MYL10Q_2014.03.31_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 March 31, 2014
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.)
1000 Mylan Boulevard, 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
 
April 25, 2014
 
 
$0.50 par value
  
373,731,253
 

 


Table of Contents

MYLAN INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarterly Period Ended
March 31, 2014
 
  
 
Page
 
PART I — FINANCIAL INFORMATION
 
ITEM 1.
Condensed Consolidated Financial Statements (unaudited)
 
 
 
Condensed Consolidated Statements of Comprehensive Earnings (Loss) — Three Months Ended March 31, 2014 and 2013
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
 
PART II — OTHER INFORMATION
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 6.
 
 
 
 

2

Table of Contents

PART I — FINANCIAL INFORMATION


MYLAN INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited; in millions, except per share amounts)
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
Revenues:
 
 
 
 
Net sales
 
$
1,703.0

 
$
1,619.4

Other revenues
 
12.6

 
12.1

Total revenues
 
1,715.6

 
1,631.5

Cost of sales
 
977.8

 
938.0

Gross profit
 
737.8

 
693.5

Operating expenses:
 
 
 
 
Research and development
 
118.0

 
126.5

Selling, general and administrative
 
377.7

 
351.4

Litigation settlements, net
 
3.1

 
1.8

Total operating expenses
 
498.8

 
479.7

Earnings from operations
 
239.0

 
213.8

Interest expense
 
82.7

 
78.0

Other (expense) income, net
 
(4.6
)
 
3.4

Earnings before income taxes and noncontrolling interest
 
151.7

 
139.2

Income tax provision
 
35.1

 
31.7

Net earnings
 
116.6

 
107.5

Net earnings attributable to the noncontrolling interest
 
(0.7
)
 
(0.6
)
Net earnings attributable to Mylan Inc. common shareholders
 
$
115.9

 
$
106.9

Earnings per common share attributable to Mylan Inc. common shareholders:
 
 
 
 
Basic
 
$
0.31

 
$
0.27

Diluted
 
$
0.29

 
$
0.27

Weighted average common shares outstanding:
 
 
 
 
Basic
 
372.3

 
393.2

Diluted
 
396.7

 
399.0

 
 
 
 
 















See Notes to Condensed Consolidated Financial Statements
3


Table of Contents

MYLAN INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(Unaudited; in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
 
 
 
 
 
Net earnings
 
$
116.6

 
$
107.5

Other comprehensive earnings (loss), before tax:
 
 
 
 
Foreign currency translation adjustment
 
97.2

 
(140.4
)
Change in unrecognized (loss) gain and prior service cost related to defined benefit plans
 
(1.5
)
 
0.3

Net unrecognized (loss) gain on derivatives
 
(27.4
)
 
25.8

Net unrealized loss on marketable securities
 

 
(0.3
)
Other comprehensive earnings (loss), before tax
 
68.3

 
(114.6
)
Income tax (benefit) provision
 
(12.4
)
 
7.3

Other comprehensive earnings (loss), net of tax
 
80.7

 
(121.9
)
Comprehensive earnings (loss)
 
197.3

 
(14.4
)
Comprehensive earnings attributable to the noncontrolling interest
 
(0.7
)
 
(0.6
)
Comprehensive earnings (loss) attributable to Mylan Inc. common shareholders
 
$
196.6

 
$
(15.0
)
 
 
 
 
 




See Notes to Condensed Consolidated Financial Statements
4


Table of Contents

MYLAN INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited; in millions, except share and per share amounts)
 
March 31, 2014
 
December 31,
2013
ASSETS
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
243.0

 
$
291.3

Accounts receivable, net
1,678.6

 
1,820.3

Inventories
1,737.9

 
1,664.7

Deferred income tax benefit
223.0

 
248.9

Prepaid expenses and other current assets
459.7

 
446.1

Total current assets
4,342.2

 
4,471.3

Property, plant and equipment, net
1,705.0

 
1,663.1

Intangible assets, net
2,462.5

 
2,517.9

Goodwill
4,359.6

 
4,288.1

Deferred income tax benefit
85.4

 
77.8

Other assets
2,400.3

 
2,218.1

Total assets
$
15,355.0

 
$
15,236.3

 
 
 
 
LIABILITIES AND EQUITY
Liabilities
 
 
 
Current liabilities:
 
 
 
Trade accounts payable
$
928.5

 
$
1,072.8

Short-term borrowings
370.5

 
439.8

Income taxes payable
45.1

 
49.7

Current portion of long-term debt and other long-term obligations
53.3

 
3.6

Deferred income tax liability
2.6

 
0.8

Other current liabilities
1,249.3

 
1,389.4

Total current liabilities
2,649.3

 
2,956.1

Long-term debt
7,780.6

 
7,586.5

Other long-term obligations
1,264.8

 
1,265.3

Deferred income tax liability
468.6

 
468.5

Total liabilities
12,163.3

 
12,276.4

Equity
 
 
 
Mylan Inc. shareholders’ equity
 
 
 
Common stock — par value $0.50 per share
 
 
 
Shares authorized: 1,500,000,000
 
 
 
Shares issued: 545,100,341 and 543,978,030 as of March 31, 2014 and December 31, 2013
272.6

 
272.0

Additional paid-in capital
4,122.3

 
4,103.6

Retained earnings
2,801.0

 
2,685.1

Accumulated other comprehensive loss
(159.4
)
 
(240.1
)
 
7,036.5

 
6,820.6

Noncontrolling interest
17.4

 
18.1

Less: Treasury stock — at cost

 
 
Shares: 171,634,634 and 172,373,900 as of March 31, 2014 and December 31, 2013
3,862.2

 
3,878.8

Total equity
3,191.7

 
2,959.9

Total liabilities and equity
$
15,355.0

 
$
15,236.3



See Notes to Condensed Consolidated Financial Statements
5


Table of Contents

MYLAN INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited; in millions)
 
Three Months Ended
 
March 31,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net earnings
$
116.6

 
$
107.5

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
135.2

 
128.9

Stock-based compensation expense
15.4

 
12.1

Change in estimated sales allowances
131.1

 
(67.2
)
Deferred income tax benefit
(8.4
)
 
(31.5
)
Other non-cash items
72.7

 
45.2

Litigation settlements, net
3.1

 
1.8

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
49.1

 
76.7

Inventories
(88.0
)
 
(118.9
)
Trade accounts payable
(32.7
)
 
