Mylan N.V.
Mylan N.V. (Form: 10-Q, Received: 11/07/2017 06:10:22)



 
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 September 30, 2017
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 333-199861
MYLAN N.V.
(Exact name of registrant as specified in its charter)
The Netherlands
 
98-1189497
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Building 4, Trident Place, Mosquito Way, Hatfield, Hertfordshire, AL10 9UL, England
(Address of principal executive offices)
+44 (0) 1707-853-000
(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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to us the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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.
As of November 2, 2017 , there were 536,436,323 of the issuer’s €0.01 nominal value ordinary shares outstanding.
 


Table of Contents

MYLAN N.V. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarterly Period Ended
September 30, 2017

   
 
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 5.
 
 
 
ITEM 6.
 
 
 
 

2

Table of Contents

PART I — FINANCIAL INFORMATION

MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited; in millions, except per share amounts)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Net sales
$
2,956.3

 
$
3,029.5

 
$
8,570.2

 
$
7,745.5

Other revenues
30.8

 
27.6

 
98.6


63.6

Total revenues
2,987.1

 
3,057.1

 
8,668.8

 
7,809.1

Cost of sales
1,809.0

 
1,773.8

 
5,180.3

 
4,447.1

Gross profit
1,178.1

 
1,283.3

 
3,488.5

 
3,362.0

Operating expenses:
 
 
 
 
 
 
 
Research and development
182.3

 
199.1

 
580.9

 
632.2

Selling, general and administrative
664.6

 
656.9

 
1,916.8

 
1,787.6

Litigation settlements and other contingencies, net
15.2

 
558.0

 
(25.8
)
 
556.4

Total operating expenses
862.1

 
1,414.0

 
2,471.9

 
2,976.2

Earnings (loss) from operations
316.0

 
(130.7
)
 
1,016.6

 
385.8

Interest expense
131.8

 
144.4

 
406.3

 
305.0

Other expense, net
4.6

 
50.2

 
34.4

 
184.0

Earnings (loss) before income taxes
179.6

 
(325.3
)
 
575.9

 
(103.2
)
Income tax provision (benefit)
91.3

 
(205.5
)
 
124.2

 
(165.7
)
Net earnings (loss)
$
88.3

 
$
(119.8
)
 
$
451.7

 
$
62.5

Earnings (loss) per ordinary share:
 
 
 
 
 
 
 
Basic
$
0.17

 
$
(0.23
)
 
$
0.84

 
$
0.12

Diluted
$
0.16

 
$
(0.23
)
 
$
0.84

 
$
0.12

Weighted average ordinary shares outstanding:
 
 
 
 
 
 
 
Basic
535.2

 
523.6

 
534.9

 
505.9

Diluted
537.0

 
523.6

 
537.0

 
515.2




See Notes to Condensed Consolidated Financial Statements
3


Table of Contents

MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings
(Unaudited; in millions)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Net earnings (loss)
$
88.3

 
$
(119.8
)
 
$
451.7

 
$
62.5

Other comprehensive earnings (loss), before tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment
423.0

 
290.6

 
1,831.9

 
645.5

Change in unrecognized gain (loss) and prior service cost related to defined benefit plans
1.1

 
0.1

 
2.4

 
(0.3
)
Net unrecognized (loss) gain on derivatives in cash flow hedging relationships
(4.5
)
 
22.8

 
29.2

 
(22.9
)
Net unrecognized loss on derivatives in net investment hedging relationships
(72.1
)
 
(10.4
)
 
(203.2
)
 
(10.4
)
Net unrealized (loss) gain on marketable securities
(8.9
)
 
21.5

 
3.5

 
32.5

Other comprehensive earnings, before tax
338.6

 
324.6

 
1,663.8

 
644.4

Income tax (benefit) provision
(5.8
)
 
13.7

 
11.3

 
0.5

Other comprehensive earnings, net of tax
344.4

 
310.9

 
1,652.5

 
643.9

Comprehensive earnings
$
432.7

 
$
191.1

 
$
2,104.2

 
$
706.4





See Notes to Condensed Consolidated Financial Statements
4


Table of Contents

MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited; in millions, except share and per share amounts)
 
September 30,
2017
 
December 31,
2016
ASSETS
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
614.9

 
$
998.8

Accounts receivable, net
3,220.2

 
3,310.9

Inventories
2,548.1

 
2,456.4

Prepaid expenses and other current assets
883.4

 
756.4

Total current assets
7,266.6

 
7,522.5

Property, plant and equipment, net
2,310.0

 
2,322.2

Intangible assets, net
15,270.5

 
14,447.8

Goodwill
9,984.7

 
9,231.9

Deferred income tax benefit
559.8

 
633.2

Other assets
427.3

 
568.6

Total assets
$
35,818.9

 
$
34,726.2

 
 
 
 
LIABILITIES AND EQUITY
Liabilities
 
 
 
Current liabilities:
 
 
 
Trade accounts payable
$
1,276.1

 
$
1,348.1

Short-term borrowings

 
46.4

Income taxes payable
14.8

 
97.7

Current portion of long-term debt and other long-term obligations
793.0

 
290.0

Other current liabilities
2,900.1

 
3,258.5

Total current liabilities
4,984.0

 
5,040.7

Long-term debt
13,992.4

 
15,202.9

Deferred income tax liability
2,138.4

 
2,006.4

Other long-term obligations
1,412.5

 
1,358.6

Total liabilities
22,527.3

 
23,608.6

Equity
 
 
 
Mylan N.V. shareholders’ equity
 
 
 
Ordinary shares — nominal value €0.01 per ordinary share
 
 
 
Shares authorized: 1,200,000,000
 
 
 
Shares issued: 537,660,870 and 536,639,291 as of September 30, 2017 and December 31, 2016
6.0

 
6.0

Additional paid-in capital
8,570.5

 
8,499.3

Retained earnings
5,393.8

 
4,942.1

Accumulated other comprehensive loss
(611.2
)
 
(2,263.7
)
 
13,359.1

 
11,183.7

Noncontrolling interest

 
1.4

Less: Treasury stock — at cost
 
 
 
Ordinary shares: 1,311,193 as of September 30, 2017 and December 31, 2016
67.5

 
67.5

Total equity
13,291.6

 
11,117.6

Total liabilities and equity
$
35,818.9

 
$
34,726.2



See Notes to Condensed Consolidated Financial Statements
5


Table of Contents

MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited; in millions)
 
Nine Months Ended
 
September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net earnings
$
451.7

 
$
62.5

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
1,279.8

 
1,046.4

Share-based compensation expense
64.2

 
71.1

Deferred income tax expense (benefit)
17.4

 
(356.6
)
Loss from equity method investments
77.2

 
85.5

Other non-cash items
265.4

 
226.1

Litigation settlements and other contingencies, net
(45.2
)
 
558.6

Write off of financing fees

 
35.8

Unrealized losses on acquisition-related foreign currency derivatives

 
128.6

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
216.2

 
183.3

Inventories
(87.9
)
 
(336.7
)
Trade accounts payable
(187.4
)
 
(45.0
)
Income taxes
(149.3
)
 
51.3

Other operating assets and liabilities, net
(332.8
)
 
(13.2
)
Net cash provided by operating activities
1,569.3

 
1,697.7

Cash flows from investing activities:
 
 
 
Cash paid for acquisitions, net
(71.6
)
 
