e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the
quarterly period ended March 31,
2011
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 1-9114
MYLAN INC.
(Exact name of registrant as
specified in its charter)
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Pennsylvania
(State or other
jurisdiction
of incorporation or organization)
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25-1211621
(I.R.S. Employer
Identification No.)
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1500 Corporate Drive, Canonsburg, Pennsylvania 15317
(Address of principal executive
offices)
(724) 514-1800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Class of
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Outstanding at
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Common Stock
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April 27, 2011
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$0.50 par value
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439,251,481
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MYLAN
INC. AND SUBSIDIARIES
INDEX TO
FORM 10-Q
For the Quarterly Period Ended
March 31, 2011
2
MYLAN
INC. AND SUBSIDIARIES
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Three Months Ended March 31,
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2011
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2010
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(Unaudited; in thousands, except per share amounts)
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Revenues:
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Net revenues
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$
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1,436,510
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$
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1,278,105
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Other revenues
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12,448
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14,269
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Total revenues
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1,448,958
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1,292,374
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Cost of sales
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858,012
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776,076
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Gross profit
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590,946
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516,298
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Operating expenses:
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Research and development
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75,310
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61,296
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Selling, general and administrative
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279,995
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255,761
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Litigation settlements, net
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23,966
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734
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Total operating expenses
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379,271
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317,791
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Earnings from operations
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211,675
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198,507
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Interest expense
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84,410
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74,047
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Other income, net
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3,251
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1,069
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Earnings before income taxes and noncontrolling interest
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130,516
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125,529
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Income tax provision
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25,971
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31,259
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Net earnings
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104,545
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94,270
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Net (earnings) loss attributable to the noncontrolling interest
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(370
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)
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1,587
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Net earnings attributable to Mylan Inc. before preferred
dividends
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104,175
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95,857
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Preferred dividends
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34,759
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Net earnings attributable to Mylan Inc. common shareholders
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$
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104,175
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$
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61,098
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Earnings per common share attributable to Mylan Inc. common
shareholders:
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Basic
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$
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0.24
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$
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0.20
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Diluted
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$
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0.23
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$
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0.20
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Weighted average common shares outstanding:
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Basic
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437,148
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306,996
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Diluted
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448,473
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311,948
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See Notes to Condensed Consolidated Financial Statements
3
MYLAN
INC. AND SUBSIDIARIES
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March 31, 2011
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December 31, 2010
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(Unaudited; in thousands,
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except share and per share amounts)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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608,087
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$
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662,052
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Restricted cash
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23,876
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23,972
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Marketable securities
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30,884
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29,085
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Accounts receivable, net
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1,335,590
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1,157,081
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Inventories
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1,326,761
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1,240,271
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Deferred income tax benefit
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236,984
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258,731
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Prepaid expenses and other current assets
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194,571
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188,251
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Total current assets
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3,756,753
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3,559,443
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Property, plant and equipment, net
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1,217,174
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1,209,342
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Intangible assets, net
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2,476,183
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2,501,150
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Goodwill
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3,694,002
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3,599,334
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Deferred income tax benefit
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70,706
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58,284
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Other assets
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663,307
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609,251
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Total assets
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$
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11,878,125
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$
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11,536,804
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LIABILITIES AND EQUITY
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Liabilities
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Current liabilities:
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Trade accounts payable
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$
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634,536
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$
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564,706
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Short-term borrowings
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157,440
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162,451
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Income taxes payable
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25,905
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15,106
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Current portion of long-term debt and other long-term obligations
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614,586
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7,319
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Deferred income tax liability
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3,153
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2,457
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Other current liabilities
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957,660
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1,057,573
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Total current liabilities
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2,393,280
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1,809,612
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Long-term debt
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4,766,868
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5,263,376
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Other long-term obligations
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352,582
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370,321
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Deferred income tax liability
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448,421
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478,094
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Total liabilities
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7,961,151
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7,921,403
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Equity
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Mylan Inc. shareholders equity
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Common stock par value $0.50 per share
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Shares authorized: 1,500,000,000
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Shares issued: 527,316,439 and 525,817,549 as of March 31,
2011 and December 31, 2010
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263,658
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262,909
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Additional paid-in capital
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3,868,295
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3,849,682
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Retained earnings
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987,884
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883,710
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Accumulated other comprehensive earnings
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338,404
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171,867
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5,458,241
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5,168,168
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Noncontrolling interest
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13,258
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13,522
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Less: treasury stock at cost
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Shares: 89,033,316 and 89,707,087 as of March 31, 2011 and
December 31, 2010
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1,554,525
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1,566,289
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Total equity
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3,916,974
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3,615,401
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Total liabilities and equity
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$
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11,878,125
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$
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11,536,804
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See Notes to Condensed Consolidated Financial Statements
4
MYLAN
INC. AND SUBSIDIARIES
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Three Months Ended March 31,
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2011
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2010
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(Unaudited; in thousands)
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Cash flows from operating activities:
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Net earnings
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$
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104,545
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$
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94,270
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Adjustments to reconcile net earnings to net cash (used in)
provided by operating activities:
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Depreciation and amortization
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119,551
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102,466
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Stock-based compensation expense
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10,257
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7,250
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Change in estimated sales allowances
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25,482
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11
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Deferred income tax provision (benefit)
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7,114
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(78,363
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)
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Other non-cash items
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34,582
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22,986
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Litigation settlements, net
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23,966
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734
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Changes in operating assets and liabilities:
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Accounts receivable
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(178,642
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)
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3,729
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Inventories
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(69,727
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)
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(57,432
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)
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Trade accounts payable
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28,047
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48,805
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Income taxes
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(1,938
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)
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195,914
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Other operating assets and liabilities, net
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(148,817
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)
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(99,697
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)
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Net cash (used in) provided by operating activities
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(45,580
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)
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240,673
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Cash flows from investing activities:
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Capital expenditures
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(41,339
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)
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(20,158
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Purchase of marketable securities
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(2,162
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)
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(1,990
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Other items, net
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126
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(5,602
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Net cash used in investing activities
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(43,375
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)
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(27,750
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)
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Cash flows from financing activities:
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Cash dividends paid
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(34,759
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)
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Change in short-term borrowings, net
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(5,561
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)
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(46,232
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)
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Payment of long-term debt
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(1,205
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)
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(778
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)
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Proceeds from exercise of stock options
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23,143
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24,967
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Other items, net
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1,602
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Net cash provided by (used in) financing activities
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17,979
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(56,802
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)
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Effect on cash of changes in exchange rates
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17,011
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(14,194
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Net (decrease) increase in cash and cash equivalents
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(53,965
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)
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141,927
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Cash and cash equivalents beginning of period
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662,052
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380,516
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Cash and cash equivalents end of period
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$
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608,087
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$
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522,443
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See Notes to Condensed Consolidated Financial Statements
5
MYLAN
INC. AND SUBSIDIARIES
The accompanying unaudited Condensed Consolidated Financial
Statements (interim financial statements) of Mylan
Inc. and subsidiaries (Mylan or the
Company) were prepared in accordance with accounting
principles generally accepted in the United States of America
(GAAP) and the rules and regulations of the
Securities and Exchange Commission (SEC) for
reporting on
Form 10-Q;
therefore, as permitted under these rules, certain footnotes and
other financial information included in audited financial
statements were condensed or omitted. The interim financial
statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the interim
results of operations, financial position and cash flows for the
periods presented.
These interim financial statements should be read in conjunction
with the Consolidated Financial Statements and Notes thereto in
the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010. The December 31,
2010 Condensed Consolidated Balance Sheet was derived from
audited financial statements.
The interim results of operations for the three months ended
March 31, 2011 and the interim cash flows for the three
months ended March 31, 2011 are not necessarily indicative
of the results to be expected for the full fiscal year or any
other future period. The Company computed its provision for
income taxes in the first quarter of the year using an estimated
effective tax rate for the full year with consideration to
certain discrete tax items which occurred within the interim
period. The estimated annual effective tax rate for 2011
includes an estimate of the full-year effect of foreign tax
credits that the Company anticipates it will claim against its
2011 U.S. tax liabilities.
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2.
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Revenue
Recognition and Accounts Receivable
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Mylan recognizes revenue for product sales when title and risk
of loss pass to its customers and when provisions for estimates,
including discounts, sales allowances, price adjustments,
returns, chargebacks and other promotional programs, are
reasonably determinable. Accounts receivable are presented net
of allowances relating to these provisions. No revisions were
made to the methodology used in determining these provisions
during the three months ended March 31, 2011. Such
allowances were $776.7 million and $751.8 million at
March 31, 2011 and December 31, 2010. Other current
liabilities include $177.8 million and $167.0 million
at March 31, 2011 and December 31, 2010, for certain
sales allowances and other adjustments that are paid to indirect
customers.
Upon receiving final approval from the U.S. Food and Drug
Administration (FDA) in July 2010, Mylan commenced
immediate shipment of minocycline hydrochloride extended release
(minocycline ER) tablets, the generic version of
Medicis Pharmaceuticals Corporations
Solodyn®.
Mylan also reached settlement and license agreements with
Medicis Pharmaceuticals Corporation (Medicis)
resolving patent litigation relating to minocycline ER, and the
Company ceased additional distribution. Pursuant to the terms of
the agreements, Medicis released Mylan from any liability
related to the prior sales of the product, and Mylan has the
right to market minocycline ER in the U.S. beginning in
November 2011, or earlier under certain circumstances.
As a result of significant uncertainties surrounding the pricing
and market conditions with respect to this product, Mylan is not
able to reasonably estimate the amount of potential price
adjustments, including product returns. Therefore, revenues on
shipments of this product are currently being deferred until the
resolution of such uncertainties. At the present time, such
uncertainties are resolved upon customers sale of this
product. As a result, the Company is recognizing revenue only
upon its customers sale of this product.
Bioniche
Pharma
On September 7, 2010, the Company completed the acquisition
of 100% of the outstanding equity in Bioniche Pharma Holdings
Limited (Bioniche Pharma), a privately held, global
injectable pharmaceutical company. The Company financed the
transaction using a combination of cash on hand and long-term
borrowings. In accordance
6
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
with GAAP guidance regarding business combinations, the Company
used the purchase method of accounting to account for this
transaction. Under the purchase method of accounting, the assets
acquired and liabilities assumed in the transaction were
recorded at the date of acquisition at the estimate of their
respective fair values.
Bioniche Pharma manufactures and sells a diverse portfolio of
injectable products across several therapeutic areas for the
hospital setting, including analgesics/anesthetics, orthopedics,
oncology, and urology, with most of the companys sales
made to customers in the U.S.
The purchase price of $543.7 million has been allocated to
the assets acquired and liabilities assumed for the former
Bioniche Pharma business as of the acquisition date as follows:
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(In thousands)
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Current assets (excluding inventories)
|
|
$
|
41,680
|
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Inventories
|
|
|
28,500
|
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Property, plant and equipment, net
|
|
|
16,211
|
|
Identified intangible assets
|
|
|
186,000
|
|
In-process research and development (IPR&D)
|
|
|
143,000
|
|
Goodwill
|
|
|
207,390
|
|
|
|
|
|
|
Total assets acquired
|
|
|
622,781
|
|
Current liabilities
|
|
|
(37,389
|
)
|
Deferred tax liabilities
|
|
|
(36,910
|
)
|
Other non-current liabilities
|
|
|
(4,746
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
543,736
|
|
|
|
|
|
|
The amount allocated to acquired IPR&D represents an
estimate of the fair value of purchased in-process technology
for research projects that, as of the closing date of the
acquisition, had not reached technological feasibility and had
no alternative future use. The fair value of the IPR&D was
based on the excess earnings method, which utilizes forecasts of
expected cash inflows (including estimates for ongoing costs)
and other contributory charges, on a
project-by-project
basis, and will be tested for impairment in accordance with GAAP
accounting guidance. A discount rate of 11.0% was utilized to
discount net cash inflows to present values.
Three research projects represent approximately 60% of the total
fair value of IPR&D and combined, these projects had an
expected cost to complete of less than $10 million as of
the acquisition date. All projects are in various stages of
completion, but are expected to begin producing a benefit to the
Company by 2013. There are risks and uncertainties associated
with the timely and successful completion of the projects
included in IPR&D, and no assurances can be given that the
underlying assumptions used to prepare the discounted cash flow
analysis will not change or the timely completion of each
project to commercial success will occur.
The identified intangible assets of $186.0 million are
comprised of product rights and licenses that have a weighted
average useful life of approximately eight years. The goodwill
of $207.4 million arising from the acquisition consists
largely of the value of the employee workforce and the value of
products to be developed in the future. All of the goodwill was
assigned to Mylans Generics Segment. None of the goodwill
recognized is expected to be deductible for income tax purposes.
Pro
Forma financial results
The operating results of Bioniche Pharma have been included in
Mylans Condensed Consolidated Statement of Operations
since September 7, 2010. The following table presents
supplemental unaudited pro forma information as if the
acquisition of Bioniche Pharma had occurred on January 1,
2009. This summary of the unaudited pro forma
7
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
results of operations is not necessarily indicative of what
Mylans results of operations would have been had Bioniche
Pharma been acquired on January 1, 2009 and may not be
indicative of future performance.
The unaudited pro forma financial information for the period
below includes the following charges directly attributable to
the accounting for the acquisition: amortization of intangibles
of $6.8 million for the three months ended March 31,
2010. In addition, the unaudited pro forma financial information
for the period presented includes the effects of certain
additional borrowings used to purchase Bioniche Pharma as if
they occurred on January 1, 2009.
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2010
|
|
|
|
(Unaudited; in thousands, except per share amounts)
|
|
|
Total revenues
|
|
$
|
1,322,928
|
|
|
|
|
|
|
Net earnings attributable to Mylan Inc. before preferred
dividends
|
|
|
88,351
|
|
Preferred dividends
|
|
|
34,759
|
|
|
|
|
|
|
Net earnings attributable to Mylan Inc. common shareholders
|
|
$
|
53,592
|
|
|
|
|
|
|
Earnings per common share attributable to Mylan Inc. common
shareholders
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.17
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
Basic
|
|
|
306,996
|
|
|
|
|
|
|
Diluted
|
|
|
311,948
|
|
|
|
|
|
|
|
|
4.
|
Stock-Based
Incentive Plan
|
Mylans shareholders have approved the 2003 Long-Term
Incentive Plan (as amended, the 2003 Plan).
Under the 2003 Plan, 37,500,000 shares of common stock are
reserved for issuance to key employees, consultants, independent
contractors and non-employee directors of Mylan through a
variety of incentive awards, including: stock options, stock
appreciation rights, restricted shares and units, performance
awards, other stock-based awards and short-term cash awards.
Stock option awards are granted at the fair value of the shares
underlying the options at the date of the grant, generally
become exercisable over periods ranging from three to four
years, and generally expire in ten years. In the 2003 Plan, no
more than 8,000,000 shares may be issued as restricted
shares, restricted units, performance shares and other
stock-based awards.
Upon approval of the 2003 Plan, no further grants of stock
options have been made under any other plan. However, there are
stock options outstanding from frozen or expired plans and other
plans assumed through acquisitions.
8
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table summarizes stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
|
Under Option
|
|
|
per Share
|
|
|
Outstanding at December 31, 2010
|
|
|
23,840,049
|
|
|
$
|
15.99
|
|
Options granted
|
|
|
3,986,692
|
|
|
|
22.65
|
|
Options exercised
|
|
|
(1,498,890
|
)
|
|
|
15.44
|
|
Options forfeited
|
|
|
(137,009
|
)
|
|
|
18.06
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
26,190,842
|
|
|
$
|
17.03
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 31, 2011
|
|
|
24,907,885
|
|
|
$
|
16.94
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2011
|
|
|
16,985,569
|
|
|
$
|
15.86
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, options outstanding, options vested
and expected to vest, and options exercisable had average
remaining contractual terms of 6.12 years, 5.98 years
and 4.57 years, respectively. Also at March 31, 2011,
options outstanding, options vested and expected to vest and
options exercisable had aggregate intrinsic values of
$147.9 million, $142.7 million and
$115.8 million, respectively.
A summary of the status of the Companys nonvested
restricted stock and restricted stock unit awards, including
performance based restricted stock, as of March 31, 2011
and the changes during the three months ended March 31,
2011 are presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Restricted
|
|
|
Grant-Date
|
|
|
|
Stock Awards
|
|
|
Fair Value per Share
|
|
|
Nonvested at December 31, 2010
|
|
|
2,339,410
|
|
|
$
|
15.36
|
|
Granted
|
|
|
1,091,724
|
|
|
|
22.66
|
|
Released
|
|
|
(898,839
|
)
|
|
|
12.32
|
|
Forfeited
|
|
|
(4,484
|
)
|
|
|
13.75
|
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2011
|
|
|
2,527,811
|
|
|
$
|
19.59
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, the Company had $72.2 million of
total unrecognized compensation expense, net of estimated
forfeitures, related to all of its stock-based awards, which
will be recognized over the remaining weighted average period of
2.15 years. The total intrinsic value of stock-based awards
exercised and restricted stock units converted during the three
months ended March 31, 2011 and March 31, 2010 was
$30.9 million and $19.9 million.
9
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
5.
|
Balance
Sheet Components
|
Selected balance sheet components consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
(In thousands)
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
348,238
|
|
|
$
|
337,087
|
|
Work in process
|
|
|
261,708
|
|
|
|
230,243
|
|
Finished goods
|
|
|
716,815
|
|
|
|
672,941
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,326,761
|
|
|
$
|
1,240,271
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
74,208
|
|
|
$
|
73,267
|
|
Buildings and improvements
|
|
|
678,982
|
|
|
|
670,639
|
|
Machinery and equipment
|
|
|
1,312,930
|
|
|
|
1,264,750
|
|
Construction in progress
|
|
|
156,307
|
|
|
|
164,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,222,427
|
|
|
|
2,173,579
|
|
Less accumulated depreciation
|
|
|
1,005,253
|
|
|
|
964,237
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,217,174
|
|
|
$
|
1,209,342
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Legal and professional accruals, including litigation reserves
|
|
$
|
250,720
|
|
|
$
|
246,064
|
|
Payroll and employee benefit plan accruals
|
|
|
173,228
|
|
|
|
185,953
|
|
Accrued sales allowances
|
|
|
177,844
|
|
|
|
166,997
|
|
Accrued interest
|
|
|
44,136
|
|
|
|
88,430
|
|
Fair value of financial instruments
|
|
|
30,757
|
|
|
|
33,395
|
|
Other
|
|
|
280,975
|
|
|
|
336,734
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
957,660
|
|
|
$
|
1,057,573
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Earnings
per Common Share attributable to Mylan Inc.
|
Basic earnings per common share is computed by dividing net
earnings attributable to Mylan Inc. common shareholders by the
weighted average number of shares outstanding during the period.
