
Intangible assets, net
    150,256       168,846  
 
Goodwill
    102,581       102,272  
 
Investment in and advances to Somerset
    18,024       22,720  
 
Other assets
    67,821       92,866  
 
   
     
 
Total assets
  $ 1,745,223     $ 1,619,880  
 
   
     
 
Liabilities and shareholders’ equity
               
 
Liabilities
               
   
Current liabilities:
               
     
Trade accounts payable
  $ 66,017     $ 36,534  
     
Income taxes payable
    50,600       61,192  
     
Current portion of long-term obligations
    1,586       16  
     
Cash dividends payable
    6,031       5,067  
     
Litigation settlements
    32,630       4,014  
     
Other current liabilities
    108,907       68,224  
 
   
     
 
       
Total current liabilities
    265,771       175,047  
   
Long-term obligations
    19,943       23,883  
   
Deferred income tax liability
    13,177       18,711  
 
   
     
 
Total liabilities
    298,891       217,641  
 
   
     
 
 
Shareholders’ equity
               
   
Preferred stock - par value $0.50 per share
               
     
Shares authorized: 5,000,000
               
     
Shares issued: none
           
   
Common stock - par value $0.50 per share
               
     
Shares authorized: 300,000,000
               
     
Shares issued: 200,602,841 in 2003 and 198,300,792 in 2002
    100,301       99,150  
   
Additional paid-in capital
    354,501       316,669  
   
Retained earnings
    1,330,933       1,080,736  
   
Accumulated other comprehensive earnings
    3,718       7,920  
 
   
     
 
 
    1,789,453       1,504,475  
   
Less treasury stock – at cost
               
     
Shares: 19,428,962 in 2003 and 8,719,550 in 2002
    343,121       102,236  
 
   
     
 
 
Total shareholders’ equity
    1,446,332       1,402,239  
 
   
     
 
Total liabilities and shareholders’ equity
  $ 1,745,223     $ 1,619,880  
 
   
     
 

See Notes to Consolidated Financial Statements.

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Mylan Laboratories Inc.
Consolidated Statements of Earnings

(in thousands, except per share data)

                           
Fiscal year ended March 31,   2003   2002   2001

 
 
 
Net revenues
  $ 1,269,192     $ 1,104,050     $ 846,696  
Cost of sales
    597,756       480,111       464,521  
 
   
     
     
 
Gross profit
    671,436       623,939       382,175  
Operating expenses:
                       
 
Research and development
    86,748       58,847       64,385  
 
Selling and marketing
    65,625       59,913       59,238  
 
General and administrative
    107,445       110,000       91,974  
 
Litigation settlements, net
    (2,370 )           147,000  
 
   
     
     
 
Earnings from operations
    413,988       395,179       19,578  
Equity in loss of Somerset
    (4,573 )     (4,719 )     (1,477 )
Other income, net
    17,098       17,863       39,912  
 
   
     
     
 
Earnings before income taxes
    426,513       408,323       58,013  
Provision for income taxes
    154,160       148,072       20,885  
 
   
     
     
 
Net earnings
  $ 272,353     $ 260,251     $ 37,128  
 
   
     
     
 
Earnings per common share:
                       
 
Basic
  $ 1.47     $ 1.38     $ 0.20  
 
   
     
     
 
 
Diluted
  $ 1.45     $ 1.36     $ 0.20  
 
   
     
     
 
Weighted average common shares outstanding:
                       
 
Basic
    185,859       188,288       188,682  
 
   
     
     
 
 
Diluted
    188,220       191,052       190,124  
 
   
     
     
 

See Notes to Consolidated Financial Statements.

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Mylan Laboratories Inc.
Consolidated Statements of Shareholders’ Equity

(in thousands, except share and per share data)

                               
Fiscal year ended March 31,   2003   2002   2001

 
 
 
Common stock – shares issued:
                       
 
Shares at beginning of year
    198,300,792       196,034,643       195,416,352  
 
Fractional shares issued relative to the stock split
    942              
 
Stock options exercised
    2,301,107       2,266,149       618,291  
 
   
     
     
 
   
Shares at end of year
    200,602,841       198,300,792       196,034,643  
 
   
     
     
 
Treasury stock:
                       
 
Shares at beginning of year
    (8,719,550 )     (8,597,870 )     (1,340,247 )
 
Shares acquired upon the exercise of stock options
    (15,212 )     (121,680 )     (6,248 )
 
Issuance of treasury stock
                31,275  
 
Stock purchases
    (10,694,200 )           (7,282,650 )
 
   
     
     
 
   
Shares at end of year
    (19,428,962 )     (8,719,550 )     (8,597,870 )
 
   
     
     
 
Common shares outstanding
    181,173,879       189,581,242       187,436,773  
 
   
     
     
 
Common stock, $0.50 par:
                       
 
Balance at beginning of year
  $ 99,150     $ 98,017     $ 97,709  
 
Stock options exercised
    1,151       1,133       308  
 
   
     
     
 
   
Balance at end of year
    100,301       99,150       98,017  
 
   
     
     
 
Additional paid-in capital:
                       
 
Balance at beginning of year
    316,669       290,315       283,824  
 
Fractional shares issued relative to the stock split
    33              
 
Stock options exercised
    29,627       22,645       5,289  
 
Issuance of treasury shares
                102  
 
Tax benefit of stock option plans
    8,172       3,709       1,100  
 
   
     
     
 
   
Balance at end of year
    354,501       316,669       290,315  
 
   
     
     
 
Retained earnings:
                       
 
Balance at beginning of year
    1,080,736       840,741       823,570  
 
Net earnings
    272,353       260,251       37,128  
 
Dividends declared ($0.12 per share for fiscal 2003, $0.11 per share for fiscal 2002 and 2001)
    (22,156 )     (20,256 )     (19,957 )
 
   
     
     
 
   
Balance at end of year
    1,330,933       1,080,736       840,741  
 
   
     
     
 
Accumulated other comprehensive earnings:
                       
 
Balance at beginning of year
    7,920       2,983       6,936  
 
Net unrealized (loss) gain on marketable securities
    (4,202 )     4,937       (3,953 )
 
   
     
     
 
   
Balance at end of year
    3,718       7,920       2,983  
 
   
     
     
 
Treasury stock, at cost:
                       
 
Balance at beginning of year
    (102,236 )     (99,520 )     (8,316 )
 
Shares acquired upon the exercise of stock options
    (344 )     (2,716 )     (109 )
 
Issuance of treasury stock
                361  
 
Stock purchases
    (240,541 )           (91,456 )
 
   
     
     
 
   
Balance at end of year
    (343,121 )     (102,236 )     (99,520 )
 
   
     
     
 
Total shareholders’ equity
  $ 1,446,332     $ 1,402,239     $ 1,132,536  
 
   
     
     
 
Comprehensive earnings:
                       
 
Net earnings
  $ 272,353     $ 260,251     $ 37,128  
 
Other comprehensive (loss) earnings, net of tax:
                       
   
Net unrealized holding gains (losses) on securities
    4,140       5,195       (2,863 )
   
Reclassification for gains included in net earnings
    (8,342 )     (258 )     (1,090 )
 
   
     
     
 
     
Other comprehensive (loss) earnings, net of tax
    (4,202 )     4,937       (3,953 )
 
   
     
     
 
 
Comprehensive earnings
  $ 268,151     $ 265,188     $ 33,175  
 
   
     
     
 

See Notes to Consolidated Financial Statements.

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Mylan Laboratories Inc.
Consolidated Statements of Cash Flows

(in thousands)

                                 
Fiscal year ended March 31,   2003   2002   2001

 
 
 
Cash flows from operating activities:
                       
 
Net earnings
  $ 272,353     $ 260,251     $ 37,128  
 
Adjustments to reconcile net earnings to net cash provided from operating activities:
                       
     
Depreciation and amortization
    40,580       46,111       42,392  
     
Realized gain on sale of marketable securities
    (12,829 )     (398 )     (1,676 )
     
Gain on sale of certain intangible assets
                (4,367 )
     
Deferred income tax benefit
    (22,025 )     (36,021 )     (28,222 )
     
Equity in loss of and cash received from Somerset
    3,760       4,901       1,840  
     
Loss (earnings) from limited liability partnerships
    2,086       (7,113 )     (13,957 )
     
Changes in estimated sales allowances
    79,895       95,728       34,343  
     
Write-down of investments and intangible assets
    7,571       2,982       11,131  
     
Litigation settlements, net
    (2,370 )           147,000  
     
Receipts from litigation settlements
    35,000              
     
Litigation settlement deposits
    (4,014 )     (7,986 )     (135,000 )
     
Other non-cash items
    3,214       1,162       2,531  
     
Changes in operating assets and liabilities:
                       
       
Accounts receivable
    (113,155 )     4,563       (70,590 )
       
Inventories
    (42,558 )     (30,696 )     (17,203 )
       
Trade accounts payable
    29,183       (12,394 )     30,947  
       
Income taxes
    4,801       30,553       29,064  
       
Other operating assets and liabilities, net
    31,651       (5,172 )     580  
 
   
     
     
 
     
Net cash provided from operating activities
    313,143       346,471       65,941  
 
   
     
     
 
Cash flows from investing activities:
                       
 
Proceeds from (purchase of):
                       
   
Capital assets
    (32,595 )     (20,621 )     (24,651 )
   
Reduction of investment in a limited liability partership
    1,359       9,535       52,207  
   
Sale of certain intangible assets
                12,800  
   
Sale of fixed assets
    30       4,848       1,076  
   
Other and intangible assets
    (2,528 )     (8,195 )     (7,520 )
   
Marketable securities
    (821,902 )     (819,038 )     (104,029 )
   
Sale of marketable securities
    871,904       426,045       141,782  
 
   
     
     
 
     
Net cash provided from (used in) investing activities
    16,268       (407,426 )     71,665  
 
   
     
     
 
Cash flows from financing activities:
                       
 
Payments on long-term obligations
          (8,095 )     (5,987 )
 
Cash dividends paid
    (21,192 )     (20,195 )     (20,144 )
 
Purchase of common stock
    (240,541 )           (91,456 )
 
Proceeds from exercise of stock options
    30,434       20,852       5,671  
 
   
     
     
 
   
Net cash used in financing activities
    (231,299 )     (7,438 )     (111,916 )
 
   
     
     
 
Net increase (decrease) in cash and cash equivalents
    98,112       (68,393 )     25,690  
Cash and cash equivalents – beginning of year
    160,790       229,183       203,493  
 
   
     
     
 
Cash and cash equivalents – end of year
  $ 258,902     $ 160,790     $ 229,183  
 
   
     
     
 
Supplemental disclosures of cash flow information:
                       
Cash paid during the year for:
                       
 
Interest
  $     $ 238     $ 867  
 
   
     
     
 
 
Income taxes
  $ 171,382     $ 152,145     $ 20,052  
 
   
     
     
 
Non-cash investing activities:
                       
 
Marketable securities received from liquidation of investment in limited liability partnership
  $ 16,445     $     $  
 
   
     
     
 

See Notes to Consolidated Financial Statements.

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Mylan Laboratories Inc.

  Notes to Consolidated Financial Statements

  Note 1. Nature of Operations

       Mylan Laboratories Inc. and its subsidiaries (“the Company” or “Mylan”) are engaged in the development, manufacture and distribution of pharmaceutical products for resale by others. The principal markets for these products are proprietary and ethical pharmaceutical wholesalers and distributors, drug store chains, drug manufacturers, institutions, and public and governmental agencies within the United States.

  Note 2. Summary of Significant Accounting Policies

       Principles of Consolidation. The Consolidated Financial Statements include the accounts of Mylan Laboratories Inc. and those of its wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

       Cash Equivalents. Cash equivalents are composed of highly liquid investments with an original maturity of three months or less at the date of purchase.

       Marketable Securities. Marketable securities are classified as available for sale and are recorded at fair value based on quoted market prices, with net unrealized gains and losses, net of income taxes, reflected in accumulated other comprehensive earnings as a component of shareholders’ equity. Net gains and losses on sales of securities available for sale are computed on a specific security basis and included in other income.

       Concentrations of Credit Risk. Financial instruments that potentially subject us to credit risk consist principally of interest-bearing investments and accounts receivable.

       We invest our excess cash in high-quality, liquid money market instruments (principally commercial paper, and government and government agency notes and bills) maintained by financial institutions. We maintain deposit balances at certain of these financial institutions in excess of federally insured amounts.

       We perform ongoing credit evaluations of our customers and generally do not require collateral. Approximately 61% and 64% of the accounts receivable balances represent amounts due from four customers at March 31, 2003 and 2002, respectively. Total allowances for doubtful accounts were $8,438,000 and $6,622,000 at March 31, 2003 and 2002, respectively.

       Inventories. Inventories are stated at the lower of cost or market, with cost determined by the first-in, first-out method. Provisions for potentially obsolete or slow-moving inventory are made based on our analysis of inventory levels, historical obsolescence and future sales forecasts.

       Property, Plant and Equipment. Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed and recorded on a straight-line basis over the assets’ estimated service lives (3 to 10 years for machinery and equipment and 15 to 39 years for buildings and improvements). We periodically review the original estimated useful lives of assets and make adjustments when appropriate. Depreciation expense was $20,780,000, $19,729,000 and $19,075,000 for fiscal years 2003, 2002 and 2001, respectively.

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       Intangible Assets. Intangible assets are stated at cost less accumulated amortization. Amortization is generally recorded on a straight-line basis over estimated useful lives ranging from 2 to 20 years. We periodically review the original estimated useful lives of assets and make adjustments when appropriate.
 
       Impairment of Long-Lived Assets. The carrying values of long-lived assets, which includes property, plant and equipment and intangible assets with definite lives, are evaluated periodically in relation to the expected future cash flows of the underlying assets. Adjustments are made in the event that estimated undiscounted net cash flows are less than the carrying value.

       Goodwill and indefinite-lived intangibles are tested at least annually for impairment. Impairment is determined to exist when the fair value is less than the carrying value of the assets being tested.

       Other Assets. Investments in business entities in which we have the ability to exert significant influence over operating and financial policies (generally 20% to 50% ownership) are accounted for using the equity method. Under the equity method, investments are initially recorded at cost and adjusted for dividends and undistributed earnings and losses.

       Non-marketable equity investments for which we do not have the ability to exercise significant influence are accounted for using the cost method. Such investments are included in other assets on the balance sheet. Under the cost method of accounting, investments in private companies are carried at cost and are adjusted only for other-than-temporary declines in fair value, distributions of earnings and additional investments.

       Other assets are periodically reviewed for other-than-temporary declines in fair value. Other-than-temporary declines in fair value are identified by evaluating market conditions and the entity’s ability to achieve forecast and regulatory submission guidelines, as well as the entity’s overall financial condition.

