☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Israel Not Applicable
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
American Depositary Shares, each representing one Ordinary Share | TEVA | New York Stock Exchange |
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
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PART I. | ||||||
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Item 1. | 5 | |||||
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Item 2. | 46 | |||||
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Item 3. | 78 | |||||
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Item | 78 | |||||
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PART II. | ||||||
Item 1. | 79 | |||||
Item 1A. | 79 | |||||
Item 2. | 79 | |||||
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Item 3. | 79 | |||||
Item 4. | 79 | |||||
Item 5. | 79 | |||||
Item 6. | 80 | |||||
81 |
from that expressed or implied by such forward-looking statements. You can identify these forward-looking statements by the use of words such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. Important factors that could cause or contribute to such differences include risks relating to:
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ITEM 1. | FINANCIAL STATEMENTS |
(U.S. dollars in millions)
(Unaudited)
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,875 | $ | 963 | ||||
Trade receivables | 5,665 | 7,128 | ||||||
Inventories | 4,866 | 4,924 | ||||||
Prepaid expenses | 911 | 1,100 | ||||||
Other current assets | 483 | 701 | ||||||
Assets held for sale | 81 | 566 | ||||||
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Total current assets | 13,881 | 15,382 | ||||||
Deferred income taxes | 427 | 574 | ||||||
Othernon-current assets | 722 | 932 | ||||||
Property, plant and equipment, net | 7,101 | 7,673 | ||||||
Identifiable intangible assets, net | 15,345 | 17,640 | ||||||
Goodwill | 27,585 | 28,414 | ||||||
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Total assets | $ | 65,061 | $ | 70,615 | ||||
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LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term debt | $ | 2,673 | $ | 3,646 | ||||
Sales reserves and allowances | 6,701 | 7,881 | ||||||
Trade payables | 1,626 | 2,069 | ||||||
Employee-related obligations | 712 | 549 | ||||||
Accrued expenses | 2,232 | 3,014 | ||||||
Other current liabilities | 886 | 724 | ||||||
Liabilities held for sale | — | 38 | ||||||
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Total current liabilities | 14,830 | 17,921 | ||||||
Long-term liabilities: | ||||||||
Deferred income taxes | 2,478 | 3,277 | ||||||
Other taxes and long-term liabilities | 1,803 | 1,843 | ||||||
Senior notes and loans | 26,816 | 28,829 | ||||||
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Total long-term liabilities | 31,097 | 33,949 | ||||||
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Commitments and contingencies, see note 16 | ||||||||
Total liabilities | 45,927 | 51,870 | ||||||
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Equity: | ||||||||
Teva shareholders’ equity: | ||||||||
Preferred shares of NIS 0.10 par value per mandatory convertible preferred share; September 30, 2018 and December 31, 2017: authorized 5.0 million shares; issued 3.7 million shares | 3,825 | 3,631 | ||||||
Ordinary shares of NIS 0.10 par value per share; September 30, 2018 and December 31, 2017: authorized 2,495 million shares; issued 1,125 million shares and 1,124 million shares, respectively | 54 | 54 | ||||||
Additionalpaid-in capital | 23,404 | 23,479 | ||||||
Accumulated deficit | (3,072 | ) | (3,808 | ) | ||||
Accumulated other comprehensive loss | (2,335 | ) | (1,848 | ) | ||||
Treasury shares as of September 30, 2018 and December 31, 2017 — 106 million ordinary shares and 107 million ordinary shares, respectively | (4,146 | ) | (4,149 | ) | ||||
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17,730 | 17,359 | |||||||
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Non-controlling interests | 1,404 | 1,386 | ||||||
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Total equity | 19,134 | 18,745 | ||||||
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Total liabilities and equity | $ | 65,061 | $ | 70,615 | ||||
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The accompanying notes are an integral part of the financial statements. |
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net revenues | $ | 4,529 | $ | 5,617 | $ | 14,295 | $ | 16,987 | ||||||||
Cost of sales | 2,508 | 2,967 | 7,865 | 8,643 | ||||||||||||
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Gross profit | 2,021 | 2,650 | 6,430 | 8,344 | ||||||||||||
Research and development expenses | 311 | 531 | 918 | 1,432 | ||||||||||||
Selling and marketing expenses | 743 | 843 | 2,224 | 2,745 | ||||||||||||
General and administrative expenses | 309 | 372 | 954 | 1,101 | ||||||||||||
Other asset impairments, restructuring and other items | 658 | 550 | 2,080 | 1,209 | ||||||||||||
Goodwill impairment | — | — | 300 | 6,100 | ||||||||||||
Legal settlements and loss contingencies | 19 | (20 | ) | (1,239 | ) | 324 | ||||||||||
Other income | (35 | ) | (4 | ) | (334 | ) | (100 | ) | ||||||||
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Operating income (loss) | 16 | 378 | 1,527 | (4,467 | ) | |||||||||||
Financial expenses, net | 229 | 259 | 736 | 704 | ||||||||||||
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Income (loss) before income taxes | (213 | ) | 119 | 791 | (5,171 | ) | ||||||||||
Tax benefits | (26 | ) | (494 | ) | (56 | ) | (462 | ) | ||||||||
Share in losses of associated companies, net | 10 | 3 | 76 | 10 | ||||||||||||
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Net income (loss) | (197 | ) | 610 | 771 | (4,719 | ) | ||||||||||
Net income attributable tonon-controlling interests | 11 | 15 | 35 | 11 | ||||||||||||
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Net income (loss) attributable to Teva | (208 | ) | 595 | 736 | (4,730 | ) | ||||||||||
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Dividends on preferred shares | 65 | 65 | 195 | 195 | ||||||||||||
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Net income (loss) attributable to ordinary shareholders | $ | (273 | ) | $ | 530 | $ | 541 | $ | (4,925 | ) | ||||||
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Earnings (loss) per share attributable to ordinary shareholders: | ||||||||||||||||
Basic | $ | (0.27 | ) | $ | 0.52 | $ | 0.53 | $ | (4.85 | ) | ||||||
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Diluted | $ | (0.27 | ) | $ | 0.52 | $ | 0.53 | $ | (4.85 | ) | ||||||
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Weighted average number of shares (in millions): | ||||||||||||||||
Basic | 1,018 | 1,017 | 1,018 | 1,016 | ||||||||||||
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Diluted | 1,018 | 1,017 | 1,020 | 1,016 | ||||||||||||
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September 30, 2019 | December 31, 2018 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,241 | $ | 1,782 | ||||
Trade receivables | 5,254 | 5,822 | ||||||
Inventories | 4,636 | 4,731 | ||||||
Prepaid expenses | 976 | 899 | ||||||
Other current assets | 416 | 468 | ||||||
Assets held for sale | 18 | 92 | ||||||
Total current assets | 12,542 | 13,794 | ||||||
Deferred income taxes | 331 | 368 | ||||||
Other non-current assets | 727 | 731 | ||||||
Property, plant and equipment, net | 6,643 | 6,868 | ||||||
Operating lease right-of-use assets | 468 | — | ||||||
Identifiable intangible assets, net | 11,878 | 14,005 | ||||||
Goodwill | 24,657 | 24,917 | ||||||
Total assets | $ | 57,246 | $ | 60,683 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term debt | $ | 3,130 | $ | 2,216 | ||||
Sales reserves and allowances | 6,137 | 6,711 | ||||||
Trade payables | 1,688 | 1,853 | ||||||
Employee-related obligations | 583 | 870 | ||||||
Accrued expenses | 1,748 | 1,868 | ||||||
Other current liabilities | 820 | 804 | ||||||
Total current liabilities | 14,107 | 14,322 | ||||||
Long-term liabilities: | ||||||||
Deferred income taxes | 1,462 | 2,140 | ||||||
Other taxes and long-term liabilities | 2,546 | 1,727 | ||||||
Senior notes and loans | 23,812 | 26,700 | ||||||
Operating lease liabilities | 394 | — | ||||||
Total long-term liabilities | 28,215 | 30,567 | ||||||
Commitments and contingencies | ||||||||
Total liabilities | 42,322 | 44,889 | ||||||
Equity: | ||||||||
Teva shareholders’ equity: | ||||||||
Ordinary shares of NIS 0.10 par value per share; September 30, 2019 and December 31, 2018: authorized 2,495 million shares; issued 1,198 million shares and 1,196 million shares, respectively | 56 | 56 | ||||||
Additional paid-in capital | 27,293 | 27,210 | ||||||
Accumulated deficit | (7,066 | ) | (5,958 | ) | ||||
Accumulated other comprehensive loss | (2,365 | ) | (2,459 | ) | ||||
Treasury shares as of September 30, 2019 and December 31, 2018 — 106 million ordinary shares | (4,128 | ) | (4,142 | ) | ||||
13,790 | 14,707 | |||||||
Non-controlling interests | 1,134 | 1,087 | ||||||
Total equity | 14,925 | 15,794 | ||||||
Total liabilities and equity | $ | 57,246 | $ | 60,683 | ||||
millions, except share and per share data)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income (loss) | $ | (197 | ) | $ | 610 | $ | 771 | $ | (4,719 | ) | ||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Currency translation adjustment | (105 | ) | 264 | (577 | ) | 1,136 | ||||||||||
Unrealized gain (loss) from derivative financial instruments | 19 | (49 | ) | 75 | (118 | ) | ||||||||||
Unrealized gain (loss) fromavailable-for-sale securities | 1 | (17 | ) | — | 20 | |||||||||||
Unrealized gain (loss) on defined benefit plans | 1 | 1 | — | (12 | ) | |||||||||||
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Total other comprehensive income (loss) | (84 | ) | 199 | (502 | ) | 1,026 | ||||||||||
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Total comprehensive income (loss) | (281 | ) | 809 | 269 | (3,693 | ) | ||||||||||
Comprehensive income (loss) attributable tonon-controlling interests | (26 | ) | 11 | 20 | 75 | |||||||||||
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Comprehensive income (loss) attributable to Teva | $ | (255) | $ | 798 | $ | 249 | $ | (3,768) | ||||||||
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Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net revenues | $ | 4,264 | $ | 4,529 | $ | 12,896 | $ | 14,295 | ||||||||
Cost of sales | 2,435 | 2,552 | 7,318 | 7,970 | ||||||||||||
Gross profit | 1,830 | 1,977 | 5,579 | 6,325 | ||||||||||||
Research and development expenses | 240 | 311 | 778 | 918 | ||||||||||||
Selling and marketing expenses | 595 | 699 | 1,908 | 2,119 | ||||||||||||
General and administrative expenses | 285 | 309 | 873 | 954 | ||||||||||||
Intangible assets impairment | 177 | 519 | 1,206 | 1,246 | ||||||||||||
Goodwill impairment | — | — | — | 300 | ||||||||||||
Other assets impairments, restructuring and other items | 160 | 139 | 263 | 834 | ||||||||||||
Legal settlements and loss contingencies | 468 | 19 | 1,171 | (1,239 | ) | |||||||||||
Other income | (14 | ) | (35 | ) | (29 | ) | (334 | ) | ||||||||
Operating income (loss) | (81 | ) | 16 | (591 | ) | 1,527 | ||||||||||
Financial expenses, net | 211 | 229 | 635 | 736 | ||||||||||||
Income (loss) before income taxes | (292 | ) | (213 | ) | (1,226 | ) | 791 | |||||||||
Income taxes (benefit ) | 11 | (26 | ) | (159 | ) | (56 | ) | |||||||||
Share in losses of associated companies, net | 4 | 10 | 8 | 76 | ||||||||||||
Net income (loss) | (307 | ) | (197 | ) | (1,076 | ) | 771 | |||||||||
Net income attributable to non-controlling interests | 7 | 11 | 33 | 35 | ||||||||||||
Net income (loss) attributable to Teva | (314 | ) | (208 | ) | (1,108 | ) | 736 | |||||||||
Dividends on preferred shares | — | 65 | — | 195 | ||||||||||||
Net income (loss) attributable to ordinary shareholders | $ | (314 | ) | $ | (273 | ) | $ | (1,108 | ) | $ | 541 | |||||
Earnings (loss) per share attributable to ordinary shareholders: | ||||||||||||||||
Basic | $ | (0.29 | ) | $ | (0.27 | ) | $ | (1.02 | ) | $ | 0.53 | |||||
Diluted | $ | (0.29 | ) | $ | (0.27 | ) | $ | (1.02 | ) | $ | 0.53 | |||||
Weighted average number of shares (in millions): | ||||||||||||||||
Basic | 1,092 | 1,018 | 1,091 | 1,018 | ||||||||||||
Diluted | 1,092 | 1,018 | 1,091 | 1,020 | ||||||||||||
COMPREHENSIVE INCOME (LOSS)
Nine months ended September 30, | ||||||||
2018 | 2017 | |||||||
Operating activities: | ||||||||
Net income (loss) | $ | 771 | $ | (4,719 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operations: | ||||||||
Net change in operating assets and liabilities | (1,521 | ) | (1,717 | ) | ||||
Depreciation and amortization | 1,460 | 1,584 | ||||||
Impairment of long-lived assets | 1,501 | 564 | ||||||
Deferred income taxes, net and uncertain tax positions | (650 | ) | (733 | ) | ||||
Goodwill impairment | 300 | 6,100 | ||||||
Stock-based compensation | 122 | 106 | ||||||
Impairment of equity investment | 103 | — | ||||||
Research and development in process | 54 | 175 | ||||||
Net gain from sale of long-lived assets and investments | (53 | ) | (48 | ) | ||||
Other items | (8 | ) | 9 | |||||
Venezuela impairment of net monetary assets | — | 45 | ||||||
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Net cash provided by operating activities | 2,079 | 1,366 | ||||||
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Investing activities: | ||||||||
Beneficial interest collected in exchange for securitized trade receivables | 1,372 | 962 | ||||||
Proceeds from sales of business, investments and long-lived assets | 880 | 1,607 | ||||||
Purchases of property, plant and equipment | (438 | ) | (607 | ) | ||||
Purchases of investments and other assets | (56 | ) | (194 | ) | ||||
Other investing activities | 34 | (277 | ) | |||||
Acquisitions of subsidiaries, net of cash acquired | — | 43 | ||||||
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Net cash provided by investing activities | 1,792 | 1,534 | ||||||
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Financing activities: | ||||||||
Repayment of senior notes and loans and other long-term liabilities | (6,989 | ) | (1,005 | ) | ||||
Proceeds from senior notes and loans, net of issuance costs | 4,434 | 507 | ||||||
Net change in short-term debt | (262 | ) | (1,630 | ) | ||||
Other financing activities | (13 | ) | (69 | ) | ||||
Dividends paid on ordinary shares | (12 | ) | (814 | ) | ||||
Dividends paid on preferred shares | (10 | ) | (195 | ) | ||||
Dividends paid tonon-controlling interests | — | (38 | ) | |||||
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Net cash used in financing activities | (2,852 | ) | (3,244 | ) | ||||
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Translation adjustment on cash and cash equivalents | (107 | ) | 36 | |||||
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Net change in cash and cash equivalents | 912 | (308 | ) | |||||
Balance of cash and cash equivalents at beginning of period | 963 | 988 | ||||||
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Balance of cash and cash equivalents at end of period | $ | 1,875 | $ | 680 | ||||
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Non-cash financing and investing activities: | ||||||||
Beneficial interest obtained in exchange for securitized trade receivables | $ | 1,345 | $ | 911 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income (loss) | $ | (307) | $ | (197) | $ | (1,076) | $ | 771 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Currency translation adjustment | (138 | ) | (105 | ) | (5 | ) | (577 | ) | ||||||||
Unrealized gain from derivative financial instruments | 87 | 19 | 124 | 75 | ||||||||||||
Unrealized gain (loss) from available-for-sale securities | (2 | ) | 1 | (1 | ) | — | ||||||||||
Unrealized gain (loss) on defined benefit plans | — | 1 | (1 | ) | — | |||||||||||
Total other comprehensive income (loss) | (53 | ) | (84 | ) | 117 | (502 | ) | |||||||||
Total comprehensive income (loss) | (360 | ) | (281 | ) | (959 | ) | 269 | |||||||||
Comprehensive income (loss) attributable to non-controlling interests | 7 | (26 | ) | 56 | 20 | |||||||||||
Comprehensive income (loss) attributable to Teva | $ | (367 | ) | $ | (255 | ) | $ | (1,015 | ) | $ | 249 | |||||
Teva shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||||||||||||||||||
Number of shares millions) | Stated value | MCPS | Additional paid-in capital | Retained earnings (accumulated deficit) | Accumulated other hensive (loss) | Treasury shares | Total Teva shareholders’ equity | Non- controlling interests | Total | |||||||||||||||||||||||||||||||
(U.S. dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2018 | 1,124 | 54 | 3,760 | 23,426 | (2,864) | (2,289) | (4,149 | ) | 17,938 | 1,430 | 19,368 | |||||||||||||||||||||||||||||
Comprehensive loss | (208 | ) | (46 | ) | (255 | ) | (26 | ) | (281 | ) | ||||||||||||||||||||||||||||||
Issuance of Shares | 1 | ** | ** | |||||||||||||||||||||||||||||||||||||
Issuance of Treasury Shares | (1 | ) | 3 | 2 | 2 | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 44 | 44 | 44 | |||||||||||||||||||||||||||||||||||||
Dividends to preferred shareholders | 65 | (65 | ) | — | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2018 | 1,125 | $ | 54 | $ | 3,825 | $ | 23,404 | $ | (3,072 | ) | $ | (2,335 | ) | $ | (4,146 | ) | $ | 17,730 | $ | 1,404 | $ | 19,134 | ||||||||||||||||||
* Mandatory convertible preferred shares. | ||||||||||||||||||||||||||||||||||||||||
** Represents an amount less than $0.5 million. |
Teva shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||||||||||||||||||
Number of shares (in millions) | Stated value | MCPS | Additional paid-in capital | Retained earnings (accumulated deficit) | Accumulated other (loss) | Treasury shares | Total Teva shareholders’ equity | Non- controlling interests | Total | |||||||||||||||||||||||||||||||
(U.S. dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | 1,198 | 56 | — | 27,258 | (6,752 | ) | (2,312 | ) | (4,128 | ) | 14,122 | 1,128 | 15,251 | |||||||||||||||||||||||||||
Comprehensive income (loss) | (314 | ) | (53 | ) | (367 | ) | 7 | (360 | ) | |||||||||||||||||||||||||||||||
Issuance of Shares | ** | ** | ** | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 35 | 35 | 35 | |||||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | 1,198 | $ | 56 | — | $ | 27,293 | $ | (7,066 | ) | $ | (2,365 | ) | $ | (4,128 | ) | $ | 13,790 | $ | 1,134 | $ | 14,925 | |||||||||||||||||||
* | Mandatory convertible preferred shares. |
** | Represents an amount less than 0.5 million. |
Teva shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||||||||||||||||||
Number of shares (in millions) | Stated value | MCPS | Additional paid-in capital | Retained earnings (accumulated deficit) | Accumulated other (loss) | Treasury shares | Total Teva shareholders’ equity | Non- controlling interests | Total | |||||||||||||||||||||||||||||||
(U.S. dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Balance at December | 1,124 | 54 | 3,631 | 23,479 | (3,803 | ) | (1,853 | ) | (4,149 | ) | 17,359 | 1,386 | 18,745 | |||||||||||||||||||||||||||
Cumulative effect of new accounting standard | (5 | ) | 5 | — | ||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | 736 | (487 | ) | 249 | 20 | 269 | ||||||||||||||||||||||||||||||||||
Issuance of Treasury Shares | (1 | ) | 3 | 2 | 2 | |||||||||||||||||||||||||||||||||||
Dividends to preferred shareholders | 194 | (194 | ) | — | ||||||||||||||||||||||||||||||||||||
Issuance of shares | 1 | ** | ** | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 120 | 120 | 120 | |||||||||||||||||||||||||||||||||||||
Transactions with non-controlling interests | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2018 | 1,125 | $ | 54 | $ | 3,825 | $ | 23,404 | $ | (3,072 | ) | $ | (2,335 | ) | $ | (4,146 | ) | $ | 17,730 | $ | 1,404 | $ | 19,134 |
* | Mandatory convertible preferred shares. |
** | Represents an amount less than $ 0.5 million. |
Teva shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||||||||||||||||||
Number of shares (in millions) | Stated value | MCPS | Additional paid-in capital | Retained earnings (accumulated deficit) | Accumulated other (loss) | Treasury shares | Total Teva shareholders’ equity | Non- controlling interests | Total | |||||||||||||||||||||||||||||||
(U.S. dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | 1,196 | 56 | — | 27,210 | (5,958 | ) | (2,459 | ) | (4,142 | ) | 14,707 | 1,087 | 15,794 | |||||||||||||||||||||||||||
Comprehensive income (loss) | (1,108 | ) | 94 | (1,015 | ) | 56 | (959 | ) | ||||||||||||||||||||||||||||||||
Issuance of Shares | 2 | ** | ** | |||||||||||||||||||||||||||||||||||||
Issuance of Treasury Shares | (8 | ) | 14 | 6 | 6 | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 99 | 99 | 99 | |||||||||||||||||||||||||||||||||||||
Transactions with non-controlling interests | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||||
Other | (8 | ) | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | 1,198 | $ | 56 | — | $ | 27,293 | $ | (7,066 | ) | $ | (2,365 | ) | $ | (4,128 | ) | $ | 13,790 | $ | 1,134 | $ | 14,925 | |||||||||||||||||||
* | Mandatory convertible preferred shares. |
** | Represents an amount less than $ 0.5 million. |
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
Operating activities: | ||||||||
Net income (loss) | $ | (1,076 | ) | $ | 771 | |||
Adjustments to reconcile net income (loss) to net cash provided by operations: | ||||||||
Depreciation and amortization | 1,306 | 1,460 | ||||||
Impairment of long-lived assets | 1,302 | 1,501 | ||||||
Net change in operating assets and liabilities | (784 | ) | (1,521 | ) | ||||
Deferred income taxes – net and uncertain tax positions | (652 | ) | (650 | ) | ||||
Stock-based compensation | 99 | 122 | ||||||
Net loss ( gain) from sale of long-lived assets and investments | 10 | (53 | ) | |||||
Other items | 5 | (8 | ) | |||||
Goodwill impairment | — | 300 | ||||||
Impairment of equity investment | — | 103 | ||||||
In process research and development | — | 54 | ||||||
Net cash provided by operating activities | 210 | 2,079 | ||||||
Investing activities: | ||||||||
Beneficial interest collected in exchange for securitized trade receivables | 1,108 | 1,372 | ||||||
Purchases of property, plant and equipment | (406 | ) | (438 | ) | ||||
Proceeds from sales of business, investments and long-lived assets | 169 | 880 | ||||||
Other investing activities | 59 | 34 | ||||||
Purchases of investments and other assets | (5 | ) | (56 | ) | ||||
Net cash provided by investing activities | 925 | 1,792 | ||||||
Financing activities: | ||||||||
Repayment of senior notes and loans and other long-term liabilities | (1,715 | ) | (6,989 | ) | ||||
Net change in short-term debt | 96 | (262 | ) | |||||
Tax withholding payments made on shares and dividends | (52 | ) | (22 | ) | ||||
Other financing activities | (14 | ) | (13 | ) | ||||
Proceeds from senior notes and loans, net of issuance costs | — | 4,434 | ||||||
Net cash used in financing activities | (1,685 | ) | (2,852 | ) | ||||
Translation adjustment on cash and cash equivalents | 9 | (107 | ) | |||||
Net change in cash and cash equivalents | (541 | ) | 912 | |||||
Balance of cash and cash equivalents at beginning of period | 1,782 | 963 | ||||||
Balance of cash and cash equivalents at end of period | $ | 1,241 | $ | 1,875 | ||||
Non-cash financing and investing activities: | ||||||||
Beneficial interest obtained in exchange for securitized trade receivables | $ | 1,123 | $ | 1,345 |
Certain amounts in the consolidated financial statements and associated notes may not add up due to rounding. All percentages have been calculated using unrounded amounts.
