Myl 10Q_Jun 30 2012 Doc

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 2012
OR
 
¨
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 1-9114
MYLAN INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
 
25-1211621
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1500 Corporate Drive, Canonsburg, Pennsylvania 15317
(Address of principal executive offices)
(724) 514-1800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
þ
  
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class of

  
Outstanding at

 
 
Common Stock
 
July 20, 2012
 
 
$0.50 par value
  
405,887,535
 

 


Table of Contents

MYLAN INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarterly Period Ended
June 30, 2012
 
  
 
Page
 
PART I — FINANCIAL INFORMATION
 
ITEM 1.
Condensed Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
 
PART II — OTHER INFORMATION
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 6.
 
 
 
 

2

Table of Contents

PART I — FINANCIAL INFORMATION


MYLAN INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share amounts)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Net revenues
$
1,677,985

 
$
1,570,364

 
$
3,251,060

 
$
3,006,873

Other revenues
13,552

 
3,513

 
32,885

 
15,961

Total revenues
1,691,537

 
1,573,877

 
3,283,945

 
3,022,834

Cost of sales
992,358

 
904,448

 
1,918,493

 
1,762,460

Gross profit
699,179

 
669,429

 
1,365,452

 
1,260,374

Operating expenses:
 
 
 
 
 
 
 
Research and development
94,361

 
72,494

 
175,320

 
147,804

Selling, general and administrative
359,216

 
314,220

 
695,985

 
594,215

Litigation settlements, net
(12,206
)
 
2,244

 
(10,033
)
 
26,210

Total operating expenses
441,371

 
388,958

 
861,272

 
768,229

Earnings from operations
257,808

 
280,471

 
504,180

 
492,145

Interest expense
75,666

 
84,654

 
158,075

 
169,064

Other income, net
7,837

 
7,218

 
2,145

 
10,470

Earnings before income taxes and noncontrolling interest
189,979

 
203,035

 
348,250

 
333,551

Income tax provision
50,843

 
56,049

 
79,687

 
82,020

Net earnings
139,136

 
146,986

 
268,563

 
251,531

Net earnings attributable to the noncontrolling interest
(586
)
 
(540
)
 
(934
)
 
(910
)
Net earnings attributable to Mylan Inc. common shareholders
$
138,550

 
$
146,446

 
$
267,629

 
$
250,621

Earnings per common share attributable to Mylan Inc. common shareholders:
 
 
 
 
 
 
 
Basic
$
0.33

 
$
0.34

 
$
0.63

 
$
0.58

Diluted
$
0.33

 
$
0.33

 
$
0.62

 
$
0.56

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
420,281

 
433,236

 
423,766

 
435,192

Diluted
424,394

 
445,391

 
428,380

 
446,932

See Notes to Condensed Consolidated Financial Statements

3

Table of Contents

MYLAN INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Earnings
(Unaudited; in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Net earnings
$
139,136

 
$
146,986

 
$
268,563

 
$
251,531

Other comprehensive (loss) earnings, before tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(218,222
)
 
116,123

 
(116,784
)
 
279,929

Change in unrecognized (loss) gain and prior service
cost related to post-retirement plans
(9
)
 
513

 
(19
)
 
522

Net unrecognized (loss) gain on derivatives
(34,806
)
 
(1,181
)
 
(12,160
)
 
3,469

Net unrealized gain (loss) on marketable securities
88

 
237

 
(80
)
 
(131
)
Other comprehensive (loss) earnings, before tax
(252,949
)
 
115,692

 
(129,043
)
 
283,789

Income tax related to items of other comprehensive (loss) earnings
(11,198
)
 
(154
)
 
(4,008
)
 
1,406

Other comprehensive (loss) earnings, net of tax
(241,751
)
 
115,846

 
(125,035
)
 
282,383

Comprehensive (loss) earnings
(102,615
)
 
262,832

 
143,528

 
533,914

Comprehensive earnings attributable to the
noncontrolling interest
(586
)
 
(540
)
 
(934
)
 
(910
)
Comprehensive (loss) earnings attributable to Mylan Inc.
common shareholders
$
(103,201
)
 
$
262,292

 
$
142,594

 
$
533,004

See Notes to Condensed Consolidated Financial Statements

4

Table of Contents

 MYLAN INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited; in thousands, except share and per share amounts)
 
June 30, 2012
 
December 31, 2011
ASSETS
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
314,330

 
$
375,056

Restricted cash
1,413

 
9,274

Marketable securities
32,240

 
30,686

Accounts receivable, net
1,526,315

 
1,426,438

Inventories
1,473,360

 
1,396,742

Deferred income tax benefit
195,743

 
202,899

Prepaid expenses and other current assets
208,526

 
127,749

Total current assets
3,751,927

 
3,568,844

Property, plant and equipment, net
1,298,587

 
1,298,034

Intangible assets, net
2,491,377

 
2,630,747

Goodwill
3,467,924

 
3,517,935

Deferred income tax benefit
84,065

 
39,376

Other assets
508,091

 
543,207

Total assets
$
11,601,971

 
$
11,598,143

 
 
 
 
LIABILITIES AND EQUITY
Liabilities
 
 
 
Current liabilities:
 
 
 
Trade accounts payable
$
678,451

 
$
703,235

Short-term borrowings
406,130

 
128,054

Income taxes payable
57,740

 
42,880

Current portion of long-term debt and other long-term obligations
98,379

 
691,614

Deferred income tax liability
1,132

 
1,215

Other current liabilities
922,180

 
996,158

Total current liabilities
2,164,012

 
2,563,156

Long-term debt
5,165,931

 
4,479,080

Contingent consideration
393,339

 
376,110

Other long-term obligations
385,767

 
366,100

Deferred income tax liability
293,801

 
308,915

Total liabilities
8,402,850

 
8,093,361

Equity
 
 
 
Mylan Inc. shareholders’ equity
 
 
 
Common stock — par value $0.50 per share
 
 
 
Shares authorized: 1,500,000,000
 
 
 
Shares issued: 532,294,070 and 530,315,453 as of June 30, 2012 and
December 31, 2011
266,147

 
265,158

Additional paid-in capital
3,834,631

 
3,795,373

Retained earnings
1,688,149

 
1,420,520

Accumulated other comprehensive loss
(212,874
)
 
(87,839
)
 
5,576,053

 
5,393,212

Noncontrolling interest
13,932

 
13,007

Less: treasury stock — at cost

 
 
Shares: 126,455,343 and 103,637,016 as of June 30, 2012 and
December 31, 2011
2,390,864

 
1,901,437

Total equity
3,199,121

 
3,504,782

Total liabilities and equity
$
11,601,971

 
$
11,598,143

See Notes to Condensed Consolidated Financial Statements

5

Table of Contents

MYLAN INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited; in thousands)
 
 
Six Months Ended June 30,
 
 
2012
 
2011
Cash flows from operating activities:
 
 
 
