MYLAN N.V.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited; in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
Net sales
|
$
|
2,176.1
|
|
|
$
|
1,854.6
|
|
Other revenues
|
15.2
|
|
|
17.1
|
|
Total revenues
|
2,191.3
|
|
|
1,871.7
|
|
Cost of sales
|
1,284.3
|
|
|
1,041.6
|
|
Gross profit
|
907.0
|
|
|
830.1
|
|
Operating expenses:
|
|
|
|
Research and development
|
253.6
|
|
|
169.9
|
|
Selling, general and administrative
|
549.3
|
|
|
483.2
|
|
Litigation settlements, net
|
(1.5
|
)
|
|
17.7
|
|
Total operating expenses
|
801.4
|
|
|
670.8
|
|
Earnings from operations
|
105.6
|
|
|
159.3
|
|
Interest expense
|
70.3
|
|
|
79.5
|
|
Other expense, net
|
16.3
|
|
|
18.5
|
|
Earnings before income taxes
|
19.0
|
|
|
61.3
|
|
Income tax provision
|
5.1
|
|
|
4.7
|
|
Net earnings attributable to Mylan N.V. ordinary shareholders
|
$
|
13.9
|
|
|
$
|
56.6
|
|
Earnings per ordinary share attributable to Mylan N.V. ordinary shareholders:
|
|
|
|
Basic
|
$
|
0.03
|
|
|
$
|
0.14
|
|
Diluted
|
$
|
0.03
|
|
|
$
|
0.13
|
|
Weighted average ordinary shares outstanding:
|
|
|
|
Basic
|
489.8
|
|
|
418.0
|
|
Diluted
|
509.6
|
|
|
443.8
|
|
See Notes to Condensed Consolidated Financial Statements
3
MYLAN N.V.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings
(Unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
|
|
|
|
Net earnings
|
$
|
13.9
|
|
|
$
|
56.6
|
|
Other comprehensive earnings (loss), before tax:
|
|
|
|
Foreign currency translation adjustment
|
502.0
|
|
|
(602.6
|
)
|
Change in unrecognized (loss) gain and prior service cost related to defined benefit plans
|
(0.3
|
)
|
|
0.1
|
|
Net unrecognized loss on derivatives
|
(49.1
|
)
|
|
(34.5
|
)
|
Net unrealized gain on marketable securities
|
4.4
|
|
|
0.1
|
|
Other comprehensive earnings (loss), before tax
|
457.0
|
|
|
(636.9
|
)
|
Income tax benefit
|
(16.8
|
)
|
|
(13.0
|
)
|
Other comprehensive earnings (loss), net of tax
|
473.8
|
|
|
(623.9
|
)
|
Comprehensive earnings (loss) attributable to Mylan N.V. ordinary shareholders
|
$
|
487.7
|
|
|
$
|
(567.3
|
)
|
See Notes to Condensed Consolidated Financial Statements
4
MYLAN N.V.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited; in millions, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
ASSETS
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
1,199.4
|
|
|
$
|
1,236.0
|
|
Accounts receivable, net
|
2,587.4
|
|
|
2,689.1
|
|
Inventories
|
2,144.1
|
|
|
1,951.0
|
|
Prepaid expenses and other current assets
|
696.7
|
|
|
596.6
|
|
Total current assets
|
6,627.6
|
|
|
6,472.7
|
|
Property, plant and equipment, net
|
1,998.8
|
|
|
1,983.9
|
|
Intangible assets, net
|
7,278.4
|
|
|
7,221.9
|
|
Goodwill
|
5,566.9
|
|
|
5,380.1
|
|
Deferred income tax benefit
|
441.0
|
|
|
457.6
|
|
Other assets
|
731.4
|
|
|
751.5
|
|
Total assets
|
$
|
22,644.1
|
|
|
$
|
22,267.7
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Liabilities
|
|
|
|
Current liabilities:
|
|
|
|
Trade accounts payable
|
$
|
1,076.2
|
|
|
$
|
1,109.6
|
|
Short-term borrowings
|
66.4
|
|
|
1.3
|
|
Income taxes payable
|
43.4
|
|
|
92.4
|
|
Current portion of long-term debt and other long-term obligations
|
1,082.5
|
|
|
1,077.0
|
|
Other current liabilities
|
1,690.9
|
|
|
1,841.9
|
|
Total current liabilities
|
3,959.4
|
|
|
4,122.2
|
|
Long-term debt
|
6,325.7
|
|
|
6,295.6
|
|
Deferred income tax liability
|
744.0
|
|
|
718.1
|
|
Other long-term obligations
|
1,340.1
|
|
|
1,366.0
|
|
Total liabilities
|
12,369.2
|
|
|
12,501.9
|
|
Equity
|
|
|
|
Mylan N.V. shareholders’ equity
|
|
|
|
Ordinary shares — nominal value €0.01 per ordinary share
|
|
|
|
Shares authorized: 1,200,000,000
|
|
|
|
Shares issued: 492,671,045 and 491,928,095 as of March 31, 2016 and December 31, 2015
|
5.5
|
|
|
5.5
|
|
Additional paid-in capital
|
7,149.9
|
|
|
7,128.6
|
|
Retained earnings
|
4,476.0
|
|
|
4,462.1
|
|
Accumulated other comprehensive loss
|
(1,290.5
|
)
|
|
(1,764.3
|
)
|
|
10,340.9
|
|
|
9,831.9
|
|
Noncontrolling interest
|
1.5
|
|
|
1.4
|
|
Less: Treasury stock — at cost
|
|
|
|
Shares: 1,311,193 as of March 31, 2016 and December 31, 2015
|
67.5
|
|
|
67.5
|
|
Total equity
|
10,274.9
|
|
|
9,765.8
|
|
Total liabilities and equity
|
$
|
22,644.1
|
|
|
$
|
22,267.7
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
5
MYLAN N.V.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
Net earnings
|
$
|
13.9
|
|
|
$
|
56.6
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
297.1
|
|
|
175.0
|
|
Share-based compensation expense
|
26.5
|
|
|
34.4
|
|
Deferred income tax provision
|
38.5
|
|
|
12.8
|
|
Loss from equity method investments
|
30.9
|
|
|
24.7
|
|
Other non-cash items
|
81.0
|
|
|
46.3
|
|
Litigation settlements, net
|
0.3
|
|
|
17.7
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable
|
83.5
|
|
|
376.9
|
|
Inventories
|
(222.8
|
)
|
|
(136.7
|
)
|
Trade accounts payable
|
(57.2
|
)
|
|
(15.4
|
)
|
Income taxes
|
(84.7
|
)
|
|
(203.3
|
)
|
Other operating assets and liabilities, net
|
(126.5
|
)
|
|
(122.0
|
)
|
Net cash provided by operating activities
|
80.5
|
|
|
267.0
|
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(51.8
|
)
|
|
(48.1
|
)
|
Purchase of marketable securities
|
(8.5
|
)
|
|
(40.1
|
)
|
Proceeds from sale of marketable securities
|
5.9
|
|
|
12.2
|
|
Payments for product rights and other, net
|
(105.6
|
)
|
|
(11.5
|
)
|
Net cash used in investing activities
|
(160.0
|
)
|
|
(87.5
|
)
|
Cash flows from financing activities:
|
|
|
|
Payments of financing fees
|
(31.6
|
)
|
|
(22.4
|
)
|
Change in short-term borrowings, net
|
65.1
|
|
|
(161.6
|
)
|
Proceeds from issuance of long-term debt
|
—
|
|
|
100.0
|
|
Payments of long-term debt
|
—
|
|
|
(100.0
|
)
|
Proceeds from exercise of stock options
|
3.6
|
|
|
67.4
|
|
Taxes paid related to net share settlement of equity awards
|
(6.9
|
)
|
|
(31.7
|
)
|
Other items, net
|
0.3
|
|
|
39.3
|
|
Net cash provided by (used in) financing activities
|
30.5
|
|
|
(109.0
|
)
|
Effect on cash of changes in exchange rates
|
12.4
|
|
|
(18.8
|
)
|
Net (decrease) increase in cash and cash equivalents
|
(36.6
|
)
|
|
51.7
|
|
Cash and cash equivalents — beginning of period
|
1,236.0
|
|
|
225.5
|
|
Cash and cash equivalents — end of period
|
$
|
1,199.4
|
|
|
$
|
277.2
|
|
Supplemental disclosures of cash flow information —
|
|
|
|
Non-cash transactions:
|
|
|
|
Ordinary shares issued for acquisition
|
$
|
—
|
|
|
$
|
6,305.8
|
|
See Notes to Condensed Consolidated Financial Statements
6
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The accompanying unaudited
Condensed Consolidated Financial Statements
(“
interim financial statements
”) of
Mylan N.V.
and subsidiaries (“Mylan” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “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, comprehensive earnings, financial position and cash flows for the periods presented. For periods prior to February 27, 2015, the Company’s
interim financial statements
present the accounts of Mylan Inc. and subsidiaries.
These
interim financial statements
should be read in conjunction with the
Consolidated Financial Statements
and
Notes
thereto in
Mylan N.V.
’s Annual Report on Form 10-K for the year ended
December 31, 2015
, as amended. The
December 31, 2015
Condensed Consolidated Balance Sheet
was derived from audited financial statements.
The interim results of operations and comprehensive earnings for the
three months ended
March 31, 2016
and cash flows for the
three months ended March 31, 2016
are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.
|
|
2.
|
Revenue Recognition and Accounts Receivable
|
The Company recognizes net 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, 2016
. Such allowances were
$1.55 billion
and
$1.84 billion
at
March 31, 2016
and
December 31, 2015
, respectively. Other current liabilities include
$617.0 million
and
$681.8 million
at
March 31, 2016
and
December 31, 2015
, respectively, for certain sales allowances and other adjustments that are paid to indirect customers.
Through its wholly owned subsidiary Mylan Pharmaceuticals Inc. (“MPI”), the Company has access to a
$400 million
accounts receivable securitization facility (the “Receivables Facility”). The receivables underlying any borrowings are included in accounts receivable, net, in the
Condensed Consolidated Balance Sheets
. There were
$739.9 million
and
$914.2 million
of securitized accounts receivable at
March 31, 2016
and
December 31, 2015
, respectively.
|
|
3.
|
Recent Accounting Pronouncements
|
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09,
Compensation - Stock Compensation (Topic 718)
(“ASU 2016-09”), which simplifies the accounting for share-based compensation payments. The new standard requires all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) to be recognized as income tax expense or benefit on the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements and disclosures.
In February 2016, the FASB issued Accounting Standards Update 2016-02,
Leases (Topic 840)
(“ASU 2016-02”), which provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. This guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements and disclosures.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
In January 2016, the FASB issued Accounting Standards Update 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
(“ASU 2016-01”), which requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income (other than those accounted for under equity method of accounting). The amendments in this update also require an entity to present separately in other comprehensive earnings the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU 2016-01 also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements and disclosures.
In May 2014, the FASB issued Accounting Standards Update 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09” updated with “ASU 2015-14”, “ASU 2016-08” and “ASU 2016-10”), which revises accounting guidance on revenue recognition that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principal of this guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years, and can be applied using a full retrospective or modified retrospective approach. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements and disclosures.
|
|
4.
|
Acquisitions and Other Transactions
|
Meda AB
On
February 10, 2016
, the Company issued an offer announcement under the Nasdaq Stockholm’s Takeover Rules and the Swedish Takeover Act (collectively, the “Swedish Takeover Rules”) setting forth a public offer to the shareholders of
Meda AB
(publ.) (“
Meda
”) to acquire all of the outstanding shares of
Meda
(the “
Offer
”), with enterprise value, including the net debt of
Meda
, of approximately Swedish kroner (“SEK” or “kr”)
83.6 billion
or
$9.9 billion
at announcement. The board of directors of the Company has unanimously approved the Offer and the board of directors of Meda has recommended that
Meda
shareholders accept the
Offer
. In addition, the
two
largest
Meda
shareholders, together holding approximately
30%
of the outstanding
Meda
shares, have irrevocably undertaken to tender their
Meda
shares into the
Offer
, subject to limited exceptions. Under the terms of the
Offer
, the Company is offering each
Meda
shareholder total consideration of between
152kr
and
165kr
(based on a SEK/USD exchange rate of
8.4158
) consisting of a combination of cash and the Company’s ordinary shares. The Company is offering each
Meda
shareholder
165kr
in cash per Meda share in respect of
80%
of the number of
Meda
shares tendered by such shareholder and a number of Mylan ordinary shares per Meda share calculated shortly prior to the closing of the
Offer
in respect of the remaining
20%
of the number of
Meda
shares tendered by such shareholder. The composition of the
Offer
consideration is subject to adjustment in certain circumstances. The
Offer
is fully financed and not conditional on further due diligence. The
Offer
is subject to certain closing conditions customary for an offer governed by the Swedish Takeover Rules, including holders of more than
90%
of the outstanding
Meda
shares tendering their shares into the
Offer
and receipt of all necessary regulatory, governmental or similar clearances, approvals and decisions, including from competition authorities. The
Offer
will not require a vote of Mylan shareholders. The Company expects that the
Offer
will close by the end of the third quarter of 2016.
Jai Pharma Limited
On November 20, 2015, the Company completed the acquisition of certain female healthcare businesses from
Famy Care Limited
(such businesses “
Jai Pharma Limited
”), a specialty women’s healthcare company with global leadership in generic oral contraceptive products, through its wholly owned subsidiary
Mylan Laboratories Limited
for a cash payment of
$750 million
plus additional contingent payments of up to
$50 million
for the filing for approval with, and receipt of approval from, the U.S. Food and Drug Administration of a product under development by
Jai Pharma Limited
.
In accordance with U.S. GAAP, 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 their respective estimated fair values at the acquisition date. The U.S. GAAP purchase price was
$711.1 million
, which excludes the
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
$50 million
paid into escrow at closing that is contingent upon at least
one
of
two
former principal shareholders of
Jai Pharma Limited
continuing to provide consulting services to the acquired business for the
two
year post-closing period and this amount will be treated as compensation expense over the service period. The U.S. GAAP purchase price also excludes
$7 million
of working capital and other adjustments and includes estimated contingent consideration of approximately
$18 million
related to the
$50 million
contingent payment. During the three months ended March 31, 2016, adjustments were made to the preliminary purchase price allocation recorded at November 20, 2015. The adjustments recorded in respect of current liabilities and deferred tax liabilities are reflected in the “measurement period adjustments” column of the table below. As of March 31, 2016, the preliminary allocation of the
$711.1 million
purchase price to the assets acquired and liabilities assumed for
Jai Pharma Limited
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Preliminary Purchase Price Allocation as of November 20, 2015
(a)
|
|
Measurement Period Adjustments
(b)
|
|
Preliminary Purchase Price Allocation as of March 31, 2016 (as adjusted)
|
Current assets (excluding inventories)
|
$
|
25.7
|
|
|
$
|
—
|
|
|
$
|
25.7
|
|
Inventories
|
4.9
|
|
|
—
|
|
|
4.9
|
|
Property, plant and equipment
|
17.2
|
|
|
—
|
|
|
17.2
|
|
Identified intangible assets
|
437.0
|
|
|
—
|
|
|
437.0
|
|
In-process research and development
|
98.0
|
|
|
—
|
|
|
98.0
|
|
Goodwill
|
317.2
|
|
|
8.1
|
|
|
325.3
|
|
Other assets
|
0.7
|
|
|
—
|
|
|
0.7
|
|
Total assets acquired
|
900.7
|
|
|
8.1
|
|
|
908.8
|
|
Current liabilities
|
(9.1
|
)
|
|
(1.9
|
)
|
|
(11.0
|
)
|
Deferred tax liabilities
|
(180.5
|
)
|
|
(6.2
|
)
|
|
(186.7
|
)
|
Net assets acquired
|
$
|
711.1
|
|
|
$
|
—
|
|
|
$
|
711.1
|
|
____________
|
|
(a)
|
As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as amended.
|
|
|
(b)
|
The measurement period adjustments are related to the recognition of certain current liabilities and adjustments to deferred tax liabilities to reflect facts and circumstances that existed as of the acquisition date.
|
The goodwill of
$325.3 million
arising from the acquisition consisted largely of the value of the employee workforce and the expected value of products to be developed in the future. All of the goodwill was assigned to the Generics segment.
None
of the goodwill recognized is currently expected to be deductible for income tax purposes. The preliminary fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations, valuations and assumptions that are subject to change as the Company obtains additional information during the measurement period (up to one year from the acquisition date). The primary areas of those preliminary estimates that are not yet finalized relate to the determination of contingent liabilities, the finalization of the fair value of tangible and intangible assets, the finalization of the working capital adjustment and deferred income taxes.
EPD Business
On
February 27, 2015
(the “EPD Transaction Closing Date”), the Company completed the acquisition of Mylan Inc. and Abbott Laboratories’ (“Abbott”) non-U.S. developed markets specialty and branded generics business (the “EPD Business”) in an all-stock transaction.
Mylan N.V.
’s purchase price for the
EPD Business
, which was on a debt-free basis, was
$6.31 billion
based on the closing price of Mylan Inc.’s stock as of the EPD Transaction Closing Date, as reported by the NASDAQ Global Select Stock Market.
The operating results of the EPD Business have been included in the Company’s Condensed Consolidated Statements of Operations since February 27, 2015. The revenues of the acquired EPD Business for the period from the acquisition date to March 31, 2015 were
$147.4 million
and the net loss, net of tax, was
$54.3 million
. The net loss, net of tax, includes the effects of the purchase accounting adjustments and acquisition related costs.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Unaudited Pro Forma Financial Results
The following table presents supplemental unaudited pro forma information as if the acquisition of the
EPD Business
had occurred on January 1, 2014. The unaudited pro forma results reflect certain adjustments related to past operating performance and acquisition accounting adjustments, such as increased amortization expense based on the fair value of assets acquired, the impact of transaction costs and the related income tax effects. The unaudited pro forma results do not include any anticipated synergies which may be achievable, or have been achieved, subsequent to the
EPD Transaction Closing Date
. Accordingly, the unaudited pro forma results are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on January 1, 2014, nor are they indicative of the future operating results of
Mylan N.V.
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
(Unaudited, in millions, except per share amounts)
|
2015
|
Total revenues
|
$
|
2,118.7
|
|
Net earnings attributable to Mylan N.V. ordinary shareholders
|
$
|
76.9
|
|
Earnings per ordinary share attributable to Mylan N.V. ordinary shareholders:
|
|
Basic
|
$
|
0.16
|
|
Diluted
|
$
|
0.15
|
|
Weighted average ordinary shares outstanding:
|
|
Basic
|
491.3
|
|
Diluted
|
517.1
|
|
Other Transactions
On January 8, 2016, the Company entered into an agreement with
Momenta Pharmaceuticals, Inc.
(“
Momenta
”) to develop, manufacture and commercialize up to
six
of
Momenta
’s current biosimilar candidates, including
Momenta
’s biosimilar candidate, ORENCIA® (abatacept). As part of the agreement, Mylan made an up-front cash payment of
$45 million
to Momenta. Under the terms of the agreement, Momenta is eligible to receive additional contingent milestone payments of
up to
$200 million
. The Company and
Momenta
will jointly be responsible for product development and will equally share in the costs and profits of the products. Under the agreement, Mylan will lead the worldwide commercialization efforts.
In December 2015, the Company entered into an agreement to acquire certain European intellectual property rights and marketing authorizations for a purchase price of
$202.5 million
. The Company accounted for this transaction as an asset acquisition and paid
$10.0 million
at the closing of the transaction in 2015. During the first quarter of 2016, the Company paid
$90.0 million
related to this asset purchase, which is included in investing activities on the Condensed Consolidated Statements of Cash Flows and was accrued for at December 31, 2015. The Company expects to pay the remaining amount of the purchase price during the fourth quarter of 2016 and first quarter of 2017, subject to certain timing conditions. The asset is being amortized over a useful life of
five
years.
|
|
5.
|
Share-Based Incentive Plan
|
The Company’s shareholders have approved the
2003 Long-Term Incentive Plan
(as amended, the “
2003 Plan
”). Under the
2003 Plan
,
55,300,000
ordinary shares are reserved for issuance to key employees, consultants, independent contractors and non-employee directors of the Company through a variety of incentive awards, including: stock options, stock appreciation rights (“SAR”), restricted shares and units, performance awards, other stock-based awards and short-term cash awards. Stock option awards are granted at the fair market 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
. Upon approval of the 2003 Plan, no further grants of stock options have been made under any other previous plans.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The following table summarizes stock option and SAR (“stock awards”) activity:
|
|
|
|
|
|
|
|
|
Number of Shares
Under Stock Awards
|
|
Weighted
Average
Exercise Price
per Share
|
Outstanding at December 31, 2015
|
7,732,499
|
|
|
$
|
31.85
|
|
Granted
|
575,057
|
|
|
46.72
|
|
Exercised
|
(162,129
|
)
|
|
22.65
|
|
Forfeited
|
(66,892
|
)
|
|
50.40
|
|
Outstanding at March 31, 2016
|
8,078,535
|
|
|
$
|
32.95
|
|
Vested and expected to vest at March 31, 2016
|
7,724,425
|
|
|
$
|
32.26
|
|
Exercisable at March 31, 2016
|
5,560,336
|
|
|
$
|
25.88
|
|
As of
March 31, 2016
, stock awards outstanding, stock awards vested and expected to vest and stock awards exercisable had average remaining contractual terms of
6.3 years
,
6.2 years
and
5.2 years
, respectively. Also, at
March 31, 2016
, stock awards outstanding, stock awards vested and expected to vest and stock awards exercisable had aggregate intrinsic values of
$123.2 million
,
$122.3 million
and
$118.4 million
, respectively.