On January 1,
In May 2017, the FASB issued ASU
In February 2017, the FASB issued guidance onde-recognition of nonfinancial assets. The amendments address the recognition of gains and losses on the transfer (i.e., sale) of nonfinancial assets to counterparties other than customers. The guidance conformsde-recognition on nonfinancial assets with the model for transactions in the new revenue standard. Teva adopted the provisions of this update in the first quarter of 2018January 1, 2019 with no material impact on its consolidated financial statements.
January 1, 2019 with no material impact on its consolidated financial statements.
20 for further discussion.
income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain disclosures required by this guidance will need tomust be applied on a retrospective basis and others on a prospective basis. The guidance will be effective for fiscal years beginning after December 15, 2019, although early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In July 2018, the FASB issued a codification improvement, which does not prescribe any new accounting guidance, but instead provides minor improvements and clarifications to various FASB accounting guidance. Certain updates are applicable immediately while others provide for a transition period until the next fiscal year beginning after December 15, 2018. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In June 2018, the FASB issued guidance which simplifies the accounting fornon-employee share-based payment transactions. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The guidance will be effective for fiscal years beginning after December 31, 2018, although early adoption is permitted. The Company does not expect that the adoption of this guidance will have a significant impact on its consolidated financial statements.
In February 2018, the FASB issued guidance on the reclassification of certain tax effects from accumulated other comprehensive income. The guidance allows reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. This guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a significant impact on its consolidated financial statements.
In August 2017, the FASB issued guidance on derivatives and hedging, which expands and refines hedge accounting for bothnon-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (early adoption is permitted for any interim and annual financial statements that have not yet been issued). Teva is currently evaluating the potential effect of the guidance on its consolidated financial statements.
In February 2016,
sales. The Company is performing a comprehensive evaluationnow reports all royalty payments as cost of sales. The Company has retrospectively adjusted prior periods to reflect this change and the impact of the adoptionchange for the first
corresponding decrease in S&M expenses.
Certain Women’s Health and Other Specialty Products
On September 17, 2017, Teva entered into a definitive agreement under which CVC Capital Partners Fund VI would acquire a portfolio of products for $703 million in cash. The portfolio of products, which is marketed and sold outside of the United States, includes the women’s health products OVALEAP®, ZOELY®, SEASONIQUE®, COLPOTROPHINE® and other specialty products such as ACTONEL®.
As of December 31, 2017, the Company accounted for this transaction as assets and liabilities held for sale and determined that the fair value less cost to sell exceeded the carrying value of the business. The Company disposed $329 million of goodwill associated with the divested business.
On January 31, 2018, Teva completed the sale of the portfolio of products to CVC Capital Partners Fund VI. As a result of these transactions, the Company recognized a net gain on sale of approximately $93 million in the first quarter of 2018 within other income in the consolidated statement of income. The transaction expenses for these divestitures of approximately $2 million were recognized concurrently and included as a reduction to the net gain on sale.
The Company determined that the sale of its global women’s health businesses did not constitute a strategic shift and that it did not, and will not, have a major effect on its operations and financial results. Accordingly, the operations associated with the transactions are not reported as discontinued operations.
sale:
September 30, 2018 | December 31, 2017 | |||||||
(U.S. $ in millions) | ||||||||
Inventories | — | 39 | ||||||
Property, plant and equipment, net (*) | 41 | 16 | ||||||
Identifiable intangible assets, net | — | 236 | ||||||
Goodwill (*) | 40 | 275 | ||||||
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| |||||
Total assets of the disposal group classified as held for sale in the consolidated balance sheets | $ | 81 | $ | 566 | ||||
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|
| |||||
Other taxes and long-term liabilities | — | 38 | ||||||
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|
|
| |||||
Total liabilities of the disposal group classified as held for sale in the consolidated balance sheets | $ | — | $ | 38 | ||||
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|
|
|
|
2018:
September 30, 2019 | | | December 31, 2018 | |||||
(U.S. $ in millions) | ||||||||
Property, plant and equipment, net | 24 | 92 | ||||||
Goodwill | — | 51 | ||||||
Adjustments of assets held for sale to fair value | (6 | ) | (51 | ) | ||||
Total assets of the disposal group classified as held for sale in the consolidated balance sheets | $ | 18 | $ | 92 | ||||
PGT Healthcare Partnership
belo
The separation became effective on July 1, 2018. As part of the separation, Teva transferred to P&G the shares it held in New Chapter Inc. and ownership rights in an OTC plant located in India. Teva will continue to provide certain services to P&G after the separation for a transition period.
During the first quarter of 2018, Teva classified the plant in India as an asset held for sale and recorded an impairment of $64 million under other asset impairments, restructuring and other items. In addition, Teva recorded a write-down of $94 million of its investment in New Chapter Inc. under share in losses of associated companies.
During September 2018, Teva and P&G completed the final net asset distribution as part of the dissolution and Teva recorded a gain of $50 million to reflect the cash payment received from P&G to settle the dissolution.
Alder BioPharmaceuticals
United Kingdom.
Ninlaro®
In November 2016, Teva entered into an agreement to sell its royalties and other rights in Ninlaro® (ixazomib) to a subsidiary of Takeda, for a $150 million upfront payment to Teva and an additional $150 million payment based on sales during 2017. Teva was entitled to these royalties pursuant to an agreement from 2014 assigning the Ninlaro® patents to an affiliate of Takeda in consideration of milestone payments and sales royalties. In the first six months of 2017, Teva received payments in the amount of $150 million, which were recognized as revenue for the period.
2018, respectively.
September 30, 2018 | December 31, 2017 | |||||||
(U.S. $ in millions) | ||||||||
Finished products | $ | 2,679 | $ | 2,689 | ||||
Raw and packaging materials | 1,395 | 1,454 | ||||||
Products in process | 609 | 597 | ||||||
Materials in transit and payments on account | 183 | 184 | ||||||
|
|
|
| |||||
$ | 4,866 | $ | 4,924 | |||||
|
|
|
|
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
Finished products | $ | 2,517 | $ | 2,665 | ||||
Raw and packaging materials | 1,338 | 1,328 | ||||||
Products in process | 621 | 590 | ||||||
Materials in transit and payments on account | 160 | 148 | ||||||
Total | $ | 4,636 | $ | 4,731 | ||||
September 30, 2018 | December 31, 2017 | |||||||
(U.S. $ in millions) | ||||||||
Machinery and equipment | $ | 5,783 | $ | 5,809 | ||||
Buildings | 3,179 | 3,329 | ||||||
Computer equipment and other assets | 2,115 | 2,016 | ||||||
Payments on account | 538 | 634 | ||||||
Land (1) | 361 | 390 | ||||||
|
|
|
| |||||
11,976 | 12,178 | |||||||
Less—accumulated depreciation | 4,875 | 4,505 | ||||||
|
|
|
| |||||
$ | 7,101 | $ | 7,673 | |||||
|
|
|
|
|
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
Machinery and equipment | $ | 5,678 | $ | 5,691 | ||||
Buildings | 3,037 | 3,143 | ||||||
Computer equipment and other assets | 2,120 | 2,097 | ||||||
Payments on account | 616 | 514 | ||||||
Land | 364 | 351 | ||||||
11,816 | 11,796 | |||||||
Less—accumulated depreciation | (5,172 | ) | (4,928 | ) | ||||
Total | $ | 6,643 | $ | 6,868 | ||||
Gross carrying amount net of impairment | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||||||
Product rights | $ | 21,094 | $ | 21,011 | $ | 9,132 | $ | 8,276 | $ | 11,962 | $ | 12,735 | ||||||||||||
Trade names | 610 | 617 | 82 | 55 | 528 | 562 | ||||||||||||||||||
Research and development in process | 2,855 | 4,343 | — | — | 2,855 | 4,343 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 24,559 | $ | 25,971 | $ | 9,214 | $ | 8,331 | $ | 15,345 | $ | 17,640 | ||||||||||||
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|
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|
Gross carrying amount net of | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | |||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||||||
Product rights | $ | 19,698 | $ | 20,361 | $ | 10,182 | $ | 9,565 | $ | 9,516 | $ | 10,796 | ||||||||||||
Trade names | 596 | 606 | 117 | 91 | 479 | 515 | ||||||||||||||||||
In process research and development | 1,883 | 2,694 | — | — | 1,883 | 2,694 | ||||||||||||||||||
Total | $ | 22,177 | $ | 23,661 | $ | 10,299 | $ | 9,656 | $ | 11,878 | $ | 14,005 | ||||||||||||
The fair value of acquired identifiable intangible assets is generally determined using an income approach. This method starts with a forecast of all expected future net cash flows associated withfollowing acquisitions and related assets: various generic products (Actavis Generics) – $1,626 million; various generic products (Rimsa) – $46 million; and AUSTEDO – $211 million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and then adjusts the forecast to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams.
Whenever impairment indicators are identified for definite life intangible assets, Teva reconsiders the asset’s estimated life, calculates the undiscounted value of the asset’s or asset group’s cash flows and then calculates, if required, the discounted value of cash flow by applying an appropriate discount rate to the undiscounted cash flow streams. Teva then compares such value against the asset’s or asset group’s carrying amount. If the carrying amount is greater, Teva records an impairment loss for the excess of carrying value over fair value based on the discounted cash flows.
The more significant estimates and assumptions inherentmay be impaired in the estimate of the fair value of identifiable intangible assets include all assumptions associated with forecasting product profitability, including sales and cost to sell projections, R&D expenditure for ongoing support of product rights or continued development of IPR&D, estimated useful lives and IPR&D expected launch dates. Additionally, for IPR&D assets the risk of failure has been factored into the fair value measure.
Impairment of identifiable intangible assets of $519 million and $355 million forfuture periods.
Additional reductions toproducts from IPR&D intangibles relate to reclassification to product rights following regulatory approvals of generic products and impairments of assets due to development status, changes in projected launch date or changes in commercial projections related to products under development.
approval.
the
a) | Identifiable product rights of $99 million, mainly due to s upply cha ll e nges in connection with products Hong Kong . | |
b) | IPR&D assets of $78 million, mainly related to generic pipeline products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date or discount rate) in the United States. |
a) | Identifiable product rights of $667 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics and primarily marketed in the United States. |
b) | IPR&D assets of $539 million, mainly related to: (i) $355 million ofvarious generic pipeline products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date or discount rate) in the United States, (ii) $125 million related to lenalidomide (generic equivalent of Revlimid ® ) due to modified competition assumptions as a result of settlements between the innovator and other generic filers and (iii) $59 million related to a change in assumptions concer the future market share ofn inga number of products within Teva’s Actavis Generics pipeline in Europe. |
Generics | Specialty | Other | Total | North America | Europe | International Market | Other | Total | ||||||||||||||||||||||||||||
(U.S. $ in millions) | (U.S. $ in millions) | |||||||||||||||||||||||||||||||||||
Balance as of December 31, | $ | 18,864 | $ | 8,464 | $ | 1,086 | $ | 28,414 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Relative fair value allocation | (18,864 | ) | (8,464 | ) | (1,086 | ) | (28,414 | ) | 11,144 | 9,001 | 5,404 | 2,865 | 28,414 | |||||||||||||||||||||||
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| |||||||||||||||||||
Balance as of January | — | — | — | — | 11,144 | 9,001 | 5,404 | 2,865 | 28,414 | |||||||||||||||||||||||||||
Goodwill impairment(3) | — | — | — | — | — | — | (300 | ) | — | (300 | ) | |||||||||||||||||||||||||
Goodwill disposal(2) | — | — | — | — | — | (65 | ) | (14 | ) | — | (79 | ) | ||||||||||||||||||||||||
Goodwill reclassified as assets to held for | — | — | — | — | — | — | — | (40 | ) | (40 | ) | |||||||||||||||||||||||||
Translation differences | — | — | — | — | (21 | ) | (338 | ) | (50 | ) | (1 | ) | (410 | ) | ||||||||||||||||||||||
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Balance as of September | $ | — | $ | — | $ | — | $ | — | $ | 11,123 | $ | 8,598 | $ | 5,040 | $ | 2,824 | $ | 27,585 | ||||||||||||||||||
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North America | Europe | International Markets | Other | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Balance as of January 1, 2019 (1) | $ | 11,098 | $ | 8,653 | $ | 2,479 | $ | 2,687 | $ | 24,917 | ||||||||||
Changes during the period: | ||||||||||||||||||||
Goodwill disposal | (23 | ) | (5 | ) | — | — | (28 | ) | ||||||||||||
Translation differences | 11 | (300 | ) | 57 | — | (232 | ) | |||||||||||||
Balance as of September 30, 2019 (1) | $ | 11,086 | $ | 8,348 | $ | 2,536 | $ | 2,687 | $ | 24,657 | ||||||||||
(1) | Accumulated goodwill impairment as of September 30, 21.0 billion. |
|
|
In November 2017,
In addition to these three segments, Teva has other activities,sources of revenues, primarily the sale of active pharmaceutical ingredients (“API”)APIs to third parties, and certain contract manufacturing services.services and an
Following
Duringamount. This includes the International Markets, Medis and Europe reporting units, which had headroom
Based on its revised analysis, Teva recorded a goodwill impairment2019 and, therefore, no quantitative assessments were performed
Consolidated Financial Statements
Historically, Rimsa had been carved out as
Following the integration, and although the remediation plan is progressing in connection with Rimsa legacy products, Teva estimates that the recovery time will be longer than initially planned, specifically in connection with the time to regain lost market share. As a result, the Company recorded an additional goodwill impairment charge of $120 million related to its Mexico reporting unit in the second quarter of 2018.
Additionally, the Company identified further developments with respect to legislation proposed by the Russian Ministry of Health. The draft legislation includes, among other items, amendments in the mechanism of regulating prices for vital and essential medicines. The suggested amendments triggered a public discussion between authorities and pharmaceutical companies, which ended in the second quarter of 2018, followed by an internal discussion by the relevant authorities. The estimated impact of developments and uncertainties with respect to the final legislation in Russia were reflected in the LRP and triggered an impairment test for the International Markets reporting unit, and related intangible assets, significantly decreasing thewhich resulted in no impairment.
In light of the integration and the progress toward operational remediation in Rimsa as discussed above, Teva concluded that commencing July 1, 2018, it would no longer view Mexico separately from the International Markets reporting unit and accordingly will no longer perform impairment testing on Mexico as a separate reporting unit.
During the third quarter of 2018, Teva identified an increase in the risk free interest rate, which caused an increase in WACC. In addition, certain currencies in countries included in Teva’s International Markets reporting unit experienced significant devaluations. Teva addressed these events as an indication for impairment and performed an additional impairment test for the International Markets and Europe reporting units as of September 30, 2018. Teva assumed that the currency devaluations would cause price increases of its imported goods to those countries which would not be completely offset by corresponding price adjustments to the selling price of Teva’s goods. These changes decreased the
In the third quarter of 2018, the fair value exceeded the estimated carrying value by 36%Medis and 43% for North America and OtherTAPI reporting units respectively.
Based on current macro-economic developmentsis 22%, 45% and capital markets assumptions and holding all other assumptions constant, an increase in15%, respectively.
Teva determines theaggregate fair value of its reporting units usingas compared to its market capitalization in order to assess the reasonableness of the results of its cash flow projections used for its goodwill impairment analysis.
near term, this may lead to a goodwill impairment charge of up to an aggregated amount of approximately $5,000 million in its North America and International Markets reporting units. Future impairment charges, if any, reflecting conditions at that time may be materially different.
Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 66 million (including shares that may be issued due to unpaid dividends to date) for the three months ended September 30, 2018 and 59 million for the three months ended September 30, 2017, as well as for the convertible senior debentures for the respective periods, since both had an anti-dilutive effect on earnings (loss) per share.
Diluted earnings per share for the nine months ended September 30, 2018 take into account the potential dilution that could occur upon the exercise of options and
On January 1, 2018, Teva adopted the new revenue standard to all contracts using the modified retrospective method. The cumulative effect of initially applying the new revenue standard was immaterial.
Revenue recognition prior to the adoption of the new revenue standard
Please refer to note 1 to the consolidated financial statements and critical accounting policies included in Teva’s Annual Report on Form10-K for the year ended December 31, 2017 for a summary of the significant accounting policies.
Revenue recognition following the adoption of the new revenue standard
A contract with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Revenues are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer, excluding amounts collected on behalf of other third parties and sales taxes.
The amount of consideration to which Teva expects to be entitled varies as a result of rebates, chargebacks, returns and other sales reserve and allowances (“SR&A”) the Company offers its customers and their customers, as well as the occurrence or nonoccurrence of future events, including milestone events. A minimum amount of variable consideration is recorded concurrently with the satisfaction of performance obligations to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Estimates of variable consideration are based on historical experience and the specific terms in the individual agreements (which the Company believes approximates expected value). Rebates and chargebacks are the largest components of SR&A. For further description of SR&A components and how they are estimated, see “Variable Consideration” below.
Shipping and handling costs after control over a product has transferred to a customer are accounted for as a fulfillment cost and are recorded under S&M expenses.
Teva does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between the time of transfer of the promised goods or services to the customer and the time the customer pays for these goods or services to be generally one year or less, based on the practical expedient. The Company’s credit terms to customers are in average between thirty and ninety days.
The Company generally recognizes the incremental costs of obtaining contracts as an expense since the amortization period of the assets that the Company otherwise would have recognized is one year or less. The costs are recorded under S&M expenses. Similarly, Teva does not disclose the value of unsatisfied performance obligations for contracts with original expected duration of one year or less.
Three months ended September 30, 2018 | ||||||||||||||||||||
North America | Europe | International Markets | Other activities | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 1,902 | 1,210 | 525 | 166 | 3,803 | |||||||||||||||
Licensing arrangements | 29 | 1 | — | 2 | 32 | |||||||||||||||
Distribution | 333 | 1 | 149 | — | 483 | |||||||||||||||
Other | 1 | — | 52 | 158 | 211 | |||||||||||||||
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| |||||||||||
$ | 2,265 | $ | 1,212 | $ | 726 | $ | 326 | $ | 4,529 | |||||||||||
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Three months ended September 30, 2017 | ||||||||||||||||||||
North America | Europe | International Markets | Other activities | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 2,724 | 1,321 | 672 | 168 | 4,885 | |||||||||||||||
Licensing arrangements | 25 | — | 1 | 1 | 27 | |||||||||||||||
Distribution | 294 | 59 | 146 | — | 499 | |||||||||||||||
Other | — | — | 63 | 143 | 206 | |||||||||||||||
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| |||||||||||
$ | 3,043 | $ | 1,380 | $ | 882 | $ | 312 | $ | 5,617 | |||||||||||
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Nine months ended September 30, 2018 | ||||||||||||||||||||
North America | Europe | International Markets | Other activities | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 5,983 | 3,956 | 1,617 | 526 | 12,082 | |||||||||||||||
Licensing arrangements | 91 | 19 | 21 | 6 | 137 | |||||||||||||||
Distribution | 984 | 7 | 456 | — | 1,447 | |||||||||||||||
Other | 1 | — | 171 | 457 | 629 | |||||||||||||||
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| |||||||||||
$ | 7,059 | $ | 3,982 | $ | 2,265 | $ | 989 | $ | 14,295 | |||||||||||
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Nine months ended September 30, 2017 | ||||||||||||||||||||
North America | Europe | International Markets | Other activities | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 8,338 | 3,848 | 1,862 | 567 | 14,615 | |||||||||||||||
Licensing arrangements | 249 | 2 | 36 | 4 | 291 | |||||||||||||||
Distribution | 864 | 166 | 406 | — | 1,436 | |||||||||||||||
Other | 1 | — | 181 | 463 | 645 | |||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
$ | 9,452 | $ | 4,016 | $ | 2,485 | $ | 1,034 | $ | 16,987 | |||||||||||
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|
|
|
|
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|
|
|
Nature
Three months ended September 30, 2019 | ||||||||||||||||||||
North | Europe | | International Markets | Other activities | Total | |||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 1,674 | 1,153 | 511 | 176 | 3,514 | |||||||||||||||
Licensing arrangements | 26 | 7 | 1 | 1 | 36 | |||||||||||||||
Distribution | 351 | 1 | 176 | — | 528 | |||||||||||||||
Other | § | 2 | 48 | 136 | 186 | |||||||||||||||
$ | 2,051 | $ | 1,163 | $ | 736 | $ | 314 | | 4,264 | |||||||||||
Three months ended September 30, 2018 | ||||||||||||||||||||
North | Europe | | International Markets | Other activities | Total | |||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 1,902 | 1,210 | 525 | 166 | 3,803 | |||||||||||||||
Licensing arrangements | 29 | 1 | — | 2 | 32 | |||||||||||||||
Distribution | 333 | 1 | 149 | — | 483 | |||||||||||||||
Other | 1 | — | 52 | 158 | 211 | |||||||||||||||
$ | 2,265 | $ | 1,212 | $ | 726 | $ | 326 | $ | 4,529 | |||||||||||
Nine months ended September 30, 2019 | ||||||||||||||||||||
North | Europe | International Markets | Other activities | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 4,997 | 3,586 | 1,505 | 566 | 10,653 | |||||||||||||||
Licensing arrangements | 92 | 22 | 3 | 4 | 121 | |||||||||||||||
Distribution | 1,080 | 1 | 491 | — | 1,572 | |||||||||||||||
Other | § | 2 | 145 | 402 | 549 | |||||||||||||||
$ | 6,169 | $ | 3,611 | $ | 2,145 | $ | 972 | $ | 12,896 | |||||||||||
Nine months ended September 30, 2018 | ||||||||||||||||||||
North America | Europe | International Markets | Other activities | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 5,983 | 3,956 | 1,617 | 526 | 12,082 | |||||||||||||||
Licensing arrangements | 91 | 19 | 21 | 6 | 137 | |||||||||||||||
Distribution | 984 | 7 | 456 | — | 1,447 | |||||||||||||||
Other | 1 | — | 171 | 457 | 629 | |||||||||||||||
$ | 7,059 | $ | 3,982 | $ | 2,265 | $ | 989 | $ | 14,295 | |||||||||||
Licensing arrangements performance obligations generally include intellectual property (“IP”) rights, certain R&D and contract manufacturing services. The Company accounts for IP rights and services separately if they are distinct – i.e. if they are separately
identifiable from other items in the arrangement and if the customer can benefit from them on their own or with other resources that are readily available to the customer. The consideration is allocated between IP rights and services based on their relative stand-alone selling prices.