Diluted earnings per common share is computed by dividing net
earnings attributable to Mylan Inc. common shareholders by the
weighted average number of shares outstanding during the period
increased by the number of additional shares that would have
been outstanding related to potentially dilutable securities or
instruments, if the impact is dilutive.
On November 15, 2010, pursuant to its terms, the
Companys 6.50% mandatorily convertible preferred stock
converted into 125,234,172 shares of Mylans common
stock, and Mylan is no longer obligated to pay dividends. With
respect to the Companys convertible preferred stock, for
the three months ended March 31, 2010, the Company
considered the effect on diluted earnings per share of the
preferred stock conversion feature using the if-converted
method. The preferred stock was convertible into between
125,234,172 shares and 152,785,775 shares of the
Companys common stock. For the three months ended
March 31, 2010, the if-converted method is anti-dilutive;
therefore, the preferred stock conversion is excluded from the
computation of diluted earnings per share.
On September 15, 2008, concurrent with the sale of
$575.0 million aggregate principal amount of Cash
Convertible Notes due 2015 (the Cash Convertible
Notes), Mylan entered into a convertible note hedge and
warrant transaction with certain counterparties. Pursuant to the
warrant transactions, the Company sold to the
10
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
counterparties warrants to purchase in the aggregate up to
approximately 43.2 million shares of Mylan common stock,
subject to anti-dilution adjustments substantially similar to
the anti-dilution adjustments for the Cash Convertible Notes,
which under most circumstances represents the maximum number of
shares that underlie the conversion reference rate for the Cash
Convertible Notes. The sold warrants have an exercise price of
$19.98 and are net share settled, meaning that Mylan will issue
a number of shares per warrant corresponding to the difference
between its share price at each warrant expiration date and the
exercise price. For the three months ended March 31, 2011,
the average market value of the Companys shares exceeded
the exercise price of the warrants, and as a result, the Company
has included 5.2 million shares in the calculation of the
diluted earnings per share.
On May 3, 2011, the Company announced that its Board of
Directors authorized the repurchase of up to $350 million
of shares of its outstanding common stock and other equity
securities through either open market purchases or privately
negotiated transactions. The repurchase program is expected to
be completed by the end of the Companys second quarter
ended June 30, 2011 and does not obligate the Company to
acquire any particular amount of common stock or other equity
securities.
Basic and diluted earnings per common share attributable to
Mylan Inc. are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Basic earnings attributable to Mylan Inc. common shareholders
(numerator):
|
|
|
|
|
|
|
|
|
Net earnings attributable to Mylan Inc. before preferred
dividends
|
|
$
|
104,175
|
|
|
$
|
95,857
|
|
Less: Preferred dividends
|
|
|
|
|
|
|
34,759
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Mylan Inc. common shareholders
|
|
$
|
104,175
|
|
|
$
|
61,098
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator):
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
437,148
|
|
|
|
306,996
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Mylan Inc.
common shareholders
|
|
$
|
0.24
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings attributable to Mylan Inc. common
shareholders (numerator):
|
|
|
|
|
|
|
|
|
Net earnings attributable to Mylan Inc. common shareholders
|
|
$
|
104,175
|
|
|
$
|
61,098
|
|
Add: Preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings attributable to Mylan Inc. common shareholders and
assumed conversions
|
|
$
|
104,175
|
|
|
$
|
61,098
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator):
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
437,148
|
|
|
|
306,996
|
|
Stock-based awards and warrants
|
|
|
11,325
|
|
|
|
4,952
|
|
|
|
|
|
|
|
|
|
|
Total dilutive shares outstanding
|
|
|
448,473
|
|
|
|
311,948
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Mylan Inc.
common shareholders
|
|
$
|
0.23
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
Additional stock options or restricted stock awards representing
5.8 million and 4.1 million shares were outstanding at
March 31, 2011 and 2010 but were not included in the
computation of diluted earnings per share for each respective
period, because the effect would be anti-dilutive.
11
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
7.
|
Goodwill
and Intangible Assets
|
The changes in the carrying amount of goodwill for the three
months ended March 31, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generics Segment
|
|
|
Specialty Segment
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
3,277,827
|
|
|
$
|
706,507
|
|
|
$
|
3,984,334
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(385,000
|
)
|
|
|
(385,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,277,827
|
|
|
|
321,507
|
|
|
|
3,599,334
|
|
Foreign currency translation
|
|
|
94,668
|
|
|
|
|
|
|
|
94,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,372,495
|
|
|
|
321,507
|
|
|
|
3,694,002
|
|
Balance at March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
3,372,495
|
|
|
|
706,507
|
|
|
|
4,079,002
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(385,000
|
)
|
|
|
(385,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,372,495
|
|
|
$
|
321,507
|
|
|
$
|
3,694,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets consist of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Life
|
|
|
Original
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
(Years)
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and technologies
|
|
|
20
|
|
|
$
|
116,631
|
|
|
$
|
78,681
|
|
|
$
|
37,950
|
|
Product rights and licenses
|
|
|
10
|
|
|
|
3,440,442
|
|
|
|
1,223,943
|
|
|
|
2,216,499
|
|
Other(1)
|
|
|
8
|
|
|
|
117,893
|
|
|
|
44,602
|
|
|
|
73,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,674,966
|
|
|
|
1,347,226
|
|
|
|
2,327,740
|
|
IPR&D
|
|
|
|
|
|
|
148,443
|
|
|
|
|
|
|
|
148,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,823,409
|
|
|
$
|
1,347,226
|
|
|
$
|
2,476,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and technologies
|
|
|
20
|
|
|
$
|
122,926
|
|
|
$
|
83,563
|
|
|
$
|
39,363
|
|
Product rights and licenses
|
|
|
10
|
|
|
|
3,323,902
|
|
|
|
1,099,103
|
|
|
|
2,224,799
|
|
Other(1)
|
|
|
8
|
|
|
|
143,716
|
|
|
|
55,171
|
|
|
|
88,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,590,544
|
|
|
|
1,237,837
|
|
|
|
2,352,707
|
|
IPR&D
|
|
|
|
|
|
|
148,443
|
|
|
|
|
|
|
|
148,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,738,987
|
|
|
$
|
1,237,837
|
|
|
$
|
2,501,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other intangibles consist principally of customer lists and
contracts. |
Amortization expense, which is classified primarily within cost
of sales on Mylans Condensed Consolidated Statements of
Operations, for the three months ended March 31, 2011 and
2010 was $85.0 million and $70.3 million,
respectively, and is expected to be approximately
$251 million for the remainder of 2011 and
$324 million, $318 million, $311 million and
$289 million for the years ended December 31, 2012
through 2015, respectively.
12
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
In conjunction with the September 2010 acquisition of Bioniche
Pharma, the Company acquired IPR&D assets, which are not
currently being amortized. As products in development are
approved for sale, amounts will be allocated to product rights
and licenses and will be amortized over the estimated useful
life. Such IPR&D assets are subject to periodic impairment
testing under GAAP guidance.
|
|
8.
|
Financial
Instruments and Risk Management
|
Financial
Risks
Mylan is exposed to certain financial risks relating to its
ongoing business operations. The primary financial risks that
are managed by using derivative instruments are foreign currency
risk, interest rate risk and equity risk.
In order to manage foreign currency risk, Mylan enters into
foreign exchange forward contracts to mitigate risk associated
with changes in spot exchange rates of mainly non-functional
currency denominated assets or liabilities. The foreign exchange
forward contracts are measured at fair value and reported as
current assets or current liabilities on the Condensed
Consolidated Balance Sheets. Any gains or losses on the foreign
exchange forward contracts are recognized in earnings in the
period incurred in the Condensed Consolidated Statements of
Operations.
The Company has entered into forward contracts to hedge
forecasted foreign currency denominated sales from certain
international subsidiaries. These contracts are designated as
cash flow hedges to manage foreign currency risk and are
measured at fair value and reported as current assets or current
liabilities on the Condensed Consolidated Balance Sheets. Any
changes in fair value are included in earnings or deferred
through accumulated other comprehensive earnings
(AOCE), depending on the nature and effectiveness of
the offset.
As of March 31, 2011 and December 31, 2010, the
Company had 679.2 million of borrowings under its
senior credit agreement (the Senior Credit
Agreement) that are designated as a hedge of its net
investment in certain Euro-functional currency subsidiaries to
manage foreign currency risk. The U.S. Dollar equivalent of
such amounts was $964.3 million and $909.3 million at
March 31, 2011 and December 31, 2010. Borrowings
designated as hedges of net investments are marked to market
using the current spot exchange rate as of the end of the
period, with gains and losses included in the foreign currency
translation adjustment component of AOCE on the Condensed
Consolidated Balance Sheet until the sale or substantial
liquidation of the underlying net investments.
The Company enters into interest rate swaps in order to manage
interest rate risk associated with the Companys fixed and
floating-rate debt. The Companys interest rate swaps
designated as cash flow hedges fix the interest rate on the
Companys variable-rate U.S. Tranche B Term Loans
under the terms of its Senior Credit Agreement. These derivative
instruments are measured at fair value and reported as current
assets or current liabilities on the Condensed Consolidated
Balance Sheets. Any changes in fair value are included in
earnings or deferred through AOCE, depending on the nature and
effectiveness of the offset.
During 2011, the Company entered into interest rate swaps which
convert $500.0 million of the Companys fixed-rate
6.0% Senior Notes due 2018 (the 2018 Senior
Notes) to a variable rate. These interest rate swaps,
which are designated as fair value hedges, are measured at fair
value and reported as current assets or current liabilities on
the Condensed Consolidated Balance Sheets. The change in the
fair value of these derivative instruments, as well as the
offsetting change in fair value of the portion of the fixed-rate
debt being hedged, is included in interest expense.
As of March 31, 2011 and December 31, 2010, the total
notional amount of the Companys floating-rate debt
interest rate swaps was $500.0 million and
$767.7 million. As of March 31, 2011, the total
notional amount of the Companys fixed-rate debt interest
rate swaps was $500.0 million.
Certain derivative instrument contracts entered into by the
Company are governed by Master Agreements, which contain
credit-risk-related contingent features that would allow the
counterparties to terminate the contracts early and request
immediate payment should the Company trigger an event of default
on other specified borrowings.
13
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The aggregate fair value of all such contracts that are in a
liability position at March 31, 2011 is $28.3 million.
The Company is not subject to any obligations to post collateral
under derivative instrument contracts.
The Company maintains significant credit exposure arising from
the convertible note hedge on its Cash Convertible Notes.
Holders may convert their Cash Convertible Notes subject to
certain conversion provisions determined by a) the market
price of the Companys common stock, b) specified
distributions to common shareholders, c) a fundamental
change, as defined in the purchase agreement, or d) certain
time periods specified in the purchase agreement. The conversion
feature can only be settled in cash and, therefore, it is
bifurcated from the Cash Convertible Notes and treated as a
separate derivative instrument. In order to offset the cash flow
risk associated with the cash conversion feature, the Company
entered into a convertible note hedge with certain
counterparties. Both the cash conversion feature and the
purchased convertible note hedge are measured at fair value with
gains and losses recorded in the Companys Condensed
Consolidated Statements of Operations. Also, in conjunction with
the issuance of the Cash Convertible Notes, the Company entered
into several warrant transactions with certain counterparties.
The warrants meet the definition of derivatives; however,
because these instruments have been determined to be indexed to
the Companys own stock, and have been recorded in
shareholders equity in the Companys Condensed
Consolidated Balance Sheets, the instruments are exempt from the
scope of the FASBs guidance regarding accounting for
derivative instruments and hedging activities and are not
subject to the fair value provisions set forth therein.
At March 31, 2011, the convertible note hedge had a total
fair value of $521.7 million, which reflects the maximum
loss that would be incurred should the parties fail to perform
according to the terms of the contract. The counterparties are
highly rated diversified financial institutions with both
commercial and investment banking operations. The counterparties
are required to post collateral against this obligation should
they be downgraded below thresholds specified in the contract.
Eligible collateral is comprised of a wide range of financial
securities with a valuation discount percentage reflecting the
associated risk.
The Company regularly reviews the creditworthiness of its
financial counterparties and does not expect to incur a
significant loss from failure of any counterparties to perform
under any agreements.
Fair
Values of Derivative Instruments
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
10,635
|
|
|
Prepaid expenses and other current assets
|
|
$
|
8,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
10,635
|
|
|
|
|
$
|
8,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other current liabilities
|
|
$
|
28,307
|
|
|
Other current liabilities
|
|
$
|
25,666
|
|
Foreign currency borrowings
|
|
Long-term debt
|
|
|
964,339
|
|
|
Long-term debt
|
|
|
909,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
992,646
|
|
|
|
|
$
|
934,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fair
Values of Derivative Instruments
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
3,483
|
|
|
Prepaid expenses and other current assets
|
|
$
|
10,993
|
|
Purchased cash convertible note hedge
|
|
Other assets
|
|
|
521,700
|
|
|
Other assets
|
|
|
472,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
525,183
|
|
|
|
|
$
|
483,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Other current liabilities
|
|
$
|
2,450
|
|
|
Other current liabilities
|
|
$
|
7,729
|
|
Cash conversion feature of Cash Convertible Notes
|
|
Long-term debt
|
|
|
521,700
|
|
|
Long-term debt
|
|
|
472,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
524,150
|
|
|
|
|
$
|
480,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Effect of Derivative Instruments on the Condensed Consolidated
Statements of Operations
Derivatives in Fair Value Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
Location of Gain or
|
|
Recognized in Earnings on Derivatives
|
|
|
|
(Loss) Recognized
|
|
Three Months Ended
|
|
|
|
in Earnings
|
|
March 31,
|
|
|
|
on Derivatives
|
|
2011
|
|
|
2010
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest expense
|
|
$
|
(6,328
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(6,328
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
Location of Gain or
|
|
Recognized in Earnings on Hedged Items
|
|
|
|
(Loss) Recognized
|
|
Three Months Ended
|
|
|
|
in Earnings on
|
|
March 31,
|
|
|
|
Hedged Items
|
|
2011
|
|
|
2010
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
2018 Senior Notes
|
|
Interest expense
|
|
$
|
6,328
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
6,328
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The
Effect of Derivative Instruments on the Condensed Consolidated
Statements of Operations
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
or (Loss)
|
|
|
|
Recognized in AOCE (Net of Tax)
|
|
|
|
on Derivatives
|
|
|
|
(Effective Portion)
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
(In thousands)
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
1,388
|
|
|
$
|
4,886
|
|
Interest rate swaps
|
|
|
2,321
|
|
|
|
4,012
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,709
|
|
|
$
|
8,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
|
|
or (Loss)
|
|
|
|
Location of Gain or
|
|
Reclassified from AOCE into Earnings
|
|
|
|
(Loss) Reclassified
|
|
(Effective Portion)
|
|
|
|
from AOCE
|
|
Three Months Ended
|
|
|
|
into Earnings
|
|
March 31,
|
|
|
|
(Effective Portion)
|
|
2011
|
|
|
2010
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Net revenues
|
|
$
|
745
|
|
|
$
|
|
|
Interest rate swaps
|
|
Interest expense
|
|
|
(1,782
|
)
|
|
|
(16,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(1,037
|
)
|
|
$
|
(16,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) Excluded
|
|
|
|
Location of Gain or
|
|
from the Assessment of Hedge Effectiveness
|
|
|
|
(Loss) Excluded from
|
|
Three Months Ended
|
|
|
|
the Assessment of
|
|
March 31,
|
|
|
|
Hedge Effectiveness
|
|
2011
|
|
|
2010
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Other income, net
|
|
$
|
34
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
34
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The
Effect of Derivative Instruments on the Condensed Consolidated
Statements of Operations
Derivatives in Net Investment Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
or (Loss) Recognized
|
|
|
|
in AOCE (Net of Tax)
|
|
|
|
on Derivative
|
|
|
|
(Effective Portion)
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
(In thousands)
|
|
|
|
|
|
|
|
Foreign currency borrowings
|
|
$
|
(33,718
|
)
|
|
$
|
35,664
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(33,718
|
)
|
|
$
|
35,664
|
|
|
|
|
|
|
|
|
|
|
There was no gain or loss recognized into earnings on
derivatives with net investment hedging relationships during the
three months ended March 31, 2011 or 2010.
The
Effect of Derivative Instruments on the Condensed Consolidated
Statements of Operations
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
|
|
Recognized in Earnings
|
|
|
|
Location of Gain or
|
|
on Derivatives
|
|
|
|
(Loss) Recognized in
|
|
Three Months Ended
|
|
|
|
Earnings on
|
|
March 31,
|
|
|
|
Derivatives
|
|
2011
|
|
|
2010
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Other income, net
|
|
$
|
11,462
|
|
|
$
|
(14,941
|
)
|
Cash conversion feature of Cash Convertible Notes
|
|
Other income, net
|
|
|
(49,300
|
)
|
|
|
(121,100
|
)
|
Purchased cash convertible note hedge
|
|
Other income, net
|
|
|
49,300
|
|
|
|
121,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
11,462
|
|
|
$
|
(14,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurement
Fair value is based on the price that would be received from the
sale of an identical asset or paid to transfer an identical
liability in an orderly transaction between market participants
at the measurement date. In order to increase consistency and
comparability in fair value measurements, a fair value hierarchy
has been established that prioritizes observable and
unobservable inputs used to measure fair value into three broad
levels, which are described below:
Level 1: Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for
identical assets or liabilities. The fair value hierarchy gives
the highest priority to Level 1 inputs.
Level 2: Observable market-based inputs
other than quoted prices in active markets for identical assets
or liabilities.
Level 3: Unobservable inputs are used
when little or no market data is available. The fair value
hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation
techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs to the extent possible,
as well as considers counterparty credit risk in its assessment
of fair value.