(6,151.7
)
Capital expenditures
(156.4
)
 
(239.5
)
Proceeds from the sale of assets
31.1

 

Change in restricted cash
12.6

 
(50.5
)
Purchase of marketable securities
(8.9
)
 
(22.8
)
Proceeds from the sale of marketable securities
8.9

 
15.8

Cash paid for Meda's unconditional deferred payment

 
(308.0
)
Settlement of acquisition-related foreign currency derivatives

 
(128.6
)
Payments for product rights and other, net
(558.8
)
 
(196.3
)
Net cash used in investing activities
(743.1
)
 
(7,081.6
)
Cash flows from financing activities:
 
 
 
Payments of long-term debt
(1,747.3
)
 
(1,067.0
)
Change in short-term borrowings, net
(48.3
)
 
48.6

Taxes paid related to net share settlement of equity awards
(7.4
)
 
(12.9
)
Contingent consideration payments
(10.1
)
 
(15.5
)
Payments of financing fees
(8.7
)
 
(95.3
)
Proceeds from issuance of long-term debt
555.8

 
6,519.8

Proceeds from exercise of stock options
12.8

 
11.1

Acquisition of noncontrolling interest

 
(1.0
)
Other items, net
(0.7
)
 
1.6

Net cash (used in) provided by financing activities
(1,253.9
)
 
5,389.4

Effect on cash of changes in exchange rates
43.8

 
15.1

Net (decrease) increase in cash and cash equivalents
(383.9
)
 
20.6

Cash and cash equivalents — beginning of period
998.8

 
1,236.0

Cash and cash equivalents — end of period
$
614.9

 
$
1,256.6


See Notes to Condensed Consolidated Financial Statements
6


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


1. General
The accompanying unaudited Condensed Consolidated Financial Statements (“ interim financial statements ”) of Mylan N.V. and subsidiaries (“Mylan” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes and other financial information included in audited financial statements were condensed or omitted. The interim financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the interim results of operations, comprehensive earnings, financial position and cash flows for the periods presented.
These interim financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto in Mylan N.V. ’s Annual Report on Form 10-K for the year ended December 31, 2016 , as amended. The December 31, 2016 Condensed Consolidated Balance Sheet was derived from audited financial statements.
The interim results of operations and comprehensive earnings for the three and nine months ended September 30, 2017 and cash flows for the nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.
2.
Revenue Recognition and Accounts Receivable
The Company recognizes net sales when title and risk of loss pass to its customers and when provisions for estimates, including discounts, sales allowances, price adjustments, returns, chargebacks and other promotional programs are reasonably determinable.
Accounts receivable are presented net of allowances relating to these provisions. No significant revisions were made to the methodology used in determining these provisions or the nature of the provisions during the nine months ended September 30, 2017 . Such allowances were $1.92 billion and $2.05 billion at September 30, 2017 and December 31, 2016 , respectively. Other current liabilities include $808.9 million and $809.0 million at September 30, 2017 and December 31, 2016 , respectively, for certain sales allowances and other adjustments that are settled in cash.
Accounts receivable, net was comprised of the following at September 30, 2017 and December 31, 2016 , respectively:
(In millions)
September 30,
2017
 
December 31,
2016
Trade receivables, net
$
2,822.6

 
$
3,015.4

Other receivables
397.6

 
295.5

Accounts receivable, net
$
3,220.2

 
$
3,310.9

Through its wholly owned subsidiary Mylan Pharmaceuticals Inc. (“MPI”), the Company has access to a $400 million accounts receivable securitization facility (the “Receivables Facility”). The receivables underlying any borrowings are included in accounts receivable, net, in the Condensed Consolidated Balance Sheets . There were $785.6 million and $1.13 billion of securitized accounts receivable at September 30, 2017 and December 31, 2016 , respectively.
3.
Recent Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities . The objective of this update is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP based on feedback received from preparers, auditors, users, and other stakeholders. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted, including adoption in any interim period. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements and disclosures.    

7

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


In May 2017, the FASB issued Accounting Standards Update 2017-09,  Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which amends the scope of modification accounting for share-based payment arrangements. ASU 2017-09 provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements and disclosures.
In March 2017, the FASB issued Accounting Standards Update 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which requires companies to disaggregate the service cost component from the other components of net benefit cost and disclose the amount of net benefit cost that is included in the income statement or capitalized in assets, by line item. This guidance requires companies to report the service cost component in the same line item(s) as other compensation costs and to report other pension-related costs (which include interest costs, amortization of pension-related costs from prior periods and gains or losses on plan assets) separately and exclude them from the subtotal of operating income. This guidance also allows only the service cost component to be eligible for capitalization when applicable. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This guidance should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The update allows a practical expedient that permits a company to use the amounts disclosed in its pension and other postretirement plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements and disclosures.
In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test which previously required measurement of any goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; without exceeding the total amount of goodwill allocated to that reporting unit. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company has elected to early adopt this guidance as of January 1, 2017 and is applying it on a prospective basis. The adoption did not have a material impact on its condensed consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business , which narrows the definition of a business and requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, which would not constitute the acquisition of a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company has elected to early adopt this guidance as of January 1, 2017 and will apply it on a prospective basis. The adoption did not have a material impact on its condensed consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016-09”), which simplifies the accounting for share-based compensation payments. The new standard requires all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) to be recognized as income tax expense or benefit on the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. ASU 2016-09 also addresses the classification of excess tax benefits in the statement of cash flows. As required, the Company applied the provisions of ASU 2016-09 on a prospective basis as of January 1, 2017 and the adoption did not have a material impact on its condensed consolidated financial statements.

