##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-13305
 
 WATSON PHARMACEUTICALS, INC.
  
 Nevada
    
    95-3872914(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 311 Bonnie Circle
Corona, CA 92880-2882
 (951) 493-5300
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



WATSON PHARMACEUTICALS, INC.
 TABLE OF CONTENTS
 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
 PAGEPart I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    1Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008
    
    
    2Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    41Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    42Item 1A. Risk Factors
    
    
    42Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 6. Exhibits
    
    
    42Signatures
    
    
    43EXHIBIT 10.1EX-31.1EX-31.2EX-32.1EX-32.2




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WATSON PHARMACEUTICALS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    812.9
    
    
    $
    507.6Marketable securities
    
    
    13.1
    
    
    
    13.2Accounts receivable, net
    
    
    377.1
    
    
    
    305.0Inventories, net
    
    
    505.7
    
    
    
    473.1Prepaid expenses and other current assets
    
    
    60.0
    
    
    
    48.5Deferred tax assets
    
    
    116.5
    
    
    
    111.0Total current assets
    
    
    1,885.3
    
    
    
    1,458.4Property and equipment, net
    
    
    625.1
    
    
    
    658.5Investments and other assets
    
    
    96.2
    
    
    
    80.6Deferred tax assets
    
    
    40.9
    
    
    
    52.3Product rights and other intangibles, net
    
    
    510.2
    
    
    
    560.0Goodwill
    
    
    868.1
    
    
    
    868.1Total assets
    
    $
    4,025.8
    
    
    $
    3,677.9LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    399.1
    
    
    $
    381.3Income taxes payable
    
    
    
    
    
    
    15.5Short-term debt and current portion of long-term debt
    
    
    1.6
    
    
    
    53.2Deferred revenue
    
    
    21.1
    
    
    
    16.1Deferred tax liabilities
    
    
    18.1
    
    
    
    15.9Total current liabilities
    
    
    439.9
    
    
    
    482.0Long-term debt
    
    
    997.4
    
    
    
    824.7Deferred revenue
    
    
    34.0
    
    
    
    30.1Other long-term liabilities
    
    
    5.3
    
    
    
    4.9Other taxes payable
    
    
    63.1
    
    
    
    53.3Deferred tax liabilities
    
    
    175.5
    
    
    
    174.3Total liabilities
    
    
    1,715.2
    
    
    
    1,569.3Commitments and contingenciesStockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    0.4
    
    
    
    0.4Additional paid-in capital
    
    
    1,033.1
    
    
    
    995.9Retained earnings
    
    
    1,583.2
    
    
    
    1,418.1Accumulated other comprehensive loss
    
    
    (0.2
    )
    
    
    (3.2
    )Treasury stock, at cost
    
    
    (305.9
    )
    
    
    (302.6
    )Total stockholders equity
    
    
    2,310.6
    
    
    
    2,108.6Total liabilities and stockholders equity
    
    $
    4,025.8
    
    
    $
    3,677.9
 See accompanying Notes to Condensed Consolidated Financial Statements.
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WATSON PHARMACEUTICALS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenues
    
    $
    662.1
    
    
    $
    640.7
    
    
    $
    2,007.3
    
    
    $
    1,890.3Operating expenses:Cost of sales
    
    
    353.7
    
    
    
    386.7
    
    
    
    1,135.5
    
    
    
    1,126.7Research and development
    
    
    51.9
    
    
    
    45.3
    
    
    
    136.8
    
    
    
    122.5Selling and marketing
    
    
    60.0
    
    
    
    58.6
    
    
    
    191.9
    
    
    
    172.2General and administrative
    
    
    60.1
    
    
    
    42.6
    
    
    
    191.1
    
    
    
    140.0Amortization
    
    
    22.2
    
    
    
    20.2
    
    
    
    66.1
    
    
    
    60.6Loss on asset sales and impairment
    
    
    3.5
    
    
    
    0.3
    
    
    
    2.2
    
    
    
    0.3Total operating expenses
    
    
    551.4
    
    
    
    553.7
    
    
    
    1,723.6
    
    
    
    1,622.3Operating income
    
    
    110.7
    
    
    
    87.0
    
    
    
    283.7
    
    
    
    268.0Non-operating (expense) income:Loss on early extinguishment of debt
    
    
    (2.0
    )
    
    
    
    
    
    
    (2.0
    )
    
    
    (1.1
    )Interest income
    
    
    1.0
    
    
    
    2.2
    
    
    
    4.3
    
    
    
    6.2Interest expense
    
    
    (9.0
    )
    
    
    (7.0
    )
    
    
    (18.3
    )
    
    
    (20.7
    )Other income
    
    
    1.6
    
    
    
    11.9
    
    
    
    5.2
    
    
    
    19.3Total other (expense) income, net
    
    
    (8.4
    )
    
    
    7.1
    
    
    
    (10.8
    )
    
    
    3.7Income before income taxes
    
    
    102.3
    
    
    
    94.1
    
    
    
    272.9
    
    
    
    271.7Provision for income taxes
    
    
    39.3
    
    
    
    23.0
    
    
    
    107.8
    
    
    
    89.7Net income
    
    $
    63.0
    
    
    $
    71.1
    
    
    $
    165.1
    
    
    $
    182.0Earnings per share:Basic
    
    $
    0.61
    
    
    $
    0.69
    
    
    $
    1.60
    
    
    $
    1.77Diluted
    
    $
    0.55
    
    
    $
    0.62
    
    
    $
    1.45
    
    
    $
    1.60Weighted average shares outstanding:Basic
    
    
    103.8
    
    
    
    102.9
    
    
    
    103.4
    
    
    
    102.7Diluted
    
    
    117.1
    
    
    
    118.0
    
    
    
    118.1
    
    
    
    117.7
 See accompanying Notes to Condensed Consolidated Financial Statements.
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WATSON PHARMACEUTICALS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
 Nine Months EndedSeptember 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    165.1
    
    
    $
    182.0Reconciliation to net cash provided by operating activities:Depreciation
    
    
    71.5
    
    
    
    67.4Amortization
    
    
    66.1
    
    
    
    60.6Deferred income tax provision
    
    
    8.4
    
    
    
    17.0Provision for inventory reserve
    
    
    36.0
    
    
    
    35.9Restricted stock and stock option compensation
    
    
    14.4
    
    
    
    14.0Earnings on equity method investments
    
    
    (6.2
    )
    
    
    (9.6
    )Loss (gain) on securities
    
    
    1.1
    
    
    
