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WCRX Warner Chilcott

Filed: 2 Aug 18, 8:00pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

 

Commission

File Number

 

 

Exact name of registrant as specified in its charter,

principal office and address and telephone number

 

 

State of incorporation

or organization

 

 

I.R.S. Employer

Identification No.

 

001-36867

 

Allergan plc

Clonshaugh Business and Technology Park

Coolock, Dublin, D17 E400, Ireland

(862) 261-7000

 

Ireland

 

98-1114402

 

 

 

 

 

 

 

001-36887

 

Warner Chilcott Limited

Canon’s Court

 

Bermuda

 

98-0496358

 

 

22 Victoria Street

 

 

 

 

 

 

Hamilton HM 12

 

 

 

 

 

 

Bermuda

 

 

 

 

 

 

(441) 295-2244

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

 

Allergan plc

 

YES    

 

NO    

Warner Chilcott Limited

 

YES    

 

NO    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Allergan plc

 

YES    

 

NO    

Warner Chilcott Limited

 

YES    

 

NO    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Allergan plc

Large accelerated filer

Accelerated filer

 

Non-accelerated filer (Do not check if a smaller reporting company)

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

 

Warner Chilcott Limited

Large accelerated filer

Accelerated filer

 

Non-accelerated filer (Do not check if a smaller reporting company)

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

Allergan plc

 

YES    

 

NO    

Warner Chilcott Limited

 

YES    

 

NO    

Number of shares of Allergan plc’s Ordinary Shares outstanding on July 30, 2018: 339,444,422. There is no trading market for securities of Warner Chilcott Limited, all of which are indirectly wholly owned by Allergan plc.

 

This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Allergan plc and Warner Chilcott Limited. Warner Chilcott Limited is an indirect wholly-owned subsidiary of Allergan plc. The information in this Quarterly Report on Form 10-Q is equally applicable to Allergan plc and Warner Chilcott Limited, except where otherwise indicated. Warner Chilcott Limited meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and, to the extent applicable, is therefore filing this form with a reduced disclosure format.

 

 

 

 


 

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

 

 

 

 

PAGE

PART I. FINANCIAL INFORMATION

 

Item 1.

 

Consolidated Financial Statements (unaudited)

3

 

 

Consolidated Balance Sheets of Allergan plc as of June 30, 2018 and December 31, 2017

3

 

 

Consolidated Statements of Operations of Allergan plc for the three and six months ended June 30, 2018 and June 30, 2017

4

 

 

Consolidated Statements of Comprehensive (Loss) / Income of Allergan plc for the three and six months ended June 30, 2018 and June 30, 2017 

5

 

 

Consolidated Statements of Cash Flows of Allergan plc for the six months ended June 30, 2018 and June 30, 2017

6

 

 

Consolidated Balance Sheets of Warner Chilcott Limited as of June 30, 2018 and December 31, 2017

7

 

 

Consolidated Statements of Operations of Warner Chilcott Limited for the three and six months ended June 30, 2018 and June 30, 2017

8

 

 

Consolidated Statements of Comprehensive (Loss) / Income of Warner Chilcott Limited for the three and six months ended June 30, 2018 and June 30, 2017

9

 

 

Consolidated Statements of Cash Flows of Warner Chilcott Limited for the six months ended June 30, 2018 and June 30, 2017

10

 

 

Notes to the Consolidated Financial Statements

11

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

67

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

95

Item 4.

 

Controls and Procedures

97

PART II. OTHER INFORMATION

98

Item 1.

 

Legal Proceedings

98

Item 1A.

 

Risk Factors

98

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

98

Item 6.

 

Exhibits

98

 

 

Signatures

100

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

ALLERGAN PLC

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions, except par value)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

ASSETS

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,674.7

 

 

$

1,817.2

 

Marketable securities

 

 

21.5

 

 

 

4,632.1

 

Accounts receivable, net

 

 

2,760.8

 

 

 

2,899.0

 

Inventories

 

 

922.5

 

 

 

904.5

 

Prepaid expenses and other current assets

 

 

724.2

 

 

 

1,123.9

 

Total current assets

 

 

6,103.7

 

 

 

11,376.7

 

Property, plant and equipment, net

 

 

1,761.4

 

 

 