       Revenue Recognition. We recognize revenue for product sales upon shipment when title and risk of loss pass to our customers and when provisions for estimates, including discounts, rebates, price adjustments, returns, chargebacks, and other promotional programs, are reasonably determinable. The following briefly describes the nature of each provision and how such provisions are estimated.

       Discounts are reductions to invoiced amounts offered to our customers for payment within a specified period and are estimated upon shipment utilizing historical customer payment experience.

       Rebates are offered to our key customers to promote customer loyalty and encourage greater product sales. These rebate programs provide that upon the attainment of pre-established volumes or the attainment of revenue milestones for a specified period, the customer receives credit against purchases. Other promotional programs are incentive programs periodically offered to our customers. We are able to estimate provisions for rebates and other promotional programs based on the specific terms in each agreement at the time of shipment.

       Consistent with industry practice, we maintain a return policy that allows our customers to return product within a specified period prior to and subsequent to the expiration date. Our estimate of the provision for returns is based upon our historical experience with actual returns.

       Price adjustments, also referred to as “shelf stock adjustments” are credits issued to reflect decreases in the selling prices of our products which

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  our customer has remaining in its inventory at the time of the price reduction. Decreases in our selling prices are discretionary decisions made by us to reflect market conditions. Amounts recorded for estimated shelf stock adjustments are based upon specified terms with direct customers, estimated launch dates of competing products, estimated declines in market price and estimates of inventory held by the customer.

       We have agreements with certain indirect customers, such as independent pharmacies, managed care organizations, hospitals, nursing homes and pharmacy benefit management companies, which establish contract prices for certain of our products. The indirect customers then independently select a wholesaler from which to actually purchase the products at these contracted prices. Mylan will provide credit to the wholesaler for any difference between the contracted price with the indirect party and the wholesaler’s invoice price. Such credit is called a chargeback. The provision for chargebacks is based on expected sell-through levels by our wholesaler customers to indirect customers, as well as estimated wholesaler inventory levels.

       Accounts receivable are presented net of allowances relating to the above provisions, which were $283,013,000 and $210,074,000 at March 31, 2003 and 2002, respectively. Other current liabilities include $33,096,000 and $26,140,000 at March 31, 2003 and 2002, respectively, for certain rebates and other adjustments that are paid to indirect customers.

       Three of our customers accounted for 20%, 16% and 14%, respectively, of net revenues in fiscal 2003 and 14%, 15% and 14%, respectively, of net revenues in fiscal 2002. Two of our customers accounted for 14% and 11%, respectively, of net revenues in fiscal 2001.

       Research and Development. Research and development expenses are charged to operations as incurred.

       Advertising Costs. Advertising costs are expensed as incurred and amounted to $6,381,000, $7,315,000 and $7,250,000 in fiscal years 2003, 2002 and 2001, respectively.

       Income Taxes. Income taxes have been provided for using an asset and liability approach in which deferred income taxes reflect the tax consequences on future years of events that we have already recognized in the financial statements or tax returns. Changes in enacted tax rates or laws will result in adjustments to the recorded tax assets or liabilities in the period that the new tax law is enacted.

       Stock Split. On January 27, 2003, the Company effected a three-for-two split of its common stock. All share and per share amounts contained in the Consolidated Financial Statements, and in these notes, have been adjusted for all periods to reflect the stock split.

       Earnings per Common Share. Basic earnings per common share is computed by dividing net earnings by the weighted average common shares outstanding for the period. Diluted earnings per common share is computed by dividing net earnings by the weighted average common shares outstanding adjusted for the dilutive effect of stock options granted, excluding antidilutive shares, under our stock option plans (see Note 12). Antidilutive shares of 3,236,100, 195,000 and 5,384,930 were excluded from the diluted earnings per common share calculation for fiscal years 2003, 2002 and 2001, respectively.

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       A reconciliation of basic and diluted earnings per common share is as follows:
                           
(in thousands, except per share data)                        
 
Fiscal   2003   2002   2001

 
 
 
Net earnings
  $ 272,353     $ 260,251     $ 37,128  
Weighted average common shares outstanding
    185,859       188,288       188,682  
Assumed exercise of dilutive stock options
    2,361       2,764       1,442  
 
   
     
     
 
Diluted weighted average common shares outstanding
    188,220       191,052       190,124  
 
   
     
     
 
Earnings per common share:
                       
 
Basic
  $ 1.47     $ 1.38     $ 0.20  
 
Diluted
  $ 1.45     $ 1.36     $ 0.20  

       Stock Options. In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure an amendment of FASB Statement No. 123, we account for our stock option plans under the intrinsic-value-based method as defined in Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation:
                           
(in thousands, except per share data)                        
Fiscal year ended March 31,   2003   2002   2001

 
 
 
Net income, as reported
  $ 272,353     $ 260,251     $ 37,128  
Deduct:   
   Total compensation expense determined under fair value based method for all stock awards, net of related tax effects
    (19,909 )     (20,284 )     (11,308 )
 
   
     
     
 
Pro forma net income
  $ 252,444     $ 239,967     $ 25,820  
Earnings per share:
                       
 
Basic - as reported
  $ 1.47     $ 1.38     $ 0.20  
 
   
     
     
 
 
Basic - pro forma
  $ 1.36     $ 1.27     $ 0.14  
 
   
     
     
 
 
Diluted - as reported
  $ 1.45     $ 1.36     $ 0.20  
 
   
     
     
 
 
Diluted - pro forma
  $ 1.36     $ 1.26     $ 0.14  
 
   
     
     
 

       Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Because of the uncertainty inherent in such estimates, actual results could differ from those estimates.

       Reclassification. Certain prior year amounts were reclassified to conform to the fiscal 2003 presentation.

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       Fiscal Year. Our fiscal year ends on March 31. All references to fiscal year shall mean the 12 months ended March 31.

       Recent Accounting Pronouncements. In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which provides that goodwill and intangible assets with indefinite lives will no longer be amortized but will be subject to at least annual impairment tests. Intangible assets with finite lives will continue to be amortized over their useful lives. Furthermore, SFAS No. 142 requires that the useful lives of intangible assets acquired before June 30, 2001 be reassessed and the remaining amortization periods adjusted accordingly.

       We adopted the provisions of SFAS No. 142 effective April 1, 2002. Goodwill and other indefinite lived intangible assets are no longer amortized. Intangible assets determined to have indefinite lives were tested for potential impairment, and no impairments were indicated. The transitional assessment of goodwill for impairment, as of April 1, 2002, was completed during the quarter ended September 30, 2002, with no indication of impairment. An independent valuation specialist assisted in the determination of the fair values used to test for impairment. Assuming the adoption of SFAS No. 142 had occurred on April 1, 2000 and goodwill and other indefinite-lived assets were no longer amortized, net earnings for fiscal years 2002 and 2001, would have increased by $7,204,000 for both years to $267,455,000 and $44,332,000, respectively, and earnings per basic and diluted share would have increased by $0.04 per share and $0.03 per share, respectively.

       SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a commitment to an exit plan is made. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not believe that the adoption of this statement will have a material effect on its financial position or results of operations.

       In December 2002, the FASB issued SFAS No. 148 which amends SFAS No. 123. SFAS No. 148 provides alternatives for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, this statement amends the existing disclosure requirements for all companies with stock-based compensation plans and establishes disclosure requirements for interim periods. In accordance with SFAS No. 123, Mylan will continue to account for its stock option plan using the intrinsic-value-based method as defined in APB Opinion No. 25. The disclosure provisions of SFAS No. 148 have been adopted.

       The FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”). This interpretation elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued, and it requires the recognition of a liability at fair value by a guarantor at the inception of a guarantee. The disclosure requirements of FIN 45 have been adopted by the Company (see Note 15). The initial recognition and measurement provisions of FIN 45 are effective on a prospective basis for all guarantees issued or modified after December 31, 2002. Mylan has not issued or modified any material guarantees since December 31, 2002.

       In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 provides guidance with respect to the consolidation of certain entities, referred to as variable interest entities (“VIE”), in which an investor is subject to a majority of the risk of loss from the VIE’s activities, or is entitled to receive a majority of the VIE’s residual

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  returns. This interpretation also provides guidance with respect to the disclosure of VIEs in which an investor maintains an interest, but is not required to consolidate. The provisions of FIN 46 are effective immediately for all VIEs created after January 31, 2003 or in which the Company obtains an interest after that date. For VIEs created before February- 1, 2003, the provisions are effective July 1, 2003. The Company has not acquired an interest in or created a VIE after January 31, 2003. Management is currently assessing the impact that further adoption of this interpretation will have on the Company’s Consolidated Financial Statements.

  Note 3. Balance Sheet Components

       Selected balance sheet components consist of the following at March 31, 2003 and 2002:
                   
(in thousands)   2003   2002
   
 
Inventories:
               
 
Raw materials
  $ 107,731     $ 74,782  
 
Work in process
    33,990       31,056  
 
Finished goods
    96,056       89,236  
 
   
     
 
 
  $ 237,777     $ 195,074  
 
   
     
 
Property, plant and equipment:
               
 
Land and improvements
  $ 9,089     $ 9,039  
 
Buildings and improvements
    108,156       107,901  
 
Machinery and equipment
    195,300       174,080  
 
Construction in progress
    20,346       11,193  
 
   
     
 
 
    332,891       302,213  
Less accumulated depreciation
    154,561       135,682  
 
   
     
 
 
  $ 178,330     $ 166,531  
 
   
     
 
Other current liabilities:
               
 
Payroll and employee benefit plan accruals
  $ 18,371     $ 18,936  
 
Accrued rebates
    33,096       26,140  
 
Royalties and product license fees
    34,465       12,363  
 
Other
    22,975       10,785  
 
   
     
 
 
  $ 108,907     $ 68,224  
 
   
     
 

  Note 4. Investment in and Advances to Somerset

       In November 1988, we acquired 50% of the outstanding common stock of Somerset Pharmaceuticals, Inc. (“Somerset”). We account for this investment using the equity method of accounting.
 
       Equity in loss of Somerset includes our 50% portion of Somerset’s financial results, as well as expense for amortization of intangible assets resulting from the acquisition of our interest in Somerset. Such intangible assets are being amortized using the straight-line basis over 15 years. Amortization expense was $924,000 in each of fiscal years 2003, 2002 and 2001.

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  Note 5. Marketable Securities

       The amortized cost and estimated market values of marketable securities are as follows:
                                 
            Gross   Gross        
    Amortized   Unrealized   Unrealized   Market
(in thousands)   Cost   Gains   Losses   Value
   
 
 
 
March 31, 2003
                               
Debt securities
  $ 416,774     $ 2,456     $ 95     $ 419,135  
Equity securities
    5,344       4,048       623       8,769  
 
   
     
     
     
 
 
  $ 422,118     $ 6,504     $ 718     $ 427,904  
 
   
     
     
     
 
March 31, 2002
                               
Debt securities
  $ 435,592     $ 567     $ 660     $ 435,499  
Equity securities
    8,535       13,219       987       20,767  
 
   
     
     
     
 
 
  $ 444,127     $ 13,786     $ 1,647     $ 456,266  
 
   
     
     
     
 

       Net unrealized gains on marketable securities are reported net of tax of $2,068,000 and $4,219,000 in fiscal 2003 and fiscal 2002, respectively.

       Maturities of debt securities at market value as of March 31, 2003 are as follows:
         
(in thousands)        
Mature within one year
  $ 192,047  
Mature in one to five years
    75,946  
Mature in five years and later
    151,142  
 
   
 
 
  $ 419,135  
 
   
 

       Gross gains of $13,650,000, $1,263,000 and $2,732,000 and gross losses of $821,000, $865,000 and $1,056,000 were realized during fiscal years 2003, 2002 and 2001, respectively.

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  Note 6. Goodwill and Intangible Assets

       Intangible assets, excluding goodwill, consist of the following components:
                                   
      Weighted                        
      Average Life   Original   Accumulated   Net Book
(in thousands)   (years)   Cost   Amortization   Value
   
 
 
 
March 31, 2003
                               
Amortized intangible assets:
                               
 
Patents and technologies
    19     $ 117,435     $ 36,126     $ 81,309  
 
Product rights and licenses
    12       107,273       48,301       58,972  
 
Other
    19       14,267       5,075       9,192  
 
           
     
     
 
 
          $ 238,975     $ 89,502       149,473  
 
           
     
         
Intangible assets no longer subject to amortization:
                               
 
Trademarks
                            783  
 
                           
 
 
                          $ 150,256  
 
                           
 
March 31, 2002
                               
Amortized intangible assets:
                               
 
Patents and technologies
    19     $ 119,663     $ 32,056     $ 87,607  
 
Product rights and licenses
    12       107,907       36,950       70,957  
 
Other
    20       24,380       14,881       9,499  
 
           
     
     
 
 
            251,950       83,887       168,063  
 
Trademarks
            1,331       548       783  
 
           
     
     
 
 
          $ 253,281     $ 84,435     $ 168,846  
 
           
     
     
 

       During fiscal 2003, the Company removed from the balance sheet certain intangible assets with an original cost of $13,368,000. Such assets were fully amortized at March 31, 2002 and have no ongoing benefit to current operations. Other intangibles consist principally of non-compete agreements, customer lists and contracts.

       Amortization expense for fiscal years 2003, 2002 and 2001 was $18,864,000, $26,382,000 and $23,317,000, respectively, and is expected to be $18,369,000, $16,904,000, $13,355,000, $13,143,000 and $13,066,000 for fiscal years 2004 through 2008, respectively. In accordance with SFAS No. 142, the Company ceased the amortization of goodwill effective April 1, 2002.

       Included in general and administrative expenses in fiscal 2001, was a charge of $7,770,000 for the write-off of an intangible asset related to a product license agreement for Zagam®. No such write-offs occurred in fiscal 2003 or fiscal 2002.

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  Note 7. Other Assets

       Other assets consist of the following components at March 31, 2003 and 2002:
                 
(in thousands)   2003   2002
   
 
Pooled asset funds
  $ 6,316     $ 26,144  
Cash surrender value
    37,306       35,825  
Other investments
    24,199       30,897  
 
   
     
 
 
  $ 67,821     $ 92,866  
 
   
     
 

       Pooled asset funds represent our interest in a limited liability partnership fund that invests in common and preferred stocks, bonds and money market funds. In fiscal 2001, we began to liquidate similar investments in an effort to reduce the impact of market fluctuations. The total amounts liquidated in fiscal 2003 and fiscal 2002 were $17,804,000 and $9,535,000. The remaining investment in the limited liability partnership fund is accounted for using the equity method. We record our share of earnings or losses as other income or expense with the offsetting entry to the corresponding investment account. Earnings (losses) on the pooled asset funds included in other income amounted to ($2,086,000), $7,113,000 and $13,957,000 in fiscal years 2003, 2002 and 2001, respectively. At March 31, 2003 and 2002, the carrying amounts of these investments approximated fair value.

       Cash surrender value is related to insurance policies on certain officers and key employees and the value of split-dollar life insurance agreements with certain former executive officers.