    (9.6
    )Loss on early extinguishment of debt
    
    
    2.0
    
    
    
    1.1Loss on asset sales and impairment
    
    
    2.2
    
    
    
    0.3Other
    
    
    1.0
    
    
    
    (2.6
    )Changes in assets and liabilities:Accounts receivable, net
    
    
    (72.1
    )
    
    
    (47.3
    )Inventories
    
    
    (68.6
    )
    
    
    (26.9
    )Prepaid expenses and other current assets
    
    
    (10.1
    )
    
    
    12.9Accounts payable and accrued expenses
    
    
    17.7
    
    
    
    (45.8
    )Deferred revenue
    
    
    8.9
    
    
    
    (10.7
    )Income taxes payable
    
    
    (6.6
    )
    
    
    9.9Other assets
    
    
    4.8
    
    
    
    (8.4
    )Total adjustments
    
    
    70.5
    
    
    
    58.2Net cash provided by operating activities
    
    
    235.6
    
    
    
    240.2CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (43.2
    )
    
    
    (42.5
    )Acquisition of product rights
    
    
    (16.3
    )
    
    
    (0.8
    )Proceeds from sale of fixed assets
    
    
    3.0
    
    
    
    0.8Proceeds from sale of marketable securities
    
    
    5.9
    
    
    
    4.8Proceeds from sale of investments
    
    
    
    
    
    
    8.2Additions to marketable securities
    
    
    (4.4
    )
    
    
    (5.4
    )Other investing activities, net
    
    
    
    
    
    
    (0.4
    )Net cash used in investing activities
    
    
    (55.0
    )
    
    
    (35.3
    )CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on debt and other long-term liabilities
    
    
    (726.6
    )
    
    
    (95.6
    )Proceeds from issuance of debt and other long-term liabilities
    
    
    833.0
    
    
    
    17.9Repurchase of common stock
    
    
    (3.2
    )
    
    
    (0.8
    )Proceeds from stock plans
    
    
    21.5
    
    
    
    8.4Net cash provided by (used in) financing activities
    
    
    124.7
    
    
    
    (70.1
    )Net increase in cash and cash equivalents
    
    
    305.3
    
    
    
    134.8Cash and cash equivalents at beginning of period
    
    
    507.6
    
    
    
    204.6Cash and cash equivalents at end of period
    
    $
    812.9
    
    
    $
    339.4
 See accompanying Notes to Condensed Consolidated Financial Statements.
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WATSON PHARMACEUTICALS, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  GENERAL
    Merger Agreement with Arrow Group
  
    
    A cash payment of U.S. $1.05 billion at closing of the share purchase (the Closing);
    
    Approximately 16.9 million restricted shares of Common Stock of Watson issued at the
Closing;
    
    $200.0 million face amount of newly designated non-voting Series A Preferred Stock of
Watson issued at the Closing; and
    
    Certain contingent payments made after the Closing based on the after-tax gross profits
on sales of Atorvastatin in the U.S. as described in the Acquisition Agreement.
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Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    63.0
    
    
    $
    71.1
    
    
    $
    165.1
    
    
    $
    182.0Other comprehensive (loss) income:Translation (losses) gains
    
    
    (0.6
    )
    
    
    (2.0
    )
    
    
    1.4
    
    
    
    (2.9
    )Unrealized gain (loss) on securities, net of tax
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    0.2
    
    
    
    (0.7
    )Reclassification for losses included in net
income,
net of tax
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    Unrealized gain on cash flow hedge, net of tax
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.6Total other comprehensive (loss) income
    
    
    (0.5
    )
    
    
    (1.6
    )
    
    
    3.0
    
    
    
    (3.0
    )Total comprehensive income
    
    $
    62.5
    
    
    $
    69.5
    
    
    $
    168.1
    
    
    $
    179.0
 Preferred and Common Stock
  Provisions for Sales Returns and Allowances
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Returns andOther
    
    
    CashChargebacks
    
    
    Rebates
    
    
    Allowances
    
    
    Discounts
    
    
    TotalBalance at December 31, 2007
    
    $
    164.4
    
    
    $
    154.3
    
    
    $
    56.1
    
    
    $
    12.9
    
    
    $
    387.7Provision related to sales in nine months
ended September 30, 2008
    
    
    920.0
    
    
    
    228.7
    
    
    
    133.4
    
    
    
    49.9
    
    
    
    1,332.0Credits and payments
    
    
    (967.3
    )
    
    
    (250.6
    )
    
    
    (123.5
    )
    
    
    (50.0
    )
    
    
    (1,391.4
    )Balance at September 30, 2008
    
    
    117.1
    
    
    
    132.4
    
    
    
    66.0
    
    
    
    12.8
    
    
    
    328.3Provision related to sales in three months
ended December 31, 2008
    
    
    304.0
    
    
    
    80.4
    
    
    
    46.4
    
    
    
    17.3
    
    
    
    448.1Credits and payments
    
    
    (300.5
    )
    
    
    (87.0
    )
    
    
    (42.9
    )
    
    
    (17.8
    )
    
    
    (448.2
    )Balance at December 31, 2008
    
    
    120.6
    
    
    
    125.8
    
    
    
    69.5
    
    
    
    12.3
    
    
    
    328.2Provision related to sales in nine months
ended September 30, 2009
    
    
    858.8
    
    
    
    284.9
    
    
    
    135.9
    
    
    
    52.6
    
    
    
    1,332.2Credits and payments
    
    
    (868.5
    )
    
    
    (268.3
    )
    
    
    (124.2
    )
    
    
    (52.0
    )
    
    
    (1,313.0
    )Balance at September 30, 2009
    
    $
    110.9
    
    
    $
    142.4
    
    
    $
    81.2
    
    
    $
    12.9
    
    
    $
    347.4
 Earnings Per Share (EPS)
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008EPS - basicNet income
    
    $
    63.0
    
    
    $
    71.1
    
    
    $
    165.1
    
    
    $
    182.0Basic weighted average common shares
outstanding
    
    
    103.8
    
    
    
    102.9
    
    
    
    103.4
    
    
    
    102.7EPS - basic
    
    $
    0.61
    
    
    $
    0.69
    
    
    $
    1.60
    
    
    $
    1.77EPS - dilutedNet income
    
    $
    63.0
    
    
    $
    71.1
    
    
    $
    165.1
    
    
    $
    182.0Add: Interest expense on CODES, net of tax
    
    
    1.6
    
    
    
    2.0
    
    
    
    5.5
    
    
    