1,785.4

 

Investments and other assets

 

 

297.9

 

 

 

267.9

 

Non current assets held for sale

 

 

180.4

 

 

 

81.6

 

Deferred tax assets

 

 

899.9

 

 

 

319.1

 

Product rights and other intangibles

 

 

49,928.3

 

 

 

54,648.3

 

Goodwill

 

 

49,687.2

 

 

 

49,862.9

 

Total assets

 

$

108,858.8

 

 

$

118,341.9

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

4,683.8

 

 

$

5,541.4

 

Income taxes payable

 

 

93.0

 

 

 

74.9

 

Current portion of long-term debt and capital leases

 

 

1,348.5

 

 

 

4,231.8

 

Total current liabilities

 

 

6,125.3

 

 

 

9,848.1

 

Long-term debt and capital leases

 

 

24,002.0

 

 

 

25,843.5

 

Other long-term liabilities

 

 

753.4

 

 

 

886.9

 

Other taxes payable

 

 

1,576.6

 

 

 

1,573.9

 

Deferred tax liabilities

 

 

5,137.5

 

 

 

6,352.4

 

Total liabilities

 

 

37,594.8

 

 

 

44,504.8

 

Commitments and contingencies (Refer to Note 19)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Preferred shares, $0.0001 par value per share, zero and 5.1 million shares authorized,

   issued and outstanding, respectively

 

$

-

 

 

$

4,929.7

 

Ordinary shares; $0.0001 par value per share; 1,000.0 million shares authorized,

   339.3 million and 330.2 million shares issued and outstanding, respectively

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

57,567.7

 

 

 

54,013.5

 

Retained earnings

 

 

12,082.9

 

 

 

12,957.2

 

Accumulated other comprehensive income

 

 

1,592.9

 

 

 

1,920.7

 

Total shareholders’ equity

 

 

71,243.5

 

 

 

73,821.1

 

Noncontrolling interest

 

 

20.5

 

 

 

16.0

 

Total equity

 

 

71,264.0

 

 

 

73,837.1

 

Total liabilities and equity

 

$

108,858.8

 

 

$

118,341.9

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

3


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in millions, except per share amounts)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net revenues

 

$

4,124.2

 

 

$

4,007.4

 

 

$

7,796.3

 

 

$

7,580.3

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excludes amortization and impairment of acquired intangibles including product rights)

 

 

481.8

 

 

 

550.2

 

 

 

1,004.6

 

 

 

1,000.6

 

Research and development

 

 

689.2

 

 

 

489.4

 

 

 

1,163.9

 

 

 

1,249.3

 

Selling and marketing

 

 

853.4

 

 

 

935.2

 

 

 

1,653.4

 

 

 

1,804.3

 

General and administrative

 

 

334.1

 

 

 

459.8

 

 

 

630.0

 

 

 

775.9

 

Amortization

 

 

1,697.1

 

 

 

1,757.9

 

 

 

3,394.7

 

 

 

3,493.9

 

In-process research and development impairments

 

 

276.0

 

 

 

703.3

 

 

 

798.0

 

 

 

1,043.3

 

Asset sales and impairments, net

 

 

259.6

 

 

 

14.0

 

 

 

272.7

 

 

 

21.4

 

Total operating expenses

 

 

4,591.2

 

 

 

4,909.8

 

 

 

8,917.3

 

 

 

9,388.7

 

Operating (loss)

 

 

(467.0

)

 

 

(902.4

)

 

 

(1,121.0

)

 

 

(1,808.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

6.3

 

 

 

16.6

 

 

 

23.6

 

 

 

41.9

 

Interest (expense)

 

 

(230.0

)

 

 

(277.4

)

 

 

(480.6

)

 

 

(567.1

)

Other income / (expense), net

 

 

215.4

 

 

 

(133.5

)

 

 

136.6

 

 

 

(2,056.3

)

Total other (expense), net

 

 

(8.3

)

 

 

(394.3

)

 

 

(320.4

)

 

 

(2,581.5

)

(Loss) before income taxes and noncontrolling interest

 

 

(475.3

)

 

 

(1,296.7

)

 

 

(1,441.4

)

 

 

(4,389.9

)

(Benefit) for income taxes

 

 

(5.2

)

 

 