       Other investments principally consist of an investment in a foreign entity and a building held for sale. Our investment in a foreign entity is accounted for using the cost method of accounting and was $14,273,000 as of March 31, 2003 and $20,000,000 as of March 31, 2002. The March 31, 2003 balance reflects a charge of $5,727,000 recorded in the fourth quarter of fiscal 2003 to adjust the carrying value of this investment to its estimated fair value. Subsequent to March 31, 2003, the Company sold its ownership interest in this foreign entity back to that entity for approximately $15,000,000. According to the agreement, Mylan will receive $10,000,000 in fiscal 2004 and the remainder in fiscal 2005.

       As a result of a settlement in August 2000, we received the rights to an office building in Santa Monica, California. The building is currently being leased to the former owner under an operating lease that expires in October 2003. The lease agreement allows the former owner to purchase the building upon expiration of the lease.

       Based on a periodic review of other investments, excluding the investment in a foreign entity as discussed above, for other-than-temporary declines in fair value, we recorded adjustments of $566,000, $1,821,000 and $2,670,000 in fiscal years 2003, 2002 and 2001, respectively, to reduce the carrying value of other assets to their estimated fair value. Such adjustments were recorded as reductions to other income.

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  Note 8. Revolving Line of Credit

       In March 2003, we renewed our agreement with a commercial bank for a revolving line of credit. This one-year line of credit allows Mylan to borrow up to $50,000,000, on an unsecured basis, at an interest rate based on the published daily London Interbank Offered Rate. At the Company’s option, it may elect an alternative base rate as the interest rate by giving written notice to the lender. The agreement does not contain any significant financial covenants. At March 31, 2003 and 2002, we had no outstanding borrowings under this line of credit.

  Note 9. Long-Term Obligations

       Long-term obligations consist of the following components at March 31, 2003 and 2002:
                 
(in thousands)   2003   2002
   
 
Deferred compensation
  $ 18,351     $ 19,682  
Deferred revenue
          1,948  
Retirement benefits
    2,901       2,029  
Other
    277       240  
 
   
     
 
Total long-term obligations
    21,529       23,899  
Less: Current portion of long-term obligations
    1,586       16  
 
   
     
 
Long-term obligations, net of current portion
  $ 19,943     $ 23,883  
 
   
     
 

       Deferred compensation consists of the discounted future payments under individually negotiated agreements with certain key employees and directors. The agreements with certain key employees provide for annual payments ranging from $18,000 to $1,000,000 to be paid over periods commencing at retirement and ranging from ten years to life.

       In fiscal 2000, we recorded $9,238,000 in deferred revenue relating to a license and supply agreement. Revenue recognized relating to this agreement in fiscal years 2003, 2002 and 2001 was $1,948,000, $3,897,000 and $3,393,000, respectively.

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  Note 10. Income Taxes

       Income taxes consist of the following components:

(in thousands)

                         
Fiscal   2003   2002   2001

 
 
 
Federal:
                       
Current
  $ 156,823     $ 161,977     $ 45,463  
Deferred
    (18,127 )     (32,150 )     (26,100 )
 
   
     
     
 
 
    138,696       129,827       19,363  
 
   
     
     
 
State and Puerto Rico:
                       
Current
    17,211       20,809       3,772  
Deferred
    (1,747 )     (2,564 )     (2,250 )
 
   
     
     
 
 
    15,464       18,245       1,522  
 
   
     
     
 
Income taxes
  $ 154,160     $ 148,072     $ 20,885  
 
   
     
     
 
Pretax earnings
  $ 426,513     $ 408,323     $ 58,013  
 
   
     
     
 
Effective tax rate
    36.1 %     36.3 %     36.0 %
 
   
     
     
 

       Temporary differences and carryforwards that result in the deferred tax assets and liabilities are as follows at March 31, 2003 and 2002:
                   
(in thousands)   2003   2002
   
 
Deferred tax assets:
               
Employee benefits
  $ 9,901     $ 9,630  
Contractual agreements
    13,923       7,248  
Intangible assets
    10,058       8,780  
Accounts receivable allowances
    87,539       84,440  
Inventories
    3,810       3,191  
Investments
    9,077       8,271  
Federal tax loss carryforwards
    1,002       5,025  
Tax credit carryforwards
    3,175       5,446  
 
   
     
 
 
Total deferred tax assets
    138,485       132,031  
 
   
     
 
Deferred tax liabilities:
               
Plant and equipment
    10,682       12,515  
Intangible assets
    33,048       35,519  
Investments
    3,688       10,008  
Other
    71       58  
 
   
     
 
 
Total deferred tax liabilities
    47,489       58,100  
 
   
     
 
Deferred tax asset, net
  $ 90,996     $ 73,931  
 
   
     
 
Classification in the Consolidated Balance Sheets:
               
Deferred income tax benefit – current
  $ 104,173     $ 92,642  
Deferred income tax liability – noncurrent
    13,177       18,711  
 
   
     
 
Deferred tax asset, net
  $ 90,996     $ 73,931  
 
   
     
 

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       Deferred tax assets relating to net operating loss carryforwards and research and development tax credit carryforwards were acquired in fiscal 1999 with the acquisition of Penederm. The utilization of these assets is subject to certain limitations set forth in the Internal Revenue Code. In both fiscal 2003 and 2002, we utilized approximately $10,709,000 of the acquired net operating loss carryforwards to reduce the respective tax liability by approximately $3,748,000 each year. As of March 31, 2003 and 2002, we have approximately $2,707,000 and $13,415,000, respectively, of acquired federal tax loss carryforwards of which $644,000 will expire in fiscal 2012 and the remaining amount will expire in fiscal 2013. Acquired federal tax credit carryforwards of $2,092,000 at March 31, 2003 will expire in fiscal years 2004 through 2013. Federal tax credit carryforwards at March 31, 2002 totaled $2,151,000.

       We also have $567,000 of research and development tax credits that were deferred until fiscal 2004 due to recent tax law changes.

       A reconciliation of the statutory tax rate to the effective tax rate is as follows:
                         
Fiscal   2003   2002   2001

 
 
 
Statutory tax rate
    35.0 %     35.0 %     35.0 %
State and Puerto Rico income taxes, net
    2.6 %     2.8 %     2.4 %
Nondeductible amortization
    0.2 %     0.6 %     4.0 %
Tax credits
    (1.8 %)     (2.1 %)     (6.5 %)
Other items
    0.1 %     0.0 %     1.1 %
 
   
     
     
 
Effective tax rate
    36.1 %     36.3 %     36.0 %
 
   
     
     
 

       Tax credits result principally from operations in Puerto Rico and from qualified research and development expenditures, including orphan drug research. State income taxes are shown net of the federal deduction benefit.

       Operations in Puerto Rico benefit from incentive grants from the government of Puerto Rico, which partially exempt the Company from income, property and municipal taxes. In fiscal 2001, a new tax grant was negotiated with the government of Puerto Rico extending tax incentives until fiscal 2010. This grant exempts all earnings during this grant period from tollgate tax upon repatriation of cash to the United States. In fiscal 2001, approximately $109,000,000 of cash from pre-fiscal 2001 earnings was repatriated to the United States. Prepaid tollgate tax of $1,508,000 was credited to the government of Puerto Rico to cover the tax due upon this repatriation.

       Under Section 936 of the U.S. Internal Revenue Code, Mylan is a “grandfathered” entity and is entitled to the benefits under such statute through fiscal 2006. Our Section 936 federal tax credits totaled approximately $4,732,000 each year in fiscal 2003 and fiscal 2002.

       Our federal income tax returns have been audited by the Internal Revenue Service through fiscal 2000.

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  Note 11. Preferred and Common Stock

       In fiscal 1985, the Board of Directors (the “Board”) authorized 5,000,000 shares of $0.50 par value preferred stock. No shares of the preferred stock have been issued.

       The Board adopted a Shareholder Rights Plan (the “Rights Plan”) in fiscal 1996. The Rights Plan was adopted to provide our Board with sufficient time to assess and evaluate any takeover bid and explore and develop a reasonable response. Effective November 1999, the Rights Plan was amended to eliminate the special rights held by continuing directors. The Rights Plan will expire on September 5, 2006 unless it is extended or such rights are earlier redeemed or exchanged.

       In May 2002, the Board approved a Stock Repurchase Program to purchase up to 15,000,000 shares of our outstanding common stock. This Stock Repurchase Program will be administered through open market or privately negotiated transactions. The purchase of common stock under this program will be at market prices. In fiscal 2003, 10,694,000 shares of common stock were purchased for approximately $240,541,000. Subsequent to March 31, 2003 and through May 28,2003, 1,988,000 shares of common stock were purchased for approximately $55,357,000. In fiscal 2001, we completed a previously approved program with the purchase of 7,282,650 shares for $91,456,000.

       In fiscal 2003, the Board approved, subject to approval by the shareholders, an increase in the number of authorized shares of common stock to 600,000,000. The meeting of shareholders is scheduled to take place in July 2003.

  Note 12. Stock Option Plan

       In 1997, the Board adopted and the shareholders approved the Mylan Laboratories Inc. 1997 Incentive Stock Option Plan (the “Plan”), as amended. Under the Plan, up to 22,500,000 shares of the Company’s common stock may be granted to officers, employees, non-employee directors, and non-employee consultants and agents as either incentive stock options or nonqualified stock options. Options, which may be granted at not less than fair market value on the date of the grant, generally may be exercised within ten years from the date of grant. Nonqualified stock option grants generally vest on the date of grant or equally on the anniversary date of the grant for the first three years. Incentive stock option grants generally have one of the following two vesting schedules: 1) 25% two years from the date of grant, 25% at the end of year three and the remaining 50% at the end of year four or 2) 20% per year for five years. As of March 31, 2003, 4,477,229 shares are available for future grants.

       In June 1992, the Board adopted the 1992 Non-employee Director Stock Option Plan (the “Directors’ Plan”), which was approved by the shareholders in April 1993. A total of 900,000 shares of the Company’s common stock were reserved for issuance upon the exercise of stock options which vest at grant and may be granted at not less than fair market value on the date of grant. Options may be exercised within ten years from the date of grant. This plan expired on June 23, 2002.

       Additional stock options are outstanding from the expired 1986 Incentive Stock Option Plan and other plans assumed through acquisitions.

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       The following table summarizes stock option activity:
                 
            Weighted Average
    Number of Shares   Exercise Price
    Under Option   per Share
   
 
Outstanding at March 31, 2000
    6,895,171     $ 12.29  
Options granted
    4,883,550       16.25  
Options exercised
    (618,291 )     8.71  
Options forfeited
    (391,048 )     16.27  
 
   
         
Outstanding at March 31, 2001
    10,769,382       14.15  
Options granted
    5,509,498       17.61  
Options exercised
    (2,266,149 )     10.40  
Options forfeited
    (1,169,470 )     16.86  
 
   
         
Outstanding at March 31, 2002
    12,843,261       16.05  
Options granted
    5,849,352       25.05  
Options exercised
    (2,301,107 )     23.37  
Options forfeited
    (465,852 )     19.00  
 
   
         
Outstanding at March 31, 2003
    15,925,654       19.69  
 
   
         

       The following table summarizes information about stock options outstanding as of March 31, 2003:
                                                                 
                            Options Outstanding   Options Exercisable
                           
 
Ranges of Exercise   Number   Average   Average   Number   Average
Price per Share   of Shares   Life (1)   Price (2)   of Shares   Price (2)

 
 
 
 
 
 
  $ 4.66           $ 16.21       2,412,535       6.14     $ 13.55       2,091,726     $ 13.28  
 
    16.46             17.01       2,100,972       7.82       16.59       1,405,349       16.62  
 
    17.21             17.21       3,176,273       8.20       17.21       845,866       17.21  
 
    17.38             18.71       2,959,413       8.07       18.18       1,496,637       18.21  
 
    19.10             28.75       2,134,961       9.16       21.68       748,108       21.19  
 
    29.04             29.04       3,141,500       9.99       29.04       18,228       29.04  
 
                           
                     
         
 
  $ 4.66           $ 29.04       15,925,654       8.30     $ 19.69       6,605,914     $ 16.55  
 
                           
                     
         

  (1) Weighted average contractual life remaining in years.
 
  (2) Weighted average exercise price per share.

       The number of shares exercisable and the associated weighted average exercise price as of March 31, 2002 and 2001 were 5,248,092 shares at $14.19 per share and 5,112,958 shares at $11.50 per share, respectively.

       SFAS No. 123 requires the calculation of the fair value of options granted during each fiscal year. The fair value of options granted in fiscal years 2003, 2002 and 2001, using the Black-Scholes option pricing model, and the assumptions used are as follows:
                         
Fiscal   2003   2002   2001

 
 
 
Volatility
    44.0 %     48.0 %     36.0 %
Risk-free interest rate
    3.1 %     4.8 %     5.5 %
Dividend yield
    0.5 %     0.6 %     0.6 %
Expected term of options (in years)
    6.0       5.4       5.8  
Weighted average fair value per option
  $ 11.04     $ 8.34     $ 6.66  

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       Pro forma disclosure of net income and earnings per share had the Company applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation using the above assumptions is displayed in Note 2.

       In consideration for the exercise of stock options, we received and recorded into treasury stock 15,212 shares valued at $344,000 in fiscal 2003, 121,680 shares valued at $2,716,000 in fiscal 2002 and 6,248 shares valued at $109,000 in fiscal 2001.

  Note 13. Employee Benefits

       The Company has a plan covering substantially all employees to provide for limited reimbursement of postretirement supplemental medical coverage. In addition, in December 2001, the Supplemental Health Insurance Program for Certain Officers of Mylan Laboratories was adopted to provide full postretirement medical coverage to certain officers and their spouse and dependents. These plans generally provide benefits to employees who meet minimum age and service requirements. We account for these benefits under SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. The amounts accrued related to these benefits were not material at March 31, 2003 and 2002.

       We have defined contribution plans covering essentially all of our employees. Our defined contribution plans consist primarily of a
401(k) retirement plan with a profit sharing component for non-union employees and a 401(k) retirement plan for union employees. Profit sharing contributions are made at the discretion of the Board. The 401(k) company matching contributions are based upon employee contributions or service hours, depending upon the plan. Total employer contributions to all plans for fiscal years 2003, 2002 and 2001 were $9,742,000, $9,756,000 and $4,784,000, respectively.

       We provide supplemental life insurance benefits to certain management employees. Such benefits require annual funding and may require accelerated funding in the event that we would experience a change in control.

       The production and maintenance employees at the Company’s manufacturing facilities in Morgantown, West Virginia, are covered under a collective bargaining agreement which expires in April 2007. These employees represent approximately 27% of the Company’s total workforce at March 31, 2003.

  Note 14. Segment Reporting

       We have two reportable operating segments, a Generic Segment and a Brand Segment, based on differences in products, marketing or regulatory approval. Additionally, certain general and administrative expenses, such as legal expenditures, litigation settlements, and non-operating income and expenses are reported in Corporate/Other.

