Quarterly Report (10-q)

Date : 05/07/2019 @ 4:07PM
Source : Edgar (US Regulatory)
Stock : Mylan NV (MYL)
Quote : 18.53  0.0 (0.00%) @ 1:40PM

Quarterly Report (10-q)


 
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, 2019
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 every Interactive Data File required to be submitted 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 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.
Large accelerated filer
 
þ
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨  
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
 
 
 
 
 
Ordinary shares, nominal value €0.01
 
MYL
 
The NASDAQ Stock Market
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 1, 2019 , there were 515,437,080 of the issuer’s €0.01 nominal value ordinary shares outstanding.
 



MYLAN N.V. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarterly Period Ended
March 31, 2019

   
 
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 6.
 
 
 
 

2


PART I — FINANCIAL INFORMATION

MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited; in millions, except per share amounts)
 
Three Months Ended
 
March 31,
 
2019
 
2018
Revenues:
 
 
 
Net sales
$
2,460.6

 
$
2,650.4

Other revenues
34.9


34.1

Total revenues
2,495.5

 
2,684.5

Cost of sales
1,690.3

 
1,700.2

Gross profit
805.2

 
984.3

Operating expenses:
 
 
 
Research and development
172.6

 
204.9

Selling, general and administrative
607.9

 
607.5

Litigation settlements and other contingencies, net
0.7

 
16.2

Total operating expenses
781.2

 
828.6

Earnings from operations
24.0

 
155.7

Interest expense
131.2

 
131.7

Other expense, net
7.3

 
13.5

(Loss) Earnings before income taxes
(114.5
)
 
10.5

Income tax benefit
(89.5
)
 
(76.6
)
Net (loss) earnings
$
(25.0
)
 
$
87.1

(Loss) Earnings per ordinary share:
 
 
 
Basic
$
(0.05
)
 
$
0.17

Diluted
$
(0.05
)
 
$
0.17

Weighted average ordinary shares outstanding:
 
 
 
Basic
515.0

 
514.4

Diluted
515.0

 
516.8




See Notes to Condensed Consolidated Financial Statements
3



MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings
(Unaudited; in millions)
 
Three Months Ended
 
March 31,
 
2019
 
2018
Net (loss) earnings
$
(25.0
)
 
$
87.1

Other comprehensive (loss) earnings, before tax:
 
 
 
Foreign currency translation adjustment
(338.5
)
 
261.9

Change in unrecognized gain (loss) and prior service cost related to defined benefit plans
0.2

 
(4.3
)
Net unrecognized gain (loss) on derivatives in cash flow hedging relationships
26.0

 
(32.0
)
Net unrecognized gain (loss) on derivatives in net investment hedging relationships
58.1

 
(59.2
)
Net unrealized gain (loss) on marketable securities
0.4

 
(0.4
)
Other comprehensive (loss) earnings, before tax
(253.8
)
 
166.0

Income tax provision (benefit)
11.8

 
(11.2
)
Other comprehensive (loss) earnings, net of tax
(265.6
)
 
177.2

Comprehensive (loss) earnings
$
(290.6
)
 
$
264.3





See Notes to Condensed Consolidated Financial Statements
4



MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited; in millions, except share and per share amounts)
 
March 31,
2019
 
December 31,
2018
ASSETS
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
229.8

 
$
388.1

Accounts receivable, net
2,778.5

 
2,881.0

Inventories
2,708.8

 
2,580.2

Prepaid expenses and other current assets
545.2

 
518.4

Total current assets
6,262.3

 
6,367.7

Property, plant and equipment, net
2,151.4

 
2,170.2

Intangible assets, net
12,955.5

 
13,664.6

Goodwill
9,607.9

 
9,747.8

Deferred income tax benefit
507.8

 
572.2

Other assets
421.7

 
212.4

Total assets
$
31,906.6

 
$
32,734.9

 
 
 
 
LIABILITIES AND EQUITY
Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,316.5

 
$
1,617.0

Short-term borrowings
0.4

 
1.9

Income taxes payable
23.2

 
121.5

Current portion of long-term debt and other long-term obligations
703.5

 
699.8

Other current liabilities
2,114.0

 
2,147.6

Total current liabilities
4,157.6

 
4,587.8

Long-term debt
13,086.9

 
13,161.2

Deferred income tax liability
1,643.2

 
1,722.0

Other long-term obligations
1,127.3

 
1,096.8

Total liabilities
20,015.0

 
20,567.8

Equity
 
 
 
Mylan N.V. shareholders’ equity
 
 
 
Ordinary shares — nominal value €0.01 per ordinary share
 
 
 
Shares authorized: 1,200,000,000
 
 
 
Shares issued: 539,943,344 and 539,289,665 as of March 31, 2019 and December 31, 2018
6.0

 
6.0

Additional paid-in capital
8,606.5

 
8,591.4

Retained earnings
5,989.3

 
6,010.7

Accumulated other comprehensive loss
(1,710.5
)
 
(1,441.3
)
 
12,891.3

 
13,166.8

Less: Treasury stock — at cost
 
 
 
Ordinary shares: 23,490,867 and 23,490,867 as of March 31, 2019 and December 31, 2018
999.7

 
999.7

Total equity
11,891.6

 
12,167.1

Total liabilities and equity
$
31,906.6

 
$
32,734.9



See Notes to Condensed Consolidated Financial Statements
5



MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited; in millions, except share amounts)
 
 
 
 
 
Additional Paid-In Capital
 
Retained
Earnings
 
 
 
 
 
Accumulated Other Comprehensive Loss
 
Total
Equity
 
Ordinary Shares
 
 
 