A summary of the status of the Company’s nonvested restricted stock and restricted stock unit awards, including performance restricted stock units and restricted ordinary shares (collectively, “restricted stock awards”), as of
March 31, 2016
and the changes during the
three months ended
March 31, 2016
are presented below:
|
|
|
|
|
|
|
|
|
Number of
Restricted
Stock Awards
|
|
Weighted Average
Grant-Date
Fair Value per Share
|
Nonvested at December 31, 2015
|
4,474,436
|
|
|
$
|
40.70
|
|
Granted
|
1,030,403
|
|
|
45.39
|
|
Released
|
(796,486
|
)
|
|
40.61
|
|
Forfeited
|
(43,532
|
)
|
|
42.67
|
|
Nonvested at March 31, 2016
|
4,664,821
|
|
|
$
|
41.85
|
|
As of
March 31, 2016
, the Company had
$158.0 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 vesting period of
2.2 years
. The total intrinsic value of stock awards exercised and restricted stock units released during the
three months ended
March 31, 2016
and
2015
was
$40.1 million
and
$203.2 million
, respectively.
|
|
6.
|
Pensions and Other Postretirement Benefits
|
Defined Benefit Plans
The Company sponsors various defined benefit pension plans in several countries. Benefits provided generally depend on length of service, pay grade and remuneration levels. The Company maintains a small fully frozen defined benefit pension plan in the U.S., and employees in the U.S. and Puerto Rico are provided retirement benefits through defined contribution plans. As a result of the EPD Transaction during 2015, the Company acquired several funded and unfunded defined benefit pension plans outside the U.S.
The Company also sponsors other postretirement benefit plans. There are plans that provide for postretirement supplemental medical coverage. Benefits from these plans are paid to employees and their spouses and dependents who meet various minimum age and service requirements. In addition, there are plans that provide for life insurance benefits and postretirement medical coverage for certain officers and management employees.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Net Periodic Benefit Cost
Components of net periodic benefit cost for the
three months ended
March 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
Pension and Other Postretirement Benefits
|
|
March 31,
|
(In millions)
|
2016
|
|
2015
|
Service cost
|
$
|
3.9
|
|
|
$
|
2.8
|
|
Interest cost
|
1.5
|
|
|
1.2
|
|
Expected return on plan assets
|
(2.0
|
)
|
|
(1.4
|
)
|
Plan curtailment, settlement and termination
|
—
|
|
|
0.3
|
|
Amortization of prior service costs
|
0.1
|
|
|
0.1
|
|
Recognized net actuarial losses
|
0.2
|
|
|
0.3
|
|
Net periodic benefit cost
|
$
|
3.7
|
|
|
$
|
3.3
|
|
The Company is not required to make any mandatory contributions to its U.S. defined benefit pension plans in 2016. The Company expects to make total benefit payments of approximately
$10.2 million
in 2016, of which contributions to its U.S. defined benefit pension plan will total approximately
$1.1 million
.
|
|
7.
|
Balance Sheet Components
|
Selected balance sheet components consist of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
March 31,
2016
|
|
December 31,
2015
|
Inventories:
|
|
|
|
Raw materials
|
$
|
651.4
|
|
|
$
|
592.4
|
|
Work in process
|
419.9
|
|
|
387.0
|
|
Finished goods
|
1,072.8
|
|
|
971.6
|
|
|
$
|
2,144.1
|
|
|
$
|
1,951.0
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment:
|
|
|
|
Land and improvements
|
$
|
130.1
|
|
|
$
|
124.5
|
|
Buildings and improvements
|
973.0
|
|
|
950.6
|
|
Machinery and equipment
|
2,002.9
|
|
|
1,928.4
|
|
Construction in progress
|
269.9
|
|
|
290.5
|
|
|
3,375.9
|
|
|
3,294.0
|
|
Less accumulated depreciation
|
1,377.1
|
|
|
1,310.1
|
|
|
$
|
1,998.8
|
|
|
$
|
1,983.9
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
Legal and professional accruals, including litigation accruals
|
$
|
120.7
|
|
|
$
|
122.6
|
|
Payroll and employee benefit plan accruals
|
299.1
|
|
|
367.9
|
|
Accrued sales allowances
|
617.0
|
|
|
681.8
|
|
Accrued interest
|
44.7
|
|
|
25.1
|
|
Fair value of financial instruments
|
85.8
|
|
|
19.8
|
|
Other
|
523.6
|
|
|
624.7
|
|
|
$
|
1,690.9
|
|
|
$
|
1,841.9
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Contingent consideration included in
other current liabilities
totaled
$35.0 million
at
March 31, 2016
and
December 31, 2015
, respectively. Contingent consideration included in other long-term obligations was
$500.8 million
and
$491.4 million
at
March 31, 2016
and
December 31, 2015
, respectively. Included in
prepaid expenses and other current assets
was
$107.1 million
and
$106.6 million
of restricted cash at
March 31, 2016
and
December 31, 2015
, respectively. An additional
$100 million
of restricted cash was classified in other long-term assets at
March 31, 2016
and
December 31, 2015
, principally related to amounts deposited in escrow, or restricted amounts, for potential contingent consideration payments related to the acquisition of
Agila
Specialties Private Limited (“Agila”).
|
|
8.
|
Equity Method Investments
|
The Company has
five
equity method investments in limited liability companies that own refined coal production plants (the “clean energy investments”), whose activities qualify for income tax credits under Section 45 of the Internal Revenue Code, as amended. The carrying value of the clean energy investments totaled
$365.2 million
and
$379.3 million
at
March 31, 2016
and
December 31, 2015
, respectively, and are included in other assets in the
Condensed Consolidated Balance Sheets
. Liabilities related to these clean energy investments totaled
$403.2 million
and
$419.3 million
at
March 31, 2016
and
December 31, 2015
, respectively. Of these liabilities,
$340.0 million
and
$357.0 million
are included in other long-term obligations in the
Condensed Consolidated Balance Sheets
at
March 31, 2016
and
December 31, 2015
, respectively. The remaining
$63.2 million
and
$62.3 million
are included in other current liabilities in the
Condensed Consolidated Balance Sheets
at
March 31, 2016
and
December 31, 2015
, respectively.
In addition, the Company holds a
50%
interest in
Sagent Agila
LLC (“Sagent Agila”), which is accounted for using the equity method of accounting.
Sagent Agila
was established to allow for the development, manufacturing and distribution of certain generic injectable products in the U.S. market. The initial term of the venture expires upon the tenth anniversary of its formation. The carrying value of the investment in
Sagent Agila
included in other assets totaled
$90.8 million
and
$96.2 million
at
March 31, 2016
and
December 31, 2015
, respectively, in the
Condensed Consolidated Balance Sheets
.
Summarized financial information, in the aggregate, for the Company’s significant equity method investments on a
100%
basis for the
three months ended March 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
(In millions)
|
2016
|
|
2015
|
Total revenues
|
$
|
144.0
|
|
|
$
|
153.7
|
|
Gross (loss) profit
|
(0.3
|
)
|
|
0.2
|
|
Operating and non-operating expense
|
5.7
|
|
|
6.1
|
|
Net loss
|
$
|
(6.0
|
)
|
|
$
|
(5.9
|
)
|
The Company’s net losses from the
six
equity method investments includes amortization expense related to the excess of the cost basis of the Company’s investment to the underlying assets of each individual investee. For the
three months ended
March 31, 2016
and
2015
, the Company’s share of the net loss of the equity method investments was
$30.9 million
and
$24.7 million
, respectively, which was recognized as a component of
other expense, net
. The Company recognizes the income tax credits and benefits from the clean energy investments as part of its provision for income taxes.
|
|
9.
|
Earnings per Ordinary Share Attributable to
Mylan N.V.
|
Basic earnings per ordinary share is computed by dividing net earnings attributable to
Mylan N.V.
ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per ordinary share is computed by dividing net earnings attributable to
Mylan N.V.
ordinary shareholders by the weighted average number of ordinary shares outstanding during the period increased by the number of additional shares that would have been outstanding related to potentially dilutive securities or instruments, if the impact is dilutive.
On September 15, 2008, concurrent with the sale of
$575 million
aggregate principal amount of Cash Convertible Notes due 2015 (the “Cash Convertible Notes”), Mylan Inc. entered into convertible note hedge and warrant transactions with certain counterparties. In connection with the consummation of the EPD Transaction, the terms of the convertible note hedge were adjusted so that the cash settlement value would be based on Mylan N.V. ordinary shares. The terms of the warrant
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
transactions were also adjusted so that, from and after the consummation of the EPD Transaction, the Company could settle the obligations under the warrant transactions by delivering Mylan N.V. ordinary shares. Pursuant to the warrant transactions, and a subsequent amendment in 2011, there were approximately
43.2 million
warrants outstanding, with approximately
41.0 million
of the warrants that had an exercise price of
$30.00
. The remaining warrants had an exercise price of
$20.00
. The warrants met the definition of derivatives under the FASB’s guidance regarding accounting for derivative instruments and hedging activities; however, because these instruments were determined to be indexed to the Company’s own ordinary shares and met the criteria for equity classification under the FASB’s guidance regarding contracts in an entity’s own equity
,
the warrants were recorded in shareholders’ equity in the
Condensed Consolidated Balance Sheets
.
On April 15, 2016, in connection with the expiration and settlement of the warrants, the Company issued approximately 17.0 million Mylan N.V. ordinary shares.
The dilutive impact of the warrants is included in the calculation of diluted earnings per ordinary share based upon the average market value of the Company’s ordinary shares during the period as compared to the exercise price. For the
three
months ended
March 31, 2016
and
2015
,
16.7 million
and
20.8 million
warrants, respectively, were included in the calculation of diluted earnings per ordinary share.
Basic and diluted earnings per ordinary share attributable to
Mylan N.V.
are calculated as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
(In millions, except per share amounts)
|
2016
|
|
2015
|
Basic earnings attributable to Mylan N.V. ordinary shareholders (numerator):
|
|
|
|
Net earnings attributable to Mylan N.V. ordinary shareholders
|
$
|
13.9
|
|
|
$
|
56.6
|
|
Shares (denominator):
|
|
|
|
Weighted average ordinary shares outstanding
|
489.8
|
|
|
418.0
|
|
Basic earnings per ordinary share attributable to Mylan N.V. ordinary shareholders
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings attributable to Mylan N.V. ordinary shareholders (numerator):
|
|
|
|
Net earnings attributable to Mylan N.V. ordinary shareholders
|
$
|
13.9
|
|
|
$
|
56.6
|
|
Shares (denominator):
|
|
|
|
Weighted average ordinary shares outstanding
|
489.8
|
|
|
418.0
|
|
Share-based awards and warrants
|
19.8
|
|
|
25.8
|
|
Total dilutive shares outstanding
|
509.6
|
|
|
443.8
|
|
Diluted earnings per ordinary share attributable to Mylan N.V. ordinary shareholders
|
$
|
0.03
|
|
|
$
|
0.13
|
|
Additional stock awards and restricted stock awards were outstanding during the periods ended
March 31, 2016
and
2015
, but were not included in the computation of diluted earnings per ordinary share for each respective period because the effect would be anti-dilutive. Excluded shares at
March 31, 2016
include certain share-based compensation awards and restricted ordinary shares whose performance conditions had not been fully met. Such excluded and anti-dilutive awards represented
6.2 million
shares and
1.4 million
shares for the
three months ended
March 31, 2016
and
2015
, respectively.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
10.
|
Goodwill and Intangible Assets
|
The changes in the carrying amount of goodwill for the
three months ended
March 31, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Generics
Segment
|
|
Specialty
Segment
|
|
Total
|
Balance at December 31, 2015:
|
|
|
|
|
|
Goodwill
|
$
|
5,031.0
|
|
|
$
|
734.1
|
|
|
$
|
5,765.1
|
|
Accumulated impairment losses
|
—
|
|
|
(385.0
|
)
|
|
(385.0
|
)
|
|
5,031.0
|
|
|
349.1
|
|
|
5,380.1
|
|
Measurement period adjustments
|
8.1
|
|
|
—
|
|
|
8.1
|
|
Foreign currency translation
|
178.7
|
|
|
—
|
|
|
178.7
|
|
|
$
|
5,217.8
|
|
|
$
|
349.1
|
|
|
$
|
5,566.9
|
|
Balance at March 31, 2016:
|
|
|
|
|
|
Goodwill
|
$
|
5,217.8
|
|
|
$
|
734.1
|
|
|
$
|
5,951.9
|
|
Accumulated impairment losses
|
—
|
|
|
(385.0
|
)
|
|
(385.0
|
)
|
|
$
|
5,217.8
|
|
|
$
|
349.1
|
|
|
$
|
5,566.9
|
|
Intangible assets consist of the following components at
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Weighted
Average Life
(Years)
|
|
Original
Cost
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
March 31, 2016
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
Product rights and licenses
|
11
|
|
$
|
9,219.9
|
|
|
$
|
2,947.2
|
|
|
$
|
6,272.7
|
|
Patents and technologies
|
20
|
|
116.6
|
|
|
105.0
|
|
|
11.6
|
|
Other
(1)
|
6
|
|
484.4
|
|
|
228.5
|
|
|
255.9
|
|
|
|
|
9,820.9
|
|
|
3,280.7
|
|
|
6,540.2
|
|
In-process research and development
|
|
|
738.2
|
|
|
—
|
|
|
738.2
|
|
|
|
|
$
|
10,559.1
|
|
|
$
|
3,280.7
|
|
|
$
|
7,278.4
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
Product rights and licenses
|
11
|
|
$
|
8,848.6
|
|
|
$
|
2,652.7
|
|
|
$
|
6,195.9
|
|
Patents and technologies
|
20
|
|
116.6
|
|
|
103.8
|
|
|
12.8
|
|
Other
(1)
|
6
|
|
465.3
|
|
|
189.8
|
|
|
275.5
|
|
|
|
|
9,430.5
|
|
|
2,946.3
|
|
|
6,484.2
|
|
In-process research and development
|
|
|
737.7
|
|
|
—
|
|
|
737.7
|
|
|
|
|
$
|
10,168.2
|
|
|
$
|
2,946.3
|
|
|
$
|
7,221.9
|
|
____________
|
|
(1)
|
Other intangible assets consist principally of customer lists, contractual rights and other contracts.
|
Amortization expense, which is classified primarily within cost of sales in the
Condensed Consolidated Statements of Operations
, for the
three months ended
March 31, 2016
and
2015
, was
$242.3 million
and
$130.5 million
, respectively. Amortization expense is expected to be approximately
$731 million
for the remainder of
2016
and
$833 million
,
$779 million
,
$692 million
and
$590 million
for the years ended
December 31, 2017
through
2020
, respectively, excluding any impact from the proposed Meda transaction.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
11.
|
Financial Instruments and Risk Management
|
The Company 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 and interest rate risk.
Foreign Currency Risk Management
In order to manage foreign currency risk, the Company 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 also 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 transaction 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. Any ineffectiveness in a cash flow hedging relationship is recognized immediately in earnings in the
Condensed Consolidated Statements of Operations
.
Interest Rate Risk Management
The Company enters into interest rate swaps in order to manage interest rate risk associated with the Company’s fixed-rate and floating-rate debt. These derivative instruments are measured at fair value and reported as current assets or current liabilities in the
Condensed Consolidated Balance Sheets
.
Cash Flow Hedging Relationships
The Company’s interest rate swaps designated as cash flow hedges fix the interest rate on a portion of the Company’s variable-rate debt or hedge part of the Company’s interest rate exposure associated with variability in future cash flows attributable to changes in interest rates. Any changes in fair value are included in earnings or deferred through AOCE, depending on the nature and effectiveness of the offset. Any ineffectiveness in a cash flow hedging relationship is recognized immediately in earnings in the
Condensed Consolidated Statements of Operations
.
Fair Value Hedging Relationships
The Company’s interest rate swaps designated as fair value hedges convert the fixed rate on a portion of the Company’s fixed-rate senior notes to a variable rate. Any changes 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.
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. The Company is not subject to any obligations to post collateral under derivative instrument contracts. 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. The aggregate fair value of all such contracts in a net liability position at March 31, 2016 is
$4.1 million
. The Company records all derivative instruments on a gross basis in the
Condensed Consolidated Balance Sheets
. Accordingly, there are no offsetting amounts that net assets against liabilities.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The Effect of Derivative Instruments on the
Condensed Consolidated Balance Sheets
Fair Values of Derivative Instruments
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
March 31, 2016
|
|
December 31, 2015
|
(In millions)
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
Interest rate swaps
|
Prepaid expenses and other current assets
|
|
$
|
65.8
|
|
|
Prepaid expenses and other current assets
|
|
$
|
36.3
|
|
Foreign currency forward contracts
|
Prepaid expenses and other current assets
|
|
14.5
|
|
|
Prepaid expenses and other current assets
|
|
8.4
|
|
Total
|
|
|
$
|
80.3
|
|
|
|
|
$
|
44.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
March 31, 2016
|
|
December 31, 2015
|
(In millions)
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
Interest rate swaps
|
Other current liabilities
|
|
$
|
69.9
|
|
|
Other current liabilities
|
|
$
|
10.5
|
|
Total
|
|
|
$
|
69.9
|
|
|
|
|
$
|
10.5
|
|
The Effect of Derivative Instruments on the
Condensed Consolidated Balance Sheets
Fair Values of Derivative Instruments
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
March 31, 2016
|
|
December 31, 2015
|
(In millions)
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
Foreign currency forward contracts
|
Prepaid expenses and other current assets
|
|
$
|
4.6
|
|
|
Prepaid expenses and other current assets
|
|
$
|
20.0
|
|
Total
|
|
|
$
|
4.6
|
|
|
|
|
$
|
20.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
March 31, 2016
|
|
December 31, 2015
|
(In millions)
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
Foreign currency forward contracts
|
Other current liabilities
|
|
$
|
15.9
|
|
|
Other current liabilities
|
|
$
|
9.3
|
|
Total
|
|
|
$
|
15.9
|
|
|
|
|
$
|
9.3
|
|
The Effect of Derivative Instruments on the
Condensed Consolidated Statements of Operations
Derivatives in Fair Value Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain
Recognized in Earnings
on Derivatives
|
|
Amount of Gain
Recognized in Earnings on
Derivatives
|
(In millions)
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Interest rate swaps
|
Interest expense
|
|
$
|
29.6
|
|
|
$
|
20.5
|
|
Total
|
|
|
$
|
29.6
|
|
|
$
|
20.5
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss
Recognized in Earnings
on Hedged Items
|
|
Amount of Loss
Recognized in Earnings on
Hedged Items
|
(In millions)
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
2023 Senior Notes (3.125% coupon)
|
Interest expense
|
|
$
|
(29.6
|
)
|
|
$
|
(15.9
|
)
|
Total
|
|
|
$
|
(29.6
|
)
|
|
$
|
(15.9
|
)
|
The Effect of Derivative Instruments on the
Condensed Consolidated Statements of Comprehensive Earnings
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss
Recognized in AOCE
(Net of Tax) on Derivative
(Effective Portion)
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2016
|
|
2015
|
Foreign currency forward contracts
|
|
$
|
(4.4
|
)
|
|
$
|
(0.8
|
)
|
Interest rate swaps
|
|
(35.9
|
)
|
|
(32.4
|
)
|
Total
|
|
$
|
(40.3
|
)
|
|
$
|
(33.2
|
)
|
The Effect of Derivative Instruments on the
Condensed Consolidated Statements of Operations
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
Location of (Loss) Gain Reclassified
from AOCE into Earnings
(Effective Portion)
|
|
Amount of (Loss) Gain
Reclassified from AOCE
into Earnings (Effective Portion)
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2016
|
|
2015
|
Foreign currency forward contracts
|
Net sales
|
|
$
|
(10.6
|
)
|
|
$
|
(11.7
|
)
|
Interest rate swaps
|
Interest expense
|
|
0.9
|
|
|
(0.2
|
)
|
Total
|
|
|
$
|
(9.7
|
)
|
|
$
|
(11.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain
Excluded from the
Assessment of
Hedge Effectiveness
|
|
Amount of Gain Excluded from the Assessment of Hedge Effectiveness
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2016
|
|
2015
|
Foreign currency forward contracts
|
Other expense, net
|
|
$
|
7.3
|
|
|
$
|
8.6
|
|
Total
|
|
|
$
|
7.3
|
|
|
$
|
8.6
|
|
At
March 31, 2016
, the Company expects that approximately
$36.1 million
of pre-tax net losses on cash flow hedges will be reclassified from AOCE into earnings during
the next twelve months
.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The Effect of Derivative Instruments on the
Condensed Consolidated Statements of Operations
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Location of (Loss) or Recognized
in Earnings on Derivatives
|
|
Amount of (Loss) or Gain
Recognized in
Earnings on Derivatives
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2016
|
|
2015
|
Foreign currency forward contracts
|
Other expense, net
|
|
$
|
(15.0
|
)
|
|
$
|
0.1
|
|
Cash conversion feature of Cash Convertible Notes
|
Other expense, net
|
|
—
|
|
|
(127.7
|
)
|
Purchased cash convertible note hedge
|
Other expense, net
|
|
—
|
|
|
127.7
|
|
Total
|
|
|
$
|
(15.0
|
)
|
|
$
|
0.1
|
|
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.