(581.2

)

 

 

(687.4

)

 

 

(1,113.3

)

Net (loss) from continuing operations, net of tax

 

 

(470.1

)

 

 

(715.5

)

 

 

(754.0

)

 

 

(3,276.6

)

(Loss) from discontinued operations, net of tax

 

 

-

 

 

 

(8.4

)

 

 

-

 

 

 

(11.5

)

Net (loss)

 

 

(470.1

)

 

 

(723.9

)

 

 

(754.0

)

 

 

(3,288.1

)

(Income) attributable to noncontrolling interest

 

 

(2.4

)

 

 

(2.0

)

 

 

(4.6

)

 

 

(3.0

)

Net (loss) attributable to shareholders

 

 

(472.5

)

 

 

(725.9

)

 

 

(758.6

)

 

 

(3,291.1

)

Dividends on preferred shares

 

 

-

 

 

 

69.6

 

 

 

46.4

 

 

 

139.2

 

Net (loss) attributable to ordinary shareholders

 

$

(472.5

)

 

$

(795.5

)

 

$

(805.0

)

 

$

(3,430.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) per share attributable to ordinary shareholders - basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(1.39

)

 

$

(2.35

)

 

$

(2.39

)

 

$

(10.20

)

Discontinued operations

 

 

-

 

 

 

(0.02

)

 

 

-

 

 

 

(0.03

)

Net (loss) per share - basic

 

$

(1.39

)

 

$

(2.37

)

 

$

(2.39

)

 

$

(10.23

)

(Loss) per share attributable to ordinary shareholders - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(1.39

)

 

$

(2.35

)

 

$

(2.39

)

 

$

(10.20

)

Discontinued operations

 

 

-

 

 

 

(0.02

)

 

 

-

 

 

 

(0.03

)

Net (loss) per share - diluted

 

$

(1.39

)

 

$

(2.37

)

 

$

(2.39

)

 

$

(10.23

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per ordinary share

 

$

0.72

 

 

$

0.70

 

 

$

1.44

 

 

$

1.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

339.1

 

 

 

335.2

 

 

 

336.9

 

 

 

335.2

 

Diluted

 

 

339.1

 

 

 

335.2

 

 

 

336.9

 

 

 

335.2

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

4


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME

(Unaudited; in millions)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net (loss)

 

$

(470.1

)

 

$

(723.9

)

 

$

(754.0

)

 

$

(3,288.1

)

Other comprehensive (loss) / income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (losses) / gains

 

 

(448.6

)

 

 

697.8

 

 

 

(264.8

)

 

 

860.4

 

Net impact of other-than-temporary loss on investment

   in Teva securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,599.4

 

Unrealized gains, net of tax

 

 

-

 

 

 

205.5

 

 

 

-

 

 

 

203.6

 

Impact of ASU No. 2016-01, net of tax

 

 

-

 

 

 

-

 

 

 

(63.0

)

 

 

-

 

Total other comprehensive (loss) / income, net of tax

 

 

(448.6

)

 

 

903.3

 

 

 

(327.8

)

 

 

2,663.4

 

Comprehensive (loss) / income

 

 

(918.7

)

 

 

179.4

 

 

 

(1,081.8

)

 

 

(624.7

)

Comprehensive (income) attributable to noncontrolling

   interest

 

 

(2.4

)

 

 

(2.0

)

 

 

(4.6

)

 

 

(3.0

)

Comprehensive (loss) / income attributable to ordinary

   shareholders

 

$

(921.1

)

 

$

177.4

 

 

$

(1,086.4

)

 

$

(627.7

)

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

5


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net (loss)

 

$

(754.0

)

 

$

(3,288.1

)

Reconciliation to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

105.2

 

 

 

81.2

 

Amortization

 

 

3,394.7

 

 

 

3,493.9

 

Provision for inventory reserve

 

 

45.4

 

 

 

48.7

 

Share-based compensation

 

 

127.4

 

 

 

148.5

 

Deferred income tax benefit

 

 

(1,359.6

)

 

 

(1,478.8

)

In-process research and development impairments

 

 

798.0

 

 

 

1,043.3

 

Loss on asset sales and impairments, net

 

 

272.7

 

 

 

21.4

 