Treasury Stock
 
 
 
Shares
 
Cost
 
 
 
Shares
 
Cost
 
 
Balance at December 31, 2018
539,289,665

 
$
6.0

 
$
8,591.4

 
$
6,010.7

 
23,490,867

 
$
(999.7
)
 
$
(1,441.3
)
 
$
12,167.1

Net loss

 

 

 
(25.0
)
 

 

 

 
(25.0
)
Other comprehensive loss, net of tax

 

 

 

 

 

 
(265.6
)
 
(265.6
)
Issuance of restricted stock and stock options exercised, net
653,679

 

 
2.3

 

 

 

 

 
2.3

Taxes related to the net share settlement of equity awards

 

 
(5.2
)
 

 

 

 

 
(5.2
)
Share-based compensation expense

 

 
18.0

 

 

 

 

 
18.0

Cumulative effect of the adoption of new accounting standards

 

 

 
3.6

 

 

 
(3.6
)
 

Balance at March 31, 2019
539,943,344

 
$
6.0

 
$
8,606.5

 
$
5,989.3

 
23,490,867

 
$
(999.7
)
 
$
(1,710.5
)
 
$
11,891.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
537,902,426

 
$
6.0

 
$
8,586.0

 
$
5,644.5

 
13,695,251

 
$
(567.7
)
 
$
(361.2
)
 
$
13,307.6

Net earnings

 

 

 
87.1

 

 

 

 
87.1

Other comprehensive earnings, net of tax

 

 

 

 

 

 
177.2

 
177.2

Issuance of restricted stock and stock options exercised, net
959,335

 

 
10.6

 

 

 

 

 
10.6

Taxes related to the net share settlement of equity awards

 

 
(8.0
)
 

 

 

 

 
(8.0
)
Share-based compensation expense

 

 
21.4

 

 

 

 

 
21.4

Ordinary share repurchase

 

 

 

 
9,795,616

 
(432.0
)
 

 
(432.0
)
Cumulative effect of the adoption of new accounting standards

 

 

 
13.7

 

 

 
(7.5
)
 
6.2

Other

 

 
0.3

 
(0.3
)
 

 

 

 

Balance at March 31, 2018
538,861,761

 
$
6.0

 
$
8,610.3

 
$
5,745.0

 
23,490,867

 
$
(999.7
)
 
$
(191.5
)
 
$
13,170.1



See Notes to Condensed Consolidated Financial Statements
6



MYLAN N.V. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited; in millions)
 
Three Months Ended
 
March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net (loss) earnings
$
(25.0
)
 
$
87.1

Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
500.5

 
498.5

Share-based compensation expense
18.0

 
21.4

Deferred income tax expense
6.7

 
16.0

Loss from equity method investments
17.0

 
23.1

Other non-cash items
(2.3
)
 
38.0

Litigation settlements and other contingencies, net
(3.7
)
 
16.4

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
62.8

 
370.2

Inventories
(183.0
)
 
(157.6
)
Accounts payable
(277.5
)
 
(92.8
)
Income taxes
(213.6
)
 
(155.7
)
Other operating assets and liabilities, net
60.4

 
(42.8
)
Net cash (used in) provided by operating activities
(39.7
)
 
621.8

Cash flows from investing activities:
 
 
 
Cash paid for acquisitions, net
(7.1
)
 
(63.3
)
Capital expenditures
(53.1
)
 
(30.7
)
Proceeds from the sale of assets
0.2

 

Purchase of available for sale securities and other investments
(7.8
)
 
(7.5
)
Proceeds from the sale of marketable securities
7.6

 
15.0

Payments for product rights and other, net
(15.4
)
 
(342.4
)
Net cash used in investing activities
(75.6
)
 
(428.9
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
0.1

 
498.4

Payments of long-term debt
(0.2
)
 
(498.0
)
Purchase of ordinary shares

 
(432.0
)
Change in short-term borrowings, net
(1.5
)
 
309.1

Taxes paid related to net share settlement of equity awards
(7.1
)
 
(8.9
)
Contingent consideration payments
(31.8
)
 
(0.2
)
Payments of financing fees
(1.2
)
 
(0.4
)
Proceeds from exercise of stock options
2.4

 
10.8

Other items, net
(0.8
)
 
(0.2
)
Net cash used in financing activities
(40.1
)
 
(121.4
)
Effect on cash of changes in exchange rates
(3.0
)
 
3.7

Net (decrease) increase in cash, cash equivalents and restricted cash
(158.4
)
 
75.2

Cash, cash equivalents and restricted cash — beginning of period
389.3

 
369.9

Cash, cash equivalents and restricted cash — end of period
$
230.9

 
$
445.1


See Notes to Condensed Consolidated Financial Statements
7


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, equity 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, 2018 , as amended (the “ 2018 Form 10-K”). The December 31, 2018 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, 2019 are not necessarily indicative of the results to be expected for the full fiscal year or any other future period. Certain prior year amounts have been reclassified to conform to the current year presentation.
2.
Revenue Recognition and Accounts Receivable
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company recognizes net revenue for product sales when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenues are recorded net of provisions for variable consideration, including discounts, rebates, governmental rebate programs, price adjustments, returns, chargebacks, promotional programs and other sales allowances. Accruals for these provisions are presented in the condensed consolidated financial statements as reductions in determining net sales and as a contra asset in accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash).
Wholesaler and distributor inventory levels of our products can fluctuate throughout the year due to the seasonality of certain products, the timing of product demand and other factors. Such fluctuations may impact the comparability of our net sales between periods.
Consideration received from licenses of intellectual property is recorded as revenue. Royalty or profit share amounts, which are based on sales of licensed products or technology, are recorded when the customer’s subsequent sales or usages occur. Such consideration is included in other revenue in the condensed consolidated statements of operations.