8

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


In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (updated with Accounting Standards Update 2015-14, 2016-08, 2016-10, 2016-12 and 2016-20), which revises accounting guidance on revenue recognition that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principal of this guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years, and can be applied using a full retrospective or modified retrospective approach. The Company has substantially completed its review of revenue arrangements and currently is finalizing the quantification of any impact. Although the Company is continuing to assess the impact of the new standard, based upon its preliminary assessment, the Company believes that there may be arrangements under which the Company will recognize revenue earlier under the new standard, however such arrangements are not expected to be a significant part of the Company’s operations. In addition, upon implementation there may be certain changes in the presentation of certain items, including changes related to the classification of certain costs in the consolidated statements of operations. The Company currently expects to adopt the standard using the modified retrospective approach.
4.
Acquisitions and Other Transactions
Meda AB
On February 10, 2016 , the Company issued an offer announcement under the Nasdaq Stockholm’s Takeover Rules and the Swedish Takeover Act (collectively, the “Swedish Takeover Rules”) setting forth a public offer to the shareholders of Meda AB (publ.) (“ Meda ”) to acquire all of the outstanding shares of Meda (the “ Offer ”), with an enterprise value, including the net debt of Meda , of approximately Swedish kronor (“SEK” or “kr”) 83.6 billion (based on a SEK/USD exchange rate of 8.4158 ) or $9.9 billion at announcement. On August 2, 2016 , the Company announced that the Offer was accepted by Meda shareholders holding an aggregate of approximately 343 million shares, representing approximately 94% of the total number of outstanding Meda shares, as of July 29, 2016 , and the Company declared the Offer unconditional. On August 5, 2016 , settlement occurred with respect to the Meda shares duly tendered by July 29, 2016 and, as a result, Meda became a controlled subsidiary of the Company. Pursuant to the terms of the Offer, each Meda shareholder that duly tendered Meda shares into the Offer received at settlement (1) in respect of 80% of the number of Meda shares tendered by such shareholder, 165kr in cash per Meda share, and (2) in respect of the remaining 20% of the number of Meda shares tendered by such shareholder, 0.386 of the Company’s ordinary shares per Meda share (subject to treatment of fractional shares as described in the offer document published on June 16, 2016). The non-tendered shares were required to be acquired for cash through a compulsory acquisition proceeding, in accordance with the Swedish Companies Act (Sw. aktiebolagslagen (2005:551)). The compulsory acquisition proceeding price accrued interest as required by the Swedish Companies Act. Meda’s shares were delisted from the Nasdaq Stockholm exchange on August 23, 2016.
On November 1, 2016, the Company made an offer to the remaining Meda shareholders to tender all their Meda shares for cash consideration of 161.31kr per Meda share (the “November Offer”) to provide such remaining shareholders with an opportunity to sell their shares in Meda to the Company in advance of the automatic acquisition of their shares for cash in connection with the compulsory acquisition proceeding. At the end of November 2016, Mylan completed the acquisition of approximately 19 million Meda shares duly tendered for aggregate cash consideration of approximately $330.3 million . In March 2017, the Company received full legal ownership to the remaining non-tendered Meda shares in exchange for a cash payment of approximately $71.6 million , equal to the uncontested portion of the compulsory acquisition price plus statutory interest, and the Company’s arrangement of a customary bank guarantee to secure the payment of any additional cash consideration that may be awarded to the former Meda shareholders in the compulsory acquisition proceeding. In October 2017, the arbitration tribunal awarded a price of 163.07kr per Meda share, plus statutory interest of 1.5% per annum, to the former Meda shareholders subject to the compulsory acquisition proceeding. Mylan expects to pay an additional approximately $0.9 million plus interest to such former Meda shareholders and, in accordance with Swedish law, pay the fees of the arbitrators and costs of other parties to the compulsory acquisition proceeding. Mylan expects that the award will become final in mid-December 2017, at which time Mylan will cause the bank guarantee to be released, definitively concluding the compulsory acquisition proceeding. As of September 30, 2017 , the Company continues to maintain the bank guarantee as required by Swedish law.
On August 5, 2016, the total purchase price was approximately $6.92 billion , net of cash acquired, which includes cash consideration paid of approximately $5.3 billion , the issuance of approximately 26.4 million Mylan N.V. ordinary shares

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


at a fair value of approximately $1.3 billion based on the closing price of the Company’s ordinary shares on August 5, 2016 , as reported by the NASDAQ Global Select Stock Market (“NASDAQ”) and an assumed liability of approximately $431.0 million related to the November Offer and the compulsory acquisition proceeding for the non-tendered Meda shares. In accordance with U.S. GAAP, the Company used the acquisition method of accounting to account for this transaction. Under the acquisition method of accounting, the assets acquired and liabilities assumed in the transaction have been recorded at their respective estimated fair values at the acquisition date.
During the nine months ended September 30, 2017 , adjustments were made to the preliminary purchase price and are reflected as “Measurement Period Adjustments” in the table below. The allocation of the $6.92 billion purchase price to the assets acquired and liabilities assumed for Meda is as follows:
(In millions)
Preliminary Purchase Price Allocation as of December 31, 2016  (a)
 
Measurement Period Adjustments (b)
 
Purchase Price Allocation as of September 30, 2017 (as adjusted)
Current assets (excluding inventories and net of cash acquired)
$
482.5

 
$
(9.2
)
 
$
473.3

Inventories
463.1

 
5.0

 
468.1

Property, plant and equipment
177.5

 

 
177.5

Identified intangible assets
8,060.7

 

 
8,060.7

Goodwill
3,676.9

 
7.7

 
3,684.6

Other assets
9.5

 
(0.7
)
 
8.8

Total assets acquired
12,870.2

 
2.8

 
12,873.0

Current liabilities
(1,105.9
)
 
(4.9
)
 
(1,110.8
)
Long-term debt, including current portion
(2,864.6
)
 

 
(2,864.6
)
Deferred tax liabilities
(1,613.9
)
 
0.7

 
(1,613.2
)
Pension and other postretirement benefits
(322.3
)
 

 
(322.3
)
Other noncurrent liabilities
(42.4
)
 
1.4

 
(41.0
)
Net assets acquired
$
6,921.1

 
$

 
$
6,921.1

____________
(a)  
As previously reported in the Company’s December 31, 2016 Annual Report on Form 10-K, as amended.
(b)  
The measurement period adjustments recorded during the nine months ended September 30, 2017 are primarily related to certain income tax adjustments and working capital related estimates to reflect facts and circumstances that existed as of the acquisition date.
The acquisition of Meda created a more diversified and expansive portfolio of branded and generic medicines along with a strong and growing portfolio of over-the-counter (“OTC”) products. The combined company has a balanced global footprint with significant scale in key geographic markets, particularly the U.S. and Europe. The acquisition of Meda also expanded our presence in emerging markets, which includes countries in Africa, as well as countries throughout Asia and the Middle East, and is complemented by Mylan’s presence in India, Brazil and Africa (including South Africa). The Company recorded a step-up in the fair value of inventory of approximately $107 million at the acquisition date, which was fully amortized as of December 31, 2016.
The identified intangible assets of $8.06 billion are comprised of product rights and licenses that have a weighted average useful life of 20 years . Significant assumptions utilized in the valuation of identified intangible assets 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 U.S. GAAP. The goodwill of $3.68 billion arising from the acquisition consisted largely of the value of the employee workforce and the expected value of products to be developed in the future. Approximately $3.4 billion of goodwill recognized was allocated to the Europe segment, with approximately $290 million allocated to the North America segment, and approximately $6 million allocated to the Rest of World segment. None of the goodwill recognized in this transaction is currently expected to be deductible for income tax purposes.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


Renaissance Topicals Business
On June 15, 2016 , the Company completed the acquisition of the non-sterile, topicals-focused business (the “ Topicals Business ”) of Renaissance Acquisition Holdings, LLC (“ Renaissance ”) for approximately $1.0 billion in cash at closing, including amounts deposited into escrow for potential contingent payments, subject to customary adjustments. The Topicals Business provided the Company with a complementary portfolio of approximately 25 products, an active pipeline of approximately 25 products, and an established U.S. sales and marketing infrastructure targeting dermatologists. The Topicals Business also provided an integrated manufacturing and development platform. In accordance with U.S. GAAP, the Company used the acquisition method of accounting to account for this transaction. Under the acquisition method of accounting, the assets acquired and liabilities assumed in the transaction were recorded at their respective estimated fair values at the acquisition date. The U.S. GAAP purchase price was $972.7 million , which includes estimated contingent consideration of approximately $16 million related to the potential $50 million payment contingent on the achievement of certain 2016 financial targets. The final resolution of the contingent consideration has not been completed at September 30, 2017 . The $50 million contingent payment remains in escrow and is classified as restricted cash included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016 .
The allocation of the $972.7 million purchase price to the assets acquired and liabilities assumed for the Topicals Business is as follows:
(In millions)
 
