`
`4. Investments (Continued)
`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`{the License Agreement) with this company. The License Agreement entitles us to control rights sufficient to require us to consolidate the balance sheet and
`results ofoperations ofthis company. The control rights relate to additional research and development funding that we may provide to this company over a
`period ofsix years. We are also entitled to representation on ajoint development committee that approves the company's use offunding provided by us. In
`201 T. we provided $9.9 million offinancial support to the company. We have the right, at any time and for any reason. to cease our funding ofthis company's
`activities.
`
`As ofDecember 31, 2011', our consolidated balance sheet included $1 [.6 miliion ofcash maintained by this company that can only be used to settle its
`obligations. Additionally, our consolidated balance sheets included an $8.8 million in-process research and development intangible asset. $3.4 million of
`goodwill and $8.3 million ofpreferred stock due to the consolidation ofthis company. The preferred stock is recorded in temporary equity on our
`consolidated balance sheets. During the yearended December31, 201?, this company incurred a net loss of$5.l million. This company‘s creditors have no
`recourse against our assets and general credit.
`
`5. Fair Value Measurements
`
`Assets and liabilities subject to fairvalue measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the
`quality and reliability ofinputs used to determine fair value. Accordingly, assets and liabilities canied at, orpermitted to be can'ied at, fair value are classified
`within the fair value hierarchy in one ofthe following categories based on the lowest ievel input that is significant in measuring fair value:
`
`Level l—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.
`
`Level 2—Fair value is determined by using inputs other than Levei I quoted prices that are directly or indirectly observable. Inputs can include
`quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs
`can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market
`data.
`
`Level 3—Fair value is determined by using inputs that are nnobservabie and not conoborated by market data. Use of these inputs involves significant
`and subjectivejudgment.
`
`We account for certain assets and liabilities at fair value and rank these assets and liabilities within the fair value hierarchy. Other current assets and other
`current liabilities have fair values that approximate their carrying values.
`
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`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`5. Fair Value Measurements (Continued)
`
`Assets and liabilities subject to fairvalue measurements are as follows (in miilions):
`
`Assets
`
`Money market ands“)
`Time depositsm
`U.S. government and agency securitieslz)
`Corporate debt securitiesa)
`Total assets
`Liabilities
`
`Contingent considerational
`Total liabilities
`
`Assets
`
`Money market funds“)
`U.S. government and agencyr securitieslz)
`Total assets
`Liabilities
`
`Contingent considerational
`Total liabilities
`
`A: or December 31. 201‘!
`
`Lord 2
`Level 3
`Level 1
`Balance
`
`s
`
`— s — s 217.9
`s 217.9
`25.2
`—
`25.2
`—
`—
`223.5
`—
`7235
`
`—
`18.0
`—
`1 8.0
`
`
`3 217.9
`$ 766.?
`S — 5 984.6
`
`
`
`12 .8
`12 .8
`—
`—
`
`$ — $ — $
`12.8
`$
`12.8
`
`As of December 3]. ZIJIt'u
`
`Len-l 1
`Level 2
`Level .3
`Balance
`
`5 534.4 s — s — s 534.4
`
`—
`30.1
`—
`30.1
`
`5 534.4 5
`30.1
`S — S 564 5
`
`
`
`—
`10 4
`10.4
`—
`
`
`5 — $ — $
`10 4 $
`10 4
`
`(l )
`
`(2}
`
`(3)
`
`Included in cash and cash equivalents on the accompanying consolidated balance sheets.
`
`Included in cash equivalents and current and noncunent marketable investments on the accompanying consolidated balance sheets.
`The fair value ofthese securities is principally measured or corroborated by trade data for identical securities in which related trading
`activity is not sufiiciently fi'equent to be considered a Level 1 input or comparable securities that are more actively traded.
`
`Included in non—current liabilities on the accompanying consolidated balance sheets. The fairvalue ofcontingent consideration has
`been estimated using probability-weighted discounted cash flow models (DCFs). The DCFs incorporate Level 3 inputs including
`estimated discount rates that we believe market participants would consider relevant in pricing and the projected tinting and amount
`ofcash flows, which are estimated and developed, in part, based on the requirements specific to each acquisition agreement.