17
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Financial assets and liabilities carried at fair value are
classified in the tables below in one of the three categories
described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities exchange traded funds
|
|
$
|
5,992
|
|
|
$
|
|
|
|
$
|
5,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
$
|
5,992
|
|
|
$
|
|
|
|
$
|
5,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
|
$
|
|
|
|
$
|
12,256
|
|
|
$
|
12,256
|
|
Corporate bonds
|
|
|
|
|
|
|
8,048
|
|
|
|
8,048
|
|
Agency mortgage-backed securities
|
|
|
|
|
|
|
1,836
|
|
|
|
1,836
|
|
Other
|
|
|
|
|
|
|
2,554
|
|
|
|
2,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
fixed income investments
|
|
$
|
|
|
|
$
|
24,694
|
|
|
$
|
24,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Biosciences industry
|
|
$
|
198
|
|
|
$
|
|
|
|
$
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
equity securities
|
|
$
|
198
|
|
|
$
|
|
|
|
$
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative assets
|
|
$
|
|
|
|
$
|
14,118
|
|
|
$
|
14,118
|
|
Purchased cash convertible note hedge
|
|
|
|
|
|
|
521,700
|
|
|
|
521,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair
value(1)(2)
|
|
$
|
6,190
|
|
|
$
|
560,512
|
|
|
$
|
566,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative liabilities
|
|
$
|
|
|
|
$
|
2,450
|
|
|
$
|
2,450
|
|
Interest rate swap derivative liabilities
|
|
|
|
|
|
|
28,307
|
|
|
|
28,307
|
|
Cash conversion feature of cash convertible notes
|
|
|
|
|
|
|
521,700
|
|
|
|
521,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair
value(1)(2)
|
|
$
|
|
|
|
$
|
552,457
|
|
|
$
|
552,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities exchange traded funds
|
|
$
|
3,693
|
|
|
$
|
|
|
|
$
|
3,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
$
|
3,693
|
|
|
$
|
|
|
|
$
|
3,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
|
$
|
|
|
|
$
|
12,387
|
|
|
$
|
12,387
|
|
Corporate bonds
|
|
|
|
|
|
|
8,116
|
|
|
|
8,116
|
|
Agency mortgage-backed securities
|
|
|
|
|
|
|
1,934
|
|
|
|
1,934
|
|
Other
|
|
|
|
|
|
|
2,573
|
|
|
|
2,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
fixed income investments
|
|
$
|
|
|
|
$
|
25,010
|
|
|
$
|
25,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Biosciences industry
|
|
$
|
382
|
|
|
$
|
|
|
|
$
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
equity securities
|
|
$
|
382
|
|
|
$
|
|
|
|
$
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative assets
|
|
$
|
|
|
|
$
|
19,877
|
|
|
$
|
19,877
|
|
Purchased cash convertible note hedge
|
|
|
|
|
|
|
472,400
|
|
|
|
472,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair
value(1)(2)
|
|
$
|
4,075
|
|
|
$
|
517,287
|
|
|
$
|
521,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative liabilities
|
|
$
|
|
|
|
$
|
7,729
|
|
|
$
|
7,729
|
|
Interest rate swap derivative liabilities
|
|
|
|
|
|
|
25,666
|
|
|
|
25,666
|
|
Cash conversion feature of cash convertible notes
|
|
|
|
|
|
|
472,400
|
|
|
|
472,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair
value(1)(2)
|
|
$
|
|
|
|
$
|
505,795
|
|
|
$
|
505,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company chose not to elect the fair value option for its
financial assets and liabilities that had not been previously
carried at fair value. Therefore, material financial assets and
liabilities not carried at fair value, such as short-term and
long-term debt obligations and trade accounts receivable and
payable, are still reported at their carrying values. |
|
(2) |
|
None of the Companys financial assets and liabilities
measured at fair value on a recurring basis are valued using
Level 3 inputs as of March 31, 2011 or
December 31, 2010. |
For financial assets and liabilities that utilize Level 2
inputs, the Company utilizes both direct and indirect observable
price quotes, including the LIBOR yield curve, foreign exchange
forward prices, and bank price quotes. Below is a summary of
valuation techniques for Level 1 and Level 2 financial
assets and liabilities:
|
|
|
|
|
Trading securities valued at the active
quoted market price from broker or dealer quotations or
transparent pricing sources at the reporting date.
|
|
|
|
Available-for-sale
fixed income investments valued at the quoted
market price from broker or dealer quotations or transparent
pricing sources at the reporting date.
|
|
|
|
Available-for-sale
equity securities valued using quoted stock
prices from the London Exchange at the reporting date and
translated to U.S. Dollars at prevailing spot exchange
rates.
|
19
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
Interest rate swap derivative assets and liabilities
valued using the LIBOR/EURIBOR yield curves at
the reporting date. Counterparties to these contracts are highly
rated financial institutions, none of which experienced any
significant downgrades during the three months ended
March 31, 2011 that would reduce the receivable amount
owed, if any, to the Company.
|
|
|
|
Foreign exchange derivative assets and liabilities
valued using quoted forward foreign exchange
prices at the reporting date. Counterparties to these contracts
are highly rated financial institutions, none of which
experienced any significant downgrades during the three months
ended March 31, 2011 that would reduce the receivable
amount owed, if any, to the Company.
|
|
|
|
Cash conversion feature of cash convertible notes and
purchased convertible note hedge valued using
quoted prices for the Companys cash convertible notes, its
implied volatility and the quoted yield on the Companys
other long-term debt at the reporting date. Counterparties to
the purchased convertible note hedge are highly rated financial
institutions, none of which experienced any significant
downgrades during the three months ended March 31, 2011
that would reduce the receivable amount owed, if any, to the
Company.
|
Although the Company has not elected the fair value option for
financial assets and liabilities, any future transacted
financial asset or liability will be evaluated for the fair
value election.
A summary of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
(In thousands)
|
|
|
Euro Tranche A Term
Loans(A)
|
|
$
|
248,760
|
|
|
$
|
234,550
|
|
U.S. Tranche B Term
Loans(A)
|
|
|
500,000
|
|
|
|
500,000
|
|
Euro Tranche B Term
Loans(A)
|
|
|
715,579
|
|
|
|
674,705
|
|
Senior Convertible
Notes(B)
|
|
|
572,295
|
|
|
|
565,476
|
|
Cash Convertible
Notes(C)
|
|
|
982,696
|
|
|
|
928,344
|
|
2017 Senior Notes
|
|
|
550,000
|
|
|
|
550,000
|
|
2018 Senior
Notes(D)
|
|
|
781,721
|
|
|
|
787,728
|
|
2020 Senior
Notes(E)
|
|
|
1,015,534
|
|
|
|
1,015,848
|
|
Other
|
|
|
10,359
|
|
|
|
11,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,376,944
|
|
|
|
5,268,185
|
|
Less: Current portion
|
|
|
610,076
|
|
|
|
4,809
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
4,766,868
|
|
|
$
|
5,263,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
All 2011 mandatory principal payments due under the Senior
Credit Agreement were prepaid during 2009. |
|
(B) |
|
At March 31, 2011, the $572.3 million of debt is net
of a $27.7 million discount. At December 31, 2010, the
$565.5 million of debt is net of a $34.5 million
discount. Currently, the effective conversion rate for the
Senior Convertible Notes is 42.156 shares of common stock
per $1,000 principal amount of notes, representing a stock price
of $23.72 per share, reflecting the Companys suspension of
its cash dividend. As these notes are due in March 2012, this
amount is now classified as a current portion of long-term debt. |
|
(C) |
|
At March 31, 2011, the $982.7 million consists of
$461.0 million of debt ($575.0 million face amount,
net of $114.0 million discount) and the bifurcated
conversion feature with a fair value of $521.7 million
recorded as a liability within long-term debt in the Condensed
Consolidated Balance Sheet at March 31, 2011. Additionally,
the Company has purchased call options, which are recorded as
assets at their fair value of $521.7 million within other
assets in the Condensed Consolidated Balance Sheet at
March 31, 2011. At December 31, 2010, |
20
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
the $928.3 million consisted of $455.9 million of debt
($575.0 million face amount, net of $119.1 million
discount) and the bifurcated conversion feature with a fair
value of $472.4 million recorded as a liability within
other long-term obligations in the Condensed Consolidated
Balance Sheet. The purchased call options are assets recorded at
their fair value of $472.4 million within other assets in
the Condensed Consolidated Balance Sheet at December 31,
2010. |
|
|
|
As of March 31, 2011, because the closing price of
Mylans common stock for at least 20 trading days in the
period of 30 consecutive trading days ending on the last trading
day in the March 31, 2011 period, was more than 130% of the
applicable conversion reference price of $13.32 at
March 31, 2011, the $575.0 million of Cash Convertible
Notes were currently convertible. Although the Companys
experience is that convertible debentures are not normally
converted by investors until close to their maturity date, it is
possible that debentures could be converted prior to their
maturity date if, for example, a holder perceives the market for
the debentures to be weaker than the market for the common
stock. Upon an investors election to convert, the Company
is required to pay the full conversion value in cash. Should
holders elect to convert, the Company intends to draw on its
revolving credit facility to fund any principal payments. The
amount payable per $1,000 notional bond would be calculated as
the product of (1) the conversion reference rate (currently
75.0751) and (2) the average Daily Volume Weighted Average
Price per share of common stock for a specified period following
the conversion date. Any payment above the principal amount is
matched by a convertible note hedge. |
|
(D) |
|
At March 31, 2011, the $781.7 million of debt is net
of a $12.0 million discount. At December 31, 2010, the
$787.7 million of debt is net of a $12.3 million
discount. In 2011, the Company entered into interest rate swaps
which convert $500.0 million of principal debt to a
variable rate. The variable rate is 3.27% at March 31,
2011. The $781.7 million of debt is net of a mark to market
adjustment of $6.3 million associated with these interest
rate swaps. |
|
(E) |
|
At March 31, 2011, the $1.02 billion of debt includes
a $15.5 million premium. At December 31, 2010, the
$1.02 billion of debt includes a $15.8 million premium. |
Details of the interest rates in effect at March 31, 2011
and December 31, 2010 on the outstanding borrowings under
the Term Loans are in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
Outstanding
|
|
|
Basis
|
|
Rate
|
|
|
|
(In thousands)
|
|
|
Euro Tranche A Term Loans
|
|
$
|
248,760
|
|
|
EURIBO + 2.75%
|
|
|
3.75
|
%
|
U.S. Tranche B Term Loans
|
|
|
|
|
|
|
|
|
|
|
Swapped to Fixed Rate December
2012(1)
|
|
$
|
500,000
|
|
|
Fixed
|
|
|
6.60
|
%
|
Euro Tranche B Term Loans
|
|
|
|
|
|
|
|
|
|
|
Floating Rate
|
|
$
|
715,579
|
|
|
EURIBO + 3.25%
|
|
|
4.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Outstanding
|
|
|
Basis
|
|
Rate
|
|
|
|
(In thousands)
|
|
|
Euro Tranche A Term Loans
|
|
$
|
234,550
|
|
|
EURIBO + 2.75%
|
|
|
3.66
|
%
|
U.S. Tranche B Term Loans
|
|
|
|
|
|
|
|
|
|
|
Swapped to Fixed Rate December
2012(1)
|
|
$
|
500,000
|
|
|
Fixed
|
|
|
6.60
|
%
|
Euro Tranche B Term Loans
|
|
|
|
|
|
|
|
|
|
|
Swapped to Fixed Rate March
2011(1)
|
|
$
|
267,740
|
|
|
Fixed
|
|
|
5.38
|
%
|
Floating Rate
|
|
|
406,965
|
|
|
EURIBO + 3.25%
|
|
|
4.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total Euro Tranche B Term Loans
|
|
$
|
674,705
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Designated as a cash flow hedge of expected future borrowings
under the Senior Credit Agreement |
21
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
At March 31, 2011, the fair value of the Senior Notes and
Senior Convertible Notes was approximately $3.16 billion,
and at December 31, 2010, the fair value of the Senior
Notes and Senior Convertible Notes was approximately
$3.06 billion. At March 31, 2011 and December 31,
2010, the fair value of the Cash Convertible Notes was
approximately $1.06 billion and $996.2 million.
Mandatory minimum repayments remaining on the outstanding
borrowings under the term loans and notes at March 31,
2011, excluding the discounts, premium and conversion features,
are as follows for each of the periods ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
U.S.
|
|
|
Euro
|
|
|
Senior
|
|
|
Cash
|
|
|
2017
|
|
|
2018
|
|
|
2020
|
|
|
|
|
|
|
Tranche A
|
|
|
Tranche B
|
|
|
Tranche B
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Senior
|
|
|
Senior
|
|
|
Senior
|
|
|
|
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Notes
|
|
|
Notes
|
|
|
Notes
|
|
|
Notes
|
|
|
Notes
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
2012
|
|
|
124,380
|
|
|
|
|
|
|
|
7,454
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
731,834
|
|
2013
|
|
|
124,380
|
|
|
|
|
|
|
|
7,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,834
|
|
2014
|
|
|
|
|
|
|
500,000
|
|
|
|
700,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,671
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
575,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550,000
|
|
|
|
800,000
|
|
|
|
1,000,000
|
|
|
|
2,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
248,760
|
|
|
$
|
500,000
|
|
|
$
|
715,579
|
|
|
$
|
600,000
|
|
|
$
|
575,000
|
|
|
$
|
550,000
|
|
|
$
|
800,000
|
|
|
$
|
1,000,000
|
|
|
$
|
4,989,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Comprehensive
Earnings
|
Comprehensive earnings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Net earnings
|
|
|
|
|
|
$
|
104,545
|
|
|
|
|
|
|
$
|
94,270
|
|
Other comprehensive earnings (loss), net of tax, as applicable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
163,805
|
|
|
|
|
|
|
|
(69,643
|
)
|
Change in unrecognized gains and prior service cost related to
post-retirement plans, net of tax
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
5,529
|
|
Net unrecognized gain on derivatives, net of tax
|
|
|
|
|
|
|
2,965
|
|
|
|
|
|
|
|
8,898
|
|
Unrealized (losses) gains on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (losses) gains on
available-for-sale
securities, net of tax
|
|
|
(240
|
)
|
|
|
|
|
|
|
213
|
|
|
|
|
|
Less: Reclassification for gains (losses) included in net
earnings
|
|
|
1
|
|
|
|
(239
|
)
|
|
|
1
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive earnings (loss), net of tax, as
applicable:
|
|
|
|
|
|
|
166,537
|
|
|
|
|
|
|
|
(55,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
|
|
|
|
|
|
|
271,082
|
|
|
|
|
|
|
|
39,268
|
|
Comprehensive (earnings) loss attributable to the noncontrolling
interest
|
|
|
|
|
|
|
(370
|
)
|
|
|
|
|
|
|
1,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings attributable to Mylan Inc.
|
|
|
|
|
|
$
|
270,712
|
|
|
|
|
|
|
$
|
40,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Accumulated other comprehensive earnings, as reflected on the
Condensed Consolidated Balance Sheets, is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
(In thousands)
|
|
|
Accumulated other comprehensive earnings:
|
|
|
|
|
|
|
|
|
Net unrealized gain on
available-for-sale
securities, net of tax
|
|
$
|
808
|
|
|
$
|
1,047
|
|
Net unrecognized losses and prior service costs related to post
retirement plans
|
|
|
(4,644
|
)
|
|
|
(4,650
|
)
|
Net unrecognized losses on derivatives, net of tax
|
|
|
(6,629
|
)
|
|
|
(9,594
|
)
|
Foreign currency translation adjustment
|
|
|
348,869
|
|
|
|
185,064
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
338,404
|
|
|
$
|
171,867
|
|
|
|
|
|
|
|
|
|
|
A summary of the change in shareholders equity for the
three months ended March 31, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mylan Inc.
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
Interest
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
December 31, 2010
|
|
$
|
3,601,879
|
|
|
$
|
13,522
|
|
|
$
|
3,615,401
|
|
Net earnings
|
|
|
104,175
|
|
|
|
370
|
|
|
|
104,545
|
|
Other comprehensive earnings
|
|
|
166,537
|
|
|
|
|
|
|
|
166,537
|
|
Stock option activity
|
|
|
23,143
|
|
|
|
|
|
|
|
23,143
|
|
Stock compensation expense
|
|
|
10,257
|
|
|
|
|
|
|
|
10,257
|
|
Issuance of restricted stock, net of shares withheld
|
|
|
(4,929
|
)
|
|
|
|
|
|
|
(4,929
|
)
|
Purchase of subsidiary shares from noncontrolling interest
|
|
|
(971
|
)
|
|
|
(881
|
)
|
|
|
(1,852
|
)
|
Tax benefit of stock option plans
|
|
|
3,626
|
|
|
|
|
|
|
|
3,626
|
|
Other
|
|
|
|
|
|
|
247
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
$
|
3,903,717
|
|
|
$
|
13,258
|
|
|
$
|
3,916,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
3,131,146
|
|
|
$
|
14,052
|
|
|
$
|
3,145,198
|
|
Net earnings (loss)
|
|
|
95,857
|
|
|
|
(1,587
|
)
|
|
|
94,270
|
|
Other comprehensive loss
|
|
|
(55,002
|
)
|
|
|
|
|
|
|
(55,002
|
)
|
Dividends paid on preferred stock
|
|
|
(34,759
|
)
|
|
|
|
|
|
|
(34,759
|
)
|
Stock option activity
|
|
|
24,967
|
|
|
|
|
|
|
|
24,967
|
|
Stock compensation expense
|
|
|
7,250
|
|
|
|
|
|
|
|
7,250
|
|
Purchase of subsidary shares from noncontrolling interest
|
|
|
(4,454
|
)
|
|
|
(623
|
)
|
|
|
(5,077
|
)
|
Other
|
|
|
1,741
|
|
|
|
(110
|
)
|
|
|
1,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
$
|
3,166,746
|
|
|
$
|
11,732
|
|
|
$
|
3,178,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Mylan has two segments, Generics and
Specialty. The Generics Segment primarily develops,
manufactures, sells and distributes generic or branded generic
pharmaceutical products in tablet, capsule, injectable or
transdermal patch form, as well as API. The Specialty Segment
engages mainly in the development, manufacture and sale of
branded specialty nebulized and injectable products.
The Companys chief operating decision maker evaluates the
performance of its segments based on total revenues and segment
profitability. Segment profitability represents segment gross
profit less direct research and development expenses and direct
selling, general and administrative expenses. Certain general
and administrative and research and development expenses not
allocated to the segments, as well as net charges for litigation
settlements, impairment charges and other expenses not directly
attributable to the segments, are reported in Corporate/Other.
Additionally, amortization of intangible assets and other
purchase accounting related items, as well as any other
significant special items, are included in Corporate/Other.
Items below the earnings from operations line on the
Companys Condensed Consolidated Statements of Operations
are not presented by segment, since they are excluded from the
measure of segment profitability. The Company does not report
depreciation expense, total assets and capital expenditures by
segment, as such information is not used by the chief operating
decision maker.
The accounting policies of the segments are the same as those
described in the Summary of Significant Accounting
Policies included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010. Intersegment revenues
are accounted for at current market values and are eliminated at
the consolidated level.
Presented in the table below is segment information for the
periods identified and a reconciliation of segment information
to total consolidated information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generics
|
|
|
Specialty
|
|
|
Corporate /
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Other
(1)
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Three Months Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
|
$
|
1,350,472
|
|
|
$
|
98,486
|
|
|
$
|
|
|
|
$
|
1,448,958
|
|
Intersegment
|
|
|
396
|
|
|
|
16,835
|
|
|
|
(17,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,350,868
|
|
|
$
|
115,321
|
|
|
$
|
(17,231
|
)
|
|
$
|
1,448,958
|
|
Segment profitability
|
|
$
|
388,921
|
|
|
$
|
30,792
|
|
|
$
|
(208,038
|
)
|
|
$
|
211,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generics
|
|
|
Specialty
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Corporate /
Other(1)
|
|
|
Consolidated
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
|
$
|
1,207,862
|
|
|
$
|
84,512
|
|
|
$
|
|
|
|
$
|
1,292,374
|
|
Intersegment
|
|
|
30,419
|
|
|
|
16,514
|
|
|
|
(46,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,238,281
|
|
|
$
|
101,026
|
|
|
$
|
(46,933
|
)
|
|
$
|
1,292,374
|
|
Segment profitability
|
|
$
|
325,334
|
|
|
$
|
19,804
|
|
|
$
|
(146,631
|
)
|
|
$
|
198,507
|
|
|
|
|
(1) |
|
Includes certain corporate general and administrative and
research and development expenses; net charges for litigation
settlements; certain intercompany transactions, including
eliminations; amortization of intangible assets and certain
purchase accounting items; impairment charges, if any; and other
expenses not directly attributable to segments. |
24
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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. The Company is also
party to certain litigation matters, some of which are described
below, for which Merck KGaA has agreed to indemnify the Company,
under the terms by which Mylan acquired the former Merck
Generics business. An adverse outcome in any of these
proceedings, or the inability or denial of Merck KGaA to pay an
indemnified claim, could have a material adverse effect on the
Companys financial position, results of operations and
cash flows.