8

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

Revenue Disaggregation
The following table presents the Company’s net sales by therapeutic franchise for each of our reportable segments for the three months ended March 31, 2019 and 2018 , respectively:
(In millions)
North America
 
Europe
 
Rest of World
 
Total
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
Central Nervous System & Anesthesia
$
135.7

 
$
190.3

 
$
64.0

 
$
390.0

Infectious Disease
18.1

 
58.8

 
215.6

 
292.5

Respiratory & Allergy
238.6

 
107.8

 
43.7

 
390.1

Cardiovascular
46.9

 
100.7

 
34.2

 
181.8

Gastroenterology
34.2

 
127.8

 
77.5

 
239.5

Diabetes & Metabolism
151.0

 
57.2

 
39.2

 
247.4

Dermatology
13.9

 
61.6

 
20.4

 
95.9

Women’s Healthcare
78.9

 
44.6

 
15.1

 
138.6

Oncology
124.8

 
17.6

 
29.0

 
171.4

Immunology
10.1

 
7.2

 
6.4

 
23.7

Other (1)
70.7

 
121.7

 
97.3

 
289.7

Total
$
922.9

 
$
895.3

 
$
642.4

 
$
2,460.6

(In millions)
North America
 
Europe
 
Rest of World
 
Total
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
Central Nervous System & Anesthesia
$
199.6

 
$
225.4

 
$
82.9

 
$
507.9

Infectious Disease
46.4

 
64.5

 
169.0

 
279.9

Respiratory & Allergy
113.9

 
127.6

 
46.6

 
288.1

Cardiovascular
90.4

 
146.8

 
39.5

 
276.7

Gastroenterology
44.1

 
153.2

 
66.1

 
263.4

Diabetes & Metabolism
109.6

 
73.8

 
24.8

 
208.2

Dermatology
94.5

 
80.3

 
24.9

 
199.7

Women’s Healthcare
93.1

 
70.0

 
19.2

 
182.3

Oncology
109.3

 
18.8

 
30.9

 
159.0

Immunology
14.0

 
2.5

 
8.4

 
24.9

Other (1)
70.4

 
75.5

 
114.4

 
260.3

Total
$
985.3

 
$
1,038.4

 
$
626.7

 
$
2,650.4

____________
(1)  
Other consists of numerous therapeutic franchises, none of which individually exceeds 5% of consolidated net sales.

9

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

Variable Consideration and Accounts Receivable
The following table presents a reconciliation of gross sales to net sales by each significant category of variable consideration during the three months ended March 31, 2019 and 2018 , respectively:
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Gross sales
$
4,158.5

 
$
4,732.3

Gross to net adjustments:
 
 
 
Chargebacks
(703.7
)
 
(872.1
)
Rebates, promotional programs and other sales allowances
(856.2
)
 
(1,030.6
)
Returns
(45.8
)
 
(77.3
)
Governmental rebate programs
(92.2
)
 
(101.9
)
Total gross to net adjustments
$
(1,697.9
)
 
$
(2,081.9
)
Net sales
$
2,460.6

 
$
2,650.4

No significant revisions were made to the methodology used in determining these provisions or the nature of the provisions during the three months ended March 31, 2019 . Such allowances were comprised of the following at March 31, 2019 and December 31, 2018 , respectively:
(In millions)
March 31,
2019
 
December 31,
2018
Accounts receivable, net
$
1,556.2

 
$
1,715.6

Other current liabilities
604.1

 
626.7

Total
$
2,160.3

 
$
2,342.3

Accounts receivable, net was comprised of the following at March 31, 2019 and December 31, 2018 , respectively:
(In millions)
March 31,
2019
 
December 31,
2018
Trade receivables, net
$
2,367.4

 
$
2,416.5

Other receivables
411.1

 
464.5

Accounts receivable, net
$
2,778.5

 
$
2,881.0

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 $372.2 million and $322.0 million of securitized accounts receivable at March 31, 2019 and December 31, 2018 , respectively.

10

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

3.
Recent Accounting Pronouncements
Adoption of New Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,  Leases (Topic 842),  which supersedes FASB Topic 840,  Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In July 2018, the FASB issued ASU 2018-10,  Codification Improvements to Topic 842 (Leases) , and ASU 2018-11,  Leases (Topic 842), Targeted Improvements , which provide (i) narrow amendments to clarify how to apply certain aspects of the new lease standard, (ii) entities with an additional transition method to adopt the new standard, and (iii) lessors with a practical expedient for separating components of a contract. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which provides certain narrow-scope improvements to Topic 842 as it relates to lessors. The Company adopted the provisions of Topic 842 as of January 1, 2019 on a modified retrospective basis applying the guidance to leases existing as of this effective date. We elected to apply the available package of transitional practical expedients which permitted us not to reassess under the new standard our prior conclusions regarding lease identification, lease classification and initial direct costs. We have also elected to apply the short-term lease recognition exemption which means we will not recognize ROU assets or lease liabilities for leases that qualify both at transition and on a go-forward basis. In addition, we have elected to apply the practical expedient to not separate lease and non-lease components for our leases except for those related to certain limited supply arrangements. The Company has determined that there was no cumulative-effect adjustment to beginning retained earnings on the condensed consolidated balance sheet. We will continue to report periods prior to January 1, 2019 in our financial statements under prior guidance as outlined in Topic 840. Refer to Note 8 Leases for additional information.
In February 2018, the FASB issued ASU 2018-02,  Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”) which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the comprehensive tax legislation enacted by the U.S. government on December 22, 2017 commonly referred to as the Tax Cuts and Jobs Act. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate. The Company applied the provisions of ASU 2018-02 as of January 1, 2019. Upon adoption, the Company recorded a cumulative effect adjustment of $3.6 million to retained earnings and accumulated other comprehensive loss.
In June 2018, the FASB issued ASU 2018-07,  Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The changes took effect for the Company as of January 1, 2019. The impact of the adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.
Accounting Standards Issued Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses, which requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and for interim periods therein. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements and disclosures.