    5.9Net income, adjusted
    
    $
    64.6
    
    
    $
    73.1
    
    
    $
    170.6
    
    
    $
    187.9`Basic weighted average common shares
outstanding
    
    
    103.8
    
    
    
    102.9
    
    
    
    103.4
    
    
    
    102.7Effect of dilutive securities:Conversion of CODES
    
    
    11.9
    
    
    
    14.4
    
    
    
    13.6
    
    
    
    14.4Dilutive stock awards
    
    
    1.4
    
    
    
    0.7
    
    
    
    1.1
    
    
    
    0.6Diluted weighted average common shares
outstanding
    
    
    117.1
    
    
    
    118.0
    
    
    
    118.1
    
    
    
    117.7EPS - diluted
    
    $
    0.55
    
    
    $
    0.62
    
    
    $
    1.45
    
    
    $
    1.60
  Share-Based Compensation
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September 30, 2009.
 Recent Accounting Pronouncements
 TM
      - 8 -




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NOTE 2  OTHER INCOME
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Earnings on equity
method investments
    
    $
    1.5
    
    
    $
    3.7
    
    
    $
    6.2
    
    
    $
    9.6Gain (loss) on securities
    
    
    
    
    
    
    8.2
    
    
    
    (1.1
    )
    
    
    9.6Other income
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1$
    1.6
    
    
    $
    11.9
    
    
    $
    5.2
    
    
    $
    19.3
 NOTE 3  OPERATING SEGMENTS
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Three Months Ended September 30, 2009
    
    
    Three Months Ended September 30, 2008Generic
    
    
    Brand
    
    
    Distribution
    
    
    Total
    
    
    Generic
    
    
    Brand
    
    
    Distribution
    
    
    TotalProduct sales
    
    $
    392.3
    
    
    $
    96.1
    
    
    $
    151.4
    
    
    $
    639.8
    
    
    $
    352.2
    
    
    $
    94.3
    
    
    $
    170.9
    
    
    $
    617.4Other
    
    
    5.7
    
    
    
    16.6
    
    
    
    
    
    
    
    22.3
    
    
    
    11.6
    
    
    
    11.7
    
    
    
    
    
    
    
    23.3Net revenues
    
    
    398.0
    
    
    
    112.7
    
    
    
    151.4
    
    
    
    662.1
    
    
    
    363.8
    
    
    
    106.0
    
    
    
    170.9
    
    
    
    640.7Operating expenses:Cost of sales(1)
    
    
    204.1
    
    
    
    20.7
    
    
    
    128.9
    
    
    
    353.7
    
    
    
    212.4
    
    
    
    30.2
    
    
    
    144.1
    
    
    
    386.7Research and
development
    
    
    37.0
    
    
    
    14.9
    
    
    
    
    
    
    
    51.9
    
    
    
    31.7
    
    
    
    13.6
    
    
    
    
    
    
    
    45.3Selling and
marketing
    
    
    11.7
    
    
    
    32.5
    
    
    
    15.8
    
    
    
    60.0
    
    
    
    14.0
    
    
    
    29.0
    
    
    
    15.6
    
    
    
    58.6Contribution
    
    $
    145.2
    
    
    $
    44.6
    
    
    $
    6.7
    
    
    
    196.5
    
    
    $
    105.7
    
    
    $
    33.2
    
    
    $
    11.2
    
    
    
    150.1Contibution margin
    
    
    36.5
    %
    
    
    39.6
    %
    
    
    4.4
    %
    
    
    29.7
    %
    
    
    29.1
    %
    
    
    31.3
    %
    
    
    6.6
    %
    
    
    23.4
    %General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42.6Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.2Loss on asset sales and impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    110.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    87.0Operating margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.7
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.6
    %
 Nine Months Ended September 30, 2009
    
    
    Nine Months Ended September 30, 2008Generic
    
    
    Brand
    
    
    Distribution
    
    
    Total
    
    
    Generic
    
    
    Brand
    
    
    Distribution
    
    
    TotalProduct sales
    
    $
    1,181.3
    
    
    $
    291.9
    
    
    $
    466.4
    
    
    $
    1,939.6
    
    
    $
    1,038.9
    
    
    $
    294.8
    
    
    $
    443.8
    
    
    $
    1,777.5Other
    
    
    19.6
    
    
    
    48.1
    
    
    
    
    
    
    
    67.7
    
    
    
    68.3
    
    
    
    44.5
    
    
    
    
    
    
    
    112.8Net revenues
    
    
    1,200.9
    
    
    
    340.0
    
    
    
    466.4
    
    
    
    2,007.3
    
    
    
    1,107.2
    
    
    
    339.3
    
    
    
    443.8
    
    
    
    1,890.3Operating expenses:Cost of sales(1)
    
    
    676.7
    
    
    
    66.9
    
    
    
    391.9
    
    
    
    1,135.5
    
    
    
    669.7
    
    
    
    82.1
    
    
    
    374.9
    
    
    
    1,126.7Research and
development
    
    
    97.0
    
    
    
    39.8
    
    
    
    
    
    
    
    136.8
    
    
    
    83.4
    
    
    
    39.1
    
    
    
    
    
    
    
    122.5Selling and
marketing
    
    
    35.8
    
    
    
    108.5
    
    
    
    47.6
    
    
    
    191.9
    
    
    
    41.9
    
    
    
    86.6
    
    
    
    43.7
    
    
    
    172.2Contribution
    
    $
    391.4
    
    
    $
    124.8
    
    
    $
    26.9
    
    
    
    543.1
    
    
    $
    312.2
    
    
    $
    131.5
    
    
    $
    25.2
    
    
    
    468.9Contibution margin
    
    
    32.6
    %
    
    
    36.7
    %
    
    
    5.8
    %
    
    
    27.1
    %
    
    
    28.2
    %
    
    
    38.8
    %
    
    
    5.7
    %
    
    
    24.8
    %General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140.0Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.6Loss on asset sales and impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    283.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    268.0Operating margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.1
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.2
    %
 
 (1)
    
    Excludes amortization of acquired intangibles including product rights. NOTE 4  INVENTORIES
  - 10 -




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##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Inventories:Raw materials
    
    $
    165.5
    
    
    $
    109.1Work-in-process
    
    
    63.7
    
    
    
    44.2Finished goods
    
    
    329.6
    
    
    
    354.5558.8
    
    
    
    507.8Less: Inventory reserves
    
    
    53.1
    
    
    
