Revenue Recognition and Accounts Receivable

On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606 Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method applied to those contracts which were not completed as of the date of adoption. Results for reporting periods beginning on January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 605 Revenue Recognition (“ASC 605”). Under ASC 605, the Company recognized net sales when title and risk of loss passed to its customers and when provisions for estimates, as described below, were reasonably determinable.

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 interim 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). The following briefly describes the nature of our provisions for variable consideration and how such provisions are estimated:

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Chargebacks: the Company has agreements with certain indirect customers, such as independent pharmacies, managed care organizations, hospitals, nursing homes, governmental agencies and pharmacy benefit managers, which establish contract prices for certain products. The indirect customers then independently select a wholesaler from which to purchase the products at these contracted prices. Alternatively, certain wholesalers may enter into agreements with indirect customers that establish contract pricing for certain products, which the wholesalers provide. Under either arrangement, Mylan will provide credit to the wholesaler for any difference between the contracted price with the indirect party and the wholesaler’s invoice price. Such credits are called chargebacks. The provision for chargebacks is based on expected sell-through levels by our wholesaler customers to indirect customers, as well as estimated wholesaler inventory levels.

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Rebates, promotional programs and other sales allowances: this category includes rebate and other programs to assist in product sales. These programs generally provide that the customer receives credit directly related to the amount of purchases or credits upon the attainment of pre-established volumes. Also included in this category are prompt pay discounts, administrative fees and price adjustments to reflect decreases in the selling prices of products.

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Returns: consistent with industry practice, Mylan maintains a return policy that allows customers to return a product, which varies country by country in accordance with local practices, generally within a specified period prior (six months) and subsequent (twelve months) to the expiration date. The Company’s estimate of the provision for returns is generally based upon historical experience with actual returns.

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Governmental rebate programs: government reimbursement programs include Medicare, Medicaid, and State Pharmacy Assistance Programs established according to statute, regulations and policy. Manufacturers of pharmaceutical products that are covered by the Medicaid program are required to pay rebates to each state based on a statutory formula set forth in the Social Security Act. Medicare beneficiaries are eligible to obtain discounted prescription drug coverage from private sector providers. In addition, certain states have also implemented supplemental rebate programs that obligate manufacturers to pay rebates in excess of those required under federal law. Our estimate of these rebates is based on the historical trends of rebates paid as well as on changes in wholesaler inventory levels and increases or decreases in the level of sales. Also, includes price reductions that are mandated by law outside of the U.S.

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 Consolidated Statements of Operations.

The Company elected to apply the following practical expedients and elections in connection with the adoption of ASC 606: i) taxes collected from customers and remitted to government authorities and that are related to the sales of the Company’s products, primarily in Europe, are excluded from revenues, and ii) shipping and handling activities are accounted for as fulfillment costs and are recorded in selling, general and administrative expense (“SG&A”). Payment terms related to product sales vary by jurisdiction and customer, but revenue for product sales has not been adjusted for the effects of a financing component as we expect that the period between when we transfer control of the product and when we receive payment to be one year or less.

Revenue Disaggregation

The following table presents the Company’s net sales by therapeutic franchise for each of our reportable segments for the three and nine months ended September 30, 2018:



(In millions)	North America		Europe		Rest of World		Total
Three Months Ended September 30, 2018
Central Nervous System & Anesthesia	$	154.7	$	219.6	$	92.4	$	466.7
Infectious Disease	63.1		157.8		223.2		444.1
Respiratory & Allergy	161.8		94.8		47.4		304.0
Cardiovascular	95.9		147.3		40.9		284.1
Gastroenterology	24.5		150.0		91.1		265.6
Diabetes & Metabolism	94.9		73.9		43.8		212.6
Dermatology	86.7		62.8		18.0		167.5
Women’s Healthcare	83.1		61.3		28.1		172.5
Oncology	171.0		18.2		31.9		221.1
Immunology	8.0		2.3		10.0		20.3
Other ⁽¹⁾	68.6		53.3		146.9		268.8
Total	$	1,012.3	$	1,041.3	$	773.7	$	2,827.3

Nine Months Ended September 30, 2018
Central Nervous System & Anesthesia	$	554.2	$	665.7	$	251.7	$	1,471.6
Infectious Disease	172.1		280.5		643.8		1,096.4
Respiratory & Allergy	457.3		351.8		147.7		956.8
Cardiovascular	262.4		443.2		126.6		832.2
Gastroenterology	102.5		448.3		249.3		800.1
Diabetes & Metabolism	318.6		227.9		102.1		648.6
Dermatology	265.7		217.4		70.1		553.2
Women’s Healthcare	261.4		198.1		69.5		529.0
Oncology	382.5		55.4		95.6		533.5
Immunology	36.1		7.3		29.1		72.5
Other ⁽¹⁾	185.6		174.7		379.0		739.3
Total	$	2,998.4	$	3,070.3	$	2,164.5	$	8,233.2

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

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 and nine months ended September 30, 2018:



(In millions)	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Gross sales	$	4,861.4		$	14,419.0
Gross to net adjustments:
Chargebacks	(835.7		)	(2,524.2		)
Rebates, promotional programs and other sales allowances	(1,025.6		)	(3,144.2		)
Returns	(59.4		)	(160.5		)
Governmental rebate programs	(113.4		)	(356.9		)
Total gross to net adjustments	$	(2,034.1	)	$	(6,185.8	)
Net sales	$	2,827.3		$	8,233.2

No significant revisions were made to the methodology used in determining these provisions or the nature of the provisions during the three and nine months ended September 30, 2018. Such allowances were comprised of the following at September 30, 2018 and December 31, 2017, respectively:



(In millions)	September 30, 2018		December 31, 2017
Accounts receivable, net	$	1,642.2	$	1,977.2
Other current liabilities	631.9		818.0
Total	$	2,274.1	$	2,795.2

Accounts receivable, net was comprised of the following at September 30, 2018 and December 31, 2017, respectively:



(In millions)	September 30, 2018		December 31, 2017
Trade receivables, net	$	2,591.0	$	3,173.1
Other receivables	357.7		439.3
Accounts receivable, net	$	2,948.7	$	3,612.4

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 $464.0 million and $1.04 billion of securitized accounts receivable at September 30, 2018 and December 31, 2017, respectively.