 
Net earnings
 
$
268,563

 
$
251,531

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
250,956

 
244,877

Stock-based compensation expense
 
22,435

 
21,198

Change in estimated sales allowances
 
180,391

 
38,861

Deferred income tax benefit
 
(57,076
)
 
(54,005
)
Other non-cash items
 
118,935

 
33,593

Litigation settlements, net
 
(10,033
)
 
26,210

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(288,011
)
 
(300,200
)
Inventories
 
(109,639
)
 
(139,998
)
Trade accounts payable
 
(8,975
)
 
55,559

Income taxes
 
(32,837
)
 
81,301

Deferred revenue
 
(14,645
)
 

Other operating assets and liabilities, net
 
(127,426
)
 
(115,581
)
Net cash provided by operating activities
 
192,638

 
143,346

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(98,918
)
 
(111,413
)
Purchase of marketable securities
 
(7,957
)
 
(2,890
)
Proceeds from sale of marketable securities
 
6,568

 
571

Other items, net
 
(62,622
)
 
2,132

Net cash used in investing activities
 
(162,929
)
 
(111,600
)
Cash flows from financing activities:
 
 
 
 
Purchase of common stock
 
(499,953
)
 
(349,998
)
Change in short-term borrowings, net
 
283,108

 
4,924

Proceeds from issuance of long-term debt
 
835,000

 

Payment of long-term debt
 
(732,549
)
 
(2,466
)
Proceeds from exercise of stock options
 
27,676

 
61,166

Other items, net
 
4,335

 
4,020

Net cash used in financing activities
 
(82,383
)
 
(282,354
)
Effect on cash of changes in exchange rates
 
(8,052
)
 
23,495

Net decrease in cash and cash equivalents
 
(60,726
)
 
(227,113
)
Cash and cash equivalents — beginning of period
 
375,056

 
662,052

Cash and cash equivalents — end of period
 
$
314,330

 
$
434,939

See Notes to Condensed Consolidated Financial Statements

6

Table of Contents
MYLAN INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
 



1.
General
The accompanying unaudited Condensed Consolidated Financial Statements (“interim financial statements”) of Mylan Inc. and subsidiaries (“Mylan” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes and other financial information included in audited financial statements were condensed or omitted. The interim financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.
These interim financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The December 31, 2011 Condensed Consolidated Balance Sheet was derived from audited financial statements.
The interim results of operations for the three and six months ended and the interim cash flows for the six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the full fiscal year or any other future period. The Company computed its provision for income taxes using an estimated effective tax rate for the full year with consideration of certain discrete tax items which occurred within the interim period. The estimated annual effective tax rate for 2012 includes an estimate of the full-year effect of foreign tax credits that the Company anticipates it will claim against its 2012 U.S. tax liabilities.

2.
Revenue Recognition and Accounts Receivable
Mylan recognizes net revenue for product sales when title and risk of loss pass to its customers and when provisions for estimates, including discounts, sales allowances, price adjustments, returns, chargebacks and other promotional programs are reasonably determinable. Accounts receivable are presented net of allowances relating to these provisions. No revisions were made to the methodology used in determining these provisions during the six months ended June 30, 2012. Such allowances were $928.8 million and $763.0 million at June 30, 2012 and December 31, 2011. Other current liabilities include $160.0 million and $147.9 million at June 30, 2012 and December 31, 2011, for certain sales allowances and other adjustments that are paid to indirect customers.
In February 2012, Mylan Pharmaceuticals Inc. (“MPI”) entered into a receivable securitization facility (the “Receivables Facility”) of up to $300.0 million (which was subsequently expanded to $400.0 million in July 2012). Pursuant to the terms of the Receivables Facility, MPI transfers certain of its domestic receivables, on an ongoing basis, to Mylan Securitization LLC (“Mylan Securitization”), a wholly-owned bankruptcy remote subsidiary. In turn, from time to time, Mylan Securitization sells its interests in such receivables, related assets and collections to certain conduit purchasers, committed purchasers and letter of credit issuers in exchange for cash or letters of credit. Mylan Securitization maintains a subordinated interest, in the form of over collateralization, in a portion of the receivables sold. At June 30, 2012, there were $300.0 million of short-term borrowings outstanding under the Receivables Facility, which are recorded as a secured loan and included in short-term borrowings in the Condensed Consolidated Balance Sheets. The receivables underlying any borrowings are included in accounts receivable, net, in the Condensed Consolidated Balance Sheets. There were $688.7 million of securitized accounts receivable at June 30, 2012.
The Company utilizes proceeds from the sale of its accounts receivable as an alternative to other forms of debt, effectively reducing its overall borrowing costs. MPI has agreed to continue servicing the sold receivables for the financial institution at market rates.

3.
Acquisitions
The Respiratory Delivery Platform
On December 23, 2011, Mylan completed its acquisition of the exclusive worldwide rights to develop, manufacture and commercialize a generic equivalent to GlaxoSmithKline’s Advair® Diskus and Seretide® Diskus incorporating Pfizer Inc.’s (“Pfizer”) proprietary dry powder inhaler delivery platform (the “Respiratory Delivery Platform”). As part of the agreement, Mylan will fund the remaining development and capital requirements to bring the products to market. In accordance with GAAP guidance regarding business combinations, the Company accounted for this transaction as a purchase of a business and utilized the purchase method of accounting. Under the purchase method of accounting, the assets acquired and liabilities assumed in the transaction were recorded at the date of acquisition at the estimate of their respective fair values.

7

Table of Contents
MYLAN INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


The total purchase consideration was $348 million. This amount consisted of an initial cash payment of $22 million, approximately $4 million in assumed liabilities, and $322 million of contingent consideration. Pfizer is eligible to receive milestone payments, which are contingent upon future product development achievements including regulatory approvals, market launches, sales targets and profitability. The $322 million of contingent consideration at the acquisition date represents the net present value of expected milestone and profit sharing payments. The purchase price allocation, including the valuation of the contingent payment elements of the purchase price, resulted in in-process research and development (“IPR&D”) of $338 million, fixed assets of $8 million and goodwill of $2 million. The impact on our results of operations since the acquisition date was not material.
The amount allocated to acquired IPR&D represents an estimate of the fair value of purchased in-process technology that, as of the closing date of the acquisition, had not reached technological feasibility and had no alternative future use. The fair value of IPR&D was based on the excess earnings method, which utilizes forecasts of expected net cash inflows (including estimates for ongoing costs) and other contributory charges. A discount rate of 12.5% was utilized to discount net cash inflows to present values.
The project is in the early stages of development, and the expected costs to complete are estimated to be significant. The project is not expected to begin generating a material benefit to the Company until after 2016. There can be no certainty that these assets ultimately will yield a successful product. Failure to successfully complete this project would have a material impact on the IPR&D assets related to it. Additionally, no assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change in future periods.