Lorazepam
and Clorazepate
On June 1, 2005, a jury verdict was rendered against Mylan,
Mylan Pharmaceuticals Inc. (MPI), and co-defendants
Cambrex Corporation and Gyma Laboratories in the
U.S. District Court for the District of Columbia in the
amount of approximately $12.0 million, which has been
accrued for by the Company. The jury found that Mylan and its
co-defendants willfully violated Massachusetts, Minnesota and
Illinois state antitrust laws in connection with API supply
agreements entered into between the Company and its API supplier
(Cambrex) and broker (Gyma) for two drugs, lorazepam and
clorazepate, in 1997, and subsequent price increases on these
drugs in 1998. The case was brought by four health insurers who
opted out of earlier class action settlements agreed to by the
Company in 2001 and represents the last remaining antitrust
claims relating to Mylans 1998 price increases for
lorazepam and clorazepate. Following the verdict, the Company
filed a motion for judgment as a matter of law, a motion for a
new trial, a motion to dismiss two of the insurers and a motion
to reduce the verdict. On December 20, 2006, the
Companys motion for judgment as a matter of law and motion
for a new trial were denied and the remaining motions were
denied on January 24, 2008. In post-trial filings, the
plaintiffs requested that the verdict be trebled and that
request was granted on January 24, 2008. On
February 6, 2008, a judgment was issued against Mylan and
its co-defendants in the total amount of approximately
$69.0 million, which, in the case of three of the
plaintiffs, reflects trebling of the compensatory damages in the
original verdict (approximately $11.0 million in total)
and, in the case of the fourth plaintiff, reflects their amount
of the compensatory damages in the original jury verdict plus
doubling this compensatory damage award as punitive damages
assessed against each of the defendants (approximately
$58.0 million in total), some or all of which may be
subject to indemnification obligations by Mylan. Plaintiffs are
also seeking an award of attorneys fees and litigation
costs in unspecified amounts and prejudgment interest of
approximately $8.0 million. The Company and its
co-defendants have appealed to the U.S. Court of Appeals
for the D.C. Circuit and have challenged the verdict as legally
erroneous on multiple grounds. The appeals were held in abeyance
pending a ruling on the motion for prejudgment interest, which
has been granted. Mylan has contested this ruling along with the
liability finding and other damages awards as part of its
appeal, which was filed in the Court of Appeals for the D.C.
Circuit. On January 18, 2011, the Court of Appeals issued a
judgment remanding the case to the district court for further
proceedings. In connection with the Companys appeal of the
lorazepam judgment, the Company submitted a surety bond
underwritten by a third-party insurance company in the amount of
$74.5 million. This surety bond is secured by a pledge of a
$15.0 million cash deposit (which is included as restricted
cash on the Companys Condensed Consolidated Balance
Sheets) and an irrevocable letter of credit for
$34.5 million issued under the Senior Credit Agreement.
Pricing
and Medicaid Litigation
Beginning in September 2003, Mylan, MPI
and/or UDL
Laboratories Inc. (UDL), together with many other
pharmaceutical companies, have been named in civil lawsuits
filed by state attorneys general (AGs) and municipal
bodies within the state of New York alleging generally that the
defendants defrauded the state Medicaid systems by allegedly
reporting Average Wholesale Prices
and/or
Wholesale Acquisition Costs that exceeded the actual
selling price of the defendants prescription drugs,
causing state programs to overpay pharmacies and
25
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
other providers. To date, Mylan, MPI
and/or UDL
have been named as defendants in substantially similar civil
lawsuits filed by the AGs of Alabama, Alaska, California,
Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky,
Louisiana, Massachusetts, Mississippi, Missouri, Oklahoma, South
Carolina, Texas, Utah and Wisconsin and also by the city of New
York and approximately 40 counties across New York State.
Several of these cases have been transferred to the AWP
multi-district litigation proceedings pending in the
U.S. District Court for the District of Massachusetts for
pretrial proceedings. Others of these cases will likely be
litigated in the state courts in which they were filed. Each of
the cases seeks money damages, civil penalties
and/or
double, treble or punitive damages, counsel fees and costs,
equitable relief
and/or
injunctive relief. Certain of these cases that remain pending
may go to trial in 2011. Mylan and its subsidiaries have denied
liability and intend to defend each of these actions vigorously.
In May 2008, an amended complaint was filed in the
U.S. District Court for the District of Massachusetts by a
private plaintiff on behalf of the United States of America,
against Mylan, MPI, UDL and several other generic manufacturers.
The original complaint was filed under seal in April 2000, and
Mylan, MPI and UDL were added as parties in February 2001. The
claims against Mylan, MPI, UDL and the other generic
manufacturers were severed from the April 2000 complaint (which
remains under seal) as a result of the federal governments
decision not to intervene in the action as to those defendants.
The complaint alleged violations of the False Claims Act and set
forth allegations substantially similar to those alleged in the
state AG cases mentioned in the preceding paragraph and
purported to seek nationwide recovery of any and all alleged
overpayment of the federal share under the Medicaid
program, as well as treble damages and civil penalties. In
December 2010, the Company completed a settlement of this case
(except for the claims related to the California federal share)
and the Texas state action mentioned above. This settlement
resolved a significant portion of the damages claims asserted
against Mylan, MPI and UDL in the various pending pricing
litigations. In addition, Mylan reached settlements of the
Alabama, Alaska, Hawaii, Kansas, Massachusetts, Mississippi,
South Carolina, and Utah state actions. The Company has also
reached agreements in principle to settle the Kentucky, Florida,
Iowa and New York state actions, which settlements are
contingent upon the execution of definitive settlement
documents. With regard to the remaining state actions, the
Company continues to believe that it has meritorious defenses
and will continue to vigorously defend itself in those actions.
The Company had accrued $157 million at December 31 2010.
Following settlements of certain of these matters and settlement
payments of approximately $24.0 million during the three
months ended March 31, 2011, the Company has a remaining
accrual of approximately $133.0 million at March 31,
2011. The Company reviews the status of these actions on an
ongoing basis, and from time to time, the Company may settle or
otherwise resolve these matters on terms and conditions that
management believes are in the best interests of the Company.
There are no assurances that settlements
and/or
adverse judgments can be reached on acceptable terms or that
adverse judgments, if any, in the remaining litigation will not
exceed the amounts currently provided for.
Dey is currently a defendant in a lawsuit brought by the state
AG of Louisiana and is also named as a defendant in several
class actions brought by consumers and third-party payors. Dey
has reached a settlement of these class actions, which has been
preliminarily approved by the court. Additionally, a complaint
was filed under seal by a plaintiff on behalf of the United
States of America against Dey in August 1997. In August 2006,
the Government filed its
complaint-in-intervention
and the case was unsealed in September 2006. The Government
asserted that Dey was jointly liable with a codefendant and
sought recovery of alleged overpayments, together with treble
damages, civil penalties and equitable relief. These cases all
have generally alleged that Dey falsely reported certain price
information concerning certain drugs marketed by Dey, that Dey
caused false claims to be made to Medicaid and to Medicare, and
that Dey caused Medicaid and Medicare to make overpayments on
those claims.
Under the terms of the purchase agreement with Merck KGaA, Mylan
is fully indemnified for these claims and Merck KGaA is entitled
to any income tax benefit the Company realizes for any
deductions of amounts paid for such pricing litigation. Under
the indemnity, Merck KGaA is responsible for all settlement and
legal costs, and, as such, these settlements had no impact on
the Companys condensed consolidated statements of
operations. At March 31, 2011, the Company has accrued
$127.0 million in other current liabilities, which
represents its estimate of the remaining amount of anticipated
income tax benefits due to Merck KGaA. Substantially all of
Deys known claims with respect to this pricing litigation
have been settled.
26
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Modafinil
Antitrust Litigation and FTC Inquiry
Beginning in April 2006, Mylan and four other drug manufacturers
have been named as defendants in civil lawsuits filed in or
transferred to the Eastern District of Pennsylvania by a variety
of plaintiffs purportedly representing direct and indirect
purchasers of the drug modafinil and in a lawsuit filed by
Apotex, Inc., a manufacturer of generic drugs, seeking approval
to market a generic modafinil product. These actions allege
violations of federal and state laws in connection with the
defendants settlement of patent litigation relating to
modafinil. On March 29, 2010, the Court in the Eastern
District of Pennsylvania denied the defendants motions to
dismiss. The deadline for filing dispositive motions is
September 9, 2011, and fact discovery closed on
February 11, 2011. Mylan intends to defend each of these
actions vigorously.
In addition, by letter dated July 11, 2006, Mylan was
notified by the U.S. Federal Trade Commission
(FTC) of an investigation relating to the settlement
of the modafinil patent litigation. In its letter, the FTC
requested certain information from Mylan, MPI and Mylan
Technologies, Inc. pertaining to the patent litigation and the
settlement thereof. On March 29, 2007, the FTC issued a
subpoena, and on April 26, 2007, the FTC issued a civil
investigative demand to Mylan Inc. requesting additional
information from the Company relating to the investigation.
Mylan has cooperated fully with the governments
investigation and completed all requests for information. On
February 13, 2008, the FTC filed a lawsuit against Cephalon
in the U.S. District Court for the District of Columbia and
the case has subsequently been transferred to the
U.S. District Court for the Eastern District of
Pennsylvania. On July 1, 2010, the FTC issued a third party
subpoena to Mylan requesting documents in connection with its
lawsuit against Cephalon. Mylan Inc. has responded to the
subpoena. Mylan is not named as a defendant in the FTCs
lawsuit, although the complaint includes certain allegations
pertaining to the Mylan/Cephalon settlement.
Digitek®
Recall
On April 25, 2008, Actavis Totowa LLC, a division of
Actavis Group, announced a voluntary, nationwide recall of all
lots and all strengths of Digitek (digoxin tablets USP). Digitek
was manufactured by Actavis and distributed in the United States
by MPI and UDL. The Company has tendered its defense and
indemnity in all lawsuits and claims arising from this event to
Actavis, and Actavis has accepted that tender, subject to a
reservation of rights. While the Company is unable to estimate
total potential costs with any degree of certainty, such costs
could be significant. As of April 8, 2011, there are
approximately 995 cases pending against Mylan, UDL and Actavis
pertaining to the recall. Most of these cases have been
transferred to the multi-district litigation proceedings pending
in the U.S. District Court for the Southern District of
West Virginia for pretrial proceedings. The remainder of these
cases will likely be litigated in the state courts in which they
were filed. Actavis has reached settlements in principle with
the plaintiffs in a majority of the claims and lawsuits. Mylan
and UDL will not contribute monetarily to the settlements, but
will be dismissed with prejudice from any settled cases. Any
lawsuits in which the plaintiffs choose to opt out of this
settlement will continue to be litigated. As of March 31,
2011, approximately 19 plaintiffs had opted out of the
settlement. An adverse outcome in these lawsuits or the
inability or denial of Actavis to pay on an indemnified claim
could have a materially negative impact on the Companys
financial position, results of operations or cash flows.
EU
Commission Proceedings
On or around July 8, 2009, the European Commission (the
EU Commission or the Commission) stated
that it had initiated antitrust proceedings pursuant to
Article 11(6) of Regulation No. 1/2003 and
Article 2(1) of Regulation No. 773/2004 to
explore possible infringement of Articles 81 and 82 EC and
Articles 53 and 54 of the EEA Agreement by Les Laboratoires
Servier (Servier) as well as possible infringement
of Article 81 EC by Matrix and four other companies, each
of which entered into agreements with Servier relating to the
product perindopril. Matrix is cooperating with the EU
Commission in connection with the investigation. The EU
27
MYLAN
INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Commission stated that the initiation of proceedings does
not imply that the Commission has conclusive proof of an
infringement but merely signifies that the Commission will deal
with the case as a matter of priority. No statement of
objections has been filed against Matrix in connection with its
investigation. Matrix and Generics [U.K.] Ltd. have received
requests for information from the EU Commission in connection
with this matter, and both companies have responded and are
cooperating with the Commission in this investigation.
In addition, the EU Commission is conducting a pharmaceutical
sector inquiry involving approximately 100 companies
concerning the introduction of innovative and generic medicines.
Mylan S.A.S. has responded to the questionnaires received in
connection with the sector inquiry and has produced documents
and other information in connection with the inquiry.
On October 6, 2009, the Company received notice that the EU
Commission was initiating an investigation pursuant to
Article 20(4) of Regulation No. 1/2003 to explore
possible infringement of Articles 81 and 82 EC by the
Company and its affiliates. Mylan S.A.S., acting on behalf of
its Mylan affiliates, has produced documents and other
information in connection with the inquiry and has responded to
other requests for additional information. The Company is
cooperating with the Commission in connection with the
investigation, and no statement of objections has been filed
against the Company in connection with the investigation.
On March 19, 2010, Mylan Inc. and Generics [U.K.] Ltd.
received notice that the EU Commission had opened proceedings
against Lundbeck with respect to alleged unilateral practices
and/or
agreements related to citalopram in the European Economic Area.
Mylan Inc. and Generics [U.K.] Ltd. have received requests for
information from the EU Commission in connection with any
agreements between Lundbeck and Generics [U.K.] Ltd. concerning
citalopram. Generics [U.K.] Ltd. has responded and continues to
respond to additional requests for information. Both companies
are cooperating with the EU Commission. No statement of
objections has been filed in connection with this investigation.
Product
Liability
The Company is involved in a number of product liability
lawsuits and claims related to alleged personal injuries arising
out of certain products manufactured
and/or
distributed by the Company, including its fentanyl transdermal
system, phenytoin and Amnesteem. The Company believes that it
has meritorious defenses to these lawsuits and claims and is
vigorously defending itself with respect to those matters. From
time to time, the Company has agreed to settle or otherwise
resolve certain lawsuits and claims on terms and conditions that
are in the best interests of the Company. During 2010, the
Company accrued $41.0 million in connection with certain
settlements. Following these settlements, the Company has paid
approximately $15.0 million during the three months ended
March 31, 2011.
There are no assurances that settlements can be reached on
acceptable terms or that settlements
and/or
adverse judgments, if any, in the remaining litigation will not
exceed the amounts currently provided for.
Other
Litigation
Beaufour Ipsen Pharma (Ipsen) sued Merck Generiques
(n/k/a Mylan) for unfair competition on October 11, 2007,
following Mylans receipt of market authorization for
vitalogink earlier in 2007 (prior to Mylans acquisition of
the former Merck Generics business). The Commercial Court of
Paris dismissed Ipsens claim in a January 2008 decision.
Ipsen filed an appeal of this decision to the Paris Appeal Court
in March 2008. On April 28, 2011, the Paris Appeal Court
reversed the decision of the Commercial Court of Paris and found
that Mylan is liable for unfair competition and further ordered
damages against Mylan in the amount of 17 million.
Mylan recorded a 17 million accrual (approximately
$24 million) related to this matter in its results for the
three months ended March 31, 2011. The Company believes the
court erred in its decision, intends to appeal the ruling,
believes that it has meritorious defenses to this claim and
intends to vigorously defend itself with respect to this matter.
The Company is involved in various other legal proceedings that
are considered normal to its business, including certain
proceedings assumed as a result of the acquisition of the former
Merck Generics business. While it is not feasible to predict the
ultimate outcome of such other proceedings, the ultimate outcome
of any such proceeding is not expected to have a material
adverse effect on its financial position, results of operations
or cash flows.
28
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ITEM 2.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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The following discussion and analysis addresses material changes
in the financial condition and results of operations of Mylan
Inc. and subsidiaries (the Company,
Mylan or we) for the periods presented.
This discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, the related Notes to
Consolidated Financial Statements and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010, the unaudited interim
Condensed Consolidated Financial Statements and related Notes
included in Part I ITEM 1 of this
Quarterly Report on
Form 10-Q
(Form 10-Q)
and our other Securities and Exchange Commission
(SEC) filings and public disclosures. The interim
results of operations for the three months ended March 31,
2011 and the interim cash flows for the three months ended
March 31, 2011 are not necessarily indicative of the
results to be expected for the full fiscal year or any other
future period.
This
Form 10-Q
may contain forward-looking statements. These
statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may include, without limitation,
statements about our market opportunities, strategies,
competition and expected activities and expenditures, and at
times may be identified by the use of words such as
may, could, should,
would, project, believe,
anticipate, expect, plan,
estimate, forecast,
potential, intend, continue
and variations of these words or comparable words.
Forward-looking statements inherently involve risks and
uncertainties. Accordingly, actual results may differ materially
from those expressed or implied by these
forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, the risks described
below under Risk Factors in Part II,
ITEM 1A. The Company undertakes no obligation to update any
forward-looking statements for revisions or changes after the
filing date of this
Form 10-Q.
Executive
Overview
Mylan ranks among the leading generic and specialty
pharmaceutical companies in the world, offering one of the
industrys broadest and highest quality product portfolios,
a robust pipeline and a global commercial footprint that spans
more than 150 countries and territories. With a workforce of
more than 17,000 employees and external contractors, Mylan
has attained leading positions in key international markets
through its wide array of dosage forms and delivery systems,
significant manufacturing capacity, global scale and commitment
to customer service. Through our Matrix Laboratories Limited
(Matrix) subsidiary, Mylan operates one of the
worlds largest active pharmaceutical ingredient
(API) manufacturers with respect to the number of
drug master files filed with regulatory agencies. This
capability makes Mylan one of only two global generics companies
with a comprehensive, vertically integrated supply chain.
Mylan has two segments, Generics and
Specialty. Generics primarily develops,
manufactures, sells and distributes generic or branded generic
pharmaceutical products in tablet, capsule, injectable or
transdermal patch form, as well as API. Specialty engages mainly
in the manufacture and sale of branded specialty nebulized and
injectable products. We also report in Corporate/Other certain
research and development expenses, general and administrative
expenses, litigation settlements, amortization of intangible
assets and certain purchase-accounting items, impairment
charges, if any, and other items not directly attributable to
the segments.