MYLAN N.V. 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, 2016
|
(In millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
983.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
983.4
|
|
Total cash equivalents
|
983.4
|
|
|
—
|
|
|
—
|
|
|
983.4
|
|
Trading securities:
|
|
|
|
|
|
|
|
Equity securities — exchange traded funds
|
23.6
|
|
|
—
|
|
|
—
|
|
|
23.6
|
|
Total trading securities
|
23.6
|
|
|
—
|
|
|
—
|
|
|
23.6
|
|
Available-for-sale fixed income investments:
|
|
|
|
|
|
|
|
U.S. Treasuries
|
—
|
|
|
6.3
|
|
|
—
|
|
|
6.3
|
|
Corporate bonds
|
—
|
|
|
15.9
|
|
|
—
|
|
|
15.9
|
|
Agency mortgage-backed securities
|
—
|
|
|
5.0
|
|
|
—
|
|
|
5.0
|
|
Asset backed securities
|
—
|
|
|
2.1
|
|
|
—
|
|
|
2.1
|
|
Other
|
—
|
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
Total available-for-sale fixed income investments
|
—
|
|
|
30.7
|
|
|
—
|
|
|
30.7
|
|
Available-for-sale equity securities:
|
|
|
|
|
|
|
|
Marketable securities
|
29.8
|
|
|
—
|
|
|
—
|
|
|
29.8
|
|
Total available-for-sale equity securities
|
29.8
|
|
|
—
|
|
|
—
|
|
|
29.8
|
|
Foreign exchange derivative assets
|
—
|
|
|
19.1
|
|
|
—
|
|
|
19.1
|
|
Interest rate swap derivative assets
|
—
|
|
|
65.8
|
|
|
—
|
|
|
65.8
|
|
Total assets at recurring fair value measurement
|
$
|
1,036.8
|
|
|
$
|
115.6
|
|
|
$
|
—
|
|
|
$
|
1,152.4
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
Foreign exchange derivative liabilities
|
$
|
—
|
|
|
$
|
15.9
|
|
|
$
|
—
|
|
|
$
|
15.9
|
|
Interest rate swap derivative liabilities
|
—
|
|
|
69.9
|
|
|
—
|
|
|
69.9
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
535.8
|
|
|
535.8
|
|
Total liabilities at recurring fair value measurement
|
$
|
—
|
|
|
$
|
85.8
|
|
|
$
|
535.8
|
|
|
$
|
621.6
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(In millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
923.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
923.3
|
|
Total cash equivalents
|
923.3
|
|
|
—
|
|
|
—
|
|
|
923.3
|
|
Trading securities:
|
|
|
|
|
|
|
|
Equity securities — exchange traded funds
|
22.8
|
|
|
—
|
|
|
—
|
|
|
22.8
|
|
Total trading securities
|
22.8
|
|
|
—
|
|
|
—
|
|
|
22.8
|
|
Available-for-sale fixed income investments:
|
|
|
|
|
|
|
|
U.S. Treasuries
|
—
|
|
|
4.7
|
|
|
—
|
|
|
4.7
|
|
Corporate bonds
|
—
|
|
|
15.7
|
|
|
—
|
|
|
15.7
|
|
Agency mortgage-backed securities
|
—
|
|
|
3.9
|
|
|
—
|
|
|
3.9
|
|
Asset backed securities
|
—
|
|
|
2.3
|
|
|
—
|
|
|
2.3
|
|
Other
|
—
|
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
Total available-for-sale fixed income investments
|
—
|
|
|
28.0
|
|
|
—
|
|
|
28.0
|
|
Available-for-sale equity securities:
|
|
|
|
|
|
|
|
Marketable securities
|
26.0
|
|
|
—
|
|
|
—
|
|
|
26.0
|
|
Total available-for-sale equity securities
|
26.0
|
|
|
—
|
|
|
—
|
|
|
26.0
|
|
Foreign exchange derivative assets
|
—
|
|
|
28.4
|
|
|
—
|
|
|
28.4
|
|
Interest rate swap derivative assets
|
—
|
|
|
36.3
|
|
|
—
|
|
|
36.3
|
|
Total assets at recurring fair value measurement
|
$
|
972.1
|
|
|
$
|
92.7
|
|
|
$
|
—
|
|
|
$
|
1,064.8
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
Foreign exchange derivative liabilities
|
$
|
—
|
|
|
$
|
9.3
|
|
|
$
|
—
|
|
|
$
|
9.3
|
|
Interest rate swap derivative liabilities
|
—
|
|
|
10.5
|
|
|
—
|
|
|
10.5
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
526.4
|
|
|
526.4
|
|
Total liabilities at recurring fair value measurement
|
$
|
—
|
|
|
$
|
19.8
|
|
|
$
|
526.4
|
|
|
$
|
546.2
|
|
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:
|
|
•
|
Cash equivalents
— valued at observable net asset value prices.
|
|
|
•
|
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 public exchanges at the reporting date and translated to the U.S. Dollar at prevailing spot exchange rates.
|
|
|
•
|
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.
|
|
|
•
|
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.
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The fair value measurement of contingent consideration is determined using Level 3 inputs. The Company’s contingent consideration represents a component of the total purchase consideration for the respiratory delivery platform, the acquisition of
Agila
, the acquisition of Jai Pharma Limited and certain other acquisitions. The measurement is calculated using unobservable inputs based on the Company’s own assumptions. For the respiratory delivery platform, Jai Pharma Limited and certain other acquisitions, significant unobservable inputs in the valuation include the probability and timing of future development and commercial milestones and future profit sharing payments. A discounted cash flow method was used to value contingent consideration at
March 31, 2016
and
December 31, 2015
, which was calculated as the present value of the estimated future net cash flows using a market rate of return. Discount rates ranging from
1.8%
to
9.8%
were utilized in the valuations. For the contingent consideration related to the acquisition of
Agila
, significant unobservable inputs in the valuation include the probability of future payments to the seller of amounts withheld at the closing date. Significant changes in unobservable inputs could result in material changes to the contingent consideration liability. During the
three months ended
March 31, 2016
and 2015, accretion of
$10.0 million
and
$9.2 million
, respectively, was recorded in interest expense in the
Condensed Consolidated Statements of Operations
.
Although the Company has not elected the fair value option for other financial assets and liabilities, any future transacted financial asset or liability will be evaluated for the fair value election.
Receivables Facility
The Receivables Facility has a committed balance of
$400 million
, although from time-to-time, the available amount of the Receivables Facility may be less than
$400 million
based on accounts receivable concentration limits and other eligibility requirements. As of
March 31, 2016
and
December 31, 2015
, the Company had
no
short-term borrowings under the Receivables Facility in the
Condensed Consolidated Balance Sheets
.
Long-Term Debt
A summary of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Coupon
|
|
March 31,
2016
|
|
December 31,
2015
|
2015 Term Loans
|
|
|
$
|
1,600.0
|
|
|
$
|
1,600.0
|
|
2014 Term Loan
|
|
|
800.0
|
|
|
800.0
|
|
2016 Senior Notes
(a)
|
1.800
|
%
|
|
500.0
|
|
|
500.1
|
|
2016 Senior Notes
(b)
|
1.350
|
%
|
|
499.9
|
|
|
499.9
|
|
2018 Senior Notes
(c)
|
2.600
|
%
|
|
649.4
|
|
|
649.3
|
|
2018 Senior Notes
(c)
|
3.000
|
%
|
|
499.4
|
|
|
499.4
|
|
2019 Senior Notes
(d)
|
2.550
|
%
|
|
499.3
|
|
|
499.2
|
|
2020 Senior Notes
(e)
|
3.750
|
%
|
|
499.8
|
|
|
499.8
|
|
2023 Senior Notes
(d)
|
3.125
|
%
|
|
814.7
|
|
|
785.2
|
|
2023 Senior Notes
(f)
|
4.200
|
%
|
|
498.4
|
|
|
498.4
|
|
2043 Senior Notes
(g)
|
5.400
|
%
|
|
497.0
|
|
|
497.0
|
|
Other
|
|
|
4.6
|
|
|
4.3
|
|
Deferred financing fees
|
|
|
(36.8
|
)
|
|
(38.3
|
)
|
Total long-term debt, including current portion of long-term debt
|
|
|
7,325.7
|
|
|
7,294.3
|
|
Less current portion
|
|
|
1,000.0
|
|
|
998.7
|
|
Total long-term debt
|
|
|
$
|
6,325.7
|
|
|
$
|
6,295.6
|
|
____________
|
|
(a)
|
Instrument is callable by the Company at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.20% plus, in each case, accrued and unpaid interest. Instrument is due on
June 24, 2016
and is included in current portion of long-term debt and other long-term obligations in the
Condensed Consolidated Balance Sheets
at
March 31, 2016
.
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
(b)
|
Instrument is callable by the Company at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.125% plus, in each case, accrued and unpaid interest. Instrument is due on November 29, 2016 and is included in current portion of long-term debt and other long-term obligations in the
Condensed Consolidated Balance Sheets
at
March 31, 2016
.
|
|
|
(c)
|
Instrument is callable by the Company at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.30% plus, in each case, accrued and unpaid interest.
|
|
|
(d)
|
Instrument is callable by the Company at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.20% plus, in each case, accrued and unpaid interest.
|
|
|
(e)
|
Instrument is callable by the Company at any time prior to the date that is one month prior to the instrument's maturity date at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.35% plus, in each case, accrued and unpaid interest.
|
|
|
(f)
|
Instrument is callable by the Company at any time prior to August 29, 2023 at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.25% plus, in each case, accrued and unpaid interest. On or after such date, the instrument is callable by the Company at 100% of the principal amount plus accrued and unpaid interest.
|
|
|
(g)
|
Instrument is callable by the Company at any time prior to May 29, 2043 at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.25% plus, in each case, accrued and unpaid interest. On or after such date, the instrument is callable by the Company at 100% of the principal amount plus accrued and unpaid interest.
|
2016 Bridge Credit Agreement
On
February 10, 2016
, the Company entered into a Bridge Credit Agreement (the “
2016 Bridge Credit Agreement
”), among the Company, as borrower,
Mylan Inc.
, as guarantor, Deutsche Bank AG Cayman Islands Branch, as administrative agent and a lender, Goldman Sachs Bank USA, as a lender, Goldman Sachs Lending Partners LLC, as a lender, and other lenders party thereto from time to time. The
2016 Bridge Credit Agreement
provides for a bridge credit facility under which the Company may obtain Tranche A Loans (as defined in the 2016 Bridge Credit Agreement) in an aggregate amount up to
$6.0 billion
. The proceeds of the Tranche A Loans will be applied solely to finance the proposed acquisition of
Meda
shares and pay other costs associated with the proposed acquisition of Meda, the
2016 Bridge Credit Agreement
and related transactions. The Tranche A Loans will bear interest at LIBOR (determined in accordance with the
2016 Bridge Credit Agreement
), if the Company chooses to make LIBOR borrowings, or at a base rate (determined in accordance with the
2016 Bridge Credit Agreement
), in each case plus an applicable margin. The applicable margin for borrowings will be determined by reference to a grid based on the Company’s Debt Rating (as defined in the
2016 Bridge Credit Agreement
), and such applicable margin will range from
0.125%
to
1.225%
per annum with respect to base rate borrowings and
1.125%
to
2.225%
per annum with respect to LIBOR borrowings, in each case subject to increase by
0.25%
per annum,
0.25%
per annum and
0.50%
per annum on the date that is
90
,
180
and
270
days, respectively, after the initial funding date. The commitments under the
2016 Bridge Credit Agreement
will be available until the earliest to occur of
February 8, 2017
and certain events set forth in the 2016 Bridge Credit Agreement relating to the completion or termination of the
Offer
set forth in the
2016 Bridge Credit Agreement
. The Tranche A Loans will be unsecured and will be guaranteed by
Mylan Inc.
The Tranche A Loans will mature on the day that is 364 days after the initial funding date.
The 2016 Bridge Credit Agreement also provided for commitments in respect of
Tranche B Loans (as defined in the 2016 Bridge Credit Agreement) in an aggregate amount up to
$4.05 billion
that were to be applied if necessary to prepay the Revolving Credit Agreement, the 2014 Term Credit Agreement and the 2015 Term Credit Agreement (in each case, as defined below) and to pay fees and expenses relating thereto. The commitments in respect of such Tranche B Loans were permanently terminated in their entirety in connection with the effectiveness of the Revolving Amendment, the 2014 Term Amendment and the 2015 Term Amendment (in each case, as defined below). Upon signing of the
2016 Bridge Credit Agreement
, the Company paid financing fees of approximately
$29.5 million
, of which approximately
$3.0 million
related to the Tranche B Loans and were written off in conjunction with the termination of the Tranche B Loans. The remaining fees are included in other current assets on the Condensed Consolidated Balance Sheets.
Revolving Facility
On
December 19, 2014
, the Company entered into a revolving credit agreement, which was amended on May 1, 2015, and further amended on June 19, 2015 and October 28, 2015 (the “Revolving Credit Agreement”) with a syndicate of lenders, which contains a
$1.65 billion
revolving facility (the “Revolving Facility”), which expires on
December 19, 2019
. The
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Revolving Facility includes a
$150 million
subfacility for the issuance of letters of credit and a
$125 million
subfacility for swingline borrowings.
At
March 31, 2016
and
December 31, 2015
, the Company had
no
amounts outstanding under the Revolving Facility. The interest rate under the Revolving Facility is LIBOR plus
1.325%
per annum. In addition, the Revolving Facility has a facility fee which is
0.175%
.
2015 Term Loans
On
July 15, 2015
, the Company entered into a term credit agreement, which was amended on October 28, 2015 (the “2015 Term Credit Agreement”) among the Company, as guarantor, Mylan Inc. (the “Borrower”), certain lenders and PNC Bank, National Association as the administrative agent. The 2015 Term Credit Agreement provided for a term loan credit facility (the “Credit Facility”) under which the Borrower obtained loans in the aggregate amount of
$1.6 billion
, consisting of (i) a closing date term loan (the “Closing Date Loan”) in the amount of
$1.0 billion
, borrowed on July 15, 2015 and (ii) a delayed draw term loan (the “Delayed Draw Loan,” and together with the Closing Date Loan, the “2015 Term Loans”) in the amount of
$600.0 million
, borrowed on September 15, 2015. The 2015 Term Loans mature on July 15, 2017, subject to extension to the earlier of (a) December 19, 2017, and (b) if different, the maturity date of the 2014 Term Loan (as defined below).
The loans under the 2015 Term Credit Agreement bear interest at LIBOR (determined in accordance with the 2015 Term Credit Agreement) plus
1.375%
per annum.
2014 Term Loan
On December 19, 2014, the Company entered into a term credit agreement, which was amended on May 1, 2015, and further amended on October 28, 2015 (the “2014 Term Credit Agreement”), with a syndicate of banks which provided an
$800 million
term loan (the “2014 Term Loan”). The 2014 Term Loan matures on
December 19, 2017
and has no required amortization payments. The 2014 Term Loan bears interest at LIBOR plus
1.375%
per annum.
Amendment to the Revolving Credit Facility, 2015 Term Loans and 2014 Term Loan
On February 22, 2016, the Company and Mylan Inc. (the “Borrower”) entered into (i) Amendment No. 3 (the “Revolving Amendment”) to the Revolving Credit Agreement, among the Borrower, the Company, certain lenders and issuing banks and Bank of America, N.A., as administrative agent, (ii) Amendment No. 2 (the “2015 Term Amendment”) to the 2015 Term Credit Agreement, among the Borrower, the Company, certain lenders and PNC Bank, National Association, as administrative agent and (iii) Amendment No. 3 (the “2014 Term Amendment”) to the 2014 Term Credit Agreement, among the Borrower, the Company, certain lenders and Bank of America, N.A., as administrative agent. The Revolving Amendment, 2015 Term Amendment and 2014 Term Amendment provide that the Borrower’s proposed acquisition of Meda will constitute a Qualified Acquisition (as defined in each of the Revolving Credit Agreement, the 2014 Term Credit Agreement and the 2015 Term Credit Agreement) and amends the event of default provisions to provide that any “change of control” put rights under any indebtedness of any Acquired Entity or Business (as defined in each of the Revolving Credit Agreement, the 2014 Term Credit Agreement and the 2015 Term Credit Agreement) or its subsidiaries that are triggered as a result of the acquisition of any Acquired Entity or Business will not result in an event of default so long as any such indebtedness that is put in accordance with the terms of such indebtedness is paid as required by the terms of such indebtedness.
Fair Value
At
March 31, 2016
and
December 31, 2015
, the fair value of the Company’s
1.800%
Senior Notes due 2016,
1.350%
Senior Notes due 2016,
2.600%
Senior Notes due 2018,
3.000%
Senior Notes due 2018,
2.550%
Senior Notes due 2019,
3.750%
Senior Notes due 2020,
3.125%
Senior Notes due 2023,
4.200%
Senior Notes due 2023 and
5.400%
Senior Notes due 2043 (collectively, the “Senior Notes”) was approximately
$4.91 billion
and
$4.80 billion
, respectively. The fair values of the Senior Notes were valued at quoted market prices from broker or dealer quotations and were classified as Level 2 in the fair value hierarchy. Based on quoted market rates of interest and maturity schedules of similar debt issues, the fair values of the Company’s 2015 Term Loans and 2014 Term Loan, determined based on Level 2 inputs, approximate their carrying values at
March 31, 2016
and
December 31, 2015
.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Mandatory minimum repayments remaining on the outstanding long-term debt at
March 31, 2016
, excluding the discounts, premium and conversion features, are as follows for each of the periods ending December 31:
|
|
|
|
|
(In millions)
|
Total
|
2016
|
$
|
1,000
|
|
2017
|
2,400
|
|
2018
|
1,150
|
|
2019
|
500
|
|
2020
|
500
|
|
Thereafter
|
1,750
|
|
Total
|
$
|
7,300
|
|
|
|
13.