4.
Stock-Based Incentive Plan
Mylan’s shareholders have approved the 2003 Long-Term Incentive Plan (as amended, the “2003 Plan”). Under the 2003 Plan, 55,300,000 shares of common stock are reserved for issuance to key employees, consultants, independent contractors and non-employee directors of Mylan through a variety of incentive awards, including: stock options, stock appreciation rights, restricted shares and units, performance awards, other stock-based awards and short-term cash awards. Stock option awards are granted at the fair value of the shares underlying the options at the date of the grant, generally become exercisable over periods ranging from three years to four years, and generally expire in ten years. In the 2003 Plan, no more than 8,000,000 shares may be issued as restricted shares, restricted units, performance shares and other stock-based awards.
Upon approval of the 2003 Plan, no further grants of stock options have been made under any other plan. However, there are stock options outstanding from frozen or expired plans and other plans assumed through acquisitions.
The following table summarizes stock option activity:
 
Number of Shares
Under Option
 
Weighted
Average
Exercise Price
per Share
Outstanding at December 31, 2011
23,599,256

 
$
17.42

Options granted
2,457,343

 
22.94

Options exercised
(1,978,618
)
 
13.99

Options forfeited
(369,908
)
 
19.68

Outstanding at June 30, 2012
23,708,073

 
$
18.24

Vested and expected to vest at June 30, 2012
22,629,289

 
$
18.12

Options exercisable at June 30, 2012
16,027,140

 
$
16.83

As of June 30, 2012, options outstanding, options vested and expected to vest, and options exercisable had average remaining contractual terms of 6.05 years, 5.93 years and 4.77 years, respectively. Also at June 30, 2012, options outstanding, options vested and expected to vest and options exercisable had aggregate intrinsic values of $85.0 million, $83.3 million and $75.5 million, respectively.
A summary of the status of the Company’s nonvested restricted stock and restricted stock unit awards, including performance based restricted stock, as of June 30, 2012 and the changes during the six months ended June 30, 2012 is presented below:

8

Table of Contents
MYLAN INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


 
Number of
Restricted
Stock Awards
 
Weighted  Average
Grant-Date
Fair Value per  Share
Nonvested at December 31, 2011
2,520,487

 
$
20.16

Granted
926,512

 
23.28

Released
(788,398
)
 
16.18

Forfeited
(59,020
)
 
22.33

Nonvested at June 30, 2012
2,599,581

 
$
22.44

As of June 30, 2012, the Company had $63.7 million of total unrecognized compensation expense, net of estimated forfeitures, related to all of its stock-based awards, which will be recognized over the remaining weighted average period of 1.75 years. The total intrinsic value of stock-based awards exercised and restricted stock units converted during the six months ended June 30, 2012 and June 30, 2011 was $34.9 million and $56.2 million.

5.
Balance Sheet Components
Selected balance sheet components consist of the following:
(In thousands)
June 30,
2012
 
December 31,
2011
Inventories:
 
 
 
Raw materials
$
414,577

 
$
370,423

Work in process
235,477

 
253,492

Finished goods
823,306

 
772,827

 
$
1,473,360

 
$
1,396,742

Property, plant and equipment:
 
 
 
Land and improvements
$
71,401

 
$
72,945

Buildings and improvements
675,971

 
676,028

Machinery and equipment
1,337,312

 
1,358,163

Construction in progress
267,257

 
263,948

 
2,351,941

 
2,371,084

Less accumulated depreciation
1,053,354

 
1,073,050

 
$
1,298,587

 
$
1,298,034

Other current liabilities:
 
 
 
Legal and professional accruals, including litigation reserves
$
141,482

 
$
232,670

Payroll and employee benefit plan accruals
193,774

 
221,458

Accrued sales allowances
160,042

 
147,938

Accrued interest
73,711

 
74,754

Fair value of financial instruments
72,202

 
69,493

Other
280,969

 
249,845

 
$
922,180

 
$
996,158


6.
Earnings per Common Share attributable to Mylan Inc.
Basic earnings per common share is computed by dividing net earnings attributable to Mylan Inc. common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per common share is computed by dividing net earnings attributable to Mylan Inc. common shareholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding related to potentially dilutive securities or instruments, if the impact is dilutive.

9

Table of Contents
MYLAN INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


On September 15, 2008, concurrent with the sale of $575.0 million aggregate principal amount of Cash Convertible Notes due 2015 (the “Cash Convertible Notes”), Mylan entered into a convertible note hedge and warrant transaction with certain counterparties. Pursuant to the warrant transactions, the Company sold to the counterparties warrants to purchase in the aggregate up to approximately 43.2 million shares of Mylan common stock, subject to anti-dilution adjustments substantially similar to the anti-dilution adjustments for the Cash Convertible Notes, which under most circumstances represents the maximum number of shares that underlie the conversion reference rate for the Cash Convertible Notes. The sold warrants had an exercise price of $20.00 and will be net share settled, meaning that Mylan will issue a number of shares per warrant corresponding to the difference between its share price at each warrant expiration date and the exercise price. The warrants meet the definition of derivatives under the guidance in FASB Accounting Standards Codification (“ASC”) 815 Derivatives and Hedging (“ASC 815”); however, because these instruments have been determined to be indexed to the Company’s own stock and meet the criteria for equity classification under ASC 815-40 Contracts in Entity’s Own Equity, the warrants have been recorded in shareholders’ equity in the Condensed Consolidated Balance Sheets.
In September 2011, the Company entered into amendments with the counterparties to exchange the original warrants with an exercise price of $20.00 (the “Old Warrants”) with new warrants with an exercise price of $30.00 (the “New Warrants”). Approximately 41.0 million of the Old Warrants were exchanged in the transaction. All other terms and settlement provisions of the Old Warrants remain unchanged in the New Warrants. The New Warrants meet the definition of derivatives under the guidance in ASC 815; however, because these instruments have been determined to be indexed to the Company’s own stock and meet the criteria for equity classification under ASC 815-40, the New Warrants have also been recorded in shareholders’ equity in the Condensed Consolidated Balance Sheets.
The average market value of the Company’s shares did not exceed the exercise price of the New Warrants during the three and six months ended June 30, 2012. For the three and six months ended June 30, 2012, the average market value of the Company’s shares exceeded the exercise price of the Old Warrants, and as a result, the Company has included 0.2 million and 0.2 million shares, respectively, in the calculation of diluted earnings per share. For the three and six months ended June 30, 2011, the average market value of the Company's shares exceeded the exercise price of the Old Warrants, and as a result, the Company has included 6.5 million and 5.9 million shares, respectively, in the calculation of diluted earnings per share.
On May 10, 2012, the Company announced that its Board of Directors had approved the repurchase of up to $500.0 million of the Company's common stock in the open market. As of June 30, 2012, the repurchase program was completed with approximately 23.4 million shares of common stock being repurchased for approximately $500.0 million.
Basic and diluted earnings per common share attributable to Mylan Inc. are calculated as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In thousands, except per share amounts)
2012
 