Current assets (excluding inventories)
$
57.7

Inventories
74.2

Property, plant and equipment
54.8

Identified intangible assets
467.0

In-process research and development
275.0

Goodwill
318.6

Other assets
0.1

Total assets acquired
1,247.4

Current liabilities
(74.2
)
Deferred tax liabilities
(194.6
)
Other noncurrent liabilities
(5.9
)
Net assets acquired
$
972.7

The acquisition of the Topicals Business broadened the Company’s dermatological portfolio. 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 IPR&D of $275.0 million 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 12.5% 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 asset. The acquired IPR&D projects are in various stages of completion and the estimated costs to complete these projects total approximately $48 million , which is expected to be incurred through 2019. 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 $467.0 million are comprised of $454.0 million of product rights and licenses that have a weighted average useful life of 14 years and $13.0 million of contract manufacturing agreements that have a weighted average useful life of five years . Significant assumptions utilized in the valuation of identified intangible assets 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 U.S. GAAP.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


The goodwill of $318.6 million arising from the acquisition consisted largely of the value of the employee workforce and the expected value of products to be developed in the future. All of the goodwill was assigned to the North America segment. None of the goodwill recognized in this transaction is currently expected to be deductible for income tax purposes. The acquisition did not have a material impact on a pro forma basis for the three and nine month periods ended September 30, 2016 .
Unaudited Pro Forma Financial Results
The following table presents supplemental unaudited pro forma information for the acquisition of Meda , as if it had occurred on January 1, 2015. The unaudited pro forma results reflect certain adjustments related to past operating performance and acquisition accounting adjustments, such as increased amortization expense based on the fair value of assets acquired, the impact of transaction costs and the related income tax effects. The unaudited pro forma results do not include any anticipated synergies which may be achievable, or have been achieved, subsequent to the closing of the Meda transaction. Accordingly, the unaudited pro forma results are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the stated dates above, nor are they indicative of the future operating results of Mylan N.V. and its subsidiaries.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(Unaudited, in millions, except per share amounts)
2016
 
2016
Total revenues
$
3,168.6

 
$
9,008.2

Net (loss) earnings
$
(111.4
)
 
$
132.0

(Loss) earnings per ordinary share:
 
 
 
Basic
$
(0.21
)
 
$
0.25

Diluted
$
(0.21
)
 
$
0.25

Weighted average ordinary shares outstanding:
 
 
 
Basic
533.9

 
526.9

Diluted
533.9

 
536.2

Other Transactions
On February 14, 2017, the Company entered into a joint development and marketing agreement for a respiratory product that resulted in approximately $50 million in research and development (“R&D”) expense in the first quarter of 2017.
On March 29, 2017, the Company announced that it had completed its acquisition of the global rights to the Cold-EEZE® brand cold remedy line from ProPhase Labs, Inc. for approximately $50 million in cash. The Company accounted for this transaction as an asset acquisition and the asset is being amortized over a useful life of 15 years .
On June 2, 2017, the Company completed the acquisition of additional intellectual property rights and marketing authorizations in certain rest of world markets for a product that the Company previously licensed in certain European markets. The acquisition price was  $128.0 million and the Company accounted for this transaction as an asset acquisition. The intangible asset is being amortized over a useful life of  five years .
On June 19, 2017, the Company completed the acquisition of a portfolio of four generic pharmaceutical products in the U.S. The acquisition price was  $277.9 million and the Company accounted for this transaction as an asset acquisition. The intangible asset recognized totaled $252.5 million with the remaining assets primarily consisting of receivables. The intangible asset is being amortized over a useful life of  seven years .
On September 29, 2017, the Company completed the acquisition of intellectual property rights and marketing authorizations related to a product in certain markets for $40 million . The Company accounted for this transaction as an asset acquisition and the asset is being amortized over a useful life of five years .
On October 3, 2017, the Company completed the acquisition of a U.S. based developer and manufacturer of active pharmaceutical ingredients (“API”) for approximately $189 million , which includes $15 million of contingent payments based

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


on the achievement of certain financial results of the acquired business following the closing of the transaction. The Company will account for this transaction as the acquisition of a business. Due to the limited time since the acquisition date and limitations on access to the financial information prior to the acquisition date, the initial accounting for the business combination was incomplete at November 6, 2017. As a result, the Company was unable to provide amounts recognized as of the acquisition date for major classes of assets and liabilities acquired resulting from the acquisition, including information related to contingencies and goodwill. The Company anticipates that the majority of the goodwill will be assigned to the North America and Rest of World segments and does not currently expect the goodwill recognized to be deductible for income tax purposes. The acquisition does not have a material impact on the Company’s results of operations on a pro forma basis for the three and nine month periods ended September 30, 2017 and 2016.
As part of the Meda acquisition, the Company acquired the in-licensed rights to Betadine in certain European markets. These rights were set to expire on December 31, 2017. Under the licensing agreement, Meda had a binding option to acquire a perpetual license for the rights to Betadine under certain conditions. In October 2017, the Company finalized an agreement to acquire the perpetual license. An estimated liability of approximately $300 million for the purchase of these rights was accrued for on the Meda acquisition opening balance sheet. The Company does not expect that a material adjustment to this liability will be necessary upon closing of the transaction in early 2018.
5.
Share-Based Incentive Plan
The Company’s shareholders have approved the 2003 Long-Term Incentive Plan (as amended, the “ 2003 Plan ”). Under the 2003 Plan , 55,300,000 ordinary shares are reserved for issuance to key employees, consultants, independent contractors and non-employee directors of the Company through a variety of incentive awards, including: stock options, stock appreciation rights (“SAR”), restricted ordinary shares, restricted stock units, performance awards (“PSU”), other stock-based awards and short-term cash awards. Stock option awards are granted with an exercise price equal to the fair market value of the ordinary 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 . Since approval of the 2003 Plan, no further grants of stock options have been made under any other previous plan.
The following table summarizes stock option and SAR (together, “stock awards”) activity:
 
Number of Shares Under Stock Awards
 
Weighted Average Exercise Price per Share
Outstanding at December 31, 2016
7,699,441

 
$
33.38

Granted
905,521

 
42.93

Exercised
(659,621
)
 
19.62

Forfeited
(381,659
)
 
49.16

Outstanding at September 30, 2017
7,563,682

 
$
34.92

Vested and expected to vest at September 30, 2017
7,314,174

 
$
34.53

Exercisable at September 30, 2017
5,707,402

 
$
31.37

As of September 30, 2017 , stock awards outstanding, stock awards vested and expected to vest, and stock awards exercisable had average remaining contractual terms of 5.7 years , 5.6 years and 4.7 years , respectively. Also, at September 30, 2017 , stock awards outstanding, stock awards vested and expected to vest, and stock awards exercisable each had an aggregate intrinsic value of $36.6 million .