|
Comprehensive Earnings
|
Accumulated other comprehensive loss
, as reflected on the
Condensed Consolidated Balance Sheets
, is comprised of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
March 31,
2016
|
|
December 31, 2015
|
Accumulated other comprehensive loss:
|
|
|
|
Net unrealized gain (loss) on marketable securities, net of tax
|
$
|
1.8
|
|
|
$
|
(1.0
|
)
|
Net unrecognized losses and prior service cost related to defined benefit plans, net of tax
|
(15.1
|
)
|
|
(14.9
|
)
|
Net unrecognized losses on derivatives, net of tax
|
(48.9
|
)
|
|
(18.1
|
)
|
Foreign currency translation adjustment
|
(1,228.3
|
)
|
|
(1,730.3
|
)
|
|
$
|
(1,290.5
|
)
|
|
$
|
(1,764.3
|
)
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Components of
accumulated other comprehensive loss
, before tax, consist of the following, for the
three months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
Gains and Losses on Derivatives in Cash Flow Hedging Relationships
|
|
Gains and Losses on Marketable Securities
|
|
Defined Pension Plan Items
|
|
Foreign Currency Translation Adjustment
|
|
Totals
|
(In millions)
|
Foreign Currency Forward Contracts
|
|
Interest Rate Swaps
|
|
Total
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015 net of tax
|
|
|
|
|
$
|
(18.1
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
(14.9
|
)
|
|
$
|
(1,730.3
|
)
|
|
$
|
(1,764.3
|
)
|
Other comprehensive (loss) earnings before reclassifications, before tax
|
|
|
|
|
(39.4
|
)
|
|
4.4
|
|
|
(0.6
|
)
|
|
502.0
|
|
|
466.4
|
|
Amounts reclassified from accumulated other comprehensive (loss) earnings, before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on foreign exchange forward contracts classified as cash flow hedges, included in net sales
|
(10.6
|
)
|
|
|
|
(10.6
|
)
|
|
|
|
|
|
|
|
(10.6
|
)
|
Gain on interest rate swaps classified as cash flow hedges, included in interest expense
|
|
|
0.9
|
|
|
0.9
|
|
|
|
|
|
|
|
|
0.9
|
|
Amortization of prior service costs included in SG&A
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
0.1
|
|
Amortization of actuarial gain included in SG&A
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
0.2
|
|
Net other comprehensive (loss) earnings, before tax
|
|
|
|
|
(49.1
|
)
|
|
4.4
|
|
|
(0.3
|
)
|
|
502.0
|
|
|
457.0
|
|
Income tax (benefit) provision
|
|
|
|
|
(18.3
|
)
|
|
1.6
|
|
|
(0.1
|
)
|
|
—
|
|
|
(16.8
|
)
|
Balance at March 31, 2016, net of tax
|
|
|
|
|
$
|
(48.9
|
)
|
|
$
|
1.8
|
|
|
$
|
(15.1
|
)
|
|
$
|
(1,228.3
|
)
|
|
$
|
(1,290.5
|
)
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
Gains and Losses on Derivatives in Cash Flow Hedging Relationships
|
|
Gains and Losses on Marketable Securities
|
|
Defined Pension Plan Items
|
|
Foreign Currency Translation Adjustment
|
|
Totals
|
(In millions)
|
Foreign Currency Forward Contracts
|
|
Interest Rate Swaps
|
|
Total
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014, net of tax
|
|
|
|
|
$
|
(28.4
|
)
|
|
$
|
0.3
|
|
|
$
|
(19.5
|
)
|
|
$
|
(939.4
|
)
|
|
$
|
(987.0
|
)
|
Other comprehensive (loss) earnings before reclassifications, before tax
|
|
|
|
|
(46.4
|
)
|
|
0.1
|
|
|
(0.3
|
)
|
|
(602.6
|
)
|
|
(649.2
|
)
|
Amounts reclassified from accumulated other comprehensive (loss) earnings, before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on foreign exchange forward contracts classified as cash flow hedges, included in net sales
|
(11.7
|
)
|
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
(11.7
|
)
|
Loss on interest rate swaps classified as cash flow hedges, included in interest expense
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
(0.2
|
)
|
Amortization of prior service costs included in SG&A
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
(0.1
|
)
|
Amortization of actuarial loss included in SG&A
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
(0.3
|
)
|
Amounts reclassified from accumulated other comprehensive (loss) earnings, before tax
|
|
|
|
|
(11.9
|
)
|
|
|
|
(0.4
|
)
|
|
|
|
|
(12.3
|
)
|
Net other comprehensive (loss) earnings, before tax
|
|
|
|
|
(34.5
|
)
|
|
0.1
|
|
|
0.1
|
|
|
(602.6
|
)
|
|
(636.9
|
)
|
Income tax (benefit) provision
|
|
|
|
|
(13.1
|
)
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
(13.0
|
)
|
Balance at March 31, 2015, net of tax
|
|
|
|
|
$
|
(49.8
|
)
|
|
$
|
0.4
|
|
|
$
|
(19.5
|
)
|
|
$
|
(1,542.0
|
)
|
|
$
|
(1,610.9
|
)
|
A summary of the changes in shareholders’ equity for the
three months ended
March 31, 2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Total Mylan N.V. Shareholders' Equity
|
|
Noncontrolling Interest
|
|
Total
|
December 31, 2015
|
$
|
9,764.4
|
|
|
$
|
1.4
|
|
|
$
|
9,765.8
|
|
Net earnings
|
13.9
|
|
|
—
|
|
|
13.9
|
|
Other comprehensive earnings, net of tax
|
473.8
|
|
|
—
|
|
|
473.8
|
|
Stock option activity
|
3.5
|
|
|
—
|
|
|
3.5
|
|
Share-based compensation expense
|
26.5
|
|
|
—
|
|
|
26.5
|
|
Shares withheld for taxes on share-based compensation
|
(9.9
|
)
|
|
—
|
|
|
(9.9
|
)
|
Tax benefit of stock option plans
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Other
|
—
|
|
|
0.1
|
|
|
0.1
|
|
March 31, 2016
|
$
|
10,273.4
|
|
|
$
|
1.5
|
|
|
$
|
10,274.9
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Total Mylan N.V. Shareholders' Equity
|
|
Noncontrolling Interest
|
|
Total
|
December 31, 2014
|
$
|
3,255.9
|
|
|
$
|
20.1
|
|
|
$
|
3,276.0
|
|
Net earnings
|
56.6
|
|
|
—
|
|
|
56.6
|
|
Other comprehensive loss, net of tax
|
(623.9
|
)
|
|
—
|
|
|
(623.9
|
)
|
Stock option activity
|
68.3
|
|
|
—
|
|
|
68.3
|
|
Share-based compensation expense
|
34.4
|
|
|
—
|
|
|
34.4
|
|
Shares withheld for taxes on share-based compensation
|
(23.8
|
)
|
|
—
|
|
|
(23.8
|
)
|
Issuance of ordinary shares to purchase the EPD Business
|
6,305.8
|
|
|
—
|
|
|
6,305.8
|
|
Other
|
—
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
March 31, 2015
|
$
|
9,073.3
|
|
|
$
|
19.9
|
|
|
$
|
9,093.2
|
|
On
April 3, 2015
, the Company and Stichting Preferred Shares Mylan (the “Foundation”) entered into a call option agreement (the “Call Option Agreement”). Pursuant to the terms of the Call Option Agreement,
Mylan N.V.
granted the Foundation a call option (the “Option”), permitting the Foundation to acquire from time-to-time
Mylan N.V.
preferred shares up to a maximum number equal to the total number of
Mylan N.V.
ordinary shares issued at such time to the extent such shares are not held by the Foundation. The exercise price of the Option is
€0.01
per preferred share. On April 21, 2015, the Company received a letter from the President and Chief Executive Officer of Teva Pharmaceutical Industries Ltd. ("Teva"), containing a non-binding expression of interest from Teva to acquire Mylan for
$82
per Mylan ordinary share. On July 23, 2015, in response to Teva's unsolicited expression of interest in acquiring Mylan, the Foundation exercised the Option and acquired
488,388,431
Mylan preferred shares pursuant to the terms of the Call Option Agreement. In compliance with the current statutory arrangement,
25%
of the nominal value of the preferred shares, approximately
$1.3 million
, was paid to Mylan in cash upon issuance. Each Mylan ordinary share and preferred share is entitled to one vote on each matter properly brought before a general meeting of shareholders. On July 27, 2015, Teva announced its entry into an agreement to acquire the Generic Drug Unit of Allergan plc and the withdrawal of its unsolicited, non-binding expression of interest to acquire Mylan. On September 19, 2015, the Foundation requested the redemption of the Mylan preferred shares issued on July 23, 2015, informing Mylan that it was reasonably convinced that the influences that might adversely affect or threaten the strategy, mission, independence, continuity and/or identity of Mylan and its business in a manner that is contrary to the interest of Mylan, its business, and its stakeholders had been sufficiently addressed. Mylan ordinary shareholders approved the redemption of the preferred shares on January 7, 2016 at an extraordinary general meeting of shareholders. On March 17, 2016, the redemption of the Mylan preferred shares became effective. The Foundation will continue to have the right to exercise the Option in the future in response to a new threat to the interests of Mylan, its businesses and its stakeholders from time to time.
On
November 16, 2015
, the Company announced that its board of directors approved the repurchase of up to
$1.0 billion
of the Company’s ordinary shares either in the open market through privately-negotiated transactions or in one of more self tender offers (the “Share Repurchase Program”). At
March 31, 2016
, the Share Repurchase Program has approximately
$932.5 million
remaining for ordinary share repurchases. The Share Repurchase Program does not obligate the Company to acquire any particular amount of ordinary shares and expires on
August 27, 2016
.
The Company 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, transdermal patch, gel, cream or ointment form, as well as active pharmaceutical ingredients (“API”). The Specialty segment engages mainly in the development and sale of branded specialty nebulized and injectable products.
The Company’s chief operating decision maker is the Chief Executive Officer, who evaluates the performance of the Company’s segments based on total revenues and segment profitability. Segment profitability represents segment gross profit less direct research and development (“R&D”) expenses and direct selling, general and administrative expenses (“SG&A”). Certain general and administrative and R&D expenses not allocated to the segments, 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 Company’s
Condensed Consolidated
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
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
Mylan N.V.
’s Annual Report on Form 10-K for the year ended
December 31, 2015
, as amended. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Generics Segment
|
|
Specialty Segment
|
|
Corporate /
Other
(1)
|
|
Consolidated
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
Third party
|
$
|
1,936.8
|
|
|
$
|
254.5
|
|
|
$
|
—
|
|
|
$
|
2,191.3
|
|
Intersegment
|
2.6
|
|
|
3.4
|
|
|
(6.0
|
)
|
|
—
|
|
Total
|
$
|
1,939.4
|
|
|
$
|
257.9
|
|
|
$
|
(6.0
|
)
|
|
$
|
2,191.3
|
|
|
|
|
|
|
|
|
|
Segment profitability
|
$
|
463.8
|
|
|
$
|
129.2
|
|
|
$
|
(487.4
|
)
|
|
$
|
105.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
Third party
|
$
|
1,655.1
|
|
|
$
|
216.6
|
|
|
$
|
—
|
|
|
$
|
1,871.7
|
|
Intersegment
|
1.5
|
|
|
2.0
|
|
|
(3.5
|
)
|
|
—
|
|
Total
|
$
|
1,656.6
|
|
|
$
|
218.6
|
|
|
$
|
(3.5
|
)
|
|
$
|
1,871.7
|
|
|
|
|
|
|
|
|
|
|
Segment profitability
|
$
|
450.8
|
|
|
$
|
102.2
|
|
|
$
|
(393.7
|
)
|
|
$
|
159.3
|
|
____________
|
|
(1)
|
Includes certain corporate general and administrative and R&D expenses; litigation settlements, net; certain intercompany transactions, including eliminations; amortization of intangible assets and certain purchase accounting items; impairment charges; and other expenses not directly attributable to segments.
|
|
|
16.
|
Subsidiary Guarantors
|
The following tables present unaudited condensed consolidating financial information for (a) the Company (for purposes of this discussion and these tables, "Parent Guarantor"); (b) Mylan Inc., the issuer of the Senior Notes (for the purposes of this discussion and these tables, the “Issuer”), excluding the
3.000%
Senior Notes due December 2018 and the
3.750%
Senior Notes due December 2020 (collectively, the “December 2015 Senior Notes”); and (c) all other subsidiaries of the Parent Guarantor on a combined basis, none of which guaranteed the Cash Convertible Notes or guarantee the Senior Notes ("Non-Guarantor Subsidiaries"). The consolidating adjustments primarily relate to eliminations of investments in subsidiaries and intercompany balances and transactions. The unaudited condensed consolidating financial statements present investments in subsidiaries using the equity method of accounting. Mylan Inc. is an indirect wholly owned subsidiary of the Company and the Company fully and unconditionally guaranteed on a senior unsecured basis the Senior Notes (other than the December 2015 Senior Notes).
In addition, the Company’s December 2015 Senior Notes are guaranteed on a senior unsecured basis by Mylan Inc. In connection with the offering of the December 2015 Senior Notes, the Company entered into a registration rights agreement pursuant to which the Company and Mylan Inc. will use commercially reasonable efforts to file a registration statement with respect to an offer to exchange each series of the December 2015 Senior Notes for new notes with the same aggregate principal amount and terms substantially identical in all material respects and to cause the exchange offer registration statement to be declared effective by the SEC and to consummate the exchange offer not later than 365 days following the date of issuance of the December 2015 Senior Notes.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The following financial information presents the related unaudited
Condensed Consolidated Statements of Operations
for the
three months ended
March 31, 2016
and
2015
, the unaudited
Condensed Consolidated Statements of Comprehensive Earnings
for the
three months ended
March 31, 2016
and
2015
, the unaudited
Condensed Consolidated Balance Sheets
as of
March 31, 2016
and
December 31, 2015
and the unaudited Condensed Consolidating Statements of Cash Flows for the
three months ended March 31, 2016
and
2015
. This unaudited condensed consolidating financial information has been prepared and presented in accordance with SEC Regulation S-X Rule 3-10 “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Mylan N.V. (Parent Guarantor)
|
|
Mylan Inc. (Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,176.1
|
|
|
$
|
—
|
|
|
$
|
2,176.1
|
|
Other revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
15.2
|
|
|
—
|
|
|
15.2
|
|
Total revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
2,191.3
|
|
|
—
|
|
|
2,191.3
|
|
Cost of sales
|
—
|
|
|
—
|
|
|
—
|
|
|
1,284.3
|
|
|
—
|
|
|
1,284.3
|
|
Gross profit
|
—
|
|
|
—
|
|
|
—
|
|
|
907.0
|
|
|
—
|
|
|
907.0
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
—
|
|
|
—
|
|
|
—
|
|
|
253.6
|
|
|
—
|
|
|
253.6
|
|
Selling, general and administrative
|
13.2
|
|
|
176.0
|
|
|
—
|
|
|
360.1
|
|
|
—
|
|
|
549.3
|
|
Litigation settlements, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
|
—
|
|
|
(1.5
|
)
|
Total operating expenses
|
13.2
|
|
|
176.0
|
|
|
—
|
|
|
612.2
|
|
|
—
|
|
|
801.4
|
|
Earnings from operations
|
(13.2
|
)
|
|
(176.0
|
)
|
|
—
|
|
|
294.8
|
|
|
—
|
|
|
105.6
|
|
Interest expense
|
13.3
|
|
|
41.5
|
|
|
—
|
|
|
15.5
|
|
|
—
|
|
|
70.3
|
|
Other expense, net
|
—
|
|
|
—
|
|
|
—
|
|
|
16.3
|
|
|
—
|
|
|
16.3
|
|
(Losses) earnings before income taxes
|
(26.5
|
)
|
|
(217.5
|
)
|
|
—
|
|
|
263.0
|
|
|
—
|
|
|
19.0
|
|
Income tax provision (benefit)
|
—
|
|
|
9.0
|
|
|
—
|
|
|
(3.9
|
)
|
|
—
|
|
|
5.1
|
|
Earnings (losses) of equity interest subsidiaries
|
40.4
|
|
|
264.8
|
|
|
—
|
|
|
—
|
|
|
(305.2
|
)
|
|
—
|
|
Net earnings attributable to Mylan N.V. ordinary shareholders
|
$
|
13.9
|
|
|
$
|
38.3
|
|
|
$
|
—
|
|
|
$
|
266.9
|
|
|
$
|
(305.2
|
)
|
|
$
|
13.9
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Mylan N.V. (Parent Guarantor)
|
|
Mylan Inc. (Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,854.6
|
|
|
$
|
—
|
|
|
$
|
1,854.6
|
|
Other revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
17.1
|
|
|
—
|
|
|
17.1
|
|
Total revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
1,871.7
|
|
|
—
|
|
|
1,871.7
|
|
Cost of sales
|
—
|
|
|
—
|
|
|
—
|
|
|
1,041.6
|
|
|
—
|
|
|
1,041.6
|
|
Gross profit
|
—
|
|
|
—
|
|
|
—
|
|
|
830.1
|
|
|
—
|
|
|
830.1
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
—
|
|
|
—
|
|
|
—
|
|
|
169.9
|
|
|
—
|
|
|
169.9
|
|
Selling, general and administrative
|
—
|
|
|
201.0
|
|
|
—
|
|
|
282.2
|
|
|
—
|
|
|
483.2
|
|
Litigation settlements, net
|
—
|
|
|
—
|
|
|
—
|
|
|
17.7
|
|
|
—
|
|
|
17.7
|
|
Total operating expenses
|
—
|
|
|
201.0
|
|
|
—
|
|
|
469.8
|
|
|
—
|
|
|
670.8
|
|
Earnings from operations
|
—
|
|
|
(201.0
|
)
|
|
—
|
|
|
360.3
|
|
|
—
|
|
|
159.3
|
|
Interest expense
|
—
|
|
|
63.7
|
|
|
—
|
|
|
15.8
|
|
|
—
|
|
|
79.5
|
|
Other expense, net
|
—
|
|
|
—
|
|
|
—
|
|
|
18.5
|
|
|
—
|
|
|
18.5
|
|
(Losses) earnings before income taxes
|
—
|
|
|
(264.7
|
)
|
|
—
|
|
|
326.0
|
|
|
—
|
|
|
61.3
|
|
Income tax provision
|
—
|
|
|
2.3
|
|
|
—
|
|
|
2.4
|
|
|
—
|
|
|
4.7
|
|
Earnings (losses) of equity interest subsidiaries
|
56.6
|
|
|
319.4
|
|
|
—
|
|
|
—
|
|
|
(376.0
|
)
|
|
—
|
|
Net earnings attributable to Mylan N.V. ordinary shareholders
|
$
|
56.6
|
|
|
$
|
52.4
|
|
|
$
|
—
|
|
|
$
|
323.6
|
|
|
$
|
(376.0
|
)
|
|
$
|
56.6
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Mylan N.V. (Parent Guarantor)
|
|
Mylan Inc. (Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net earnings
|
$
|
13.9
|
|
|
$
|
38.3
|
|
|
$
|
—
|
|
|
$
|
266.9
|
|
|
$
|
(305.2
|
)
|
|
$
|
13.9
|
|
Other comprehensive earnings (loss), before tax:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
502.0
|
|
|
—
|
|
|
—
|
|
|
502.0
|
|
|
(502.0
|
)
|
|
502.0
|
|
Change in unrecognized (loss) gain and prior service cost related to defined benefit plans
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
0.3
|
|
|
(0.3
|
)
|
Net unrecognized (loss) gain on derivatives
|
(49.1
|
)
|
|
(58.4
|
)
|
|
—
|
|
|
9.3
|
|
|
49.1
|
|
|
(49.1
|
)
|
Net unrealized gain on marketable securities
|
4.4
|
|
|
3.8
|
|
|
—
|
|
|
0.6
|
|
|
(4.4
|
)
|
|
4.4
|
|
Other comprehensive earnings (loss), before tax
|
457.0
|
|
|
(54.6
|
)
|
|
—
|
|
|
511.6
|
|
|
(457.0
|
)
|
|
457.0
|
|
Income tax (benefit) provision
|
(16.8
|
)
|
|
(20.2
|
)
|
|
—
|
|
|
3.4
|
|
|
16.8
|
|
|
(16.8
|
)
|
Other comprehensive earnings (loss), net of tax
|
473.8
|
|
|
(34.4
|
)
|
|
—
|
|
|
508.2
|
|
|
(473.8
|
)
|
|
473.8
|
|
Comprehensive earnings (loss) attributable to Mylan N.V. ordinary shareholders
|
$
|
487.7
|
|
|
$
|
3.9
|
|
|
$
|
—
|
|
|
$
|
775.1
|
|
|
$
|
(779.0
|
)
|
|
$
|
487.7
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Mylan N.V. (Parent Guarantor)
|
|
Mylan Inc. (Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net earnings
|
$
|
56.6
|
|
|
$
|
52.4
|
|
|
$
|
—
|
|
|
$
|
323.6
|
|
|
$
|
(376.0
|
)
|
|
$
|
56.6
|
|
Other comprehensive earnings (loss), before tax:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(602.6
|
)
|
|
—
|
|
|
—
|
|
|
(602.6
|
)
|
|
602.6
|
|
|
(602.6
|
)
|
Change in unrecognized loss and prior service cost related to defined benefit plans
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
Net unrecognized (loss) gain on derivatives
|
(34.5
|
)
|
|
(50.9
|
)
|
|
—
|
|
|
16.4
|
|
|
34.5
|
|
|
(34.5
|
)
|
Net unrealized gain (loss) on marketable securities
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
Other comprehensive (loss) earnings, before tax
|
(636.9
|
)
|
|
(50.9
|
)
|
|
—
|
|
|
(586.0
|
)
|
|
636.9
|
|
|
(636.9
|
)
|
Income tax (benefit) provision
|
(13.0
|
)
|
|
(18.6
|
)
|
|
—
|
|
|
5.6
|
|
|
13.0
|
|
|
(13.0
|
)
|
Other comprehensive earnings (loss), net of tax
|
(623.9
|
)
|
|
(32.3
|
)
|
|
—
|
|
|
(591.6
|
)
|
|
623.9
|
|
|
(623.9
|
)
|
Comprehensive (loss) earnings attributable to Mylan N.V. ordinary shareholders