2011
 
2012
 
2011
Basic earnings attributable to Mylan Inc. common shareholders (numerator):
 
 
 
 
 
 
 
Net earnings attributable to Mylan Inc. common shareholders
$
138,550

 
$
146,446

 
$
267,629

 
$
250,621

Shares (denominator):
 
 
 
 
 
 
 
Weighted average common shares outstanding
420,281

 
433,236

 
423,766

 
435,192

Basic earnings per common share attributable to Mylan Inc. common shareholders
$
0.33

 
$
0.34

 
$
0.63

 
$
0.58

Diluted earnings attributable to Mylan Inc. common shareholders (numerator):
 
 
 
 
 
 
 
Net earnings attributable to Mylan Inc. common shareholders
$
138,550

 
$
146,446

 
$
267,629

 
$
250,621

Shares (denominator):
 
 
 
 
 
 
 
Weighted average common shares outstanding
420,281

 
433,236

 
423,766

 
435,192

Stock-based awards and warrants
4,113

 
12,155

 
4,614

 
11,740

Total dilutive shares outstanding
424,394

 
445,391

 
428,380

 
446,932

Diluted earnings per common share attributable to Mylan Inc. common shareholders
$
0.33

 
$
0.33

 
$
0.62

 
$
0.56


Additional stock options or restricted stock awards were outstanding during the periods ended June 30, 2012 and June 30, 2011 but were not included in the computation of diluted earnings per share for each respective period, because the effect

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MYLAN INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


would be anti-dilutive. Such anti-dilutive stock options or restricted stock awards represented 8.2 million and 7.4 million shares for the three and six months ended June 30, 2012, respectively, and 4.9 million and 4.0 million shares for the three and six months ended June 30, 2011, respectively.

7.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the six months ended June 30, 2012 are as follows:
(In thousands)
Generics
Segment
 
Specialty
Segment
 
Total
Balance at December 31, 2011:
 
 
 
 
 
Goodwill
$
3,196,428

 
$
706,507

 
$
3,902,935

Accumulated impairment losses

 
(385,000
)
 
(385,000
)
 
3,196,428

 
321,507

 
3,517,935

Foreign currency translation
(50,011
)
 

 
(50,011
)
 
3,146,417

 
321,507

 
3,467,924

Balance at June 30, 2012:
 
 
 
 
 
Goodwill
3,146,417

 
706,507

 
3,852,924

Accumulated impairment losses

 
(385,000
)
 
(385,000
)
 
$
3,146,417

 
$
321,507

 
$
3,467,924


Intangible assets consist of the following components:
(In thousands)
Weighted
Average Life
(Years)
 
Original
Cost
 
Accumulated
Amortization
 
Net Book
Value
June 30, 2012
 
 
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
 
 
Patents and technologies
20
 
$
116,631

 
$
85,551

 
$
31,080

Product rights and licenses
10
 
3,424,613

 
1,548,888

 
1,875,725

Other (1)
8
 
180,801

 
50,858

 
129,943

 
 
 
3,722,045

 
1,685,297

 
2,036,748

IPR&D
 
 
454,629

 

 
454,629

 
 
 
$
4,176,674

 
$
1,685,297

 
$
2,491,377

December 31, 2011
 
 
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
 
 
Patents and technologies
20
 
$
116,631

 
$
82,815

 
$
33,816

Product rights and licenses
10
 
3,364,263

 
1,418,492

 
1,945,771

Other (1)
8
 
200,663

 
45,604

 
155,059

 
 
 
3,681,557

 
1,546,911

 
2,134,646

IPR&D
 
 
496,101

 

 
496,101

 
 
 
$
4,177,658

 
$
1,546,911

 
$
2,630,747

____________
(1) 
Other intangible assets consist principally of customer lists and contracts.
Amortization expense, which is classified primarily within cost of sales on Mylan’s Condensed Consolidated Statements of Operations, for the six months ended June 30, 2012 and June 30, 2011 was $175.0 million and $170.7 million, respectively, and is expected to be approximately $171 million for the remainder of 2012 and $338 million, $331 million, $308 million and $241 million for the years ended December 31, 2013 through 2016, respectively.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


Indefinite-lived intangibles, such as the Company’s IPR&D assets, are tested at least annually for impairment, but may be tested whenever certain impairment indicators are present. Impairment is determined to exist when the fair value is less than the carrying value of the assets being tested.
During the six months ended June 30, 2012, approximately $33.0 million was reclassified from acquired IPR&D to product rights and licenses. Also during the six months ended June 30, 2012, the Company paid approximately $70.0 million to acquire products rights and licenses, the majority of which relates to two dermatological products acquired from Valeant Pharmaceuticals.

8.
Financial Instruments and Risk Management
Financial Risks
Mylan is exposed to certain financial risks relating to its ongoing business operations. The primary financial risks that are managed by using derivative instruments are foreign currency risk, interest rate risk and equity risk.
In order to manage foreign currency risk, Mylan enters into foreign exchange forward contracts to mitigate risk associated with changes in spot exchange rates of mainly non-functional currency denominated assets or liabilities. The foreign exchange forward contracts are measured at fair value and reported as current assets or current liabilities on the Condensed Consolidated Balance Sheets. Any gains or losses on the foreign exchange forward contracts are recognized in earnings in the period incurred in the Condensed Consolidated Statements of Operations.
The Company has 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.
The Company enters into interest rate swaps in order to manage interest rate risk associated with the Company’s fixed and floating-rate debt. These derivative instruments are measured at fair value and reported as current assets or current liabilities on the Condensed Consolidated Balance Sheets.
In December 2011, the Company executed $500.0 million of notional interest rate swaps in order to fix the interest rate on a portion of its variable rate U.S. Term Loans under its senior credit agreement (the “Senior Credit Agreement”). In January 2012, the Company executed a further $350.0 million of notional interest rate swaps in order to fix the interest rate on an additional portion of its variable rate U.S. Term Loans under the Senior Credit Agreement. In June 2012, the Company executed an additional $750.0 million of forward starting swaps to extend the existing swaps to maturities ranging from March 2016 to November 2016. All of these interest rate swaps are designated as cash flow hedges of the variability of interest expense related to the Company’s variable rate debt. Any changes in fair value are included in earnings or deferred through AOCE, depending on the nature and effectiveness of the offset. The total notional amount of the Company’s effective interest rate swaps on floating-rate debt was $850.0 million and $500.0 million as of June 30, 2012 and December 31, 2011, respectively.
In January 2011, the Company entered into interest rate swaps which convert $500.0 million of the Company’s fixed-rate 6.0% Senior Notes due 2018 (the “2018 Senior Notes”) to a variable rate. These interest rate swaps are designated as fair value hedges, are measured at fair value and reported as current assets or current liabilities on the Condensed Consolidated Balance Sheets. The change in the fair value of these derivative instruments, as well as the offsetting change in fair value of the portion of the fixed-rate debt being hedged, is included in interest expense. As of June 30, 2012, the total notional amount of the Company’s interest rate swaps on fixed-rate debt was $500.0 million.
Certain derivative instrument contracts entered into by the Company are governed by Master Agreements, which contain credit-risk-related contingent features that would allow the counterparties to terminate the contracts early and request immediate payment should the Company trigger an event of default on other specified borrowings. The aggregate fair value of all such contracts, which are in a net asset position at June 30, 2012, is $32.5 million. The Company is not subject to any obligations to post collateral under derivative instrument contracts.
The Company maintains significant credit exposure arising from the convertible note hedge on its Cash Convertible Notes. Holders may convert their Cash Convertible Notes subject to certain conversion provisions determined by a) the market price of the Company’s common stock, b) specified distributions to common shareholders, c) a fundamental change, as defined in the purchase agreement, or d) certain time periods specified in the purchase agreement. The conversion feature can only be settled in cash and, therefore, it is bifurcated from the Cash Convertible Notes and treated as a separate derivative instrument. In order to offset the cash flow risk associated with the cash conversion feature, the Company entered into a convertible note hedge with certain counterparties. Both the cash conversion feature and the purchased convertible note hedge are measured at