Financial
Summary
For the three months ended March 31, 2011, Mylan reported
total revenues of $1.45 billion compared to
$1.29 billion for the three months ended March 31,
2010. This represents an increase in revenues of
$156.6 million, or 12.1%. Consolidated gross profit for the
current quarter was $590.9 million, compared to
$516.3 million in the comparable prior year period, an
increase of $74.6 million, or 14.4%. For the current
quarter, earnings from operations were $211.7 million,
compared to $198.5 million for the three months ended
March 31, 2010.
The net earnings attributable to Mylan Inc. common shareholders
for the three months ended March 31, 2011 were
$104.2 million, and earnings per diluted share were $0.23.
In the prior year period ended March 31, 2010, the net
earnings attributable to Mylan Inc. common shareholders were
$61.1 million, or earnings per diluted share of
29
$0.20. A more detailed discussion of the Companys
financial results can be found below in the section titled
Results of Operations.
Included in the results for the three months ended
March 31, 2011 and 2010 are the following items of note:
Three months ended March 31, 2011:
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Amortization expense, primarily related to purchased intangible
assets associated with acquisitions, of $86.7 million;
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Interest of $11.9 million, primarily related to the
amortization of the discounts on our convertible debt
instruments and 2018 Senior Notes, net of amortization of the
premium on our 2020 Senior Notes;
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Net charges related to the settlement of litigation of
$24.0 million;
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Additional costs, primarily restructuring, totaling
$17.1 million; and
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A tax effect of $47.0 million related to the above items.
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Three months ended March 31, 2010:
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Amortization expense, primarily related to purchased intangible
assets associated with acquisitions, of $71.6 million;
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Interest of $11.0 million, primarily related to the
amortization of the discounts on our convertible debt
instruments;
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Net charges related to the settlement of litigation of
$0.7 million;
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Additional costs, primarily restructuring, totaling
$12.1 million; and
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A tax effect of $33.1 million related to the above items
and other taxes.
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Results
of Operations
Three
Months Ended March 31, 2011, Compared to Three Months Ended
March 31, 2010
Total
Revenues and Gross Profit
For the current quarter, Mylan reported total revenues of
$1.45 billion compared to $1.29 billion in the
comparable prior year period. Total revenues include both net
revenues and other revenues from third parties. Third party net
revenues for the current quarter were $1.44 billion
compared to $1.28 billion for the same prior year period,
representing an increase of $158.4 million, or 12.4%. Other
third party revenues for the current quarter were
$12.4 million compared to $14.3 million in the same
prior year period, a decrease of $1.9 million.
Mylans revenues are impacted by the effect of foreign
currency translation, primarily reflecting changes in the value
of the U.S. dollar in comparison to the functional
currencies of Mylans Euro-denominated subsidiaries, as
well as the currencies of Mylans subsidiaries in
Australia, Japan and India. Translating third party net revenues
for the current quarter at prior year comparative period foreign
currency exchange rates would have resulted in
year-over-year
growth of approximately 11%.
Gross profit for the three months ended March 31, 2011 was
$590.9 million and gross margins were 40.8%. For the three
months ended March 31, 2010, gross profit was
$516.3 million, and gross margins were 40.0%. Gross profit
for the current quarter is impacted by certain purchase
accounting related items recorded during the three months ended
March 31, 2011, of approximately $86.7 million, which
consisted primarily of amortization related to purchased
intangible assets associated with acquisitions. Excluding such
items, gross margins would have been approximately 47%. Prior
year gross profit is also impacted by similar purchase
accounting related items in the amount of $71.6 million.
Excluding such items, gross margins in the prior year would have
been approximately 46%.
The increase in gross margins, excluding the items noted above,
can be attributed to both Generics and Specialty. The
improvement in the Generics Segment was a result of new product
introductions and a favorable
30
product mix in the U.S. and Canada (collectively,
North America). Additionally the gross margins in
the Specialty Segment improved as a result of favorable pricing,
mainly on the
EpiPen®
Auto-injector.
From time to time, a limited number of our products may
represent a significant portion of our net revenues, gross
profit and net earnings. Generally, this is due to the timing of
new product launches and the amount, if any, of additional
competition in the market. Our top ten products in terms of
sales, in the aggregate, represented approximately 22% of total
revenues in the three months ended March 31, 2011.
Generics
Segment
For the current quarter, Generics third party net revenues were
$1.34 billion compared to $1.20 billion in the
comparable prior year period, an increase of
$144.1 million, or 12.1%. Translating Generics third party
net revenues for the current quarter at prior year foreign
currency exchange rates would have resulted in
year-over-year
growth of approximately $128 million, or 11%. Generics
sales are derived primarily in or from North America; Europe,
Middle East and Africa (collectively, EMEA) and
India, Australia, Japan, and New Zealand (collectively,
Asia Pacific).
Third party net revenues from North America were
$674.3 million for the current quarter, compared to
$552.4 million for the comparable prior year period,
representing an increase of $121.8 million, or 22.1%. The
increase in current year net revenues was driven by increased
volume, new product launches and incremental revenue from the
Bioniche Pharma Holdings Limited (Bioniche Pharma)
acquisition in September 2010, partially offset by lower pricing
on certain existing products.
Products generally contribute most significantly to revenues and
gross margin at the time of their launch, even more so in
periods of market exclusivity or in periods of limited generic
competition. As such, the timing of new product introductions
can have a significant impact on Mylans financial results.
New products launched in North America since the first quarter
of 2010 contributed sales of $81.1 million.
The increase in volume can be attributed in part to Mylans
ability to continue to be a stable and reliable source of supply
to the market as certain competitors experienced regulatory or
supply issues. The unfavorable pricing in the current quarter
was generally the result of increased competition on existing
products. The entrance into the market of additional competition
generally has a negative impact on the volume and pricing of the
affected products. The effect of foreign currency translation
was insignificant within North America.
Third party net revenues from EMEA were $389.1 million for
the three-month period ended March 31, 2011, compared to
$406.9 million for the comparable prior year period, a
decrease of $17.8 million, or 4.4%. Translating current
quarter third party net revenues from EMEA at comparable prior
year period exchange rates would have reduced the
year-over-year
decrease in third party net revenues excluding the effect of
foreign currency to approximately $15 million, or 4%. This
decrease was mainly the result of unfavorable market conditions
and lower pricing in a number of the European markets in which
Mylan operates, primarily Germany, the U.K. and Portugal,
partially offset by strong performances in Italy and Spain.
Local currency revenues from our business in France were
essentially flat as compared to the prior year with new product
launches offsetting the impact of unfavorable pricing due to an
increasingly competitive market. In Italy, excluding the effect
of foreign currency, third party sales increased by more than
30% as a result of successful product launches and increased
market penetration, which has favorably affected sales volume.
Certain markets in which we do business have recently undergone
government-imposed price reductions, and further
government-imposed price reductions are expected in the future.
Such measures, along with the tender systems discussed below,
are likely to have a negative impact on sales and gross profit
in these markets. However, pro-generic government initiatives in
certain markets could help to offset some of this unfavorability
by potentially increasing rates of generic substitution.
A number of markets in which we operate have implemented or may
implement tender systems for generic pharmaceuticals in an
effort to lower prices. Generally speaking, tender systems can
have an unfavorable impact on revenue and profitability. Under
such tender systems, manufacturers submit bids which establish
prices for generic pharmaceutical products. Upon winning the
tender, the winning company will receive a preferential
reimbursement
31
for a period of time. The tender system often results in
companies underbidding one another by proposing low pricing in
order to win the tender. Additionally, the loss of a tender by a
third party to whom we supply API can also have a negative
impact on our sales and profitability. Sales, primarily in
Germany, continue to be negatively affected by the impact of
tender systems.
In Asia Pacific, third party net revenues were
$276.1 million for the three-month period ended
March 31, 2011, compared to $236.1 million for the
comparable prior year period, an increase of $40.0 million,
or 16.9%. Excluding the favorable effect of foreign currency
translation, calculated as described above, the increase was
approximately $24 million, or 10%. This increase is
primarily driven by higher third party sales by Matrix.
The increase in third party net revenues of Matrix is due to
double-digit growth, excluding the effect of foreign currency,
in sales of both anti-retroviral (ARV) finished
dosage form (FDF) generic products, which are used
in the treatment of HIV/AIDS, and API. In addition to third
party sales, the Asia Pacific region also supplies both FDF
generic products and API to Mylan subsidiaries in conjunction
with Mylans vertical integration strategy. Intercompany
revenues recognized by the Asia Pacific region were
$52.9 million for the three months ended March 31,
2011, compared to $30.1 million in the prior year. These
intercompany sales eliminate within, and therefore are not
included in, Generics or consolidated net revenues.
In Japan, third party net revenues were favorably impacted
through new product launches and overall market growth. In
Australia, sales were negatively impacted by lower pricing and
an unfavorable product mix. As in EMEA, both Japan and Australia
have undergone government-imposed price reductions which have
had, and could continue to have, a negative impact on sales and
gross profit in these markets.
Specialty
Segment
For the current quarter, Specialty reported third party net
revenues of $97.0 million, an increase of
$14.3 million, or 17.3%, from the comparable prior year
period of $82.7 million. The most significant contributor
to Specialty revenues continues to be the EpiPen Auto-Injector,
which is used in the treatment of severe allergic reactions. The
EpiPen Auto-Injector is the number one epinephrine auto-injector
for the treatment of severe allergic reactions with
approximately 90% market share in the U.S. and worldwide.
Specialty realized increased sales of the EpiPen Auto-Injector,
mainly as a result of favorable pricing.
Operating
Expenses
Research and development expense (R&D) for the
three months ended March 31, 2011 was $75.3 million,
compared to $61.3 million in the same prior year period, an
increase of $14.0 million. R&D increased due primarily
to costs associated with higher volumes of internal and external
product development, expense related to Bioniche Pharma, which
was acquired in September 2010, and an unfavorable impact from
foreign currency.
Selling, general and administrative expense
(SG&A) for the current quarter was
$280.0 million, compared to $255.8 million for the
same prior year period, an increase of $24.2 million.
SG&A increased as a result of increased payroll and payroll
related costs, increased legal costs primarily due to the timing
of certain litigation matters, higher information technology
costs and an unfavorable impact from foreign currency.
Litigation
Settlements, net
During the three months ended March 31, 2011, the Company
recorded $24.0 million in net charges for litigation
settlements, principally related to an adverse ruling for an
anti-competition claim in France, which the Company intends to
appeal.
Interest
Expense
Interest expense for the three months ended March 31, 2011,
totaled $84.4 million, compared to $74.0 million for
the three months ended March 31, 2010. The increase is
primarily due to interest associated with the 2017 and 2020
Senior Notes debt offerings in May 2010 and July 2010, partially
offset by lower overall debt balances on the Companys
Senior Credit Facility. Included in interest expense for the
current quarter and the comparable prior year
32
period are $11.9 million and $11.0 million, primarily
related to the amortization of the discounts on our convertible
debt instruments, net of amortization of the premium on our 2020
Senior Notes.
Other
Income, net
Other income, net, was $3.3 million in the current quarter
compared to income of $1.1 million in the comparable prior
year period. Other income, net includes interest and dividend
income and foreign exchange transaction gains and losses.
Liquidity
and Capital Resources
Cash used by operations were $45.6 million for the three
months ended March 31, 2011, primarily driven by an
increase in accounts receivable due to the increase in sales
during the quarter, combined with the timing of cash receipts,
and an increase in inventory levels to support anticipated
demand for the remainder of 2011. In addition, operating cash
flow was negatively impacted in the current quarter by payments
made for previously accrued litigation, as well as by the timing
of interest payments.
We believe that our current cash balance combined with cash
provided by operating activities throughout the remainder of
calendar year 2011 and beyond will continue to allow us to meet
our needs for working capital, capital expenditures, interest
and principal payments on debt obligations and other cash needs
over the next several years. Nevertheless, our ability to
satisfy our working capital requirements and debt service
obligations, or fund planned capital expenditures, will
substantially depend upon our future operating performance
(which will be affected by prevailing economic conditions), and
financial, business and other factors, some of which are beyond
our control.
Cash used in investing activities was $43.4 million for the
three months ended March 31, 2011, consisting primarily of
capital expenditures. While there can be no assurance that
current expectations will be realized, capital expenditures are
expected to be between $250 million and $300 million
for the 2011 calendar year.
Cash provided by financing activities was $18.0 million for
the three months ended March 31, 2011, consisting primarily
of cash proceeds from the exercise of stock options.
As of March 31, 2011, because the closing price of our
common stock for at least 20 trading days in the period of 30
consecutive trading days ending on the last trading day in the
March 31, 2011 period was more than 130% of the applicable
conversion reference price of $13.32 at March 31, 2011, the
$575.0 million of Cash Convertible Notes were currently
convertible. Although the Companys experience is that
convertible debentures are not normally converted by investors
until close to their maturity date, it is possible that
debentures could be converted prior to their maturity date if,
for example, a holder perceives the market for the debentures to
be weaker than the market for the common stock. Upon an
investors election to convert, the Company is required to
pay the full conversion value in cash. The amount payable per
$1,000 notional bond would be calculated as the product of
(1) the conversion reference rate (currently 75.0751) and
(2) the average Daily Volume Weighted Average Price per
share of common stock for a specified period following the
conversion date. Any payment above the principal amount is
matched by a convertible note hedge. Should holders elect to
convert, we intend to draw on our revolving credit facility to
fund any principal payments. The facility is a secured revolving
credit agreement expiring in October 2013, with available
capacity of approximately $694 million at March 31,
2011.
On May 3, 2011, the Company announced that its Board of
Directors authorized the repurchase of up to $350 million
of shares of its outstanding common stock and other equity
securities through either open market purchases or privately
negotiated transactions. The repurchase program is expected to
be completed by June 30, 2011 and does not obligate the
Company to acquire any particular amount of common stock or
other equity securities.
We are involved in various legal proceedings that are considered
normal to our business. While it is not possible to predict the
outcome of such proceedings, an adverse outcome in any of these
proceedings could materially affect our financial position and
results of operations, including our operating cash flow. We
have more than $200 million accrued for such legal
contingencies. Additionally, for certain contingencies assumed
in conjunction with the acquisition of the former Merck Generics
business, Merck KGaA, the seller, has indemnified Mylan. The
inability or denial of Merck KGaA to pay on an indemnified claim
could have a material adverse effect on our financial position,
results of operations or cash flows.
33
We are actively pursuing, and are currently involved in, joint
projects related to the development, distribution and marketing
of both generic and branded products. Many of these arrangements
provide for payments by us upon the attainment of specified
milestones. While these arrangements help to reduce the
financial risk for unsuccessful projects, fulfillment of
specified milestones or the occurrence of other obligations may
result in fluctuations in cash flows.
We are continuously evaluating the potential acquisition of
products, as well as companies, as a strategic part of our
future growth. Consequently, we may utilize current cash
reserves or incur additional indebtedness to finance any such
acquisitions, which could impact future liquidity. In addition,
on an ongoing basis, we review our operations including the
evaluation of potential divestitures of products and businesses
as part of our future strategy. Any divestitures could impact
future liquidity.
At March 31, 2011 and December 31, 2010, we had
$87.9 million and $85.4 million outstanding under
existing letters of credit. Additionally, as of March 31,
2011, we had $43.9 million available under the
$100.0 million subfacility on our Senior Credit Agreement
for the issuance of letters of credit.
Mandatory minimum repayments remaining on the outstanding
borrowings under the term loans and notes at March 31,
2011, excluding the discounts, premium and conversion features,
are as follows for each of the periods ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
U.S.
|
|
|
Euro
|
|
|
Senior
|
|
|
Cash
|
|
|
2017
|
|
|
2018
|
|
|
2020
|
|
|
|
|
|
|
Tranche A
|
|
|
Tranche B
|
|
|
Tranche B
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Senior
|
|
|
Senior
|
|
|
Senior
|
|
|
|
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Notes
|
|
|
Notes
|
|
|
Notes
|
|
|
Notes
|
|
|
Notes
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
2011
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
2012
|
|
|
124,380
|
|
|
|
|
|
|
|
7,454
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
731,834
|
|
2013
|
|
|
124,380
|
|
|
|
|
|
|
|
7,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,834
|
|
2014
|
|
|
|
|
|
|
500,000
|
|
|
|
700,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,671
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
575,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550,000
|
|
|
|
800,000
|
|
|
|
1,000,000
|
|
|
|
2,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
248,760
|
|
|
$
|
500,000
|
|
|
$
|
715,579
|
|
|
$
|
600,000
|
|
|
$
|
575,000
|
|
|
$
|
550,000
|
|
|
$
|
800,000
|
|
|
$
|
1,000,000
|
|
|
$
|
4,989,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Senior Credit Agreement contains customary affirmative
covenants for facilities of this type, including covenants
pertaining to the delivery of financial statements, notices of
default and certain other information, maintenance of business
and insurance, collateral matters and compliance with laws, as
well as customary negative covenants for facilities of this
type, including limitations on the incurrence of indebtedness
and liens, mergers and certain other fundamental changes,
investments and loans, acquisitions, transactions with
affiliates, dispositions of assets, payments of dividends and
other restricted payments, prepayments or amendments to the
terms of specified indebtedness and changes in lines of
business. The Senior Credit Agreement also contains financial
covenants requiring maintenance of a minimum interest coverage
ratio and a senior leverage ratio, both of which are defined
within the agreement. We have been compliant with the financial
covenants during 2011, and expect to remain in compliance for
the next twelve months.
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
For a discussion of the Companys market risk, see
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk in the Companys Annual Report
filed on
Form 10-K.
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
An evaluation was performed under the supervision and with the
participation of the Companys management, including the
Principal Executive Officer and the Principal Financial Officer,
of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of
March 31, 2011. Based upon that evaluation, the Principal
Executive Officer and the Principal Financial Officer concluded
that the Companys disclosure controls and procedures were
effective.
During the three months ended March 31, 2011, the Company
implemented a new payroll processing system in its North America
Region and its corporate offices. Management has not identified
any other changes in the Companys internal control over
financial reporting that occurred during the quarter that have
materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.
34
PART II
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
For information regarding legal proceedings, refer to
Note 13, Contingencies, in the accompanying
Notes to Condensed Consolidated Financial Statements in this
Quarterly Report.
The following risk factors could have a material adverse effect
on our business, financial position or results of operations and
could cause the market value of our common stock to decline.
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.
CURRENT
ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR INDUSTRY, BUSINESS,
FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE
MARKET VALUE OF OUR COMMON STOCK TO DECLINE.
Over the past few years, the global economy has undergone a
period of unprecedented volatility, and the economic environment
may continue to be less favorable than that of past years. This
has led, and could further lead, to reduced consumer spending in
the foreseeable future, and this may include spending on
healthcare. While generic drugs present an ideal alternative to
higher-priced branded products, our sales could be negatively
impacted if patients forego obtaining healthcare. In addition,
reduced consumer spending may drive us and our competitors to
decrease prices. These conditions may adversely affect our
industry, business, financial position and results of operations
and may cause the market value of our common stock to decline.