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


A summary of the status of the Company’s nonvested restricted ordinary shares and restricted stock unit awards, including PSUs (collectively, “restricted stock awards”), as of September 30, 2017 and the changes during the nine months ended September 30, 2017 are presented below:
 
Number of Restricted Stock Awards
 
Weighted Average Grant-Date Fair Value per Share
Nonvested at December 31, 2016
5,667,830

 
$
42.46

Granted
1,402,907

 
44.04

Released
(500,854
)
 
52.29

Forfeited
(274,034
)
 
45.96

Nonvested at September 30, 2017
6,295,849

 
$
41.88

As of September 30, 2017 , the Company had $139.7 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 vesting period of 1.9 years . The total intrinsic value of stock awards exercised and restricted stock units released during the nine months ended September 30, 2017 and 2016 was $34.7 million and $49.1 million , respectively.
6.
Pensions and Other Postretirement Benefits
Defined Benefit Plans
The Company sponsors various defined benefit pension plans in several countries. Benefits provided generally depend on length of service, pay grade, and remuneration levels. The Company maintains two fully frozen defined benefit pension plans in the U.S., and employees in the U.S. and Puerto Rico are generally provided retirement benefits through defined contribution plans.
The Company also sponsors other postretirement benefit plans including plans that provide for postretirement supplemental medical coverage. Benefits from these plans are provided to employees and their spouses and dependents who meet various minimum age and service requirements. In addition, the Company sponsors other plans that provide for life insurance benefits and postretirement medical coverage for certain officers and management employees.
Net Periodic Benefit Cost
Components of net periodic benefit cost for the three and nine months ended September 30, 2017 and 2016 were as follows:
 
Pension and Other Postretirement Benefits
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2017
 
2016
 
2017
 
2016
Service cost
$
5.0

 
$
4.8

 
$
15.1

 
$
12.6

Interest cost
3.7

 
2.8

 
11.2

 
5.7

Expected return on plan assets
(3.5
)
 
(3.0
)
 
(10.6
)
 
(7.0
)
Amortization of prior service costs
0.1

 
0.1

 
0.2

 
0.2

Recognized net actuarial losses
0.2

 
0.2

 
0.5

 
0.7

Net periodic benefit cost
$
5.5

 
$
4.9

 
$
16.4

 
$
12.2

The Company is making the minimum mandatory contributions to its U.S. defined benefit pension plans in the 2017 plan year. The Company expects to make total benefit payments of approximately $30.4 million from pension and postretirement benefit plans. The Company anticipates making contributions to pension and other postretirement benefit plans of approximately $30.2 million in 2017 .

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


7.
Balance Sheet Components
Selected balance sheet components consist of the following:
Inventories
(In millions)
September 30,
2017
 
December 31,
2016
Raw materials
$
885.1

 
$
783.4

Work in process
381.0

 
436.0

Finished goods
1,282.0

 
1,237.0

Inventories
$
2,548.1

 
$
2,456.4

Prepaid and other current assets
(In millions)
September 30,
2017
 
December 31, 2016
Prepaid expenses
$
153.6

 
$
169.1

Restricted cash
135.9

 
148.1

Available-for-sale securities
87.6

 
83.7

Fair value of financial instruments
82.5

 
62.2

Trading securities
32.7

 
29.6

Other current assets
391.1

 
263.7

Prepaid expenses and other current assets
$
883.4

 
$
756.4

Prepaid expenses consist primarily of prepaid rent, insurance and other individually insignificant items.
Property, plant and equipment, net
(In millions)
September 30,
2017
 
December 31, 2016
Machinery and equipment
$
2,310.3

 
$
2,227.9

Buildings and improvements
1,175.5

 
1,106.5

Construction in progress
277.0

 
328.8

Land and improvements
146.9

 
144.7

Gross property, plant and equipment
3,909.7

 
3,807.9

Accumulated depreciation
1,599.7

 
1,485.7

Property, plant and equipment, net
$
2,310.0

 
$
2,322.2

Other assets
(In millions)
September 30,
2017
 
December 31, 2016
Equity method investments, clean energy investments
$
274.8

 
$
320.6

Equity method investments, Sagent Agila

 
75.8

Other long-term assets
152.5

 
172.2

Other assets
$
427.3

 
$
568.6


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


Trade accounts payable
(In millions)
September 30,
2017
 
December 31,
2016
Accounts payable
$
799.0

 
$
939.5

Other payables
477.1

 
408.6

Trade accounts payable
$
1,276.1

 
$
1,348.1

Other current liabilities
(In millions)
September 30,
2017
 
December 31, 2016
Accrued sales allowances
$
808.9

 
$
809.0

Legal and professional accruals, including litigation accruals
473.7

 
720.4

Payroll and employee benefit plan accruals
373.4

 
409.8

Contingent consideration
119.4

 
256.9

Accrued interest
167.7

 
41.0

Restructuring
55.8

 
138.6

Equity method investments, clean energy investments
67.0

 
64.7

Fair value of financial instruments
10.1

 
15.3

Compulsory acquisition proceeding

 
70.2

Other
824.1

 
732.6

Other current liabilities
$
2,900.1

 
$
3,258.5

On March 31, 2017, the Company announced that Meridian Medical Technologies (“Meridian”), a Pfizer company that manufactures the EpiPen® Auto-Injector , expanded a voluntary recall of select lots of EpiPen® Auto-Injector and EpiPen Jr® Auto-Injector to include additional lots distributed in the U.S. and other markets in consultation with the U.S. Food and Drug Administration (“FDA”) (the “ EpiPen® Auto-Injector Recall”). This recall was conducted as a result of the receipt of two previously disclosed reports outside of the U.S. of the failure to activate the device due to a potential defect in a supplier component. Both reports were related to the single lot that was previously recalled. The expanded voluntary recall was initiated in the U.S. and also extends to additional markets in Europe, Asia, North and South America. The Company is replacing recalled devices at no cost to the consumer. Estimated costs to Mylan related to product recalls are based on a formal campaign soliciting return of the product and are accrued when they are deemed to be probable and can be reasonably estimated. As of September 30, 2017 , the Company recorded an accrual for certain costs of the recall but there can be no assurance that future costs related to the recall will not exceed amounts recorded. In addition, Meridian is contractually obligated to reimburse Mylan for costs related to the EpiPen® Auto-Injector Recall, and the Company has recorded an asset for the recovery of such costs.
Other long-term obligations
(In millions)
September 30,
2017
 
December 31, 2016
Employee benefit liabilities
$
432.9

 
$
396.7

Contingent consideration
351.7

 
307.7

Equity method investments, clean energy investments
264.8

 
302.3

Tax contingencies
247.7

 
239.3

Other
115.4

 
112.6

Other long-term obligations
$
1,412.5

 
$
1,358.6

8.
Equity Method Investments
The Company has five equity method investments in limited liability companies that own refined coal production plants (the “clean energy investments”), who’s activities qualify for income tax credits under Section 45 of the U.S. Internal Revenue Code of 1986, as amended.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


Since December 2013, the Company held a 50% interest in Sagent Agila LLC (“Sagent Agila”), which was a joint venture established to develop, manufacture and distribute certain generic injectable products in the U.S. In April 2017, the Company and Sagent Pharmaceuticals Inc. (“Sagent”) finalized an agreement to dissolve the joint venture. Under the terms of the agreement, Mylan received Sagent’s interest in the joint venture in exchange for an approved product right. The assets in the joint venture consisted entirely of product rights for commercialized generic injectables. As a result of this transaction, during the nine months ended September 30, 2017 , the Company recognized a loss of $5.7 million as a component of net losses from equity method investments. Additionally, during the nine months ended September 30, 2017 , the Company received a dividend payment of $8.4 million from Sagent Agila, which reduced the carrying value of the equity investment. In the second quarter of 2017, the Company reclassified its investment in Sagent Agila to product rights and licenses and is amortizing the amount over the remaining estimated useful lives of the products.
Summarized financial information, in the aggregate, for the Company’s significant equity method investments on a 100% basis for the three and nine months ended September 30, 2017 and 2016 are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2017
 