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


fair value with gains and losses recorded in the Company’s Condensed Consolidated Statements of Operations. Also, in conjunction with the issuance of the Cash Convertible Notes, the Company entered into several warrant transactions with certain counterparties. The warrants meet the definition of derivatives; however, because these instruments have been determined to be indexed to the Company’s own stock, and have been recorded in shareholders’ equity in the Company’s Condensed Consolidated Balance Sheets, the instruments are exempt from the scope of the FASB’s guidance regarding accounting for derivative instruments and hedging activities and are not subject to the fair value provisions set forth therein.
At June 30, 2012, the convertible note hedge had a total fair value of $426.1 million, which reflects the maximum loss that would be incurred should the parties fail to perform according to the terms of the contract. The counterparties are highly rated diversified financial institutions. The counterparties are required to post collateral against this obligation should they be downgraded below thresholds specified in the contract. Eligible collateral is comprised of a wide range of financial securities with a valuation discount percentage reflecting the associated risk.
The Company regularly reviews the creditworthiness of its financial counterparties and does not expect to incur a significant loss from failure of any counterparties to perform under any agreements.

Fair Values of Derivative Instruments
Derivatives Designated as Hedging Instruments
 
Asset Derivatives
 
June 30, 2012
 
December 31, 2011
(In thousands)
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Interest rate swaps
Prepaid expenses and other current assets
 
$
36,848

 
Prepaid expenses and other current assets
 
$
29,773

Total
 
 
$
36,848

 
 
 
$
29,773

 
 
Liability Derivatives
 
June 30, 2012
 
December 31, 2011
(In thousands)
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Interest rate swaps
Other current liabilities
 
$
4,386

 
Other current liabilities
 
$
658

Foreign currency forward contracts
Other current liabilities
 
63,055

 
Other current liabilities
 
57,075

Total
 
 
$
67,441

 
 
 
$
57,733


Fair Values of Derivative Instruments
Derivatives Not Designated as Hedging Instruments
 
Asset Derivatives
 
June 30, 2012
 
December 31, 2011
(In thousands)
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Foreign currency forward contracts
Prepaid expenses and other current assets
 
$
4,132

 
Prepaid expenses and other current assets
 
$
3,802

Purchased cash convertible note hedge
Other assets
 
426,100

 
Other assets
 
460,000

Total
 
 
$
430,232

 
 
 
$
463,802

 

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


 
Liability Derivatives
 
June 30, 2012
 
December 31, 2011
(In thousands)
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Foreign currency forward contracts
Other current liabilities
 
$
4,761

 
Other current liabilities
 
$
11,760

Cash conversion feature of Cash Convertible Notes
Long-term debt
 
426,100

 
Long-term debt
 
460,000

Total
 
 
$
430,861

 
 
 
$
471,760

 

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
Derivatives in Fair Value Hedging Relationships
 
Location of Gain or
(Loss) Recognized
in Earnings
on Derivatives
 
Amount of Gain or (Loss)
Recognized in Earnings on
Derivatives
(In thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Interest Rate Swaps
Interest Expense
 
$
1,564

 
$
11,123

 
$
13,459

 
$
4,795

Total
 
 
$
1,564

 
$
11,123

 
$
13,459

 
$
4,795

 
 
Location of Gain or
(Loss) Recognized
in Earnings
on Hedged Items
 
Amount of Gain or (Loss)
Recognized in Earnings on
Hedging Items
(In thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
2018 Senior Notes
Interest Expense
 
$
1,751

 
$
(11,123
)
 
$
(7,074
)
 
$
(4,795
)
Total
 
 
$
1,751

 
$
(11,123
)
 
$
(7,074
)
 
$
(4,795
)

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain or (Loss)
Recognized in AOCE (Net of Tax)
on Derivative (Effective Portion)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In thousands)
2012
 
2011
 
2012
 
2011
Foreign currency forward contracts
$
(35,453
)
 
$
301

 
$
(23,992
)
 
$
1,689

Interest rate swaps
(1,027
)
 
568

 
(2,351
)
 
2,889

Total
$
(36,480
)
 
$
869

 
$
(26,343
)
 
$
4,578

 
 
Location of Gain or
(Loss) Reclassified
from AOCE
into Earnings
(Effective Portion)
 
Amount of Gain or (Loss)
Reclassified from AOCE
into Earnings (Effective Portion)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(In thousands)
 
2012
 
2011
 
2012
 
2011
Foreign currency forward contracts
Net revenues
 
$
(13,041
)
 
$
1,622

 
$
(18,295
)
 
$
2,367

Interest rate swaps
Interest expense
 
(645
)
 
(407
)
 
(1,019
)
 
(2,189
)
Total
 
 
$
(13,686
)
 
$
1,215

 
$
(19,314
)
 
$
178

 

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


 
Location of Gain
Excluded
from the
Assessment of
Hedge Effectiveness
 
Amount of Gain Excluded from the
Assessment of Hedge Effectiveness
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(In thousands)
 
2012
 
2011
 
2012
 
2011
Foreign currency forward contracts
Other income, net
 
$
15,360

 
$
5,054

 
$
21,071

 
$
5,088

Total
 
 
$
15,360

 
$
5,054

 
$
21,071

 
$
5,088

 
At June 30, 2012, the Company expects that approximately $53.0 million of pre-tax net losses on cash flow hedges will be reclassified from AOCE into earnings during the next 12 months.

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
Derivatives in Net Investment Hedging Relationships
 
Amount of Gain or (Loss)
Recognized in AOCE (Net of Tax)
on Derivative (Effective Portion)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In thousands)
2012
 
2011
 
2012
 
2011
Foreign currency borrowings
$

 
$
(13,577
)
 
$

 
$
(47,296
)
Total
$

 
$
(13,577
)
 
$

 
$
(47,296
)
There was no gain or loss recognized into earnings on derivatives with net investment hedging relationships during the six months ended June 30, 2012 or 2011. The Euro-denominated borrowings that had been designated as a hedge of the net investments in certain Euro functional currency subsidiaries were repaid in November 2011.