Revenue for distinct IP rights is accounted for based on the nature of the promise to grant the license. In determining whether the Company’s promise is to provide a right to access its IP or a right to use its IP, the Company considers the nature of the IP to which the customer will have rights. IP is either functional IP which has significant standalone functionality or symbolic IP which does not have significant standalone functionality. Revenue from functional IP is recognized at the point in time when control of the distinct license is transferred to the customer, when the Company has a present right to payment and risks and rewards of ownership are transferred to the customer. Revenue from symbolic IP is recognized over the access period to the Company’s IP.
Revenue from sales based milestones and royalties promised in exchange for a license of IP is recognized only when, or as, the later of subsequent sale or the performance obligation to which some or all of the sales-based royalty has been allocated, is satisfied. Revenues from licensing arrangements included royalty income of $31 million and $27 million for the three months ended September 30, 2018 and 2017, respectively. Revenues from licensing arrangements included royalty income of $82 million and $239 million for the nine months ended September 30, 2018 and 2017, respectively. The amounts recognized in 2017 include royalty income resulting from the Ninlaro® transaction.
Distribution revenues are derived from sales of third-party products for which the Company acts as distributor, mostly in the United States via Anda and in Israel. The Company is the principal in these arrangements and therefore records revenue on a gross basis as it controls the promised goods before transferring these goods to the customer. Revenue is recognized when the customer obtains control of the products. This generally occurs when products are shipped once the Company has a present right to payment and legal title, and risk and rewards of ownership are obtained by the customer.
Other revenues are primarily comprised of contract manufacturing services, sales of medical devices, and other miscellaneous items. Revenue is recognized when the customer obtains control of the products. This generally occurs when products are shipped once the Company has a present right to payment and legal title and risk and rewards of ownership are obtained by the customer.
Contract assets and liabilities
Contract assets are mainly comprised of trade receivables net of allowance for doubtful debts, which includes amounts billed and currently due from customers.
Contract liabilities are mainly comprised of deferred revenues which were immaterial as of September 30, 2018 and December 31, 2017, respectively.
Consolidated Financial Statements
Rebates
Rebates are primarily related to volume incentives and are offered to key customers to promote loyalty. These rebate programs provide that, upon the attainment ofpre-established volumes or the attainment of revenue milestones for a specified period, the customer receives a rebate. Since rebates are contractually agreed upon, they are estimated based on the specific terms in each agreement based on historical trends and expected sales. Externally obtained inventory levels are evaluated in relation to estimates made for rebates payable to indirect customers.
Medicaid and Other Governmental Rebates
Pharmaceutical manufacturers whose products are covered by the Medicaid program are required to provide a rebate to each state as a percentage of their average manufacturer’s price for the products dispensed. Many states have also implemented supplemental rebate programs that obligate manufacturers to pay rebates in excess of those required under federal law. The Company estimates these rebates based on historical trends of rebates paid, as well as on changes in wholesaler inventory levels and increases or decreases in sales.
Chargebacks
The Company has arrangements with various third parties, such as managed care organizations and drug store chains, establishing prices for certain of Teva’s products. While these arrangements are made between the Company and the customers, the customers independently select a wholesaler from which they purchase the products. Alternatively, certain wholesalers may enter into
agreements with the customers, with Teva’s concurrence, which establish the pricing for certain products which the wholesalers provide. Under either arrangement, Teva will issue a credit (referred to as a “chargeback”) to the wholesaler for the difference between the invoice price to the wholesaler and the customer’s contract price. Provisions for chargebacks involve estimates of contract prices of over 2,000 products and multiple contracts with multiple wholesalers. The provision for chargebacks varies in relation to changes in product mix, pricing and the level of inventory at the wholesalers and therefore will not necessarily fluctuate in proportion to an increase or decrease in sales. Provisions for estimating chargebacks are calculated using historical chargeback experience and/or expected chargeback levels for new products and anticipated pricing changes. Teva considers current and expected price competition when evaluating the provision for chargebacks. Chargeback provisions are compared to externally obtained distribution channel reports for reasonableness. The Company regularly monitors the provision for chargebacks and makes adjustments when the Company believes that actual chargebacks may differ from estimated provisions.
Other Promotional Arrangements
Other promotional or incentive arrangements are periodically offered to customers, specifically related to the launch of products or other targeted promotions. Provisions are made in the period for which the Company can estimate the incentive earned by the customer, in accordance with the contractual terms. The Company regularly monitors the provision for other promotional arrangements and makes adjustments when Teva believes that the actual provision may differ from the estimated provisions.
Shelf Stock Adjustments
The custom in the pharmaceutical industry is generally to grant customers a shelf stock adjustment based on the customers’ existing inventory contemporaneously with decreases in the market price of the related product. The most significant of these relate to products for which an exclusive or semi-exclusive period exists. Provisions for price reductions depend on future events, including price competition, new competitive launches and the level of customer inventories at the time of the price decline. Teva regularly monitors the competitive factors that influence the pricing of its products and customer inventory levels and adjust these estimates where appropriate.
Returns
Returns primarily relate to customer returns of expired products which, the customer has the right to return up to one year following the expiration date. Such returned products are destroyed and credits and/or refunds are issued to the customer for the value of the returns. Accordingly, no returned assets are recoded in connection with those products. The returns provision is estimated by applying a historical return rate to the amounts of revenue estimated to be subject to returns. Revenue subject to returns is estimated based on the lag time from time of sale to date of return. The estimated lag time is developed by analyzing historical experience. Additionally, The Company considers specific factors, such as levels of inventory in the distribution channel, product dating and expiration, size and maturity of launch, entrance of new competitors, changes in formularies or packaging and any changes to customer terms, for determining the overall expected levels of returns.
Prompt Pay Discounts
Prompt pay discounts are offered to most customers to encourage timely payment. Discounts are estimated at the time of invoice based on historical discounts in relation to sales. Prompt pay discounts are almost always utilized by customers. As a result, the actual discounts do not vary significantly from the estimated amount.
Sales Reserves and Allowances | ||||||||||||||||||||||||||||||||
Reserves included in Accounts Receivable, net | Rebates | Medicaid and other governmental allowances | Chargebacks | Returns | Other | Total reserves included in Sales Reserves and Allowances | Total | |||||||||||||||||||||||||
(U.S.$ in millions) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 196 | $ | 3,077 | $ | 1,908 | $ | 1,849 | $ | 780 | $ | 267 | $ | 7,881 | $ | 8,077 | ||||||||||||||||
Provisions related to sales made in current year period | 380 | 4,956 | 931 | 7,738 | 232 | 309 | 14,166 | 14,546 | ||||||||||||||||||||||||
Provisions related to sales made in prior periods | 7 | (39 | ) | 17 | 3 | 21 | (19 | ) | (17 | ) | (10 | ) | ||||||||||||||||||||
Credits and payments | (412 | ) | (5,082 | ) | (1,288 | ) | (8,203 | ) | (364 | ) | (354 | ) | (15,291 | ) | (15,703 | ) | ||||||||||||||||
Translation differences | — | (20 | ) | (4 | ) | (3 | ) | (4 | ) | (7 | ) | (38 | ) | (38 | ) | |||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at September 30, 2018 | $ | 171 | 2,892 | $ | 1,564 | $ | 1,384 | $ | 665 | $ | 196 | $ | 6,701 | $ | 6,872 | |||||||||||||||||
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|
Sales Reserves and Allowances | ||||||||||||||||||||||||||||||||
Reserves included in Accounts Receivable, net | Rebates | Medicaid and other governmental allowances | Chargebacks | Returns | Other | Total included in SR&A | Total | |||||||||||||||||||||||||
(U.S. | ||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | $ | 175 | $ | 3,006 | $ | 1,361 | $ | 1,530 | $ | 638 | $ | 176 | $ | 6,711 | $ | 6,886 | ||||||||||||||||
Provisions related to sales made in current year period | 334 | 4,004 | 760 | 7,196 | 195 | 308 | 12,463 | 12,797 | ||||||||||||||||||||||||
Provisions related to sales made in prior periods | 3 | (28 | ) | (2 | ) | (1 | ) | 23 | (7 | ) | (15 | ) | (12 | ) | ||||||||||||||||||
Credits and payments | (356 | ) | (4,276 | ) | (882 | ) | (7,299 | ) | (251 | ) | (295 | ) | (13,003 | ) | (13,359 | ) | ||||||||||||||||
Translation differences | — | (14 | ) | (4 | ) | (1 | ) | (1 | ) | 1 | (19 | ) | (19 | ) | ||||||||||||||||||
Balance at Septe mber | $ | 156 | 2,692 | $ | 1,233 | $ | 1,425 | $ | 604 | $ | 183 | $ | 6,137 | $ | 6,293 | |||||||||||||||||
Net Unrealized Gains/(Losses) | Benefit Plans | |||||||||||||||||||
Foreign currency translation adjustments | Available-for- sale securities | Derivative financial instruments | Actuarial gains/(losses) and prior service (costs)/credits | Total | ||||||||||||||||
(U.S.$ in millions) | ||||||||||||||||||||
Balance as of December 31, 2017 * | $ | (1,316 | ) | $ | 1 | $ | (442 | ) | $ | (91 | ) | $ | (1,848 | ) | ||||||
Other comprehensive income (loss) before reclassifications | (562 | ) | — | 54 | — | (508 | ) | |||||||||||||
Amounts reclassified to the statements of income | — | 21 | 2 | 23 | ||||||||||||||||
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|
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| |||||||||||
Net other comprehensive income (loss) before tax | (562 | ) | — | 75 | 2 | (485 | ) | |||||||||||||
Corresponding income tax | — | — | — | (2 | ) | (2 | ) | |||||||||||||
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| |||||||||||
Net other comprehensive income (loss) after tax ** | (562 | ) | — | 75 | — | (487 | ) | |||||||||||||
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|
|
|
|
|
| |||||||||||
Balance as of September 30, 2018 | $ | (1,878 | ) | $ | 1 | $ | (367 | ) | $ | (91 | ) | $ | (2,335 | ) | ||||||
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Net Unrealized Gains | Benefit Plans | |||||||||||||||||||
Foreign currency translation adjustments | Available-for- sale securities | Derivative financial instruments | Actuarial gains (losses) and prior service (costs) c redits | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Balance as of December 31, 2017* | $ | (1,316 | ) | $ | 1 | $ | (442 | ) | $ | (91 | ) | $ | (1,848 | ) | ||||||
Other comprehensive income (loss) before reclassifications ** | (562 | ) | — | 54 | — | (508 | ) | |||||||||||||
Amounts reclassified to the statements of income | — | — | 21 | 2 | 23 | |||||||||||||||
Net other comprehensive income (loss) before tax | (562 | ) | — | 75 | 2 | (485 | ) | |||||||||||||
Corresponding income tax | — | — | — | (2 | ) | (2 | ) | |||||||||||||
Net other comprehensive income (loss) after tax | (562 | ) | — | 75 | — | (487 | ) | |||||||||||||
Balance as of September 30, 2018 | $ | (1,878 | ) | $ | 1 | $ | (367 | ) | $ | (91 | ) | $ | (2,335 | ) | ||||||
* | Following the adoption of ASU |
** | Amounts do not include a 15 million gain from foreign currency translation adjustments attributable tonon-controlling interests. |
Balance, December 31, 2016 Other comprehensive income (loss) before reclassifications Amounts reclassified to the statements of income Net other comprehensive income (loss) before tax Corresponding income tax Net other comprehensive income (loss) after tax * Balance, September 30, 2017 Net Unrealized Gains/(Losses) Benefit Plans Foreign
currency
translation
adjustments Available-for-
sale securities Derivative
financial
instruments Actuarial
gains/(losses)
and prior
service
(costs)/credits Total (U.S.$ in millions) $ (2,769 ) $ (7 ) $ (302 ) $ (81 ) $ (3,159 ) 1,124 56 (138 ) (9 ) 1,033 (52 ) (41 ) 20 2 (71 ) 1,072 15 (118 ) (7 ) 962 — 5 — (5 ) — 1,072 20 (118 ) (12 ) 962 $ (1,697 ) $ 13 $ (420 ) $ (93 ) $ (2,197 )
Net Unrealized Gains | Benefit Plans | |||||||||||||||||||
Foreign currency translation adjustments | Available-for- sale securities | Derivative financial instruments | Actuarial gains (losses) and prior service (costs) c redits | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Balance as of December 31, 2018 | $ | (2,055 | ) | $ | 1 | $ | (327 | ) | $ | (78 | ) | $ | (2,459 | ) | ||||||
Other comprehensive income (loss) before reclassifications * | (28 | ) | (1 | ) | 103 | ** | 74 | |||||||||||||
Amounts reclassified to the statements of income | — | — | 21 | — | 21 | |||||||||||||||
Net other comprehensive income (loss) before tax | (28 | ) | (1 | ) | 124 | ** | 95 | |||||||||||||
Corresponding income tax | — | — | — | ** | ** | |||||||||||||||
Net other comprehensive income (loss) after tax | (28 | ) | (1 | ) | 124 | (1 | ) | 94 | ||||||||||||
Balance as of September 30, 2019 | $ | (2,083 | ) | $ | — | $ | (203 | ) | $ | (79 | ) | $ | (2,365 | ) | ||||||
* | Amounts do not include a 23 million gain from foreign currency translation adjustments attributable tonon-controlling interests. |
** | Represents an amount less than $0.5 million. |
Weighted average interest rate as of September 30, 2018 | Maturity | September 30, 2018 | December 31, 2017 | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Term loan JPY 28.3 billion(5) | JPY LIBOR+0.25% | 2018 | $ | — | $ | 251 | ||||||||||
Convertible debentures | 0.25% | 2026 | * | 514 | 514 | |||||||||||
Other | 9.37% | 2018 | 1 | 1 | ||||||||||||
Current maturities of long-term liabilities | 2,158 | 2,880 | ||||||||||||||
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| |||||||||||||
Total short term debt | $ | 2,673 | $ | 3,646 | ||||||||||||
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|
|
Weighted average September 30, 2019 | Maturity | September 30, 2019 | December 2018 | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Bank and financial institutions | — | — | $ | — | $ | 2 | ||||||||||
Revolving Credit Facility | LIBOR+1.6 | % | — | 100 | — | |||||||||||
Convertible debentures | 0.25 | % | 2026 | 514 | 514 | |||||||||||
Current maturities of long-term liabilities | 2,516 | 1,700 | ||||||||||||||
Total short-term debt | $ | 3,130 | $ | 2,216 | ||||||||||||
Weighted average interest rate as of September 30, 2019 | Maturity | September 30, 2019 | December 31, 2018 | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Senior notes EUR 1,660 million | 0.38% | 2020 | $ | 1,816 | $ | 1,897 | ||||||||||
Senior notes EUR 1,500 million | 1.13 % | 2024 | 1,633 | 1,707 | ||||||||||||
Senior notes EUR 1,300 million | 1.25% | 2023 | 1,416 | 1,480 | ||||||||||||
Senior notes EUR 900 million | 4.50% | 2025 | 985 | 1,029 | ||||||||||||
Senior notes EUR 750 million | 1.63% | 2028 | 814 | 850 | ||||||||||||
Senior notes EUR 700 million | 3.25% | 2022 | 766 | 801 | ||||||||||||
Senior notes EUR 700 million | 1.88% | 2027 | 764 | 798 | ||||||||||||
Senior notes USD 3,500 million | 3.15% | 2026 | 3,494 | 3,493 | ||||||||||||
Senior notes USD 3,000 million | 2.20% | 2021 | 2,998 | 2,997 | ||||||||||||
Senior notes USD 3,000 million | 2.80% | 2023 | 2,994 | 2,993 | ||||||||||||
Senior notes USD 1,556 million (1) | 1.70% | 2019 | — | 1,700 | ||||||||||||
Senior notes USD 2,000 million | 4.10% | 2046 | 1,985 | 1,985 | ||||||||||||
Senior notes USD 1,250 million | 6.00% | 2024 | 1,250 | 1,250 | ||||||||||||
Senior notes USD 1,250 million | 6.75% | 2028 | 1,250 | 1,250 | ||||||||||||
Senior notes USD 844 million | 2.95% | 2022 | 857 | 860 | ||||||||||||
Senior notes USD 789 million | 6.15% | 2036 | 782 | 782 | ||||||||||||
Senior notes USD 700 million | 2.25% | 2020 | 700 | 700 | ||||||||||||
Senior notes USD 613 million | 3.65% | 2021 | 619 | 621 | ||||||||||||
Senior notes USD 588 million | 3.65% | 2021 | 587 | 587 | ||||||||||||
Senior notes CHF 350 million | 0.50% | 2022 | 354 | 356 | ||||||||||||
Senior notes CHF 350 million | 1.00% | 2025 | 354 | 356 | ||||||||||||
Fair value hedge accounting adjustments | — | (9 | ) | |||||||||||||
Total senior notes | 26,417 | 28,483 | ||||||||||||||
Other long-term debt | 0.96% | 2026 | 1 | 12 | ||||||||||||
Less current maturities | (2,516 | ) | (1,700 | ) | ||||||||||||
Derivative instruments | — | 9 | ||||||||||||||
Less debt issuance costs | (89 | ) | (104 | ) | ||||||||||||
Total senior notes and loans | $ | 23,812 | $ | 26,700 | ||||||||||||
|
Senior notes and loans:
Weighted average interest rate as of September 30, 2018 | Maturity | September 30, 2018 | December 31, 2017 | |||||||||||||
% | (U.S. $ in millions) | |||||||||||||||
Senior notes EUR 1,660 million(8) | 0.38% | 2020 | $ | 1,924 | $ | 2,095 | ||||||||||
Senior notes EUR 1,500 million | 1.13% | 2024 | 1,731 | 1,788 | ||||||||||||
Senior notes EUR 1,300 million | 1.25% | 2023 | 1,501 | 1,550 | ||||||||||||
Senior notes EUR 1,000 million(3) | 2.88% | 2019 | — | 1,199 | ||||||||||||
Senior notes EUR 900 million(1) | 4.50% | 2025 | 1,045 | — | ||||||||||||
Senior notes EUR 750 million | 1.63% | 2028 | 863 | 891 | ||||||||||||
Senior notes EUR 700 million(1) | 3.25% | 2022 | 812 | — | ||||||||||||
Senior notes EUR 700 million | 1.88% | 2027 | 810 | 837 | ||||||||||||
Senior notes USD 3,500 million | 3.15% | 2026 | 3,493 | 3,492 | ||||||||||||
Senior notes USD 3,000 million | 2.20% | 2021 | 2,997 | 2,996 | ||||||||||||
Senior notes USD 3,000 million | 2.80% | 2023 | 2,993 | 2,992 | ||||||||||||
Senior notes USD 1,700 million(8) | 1.70% | 2019 | 1,700 | 2,000 | ||||||||||||
Senior notes USD 2,000 million | 4.10% | 2046 | 1,984 | 1,984 | ||||||||||||
Senior notes USD 1,500 million(3) | 1.40% | 2018 | — | 1,500 | ||||||||||||
Senior notes USD 1,250 million(2) | 6.00% | 2024 | 1,250 | — | ||||||||||||
Senior notes USD 1,250 million(2) | 6.75% | 2028 | 1,250 | — | ||||||||||||
Senior notes USD 844 million | 2.95% | 2022 | 862 | 864 | ||||||||||||
Senior notes USD 789 million | 6.15% | 2036 | 782 | 781 | ||||||||||||
Senior notes USD 700 million | 2.25% | 2020 | 700 | 700 | ||||||||||||
Senior notes USD 613 million | 3.65% | 2021 | 622 | 624 | ||||||||||||
Senior notes USD 588 million | 3.65% | 2021 | 587 | 587 | ||||||||||||
Senior notes CHF 450 million | 1.50% | 2018 | 458 | 461 | ||||||||||||
Senior notes CHF 350 million | 0.50% | 2022 | 357 | 360 | ||||||||||||
Senior notes CHF 350 million | 1.00% | 2025 | 357 | 360 | ||||||||||||
Senior notes CHF 300 million(9) | 0.13% | 2018 | — | 308 | ||||||||||||
Fair value hedge accounting adjustments | (24 | ) | (2 | ) | ||||||||||||
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|
|
| |||||||||||||
Total senior notes | 29,054 | 28,367 | ||||||||||||||
Term loan USD 2.5 billion(4) | LIBOR +1.1375% | 2018 | — | 285 | ||||||||||||
Term loan USD 2.5 billion(4) | LIBOR +1.50% | 2017-2020 | — | 2,000 | ||||||||||||
Term loan JPY 58.5 billion(5) | JPY LIBOR +0.55% | 2022 | — | 519 | ||||||||||||
Term loan JPY 35 billion(6) | 1.42% | 2019 | — | 311 | ||||||||||||
Term loan JPY 35 billion(6) | JPY LIBOR +0.3% | 2018 | — | 311 | ||||||||||||
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|
| |||||||||||||
Total loans | — | 3,426 | ||||||||||||||
Debentures USD 15 million(7) | 7.20% | 2018 | — | 15 | ||||||||||||
Other | 7.78% | 2026 | 6 | 5 | ||||||||||||
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|
|
| |||||||||||||
Total debentures and others | 6 | 20 | ||||||||||||||
|
|
|
| |||||||||||||
Less current maturities | (2,158 | ) | (2,880 | ) | ||||||||||||
Derivative instruments | 24 | 2 | ||||||||||||||
Less debt issuance costs | (110 | ) | (106 | ) | ||||||||||||
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|
| |||||||||||||
Total senior notes and loans | $ | 26,816 | $ | 28,829 | ||||||||||||
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|
|
144 million principal amount of |
|
|
|
1,700 million1.7 % senior notes due in July |
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|
| In July 1,556 million of its1.7 % senior notes. |
Long term
Long term
that these financial statements are issued.