`
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`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`6. Accounts Payable and Accrued Expenses
`
`Accounts payable and accrued expenses consist ofthe following by major categories (in millions}:
`
`Accounts payable
`Accrued expenses:
`Sales related (royalties, rebates and fees)
`Payroll related
`Other
`Total accrued expenses
`Total accounts payable and accrued expenses
`
`”t. Debt
`
`Unsecured Revolving Credit Facility
`
`As or
`December 3 I.
`
`20]?
`2016
`
`$
`
`8.4
`
`$
`
`8.1
`
`104.6
`55.?
`34.6
`3 0.6
`
`9.8
`23.5
`
`$ 162.?
`S
`96.1
`
`:16 171.1
`3 104.2
`
`In January 2016. we entered into a credit agreement (the 2016 Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo), as
`administrative agent and a swingline lender, and various other lender parties, providing for an unsecured revolving credit facility ofup to $1.0 billion. In
`accordance with the terms of the 201 6 Credit Agreement, in January 2017 and in January 2018, we extended the maturity date of the 2016 Credit Agreement
`by one year to January 2022 and January 2023, respectively.
`
`At our option, amounts borrowed under the 2016 Credit Agreement bear interest at eitherthe LIBOR rate ora fluctuating base rate, in each case, plus an
`applicable margin determined on a quarterly basis based on our consolidated ratio of total indebtedness to EBITDA (as calculated in accordance with the
`2016 Credit Agreement}.
`
`On June 1. 2017. we borrowed $250.0 million under this facility and used the funds to initiate an accelerated share repurchase program. Refer to
`Note 10—Stockhotders' Equtna—Share Repurchases. As we no longer intend to repay the fit” outstanding balance within one year, the outstanding balance
`has been reclassified fi'om short-term to long-term within the consolidated baiance sheet. We elected to have interest on this draw calculated at LIBOR plus
`an applicable margin. During the yearended December 31, 201 '1', we recorded $7.1 million ofinterest expense related to the credit facility.
`
`The 2016 Credit Agreement contains customary events ofdefault and customary afiirrnative and negative covenants. As ofDecember3 l. 201?, we were
`in compliance with such covenants. Lung Biotechnology PBC is ouronly subsidiary that guarantees our obligations under the 2016 Credit Agreement
`though, from time to time, one or more of our other subsidiaries may be required to guarantee such obligations.
`
`Convertible Note Hedge and Wan-ant Transactions
`
`In October 2011, we issued $250.0 million in aggregate principal value 1.0 percent Convertible SeniorNotes due September 15, 2016 (Convertible
`Notes). Upon maturity of the Convertible Notes in September 2016, we fulfilled all remaining settlement and repayment obligations.
`
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`Table ofContents
`
`7. Debt (Continued)
`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`In connection with the issuance of the Convertible Notes, we sold to Deutsche Bank AG London [DB London) warrants to acquire up to approximately
`5.2 million shares ofour common stock at a strike price 0367.56 per share. The warrants expired incrementally on a series ofexpiration dates during
`December 2016 and January 201?. The warrants were settled on a net-share basis. As the price of our common stock exceeded the strike price of the warrants
`on each ofthe series ofrelated incremental expiration dates, we delivered 2.8 million shares ofcommon stock previously held as treasury stock to DB
`London, including 1.? million shares that were delivered during the first quarter of 20 1?.
`
`Interest Expense
`
`Details of interest expense presented on our consolidated statements of operations are as follows (in millions):
`
`Credit Facility interest expense“)
`Convertible Notes interest expense
`Other interest expense
`Total interest expense
`
`Year Ended
`December BL
`
`2017
`2016
`1015
`
`S 7.1
`—
`1.9
`3 9.0
`
`$ 3.
`0.1
`0.6
`$ 3.9
`
`$ —
`3.4
`1.3
`S 4 7
`
`(l)
`
`Represents interest expense related to debt and amortization of issuance costs associated with our 2016 Credit Agreement.