11

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

In addition, the following recently issued accounting standards have not been adopted. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 , as amended, for additional information and their potential impacts.
Accounting Standard Update
Effective Date
ASU 2018-18:  Collaborative Arrangements (Topic 808) - Clarifying the Interaction between Topic 808 and Topic 606
January 1, 2020
ASU 2018-14: Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20) Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans
January 1, 2021
ASU 2018-13: Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
January 1, 2020
4.
Acquisitions and Other Transactions
On February 28, 2018, the Company and Revance Therapeutics, Inc. (“Revance”) entered into a collaboration agreement (the “Revance Collaboration Agreement”) pursuant to which the Company and Revance will collaborate exclusively, on a world-wide basis (excluding Japan), to develop, manufacture and commercialize a biosimilar to the branded biologic product (onabotulinumtoxinA) marketed as BOTOX®.
Under the Revance Collaboration Agreement, the Company will be primarily responsible for (a) clinical development activities outside of North America (excluding Japan) (the “ex-U.S. Mylan territories”), (b) regulatory activities, and (c) commercialization for any approved product. Revance will be primarily responsible for (a) non-clinical development activities, (b) clinical development activities in North America, and (c) manufacturing and supply of clinical drug substance and drug product; Revance will be solely responsible for an initial portion of non-clinical development costs. The remaining portion of any non-clinical development costs and clinical development costs for obtaining approval in the U.S. and Europe will be shared equally between the parties, and the Company will be responsible for all other clinical development costs and commercialization expenses. Upon closing, Revance received a non-refundable upfront payment of $25.0 million . In addition, under the Revance Collaboration Agreement, Revance can receive potential development milestone payments of up to $100.0 million , in the aggregate, upon the achievement of specified clinical and regulatory milestones and potential tiered sales milestones of up to $225.0 million . In addition, Mylan will pay Revance royalties on sales of the biosimilar in the ex-U.S. Mylan territories. The Company accounted for this transaction as an asset acquisition of in-process research and development (“IPR&D”) and the total upfront payment was expensed as a component of R&D expense during the year ended December 31, 2018.
On August 31, 2018, the Company completed an agreement with certain subsidiaries of Novartis AG (“Novartis”) to purchase the worldwide rights to their global cystic fibrosis products consisting of the TOBI Podhaler® and TOBI® solution. Tobramycin is the standard of care for treatment of pseudomonas aeruginosa, a leading driver of infection in cystic fibrosis. These products further strengthen our existing presence in cystic fibrosis, especially with our Creon Franchise in Europe, Australia, Japan and Canada. The asset acquisition allows us to further extend our respiratory franchise into rare/orphan disease indications and broaden our portfolio into dry powdered inhalers and nebulized products. Tobi Podhaler™ is manufactured using a proprietary Pulmosphere technology for which we have acquired exclusive rights for use, hence we expect a high barrier for generic entry.
Under the terms of the agreement, Novartis is owed fixed consideration of $463.0 million which consists of $240.0 million which was paid at closing as well as deferred payments of $130.0 million included in other current liabilities and $93.0 million included in other long-term obligations, due in 2019 and 2020, respectively. Novartis is also eligible to receive a contingent payment of up to $20 million . The Company also entered into a supply agreement with Novartis to purchase the products for up to three years from the date of closing. The Company has recorded a liability of approximately $91.0 million related to supply obligations.
The Company accounted for this transaction as an asset acquisition and recognized an intangible asset for the product rights of $574.8 million . The intangible asset is being amortized over a useful life of ten years .
During the year ended December 31, 2018, the Company completed four agreements to acquire certain intellectual property rights and marketing authorizations for products that were in the development stage, including agreements with Fujifilm Kyowa Kirin Biologics Co., Ltd. (“FKB”), Mapi Pharma Ltd., and Lupin Limited. The Company also completed the acquisition of intellectual property rights and marketing authorizations related to a commercialized product in certain rest of

12

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

world markets for  $220.0 million , of which $160.0 million was paid at closing and $20.0 million was paid in the fourth quarter of 2018, with the remaining amount due in 2019 and included in other current liabilities. The Company is accounting for these transactions as asset acquisitions and a useful life of five years is being used to amortize the asset related to the commercialized product. The Company recorded expense of approximately $53.7 million as a component of R&D expense related to non-refundable upfront payments for agreements for products in development during the year ended December 31, 2018. Certain of the agreements include additional development and commercial milestones.
On February 22, 2018, the Company in-licensed European rights to Hulio™, a biosimilar to AbbVie Inc.'s (“AbbVie”) Humira® (adalimumab), including a sub-license to certain of AbbVie’s European patents, from FKB. On February 27, 2019, the Company updated its arrangements with FKB for the commercialization of Hulio™. Under the updated arrangements, Mylan has in-licensed exclusive global commercialization rights for Hulio™. The Company accounted for this transaction as an asset acquisition of IPR&D and a net non-contingent amount due to FKB of approximately $23.3 million was expensed as a component of R&D expense during the three months ended March 31, 2019.    
On December 1, 2018, the Company and certain subsidiaries of Aspen Pharmacare Holdings Limited entered into an agreement for Mylan to distribute a portfolio of prescription and over-the-counter (“OTC”) products in Australia and New Zealand. The agreement includes an option for Mylan to purchase the rights to the portfolio for approximately $135.0 million . In March 2019, the Company exercised the option, and the parties began negotiating an asset purchase agreement. The consideration of approximately $135.0 million includes a payment due at closing of approximately $64.0 million and an amount due one year later of approximately $71.0 million . An agreement is expected to be finalized in 2019. Completion of the transaction will be subject to customary closing conditions.
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 and 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 stock options at the date of the grant, generally become exercisable over periods ranging from three to four years , and generally expire in ten years .
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, 2018
6,815,278