Net income impact of other-than-temporary loss on investment in Teva securities

 

 

-

 

 

 

1,978.0

 

Gain on sale of Teva securities, net

 

 

(60.9

)

 

 

-

 

Amortization of inventory step-up

 

 

-

 

 

 

87.8

 

Gain on sale of business

 

 

(53.0

)

 

 

-

 

Non-cash extinguishment of debt

 

 

4.0

 

 

 

(8.2

)

Cash charge related to extinguishment of debt

 

 

(13.1

)

 

 

170.5

 

Amortization of deferred financing costs

 

 

11.9

 

 

 

13.2

 

Contingent consideration adjustments, including accretion

 

 

(101.8

)

 

 

15.2

 

Other, net

 

 

(0.3

)

 

 

(22.6

)

Changes in assets and liabilities (net of effects of acquisitions):

 

 

 

 

 

 

 

 

Decrease / (increase) in accounts receivable, net

 

 

90.3

 

 

 

(139.0

)

Decrease / (increase) in inventories

 

 

(113.3

)

 

 

(95.1

)

Decrease / (increase) in prepaid expenses and other current assets

 

 

39.3

 

 

 

10.5

 

Increase / (decrease) in accounts payable and accrued expenses

 

 

(40.4

)

 

 

(207.5

)

Increase / (decrease) in income and other taxes payable

 

 

365.4

 

 

 

673.7

 

Increase / (decrease) in other assets and liabilities

 

 

(59.4

)

 

 

(23.5

)

Net cash provided by operating activities

 

 

2,698.5

 

 

 

2,523.1

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(106.5

)

 

 

(137.2

)

Additions to product rights and other intangibles

 

 

-

 

 

 

(586.3

)

Additions to investments

 

 

(1,455.9

)

 

 

(6,787.9

)

Proceeds from sale of investments and other assets

 

 

5,651.3

 

 

 

13,197.5

 

Payments to settle Teva related matters

 

 

(466.0

)

 

 

-

 

Proceeds from sales of property, plant and equipment

 

 

11.5

 

 

 

4.3

 

Acquisitions of businesses, net of cash acquired

 

 

-

 

 

 

(5,290.4

)

Net cash provided by investing activities

 

 

3,634.4

 

 

 

400.0

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings of long-term indebtedness, including credit facility

 

 

709.0

 

 

 

3,023.0

 

Proceeds from forward sale of Teva securities

 

 

465.5

 

 

 

-

 

Debt issuance and other financing costs

 

 

-

 

 

 

(17.5

)

Payments on debt, including capital lease obligations and credit facility

 

 

(5,366.8

)

 

 

(5,579.2

)

Cash charge related to extinguishment of debt

 

 

13.1

 

 

 

(170.5

)

Proceeds from stock plans

 

 

69.2

 

 

 

124.7

 

Payments of contingent consideration and other financing

 

 

(10.6

)

 

 

(505.1

)

Payments to settle Teva related matters

 

 

(234.0

)

 

 

-

 

Repurchase of ordinary shares

 

 

(1,572.1

)

 

 

(35.2

)

Dividends paid

 

 

(563.7

)

 

 

(611.9

)

Net cash (used in) financing activities

 

 

(6,490.4

)

 

 

(3,771.7

)

Effect of currency exchange rate changes on cash and cash equivalents

 

 

15.0

 

 

 

11.5

 

Net (decrease) in cash and cash equivalents

 

 

(142.5

)

 

 

(837.1

)

Cash and cash equivalents at beginning of period

 

 

1,817.2

 

 

 

1,724.0

 

Cash and cash equivalents at end of period

 

$

1,674.7

 

 

$

886.9

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Income taxes other, net of refunds

 

$

336.1

 

 

$

(250.7

)

Interest

 

$

520.9

 

 

$

626.9

 

Schedule of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Conversion of mandatory convertible preferred shares

 

$

4,929.7

 

 

$

-

 

Settlement of Teva Shares

 

$

465.5

 

 

$

-

 

Settlement of secured financing

 

$

(465.5

)

 

$

-

 

Non-cash equity issuance for the acquisition of Zeltiq net assets

 

$

-

 

 

$

8.5

 

Deferred consideration for the acquisition of Zeltiq

 

$

-

 

 

$

13.5

 

Dividends accrued

 

$

1.4

 

 

$

24.6

 

 

See accompanying Notes to the Consolidated Financial Statements.