`
`8. Temporary Equity
`
`Temporary equity includes securities that: (l ) have redemption features that are outside ourcontrol; (2} are not classified as an asset or liability; (3) are
`excluded from permanent stockholders‘ equity; and (4) are not mandatorily redeemable. Amounts included in temporary equity relate to securities that are
`redeemable at a fixed or determinable price.
`
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`
`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`8. Temporary Equity (Continued)
`
`Components comprising the carrying value oftemporary equity include the following [in millions):
`
`Common stock subject to repurchase“)
`Preferred stock with redemption rightsa}
`Total
`
`As of
`December 3].
`
`tori
`2016
`
`$ 10.9
`$ 10.9
`
`8.3
`—
`$ 19.2 $ 10.9
`
`
`(1)
`
`(2)
`
`In connection with our license agreement with Toray Industries Inc. (Toray), we issued 200,000 shares of our common stock
`(which have since split into 400,000 shares} to Toray in 200?, and provided Toray the right to require us to repurchase the
`shares at a price of32't.21 per share.
`
`The preferred stock issued by the variable interest entity we consolidate includes rights that allow the holders to redeem the
`preferred stock at the original issuance price in exchange for cash. Refer to Note 4—Investments— Variable Interest Entity for
`more information.
`
`9. Share-Based Compensation
`
`As ofDecember 31, 2017, we have two shareholder-approved equity incentive plans: the United Therapeutics Corporation Amended and Restated
`Equity Incentive Plan (the 1999 Plan) and the United Therapeutics Corporation 2015 Stock incentive Plan (the 2015 Plan). The 2015 Plan was approved by
`our shareholders in June 2015 and provides for the issuance of up to 6,150,000 shares of our common stock pursuant to awards granted under the 2015 Plan.
`As a result of the approval of the 2015 Plan, no timber awards will be granted underthe 1999 Plan, We grant equity—based awards including stock options
`and restricted stock units (RSUs) under these plans. Refer to the sections entiried Employee Stock Options and Restricted Stock Units below.
`
`We previously issued awards under the United Therapeutics Corporation Share Tracking Awards Plan, adopted in June 2008 (2008 STAP) and the United
`Therapeutics Corporation 2011 Share Tracking Awards Plan, adopted in March 20] l (2011 STAP). We refer to the 2008 STAP and the 2011 STAP
`collectively as the "STAP" and awards granted andtor outstanding under either of these plans as ”STAP awards." Refer to the section entitled Share Tracking
`Awards Plans below. We discontinued the issuance ofSTAP awards in June 2015. when our shareholders approved the 2015 Plan.
`
`In 20E 2, our shareholders approved the United Therapeutics Corporation Employee Stock Purchase Plan (ESPP), which has been structured to oomph.-r
`with Section 423 ofthe Internal Revenue Code. Refer to the section entitted Employee Stock Purchase Plan section below.
`
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`
`Tlf
`
`nt
`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`9. Sha re-Based Compensation (Conti nued)
`
`The following table reflects the components of share-based compensation expense (benefit) recognized in our consolidated statements of operations (in
`millions):
`
`Stock Options
`Restricted Stock Units
`
`Share Tracking Awards
`Employee Stock Purchase Plan
`Total Share~based compensation expense before tax
`Share-based compensation capitalized as part of inventory
`
`Year Ended Dmmherfil,
`
`m
`$ 43.0 S
`24.8 $
`4.9
`2.2
`1.1
`—
`
`2?.1
`{15.2)
`274.2
`
`1 .2
`l .4
`1.2
`
`5 73.5
`$
`12.1
`$ 280.3
`
`$
`0.4
`S
`0.2
`$
`7.]
`
`As a result ofthe adoption ofASU 2016-09. we established an accounting policy election to account for forfeitures ofshare-based awards and STAPs
`when they occur. Upon adoption, we recognized a cumulative-effect adjustment for the removal of the forfeiture estimate with respect to awards that were
`continuing to vest as ofJanuary l, 2017. The adjustment decreased retained earnings by $5.8 million, net oftax. Refer to Note 3—Recentlylssued
`Accounting Standards.