 
$
36.61

Granted
650,747

 
27.67

Exercised
(180,626
)
 
13.43

Forfeited
(202,181
)
 
44.90

Outstanding at March 31, 2019
7,083,218

 
$
36.14

Vested and expected to vest at March 31, 2019
6,867,569

 
$
36.10

Exercisable at March 31, 2019
5,409,105

 
$
36.13

As of March 31, 2019 , stock awards outstanding, stock awards vested and expected to vest and stock awards exercisable had average remaining contractual terms of 5.6 years , 5.5 years and 4.5 years , respectively. Also, at March 31, 2019 , stock awards outstanding, stock awards vested and expected to vest and stock awards exercisable had aggregate intrinsic values of $15.9 million , $15.8 million and $15.4 million , respectively.

13

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 March 31, 2019 and the changes during the three months ended March 31, 2019 are presented below:
 
Number of Restricted Stock Awards
 
Weighted Average Grant-Date Fair Value per Share
Nonvested at December 31, 2018
6,393,081

 
$
40.75

Granted
2,279,253

 
27.45

Released
(672,319
)
 
43.70

Forfeited
(2,892,752
)
 
38.06

Nonvested at March 31, 2019
5,107,263

 
$
35.94

As of March 31, 2019 , the Company had $130.6 million of total unrecognized compensation expense, net of estimated forfeitures, related to all of its stock-based awards, which we expect to recognize over the remaining weighted average vesting period of 1.8 years . The total intrinsic value of stock awards exercised and restricted stock units released during the three months ended March 31, 2019 and 2018 was $22.1 million and $38.1 million , respectively.
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 SARs or PSUs. The initial Awards were granted in February 2014 and contained a five-year cliff-vesting feature based on the achievement of various performance targets, external market conditions and the employee’s continued services. Additional Awards were granted in 2016 and 2017, subject to the same performance condition. The performance condition was not achieved by December 31, 2018 and approximately 2.6 million Awards outstanding under the 2014 Program were canceled in the first quarter of 2019. There was no impact to share based compensation expense during the three months ended March 31, 2019 as all of the cumulative expense related to the Awards was reversed during the year ended December 31, 2018.
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.

14

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

Net Periodic Benefit Cost
Components of net periodic benefit cost for the three months ended March 31, 2019 and 2018 were as follows:
 
Pension and Other Postretirement Benefits
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Service cost
$
5.3

 
$
5.0

Interest cost
3.8

 
3.6

Expected return on plan assets
(3.0
)
 
(3.6
)
Amortization of prior service costs
0.3

 
0.1

Recognized net actuarial gains
(0.2
)
 

Net periodic benefit cost
$
6.2

 
$
5.1

The Company is making the minimum mandatory contributions to its U.S. defined benefit pension plans in the 2019 plan year. The Company expects to make total benefit payments of approximately $33.7 million from pension and other postretirement benefit plans in 2019 . The Company anticipates making contributions to pension and other postretirement benefit plans of approximately $29.3 million in 2019 .
7.
Balance Sheet Components
Selected balance sheet components consist of the following:
Cash and restricted cash
(In millions)
March 31,
2019
 
December 31,
2018
Cash and cash equivalents
$
229.8

 
$
388.1

Restricted cash, included in prepaid expenses and other current assets
1.1

 
1.2

Cash, cash equivalents and restricted cash
$
230.9

 
$
389.3

Inventories
(In millions)
March 31,
2019
 
December 31,
2018
Raw materials
$
987.0

 
$
955.7

Work in process
415.4

 
369.9

Finished goods
1,306.4

 
1,254.6

Inventories
$
2,708.8

 
$
2,580.2


15

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

Prepaid and other current assets
(In millions)
March 31,
2019
 
December 31, 2018
Prepaid expenses
$
131.8

 
$
130.6

Restricted cash
1.1

 
1.2

Available-for-sale fixed income securities
25.9

 
25.0

Fair value of financial instruments
40.1

 
33.8

Equity securities
35.8

 
32.5

Other current assets
310.5

 
295.3

Prepaid expenses and other current assets
$
545.2

 
$
518.4

Prepaid expenses consist primarily of prepaid rent, insurance and other individually insignificant items.
Property, plant and equipment, net
(In millions)
March 31,
2019
 
December 31, 2018
Machinery and equipment
$
2,444.8

 
$
2,421.2

Buildings and improvements
1,188.5

 
1,182.3

Construction in progress
249.0

 
239.7

Land and improvements
130.5

 
131.3

Gross property, plant and equipment
4,012.8

 
3,974.5

Accumulated depreciation
1,861.4

 
1,804.3

Property, plant and equipment, net
$
2,151.4

 
$
2,170.2

Other assets
(In millions)
March 31,
2019
 
December 31, 2018
Equity method investments, clean energy investments
$
127.4

 
$
138.7

Operating lease right-of-use assets
236.2

 