2016
 
2017
 
2016
Total revenues
$
129.3

 
$
170.0

 
$
352.0

 
$
418.2

Gross loss
(2.4
)
 
(3.0
)
 
(8.8
)
 
(3.8
)
Operating and non-operating expense
6.5

 
6.3

 
16.9

 
16.3

Net loss
$
(8.9
)
 
$
(9.3
)
 
$
(25.7
)
 
$
(20.1
)
The Company’s net losses from its equity method investments includes amortization expense related to the excess of the cost basis of the Company’s investment over the underlying assets of each individual investee. For the three months ended September 30, 2017 and 2016 , the Company recognized net losses from equity method investments of $22.4 million and $29.7 million , respectively. For the nine months ended September 30, 2017 and 2016 , the Company recognized net losses from equity method investments of $77.2 million and $85.5 million , respectively, which was recognized as a component of other expense, net in the Condensed Consolidated Statements of Operations . The Company recognizes the income tax credits and benefits from the clean energy investments as part of its provision for income taxes.
9.
Earnings per Ordinary Share
Basic earnings per ordinary share is computed by dividing net earnings by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per ordinary share is computed by dividing net earnings by the weighted average number of ordinary shares outstanding during the period increased by the number of additional shares that would have been outstanding related to potentially dilutive securities or instruments, if the impact is dilutive.
On April 15, 2016, in connection with the expiration and settlement of the Company’s equity classified warrants, the Company issued approximately 17.0 million Mylan N.V. ordinary shares. The dilutive impact of the warrants, prior to settlement, is included in the calculation of diluted earnings per ordinary share based upon the average market value of the Company’s ordinary shares during the period as compared to the exercise price. For the nine months ended September 30, 2016 , 6.6 million warrants were included in the calculation of diluted earnings per ordinary share.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


Basic and diluted earnings per ordinary share are calculated as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions, except per share amounts)
2017
 
2016
 
2017
 
2016
Basic earnings (numerator):
 
 
 
 
 
 
 
Net earnings (loss)
$
88.3

 
$
(119.8
)
 
$
451.7

 
$
62.5

Shares (denominator):
 
 
 
 
 
 
 
Weighted average ordinary shares outstanding
535.2

 
523.6

 
534.9

 
505.9

Basic earnings (loss) per ordinary share
$
0.17

 
$
(0.23
)
 
$
0.84

 
$
0.12

Diluted earnings (numerator):
 
 
 
 
 
 
 
Net earnings (loss)
$
88.3

 
$
(119.8
)
 
$
451.7

 
$
62.5

Shares (denominator):
 
 
 
 
 
 
 
Weighted average ordinary shares outstanding
535.2

 
523.6

 
534.9

 
505.9

Share-based awards and warrants
1.8

 

 
2.1

 
9.3

Total dilutive shares outstanding
537.0

 
523.6

 
537.0

 
515.2

Diluted earnings (loss) per ordinary share
$
0.16

 
$
(0.23
)
 
$
0.84

 
$
0.12

Additional stock awards and restricted stock awards were outstanding during the three and nine months ended September 30, 2017 and 2016 , but were not included in the computation of diluted earnings per ordinary share for each respective period because the effect would be anti-dilutive. Excluded shares at September 30, 2017 include certain share-based compensation awards and restricted ordinary shares whose performance conditions had not been fully met. Such excluded shares and anti-dilutive awards represented 8.9 million shares and 8.6 million shares for the three and nine months ended September 30, 2017 , respectively, and 13.9 million shares and 7.3 million shares for the three and nine months ended September 30, 2016 , respectively.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued


10.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2017 are as follows:
(In millions)
North America Segment
 
Europe Segment
 
Rest of World Segment
 
Total
Balance at December 31, 2016:
 
 
 
 
 
 
 
Goodwill
$
3,990.4

 
$
3,859.1

 
$
1,767.4

 
$
9,616.9

Accumulated impairment losses
(385.0
)
 

 

 
(385.0
)
 
3,605.4

 
3,859.1

 
1,767.4

 
9,231.9

Reclassifications  (1)
(199.0
)
 
371.8

 
(172.8
)
 

Measurement period adjustments

 
7.7

 

 
7.7

Divestiture

 
(1.3
)
 

 
(1.3
)
Foreign currency translation
52.9

 
614.6

 
78.9

 
746.4

 
$
3,459.3

 
$
4,851.9

 
$
1,673.5

 
$
9,984.7

Balance at September 30, 2017:
 
 
 
 
 
 
 
Goodwill
$
3,844.3

 
$
4,851.9

 
$
1,673.5

 
$
10,369.7

Accumulated impairment losses
(385.0
)
 

 

 
(385.0
)
 
$
3,459.3

 
$
4,851.9

 
$
1,673.5

 
$
9,984.7

____________
(1)  
The reclassifications in the year-to-date period relate to the allocation of goodwill for the Meda acquisition.
Intangible assets consist of the following components at September 30, 2017 and December 31, 2016 :
(In millions)
Weighted Average Life (Years)
 
Original Cost
 
Accumulated Amortization
 
Net Book Value
September 30, 2017
 
 
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
 
 
Product rights and licenses
15
 
$
19,193.0

 
$
4,947.7

 
$
14,245.3

Patents and technologies
20
 
116.7

 
112.0

 
4.7

Other (1)
6
 
505.3

 
404.1

 
101.2

 
 
 
19,815.0

 
5,463.8

 
14,351.2

In-process research and development
 
 
919.3

 

 
919.3

 
 
 
$
20,734.3

 
$
5,463.8

 
$
15,270.5

December 31, 2016
 
 
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
 
 
Product rights and licenses
15
 
$
16,968.4

 
$
3,585.7

 
$
13,382.7

Patents and technologies
20
 
116.6

 
108.5

 
8.1

Other (1)
6
 
465.9

 
330.0

 
135.9

 
 
 
17,550.9

 
4,024.2

 
13,526.7

In-process research and development
 
 
921.1

 

 
921.1

 
 
 
$
18,472.0

 
$
4,024.2

 
$
14,447.8

____________
(1)  
Other intangible assets consist principally of customer lists, contractual rights and other contracts.
In December 2011, the Company completed the acquisition of the exclusive worldwide rights to develop, manufacture and commercialize a generic equivalent to GlaxoSmithKline’s Advair® Diskus and Seretide® Diskus incorporating Pfizer