|
$
|
(567.3
|
)
|
|
$
|
20.1
|
|
|
$
|
—
|
|
|
$
|
(268.0
|
)
|
|
$
|
247.9
|
|
|
$
|
(567.3
|
)
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
As of
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Mylan N.V. (Parent Guarantor)
|
|
Mylan Inc. (Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
908.4
|
|
|
$
|
—
|
|
|
$
|
291.0
|
|
|
$
|
—
|
|
|
$
|
1,199.4
|
|
Accounts receivable, net
|
—
|
|
|
6.7
|
|
|
—
|
|
|
2,580.7
|
|
|
—
|
|
|
2,587.4
|
|
Inventories
|
—
|
|
|
—
|
|
|
—
|
|
|
2,144.1
|
|
|
—
|
|
|
2,144.1
|
|
Intercompany receivables
|
1,093.3
|
|
|
297.5
|
|
|
—
|
|
|
9,188.2
|
|
|
(10,579.0
|
)
|
|
—
|
|
Prepaid expenses and other current assets
|
23.2
|
|
|
151.6
|
|
|
—
|
|
|
521.9
|
|
|
—
|
|
|
696.7
|
|
Total current assets
|
1,116.5
|
|
|
1,364.2
|
|
|
—
|
|
|
14,725.9
|
|
|
(10,579.0
|
)
|
|
6,627.6
|
|
Property, plant and equipment, net
|
—
|
|
|
321.4
|
|
|
—
|
|
|
1,677.4
|
|
|
—
|
|
|
1,998.8
|
|
Investments in subsidiaries
|
10,460.1
|
|
|
8,569.6
|
|
|
—
|
|
|
—
|
|
|
(19,029.7
|
)
|
|
—
|
|
Intercompany notes and interest receivable
|
—
|
|
|
9,667.2
|
|
|
—
|
|
|
18.4
|
|
|
(9,685.6
|
)
|
|
—
|
|
Intangible assets, net
|
—
|
|
|
0.5
|
|
|
—
|
|
|
7,277.9
|
|
|
—
|
|
|
7,278.4
|
|
Goodwill
|
—
|
|
|
17.1
|
|
|
—
|
|
|
5,549.8
|
|
|
—
|
|
|
5,566.9
|
|
Other assets
|
—
|
|
|
78.1
|
|
|
—
|
|
|
1,094.3
|
|
|
—
|
|
|
1,172.4
|
|
Total assets
|
$
|
11,576.6
|
|
|
$
|
20,018.1
|
|
|
$
|
—
|
|
|
$
|
30,343.7
|
|
|
$
|
(39,294.3
|
)
|
|
$
|
22,644.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
—
|
|
|
$
|
28.3
|
|
|
$
|
—
|
|
|
$
|
1,047.9
|
|
|
$
|
—
|
|
|
$
|
1,076.2
|
|
Short-term borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
66.4
|
|
|
—
|
|
|
66.4
|
|
Income taxes payable
|
—
|
|
|
—
|
|
|
—
|
|
|
43.4
|
|
|
—
|
|
|
43.4
|
|
Current portion of long-term debt and other long-term obligations
|
|
|
1,014.5
|
|
|
—
|
|
|
68.0
|
|
|
—
|
|
|
1,082.5
|
|
Intercompany payables
|
297.5
|
|
|
10,281.5
|
|
|
—
|
|
|
—
|
|
|
(10,579.0
|
)
|
|
—
|
|
Other current liabilities
|
11.1
|
|
|
254.0
|
|
|
—
|
|
|
1,425.8
|
|
|
—
|
|
|
1,690.9
|
|
Total current liabilities
|
308.6
|
|
|
11,578.3
|
|
|
—
|
|
|
2,651.5
|
|
|
(10,579.0
|
)
|
|
3,959.4
|
|
Long-term debt
|
993.1
|
|
|
5,330.0
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
|
6,325.7
|
|
Intercompany notes payable
|
—
|
|
|
18.4
|
|
|
—
|
|
|
9,667.2
|
|
|
(9,685.6
|
)
|
|
—
|
|
Other long-term obligations
|
—
|
|
|
120.9
|
|
|
—
|
|
|
1,963.2
|
|
|
—
|
|
|
2,084.1
|
|
Total liabilities
|
1,301.7
|
|
|
17,047.6
|
|
|
—
|
|
|
14,284.5
|
|
|
(20,264.6
|
)
|
|
12,369.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
10,274.9
|
|
|
2,970.5
|
|
|
—
|
|
|
16,059.2
|
|
|
(19,029.7
|
)
|
|
10,274.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
$
|
11,576.6
|
|
|
$
|
20,018.1
|
|
|
$
|
—
|
|
|
$
|
30,343.7
|
|
|
$
|
(39,294.3
|
)
|
|
$
|
22,644.1
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
As of
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Mylan N.V. (Parent Guarantor)
|
|
Mylan Inc. (Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
870.5
|
|
|
$
|
—
|
|
|
$
|
365.5
|
|
|
$
|
—
|
|
|
$
|
1,236.0
|
|
Accounts receivable, net
|
—
|
|
|
14.4
|
|
|
—
|
|
|
2,674.7
|
|
|
—
|
|
|
2,689.1
|
|
Inventories
|
—
|
|
|
—
|
|
|
—
|
|
|
1,951.0
|
|
|
—
|
|
|
1,951.0
|
|
Intercompany receivables
|
1,097.5
|
|
|
283.2
|
|
|
—
|
|
|
8,936.4
|
|
|
(10,317.1
|
)
|
|
—
|
|
Other current assets
|
0.3
|
|
|
244.8
|
|
|
—
|
|
|
351.5
|
|
|
—
|
|
|
596.6
|
|
Total current assets
|
1,097.8
|
|
|
1,412.9
|
|
|
—
|
|
|
14,279.1
|
|
|
(10,317.1
|
)
|
|
6,472.7
|
|
Property, plant and equipment, net
|
—
|
|
|
324.4
|
|
|
—
|
|
|
1,659.5
|
|
|
—
|
|
|
1,983.9
|
|
Investments in subsidiaries
|
9,947.7
|
|
|
8,007.7
|
|
|
—
|
|
|
—
|
|
|
(17,955.4
|
)
|
|
—
|
|
Intercompany notes and interest receivable
|
—
|
|
|
9,704.4
|
|
|
—
|
|
|
18.7
|
|
|
(9,723.1
|
)
|
|
—
|
|
Intangible assets, net
|
—
|
|
|
0.5
|
|
|
—
|
|
|
7,221.4
|
|
|
—
|
|
|
7,221.9
|
|
Goodwill
|
—
|
|
|
17.1
|
|
|
—
|
|
|
5,363.0
|
|
|
—
|
|
|
5,380.1
|
|
Other assets
|
—
|
|
|
135.3
|
|
|
—
|
|
|
1,073.8
|
|
|
—
|
|
|
1,209.1
|
|
Total assets
|
$
|
11,045.5
|
|
|
$
|
19,602.3
|
|
|
$
|
—
|
|
|
$
|
29,615.5
|
|
|
$
|
(37,995.6
|
)
|
|
$
|
22,267.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
—
|
|
|
$
|
33.5
|
|
|
$
|
—
|
|
|
$
|
1,076.1
|
|
|
$
|
—
|
|
|
$
|
1,109.6
|
|
Short-term borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
1.3
|
|
Income taxes payable
|
—
|
|
|
—
|
|
|
—
|
|
|
92.4
|
|
|
—
|
|
|
92.4
|
|
Current portion of long-term debt and other long-term obligations
|
—
|
|
|
1,010.1
|
|
|
—
|
|
|
66.9
|
|
|
—
|
|
|
1,077.0
|
|
Intercompany payables
|
283.2
|
|
|
10,033.9
|
|
|
—
|
|
|
—
|
|
|
(10,317.1
|
)
|
|
—
|
|
Other current liabilities
|
2.0
|
|
|
320.1
|
|
|
—
|
|
|
1,519.8
|
|
|
—
|
|
|
1,841.9
|
|
Total current liabilities
|
285.2
|
|
|
11,397.6
|
|
|
—
|
|
|
2,756.5
|
|
|
(10,317.1
|
)
|
|
4,122.2
|
|
Long-term debt
|
994.5
|
|
|
5,298.4
|
|
|
—
|
|
|
2.7
|
|
|
—
|
|
|
6,295.6
|
|
Intercompany notes payable
|
—
|
|
|
18.7
|
|
|
—
|
|
|
9,704.4
|
|
|
(9,723.1
|
)
|
|
—
|
|
Other long-term obligations
|
—
|
|
|
122.2
|
|
|
—
|
|
|
1,961.9
|
|
|
—
|
|
|
2,084.1
|
|
Total liabilities
|
1,279.7
|
|
|
16,836.9
|
|
|
—
|
|
|
14,425.5
|
|
|
(20,040.2
|
)
|
|
12,501.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
9,765.8
|
|
|
2,765.4
|
|
|
—
|
|
|
15,190.0
|
|
|
(17,955.4
|
)
|
|
9,765.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
$
|
11,045.5
|
|
|
$
|
19,602.3
|
|
|
$
|
—
|
|
|
$
|
29,615.5
|
|
|
$
|
(37,995.6
|
)
|
|
$
|
22,267.7
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Mylan N.V. (Parent Guarantor)
|
|
Mylan Inc. (Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(27.1
|
)
|
|
$
|
(139.4
|
)
|
|
$
|
—
|
|
|
$
|
247.0
|
|
|
$
|
—
|
|
|
$
|
80.5
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(20.6
|
)
|
|
—
|
|
|
(31.2
|
)
|
|
—
|
|
|
(51.8
|
)
|
Change in restricted cash
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of marketable securities
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
(8.0
|
)
|
|
—
|
|
|
(8.5
|
)
|
Proceeds from sale of marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
5.9
|
|
|
—
|
|
|
5.9
|
|
Investments in affiliates
|
—
|
|
|
(11.3
|
)
|
|
—
|
|
|
—
|
|
|
11.3
|
|
|
—
|
|
Loans to affiliates
|
(3.6
|
)
|
|
(1,465.6
|
)
|
|
—
|
|
|
(1,699.6
|
)
|
|
3,168.8
|
|
|
—
|
|
Repayments of loans from affiliates
|
32.8
|
|
|
12.2
|
|
|
—
|
|
|
7.2
|
|
|
(52.2
|
)
|
|
—
|
|
Payments for product rights and other, net
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(105.5
|
)
|
|
—
|
|
|
(105.6
|
)
|
Net cash (used in) provided by investing activities
|
29.2
|
|
|
(1,485.9
|
)
|
|
—
|
|
|
(1,831.2
|
)
|
|
3,127.9
|
|
|
(160.0
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Payments of financing fees
|
(31.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31.6
|
)
|
Change in short-term borrowings, net
|
—
|
|
|
—
|
|
|
—
|
|
|
65.1
|
|
|
—
|
|
|
65.1
|
|
Proceeds from exercise of stock options
|
3.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.6
|
|
Taxes paid related to net share settlement of equity awards
|
(6.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6.9
|
)
|
Capital contribution from affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
11.3
|
|
|
(11.3
|
)
|
|
—
|
|
Payments on borrowings from affiliates
|
—
|
|
|
(40.0
|
)
|
|
—
|
|
|
(12.2
|
)
|
|
52.2
|
|
|
—
|
|
Proceeds from borrowings from affiliates
|
31.6
|
|
|
1,703.2
|
|
|
—
|
|
|
1,434.0
|
|
|
(3,168.8
|
)
|
|
—
|
|
Other items, net
|
1.2
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
0.3
|
|
Net cash provided by (used in) financing activities
|
(2.1
|
)
|
|
1,663.2
|
|
|
—
|
|
|
1,497.3
|
|
|
(3,127.9
|
)
|
|
30.5
|
|
Effect on cash of changes in exchange rates
|
—
|
|
|
—
|
|
|
—
|
|
|
12.4
|
|
|
—
|
|
|
12.4
|
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
37.9
|
|
|
—
|
|
|
(74.5
|
)
|
|
—
|
|
|
(36.6
|
)
|
Cash and cash equivalents — beginning of period
|
—
|
|
|
870.5
|
|
|
—
|
|
|
365.5
|
|
|
—
|
|
|
1,236.0
|
|
Cash and cash equivalents — end of period
|
$
|
—
|
|
|
$
|
908.4
|
|
|
$
|
—
|
|
|
$
|
291.0
|
|
|
$
|
—
|
|
|
$
|
1,199.4
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Mylan N.V. (Parent Guarantor)
|
|
Mylan Inc. (Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
1.0
|
|
|
$
|
(555.8
|
)
|
|
$
|
—
|
|
|
$
|
821.8
|
|
|
$
|
—
|
|
|
$
|
267.0
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(9.5
|
)
|
|
—
|
|
|
(38.6
|
)
|
|
—
|
|
|
(48.1
|
)
|
Purchase of marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
(40.1
|
)
|
|
—
|
|
|
(40.1
|
)
|
Proceeds from sale of marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
12.2
|
|
|
—
|
|
|
12.2
|
|
Investments in affiliates
|
—
|
|
|
(115.7
|
)
|
|
—
|
|
|
—
|
|
|
115.7
|
|
|
—
|
|
Loans to affiliates
|
(16.4
|
)
|
|
(1,473.3
|
)
|
|
—
|
|
|
—
|
|
|
1,489.7
|
|
|
—
|
|
Repayments of loans from affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,047.0
|
)
|
|
2,047.0
|
|
|
—
|
|
Payments for product rights and other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(11.5
|
)
|
|
—
|
|
|
(11.5
|
)
|
Net cash (used in) provided by investing activities
|
(16.4
|
)
|
|
(1,598.5
|
)
|
|
—
|
|
|
(2,125.0
|
)
|
|
3,652.4
|
|
|
(87.5
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Payments of financing fees
|
—
|
|
|
(22.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22.4
|
)
|
Change in short-term borrowings, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(161.6
|
)
|
|
—
|
|
|
(161.6
|
)
|
Proceeds from issuance of long-term debt
|
—
|
|
|
100.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100.0
|
|
Payments of long-term debt
|
—
|
|
|
(100.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(100.0
|
)
|
Proceeds from exercise of stock options
|
—
|
|
|
67.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
67.4
|
|
Taxes paid related to net share settlement of equity awards
|
—
|
|
|
(29.4
|
)
|
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
|
(31.7
|
)
|
Capital contribution from affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
115.7
|
|
|
(115.7
|
)
|
|
—
|
|
Proceeds from borrowings from affiliates
|
—
|
|
|
15.4
|
|
|
—
|
|
|
1,474.3
|
|
|
(1,489.7
|
)
|
|
—
|
|
Payments on borrowings from affiliates
|
—
|
|
|
2,047.0
|
|
|
—
|
|
|
—
|
|
|
(2,047.0
|
)
|
|
—
|
|
Other items, net
|
15.4
|
|
|
23.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39.3
|
|
Net cash provided by (used in) financing activities
|
15.4
|
|
|
2,101.9
|
|
|
—
|
|
|
1,426.1
|
|
|
(3,652.4
|
)
|
|
(109.0
|
)
|
Effect on cash of changes in exchange rates
|
—
|
|
|
—
|
|
|
—
|
|
|
(18.8
|
)
|
|
—
|
|
|
(18.8
|
)
|
Net (decrease) increase in cash and cash equivalents
|
—
|
|
|
(52.4
|
)
|
|
—
|
|
|
104.1
|
|
|
—
|
|
|
51.7
|
|
Cash and cash equivalents — beginning of period
|
—
|
|
|
112.9
|
|
|
—
|
|
|
112.6
|
|
|
—
|
|
|
225.5
|
|
Cash and cash equivalents — end of period
|
$
|
—
|
|
|
$
|
60.5
|
|
|
$
|
—
|
|
|
$
|
216.7
|
|
|
$
|
—
|
|
|
$
|
277.2
|
|
Supplemental disclosures of cash flow information —
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares issued for acquisition
|
$
|
—
|
|
|
$
|
6,305.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,305.8
|
|
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Legal Proceedings
The Company is involved in various disputes, governmental and/or regulatory inquiries and proceedings and litigation matters that arise from time to time, some of which are described below. The Company is also party to certain litigation matters for which Merck KGaA or
Strides Arcolab Limited
(“
Strides Arcolab
”) has agreed to indemnify the Company, pursuant to the respective sale and purchase agreements.
While the Company believes that it has meritorious defenses with respect to the claims asserted against it and intends to vigorously defend its position, the process of resolving matters through litigation or other means is inherently uncertain, and it is not possible to predict the ultimate resolution of any such proceeding. It is possible that an unfavorable resolution of any of the matters described below, or the inability or denial of Merck KGaA,
Strides Arcolab
, or another indemnitor or insurer to pay an indemnified claim, could have a material effect on the Company’s business, financial condition, results of operations, cash flows and/or ordinary share price. Unless otherwise disclosed below, the Company is unable to predict the outcome of the respective litigation or to provide an estimate of the range of reasonably possible losses. Legal costs are recorded as incurred and are classified in SG&A in the Company’s
Condensed Consolidated Statements of Operations
.
Lorazepam and Clorazepate
On June 1, 2005, a jury verdict was rendered against Mylan, 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 Mylan’s 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 Company’s 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 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 based on lack of diversity with respect to certain plaintiffs. On June 13, 2011, Mylan filed a certiorari petition with the U.S. Supreme Court requesting review of the judgment of the D.C. Circuit. On October 3, 2011, the certiorari petition was denied. The case is now proceeding before the District Court. On January 14, 2013, following limited court-ordered jurisdictional discovery, the plaintiffs filed a fourth amended complaint containing additional factual averments with respect to the diversity of citizenship of the parties, along with a motion to voluntarily dismiss
775
(of
1,387
) self-funded customers whose presence would destroy the District Court’s diversity jurisdiction. The plaintiffs also moved for a remittitur (reduction) of approximately
$8.1 million
from the full damages award. Mylan’s brief in response to the new factual averments in the complaint was filed on February 13, 2013. On July 29, 2014, the court granted both plaintiffs’ motion to amend the complaint and their motion to dismiss
775
self-funded customers.
In connection with the Company’s appeal of the judgment, the Company submitted a surety bond underwritten by a third-party insurance company in the amount of
$74.5 million
in February 2008. On May 30, 2012, the District Court ordered the amount of the surety bond reduced to
$66.6 million
.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Pricing and Medicaid Litigation
Dey L.P. (now known as Mylan Specialty L.P. and herein as “
Mylan Specialty
”), a wholly owned subsidiary of the Company, was named as a defendant in several class actions brought by consumers and third-party payors. Mylan Specialty reached a settlement of these class actions, which was approved by the court and all claims have been dismissed. Additionally, a complaint was filed under seal by a plaintiff on behalf of the United States of America against
Mylan Specialty
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
Mylan Specialty
was jointly liable with a co-defendant and sought recovery of alleged overpayments, together with treble damages, civil penalties and equitable relief.
Mylan Specialty
completed a settlement of this action in December 2010. These cases all have generally alleged that
Mylan Specialty
falsely reported certain price information concerning certain drugs marketed by
Mylan Specialty
, that
Mylan Specialty
caused false claims to be made to Medicaid and to Medicare, and that Mylan Specialty 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 the claims in the preceding paragraph 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 Company’s Consolidated Statements of Operations. At
March 31, 2016
, the Company has accrued approximately
$63.3 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 Mylan Specialty’s known claims with respect to this pricing litigation have been settled.
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 U.S. District Court for 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. These actions allege violations of federal antitrust and state laws in connection with the generic defendants’ settlement of patent litigation with Cephalon relating to modafinil. Discovery has closed. On June 23, 2014, the court granted the defendants’ motion for partial summary judgment (and denied the corresponding plaintiffs’ motion) dismissing plaintiffs’ claims that the defendants had engaged in an overall conspiracy to restrain trade. On January 28, 2015, the District Court denied the defendants’ summary judgment motions based on factors identified in the Supreme Court’s
Actavis
decision. On June 1, 2015, the District Court denied the indirect purchaser plaintiffs’ motion for class certification. The indirect purchaser plaintiffs filed a petition for leave to appeal the certification decision, which was denied by the Court of Appeals for the Third Circuit on December 21, 2015. On July 27, 2015, the District Court granted the direct purchaser plaintiffs’ motion for class certification. On October 9, 2015, the Third Circuit granted defendants’ petition for leave to appeal the class certification decision. On October 16, 2015, defendants filed a motion to stay the liability trial, which had been set to begin on February 2, 2016, with the District Court pending the appeal of the decision to certify the direct purchaser class; this motion was denied on December 17, 2015. On December 17, 2015, the District Court approved the form and manner of notice to the certified class of direct purchasers; the notice was subsequently issued to the class. On December 21, 2015, the defendants filed a motion to stay with the Court of Appeals for the Third Circuit, which was granted on January 25, 2016; the trial is now stayed and the case has been placed in suspense. The appeal was fully briefed on April 28, 2016 and remains pending. On March 24, 2015, Mylan reached a settlement in principle with the putative indirect purchasers and on November 20, 2015, Mylan entered into a settlement agreement with the putative indirect purchasers. Plaintiffs have not yet moved for preliminary approval of that settlement. At
March 31, 2016
, the Company has accrued approximately
$16.0 million
related to this settlement. On June 29, 2015, the City of Providence, Rhode Island filed suit against the same parties named as defendants in litigation pending in the Eastern District of Pennsylvania, including Mylan, asserting state law claims based on the same underlying allegations. All defendants, including Mylan, moved to dismiss the suit on October 15, 2015. The motion is now fully briefed. On July 10, 2015, the Louisiana Attorney General filed a petition against Mylan and
three
other drug manufacturers asserting state law claims based on the same underlying allegations as those made in litigation pending in the Eastern District of Pennsylvania. Mylan’s declinatory exception of no personal jurisdiction and peremptory exceptions of no cause of action, no right of action and prescription are pending. A hearing on the exception is scheduled for May 16, 2016. On April 20, 2016, the State of Louisiana filed a motion to consolidate the pending action with
four
other actions against other pharmaceutical manufacturers concerning products not related to modafinil. Mylan is preparing a response.