5.9

Income taxes
(33.5
)
 
23.1

Other operating assets and liabilities, net
(92.5
)
 
(96.0
)
Net cash provided by operating activities
268.1

 
87.6

Cash flows from investing activities:
 
 
 
Capital expenditures
(72.3
)
 
(53.1
)
Change in restricted cash

 
(53.1
)
Cash paid for acquisitions, net

 
(32.1
)
Purchase of marketable securities
(4.8
)
 
(2.5
)
Proceeds from sale of marketable securities
4.9

 
2.8

Payments for product rights and other, net
(129.0
)
 
(4.3
)
Net cash used in investing activities
(201.2
)
 
(142.3
)
Cash flows from financing activities:
 
 
 
Payment of financing fees
(2.3
)
 
(5.0
)
Purchase of common stock

 
(500.0
)
Change in short-term borrowings, net
(71.1
)
 
185.1

Proceeds from issuance of long-term debt
200.0

 
525.0

Payment of long-term debt
(260.0
)
 
(239.4
)
Proceeds from exercise of stock options
21.9

 
28.1

Taxes paid related to net share settlement of equity awards
(21.8
)
 

Other items, net
18.7

 
12.8

Net cash (used in) provided by financing activities
(114.6
)
 
6.6

Effect on cash of changes in exchange rates
(0.6
)
 
(7.5
)
Net decrease in cash and cash equivalents
(48.3
)
 
(55.6
)
Cash and cash equivalents — beginning of period
291.3

 
350.0

Cash and cash equivalents — end of period
$
243.0

 
$
294.4

 
 
 
 

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, comprehensive earnings, 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, 2013. The December 31, 2013 Condensed Consolidated Balance Sheet was derived from audited financial statements.
The interim results of operations, comprehensive earnings and cash flows for the three months ended March 31, 2014 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 2014 includes an estimate of the full-year effect of foreign tax credits that the Company anticipates it will claim against its 2014 United States (“U.S.”) tax liabilities.
2.
Revenue Recognition and Accounts Receivable
Mylan recognizes net sales when title and risk of loss pass to its customers and when provisions for estimates, including discounts, sales allowances, price adjustments, returns, chargebacks and other promotional programs are reasonably determinable. Accounts receivable are presented net of allowances relating to these provisions. No revisions were made to the methodology used in determining these provisions during the three months ended March 31, 2014. Such allowances were $1.35 billion and $1.24 billion at March 31, 2014 and December 31, 2013, respectively. Other current liabilities include $308.3 million and $281.1 million at March 31, 2014 and December 31, 2013, respectively, for certain sales allowances and other adjustments that are paid to indirect customers.
Through its wholly owned subsidiary Mylan Pharmaceuticals Inc. (“MPI”), the Company has access to a $400 million accounts receivable securitization facility (the “Receivables Facility”). The receivables underlying any borrowings are included in accounts receivable, net, in the Condensed Consolidated Balance Sheets. As of March 31, 2014 and December 31, 2013, there were $517.4 million and $723.1 million of securitized accounts receivable.
3.
Acquisitions
Agila Specialties
On February 27, 2013, the Company announced that it had signed definitive agreements to acquire the Agila Specialties business (“Agila”), a developer, manufacturer and marketer of high-quality generic injectable products, from Strides Arcolab Limited (“Strides Arcolab”). The transaction closed on December 4, 2013, and the total purchase price was approximately $1.43 billion (net of cash acquired of $3.4 million), which includes estimated contingent consideration of $250 million. The contingent consideration, which could total a maximum of $461 million, is primarily related to the satisfaction of certain regulatory conditions, including potential regulatory remediation costs and the resolution of certain pre-acquisition contingencies. The acquisition of Agila significantly expands and strengthens Mylan's existing injectables platform and portfolio, and also provides Mylan entry into certain new geographic markets.
In accordance with GAAP, the Company used the purchase method of accounting to account for this transaction. Under the purchase method of accounting, the assets acquired and liabilities assumed in the transaction were recorded at their respective estimated fair values at the acquisition date. The following table summarizes the preliminary fair values of the tangible and identifiable intangible assets acquired and liabilities assumed at acquisition date, with the excess being allocated to goodwill. At March 31, 2014, certain amounts have not been finalized including the determination of certain contingent consideration, certain contingent liabilities, including income and non-income based tax contingencies and deferred income

7

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


taxes. The finalization of these matters may result in changes to goodwill and the Company expects to finalize such matters during 2014. The preliminary allocation of the $1.43 billion purchase price to the assets acquired and liabilities assumed for Agila is as follows:

(In millions)
Preliminary Purchase Price Allocation as of December 4, 2013 (a)
 
Measurement Period Adjustments (b)
 
Preliminary Purchase Price Allocation as of March 31, 2014 (as adjusted)
Current assets (excluding inventories)
$
39.0

 
$
6.5

 
$
45.5

Inventories
45.1

 
(7.8
)
 
37.3

Property, plant and equipment
143.8

 
2.4

 
146.2

Identified intangible assets
280.0

 

 
280.0

In-process research and development
436.0

 

 
436.0

Other assets (including equity method investment)
153.4

 
(0.6
)
 
152.8

Goodwill
884.2

 
48.6

 
932.8

Total assets acquired
1,981.5

 
49.1

 
2,030.6

Current liabilities
(234.7
)
 
(7.3
)
 
(242.0
)
Deferred tax liabilities
(193.2
)
 
(38.0
)
 
(231.2
)
Other non-current liabilities
(119.9
)
 
(3.8
)
 
(123.7
)
Net assets acquired
$
1,433.7

 
$

 
$
1,433.7

____________
(a)    As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
(b) 
The measurement period adjustments are related to 1) certain working capital adjustments to reflect facts and circumstances existing as of the acquisition date and; 2) adjustments related to deferred taxes to reflect the allocation of assets and liabilities to various legal entities. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and accordingly, the Company has not retrospectively adjusted those financial statements.

The amount allocated to in-process research and development (“IPR&D”) represents an estimate of the fair value of purchased in-process technology for research projects that, as of the closing date of the acquisition, had not reached technological feasibility and had no alternative future use. The fair value of the IPR&D was based on the excess earnings method, which utilizes forecasts of expected cash inflows (including estimates for ongoing costs) and other contributory charges. A discount rate of 13.0% was utilized to discount net cash inflows to present values. IPR&D is accounted for as an indefinite-lived intangible asset and will be subject to impairment testing until completion or abandonment of the projects. Upon successful completion and launch of each product, the Company will make a determination of the estimated useful life of the individual IPR&D asset. The acquired IPR&D projects are in various stages of completion and the estimated costs to complete these projects total approximately $50 million which is expected to be incurred from 2014 through 2016. There are risks and uncertainties associated with the timely and successful completion of the projects included in IPR&D, and no assurances can be given that the underlying assumptions used to estimate the fair value of IPR&D will not change or the timely completion of each project to commercial success will occur.