2019.
September 30, 2018 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money markets | $ | 302 | $ | — | $ | — | $ | 302 | ||||||||
Cash, deposits and other | 1,573 | — | — | 1,573 | ||||||||||||
Investment in securities: | ||||||||||||||||
Equity securities | 53 | — | — | 53 | ||||||||||||
Other, mainly debt securities | 2 | — | 18 | 20 | ||||||||||||
Derivatives: | ||||||||||||||||
Asset derivatives—options and forward contracts | — | 23 | — | 23 | ||||||||||||
Asset derivatives—cross currency swaps | — | 42 | — | 42 | ||||||||||||
Liabilities derivatives—options and forward contracts | — | (14 | ) | — | (14 | ) | ||||||||||
Liabilities derivatives—interest rate and cross-currency swaps | — | (82 | ) | — | (82 | ) | ||||||||||
Contingent consideration* | — | — | (717 | ) | (717 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 1,930 | $ | (31 | ) | $ | (699 | ) | $ | 1,200 | ||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2017 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money markets | $ | 5 | $ | — | $ | — | $ | 5 | ||||||||
Cash, deposits and other | 958 | — | — | 958 | ||||||||||||
Investment in securities: | ||||||||||||||||
Equity securities | 65 | — | — | 65 | ||||||||||||
Other, mainly debt securities | 14 | — | 18 | 32 | ||||||||||||
Derivatives: | ||||||||||||||||
Asset derivatives—options and forward contracts | — | 17 | — | 17 | ||||||||||||
Asset derivatives—cross-currency swaps | — | 25 | — | 25 | ||||||||||||
Liability derivatives—options and forward contracts | — | (15 | ) | — | (15 | ) | ||||||||||
Liabilities derivatives—interest rate and cross-currency swaps | — | (98 | ) | — | (98 | ) | ||||||||||
Contingent consideration* | — | — | (735 | ) | (735 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 1,042 | $ | (71 | ) | $ | (717 | ) | $ | 254 | ||||||
|
|
|
|
|
|
|
|
September 30, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money markets | $ | 176 | $ | — | $ | — | $ | 176 | ||||||||
Cash, deposits and other | 1,065 | — | — | 1,065 | ||||||||||||
Investment in securities: | ||||||||||||||||
Equity securities | 45 | — | — | 45 | ||||||||||||
Other, mainly debt securities | 2 | — | 12 | 14 | ||||||||||||
Derivatives: | ||||||||||||||||
Asset derivatives—options and forward contracts | — | 40 | — | 40 | ||||||||||||
Asset derivatives—cross-currency swaps | 105 | — | 105 | |||||||||||||
Liability derivatives—options and forward contracts | — | (18 | ) | — | (18 | ) | ||||||||||
Contingent consideration* | — | — | (430 | ) | (430 | ) | ||||||||||
Total | $ | 1,288 | $ | 127 | $ | (418 | ) | $ | 997 | |||||||
December 31, 2018 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money markets | $ | 203 | $ | — | $ | — | $ | 203 | ||||||||
Cash, deposits and other | 1,579 | — | — | 1,579 | ||||||||||||
Investment in securities: | ||||||||||||||||
Equity securities | 51 | — | — | 51 | ||||||||||||
Other, mainly debt securities | 2 | — | 10 | 12 | ||||||||||||
Derivatives: | ||||||||||||||||
Asset derivatives—options and forward contracts | — | 18 | — | 18 | ||||||||||||
Asset derivatives—interest rate and cross-currency swaps | — | 58 | — | 58 | ||||||||||||
Liability derivatives—options and forward contracts | — | (26 | ) | — | (26 | ) | ||||||||||
Liability derivatives—interest rate and cross-currency swaps | — | (50 | ) | — | (50 | ) | ||||||||||
Contingent consideration* | — | — | (507 | ) | (507 | ) | ||||||||||
Total | $ | 1,835 | $ | — | $ | (497 | ) | $ | 1,338 | |||||||
* | Contingent consideration represents liabilities recorded at fair value in connection with acquisitions. |
Nine months ended September 30, 2018 | ||||
(U.S. $ in millions) | ||||
Fair value at the beginning of the period | $ | (717 | ) | |
Adjustments to provisions for contingent consideration: | ||||
Actavis Generics transaction | (21 | ) | ||
Labrys transaction | (17 | ) | ||
Eagle transaction | (46 | ) | ||
Settlement of contingent consideration: | ||||
Eagle transaction | 102 | |||
|
| |||
Fair value at the end of the period | $ | (699 | ) | |
|
|
Nine months ended September 30, 2019 | ||||
(U.S. $ in millions) | ||||
Fair value at the beginning of the period | $ | (497 | ) | |
Revaluation of debt securities | 3 | |||
Adjustments to provisions for contingent consideration: | ||||
Actavis Generics transaction | 96 | |||
Eagle transaction | (100 | ) | ||
Settlement of contingent consideration: | ||||
Eagle transaction | 80 | |||
Fair value at the end of the period | $ | (418 | ) | |
Estimated fair value* | ||||||||
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
(U.S. $ in millions) | ||||||||
Senior notes included under senior notes and loans | $ | 24,775 | $ | 23,459 | ||||
Senior notes and convertible senior debentures included under short-term debt | 2,614 | 2,713 | ||||||
|
|
|
| |||||
Total | $ | 27,389 | $ | 26,172 | ||||
|
|
|
|
Fair value* | ||||||||
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
Senior notes included under senior notes and loans | $ | 19,097 | $ | 23,560 | ||||
Senior notes and convertible senior debentures included under short-term debt | 2,933 | 2,140 | ||||||
Total | $ | 22,030 | $ | 25,700 | ||||
* | The fair value was |
a. | Foreign exchange risk management: |
b. | Interest risk management: |
c. | Derivative instruments notional amounts |
September 30, 2018 | December 31, 2017 | |||||||
(U.S. $ in millions) | ||||||||
Cross-currency swap—cash flow hedge | $ | 588 | $ | 588 | ||||
Cross-currency swap—net investment hedge | 1,000 | 1,000 | ||||||
Interest rate swap—fair value hedge | 500 | 500 |
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
Cross-currency swap — cash flow hedge | $ | 588 | $ | 588 | ||||
Cross-currency swap—net investment hedge | 1,000 | 1,000 | ||||||
Interest rate swap — fair value hedge | — | 500 | ||||||
$ | 1,588 | $ | 2,088 | |||||
d. | Derivative instrument outstanding: |
Fair value | ||||||||||||||||
Designated as hedging instruments | Not designated as hedging instruments | |||||||||||||||
September 30, 2018 | December 31, 2017 | September 30, 2018 | December 31, 2017 | |||||||||||||
Reported under | (U.S. $ in millions) | |||||||||||||||
Asset derivatives: | ||||||||||||||||
Other current assets: | ||||||||||||||||
Option and forward contracts | $ | — | $ | — | $ | 23 | $ | 17 | ||||||||
Othernon-current assets: | ||||||||||||||||
Cross-currency swaps—cash flow hedge | 42 | 25 | — | — | ||||||||||||
Liability derivatives: | ||||||||||||||||
Other current liabilities: | ||||||||||||||||
Option and forward contracts | — | — | (14 | ) | (15 | ) | ||||||||||
Other taxes and long-term liabilities: | ||||||||||||||||
Cross-currency swaps—net investment hedge | (58 | ) | (96 | ) | — | — | ||||||||||
Senior notes and loans: | ||||||||||||||||
Interest rate swaps—fair value hedge | (24 | ) | (2 | ) | — | — |
Derivatives on foreign exchange contracts mainly hedge Teva’s balance sheet items
Fair value | ||||||||||||||||
Designated as hedging instruments | | Not designated as hedging instruments | ||||||||||||||
September 30, 2019 | | December 31, 2018 | September 30, 2019 | | December 31, 2018 | |||||||||||
Reported under | (U.S. $ in millions) | |||||||||||||||
Asset derivatives: | ||||||||||||||||
Other current assets: | ||||||||||||||||
Option and forward contracts | $ | — | $ | — | $ | 40 | $ | 18 | ||||||||
Other non-current assets: | ||||||||||||||||
Cross-currency swaps — cash flow hedge | 103 | 58 | — | — | ||||||||||||
Cross-currency swaps— net investment hedge | 2 | — | — | — | ||||||||||||
Liability derivatives: | ||||||||||||||||
Other current liabilities: | ||||||||||||||||
Option and forward contracts | — | — | (18 | ) | (26 | ) | ||||||||||
Other taxes and long-term liabilities: | ||||||||||||||||
Cross-currency swaps — net investment hedge | — | (41 | ) | — | — | |||||||||||
Senior notes and loans: | ||||||||||||||||
Interest rate swaps — fair value hedge | — | (9 | ) | — | — |
Financial expenses, net | Other comprehensive income | |||||||||||||||
Three months ended, | Three months ended, | |||||||||||||||
September 30, 2019 | September 30, 2018** | September 30, 2019 | September 30, 2018** | |||||||||||||
Reported under | (U.S. $ in millions) | |||||||||||||||
Line items in which effects of hedges are recorded | $ | 211 | $ | 229 | $ | 53 | $ | 84 | ||||||||
Cross-currency swaps — cash flow hedge (1) | (1 | ) | (1 | ) | (33 | ) | (4 | ) | ||||||||
Cross-currency swaps — net investment hedge (2) | (7 | ) | (6 | ) | (39 | ) | $ | (7 | ) | |||||||
Interest rate swaps — fair value hedge (3) | $ | * | $ | * | $ | — | $ | — |
* | Represents an amount less than $0.5 million. |
** | Comparative figures are based on prior hedge accounting standard. |
Financial expenses, net | Other comprehensive income | |||||||||||||||
Nine months ended, | Nine months ended, | |||||||||||||||
September 2019 | September 2018** | September 2019 | September 2018** | |||||||||||||
Reported under | (U.S. $ in millions) | |||||||||||||||
Line items in which effects of hedges are recorded | $ | 635 | $ | 736 | $ | (117 | ) | $ | 502 | |||||||
Cross-currency swaps—cash flow hedge (1) | (2 | ) | (1 | ) | (49 | ) | (18 | ) | ||||||||
Cross-currency swaps — net investment hedge (2) | (22 | ) | (22 | ) | (46 | ) | $ | (36 | ) | |||||||
Interest rate swaps — fair value hedge (3) | $ | 2 | $ | * | $ | — | $ | — |
* | Represents an amount less than $0.5 million. |
** | Comparative figures are based on prior hedge accounting standard. |
Financial expenses, net | Net revenues | |||||||||||||||
Three months ended, | Three months ended, | |||||||||||||||
September 2019 | September 2018 | September 2019 | September 30, 2018 | |||||||||||||
Reported under | (U.S. $ in millions) | |||||||||||||||
Line items in which effects of hedges are recorded | 211 | 229 | (4,264 | ) | (4,529 | ) | ||||||||||
Option and forward contracts (4) | $ | (35 | ) | $ | (6 | ) | $ | — | $ | — | ||||||
Option and forward contracts Economic hedge (5) | — | — | (4 | ) | 1 | |||||||||||
Financial expenses, net | Net revenues | |||||||||||||||
Nine months ended, | Nine months ended, | |||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 2018 | |||||||||||||
Reported under | (U.S. $ in millions) | |||||||||||||||
Line items in which effects of hedges are recorded | 635 | 736 | (12,896 | ) | (14,295 | ) | ||||||||||
Option and forward contracts (4) | $ | (42 | ) | $ | (11 | ) | $ | — | $ | — | ||||||
Option and forward contracts Economic hedge (5) | — | — | * | * |
* | Represents an amount less than $0.5 million. |
(1) | With respect to cross-currency swap agreements, Teva recognized gains which mainly reflect the differences between the fixed interest rate and the floating interest rate. |
(2) | In each of the first and second quarters of 2017, Teva entered into a cross currency swap agreement with a notional amount of $500 million maturing in 2020. These cross currency swaps were designated as a net investment hedge of Teva’s foreign subsidiaries euro denominated net assets, in order to reduce the risk of adverse exchange rate fluctuations. With respect to these cross currency swap agreements, Teva recognized gains which mainly reflect the differences between the float-for-float interest rates paid and received. No amounts were reclassified from accumulated other comprehensive income into income related to the sale of a subsidiary. |
(3) | In the fourth quarter of 2016, Teva entered into an interest rate swap agreement designated as fair value hedge relating to its 2.8% senior notes due 2023 with respect to $500 million notional amount of outstanding debt. With respect to this interest rate swap agreement, Teva recognized a loss which mainly reflects the differences between the fixed interest rate and thefloatinginterestrate. In the third quarter of 2 019, Teva terminated this interest rate swap agreement. The settlement of these transactions resulted in a gain position of $10 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses-net over the life of the debt as additional interest ex pense . |
(4) | Teva uses foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, Teva recognizes gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses—net. |
(5) | Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on the e uro (EUR), the Britishp ound (GBP), the Russianr uble (RUB) and some other currencies denominated revenues with respect to the quarter for which such instruments are purchased. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as economic hedge. These derivative instruments are recognized on the balance sheet at their fair value, with changes in the fair value recognized under the same line item in the statements of income as the underlying exposure being hedged. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows. |
During the second quarter of 2018, the Company entered into option contracts and designed these transactions to limit the exposure of foreign exchange fluctuations on the euro denominated revenues with respect to the quarter for which such instruments are purchased. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as economic hedge. These derivative instruments are recognized on the balance sheet at their fair value, with changes in the fair value recognized under the same line item in the statements of income as the underlying exposure being hedged. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows. During the third quarter of 2018, the impact of such derivative instruments was immaterial.
With respect to the interest rate and cross-currency swap agreements, gains of $1 million and $4 million were recognized under financial expenses, net for the nine months ended September 30, 2018 and 2017, respectively, and gains of $0.5 million and $1 million were recognized under financial expenses, net for the three months ended September 30, 2018 and 2017, respectively. Such gains mainly reflect the differences between the fixed interest rate and the floating interest rate.
Consolidated Financial Statements
e. | Matured forward starting interest rate swaps and treasury lock agreements: |
In the fourth quarter of 2016, Teva entered into an interest rate swap agreement designated as fair value hedge relating to its 2.8% senior notes due 2023 with respect to $500 million notional amount of outstanding debt.
In each of the first and second quarters of 2017, Teva entered into a cross currency swap agreement maturing in 2020 with a notional amount of $500 million. These cross currency swaps were designated as a net investment hedge of Teva’s euro denominated net assets, in order to reduce the risk of adverse exchange rate fluctuations. The effective portion of the hedge will be determined by looking into changes in spot exchange rate. The change in fair value of the cross currency swap attributable to changes other than those due to fluctuations in the spot exchange rates are excluded from the assessment of hedge effectiveness and are reported directly in the statement of income.
With respect to these cross currency swap agreements, gains of $22 $3
2018,
Other impairments, restructuring and other items consisted of the following:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Restructuring expenses | $ | 88 | $ | 72 | $ | 442 | $ | 300 | ||||||||
Integration and acquisition expenses | 4 | 31 | 9 | 87 | ||||||||||||
Contingent consideration | 29 | 18 | 84 | 179 | ||||||||||||
Impairments of long-lived assets | 521 | 408 | 1,501 | 564 | ||||||||||||
Other | 16 | 21 | 44 | 79 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 658 | $ | 550 | $ | 2,080 | $ | 1,209 | ||||||||
|
|
|
|
|
|
|
|
In determining the estimated fair value
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Impairments of long-lived tangible assets (1) | $ | 28 | $ | 2 | $ | 96 | $ | 255 | ||||||||
Contingent consideration | 51 | 29 | 4 | 84 | ||||||||||||
Restructuring | 61 | 88 | 140 | 442 | ||||||||||||
Other | 21 | 20 | 24 | 53 | ||||||||||||
Total | $ | 160 | $ | 139 | $ | 263 | $ | 834 | ||||||||
(1) | Including impairments related to exit and disposal activities |
As a result of Teva’s plant rationalization acceleration, following the two year restructuring plan that was announced in December, 2017,future, to the extent the Company will changeit changes its plans on any given asset and/or the assumptions underlying such plan, there could be additional impairments in the future.
Impairments
Impairmentsplans as a result of long-lived intangible assets in the third quarter of 2018 were $519 million, mainly consisting of:
|
|
Impairments of property,its plant and equipment of $2 million.
Impairments of long-lived intangible assets in the first nine months of 2018 were $1,246 million, mainly consisting of:
|
|
Impairments of property, plant and equipment in the first nine months of 2018 were $255 million, mainly consisting of:
|
$113 million related to site closures in Israel; and
$42 million related to the consolidation of headquarters and distribution sites in the United States.
|
Restructuring
In the three months ended September 30, 2018,2019, Teva recorded $88an expense of $51 million of restructuring expenses,for contingent consideration, compared to $72an expense of $29 million in the three months ended September 30, 2017.
2018. The expenses in the third quarter of 2019 were mainly related to a change in the estimated future royalty payments from Eagle Pharmaceuticals, Inc. (“Eagle”) in connection with bendamustine sales.
ended September 30, 2018.
During the first nine months of 2018 Teva recorded a $155 million impairmentimpairments of property, plant and equipment related to restructuring costs as detailed in “— Impairments” above.
of $8 million and $2 million, respectively.
Three months ended September 30, | ||||||||
2018 | 2017 | |||||||
(U.S. $ in millions) | ||||||||
Restructuring | ||||||||
Employee termination | $ | 62 |
| $ | 54 |
| ||
Other |
| 26 |
|
| 18 |
| ||
|
|
|
| |||||
Total | $ | 88 |
| $ | 72 |
| ||
|
|
|
| |||||
Three months ended September 30, | ||||||||
2018 | 2017 | |||||||
(U.S. $ in millions) | ||||||||
Other | ||||||||
Cost of sales | $ | 8 |
| $ | 3 |
| ||
Selling and marketing expenses |
| — |
|
| 3 |
| ||
Other items |
| 16 |
|
| — |
| ||
Nine months ended September 30, | ||||||||
2018 | 2017 | |||||||
(U.S. $ in millions) | ||||||||
Restructuring | ||||||||
Employee termination | $ | 380 |
| $ | 228 |
| ||
Other |
| 62 |
|
| 72 |
| ||
|
|
|
| |||||
Total | $ | 442 |
| $ | 300 |
| ||
|
|
|
| |||||
Nine months ended September 30, | ||||||||
2018 | 2017 | |||||||
(U.S. $ in millions) | ||||||||
Other | ||||||||
Cost of sales | $ | 23 |
| $ | 5 |
| ||
Selling and marketing expenses |
| — |
|
| 3 |
| ||
Other items |
| 54 |
|
| — |
|
Three months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
Restructuring | ||||||||
Employee termination | $ | 49 | $ | 62 | ||||
Other | 11 | 26 | ||||||
Total | $ | 61 | $ | 88 | ||||
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
Restructuring | ||||||||
Employee termination | $ | 105 | $ | 380 | ||||
Other | 34 | 62 | ||||||
Total | $ | 140 | $ | 442 | ||||
Employee termination costs | Other | Total | ||||||||||
(U.S. $ in millions) | ||||||||||||
Balance as of January 1, 2018 | $ | (294 | ) | $ | (17 | ) | $ | (311 | ) | |||
Provision |
| (380 | ) |
| (62 | ) |
| (442 | ) | |||
Utilization and other* |
| 418 |
|
| 51 |
|
| 469 |
| |||
|
|
|
|
|
| |||||||
Balance as of September 30, 2018 | $ | (256 | ) | $ | (28 | ) | $ | (284 | ) | |||
|
|
|
|
|
|
Employee termination costs | Other | Total | ||||||||||
(U.S. $ in millions ) | ||||||||||||
Balance as of January 1, 2019 | $ | (204 | ) | $ | (29 | ) | $ | (233 | ) | |||
Provision | (105 | ) | (34 | ) | (140 | ) | ||||||
Utilization and other* | 108 | 56 | 164 | |||||||||
Balance as of September 30, 2019 | $ | (201 | ) | $ | (7 | ) | $ | (208 | ) | |||
* | Includes adjustments for foreign currency translation. |
additional remediation and possible FDA enforcement action. Teva expects to generate approximately $63
million in revenues from this site in the remainder of 2019 and approximately $Pharmaceutical (“Zhejiang”), used in the production of such medicines. On September 28, 2018, the FDA issued an import ban on all APIs and other drug products madesupplied to Teva by Zhejiang in its Chuannan site into the United States. On the same date, the EU authorities issued to Zhejiang a statement ofnon-compliance for the manufacture of valsartan (and its intermediates) for EU medicines produced in the Chuannan site, thus prohibiting marketing authorization holders in the EU from using such valsartan materials in the production of finished products. On October 15,Huahai Pharmaceutical. Since July 2018, the EU authorities announced that Zhejiang was under increased supervisionTeva has been actively engaged with respect to other APIs produced by Zhejiang. Many regulatory agencies around the world continue to review information relating toin reviewing its valsartan medicines and theother sartan products as a group. Thefor NDMA and other related impurities and, where necessary, has initiated additional voluntary recalls.
costs going forward.
In the first nine months of 2018, Teva recorded income of $1,239 million in connection with legal settlements, compared to an expense of $324 million in the first nine months of 2017.2018. The incomeexpense in the first nine months of 2018 consisted primarily of the working capital adjustment with Allergan, the Rimsa2019 was mainly related to
remaining opioid cases.
contingencies:
enforceability or infringement of the originator’s patents. Teva may also be involved in patent litigation involving the extent to which its product or manufacturing process techniques may infringe other originator or third-party patents.
Teva’s favor in the original case, Helsinn reopened the stayed case on the later-acquired patent and filed a motiondistrict court denied Helsinn’s request for a preliminary injunction based on that later-acquired patent. On January 30, 2018, the District Court of New Jersey denied Helsinn’s request for a preliminary injunction.these later acquired patents. Teva launched its generic palonosetron IV solution after obtaining final regulatory approval on March 23, 2018. If Teva ultimately loses either oneand Helsinn agreed on a settlement in principle to settle their dispute regarding palonosetron, pending completion of final documentation. A provision with respect to the settlement in principle was included in the financial statements.