Other long-term assets
58.1

 
73.7

Other assets
$
421.7

 
$
212.4

Accounts payable
(In millions)
March 31,
2019
 
December 31,
2018
Trade accounts payable
$
907.0

 
$
1,123.2

Other payables
409.5

 
493.8

Accounts payable
$
1,316.5

 
$
1,617.0


16

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

Other current liabilities
(In millions)
March 31,
2019
 
December 31, 2018
Accrued sales allowances
$
604.1

 
$
626.7

Legal and professional accruals, including litigation accruals
128.7

 
128.1

Payroll and employee benefit liabilities
311.4

 
399.7

Contingent consideration
114.9

 
158.3

Accrued interest
166.0

 
62.4

Restructuring
37.5

 
62.3

Equity method investments, clean energy investments
46.0

 
45.1

Fair value of financial instruments
9.7

 
29.4

Operating lease liability
80.0

 

Other
615.7

 
635.6

Other current liabilities
$
2,114.0

 
$
2,147.6

In the fourth quarter of 2018, the Company announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of an impurity, N-nitrosodiethylamine contained in the active pharmaceutical ingredient Valsartan, USP, manufactured by Mylan India. The impact of this recall on the Company’s condensed consolidated statement of operations for the period ended March 31, 2019 was approximately $3.9 million , primarily related to recall costs and inventory reserves. Depending on the scope of regulatory actions, and severity of the impurity, the Company may face additional loss of revenues and profits and incur contractual or other litigation costs. There can be no assurance that future costs related to the recall will not exceed amounts recorded.
Other long-term obligations
(In millions)
March 31,
2019
 
December 31, 2018
Employee benefit liabilities
$
390.3

 
$
397.7

Contingent consideration
180.2

 
197.0

Equity method investments, clean energy investments
90.0

 
100.3

Tax related items, including contingencies
76.0

 
162.1

Operating lease liability
154.3

 

Other
236.5

 
239.7

Other long-term obligations
$
1,127.3

 
$
1,096.8

8.
Leases
The Company adopted the provisions of Topic 842 as of January 1, 2019 on a modified retrospective basis applying the guidance to leases existing as of this effective date. We have operating leases of real estate, consisting primarily of administrative offices, manufacturing and distribution facilities, and research and development facilities. We also have operating leases of certain equipment, primarily automobiles, and certain limited supply arrangements.
As of March 31, 2019 , the Company recognized an ROU asset of $236.2 million and a total lease liability of $234.3 million . The Company’s ROU assets are recorded in other assets. The related lease liability balances are recorded in other current liabilities and other long-term obligations on the condensed consolidated balance sheet. Refer to Note 7 Balance Sheet Components for additional information. Operating lease costs for the three months ended March 31, 2019 were approximately $24.2 million , and are classified primarily as selling, general and administrative expenses and cost of sales.

17

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

ROU assets and liabilities are recognized at the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use an applicable incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Options to extend or terminate the ROU assets are reviewed at lease inception and these options are accounted for when they are reasonably certain of being exercised.
Other information related to leases was as follows:
 
As of March 31, 2019
Remaining lease terms
1 year to 25 years

Weighted-average remaining lease term
6 years

Weighted-average discount rate
4.2
%
As of March 31, 2019 , we have additional operating leases, primarily for distribution facilities, that have not yet commenced totaling approximately $42.7 million . These leases are expected to commence in 2019 and have lease terms of 7 years to 15 years .    
As of March 31, 2019 , maturities of lease liabilities were as follows:
(In millions)
 
Year ending December 31,
 
2019 (excluding the three months ended March 31, 2019)
$
55.4

2020
62.8

2021
41.6

2022
27.0

2023
19.7

Thereafter
58.0

 
$
264.5

As of December 31, 2018, future minimum lease payments under operating lease commitments were as follows:
(In millions)
 
Year ending December 31,
 
2019
$
73.7

2020
54.7

2021
40.2

2022
28.5

2023
18.3

Thereafter
54.2

 
$
269.6

9.
Equity Method Investments
The Company currently has three equity method investments in limited liability companies that own refined coal production plants (the “clean energy investments”) whose activities qualify for income tax credits under Section 45 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”).

18

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

Summarized financial information, in the aggregate, for the Company’s significant equity method investments on a 100% basis for the three months ended March 31, 2019 and 2018 are as follows:
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Total revenues
$
86.9

 
$
129.0

Gross loss
(1.0
)
 
(7.7
)
Operating and non-operating expense
4.9

 
5.6

Net loss
$
(5.9
)
 
$
(13.3
)
The Company’s net losses from its equity method investments include 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 March 31, 2019 and 2018 , the Company recognized net losses from equity method investments of $17.0 million and $23.1 million , respectively, which were 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.
10.
(Loss) Earnings per Ordinary Share
Basic (loss) earnings per ordinary share is computed by dividing net (loss) earnings by the weighted average number of ordinary shares outstanding during the period. Diluted (loss) earnings per ordinary share is computed by dividing net (loss) 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.
Basic and diluted (loss) earnings per ordinary share are calculated as follows:
 
Three Months Ended
 
March 31,
(In millions, except per share amounts)
2019
 
2018
Basic (loss) earnings (numerator):
 
 
 
Net (loss) earnings
$
(25.0
)
 
$
87.1

Shares (denominator):
 
 
 
Weighted average ordinary shares outstanding
515.0

 
514.4

Basic (loss) earnings per ordinary share
$
(0.05
)
 
$
0.17

 
 
 
 
Diluted (loss) earnings (numerator):
 
 
 
Net (loss) earnings
$
(25.0
)
 
$
87.1

Shares (denominator):
 
 
 
Weighted average ordinary shares outstanding
515.0

 
514.4

Share-based awards

 
2.4

Total dilutive shares outstanding
515.0

 
516.8

Net (loss) earnings per diluted ordinary share

$
(0.05
)
 
$
0.17

Additional stock awards and restricted stock awards were outstanding during the three months ended March 31, 2019 and 2018 , but were not included in the computation of diluted (loss) earnings per ordinary share for each respective period because the effect would be anti-dilutive. Excluded shares at March 31, 2019 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 8.1 million shares for the three months ended March 31, 2019 and 2018 , respectively.