The identified intangible assets of $280 million are comprised of $221 million of product rights and licenses that have a weighted average useful life of 8 years and $59 million of customer relationships that have a weighted average useful life of 5 years. The equity method investment of $125 million represents the fair value of Agila’s 50% interest in Sagent Agila LLC (“Sagent Agila”). Payments for product rights and other, net on the Condensed Consolidated Statements of Cash Flows includes payments totaling $120 million to acquire certain commercialization rights in the U.S. and other countries. The goodwill of $933 million arising from the acquisition consisted largely of the value of the employee workforce and the value of products to be developed in the future. All of the goodwill was assigned to Mylan’s Generics segment. None of the goodwill recognized is currently expected to be deductible for income tax purposes.

Significant assumptions utilized in the valuation of identified intangible assets, the equity method investment and IPR&D were based on company specific information and projections which are not observable in the market and are thus considered Level 3 measurements as defined by GAAP. The preliminary fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations, valuations and assumptions that are subject to change as the

8

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


Company obtains additional information during the measurement period (up to one year from the acquisition date). The primary areas of those preliminary estimates that are not yet finalized relate to the determination of certain contingent consideration, certain contingent liabilities, including income and non-income based tax contingencies and deferred income taxes.

Pro Forma Financial Results
The following table presents supplemental unaudited pro forma information as if the acquisition of Agila had occurred on January 1, 2012. The unaudited pro forma results reflect certain adjustments related to past operating performance and acquisition accounting adjustments, such as increased amortization expense based on the fair valuation of assets acquired, the impact of acquisition financing, and the related income tax effects. The unaudited pro forma results do not include any anticipated synergies which may be achievable subsequent to the acquisition date. Accordingly, the unaudited pro forma results are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on January 1, 2012, nor are they indicative of the future operating results of the combined company.

 
Three months ended
(In millions, except per share amounts)
March 31,
2013
Total revenues
$
1,693.9

Net earnings attributable to Mylan Inc. common shareholders
$
84.0

Earnings per common share attributable to Mylan Inc. common shareholders
 
Basic
$
0.21

Diluted
$
0.21

Weighted average common shares outstanding:
 
Basic
393.2

Diluted
399.0


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 (“SAR”), restricted shares and units, performance awards (“PSU”), other stock-based awards and short-term cash awards. Stock option awards are granted at the fair value of the shares underlying the options at the date of the grant, generally become exercisable over periods ranging from three to four years, and generally expire in ten years. Upon approval of the 2003 Plan, no further grants of stock options have been made under any other plan.
In February 2014, Mylan’s Compensation Committee and the independent members of the Board of Directors adopted the One-Time Special Performance-Based Five-Year Realizable Value Incentive Program (the “2014 Program”) under the 2003 Plan. Under the 2014 Program, certain key employees received a one-time, performance-based incentive award (the “Awards”) either in the form of a grant of SAR or PSU. The Awards were granted in February 2014 and contain a five-year cliff-vesting feature based on the achievement of various performance targets, external market conditions and the employee’s continued services.

9

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


The following table summarizes stock option and SAR (“stock awards”) activity:
 
Number of Shares
Under Stock Awards
 
Weighted
Average
Exercise Price
per Share
Outstanding at December 31, 2013
13,563,881

 
$
22.05

Granted
5,350,684

 
52.84

Exercised
(1,133,171
)
 
19.62

Forfeited
(167,209
)
 
26.72

Outstanding at March 31, 2014
17,614,185

 
$
31.54

Vested and expected to vest at March 31, 2014
16,933,782

 
$
31.55

Exercisable at March 31, 2014
8,592,857

 
$
19.85

As of March 31, 2014, stock awards outstanding, stock awards vested and expected to vest and stock awards exercisable had average remaining contractual terms of 7.43 years, 7.39 years and 5.49 years, respectively. Also, at March 31, 2014, stock awards outstanding, stock awards vested and expected to vest and stock awards exercisable had aggregate intrinsic values of $327.7 million, $315.3 million and $249.0 million respectively.
A summary of the status of the Company’s nonvested restricted stock and restricted stock unit awards, including PSUs, as of March 31, 2014 and the changes during the three months ended March 31, 2014 are presented below:
 
Number of
Restricted
Stock Awards
 
Weighted  Average
Grant-Date
Fair Value per  Share
Nonvested at December 31, 2013
3,321,836

 
$
27.13

Granted
2,035,060

 
40.21

Released
(1,108,362
)
 
25.34

Forfeited
(111,249
)
 
27.14

Nonvested at March 31, 2014
4,137,285

 
$
34.06

As of March 31, 2014, the Company had $171.9 million of total unrecognized compensation expense, net of estimated forfeitures, related to all of its stock-based awards, which will be recognized over the remaining weighted average vesting period of 3.33 years. The total intrinsic value of stock-based awards exercised and restricted stock units converted during the three months ended March 31, 2014 and 2013 was $96.3 million and $41.5 million, respectively.
Under the 2014 Program, approximately 4.4 million SARs and 1.5 million PSUs were granted. The fair value of the Awards were determined using a Monte Carlo simulation as both the SARs and PSUs contain the same performance and market conditions. The Monte Carlo simulation involves a series of random trials that result in different future stock price paths over the contractual life of the SAR or PSU based on appropriate probability distributions. Conditions are imposed on each Monte Carlo simulation to determine the extent to which the performance conditions would have been met, and therefore the extent to which the Awards would have vested, for the particular stock price path. Once the Company determines that it is probable that the performance targets will be met, compensation expense is recorded for these awards. Each SAR or PSU is equal to one common share with the maximum value of each Award upon vesting subject to varying limitations.