`
`Employee Stock Options
`
`We estimate the fair value of stock options using the Black-Scholes-Merton valuation model, which requires us to make certain assumptions that can
`materially impact the estimation offairvalue and related compensation expense. The assumptions used to estimate fair value include the price ofour
`common stock, the expected volatility of our common stock, the risk~free interest rate, the expected term of stock option awards and the expected dividend
`yield.
`
`In March 2017, we began issuing stock options with performance conditions to certain executives under the 2015 Plan. The stock options have vesting
`conditions tied to the achievement of specified performance criteria, which have talget performance levels that span from one to three yeals. Upon the
`conclusion of the performance period, the performance level achieved will be measured and the ultimate number of shares that may vest will be detemiined.
`Share—based compensation expense for these awards is recorded ratably over their vesting period, depending on the specific terms of the award and
`achievement ofthe specified performance criteria. During 2017, we granted 0.9 million stock options with performance vesting conditions with a total giant
`date fair value of$53.9 million based on achievement oftarget performance levels. During the yearended December3 l, 2017. we recorded $16.7 million of
`share-based compensation expense related to these awards.
`
`A description ofthe key inputs, requiring estimates, used in determining the fair value ofEmployee Stock Options are provided below:
`
`Expected rem—The expected term reflects the estimated time period we expect an award to remain outstanding. For the years ended December 31, 201 T,
`2016 and 2015, we used historical data to develop this input.
`
`Expected volatility—Volatility is a measure ofthe amount the price of our conunon stock has fluctuated (historical volatility} or is expected to fluctuate
`(expected volatility) during a period. We use
`
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`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`9. Share-Based Compensation (Continued)
`
`historical volatility based on weekly price observations of our common stock during the period immediately preceding an award that is equal to its expected
`term up to a maximum period offive years. We believe the volatility in the price ofour common stock over the preceding five years generally provides a
`reliable projection ofihture long‘term volatility.
`
`Risk-flee interest rote—The risk-free interest rate is the average interest rate consistent with the yield available on a U.S. Treasury note with a term equal
`to the expected term ofan award.
`
`Expected dividendyieId—We do not pay cash dividends on our common stock and do not expect to do so in the future. Therefore, the dividend yield is
`zero.
`
`The following weighted-average assumptions were used in estimating the fair value of stock options granted to employees during the twelve months
`ended December 31, 2017, December 31, 2016, and December 31, 2015:
`
`Expected term ofOptions (in years)
`Expected volatility
`Risk-flee interim rate
`Expected dividend yield
`
`Year Ended
`December 3],
`
`21m
`2016‘”
`tots“J
`
`5.8
`5 .8
`6.1
`35.7% 34.8% 33.1%
`2.2% 1.6% 2.0%
`0.0% 0.0% 0.0%
`
`(1)
`
`Prior to the adoption of ASU 2016-09 on January 1, 2017, the weighted-average expected forfeiture rate used in estimating the
`fairvalue ofstock options granted to employees was 5.4% and 1.5% in 2016 and 2015, respectively. Refer to Note 3
`—Recently Issued Accounting Standards for more information. During 2016, we issued stock options to all our employees,
`which resulted in an increase in the forfeiture rate compared to prior years.