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
Derivatives Not Designated as Hedging Instruments
 
Location of Gain
or (Loss)
Recognized in Earnings on
Derivatives
Amount of Gain or (Loss)
Recognized in
Earnings on Derivatives
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In thousands)
2012
 
2011
 
2012
 
2011
Foreign currency forward contracts
Other income, net
$
(13,912
)
 
$
2,682

 
$
(8,657
)
 
$
14,144

Cash conversion feature of Cash Convertible Notes
Other income, net
85,500

 
(59,700
)
 
33,900

 
(109,000
)
Purchased cash convertible note hedge
Other income, net
(85,500
)
 
59,700

 
(33,900
)
 
109,000

Total
 
$
(13,912
)
 
$
2,682

 
$
(8,657
)
 
$
14,144

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.
 

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


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.
Financial assets and liabilities carried at fair value are classified in the tables below in one of the three categories described above:
 
 
June 30, 2012
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
75,297

 
$

 
$

 
$
75,297

Total cash equivalents
75,297

 

 

 
75,297

Trading securities:
 
 
 
 
 
 
 
Equity securities — exchange traded funds
9,572

 

 

 
9,572

Total trading securities
9,572

 

 

 
9,572

Available-for-sale fixed income investments:
 
 
 
 
 
 
 
U.S. Treasuries

 
11,505

 

 
11,505

Corporate bonds

 
7,283

 

 
7,283

Agency mortgage-backed securities

 
1,291

 

 
1,291

Other

 
2,538

 

 
2,538

Total available-for-sale fixed income investments

 
22,617

 

 
22,617

Available-for-sale equity securities:
 
 
 
 
 
 
 
Biosciences industry
51

 

 

 
51

Total available-for-sale equity securities
51

 

 

 
51

Foreign exchange derivative assets

 
4,132

   

   
4,132

Interest rate swap derivative assets

 
36,848

 

 
36,848

Purchased cash convertible note hedge

 
426,100

 

 
426,100

Total assets at fair value (1)
$
84,920

   
$
489,697

   
$

   
$
574,617

Financial Liabilities:
 
 
 
 
 
 
 
Foreign exchange derivative liabilities
$

 
$
67,816

 
$

 
$
67,816

Interest rate swap derivative liabilities

 
4,386

   

   
4,386

Cash conversion feature of Cash Convertible Notes

 
426,100

   

   
426,100

Contingent consideration

 

 
393,339

 
393,339

Total liabilities at fair value (1)
$

   
$
498,302

   
$
393,339

   
$
891,641



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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


 
December 31, 2011
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
152,331

 
$

 
$

 
$
152,331

Total cash equivalents
152,331

 

 

 
152,331

Trading securities:
 
 
 
 
 
 
 
Equity securities — exchange traded funds
6,760

 

 

 
6,760

Total trading securities
6,760

 

 

 
6,760

Available-for-sale fixed income investments:
 
 
 
 
 
 
 
U.S. Treasuries

 
1,519

 

 
1,519

Corporate bonds

 
7,192

 

 
7,192

Agency mortgage-backed securities

 
12,346

 

 
12,346

Other

 
2,697

 

 
2,697

Total available-for-sale fixed income investments

 
23,754

 

 
23,754

Available-for-sale equity securities:
 
 
 
 
 
 
 
Biosciences industry
172

 

 

 
172

Total available-for-sale equity securities
172

 

 

 
172

Foreign exchange derivative assets

 
3,802

   

   
3,802

Interest rate swap derivative assets

 
29,773

 

 
29,773

Purchased cash convertible note hedge

 
460,000

 

 
460,000

Total assets at fair value (1)
$
159,263

   
$
517,329

   
$

   
$
676,592

Financial Liabilities:
 
 
 
 
 
 
 
Foreign exchange derivative liabilities
$

 
$
68,835

 
$

 
$
68,835

Interest rate swap derivative liabilities

 
658

   

   
658

Cash conversion feature of Cash Convertible Notes

 
460,000

   

   
460,000

Contingent consideration

 

 
376,110

 
376,110

Total liabilities at fair value (1)
$

   
$
529,493

   
$
376,110

   
$
905,603

____________
(1) 
The Company chose not to elect the fair value option for its financial assets and liabilities that had not been previously carried at fair value. Therefore, material financial assets and liabilities not carried at fair value, such as short-term and long-term debt obligations and trade accounts receivable and payable, are still reported at their carrying values.
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 the London Exchange at the reporting date and translated to U.S. Dollars 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, none of which experienced any significant downgrades during the six months ended June 30, 2012 that would reduce the receivable amount owed, if any, to the Company.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


Foreign exchange derivative assets and liabilities — valued using quoted forward foreign exchange prices at the reporting date. Counterparties to these contracts are highly rated financial institutions, none of which experienced any significant downgrades during the six months ended June 30, 2012 that would reduce the receivable amount owed, if any, to the Company.
Cash conversion feature of cash convertible notes and purchased convertible note hedge — valued using quoted prices for the Company’s cash convertible notes, its implied volatility and the quoted yield on the Company’s other long-term debt at the reporting date. Counterparties to the purchased convertible note hedge are highly rated financial institutions, none of which experienced any significant downgrades during the six months ended June 30, 2012 that would reduce the receivable amount owed, if any, to the Company.
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 and other acquisitions made during 2011. The measurement is calculated using unobservable inputs based on the Company’s own assumptions. 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 June 30, 2012 and December 31, 2011. Discount rates ranging from 3.3% to 10.4% were utilized in the valuation and represent the present value of the estimated future net cash flows using a market rate of return at June 30, 2012. Significant changes in unobservable inputs could result in material changes to the contingent consideration liability. To reflect a change in fair value measurement of contingent consideration during the six months ended June 30, 2012, a net adjustment of approximately $1.5 million was recorded, to increase the liability. For the three and six months ended June 30, 2012, accretion of $7.5 million and $15.7 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 financial assets and liabilities, any future transacted financial asset or liability will be evaluated for the fair value election.