Court of Appeals affirmed that Janssen’s patent is invalid. That decision became final on June 20, 2019. Janssen
This new test has resulted in increased scrutiny of Teva’s patent settlements, additional action by the FTC and state and local authorities, and an increased risk of liability in Teva’s currently pending antitrust litigations.
and holding that United Healthcare is bound by the settlement. On October 16, 2018, United Healthcare moved the court to amend its final judgment and to clarify that the final judgment does not address how settlement proceeds should be allocated among United Healthcare and the other end payers. That motion was denied on October 30, 2018. Additionally, Cephalon and Teva have reached a settlement with 48 state attorneys general, which was approved by the court on November 7, 2016. Certain other claimants, including2016, and on July 23, 2019, reached a settlement with the State of California, have given notices of potential claims related to these settlement agreements. Teva has produced documentswhich is pending final court approval, and information in response to discovery requests issuedis fully covered by the California Attorney General’s office as partsettlement fund explained below.
Consolidated Financial Statements
Following
A provision for this case was included in the financial statements.
2015 and in January 2016, several individual direct purchaserclass.class and, inmotion, but defendants appealed, and on May 31, 2018, themotion. The Court of Appeal Fourthsubsequently reversed the decision and review of the Appellate District, reversed and instructed the Superior Court to grant defendants’ motion. The District Attorney petitioned the California Supreme Court to review the Court of Appeal’s decision. The petition was granted on August 22, 2018, and the District Attorney filed its opening briefdecision is now pending before the California Supreme Court on September 21, 2018.Court. Annual sales of Niaspancompetition commenced version of Niaspan
remains pending.
competition commenced version of Actos
In June 2014, two groups of end payers sued AstraZeneca and Teva, as well as Ranbaxy and Dr. Reddy’s, in the Philadelphia Court of Common Pleas for violating the antitrust laws by entering into settlement agreements to resolve the esomeprazole (generic Nexium®) patent litigation (the “Philadelphia Esomeprazole Actions”). These end payers had opted out of a class action that was filed in the Massachusetts federal court in September 2012 and resulted in a jury verdict in December 2014 in favor of AstraZeneca and Ranbaxy (the “Massachusetts Action”). Prior to the jury verdict, Teva settled with all plaintiffs in the Massachusetts Action for $24 million. The allegations in the Philadelphia Esomeprazole Actions are nearly identical to those in the Massachusetts Action. The Philadelphia Esomeprazole Actions were stayed pending resolution of the Massachusetts Action, which was on appeal to the Court of Appeals for the First Circuit with respect to the claims against thenon-settling defendants, AstraZeneca and Ranbaxy. On November 21, 2016, the First Circuit affirmed the district court’s judgment in favor of AstraZeneca and Ranbaxy, and the plaintiffs’ petitions for rehearing and rehearing en banc were denied on January 10, 2017.
million, respectively.
Since May 2015,
$550 million at the time other manufacturers first launched generic versions of Namenda IR
In
consolidated amended complaints. purchasers’ motion for class certification in September 2019.
of August 19, 2019 until January 6, 2020.
the government’s interest to continue. Both motions are pending.
Beginning inthe case. These motions are pending.
state cases thatcourt have been removed have beento federal court and consolidated into the MDL Opioid Proceeding.
(“Pennsylvania MDL”).
but no complaint has been filed.
Following the above resolution with the SEC and DOJ, Teva has had requests for documents and information from various Russian government entities. In addition, on January 14, 2018, Teva entered into an arrangement for the Contingent Cessation of Proceedings pursuant to the Israeli Securities Law with the Government of Israel that ended the investigation of the Israeli government into the conduct that was subject to the FCPA investigation, and provided a payment of approximately $22 million.
dismiss. The court has yet to establish a pre-trial schedule
on December 28, 2018, the court granted the motion in part and dismissed all of plaintiffs’ claims, except for their claim against Cephalon for breach of contract.
In November 2017,
R&D and Teva’s global marketing and portfolio function, in order to optimize its product lifecycle across the therapeutic areas. The Company began reporting its financial results under this structure in the first quarter of 2018.
In addition to these three segments, Teva has other activities, primarily the sale of API to third parties and certain contract manufacturing services.
All the above changes were reflected through retroactive revision of prior period segment information.
Since 2013 and until December 31, 2017, Teva had two reportable segments: generic and specialty medicines. The generic medicines segment included Teva’s OTC and API businesses. Teva’s other activities included distribution activities, sales of medical devices and certain contract manufacturing operation (“CMO”) services.
Teva now operates its business and reports its financial results in three3 segments:
(a) | North America segment, which includes the United States and Canada. |
(b) | Europe segment, which includes the European Union and certain other European countries. |
(c) | International Markets segment, which includes all countries other than those in the North America and Europe segments. |
North America | Europe | International Markets | ||||||||||||||||||||||
Three months ended September 30, | ||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||||||
Revenues | $ | 2,265 | $ | 3,043 | $ | 1,212 | $ | 1,380 | $ | 726 | $ | 882 | ||||||||||||
Gross profit | 1,232 | 1,833 | 683 | 721 | 301 | 351 | ||||||||||||||||||
R&D expenses | 158 | 230 | 62 | 101 | 21 | 35 | ||||||||||||||||||
S&M expenses | 301 | 325 | 249 | 289 | 120 | 158 | ||||||||||||||||||
G&A expenses | 128 | 149 | 74 | 90 | 37 | 51 | ||||||||||||||||||
Other income (loss) | (4 | ) | (1 | ) | 1 | — | — | (3 | ) | |||||||||||||||
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Segment profit | $ | 649 | $ | 1,130 | $ | 297 | $ | 241 | $ | 123 | $ | 110 | ||||||||||||
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North America | Europe | International Markets | ||||||||||||||||||||||
Nine months ended September 30, | ||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||||||
Revenues | $ | 7,059 | $ | 9,452 | $ | 3,982 | $ | 4,016 | $ | 2,265 | $ | 2,485 | ||||||||||||
Gross profit | 3,867 | 5,971 | 2,211 | 2,147 | 942 | 1,043 | ||||||||||||||||||
R&D expenses | 528 | 777 | 208 | 312 | 70 | 129 | ||||||||||||||||||
S&M expenses | 902 | 1,158 | 741 | 864 | 384 | 503 | ||||||||||||||||||
G&A expenses | 357 | 432 | 243 | 258 | 115 | 144 | ||||||||||||||||||
Other income | (206 | ) | (82 | ) | (1 | ) | (15 | ) | (11 | ) | (4 | ) | ||||||||||||
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Segment profit | $ | 2,286 | $ | 3,686 | $ | 1,020 | $ | 728 | $ | 384 | $ | 271 | ||||||||||||
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North America profit Europe profit International Markets profit Total segment profit Profit (loss) of other activities Amounts not allocated to segments: Amortization Other asset impairments, restructuring and other items Goodwill impairment Gain on divestitures, net of divestitures related costs Inventorystep-up Other R&D expenses Costs related to regulatory actions taken in facilities Legal settlements and loss contingencies Other unallocated amounts Consolidated operating income (loss) Financial expenses, net Consolidated income (loss) before income taxes Three months ended
September 30, Nine months ended
September 30, 2018 2017 2018 2017 (U.S. $ in millions) (U.S. $ in millions) $ 649 $ 1,130 $ 2,286 $ 3,686 297 241 1,020 728 123 110 384 271 1,069 1,481 3,690 4,685 35 (11 ) 87 3 1,104 1,470 3,777 4,688 297 357 909 1,088 658 550 2,080 1,209 — — 300 6,100 (31 ) — (114 ) — — — — 67 60 150 82 176 1 (1 ) 6 48 19 (20 ) (1,239 ) 324 84 56 226 143 16 378 1,527 (4,467 ) 229 259 736 704 $ (213 ) $ 119 $ 791 $ (5,171 )
Three months ended September 30, 2019 | ||||||||||||
North America | Europe | International | ||||||||||
(U.S. $ in millions) | ||||||||||||
Revenues | $ | 2,051 | $ | 1,163 | $ | 736 | ||||||
Gross profit | 1,048 | 662 | 295 | |||||||||
R&D expenses | 156 | 63 | 21 | |||||||||
S&M expenses | 219 | 206 | 114 | |||||||||
G&A expenses | 112 | 56 | 32 | |||||||||
Other income | (5 | ) | (4 | ) | (1 | ) | ||||||
Segment profit | $ | 565 | $ | 341 | $ | 130 | ||||||
Three months ended September 30 , 2018 | ||||||||||||
North America | Europe | International | ||||||||||
(U.S. $ in millions) | ||||||||||||
Revenues | $ | 2,265 | $ | 1,212 | $ | 726 | ||||||
Gross profit | 1,196 | 676 | 301 | |||||||||
R&D expenses | 158 | 62 | 21 | |||||||||
S&M expenses | 265 | 242 | 120 | |||||||||
G&A expenses | 128 | 74 | 37 | |||||||||
Other (income) expense | (4 | ) | 1 | — | ||||||||
Segment profit | $ | 649 | $ | 297 | $ | 123 | ||||||
Nine months ended September 30, 2019 | ||||||||||||
North America | Europe | International Markets | ||||||||||
(U.S. $ in millions) | ||||||||||||
Revenues | $ | 6,169 | $ | 3,611 | $ | 2,145 | ||||||
Gross profit | 3,155 | 2,066 | 877 | |||||||||
R&D expenses | 497 | 199 | 66 | |||||||||
S&M expenses | 756 | 637 | 348 | |||||||||
G&A expenses | 342 | 175 | 102 | |||||||||
Other income | (6 | ) | (5 | ) | (2 | ) | ||||||
Segment profit | $ | 1,566 | $ | 1,060 | $ | 363 | ||||||
Nine months ended September 30, 2018 | ||||||||||||
North America | Europe | International Markets | ||||||||||
(U.S. $ in millions) | ||||||||||||
Revenues | $ | 7,059 | $ | 3,982 | $ | 2,265 | ||||||
Gross profit | 3,778 | 2,195 | 942 | |||||||||
R&D expenses | 528 | 208 | 70 | |||||||||
S&M expenses | 813 | 725 | 384 | |||||||||
G&A expenses | 357 | 243 | 115 | |||||||||
Other income | (206 | ) | (1 | ) | (11 | ) | ||||||
Segment profit | $ | 2,286 | $ | 1,020 | $ | 384 |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(U.S. $ in millions) | (U.S. $ in millions) | |||||||||||||||
North America profit | $ | 565 | $ | 649 | $ | 1,566 | $ | 2,286 | ||||||||
Europe profit | 341 | 297 | 1,060 | 1,020 | ||||||||||||
International Markets profit | 130 | 123 | 363 | 384 | ||||||||||||
Total segment s profit | 1,036 | 1,069 | 2,989 | 3,690 | ||||||||||||
Profit of other activities | 16 | 35 | 92 | 87 | ||||||||||||
1,051 | 1,104 | 3,081 | 3,777 | |||||||||||||
Amounts not allocated to segments: | ||||||||||||||||
Amortization | 255 | 297 | 823 | 909 | ||||||||||||
Other assets impairments, restructuring and other items | 160 | 139 | 263 | 834 | ||||||||||||
Goodwill impairment | — | — | — | 300 | ||||||||||||
Intangible asset impairments | 177 | 519 | 1,206 | 1,246 | ||||||||||||
G ain on divestitures, net of divestitures related costs | (3 | ) | (31 | ) | (12 | ) | (114 | ) | ||||||||
Other R&D expenses (income) | (7 | ) | 60 | (7 | ) | 82 | ||||||||||
Costs related to regulatory actions taken in facilities | 11 | 1 | 28 | 6 | ||||||||||||
Legal settlements and loss contingencies | 468 | 19 | 1,171 | (1,239 | ) | |||||||||||
Other unallocated amounts | 72 | 84 | 201 | 226 | ||||||||||||
Consolidated operating income (loss) | (81 | ) | 16 | (591 | ) | 1,527 | ||||||||||
Financial expenses, net | 211 | 229 | 635 | 736 | ||||||||||||
Consolidated income (loss) before income taxes | $ | (292 | ) | $ | (213 | ) | $ | (1,226 | ) | $ | 791 |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(U.S. $ in millions) | (U.S. $ in millions) | |||||||||||||||
North America segment | ||||||||||||||||
Generic products | $ | 922 | $ | 1,233 | $ | 2,957 | $ | 3,979 | ||||||||
COPAXONE | 463 | 819 | 1,403 | 2,475 | ||||||||||||
BENDEKA / TREANDA | 161 | 179 | 502 | 498 | ||||||||||||
ProAir | 107 | 155 | 352 | 399 | ||||||||||||
QVAR | 36 | 83 | 173 | 265 | ||||||||||||
AUSTEDO | 62 | 6 | 136 | 8 | ||||||||||||
Distribution | 333 | 294 | 984 | 864 | ||||||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(U.S. $ in millions) | (U.S. $ in millions) | |||||||||||||||
Europe segment | ||||||||||||||||
Generic products | $ | 845 | $ | 871 | $ | 2,749 | $ | 2,543 | ||||||||
COPAXONE | 124 | 150 | 417 | 440 | ||||||||||||
Respiratory products | 93 | 90 | 312 | 258 |
International Markets segment Generic products COPAXONE Distribution Three months ended Nine months ended September 30, September 30, 2018 2017 2018 2017 (U.S. $ in millions) (U.S. $ in millions) $ 498 $ 629 $ 1,523 $ 1,720 14 18 52 65 149 146 456 406
2018:
Three months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
No rth Ameri ca | ||||||||
Generic products | $ | 914 | $ | 922 | ||||
COPAXONE | 271 | 463 | ||||||
BENDEKA/TREANDA | 124 | 161 | ||||||
ProAir* | 71 | 107 | ||||||
QVAR | 60 | 36 | ||||||
AJOVY | 25 | — | ||||||
AUSTEDO | 105 | 62 | ||||||
Anda | 351 | 333 | ||||||
Other | 131 | 182 | ||||||
Total | $ | 2,051 | $ | 2,265 | ||||
* | Does not include sales of ProAir authorized generic, which are included under generics products. |
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
North America | ||||||||
Generic products | $ | 2,826 | $ | 2,957 | ||||
COPAXONE | 753 | 1,403 | ||||||
BENDEKA/TREANDA | 353 | 502 | ||||||
ProAir* | 194 | 352 | ||||||
QVAR | 183 | 173 | ||||||
AJOVY | 68 | — | ||||||
AUSTEDO | 276 | 136 | ||||||
Anda | 1,080 | 984 | ||||||
Other | 436 | 554 | ||||||
Total | $ | 6,169 | $ | 7,059 | ||||
* | Does not include sales of ProAir authorized generic, which are included under generics products. |
Three months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
Europe | ||||||||
Generic products | $ | 836 | $ | 845 | ||||
COPAXONE | 106 | 124 | ||||||
Respiratory products | 87 | 93 | ||||||
Other | 134 | 150 | ||||||
Total | $ | 1,163 | $ | 1,212 | ||||
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
Europe | ||||||||
Generic products | $ | 2,599 | $ | 2,749 | ||||
COPAXONE | 327 | 417 | ||||||
Respiratory products | 267 | 312 | ||||||
Other | 417 | 504 | ||||||
Total | $ | 3,611 | $ | 3,982 | ||||
Three months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
International markets | ||||||||
Generic products | $ | 474 | $ | 498 | ||||
COPAXONE | 20 | 14 | ||||||
Distribution | 176 | 149 | ||||||
Other | 66 | 65 | ||||||
Total | $ | 736 | $ | 726 | ||||
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
International markets | ||||||||
Generic products | $ | 1,404 | $ | 1,523 | ||||
COPAXONE | 46 | 52 | ||||||
Distribution | 491 | 456 | ||||||
Other | 204 | 233 | ||||||
Total | $ | 2,145 | $ | 2,265 | ||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(U.S. $ in millions) | (U.S. $ in millions) | |||||||||||||||
Gain on divestitures, net of divestitures related costs(1) | $ | 31 | — | $ | 114 | — | ||||||||||
Section 8 and similar payments(2) | 1 | — | 195 | 83 | ||||||||||||
Gain on sale of assets | 1 | — | 9 | — | ||||||||||||
Other, net | 2 | 4 | 16 | 17 | ||||||||||||
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Total other income | $ | 35 | $ | 4 | $ | 334 | $ | 100 | ||||||||
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Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(U.S. $ in millions) | (U.S. $ in millions) | |||||||||||||||
Gain | $ | 3 | 31 | $ | 12 | 114 | ||||||||||
Section 8 and similar payments (2) | — | 1 | — | 195 | ||||||||||||
Gain (loss) on sale of assets | 3 | 1 | (1 | ) | 9 | |||||||||||
Other, net | 8 | 2 | 19 | 16 | ||||||||||||
Total other income | $ | 14 | $ | 35 | $ | 29 | $ | 334 |
(1) | Mainly related to the divestment of the women’s health business and the dissolution of PGT |
(2) | Section 8 of the Patented Medicines (Notice of Compliance) Regulation relates to recoveries of lost revenue related to patent infringement proceedings in Canada. |
taxes:
The Company recognized the income tax effects of theU.S. Tax Cuts and Jobs Act (“TCJA”) in its audited consolidated financial statements included in the Company’s Annual Report on Form10-K for the year ended December 31, 2017, in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the TCJA was enacted into law. The guidance also provides for a measurement period of up to one year from the enactment date for the Company to complete the accounting for the U.S. tax law changes. The Company’s financial results for the year ended December 31, 2017 included a $112 million provisional estimate for itsone-time deemed repatriation taxes liability. In the third quarter of 2018, the Company recorded an additional provision of $40 million, due to an increase in repatriation taxes as a result of theon-going analysis of the earnings of relevantnon-US subsidiaries, partially offset by a decrease for U.S. foreign tax credits, pursuant to guidance issued by the U.S. Department of Treasury and revisions to the Company’s estimates since the assessment date. The amounts recorded remain provisional and may require further adjustments as new guidance becomes available.
Act.
Three months ended September 30, | Nine months ended September 30, | |||||||
2019 | ||||||||
(U.S. $ in millions) | ||||||||
Operating lease cost: | ||||||||
Fixed payments and variable payments that depend on an index or rate | $ | 45 | $ | 123 | ||||
Variable lease payments not included in the lease liability | — | 4 | ||||||
Short-term lease cost | 1 | 4 | ||||||
Total operating lease cost | $ | 46 | $ | 131 | ||||
Nine months ended | |||
September 30, 2019 | |||
(U.S. $ in millions) | |||
Cash paid for amounts included in the measurement of lease liabilities: | |||
Operating cash flows from operating leases | $ | 130 | |
Right-of-use assets obtained in exchange for lease obligations(non-cash): | |||
Operating leases | $ | 70 |
September 30, 2019 | ||||
(U.S. $ in millions) | ||||
Operating leases: | $ | |||
Operating lease ROU assets | 468 | |||
Other current liabilities | 116 | |||
Operating lease liabilities | 394 | |||
Total operating lease liabilities | $ | 510 | | |
September 30, 2019 | ||||
Weighted average remaining lease term | ||||
Operating leases | 7.4 years | |||
Weighted average discount rate | ||||
Operating leases | 5.9 | % |
September 30, 2019 | ||||
(U.S. $ in millions) | ||||
2019 (excluding the nine months ended September 30, 2019) | $ | 38 | ||
2020 | 128 | |||
2021 | 98 | |||
2022 | 73 | |||
2023 | 51 | |||
2024 and thereafter | 253 | |||
Total operating lease payments | $ | 641 | ||
Less: imputed interest | 131 | |||
Present value of lease liabilities | $ | 510 | ||
December 31, 2018 | ||||
(U.S. $ in millions) | ||||
2019 | $ | 193 | ||
2020 | 154 | |||
2021 | 118 | |||
2022 | 91 | |||
2023 | 66 | |||
2024 and thereafter | 283 | |||
Total lease payments | $ | 905 | ||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In November 2017, we announced a new organizational structure and leadership changes to enable strategic alignment across our portfolios, regions and functions.
The data presented in this report for prior periods have been conformed
2019.
|
, a decline in revenues from BENDEKA ® / TREANDA® and certain other specialty products in the United States, as well as declines in revenues in Russia and Japan, partially offset by higher revenues from AUSTEDO® , AJOVY® and QVAR® in the United States.Our North America |
Our Europe segment generated revenues of $1,212$2,051 million and profit of $297$565 million in the third quarter of 2018.2019. Revenues decreased by 12%, or 11% in local currency terms,9% compared to the third quarter of 2017,2018, mainly due to a decline in revenues from COPAXONE and certain other specialty products, partially offset by higher revenues from AUSTEDO, AJOVY and QVAR. Profit decreased by 13%, mainly due to the loss ofchanges in revenues from the closure of our distribution business in Hungary, the sale of our women’s health business and a decline in COPAXONE revenues due to the entry of competing glatiramer acetate products,described above, partially offset by new generic product launches. Profit increased by 23% mainly due to cost reductions and efficiency measures as part of the restructuring plan.
Other
We will continue to maintain our OTC business on an independent basis and to provide certain services to P&G after the separation for a transition period.
Communications function.