`
`A summary ofthe status and activity cfstock options is presented below:
`
`Outstanding at January I, 2017
`Granted
`Exercised
`Forfeited
`Outstanding at December31, 2017
`Exercisable at December-31, 201 7
`Unv sated at December 31, 2017
`
`$
`
`Weighted Average
`Remaining
`Contractual Term
`[in Years]
`
`Aggregate
`Intrinsic Value
`(in millions]
`
`Weighted-Average
`Exereise Priee
`Options
`104.97
`4,459,291
`145.72
`1,958,843
`86.65
`(461,465)
`178,346)
`133.55
`
`5,878,323
`$
`119.61
`7.1
`$
`171.2
`
`3,082,847
`$
`103.23
`5.5
`5
`142.1
`13 7.67$2,795,476 29.0 8 .9 $
`
`
`
`
`
`
`The weighted average fair value ofa stock option granted during each ofthe years in the three-year period ended December31, 2017, was $56.07,
`$42.59 and $60.70, respectively. The total fair
`
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`Table ofContents
`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`9. Sha re-Based Compensation (Conti nued)
`
`value ofstock options that vested for each ofthe years in the three-year period ended December 31, 2017, was $13.] million. $19.9 million and zero,
`respectively.
`
`Total share-based compensation expense relating to stock options is as follows {in millions):
`
`Year Ended December 3|.
`
`
` m
`
`$ —
`S
`1.3
`$
`0.5
`—
`3.7
`1.4
`
`4.9
`38.0
`22.9
`4.9
`43.0
`24.8
`11.8i
`5 15 .8)
`9.1 i
`
`22.2 S 15.?
`3.1
`3
`$
`
`Cost ofproduct sales
`Research and development
`Selling, general and administrative
`Share-based compensation expense before tax
`Related income tax benefit
`Share-based compensation expense, net of tax
`
`Selling, general and administrative expense forthe year ended December 3 l , 2016 includes approximately $9.8 million ofcosts related to the
`accelerated vesting of' stock options associated with the departure ofa corporate officer during the second quarter of2016.
`
`As ofDecernber 3 I , 20] Y, the unrecognized compensation cost was $101.8 million. Unvested outstanding stock options as ofDecember 31, 201 T had a
`weighted average remaining vesting period of 2.3 years.
`
`Stock option exercise data is summarized below (dollars in millions):
`
`Number of options exercised
`Cash received from options exercised
`Total intrinsic value of options exercised
`Tax benefits realized from options exercised( 1)
`
`Year Ended December 3|.
`2016
`
`20!?
`
`2015
`
`461,465
`$
`39.9
`$
`29.3
`— $
`
`243,624
`$
`7.7
`21.9 3
`5.9
`3
`
`985,5 83
`39.3
`120.3
`3 7.4
`
`$
`$
`$
`
`(1)
`
`On January 1, 2017, we adopted ASU 2016-09. Upon adoption ofASU 2016-09. we began to recognize excess tax benefits as
`income tax benefits on our consolidated statements ofoperations.
`
`Restricted Stock Units
`
`In June 2016, we began issuing restricted stock units under the 2015 Plan to ourncn-ernployee directors. in October201 7, we also began issuing
`restricted stock units to employees. Overtime, we expect to increase the percentage ofour equity awards made to employees in the form of restricted stock
`units, instead ofstoek options. Each restricted stock unit entitles the recipient to receive one share ofour common stock upon vesting. We measure the fair
`value of restricted stock units using the stock price on the date of grant. Sharebased compensation expense for the restricted stock units is recorded ratabl y
`overtheirvesting period.
`
`During the year ended December 31, 2017, we granted 21,290 restricted stock units under the 2015 Plan with a weighted average grant date fair value per
`restricted stock unit of$ l 3 1.22. The restricted
`
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`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`9. Share-Based Compensation (Continued)
`
`stock units have an aggregate grant date fairvalue of$2.8 million. We recorded $2.2 million in share-based compensation expense forthe year ended
`December 31, 2017 related to restricted stock units. The share-based compensation expense related to restricted stock units granted is reflected in selling,
`general and administrative expense on the statements of operations.
`
`As of December 31, 20] 7, unrecognized compensation cost related to the grant of restricted stock units was $1.6 million. Unvested outstanding restricted
`stock units as ofDecember 31, 2017 had a weighted average remaining vesting period of] .1 years.
`
`Share Tracking Awards Pious
`
`STAP awards convey the right to receive in cash an amount equal to the appreciation ofourcommon stock, which is measured as the increase in the
`closing price ofourcornrnon stock between the dates ofgrant and exercise. STAP awards expire on the tenth anniversary ofthe grant date, and in most cases
`they vest in equal increments on each anniversary of the grant date overa four-year period. The STAP liability includes vested awards and awards that are
`expected to vest. We recognize expense for awards that are expected to vest during the vesting period.