    34.7Inventories, net
    
    $
    505.7
    
    
    $
    473.1
 NOTE 5  DEBT
  September 30,
    
    
    December 31,2009
    
    
    2008Senior Notes,Face amount of $450.0, due August 15, 2014,
bearing interest at 5.000% (the 2014 Notes)
    
    $
    450.0
    
    
    $
    Face amount of $400.0, due August 15, 2019,
bearing interest at 6.125% (the 2019 Notes)
    
    
    400.0
    
    
    
    850.0
    
    
    
    Less: Unamortized discount
    
    
    (2.6
    )
    
    
    Senior Notes, net
    
    
    847.4
    
    
    
    2006 Credit Facility, due 2011, bearing interest
at LIBOR plus 0.75%
    
    
    150.0
    
    
    
    300.0CODES, face
amount of $575.0 million,
due 2023, net of unamortized discount
    
    
    
    
    
    
    574.7Other notes payable
    
    
    1.6
    
    
    
    3.2999.0
    
    
    
    877.9Less: Current portion
    
    
    1.6
    
    
    
    53.2Total long-term debt
    
    $
    997.4
    
    
    $
    824.7
 Senior Notes
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##### Table of Contents



2006 Credit Facility
     CODES
  - 12 -




---



##### Table of Contents



NOTE 6  BUSINESS RESTRUCTURING CHARGES
  Accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccrualBalance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    Charged
    
    
    Cash
    
    
    Non-cash
    
    
    September 30,(in millions)
    
    2008
    
    
    to Expense
    
    
    Payments
    
    
    Adjustments
    
    
    2009Cost of salesSeverance and retention
    
    $
    13.7
    
    
    $
    7.8
    
    
    $
    (9.3
    )
    
    $
    
    
    
    $
    12.2Product transfer costs
    
    
    0.7
    
    
    
    8.3
    
    
    
    (8.4
    )
    
    
    
    
    
    
    0.6Facility decommission costs
    
    
    0.2
    
    
    
    0.4
    
    
    
    (0.4
    )
    
    
    
    
    
    
    0.2Accelerated depreciation
    
    
    
    
    
    
    5.6
    
    
    
    
    
    
    
    (5.6
    )
    
    
    14.6
    
    
    
    22.1
    
    
    
    (18.1
    )
    
    
    (5.6
    )
    
    
    13.0Operating expensesResearch and development
    
    
    0.7
    
    
    
    1.9
    
    
    
    (1.8
    )
    
    
    
    
    
    
    0.8Selling, general and
administrative
    
    
    0.8
    
    
    
    0.8
    
    
    
    (0.7
    )
    
    
    
    
    
    
    0.91.5
    
    
    
    2.7
    
    
    
    (2.5
    )
    
    
    
    
    
    
    1.7Total restructuring charges
    
    $
    16.1
    
    
    $
    24.8
    
    
    $
    (20.6
    )
    
    $
    (5.6
    )
    
    $
    14.7
   NOTE 7  INCOME TAXES
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##### Table of Contents



NOTE 8  STOCKHOLDERS EQUITY
  Stockholders equity, December 31, 2008
    
    $
    2,108.6Common stock issued under employee plans
    
    
    21.5Increase in additional paid-in capital for share-based compensation plans
    
    
    14.4Net income
    
    
    165.1Other
comprehensive gain
    
    
    3.0Tax benefit from employee stock plans
    
    
    1.2Repurchase of common stock
    
    
    (3.2
    )Stockholders equity, September 30, 2009
    
    $
    2,310.6
 NOTE 9  FAIR VALUE MEASUREMENT
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##### Table of Contents



Fair Value Measurements as at September 30, 2009 Using:Total
    
    Level 1
    
    Level 2
    
    Level 3Marketable securities
    
    $
    13.1
    
    
    $
    13.1
    
    
    $
    
    
    
    $
    Investments
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    
 Fair Value Measurements as at December 31, 2008 Using:Total
    
    Level 1
    
    Level 2
    
    Level 3Marketable securities
    
    $
    13.2
    
    
    $
    13.2
    
    
    $
    
    
    
    $
    Investments
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    
  NOTE 10  CONTINGENCIES
 Legal Matters
  Cipro Litigation. In re:
Ciprofloxacin Hydrochloride Antitrust Litigation, MDL Docket No. 001383
 - 15 -




---



##### Table of Contents



® In re: Cipro
Cases I & II, JCCP Proceeding Nos. 4154 & 4220
 Governmental Reimbursement Investigations and Drug Pricing Litigation qui tam qui tam qui tam qui tam qui tam qui tam
 In re: Pharmaceutical
Industry Average Wholesale Price Litigation, MDL Docket No. 1456
 - 16 -




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##### Table of Contents



State of Nevada v.
American Home Products, et al., Civil Action No. 02-CV-12086-PBS, United States District Court for
the District of Massachusetts; State of Montana v. Abbott Laboratories, et al., Civil Action No.
02-CV-12084-PBS, United States District Court for the District of Massachusetts; Commonwealth of
Massachusetts v. Mylan Laboratories, et al., Civil Action No. 03-CV-11865-PBS, United States
District Court for the District of Massachusetts; State of Wisconsin v. Abbott Laboratories, et
al., Case No. 04-cv-1709, Wisconsin Circuit Court for Dane County; Commonwealth of Kentucky v.
Alpharma, Inc., et al., Case Number 04-CI-1487, Kentucky Circuit Court for Franklin County; State
of Alabama v. Abbott Laboratories, Inc. et al., Civil Action No. CV05-219, Alabama Circuit Court
for Montgomery County; State of Illinois v. Abbott Laboratories, Inc. et al., Civil Action No.
05-CH-02474, Illinois Circuit Court for Cook County;
State of Mississippi v. Abbott Laboratories, Inc. et al., Civil Action No. G2005-2021 S/2,
Mississippi Chancery Court of Hinds County; State of Florida ex rel. Ven-A-Care, Civil Action No
98-3032G, Florida Circuit Court in Leon County; State of Arizona ex rel. Terry Goddard, No. CV
2005-18711, Arizona Superior Court for Maricopa County; State of Missouri ex rel. Jeremiah W. (Jay)
Nixon v. Mylan Laboratories, et al, Case No. 054-2486, Missouri Circuit Court of St. Louis; State
of Alaska v. Alpharma Branded Products Division Inc., et al., In the Superior Court for the State
of Alaska Third Judicial District at Anchorage, C.A. No. 3AN-06-12026 CI; State of Idaho v.
Alpharma USPD Inc. et al., In the District Court of the Fourth Judicial District of the State of
Idaho, in and for the County of Ada, C.A. No. CV0C-0701847; State of South Carolina and Henry D.
McMaster v. Watson Pharmaceuticals (New Jersey), Inc., In the Court of Common Pleas for the Fifth
Judicial Circuit, State of South Carolina, County of Richland, C.A. No. 2006-CP-40-7152; State of
South Carolina and Henry D. McMaster v. Watson Pharmaceuticals (New Jersey), Inc., In the Court of
Common Pleas for the Fifth Judicial Circuit, State of South Carolina, County of Richland, C.A. No.
2006-CP-40-7155; State of Hawaii v. Abbott Laboratories, Inc. et al., In the Circuit Court of the
First Circuit, State of Hawaii, C.A. No. 06-1-0720-04 EEH; State of Utah v. Actavis U.S., Inc., et
al., In the Third Judicial District Court of Salt Lake County, Civil No. 07-0913719; State of Iowa
v. Abbott Laboratories, Inc., et al., In the U.S. District Court for the Southern District of Iowa,
Central Division, Case No. 07-CV-00461; State of Texas ex rel. Ven-A-Care of the Florida Keys, Inc.
v. Alpharma Inc., et al, Case No. 08-001565, in the District Court of Travis County, Texas; and
United States of America ex rel. Ven-A-Care of the Florida Keys, Inc., Civil Action No. 08-10852,
in the U.S. District Court for the District of Massachussetts and State of Kansas ex rel. Steve Six
v. Watson Pharmaceuticals, Inc. and Watson Pharma, Inc., Case Number: 08CV2228, District Court of
Wyandotte County, Kansas, Civil Court Department.
  - 17 -