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


The key assumptions used in the valuation of the Awards are as follows:

2014
Volatility
29.4
%
Risk-free interest rate
1.6
%
Expected term (years)
5.0

Forfeiture rate
5.5
%
Weighted average grant date fair value per stock appreciation right
$
9.43

Weighted average grant date fair value per performance award
$
34.58


5.
Balance Sheet Components
Selected balance sheet components consist of the following:
(In millions)
March 31,
2014
 
December 31,
2013
Inventories:
 
 
 
Raw materials
$
550.4

 
$
484.6

Work in process
321.4

 
310.1

Finished goods
866.1

 
870.0

 
$
1,737.9

 
$
1,664.7

Property, plant and equipment:
 
 
 
Land and improvements
$
84.5

 
$
72.7

Buildings and improvements
803.9

 
747.0

Machinery and equipment
1,691.4

 
1,698.4

Construction in progress
235.2

 
207.7

 
2,815.0

 
2,725.8

Less accumulated depreciation
1,110.0

 
1,062.7

 
$
1,705.0

 
$
1,663.1

Other current liabilities:
 
 
 
Legal and professional accruals, including litigation accruals
$
146.2

 
$
146.1

Payroll and employee benefit plan accruals
199.4

 
289.0

Accrued sales allowances
308.3

 
281.1

Accrued interest
69.3

 
68.5

Fair value of financial instruments
9.2

 
74.3

Other
516.9

 
530.4

 
$
1,249.3

 
$
1,389.4


The value of contingent consideration included in other current liabilities is $250 million at March 31, 2014 and December 31, 2013. Contingent consideration included in other long-term obligations is $423.1 million and $414.6 million at March 31, 2014 and December 31, 2013, respectively. Included in prepaid expenses and other current assets is $131.5 million and $129.5 million of restricted cash at March 31, 2014 and December 31, 2013, respectively. An additional $100 million of restricted cash is classified as a component of other long-term assets at March 31, 2014 and December 31, 2013, principally related to amounts deposited in escrow, or restricted amounts, for potential contingent consideration payments related to the Agila acquisition.

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


The Company’s equity method investments in clean energy partnerships, whose activities qualify for income tax credits under section 45 of the U.S. Internal Revenue Code, totaled $390.7 million and $401.7 million at March 31, 2014 and December 31, 2013, respectively, and are included in other assets in the Condensed Consolidated Balance Sheets. Liabilities related to these investments totaled $413.6 million and $415.4 million at March 31, 2014 and December 31, 2013, respectively. At March 31, 2014, $370.8 million of these liabilities are included in other long-term obligations and $42.8 million are included in other current liabilities in the Condensed Consolidated Balance Sheets.
As part of the Agila acquisition, the Company acquired a 50% interest in Sagent Agila, which was established in 2007 between Agila and Sagent Pharmaceuticals, Inc. and is accounted for using the equity method of accounting. Sagent Agila was established to allow for the development, manufacturing and distribution of certain generic injectable products in the U.S. market. The initial term of the venture expires upon the tenth anniversary of the formation. The equity method investment included in other assets totaled $119.3 million and $123.2 million at March 31, 2014 and December 31, 2013, respectively, in the Condensed Consolidated Balance Sheets. The results of Sagent Agila were not material to Mylan’s Condensed Consolidated Financial Statements.
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.
On September 15, 2008, concurrent with the sale of $575 million aggregate principal amount of Cash Convertible Notes due 2015 (the “Cash Convertible Notes”), Mylan 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 certain anti-dilution provisions. In 2011, the Company entered into amendments with the counterparties to exchange the original warrants with an exercise price of $20.00 (the “Old Warrants”) for 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. Both the Old and New Warrants meet the definition of derivatives under the Financial Accounting Standards Board’s (“FASB”) guidance regarding accounting for derivative instruments and hedging activities; however, because these instruments have been determined to be indexed to the Company’s own common stock and meet the criteria for equity classification under the FASB’s guidance regarding contracts in an entity’s own equity, the warrants have been recorded in shareholders’ equity in the Condensed Consolidated Balance Sheets. The dilutive impact of the Old and New Warrants are included in the calculation of diluted earnings per share based upon the average market value of the Company’s common stock during the period as compared to the exercise price. For the three months ended March 31, 2014 and March 31, 2013, 16.9 million warrants and 0.7 million warrants, respectively, were included in the calculation of diluted earnings per share.
Basic and diluted earnings per common share attributable to Mylan Inc. are calculated as follows:
 
Three Months Ended
 
March 31,
(In millions, except per share amounts)
2014
 
2013
Basic earnings attributable to Mylan Inc. common shareholders (numerator):
 
 
 
Net earnings attributable to Mylan Inc. common shareholders
$
115.9

 
$
106.9

Shares (denominator):
 
 
 
Weighted average common shares outstanding
372.3

 
393.2

Basic earnings per common share attributable to Mylan Inc. common shareholders
$
0.31

 
$
0.27


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


 
Three Months Ended
 
March 31,
(In millions, except per share amounts)
2014
 
2013
Diluted earnings attributable to Mylan Inc. common shareholders (numerator):
 
 
 
Net earnings attributable to Mylan Inc. common shareholders
$
115.9

 
$
106.9

Shares (denominator):
 
 
 
Weighted average common shares outstanding
372.3

 
393.2

Stock-based awards and warrants
24.4

 
5.8

Total dilutive shares outstanding
396.7

 
399.0

Diluted earnings per common share attributable to Mylan Inc. common shareholders
$
0.29

 
$
0.27

Additional stock options, SARs and restricted stock awards were outstanding during the periods ended March 31, 2014 and 2013, but were not included in the computation of diluted earnings per share for each respective period, because the effect would be anti-dilutive. Such anti-dilutive awards represented 2.5 million shares for the three months ended March 31, 2014 and 2.3 million shares for the three months ended March 31, 2013, respectively.
7.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the three months ended March 31, 2014 are as follows:
(In millions)
Generics
Segment
 
Specialty
Segment
 
Total
Balance at December 31, 2013:
 
 
 
 
 
Goodwill
$
3,939.0

 
$
734.1

 
$
4,673.1

Accumulated impairment losses

 
(385.0
)
 
(385.0
)
 
3,939.0

 
349.1

 
4,288.1

Purchase price allocation adjustment (1)
48.6

 

 
48.6

Foreign currency translation
22.9

 

 
22.9

 
$
4,010.5

 
$
349.1

 
$
4,359.6

Balance at March 31, 2014:
 
 
 
 
 
Goodwill
$
4,010.5

 
$
734.1

 
$
4,744.6

Accumulated impairment losses

 
(385.0
)
 
(385.0
)
 