`
`The aggregate balance ofthe STAP liability was $241.3 million and $268.9 million at December 3 l , 2017 and 2016, respectively, ofwhich $1.2 million
`and $74.2 million, respectively, has been classified as other non~eurrent liabilities on ourconsolidated balance sheets based on their vesting ten'ns.
`
`Estimating the fair value ofSTAP awards requires the use ofcertain inputs that can materially impact the determination offair value and the amount of
`compensation expense (benefit) we recognize. Inputs used in estimating fair value include the price of our common stock, the expected volatility of the price
`ofour common stock, the risk-flee interest rate, the expected term ofSTAP awards, and the expected dividend yield. The fair value ofthe STAP awards is
`measured at the end of each financial reporting period because the awards are settled in cash. Refer to the descriptions of these key inputs, requiring
`estimates, used in determining the fair value ofthe awards in the Employee Stock Options section above.
`
`The table below includes the weighted-average assumptions used to measure the fair value ofthe outstanding STAP awards:
`Air of DwemberSt.
`
`21m
`201601
`zolsl'l
`
`Expected term ofawards {in years)
`Expected volatility
`Risk-flee interest rate
`Expected dividend yield
`
`3.4
`2.5
`I .8
`31.7% 36.1% 35.3%
`1.8% 1.4% 1.4%
`0.0% 0.0% 0.0%
`
`(1)
`
`Prior to the adoption ofASU 2016-09 on January 1, 2017, the weighted-average expected forfeiture rate used in estimating the
`fairvalue ofSTA? awards granted to employees was 8.8 percent in 2016 and 201 5. Refer to Note 3—Recenti’y Issued
`Accounting Standards for more information.
`
`The closing price ofour connnon stock was $147.95, $143.43, and $156.61 on December 31, 2017, 2016 and 2015, respectively.
`
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`Table ofContents
`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`9. Share-Based Compensation (Continued)
`
`A summary of the status and activity of the STAP is presented below:
`
`Outstanding at January 1, 2017
`Granted
`Exercised
`Forfeited
`Outstanding at December 31, 2017
`Exercisable at December31,2017
`Unvfiited at December 31, 2017
`
`232.6
`129.7
`102.9
`
`Weighted Average
`Aggregate
`Remaining
`Nu mhcr nf
`Weighted-Average
`Contractual Term
`Intrinsic Value
`
`Awards
`Exercise Price
`(Years)
`(in millinns]
`5,113,838 $
`91.51
`—
`—
`(88?,540)
`69.33
`(129,904)
`113.84
`4,096,394 $
`95.60
`2,419,103
`$
`93.93
`1,677,291
`$
`90.80
`
`5 .6
`5.5
`5 .8
`
`$
`5
`$
`
`The weighted average giant-date fair value of STAP awards granted during the year ended December3 l, 2015 was $5 8.52.
`
`Share—based compensation expense {benefit} recognized in connection with the STAP is as follows (in millions):
`
`Year Ended December 31,
`
`
`20!?
`20:6
`rots
`
`Cost of product sales
`Research and development
`Selling, general and administrative
`Share-based compensation expense (benefit) before tax
`Related income tax (benefit) expense
`Sharenbased compensation expense (benefit), net of tax
`
`$
`12 $ — $
`4.1
`(1 1.8)
`
`21.8
`53 .4)
`(15.2)
`27.1
`
`5.6
`$10.0)
`1 21.1
`(9.6) $
`
`$
`
`$
`
`8.7
`37.4
`178.1
`2742
`§ 103.5)
`170.?
`
`Cash paid to settle STAP exercises during the years ended December 31, 2017, 20 i 6 and 20 I 5 was $63.4 million, $69.5 million, and $248.8 million,
`respectively.