2018
Percentage of Net Revenues | ||||||||||||
Three Months Ended September 30, | Percentage Change | |||||||||||
2018 | 2017 | 2018 -2017 | ||||||||||
% | % | % | ||||||||||
Net revenues | 100.0 | 100.0 | (19 | ) | ||||||||
Gross profit | 44.6 | 47.2 | (24 | ) | ||||||||
Research and development expenses | 6.9 | 9.5 | (41 | ) | ||||||||
Selling and marketing expenses | 16.4 | 15.0 | (12 | ) | ||||||||
General and administrative expenses | 6.8 | 6.6 | (17 | ) | ||||||||
Other asset impairments, restructuring and other items | 14.5 | 9.8 | 20 | |||||||||
Legal settlements and loss contingencies | 0.4 | (0.4 | ) | — | ||||||||
Other income | (0.8 | ) | (0.1 | ) | 775 | |||||||
Operating income | 0.4 | 6.7 | (96 | ) | ||||||||
Financial expenses, net | 5.1 | 4.6 | (12 | ) | ||||||||
Income (loss) before income taxes | (4.7 | ) | 2.1 | — | ||||||||
Tax benefit | (0.6 | ) | (8.8 | ) | (95 | ) | ||||||
Share in losses of associated companies, net | 0.2 | 0.1 | — | |||||||||
Net income attributable tonon-controlling interests | 0.2 | 0.3 | — | |||||||||
Net income (loss) attributable to Teva | (4.6 | ) | 10.6 | — | ||||||||
Dividends on preferred shares | 1.4 | 1.2 | ||||||||||
Net income (loss) attributable to ordinary shareholders | (6.0 | ) | 9.4 | — |
Percentage of Net Revenues | Percentage Change | |||||||||||
Three Months Ended | ||||||||||||
September 30, | ||||||||||||
2019 | 2018 | 2019 - 2018 | ||||||||||
% | % | % | ||||||||||
Net revenues | 100 | 100 | (6 | ) | ||||||||
Gross profit | 43 | 44 | (7 | ) | ||||||||
Research and development expenses | 6 | 7 | (23 | ) | ||||||||
Selling and marketing expenses | 14 | 15 | (15 | ) | ||||||||
General and administrative expenses | 7 | 7 | (8 | ) | ||||||||
Intangible assets impairment | 4 | 11 | (66 | ) | ||||||||
Other assets impairments, restructuring and other items | 4 | 3 | 15 | |||||||||
Legal settlements and loss contingencies | 11 | § | NA | |||||||||
Other income | § | (1 | ) | — | ||||||||
Operating income (loss) | (2 | ) | § | — | ||||||||
Financial expenses, net | 5 | 5 | (8 | ) | ||||||||
Income (loss) before income taxes | (7 | ) | (5 | ) | 37 | |||||||
Income taxes (benefit) | § | (1 | ) | — | ||||||||
Share in losses (income) of associated companies, net | § | § | NA | |||||||||
Net income attributable to non-controlling interests | § | § | NA | |||||||||
Net income (loss) attributable to Teva | (7 | ) | (5 | ) | 51 | |||||||
Dividends on preferred shares | — | 1 | NA | |||||||||
Net income (loss) attributable to ordinary shareholders | (7 | ) | (6 | ) | 15 |
§ | Represents an amount less than 0.5%. |
Three months ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
(U.S. $ in millions /% of Segment Revenues) | ||||||||||||||||
Revenues | $ | 2,265 | 100 | % | $ | 3,043 | 100 | % | ||||||||
Gross profit | 1,232 | 54.4 | % | 1,833 | 60.2 | % | ||||||||||
R&D expenses | 158 | 7.0 | % | 230 | 7.6 | % | ||||||||||
S&M expenses | 301 | 13.3 | % | 325 | 10.7 | % | ||||||||||
G&A expenses | 128 | 5.7 | % | 149 | 4.9 | % | ||||||||||
Other income | (4 | ) | § | (1 | ) | § | ||||||||||
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Segment profit* | $ | 649 | 28.7 | % | $ | 1,130 | 37.1 | % | ||||||||
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Three months ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 2,051 | 100 | % | $ | 2,265 | 100.0 | % | ||||||||
Gross profit | 1,048 | 51.1 | % | 1,196 | 52.8 | % | ||||||||||
R&D expenses | 156 | 7.6 | % | 158 | 7.0 | % | ||||||||||
S&M expenses | 219 | 10.7 | % | 265 | 11.7 | % | ||||||||||
G&A expenses | 112 | 5.5 | % | 128 | 5.7 | % | ||||||||||
Other (income) expense | (5 | ) | § | (4 | ) | § | ||||||||||
Segment profit* | $ | 565 | | 27.5 | % | $ | 649 | | 28.7 | % | ||||||
* | Segment profit does not include amortization and certain other items. |
§ | Represents an amount less than 0.5%. |
QVAR. Percentage Change Generic products COPAXONE BENDEKA / TREANDA ProAir QVAR AUSTEDO Distribution 2018: business.20182019 were $2,265$2,051 million, a decrease of $778$214 million, or 26%9%, compared to the third quarter of 2017,2018, mainly due to a decline in revenues of COPAXONE a decline in revenues in our U.S. generics business, a decline in revenues of ProAir and QVAR and the loss of revenues from the sale of our women’s health business,certain other specialty products, partially offset by higher revenues from AUSTEDO, AJOVY and our distribution business.20182019 and 2017: Three months ended
September 30, 2018 2017 2017 -2018 (U.S. $ in millions) $ 922 $ 1,233 (25 %) 463 819 (43 %) 161 179 (10 %) 107 155 (31 %) 36 83 (57 %) 62 6 870 % 333 294 13 % $ $ %) %) %) %) % % % %) $ $ %) * Does not include sales of ProAir authorized generic, which are included under generics products. 2018 decreased by 25% to $9222019 were $914 million flat compared to the third quarter of 2017,2018, mainly due to new generic product launches, offset by market dynamics, including product mix and price erosion in our U.S. generics business, additional competition to methylphenidate extended-release tablets (Concerta® authorized generic) and portfolio optimization, primarily as part of the restructuring plan.20182019 were daptomycinepinephrine injection (the generic equivalent of CubicinEpiPentadalafilalbuterol sulfate inhalation aerosol (ProAirCialisAdderall IRmethylphenidate extended-release tablets (Concertaicatibant acetate injection (the generic equivalent of Firazyr authorized generic)2018,2019, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately 547391 million total prescriptions (based on trailing twelve months), representing 14.1%10.6% of total U.S. generic prescriptions according to IQVIA data.
2019.
2018.
On October 12, 2018, the U.S. Court of Appeals for the Federal Circuit (“CAFC”) handed down its ruling in the consolidated appeal of decisions from the U.S. District Court and Patent Trial and Appeal Board, relating to patents covering COPAXONE 40 mg/ml. The CAFC found all claims at issue to be invalid, and we are currently evaluating our options for further appeals.
The patent was upheld by the Opposition Division of the European Patent Office in April 2019. A hearing for an appeal in this case has been set for June 2020.
In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the United States to the full period for which we sell BENDEKA and increasing the royalty rate. In addition, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses. In September 2019, a patent infringement action against four of the five ANDA filers for generic versions of BENDEKA was tried in the United States District Court for the District of Delaware. We await a decision from the court, which could come as early as the first half of 2020. The asserted patents expire in 2031.
(“Lupin”), et al. permitting Lupin to launch its generic product on September 23, 2019, or earlier under certain circumstances. To date, no generic competition has been launched.
AUSTEDO2018.
Distribution
States.
Product Name | Brand Name | Launch Date | Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA))* | |||||||||
Budesonide Extended-Release Tablets, 9 mg | Uceris | ® ER | July | $ | 199 | |||||||
Romidepsin for Injection, 10 mg/vial | Istodax | ® | August | $ | 52 | |||||||
Cisatracurium Besylate Injection, USP 2 mg/mL, 10 mg, 10 mg/mL, 200 mg & 2 mg/mL, 20 mg | Nimbex | ® | September | $ | 49 | |||||||
Tadalafil Tablets, USP 2.5 mg, 5 mg, 10 mg & 20 mg | Cialis | ® | September | $ | 1,926 |
Product Name | Brand Name | Launch Date | Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA)) * | |||||||||
Oseltamivir phosphate for oral suspension, 6 mg / mL | Tamiflu | ® | July | $ | 281 | |||||||
Icatibant injection, 30 mg / 3 mL | Firazyr | ® | July | $ | 304 | |||||||
Pregabalin capsules, 25 mg, 50 mg, 75 mg, 100 mg, 150 mg, 200 mg, 225 mg & 300 mg | Lyrica | ® | July | $ | 5,456 | |||||||
Ramelteon tablets, 8 mg | Rozerem | ® | July | $ | 91 | |||||||
Bisoprolol fumarate and hydrochlorothiazide tablets, 2.5 mg/6.25 mg, 5 mg/6.25 mg & 10 mg/6.25 mg ** | Ziac | ® | August | $ | 42 | |||||||
Doxycycline hyclate delayed-release tablets, USP, 50 mg & 200 mg | Doryx | ® | August | $ | 20 | |||||||
Mycophenolic acid delayed-release tablets, USP, 180 mg & 360 mg | Myfortic ® DR | August | $ | 180 | ||||||||
Epinephrine injection, USP (auto-injector), 0.15 mg/0.3 mL | EpiPen ® and EpiPen Jr | ® | August | $ | 201 | |||||||
Minocycline hydrochloride extended-release tablets, USP, 55 mg | Solodyn ® ER | August | $ | 44 | ||||||||
Fulvestrant injection, 250 mg / 5 mL (50 mg/mL) | *** | August | — | |||||||||
Triamcinolone acetonide injectable suspension, USP, 40 mg/mL (40 mg), 40 mg/mL (200 mg) & 40 mg/mL (400 mg) | Kenalog ® -40 | August | $ | 135 | ||||||||
Acyclovir cream, 5% **** | Zovirax | ® | August | $ | 97 | |||||||
Fosaprepitant for injection, 150 mg/Vial | *** | September | — | |||||||||
Treprostinil Injection, 1 mg/mL (20 mg), 2.5 mg/mL (50 mg), 5 mg/mL (100 mg) & 10 mg/mL (200 mg) | Remodulin | ® | September | $ | 3 |
* | The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch or re-launch . |
** | Authorized generic – Teva brand. |
*** | Approved via 505(b)(2) regulatory pathway; not equivalent to a brand product. |
**** | Authorized generic. |
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Generic Name | Brand Name | Total U.S. Annual Branded Market (U.S. $ in millions (IQVIA))* | ||||||
Ivermectin lotion, 0.5% | Sklice | ® | $ | 81 | ||||
Sildenafil, 10mg/mL | Revatio | ® | $ | 189 |
* | For the twelve months ended in the calendar quarter immediately prior to the receipt of tentative approval. |
In the third quarter
|
|
| ||||||||
Product | Potential Indication(s) | Route of Administration | Development Phase (date entered phase 3) | Comments | ||||||
CNS, Neurology and Neuropsychiatry | ||||||||||
AUSTEDO (deutetrabenazine) | Tourette syndrome | Oral | 3 (December 2017) | Teva and Nuvelution entered into a partnership agreement on September 19, 2017 to develop AUSTEDO for the treatment of tics associated with Tourette syndrome in pediatric patients in the United States. Nuvelution will fund and manage phase 3 clinical development, leading all operational aspects of the program. Teva will lead the regulatory process and be responsible for commercialization. | ||||||
Dyskinesia in cerebral palsy | Oral | 3 (September 2019) | ||||||||
TV-46000 (risperidone LAI) | Schizophrenia | LAI | ||||||||
3 (April 2018) |
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Migraine and Pain | ||||||||||
fremanezumab (anti CGRP) | Post traumatic headache | Subcutaneous | 2 |
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fibromyalgia | Subcutaneous | 2 | ||||||||
fasinumab | Osteoarthritis pain | Subcutaneous | 3 (March 2016) | Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”). In August 2018, Regeneron and Teva announced positive topline phase 3 results in patients with chronic pain from osteoarthritis of the knee or hip with the remaining low dose 1mg every month (1mg4W) and 1mg every two months (1mg8W). Fasinumab is protected by patents expiring in 2028 and will also be protected by regulatory exclusivity of 12 years from marketing approval in the United States and 10 years from marketing approval in Europe. | ||||||
Chronic lower back pain | Subcutaneous | 3 (December 2017) |
|
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|
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Respiratory | ||||||||||
CINQAIR/CINQAERO | Severe asthma with eosinophilia | Subcutaneous | 3 (August 2015) | Discontinued. | ||||||
ProAir e-RespiClick ™ | Bronchospasm and exercise induced bronchitis | Oral inhalation | Approved by FDA (
| |||||||
AirDuo ® DigihalerTM | Treatment of asthma in patients aged 12 years and older | Oral inhalation | Approved by FDA (July 2019) | |||||||
Oncology | ||||||||||
TRUXIMA ® (formerly CT-P10) | (biosimilar Rituxan ® US) | Approved by FDA
Approved in Canada (April 2019) | Expected to launch in the | |||||||
HERZUMA ® (formerlyCT-P06) | (biosimilar Herceptin ® US) |
| Approved by FDA Approved in Canada (September 2019) |
AJOVY.
and certain other specialty products, partially offset by improved gross profit margin of generic products.
2018.
plan, partially offset by increased expenses related to AJOVY.
plan, partially offset by legal expenses.
(Expense)
2018.
Three months ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
(U.S. $ in millions /% of Segment Revenues) | ||||||||||||||||
Revenues | $ | 1,212 | 100.0 | % | $ | 1,380 | 100 | % | ||||||||
Gross profit | 683 | 56.4 | % | 721 | 52.2 | % | ||||||||||
R&D expenses | 62 | 5.1 | % | 101 | 7.3 | % | ||||||||||
S&M expenses | 249 | 20.5 | % | 289 | 20.9 | % | ||||||||||
G&A expenses | 74 | 6.1 | % | 90 | 6.5 | % | ||||||||||
Other expenses | 1 | § | — | § | ||||||||||||
|
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Segment profit* | $ | 297 | 24.5 | % | 241 | 17.5 | % | |||||||||
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Three months ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 1,163 | 100 | % | $ | 1,212 | 100 | % | ||||||||
Gross profit | 662 | 56.9 | % | 676 | 55.8 | % | ||||||||||
R&D expenses | 63 | 5.4 | % | 62 | 5.1 | % | ||||||||||
S&M expenses | 206 | 17.7 | % | 242 | 20.0 | % | ||||||||||
G&A expenses | 56 | 4.9 | % | 74 | 6.1 | % | ||||||||||
Other (income) expense | (4 | ) | § | 1 | § | |||||||||||
�� | ||||||||||||||||
Segment profit* | $ | 341 | | 29.3 | % | $ | 297 | | 24.5 | % | ||||||
* | Segment profit does not include amortization and certain other items. |
§ | Represents an amount less than 0.5%. |
products. Percentage Change Generic products COPAXONE Respiratory products 2018: launches and higher sales of OTC products. 2018.20182019 were $1,212$1,163 million, a decrease of 12%4% or $168$49 million, compared to the third quarter of 2017.2018. In local currency terms, revenues decreased by 11%,were flat, mainly due to the lossstrong new generic product launches and higher sales of revenues from the closure of our distribution business in Hungary, the sale of our women’s health business andOTC products, mostly offset by a decline in COPAXONE revenues due to the entry of competing glatiramer acetate products, partially offset by new generic product launches.20182019 and 2017: Three months ended
September 30, 2018 2017 2017-2018 (U.S. $ in millions) $ 845 $ 871 (3 %) 124 150 (17 %) 93 90 3 % $ $ %) %) %) %) $ $ %) 2018,2019, including OTC products, decreased by 3%1% to $845$836 million, compared to the third quarter of 2017.2018. In local currency terms, revenues decreasedincreased by 1%,4% compared to the third quarter of 2018, mainly due to the loss of revenues from the termination of the PGT joint venture and generic price reductions, partially offset bystrong new generic product launches.20182019 decreased by 17%14% to $124$106 million, compared to the third quarter of 2017.2018. In local currency terms, revenues decreased by 16%10%, mainly due to price reductions and volume decline resulting from the entry of competing glatiramer acetate products.21%27% of global COPAXONE revenues in the third quarter of 2018,2019, compared to 15%21% in the third quarter of 2017.2018 increased2019 decreased by 3%7% to $93$87 million, compared to the third quarter of 2017.2018. In local currency terms, revenues increaseddecreased by 4%2%, mainly due to lower sales in the launchUnited Kingdom.
revenues and the impact of currency fluctuations, partially offset by new generic product launches.
sold related to network optimization.
2018.
plan, partially offset by the impact of currency fluctuations.
Three months ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 726 | 100.0 | % | $ | 882 | 100 | % | ||||||||
Gross profit | 301 | 41.5 | % | 351 | 39.8 | % | ||||||||||
R&D expenses | 21 | 2.9 | % | 35 | 4.0 | % | ||||||||||
S&M expenses | 120 | 16.5 | % | 158 | 17.9 | % | ||||||||||
G&A expenses | 37 | 5.1 | % | 51 | 5.8 | % | ||||||||||
Other income | — | § | (3 | ) | § | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment profit* | $ | 123 | 16.9 | % | $ | 110 | 12.5 | % | ||||||||
|
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|
Three months ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 736 | 100 | % | $ | 726 | 100 | % | ||||||||
Gross profit | 295 | 40.1 | % | 301 | 41.4 | % | ||||||||||
R&D expenses | 21 | 2.8 | % | 21 | 2.9 | % | ||||||||||
S&M expenses | 114 | 15.4 | % | 120 | 16.5 | % | ||||||||||
G&A expenses | 32 | 4.3 | % | 37 | 5.1 | % | ||||||||||
Other (income) expense | (1 | ) | § | — | § | |||||||||||
Segment profit* | $ | 130 | 17.7 | % | $ | 123 | 16.9 | % | ||||||||
* | Segment profit does not include amortization and certain other items. |
§ | Represents an amount less than 0.5%. |
Israel and Russia. The countries in this category range from highly regulated, pure generic markets, such as Israel, to hybrid markets, such as Japan, to branded generics oriented markets, such as Russia and certain Commonwealth of Independent States (CIS), Latin American and Asia Pacific markets.
Russia.
Three months ended September 30, | Percentage Change | |||||||||||
2018 | 2017 | 2017-2018 | ||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 498 | $ | 629 | (21 | %) | ||||||
COPAXONE | 14 | 18 | (24 | %) | ||||||||
Distribution | 149 | 146 | 2 | % |
2018:
Three months ended September 30, | Percentage Change | |||||||||||
2019 | 2018 | 2018-2019 | ||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 474 | $ | 498 | (5 | %) | ||||||
COPAXONE | 20 | 14 | 39 | % | ||||||||
Distribution | 176 | 149 | 18 | % | ||||||||
Other | 66 | 65 | 3 | % | ||||||||
Total | $ | 736 | $ | 726 | 1 | % | ||||||
Russia.
15%, mainly due to agreements with new distribution partners.
2018.
mix.
2018.
During the fourth quarter
2018.
2018.
2018.
resulting mainly from lower cost of goods sold related to network optimization.
2018.
increased investment in early stage projects.
2018.
2019, compared to expenses of $519 million in the third quarter of 2018. See note 6 to our consolidated financial statements.
additional remediation and possible FDA enforcement action. We expect to generate approximately $63 million in revenues from this site in the remainder of 2019 and approximately $230 million in 2020, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility.
costs going forward.
2018. The expense in the third quarter of 2019 was mainly related to an increase in the estimated settlement provision recorded in connection with the remaining opioid cases. See note 16 to our consolidated financial statements.
Other income as a percentage of revenues was 0.8%$81 million in the third quarter of 2018,2019, compared to 0.1% in the third quarteroperating income of 2017.
Operating Income
Operating income was $16 million in the third quarter of 2018,2018.
The following table presents a reconciliation of our segment profits to our consolidated operating income and to consolidated income (loss) before income taxes for the three months ended September 30, 2018 and 2017:
North America profit Europe profit International Markets profit Total segment profit Profit (loss) of other activities Amounts not allocated to segments: Amortization Other asset impairments, restructuring and other items Goodwill impairment Gain on divestitures, net of divestitures related costs Inventorystep-up Other R&D expenses Costs related to regulatory actions taken in facilities Legal settlements and loss contingencies Other unallocated amounts Consolidated operating income (loss) Financial expenses, net Consolidated income (loss) before income taxes Three months ended
September 30, 2018 2017 (U.S. $ in millions) $ 649 $ 1,130 297 241 123 110 1,069 1,481 35 (11 ) 1,104 1,470 297 357 658 550 — — (31 ) — — — 60 150 1 (1 ) 19 (20 ) 84 56 16 378 229 259 $ (213) $ 119
The decrease in operating margin was 6.4 points, mainly due a decline in gross profit (1.8 points) and higher impairment charges recorded in the third quarter of 2018 (4.7 points).
During the fourth quarter of 2017, we deconsolidated our subsidiaries in Venezuela from our financial results. Consequently, results of operations of our subsidiaries in Venezuela are not included in our financial results for the third quarter of 2018.
Financial Expenses, Net
Financial expenses were $229 million in the third quarter of 2018, compared to $259 million2018. Financial expenses in the third quarter of 2017.
2019 were mainly comprised of interest expenses of $219 million. Financial expenses in the third quarter of 2018 were mainly comprised of interest expenses of $240 million. Financial expenses in
Three months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
North America profit | $ | 565 | $ | 649 | ||||
Europe profit | 341 | 297 | ||||||
International Markets profit | 130 | 123 | ||||||
Total segments profit | 1,036 | 1,069 | ||||||
Profit of other activities | 16 | 35 | ||||||
1,051 | 1,104 | |||||||
Amounts not allocated to segments: | ||||||||
Amortization | 255 | 297 | ||||||
Other assets impairments, restructuring and other items | 160 | 139 | ||||||
Goodwill impairment | — | — | ||||||
Intangible asset impairments | 177 | 519 | ||||||
Gain on divestitures, net of divestitures related costs | (3 | ) | (31 | ) | ||||
Other R&D expenses (income) | (7 | ) | 60 | |||||
Costs related to regulatory actions taken in facilities | 11 | 1 | ||||||
Legal settlements and loss contingencies | 468 | 19 | ||||||
Other unallocated amounts | 72 | 84 | ||||||
Consolidated operating income (loss) | (81 | ) | 16 | |||||
Financial expenses, net | 211 | 229 | ||||||
Consolidated income (loss) before income taxes | $ | (292 | ) | $ | (213 | ) | ||
Tax Rate
$292 million. In the third quarter of 2018, we recognized a tax benefit of $26 million, or 12%, on million. In the third quarter of 2017, we recognized a tax benefit of $494 million, onpre-tax income of $119 million. Our tax rate for the third quarter of 20182019 was mainly affected by impairments, amortization, legal settlements with low corresponding tax effect and interest disallowance as a result of the mix of products sold in different geographies.
U.S. Tax Cuts and Jobs Act.
2018.
2018.
2018.
2018.