$
4,010.5

 
$
349.1

 
$
4,359.6

____________
(1) 
See Note 3.


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


Intangible assets consist of the following components at March 31, 2014 and December 31, 2013:
(In millions)
Weighted
Average Life
(Years)
 
Original
Cost
 
Accumulated
Amortization
 
Net Book
Value
March 31, 2014
 
 
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
 
 
Patents and technologies
20
 
$
116.6

 
$
95.1

 
$
21.5

Product rights and licenses
10
 
3,600.0

 
2,118.3

 
1,481.7

Other (1)
8
 
174.2

 
63.8

 
110.4

 
 
 
3,890.8

 
2,277.2

 
1,613.6

In-process research and development
 
 
848.9

 

 
848.9

 
 
 
$
4,739.7

 
$
2,277.2

 
$
2,462.5

December 31, 2013
 
 
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
 
 
Patents and technologies
20
 
$
116.6

 
$
93.8

 
$
22.8

Product rights and licenses
10
 
3,559.5

 
2,018.1

 
1,541.4

Other (1)
8
 
174.0

 
59.4

 
114.6

 
 
 
3,850.1

 
2,171.3

 
1,678.8

In-process research and development
 
 
839.1

 

 
839.1

 
 
 
$
4,689.2

 
$
2,171.3

 
$
2,517.9

____________
(1) 
Other intangible assets consist principally of customer lists and contracts.
Amortization expense, which is classified primarily within cost of sales in the Condensed Consolidated Statements of Operations, for the three months ended March 31, 2014 and 2013, was $92.6 million and $91.5 million, respectively. Amortization expense is expected to be approximately $269 million for the remainder of 2014 and $351 million, $269 million, $224 million and $176 million for the years ended December 31, 2015 through 2018, respectively.
Indefinite-lived intangible assets, such as the Company’s IPR&D assets, are tested at least annually for impairment, but they may also 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 three months ended March 31, 2013, the Company recorded impairment charges related to IPR&D assets of $5.1 million.
During the three months ended March 31, 2014 and 2013, approximately $6.9 million and $6.5 million, respectively, were reclassified from acquired IPR&D to product rights and licenses.
8.
Financial Instruments and Risk Management
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 and interest rate risk.
Foreign Currency Risk Management
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

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


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.
Interest Rate Risk Management
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 in the Condensed Consolidated Balance Sheets.
The Company’s interest rate swaps designated as cash flow hedges fix the interest rate on a portion of the Company’s variable-rate debt or hedge part of the Company’s interest rate exposure associated with variability in future cash flows attributable to changes in interest rates. Any changes in fair value are included in earnings or deferred through AOCE, depending on the nature and effectiveness of the offset. Any ineffectiveness in a cash flow hedging relationship is recognized immediately in earnings in the Condensed Consolidated Statements of Operations.
The Company’s interest rate swaps designated as fair value hedges convert the fixed rate on a portion of the Company’s fixed-rate senior notes to a variable rate. These interest rate swaps designated as fair value hedges are measured at fair value and reported as assets or current liabilities in the Condensed Consolidated Balance Sheets. Any changes in the fair value of these derivative instruments, as well as the offsetting change in fair value of the portion of the fixed-rate debt being hedged, is included in interest expense.
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 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 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 common 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 March 31, 2014, the convertible note hedge had a total fair value of $1.54 billion, which reflects the maximum loss that would be incurred should the parties fail to perform according to the terms of the contract. The counterparties are highly rated diversified financial institutions with both commercial and investment banking operations. The counterparties are required to post collateral against this obligation should they be downgraded below thresholds specified in the contract. Eligible collateral is comprised of a wide range of financial securities with a valuation discount percentage reflecting the associated risk.
The Company regularly reviews the creditworthiness of its financial counterparties and does not expect to incur a significant loss from failure of any counterparties to perform under any agreements.
The Company records all derivative instruments on a gross basis in the Condensed Consolidated Balance Sheets. Accordingly, there are no offsetting amounts that net assets against liabilities. The asset and liability balances presented in the tables below reflect the gross amounts of derivatives recorded in the Company’s Condensed Consolidated Financial Statements.

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


Fair Values of Derivative Instruments
Derivatives Designated as Hedging Instruments
 
Asset Derivatives
 
March 31, 2014
 
December 31, 2013
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Interest rate swaps
Prepaid expenses and other current assets
 
$
61.1

 
Prepaid expenses and other current assets
 
$
90.3

Interest rate swaps
Other assets
 
55.0

 
Other assets
 
93.1

Total
 
 
$
116.1

 
 
 
$
183.4

 
 
Liability Derivatives
 
March 31, 2014
 
December 31, 2013
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Interest rate swaps
Other current liabilities
 
$
0.4

 
Other current liabilities
 
$
15.8

Foreign currency forward contracts
Other current liabilities
 
4.3

 
Other current liabilities
 
53.1

Total
 
 
$
4.7

 
 
 
$
68.9


Fair Values of Derivative Instruments
Derivatives Not Designated as Hedging Instruments
 
Asset Derivatives
 
March 31, 2014
 
December 31, 2013
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Foreign currency forward contracts
Prepaid expenses and other current assets
 
$
3.2

 
Prepaid expenses and other current assets
 
$
6.4

Purchased cash convertible note hedge
Other assets
 
1,535.1

 
Other assets
 
1,303.0

Total
 
 
$
1,538.3

 
 
 
$
1,309.4

 
 
Liability Derivatives
 
March 31, 2014
 
December 31, 2013
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Foreign currency forward contracts
Other current liabilities
 
$
4.5

 
Other current liabilities
 
$
5.4

Cash conversion feature of Cash Convertible Notes
Long-term debt
 
1,535.1

 
Long-term debt
 
1,303.0

Total
 
 
$
1,539.6

 
 
 
$
1,308.4

 
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 millions)
 
Three Months Ended
 
March 31,
 
2014
 
2013
Interest rate swaps
Interest expense
 
$
24.1

 
$
(1.8
)
Total
 
 
$
24.1

 
$
(1.8
)
 

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


 
Location of (Loss) or Gain
Recognized in Earnings
on Hedged Items
Amount of (Loss) or Gain
Recognized in Earnings on
Hedged Items
(In millions)
 
Three Months Ended
 
March 31,
 
2014
 
2013
2018 Senior Notes (6.000% coupon)
Interest expense
 
$
1.1

 
$
5.3

2023 Senior Notes (3.125% coupon)
Interest expense
 
(16.5
)
 