19

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


Inc.’s proprietary dry powder inhaler delivery platform (the “respiratory delivery platform”). The Company accounted for this transaction as a purchase of a business and utilized the acquisition method of accounting. In conjunction with the Company’s Generic Drug User Fee Agreement goal date, on March 28, 2017, the Company received a complete response letter from the FDA regarding its Abbreviated New Drug Application (“ANDA”) for the respiratory delivery platform. As of September 30, 2017 , the Company has an IPR&D asset of $347.2 million and a related contingent consideration liability of  $361.0 million . The Company performed an analysis and valuation of the IPR&D asset and the fair value of the related contingent consideration liability using a discounted cash flow model. The model contained certain key assumptions including: the expected product launch date, the number of competitors, the timing of competition and a discount factor based on an industry specific weighted average cost of capital. Based on the analysis performed, the Company determined that the IPR&D asset was not impaired at September 30, 2017 . Additionally, no fair value adjustment was required for the contingent consideration during the three months ended September 30, 2017 . In the second quarter of 2017, a fair value adjustment was required for the contingent consideration liability resulting in a gain of approximately $88.1 million based upon changes to assumptions relating to the timing of the product launch along with other competitive and market factors. The fair value of the contingent consideration liability was determined based upon detailed valuations employing the income approach which utilized Level 3 inputs, as defined in Note 11 - Financial Instruments and Risk Management . Resolution of the matters with the FDA, market conditions and other factors may result in significant future changes in the projections and assumptions utilized in the discounted cash flow model, which could lead to material adjustments to the amounts recorded for IPR&D and contingent consideration.
During the three months ended June 30, 2017, the Company performed its annual impairment review of its IPR&D assets acquired as part of the Topicals Business and recorded an impairment charge in the amount of $13.0 million , which has been recorded as a component of amortization expense in the nine months ended September 30, 2017 . The impairment charge resulted from the Company’s updated estimate of the fair value of these assets, which was based upon updated forecasts and future development plans, compared with the assigned fair values as of the acquisition date, June 15, 2016. The fair value was determined based upon detailed valuations employing the income approach which utilized Level 3 inputs, as defined in Note 11 - Financial Instruments and Risk Management . These valuations reflect, among other things, the impact of changes to the development programs, the projected development and regulatory time frames and the current competitive environment. Changes in any of the Company’s assumptions may result in a further reduction to the estimated fair values of these IPR&D assets and could result in additional future impairment charges.
The Company has performed its annual goodwill impairment test as of April 1, 2017 on a quantitative basis for its four reporting units, North America Generics, North America Specialty, Europe and Rest of World. As of the date of our annual impairment test, the allocation of the Company’s total goodwill was as follows: North America Generics $2.89 billion , North America Specialty $0.35 billion , Europe $4.30 billion and Rest of World $1.79 billion . The fair value of the North America Generics, North America Specialty and Rest of World reporting units was substantially in excess of the respective unit’s carrying value. For the Europe reporting unit, the estimated fair value exceeded its carrying value by approximately $800 million or 6% . The excess fair value over the carrying value declined from the prior year primarily as a result of an increase in the discount rate utilized in the income approach from 8.5% to 9.0% and an increase in the estimated tax rate from 22.0% to 24.0% . Additionally, the net assets acquired as part of the Meda acquisition, the majority of which were allocated to the Europe reporting unit, were included in the April 1, 2017 impairment test for the first time. As it relates to the income approach for the Europe reporting unit at April 1, 2017, the Company forecasted cash flows for the next 5 years . During the forecast period, the revenue compound annual growth rate was approximately 4% . A terminal value year was calculated with a 2.0% revenue growth rate applied. Under the market-based approach, we utilized an estimated range of market multiples of 9.0 to 10.5 times EBITDA plus a control premium of 15% . If all other assumptions are held constant, a reduction in the terminal value growth rate by 2.0% or an increase in discount rate by 1.5% would result in an impairment charge for the Europe reporting unit.
In estimating each reporting unit’s fair value, the Company performed an extensive valuation analysis, utilizing both income and market-based approaches. The determination of the fair value of the reporting units requires the Company to make significant estimates and assumptions that affect the reporting unit’s expected future cash flows. These estimates and assumptions, utilizing Level 3 inputs, primarily include, but are not limited to, market multiples, control premiums, the discount rate, terminal growth rates, operating income before depreciation and amortization, and capital expenditures forecasts. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in underlying assumptions, especially as it relates to the key assumptions detailed, could have a significant impact on the fair value of the reporting units.

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


Amortization expense, which is classified primarily within cost of sales in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016 totaled:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2017
 
2016
 
2017
 
2016
Intangible asset amortization expense
$
369.4

 
$
364.3

 
$
1,065.6

 
$
852.9

Intangible asset amortization expense over the remainder of 2017 and for the years ended December 31, 2018 through 2021 is estimated to be as follows:
(In millions)
 
2017
$
339

2018
1,341

2019
1,248

2020
1,129

2021
1,050

11.
Financial Instruments and Risk Management
The Company is exposed to certain financial risks relating to its ongoing business operations. The primary financial risks that are managed by using derivative instruments are foreign currency risk and interest rate risk.
Foreign Currency Risk Management
In order to manage certain foreign currency risks, the Company enters into foreign exchange forward contracts to mitigate risk associated with changes in spot exchange rates of mainly non-functional currency denominated assets or liabilities. The foreign exchange forward contracts are measured at fair value and reported as current assets or current liabilities on the Condensed Consolidated Balance Sheets . Any gains or losses on the foreign exchange forward contracts are recognized in earnings in the period incurred in the Condensed Consolidated Statements of Operations .
The Company has also entered into forward contracts to hedge forecasted foreign currency denominated sales from certain international subsidiaries. These contracts are designated as cash flow hedges to manage foreign currency transaction risk and are measured at fair value and reported as current assets or current liabilities on the Condensed Consolidated Balance Sheets . Any changes in fair value are included in earnings or deferred through accumulated other comprehensive earnings (“AOCE”), depending on the nature and effectiveness of the offset. Any ineffectiveness in a cash flow hedging relationship is recognized immediately in earnings in the Condensed Consolidated Statements of Operations .
During the nine months ended September 30, 2017 , the Company designated certain Euro borrowings as a hedge of its investment in certain Euro-functional currency subsidiaries in order to manage foreign currency translation risk. The notional amount of the net investment hedges was €1.9 billion and consisted of €1.0 billion aggregate principal amount of the 2.250% Euro Senior Notes due 2024 (the “2024 Euro Notes”), €750 million aggregate principal amount of 3.125% Euro Senior Notes due 2028 (the “2028 Euro Notes”) and €104 million of the €750 million aggregate principal amount of the 1.250% Euro Senior Notes due 2020 (the “2020 Euro Notes”).
Borrowings designated as net investment hedges are marked to market using the current spot exchange rate as of the end of the period, with gains and losses included in the foreign currency translation component of AOCE until the sale or substantial liquidation of the underlying net investments. The Company recorded no ineffectiveness from its net investment hedges for the nine months ended September 30, 2017 . In addition, the Company manages the related foreign exchange risk of the €500 million aggregate principal amount of floating rate Senior Notes due 2018 (the “2018 Floating Rate Euro Notes”), €500 million aggregate principal amount of the Floating Rate Senior Notes due 2020 (the “2020 Floating Rate Euro Notes”) and the remaining portion of the 2020 Euro Notes through certain Euro denominated financial assets and forward contracts.