6


 

WARNER CHILCOTT LIMITED

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,673.5

 

 

$

1,816.3

 

Marketable securities

 

 

21.5

 

 

 

4,632.1

 

Accounts receivable, net

 

 

2,760.8

 

 

 

2,899.0

 

Receivables from Parents

 

 

5,833.4

 

 

 

5,797.4

 

Inventories

 

 

922.5

 

 

 

904.5

 

Prepaid expenses and other current assets

 

 

722.9

 

 

 

1,123.0

 

Total current assets

 

 

11,934.6

 

 

 

17,172.3

 

Property, plant and equipment, net

 

 

1,761.4

 

 

 

1,785.4

 

Investments and other assets

 

 

297.9

 

 

 

267.9

 

Non current receivables from Parents

 

 

3,964.0

 

 

 

3,964.0

 

Non current assets held for sale

 

 

180.4

 

 

 

81.6

 

Deferred tax assets

 

 

896.8

 

 

 

316.0

 

Product rights and other intangibles

 

 

49,928.3

 

 

 

54,648.3

 

Goodwill

 

 

49,687.2

 

 

 

49,862.9

 

Total assets

 

$

118,650.6

 

 

$

128,098.4

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

4,681.6

 

 

$

5,515.6

 

Payables to Parents

 

 

2,379.7

 

 

 

2,340.6

 

Income taxes payable

 

 

92.5

 

 

 

74.9

 

Current portion of long-term debt and capital leases

 

 

1,348.5

 

 

 

4,231.8

 

Total current liabilities

 

 

8,502.3

 

 

 

12,162.9

 

Long-term debt and capital leases

 

 

24,002.0

 

 

 

25,843.5

 

Other long-term liabilities

 

 

753.4

 

 

 

886.9

 

Other taxes payable

 

 

1,576.2

 

 

 

1,573.5

 

Deferred tax liabilities

 

 

5,140.5

 

 

 

6,349.4

 

Total liabilities

 

 

39,974.4

 

 

 

46,816.2

 

Commitments and contingencies (Refer to Note 19)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Members' capital

 

 

72,935.1

 

 

 

72,935.1

 

Retained earnings

 

 

4,127.7

 

 

 

6,410.4

 

Accumulated other comprehensive income

 

 

1,592.9

 

 

 

1,920.7

 

Total members’ equity

 

 

78,655.7

 

 

 

81,266.2

 

Noncontrolling interest

 

 

20.5

 

 

 

16.0

 

Total equity

 

 

78,676.2

 

 

 

81,282.2

 

Total liabilities and equity

 

$

118,650.6

 

 

$

128,098.4

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

7


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in millions)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net revenues

 

$

4,124.2

 

 

$

4,007.4

 

 

$

7,796.3

 

 

$

7,580.3

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excludes amortization and impairment

   of acquired intangibles including product rights)

 

 

481.8

 

 

 

550.2

 

 

 

1,004.6

 

 

 

1,000.6

 

Research and development

 

 

689.2

 

 

 

489.4

 

 

 

1,163.9

 

 

 

1,249.3

 

Selling and marketing

 

 

853.4

 

 

 

935.2

 

 

 

1,653.4

 

 

 

1,804.3

 

General and administrative

 

 

299.5

 

 

 

447.7

 

 

 

593.6

 

 

 

762.0

 

Amortization

 

 

1,697.1

 

 

 

1,757.9

 

 

 

3,394.7

 

 

 

3,493.9

 

In-process research and development impairments

 

 

276.0

 

 

 

703.3

 

 

 

798.0

 

 

 

1,043.3

 

Asset sales and impairments, net

 

 

259.6

 

 

 

14.0

 

 

 

272.7

 

 

 

21.4

 

Total operating expenses

 

 

4,556.6

 

 

 

4,897.7

 

 

 

8,880.9

 

 

 

9,374.8

 

Operating (loss)

 

 

(432.4

)

 

 

(890.3

)

 

 

(1,084.6

)

 

 

(1,794.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

71.8

 

 

 

37.2

 

 

 

142.1

 

 

 

88.6

 

Interest (expense)