19

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

11.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the three months ended March 31, 2019 are as follows:
(In millions)
North America Segment
 
Europe Segment
 
Rest of World Segment
 
Total
Balance at December 31, 2018:
 
 
 
 
 
 
 
Goodwill
$
3,892.9

 
$
4,657.4

 
$
1,582.5

 
$
10,132.8

Accumulated impairment losses
(385.0
)
 

 

 
(385.0
)
 
3,507.9

 
4,657.4

 
1,582.5

 
9,747.8

Foreign currency translation
4.8

 
(149.8
)
 
5.1

 
(139.9
)
 
$
3,512.7

 
$
4,507.6

 
$
1,587.6

 
$
9,607.9

Balance at March 31, 2019:
 
 
 
 
 
 
 
Goodwill
$
3,897.7

 
$
4,507.6

 
$
1,587.6

 
$
9,992.9

Accumulated impairment losses
(385.0
)
 

 

 
(385.0
)
 
$
3,512.7

 
$
4,507.6

 
$
1,587.6

 
$
9,607.9

Intangible assets consist of the following components at March 31, 2019 and December 31, 2018 :
(In millions)
Weighted Average Life (Years)
 
Original Cost
 
Accumulated Amortization
 
Net Book Value
March 31, 2019
 
 
 
 
 
 
 
Product rights, licenses and other (1)
15
 
$
20,232.7

 
$
7,521.2

 
$
12,711.5

In-process research and development
 
 
244.0

 

 
244.0

 
 
 
$
20,476.7

 
$
7,521.2

 
$
12,955.5

December 31, 2018
 
 
 
 
 
 
 
Product rights, licenses and other (1)
15
 
$
20,264.1

 
$
7,225.1

 
$
13,039.0

In-process research and development
 
 
625.6

 

 
625.6

 
 
 
$
20,889.7

 
$
7,225.1

 
$
13,664.6

____________
(1)  
Represents amortizable intangible assets. Other intangible assets consists principally of customer lists and contractual rights.
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 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. On January 30, 2019, the Company received U.S. Food and Drug Administration (“FDA”) approval of Wixela TM  Inhub TM  (fluticasone propionate and salmeterol inhalation powder, USP) and the commercial launch occurred in February 2019. The Company reclassified the IPR&D asset of $347.2 million  to product rights and licenses during the three months ended March 31, 2019 and began amortizing the asset over its estimated useful life.
As of March 31, 2019 , the Company has a related contingent consideration liability of  $276.4 million . Upon approval and launch of the product, during the three months ended March 31, 2019, the Company made $60.0 million in milestone payments. The Company performed an analysis and valuation of the contingent consideration liability using a discounted cash flow model. The model contained certain key assumptions including: market share, 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 recorded a fair value adjustment of $4.1 million during the three months ended March 31, 2019 to reduce the contingent consideration liability. 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 12 - Financial Instruments and Risk Management . Market conditions and other factors may result in significant future changes in the

20

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

projections and assumptions utilized in the discounted cash flow model, which could lead to material adjustments to the amount recorded for contingent consideration.
During the three months ended March 31, 2019 , the Company recognized impairment charges of $29.5 million , which have been recorded as a component of amortization expense, for the impairment of certain IPR&D assets. The impairment charge recorded during the first quarter of 2019 related to certain assets acquired as part of the acquisition of the non-sterile, topicals-focused business of Renaissance Acquisition Holdings, LLC. The impairment charges resulted from the Company’s updated estimate of the fair value of certain assets, which were based upon revised forecasts and future development plans. The impairment testing involved calculating the fair value of the assets based upon detailed valuations employing the income approach which utilized Level 3 inputs, as defined in Note 12 - 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.
Amortization expense, which is classified primarily within cost of sales in the condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 totaled:
 
Three Months Ended
 
March 31,
(In millions)
2019
 
2018
Intangible asset amortization expense
$
405.5

 
$
392.3

IPR&D intangible asset impairment charges
29.5

 
30.0

Total intangible asset amortization expense (including impairment charges)
$
435.0

 
$
422.3

Intangible asset amortization expense over the remainder of 2019 and for the years ended December 31, 2020 through 2023 is estimated to be as follows:
(In millions)
 
2019
$
1,157

2020
1,403

2021
1,325

2022
1,255

2023
1,093

12.
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 the fair value of designated cash flow hedges are deferred in accumulated other comprehensive earnings (“AOCE”) and are reclassified into earnings when the hedged item impacts earnings.