Total
 
 
$
(15.4
)
 
$
5.3


The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
Derivatives in Cash Flow Hedging Relationships
 
Amount of (Loss) or Gain
Recognized in AOCE
(Net of Tax) on Derivative
(Effective Portion)
 
Three Months Ended
 
March 31,
(In millions)
2014
 
2013
Foreign currency forward contracts
$
(50.9
)
 
$
4.7

Interest rate swaps
(42.5
)
 
4.7

  Total
$
(93.4
)
 
$
9.4

 
 
Location of Loss Reclassified
from AOCE into Earnings
(Effective Portion)
Amount of Loss
Reclassified from AOCE
into Earnings (Effective Portion)
 
 
Three Months Ended
 
 
March 31,
(In millions)
 
2014
 
2013
Foreign currency forward contracts
Net sales
 
$
(77.7
)
 
$
(9.1
)
Interest rate swaps
Interest expense
 
(0.2
)
 
(0.7
)
  Total
 
 
$
(77.9
)
 
$
(9.8
)
 
 
Location of Gain
Excluded from the
Assessment of
Hedge Effectiveness
Amount of Gain Excluded from the Assessment of Hedge Effectiveness
 
 
Three Months Ended
 
 
March 31,
(In millions)
 
2014
 
2013
Foreign currency forward contracts
Other (expense) income, net
 
$
86.4

 
$
8.1

  Total
 
 
$
86.4

 
$
8.1

 
At March 31, 2014, the Company expects that approximately $32 million of pre-tax net losses on cash flow hedges will be reclassified from AOCE into earnings during the next 12 months.

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


The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
Derivatives 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
 
 
March 31,
(In millions)
 
2014
 
2013
Foreign currency forward contracts
Other (expense) income, net
 
$
4.6

 
$
(11.2
)
Cash conversion feature of Cash Convertible Notes
Other (expense) income, net
 
(231.8
)
 
(55.3
)
Purchased cash convertible note hedge
Other (expense) income, net
 
231.8

 
55.3

  Total
 
 
$
4.6

 
$
(11.2
)
Fair Value Measurement
Fair value is based on the price that would be received from the sale of an identical asset or paid to transfer an identical liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy has been established that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable market-based inputs other than quoted prices in active markets for identical assets or liabilities.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considers counterparty credit risk in its assessment of fair value.

18

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


Financial assets and liabilities carried at fair value are classified in the tables below in one of the three categories described above:
 
 
March 31, 2014
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Recurring fair value measurements
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
94.7

 
$

 
$

 
$
94.7

Total cash equivalents
94.7

 

 

 
94.7

Trading securities:
 
 
 
 
 
 
 
Equity securities — exchange traded funds
16.8

 

 

 
16.8

Total trading securities
16.8

 

 

 
16.8

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

 
0.7

 

 
0.7

Corporate bonds

 
11.1

 

 
11.1

Agency mortgage-backed securities

 
13.2

 

 
13.2

Other

 
2.4

 

 
2.4

Total available-for-sale fixed income investments

 
27.4

 

 
27.4

Available-for-sale equity securities:
 
 
 
 
 
 
 
Biosciences industry
0.1

 

 

 
0.1

Total available-for-sale equity securities
0.1

 

 

 
0.1

Foreign exchange derivative assets

 
3.2




3.2

Interest rate swap derivative assets

 
116.1

 

 
116.1

Purchased cash convertible note hedge

 
1,535.1

 

 
1,535.1

Total assets at recurring fair value measurement
$
111.6


$
1,681.8


$


$
1,793.4

Financial Liabilities
 
 
 
 
 
 
 
Foreign exchange derivative liabilities
$

 
$
8.8

 
$

 
$
8.8

Interest rate swap derivative liabilities

 
0.4




0.4

Cash conversion feature of Cash Convertible Notes

 
1,535.1




1,535.1

Contingent consideration

 

 
673.1

 
673.1

Total liabilities at recurring fair value measurement
$

 
$
1,544.3

 
$
673.1

 
$
2,217.4



19

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


 
December 31, 2013
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Recurring fair value measurements
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$

 
$

 
$

 
$

Total cash equivalents

 

 

 

Trading securities:
 
 
 
 
 
 
 
Equity securities — exchange traded funds
16.6

 

 

 
16.6

Total trading securities
16.6

 

 

 
16.6

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

 
12.8

 

 
12.8

Corporate bonds

 
10.7

 

 
10.7

Agency mortgage-backed securities

 
0.7

 

 
0.7

Other

 
2.6

 

 
2.6

Total available-for-sale fixed income investments

 
26.8

 

 
26.8

Available-for-sale equity securities:
 
 
 
 
 
 
 
Biosciences industry
0.2

 

 

 
0.2

Total available-for-sale equity securities
0.2

 

 

 
0.2

Foreign exchange derivative assets

 
6.4

 

 
6.4

Interest rate swap derivative assets

 
183.4

 

 
183.4

Purchased cash convertible note hedge

 
1,303.0

 

 
1,303.0

Total assets at recurring fair value measurement
$
16.8

 
$
1,519.6

 
$

 
$
1,536.4

Financial Liabilities
 
 
 
 
 
 
 
Foreign exchange derivative liabilities
$

 
$
58.5

 
$

 
$
58.5

Interest rate swap derivative liabilities

 
15.8

 

 
15.8

Cash conversion feature of Cash Convertible Notes

 
1,303.0

 

 
1,303.0

Contingent consideration

 

 
664.6

 
664.6

Total liabilities at recurring fair value measurement
$

 
$
1,377.3

 
$
664.6

 
$
2,041.9


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.