9.
Debt
The Receivables Facility
In February 2012, MPI, a wholly owned subsidiary of the Company, entered into a $300.0 million accounts receivable securitization facility, pursuant to (i) a Purchase and Contribution Agreement, between MPI and Mylan Securitization, and (ii) a Receivables Purchase Agreement, among Mylan Securitization, as seller, MPI, as originator and servicer, certain conduit purchasers, committed purchasers and letter of credit issuers from time to time party thereto (collectively, the “Purchasers”), certain purchaser agents from time to time party thereto and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as agent (the “Agent”). The Company agreed to enter into a performance guarantee with respect to the obligations of MPI under these agreements.
Under the Purchase and Contribution Agreement, MPI will sell, on an ongoing basis, certain accounts receivable and the right to the collections on those accounts receivable to Mylan Securitization. Once sold to Mylan Securitization, the accounts receivable and rights to collection described above will be separate and distinct from MPI’s own assets and will not be available to MPI’s creditors should MPI become insolvent. The servicing, administration and collection of the accounts receivable will be conducted by MPI, as servicer. Under the terms of the Receivables Purchase Agreement, Mylan Securitization may, from time to time, obtain up to $300 million (in the form of cash or letters of credit for the benefit of MPI) from the Purchasers through the sale of its interest in such receivables and collections. The size of the accounts receivable securitization facility may be increased from time to time, upon request by Mylan Securitization and with the consent of the purchaser agents and the Agent, up to a maximum of $500 million. In July 2012, the size of the accounts receivable securitization facility was increased to $400 million. Purchases under the Receivables Purchase Agreement will be repaid as accounts receivable are collected, with new purchases being advanced as new accounts receivable are originated by MPI and sold to Mylan Securitization, with settlement occurring monthly. Mylan Securitization has the option to reduce the commitments under the Receivables Purchase Agreement. Mylan Securitization’s assets have been pledged to the Agent in support of its obligations under the Receivables Purchase Agreement. Any amounts outstanding under the facility will be recorded as a secured loan and the receivables underlying any borrowings will continue to be included in accounts receivable, net, in the Condensed Consolidated Balance Sheets of the Company. The accounts receivable securitization facility has a term of three years.
The Receivables Purchase Agreement contains various customary affirmative and negative covenants and also contains customary default and termination provisions, which provide for acceleration of amounts owed under the Receivables Purchase Agreement upon the occurrence of certain specified events, including, but not limited to, failure by Mylan Securitization to pay

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


interest and other amounts due, defaults on certain indebtedness, certain judgments, change in control, certain events negatively affecting the overall credit quality of transferred accounts receivable, bankruptcy and insolvency events.
As of June 30, 2012, the Condensed Consolidated Balance Sheets include $688.7 million of accounts receivable balances legally sold to Mylan Securitization, as well as $300.0 million of short-term borrowings. The interest rate on borrowings under this facility was approximately 1.01% at June 30, 2012.
Mylan Securitization holds trade accounts receivable whose cash flows are the primary source of repayment for its liabilities. Investors only have recourse to the assets held by Mylan Securitization. The Company is involved in these arrangements to the extent that it originates the accounts receivable and provides servicing activities.

Long-Term Debt
A summary of long-term debt is as follows:
(In thousands)
June 30,
2012
 
December 31,
2011
U.S. Term Loans
$
1,203,125

 
$
1,250,000

Revolving Facility
750,000

 

Cash Convertible Notes
914,556

 
937,160

Senior Convertible Notes

 
593,983

2017 Senior Notes
550,000

 
550,000

2018 Senior Notes
826,500

 
818,774

2020 Senior Notes
1,014,020

 
1,014,643

Other
2,828

 
3,666

 
5,261,029

 
5,168,226

Less: Current portion
95,098

 
689,146

Total long-term debt
$
5,165,931

 
$
4,479,080

Senior Credit Facilities
In November 2011, the Company entered into a Senior Credit Agreement with a syndication of banks, which provided $1.25 billion in U.S. Term Loans (the “U.S. Term Loans”) and contains a $1.25 billion revolving facility (the “Revolving Facility,” and together with the U.S. Term Loans, the “Senior Credit Facilities”). Amortization payments due in the first and second quarters of 2012 under the Senior Credit Agreement on the U.S. Term Loans were paid in March 2012 and June 2012, in the amount of $23.4 million for each quarter. At June 30, 2012, the Company had $750.0 million outstanding under the Revolving Facility. The interest rate on the Revolving Facility at June 30, 2012 was 1.85%.
Cash Convertible Notes
At June 30, 2012, the $914.6 million outstanding consists of $488.5 million of Cash Convertible Notes debt ($575.0 million face amount, net of $86.5 million discount) and the bifurcated conversion feature with a fair value of $426.1 million recorded as a liability within long-term debt in the Condensed Consolidated Balance Sheets at June 30, 2012. The Cash Convertible Notes will mature on September 15, 2015, subject to earlier repurchase or conversion. Holders may convert their notes subject to certain conversion provisions determined by the market price of the Company’s common stock, specified distributions to common shareholders, a fundamental change, and certain time periods specified in the purchase agreement. Additionally, the Company has purchased call options, which are recorded as assets at their fair value of $426.1 million within other assets in the Condensed Consolidated Balance Sheets at June 30, 2012. At December 31, 2011, the $937.2 million outstanding consists of $477.2 million of debt ($575.0 million face amount, net of $97.8 million discount) and the bifurcated conversion feature with a fair value of $460.0 million recorded as a liability within other long-term obligations in the Condensed Consolidated Balance Sheets. The purchased call options are assets recorded at their fair value of $460.0 million within other assets in the Condensed Consolidated Balance Sheets at December 31, 2011.
As of June 30, 2012, because the closing price of Mylan’s common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day in the June 30, 2012 period, was more than 130% of the applicable conversion reference price of $13.32 at June 30, 2012, the $575.0 million of Cash Convertible Notes are currently convertible. Although the Company’s experience is that convertible debentures are not normally converted by investors until close to their maturity date, it is possible that debentures could be converted prior to their maturity date if, for example, a holder perceives

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MYLAN INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


the market for the debentures to be weaker than the market for the common stock. Upon an investor’s election to convert, the Company is required to pay the full conversion value in cash. Should holders elect to convert, the Company intends to draw on its revolving credit facility to fund any principal payments. The amount payable per $1,000 notional bond would be calculated as the product of (1) the conversion reference rate (currently 75.0751) and (2) the average Daily Volume Weighted Average Price per share of common stock for a specified period following the conversion date. Any payment above the principal amount is matched by a convertible note hedge.
Senior Convertible Notes
In March 2012, $600.0 million of Senior Convertible Notes was repaid at maturity. At December 31, 2011, the $594.0 million of debt is net of a $6.0 million discount.
Senior Notes
The Company has entered into interest rate swaps that convert $500.0 million of 2018 Senior Notes principal debt to a variable rate. The variable rate is 3.43% at June 30, 2012. At June 30, 2012, the $826.5 million of 2018 Senior Notes debt is net of a $10.3 million discount and includes a fair value adjustment of $36.8 million associated with the interest rate swaps. At December 31, 2011, the $818.8 million of debt is net of an $11.0 million discount and includes a fair value adjustment of $29.8 million.
At June 30, 2012, the $1.01 billion of 2020 Senior Notes debt includes a $14.0 million premium. At December 31, 2011, the $1.01 billion of debt includes a $14.6 million premium.
Details of the interest rates in effect at June 30, 2012 and December 31, 2011 on the outstanding borrowings under the U.S. Term Loans are in the table below:
 