Percentage of Net Revenues | Percentage Change 2019 - 2018 | |||||||||||
Nine Months Ended September 30, | ||||||||||||
2019 | 2018 | |||||||||||
% | % | % | ||||||||||
Net revenues | 100.0 | 100.0 | (10 | ) | ||||||||
Gross profit | 43.3 | 44.2 | (12 | ) | ||||||||
Research and development expenses | 6.0 | 6.4 | (15 | ) | ||||||||
Selling and marketing expenses | 14.8 | 14.8 | (10 | ) | ||||||||
General and administrative expenses | 6.8 | 6.7 | (8 | ) | ||||||||
Other asset impairments, restructuring and other items | 2.0 | 5.8 | (69 | ) | ||||||||
Goodwill impairment | — | 2.1 | — | |||||||||
Legal settlements and loss contingencies | 9.1 | (8.7 | ) | — | ||||||||
Other income | (0.2 | ) | (2.3 | ) | (91 | ) | ||||||
Operating income (loss) | (4.6 | ) | 10.8 | — | ||||||||
Financial expenses, net | 4.9 | 5.1 | (14 | ) | ||||||||
Income (loss) before income taxes | (9.5 | ) | 5.6 | — | ||||||||
Income taxes (benefit) | (1.2 | ) | (0.4 | ) | 184 | |||||||
Share in (profits) losses of associated companies, net | 0.1 | 0.5 | (89 | ) | ||||||||
Net income (loss) attributable to non-controlling interests | (0.3 | ) | 0.2 | — | ||||||||
Net income (loss) attributable to Teva | (8.6 | ) | 5.1 | — | ||||||||
Dividends on preferred shares | — | 1.4 | — | |||||||||
Net income (loss) attributable to ordinary shareholders | (8.6 | ) | 3.8 | — |
Nine months ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 6,169 | 100% | $ | 7,059 | 100.0 | % | |||||||||
Gross profit | 3,155 | 51.1 | % | 3,778 | 53.5 | % | ||||||||||
R&D expenses | 497 | 8.0 | % | 528 | 7.5 | % | ||||||||||
S&M expenses | 756 | 12.3 | % | 813 | 11.5 | % | ||||||||||
G&A expenses | 342 | 5.5 | % | 357 | 5.1 | % | ||||||||||
Other (income) expense | (6 | ) | § | (206 | ) | (2.9 | %) | |||||||||
Segment profit* | $ | 1,566 | 25.4 | % | $ | 2,286 | 32.4 | % | ||||||||
* | Segment profit does not include amortization and certain other items. |
§ | Represents an amount less than 0.5%. |
Nine months ended September 30, | Percentage Change 2018-2019 | |||||||||||
2019 | 2018 | |||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 2,826 | $ | 2,957 | (4 | %) | ||||||
COPAXONE | 753 | 1,403 | (46 | %) | ||||||||
BENDEKA/TREANDA | 353 | 502 | (30 | %) | ||||||||
ProAir* | 194 | 352 | (45 | %) | ||||||||
QVAR | 183 | 173 | 6 | % | ||||||||
AJOVY | 68 | — | N/A | |||||||||
AUSTEDO | 276 | 136 | 103 | % | ||||||||
Anda | 1,080 | 984 | 10 | % | ||||||||
Other | 436 | 554 | (21 | %) | ||||||||
Total | $ | 6,169 | $ | 7,059 | ||||||||
* | Does not include sales of ProAir authorized generic, which are included under generics products. |
Nine months ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 3,611 | 100 | % | $ | 3,982 | 100 | % | ||||||||
Gross profit | 2,066 | 57.2 | % | 2,195 | 55.1 | % | ||||||||||
R&D expenses | 199 | 5.5 | % | 208 | 5.2 | % | ||||||||||
S&M expenses | 637 | 17.6 | % | 725 | 18.2 | % | ||||||||||
G&A expenses | 175 | 4.8 | % | 243 | 6.1 | % | ||||||||||
Other (income) expense | (5 | ) | § | (1 | ) | § | ||||||||||
Segment profit* | $ | 1,060 | | 29.4 | % | $ | 1,020 | | 25.6 | % | ||||||
* | Segment profit does not include amortization and certain other items. |
§ | Represents an amount less than 0.5%. |
Nine months ended September 30, | Percentage Change 2018-2019 | |||||||||||
2019 | 2018 | |||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 2,599 | $ | 2,749 | (5 | %) | ||||||
COPAXONE | 327 | 417 | (22 | %) | ||||||||
Respiratory products | 267 | 312 | (14 | %) | ||||||||
Other | 417 | 504 | (17 | %) | ||||||||
Total | $ | 3,611 | $ | 3,982 | (9 | %) | ||||||
2019 | 2018 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 2,145 | 100 | % | $ | 2,265 | 100 | % | ||||||||
Gross profit | 877 | 40.9 | % | 942 | 41.6 | % | ||||||||||
R&D expenses | 66 | 3.1 | % | 70 | 3.1 | % | ||||||||||
S&M expenses | 348 | 16.2 | % | 384 | 16.9 | % | ||||||||||
G&A expenses | 102 | 4.7 | % | 115 | 5.1 | % | ||||||||||
Other (income) expense | (2 | ) | § | (11 | ) | § | ||||||||||
Segment profit* | $ | 363 | | 16.9 | % | $ | 384 | 16.9 | % | |||||||
* | Segment profit does not include amortization and certain other items. |
§ | Represents an amount less than 0.5%. |
Nine months ended September 30, | Percentage Change 2018-2019 | |||||||||||
2019 | 2018 | |||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 1,404 | $ | 1,523 | (8 | %) | ||||||
COPAXONE | 46 | 52 | (12 | %) | ||||||||
Distribution | 491 | 456 | 8 | % | ||||||||
Other | 204 | 233 | (13 | %) | ||||||||
Total | $ | 2,145 | $ | 2,265 | (5 | %) | ||||||
Nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
(U.S. $ in millions) | ||||||||
North America profit | $ | 1,566 | $ | 2,286 | ||||
Europe profit | 1,060 | 1,020 | ||||||
International Markets profit | 363 | 384 | ||||||
Total segments profit | 2,989 | 3,690 | ||||||
Profit (loss) of other activities | 92 | 87 | ||||||
3,081 | 3,777 | |||||||
Amounts not allocated to segments: | ||||||||
Amortization | 823 | 909 | ||||||
Other asset impairments, restructuring and other items | 263 | 834 | ||||||
Goodwill impairment | — | 300 | ||||||
Intangible asset impairments | 1,206 | 1,246 | ||||||
Gain on divestitures, net of divestitures related costs | (12 | ) | (114 | ) | ||||
Other R&D expenses | (7 | ) | 82 | |||||
Costs related to regulatory actions taken in facilities | 28 | 6 | ||||||
Legal settlements and loss contingencies | 1,171 | (1,239 | ) | |||||
Other unallocated amounts | 201 | 226 | ||||||
Consolidated operating income (loss) | (591 | ) | 1,527 | |||||
Financial expenses, net | 635 | 736 | ||||||
Consolidated income (loss) before income taxes | $ | (1,226 | ) | $ | 791 | |||
As a result, exchange rate movements during the third quarter of 2018 negatively impacted overall revenues by $80 million and our operating income by $34 million, in comparison with the third quarter of 2017.
Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a3-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.
Comparison of Nine Months Ended September 30, 2018 to Nine Months Ended September 30, 2017
The factors used to explain quarterly changes on a year-over-year basis are also generally relevant to a comparison of the results for the nine months ended September 30, 2018 and 2017. Additional factors affecting the nine months comparison are described below.
The following table sets forth, for the periods indicated, certain financial data derived from our U.S. GAAP financial statements:
Percentage of Net Revenues Nine months ended September 30, | Percentage Change 2018-2017 | |||||||||||
2018 | 2017 | |||||||||||
% | % | % | ||||||||||
Net revenues | 100.0 | 100.0 | (16 | ) | ||||||||
Gross profit | 45.0 | 49.1 | (23 | ) | ||||||||
Research and development expenses | 6.4 | 8.4 | (36 | ) | ||||||||
Selling and marketing expenses | 15.6 | 16.2 | (19 | ) | ||||||||
General and administrative expenses | 6.7 | 6.5 | (13 | ) | ||||||||
Other asset impairments, restructuring and other items | 14.6 | 7.1 | 72 | |||||||||
Goodwill impairment | 2.1 | 36 | (95 | ) | ||||||||
Legal settlements and loss contingencies | (8.7 | ) | 1.9 | — | ||||||||
Other income | (2.3 | ) | (0.6 | ) | 234 | |||||||
Operating income (loss) | 10.7 | (26.2 | ) | — | ||||||||
Financial expenses, net | 5.1 | 4.1 | 5 | |||||||||
Income (loss) before income taxes | 5.5 | (30.3 | ) | — | ||||||||
Tax benefit | (0.4 | ) | (2.7 | ) | (88 | ) | ||||||
Share in losses of associated companies, net | 0.5 | 0.1 | 660 | |||||||||
Net income (loss) attributable tonon-controlling interests | (0.2 | ) | 0.1 | — | ||||||||
Net income (loss) attributable to Teva | 5.1 | (27.8 | ) | — | ||||||||
Dividends on preferred shares | 1.4 | 1.1 | — | |||||||||
Net income (loss) attributable to ordinary shareholders | 3.8 | (29.0 | ) | — |
Segment Information
North America Segment
The following table presents revenues, expenses and profit for our North America segment for the nine months ended September 30, 2018 and 2017:
Nine months ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
(U.S. $ in millions /% of Segment Revenues) | ||||||||||||||||
Revenues | $ | 7,059 | 100 | % | $ | 9,452 | 100.0 | % | ||||||||
Gross profit | 3,867 | 54.8 | % | 5,971 | 63.2 | % | ||||||||||
R&D expenses | 528 | 7.4 | % | 777 | 8.2 | % | ||||||||||
S&M expenses | 902 | 12.8 | % | 1,158 | 12.3 | % | ||||||||||
G&A expenses | 357 | 5.1 | % | 432 | 4.6 | % | ||||||||||
Other income | (206 | ) | (2.9 | %) | (82 | ) | (0.9 | %) | ||||||||
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Segment profit* | $ | 2,286 | 32.4 | % | $ | 3,686 | 39.0 | % | ||||||||
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North America Revenues
Our North America segment includes the United States and Canada. Revenues from our North America segment in the first nine months of 2018 were $7,059 million, a decrease of $2,393 million, or 25%, compared to the first nine months of 2017.
Revenues by Major Products and Activities
The following table presents revenues for our North America segment by major products and activities for the nine months ended September 30, 2018 and 2017:
Nine months ended | ||||||||||||
September 30, | Percentage Change | |||||||||||
2018 | 2017 | 2017-2018 | ||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 2,957 | $ | 3,979 | (26 | %) | ||||||
COPAXONE | 1,403 | 2,475 | (43 | %) | ||||||||
BENDEKA / TREANDA | 502 | 498 | 1 | % | ||||||||
ProAir | 352 | 399 | (12 | %) | ||||||||
QVAR | 173 | 265 | (35 | %) | ||||||||
AUSTEDO | 136 | 8 | 1708 | % | ||||||||
Distribution | 984 | 864 | 14 | % |
North America Gross Profit
Gross profit from our North America segment in the first nine months of 2018 was $3,867 million, a decrease of 35% compared to $5,971 million in the first nine months of 2017.
Gross profit margin for our North America segment in the first nine months of 2018 decreased to 54.8% from 63.2% in the first nine months of 2017.
North America R&D Expenses
R&D expenses relating to our North America segment in the first nine months of 2018 were $528 million, a decrease of 32% compared to $777 million in the first nine months of 2017.
North America S&M Expenses
S&M expenses relating to our North America segment in the first nine months of 2018 were $902 million, a decrease of 22% compared to $1,158 million in the first nine months of 2017.
North America G&A Expenses
G&A expenses relating to our North America segment in the first nine months of 2018 were $357 million, a decrease of 17% compared to $432 million in the first nine months of 2017.
North America Other Income
Other income from our North America segment in the first nine months of 2018 was $206 million, compared to $82 million in the first nine months of 2017.
North America Profit
Profit from our North America segment in the first nine months of 2018 was $2,286 million, a decrease of 38% compared to $3,686 million in the first nine months of 2017.
Europe Segment
The following table presents revenues, expenses and profit for our Europe segment for the nine months ended September 30, 2018 and 2017:
Nine months ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 3,982 | 100 | % | $ | 4,016 | 100 | % | ||||||||
Gross profit | 2,211 | 55.5 | % | 2,147 | 53.5 | % | ||||||||||
R&D expenses | 208 | 5.2 | % | 312 | 7.7 | % | ||||||||||
S&M expenses | 741 | 18.6 | % | 864 | 21.4 | % | ||||||||||
G&A expenses | 243 | 6.1 | % | 258 | 6.4 | % | ||||||||||
Other income | (1 | ) | § | (15 | ) | § | ||||||||||
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Segment profit* | $ | 1,020 | 25.6 | % | $ | 728 | 18.1 | % | ||||||||
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Europe Revenues
Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the first nine months of 2018 were $3,982 million, a decrease of 1% or $34 million, compared to the first nine months of 2017. In local currency terms, revenues decreased by 7% compared to the first nine months of 2017.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by major products and activities for the nine months ended September 30, 2018 and 2017:
Nine months ended | ||||||||||||
September 30, | Percentage Change | |||||||||||
2018 | 2017 | 2017-2018 | ||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 2,749 | $ | 2,543 | 8 | % | ||||||
COPAXONE | 417 | 440 | (5 | %) | ||||||||
Respiratory products | 312 | 258 | 21 | % |
Europe Gross Profit
Gross profit from our Europe segment in the first nine months of 2018 was $2,211 million, an increase of 3% compared to $2,147 million in the first nine months of 2017.
Gross profit margin for our Europe segment in the first nine months of 2018 increased to 55.5% from 53.5% in the first nine months of 2017.
Europe R&D Expenses
R&D expenses relating to our Europe segment in the first nine months of 2018 were $208 million, a decrease of 33% compared to $312 million in the first nine months of 2017.
Europe S&M Expenses
S&M expenses relating to our Europe segment in the first nine months of 2018 were $741 million, a decrease of 14% compared to $864 million in the first nine months of 2017.
Europe G&A Expenses
G&A expenses relating to our Europe segment in the first nine months of 2018 were $243 million, a decrease of 6% compared to $258 million in the first nine months of 2017.
Europe Profit
Profit from our Europe segment in the first nine months of 2018 was $1,020 million, an increase of 40% compared to $728 million in the first nine months of 2017.
International Markets Segment
The following table presents revenues, expenses and profit for our International Markets segment for the nine months ended September 30, 2018 and 2017:
Nine months ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 2,265 | 100 | % | $ | 2,485 | 100 | % | ||||||||
Gross profit | 942 | 41.6 | % | 1,043 | 42.0 | % | ||||||||||
R&D expenses | 70 | 3.0 | % | 129 | 5.2 | % | ||||||||||
S&M expenses | 384 | 16.9 | % | 503 | 20.2 | % | ||||||||||
G&A expenses | 115 | 5.0 | % | 144 | 5.8 | % | ||||||||||
Other income | (11 | ) | § | (4 | ) | § | ||||||||||
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Segment profit* | $ | 384 | 17.0 | % | $ | 271 | 10.9 | % | ||||||||
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International Markets Revenues
Our International Markets segment includes all countries other than those in our North America and Europe segments. Revenues from our International Markets segment in the first nine months of 2018 were $2,265 million, a decrease of $220 million, or 9%, compared to the first nine months of 2017. In local currency terms, revenues decreased by 7% compared to the first nine months of 2017.
Revenues by Major Products and Activities
The following table presents revenues for our International Markets segment by major products and activities for the nine months ended September 30, 2018 and 2017:
Nine months ended | ||||||||||||
September 30, | Percentage Change | |||||||||||
2018 | 2017 | 2017-2018 | ||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 1,523 | $ | 1,720 | (11 | %) | ||||||
COPAXONE | 52 | 65 | (20 | %) | ||||||||
Distribution | 456 | 406 | 12 | % |
International Markets Gross Profit
Gross profit from our International Markets segment in the first nine months of 2018 was $942 million, a decrease of 10% compared to $1,043 million in the first nine months of 2017.
Gross profit margin for our International Markets segment in the first nine months of 2018 decreased to 41.6%, from 42.0% in the first nine months of 2017.
International Markets R&D Expenses
R&D expenses relating to our International Markets segment in the first nine months of 2018 were $70 million, a decrease of 46% compared to $129 million in the first nine months of 2017.
International Markets S&M Expenses
S&M expenses relating to our International Markets segment in the first nine months of 2018 were $384 million, a decrease of 24% compared to $503 million in the first nine months of 2017.
International Markets G&A Expenses
G&A expenses relating to our International Markets segment in the first nine months of 2018 were $115 million, a decrease of 20% compared to $144 million in the first nine months of 2017.
International Markets Profit
Profit from our International Markets segment in the first nine months of 2018 was $384 million, compared to $271 million in the first nine months of 2017.
During the fourth quarter of 2017, we deconsolidated our subsidiaries in Venezuela from our financial results after concluding that we did not meet the accounting criteria for control over our wholly-owned subsidiaries in Venezuela and that we no longer had significant influence over such subsidiaries. Consequently, results of operations of our subsidiaries in Venezuela are not included in our financial results for the first nine months of 2018. We recorded $83 million in revenues and $28 million in operating income in the first nine months of 2017 with respect to our subsidiaries in Venezuela. We exclude these changes in revenues and operating profit in Venezuela from any discussion of local currency results.
Other Activities
Our revenues from other activities in the first nine months of 2018 decreased by 4% to $989 million. In local currency terms, revenues decreased by 6%.
API sales to third parties in the first nine months of 2018 decreased by 6% to $537 million. In local currency terms, revenues decreased by 7%.
Teva Consolidated Results
Revenues
Revenues in the first nine months of 2018 were $14,295 million, a decrease of 16%, or 17% in local currency terms, compared to the first nine months of 2017.
Exchange rate movements during the first nine months of 2018 compared to the first nine months of 2017 positively impacted revenues by $253 million.
Gross Profit
Gross profit in the first nine months of 2018 was $6,430 million, a decrease of $1,914 million, compared to the first nine months of 2017.
Gross profit as a percentage of revenues was 45.0% in the first nine months of 2018, compared to 49.1% in the first nine months of 2017.
Research and Development (R&D) Expenses
Net R&D expenses in the first nine months of 2018 were $918 million, a decrease of 36% compared to the first nine months of 2017.
R&D expenses as a percentage of revenues were 6.4% in the first nine months of 2018, compared to 8.4% in the first nine months of 2017.
Selling and Marketing (S&M) Expenses
S&M expenses in the first nine months of 2018 were $2,224 million, a decrease of 19% compared to the first nine months of 2017.
S&M expenses as a percentage of revenues were 15.6% in the first nine months of 2018, compared to 16.2% in the first nine months of 2017.
General and Administrative (G&A) Expenses
G&A expenses in the first nine months of 2018 were $954 million, a decrease of 13% compared to the first nine months of 2017.
G&A expenses as a percentage of revenues were 6.7% in the first nine months of 2018, compared to 6.5% in the first nine months of 2017.
Other Asset Impairments, Restructuring and Other Items
We recorded expenses of $2,080 million for other asset impairments, restructuring and other items in the first nine months of 2018, compared to expenses of $1,209 million in the first nine months of 2017. See note 14 to our consolidated financial statements.
Goodwill Impairment
In the first nine months of 2018, we recorded goodwill impairments of $300 million compared to a $6.1 billion goodwill impairment charge recorded in the first nine months of 2017. See note 7 to our consolidated financial statements.
Legal Settlements and Loss Contingencies
In the first nine months of 2018, we recorded income of $1,239 million, compared to an expense of $324 million in the first nine months of 2017. The income in the first nine months of 2018 consisted primarily of the working capital adjustment settlement with Allergan, the Rimsa settlement and reversal of the reserve recorded in the second quarter of 2017 with respect to the carvedilol patent litigation, following reversal of the verdict in GSK’s favor (see note 15 to our consolidated financial statements).
Other Income
Other income in the first nine months of 2018 was $334 million, compared to $100 million in the first nine months of 2017.
Other income as a percentage of revenues was 2.3% in the first nine months of 2018, compared to 0.6% in the first nine months of 2017.
Operating Income (Loss)
Operating income was $1,527 million in the first nine months of 2018, compared to a loss of $4,467 million in the first nine months of 2017.
The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the nine months ended September 30, 2018 and 2017:
Nine months ended | ||||||||
September 30, | ||||||||
2018 | 2017 | |||||||
(U.S. $ in millions) | ||||||||
North America profit | $ | 2,286 | $ | 3,686 | ||||
Europe profit | 1,020 | 728 | ||||||
International Markets profit | 384 | 271 | ||||||
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Total segment profit | 3,690 | 4,685 | ||||||
Profit of other activities | 87 | 3 | ||||||
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3,777 | 4,688 | |||||||
Amounts not allocated to segments: | ||||||||
Amortization | 909 | 1,088 | ||||||
Other asset impairments, restructuring and other items | 2,080 | 1,209 | ||||||
Goodwill impairment | 300 | 6,100 | ||||||
Gain on divestitures, net of divestitures related costs | (114 | ) | — | |||||
Inventorystep-up | — | 67 | ||||||
Other R&D expenses | 82 | 176 | ||||||
Costs related to regulatory actions taken in facilities | 6 | 48 | ||||||
Legal settlements and loss contingencies | (1,239 | ) | 324 | |||||
Other unallocated amounts | 226 | 143 | ||||||
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Consolidated operating income (loss) | 1,527 | (4,467 | ) | |||||
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Financial expenses, net | 736 | 704 | ||||||
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Consolidated income (loss) before income taxes | $ | 791 | $ | (5,171 | ) | |||
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Financial Expenses, Net
Financial expenses were $736 million in the first nine months of 2018, compared to $704 million in the first nine months of 2017.
Financial expenses in the first nine months of 2018 were mainly comprised of interest expenses of $689 million and $60 million of early redemption charges and accelerated amortization related to the repayment of senior notes and term loans in the first quarter of 2018. Financial expenses in the first nine months of 2017 were mainly comprised of interest expenses of $654 million and $61 million loss from net foreign exchange fluctuations and financial derivatives.
Tax Rate
In the first nine months of 2018, we recognized a tax benefit of $56 million, onpre-tax income of $791 million. In the first nine months of 2017, we recognized a tax benefit of $462 million, onpre-tax loss of $5,171 million. Our tax rate for the first nine months of 2018 was mainly affected byone-time legal settlements and divestments with a low corresponding tax effect as well as the mix of products sold in different geographies.
Share in Losses of Associated Companies, Net
Share in losses of associated companies, net in the first nine months of 2018 was $76 million, compared to share in losses of $10 million in the first nine months of 2017.
Net Income (Loss)
Net income attributable to Teva was $736 million in the first nine months of 2018, compared to net loss of $4,730 million in the first nine months of 2017.
Net income attributable to ordinary shareholders was $541 million in the first nine months of 2018, compared to net loss of $4,925 million in the first nine months of 2017.
Diluted Shares Outstanding and Earnings (Loss) per Share
The weighted average diluted shares outstanding used for the fully diluted share calculation for the nine months ended September 30, 2018 and 2017 were 1,020 million and 1,016 million shares, respectively.
Diluted earnings per share for the nine months ended September 30, 2018, take into account the potential dilution that could occur upon the exercise of options andnon-vested RSUs granted under employee stock compensation plans, using the treasury stock method. In computing loss per share for the nine months ended September 30, 2017, no account was taken of the potential dilution by the assumed exercise of employee stock options andnon-vested RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.
Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 68 million shares (including shares that may be issued due to unpaid dividends to date) for the nine months ended September 30, 2018 and 59 million shares for the nine months ended September 30, 2017, as well as for the convertible senior debentures for the respective periods, since both had an anti-dilutive effect on earnings (loss) per share.
Diluted earnings per share were $0.53 in the first nine months of 2018, compared to a loss per share of $4.85 in the first nine months of 2017.
