Mylan is exposed to certain financial risks relating to its ongoing business operations. The primary financial risks that are managed by using derivative instruments are foreign currency risk, interest rate risk and equity risk.

In order to manage foreign currency risk, Mylan enters into foreign exchange forward contracts to mitigate risk associated with changes in spot exchange rates of mainly non-functional currency denominated assets or liabilities. The foreign exchange forward contracts are measured at fair value and reported as current assets or current liabilities on the Condensed Consolidated Balance Sheets. Any gains or losses on the foreign exchange forward contracts are recognized in earnings in the period incurred in the Condensed Consolidated Statements of Operations.

The Company has 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 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.

As of September 30, 2011 and December 31, 2010, the Company had €679.2 million of borrowings under its senior credit agreement (the "Senior Credit Agreement") that are designated as a hedge of its net investment in certain Euro-functional currency subsidiaries to manage foreign currency risk. The U.S. Dollar equivalent of such amounts was $914.2 million and $909.3 million at September 30, 2011 and December 31, 2010. Borrowings designated as hedges of net investments 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 adjustment component of AOCE on the Condensed Consolidated Balance Sheet until the sale or substantial liquidation of the underlying net investments.

The Company enters into interest rate swaps in order to manage interest rate risk associated with the Company's fixed and floating-rate debt. The Company's interest rate swaps designated as cash flow hedges fix the interest rate on the Company's variable-rate U.S. Tranche B Term Loans under the terms of its Senior Credit Agreement. These derivative instruments 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 AOCE, depending on the nature and effectiveness of the offset.

During 2011, the Company entered into interest rate swaps which convert $500.0 million of the Company's fixed-rate 6.0% Senior Notes due 2018 (the "2018 Senior Notes") to a variable rate. These interest rate swaps, which are designated as fair value hedges, are measured at fair value and reported as current assets or current liabilities on the Condensed Consolidated Balance Sheets. The change in the fair value of these derivative instruments, as well as the offsetting change in fair value of the portion of the fixed-rate debt being hedged, is included in interest expense.

As of September 30, 2011 and December 31, 2010, the total notional amount of the Company's interest rate swaps on floating-rate debt was $500 million and $767.7 million. As of September 30, 2011, the total notional amount of the Company's interest rate swaps on fixed-rate debt was $500 million.

Certain derivative instrument contracts entered into by the Company are governed by Master Agreements, which contain credit-risk-related contingent features that would allow the counterparties to terminate the contracts early and request immediate payment should the Company trigger an event of default on other specified borrowings. The aggregate fair value of all such contracts that were in a liability position at September 30, 2011 was $17.3 million. The Company is not subject to any obligations to post collateral under derivative instrument contracts.

The Company maintains significant credit exposure arising from the convertible note hedge on its Cash Convertible Notes. Holders may convert their Cash Convertible Notes subject to certain conversion provisions determined by a) the market price of the Company's common stock, b) specified distributions to common shareholders, c) a fundamental change, as defined in the purchase agreement, or d) certain time periods specified in the purchase agreement. The conversion feature can only be settled in cash and, therefore, it is bifurcated from the Cash Convertible Notes and treated as a separate derivative instrument. In order to offset the cash flow risk associated with the cash conversion feature, the Company entered into a convertible note hedge with certain counterparties. Both the cash conversion feature and the purchased convertible note hedge are measured at fair value with gains and losses recorded in the Company's Condensed Consolidated Statements of Operations. Also, in conjunction with the issuance of the Cash Convertible Notes, the Company entered into several warrant transactions with certain counterparties. The warrants meet the definition of derivatives; however, because these instruments have been determined to be indexed to the Company's own stock, and have been recorded in shareholders' equity in the Company's Condensed Consolidated Balance Sheets, the instruments are exempt from the scope of the FASB's guidance regarding accounting for derivative instruments and hedging activities and are not subject to the fair value provisions set forth therein.

At September 30, 2011, the convertible note hedge had a total fair value of $294.9 million, which reflects the maximum loss that would be incurred should the parties fail to perform according to the terms of the contract. The counterparties are highly rated diversified financial institutions. The counterparties are required to post collateral against this obligation should they be downgraded below thresholds specified in the contract. Eligible collateral is comprised of a wide range of financial securities with a valuation discount percentage reflecting the associated risk.

The Company regularly reviews the creditworthiness of its financial counterparties and does not expect to incur a significant loss from failure of any counterparties to perform under any agreements.

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations


	Location of Gain or (Loss) Recognized in Earnings on Derivatives	Amount of Gain or (Loss) Recognized in Earnings on Derivatives
		Three Months Ended September 30,				Nine Months Ended September 30,
		2011		2010		2011		2010
(In thousands)
Interest Rate Swaps	Interest Expense	$	34,985	$	—	$	39,780	$	—

Total		$	34,985	$	—	$	39,780	$	—


	Location of Gain or (Loss) Recognized in Earnings on Hedged Items	Amount of Gain or (Loss) Recognized in Earnings on Hedged Items
		Three Months Ended September 30,					Nine Months Ended September 30,
		2011			2010		2011			2010
(In thousands)
2018 Senior Notes	Interest Expense	$	(34,985	)	$	—	$	(39,780	)	$	—

Total		$	(34,985	)	$	—	$	(39,780	)	$	—

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations


		Amount of Gain or (Loss) Recognized in AOCE (Net of Tax) on Derivative (Effective Portion)
		Three Months Ended September 30,						Nine Months Ended September 30,
		2011			2010			2011			2010
(In thousands)
Foreign currency forward contracts		$	(30,105	)	$	9,293		$	(28,417	)	$	6,430
Interest rate swaps			2,354			7,440			5,243			10,481