       Generic pharmaceutical products are therapeutically equivalent to a brand name product and are marketed primarily to wholesalers, retail pharmacy chains, mail-order pharmacies and group purchasing organizations. These products are approved for distribution by the U.S. Food and Drug Administration (“FDA”) through the Abbreviated New Drug Application (“ANDA”) process.

       Brand pharmaceutical products are generally new, patent- protected products marketed directly to health care professionals. These products are approved by the FDA primarily through the New Drug Application (“NDA”) process. Our Brand Segment also includes off-patent brand products, which have prescriber and customer loyalties and brand recognition, as well as branded generics which are responsive to promotional efforts.

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       The accounting policies of the operating segments are the same as those described in Note 2. The table below presents segment information for the fiscal years identified. For the Generic and Brand Segments, segment profit represents segment gross profit less direct research and development, selling and marketing, and general and administrative expenses. Generic and Brand Segment assets include property, plant and equipment, trade accounts receivable, inventory and intangible assets other than goodwill, and certain other assets. Corporate/Other assets include consolidated cash, cash equivalents, marketable securities, investments in Somerset and other assets, goodwill and all income tax-related assets.

       The following table provides a reconciliation of segment information to total consolidated information:

       (in thousands)
                         
Fiscal Year Ended March 31,   2003   2002   2001

 
 
 
Net revenues
                       
Generic
  $ 1,012,617     $ 971,075     $ 675,118  
Brand
    256,575       132,975       171,578  
 
   
     
     
 
Consolidated
  $ 1,269,192     $ 1,104,050     $ 846,696  
 
   
     
     
 
Depreciation and amortization expense
                       
Generic
  $ 19,607     $ 20,365     $ 19,772  
Brand
    17,555       17,336       16,037  
Corporate/Other
    3,418       8,410       6,583  
 
   
     
     
 
Consolidated
  $ 40,580     $ 46,111     $ 42,392  
 
   
     
     
 
Segment profit (loss)
                       
Generic
  $ 454,043     $ 483,068     $ 187,115  
Brand
    32,682       (16,212 )     26,146  
Corporate/Other
    (60,212 )     (58,533 )     (155,248 )
 
   
     
     
 
Consolidated
  $ 426,513     $ 408,323     $ 58,013  
 
   
     
     
 
Property, plant and equipment additions
                       
Generic
  $ 25,400     $ 14,313     $ 18,883  
Brand
    5,335       5,369       5,231  
Corporate/Other
    1,860       939       537  
 
   
     
     
 
Consolidated
  $ 32,595     $ 20,621     $ 24,651  
 
   
     
     
 
March 31,
                       
Segment assets
                       
Generic
  $ 536,171     $ 470,405     $ 631,629  
Brand
    213,016       209,603       251,801  
Corporate/Other
    996,036       939,872       589,070  
 
   
     
     
 
Consolidated
  $ 1,745,223     $ 1,619,880     $ 1,472,500  
 
   
     
     
 

  In fiscal 2003, Corporate/Other includes a net gain of $2,370 for litigation settlements. In fiscal 2001, Corporate/Other includes the expense of $147,000 for the settlement with the Federal Trade Commission and related litigation (see Note 17).

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  Note 15. Commitments

       We lease certain real property, primarily an office complex in Research Triangle Park, North Carolina, and several warehouses and other facilities, under various operating lease arrangements that expire over the next eight years. These leases generally provide us with the option to renew the lease at the end of the lease term. We have also entered into agreements to lease vehicles, which are typically 24 to 36 months, for use by our sales force and key employees. For fiscal years 2003, 2002 and 2001, we made lease payments of $5,640,000, $4,812,000 and $4,301,000, respectively.

       Future minimum lease payments under these commitments are as follows:
                 
(in thousands)   Operating
Fiscal   Leases

 
2004     $ 3,084,000  
2005       1,991,000  
2006       1,672,000  
2007       1,671,000  
2008       1,849,000  
Thereafter     611,000  
             
 
            $ 10,878,000  
             
 

       We have entered into various product licensing and development agreements. In some of these arrangements, we provide funding for the development of the product or to obtain rights to the use of the patent, through milestone payments, in exchange for marketing and distribution rights to the product. Milestones represent the completion of specific contractual events, and it is uncertain if and when these milestones will be achieved. In the event that all projects are successful, milestone and development payments of approximately $16,000,000 would be paid over the next four years.

       We have entered into employment agreements with certain executives that provide for compensation and certain other benefits. These agreements provide for severance payments under certain circumstances. Additionally, we have split-dollar life insurance agreements with certain retired executives.

       In the normal course of business, Mylan periodically enters into employment, legal settlement and other agreements which incorporate indemnification provisions. While the maximum amount to which Mylan may be exposed under such agreements cannot be reasonably estimated, the Company maintains insurance coverage which management believes will effectively mitigate the Company’s obligations under these indemnification provisions. No amounts have been recorded in the financial statements with respect to the Company’s obligation under such agreements.
 
  Note 16. Related Parties

       In July 2002, the Company terminated an agreement with a consulting firm that had been controlled by Mylan’s Chief Executive Officer. This agreement was terminated prior to the Chief Executive Officer accepting his position with Mylan. Under the agreement, the consulting firm provided strategic advisory services to Mylan. While the agreement was in effect during fiscal 2003 and in fiscal years 2002 and 2001, the consulting firm was paid $380,000, $1,565,000 and $125,000, respectively.

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       A director of the Company is the chief executive officer of a bank in which the Company had on deposit $10,011,000 and $7,155,000 in a money market account representing 4% and 5% of the bank’s total deposits at March 31, 2003 and 2002, respectively.

       In February 2003, a director of the Company, who also became an officer of the Company in March 2002, terminated an “of counsel” relationship he had with a law firm that has been providing legal services to the Company for over 15 years. Fees paid to that firm for legal services rendered to the Company totaled $6,302,000, $3,325,000 and $1,218,000 in fiscal years 2003, 2002 and 2001, respectively.

       A member of the Company’s management is a consultant to a company that provides services to assist Mylan with its biostudies. He is currently a minority shareholder of that company; however, in prior years, was the principal owner. His son is the owner of a company that performs registry services for a product marketed by the Company. These agreements have varying terms with the latest expiring in 2010 and provide for the reimbursement of services on a cost plus basis. This member of management is also an investor in a company that provides on-site medical units to certain subsidiaries and whose son is a principal officer. Total expenses for all the services provided under these related party arrangements were $14,959,000, $8,356,000 and $9,405,000 in fiscal 2003, 2002 and 2001, respectively.

       Mylan holds an equity interest in a supplier. During fiscal years 2003, 2002 and 2001, Mylan paid $3,715,000, $18,287,000 and $1,168,000, respectively, to the supplier in return for certain raw materials used in production and $3,698,000 and $350,000 in fiscal 2003 and fiscal 2002, respectively, for royalties under a product licensing agreement with this supplier. No royalties were paid in fiscal 2001.

  Note 17. Contingencies

  Legal Proceedings

       While it is not possible to determine with any degree of certainty the ultimate outcome of the following legal proceedings, the Company believes that it has meritorious defenses with respect to the claims asserted against it and intends to vigorously defend its position. An adverse outcome in any of these proceedings could have a material adverse effect on the Company’s financial position and results of operations.

  Paclitaxel

       In June 2001, NAPRO Biotherapeutics Inc. (“NAPRO”) and Abbott Laboratories Inc. (“Abbott”) filed suit against the Company in the U.S. District Court for the Western District of Pennsylvania. Plaintiffs allege that the Company’s manufacture, use and sale of its paclitaxel product infringes certain patents owned by NAPRO and allegedly licensed to Abbott. Plaintiffs seek unspecified damages plus interest, a finding of willful infringement which could result in treble damages, injunctive relief, attorneys’ fees, costs of litigation and such equitable and other relief as the court deems just and proper. The Company began selling its paclitaxel product in July 2001.

  Nifedipine

       In February 2001, Biovail Laboratories Inc. (“Biovail”) filed suit against the Company and Pfizer Inc. (“Pfizer”) in the U.S. District Court for the Eastern District of Virginia alleging antitrust violations with respect to agreements entered into between the Company and Pfizer regarding nifedipine.

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  The Company filed a motion to transfer the case to the U.S. District Court for the Northern District of West Virginia, which was granted. The Company has been named as a defendant in five other putative class action suits alleging antitrust claims based on the same alleged conduct. Two of the class actions have been dismissed in their entirety, and the remaining actions have been dismissed in part and consolidated into a single proceeding. The plaintiffs in the remaining actions, as well as Biovail, are seeking unspecified compensatory and treble damages, attorneys’ fees, costs of litigation, restitution, disgorgement, and declaratory and injunctive relief.

  Average Wholesale Price Litigation

       The Company, along with a number of other pharmaceutical manufacturers, has been named as a defendant in four lawsuits filed in the state courts of California in which the plaintiffs allege the defendants unlawfully, unfairly and fraudulently manipulated the reported average wholesale price of various products, allegedly to increase third-party reimbursements to others for their products. One of these lawsuits was voluntarily dismissed by the plaintiff. None of the three remaining cases has been certified as a class action, although all three cases seek class action and representative status. Plaintiffs seek equitable relief in the form of disgorgement and restitution, attorneys’ fees and costs of litigation.

  Other Litigation

       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 other proceedings, the Company believes that the ultimate outcome of such other proceedings will not have a material adverse effect on its financial position or results of operations.

  Previously Reported Matters That Have Been Resolved

  Verapamil ER

       In July 2001, Biovail filed a demand for arbitration against the Company with the American Arbitration Association. The dispute related to a supply agreement under which the Company supplied extended-release verapamil to Biovail. The Company previously identified this matter as a case in which an adverse outcome could have had a material adverse effect on the Company’s financial position and results of operations. On March 31, 2003, the Company announced that an award had been entered by the arbitrators in Biovail’s favor in the amount of approximately $4.2 million, plus interest, and the transfer to Biovail of certain know-how relating to the manufacture of verapamil. This amount was accrued for at March 31, 2003.

  Zagam®

       The Company filed suit against Aventis Pharmaceuticals, Inc., successor in interest to Rhone-Poulenc Rorer Pharmaceuticals, Inc.; Rhone-Poulenc Rorer Pharmaceuticals, LTD; Rorer Pharmaceutical Products, Inc.; Rhone-Poulenc Rorer, S.A., and their affiliates in the U.S. Federal District Court for the Western District of Pennsylvania in May 2001, and the defendants counterclaimed against the Company. The Company previously identified this matter as a case in which an adverse outcome could have had a material adverse effect on the Company’s financial position and results of operations. In April 2003, the Company entered into a settlement of the matter pursuant to which the Company is to receive a payment of $12.5 million, the dismissal of the defendants’ counterclaims and termination of the agreements in question.

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  Buspirone

       In fiscal 2003, the Company reached an agreement in principle with Bristol-Myers Squibb (“BMS”) which would resolve all disputes between the companies related to buspirone and paclitaxel, BMS’ Buspar® and Taxol®, respectively, when finalized. That settlement has now become final and the Company has received a one-time payment of approximately $35.0 million, and non-exclusive, paid-up, royalty free, irrevocable licenses under any applicable BMS patents to manufacture, market and sell buspirone and paclitaxel. The $35.0 million is included in litigation settlements, net in the Consolidated Statements of Earnings.

  Lorazepam and Clorazepate

       On March 31, 2003, the Company announced a tentative settlement of a direct purchaser class action related to the sale of lorazepam and clorazepate for a total amount of $35.0 million. Mylan’s co-defendants agreed to an initial contribution of approximately $7.0 million toward the $35.0 million settlement. Mylan’s obligation was accrued at March 31, 2003. The co-defendants’ contribution was subsequently increased by agreement with Mylan by an additional $10.0 million, which reduces Mylan’s share of the total settlement to approximately $18.0 million. Mylan is to receive the $10.0 million in five annual payments of $2.0 million each. On April 11, 2003, the U.S. District Court for the District of Columbia granted tentative approval of the settlement of the class action. This settlement does not include several related cases, and the Company does not believe that an adverse result in any of the remaining lorazepam and clorazepate cases, collectively or individually, would have a material adverse effect on the Company’s financial position or results of operations.

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Independent Auditors’ Report

Board of Directors and Shareholders
Mylan Laboratories Inc.:

We have audited the accompanying consolidated balance sheets of Mylan Laboratories Inc. and subsidiaries as of March 31, 2003 and 2002, and the related consolidated statements of earnings, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Mylan Laboratories Inc. and subsidiaries as of March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for goodwill effective April 1, 2002.

Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 30, 2003 (May 28, 2003 as to Note 11)

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Mylan Laboratories Inc.
Supplementary Financial Information

Quarterly Financial Data
(in thousands, except per share data)

                                           
      1st   2nd   3rd   4th        
      Quarter   Quarter   Quarter   Quarter   Year(1)
     
 
 
 
 
Fiscal 2003
                                       
Net revenues
  $ 275,473     $ 319,539     $ 320,494     $ 353,686     $ 1,269,192  
Gross profit
    147,602       166,732       169,576       187,526       671,436  
Net earnings
    61,849       68,229       68,432       73,843       272,353  
Earnings per share:
                                       
 
Basic
  $ 0.33     $ 0.36     $ 0.37     $ 0.41     $ 1.47  
 
Diluted
  $ 0.32     $ 0.36     $ 0.37     $ 0.40     $ 1.45  
Share prices(2):
                                       
 
High
  $ 21.27     $ 22.62     $ 23.27     $ 29.04     $ 29.04  
 
Low
  $ 16.77     $ 18.33     $ 19.73     $ 23.66     $ 16.77  
Fiscal 2002
                                       
Net revenues
  $ 237,933     $ 286,328     $ 297,191     $ 282,598     $ 1,104,050  
Gross profit
    121,859       163,777       177,372       160,931       623,939  
Net earnings
    50,648       64,136       78,176       67,291       260,251  
Earnings per share:
                                       
 
Basic
  $ 0.27     $ 0.34     $ 0.41     $ 0.36     $ 1.38  
 
Diluted
  $ 0.27     $ 0.34     $ 0.41     $ 0.35     $ 1.36  
Share prices(2):
                                       
 
High
  $ 21.21     $ 23.77     $ 25.27     $ 24.13     $ 25.27  
 
Low
  $ 16.01     $ 18.87     $ 20.90     $ 19.64     $ 16.01  

(1)   The sum of earnings per share for the four quarters may not equal earnings per share for the total year due to changes in the average number of common shares outstanding.
 
(2)   New York Stock Exchange symbol: MYL

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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PART III

ITEM 10. Directors and Executive Officers of the Registrant

     The information required by this Item is set forth in our 2003 Proxy Statement and is incorporated herein by reference.