21

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

Net Investment Hedges
The Company may hedge the foreign currency risk associated with certain net investment positions in foreign subsidiaries by either borrowing directly in foreign currencies and designating all or a portion of the foreign currency debt as a hedge of the applicable net investment position or entering into foreign currency swaps that are designated as hedges of net investments.
The Company has designated certain Euro borrowings as a hedge of its investment in certain Euro-functional currency subsidiaries in order to manage foreign currency translation risk. 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. In addition, the Company manages the related foreign exchange risk of the Euro borrowings not designated as net investment hedges through certain Euro denominated financial assets and forward currency swaps.
The following table summarizes the principal amounts of the Company’s outstanding Euro borrowings and the notional amounts of the Euro borrowings designated as net investment hedges:

 
 
 
Notional Amount Designated as a Net Investment Hedge
(in millions)
 
Principal Amount
 
March 31,
2019
 
December 31,
2018
2.250% Euro Senior Notes due 2024
 
1,000.0

 
1,000.0

 
1,000.0

3.125% Euro Senior Notes due 2028
 
750.0

 
750.0

 
750.0

1.250% Euro Senior Notes due 2020
 
750.0

 
104.0

 
104.0

2.125% Euro Senior Notes due 2025
 
500.0

 
500.0

 
500.0

Floating Rate Euro Notes due 2020
 
500.0

 

 

Total
 
3,500.0

 
2,354.0

 
2,354.0

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. Interest rate swaps that meet specific accounting criteria are accounted for as fair value or cash flow hedges. All derivative instruments used to manage interest rate risk are measured at fair value and reported as current assets or current liabilities in the condensed consolidated balance sheets . For fair value hedges, the changes in the fair value of both the hedging instrument and the underlying debt obligations are included in interest expense. For cash flow hedges, the change in fair value of the hedging instrument is deferred through AOCE and is reclassified into earnings when the hedged item impacts earnings.
Credit Risk Management
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.

22

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 Designated as Hedging Instruments
 
Asset Derivatives
 
March 31, 2019
 
December 31, 2018
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Interest rate swaps
Prepaid expenses and other current assets
 
$
11.1

 
Prepaid expenses and other current assets
 
$
3.6

Foreign currency forward contracts
Prepaid expenses and other current assets
 
12.2

 
Prepaid expenses and other current assets
 

Total
 
 
$
23.3

 
 
 
$
3.6

 
Liability Derivatives
 
March 31, 2019
 
December 31, 2018
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Foreign currency forward contracts
Other current liabilities
 

 
Other current liabilities
 
12.1

Total
 
 
$

 
 
 
$
12.1


The Effect of Derivative Instruments on the condensed consolidated balance sheets
Fair Values of Derivative Instruments
Derivatives Not Designated as Hedging Instruments
 
Asset Derivatives
 
March 31, 2019
 
December 31, 2018
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Foreign currency forward contracts
Prepaid expenses and other current assets
 
$
16.8

 
Prepaid expenses and other current assets
 
$
30.2

Total
 
 
$
16.8

 
 
 
$
30.2

 
Liability Derivatives
 
March 31, 2019
 
December 31, 2018
(In millions)
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Foreign currency forward contracts
Other current liabilities
 
$
9.7

 
Other current liabilities
 
$
17.3

Total
 
 
$
9.7

 
 
 
$
17.3


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 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
 
March 31,
 
2019
 
2018
Interest rate swaps
Interest expense
 
$
7.5

 
$
(16.0
)
Total
 
 
$
7.5

 
$
(16.0
)
 
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
 
March 31,
 
2019
 
2018
2023 Senior Notes (3.125% coupon)
Interest expense
 
$
(7.5
)
 
$
16.0

Total
 
 
$
(7.5
)
 
$
16.0

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
 
 
Three Months Ended
 
 
March 31,
(In millions)
 
2019
 
2018
Foreign currency forward contracts
 
$
15.5

 
$
(15.1
)
Total
 
$
15.5

 
$
(15.1
)
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
 
 
Three Months Ended
 
 
March 31,
(In millions)
 
2019
 
2018
Foreign currency borrowings and forward contracts
 
$
55.2

 
$
(59.2
)
Total
 
$
55.2

 
$
(59.2
)

24

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

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
 
 
Three Months Ended
 
 
March 31,
(In millions)
 
2019
 
2018
Foreign currency forward contracts
Net sales
 
$
0.3

 
$
4.8

Interest rate swaps
Interest expense
 
(1.8
)
 
(1.9
)
Total
 
 
$
(1.5
)
 
$
2.9

At March 31, 2019 , the Company expects that approximately $47.0 million of pre-tax net losses 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
 
 
March 31,
(In millions)
 
2019
 
2018
Foreign currency option and forward contracts
Other expense, net
 
$
(5.8
)
 
$
44.0

Total
 
 
$
(5.8
)
 
$
44.0

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.

25

MYLAN N.V. 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, 2019
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Recurring fair value measurements
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
0.6

 
$

 
$

 
$
0.6

Total cash equivalents
0.6

 

 

 
0.6

Equity securities:
 
 
 
 
 
 
 
Exchange traded funds
35.0

 

 

 
35.0

Marketable securities
0.8

 

 

 
0.8

Total equity securities
35.8

 

 

 
35.8

Available-for-sale fixed income investments:
 
 
 
 
 
 
 
Corporate bonds

 
10.3

 

 
10.3

U.S. Treasuries

 
9.9

 

 
9.9

Agency mortgage-backed securities

 
1.6

 

 
1.6

Asset backed securities

 
3.2

 

 
3.2

Other

 
0.9

 

 
0.9

Total available-for-sale fixed income investments

 
25.9

 

 
25.9

Foreign exchange derivative assets

 
29.0




29.0

Interest rate swap derivative assets

 
11.1

 

 
11.1

Total assets at recurring fair value measurement
$
36.4


$
66.0


$


$
102.4

Financial Liabilities
 
 
 
 
 
 
 
Foreign exchange derivative liabilities

 
9.7