Total		$	(27,751	)	$	16,733		$	(23,174	)	$	16,911


	Location of Gain or (Loss) Reclassified from AOCE into Earnings (Effective Portion)	Amount of Gain or (Loss) Reclassified from AOCE into Earnings (Effective Portion)
		Three Months Ended September 30,						Nine Months Ended September 30,
		2011			2010			2011			2010
(In thousands)
Foreign currency forward contracts	Net revenues	$	(267	)	$	(232	)	$	2,099		$	647
Interest rate swaps	Interest expense		(466	)		(5,843	)		(2,655	)		(28,201	)

Total		$	(733	)	$	(6,075	)	$	(556	)	$	(27,554	)


	Location of Gain or (Loss) Excluded from the Assessment of Hedge Effectiveness	Amount of Gain or (Loss) Excluded from the Assessment of Hedge Effectiveness
		Three Months Ended September 30,						Nine Months Ended September 30,
		2011			2010			2011			2010
(In thousands)
Foreign currency forward contracts	Other income (expense), net	$	12,158		$	(4,971	)	$	17,246		$	(3,721	)

Total		$	12,158		$	(4,971	)	$	17,246		$	(3,721	)

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations

Derivatives in Net Investment Hedging Relationships


	Amount of Gain or (Loss) Recognized in AOCE (Net of Tax) on Derivative (Effective Portion)
	Three Months Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011			2010
(In thousands)
Foreign currency borrowings	$	7,428	$	(58,079	)	$	(39,868	)	$	30,979

Total	$	7,428	$	(58,079	)	$	(39,868	)	$	30,979

There was no gain or loss recognized into earnings on derivatives with net investment hedging relationships during the nine months ended September 30, 2011 or 2010.

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations

Derivatives Not Designated as Hedging Instruments


	Location of Gain or (Loss) Recognizedin Earnings on Derivatives	Amount of Gain or (Loss) Recognized in Earnings on Derivatives
		Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)		2011			2010			2011			2010
Foreign currency forward contracts	Other income (expense), net	$	(19,368	)	$	(4,590	)	$	(5,244	)	$	(27,741	)
Cash conversion feature of Cash Convertible Notes	Other income (expense), net		286,500			(43,200	)		177,500			19,500
Purchased cash convertible note hedge	Other income (expense), net		(286,500	)		43,200			(177,500	)		(19,500	)

Total		$	(19,368	)	$	(4,590	)	$	(5,244	)	$	(27,741	)

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 following categories described above:


	September 30, 2011
	Level 1		Level 2		Total
	(In thousands)
Financial Assets:
Trading securities:
Equity securities — exchange traded funds	$	6,135	$	—	$	6,135

Total trading securities		6,135		—		6,135

Available-for-sale fixed income investments:
U.S. Treasuries		—		12,899		12,899
Corporate bonds		—		6,761		6,761
Agency mortgage-backed securities		—		1,652		1,652
Other		—		2,646		2,646

Total available-for-sale fixed income investments		—		23,958		23,958

Available-for-sale equity securities:
Biosciences industry		156		—		156

Total available-for-sale equity securities		156		—		156

Foreign exchange derivative assets		—		3,252		3,252
Interest rate swap derivative assets		—		39,780		39,780
Purchased cash convertible note hedge		—		294,900		294,900

Total assets at fair value ^{(1) (2)}	$	6,291	$	361,890	$	368,181

Financial Liabilities:
Foreign exchange derivative liabilities	$	—	$	25,785	$	25,785
Interest rate swap derivative liabilities		—		17,340		17,340
Cash conversion feature of cash convertible notes		—		294,900		294,900

Total liabilities at fair value ^{(1) (2)}	$	—	$	338,025	$	338,025


	December 31, 2010
	Level 1		Level 2		Total
	(In thousands)
Financial Assets:
Trading securities:
Equity securities — exchange traded funds	$	3,693	$	—	$	3,693

Total trading securities		3,693		—		3,693

Available-for-sale fixed income investments:
U.S. Treasuries		—		12,387		12,387
Corporate bonds		—		8,116		8,116
Agency mortgage-backed securities		—		1,934		1,934
Other		—		2,573		2,573

Total available-for-sale fixed income investments		—		25,010		25,010

Available-for-sale equity securities:
Biosciences industry		382		—		382

Total available-for-sale equity securities		382		—		382

Foreign exchange derivative assets		—		19,877		19,877
Purchased cash convertible note hedge		—		472,400		472,400

Total assets at fair value ^{(1) (2)}	$	4,075	$	517,287	$	521,362

Financial Liabilities:
Foreign exchange derivative liabilities	$	—	$	7,729	$	7,729
Interest rate swap derivative liabilities		—		25,666		25,666
Cash conversion feature of cash convertible notes		—		472,400		472,400

Total liabilities at fair value ^{(1) (2)}	$	—	$	505,795	$	505,795

⁽¹⁾

The Company chose not to elect the fair value option for its financial assets and liabilities that had not been previously carried at fair value. Therefore, material financial assets and liabilities not carried at fair value, such as short-term and long-term debt obligations and trade accounts receivable and payable, are still reported at their carrying values.

⁽²⁾	None of the Company's financial assets and liabilities measured at fair value on a recurring basis are valued using Level 3 inputs as of September 30, 2011 or December 31, 2010.

For financial assets and liabilities that utilize Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including the LIBOR yield curve, foreign exchange forward prices, and bank price quotes. Below is a summary of valuation techniques for Level 1 and Level 2 financial assets and liabilities:

Although the Company has not elected the fair value option for financial assets and liabilities, any future transacted financial asset or liability will be evaluated for the fair value election.