---



##### Table of Contents



City
of New York v. Abbott Laboratories, Inc., et al., Civil Action No. 01-CV-12257-PBS, United States
District Court for the District of Massachusetts County of Orange v. Abbott
Laboratories, Inc., et al. United States District Court for the Southern District of New York,
Case No. 07-CV-2777
  FDA Matters. United States of America v. Watson Laboratories, Inc., and Allen Y.
Chao
  - 18 -




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##### Table of Contents



Federal Trade Commission Investigations ® ®
 Androgel ® Antitrust Litigation. Federal Trade Commission, et. al. v. Watson Pharmaceuticals, Inc.,
et. al., USDC Case No. CV 09-00598) ® ® ® (Meijer, Inc., et. al., v. Unimed Pharmaceuticals,
Inc., et. al., USDC Case No. EDCV 09-0215); (Rochester Drug Co-Operative, Inc. v. Unimed
Pharmaceuticals Inc., et. al., Case No. EDCV 09-0226); (Louisiana Wholesale Drug Co. Inc. v. Unimed
Pharmaceuticals Inc., et. al, Case No. EDCV 09-0228)
 - 19 -




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##### Table of Contents



Stephen L.
LaFrance Pharm., Inc. d/b/a SAJ Dist. v. Unimed Pharms., Inc., et al., Civ. No. 09-1507 Fraternal Order of Police, Fort Lauderdale Lodge 31, Insurance Trust Fund v. Unimed Pharms. Inc.,
et al., Civ. No. 09-1856 Scurto v. Unimed Pharms., Inc., et al., Civ. No. 09-1900 Stephen L. LaFrance United Food and Commercial Workers Unions
and Employers Midwest Health Benefits Fund v. Unimed Pharms., Inc., et al., Civ. No. 09-1168 ® United Food and Commercial Workers United Food and Commercial Workers Rite Aid Corp. et al. v. Unimed Pharms., Inc. et al.,
Civ. No. 09-1153, Walgreen Co., et al. v. Unimed Pharms., Inc., et al., Civ. No. 09-1240 ® Rite
Aid Rite Aid Walgreen In re: AndroGel ® Antitrust Litigation (No. II), MDL Docket No. 2084 Meijer Inc., Rochester Drug
Co-Operative, Inc., Louisiana Wholesale Drug Co. Inc., Rite Aid Corp., Walgreen Co., and Stephen L.
LaFrance Pharm., Inc. ®
 Department of Health and Human Services Subpoena. ®
 - 20 -




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##### Table of Contents



Hormone Replacement Therapy Litigation. In re: Prempro Products Liability
Litigation, MDL Docket No. 1507
 Levonorgestrel/Ethinyl Estradiol Tablets (Seasonale ® ) TM ® Duramed
Pharmaceuticals, Inc. v. Watson Pharmaceuticals, Inc., et. al., Case No. 07cv05941 ®
 Ferrlecit ® . ® ® ® ® ®
 Oxytrol ® Litigation. Watson Laboratories, Inc. v. Barr Laboratories, Inc., et al.
Case No. 08-793 ® ® ® ®
  - 21 -




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
   
    
    A cash payment of U.S. $1.05 billion at closing of the share purchase (the Closing);
    
    Approximately 16.9 million restricted shares of Common Stock of Watson issued at the
Closing;
    
    $200.0 million face amount of newly designated non-voting Series A Preferred Stock of
Watson issued at the Closing; and
    
    Certain contingent payments made after the Closing based on the after-tax gross profits
on sales of Atorvastatin in the U.S. as described in the Acquisition Agreement.
  Results of Operations
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##### Table of Contents



Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
 Three Months Ended September 30, 2009
    
    
    Three Months Ended September 30, 2008($ in millions):
    
    Generic
    
    
    Brand
    
    
    Distribution
    
    
    Total
    
    
    Generic
    
    
    Brand
    
    
    Distribution
    
    
    TotalProduct sales
    
    $
    392.3
    
    
    $
    96.1
    
    
    $
    151.4
    
    
    $
    639.8
    
    
    $
    352.2
    
    
    $
    94.3
    
    
    $
    170.9
    
    
    $
    617.4Other
    
    
    5.7
    
    
    
    16.6
    
    
    
    
    
    
    
    22.3
    
    
    
    11.6
    
    
    
    11.7
    
    
    
    
    
    
    
    23.3Net revenues
    
    
    398.0
    
    
    
    112.7
    
    
    
    151.4
    
    
    
    662.1
    
    
    
    363.8
    
    
    
    106.0
    
    
    
    170.9
    
    
    
    640.7Operating expenses:Cost of sales(1)
    
    
    204.1
    
    
    
    20.7
    
    
    
    128.9
    
    
    
    353.7
    
    
    
    212.4
    
    
    
    30.2
    
    
    
    144.1
    
    
    
    386.7Research and
development
    
    
    37.0
    
    
    
    14.9
    
    
    
    
    
    
    