June 30, 2012
 
Outstanding
 
Basis
 
Rate
 
(In thousands)
 
 
 
 
U.S. Term Loans:
 
 
 
 
 
Swapped to Fixed Rate - January 2014 (1)
$
500,000

 
Fixed
 
2.60
%
Swapped to Fixed Rate - March 2014 (1)
350,000

 
Fixed
 
2.45
%
Floating Rate
353,125

 
LIBOR + 2.00%
 
2.24
%
Total U.S. Term Loans
$
1,203,125

 
 
 
 

 
December 31, 2011
 
Outstanding
 
Basis
 
Rate
 
(In thousands)
 
 
 
 
U.S. Term Loans
$
1,250,000

 
LIBOR + 2.00%
 
2.34
%
____________
(1) 
Effective January 2012, $500 million of the U.S. Term Loans have been swapped to a fixed rate of 0.60% plus the specified spread under the Senior Credit Agreement (currently 200 basis points), through January 2014. Effective March 2012, an additional $350 million of the U.S. Term Loans have been swapped to a fixed rate of 0.45% plus the specified spread under the Senior Credit Agreement (currently 200 basis points), through March 2014. Effective June 2012, $750 million of the currently effective swaps have been extended to maturities ranging from March 2016 to November 2016, thereby fixing a rate of 0.91% plus the specified spread (currently 200 basis points) on the underlying U.S. Term Loans, for the extension period. These swaps have been designated as cash flow hedges of the variability in interest expense related to our variable rate debt.
 
At June 30, 2012, the fair value of the Senior Notes was approximately $2.61 billion, and at December 31, 2011, the fair value of the Senior Notes and Senior Convertible Notes was approximately $3.15 billion. At June 30, 2012 and December 31, 2011, the fair value of the Cash Convertible Notes was approximately $987.9 million and $1.00 billion. The fair values of the Senior Notes and Cash Convertible Notes were valued at quoted market prices from broker or dealer quotations and were classified as Level 2 in the fair value hierarchy.

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MYLAN INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


Mandatory minimum repayments remaining on the outstanding borrowings under the term loans and notes at June 30, 2012, at notional amounts, are as follows for each of the periods ending December 31:
 
(In thousands)
U.S. Term
Loans
 
Cash
Convertible
Notes
 
2017
Senior
Notes
 
2018
Senior
Notes
 
2020
Senior
Notes
 
Revolving Facility
 
Total
2012
$
46,875

 
$

 
$

 
$

 
$

 
$

 
$
46,875

2013
93,750

 

 

 

 

 

 
93,750

2014
125,000

 

 

 

 

 

 
125,000

2015
187,500

 
575,000

 

 

 

 

 
762,500

2016
750,000

 

 

 

 

 
750,000

 
1,500,000

Thereafter

 

 
550,000

 
800,000

 
1,000,000

 

 
2,350,000

Total
$
1,203,125

 
$
575,000

 
$
550,000

 
$
800,000

 
$
1,000,000

 
$
750,000

 
$
4,878,125



10.
Comprehensive Earnings
Components of other comprehensive earnings, before tax, consist of the following:
 
Three Months Ended June 30,
(In thousands)
2012
 
2011
Defined benefit pension plans:
 
 
 
Unrecognized gain (loss) and prior service cost arising during the period
$

 
$

Less: Amortization of prior service cost (gain) included in net earnings
9

 
(513
)
Net change in unrecognized (loss) gain and prior service cost related to post-retirement plans
$
(9
)
 
$
513

 
 
 
 
Derivatives in cash flow hedging relationships:
 
 
 
Amount of (loss) gain recognized in AOCE on derivatives (effective portion)
$
(48,492
)
 
$
34

Less: Reclassification of (loss) gain from AOCE into earnings (effective portion)
(13,686
)
 
1,215

Net unrecognized loss on derivatives
$
(34,806
)
 
$
(1,181
)
 
 
 
 
Net unrealized gain on marketable securities:
 
 
 
Unrealized gain on marketable securities
$
92

 
$
241

Less: Reclassification for gain included in net earnings
4

 
4

 Net unrealized gain on marketable securities
$
88

 
$
237



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MYLAN INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


 
Six Months Ended June 30,
(In thousands)
2012
 
2011
Defined benefit pension plans:
 
 
 
Unrecognized gain (loss) and prior service cost arising during the period
$

 
$

Less: Amortization of prior service cost (gain) included in net earnings
19

 
(522
)
Net change in unrecognized (loss) gain and prior service cost related to post-retirement plans
$
(19
)
 
$
522

 
 
 
 
Derivatives in cash flow hedging relationships:
 
 
 
Amount of (loss) gain recognized in AOCE on derivatives (effective portion)
$
(31,474
)
 
$
3,647

Less: Reclassification of (loss) gain from AOCE into earnings (effective portion)
(19,314
)
 
178

Net unrecognized (loss) gain on derivatives
$
(12,160
)
 
$
3,469

 
 
 
 
Net unrealized loss on marketable securities:
 
 
 
Unrealized loss on marketable securities
$
(51
)
 
$
(127
)
Less: Reclassification for gain included in net earnings
29

 
4

Net unrealized loss on marketable securities
$
(80
)
 
$
(131
)
 
Accumulated other comprehensive loss, as reflected on the Condensed Consolidated Balance Sheets, is comprised of the following:
(In thousands)
June 30,
2012
 
December 31,
2011
Accumulated other comprehensive loss:
 
 
 
Net unrealized gains on marketable securities, net of tax
$
1,028

 
$
1,080

Net unrecognized losses and prior service costs related to post-retirement plans, net of tax
(5,992
)
 
(5,840
)
Net unrecognized losses on derivatives, net of tax
(51,766
)
 
(43,719
)
Foreign currency translation adjustment
(156,144
)
 
(39,360
)
 
$
(212,874
)
 
$
(87,839
)


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MYLAN INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


11.
Shareholder's Equity
A summary of the change in shareholders’ equity for the six months ended June 30, 2012 and 2011 is as follows:
(In thousands)
Total Mylan Inc.
Shareholders’ Equity
 
Noncontrolling
Interest
 
Total
December 31, 2011
$
3,491,775

 
$
13,007

 
$
3,504,782

Net earnings
267,629

 
934

 
268,563

Other comprehensive loss
(125,035
)
 

 
(125,035
)
Common stock share repurchase
(499,953
)
 

 
(499,953
)
Stock option activity
27,676

 

 
27,676

Stock compensation expense
22,435

 

 
22,435

Issuance of restricted stock, net of shares withheld
(4,991
)
 

 
(4,991
)
Purchase of subsidiary shares from noncontrolling interest
(9
)
 
(25
)
 
(34
)
Tax benefit of stock option plans
5,662

 

 
5,662

Other

 
16

 
16

June 30, 2012
$
3,185,189

 
$
13,932

 
$
3,199,121