`
`Employee Stock Purchase Plan
`
`In June 2012, our shareholders approved the United Therapeutics Corporation Employee Stock Purchase Plan {ESPP), which has been structured to
`comply with Section 423 ofthe Internal Revenue Code. The ESPP provides eligible employees with the righ t to purchase shares of our common stock at a
`discount through elective accumulated payroll deductions at the end of each offering period. Offering periods, which began in 2012, occur in consecutive
`six—month periods commencing on September 5th and March 5111 ofeach year. Eligible employees may contribute up to 15 percent oftheirbase salary,
`subject to certain annual limitations as defined in the ESPP. The purchase price ofthe shares is equal to the lower of85 percent ofthe closing price ofour
`common stock on eitherthe first or last trading day ofa given offering period. In addition, the ESPP provides that no eligible employee may purchase more
`than 4,000 shares during any offering period. The ESPP has a 20-year term and limits the aggregate number of shares that can be issued under the ESPP to
`3.0 million.
`
`F-J 1
`
`UNITED THERAPEUTICS, EX. 2087
`WATSON LABORATORIES v. UNITED THERAPEUTICS, |PR2017-01622
`Page 105 of 213
`
`
`
`1f ntnt
`
`10. Stockholders' Equity
`
`Earnings Per Common Share
`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`The components ofbasic and diluted earnings per share comprised the following (in millions, except per share amounts):
`Year Ended December 31.
`
`2016
`2015
`zutr
`
`Numerator:
`Net income
`Denominator:
`Weighted average outstanding shares—basic
`Effect of dilutive securities“):
`Convertible notes
`Warrants
`Stock options, restricted stock units and employee stock purchase
`plan
`
`Weighted average shares—dilutedm
`Earnings per common share:
`Basic
`Diluted
`
`Stock options, restricted stock units and wan-ants excluded fi-om
`calculationa)
`
`
`$ 417.9
`
`$ 3113.?
`
`S 651.ON
`
`44.0
`
`—
`0.1
`
`
`0.8
`
`44.9
`
`$
`9.50
`
`$
`9.31
`
`43.8
`
`46.0
`
`N a»|
`5:q
`4:.F"m
`
`0.9
`3.0
`
`
`l.DJ
`
`U! 1.N
`
`
`
`Efl 16.29
`
`$ 15.25
`
`_. 4:. L. a:
`99
`3 12.72
`
`
`3.3
`
`5.N
`
`5'"co
`
`(1)
`
`(2)
`
`Share Reprti'chases
`
`Calculated using the treasury stock method.
`
`Certain convertible notes, stock options, restricted stock units and warrants have been excluded from the computation of
`diluted earnings pershare because their impact would be anti—dilutive. Under the convertible note hedge agreement we
`entered into in connection with our Convertible Notes, we were entitled to receive shares required to be issued to investors
`upon conversion ofour Convertible Notes. Since related shares used to compute dilutive earnings per share would be anti~
`dilutive, they have been excluded from the caiculation above.
`
`In April 2017, our Board ofDirectors approved a share repurchase program authorizing up to $250.0 million in aggregate repurchases ofour common
`stock. Pursuant to this authorization, in May 201?, we paid $250.0 million to enterinto an accelerated share repurchase agreement (ASR) with Citibank, NA.
`(Citibank). Pursuant to the terms ofthe ASR. in June 2017, Citibank delivered to as approximately 1.7 million shares ofour common stock, representing the
`minimum number of'shates we were entitled to receive under the ASR. Upon termination ofthe ASR in September 2017, Citibank delivered to us
`approximately 0.3 [trillion additional shares of our common stock. The ASR was accounted for as an equity transaction and the shares we repurchased under
`the ASR were included in treasury stock when the shares were received.