21

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


Interest Rate Risk Management
The Company enters into interest rate swaps in order to manage interest rate risk associated with the Company’s fixed-rate and floating-rate debt. These derivative instruments are measured at fair value and reported as current assets or current liabilities in the Condensed Consolidated Balance Sheets .
Cash Flow Hedging Relationships
The Company’s interest rate swaps designated as cash flow hedges fix the interest rate on a portion of the Company’s variable-rate debt or hedge part of the Company’s interest rate exposure associated with variability in future cash flows attributable to changes in interest rates or foreign currencies. Any changes in fair value are included in earnings or deferred through AOCE, depending on the nature and effectiveness of the offset. Any ineffectiveness in a cash flow hedging relationship is recognized immediately in earnings in the Condensed Consolidated Statements of Operations .
Fair Value Hedging Relationships
The Company’s interest rate swaps designated as fair value hedges convert the fixed rate on a portion of the Company’s fixed-rate senior notes to a variable rate. Any changes in the fair value of these derivative instruments, as well as the offsetting change in fair value of the portion of the fixed-rate debt being hedged, is included in interest expense.
The Company regularly reviews the creditworthiness of its financial counterparties and does not expect to incur a significant loss from the failure of any counterparties to perform under any agreements. The Company is not subject to any obligations to post collateral under derivative instrument contracts. Certain derivative instrument contracts entered into by the Company are governed by master agreements, which contain credit-risk-related contingent features that would allow the counterparties to terminate the contracts early and request immediate payment should the Company trigger an event of default on other specified borrowings. The 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 Effect of Derivative Instruments on the Condensed Consolidated Balance Sheets
Fair Values of Derivative Instruments
Derivatives Designated as Hedging Instruments
 
Asset Derivatives
 
September 30, 2017
 
December 31, 2016
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Interest rate swaps
Prepaid expenses and other current assets
 
$
25.3

 
Prepaid expenses and other current assets
 
$
26.2

Foreign currency forward contracts
Prepaid expenses and other current assets
 
43.8

 
Prepaid expenses and other current assets
 
21.9

Total
 
 
$
69.1

 
 
 
$
48.1


22

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


The Effect of Derivative Instruments on the Condensed Consolidated Balance Sheets
Fair Values of Derivative Instruments
Derivatives Not Designated as Hedging Instruments
 
Asset Derivatives
 
September 30, 2017
 
December 31, 2016
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Foreign currency forward contracts
Prepaid expenses and other current assets
 
$
13.4

 
Prepaid expenses and other current assets
 
$
14.0

Total
 
 
$
13.4

 
 
 
$
14.0

 
Liability Derivatives
 
September 30, 2017
 
December 31, 2016
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Foreign currency forward contracts
Other current liabilities
 
$
10.1

 
Other current liabilities
 
$
15.3

Total
 
 
$
10.1

 
 
 
$
15.3

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
Derivatives in Fair Value Hedging Relationships
 
Location of Gain (Loss)
Recognized in Earnings
on Derivatives
 
Amount of Gain (Loss) Recognized in Earnings on Derivatives
(In millions)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Interest rate swaps
Interest expense
 
$
(2.5
)
 
$
(9.7
)
 
$
(1.0
)
 
$
30.2

Total
 
 
$
(2.5
)
 
$
(9.7
)
 
$
(1.0
)
 
$
30.2

 
Location of Gain (Loss)
Recognized in Earnings
on Hedged Items
 
Amount of Gain (Loss) Recognized in Earnings on Hedged Items
(In millions)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
2023 Senior Notes (3.125% coupon)
Interest expense
 
$
2.5

 
$
9.7

 
$
1.0

 
$
(30.2
)
Total
 
 
$
2.5

 
$
9.7

 
$
1.0

 
$
(30.2
)
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Comprehensive Earnings
Derivatives in Cash Flow Hedging Relationships
 
 
Amount of Gain (Loss) Recognized in AOCE (Net of Tax) on Derivative (Effective Portion)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Foreign currency forward contracts
 
$
(8.8
)
 
$
2.9

 
$
7.5

 
$
(16.3
)
Interest rate swaps
 
(3.3
)
 
(0.9
)
 
(2.0
)
 
(38.0
)
Total
 
$
(12.1
)
 
$
2.0

 
$
5.5

 
$
(54.3
)

23

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


The Effect of Derivative Instruments on the Condensed Consolidated Statements of Comprehensive Earnings
Derivatives in Net Investment Hedging Relationships
 
 
Amount of Gain (Loss) Recognized in AOCE
(Net of Tax) on Derivative
(Effective Portion)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Foreign currency borrowings and forward contracts
 
$
(72.1
)
 
$
(8.1
)
 
$
(203.2
)
 
$
(8.1
)
Total
 
$
(72.1
)
 
$
(8.1
)
 
$
(203.2
)
 
$
(8.1
)
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
Derivatives in Cash Flow Hedging Relationships
 
Location of Gain (Loss) Reclassified from AOCE into Earnings (Effective Portion)
 
Amount of Gain (Loss) Reclassified from AOCE into Earnings (Effective Portion)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Foreign currency forward contracts
Net sales
 
$
2.0

 
$
(10.7
)
 
$
(3.8
)
 
$
(34.2
)
Interest rate swaps
Interest expense
 
(1.9
)
 
(2.3
)
 
(5.5
)
 
(6.6
)
Total
 
 
$
0.1

 
$
(13.0
)
 
$
(9.3
)
 
$
(40.8
)
 
Location of Gain (Loss) Excluded from the Assessment of Hedge Effectiveness
 
Amount of Gain (Loss) Excluded from the Assessment of Hedge Effectiveness
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Foreign currency forward contracts
Other expense, net
 
$
3.3

 
$
8.9

 
$
6.9

 
$
26.0

Total
 
 
$
3.3

 
$
8.9

 
$
6.9

 
$
26.0

At September 30, 2017 , the Company expects that approximately $11 million of pre-tax net gains on cash flow hedges will be reclassified from AOCE into earnings during the next twelve months .
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
Derivatives Not Designated as Hedging Instruments
 
Location of Gain (Loss) Recognized in Earnings on Derivatives
 
Amount of Gain (Loss) Recognized in Earnings on Derivatives
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Foreign currency option and forward contracts
Other expense, net
 
$
(43.0
)
 
$
(36.8
)
 
$
(60.1
)
 
$
(98.3
)
Total
 
 
$
(43.0
)
 
$
(36.8
)
 
$
(60.1
)
 
$
(98.3
)

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


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.
Financial assets and liabilities carried at fair value are classified in the tables below in one of the three categories described above:
 
September 30, 2017
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Recurring fair value measurements
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
170.8

 
$

 
$

 
$
170.8

Total cash equivalents
170.8

 

 

 
170.8

Trading securities:
 
 
 
 
 
 
 
Equity securities — exchange traded funds
32.7

 

 

 
32.7

Total trading securities
32.7

 

 

 
32.7

Available-for-sale fixed income investments:
 
 
 
 
 
 
 
Corporate bonds

 
17.0

 

 
17.0

U.S. Treasuries

 
7.4

 

 
7.4

Agency mortgage-backed securities

 
4.3

 

 
4.3

Asset backed securities

 
1.9

 

 
1.9

Other

 
1.7

 

 
1.7

Total available-for-sale fixed income investments

 
32.3

 

 
32.3

Available-for-sale equity securities:
 
 
 
 
 
 
 
Marketable securities
55.3

 

 

 
55.3

Total available-for-sale equity securities
55.3

 

 

 
55.3

Foreign exchange derivative assets

 
57.2




57.2

Interest rate swap derivative assets

 
25.3

 

 
25.3

Total assets at recurring fair value measurement
$
258.8


$
114.8


$


$
373.6

Financial Liabilities
 
 
 
 
 
 
 
Foreign exchange derivative liabilities
$

 
$
10.1

 
$

 
$
10.1

Contingent consideration

 

 
471.1

 
471.1

Total liabilities at recurring fair value measurement
$

 
$
10.1

 
$
471.1

 
$
481.2



25

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


 
December 31, 2016
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Recurring fair value measurements
 
 
 
 
 
 
 
Financial Assets