OUR
INTEGRATION OF ACQUIRED BUSINESSES INVOLVES A NUMBER OF RISKS.
THESE RISKS COULD CAUSE 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 a number of operational risks associated with the
integration of acquired businesses, including Bioniche Pharma.
These risks include, but are not limited to, difficulties in
achieving identified financial and operating synergies, cost
savings, revenue synergies and growth opportunities;
difficulties in consolidating information technology platforms,
business applications and corporate infrastructure; our
substantial indebtedness and assumed liabilities; challenges in
operating in other markets outside of the U.S. that are new
to us; and the unanticipated effects of export controls,
exchange rate fluctuations, domestic and foreign political
conditions or domestic and foreign economic conditions.
These factors could impair our growth and ability to compete,
require us to focus additional resources on integration of
operations rather than other profitable areas, or otherwise
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
HAVE GROWN AT A VERY RAPID PACE. OUR INABILITY TO PROPERLY
MANAGE OR SUPPORT THIS GROWTH 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 have grown very rapidly over the past few years, through our
acquisitions of the former Merck Generics business and Matrix,
as well as the recent acquisition of Bioniche Pharma. This
growth has put significant demands on our processes, systems and
people. We expect to make further investments in additional
personnel, systems and internal control processes to help manage
our growth. Attracting, retaining and motivating key employees
in various departments and locations to support our growth are
critical to our business, and competition for these people can
be intense. If we are unable to hire and retain qualified
employees and if we do not continue to invest in systems and
35
processes to manage and support our rapid growth, there may be a
material adverse effect on our business, financial position and
results of operations, and the market value of our common stock
could decline.
OUR
GLOBAL FOOTPRINT EXPOSES US TO ADDITIONAL RISKS 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 operations extend to numerous countries outside the U.S.,
and operating globally exposes us to certain additional risks
including, but not limited to:
|
|
|
|
|
compliance with a variety of national and local laws of
countries in which we do business, including restrictions on the
import and export of certain intermediates, drugs and
technologies;
|
|
|
|
changes in laws, regulations, and practices affecting the
pharmaceutical industry and the healthcare system, including but
not limited to imports, exports, manufacturing, cost, pricing,
reimbursement, approval, inspection, and delivery of healthcare;
|
|
|
|
fluctuations in exchange rates for transactions conducted in
currencies other than the functional currency;
|
|
|
|
adverse changes in the economies in which we operate as a result
of a slowdown in overall growth, a change in government or
economic liberalization policies, or financial, political or
social instability in such countries that affects the markets in
which we operate, particularly emerging markets;
|
|
|
|
wage increases or rising inflation in the countries in which we
operate;
|
|
|
|
supply disruptions, and increases in energy and transportation
costs;
|
|
|
|
natural disasters, including droughts, floods and earthquakes in
the countries in which we operate;
|
|
|
|
communal disturbances, terrorist attacks, riots or regional
hostilities in the countries in which we operate; and
|
|
|
|
government uncertainty, including as a result of new or changed
laws and regulations.
|
We also face the risk that some of our competitors have more
experience with operations in such countries or with
international operations generally. Any of the above factors
could have 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.
MATRIX,
A SIGNIFICANT PART OF OUR BUSINESS, IS LOCATED IN INDIA AND
IT IS SUBJECT TO REGULATORY, ECONOMIC, SOCIAL AND POLITICAL
UNCERTAINTIES IN INDIA. THESE UNCERTAINTIES CREATE RISKS WHICH
COULD CAUSE 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 recent years, Matrix has benefited from many policies of the
Government of India and the Indian state governments in the
states in which it operates, which are designed to promote
foreign investment generally, including significant tax
incentives, liberalized import and export duties and
preferential rules on foreign investment and repatriation. There
is no assurance that such policies will continue. Various
factors, such as changes in the current federal government,
could trigger significant changes in Indias economic
liberalization and deregulation policies and disrupt business
and economic conditions in India generally and our business in
particular.
In addition, our financial performance may be adversely affected
by general economic conditions and economic and fiscal policy in
India, including changes in exchange rates and controls,
interest rates and taxation policies, as well as social
stability and political, economic or diplomatic developments
affecting India in the future. In particular, India has
experienced significant economic growth over the last several
years, but faces major challenges in sustaining that growth in
the years ahead. These challenges include the need for
substantial infrastructure development and improving access to
healthcare and education. Our ability to recruit, train and
36
retain qualified employees and develop and operate our
manufacturing facilities in India could be adversely affected if
India does not successfully meet these challenges.
Southern Asia has, from time to time, experienced instances of
civil unrest and hostilities among neighboring countries,
including India and Pakistan, and within the countries
themselves. Rioting, military activity or terrorist attacks in
the future could influence the Indian economy by disrupting
communications and making travel more difficult. Resulting
political tensions could create a greater perception that
investments in companies with Indian operations involve a high
degree of risk, and that there is a risk of disruption of
services provided by companies with Indian operations, which
could have a material adverse effect on the market for
Matrixs products. Furthermore, if India were to become
engaged in armed hostilities, particularly hostilities that were
protracted or involved the threat or use of nuclear weapons,
Matrix might not be able to continue its operations. We
generally do not have insurance for losses and interruptions
caused by terrorist attacks, military conflicts and wars. These
risks could cause 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.
MOVEMENTS
IN FOREIGN CURRENCY EXCHANGE RATES 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 portion of our revenues, indebtedness and other
liabilities and our costs are denominated in foreign currencies,
including the Euro, the Australian Dollar, the British Pound,
the Canadian Dollar, the Indian Rupee and the Japanese Yen. We
report our financial results in U.S. Dollars. Our results
of operations and, in some cases, cash flows, could be adversely
affected by certain movements in exchange rates. From time to
time, we may implement currency hedges intended to reduce our
exposure to changes in foreign currency exchange rates. However,
our hedging strategies may not be successful, and any of our
unhedged foreign exchange exposures will continue to be subject
to market fluctuations. These risks could cause 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 TO THE U.S. FOREIGN CORRUPT PRACTICES ACT AND SIMILAR
WORLDWIDE ANTI-BRIBERY LAWS, WHICH IMPOSE RESTRICTIONS AND MAY
CARRY SUBSTANTIAL PENALTIES. ANY VIOLATIONS OF THESE LAWS, OR
ALLEGATIONS OF SUCH VIOLATIONS, 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 U.S. Foreign Corrupt Practices Act and anti-bribery
laws in other jurisdictions, including new anti-bribery
legislation in the U.K. that is scheduled to take effect on
July 1, 2011, generally prohibit companies and their
intermediaries from making improper payments for the purpose of
obtaining or retaining business or other commercial advantage.
Our policies mandate compliance with these anti-bribery laws,
which often carry substantial penalties. We operate in
jurisdictions that have experienced governmental and private
sector corruption to some degree, and, in certain circumstances,
strict compliance with anti-bribery laws may conflict with
certain local customs and practices. We cannot assure you that
our internal control policies and procedures always will protect
us from reckless or other inappropriate acts committed by our
affiliates, employees or agents. Violations of these laws, or
allegations of such violations, 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
FUTURE REVENUE GROWTH AND PROFITABILITY ARE DEPENDENT UPON OUR
ABILITY TO DEVELOP AND/OR 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
BUSINESS, 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/or
license, or otherwise acquire and commercialize, new generic and
patent or statutorily protected
37
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. Likewise, product licensing involves inherent risks
including uncertainties due to matters that may affect the
achievement of milestones, as well as the possibility of
contractual disagreements with regard to terms such as license
scope or termination rights. The development and
commercialization process, particularly with regard to new
drugs, also requires substantial time, effort and financial
resources. We, or a partner, may not be successful in
commercializing any of such products on a timely basis, if at
all, which could adversely affect our business, financial
position and results of operations and could cause the market
value of our common stock to decline.
Before any prescription drug product, including generic drug
products, can be marketed, marketing authorization approval is
required by the relevant regulatory authorities
and/or
national regulatory agencies (for example the FDA in the
U.S. and the EMA in the EU). The process of obtaining
regulatory approval to manufacture and market new and generic
pharmaceutical products is rigorous, time consuming, costly and
largely unpredictable. Outside the U.S., the approval process
may be more or less rigorous, and the time required for approval
may be longer or shorter than that required in the
U.S. Bioequivalence studies conducted in one country may
not be accepted in other countries, and the approval of a
pharmaceutical product in one country does not necessarily mean
that the product will be approved in another country. We, or a
partner, may be unable to obtain requisite approvals on a timely
basis for new generic or branded products that we may develop,
license or otherwise acquire. Moreover, if we obtain regulatory
approval for a drug it may be limited with respect to the
indicated uses and delivery methods for which the drug may be
marketed, which could in turn restrict our potential market for
the drug. Also, for products pending approval, we may obtain raw
materials or produce batches of inventory to be used in efficacy
and bioequivalence testing, as well as in anticipation of the
products launch. In the event that regulatory approval is
denied or delayed, we could be exposed to the risk of this
inventory becoming obsolete. The timing and cost of obtaining
regulatory approvals could adversely affect our product
introduction plans, business, financial position and results of
operations and could cause the market value of our common stock
to decline.
The approval process for generic pharmaceutical products often
results in the relevant regulatory agency granting final
approval to a number of generic pharmaceutical products at the
time a patent claim for a corresponding branded product or other
market exclusivity expires. This often forces us to face
immediate competition when we introduce a generic product into
the market. Additionally, further generic 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 branded
products. New generic market entrants generally cause continued
price and margin erosion over the generic product life cycle.
In the U.S., the Drug Price Competition and Patent Term
Restoration Act of 1984, or the Hatch-Waxman Act, provides for a
period of 180 days of generic marketing exclusivity for
each abbreviated new drug application (ANDA)
applicant that 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, commonly referred to
as a Paragraph IV certification. During this exclusivity
period, which under certain circumstances may be required to be
shared with other applicable ANDA sponsors with
Paragraph IV certifications, the FDA cannot grant final
approval to other ANDA sponsors holding applications for the
same generic equivalent. If an ANDA containing a
Paragraph IV certification is successful and the applicant
is awarded exclusivity, the applicant generally enjoys higher
market share, net revenues and gross margin for that product.
However, our ability to obtain 180 days of generic
marketing exclusivity may be dependent upon our ability to
obtain FDA approval or tentative approval within 30 months
of the FDAs acceptance of our ANDA. If we are unable to
obtain approval or tentative approval within that time period,
we may risk forfeiture of such marketing exclusivity. 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 that
filed its ANDA containing such a challenge. The same would be
true in situations where we are required to share our
exclusivity period with other ANDA sponsors with
Paragraph IV certifications. Such situations could have a
material adverse effect on our ability to market that product
profitably and on our business, financial position and results
of operations, and the market value of our common stock could
decline.
38
In Europe, there is no exclusivity period for the first generic.
The EMA or national regulatory agencies may grant marketing
authorizations to any number of generics. However, if there are
other patents which the brand alleges are relevant, for example,
new formulations, the owner of the original brand pharmaceutical
may be able to obtain a preliminary injunction in certain
European jurisdictions delaying launch of the generic product,
depending on local court practices
and/or the
relevance of the asserted patents.
In addition, in other jurisdictions outside the U.S., we may
face similar regulatory hurdles and constraints. If we are
unable to navigate our products through all of the regulatory
hurdles we face in a timely manner it could adversely affect our
product introduction plans, 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. We
conduct research and development primarily to enable us to
manufacture and market approved pharmaceuticals in accordance
with applicable regulations. We also partner with third parties
to develop products. Typically, research expenses related to the
development of innovative compounds and the filing of marketing
authorization applications for innovative compounds (such as
NDAs in the U.S.) are significantly greater than those expenses
associated with the development of and filing of marketing
authorization applications for generic products (such as ANDAs
in the U.S. and abridged applications in Europe). As we and
our partners 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, or a
partners, research and development expenditures may not
result in the successful introduction of new pharmaceutical
products approved by the relevant regulatory bodies. Also, after
we submit a marketing authorization application for a new
compound or generic product, the relevant regulatory authority
may request that we conduct additional studies and, as a result,
we may incur total research and development costs to develop a
particular product in excess of what we anticipated. 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.
OUR
APPROVED PRODUCTS MAY NOT ACHIEVE EXPECTED LEVELS OF MARKET
ACCEPTANCE, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
PROFITABILITY, BUSINESS, FINANCIAL POSITION AND RESULTS OF
OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK
TO DECLINE.
Even if we are able to obtain regulatory approvals for our new
pharmaceutical products, generic or branded, 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 but not limited to:
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the availability of alternative products from our competitors;
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the price of our products relative to that of our competitors;
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the timing of our market entry;
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the ability to market our products effectively to the retail
level; and
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the acceptance of our products by government and private
formularies.
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Some of these factors are not within our control. Additionally,
continuing studies of the proper utilization, safety and
efficacy of pharmaceutical products are being conducted by the
industry, government agencies and
39
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, studies have resulted, and may in the future result, in
the discontinuance of product marketing or other risk management
programs such as the need for a patient registry. These
situations, should they occur, could have a material adverse
effect on our profitability, business, financial position and
results of operations, and could cause the market value of our
common stock to decline.
OUR
BUSINESS IS HIGHLY DEPENDENT UPON MARKET PERCEPTIONS OF US, OUR
BRANDS AND THE SAFETY AND QUALITY OF OUR PRODUCTS. OUR BUSINESS
OR BRANDS COULD BE SUBJECT TO NEGATIVE PUBLICITY, 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.
Market perceptions of our business are very important to us,
especially market perceptions of our brands and the safety and
quality of our products. If we, or our brands, suffer from
negative publicity, or if any of our products or similar
products which other companies distribute are subject to market
withdrawal or recall or are proven to be, or are claimed to be,
harmful to consumers, then this 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. Also, because we are dependant on market
perceptions, negative publicity associated with product quality,
illness or other adverse effects resulting from, or perceived to
be resulting from, our products could have a material adverse
impact on our business, financial position and results of
operations and could cause the market value of our common stock
to decline.
THE
ILLEGAL DISTRIBUTION AND SALE BY THIRD PARTIES OF COUNTERFEIT
VERSIONS OF OUR PRODUCTS OR OF STOLEN PRODUCTS COULD HAVE A
NEGATIVE IMPACT ON OUR REPUTATION AND 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 drug supply has been increasingly challenged by the
vulnerability of distribution channels to illegal counterfeiting
and the presence of counterfeit products in a growing number of
markets and over the Internet. The WHO estimates that more than
10% of medications being sold globally are counterfeit.
Third parties may illegally distribute and sell counterfeit
versions of our products, which do not meet the rigorous
manufacturing and testing standards that our products undergo.
Counterfeit products are frequently unsafe or ineffective, and
can be potentially life-threatening. Counterfeit medicines may
contain harmful substances, the wrong dose of the API or no API
at all. However, to distributors and users, counterfeit products
may be visually indistinguishable from the authentic version.
Reports of adverse reactions to counterfeit drugs or increased
levels of counterfeiting could materially affect patient
confidence in the authentic product. It is possible that adverse
events caused by unsafe counterfeit products will mistakenly be
attributed to the authentic product. In addition, thefts of
inventory at warehouses, plants or while in-transit which are
not properly stored and which are sold through unauthorized
channels could adversely impact patient safety, our reputation
and our business.
Public loss of confidence in the integrity of pharmaceutical
products as a result of counterfeiting or theft 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.
40
IF WE
OR ANY PARTNER FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR
INTELLECTUAL PROPERTY RIGHTS, THEN WE COULD LOSE REVENUE UNDER
OUR LICENSING AGREEMENTS OR LOSE SALES TO GENERIC COPIES OF OUR
BRANDED PRODUCTS. THESE RISKS COULD CAUSE 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 success, particularly in our specialty business, depends in
part on our or any partners ability to obtain, maintain
and enforce patents, and protect trade secrets, know-how and
other proprietary information. Our ability to commercialize any
branded product successfully will largely depend upon our or any
partners ability to obtain and maintain patents of
sufficient scope to prevent third-parties from developing
substantially equivalent products. In the absence of patent and
trade secret protection, competitors may adversely affect our
branded products business by independently developing and
marketing substantially equivalent products. It is also possible
that we could incur substantial costs if we are required to
initiate litigation against others to protect or enforce our
intellectual property rights.
We have filed patent applications covering composition of,
methods of making,
and/or
methods of using, our branded products and branded product
candidates. We may not be issued patents based on patent
applications already filed or that we file in the future, and if
patents are issued, they may be insufficient in scope to cover
our branded products. The issuance of a patent in one country
does not ensure the issuance of a patent in any other country.
Furthermore, the patent position of companies in the
pharmaceutical industry generally involves complex legal and
factual questions and has been and remains the subject of much
litigation. Legal standards relating to scope and validity of
patent claims are evolving. Any patents we have obtained, or
obtain in the future, may be challenged, invalidated or
circumvented. Moreover, the U.S. Patent and Trademark
Office or any other governmental agency may commence
interference proceedings involving our patents or patent
applications. Any challenge to, or invalidation or circumvention
of, our patents or patent applications would be costly, would
require significant time and attention of our management, could
cause 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
FACE VIGOROUS COMPETITION FROM OTHER PHARMACEUTICAL
MANUFACTURERS THAT THREATENS THE COMMERCIAL ACCEPTANCE AND
PRICING OF OUR PRODUCTS. SUCH COMPETITION 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 generic pharmaceutical industry is highly competitive. We
face competition from many U.S. and foreign manufacturers,
some of whom are significantly larger than we are. Our
competitors may be able to develop products and processes
competitive with or superior to our own for many reasons,
including but not limited to the possibility that they may have:
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proprietary processes or delivery systems;
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larger research and development and marketing staffs;
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larger production capabilities in a particular therapeutic area;
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more experience in preclinical testing and human clinical trials;
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more products; or
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more experience in developing new drugs and greater financial
resources, particularly with regard to manufacturers of branded
products.
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Any 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.
41
THE
USE OF LEGAL, REGULATORY AND LEGISLATIVE STRATEGIES BY
COMPETITORS, BOTH BRAND AND GENERIC, INCLUDING AUTHORIZED
GENERICS AND CITIZENS PETITIONS, AS WELL AS THE
POTENTIAL IMPACT OF PROPOSED LEGISLATION, MAY INCREASE OUR COSTS
ASSOCIATED WITH THE INTRODUCTION OR MARKETING OF OUR GENERIC
PRODUCTS, COULD DELAY OR PREVENT SUCH INTRODUCTION AND/OR COULD
SIGNIFICANTLY REDUCE OUR PROFIT POTENTIAL. 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, both branded and generic, often pursue
strategies to prevent or delay competition from generic
alternatives to branded products. These strategies include, but
are not limited to:
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entering into agreements whereby other generic companies will
begin to market an authorized generic, a generic equivalent of a
branded product, at the same time generic competition initially
enters the market;
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launching a generic version of their own branded product at the
same time generic competition initially enters the market;
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filing citizens petitions with the FDA or other regulatory
bodies, including timing the filings so as to thwart generic
competition by causing delays of our product approvals;
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seeking to establish regulatory and legal obstacles that would
make it more difficult to demonstrate bioequivalence;
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initiating legislative efforts to limit the substitution of
generic versions of brand pharmaceuticals;
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filing suits for patent infringement that may delay regulatory
approval of many generic products;
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introducing next-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 regulatory approval;
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obtaining extensions of market exclusivity by conducting
clinical trials of brand drugs in pediatric populations or by
other potential methods;
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persuading regulatory bodies 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; and
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seeking to obtain new patents on drugs for which patent
protection is about to expire.