 

 

(230.0

)

 

 

(277.4

)

 

 

(480.6

)

 

 

(567.1

)

Other income / (expense), net

 

 

215.4

 

 

 

(133.5

)

 

 

136.6

 

 

 

(2,056.3

)

Total other income / (expense), net

 

 

57.2

 

 

 

(373.7

)

 

 

(201.9

)

 

 

(2,534.8

)

(Loss) before income taxes and noncontrolling interest

 

 

(375.2

)

 

 

(1,264.0

)

 

 

(1,286.5

)

 

 

(4,329.3

)

(Benefit) for income taxes

 

 

(5.2

)

 

 

(581.2

)

 

 

(687.4

)

 

 

(1,113.3

)

Net (loss) from continuing operations, net of tax

 

 

(370.0

)

 

 

(682.8

)

 

 

(599.1

)

 

 

(3,216.0

)

(Loss) from discontinued operations, net of tax

 

 

-

 

 

 

(8.4

)

 

 

-

 

 

 

(11.5

)

Net (loss)

 

 

(370.0

)

 

 

(691.2

)

 

 

(599.1

)

 

 

(3,227.5

)

(Income) attributable to noncontrolling interest

 

 

(2.4

)

 

 

(2.0

)

 

 

(4.6

)

 

 

(3.0

)

Net (loss) attributable to members

 

$

(372.4

)

 

$

(693.2

)

 

$

(603.7

)

 

$

(3,230.5

)

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

8


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME

(Unaudited; in millions)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net (loss)

 

$

(370.0

)

 

$

(691.2

)

 

$

(599.1

)

 

$

(3,227.5

)

Other comprehensive (loss) / income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (losses) / gains

 

 

(448.6

)

 

 

697.8

 

 

 

(264.8

)

 

 

860.4

 

Net impact of other-than-temporary loss on investment

   in Teva securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,599.4

 

Unrealized gains, net of tax

 

 

-

 

 

 

205.5

 

 

 

-

 

 

 

203.6

 

Impact of ASU No. 2016-01, net of tax

 

 

-

 

 

 

-

 

 

 

(63.0

)

 

 

-

 

Total other comprehensive (loss) / income, net of tax

 

 

(448.6

)

 

 

903.3

 

 

 

(327.8

)

 

 

2,663.4

 

Comprehensive (loss) / income

 

 

(818.6

)

 

 

212.1

 

 

 

(926.9

)

 

 

(564.1

)

Comprehensive (income) attributable to noncontrolling

   interest

 

 

(2.4

)

 

 

(2.0

)

 

 

(4.6

)

 

 

(3.0

)

Comprehensive (loss) / income attributable to members

 

$

(821.0

)

 

$

210.1

 

 

$

(931.5

)

 

$

(567.1

)

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

9


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net (loss)

 

$

(599.1

)

 

$

(3,227.5

)

Reconciliation to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

105.2

 

 

 

81.2

 

Amortization

 

 

3,394.7

 

 

 

3,493.9

 

Provision for inventory reserve

 

 

45.4

 

 

 

48.7

 

Share-based compensation

 

 

127.4

 

 

 

148.5

 

Deferred income tax benefit

 

 

(1,359.6

)

 

 

(1,478.8

)

In-process research and development impairments

 

 

798.0

 

 

 

1,043.3

 

Loss on asset sales and impairments, net

 

 

272.7

 

 

 

21.4

 

Net income impact of other-than-temporary loss on investment in Teva securities

 

 

-

 

 

 

1,978.0

 

Gain on sale of Teva securities, net

 

 

(60.9

)

 

 

-

 

Amortization of inventory step up

 

 

-

 

 

 

87.8

 

Gain on sale of business

 

 

(53.0

)

 

 

-

 

Non-cash extinguishment of debt

 

 

4.0

 

 

 

(8.2

)

Cash charge related to extinguishment of debt

 

 

(13.1

)

 

 

170.5

 

Amortization of deferred financing costs

 

 

11.9

 

 

 

13.2

 

Contingent consideration adjustments, including accretion

 

 

(101.8

)

 

 

15.2

 

Other, net

 

 

(0.3

)

 

 

(22.6

)

Changes in assets and liabilities (net of effects of acquisitions):