`
`F3 2
`
`UNITED THERAPEUTICS, EX. 2087
`WATSON LABORATORIES V. UNITED THERAPEUTICS, |PR2017-O1622
`
`Page 106 of 213
`
`
`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`IO. Stockholders' Equity (Continued)
`
`Shareholder Rights Plan
`
`In June 2008, we entered into an Amended and Restated Rights Agreement with The Bank ofNew York as Rights Agent (the Plan}, which amended and
`restated our original Rights Agreement dated December 1?, 2000. The Plan, as amended and restated, extended the expiration date ofthe Preferred Share
`Purchase Rights (Rights) from December29, 2010 to June 26, 2018, and increased the purchase price ofeach Right from $64.75 to $400.00, respectively.
`Each Right entitles holders to purchase one one-thousandth ofa share ofour Series A Junior Participating Preferred Stock. Rights are exercisable only upon
`ouracquisition by another company. orcornrnencernent ofa tenderofier that would result in ownership of l 5 percent or more ofthe outstanding shares ofour
`voting stock by a person or group (as defined under the Plan) without our prior express written consent. As of December 31, 2017, we have not issued any
`shares of our Series A Preferred Stock.
`
`Accumulated Other Comprehensive Loss
`
`The following table includes changes in accumulated other comprehensive loss by component, net of tax (in millions):
`Unmlimt Gains
`and {Losses} on
`m-ailahle-l‘or-Sale
`Securities
`
`Foreign CIII'I'QI'IQ'
`Translation
`Losses
`
`Defined
`Benefit Pension
`Plan‘ll
`
`
`Total
`
`1.3
`
`$
`
`(18.1) $
`
`— $ (16.8}
`
`Balance, January 1, 201?
`Other comprehensive (loss) income before
`reclassifications
`Amounts reclassified fi'orn accumulated other
`comprehensive income
`Net current-period other comprehensive (loss) income
`Balance, December 31, 2017
`
`(I .7)
`
`0.2
`
`{3.4)
`
`0.6
`0.6
`—
`—
`
`(Li)
`0.2
`(1.9}
`(2.8)
`
`02 $
`£17.91 3
`51.9} $ [19.6]
`
`{1.9}
`
`F—33
`
`UNITED THERAPEUTICS, EX. 2087
`WATSON LABORATORIES v. UNITED THERAPEUTICS, |PR2017-01622
`
`Page 107 of 213
`
`
`
`lfntn
`
`to. Stockholders' Equity (Continued)
`
`UNITED THERAPEUTICS CORPORATION
`
`Notes to Consolidated Financial Statements (Continued)
`
`Balance, January 1, 2016
`Other comprehensive income (loss) before
`reclassifications
`Amounts reclassified from accumulated other
`comprehensive income
`Net current-period other comprehensive income (loss)
`Balance, December 31,2016
`
`Defined
`Benefit Pension
`P'lanlll
`
`Foreign Cum“?
`Translation
`Losst‘sm
`
`Unn-alimt Gains
`and {Losses} on
`Available-ror-Salo
`Sccu rifles
`
`
`Total
`
`$
`
`(5.3) $
`
`(15.1) $
`
`— $ (20.4)
`
`6.0
`
`(3 .0)
`
`—
`
`3.0
`
`
`0.6
`—
`—
`0.6
`
`3.6
`6.6
`l3.0l
`—
`
`— $ [16.8)
`1.3
`£18.13 $
`
`$
`
`$
`
`(1)
`
`(2}
`
`11. Income Taxes
`
`Referto Note 12—Employee Benefit Plans—Supplemental Executive Retirement Plan, which identifies the captions within our
`consolidated statement of operations where reclassification adjustments were recognized and their associated tax impact.
`
`In the fourth quarter of2016, we changed the firnctionai currency forour foreign entities to the US. dollar. The loss on foreign
`currency translation attributable to each foreign entity at the time ofthis change will remain in accumulated other comprehensive loss
`until the sale or substantial liquidation ofthe foreign entity.
`
`The Tax Cuts and Jobs Act (Tax Reform) was enacted on December 22, 2017 and has multiple provisions that impact our tax expense. The significant
`impacts ofTax Reform include a reduction in the US. federal corporate tax rate fi'om 35 percent to 2i percent, a requirement for companies to pay a onetime
`transition tax on camings of certain foreign subsidiaries that were previously tax deferred