    51.9
    
    
    
    31.7
    
    
    
    13.6
    
    
    
    
    
    
    
    45.3Selling and
marketing
    
    
    11.7
    
    
    
    32.5
    
    
    
    15.8
    
    
    
    60.0
    
    
    
    14.0
    
    
    
    29.0
    
    
    
    15.6
    
    
    
    58.6Contribution
    
    $
    145.2
    
    
    $
    44.6
    
    
    $
    6.7
    
    
    
    196.5
    
    
    $
    105.7
    
    
    $
    33.2
    
    
    $
    11.2
    
    
    
    150.1Contibution margin
    
    
    36.5
    %
    
    
    39.6
    %
    
    
    4.4
    %
    
    
    29.7
    %
    
    
    29.1
    %
    
    
    31.3
    %
    
    
    6.6
    %
    
    
    23.4
    %General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42.6Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.2Loss on asset sales and impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    110.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    87.0Operating margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.7
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.6
    %
 
 (1)
    
    Excludes amortization of acquired intangibles including product rights. Generic Segment
 Net Revenues
     - 23 -




---



##### Table of Contents



Cost of Sales
   Research and Development Expenses
   Selling and Marketing Expenses
   Brand Segment
 Net Revenues
  ® ® ®
 ® ®
  - 24 -




---



##### Table of Contents



® ® ® ® ® ®
 Cost of Sales
   Research and Development Expenses
   Selling and Marketing Expenses
   - 25 -




---



##### Table of Contents



Distribution Segment
 Net Revenues
   Cost of Sales
  Selling and Marketing Expenses
   Segment Contribution
 Three Months Ended September 30,
    
    
    Change($ in millions):
    
    2009
    
    
    2008
    
    
    Dollars
    
    
    %Segment contributionGeneric
    
    $
    145.2
    
    
    $
    105.7
    
    
    $
    39.5
    
    
    
    37.4
    %Brand
    
    
    44.6
    
    
    
    33.2
    
    
    
    11.4
    
    
    
    34.3
    %Distribution
    
    
    6.7
    
    
    
    11.2
    
    
    
    (4.5
    )
    
    
    (40.2
    )%$
    196.5
    
    
    $
    150.1
    
    
    $
    46.4
    
    
    
    30.9
    %as % of net revenues
    
    
    29.7
    %
    
    
    23.4
    %
  - 26 -




---



##### Table of Contents



Corporate General and Administrative Expenses
 Three Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Corporate general and administrative expenses
    
    $
    60.1
    
    
    $
    42.6
    
    
    $
    17.5
    
    
    
    41.1
    %as a % of net revenues
    
    
    9.1
    %
    
    
    6.6
    %
   Amortization
 Three Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Amortization
    
    $
    22.2
    
    
    $
    20.2
    
    
    $
    2.0
    
    
    
    9.9
    %as a % of net revenues
    
    
    3.4
    %
    
    
    3.2
    %
  Loss on Asset Sales and Impairment
 Three Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Loss on asset sales and impairment
    
    $
    3.5
    
    
    $
    0.3
    
    
    $
    3.2
    
    
    
    1,066.7
    %as a % of net revenues
    
    
    0.5
    %
    
    
    0.0
    %
   - 27 -




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##### Table of Contents



Loss on Early Extinguishment of Debt
 Three Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Loss on early extinguishment
of debt
    
    $
    2.0
    
    
    $
    
    
    
    $
    2.0
    
    
    
    100.0
    %as a % of net revenues
    
    
    0.3
    %
    
    
    0.0
    %
   Interest Income
 Three Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Interest income
    
    $
    1.0
    
    
    $
    2.2
    
    
    $
    (1.2
    )
    
    
    (54.5
    )%as a % of net revenues
    
    
    0.2
    %
    
    
    0.3
    %
  Interest Expense
 Three Months Ended September 30,
    
    
    Change($ in millions):
    
    2009
    
    
    2008
    
    
    Dollars
    
    
    %Interest
expense - $850.0 million Senior
Notes due 2014 (the 2014 Notes) and
due 2019 (the 2019 Notes), together
the Senior Notes
    
    $
    5.2
    
    
    $
    
    
    
    $
    5.2Interest expense - 2006 Credit Facility
due 2011
    
    
    1.0
    
    
    
    3.7
    
    
    
    (2.7
    )Interest
expense - CODES
    
    
    2.6
    
    
    
    3.2
    
    
    
    (0.6
    )Interest
expense - other
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1Interest expense
    
    $
    9.0
    
    
    $
    7.0
    
    
    $
    2.0
    
    
    
    28.6
    %as a % of net revenues
    
    
    1.4
    %
    
    
    1.1
    %
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##### Table of Contents



Other Income
 Three Months Ended September 30,
    
    
    Change($ in millions):
    
    2009
    
    
    2008
    
    
    Dollars
    
    
    %Earnings on equity method investments
    
    $
    1.5
    
    
    $
    3.7
    
    
    $
    (2.2
    )Gain on securities
    
    
    
    
    
    
    8.2
    
    
    
    (8.2
    )Other income
    
    
    0.1
    
    
    
    
    
    
    
    0.1$
    1.6
    
    
    $
    11.9
    
    
    $
    (10.3
    )
    
    
    (86.6
    )%as a % of net revenues
    
    
    0.2
    %
    
    
    1.9
    %
 Earnings on Equity Method Investments
   Gain on Sale of Securities
  Provision for Income Taxes
 Three Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Provision for income taxes
    
    $
    39.3
    
    
    $
    23.0
    
    
    $
    16.3
    
    
    
    70.9
    %Effective tax rate
    
    
    38.4
    %
    
    
    24.4
    %
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##### Table of Contents



Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
 Nine Months Ended September 30, 2009
    
    
    Nine Months Ended September 30, 2008($ in millions):
    
    Generic
    
    
    Brand
    
    
    Distribution
    
    
    Total
    
    
    Generic
    
    
    Brand
    
    
    Distribution
    
    
    TotalProduct sales
    
    $
    1,181.3
    
    
    $
    291.9
    
    
    $
    466.4
    
    
    $
    1,939.6
    
    
    $
    1,038.9
    
    
    $
    294.8
    
    
    $
    443.8
    
    
    $
    1,777.5Other
    
    
    19.6
    
    
    
    48.1
    
    
    
    
    
    
    
    67.7
    
    
    
    68.3
    
    
    
    44.5
    
    
    
    
    
    
    
    112.8Net revenues
    
    
    1,200.9
    
    
    
    340.0
    
    
    