ITEM 11. Executive Compensation

     The information required by this Item is set forth in our 2003 Proxy Statement and is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

     The information required by this Item is set forth in our 2003 Proxy Statement and is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions

     The information required by this Item is set forth in our 2003 Proxy Statement and is incorporated herein by reference.

ITEM 14. Controls and Procedures

     During the 90-day period prior to the filing date of this report, an evaluation was performed under the supervision and with the participation of our Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. Subsequent to the date of this evaluation, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls, and no corrective actions taken with regard to significant deficiencies or material weaknesses in such controls.

PART IV

ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)  1. Consolidated Financial Statements

     The Consolidated Financial Statements listed in the Index to Consolidated Financial Statements are filed as part of this Form.

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     2.     Financial Statement Schedules

MYLAN LABORATORIES INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

                                     
                Additions                
                Charged to                
        Beginning   Costs and           Ending
Description   Balance   Expenses   Deductions   Balance

 
 
 
 
Allowance for Doubtful Accounts:
                               
 
Fiscal Year Ended
                               
   
March 31, 2003
  $ 6,622     $ 2,772     $ 956     $ 8,438  
   
March 31, 2002
  $ 5,049     $ 4,270     $ 2,697     $ 6,622  
   
March 31, 2001
  $ 3,614     $ 1,610     $ 175     $ 5,049  

     3.     Exhibits

     
3.1   Amended and Restated Articles of Incorporation of the registrant, filed as Exhibit 4.2 to the Form S-8 on December 23, 1997, (registration number 333-43081) and incorporated herein by reference.
     
3.2   Second amended and restated By-laws of the registrant, as amended to date, filed herewith.
     
4.1   Rights Agreement, as amended to date, between the Company and American Stock Transfer & Trust Co., filed as Exhibit 4.1 to Form 8-K dated August 30, 1996, and incorporated herein by reference. Amendment is incorporated herein by reference to Exhibit 1 to Form 8-K/A dated March 31, 2000.
     
10.1   Mylan Laboratories Inc. 1986 Incentive Stock Option Plan, as amended to date, filed as Exhibit 10(b) to Form 10-K for the fiscal year ended March 31, 1993, and incorporated herein by reference.
     
10.2   Mylan Laboratories Inc. 1997 Incentive Stock Option Plan, as amended to date, filed as Exhibit 10.1 to Form 10-Q for the quarterly period ended September 30, 2002, and incorporated herein by reference.
     
10.3   Mylan Laboratories Inc. 1992 Nonemployee Director Stock Option Plan, as amended to date, filed as Exhibit 10(l) to Form 10-K for the fiscal year ended March 31, 1998, and incorporated herein by reference.
     
10.4   Executive Employment Agreement with Stuart A. Williams dated March 1, 2002, filed as Exhibit 10.5 to
Form 10-K for the fiscal year ended March 31, 2002, and incorporated herein by reference.

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10.5   Executive Employment Agreement with Edward J. Borkowski dated March 4, 2002, filed as Exhibit 10.6 to Form 10-K for the fiscal year ended March 31, 2002, and incorporated herein by reference.
     
10.6   Salary Continuation Plan with C.B. Todd dated January 27, 1995, filed as Exhibit 10(b) to Form 10-K for the fiscal year ended March 31, 1995, and incorporated herein by reference.
     
10.7   Salary Continuation Plan with Louis J. DeBone dated March 14, 1995, filed as Exhibit 10(c) to Form 10-K for the fiscal year ended March 31, 1995, and incorporated herein by reference.
     
10.8   Salary Continuation Plan with John P. O’Donnell dated March 14, 1995, as amended to date, filed as Exhibit 10.9 to Form 10-K for the fiscal year ended March 31, 2001, and incorporated herein by reference.
     
10.9   Salary Continuation Plan with Milan Puskar dated January 27, 1995, as amended, and Patricia Sunseri dated March 14, 1995, as amended, filed as Exhibit 10.1 to Form 10-Q for the quarterly period ended September 30, 2001, and incorporated herein by reference.
     
10.10   Split Dollar Life Insurance Arrangement with Milan Puskar Irrevocable Trust filed as Exhibit 10(h) to Form 10-K for the fiscal year ended March 31, 1996, and incorporated herein by reference.
     
10.11   Service Benefit Agreement with Laurence S. DeLynn, John C. Gaisford, M.D. and Robert W. Smiley, Esq. each dated January 27, 1995, and filed as Exhibit 10(g) to Form 10-K for fiscal year ended March 31, 1995, and incorporated herein by reference.
     
10.12   Transition and Succession Agreement dated November 10, 1999, as amended to date, with Milan Puskar, Patricia Sunseri, Roderick P. Jackson, Louis J. DeBone and John P. O’Donnell, filed as Exhibit 10.2 to Form 10-Q for the quarterly period ended December 31, 2001, and incorporated herein by reference.
     
10.13   Executives’ Retirement Savings Plan, filed as Exhibit 10.14 to Form 10-K for the fiscal year ended March 31, 2001, and incorporated herein by reference.
     
10.14   Supplemental Health Insurance Program For Certain Officers of Mylan Laboratories Inc., effective December 15, 2001, filed as Exhibit 10.1 to Form 10-Q for the quarterly period ended December 31, 2001, and incorporated herein by reference.
     
10.15   Executive Employment Agreement with Robert J. Coury, dated July 22, 2002, filed as Exhibit 10.1 to Form 10-Q for the quarterly period ended June 30, 2002, and incorporated herein by reference.

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10.16   Executive Employment Agreement with Louis J. DeBone, dated July 22, 2002, filed as Exhibit 10.2 to Form 10-Q for the quarterly period ended June 30, 2002, and incorporated herein by reference.
     
10.17   Executive Employment Agreement with John P. O’Donnell, dated July 22, 2002, filed as Exhibit 10.3 to Form 10-Q for the quarterly period ended June 30, 2002, and incorporated herein by reference.
     
10.18   Consulting and Counseling Agreement with Coury Investment Advisors, Inc., dated October 1, 2002, and filed herewith.
     
21.1   Subsidiaries of the registrant, filed herewith.
     
23.1   Independent Auditors’ consent, filed herewith.
     
99.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     (b)  Reports on Form 8-K

          On January 15, 2003, the Company filed a Report on Form 8-K announcing a three-for-two stock split.

          On February 18, 2003, the Company filed a Report on Form 8-K which included a presentation to investors. This filing was amended by a Report on Form 8-KA filed on February 27, 2003.

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SIGNATURES

          Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form to be signed on its behalf by the undersigned, thereunto duly authorized on June 20, 2003.

         
    Mylan Laboratories Inc.
         
    by   /s/ ROBERT J. COURY
       
    Robert J. Coury
    Vice Chairman of the Board and Chief Executive Officer

          Pursuant to the requirements of the Securities Exchange Act of 1934, this Form has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of June 20, 2003.

     
Signature   Title

 
/s/ ROBERT J. COURY   Vice Chairman, Chief Executive Officer and Director

  (Principal Executive Officer)
Robert J. Coury    
     
/s/ EDWARD J. BORKOWSKI   Chief Financial Officer

  (Principal Financial Officer)
Edward J. Borkowski    
     
/s/ GARY E. SPHAR   V.P. — Corporate Controller

  (Principal Accounting Officer)
Gary E. Sphar    
     
/s/ MILAN PUSKAR   Chairman and Director

   
Milan Puskar    
     
/s/ WENDY CAMERON   Director

   
Wendy Cameron    
     
/s/ LAURENCE S. DELYNN   Director

   
Laurence S. DeLynn    
     
/s/JOHN C. GAISFORD, M.D.   Director

   
John C. Gaisford, M.D.    
     
/s/ DOUGLAS J. LEECH   Director

   
Douglas J. Leech    
     
/s/PATRICIA A. SUNSERI   Director

   
Patricia A. Sunseri    
     
/s/ C.B. TODD   Director

   
C.B. Todd    
     
/s/ DR. R.L. VANDERVEEN   Director

   
Dr. R.L. Vanderveen, Ph.D., R.Ph    
     
/s/ STUART A. WILLIAMS, ESQ.   Director

   
Stuart A. Williams, Esq.    

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Sarbanes-Oxley Section 302 Certification

I, Robert J. Coury, certify that:

         
1.   I have reviewed this annual report on Form 10-K of Mylan Laboratories Inc.;
         
2.   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
         
3.   Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period[s] presented in this annual report;
         
4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
         
    a)   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
         
    b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
         
    c)   presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
         
5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
         
    a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
         
    b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls;
         
6.   The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: June 20, 2003

  /s/ Robert J. Coury
Robert J. Coury
Chief Executive Officer,
Mylan Laboratories Inc.

 


Table of Contents

Sarbanes-Oxley Section 302 Certification

I, Edward J. Borkowski, certify that:

         
1.   I have reviewed this annual report on Form 10-K of Mylan Laboratories Inc.;
         
2.   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
         
3.   Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period[s] presented in this annual report;
         
4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
         
    a)   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
         
    b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
         
    c)   presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
         
5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
         
    a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
         
    b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls;
         
6.   The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: June 20, 2003

  /s/ Edward J. Borkowski
Edward J. Borkowski
Chief Financial Officer,
Mylan Laboratories Inc.

 

<PAGE>


                                                                     EXHIBIT 3.2


                             MYLAN LABORATORIES INC.
                           A PENNSYLVANIA CORPORATION

                 SECOND AMENDED AND RESTATED BYLAWS, AS AMENDED

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                  <C>
ARTICLE I................................................................................................1
   Shareholders..........................................................................................1
      Section 1.01.  Annual Shareholders Meetings........................................................1
      Section 1.02.  Special Shareholders Meetings.......................................................1
      Section 1.03.  Organization........................................................................1
      Section 1.04.  Business of Shareholders Meetings...................................................1
      Section 1.05.  Order of Business...................................................................2
ARTICLE II...............................................................................................2
   Directors.............................................................................................2
      Section 2.01.  Number, Election and Term of Office.................................................3
      Section 2.02.  Filling Vacancies...................................................................3
      Section 2.03.  Nominations of Directors:  Election.................................................3
      Section 2.04.  Annual Meeting of the Board.........................................................4
      Section 2.05.  Regular Board Meetings:  Notice.....................................................4
      Section 2.06.  Special Board Meetings: Notice......................................................4
      Section 2.07.  Action by Consent in Writing........................................................4
      Section 2.08.  Organization........................................................................4
      Section 2.09.  Board Meetings by Telephone.........................................................4
      Section 2.10.  Resignations........................................................................4
      Section 2.11.  Qualification of Directors..........................................................5
      Section 2.12.  Limitation of Director Liability....................................................5
ARTICLE III..............................................................................................5
   Committees............................................................................................5
      Section 3.01.  Executive Committee:  How Constituted and Powers....................................5
      Section 3.02.  Organization........................................................................5
      Section 3.03.  Other Committees....................................................................5
      Section 3.04.  Procedures..........................................................................6
      Section 3.05.  Action by Consent in Writing........................................................6
      Section 3.06.  Meetings by Telephone...............................................................6
      Section 3.07.  Resignations; Removal; Vacancies....................................................6
ARTICLE IV...............................................................................................6
   Officers..............................................................................................6
      Section
 4.01.  Officers............................................................................6
      Section 4.02.  Removal.............................................................................6
      Section 4.03.  Resignations........................................................................7
      Section 4.04.  Vacancies...........................................................................7
      Section 4.05.  Chief Executive Officer.............................................................7
      Section 4.06.  President...........................................................................7
      Section 4.07.  Chief Operating Officer.............................................................7
      Section 4.08.  Chief Financial Officer.............................................................8
      Section 4.09.  Chief Legal Officer.................................................................8
      Section 4.10.  Chief Science Officer...............................................................8
      Section 4.11.  Vice Presidents.....................................................................8
      Section 4.12.  The Secretary and Assistant Secretaries.............................................8
      Section 4.13.  The Treasurer and Assistant Treasurers..............................................9
      Section 4.14.  The Controller and Assistant Controllers............................................9
ARTICLE V................................................................................................9
   Shares of Capital Stock...............................................................................9
      Section 5.01.  Share Certificates..................................................................9
      Section 5.02.  Lost, Stolen, Destroyed or Mutilated Certificates..................................10
      Section 5.03.  Regulations Relating to Shares.....................................................10
      Section 5.04.  Holders of Record..................................................................10
ARTICLE VI..............................................................................................11
   Execution of Instruments.............................................................................11
   Deposit and Withdrawal of Corporate Funds............................................................11
      Section 6.01.  Execution of Instruments Generally.................................................11
      Section 6.02.  General and Special Bank Accounts..................................................11
ARTICLE VII.............................................................................................11
   General Provisions...................................................................................11
      Section 7.01.  Offices............................................................................11
      Section 7.02.  Corporate Seal.....................................................................11
      Section 7.04.  Financial Reports to Shareholders..................................................11
      Section 7.05.  Waiver of Notices..................................................................11
      Section 7.06.  Facsimile Signatures...............................................................11
      Section 7.07.  Reliance Upon Books, Reports and Records...........................................11
      Section 7.08.  Gender.............................................................................12
ARTICLE VIII............................................................................................12
   Indemnification of Officers and Directors............................................................12
      Section 8.01.  Right to Indemnification...........................................................12
      Section 8.02.  Right to Payment of Expenses.......................................................12
      Section 8.03.  Right of Indemnitee to Bring Suit..................................................12
      Section 8.04.  Non-Exclusivity of Rights..........................................................13
      Section 8.05.  Insurance..........................................................................13
      Section 8.06.  Indemnification of Employees, Assistants and Agents................................13
      Section 8.07.  Other Enterprises, Fines, Serving at Corporation's Request.........................13
      Section 8.08.  Effect of Amendment................................................................13
      Section 8.09.  Savings Clause.....................................................................13
ARTICLE IX..............................................................................................13
   Amendments...........................................................................................13
      Section 9.01.  Amendments.........................................................................13
ARTICLE X...............................................................................................13
   Inapplicable Subchapters of Business Corporation Law of Pennsylvania.................................13
      Section 10.01.  Subchapter E......................................................................13
      Section 10.02.  Subchapter G......................................................................13
      Section 10.03.  Subchapter H......................................................................13
</TABLE>