Impact of Currency Fluctuations on Results of Operations
In the first nine months of 2018, approximately 52% of our revenues came from sales outside of the United States. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks and, accordingly, changes in the exchange rate between the U.S. dollar and local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, Polish zloty, Argentinean peso, Turkish lira and Russian ruble) impact our results. During the first nine months of 2018,2019, the following main currencies relevant to our operations decreased in value against the U.S. dollar: Argentinean peso by 35%44%, Turkish liraPolish zloty by 22% and7%, Russian ruble by 5% (compared on a nine-monthly average basis). During the first nine months of 2018, the following main currencies relevant to our operations increased in value against the U.S. dollar: Polish zloty by 8%6%, euro by 7%,6% and British pound by 6%, Hungarian forint by 4%, new Israeli shekel by 2% and Japanese yen by 2% (all compared on a nine-monthlynine-month average basis).
2018.
2019.
2019.
2019.
during the quarter.
Debt Balance and Movements
general corporate purposes, including repaying existing debt. As of September 30, 2018,2019, $100 million were outstanding under the RCF. As of the date of this quarterly report on Form 10-Q, no amounts are outstanding under the RCF. Based on current and forecasted results, we expect that we will not exceed the financial covenant thresholds set forth in the RCF within one year from the date the financial statements are issued.
In January 2018, we prepaid in full $15 million of our U.S. dollar debentures.
notes, as well as exchange rate fluctuations.
In March 2018, we completed debt issuances for an aggregate canceled approximately $126 million principal amount of $4.4 billion, consisting of senior notes with aggregate principal amounts of $2.5 billion and EUR 1.6 billion with maturities ranging from four to ten years. The effective average interest rate of the notes issued is 5.3% per annum. See note 11 to our consolidated financial statements.
In March 2018, we redeemed in full our $1.5 billion 1.4%$1,700 million 1.7% senior notes due in July 20182019.
In September 2018,
$300under the RCF and repaid $400 million of our $2.0 billion 1.7% senior notes due in Julysuch borrowings. As of September 30, 2019,
EUR 90 $100 million was outstanding under the RCF. As of our EUR 1.75 billion 0.38% senior notes due in July 2020
In October 2018, we repaid at maturity our CHF 450 million 1.5% senior notes.
no amounts were outstanding under the RCF.
2019.
2019.
2019.
from derivative financial instruments in the third quarter of 2019.
revenue decline.
2018. The decrease in cash flow generated from operating activities net of cash used forwas mainly due to the reasons mentioned above, as well as higher capital investments and beneficial interest collected in exchange for securitized trade receivables is lowerduring the third quarter of 2019 compared to the decrease in cash flow generated from operating activities, mainly due to lower capital expenditures.
third quarter of 2018.
In December 2017, we announced an immediate suspension of
We have suspended cash dividends on our mandatory convertible preferred shares in the third quarter of 2018 due to our accumulated deficit.
since December 2017.
2018, respectively.
These two products, TRUXIMA and HERZUMA, were approved by the FDA in November and December 2018, respectively. TRUXIMA is expected to launch in the U.S. in November 2019.
Dividends on our mandatory convertible preferred shares (aggregate liquidation preference of approximately $3.7 billion) are payable on a cumulative basis when, as and if declared by our Board of Directors at an annual rate of 7% on the liquidation preference of $1,000 per mandatory convertible preferred share. Declared dividends are paid in cash on March 15, June 15, September 15 and December 15 of each year to and including December 15, 2018. We have suspended cash dividend payments on our mandatory convertible preferred shares.
Our principal sources of short-term liquidity are our existing cash investments, liquid securities and available credit facilities, primarily our $3 billion syndicated revolving credit facility (“RCF”), which was not utilized as of September 30, 2018, as well as internally generated funds.
Pursuant to the requirements of the RCF, we have entered into negative pledge agreements with certain banks and institutional investors. Under the agreements, we and certain subsidiaries have undertaken not to register floating charges on assets in favor of any third parties without the prior consent of the banks, to maintain certain financial ratios, including the requirement to maintain compliance with a net debt to EBITDA ratio, which becomes more restrictive over time, and to fulfill other restrictions, as stipulated by the agreements. As of September 30, 2018, we did not have any outstanding debt under the RCF, which is our only debt subject to the net debt to EBITDA covenant. Assuming utilization of the RCF and under specified circumstances, includingnon-compliance with such covenants and the unavailability of any waiver, amendment or other modification thereto and the expiration of any applicable grace period thereto, substantially all of our other debt could be negatively impacted bynon-compliance with such covenants. We have sufficient resources to meet our financial obligations in the ordinary course of business for at least twelve months from the date of the release of this Quarterly Report.
2018
In the third quarter of 2018, we completed a debt tender offer which resulted in a decrease of $405 million to our debt. As of September 30, 2018, our debt was $29,489 million. See note 11 to our consolidated financial statements.
The data presented below arenon-GAAP
In determining our
acquisition or divestment related items, including changes in contingent consideration, integration costs, banker and other professional fees, inventorystep-up andin-process R&D acquired in development arrangements;
amortization of purchased intangible assets;
significantone-time financing
in-process
legal settlements and/or loss contingencies, due to the difficulty in predicting their timing and amounts;
impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill;
material
the factors affecting our business. In these tables, we exclude the following amounts:Investors should consider financial measuresaddition to, and not as replacements for, or superior to, measuresU.S. dollar, which we believe facilitates an understanding of financial performance prepared in accordance with U.S. GAAP.
Three Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S.$ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excluded for non GAAP measurement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Amorti- zation of purchased intangible assets | Legal settlements and loss contin- gencies | Impair- ment of long- lived assets | Other R&D expenses | Acquisition, integration and related expenses | Restruc- turing costs | Costs related to regulatory actions taken in facilities | Equity compen- sation | Contin- gent conside- ration | Gain on sale of business | Other non GAAP items | Other items | Non GAAP | |||||||||||||||||||||||||||||||||||||||||||||
COGS | 2,508 | 246 | 1 | 7 | 30 | 2,224 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
R&D | 311 | 60 | 7 | 1 | 243 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
S&M | 743 | 51 | 14 | 678 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
G&A | 309 | 17 | 8 | 284 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income | (35 | ) | (31 | ) | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | 19 | 19 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairments, restructuring and other | 658 | 521 | 4 | 88 | 29 | 16 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses | 229 | (7 | ) | 236 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corresponding tax effect | (26 | ) | (111 | ) | 85 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Share in losses of associated companies – net | 10 | 9 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable tonon-controlling interests | 11 | (12 | ) | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total reconciled items | 297 | 19 | 521 | 60 | 4 | 88 | 1 | 45 | 29 | (31 | ) | 55 | (121 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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EPS—Basic | (0.27 | ) | 0.95 | 0.68 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
EPS—Diluted | (0.27 | ) | 0.95 | 0.68 |
Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. $ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excluded for non-GAAP measurement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Amorti- zation of purchased intangible assets | Legal settlements and loss contingencies | Impair- ment of long- lived assets | Restruc- turing costs | Costs related to regulatory actions taken in facilities | Equity compens- ation | Contin- gent conside- ration | Gain on sale of business | Other non GAAP items | Other items | Corres- ponding tax effect | Non GAAP | ||||||||||||||||||||||||||||||||||||||||||||
Cost of sales | 2,435 | 220 | 11 | 7 | 35 | 2,162 | ||||||||||||||||||||||||||||||||||||||||||||||||||
R&D expenses | 240 | 5 | (7 | ) | 242 | |||||||||||||||||||||||||||||||||||||||||||||||||||
S&M expenses | 595 | 35 | 9 | 551 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
G&A expenses | 285 | 14 | 1 | 270 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other (income) expense | (14 | ) | (3 | ) | (11 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | 468 | 468 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets impairments, restructuring and other items | 160 | 28 | 61 | 51 | 21 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets impairment | 177 | 177 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses, net | 211 | 3 | 208 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | 11 | (172 | ) | 183 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Share in losses of associated companies – net | 4 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to non-controlling interests | 7 | (12) | 19 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total reconciled items | 255 | 468 | 204 | 61 | 11 | 35 | 51 | (3 | ) | 51 | (9 | ) | (172 | ) | ||||||||||||||||||||||||||||||||||||||||||
EPS—Basic | (0.29 | ) | 0.87 | 0.58 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
EPS—Diluted | (0.29 | ) | 0.87 | 0.58 |
Three Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. $ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excluded for non-GAAP measurement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Amorti- zation of purchased intangible assets | Legal settlements and loss contingencies | Impair- ment of long- lived assets | Other R&D expenses | Acquisition, integration and related expenses | Restru- cturing costs | Costs related to regulatory actions taken in facilities | Equity compens- ation | Contin- gent conside- ration | Other non GAAP items | Other items | Corres- ponding tax effect | Non GAAP | |||||||||||||||||||||||||||||||||||||||||||||
Cost of sales | 2,552 | 246 | 1 | 7 | 30 | 2,268 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
R&D expenses | 311 | 60 | 7 | 1 | 243 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
S&M expenses | 699 | 51 | 14 | 634 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
G&A expenses | 309 | 17 | 8 | 284 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other (income) expense | (35) | (31 | ) | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | 19 | 19 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets impairments, restructuring and other items | 139 | 2 | 4 | 88 | 29 | 16 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets impairment | 519 | 519 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses, net | 229 | (7 | ) | 236 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | (26) | (111 | ) | 85 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share in losses of associated companies – net | 10 | 9 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to non-controlling interests | 11 | (12 | ) | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total reconciled items | 297 | 19 | 521 | 60 | 4 | 88 | 1 | 45 | 29 | 24 | (10 | ) | (111 | ) | ||||||||||||||||||||||||||||||||||||||||||||
EPS—Basic | (0.27) | 0.95 | 0.68 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
EPS—Diluted | (0.27) | 0.95 | 0.68 |
Three Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S.$ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excluded for non GAAP measurement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Amorti- zation of purchased intangible assets | Legal settlements and loss contin- gencies | Impair- ment of long- lived assets | Other R&D expenses | Acquisition, integration and related expenses | Restruc- turing costs | Costs related to regulatory actions taken in facilities | Equity compens- ation | Contin- gent conside- ration | Other non GAAP items | Other items | Non GAAP | ||||||||||||||||||||||||||||||||||||||||||
| COGS | 2,967 | 310 | (1 | ) | 5 | 17 | 2,636 | ||||||||||||||||||||||||||||||||||||||||||||||
R&D | 531 | 150 | 6 | 8 | 367 | |||||||||||||||||||||||||||||||||||||||||||||||||
S&M | 843 | 47 | 9 | (1 | ) | 788 | ||||||||||||||||||||||||||||||||||||||||||||||||
G&A | 372 | 12 | — | 360 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other income | (4 | ) | — | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | (20 | ) | (20 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Impairments, restructuring and other | 550 | 408 | 31 | 72 | 18 | 21 | — | |||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses | 259 | 30 | 229 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Corresponding tax effect | (494 | ) | (629 | ) | 135 | |||||||||||||||||||||||||||||||||||||||||||||||||
Share in losses of associated companies – net | 3 | — | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable tonon-controlling interests | 15 | (11 | ) | 26 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Total reconciled items | 357 | (20 | ) | 408 | 150 | 31 | 72 | (1 | ) | 32 | 18 | 45 | (610 | ) | ||||||||||||||||||||||||||||||||||||||||
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EPS—Basic | 0.52 | 0.48 | 1.00 | |||||||||||||||||||||||||||||||||||||||||||||||||||
EPS—Diluted | 0.52 | 0.48 | 1.00 |
Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. $ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excluded for non-GAAP measurement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Amorti- zation of purchased intangible assets | Legal settlements and loss contin- gencies | Impair- ment of long- lived assets | Acquisition, integration and related expenses | Restruc- turing costs | Costs related to regulatory actions taken in facilities | Equity compens- ation | Contin- gent consider- ation | Gain on sale of business | Other non GAAP items | Other items | Corres- ponding tax effect | Unusual tax item* | Non GAAP | ||||||||||||||||||||||||||||||||||||||||||||||
Cost of sales | 7,318 | 717 | 28 | 21 | 96 | 6,456 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
R&D expenses | 778 | 17 | (7 | ) | 768 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
S&M expenses | 1,908 | 105 | 29 | 1,774 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
G&A expenses | 873 | 37 | 836 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other (income) expense | (29) | (12 | ) | (17 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | 1,171 | 1,171 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets impairments, restructuring and other items | 263 | 96 | 2 | 140 | 4 | 22 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets impairment | 1,206 | 1,206 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses, net | 635 | 9 | 626 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | (159) | (662 | ) | 61 | 442 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share in losses of associated companies – net | 8 | 8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to non-controlling interests | 33 | (28 | ) | 61 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total reconciled items | 823 | 1,171 | 1,302 | 2 | 140 | 28 | 104 | 4 | (12 | ) | 111 | (19 | ) | (662 | ) | 61 | ||||||||||||||||||||||||||||||||||||||||||||
EPS—Basic | (1.02) | 2.80 | 1.78 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EPS—Diluted | (1.02) | 2.80 | 1.78 |
* | Interest disallowance as a result of the U.S. Tax Cuts and Jobs Act. |
Nine months ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. $ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excluded for non-GAAP measurement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Amorti- zation of purchased intangible assets | Good will impai rment | Legal settle ments and loss conting encies | Impair- ment of long- lived assets | Other R&D expenses | Acquisition, integration and related expenses | Restruct- uring costs | Costs related to regulatory actions taken in facilities | Equity compen- sation | Contin gent consider- ation | Gain on sale of business | Other non GAAP items | Other items | Corres- ponding tax effect | Non GAAP | |||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of sales | 7,970 | 771 | 6 | 22 | 94 | 7,077 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
R&D expenses | 918 | 82 | 21 | 2 | 813 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
S&M expenses | 2,119 | 138 | 35 | (4 | ) | 1,950 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
G&A expenses | 954 | 44 | 12 | 898 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other (income) expense | (334 | ) | (114 | ) | (220 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | (1,239 | ) | (1,239 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets impairments, restructuring and other items | 834 | 255 | 9 | 442 | 84 | 44 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets impairment | 1,246 | 1,246 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | 300 | 300 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses, net | 736 | 59 | 677 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | (56 | ) | (479 | ) | 423 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share in losses of associated companies – net | 76 | 103 | (27 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to non-controlling interests | 35 | (32 | ) | 67 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total reconciled items | �� | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total reconciled items | 909 | 300 | (1,239 | ) | 1,501 | 82 | 9 | 442 | 6 | 122 | 84 | (114 | ) | 148 | 130 | (479 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
EPS—Basic | 0.53 | 1.87 | 2.40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EPS—Diluted | 0.53 | 1.86 | 2.39 |
Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S.$ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excluded for non GAAP measurement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Amorti- zation of purchased intangible assets | Goodwill impairment | Legal settlements and loss contin- gencies | Impair- ment of long- lived assets | Other R&D expenses | Acquisition, integration and related expenses | Restruc- turing costs | Costs related to regulatory actions taken in facilities | Equity compen- sation | Contin- gent conside- ration | Gain on sale of business | Other non GAAP items | Other items | Non GAAP | ||||||||||||||||||||||||||||||||||||||||||||||||
| COGS | 7,865 | 771 | 6 | 22 | 94 | 6,972 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
R&D | 918 | 82 | 21 | 2 | 813 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
S&M | 2,224 | 138 | 35 | (4 | ) | 2,055 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
G&A | 954 | 44 | 12 | 898 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other income | (334 | ) | (114 | ) | (220 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | (1,239 | ) | (1,239 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairments, restructuring and other | 2,080 | 1,501 | 9 | 442 | 84 | 44 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | 300 | 300 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses | 736 | 59 | 677 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corresponding tax effect | (56 | ) | (479 | ) | 423 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share in losses of associated companies – net | 76 | 103 | (27 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable tonon-controlling interests | 35 | (32 | ) | 67 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total reconciled items | 909 | 300 | (1,239 | ) | 1,501 | 82 | 9 | 442 | 6 | 122 | 84 | (114 | ) | 148 | (349 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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EPS—Basic | 0.53 | 1.87 | 2.40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EPS—Diluted | 0.53 | 1.86 | 2.39 |
Thenon-GAAP
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S.$ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excluded for non GAAP measurement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Amorti- zation of purchased intangible assets | Goodwill impairment | Legal settlements and loss contin- gencies | Impair- ment of long- lived assets | Other R&D expenses | Inventory step-up | Acquisition, integration and related expenses | Restruc- turing costs | Costs related to regulatory actions taken in facilities | Equity compens- ation | Contingent conside- ration | Other non GAAP items | Other items | Non GAAP | ||||||||||||||||||||||||||||||||||||||||||||||||
COGS | 8,643 | 944 | 67 | 48 | 18 | 37 | 7,529 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| R&D | 1,432 | 176 | 17 | 19 | 1,220 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
S&M | 2,745 | 144 | 30 | (2 | ) | 2,573 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
G&A | 1,101 | 38 | (15 | ) | 1,078 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other income | (100 | ) | 1 | (101 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | 324 | 324 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairments, restructuring and other | 1,209 | 564 | 87 | 300 | 179 | 79 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | 6,100 | 6,100 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses | 704 | 5 | 699 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corresponding tax effect | (462 | ) | (1,067 | ) | 605 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share in losses of associated companies – net | 10 | 2 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable tonon-controlling interests | 11 | (44 | ) | 55 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total reconciled items | 1,088 | 6,100 | 324 | 564 | 176 | 67 | 87 | 300 | 48 | 103 | 179 | 119 | (1,104 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
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EPS - Basic | (4.85 | ) | 7.93 | 3.08 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EPS - Diluted | (4.85 | ) | 7.92 | 3.07 |
Thenon-GAAP diluted weighted average number
$843 million. Tax RateNon-GAAPforin the third quarter of 2018 were $85 million, or 10%, onpre-taxnon-GAAP$0.9 billion.Non-GAAP income taxes in the third quarter of 2017 were $135 million, or 11%, onpre-taxnon-GAAP income of $1.2 billion.$868 million. Our20182019 was mainly affected by the mix of products sold in different geographies.
legal settlements with low corresponding tax effect, interest expense disallowance and other changes to tax positions and deductions.
$3,100 million.
The preparation
As applicablesignificant accounting policies, see note 1 to our consolidated financial statements the most significant estimates and assumptions relate to purchase price allocation on acquisitions, including determination of useful lives and contingent consideration; determining the valuation and recoverability of intangible assets and goodwill; and assessing sales reserves and allowances, uncertain tax positions, valuation allowances, contingencies, restructuring costs and inventory valuation.
Please refer to note 1 in the consolidated financial statements and critical accounting policies“Critical Accounting Policies” included in our Annual Report on Form2017 for a summary of our significant accounting policies.
2018.
ITEM 3. |
Our outstanding debt obligations, the corresponding interest rates, currency and repayment schedules as of September 30, 2018, are set forth in the table below in U.S. dollar equivalent terms, taking into account recent changes in our debt movement:
Currency | Total Amount | Interest Rate Ranges | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 & thereafter | ||||||||||||||||||||||||||||
(U.S.$ in millions) | ||||||||||||||||||||||||||||||||||||
Fixed Rate: | ||||||||||||||||||||||||||||||||||||
USD | 18,132 | 1.70 | % | 6.75 | % | — | 1,700 | 700 | 3,619 | 861 | 11,252 | |||||||||||||||||||||||||
Euro | 9,274 | 0.38 | % | 4.50 | % | — | — | 1,924 | 587 | 813 | 5,950 | |||||||||||||||||||||||||
CHF | 1,172 | 0.5 | % | 1.50 | % | 458 | 357 | 357 | ||||||||||||||||||||||||||||
USD convertible debentures* | 514 | 0.25 | % | 0.25 | % | 514 | — | — | — | — | — | |||||||||||||||||||||||||
Floating Rate: | ||||||||||||||||||||||||||||||||||||
USD | 500 | 2.80 | % | 2.80 | % | — | — | — | — | — | 500 | |||||||||||||||||||||||||
Others | 7 | 1.00 | % | 13.00 | % | 1 | — | — | — | — | 6 | |||||||||||||||||||||||||
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Total: | 29,599 | 973 | 1,700 | 2,624 | 4,206 | 2,031 | 18,065 | |||||||||||||||||||||||||||||
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Less debt issuance costs | (110 | ) | ||||||||||||||||||||||||||||||||||
Total: | 29,489 |
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2018.
ITEM 4. |
Consistent with our conclusion in our Form10-Q for the quarter ended June 30, 2018, after
Notwithstanding the material weakness, Teva’s Chief Executive Officer and Chief Financial Officer have concluded that the interim financial statements includedimplementation of a company-wide enterprise resource planning (ERP) system in the Form10-Q for the quarter ended September 30, 2018 presented fairly, in all material respects, Teva’sU.S. to upgrade certain operational and financial position, results of operations and cash flows for the periods presented in conformityprocesses. In connection with U.S. GAAP.
Material Weakness
A material weakness is a deficiency, or a combination of deficiencies,this ERP implementation, there have been changes in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Our internal controls did not operate effectively with respect to our interim goodwill impairment testing. Specifically, our control designed to validate the allocation of businesses between the International Markets and Rimsa reporting units did not operate effectively. This control deficiency did not result in a material misstatement of our annual or interim consolidated financial statements, account balances or disclosures. However, this control deficiency could have resulted in a misstatement of the goodwill balances and disclosures which would have resulted in a material misstatement of the consolidated financial statements that would not have been prevented or detected. Accordingly, management has concluded that this control deficiency constitutes a material weakness.
Remediation Plans
As disclosed in note 7 to our consolidated financial statements, for the purpose of future goodwill impairment testing, management combined the Rimsa/Mexico reporting unit within the International Markets reporting unit commencing July 1, 2018, and the control design will no longer incorporate the allocation process discussed above.
Management reassessed the precision of controls and the timing of internal processes relating to the performance of goodwill impairment. Duringduring the quarter ended September 30, 2018, we implemented controls according to this remediation plan. These controls will be tested when we perform our annual goodwill impairment testing for the year ending December 31, 2018, or earlier should an interim impairment assessment become necessary.
Changes in Internal Control over Financial Reporting
During the period covered by this Quarterly Report, the change described in “Remediation Plans” above was considered a change in Teva’s internal control over financial reporting2019 that have materially affected, or isare reasonably likely to materially affect, Teva’sthe Company’s internal control over financial reporting.
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
There
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. |
31.1 | ||||
31.2 | ||||
32 | ||||
101.INS | Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document) | |||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | |||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
TEVA PHARMACEUTICAL INDUSTRIES LIMITED | ||||
Date: November 7, 2019 | By: | /s/ Michael McClellan | ||
Name: | Michael McClellan | |||
Title: | Executive Vice President, Chief Financial Officer (Duly Authorized Officer) |
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