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,
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
2007, the FTC issued a subpoena, and on April 26, 2007, the FTC issued a civil investigative demand to Mylan, requesting additional information from the Company relating to the investigation. Mylan has cooperated fully with the government’s 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 was subsequently 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 has responded to the subpoena. The lawsuit against Cephalon settled and a Stipulated Order for Permanent Injunction and Equitable Monetary Relief was entered by the Court on June 17, 2015.
Minocycline
Beginning in July 2013, Mylan and
Mylan Laboratories Limited
, along with other drug manufacturers, were named as defendants in civil lawsuits filed by a variety of plaintiffs in the U.S. District Court for the Eastern District of Pennsylvania, the District of Arizona, and the District of Massachusetts. Those lawsuits were consolidated in the U.S. District Court for the District of Massachusetts. The plaintiffs purport to represent direct and indirect purchasers of branded or generic Solodyn®, and assert violations of federal and state laws, including allegations in connection with separate settlements by Medicis with each of the other defendants of patent litigation relating to generic Solodyn®. Plaintiffs’ consolidated amended complaint was filed on September 12, 2014. Mylan and Mylan Laboratories Limited are no longer named defendants in the consolidated amended complaint.
Pioglitazone
Beginning in December 2013, Mylan, Takeda, and several other drug manufacturers have been named as defendants in civil lawsuits consolidated in the U.S. District Court for the Southern District of New York by plaintiffs which purport to represent indirect purchasers of branded or generic Actos® and Actoplus Met®. These actions allege violations of state and federal competition laws in connection with the defendants’ settlements of patent litigation in 2010 relating to Actos and Actoplus Met®. Plaintiffs filed an amended complaint on August 22, 2014. Mylan and the other defendants filed motions to dismiss the amended complaint on October 10, 2014.
Two
additional complaints were subsequently filed by plaintiffs purporting to represent classes of direct purchasers of branded or generic Actos® and Actoplus Met®. On September 23, 2015, the District Court granted defendants’ motions to dismiss the indirect purchasers amended complaints with prejudice. The indirect purchasers filed a notice of appeal on October 22, 2015; however they have since abandoned and dismissed their appeal of the District Court’s dismissal of claims asserted against Mylan. The putative direct purchaser class filed an amended complaint on January 8, 2016. Defendants’ motion to dismiss was filed on January 28, 2016 and the briefing has been completed and a decision is pending.
Shareholders Class Action
On June 11, 2015, City of Riviera Beach General Employees Retirement System and Doris Arnold (collectively, the “
Riviera
Plaintiffs”) filed a purported class action complaint against Mylan and directors of Mylan Inc. (the “Directors”) in the Washington County, Pennsylvania, Court of Common Pleas (the “Pennsylvania Court”), on behalf of certain former shareholders of Mylan Inc. The complaint alleged both breach of fiduciary duty by the Directors and breach of contract by Mylan and the Directors, relating to certain public disclosures made in connection with the
EPD Transaction
and the organization of, and Call Option Agreement with, the Foundation. The
Riviera
Plaintiffs asked the Pennsylvania Court to: find that the Directors breached their fiduciary duties and that Mylan and the Directors breached the purported contract, rescind the vote of Mylan Inc.’s former shareholders approving the
EPD Transaction
, award compensatory damages and award Plaintiffs their costs relating to the lawsuit. On June 22, 2015, Mylan and the Directors removed the case to the U.S. District Court for the Western District of Pennsylvania (the “District Court”). The
Riviera
Plaintiffs filed an amended complaint in the District Court on July 10, 2015, that included the same basic causes of action and requested relief, dropped allegations against some of the Directors named in the original complaint and asserted the breach of contract claim not on behalf of a purported class of former shareholders of Mylan Inc. but on behalf of a purported subclass of such shareholders who held shares of Mylan continuously for a specified period following consummation of the
EPD Transaction
. On July 21, 2015, a second purported class action complaint against the same defendants, asserting the same basic claims and requesting the same basic relief on behalf of the same purported class and subclass, was filed by a different plaintiff in the District Court. On August 28, 2015, the District Court consolidated the
two
actions, and, on September 4, 2015, the plaintiffs in the consolidated action filed a consolidated amended complaint (the “Consolidated Amended Complaint”) against the same defendants, asserting the same basic claims and requesting the same basic relief on behalf of the same purported class and subclass, but asserting the breach of contract claim against only Mylan. On September 30, 2015,
two
of the plaintiffs in the consolidated action filed a motion for partial summary judgment, on the breach of contract claim against Mylan (the “Motion for Partial Summary Judgment”). On October 23, 2015,
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
the District Court approved the voluntary dismissal of a third purported class action, commenced on August 28, 2015 against Mylan and the Directors, alleging federal securities and breach of contract claims against all defendants and breach of fiduciary duty claims against the Directors, all arising out of the same basic alleged facts and requesting the same basic relief on behalf of certain former shareholders of Mylan Inc. On November 25, 2015, the defendants filed a Motion to Dismiss the Consolidated Amended Complaint, and Mylan filed an Opposition to the Motion for Partial Summary Judgment and a Motion to Deny Summary Judgment. On December 21, 2015, the District Court consolidated the action with a fourth purported class action, commenced November 24, 2015 by, among others, the plaintiff in the third action, against the same defendants, alleging only breach of contract arising out of the same basic alleged facts, and requesting the same basic relief on behalf of certain former shareholders of Mylan Inc. In consolidating the actions, the District Court ordered, among other things, that the Consolidated Amended Complaint would remain the operative complaint in the consolidated action and that the Motion for Partial Summary Judgment, Motion to Dismiss and Motion to Deny Summary Judgment were not disturbed by the consolidation. The briefing regarding the
three
motions was completed on January 15, 2016. We believe that the claims in this lawsuit are without merit and intend to continue to defend against them vigorously.
SEC Investigation
On September 10, 2015, Mylan N.V. received a subpoena from the SEC seeking documents with regard to certain related party matters. Mylan is cooperating with the SEC in its investigation, and we are unable to predict the outcome of this matter at this time.
Drug Pricing Matters
Department of Justice/Connecticut
Subpoenas
On December 3, 2015, a subsidiary of Mylan N.V. received a subpoena from the Antitrust Division of the U.S. Department of Justice (“DOJ”) seeking information relating to the marketing, pricing, and sale of our generic Doxycycline products and any communications with competitors about such products. The Company is fully cooperating with DOJ’s inquiry.
On December 21, 2015, the Company received a subpoena and interrogatories from the Connecticut Office of the Attorney General seeking information relating to the marketing, pricing and sale of certain of the Company’s generic products (including Doxycycline) and communications with competitors about such products. The Company is fully cooperating with Connecticut’s inquiry.
United States District Court for the Eastern District of Pennsylvania Litigation
Beginning in March 2016,
seven
putative class action complaints have been filed in the United States District Court for the Eastern District of Pennsylvania by indirect purchasers against Mylan Inc., Mylan Pharmaceuticals Inc. and other pharmaceutical manufacturers, alleging conspiracies to fix, raise, maintain and stabilize the prices of certain Doxycycline and Digoxin products and to allocate markets and customers for those products. Mylan and its subsidiary intend to deny liability and to defend these actions vigorously.
European Commission Proceedings
Perindopril
On or around July 8, 2009, the European Commission (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 European Economic Area Agreement by Les Laboratoires Servier (“Servier”) as well as possible infringement of Article 81 EC by the Company’s Indian subsidiary,
Mylan Laboratories Limited
, and
four
other companies, each of which entered into agreements with Servier relating to the product Perindopril. On July 30, 2012, the Commission issued a Statement of Objections to Servier SAS, Servier Laboratories Limited, Les Laboratories Servier, Adir, Biogaran, Krka, d.d. Novo mesto, Lupin Limited,
Mylan Laboratories Limited
, Mylan, Niche Generics Limited, Teva UK Limited, Teva Pharmaceutical Industries Ltd., Teva Pharmaceuticals Europe B.V. and Unichem Laboratories Limited. Mylan Inc. and
Mylan Laboratories Limited
filed responses to the Statement of Objections. On
July 9, 2014
, the Commission issued a decision finding that
Mylan Laboratories Limited
and Mylan, as well as the companies noted above (with the exception of Adir, a subsidiary of Servier), had violated European Union competition rules and fined
Mylan Laboratories Limited
approximately
€17.2 million
, including approximately
€8.0 million
jointly and severally with Mylan Inc.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
The Company paid approximately
$21.7 million
related to this matter during the fourth quarter of 2014. In September 2014, the Company filed an appeal of the Commission’s decision to the General Court of the European Union. The briefing on appeal is complete and we are awaiting the scheduling of the hearing date.
Citalopram
On March 19, 2010, Mylan and
Generics [U.K.] Limited
, a wholly owned subsidiary of the Company, received notice that the Commission had opened proceedings against Lundbeck with respect to alleged unilateral practices and/or agreements related to Citalopram in the European Economic Area. On July 25, 2012 a Statement of Objections was issued to Lundbeck, Merck KGaA,
Generics [U.K.] Limited
, Arrow, Resolution Chemicals, Xelia Pharmaceuticals, Alpharma, A.L. Industrier and Ranbaxy.
Generics [U.K.] Limited
filed a response to the Statement of Objections and vigorously defended itself against allegations contained therein. On June 19, 2013, the Commission issued a decision finding that
Generics [U.K.] Limited
, as well as the companies noted above, had violated European Union competition rules and fined
Generics [U.K.] Limited
approximately
€7.8 million
, jointly and severally with Merck KGaA.
Generics [U.K.] Limited
has appealed the Commission’s decision to the General Court of the EU. Briefing on the appeal has been completed and a hearing took place on October 8, 2015. The Company has accrued approximately
$9.5 million
and
$9.8 million
as of
March 31, 2016
and
December 31, 2015
, respectively, related to this matter. It is reasonably possible that we will incur additional losses above the amount accrued but we cannot estimate a range of such reasonably possible losses at this time. There are no assurances, however, that settlements reached and/or adverse judgments received, if any, will not exceed amounts accrued.
Generics [U.K.] Limited
has also sought indemnification from Merck KGaA with respect to the
€7.8 million
portion of the fine for which Merck KGaA and
Generics [U.K.] Limited
were held jointly and severally liable. Merck KGaA has counterclaimed against
Generics [U.K.] Limited
seeking the same indemnification.
U.K. Competition and Markets Authority
Paroxetine
On August 12, 2011,
Generics [U.K.] Limited
received notice that the Office of Fair Trading (subsequently changed to the Competition and Markets Authority (the “CMA”)) was opening an investigation to explore the possible infringement of the Competition Act 1998 and Articles 101 and 102 of the Treaty on the Functioning of the European Union, with respect to alleged agreements related to Paroxetine. On April 19, 2013, a Statement of Objections was issued to Beecham Group plc, GlaxoSmithKline UK Limited, GlaxoSmithKline plc and SmithKline Beecham Limited (formerly, SmithKline Beecham plc) (together, "GlaxoSmithKline"),
Generics [U.K.] Limited
, Merck KGaA, Actavis UK Limited (formerly, Alpharma Limited), Xellia Pharmaceuticals ApS (formerly, Alpharma ApS) and Alpharma LLC (formerly, Zoetis Products LLC, Alpharma LLC, and Alpharma Inc.) (together, "Alpharma"), and Ivax LLC (formerly, Ivax Corporation) and Norton Healthcare Limited (which previously traded as Ivax Pharmaceuticals UK) (together, "Ivax").
Generics [U.K.] Limited
filed a response to the Statement of Objections, defending itself against the allegations contained therein. The CMA issued a Supplementary Statement of Objections (“SSO”) to the above-referenced parties on October 21, 2014 and a hearing with regard to the SSO took place on December 19, 2014. The CMA issued a decision on February 12, 2016, finding that GlaxoSmithKline,
Generics [U.K.] Limited
, Merck KGaA and Alpharma, were liable for infringing EU and U.K. competition rules. With respect to Merck KGaA and
Generics [U.K.] Limited
, the CMA issued a penalty of approximately
£5.8 million
, for which Merck KGaA is liable for the entire amount; and of that amount
Generics [U.K.] Limited
is jointly and severally liable for approximately
£2.7 million
, which was accrued for at
March 31, 2016
.
Generics [U.K.] Limited
has appealed the decision.
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 but not limited to its Fentanyl Transdermal System, Phenytoin, Propoxyphene and Alendronate. 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. The Company has accrued approximately
$9.5 million
at
March 31, 2016
and
December 31, 2015
. It is reasonably possible that we will incur additional losses and fees above the amount accrued but we cannot estimate a range of such reasonably possible losses or legal fees related to these claims at this time. There are no assurances, however, that settlements reached and/or adverse judgments received, if any, will not exceed amounts accrued.
MYLAN N.V. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
Intellectual Property
In certain situations, the Company has used its business judgment to decide to market and sell products, notwithstanding the fact that allegations of patent infringement(s) or other potential third party rights have not been finally resolved by the courts. The risk involved in doing so can be substantial because the remedies available to the owner of a patent for infringement may include, a reasonable royalty on sales or damages measured by the profits lost by the patent owner. In the case of willful infringement, the definition of which is partially subjective, such damages may be increased up to
three
times. 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 could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or ordinary share price.
Other Litigation
The Company is involved in various other legal proceedings that are considered normal to its business, including but not limited to certain proceedings assumed as a result of the acquisition of the former Merck Generics business, Agila and the
EPD Business
. The Company has approximately
$10 million
accrued related to these various other legal proceedings. While it is not possible to predict the ultimate outcome of such other proceedings, the ultimate outcome of any such proceeding is not currently expected to be material to the Company’s business, financial condition, results of operations, cash flows and/or ordinary share price.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis addresses material changes in the financial condition and results of operations of
Mylan N.V.
and subsidiaries for the periods presented. Unless context requires otherwise, the “Company”, “Mylan”, “our”, or “we” refer to Mylan N.V. and its subsidiaries. This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements
, the related
Notes to Consolidated Financial Statements
and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in
Mylan N.V.
’s Annual Report on Form 10-K for the year ended
December 31, 2015
, as amended, the unaudited
interim 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, 2016
and cash flows for the
three months ended March 31, 2016
are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.
This Form 10-Q contains “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 the proposed acquisition of
Meda AB
(publ.) (“
Meda
”) by Mylan (the “
Meda Transaction
”), Mylan’s related public offer to the shareholders of Meda to acquire all of the outstanding shares of Meda (the “
Offer
”), Mylan’s acquisition (the “
EPD Transaction
”) of Mylan Inc. and
Abbott Laboratories
’ (“
Abbott
”) non-U.S. developed markets specialty and branded generics business (the “
EPD Business
”), the potential benefits and synergies of the
EPD Transaction
and the
Meda Transaction
, future opportunities for Mylan,
Meda
, or the combined company and products, and any other statements regarding Mylan’s,
Meda
’s, or the combined company’s future operations, anticipated business levels, future earnings, planned activities, anticipated growth, market opportunities, strategies, competition, and other expectations and targets for future periods. These may often be identified by the use of words such as “will,” “may,” “could,” “should,” “would,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue,” “target” and variations of these words or comparable words. Because forward-looking statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: uncertainties related to the
Meda Transaction
, including as to the timing of the
Meda Transaction
, uncertainties as to whether Mylan will be able to complete the
Meda Transaction
, the possibility that competing offers will be made, the possibility that certain conditions to the completion of the
Offer
will not be satisfied, and the possibility that Mylan will be unable to obtain regulatory approvals for the
Meda Transaction
or be required, as a condition to obtaining regulatory approvals, to accept conditions that could reduce the anticipated benefits of the
Meda Transaction
; the ability to meet expectations regarding the accounting and tax treatments of the
EPD Transaction
and the
Meda Transaction
; changes in relevant tax and other laws, including but not limited to changes in the U.S. tax code and healthcare and pharmaceutical laws and regulations in the U.S. and abroad; the integration of the
EPD Business
and
Meda
being more difficult, time-consuming, or costly than expected; operating costs, customer loss, and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients, or suppliers) being greater than expected following the
EPD Transaction
and the
Meda Transaction
; the retention of certain key employees of the
EPD Business
and
Meda
being difficult; the possibility that Mylan may be unable to achieve expected synergies and operating efficiencies in connection with the
EPD Transaction
and the
Meda Transaction
within the expected time-frames or at all and to successfully integrate the
EPD Business
and
Meda
; expected or targeted future financial and operating performance and results; the capacity to bring new products to market, including but not limited to where Mylan uses its business judgment and decides to manufacture, market, and/or sell products, directly or through third parties, notwithstanding the fact that allegations of patent infringement(s) have not been finally resolved by the courts (i.e., an “at-risk launch”); any regulatory, legal, or other impediments to Mylan’s ability to bring new products to market;
success of clinical trials and Mylan’s ability to execute on new product opportunities; any changes in or difficulties with our inventory of, and our ability to manufacture and distribute, the
EpiPen® Auto-Injector
to meet anticipated demand; the scope, timing, and outcome of any ongoing legal proceedings and the impact of any such proceedings on financial condition, results of operations, and/or cash flows; the ability to protect intellectual property and preserve intellectual property rights; the effect of any changes in customer and supplier relationships and customer purchasing patterns; the ability to attract and retain key personnel; changes in third-party relationships; the impact of competition; changes in the economic and financial conditions of the businesses of Mylan, Meda, or the combined company; the inherent challenges, risks, and costs in identifying, acquiring, and integrating complementary or strategic acquisitions of other companies, products, or assets and in achieving anticipated synergies; uncertainties and matters beyond the control of management; and inherent uncertainties involved in the estimates and judgments used in the preparation of financial statements, and the providing of estimates of financial measures, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and related standards or on an adjusted basis. For more detailed information on the risks and uncertainties associated with Mylan’s business activities, see the risks described in Mylan N.V.’s Annual Report on Form 10-K
for the year ended December 31, 2015, as amended, this Quarterly Report on Form 10-Q for the quarter ended
March 31, 2016
, and our other filings with the SEC. These risks and uncertainties also include those risks and uncertainties that are discussed in the offer document that has been filed with the Swedish Financial Supervisory Authority (“SFSA”) and will be published by Mylan upon approval by the SFSA (the “Offer Document”), the Registration Statement on Form S-4 filed with the SEC on April 11, 2016 (as amended from time to time, the “Registration Statement”) and the EU Prospectus that has been filed with the Netherlands Authority for the Financial Markets (“AFM”) and will be published by Mylan upon approval by the AFM (the “EU Prospectus”).You can access Mylan’s filings with the SEC through the SEC website at www.sec.gov, and Mylan strongly encourages you to do so. Mylan undertakes no obligation to update any statements herein for revisions or changes after the filing date of this Form 10-Q.
ADDITIONAL INFORMATION
In connection with the Offer, the Offer Document has been filed with the SFSA and will be published by Mylan upon approval by the SFSA. In addition, Mylan has filed certain materials with the SEC, including, among other materials, the Registration Statement. An EU Prospectus has been filed with the AFM and will be published by Mylan upon approval by the AFM. This Form 10-Q is not intended to be, and is not, a substitute for such documents or for any other document that Mylan may file with the SFSA, the SEC, the AFM or any other competent EU authority in connection with the Offer. This Form 10-Q contains advertising materials (reclame-uitingen) in connection with the Offer as referred to in Section 5:20 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). INVESTORS AND SECURITYHOLDERS OF MEDA ARE URGED TO READ ANY DOCUMENTS FILED WITH THE SFSA, THE SEC AND THE AFM OR ANY OTHER COMPETENT EU AUTHORITY CAREFULLY AND IN THEIR ENTIRETY BEFORE MAKING AN INVESTMENT DECISION BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT MYLAN, MEDA AND THE OFFER. Such documents are or upon publication will be available free of charge through the website maintained by the SEC at www.sec.gov, on Mylan’s website at medatransaction.mylan.com or, to the extent filed with the AFM, through the website maintained by the AFM at www.afm.nl, or by directing a request to Mylan at +1 724-514-1813 or investor.relations@mylan.com. Any materials filed by Mylan with the SFSA, the SEC, the AFM or any other competent EU authority that are required to be mailed to Meda shareholders will also be mailed to such shareholders.