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In the U.S., some companies have lobbied Congress for amendments
to the Hatch-Waxman legislation that would give them additional
advantages over generic competitors. For example, although the
term of a companys 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 in the U.S., Europe or in other
countries where we operate were to become effective, our entry
into the market and our ability to generate revenues associated
with new products may be delayed, reduced or eliminated, 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, INCLUDING BRANDED PHARMACEUTICAL
COMPANIES, OR OTHER THIRD PARTIES, 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,
INCLUDING IN AN AT-RISK LAUNCH SITUATION, 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 or similar applicants that seek
regulatory 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 or similar
applicant. Likewise, patent holders may bring patent
infringement suits against companies that are currently
marketing and selling their approved generic products.
Litigation often involves significant expense and can delay or
prevent introduction or sale of our generic products. If patents
are held valid and infringed by our products in a particular
jurisdiction, we would, unless we could obtain a license from
the patent holder, need to cease selling in that jurisdiction
and may need to deliver up or destroy existing stock in that
jurisdiction.
There may also be situations where we use our business judgment
and decide to market and sell products, notwithstanding the fact
that allegations of patent infringement(s) have not been finally
resolved by the courts (i.e., an at-risk launch
situation). The risk involved in doing so can be substantial
because the remedies available to the owner of a patent for
infringement may include, among other things, damages measured
by the profits lost by the patent owner and not necessarily by
the profits earned by the infringer. In the case of a willful
infringement, the definition of which is subjective, such
damages may be trebled. Moreover, because of the discount
pricing typically involved with bioequivalent products, patented
branded 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.
OUR SPECIALTY BUSINESS DEVELOPS, FORMULATES, MANUFACTURES
OR IN-LICENSES AND MARKETS BRANDED PRODUCTS THAT ARE SUBJECT TO
RISKS. THESE RISKS COULD CAUSE 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 branded products developed, formulated, manufactured (or
alternatively, in-licensed) and marketed by our specialty
business may be subject to the following risks, among others:
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limited patent life, or the loss of patent protection;
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competition from generic products;
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reductions in reimbursement rates by third-party payors;
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importation by consumers;
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product liability;
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drug development risks arising from typically greater research
and development investments than generics; and
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unpredictability with regard to establishing a market.
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In addition, developing and commercializing branded products is
generally more costly than generic products. If such business
expenditures do not ultimately result in the launch of
commercially successful brand products, or if any of the risks
above were to occur, there could be a material adverse effect on
our business, 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 REVENUES, GROSS PROFIT 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 from time to time
represent a significant portion of our revenues, gross profit
and net earnings. For the three months ended March 31,
2011, our top ten products represented approximately 22% of our
consolidated total revenues. If the volume or pricing of our
largest selling products
43
declines 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.
A SIGNIFICANT PORTION OF OUR 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 revenues are derived from sales to
a limited number of customers. If we were to experience a
significant reduction in or loss of business with one such
customer, or if one such 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.
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 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 DEPEND TO A LARGE EXTENT ON THIRD-PARTY SUPPLIERS AND
DISTRIBUTORS FOR THE RAW MATERIALS, PARTICULARLY THE CHEMICAL
COMPOUND(S) COMPRISING THE ACTIVE PHARMACEUTICAL 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 COULD CAUSE THE
MARKET VALUE OF OUR COMMON STOCK TO DECLINE.
We typically purchase the active pharmaceutical ingredient
(i.e., the chemical compounds that produce the desired
therapeutic effect in our products) and other materials and
supplies that we use in our manufacturing operations, as well as
certain finished products, 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 regulatory agencies, have
received regulatory agency 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
raw material, including the active ingredient, or finished
product could cause our business, 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
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 utilize controlled substances in certain of our current
products and products in development and therefore must meet the
requirements of the Controlled Substances Act of 1970 and the
related regulations administered by the DEA in the U.S. as
well as similar laws in other countries where we operate. These
laws relate to the
44
manufacture, shipment, storage, sale and use of controlled
substances. The DEA and other regulatory agencies limit the
availability of the active ingredients used in certain of our
current products and products in development and, as a result,
our procurement quota of these active ingredients may not be
sufficient to meet commercial demand or complete clinical
trials. We must annually apply to the DEA and other regulatory
agencies for procurement quota in order to obtain these
substances. Any delay or refusal by the DEA or such regulatory
agencies in establishing our procurement quota for controlled
substances could delay or stop our clinical trials or product
launches, or could cause trade inventory disruptions for those
products that have already been launched, 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 HAVE A LIMITED NUMBER OF MANUFACTURING FACILITIES AND
CERTAIN THIRD PARTY SUPPLIERS PRODUCING A SUBSTANTIAL PORTION OF
OUR PRODUCTS. PRODUCTION AT ANY ONE OF THESE FACILITIES 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.
A substantial portion of our capacity as well as our current
production is attributable to a limited number of manufacturing
facilities and certain third party suppliers. A significant
disruption at any one of the facilities within our internal or
third party supply chain, even on a short-term basis, whether
due to a labor strike, act of God, civil or political unrest, or
other events could impair our ability to produce and ship
products to the market on a timely basis and could, among other
consequences, subject us to exposure to claims from customers.
Any of these events 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
governmental authorities. For instance, we must comply with
requirements of the FDA and similar requirements of similar
agencies in our other markets with respect to the manufacture,
labeling, sale, distribution, marketing, advertising, promotion
and development of pharmaceutical products. Failure to comply
with regulations of the FDA and other regulators can result in
fines, disgorgement, unanticipated compliance expenditures,
recall or seizure of products, total or partial suspension of
production
and/or
distribution, suspension of the applicable regulators
review of our submissions, enforcement actions, injunctions and
criminal prosecution. Under certain circumstances, the
regulators may also have 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, our business, financial position and
results of operations could be materially affected and the
market value of our common stock could decline.
In Europe we must also comply with regulatory requirements with
respect to the manufacture, labeling, sale, distribution,
marketing, advertising, promotion and development of
pharmaceutical products. Some of these requirements are
contained in EU regulations and governed by the EMA. Other
requirements are set down in national laws and regulations of
the EU Member States. Failure to comply with the regulations can
result in a range of fines, penalties, product
recalls/suspensions or even criminal liability. Similar laws and
regulations exist in most of the markets in which we operate.
In addition to the new drug approval process, government
agencies also regulate the facilities and operational procedures
that we use to manufacture our products. We must register our
facilities with the FDA and other similar regulators. Products
manufactured in our facilities must be made in a manner
consistent with current good manufacturing practices or similar
standards in each territory in which we manufacture. Compliance
with such regulations requires substantial expenditures of time,
money and effort in such areas as production and quality
45
control to ensure full technical compliance. The FDA and other
agencies periodically inspect our manufacturing facilities for
compliance. Regulatory approval to manufacture a drug is
site-specific. Failure to comply with good manufacturing
practices at one of our manufacturing facilities could result in
an enforcement action brought by the FDA or other regulatory
bodies which could include withholding the approval of our
submissions or other product applications of that facility. If
any regulatory body were to require one of our manufacturing
facilities to cease or limit production, our business could be
adversely affected. Delay and cost in obtaining FDA or other
regulatory 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 regulating working conditions, as
well as environmental protection laws and regulations, including
those governing the discharge of materials into the environment
and those related to climate change. We are also required to
comply with data protection and data privacy rules in many
countries. Although we have not incurred significant costs
associated with complying with such environmental provisions in
the past, if changes to such environmental laws and regulations
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 or
other 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.
OUR REPORTING AND PAYMENT OBLIGATIONS UNDER THE MEDICARE
AND/OR MEDICAID REBATE PROGRAM AND OTHER GOVERNMENTAL PURCHASING
AND REBATE PROGRAMS ARE COMPLEX AND MAY INVOLVE SUBJECTIVE
DECISIONS THAT COULD CHANGE AS A RESULT OF NEW BUSINESS
CIRCUMSTANCES, NEW REGULATORY GUIDANCE, OR ADVICE OF LEGAL
COUNSEL. ANY DETERMINATION OF FAILURE TO COMPLY WITH THOSE
OBLIGATIONS COULD SUBJECT US TO PENALTIES AND SANCTIONS 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.
The regulations regarding reporting and payment obligations with
respect to Medicare
and/or
Medicaid reimbursement and rebates and other governmental
programs are complex. Because our processes for these
calculations and the judgments involved in making these
calculations involve, and will continue to involve, subjective
decisions and complex methodologies, these calculations are
subject to the risk of errors. In addition, they are subject to
review and challenge by the applicable governmental agencies,
and it is possible that such reviews could result in material
changes. The Patient Protection and Affordable Care Act of 2010
included a provision requiring the Centers for Medicare and
Medicaid Services (CMS) to publish a weighted
average Average Manufacturer Price (AMP) for all
multi-source drugs. The provision was effective October 1,
2010; however, weighted average AMPs have not yet been
published by CMS. Although the weighted average AMP would not
reveal Mylans individual AMP, publishing a weighted
average AMP available to customers and the public at large could
negatively affect our leverage in commercial price negotiations.
In addition, as also disclosed herein, a number of state and
federal government agencies are conducting investigations of
manufacturers reporting practices with respect to Average
Wholesale Prices (AWP) in which they have suggested
that reporting of inflated AWP has led to excessive payments for
prescription drugs. We and numerous other pharmaceutical
companies have been named as defendants in various actions
relating to pharmaceutical pricing issues and whether allegedly
improper actions by pharmaceutical manufacturers led to
excessive payments by Medicare
and/or
Medicaid.
Any governmental agencies that have commenced, or may commence,
an investigation of Mylan could impose, based on a claim of
violation of fraud and false claims laws or otherwise, civil
and/or
criminal sanctions, including fines, penalties and possible
exclusion from federal health care programs including Medicare
and/or
Medicaid. Some of the applicable laws may impose liability even
in the absence of specific intent to defraud. Furthermore,
should there be ambiguity with regard to how to properly
calculate and report payments and even in the
absence of any such ambiguity a governmental
authority may take a position contrary to a position we have
taken, and may impose civil
and/or
criminal sanctions. Any such penalties or sanctions could have a
material
46
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 PAYORS. IN ADDITION, THE
USE OF TENDER SYSTEMS COULD REDUCE PRICES FOR OUR PRODUCTS OR
REDUCE OUR MARKET OPPORTUNITIES. 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 (including the U.K. National
Health Service and the German statutory health insurance scheme)
and private health insurers and other organizations, such as
health maintenance organizations (HMOs) in the U.S.,
provide reimbursements or subsidies 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.
In the U.S., third-party payors increasingly challenge the
pricing of pharmaceutical products. This trend and other trends
toward the growth of HMOs, managed health care and legislative
health care 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.
In addition, a number of markets in which we operate have
implemented or may implement tender systems for generic
pharmaceuticals in an effort to lower prices. Under such tender
systems, manufacturers submit bids which establish prices for
generic pharmaceutical products. Upon winning the tender, the
winning company will receive a preferential reimbursement for a
period of time. The tender system often results in companies
underbidding one another by proposing low pricing in order to
win the tender.
Certain other countries may consider the implementation of a
tender system. Even if a tender system is ultimately not
implemented, the anticipation of such could result in price
reductions. Failing to win tenders, or the implementation of
similar systems in other markets leading to further price
declines, 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 PHARMACEUTICAL PRODUCTS 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, state or foreign laws and regulations
may influence the prices of drugs and, therefore, could
adversely affect the prices that we receive for our products.
For example, programs in existence in certain states in the
U.S. seek to set prices of all drugs sold within those
states through the regulation and administration of the sale of
prescription drugs. Expansion of these programs, in particular
state Medicare
and/or
Medicaid programs, or changes required in the way in which
Medicare
and/or
Medicaid rebates are calculated under such programs, could
adversely affect the prices 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.
In order to control expenditure on pharmaceuticals, most member
states in the EU regulate the pricing of products and, in some
cases, limit the range of different forms of pharmaceuticals
available for prescription by national health services. These
controls can result in considerable price differences between
member states.
Several countries in which we operate have implemented, or plan
to implement, government mandated price reductions. When such
price cuts occur, pharmaceutical companies have generally
experienced significant declines in revenues and profitability
and uncertainties continue to exist within the market. Such
price reductions could have an adverse effect on our business,
and as uncertainties are resolved or if other countries in which
we operate enact
47
similar measures, they could have a further material adverse
effect on our business, financial position and results of
operations and could cause the market value of our common stock
to decline.
HEALTHCARE REFORM LEGISLATION 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 recent years, there have been numerous initiatives on the
federal and state levels for comprehensive reforms affecting the
payment for, the availability of and reimbursement for
healthcare services in the U.S., and it is likely that federal
and state legislatures and health agencies will continue to
focus on health care reform in the future. The PPACA and The
Health Care and Education and Reconciliation Act of 2010 (H.R.
4872), which amends the PPACA (collectively the Health
Reform Laws), were signed into law in March 2010. While
the Health Reform Laws may increase the number of patients who
have insurance coverage for our products, they also include
provisions such as the assessment of a pharmaceutical
manufacturer fee and an increase in the amount of rebates that
manufacturers pay for coverage of their drugs by Medicaid
programs.
We are unable to predict the future course of federal or state
healthcare legislation. The Health Reform Laws and further
changes in the law or regulatory framework that reduce our
revenues or increase our costs could also have a material
adverse effect on our business, financial condition and results
of operations and cash flows, and could cause the market value
of our common stock to decline.
Additionally, we encounter similar regulatory and legislative
issues in most other countries. In the EU and some other
international markets, the government provides health care at
low cost to consumers and regulates pharmaceutical prices,
patient eligibility or reimbursement levels to control costs for
the government-sponsored health care system. This international
system of price regulations may lead to inconsistent prices.
Within the EU and in other countries, the availability of our
products in some markets at lower prices undermines our sales in
some markets with higher prices. Additionally, certain countries
set prices by reference to the prices in other countries where
our products are marketed. Thus, our inability to secure
adequate prices in a particular country may also impair our
ability to obtain acceptable prices in existing and potential
new markets, and may create the opportunity for third party
cross border trade.
If significant additional reforms are made to the
U.S. healthcare system, or to the healthcare systems of
other markets in which we operate, those reforms 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 CERTAIN
GOVERNMENT INQUIRIES AND MAY EXPERIENCE UNFAVORABLE OUTCOMES OF
SUCH PROCEEDINGS OR INQUIRIES, 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 are involved in various legal proceedings and certain
government inquiries, including, but not limited to, patent
infringement, product liability, antitrust matters, breach of
contract and claims involving Medicare
and/or
Medicaid reimbursements, some of which are described in our
periodic reports, that involve claims for, or the possibility of
fines and penalties involving substantial amounts of money or
other relief. If any of these legal proceedings or inquiries
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, we maintain a combination of
self-insurance (including through our wholly owned captive
insurance subsidiary) and commercial insurance to protect
against and manage a portion of the risks involved in conducting
our 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.
48
In addition, in limited circumstances, entities we acquired in
the acquisition of the former Merck Generics business are party
to litigation in matters under which we are entitled to
indemnification by Merck KGaA. However, there are risks inherent
in such indemnities and, accordingly, there can be no assurance
that we will receive the full benefits of such indemnification,
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.
IF THE INTERCOMPANY TERMS OF CROSS BORDER ARRANGEMENTS WE
HAVE AMONG OUR SUBSIDIARIES ARE DETERMINED TO BE INAPPROPRIATE,
OUR TAX LIABILITY MAY INCREASE, 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 have potential tax exposures resulting from the varying
application of statutes, regulations and interpretations which
include exposures on intercompany terms of cross border
arrangements among our subsidiaries in relation to various
aspects of our business, including manufacturing, marketing,
sales and delivery functions. Although our cross border
arrangements between affiliates are based upon internationally
accepted standards, tax authorities in various jurisdictions may
disagree with and subsequently challenge the amount of profits
taxed in their country, which may result in increased tax
liability, including accrued interest and penalties, which would
cause our tax expense to increase. This 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.
UNANTICIPATED CHANGES IN OUR TAX PROVISIONS OR EXPOSURE TO
ADDITIONAL INCOME TAX LIABILITIES 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 to income taxes in the U.S. and many foreign
jurisdictions. Significant judgment is required in determining
our worldwide provision for income taxes. In the ordinary course
of business, there are many transactions and calculations where
the ultimate tax determination is uncertain. The final
determination of any tax audits or related litigation could be
materially different from our historical income tax provisions
and accruals.
Additionally, changes in the effective tax rate as a result of a
change in the mix of earnings in countries with differing
statutory tax rates, changes in our overall profitability,
changes in the valuation of deferred tax assets and liabilities,
the results of audits and the examination of previously filed
tax returns by taxing authorities and continuing assessments of
our tax exposures could impact our tax liabilities and affect
our income tax expense, 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.
CHANGES IN INCOME TAX LAWS AND TAX RULINGS MAY HAVE A
SIGNIFICANTLY ADVERSE IMPACT ON OUR EFFECTIVE TAX RATE AND
INCOME TAX EXPENSE, 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.
In a speech on April 13, 2011, President Obama stated his
intention to propose corporate tax reform during the coming
year. The Presidents stated objectives for corporate tax
reform included lowering the corporate tax rate and broadening
the corporate tax base. At this time, the President has not
offered details as to what specific changes to the tax code he
will propose. It is possible that the President might reiterate
some of the proposals he made in his budget last year. Those
proposals would, among other things, limit the use of foreign
tax credits to reduce residual U.S. income tax on
non-U.S. source
income and defer the deduction of interest attributable to
non-U.S. source
income of foreign subsidiaries. We cannot determine whether
these proposals will be reintroduced, modified or enacted,
whether other proposals unknown at this time will be made or the
extent to which the corporate tax rate might be reduced and
ameliorate the adverse impact of base broadening proposals. If
enacted, and depending on its precise terms, such legislation
could materially increase our overall effective income tax rate
and income tax expense. This 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.