20

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MYLAN INC. AND SUBSIDIARIES
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.
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.
The fair value measurement of contingent consideration is determined using Level 3 inputs. The Company’s contingent consideration represents a component of the total purchase consideration for the respiratory delivery platform, the Agila acquisition and certain other acquisitions. The measurement is calculated using unobservable inputs based on the Company’s own assumptions. For the respiratory platform and certain other acquisitions, significant unobservable inputs in the valuation include the probability and timing of future development and commercial milestones and future profit sharing payments. A discounted cash flow method was used to value contingent consideration at March 31, 2014 and December 31, 2013, which was calculated as the present value of the estimated future net cash flows using a market rate of return. Discount rates ranging from 0.7% to 11.1% were utilized in the valuation. For the contingent consideration related to the Agila acquisition, significant unobservable inputs in the valuation include the probability of future payments to the seller of amounts withheld at the closing date. Significant changes in unobservable inputs could result in material changes to the contingent consideration liability. During the three months ended March 31, 2014 and March 31, 2013, accretion of $8.4 million and $7.7 million was recorded in interest expense. A fair value adjustment to decrease the liability by approximately $1.9 million during the three months ended March 31, 2013, was recorded as a component of selling, general and administrative (“SG&A”) expense.
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
Long-Term Debt
A summary of long-term debt is as follows:
(In millions)
Coupon
 
March 31,
2014
 
December 31,
2013
Revolving Facility
 
 
$

 
$
60.0

Cash Convertible Notes
3.750
%
 
2,066.8

 
1,828.3

2016 Senior Notes (a)
1.800
%
 
499.3

 
499.2

2016 Senior Notes (b)
1.350
%
 
499.7

 
499.7

2018 Senior Notes (c)
2.600
%
 
648.8

 
648.8

2018 Senior Notes (d)
6.000
%
 
810.7

 
811.4

2019 Senior Notes (a)
2.550
%
 
498.8

 
498.8

2020 Senior Notes (d)
7.875
%
 
1,011.7

 
1,012.0

2023 Senior Notes (a)
3.125
%
 
749.7

 
733.2

2023 Senior Notes (e)
4.200
%
 
498.1

 
498.1

2043 Senior Notes (e)
5.400
%
 
496.9

 
496.9

Other
 
 
0.1

 
0.1

Total long-term debt
 
 
$
7,780.6

 
$
7,586.5

____________ 
(a)
Instrument is callable by the Company at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.20% plus, in each case, accrued and unpaid interest.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


(b)
Instrument is callable by the Company at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.125% plus, in each case, accrued and unpaid interest.
(c) 
Instrument is callable by the Company at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.30% plus, in each case, accrued and unpaid interest.
(d)
Instrument is callable by the Company at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.50% plus, in each case, accrued and unpaid interest.
(e) 
Instrument is callable by the Company at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.25% plus, in each case, accrued and unpaid interest.
Exchange Offer
In June 2013, the Company issued $500 million aggregate principal amount of 1.800% Senior Notes due 2016 and $650 million aggregate principal amount of 2.600% Senior Notes due June 2018. These notes are the Company’s senior unsecured obligations and were issued to qualified institutional buyers in accordance with Rule 144A and to persons outside of the U.S. pursuant to Regulation S under the Securities Act in a private offering exempt from the registration requirements of the Securities Act.

In connection with the senior notes offering, the Company entered into a registration rights agreement with the initial purchasers of the senior notes. Pursuant to the registration rights agreement, the Company was obligated to use commercially reasonable efforts 1) to file a registration statement with respect to an offer to exchange senior notes (the “exchange offer”) for new notes with the same aggregate principal amount and terms substantially identical in all material respects and 2) to cause the exchange offer registration statement to be declared effective by the SEC under the Securities Act. The Company filed a registration statement with the SEC, which was declared effective on January 31, 2014 and the exchange offer was completed on March 4, 2014.
Cash Convertible Notes
Below is the summary of the components of the Cash Convertible Notes:

(In millions)
March 31, 2014
 
December 31,
2013
 
Balance Sheet Classification
Outstanding principal
$
574.0

 
$
574.0

 
Long-term debt
Equity component carrying amount
1,535.1

 
1,303.3

 
Long-term debt
Unamortized discount
(42.3
)
 
(49.0
)
 
Long-term debt
Net debt carrying amount
$
2,066.8

 
$
1,828.3

 
 
Purchased call options
$
1,535.1

 
$
1,303.3

 
Other assets
As of March 31, 2014, 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 March 31, 2014 period was more than 130% of the applicable conversion reference price of $13.32, the $574 million of Cash Convertible Notes were convertible. Although de minimis conversions have been requested, the Company’s experience is that convertible debentures are not normally converted by investors until close to their maturity date. 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.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


Receivables Facility
As of March 31, 2014 and December 31, 2013, the Company’s short-term borrowings under the Receivables Facility were $280 million and $374 million, respectively in the Condensed Consolidated Balance Sheets.
Fair Value
At March 31, 2014 and December 31, 2013, the fair value of the Senior Notes was approximately $5.89 billion and $5.85 billion, respectively. At March 31, 2014 and December 31, 2013, the fair value of the Cash Convertible Notes was approximately $2.11 billion and $1.88 billion, respectively. 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.
Mandatory minimum repayments remaining on the outstanding borrowings under the Revolving Facility and notes at notional amounts at March 31, 2014 are as follows for each of the periods ending December 31:
 
(In millions)
Total
2014
$

2015
574.0

2016
1,000.0

2017

2018
1,450.0

Thereafter
3,250.0

Total
$
6,274.0

10.
Comprehensive Earnings
Accumulated other comprehensive loss, as reflected on the Condensed Consolidated Balance Sheets, is comprised of the following:
(In millions)
March 31, 2014
 
December 31, 2013
Accumulated other comprehensive loss:
 
 
 
Net unrealized gains on marketable securities, net of tax
$
0.3

 
$
0.3

Net unrecognized losses and prior service cost related to defined benefit plans, net of tax
(9.7
)
 
(8.7
)
Net unrecognized gains on derivatives, net of tax
69.3

 
84.8

Foreign currency translation adjustment
(219.3
)
 
(316.5
)
 
$
(159.4
)
 
$
(240.1
)


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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


Components of accumulated other comprehensive loss, before tax, consist of the following, for the three months ended March 31, 2014 and 2013:

 
Three Months Ended March 31, 2014
Gains and Losses on Derivatives in Cash Flow Hedging Relationships
 
Gains and Losses on Marketable Securities
 
Defined Benefit Plan Items
 
Foreign Currency Translation Adjustment
 
Totals
(In millions)
Foreign currency forward contracts
 
Interest rate swaps
 
Total
 
 
 
 
 
 
 
 
Balance at December 31, 2013, net of tax
 
 
 
 
$
84.8

 
$
0.3

 
$
(8.7
)
 
$
(316.5
)
 
$
(240.1
)
Other comprehensive earnings (loss) before reclassifications, before tax
 
 
 
 
(105.3
)
 

 
(1.7
)
 
97.2

 
(9.8
)
Amounts reclassified from accumulated other comprehensive loss, before tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on foreign exchange forward contracts classified as cash flow hedges, included in net sales
(77.7
)
 
 
 
(77.7
)
 
 
 
 
 