                                        i



<PAGE>


                             MYLAN LABORATORIES INC.
                           A PENNSYLVANIA CORPORATION

                 SECOND AMENDED AND RESTATED BYLAWS, AS AMENDED

                                    ARTICLE I

                                  Shareholders

         Section 1.01. Annual Shareholders Meetings. The annual meeting of the
shareholders of Mylan Laboratories Inc. (the "Corporation") shall be held on the
last Friday of July in each year if not a legal holiday, and if a legal holiday,
then on the next succeeding day which is not a legal holiday, at 11:00 a.m., at
the principal executive office of the Corporation, or at such other date, time
and place as may be fixed by the Board of Directors (the "Board").
         Section 1.02. Special Shareholders Meetings. Special meetings of the
shareholders may be called at any time by the Chairman of the Board or by
two-thirds of the Board. Special shareholders meetings shall be held at such
time and such place as designated by the Chairman of the Board or his designee.
No business may be transacted at any special meeting of the shareholders other
than that stated in the notice of meeting.
         Section 1.03. Organization. The Chairman of the Board shall preside and
the Secretary, or in his absence any Assistant Secretary, shall act as
secretary, at all meetings of the shareholders. In the event that the Chairman
of the Board is absent, the Vice Chairman of the Board shall preside at such
meeting. In the absence of the Vice Chairman of the Board, the Chairman of the
Board shall designate another member of the Board, or an officer of the
Corporation, to preside over such meeting. If the Chairman of the Board fails to
designate such person, a member of the Board or an officer of the Corporation
shall be selected by a majority of the Board in attendance at such meeting, and
that officer shall preside over the meeting. In the absence of the Secretary and
any Assistant Secretary, the person presiding over the meeting shall designate
any person to act as secretary of the meeting.
         Section 1.04.  Business of Shareholders Meetings.
         (a) At any annual meeting of the shareholders, only such business will
be conducted or considered as is properly brought before the meeting. To be
properly brought before an annual shareholders meeting, business must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (ii) brought before the meeting by the person
presiding over the meeting, or (iii) otherwise properly requested to be brought
before the meeting by a shareholder of the Corporation in accordance with
Section 1.04(b) of these Bylaws.
         (b) For business to be properly requested by a shareholder to be
brought before an annual shareholders meeting, the shareholder must (i) be a
shareholder of the Corporation of record at the time of the giving of the notice
for such annual meeting, (ii) be entitled to vote at such annual meeting, and
(iii) be in compliance with the notice procedures set forth in this Section
1.04(b) of the Bylaws. To be timely, a shareholder's notice must be received by
the Secretary not less than one hundred twenty (120) calendar days prior to the
annual shareholders meeting; provided, however, that in the event a public
announcement of the date of the annual shareholders meeting is not made at least
seventy-five (75) calendar days prior to the date of the annual shareholders
meeting, notice by the shareholder to be timely must be received by the
Secretary not later than the 



<PAGE>


close of business on the tenth (10th) calendar day following the day on which a
public announcement is first made of the date of the annual shareholders
meeting. A shareholder's notice to the Secretary must set forth as to each
matter the shareholder proposes to bring before the annual shareholders meeting
a description in reasonable detail of the business desired to be brought before
the annual shareholders meeting and the reasons for conducting such business at
the annual meeting; the name and address, as they appear on the Corporation's
books, of the shareholder proposing such business and the beneficial owner, if
any, on whose behalf the proposal is made; the class and number of shares of the
Corporation that are owned beneficially and of record by the shareholder
proposing such business and the beneficial owner, if any, on whose behalf the
proposal is made; and any material interest of such shareholder proposing such
business and the beneficial owner, if any, on whose behalf the proposal is made.
A shareholder must also submit a supporting statement indicating the reasons for
bringing such proposal. A shareholder must also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and the rules and regulations (the "Regulations") promulgated thereunder
with respect to the matters set forth in this Section 1.04 of the Bylaws. For
purposes of these Bylaws, the term "public announcement" means a posting on the
Corporation's website, disclosure in a press release reported by the Dow Jones
News Service, Associated Press, or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14, or 15(d) of the Exchange Act or
furnished to shareholders. Nothing in this Section 1.04 of the Bylaws will be
deemed to affect any rights of shareholders to request inclusion of proposal in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
         (c) The determination of whether any business sought to be brought
before any annual or special meeting of the shareholders is properly brought
before such meeting in accordance with these Bylaws will be made by the person
presiding over such meeting, be it the Chairman of the Board, the Vice Chairman
of the Board, a Board member or an officer of the Corporation appointed by the
Chairman of the Board or selected to preside by the Board pursuant to Section
1.03 of these Bylaws. If the person presiding over the meeting determines that
any business is not properly brought before such meeting, he will so declare to
the meeting and any such business will not be conducted or considered.

         Section 1.05. Order of Business. The order and conduct of business at
shareholders meetings shall be determined by the person presiding over the
shareholders meeting. The person presiding over such meeting shall have the
power to adjourn the meeting to another place, date and time.

                                   ARTICLE II

                                    Directors

         Section 2.01. Number, Election and Term of Office. The number of
Directors which shall constitute the full Board shall be such number, not less
than three, as shall be fixed by the Board or the shareholders; provided,
however, that if all the shares of the Corporation shall be owned beneficially
and of record by either one or two shareholders, the number of Directors may be
less than three but not less than the number of shareholders. The shareholders
shall elect a full Board at each annual meeting of shareholders. Each Director
shall serve until the next annual shareholders meeting, and 

                                       2

<PAGE>


thereafter until his successor has been selected and qualified, or until his
death, resignation or removal. The Board shall elect from among its members a
Chairman of the Board who shall appoint a Vice Chairman of the Board.
         Section 2.02. Filling Vacancies. Any vacancy caused by the death,
resignation or removal of a Director shall be filled by appointment thereto by
the Chairman of the Board, or in his absence, by the Vice Chairman of the Board,
and such Director so appointed shall serve for the unexpired term of the
Director causing such vacancy.
         Section 2.03.  Nominations of Directors:  Election.
         (a) Only persons who are nominated in accordance with the following
procedures will be eligible for election at a meeting of shareholders as
Directors of the Corporation.
         (b) Nominations of persons for election as Directors of the Corporation
may be made only at an annual meeting of shareholders by or at the direction of
the Board or by any shareholder who (i) is a shareholder of record at the time
of giving of notice provided for in this Section 2.03 of the Bylaws, (ii) is
entitled to vote for the election of Directors at such meeting, and (iii) is in
compliance with the notice procedures set forth in this Section 2.03(c) of these
Bylaws.
         (c) To be timely, a shareholder's notice must be received by the
Secretary not less than one hundred twenty (120) calendar days prior to the
annual shareholders meeting; provided, however, that in the event a public
announcement of the date of the annual shareholders meeting is not made at least
seventy-five (75) calendar days prior to the date of the annual shareholders
meeting, notice by the shareholder to be timely must be received by the
Secretary not later than the close of business on the tenth (10th) calendar day
following the day on which a public announcement is first made of the date of
the annual shareholders meeting. To be in proper written form, such
shareholder's notice must set forth or include the name and address, as they
appear on the Corporation's books, of the shareholder giving the notice and of
the beneficial owner, if any, on whose behalf the nomination is made; a
representation that the shareholder giving the notice is a holder of record of
stock of the Corporation entitled to vote at such annual meeting and intends to
appear in person or by proxy at the annual meeting to nominate the person or
persons specified in the notice; the class and number of shares of stock of the
Corporation owned beneficially and of record by the shareholder giving the
notice and by the beneficial owner, if any, on whose behalf the nomination is
made; a description of all arrangements or understandings between or among any
of the shareholder giving the notice, the beneficial owner on whose behalf the
notice is given, each nominee, and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder giving the notice; such other information regarding each
nominee proposed by the shareholder giving the notice as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board; and the signed consent of each nominee to serve
as a Director of the Corporation if so elected. At the request of the Board, any
person nominated by the Board for election as a Director must furnish to the
Secretary that information required to be set forth in a shareholder's notice of
nomination which pertains to the nominee. The person presiding over any annual
meeting will, if the facts warrant, determine that a nomination was not made in
accordance with the procedures prescribed by this Section 2.03 of the Bylaws,
and if he should so determine, he will so declare to

                                       3

<PAGE>


the meeting and the defective nomination will be disregarded. A shareholder must
also comply with all applicable requirements of the Exchange Act and the
Regulations with respect to the matters set forth in this Section 2.03 of the
Bylaws.
         Section 2.04. Annual Meeting of the Board. The annual meeting of the
Board shall be held immediately after the annual meeting of the shareholders and
shall be the annual organizational meeting of the Directors-elect, at which
meeting the new Board shall be organized, Committees of the Board shall be
established, and the officers of the Corporation for the ensuing year shall be
elected by the Board of Directors or appointed by the Chief Executive Officer
consistent with these Bylaws.
         Section 2.05. Regular Board Meetings: Notice. Regular meetings of the
Board shall be held at such places and times as shall be determined by
resolution of the Board at its annual meeting. Notice of such regular meetings
of the Board shall not be required to be given, except that whenever the time or
place of such regular meetings shall be changed, notice of such action shall be
given promptly by telephone or otherwise to each Director not participating in
such action.
         Section 2.06. Special Board Meetings: Notice. Special meetings of the
Board may be called at any time by the Chairman of the Board or by two-thirds of
the Directors, to be held at such place and times as shall be specified in the
notice or waiver of notice thereof. Notice of every special meeting of the
Board, stating the place, day and hour thereof, shall be given by telephone or
otherwise to each Director at least twenty-four (24) hours before the time at
which the meeting is to be held, unless such notice is waived pursuant to
Section 7.05 of the Bylaws.
         Section 2.07. Action by Consent in Writing. Any action required or
permitted to be taken at any meeting of the Board may be taken without a meeting
if all members of the Board shall consent thereto in writing, and the writing or
writings shall be filed with the minutes of the proceedings of the Board.
         Section 2.08. Organization. The Chairman of the Board shall preside at
each meeting of the Board and the Secretary, or in his absence any Assistant
Secretary, shall act as secretary at all meetings of the Board. In the event
that the Chairman of the Board is absent, the Vice Chairman of the Board shall
preside at such meeting. In the absence of the Vice Chairman of the Board, a
Director shall be designated by the Chairman of the Board to preside over such
meeting. If the Chairman of the Board fails to designate such person, a majority
of the Board in attendance at such meeting shall select a Director to preside
over such meeting. In the absence of the Secretary or any Assistant Secretary,
the person presiding over the meeting shall designate any person to act as
secretary of the meeting.
         Section 2.09. Board Meetings by Telephone. One or more of the Directors
may participate in any regular or special meeting of the Board by telephone
conference or similar communications equipment by means of which all persons
participating in the meeting are able to hear each other.
         Section 2.10. Resignations. Any Director may resign at any time by
delivering his letter of resignation to the Chairman of the Board with a copy to
the Secretary. Any such resignation shall take effect at the time specified
therein, or, if the time when it shall become effective shall not be specified
therein, then it shall take effect immediately upon

                                       4

<PAGE>


its receipt by the Chairman of the Board, and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
         Section 2.11. Qualification of Directors. It shall be a qualification
for membership on the Board that a Director not be a member of the board of
directors or an officer or employee of a competitor (or an affiliate of a
competitor) of the Corporation.
         Section 2.12. Limitation of Director Liability. A Director of the
Corporation shall not be personally liable for monetary damages as such for any
action taken, or any failure to take any action, unless the Director has
breached or failed to perform the duties of his office under Subchapter B of
Chapter 17 of the Business Corporation Law of Pennsylvania ("BCL"), including
Section 1712 thereof (relating to standard of care and justifiable reliance) and
the breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness; provided, however, that the limitation of liability provided in
this Section 2.12 shall not apply to the responsibility or liability of a
director pursuant to any criminal statute or the liability of a director for
payment of taxes pursuant to local, state or federal law. Neither the amendment
nor the repeal of this Section 2.12 shall eliminate or reduce the effect of this
Section 2.12 with respect to any matter occurring, or any cause of action, suit
or claim that, but for this Section 2.12, would accrue or arise, prior to such
amendment or repeal. If Subchapter B of Chapter 17 of the BCL is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by Subchapter B
of Chapter 17, or any successor thereto under the BCL, as amended from time to
time.

                                   ARTICLE III

                                   Committees

         Section 3.01. Executive Committee: How Constituted and Powers. The
Board may elect such Directors then in office, to constitute an Executive
Committee (herein called the "Executive Committee"), provided, however, that
both the Chairman of the Board and the Vice Chairman of the Board shall be
members of said Committee. The Executive Committee shall keep proper minutes and
records of its proceedings, and all actions of the Executive Committee shall be
reported to the Board at its meeting next succeeding such activity. During the
intervals between the meetings of the Board of Directors, the Executive
Committee shall have, and may exercise, all powers and rights of the Board
unless otherwise limited by a resolution of the Board.
         Section 3.02. Organization. The Chairman of the Board shall act as
chairman at all meetings of the Executive Committee and shall designate a person
to act as secretary thereof. In the event that the Chairman of the Board is
absent, the Vice Chairman shall act as chairman at all meetings of the Executive
Committee and shall designate a person to act as secretary thereof. If neither
the Chairman of the Board, nor the Vice Chairman of the Board is present at such
meeting, the chairman of such meeting shall be selected by a majority of the
members of the Executive Committee in attendance at such meeting and that
chairman shall designate a person to act as secretary thereof.
         Section 3.03. Other Committees. The Board shall form an Audit
Committee, a Compensation Committee, a Finance Committee, a Governance and
Nominating Committee and such other committees as it may determine, which shall
in each case consist of Directors elected by the Board. Committees shall keep
proper minutes and 

                                        5

<PAGE>


records of their proceedings and may exercise such powers as the Board may by
resolution determine and specify in their respective charters and such other
resolutions as the Board may adopt.
         Section 3.04. Procedures. A majority of all the members of any
Committee of the Board may fix its rules of procedure, determine its action and
fix the time and place of its meetings and specify what notice thereof, if any,
shall be given, unless the Board shall otherwise by resolution provide.
         Section 3.05. Action by Consent in Writing. Any action required or
permitted to be taken at any meeting of any Committee may be taken without a
meeting if all members of the Committee shall consent thereto in writing and the
writing or writings shall be filed with the minutes of proceedings of the
Committee.
         Section 3.06. Meetings by Telephone. One or more members of a Committee
may participate in any Committee meeting by telephone conference or similar
communications equipment by means of which all persons participating in the
meeting are able to hear each other.
         Section 3.07. Resignations; Removal; Vacancies. Any member of a
Committee of the Board may resign therefrom at any time by delivering a letter
of resignation to the Chairman of the Board with a copy to the Secretary. Any
such resignation shall take effect at the time specified therein, or, if the
time when it shall become effective shall not be specified therein, then it
shall take effect immediately upon its receipt by the Chairman of the Board;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. The Board may remove a member of
any Committee of the Board. Any vacancy in a Committee of the Board shall be
filled by the vote of the Board and shall be effective upon delivery of a
written designation of such appointment to the Secretary.

