Coury stated, “After carefully analyzing all the options regarding Dey, it became clear that retaining the business was truly in the best interest of all stakeholders.” This euphemistic language really means no one was willing to buy Dey. Mylan reaffirmed full year 2008-2010 guidance of $0.47-$0.53 in 2008, $0.90-$1.10 in 2009 and $1.50-$1.70 in 2010. Management also said they expect Dey to contribute
positively to earnings this year. Hey, that sounds pretty good. Reaffirmed earnings and a positive impact to EPS for Dey; but something sounds fishy. Read on.
A little over a month ago CEO Coury said the company was looking to sell Dey to pay down debt, after the company reported weaker than expected sales of Perforomist, its treatment for chronic obstructive pulmonary disease. A month later we are now expected to believe this company will contribute positively to earnings? Later in the release the truth comes out. The following was taken directly from Mylan’s news release.
The Press Release
In addition to excluding one-time costs associated with the realignment of the Dey business, the company’s reaffirmed financial guidance continues to exclude the following items:
– Purchase accounting related charges, including amortization of
intangibles and the inventory basis step-up;
– integration and other non-recurring expenses;
– the non-cash goodwill impairment charge related to the Specialty
Segment that was recorded in the first quarter of 2008; and
– recognition of previously deferred revenues related to the sale of our
rights to Bystolic.
The Takeaway
Mylan was forced to take a $385 non-cash goodwill impairment loss on Dey in the 1st quarter that significantly affected earnings. Shares of Mylan were also down 11% on the news. According to Mylan’s most recent 10-Q, Dey still has $325 million in goodwill. Now the company says Dey will contribute positively to earnings if we exclude the goodwill impairment charge, amortization of intangibles and integration expenses. It is likely at least one of these “one-time costs” will appear in an earnings transcript within the next few quarters. Saying Dey will contribute positively to earnings with those types of asterisks is like saying Fannie Mae or Freddie Mac will be able to be profitable going forward, but excluding mortgage related losses. Here are the pros and cons of owning Mylan Inc.
Pros
1.