 
 
(77.7
)
Gain (loss) on interest rate swaps classified as cash flow hedges, included in interest expense
 
 
(0.2
)
 
(0.2
)
 
 
 
 
 
 
 
(0.2
)
Amortization of actuarial gain (loss) included in SG&A expenses
 
 
 
 
 
 
 
 
(0.2
)
 
 
 
(0.2
)
Amounts reclassified from accumulated other comprehensive loss, before tax
 
 
 
 
(77.9
)
 

 
(0.2
)
 

 
(78.1
)
Net other comprehensive earnings (loss), before tax
 
 
 
 
(27.4
)
 

 
(1.5
)
 
97.2

 
68.3

Income tax provision
 
 
 
 
11.9

 

 
0.5

 

 
12.4

Balance at March 31, 2014, net of tax
 
 
 
 
$
69.3

 
$
0.3

 
$
(9.7
)
 
$
(219.3
)
 
$
(159.4
)

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


 
Three Months Ended March 31, 2013
Gains and Losses on Derivatives in Cash Flow Hedging Relationships
 
Gains and Losses on Marketable Securities
 
Defined Benefit Plan Items
 
Foreign Currency Translation Adjustment
 
Totals
(In millions)
Foreign currency forward contracts
 
Interest rate swaps
 
Total
 
 
 
 
 
 
 
 
Balance at December 31, 2012, net of tax
 
 
 
 
$
(30.8
)
 
$
1.0

 
$
(13.9
)
 
$
(42.8
)
 
$
(86.5
)
Other comprehensive (loss) earnings before reclassifications, before tax
 
 
 
 
16.0

 
(0.3
)
 

 
(140.4
)
 
(124.7
)
Amounts reclassified from accumulated other comprehensive loss, before tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on foreign exchange forward contracts classified as cash flow hedges, included in net revenues
(9.1
)
 
 
 
(9.1
)
 
 
 
 
 
 
 
(9.1
)
Loss on interest rate swaps classified as cash flow hedges, included in interest expense
 
 
(0.7
)
 
(0.7
)
 
 
 
 
 
 
 
(0.7
)
Amortization of actuarial gain (loss) included in SG&A expenses
 
 
 
 
 
 
 
 
(0.3
)
 
 
 
(0.3
)
Amounts reclassified from accumulated other comprehensive loss, before tax
 
 
 
 
(9.8
)
 

 
(0.3
)
 

 
(10.1
)
Net other comprehensive earnings (loss), before tax
 
 
 
 
25.8

 
(0.3
)
 
0.3

 
(140.4
)
 
(114.6
)
Income tax (benefit) provision
 
 
 
 
(7.3
)
 
0.1

 
(0.1
)
 

 
(7.3
)
Balance at March 31, 2013, net of tax
 
 
 
 
$
(12.3
)
 
$
0.8

 
$
(13.7
)
 
$
(183.2
)
 
$
(208.4
)

11.
Shareholders’ Equity
A summary of the changes in shareholders’ equity for the three months ended March 31, 2014 and 2013 is as follows:
(In millions)
Total Mylan Inc. Shareholders' Equity
 
Noncontrolling Interest
 
 Total
December 31, 2013
$
2,941.8

 
$
18.1

 
$
2,959.9

Net earnings
115.9

 
0.7

 
116.6

Other comprehensive earnings, net of tax
80.7

 

 
80.7

Stock option activity
21.9

 

 
21.9

Stock compensation expense
15.4

 

 
15.4

Issuance of restricted stock, net of shares withheld
(20.1
)
 

 
(20.1
)
Tax benefit of stock option plans
18.7

 

 
18.7

Other

 
(1.4
)
 
(1.4
)
March 31, 2014
$
3,174.3

 
$
17.4

 
$
3,191.7


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



(In millions)
Total Mylan Inc. Shareholders' Equity
 
Noncontrolling Interest
 
 Total
December 31, 2012
$
3,340.7

 
$
15.1

 
$
3,355.8

Net earnings
106.9

 
0.6

 
107.5

Other comprehensive loss, net of tax
(121.9
)
 

 
(121.9
)
Common stock share repurchase
(500.0
)
 

 
(500.0
)
Stock option activity
28.1

 

 
28.1

Stock compensation expense
12.1

 

 
12.1

Issuance of restricted stock, net of shares withheld
(7.3
)
 

 
(7.3
)
Tax benefit of stock option plans
12.9

 

 
12.9

March 31, 2013
$
2,871.5

 
$
15.7

 
$
2,887.2


12.
Segment Information
Mylan has two segments, “Generics” and “Specialty.” The Generics segment primarily develops, manufactures, sells and distributes generic or branded generic pharmaceutical products in tablet, capsule, injectable or transdermal patch form, as well as active pharmaceutical ingredients (“API”). The Specialty segment engages mainly in the development and sale of branded specialty nebulized and injectable products.
The Company’s chief operating decision maker evaluates the performance of its segments based on total revenues and segment profitability. Segment profitability represents segment gross profit less direct research and development (“R&D”) expenses and direct SG&A expenses. Certain general and administrative and R&D expenses not allocated to the segments, net charges for litigation settlements, impairment charges and other expenses not directly attributable to the segments, are reported in Corporate/Other. Additionally, amortization of intangible assets and other purchase accounting related items, as well as any other significant special items, are included in Corporate/Other. As a result of changes to the organization structure at the end of 2013, certain R&D and selling and marketing expenses that were previously a component of the Specialty segment profitability are included within the Generics segment profitability beginning in 2014. Items below the earnings from operations line on the Company’s Condensed Consolidated Statements of Operations are not presented by segment, since they are excluded from the measure of segment profitability. The Company does not report depreciation expense, total assets and capital expenditures by segment, as such information is not used by the chief operating decision maker.
The accounting policies of the segments are the same as those described in the “Summary of Significant Accounting Policies” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Intersegment revenues are accounted for at current market values and are eliminated at the consolidated level.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


Presented in the table below is segment information for the periods identified and a reconciliation of segment information to total consolidated information.
(In millions)
 Generics Segment
 
Specialty Segment
 
Corporate /
Other
(1)
 
Consolidated
Three Months Ended March 31, 2014
 
 
 
 
 
 
Total revenues
 
 
 
 
 
 
 
Third party
$
1,514.5

 
$
201.1

 
$

 
$
1,715.6

Intersegment
1.3

 
1.7

 
(3.0
)
 

Total
$
1,515.8