Executive Overview
Mylan is a leading global pharmaceutical company, which develops, licenses, manufactures, markets and distributes generic, branded generic and specialty pharmaceuticals. Mylan is committed to setting new standards in healthcare by creating better health for a better world, and our mission is to provide the world’s
7 billion
people access to high quality medicine. To do so, we innovate to satisfy unmet needs; make reliability and service excellence a habit; do what’s right, not what’s easy; and impact the future through passionate global leadership.
Mylan offers one of the industry’s broadest product portfolios, including
more than
1,400
marketed products, to customers in
approximately
165
countries and territories. We operate a global, high quality vertically-integrated manufacturing platform, which includes
more than
50
manufacturing and research and development (“R&D”) facilities around the world and one of the world’s largest active pharmaceutical ingredient (“API”) operations. We also operate a strong R&D network that has consistently delivered a robust product pipeline. Additionally, Mylan has a specialty business that is focused on respiratory and allergy therapies.
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. Our generic pharmaceutical business is conducted primarily in the United States (“U.S.”), Canada and Brazil (collectively, “North America”); Europe; and India, Australia, Japan and New Zealand as well as our export activity into emerging markets (collectively, “Rest of World”). Beginning in 2016, revenue from the Company’s Brazilian operation is included in the North America region. All prior period revenue from the Company’s Brazilian operations have been recast from the Rest of World region to the North America region to conform to the presentation for the current period. This change had no impact on Mylan's segment reporting. Our API business is conducted through Mylan Laboratories Limited (“Mylan India”), which is included within Rest of World in our Generics segment. Specialty engages mainly in the development and sale of branded specialty injectable and nebulized products. We also report in Corporate/Other certain R&D 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.
Refer to Note
4
Acquisitions and Other Transactions
in Item 1.
Notes to Condensed Consolidated Financial Statements
for significant recent events, including acquisitions and other transactions.
Financial Summary
For the
three months ended March 31, 2016
, Mylan reported total revenues of
$2.19 billion
, compared to
$1.87 billion
for the
three months ended March 31, 2015
. This represents
an increase
in revenues of
$319.6 million
, or
17.1%
. Consolidated gross profit for the current quarter was
$907.0 million
, compared to
$830.1 million
in the comparable prior year period,
an increase
of
$76.9 million
, or
9.3%
. For the current quarter, earnings from operations were
$105.6 million
, compared to
$159.3 million
for the
three months ended March 31, 2015
,
a decrease
of
$53.7 million
, or
33.7%
.
Net earnings
attributable to
Mylan N.V.
ordinary shareholders
decreased
$42.7 million
, or
75.4%
, to
$13.9 million
for the three months ended
March 31, 2016
, compared to
$56.6 million
for the prior year comparable period. Diluted earnings per ordinary share attributable to
Mylan N.V.
ordinary shareholders
decreased
from
$0.13
to
$0.03
for the
three months ended March 31, 2016
compared to the prior year period, as a result of higher operating expenses, including amortization expense related to acquisitions completed during 2015.
A detailed discussion of the Company’s financial results can be found below in the section titled “Results of Operations.” As part of this discussion, we also report sales performance using the non-GAAP financial measure of “constant currency” third party net sales and total revenues. This measure provides information on the change in net sales assuming that foreign currency exchange rates had not changed between the prior and current period. The comparisons presented at constant currency rates reflect comparative local currency sales at the prior year's foreign exchange rates. We routinely evaluate our third party net sales performance at constant currency so that sales results can be viewed without the impact of foreign currency exchange rates, thereby facilitating a period-to-period comparison of our operational activities, and believe that this presentation also provides useful information to investors for the same reason. The following table compares third party net sales on an actual and constant currency basis for each reportable segment and the geographic regions within the Generics segment and consolidated total revenues on an actual and constant currency basis for the
three months ended
March 31, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
(In millions)
|
2016
|
|
2015
|
|
% Change
|
|
2016 Currency Impact
(1)
|
|
2016 Constant Currency Revenues
(2)
|
|
% Change
|
Generics:
|
|
|
|
|
|
|
|
|
|
|
|
Third party net sales
|
|
|
|
|
|
|
|
|
|
|
|
North America
(3)
|
$
|
919.7
|
|
|
$
|
855.0
|
|
|
8
|
%
|
|
$
|
7.3
|
|
|
$
|
927.0
|
|
|
8
|
%
|
Europe
|
587.7
|
|
|
406.2
|
|
|
45
|
%
|
|
7.9
|
|
|
595.6
|
|
|
47
|
%
|
Rest of World
(3)
|
420.8
|
|
|
382.3
|
|
|
10
|
%
|
|
17.3
|
|
|
438.1
|
|
|
15
|
%
|
Total third party net sales
|
1,928.2
|
|
|
1,643.5
|
|
|
17
|
%
|
|
32.5
|
|
|
1,960.7
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other third party revenues
|
8.6
|
|
|
11.6
|
|
|
(26
|
)%
|
|
0.3
|
|
|
8.9
|
|
|
(24
|
)%
|
Total third party revenues
|
1,936.8
|
|
|
1,655.1
|
|
|
17
|
%
|
|
32.8
|
|
|
1,969.6
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
2.6
|
|
|
1.5
|
|
|
73
|
%
|
|
—
|
|
|
2.6
|
|
|
73
|
%
|
Generics total revenues
|
1,939.4
|
|
|
1,656.6
|
|
|
17
|
%
|
|
32.8
|
|
|
1,972.2
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty:
|
|
|
|
|
|
|
|
|
|
|
|
Third party net sales
|
247.9
|
|
|
211.1
|
|
|
17
|
%
|
|
—
|
|
|
247.9
|
|
|
17
|
%
|
Other third party revenues
|
6.6
|
|
|
5.5
|
|
|
20
|
%
|
|
—
|
|
|
6.6
|
|
|
20
|
%
|
Total third party revenues
|
254.5
|
|
|
216.6
|
|
|
17
|
%
|
|
—
|
|
|
254.5
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
3.4
|
|
|
2.0
|
|
|
70
|
%
|
|
—
|
|
|
3.4
|
|
|
70
|
%
|
Specialty total revenues
|
257.9
|
|
|
218.6
|
|
|
18
|
%
|
|
—
|
|
|
257.9
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of intersegment sales
|
(6.0
|
)
|
|
(3.5
|
)
|
|
(71
|
)%
|
|
(0.1
|
)
|
|
(6.1
|
)
|
|
(74
|
)%
|
Consolidated total revenues
|
$
|
2,191.3
|
|
|
$
|
1,871.7
|
|
|
17
|
%
|
|
$
|
32.7
|
|
|
$
|
2,224.0
|
|
|
19
|
%
|
____________
|
|
(1)
|
Currency impact is shown as unfavorable (favorable).
|
|
|
(2)
|
The constant currency revenue change is derived by translating third party net sales for the current period at prior year comparative period exchange rates.
|
|
|
(3)
|
Beginning in the first quarter of 2016, the Company reclassified sales from its Brazilian operation from the Rest of World region to the North America region. The amount reclassified for the three months ended March 31, 2015 was approximately $10.2 million.
|
More information about non-GAAP measures used by the Company as part of this discussion, including Adjusted Cost of Sales, Adjusted Gross Margins, Adjusted Earnings and Adjusted EPS can be found in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Use of Non-GAAP Financial Measures.”
Results of Operations
Three Months Ended
March 31, 2016
, Compared to Three Months Ended
March 31, 2015
Total Revenues and Gross Profit
For the current quarter, Mylan reported total revenues of
$2.19 billion
, compared to
$1.87 billion
for the comparable prior year period. Total revenues include both net sales and other revenues from third parties. Third party net sales for the
current quarter were
$2.18 billion
, compared to
$1.85 billion
for the comparable prior year period, representing
an increase
of
$321.5 million
, or
17.3%
. Other third party revenues for the current quarter were
$15.2 million
, compared to
$17.1 million
for the comparable prior year period,
a decrease
of
$1.9 million
.
Mylan’s current quarter revenues were unfavorably impacted by the effect of foreign currency translation, primarily reflecting changes in the U.S. Dollar as compared to the currencies of Mylan’s subsidiaries in Europe, India, and Australia. The unfavorable impact of foreign currency translation on current period total revenues was approximately
$33 million
, or
2%
. As such, constant currency total revenues increased approximately
$352 million
, or
19%
. The increase in constant currency total revenues was the result of constant currency third party net sales growth in Generics of
19%
, and Specialty of
17%
. The impact in the
first quarter
of
2016
from the additional two months of net sales from the
EPD Business
(“incremental EPD Business sales”) compared to the first quarter of 2015, and to a lesser extent, other acquisitions and net sales from products launched since April 1, 2015 (“new products”), totaled approximately
$414.8 million
. On a constant currency basis, net sales from existing products
decreased
approximately
$60 million
as a result of a
decrease
in pricing of approximately
$62 million
, partially offset by an
increase
in volume of approximately
$2 million
.
Cost of sales for the three months ended
March 31, 2016
was
$1.28 billion
, compared to
$1.04 billion
for the comparable prior year period. Cost of sales for the current quarter was impacted by purchase accounting related amortization of acquired intangible assets of approximately
$243.6 million
, acquisition related costs of approximately
$18.5 million
and restructuring and other special items of approximately
$15.2 million
as described further in the section titled
Use of Non-GAAP Financial Measures.
The prior year comparable period cost of sales included similar purchase accounting related amortization of approximately
$140.2 million
, acquisition related costs of approximately
$12.3 million
and restructuring and other special items of approximately
$8.0 million
. The
increase
in current year purchase accounting related items is principally the result of an additional two months of amortization expense related to the
EPD Business
and other prior year acquisitions and transactions. Excluding the amounts related to purchase accounting amortization, acquisition related costs and restructuring and other special items, Adjusted Cost of Sales in the current quarter
increased
to
$1.01 billion
from
$881.1 million
, corresponding with the increase in sales.
Gross profit for the three months ended
March 31, 2016
was
$907.0 million
, and gross margins were
41.4%
. For the three months ended
March 31, 2015
, gross profit was
$830.1 million
, and gross margins were
44.4%
. The decrease in gross margins relates principally to the additional amortization expense described above. Excluding the purchase accounting amortization, acquisition related costs and restructuring and other special items discussed in the preceding paragraph, Adjusted Gross Margins were approximately
54%
for the three months ended
March 31, 2016
, as compared to approximately
53%
for the three months ended
March 31, 2015
. Adjusted Gross Margins were positively impacted in the current quarter by approximately
110
basis points as a result of the incremental contribution from the EPD Business in the first quarter of 2016 and new product introductions by approximately
80
basis points, partially offset by decreased margins on existing products in North America.
From time to time, a limited number of our products may represent a significant portion of our net sales, 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
26%
and
27%
of the Company’s total revenues for the three months ended
March 31, 2016
and
2015
, respectively.
Generics Segment
For the current quarter, Generics third party net sales were
$1.93 billion
, compared to
$1.64 billion
for the comparable prior year period,
an increase
of
$284.7 million
, or
17.3%
. In the Generics segment, the unfavorable impact of foreign currency translation on current period third party net sales was approximately
$33 million
, or
2%
. As such, constant currency third party net sales
increased
by approximately
$317 million
, or
19%
when compared to the prior year period.
Third party net sales from North America were
$919.7 million
for the current quarter, compared to
$855.0 million
for the comparable prior year period, representing
an increase
of
$64.7 million
, or
7.6%
. The
unfavorable
impact of foreign currency translation on current period third party net sales was approximately
$7.3 million
, or
1%
within North America. As such, constant currency third party net sales
increased
by approximately
$72 million
, or
8%
when compared to the prior year period. The
increase
in current quarter third party net sales was principally due to net sales from new products, and to a lesser extent, the incremental
EPD Business
sales, totaling approximately
$135 million
, offset by lower pricing and volumes on existing products.
Products generally contribute most significantly to revenues and gross margins 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 the Company’s financial results. The entrance into the market of additional competition generally has a negative impact on the volume and pricing of the affected products. Additionally, pricing is often affected by factors outside of the Company’s control.
Third party net sales from Europe were
$587.7 million
for the three months ended
March 31, 2016
, compared to
$406.2 million
for the comparable prior year period,
an increase
of
$181.5 million
, or
44.7%
. The
unfavorable
impact of foreign currency translation on current period third party net sales was approximately
$8 million
, or
2%
within Europe. As such, constant currency third party net sales
increased
by approximately
$189 million
, or
47%
when compared to the prior year period. This
increase
was primarily the result of the incremental
EPD Business
sales, and to a lesser extent, net sales from new products, totaling approximately
$191 million
in the
first quarter
of
2016
. Higher volumes on existing products, primarily in France, were offset by lower pricing throughout Europe as a result of government-imposed pricing reductions and competitive market conditions.
Constant currency net sales from Mylan’s business in France increased compared to the prior year period as a result of the incremental
EPD Business
sales, higher volumes on existing products, and to a lesser extent, new product introductions. Our market share in France increased in the
first quarter
of
2016
and we remain the market leader. In Italy, constant currency third party net sales increased compared to the prior year period as a result of the incremental
EPD Business
sales, which was partially offset by decreased sales of existing products as a result of lower pricing.
In addition to France and Italy, certain other markets in which we do business, including Spain, have 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, government initiatives in certain markets that appear to favor generic products could help to mitigate this unfavorable effect by increasing rates of generic substitution and penetration.
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 sales and profitability. Under such tender systems, manufacturers submit bids that establish prices for generic pharmaceutical products. Upon winning the tender, the winning company will receive 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. 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 continue to be negatively affected by the impact of tender systems.
In Rest of World, third party net sales were
$420.8 million
for the three months ended
March 31, 2016
, compared to
$382.3 million
for the comparable prior year period,
an increase
of
$38.5 million
, or
10.1%
. The
unfavorable
impact of foreign currency translation on current period third party net sales was approximately
$18 million
, or
5%
. As such, constant currency third party net sales
increased
by approximately
$56 million
, or
15%
. This increase was primarily driven by the impact of the incremental
EPD Business
sales and sales by
Jai Pharma Limited
, and to a lesser extent, new product launches across the region, totaling
$89 million
, as well as higher volumes in Japan and Australia. These increases were partially offset by lower pricing throughout the region and a decrease in third party net sales volumes from our operations in India, in particular, the anti-retroviral (“ARV”) franchise.
In addition to third party net sales, the Rest of World region also supplies FDF generic products and API to Mylan subsidiaries in conjunction with the Company’s vertical integration strategy. Intercompany sales recognized by Rest of World were approximately
$215.1 million
and
$158.9 million
in the three months ended
March 31, 2016
and
2015
, respectively. These intercompany sales eliminate within, and therefore are not included in, Generics or consolidated third party net sales.
In Japan and Australia, constant currency third party net sales increased as a result of the incremental
EPD Business
sales, higher volumes on existing products and net sales from new products. This increase was partially offset by a decline in pricing on existing products. As in Europe, both Australia and Japan have undergone government-imposed price reductions that 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 sales of
$247.9 million
,
an increase
of
$36.8 million
, or
17.4%
, from
$211.1 million
for the comparable prior year period. The
increase
was primarily the result of higher volumes of the
EpiPen® Auto-Injector
, which is used in the treatment of severe allergic reactions (anaphylaxis), and higher sales of the
Perforomist® Inhalation Solution
.
Operating Expenses
Research & Development Expense
R&D expense for the three months ended
March 31, 2016
was
$253.6 million
, compared to
$169.9 million
for the comparable prior year period,
an increase
of
$83.7 million
. In the first quarter of 2016, the Company made an upfront payment to Momenta for
$45 million
related to the collaboration agreement entered into on January 8, 2016. In addition, the Company incurred approximately
$15 million
of milestone payments related to the collaboration with Theravance Biopharma. In the prior year period, the Company incurred a
$15 million
upfront licensing payment related to the collaboration with Theravance Biopharma that was paid in the second quarter of 2015. The additional two months of expense related to the EPD Business in the current year increased R&D expense by approximately $9 million. R&D also
increased
due to the continued development of our respiratory, insulin and biologics programs.
Selling, General & Administrative Expense
Selling, general and administrative expense (“SG&A”) for the current quarter was
$549.3 million
, compared to
$483.2 million
for the comparable prior year period,
an increase
of
$66.1 million
. The increase in SG&A is primarily due to the additional two months of expense related to the EPD Business, which increased SG&A by approximately
$67 million
.
Litigation Settlements, Net
During the three months ended
March 31, 2016
and
2015
, the Company recorded a
$1.5 million
gain
, net, and a
$17.7 million
charge
, net, respectively, in the prior year period for litigation settlements. In the current year period, the gain was primarily related to the settlement of an intellectual property matter. In the prior year period, the charge was primarily related to the settlement of an antitrust matter.
Interest Expense
Interest expense for the three months ended
March 31, 2016
totaled
$70.3 million
, compared to
$79.5 million
for the three months ended
March 31, 2015
. The
decrease
is primarily due to lower non-cash interest related to the amortization of discounts as a result of the repayment of the Company’s Cash Convertible Notes in September 2015 and lower interest expense as a result of lower interest rates related to the refinancing of certain debt instruments in 2015. Non-cash interest, primarily made up of the amortization of the discounts and premiums totaled
$1.9 million
for the current quarter and
$7.9 million
for the comparable prior year period. Also included in interest expense is accretion of our contingent consideration liabilities related to certain acquisitions. The amount of accretion included in the current quarter was
$10.0 million
compared to
$9.2 million
for the comparable prior year period.
Other Expense, Net
Other expense, net
, was
$16.3 million
in the current quarter, compared to
$18.5 million
for the comparable prior year period.
Other expense, net
, includes losses from equity affiliates, foreign exchange gains and losses and interest and dividend income. In the
first quarter
of
2016
,
other expense, net
included foreign exchange gains of
$14.2 million
and other individually insignificant gains, offset by losses from equity affiliates of
$30.9 million
, principally related to the Company’s
clean energy investments
. In the
first quarter
of
2015
,
other expense, net
, included foreign exchange gains of
$3.7 million
and other individually insignificant gains, offset by losses from equity affiliates of
$24.7 million
, principally related to the Company’s
clean energy investments
.
Income Tax Provision
Income tax provision was a
provision
of
$5.1 million
for the three months ended
March 31, 2016
, compared to a tax
provision
of
$4.7 million
for the comparable prior year period. The effective tax rate was
26.8%
and
7.7%
for the
three months ended March 31, 2016
and
2015
, respectively. The effective tax rate for the
three months ended March 31, 2016
versus the comparable prior quarter period was impacted by the changing mix of income earned in jurisdictions with differing tax rates, and the revaluation of deferred tax assets and liabilities in countries and states that changed their statutory corporate tax rate.
Use of Non-GAAP Financial Measures
Whenever the Company uses non-GAAP financial measures, we provide a reconciliation of the non-GAAP financial measures to their most directly comparable U.S. GAAP financial measure. Investors and other readers are encouraged to review the related U.S. GAAP financial measures and the reconciliation of non-GAAP measures to their most directly comparable U.S. GAAP measure set forth below and should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with U.S. GAAP. Additionally, since these are not measures determined in accordance with U.S. GAAP, non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and, therefore, may not be comparable to the calculation of similar measures of other companies.
Adjusted Cost of Sales and Adjusted Gross Margin
We use the non-GAAP financial measure “Adjusted Cost of Sales” and the corresponding non-GAAP financial measure “Adjusted Gross Margin.” We believe that these non-GAAP financial measures are useful supplemental information for our investors and when considered together with our U.S. GAAP financial measures and the reconciliation to the most directly comparable U.S. GAAP financial measure, provide a more complete understanding of the factors and trends affecting our operations. The principal items excluded from Adjusted Cost of Sales include acquisition related items and restructuring and other special items, both of which are described in greater detail below.
A reconciliation between cost of sales, as reported under U.S. GAAP, and Adjusted Cost of Sales and Adjusted Gross Margin for the periods shown follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
(In millions)
|
2016
|
|
2015
|
U.S. GAAP cost of sales
|
$
|
1,284.3
|
|
|
$
|
1,041.6
|
|
Deduct:
|
|
|
|
Purchase accounting related amortization
|
(243.6
|
)
|
|
(140.2
|
)
|
Acquisition related costs
|
(18.5
|
)
|
|
(12.3
|
)
|
Restructuring & other special items
|
(15.2
|
)
|
|
(8.0
|
)
|
Adjusted cost of sales
|
$
|
1,007.0
|
|
|
$
|
881.1
|
|
|
|
|
|
Adjusted gross profit
(a)
|
$
|
1,184.3
|
|
|
$
|
990.6
|
|
|
|
|
|
Adjusted gross margin
(a)
|
54
|
%
|
|
53
|
%
|
____________
|
|
(a)
|
Adjusted Gross Profit is calculated as total revenues less Adjusted Cost of Sales. Adjusted Gross Margin is calculated as Adjusted Gross Profit divided by total revenues.
|
Adjusted Earnings and Adjusted EPS
Adjusted net earnings attributable to Mylan N.V. (“Adjusted Earnings”) is a non-GAAP financial measure and provides an alternative view of performance used by management. Management believes that, primarily due to acquisition activity, an evaluation of the Company’s ongoing operations (and comparisons of its current operations with historical and future operations) would be difficult if the disclosure of its financial results were limited to financial measures prepared only in accordance with U.S. GAAP. Adjusted Earnings and Adjusted Earnings per Diluted Share (“Adjusted EPS”) are two of the most
important internal financial metrics related to the ongoing operating performance of the Company, and management also believes that investors’ understanding of our performance is enhanced by these adjusted measures. Actual internal and forecasted operating results and annual budgets include Adjusted Earnings and Adjusted EPS, and the financial performance of the Company is measured by senior management on this basis along with other performance metrics. Management’s annual incentive compensation is derived in part based on the Adjusted EPS metric.