    466.4
    
    
    
    2,007.3
    
    
    
    1,107.2
    
    
    
    339.3
    
    
    
    443.8
    
    
    
    1,890.3Operating expenses:Cost of sales(1)
    
    
    676.7
    
    
    
    66.9
    
    
    
    391.9
    
    
    
    1,135.5
    
    
    
    669.7
    
    
    
    82.1
    
    
    
    374.9
    
    
    
    1,126.7Research and
development
    
    
    97.0
    
    
    
    39.8
    
    
    
    
    
    
    
    136.8
    
    
    
    83.4
    
    
    
    39.1
    
    
    
    
    
    
    
    122.5Selling and
marketing
    
    
    35.8
    
    
    
    108.5
    
    
    
    47.6
    
    
    
    191.9
    
    
    
    41.9
    
    
    
    86.6
    
    
    
    43.7
    
    
    
    172.2Contribution
    
    $
    391.4
    
    
    $
    124.8
    
    
    $
    26.9
    
    
    
    543.1
    
    
    $
    312.2
    
    
    $
    131.5
    
    
    $
    25.2
    
    
    
    468.9Contibution margin
    
    
    32.6
    %
    
    
    36.7
    %
    
    
    5.8
    %
    
    
    27.1
    %
    
    
    28.2
    %
    
    
    38.8
    %
    
    
    5.7
    %
    
    
    24.8
    %General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140.0Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.6Loss on asset sales and impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    283.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    268.0Operating margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.1
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.2
    %
 
 (1)
    
    Excludes amortization of acquired intangibles including product rights. Generic Segment
 Net Revenues
  ® ®
 Cost of Sales
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##### Table of Contents



Research and Development Expenses
  Selling and Marketing Expenses
  Brand Segment
 Net Revenues
   Cost of Sales
  Research and Development Expenses
  Selling and Marketing Expenses
  - 31 -




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##### Table of Contents



Distribution Segment
 Net Revenues
  Cost of Sales
  Selling and Marketing Expenses
  Segment Contribution
 Nine Months Ended September 30,
    
    
    Change($ in millions):
    
    2009
    
    
    2008
    
    
    Dollars
    
    
    %Segment contributionGeneric
    
    $
    391.4
    
    
    $
    312.2
    
    
    $
    79.2
    
    
    
    25.4
    %Brand
    
    
    124.8
    
    
    
    131.5
    
    
    
    (6.7
    )
    
    
    (5.1
    )%Distribution
    
    
    26.9
    
    
    
    25.2
    
    
    
    1.7
    
    
    
    6.7
    %$
    543.1
    
    
    $
    468.9
    
    
    $
    74.2
    
    
    
    15.8
    %as % of net revenues
    
    
    27.1
    %
    
    
    24.8
    %
  Corporate General and Administrative Expenses
 Nine Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Corporate general and administrative expenses
    
    $
    191.1
    
    
    $
    140.0
    
    
    $
    51.1
    
    
    
    36.5
    %as a % of net revenues
    
    
    9.5
    %
    
    
    7.4
    %
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##### Table of Contents



Amortization
 Nine Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Amortization
    
    $
    66.1
    
    
    $
    60.6
    
    
    $
    5.5
    
    
    
    9.1
    %as a % of net revenues
    
    
    3.3
    %
    
    
    3.2
    %
  Loss on Asset Sales and Impairment
 Nine Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Loss on asset sales and impairment
    
    $
    2.2
    
    
    $
    0.3
    
    
    $
    1.9
    
    
    
    633.3
    %as a % of net revenues
    
    
    0.1
    %
    
    
    0.0
    %
  Loss on Early Extinguishment of Debt
 Nine Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Loss on early extinguishment
of debt
    
    $
    2.0
    
    
    $
    1.1
    
    
    $
    0.9
    
    
    
    81.8
    %as a % of net revenues
    
    
    0.1
    %
    
    
    0.1
    %
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##### Table of Contents



Interest Income
 Nine Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Interest income
    
    $
    4.3
    
    
    $
    6.2
    
    
    $
    (1.9
    )
    
    
    (30.6
    )%as a % of net revenues
    
    
    0.2
    %
    
    
    0.3
    %
  Interest Expense
 Nine Months Ended September 30,
    
    
    Change($ in millions):
    
    2009
    
    
    2008
    
    
    Dollars
    
    
    %Interest
expense - Senior Notes
    
    $
    5.2
    
    
    $
    
    
    
    $
    5.2Interest expense - 2006 Credit Facility
    
    
    3.9
    
    
    
    11.3
    
    
    
    (7.4
    )Interest
expense - CODES
    
    
    8.9
    
    
    
    9.4
    
    
    
    (0.5
    )Interest
expense - other
    
    
    0.3
    
    
    
    
    
    
    
    0.3Interest expense
    
    $
    18.3
    
    
    $
    20.7
    
    
    $
    (2.4
    )
    
    
    (11.6
    )%as a % of net revenues
    
    
    0.9
    %
    
    
    1.1
    %
  Other Income
 Nine Months Ended September 30,
    
    
    Change($ in millions):
    
    2009
    
    
    2008
    
    
    Dollars
    
    
    %Earnings on equity method investments
    
    $
    6.2
    
    
    $
    9.6
    
    
    $
    (3.4
    )(Loss) gain on securities
    
    
    (1.1
    )
    
    
    9.6
    
    
    
    (10.7
    )Other income
    
    
    0.1
    
    
    
    0.1
    
    
    
    $
    5.2
    
    
    $
    19.3
    
    
    $
    (14.1
    )
    
    
    (73.1
    )%as a % of net revenues
    
    
    0.3
    %
    
    
    1.0
    %
 Earnings on Equity Method Investments
  - 34 -




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(Loss) Gain on Securities
   Provision for Income Taxes
 Nine Months Ended September 30,
    
    Change($ in millions):
    
    2009
    
    2008
    
    Dollars
    
    %Provision for income taxes
    
    $
    107.8
    
    
    $
    89.7
    
    
    $
    18.1
    
    
    
    20.2
    %Effective tax rate
    
    
    39.5
    %
    
    
    33.0
    %
  Liquidity and Capital Resources
 Working Capital Position
  September 30,
    
    
    December 31,
    
    
    Increase($ in millions):
    
    2009
    
    
    2008
    
    
    (Decrease)Current Assets:Cash and cash equivalents
    
    $
    812.9
    
    
    $
    507.6
    
    
    $
    305.3Marketable securities
    
    
    13.1
    
    
    
    13.2
    
    
    