                                   ARTICLE IV

                                    Officers

         Section 4.01. Officers. The Corporation may have such officers as
determined by the Board, subject to the requirements of the BCL or other
applicable law, and pursuant to these Bylaws. Any two or more offices may be
held by the same person, except that any officer holding the position of Chief
Executive Officer, Chief Operating Officer, President or Chief Financial
Officer, or any position equivalent to such position, cannot hold the office of
the Secretary. The Board shall elect the Chief Executive Officer and the Board
may elect, or delegate authority to the Chief Executive Officer to appoint, a
President, a Chief Financial Officer, a Chief Legal Officer, a Chief Science
Officer, and any other officers of the Corporation as the Board or the Chief
Executive Officer may desire. Each officer elected by the Board, or appointed by
the Chief Executive Officer, shall hold office until the next succeeding annual
meeting of the Board and thereafter until his successor shall have been selected
and shall qualify, or until his death, resignation or removal.
         Section 4.02. Removal. The Board may remove, either with or without
cause, at any time, any officer elected by the Board; provided, however, that
the removal shall be without prejudice to the contract rights, if any, of the
person so removed. The Board may delegate to the Chief Executive Officer the
right to remove, either with or without cause, at any time, any officer the
Chief Executive Officer has appointed; provided, however, 


                                        6

<PAGE>


that the removal shall be without prejudice to the contract rights, if any, of
the person so removed.
         Section 4.03. Resignations. Any officer may resign at any time by
delivering a letter of resignation to the Chairman of the Board, or to the Chief
Executive Officer if such officer was appointed by the Chief Executive Officer,
with a copy to the Secretary. Any such resignation shall take effect at the time
specified therein, or, if the time when it shall become effective shall not be
specified therein, then it shall take effect immediately upon its receipt by the
Chairman of the Board, or the Chief Executive Officer, as the case may be; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
         Section 4.04. Vacancies. A vacancy caused by the death, resignation or
removal of any officer elected by the Board shall be filled by an election by
the Board, and such officer so elected by the Board shall serve for the
unexpired portion of the term of the officer causing such vacancy. The Board may
delegate to the Chief Executive Officer the right to fill any vacancy caused by
the death, resignation or removal of an officer appointed by the Chief Executive
Officer.
         Section 4.05. Chief Executive Officer The Chief Executive Officer shall
have such powers and perform such duties as from time to time may be assigned to
him by the Board including, but not limited to, those powers and duties that may
be conferred upon the Chief Executive Officer under these Bylaws or any
resolution adopted by the Board pursuant to these Bylaws. The Chief Executive
Officer shall make a report of the state of the business of the Corporation at
each annual meeting of the shareholders and from time to time the Chief
Executive Officer shall report to the shareholders and to the Board those
corporate matters, which, in the Chief Executive Officer's judgment, are
required to be brought to their attention. The Chief Executive Officer shall
have general and active supervision and control of the over-all business and
affairs of the Corporation. Unless otherwise directed by the Board, the Chief
Executive Officer shall be the officer authorized to execute documents or take
actions on behalf of the Corporation in its capacity as a shareholder or equity
owner of any other entity. The Chief Executive Officer may sign, execute and
deliver in the name of the Corporation all contracts or other instruments
requiring execution by the Corporation, except in cases where the signing,
execution or delivery thereof shall be expressly delegated by the Board or by a
duly authorized Committee of the Board to some other officer or agent of the
Corporation or where any of them shall be required by law to be signed, executed
or delivered by a person other than the Chief Executive Officer. The Chief
Executive Officer may appoint from time to time such agents as may be deemed
advisable for the prompt and orderly transaction of the business of the
Corporation, prescribe their duties and the terms of their engagements, fix
their compensation and dismiss such agents so appointed.
         Section 4.06. President. The President shall have such powers and
perform such duties as from time to time may be assigned to him by the Board or
by the Chief Executive Officer.
         Section 4.07. Chief Operating Officer. The Chief Operating Officer
shall have such powers and perform such duties as from time to time may be
assigned to him by the Board, by the Chief Executive Officer or by the
President. The Chief Operating Officer shall be charged with the supervision of
the day-to-day operations of the Corporation.


                                        7

<PAGE>


         Section 4.08. Chief Financial Officer. The Chief Financial Officer
shall have such powers and perform such duties as from time to time may be
assigned to him by the Board, by the Chief Executive Officer or by the
President. The Chief Financial Officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of the Corporation,
using appropriate accounting principles; have supervision over and be
responsible for the financial affairs of the Corporation; cause to be kept at
the principal executive office of the Corporation and preserved for review as
required by law or regulation all financial records of the Corporation; be
responsible for the establishment of adequate internal control over the
transactions and books of account of the Corporation; and be responsible for
rendering to the proper officers and the Board upon request, and to the
shareholders and other parties as required by law or regulation, financial
statements of the Corporation.
         Section 4.09. Chief Legal Officer. The Chief Legal Officer shall have
such powers and perform such duties as from time to time may be assigned to him
by the Board, by the Chief Executive Officer or by the President. The Chief
Legal Officer shall be the primary legal officer of the Corporation and shall
have general and active supervision and direction over the legal affairs of the
Corporation.
         Section 4.10. Chief Science Officer. The Chief Science Officer shall
have such powers and perform such duties as from time to time may be assigned to
him by the Board, by the Chief Executive Officer or by the President. The Chief
Science Officer shall be the person responsible for the implementation of the
scientific direction of the corporation and shall have general and active
supervision over scientific matters related to the Corporation.
         Section 4.11. Vice Presidents. Each of the Vice Presidents (including
each of the Executive Vice Presidents and Senior Vice Presidents) shall have
such powers and perform such duties as from time to time may be assigned to him
by the Chief Executive Officer or his designee.
         Section 4.12.  The Secretary and Assistant Secretaries.
         (a) The Secretary shall record all the proceedings of the meetings of
the shareholders and the Board in one or more minute books kept for that
purpose; see that all notices shall be duly given in accordance with the
provisions of these Bylaws or as required by law; be custodian of the seal of
the Corporation, and shall see that such seal, or, if authorized by the Board, a
facsimile thereof, shall be affixed to any documents the execution of which on
behalf of the Corporation shall be duly authorized and may attest such seal when
so affixed; have charge, directly or through the transfer agent or transfer
agents and registrar or registrars duly appointed, of the issue, transfer and
registration of certificates for stock of the Corporation and of the records
thereof; upon request, exhibit or cause to be exhibited at all reasonable times
to the Board, at the place where they shall be kept, such records of the issue,
transfer and registration of the certificates for stock of the Corporation; and
in general, perform all duties incident to the office of Secretary and such
duties as from time to time may be assigned to him by the Board or the Chief
Executive Officer.
         (b) At the request of the Secretary, or in his absence or inability to
act, the Assistant Secretary, or if there be more than one, any of the Assistant
Secretaries, shall perform the duties of the Secretary, and, when so acting,
shall have the powers of, and be subject to all the restrictions upon, the
Secretary. Each of the Assistant Secretaries shall 


                                       8

<PAGE>


perform such duties as from time to time may be assigned to him by the Board,
the Chief Executive Officer or the Secretary.
         Section 4.13.  The Treasurer and Assistant Treasurers.
         (a) The Treasurer shall have charge and custody of, and be responsible
for, all funds, corporate securities and investments, notes and valuable effects
of the Corporation; receive and give receipt for money due and payable to the
Corporation from any sources whatsoever; deposit all such money to the credit of
the Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Section 6.02 hereof, cause such
funds to be disbursed by checks or drafts on the authorized depositories of the
Corporation signed as provided in Section 6.01 hereof; and be responsible for
the accuracy of the amounts of, and cause to be preserved proper vouchers for
all moneys so disbursed; render to the Chief Executive Officer, the Chief
Financial Officer, or the Board, whenever they, respectively, shall request the
Treasurer so to do, an account of the financial condition of the Corporation and
of all the Treasurer's transactions as such officer; upon request, exhibit or
cause to be exhibited at all reasonable times, at the place where they shall be
kept, the Treasurer's cash books and other records to the Board, the Chief
Executive Officer or the Chief Financial Officer; and have such powers and
perform such duties as from time to time may be assigned to him by the Board,
the Chief Executive Officer or the Chief Financial Officer.
         (b) At the request of the Treasurer, or in his absence or inability to
act, the Assistant Treasurer, or if there be more than one, any of the Assistant
Treasurers, shall perform the duties of Treasurer, and, so acting, shall have
all the powers of, and be subject to all of the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform such duties as from time to
time may be assigned to him by the Board, the Chief Executive Officer, the Chief
Financial Officer and the Treasurer.
         Section 4.14.  The Controller and Assistant Controllers.
         (a) The Controller shall keep or cause to be kept correct records of
the business and transactions of the Corporation and shall, upon request, at all
reasonable times exhibit or cause to be exhibited such records to the Board at
the place where such records shall be kept. The Controller shall have such
powers and perform such duties as from time to time may be assigned to him by
the Board, the Chief Executive Officer or the Chief Financial Officer.
         (b) At the request of the Controller, or in case of his absence or
inability to act, the Assistant Controller, or, if there be more than one, any
of the Assistant Controllers, shall perform the duties of the Controller, and,
when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the Controller. Each of the Assistant Controllers shall
perform such duties as from time to time may be assigned to him by the Board,
the Chief Executive Officer, the Chief Financial Officer or the Controller.

                                    ARTICLE V

                             Shares of Capital Stock

         Section 5.01. Share Certificates. Every owner of stock of the
Corporation shall be entitled to have a certificate registered in such owner's
name in such form as the Board shall prescribe, certifying the number of shares
of stock of the Corporation owned by such owner. The certificates representing
shares of stock shall be numbered in the order in which they shall be issued and
shall be signed in the name of the Corporation by the Chief Executive Officer,
the President or such other officer, duly authorized, and by the 


                                        9

<PAGE>


Secretary or an Assistant Secretary. Any or all of the signatures on any such
certificate may be facsimiles. In case any officer or officers or transfer agent
or registrar of the Corporation who shall have signed, or whose facsimile
signature or signatures shall have been placed upon any such certificate shall
cease to be such officer or officers or transfer agent or registrar before such
certificate shall have been issued, such certificate may be issued by the
Corporation with the same effect as though the person or persons who shall have
signed such certificate, or whose facsimile signature or signatures shall have
been placed thereupon, were such officer or officers or transfer agent or
registrar at the date of issue. Records shall be kept of the amount of the stock
of the Corporation issued and outstanding, the manner in which and the time when
such stock was paid for, the respective names, alphabetically arranged, and the
addresses of the persons, firms or corporations owning of record the stock
represented by certificates for stock of the Corporation, the number, class and
series of shares represented by such certificates, respectively, the time when
each became an owner of record thereof, and the respective dates of such
certificates, and in case of cancellation, the respective dates of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer shall
be canceled and a new certificate or certificates shall not be issued in
exchange for any existing certificate until such existing certificate shall have
been so canceled except in cases provided for in Section 5.02 hereof.
         Section 5.02. Lost, Stolen, Destroyed or Mutilated Certificates. New
certificates for shares of stock may be issued to replace certificates lost,
stolen, destroyed or mutilated upon such conditions as the Board may from time
to time determine. If the registered owner of any stock of the Corporation
notifies the Corporation of any loss, theft, destruction or mutilation of the
certificate therefor the Corporation may, in its discretion, require the
registered owner of the lost, stolen or destroyed certificate or his legal
representatives to give the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Corporation
shall in its uncontrolled discretion determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate, or the issuance of such new
certificate. The Corporation may, however, in its discretion refuse to issue any
such new certificate except pursuant to legal proceedings under the laws of the
Commonwealth of Pennsylvania.
         Section 5.03. Regulations Relating to Shares. The Board shall have
power and authority to make all such rules and regulations not inconsistent with
these Bylaws as it may deem expedient, concerning the issue, transfer and
registration of certificates representing shares of stock of the Corporation.
         Section 5.04. Holders of Record. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder and
owner in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Commonwealth of Pennsylvania.


                                       10

<PAGE>


                                   ARTICLE VI

                            Execution of Instruments;
                    Deposit and Withdrawal of Corporate Funds

         Section 6.01. Execution of Instruments Generally. The authority to sign
any contracts and other instruments requiring execution by the Corporation may
be conferred by the Board upon an authorized officer of the Corporation or upon
any other person or persons designated by the Board. Any person having authority
to sign on behalf of the Corporation may delegate, from time to time, by
instrument in writing, all or any part of such authority to any other person or
persons so authorized by the Board.
         Section 6.02. General and Special Bank Accounts. The Board may from
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select, or as may be selected by any officer or officers or agent or agents of
the Corporation to whom power in that respect shall have been delegated by the
Board. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these Bylaws, as it
may deem expedient.

                                   ARTICLE VII

                               General Provisions

         Section 7.01. Offices. The principal executive office of the
Corporation shall be located at such place within or without the Commonwealth of
Pennsylvania as the Board from time to time designates. The registered office of
the Corporation shall be located at 1030 Century Building, 130 Seventh Street,
Pittsburgh, Pennsylvania 15222 or at such other place within the Commonwealth of
Pennsylvania as the Board from time to time designates.
         Section 7.02. Corporate Seal. The Board shall prescribe the form of a
suitable corporate seal, which shall contain the full name of the Corporation
and the year and state of incorporation.
         Section 7.03. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of April and end on the thirty-first day of March in
each year.
         Section 7.04. Financial Reports to Shareholders. The Board shall cause
the preparation of financial statements reflecting the financial condition and
results of operations of the Corporation as of and for the period ending upon
the close of each fiscal year, and shall engage independent certified public
accountants to audit such financial statements. The Board shall cause such
financial statements and reports of auditors to be furnished to the
shareholders, and shall cause such other financial statements, if any, as it
deems advisable to be furnished to the shareholders.
         Section 7.05. Waiver of Notices. Whenever notice shall be required to
be given by these Bylaws or by the Articles of Incorporation of the Corporation
or by the BCL, a written waiver thereof, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice.
         Section 7.06. Facsimile Signatures. In addition to the provisions for
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board or a Committee thereof.
         Section 7.07. Reliance Upon Books, Reports and Records. Each Director,
each member of any Committee designated by the Board, and each officer of the
Corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the 


                                       11

<PAGE>


books of account or other records of the Corporation, including reports made to
the Corporation by any of its officers, by an independent certified public
accountant, by independent legal counsel, or by an appraiser.
        Section 7.08. Gender. Any words in the masculine gender in these Bylaws
shall be deemed to include the feminine gender.