The significant items excluded from Adjusted Cost of Sales, Adjusted Earnings and Adjusted EPS include:
Purchase Accounting Amortization and Other Acquisition-Related Items
The ongoing impact of certain amounts recorded in connection with acquisitions is excluded from Adjusted Cost of Sales, Adjusted Earnings and Adjusted EPS. These amounts include the amortization of intangible assets and inventory step-up, intangible asset impairment charges (including in-process research and development), accretion and the fair value adjustments related to contingent consideration, advisory and legal fees and certain acquisition financing related costs. These costs are excluded because management believes that excluding them is helpful to understanding the underlying, ongoing operational performance of the business.
Restructuring and Other Special Items
Costs related to restructuring and other actions are excluded from Adjusted Cost of Sales, Adjusted Earnings and Adjusted EPS, as applicable. These amounts include items such as:
|
|
•
|
Exit costs associated with facilities to be closed or divested, including employee separation costs, impairment charges, accelerated depreciation, incremental manufacturing variances, equipment relocation costs and other restructuring related costs;
|
|
|
•
|
Certain acquisition related remediation and integration and planning costs, as well as other costs associated with acquisitions and other business transformation and/or optimization initiatives, which are not part of a formal restructuring program, including employee separation and post-employment costs;
|
|
|
•
|
The pre-tax loss of the Company’s
clean energy investments
, whose activities qualify for income tax credits under Section 45 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”); only included in Adjusted Earnings and Adjusted EPS is the net tax effect of the entity’s activities;
|
|
|
•
|
Certain costs to further develop and optimize our global enterprise resource planning systems, operations and supply chain; and
|
|
|
•
|
Certain costs related to new operations and significant alliances/business partnerships including certain upfront and/or milestone research and development related payments.
|
The Company has undertaken restructurings and other optimization initiatives of differing types, scope and amount during the covered periods and, therefore, these charges should not be considered non-recurring; however, management excludes these amounts from Adjusted Earnings and Adjusted EPS because it believes it is helpful to understanding the underlying, ongoing operational performance of the business.
Litigation Settlements, net
Charges and gains related to legal matters, such as those discussed in the
Notes to interim financial statements
— Note
17
Contingencies
are generally excluded from Adjusted Earnings and Adjusted EPS. Normal, ongoing defense costs of the Company made in the normal course of our business are not excluded.
Reconciliation of Adjusted Earnings and Adjusted EPS
A reconciliation between net earnings attributable to
Mylan N.V.
ordinary shareholders and diluted earnings per share attributable to
Mylan N.V.
ordinary shareholders, as reported under U.S. GAAP, and Adjusted Earnings and Adjusted EPS for the periods shown follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
(In millions, except per share amounts)
|
2016
|
|
2015
|
U.S. GAAP net earnings attributable to Mylan N.V. and U.S. GAAP diluted EPS
|
$
|
13.9
|
|
|
$
|
0.03
|
|
|
$
|
56.6
|
|
|
$
|
0.13
|
|
Purchase accounting related amortization (primarily included in cost of sales)
|
249.3
|
|
|
|
|
144.0
|
|
|
|
Litigation settlements, net
|
(1.5
|
)
|
|
|
|
17.7
|
|
|
|
Interest expense
(a)
|
5.7
|
|
|
|
|
12.2
|
|
|
|
Non-cash accretion of contingent consideration liability
|
10.0
|
|
|
|
|
9.2
|
|
|
|
Clean energy investments pre-tax loss
(a)
|
25.5
|
|
|
|
|
22.5
|
|
|
|
Acquisition related costs (primarily included in cost of sales and selling, general and administrative expense)
|
61.6
|
|
|
|
|
78.8
|
|
|
|
Restructuring and other special items included in:
|
|
|
|
|
|
|
|
Cost of sales
|
15.2
|
|
|
|
|
8.0
|
|
|
|
Research and development expense
(b)
|
66.1
|
|
|
|
|
17.9
|
|
|
|
Selling, general and administrative expense
|
6.8
|
|
|
|
|
7.8
|
|
|
|
Other expense, net
|
2.2
|
|
|
|
|
7.0
|
|
|
|
Tax effect of the above items and other income tax related items
|
(68.5
|
)
|
|
|
|
(72.6
|
)
|
|
|
Adjusted net earnings attributable to Mylan N.V. and adjusted diluted EPS
|
$
|
386.3
|
|
|
$
|
0.76
|
|
|
$
|
309.1
|
|
|
$
|
0.70
|
|
Weighted average diluted ordinary shares outstanding
|
509.6
|
|
|
|
|
443.8
|
|
|
|
____________
|
|
(a)
|
Adjustment represents exclusion of the pre-tax loss related to
Mylan’s clean energy investments and related financing, the activities of which qualify for income tax credits under Section 45 of the Code. The amount is included in
other expense, net
in the
Condensed Consolidated Statements of Operations
.
|
|
|
(b)
|
Research and development expense includes a
$45 million
upfront payment to Momenta and
$15 million
of milestone payments to Theravance Biopharma.
|
Liquidity and Capital Resources
Our primary source of liquidity is cash
provided by
operations, which was
$80.5 million
for the
three months ended
March 31, 2016
. We believe that cash provided by operating activities and available liquidity will continue to allow us to meet our needs for working capital, capital expenditures and interest and principal payments on debt obligations. 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.
Net cash
provided by
operating activities
decreased
by
$186.5 million
to
$80.5 million
for the
three months ended
March 31, 2016
, as compared to net cash
provided by
operating activities of
$267.0 million
for the
three months ended
March 31, 2015
. The
net decrease
in cash
provided by
operating activities was principally due to the following:
|
|
•
|
a decrease in net earnings of
$42.7 million
;
|
|
|
•
|
a net decrease in the amount of cash provided by changes in accounts receivable, including estimated sales allowances, of
$293.4 million
, reflecting the timing of sales, cash collections and disbursements related to sales allowances;
|
|
|
•
|
a
net increase
of
$86.1 million
in the amount of cash
used through
changes in inventory balances. The
increase
in cash utilized for inventory in
2016
(as compared to
2015
) primarily relates to anticipated product launches and increased market demand;
|
|
|
•
|
a
net increase
in the amount of cash
used through
changes in trade accounts payable of
$41.8 million
as a result of the timing of cash payments; and
|
|
|
•
|
a
net increase
in the amount of cash
used through
changes in other operating assets and liabilities of
$4.5 million
principally as a result of the payment of accrued acquisition costs.
|
These items were partially offset by the following:
|
|
•
|
an increase of
$163.4 million
in non-cash expenses, principally as a result of increased depreciation and amortization as a result of acquisitions, increased losses from equity method investments, and a number of other non-cash charges including the accretion of the contingent consideration liability and deferred tax expense, which were partially offset by decreased share-based compensation expenses and litigation settlements; and
|
|
|
•
|
a
net decrease
in the amount of cash
used through
changes in income taxes of
$118.6 million
as a result of a lower amount of estimated tax payments made during the current year.
|
Cash
used in
investing activities was
$160.0 million
for the
three months ended
March 31, 2016
, as compared to
$87.5 million
for the
three months ended
March 31, 2015
, a net increase of
$72.5 million
. The increase in cash
used in
investing activities was principally the result of an increase in cash used for payments of product rights and other investing activities, net, which totaled
$105.6 million
for the
three months ended
March 31, 2016
as compared to
$11.5 million
in the prior year period. In the current year, the Company paid
$90 million
related to the acquisition of certain European intellectual property rights and marketing authorizations, which was accrued for at December 31, 2015. Capital expenditures, primarily for equipment and facilities, were approximately
$51.8 million
in the current period, compared to
$48.1 million
in the comparable prior year period. The
increase
, compared to
2015
, is the result of the timing of expenditures to expand our global operating platform, including capital investments in our strategic growth drivers. While there can be no assurance that current expectations will be realized, capital expenditures for the
2016
calendar year are expected to be approximately
$400 million
to
$500 million
. The increase in cash used in investing activities was partially offset by a net decrease in the purchase of marketable securities, which totaled
$2.6 million
net during the
three months ended
March 31, 2016
, as compared to
$27.9 million
net in the prior year period. This change is primarily attributable to the Company’s investment in
Theravance Biopharma
’s common stock in the prior year.
Cash
provided by
financing activities was
$30.5 million
for the
three months ended
March 31, 2016
, compared to cash
used in
financing activities of
$109.0 million
for the
three months ended
March 31, 2015
. In the current year the Company had net short-term borrowings of
$65.1 million
as compared to net repayments of short-term borrowings of
$161.6 million
in the prior year period principally as a result of the level of operating cash flows in the prior year period. In addition, the cash outflow for taxes paid related to the net share settlement of equity awards
decreased
by
$24.8 million
from the prior year period. Partially offsetting these amounts are proceeds from the exercise of stock options, which decreased by
$63.8 million
from the prior year period and the related windfall tax benefit from the settlement of shared-based compensation awards, which decreased by approximately
$38 million
.
The Company’s next significant debt maturities are in the second and fourth quarters of 2016, as the Company’s 1.800% Senior Notes due 2016 and 1.350% Senior Notes due 2016 (“2016 Senior Notes”) mature. The Company intends to utilize available liquidity or refinance using proceeds from new bond issuances to fund the repayment of the 2016 Senior Notes.
In addition, our cash and cash equivalents at our non-U.S. operations totaled
$280.8 million
at
March 31, 2016
. The majority of these funds represented earnings considered to be permanently reinvested to support the growth strategies of our non-U.S. subsidiaries. The Company anticipates having sufficient U.S. liquidity, including existing borrowing capacity and cash to be generated from operations, to fund foreseeable U.S. cash needs without requiring the repatriation of non-U.S. cash. If these funds are ultimately needed for the Company’s operations in the U.S., the Company may be required to accrue and pay U.S. taxes to repatriate these funds. If funds are needed from the Company’s subsidiaries that do not have an ultimate U.S. parent, the Company will generally not be required to accrue and pay taxes to repatriate these funds because its foreign parent would not be subject to tax on receipt of these distributions.
2016 Bridge Credit Agreement
On
February 10, 2016
, the Company entered into a Bridge Credit Agreement (the “
2016 Bridge Credit Agreement
”), among the Company, as borrower,
Mylan Inc.
, as guarantor, Deutsche Bank AG Cayman Islands Branch, as administrative agent and a lender, Goldman Sachs Bank USA, as a lender, Goldman Sachs Lending Partners LLC, as a lender, and other lenders party thereto from time to time. The
2016 Bridge Credit Agreement
provides for a bridge credit facility under which the Company may obtain Tranche A Loans (as defined in the 2016 Bridge Credit Agreement) in an aggregate amount up to
$6.0 billion
. The proceeds of the Tranche A Loans will be applied solely to finance the proposed acquisition of
Meda
shares and pay other costs associated with the proposed acquisition of Meda, the
2016 Bridge Credit Agreement
and related transactions. The Tranche A Loans will bear interest at LIBOR (determined in accordance with the
2016 Bridge Credit Agreement
), if the Company chooses to make LIBOR borrowings, or at a base rate (determined in accordance with the
2016 Bridge Credit Agreement
), in each case plus an applicable margin. The applicable margin for borrowings will be determined by reference to a grid based on the Company’s Debt Rating (as defined in the
2016 Bridge Credit Agreement
), and such applicable margin will range from
0.125%
to
1.225%
per annum with respect to base rate borrowings and
1.125%
to
2.225%
per annum with respect to LIBOR borrowings, in each case subject to increase by
0.25%
per annum,
0.25%
per annum and
0.50%
per annum on the date that is
90
,
180
and
270
days, respectively, after the initial funding date. The commitments under the
2016 Bridge Credit Agreement
will be available until the earliest to occur of
February 8, 2017
and certain events set forth in the 2016 Bridge Credit Agreement relating to the completion or termination of the
Offer
set forth in the
2016 Bridge Credit Agreement
. The Tranche A Loans will be unsecured and will be guaranteed by
Mylan Inc.
The Tranche A Loans will mature on the day that is 364 days after the initial funding date.
The 2016 Bridge Credit Agreement also provided for commitments in respect of
Tranche B Loans (as defined in the 2016 Bridge Credit Agreement) in an aggregate amount up to
$4.05 billion
that were to be applied if necessary to prepay the Revolving Credit Agreement, the 2014 Term Credit Agreement and the 2015 Term Credit Agreement (in each case, as defined below) and to pay fees and expenses relating thereto. The commitments in respect of such Tranche B Loans were permanently terminated in their entirety in connection with the effectiveness of the Revolving Amendment, the 2014 Term Amendment and the 2015 Term Amendment (in each case, as defined below). Upon signing of the
2016 Bridge Credit Agreement
, the Company paid financing fees of approximately
$29.5 million
, of which approximately
$3.0 million
related to the Tranche B Loans and were written off in conjunction with the termination of the Tranche B Loans. The remaining fees are included in other current assets on the Condensed Consolidated Balance Sheets.
Revolving Facility
On
December 19, 2014
, the Company entered into a revolving credit agreement, which was amended on May 1, 2015, and further amended on June 19, 2015, October 28, 2015 and February 22, 2016 (the “Revolving Credit Agreement”) with a syndicate of lenders, which contains a
$1.65 billion
revolving facility (the “Revolving Facility”), which expires on
December 19, 2019
. At
March 31, 2016
and
December 31, 2015
, we had no amounts outstanding under the Revolving Facility. At
March 31, 2016
and
December 31, 2015
, we had a total of
$12.0 million
and
$11.1 million
outstanding under existing letters of credit, respectively. Additionally, as of
March 31, 2016
, we had
$143.9 million
available under the
$150 million
subfacility on our Revolving Facility for the issuance of letters of credit.
Amendment to the Revolving Credit Facility, 2015 Term Loan and 2014 Term Loan
On February 22, 2016, the Company and Mylan Inc. (the “Borrower”) entered into (i) Amendment No. 3 (the “Revolving Amendment”) to the Company’s Revolving Credit Agreement dated December 19, 2014, as amended on May 1, 2015, further amended on June 19, 2015 and further amended on October 28, 2015 (as amended further by the Revolving Amendment, the “Revolving Credit Agreement”) which provided for a
$1.65 billion
revolving facility (the “Revolving Facility”), among the Borrower, the Company, certain lenders and issuing banks and Bank of America, N.A., as administrative agent, (ii) Amendment No. 2 (the “2015 Term Amendment”) to the Company’s Term Credit Agreement dated July 15, 2015, as amended on October 28, 2015 (as amended further by the 2015 Term Amendment, the “2015 Term Credit Agreement”) which provided for a delayed-draw term loan credit facility including loans totaling
$1.6 billion
(the “2015 Term Loans”), among the Borrower, the Company, certain lenders and PNC Bank, National Association, as administrative agent, and (iii) Amendment No. 3 (the “2014 Term Amendment”) to the Company’s Term Credit Agreement dated December 19, 2014, as amended on May 1, 2015 and further amended on October 28, 2015 (as amended further by the 2014 Term Amendment) the “2014 Term Credit Agreement”) which provided for an
$800 million
term loan (the “2014 Term Loan”), among the Borrower, the Company, certain lenders and Bank of America, N.A., as administrative agent. The Revolving Amendment, 2015 Term Amendment and 2014 Term Amendment provide that the Borrower’s proposed acquisition of Meda will constitute a Qualified Acquisition (as defined in each of the Revolving Credit Agreement, the 2014 Term Credit Agreement and the 2015 Term Credit Agreement) and amends the event of default provisions to provide that any “change of control” put rights under any indebtedness of any
Acquired Entity or Business (as defined in each of the Revolving Credit Agreement, the 2014 Term Credit Agreement and the 2015 Term Credit Agreement) or its subsidiaries that are triggered as a result of the acquisition of any Acquired Entity or Business will not result in an event of default so long as any such indebtedness that is put in accordance with the terms of such indebtedness is paid as required by the terms of such indebtedness.
Long-term Debt
Mandatory minimum repayments remaining on the outstanding long-term debt at
March 31, 2016
, excluding the discounts, premium and conversion features, are as follows for each of the periods ending December 31:
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|
(In millions)
|
|
Total
|
2016
|
|
$
|
1,000
|
|
2017
|
|
2,400
|
|
2018
|
|
1,150
|
|
2019
|
|
500
|
|
2020
|
|
500
|
|
Thereafter
|
|
1,750
|
|
Total
|
|
$
|
7,300
|
|
The Company’s 2015 Term Loans, 2014 Term Loan and Revolving Facility contain customary affirmative covenants for facilities of this type, including among others, covenants pertaining to the delivery of financial statements, notices of default and certain material events, maintenance of corporate existence and rights, property, and insurance and compliance with laws, as well as customary negative covenants for facilities of this type, including limitations on the incurrence of subsidiary indebtedness, liens, mergers and certain other fundamental changes, investments and loans, acquisitions, transactions with affiliates, payments of dividends and other restricted payments and changes in our lines of business. The 2015 Term Loans, 2014 Term Loan and Revolving Facility contain a maximum consolidated leverage ratio financial covenant. We have been compliant with these financial covenants during the
three months ended March 31, 2016
, and we expect to remain in compliance for the next twelve months.
Collaboration and Licensing Agreements
We periodically enter into collaboration and licensing agreements with other pharmaceutical companies for the development, manufacture, marketing and/or sale of pharmaceutical products. Our significant collaboration agreements are focused on the development, manufacturing, supply and commercialization of multiple, high-value generic biologic compounds, insulin analog products and respiratory products. Under these agreements, we have future potential milestone payments and co-development expenses payable to third parties as part of our licensing, development and co-development programs. Payments under these agreements generally become due and are payable upon the satisfaction or achievement of certain developmental, regulatory or commercial milestones or as development expenses are incurred on defined projects. Milestone payment obligations are uncertain, including the prediction of timing and the occurrence of events triggering a future obligation and are not reflected as liabilities in the Condensed Consolidated Balance Sheets, except for milestone and royalty obligations reflected as acquisition contingent consideration. These agreements may also include potential sales based milestones and call for us to pay a percentage of amounts earned from the sale of the product as a royalty or a profit share. These sales based milestones or royalty obligations may be significant depending upon the level of commercial sales for each product.
Our most significant contingent payment relates to the potential future consideration related to the respiratory delivery platform. These payments are contingent upon the occurrence of certain future events and the ultimate success of the respective projects. Given the inherent uncertainty of these events, it is unclear when, if ever, we may be required to pay such amounts or pay amounts in excess of those accrued. The Company has also recorded contingent consideration related to the acquisition of Jai Pharma Limited, the acquisition of Agila and certain other acquisitions. The amount of contingent consideration recorded for potential milestone, royalty and/or profit sharing payments was
$535.8 million
and
$526.4 million
at
March 31, 2016
and
December 31, 2015
, respectively. In addition, the Company expects to incur approximately
$35 million
to
$40 million
of annual accretion expense related to the increase in the net present value of the contingent consideration liability.
On January 8, 2016, the Company entered into an agreement with
Momenta Pharmaceuticals, Inc.
(“
Momenta
”) to develop, manufacture and commercialize up to
six
of
Momenta
’s current biosimilar candidates, including
Momenta
’s biosimilar candidate, ORENCIA® (abatacept). Mylan paid an up-front cash payment of
$45 million
to Momenta. Under the terms of the agreement, Momenta is eligible to receive additional contingent milestone payments of
up to
$200 million
. The Company and
Momenta
will jointly be responsible for product development and will equally share in the costs and profits of the products. Under the agreement, Mylan will lead the worldwide commercialization efforts.
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.
Other Commitments
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, results of operations, and operating cash flow and could cause the market value of our ordinary shares to decline. We have approximately
$60 million
accrued for such legal contingencies. For certain contingencies assumed in conjunction with the acquisition of the former Merck Generics business, Merck KGaA, the seller, has agreed to indemnify Mylan.
Strides Arcolab
Limited (“Strides Acrolab”) has also agreed to indemnify Mylan for certain contingencies related to our acquisition of
Agila
. The inability or denial of Merck KGaA,
Strides Arcolab
, or another indemnitor or insurer to pay on an indemnified claim could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or ordinary share price.
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.