49
WE MAY DECIDE TO SELL ASSETS, WHICH COULD ADVERSELY AFFECT
OUR PROSPECTS AND OPPORTUNITIES FOR GROWTH, AND 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 from time to time consider selling certain assets if
(a) we determine that such assets are not critical to our
strategy, or (b) we believe the opportunity to monetize the
asset is attractive or for various reasons including we want to
reduce indebtedness. We have explored and will continue to
explore the sale of certain non-core assets. Although our
intention is to engage in asset sales only if they advance our
overall strategy, any such sale could reduce the size or scope
of our business, our market share in particular markets or our
opportunities with respect to certain markets, products or
therapeutic categories. We also continue to review the carrying
value of manufacturing and intangible assets for indications of
impairment as circumstances require. Future events and decisions
may lead to asset impairments
and/or
related costs. As a result, any such sale or impairment could
have an adverse effect on our business, prospects and
opportunities for growth, financial position and results of
operations and could cause the market value of our common stock
to decline.
WE HAVE SUBSTANTIAL INDEBTEDNESS AND WILL BE REQUIRED TO
APPLY A SUBSTANTIAL PORTION OF OUR CASH FLOW FROM OPERATIONS TO
SERVICE OUR INDEBTEDNESS. OUR CREDIT FACILITIES, SENIOR
UNSECURED NOTES, OTHER OUTSTANDING INDEBTEDNESS AND ANY
ADDITIONAL INDEBTEDNESS WE INCUR IN THE FUTURE IMPOSE, OR MAY
IMPOSE, SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS, WHICH
MAY PREVENT US FROM CAPITALIZING ON BUSINESS OPPORTUNITIES. OUR
SUBSTANTIAL INDEBTEDNESS COULD LEAD TO ADVERSE CONSEQUENCES THAT
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.
Our high level of indebtedness could have important
consequences, including but not limited to:
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increasing our vulnerability to general adverse economic and
industry conditions;
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requiring us to dedicate a substantial portion of our cash flow
from operations and proceeds of any equity issuances to payments
on our indebtedness, thereby reducing the availability of cash
flow to fund working capital, capital expenditures, acquisitions
and investments and other general corporate purposes;
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making it difficult for us to optimally capitalize and manage
the cash flow for our businesses;
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limiting our flexibility in planning for, or reacting to,
changes in our businesses and the markets in which we operate;
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making it difficult for us to meet the leverage and interest
coverage ratios required by our Senior Credit Agreement;
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limiting our ability to borrow money or sell stock to fund our
working capital, capital expenditures, acquisitions and debt
service requirements and other financing needs;
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increasing our vulnerability to increases in interest rates in
general because a substantial portion of our indebtedness bears
interest at floating rates;
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requiring us to sell assets in order to pay down debt;
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restricting us from exploiting business opportunities;
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increasing our cost of borrowings; and
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placing us at a competitive disadvantage to our competitors that
have less debt.
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Our ability to service our indebtedness will depend on our
future operating performance and financial results, which will
be subject, in part, to factors beyond our control, including
interest rates and general economic, financial and business
conditions. If we do not have sufficient cash flow to service
our indebtedness, we may need to refinance all or part of our
existing indebtedness, borrow more money or sell securities,
some or all of which may
50
not be available to us at acceptable terms or at all. In
addition, we may need to incur additional indebtedness in the
future in the ordinary course of business. Although the terms of
our Senior Credit Agreement and our bond indentures allow us to
incur additional debt, this is subject to certain limitations
which may preclude us from incurring the amount of indebtedness
we otherwise desire.
In addition, if we incur additional debt, the risks described
above could intensify. If global credit markets return to their
recent levels of contraction, future debt financing may not be
available to us when required or may not be available on
acceptable terms, and as a result we may be unable to grow our
business, take advantage of business opportunities, respond to
competitive pressures or satisfy our obligations under our
indebtedness. Any of the foregoing 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 credit facilities, senior unsecured notes, other outstanding
indebtedness and any additional indebtedness we incur in the
future impose, or may impose, significant operating and
financial restrictions on us. These restrictions limit our
ability to, among other things, incur additional indebtedness,
make investments, pay certain dividends, prepay other
indebtedness, sell assets, incur certain liens, enter into
agreements with our affiliates or restricting our
subsidiaries ability to pay dividends, merge or
consolidate. In addition, our Senior Credit Agreement requires
us to maintain specified financial ratios. We cannot assure you
that these covenants will not adversely affect our ability to
finance our future operations or capital needs or to pursue
available business opportunities. A breach of any of these
covenants or our inability to maintain the required financial
ratios could result in a default under the related indebtedness.
If a default occurs, the relevant lenders could elect to declare
our indebtedness, together with accrued interest and other fees,
to be immediately due and payable. 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.
THE
TOTAL AMOUNT OF INDEBTEDNESS RELATED TO OUR OUTSTANDING CASH
CONVERTIBLE NOTES DUE 2015 (THE CASH CONVERTIBLE
NOTES) WILL INCREASE IF OUR STOCK PRICE INCREASES. IN
ADDITION, OUR OUTSTANDING SENIOR CONVERTIBLE
NOTES SETTLEMENT VALUE INCREASES AS OUR STOCK PRICE
INCREASES, ALTHOUGH WE DO NOT ACCOUNT FOR THIS AS AN INCREASE IN
INDEBTEDNESS. ALSO, WE HAVE ENTERED INTO NOTE HEDGES AND
WARRANT TRANSACTIONS IN CONNECTION WITH THE 1.25% SENIOR
CONVERTIBLE NOTES DUE 2012 (THE SENIOR CONVERTIBLE
NOTES) AND CASH CONVERTIBLE NOTES IN ORDER TO HEDGE
SOME OF THE RISK ASSOCIATED WITH THE POTENTIAL INCREASE OF
INDEBTEDNESS AND SETTLEMENT VALUE. SUCH TRANSACTIONS HAVE BEEN
CONSUMMATED WITH CERTAIN COUNTERPARTIES, MAINLY HIGHLY RATED
FINANCIAL INSTITUTIONS. ANY INCREASE IN INDEBTEDNESS, NET
EXPOSURE RELATED TO THE RISK OR FAILURE OF ANY COUNTERPARTIES TO
PERFORM THEIR OBLIGATIONS, COULD HAVE ADVERSE EFFECTS ON US,
INCLUDING UNDER OUR DEBT AGREEMENTS, 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.
Under applicable accounting rules, the cash conversion feature
that is a term of the Cash Convertible Notes must be recorded as
a liability on our balance sheet and periodically marked to fair
value. If our stock price increases, the liability associated
with the cash conversion feature would increase and, because
this liability must be periodically marked to fair value on our
balance sheet, the total amount of indebtedness related to the
notes that is shown on our balance sheet would also increase.
This could have adverse effects on us, including under our
existing and any future debt agreements. For example, our senior
credit facilities contain covenants that restrict our ability to
incur debt, make capital expenditures, pay dividends and make
investments if, among other things, our leverage ratio, exceeds
certain levels. In addition, the interest rate we pay under our
senior credit facilities increases if our leverage ratio
increases. Because the leverage ratio under our senior credit
facilities is calculated based on a definition of total
indebtedness as defined under accounting principles generally
accepted in the United States of America (GAAP), if
the amount of our total indebtedness were to increase, our
leverage ratio would also increase. As a result, we may not be
able to comply with such covenants in the future, which could,
among other things,
51
restrict our ability to grow our business, take advantage of
business opportunities or respond to competitive pressures. Any
of the foregoing could have a material adverse effect on our
business, financial position and results of operations and could
cause the market value of the notes and our common stock to
decline.
Although the conversion feature under our Senior Convertible
Notes is not marked to market, the conversion feature also
increases as the price of our common stock increases. If our
stock price increases, the settlement value of the conversion
feature increases.
In connection with the issuance of the Cash Convertible Notes
and Senior Convertible Notes, we entered into note hedge and
warrant transactions with certain financial institutions, each
of which we refer to as a counterparty. The Cash Convertible
Note hedge is comprised of purchased cash-settled call options
that are expected to reduce our exposure to potential cash
payments required to be made by us upon the cash conversion of
the notes. The Senior Convertible Notes hedge is comprised of
call options that are expected to reduce our exposure to the
settlement value (issuance of common stock) upon the conversion
of the notes. We have also entered into respective warrant
transactions with the counterparties pursuant to which we will
have sold to each counterparty warrants for the purchase of
shares of our common stock. Together, each of the note hedges
and warrant transactions are expected to provide us with some
protection against increases in our stock price over the
conversion price per share. However, there is no assurance that
these transactions will remain in effect at all times. Also,
although we believe the counterparties are highly rated
financial institutions, there are no assurances that the
counterparties will be able to perform their respective
obligations under the agreement we have with each of them. Any
net exposure related to conversion of the notes or any failure
of the counterparties to perform their obligations under the
agreements we have with them 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.
ANY
FUTURE ACQUISITIONS OR DIVESTITURES WOULD 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 THE MARKET VALUE OF OUR COMMON STOCK
TO DECLINE.
We may continue to seek to expand our product line through
complementary or strategic acquisitions of other companies,
products or assets, including those in rapidly developing
economies, or through joint ventures, licensing agreements or
other arrangements or may determine to divest certain products
or assets. Any such acquisitions, joint ventures or other
business combinations may involve significant challenges in
integrating the new companys operations, and divestitures
could be equally challenging. Either process may prove to be
complex and time consuming and require substantial resources and
effort. It may also disrupt our ongoing businesses, which may
adversely affect our relationships with customers, employees,
regulators and others with whom we have business or other
dealings.
We may be unable to realize synergies or other benefits,
including tax savings, expected to result from any acquisitions,
joint ventures or 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, unforeseen expenses,
complications and delays, market factors or a deterioration in
domestic and global economic conditions could alter the
anticipated benefits of any such transactions. We may also
compete for certain acquisition targets with companies having
greater financial resources than us or other advantages over us
that may prevent us from acquiring a target. These factors could
impair our growth and ability to compete, require us to focus
additional resources on integration of operations rather than
other profitable areas, or otherwise cause 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
52
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 certain of these indemnification provisions.
However, should our obligation under an indemnification
provision exceed our coverage or should coverage be denied, our
business, financial position and results of operations could be
materially adversely affected and the market value of our common
stock could decline.
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.
It is important 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
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 ARE
IN THE PROCESS OF ENHANCING AND FURTHER DEVELOPING OUR GLOBAL
ENTERPRISE RESOURCE PLANNING SYSTEMS AND ASSOCIATED BUSINESS
APPLICATIONS. AS WITH ANY ENHANCEMENTS OF SIGNIFICANT SYSTEMS,
DIFFICULTIES ENCOUNTERED COULD RESULT IN BUSINESS INTERRUPTIONS,
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 enhancing and further developing our global enterprise
resource planning (ERP) systems and associated
applications to provide more operating efficiencies and
effective management of our business operations. Such changes to
ERP systems and related software carry risks such as cost
overruns, project delays and business interruptions and delays.
If we experience a material business interruption as a result of
our ERP enhancements, 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
MUST MAINTAIN ADEQUATE INTERNAL CONTROLS AND BE ABLE, ON AN
ANNUAL BASIS, TO PROVIDE AN ASSERTION AS TO THE EFFECTIVENESS OF
SUCH CONTROLS. FAILURE TO MAINTAIN ADEQUATE INTERNAL CONTROLS OR
TO IMPLEMENT NEW OR IMPROVED CONTROLS 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.
Effective internal controls are necessary for Mylan to provide
reasonable assurance with respect to its financial reports. We
are spending a substantial amount of management time and
resources to comply with laws, regulations and standards
relating to corporate governance and public disclosure. In the
U.S. such regulations include the Sarbanes-Oxley Act of
2002, SEC regulations and the NASDAQ listing standards. In
particular, Section 404 of the Sarbanes-Oxley Act of 2002
requires managements annual review and evaluation of our
internal control over financial reporting and attestation as to
the effectiveness of these controls by our independent
registered public accounting firm. If we fail to maintain the
adequacy of our internal controls, we may not be able to ensure
that we can conclude on an ongoing basis that we have effective
internal control over financial reporting. Additionally,
internal control over financial reporting may not prevent or
detect misstatements because of its inherent limitations,
including the possibility of human error, the circumvention or
overriding of controls, or fraud. Therefore, even effective
internal controls can provide only reasonable assurance with
respect to the preparation and fair
53
presentation of financial statements. In addition, projections
of any evaluation of effectiveness of internal control over
financial reporting to future periods are subject to the risk
that the control may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate. If we fail to maintain the
adequacy of our internal controls, including any failure to
implement required new or improved controls, this 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.
THERE
ARE INHERENT UNCERTAINTIES INVOLVED IN ESTIMATES, JUDGMENTS AND
ASSUMPTIONS USED IN THE PREPARATION OF FINANCIAL STATEMENTS IN
ACCORDANCE WITH GAAP. ANY FUTURE CHANGES IN ESTIMATES, JUDGMENTS
AND ASSUMPTIONS USED OR NECESSARY REVISIONS TO PRIOR ESTIMATES,
JUDGMENTS OR ASSUMPTIONS OR CHANGES IN ACCOUNTING STANDARDS
COULD LEAD TO A RESTATEMENT OR REVISION TO PREVIOUSLY
CONSOLIDATED FINANCIAL STATEMENTS OR CHARGES, INCLUDING
IMPAIRMENT CHARGES, 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.
The Consolidated and Condensed Consolidated Financial Statements
included in the periodic reports we file with the SEC are
prepared in accordance with GAAP. The preparation of financial
statements in accordance with GAAP involves making estimates,
judgments and assumptions that affect reported amounts of
assets, liabilities, revenues, expenses and income. Estimates,
judgments and assumptions are inherently subject to change in
the future and any necessary revisions to prior estimates,
judgments or assumptions could lead to a restatement.
Furthermore, although we have recorded reserves for lawsuits
based on estimates of probable future costs, such lawsuits could
result in substantial further costs. Also, any new or revised
accounting standards may require adjustments to previously
issued financial statements. Any such changes could result in
corresponding changes to the amounts of liabilities, revenues,
expenses and income. Any 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.
In addition, a significant amount of our total assets are
related to acquired intangible assets and goodwill. Such assets
require impairment testing periodically
and/or under
certain circumstances. Impairment testing requires the use of
significant estimates, judgments and assumptions, which involve
inherent uncertainty. Any future changes to estimates, judgments
and assumptions used in impairment testing could lead to
impairment charges, 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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ITEM 5.
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OTHER
INFORMATION
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None.
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3
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|
Amended and Restated Articles of Incorporation of the
registrant, as amended to date, filed as Exhibit 3.1 to the
Report on
Form 10-Q
for the quarter ended June 30, 2009, and incorporated
herein by reference.
|
|
3
|
.2
|
|
Bylaws of the registrant, as amended to date, filed as
Exhibit 3.2 to the Report on
Form 10-Q
for the quarter ended June 30, 2009, and incorporated
herein by reference.
|
|
4
|
.1(a)
|
|
Rights Agreement dated as of August 22, 1996, between the
registrant and American Stock Transfer &
Trust Company, filed as Exhibit 4.1 to the Report on
Form 8-K
filed with the SEC on September 3, 1996, and incorporated
herein by reference.
|
|
4
|
.1(b)
|
|
Amendment to Rights Agreement dated as of November 8, 1999,
between the registrant and American Stock Transfer &
Trust Company, filed as Exhibit 1 to
Form 8-A/A
filed with the SEC on March 31, 2000, and incorporated
herein by reference.
|
54
|
|
|
|
|
|
4
|
.1(c)
|
|
Amendment No. 2 to Rights Agreement dated as of
August 13, 2004, between the registrant and American Stock
Transfer & Trust Company, filed as
Exhibit 4.1 to the Report on
Form 8-K
filed with the SEC on August 16, 2004, and incorporated
herein by reference.
|
|
4
|
.1(d)
|
|
Amendment No. 3 to Rights Agreement dated as of
September 8, 2004, between the registrant and American
Stock Transfer & Trust Company, filed as
Exhibit 4.1 to the Report on
Form 8-K
filed with the SEC on September 9, 2004, and incorporated
herein by reference.
|
|
4
|
.1(e)
|
|
Amendment No. 4 to Rights Agreement dated as of
December 2, 2004, between the registrant and American Stock
Transfer & Trust Company, filed as
Exhibit 4.1 to the Report on
Form 8-K
filed with the SEC on December 3, 2004, and incorporated
herein by reference.
|
|
4
|
.1(f)
|
|
Amendment No. 5 to Rights Agreement dated as of
December 19, 2005, between the registrant and American
Stock Transfer & Trust Company, filed as
Exhibit 4.1 to the Report on
Form 8-K
filed with the SEC on December 19, 2005, and incorporated
herein by reference.
|
|
4
|
.2(a)
|
|
Indenture, dated as of July 21, 2005, between the
registrant and The Bank of New York, as trustee, filed as
Exhibit 4.1 to the Report on
Form 8-K
filed with the SEC on July 27, 2005, and incorporated
herein by reference.
|
|
4
|
.2(b)
|
|
Second Supplemental Indenture, dated as of October 1, 2007,
among the registrant, the Subsidiaries of the registrant listed
on the signature page thereto and The Bank of New York, as
trustee, filed as Exhibit 4.1 to the Report on
Form 8-K
filed with the SEC on October 5, 2007, and incorporated
herein by reference.
|
|
4
|
.3
|
|
Registration Rights Agreement, dated as of July 21, 2005,
among the registrant, the Guarantors party thereto and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, BNY
Capital Markets, Inc., KeyBanc Capital Markets (a Division of
McDonald Investments Inc.), PNC Capital Markets, Inc. and
SunTrust Capital Markets, Inc., filed as Exhibit 4.2 to the
Report on
Form 8-K
filed with the SEC on July 27, 2005, and incorporated
herein by reference.
|
|
4
|
.4
|
|
Indenture, dated as of September 15, 2008, among the
registrant, the guarantors named therein and Bank of New York
Mellon as trustee, filed as Exhibit 4.1 to the Report on
Form 8-K
filed with the SEC on September 15, 2008, and incorporated
herein by reference.
|
|
4
|
.5
|
|
Indenture, dated as of May 19, 2010, among the registrant,
the guarantors named therein and The Bank of New York Mellon as
trustee, filed as Exhibit 4.1 to the Report on
Form 8-K
filed with the SEC on May 19, 2010, and incorporated herein
by reference.
|
|
4
|
.6
|
|
Indenture, dated as of November 24, 2010, among the
registrant, the guarantors named therein and The Bank of New
York Mellon as trustee, filed as Exhibit 4.1 to the Report
on
Form 8-K
filed with the SEC on November 24, 2010, and incorporated
herein by reference.
|
|
31
|
.1
|
|
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
101
|
.INS
|
|
XBRL Instance Document
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
55
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
(Registrant)
Robert J. Coury
Chairman and Chief Executive Officer
(Principal Executive Officer)
May 3, 2011
John D. Sheehan
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
May 3, 2011
Daniel C. Rizzo, Jr.
Senior Vice President, Chief Accounting Officer and Corporate
Controller
(Principal Accounting Officer)
May 3, 2011
56
EXHIBIT INDEX
|
|
|
|
|
|
31
|
.1
|
|
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
101
|
.INS
|
|
XBRL Instance Document
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
57