    (0.1
    )Accounts receivable, net of allowances
    
    
    377.1
    
    
    
    305.0
    
    
    
    72.1Inventories
    
    
    505.7
    
    
    
    473.1
    
    
    
    32.6Other
    
    
    176.5
    
    
    
    159.5
    
    
    
    17.0Total current assets
    
    
    1,885.3
    
    
    
    1,458.4
    
    
    
    426.9Current liabilities:Accounts payable and accrued expenses
    
    
    399.1
    
    
    
    381.3
    
    
    
    17.8Short-term debt and current portion of long-term debt
    
    
    1.6
    
    
    
    53.2
    
    
    
    (51.6
    )Other
    
    
    39.2
    
    
    
    47.5
    
    
    
    (8.3
    )Total current liabilities
    
    
    439.9
    
    
    
    482.0
    
    
    
    (42.1
    )Working Capital
    
    $
    1,445.4
    
    
    $
    976.4
    
    
    $
    469.0Current Ratio
    
    
    4.29
    
    
    
    3.03
  - 35 -




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##### Table of Contents



Cash Flows from Operations
  Nine months ended September 30,($ in millions):
    
    2009
    
    2008Net cash provided by operating activities
    
    $
    235.6
    
    
    $
    240.2
  Investing Cash Flows
  Nine months ended September 30,($ in millions):
    
    2009
    
    2008Net cash used in investing activities
    
    $
    55.0
    
    
    $
    35.3
  - 36 -




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##### Table of Contents



Financing Cash Flows
  Nine months ended September 30,($ in millions):
    
    2009
    
    2008Net cash provided by (used in) financing activities
    
    $
    124.7
    
    
    $
    (70.1
    )
  Debt and Borrowing Capacity
  September 30,
    
    
    December 31,
    
    
    Increase($ in millions):
    
    2009
    
    
    2008
    
    
    (Decrease)Short-term debt and current portion of
long-term debt
    
    $
    1.6
    
    
    $
    53.2
    
    
    $
    (51.6
    )Long-term debt
    
    
    997.4
    
    
    
    824.7
    
    
    
    172.7Total debt
    
    $
    999.0
    
    
    $
    877.9
    
    
    $
    121.1Debt to capital ratio
    
    
    30.2
    %
    
    
    29.4
    %
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##### Table of Contents




    
    maintenance of a minimum net worth of at least $1.59 billion;
    
    maintenance of a maximum leverage ratio not greater than 2.75 to 1.0; and
    
    maintenance of a minimum interest coverage ratio of at least 5.0 to 1.0.
   Long-term Obligations
  Payments Due by Period (Including Interest on Debt)Less than(in millions):
    
    Total
    
    1 year
    
    1-3 years
    
    4-5 years
    
    After 5 yearsLong-term debt and other debt(1)
    
    $
    1,356.6
    
    
    $
    50.2
    
    
    $
    292.8
    
    
    $
    518.7
    
    
    $
    494.9
 
 (1)
    
    Amounts represent total anticipated cash payments and anticipated interest payments on our
2006 Credit Facility, the Senior Notes and the short-term portion of our debt obligations
assuming existing debt maturity schedules. Any prepayment of or additional borrowings under
our 2006 Credit Facility would change anticipated interest payments and the amount of
principal amounts due under the 2006 Credit Facility. Amounts exclude fair value adjustments,
discounts or premiums on outstanding debt obligations  - 38 -




---



##### Table of Contents



Accounting Pronouncements
 TM
      - 39 -




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Investment Risk
   Interest Rate Risk
      - 40 -




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
    - 41 -




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Legal Matters
 
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (a) Recent Sales of Unregistered Securities
  (b) Use of Proceeds
  (c) Issuer Purchases of Equity Securities
  Total Number of
    
    Approximate DollarTotal Number
    
    Average
    
    Shares Purchased as
    
    Value of Shares thatof Shares
    
    Price Paid
    
    Part of Publicaly
    
    May Yet Be PurchasedPeriod
    
    Purchased
    
    per Share
    
    Announced Program
    
    Under the ProgramJuly 1 - 31, 2009
    
    
    1,000
    
    
    $
    33.24
    
    
    
    
    
    
    
    August 1 - 31, 2009
    
    
    21,000
    
    
    $
    34.82
    
    
    
    
    
    
    
    September 1 - 30, 2009
    
    
    7,000
    
    
    $
    34.81
    
    
    
    
    
    
    
    
 
 ITEM 6. EXHIBITS
   - 42 -




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##### Table of Contents



SIGNATURES
  WATSON PHARMACEUTICALS, INC.(Registrant)By:
    
    /s/ R. Todd JoyceR. Todd JoyceSenior Vice President  Chief Financial Officer(Principal Accounting Officer and Principal Financial Officer)
  - 43 -




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##### Table of Contents



WATSON PHARMACEUTICALS, INC.
 EXHIBIT INDEX TO FORM 10-Q
For the Quarterly Period Ended September 30, 2009
 ExhibitNo.

    
    Description1.1
    
    
    Underwriting Agreement by and among the Company and Banc of
America Securities LLC and Barclays Capital Inc., as
representatives of the several underwriters named therein, dated
as of August 18, 2009, is incorporated by reference to Exhibit 1.1
to the Companys August 18, 2009 Form 8-K.4.1
    
    
    Indenture between the Company and Wells Fargo Bank, N.A., as
trustee, dated as of August 24, 2009, is incorporated by reference
to Exhibit 4.1 to the Companys August 18, 2009 Form 8-K.4.2
    
    
    First Supplemental Indenture between the Company and Wells Fargo
Bank, N.A., as trustee, dated as of August 24, 2009, including the
forms of the Companys 5.000% Senior Notes due 2014 and 6.125%
Senior Notes due 2019, is incorporated by reference to Exhibit 4.2
to the Companys August 18, 2009 Form 8-K.*10.1
    
    
    Second Amendment to Watson Pharmaceuticals, Inc. Key Employment Agreement entered into as of August 13, 2009 by
and between Thomas R. Russillo and the Company.*10.2
    
    
    Key Employment Agreement entered into as of October 30, 2009 by and between R. Todd Joyce
and the Company, is incorporated by reference to Exhibit 10.1 to the Companys October 30, 2009 Form 8-K.31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14a
of the Securities Exchange Act of 1934.31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14a
of the Securities Exchange Act of 1934.32.1
    
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(d) of the Securities Exchange Act of 1934.32.2
    
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(d) of the Securities Exchange Act of 1934.
   - 44 -