                                  ARTICLE VIII

                    Indemnification of Officers and Directors

         Section 8.01. Right to Indemnification. Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), whether brought by or in the name of
the Corporation or otherwise, by reason of the fact that he is or was a Director
or an officer of the Corporation or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
Director, officer, employee or agent or in any other capacity while serving as a
Director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by law, including, but not
limited to the BCL, as the same exists or may hereafter be amended (but, in the
case of such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board. For purposes of Section 8.01, 8.02 and
8.03, persons holding the following titles shall be considered officers of the
Company: Chief Executive Officer, President, Chief Operating Officer, Chief
Legal Officer, Chief Science Officer, and all persons holding the title of
Executive Vice President, Senior Vice President or Vice President.
         Section 8.02. Right to Payment of Expenses. The right to
indemnification conferred in Section 8.01 shall include the right to be paid by
the Corporation the expenses (including attorneys' fees) incurred in defending
any such proceeding prior to its final disposition (hereinafter a "payment of
expenses"). The rights to indemnification and to the payment of expenses
conferred in Sections 8.01 and 8.02 shall be contract rights and such rights
shall continue as to an indemnitee who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
         Section 8.03. Right of Indemnitee to Bring Suit. If a claim under
Section 8.01 or 8.02 of this Article is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
Corporation, except in the case of a claim for a payment of expenses, in which
case the applicable period shall be twenty (20) days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, the 


                                       12

<PAGE>


indemnitee also shall be entitled to be paid the expense of prosecuting or
defending such suit, including attorney's fees.
         Section 8.04. Non-Exclusivity of Rights. The rights to indemnification
and to the payment of expenses shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Articles of Incorporation, Bylaws, any agreement, any vote of shareholders or
disinterested directors or otherwise.
         Section 8.05. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the BCL.
         Section 8.06. Indemnification of Other Officers, Employees, Assistants
and Agents. The Corporation may, to the extent authorized from time to time by
the Board, grant rights to indemnification and to the payment of expenses to any
officer not otherwise covered by this Article, to an employee, an assistant or
an agent of the Corporation to the fullest extent of the provisions of this
Article with respect to the indemnification and payment of expenses of Directors
and officers of the Corporation.
         Section 8.07. Other Enterprises, Fines, Serving at Corporation's
Request. For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
tax assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a Director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such Director, officer, employee, or
agent with respect to any employee benefit plan, its participants, or
beneficiaries.
         Section 8.08. Effect of Amendment. Any amendment, repeal or
modification of any provision of this Article by the shareholders or the
Directors shall not adversely affect any right or protection of a Director or
officer existing at the time of such amendment, repeal or modification.
         Section 8.09. Savings Clause. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each indemnitee as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, to the fullest extent
permitted by any applicable portion of this Article that shall not have been
invalidated and to the fullest extent permitted by applicable law.

                                   ARTICLE IX

                                   Amendments

         Section 9.01. Amendments. These Amended and Restated Bylaws may be
amended, altered and repealed, and new Bylaws may be adopted, by the
shareholders or the Board at any regular or special meeting.

                                    ARTICLE X

      Inapplicable Subchapters of Business Corporation Law of Pennsylvania

         Section 10.01. Subchapter E. The provisions of Subchapter E to Chapter
25 of the BCL (successor to Section 910 of the BCL) shall not be applicable to
this Corporation.
         Section 10.02. Subchapter G. The provisions of Subchapter G to Chapter
25 of the BCL, as approved April 27, 1990, shall not be applicable to this
Corporation.
         Section 10.03. Subchapter H. The provision of Subchapter H to Chapter
25 of the BCL, as approved April 27, 1990, shall not be applicable to this
Corporation.

                                       13



<PAGE>

                                                                   Exhibit 10.18

                             CONSULTING & COUNSELING
                                    AGREEMENT

         THIS AGREEMENT, made and entered into this 19th day of December, 2002
but effective as of October 1, 2002 by and between MYLAN LABORATORIES INC., a
Pennsylvania Corporation having an address at 1030 Century Building, 130 Seventh
Street, Pittsburgh, PA 15222 ("Company"), and COURY INVESTMENT ADVISORS, INC. a
Pennsylvania corporation, having an address at USX Tower, 30th Floor, 600 Grant
Street, Pittsburgh, Pennsylvania 15219 ("Consultant").

1. Scope of Engagement. The Company hereby engages Consultant, and the
Consultant hereby accepts such engagement, to perform such specialized services
as the Company may from time to time reasonably request. By way of illustration,
and not limitation, this engagement may include:

     a.   Assisting Company's management with its selection, implementation and
          review of cash management portfolio and investment advisors;

     b.   Assisting Company's management in its review of service providers,
          including trustees, investment managers and custodians, of the
          Company's Section 401(k) Profit Sharing Plan ("401(k)Plan");

     c.   Assisting Company's management in the selection, implementation and
          review of service providers, including brokers, custodians
 and record
          keepers, of the Company's Employee Stock Purchase Plan ("ESP Plan")
          and the Company's Stock Option Plans ("Stock Option Plans") and
          successors Plans; and

     d.   Assisting Company's management with its establishment of investment
          goals, standards and benchmarks relative to the Company's cash
          management, 401(k) Plan and ESP Plan.

With respect to the above services, the Company acknowledges that the Consultant
shall not serve as a "fiduciary" as that term is defined under ERISA.

The Company understands and acknowledges that as a result of the activities of
the Consultant and Company's management a decision may be reached to authorize
the active discretionary management of all or a portion of the Company's cash or
investment assets by and/or among certain independent investment managers and/or
investment management programs, trustees, brokers, custodians and record keepers
("Independent Managers"). The Company shall be solely responsible for engaging
such Independent Managers. The terms and conditions under which the Company
shall engage the Independent Managers, including the compensation to be paid by
the Company to the Independent Managers, shall be set forth in a separate
written agreement between the Company and the designated Independent Managers.




<PAGE>

Upon the Company's engagement of any Independent Manager, the Company
acknowledges that the designated Independent Manager, and not the Consultant,
shall maintain exclusive responsibility for the management and supervision of
Company investment portfolios.

Consultant's recommendations are based upon its professional judgment.
Consultant cannot guarantee the results of any of its recommendations.
Consultant shall not be responsible for acts or failure to act that occurred
prior to the effective date of this Agreement; nor shall the Consultant be
responsible for any acts or failure to act by the Company's officers and
employees.

The Company is free to obtain services from any professional source of its
choosing to implement the recommendations of Consultant. The Company will
retain absolute discretion over all implementation decisions.

The Company maintains sole responsibility to notify the Consultant if there is a
change in its objectives or procedures (or any other material issues) for the
purpose of Consultant reviewing/evaluating/revising its previous recommendations
and/or services to the Company.

As specifically set forth in the Consultant's written disclosure statement (see
paragraph 13 below), the Consultant's services pursuant to this Agreement do not
include, investment implementation, supervisory or management services, nor the
ongoing review or monitoring of investment portfolios.

Company authorizes Consultant to respond to inquiries from, and communicate and
share information with, Company's attorneys, accountants and other professionals
to the extent necessary in furtherance of Consultant's services under this
Agreement.

The Company agrees to provide information and/or documentation requested by
Consultant in furtherance of this Agreement as pertains to the Company's
investment objectives, needs and goals, and to keep Consultant informed of any
changes regarding same. The Company acknowledges that Consultant cannot
adequately perform its services for the Company unless the Company diligently
performs its responsibilities under this Agreement. Consultant shall not be
required to verify any information obtained from the Company, the Company's
attorneys, accountants or other professionals, and is expressly authorized to
rely thereon. The Company is free at all times to accept or reject any
recommendation from Consultant, and the Company acknowledges that is has the
sole authority with regard to the implementation, acceptance, or rejection of
any recommendation or advice from Consultant.

2. Term and Termination. The term of this Agreement shall commence October 1,
2002 and shall continue thereafter unless otherwise terminated by the parties as
provided in this Section 2. Unless terminated earlier for "Cause" (as defined
below) by the Company, the Company may terminate this Agreement prior to
expiration of the term hereof upon ninety (90) days written notice provided to
the Consultant; provided, however, that the compensation to be paid to the
Consultant pursuant to Section 4 shall continue to be paid through the end of
the year 2003. The Consultant may terminate this Agreement upon thirty (30) days
written notice to the Company. Upon and after January 1, 2004, unless terminated
earlier for Cause, the Company may terminate this Agreement upon ninety (90)
days written notice to the Consultant, and the consultant may terminate this
Agreement upon thirty (30) days written notice to the Company. Upon a
termination for Cause this Agreement shall terminate immediately. 



                                      -2-

<PAGE>


For purposes of this Agreement, "Cause" shall mean (i) an act by the Consultant
of fraud, theft, misappropriation, embezzlement or breach of trust against the
Company; (ii) the Consultant willfully or grossly neglected its duties and other
obligations hereunder; or (iii) the Consultant been convicted of a felony (by
trial or plea.) Without limiting the generality of the foregoing, the following
specific instances of conduct shall give rise to the right of the Company to
terminate the Consultant for Cause: (A) a material and substantial breach of the
confidentially obligations of the Company herein or a confidentially obligation
to which the Company or any affiliate is bound; (B) misappropriation of
Company's property or the property of affiliate of the Company; and (C)
falsification of Company's records.

3. Confidentiality. Consultant hereby agrees that all information of whatsoever
character either delivered to Consultant by Company or acquired by Consultant in
the course of performing Services for Company shall be maintained in strictest
confidence and shall not be disclosed to third parties without the written
consent of Company, except to the extent Consultant deems necessary to obtain
the advice of attorneys, accountants, investment bankers and/or other
consultants in connection with the performance of services hereunder. Consultant
further agrees not to make any use of such information unless expressly
authorized to do so by Company, and shall take no action which in any way is
detrimental to the interests of Company in respect of such information. No
license or right of any nature is expressly or impliedly granted to Consultant
for the use of any intellectual property owned or utilized by Company.

4. Compensation. The Company shall pay the Consultant upon the execution of this
Agreement the sum of twenty-five thousand dollars ($25,000). On January 1,2003
and on the first day of each subsequent calendar quarter during the term of this
Agreement (including the quarterly date occurring within any ninety (90) day
notice period provided for in Section 2) the Company shall pay the Consultant
the sum of twenty-five thousand dollars ($25,000) for services to be rendered
during that quarter. Should the Consultant terminate this Agreement as provided
for in Section 2, the consultant shall promptly refund a pro-rata portion of
that quarter's fee paid to the Consultant.

The Company may also pay the Consultant a bonus in such amount and at such times
as the Company, in its sole and absolute discretion, may decide.

In addition to foregoing, the Company agrees to reimburse Consultant upon
request for all expenses reasonably incurred by Consultant in performing
Services pursuant to this Agreement including, without limitation, travel,
lodging, food and third-party professional expenses.

In the event that the Company requires consultation services in addition to
those identified in subparagraphs 1a-d above, the Consultant may determine to
charge for such additional services, the dollar amount of which shall be set
forth in a separate written notice to the Company.

5. Consultant Representations. Consultant hereby represents and warrants as
follows:

     a. Good Standing. Consultant is a Pennsylvania corporation duly organized,
     validly existing and in good standing under the laws of the Commonwealth of
     Pennsylvania.


                                      -3-

<PAGE>

     b. Authority. Consultant is duly authorized to enter into this Agreement,
     and to perform its obligations hereunder in accordance with the terms and
     conditions contained herein.

     c. Conflict. Neither the execution of this Agreement, nor the performance
     of Services hereunder, will conflict with, constitute a breach of, or cause
     a default under any agreement, understanding, deed of trust, loan agreement
     or other contract, statute or ordinance to which Consultant is a party,
     bound or subject.

     d. Enforceability. When executed by Consultant, this Agreement shall
     constitute a legally binding obligation of Consultant, enforceable in
     accordance with the terms and conditions contained herein.

6. Service To Other Companies. The Company acknowledges and agrees that its
engagement of Consultant's Services pursuant to this Agreement shall not be an
exclusive engagement. The Company further acknowledges and agrees that during
the term of this Agreement, Consultant shall have clients in addition to the
Company, and that Consultant may be obligated to perform services for such other
clients during said term.

7. Assignment. Neither this Agreement nor any interest herein or obligation
hereunder may be assigned by either of the parties hereto without the express
written consent of the other.

8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.

9. Successors and Assigns. Except as otherwise contained herein, this Agreement
shall be binding upon, and will inure to the benefit of, the successors and
permitted assigns of the parties hereto.

10. Consultant Liability. Except as otherwise provided by federal or state
securities laws, the Consultant, acting in good faith, shall not be liable for
any action, omission, recommendation/decision, or loss in connection with this
Agreement including, but not limited to, the investment and/or management of
Company assets, or the acts and/or omissions of other professionals or third
party service providers presented by the Consultant to the Company for its
review and consideration, including the Independent Managers, a broker-dealer
and/or custodian. The Consultant does not guarantee the future performance of
any investment portfolio or any specific level of performance, the success of
any recommendation or strategy that Consultant presents to the Company for its
review and consideration, or the success of the Independent Managers' management
of Company investment assets. The Company understands that investment
recommendations and decisions are subject to various market, currency, economic,
political and business risks, and that those investment recommendations or
decisions will not always be profitable.

11. Disclosure Statement. The Company acknowledges prior receipt of a copy of
the Disclosure Statement of the Consultant as same is set forth on Part II of 
Form ADV.

12. Privacy Notice. The Company acknowledges receipt of the Consultant's Privacy
Notice.


                                      -4-

<PAGE>

13. Notices. Any notices required to be made under the terms of this Agreement
shall be made to the parties at the addresses listed above subject to each
party's right to change the address for such notification by registered mail or
similar service and shall be deemed to be received three (3) days after the
posting thereof.

14. Captions. Section captions used in the Agreement are for convenience only,
and shall not be utilized in the construction or interpretation of this
Agreement.

15. Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter hereof, and
supersedes all prior discussions between them concerning such matters. This
Agreement shall not be subject to change, alteration or amendment other than by
an instrument in writing duly executed by the parties hereto.


     IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.


CONSULTANT:                                     COMPANY:

COURY INVESTMENT ADVISORS, INC.                 MYLAN LABORATORIES INC.


By: /s/ Gregg Coury                             By: /s/ E. J. Borkowski
    -----------------------------                   ---------------------------


<PAGE>

                                                                    EXHIBIT 21.1

Subsidiaries

            Name                         State of Incorporation
            ----                         ----------------------

Mylan Pharmaceuticals Inc.                    West Virginia
Milan Holding, Inc.                           Vermont
Bertek Pharmaceuticals Inc.                   Texas
Mylan Inc.                                    Delaware
UDL Laboratories, Inc.                        Illinois
Mylan Technologies Inc.                       West Virginia
American Triumvirate Insurance Company        Vermont
Mylan International Holdings, Inc.            Vermont
Mylan Caribe, Inc.                            Vermont






<PAGE>

                                                                    EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos.
333-65329, 333-65327, 333-35887, 333-65916, 33-65918 and 333-42182 of Mylan
Laboratories Inc. on Form S-8 of our report dated April 30, 2003 (May 28, 2003
as to Note 11), which report expressed an unqualified opinion and includes an
explanatory paragraph relating to Mylan Laboratories Inc.'s change in method of
accounting for goodwill appearing in this Annual Report on Form 10-K of Mylan
Laboratories Inc. for the year ended March 31, 2003.

DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 20, 2003





exv99w1
 

Exhibit 99.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Mylan Laboratories Inc. (the “Company”) on Form 10-K for the year ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 24, 2003

     
    /s/ Robert J. Coury
   
     
        Robert J. Coury
        Chief Executive Officer
     
    /s/ Edward J. Borkowski
   
        Edward J. Borkowski
        Chief Financial Officer