 

 

 

 

 

 

 

 

Decrease / (increase) in accounts receivable, net

 

 

90.3

 

 

 

(139.0

)

Decrease / (increase) in inventories

 

 

(113.3

)

 

 

(95.1

)

Decrease / (increase) in prepaid expenses and other current assets

 

 

40.6

 

 

 

13.1

 

Increase / (decrease) in accounts payable and accrued expenses

 

 

(38.2

)

 

 

(179.2

)

Increase / (decrease) in income and other taxes payable

 

 

365.4

 

 

 

673.7

 

Increase / (decrease) in other assets and liabilities, including receivable / payable

   with Parents

 

 

(181.0

)

 

 

(43.5

)

Net cash provided by operating activities

 

 

2,735.3

 

 

 

2,594.6

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(106.5

)

 

 

(137.2

)

Additions to product rights and other intangibles

 

 

-

 

 

 

(586.3

)

Additions to investments

 

 

(1,455.9

)

 

 

(6,787.9

)

Proceeds from sale of investments and other assets

 

 

5,651.3

 

 

 

13,197.5

 

Payments to settle Teva related matters

 

 

(466.0

)

 

 

-

 

Proceeds from sales of property, plant and equipment

 

 

11.5

 

 

 

4.3

 

Acquisitions of businesses, net of cash acquired

 

 

-

 

 

 

(5,290.4

)

Net cash provided by investing activities

 

 

3,634.4

 

 

 

400.0

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings of long-term indebtedness, including credit facility

 

 

709.0

 

 

 

3,023.0

 

Proceeds from forward sale of Teva securities

 

 

465.5

 

 

 

-

 

Debt issuance and other financing costs

 

 

-

 

 

 

(17.5

)

Payments on debt, including capital lease obligations and credit facility

 

 

(5,366.8

)

 

 

(5,579.2

)

Cash charge related to extinguishment of debt

 

 

13.1

 

 

 

(170.5

)

Payments of contingent consideration and other financing

 

 

(10.6

)

 

 

(505.1

)

Payments to settle Teva related matters

 

 

(234.0

)

 

 

-

 

Dividends to Parents

 

 

(2,103.7

)

 

 

(611.9

)

Net cash (used in) financing activities

 

 

(6,527.5

)

 

 

(3,861.2

)

Effect of currency exchange rate changes on cash and cash equivalents

 

 

15.0

 

 

 

11.5

 

Net (decrease) in cash and cash equivalents

 

 

(142.8

)

 

 

(855.1

)

Cash and cash equivalents at beginning of period

 

 

1,816.3

 

 

 

1,713.2

 

Cash and cash equivalents at end of period

 

$

1,673.5

 

 

$

858.1

 

Schedule of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Settlement of Teva Shares

 

$

465.5

 

 

$

-

 

Settlement of secured financing

 

$

(465.5

)

 

$

-

 

Non-cash dividends to Parents

 

$

-

 

 

$

4,203.9

 

 

See accompanying Notes to the Consolidated Financial Statements

10


 

ALLERGAN PLC AND WARNER CHILCOTT LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 — General

Allergan plc is a global pharmaceutical company focused on developing, manufacturing and commercializing branded pharmaceutical (“brand”, “branded” or “specialty brand”), device, biologic, surgical and regenerative medicine products for patients around the world. Allergan markets a portfolio of leading brands and best-in-class products for the central nervous system, eye care, medical aesthetics and dermatology, gastroenterology, women’s health, urology and anti-infective therapeutic categories.  Allergan is an industry leader in Open Science, a model of research and development, which defines our approach to identifying and developing game-changing ideas and innovation for better patient care.   The Company has operations in more than 100 countries. Warner Chilcott Limited is an indirect wholly-owned subsidiary of Allergan plc and has the same principal business activities.

The accompanying consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2017 (“Annual Report”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been condensed or omitted from the accompanying consolidated financial statements. The accompanying year end consolidated balance sheet was derived from the audited financial statements included in the Annual Report. The accompanying interim financial statements are unaudited and reflect all adjustments which are in the opinion of management necessary for a fair statement of the Company’s consolidated financial position, results of operations, comprehensive (loss) / income and cash flows for the periods presented. Unless otherwise noted, all such adjustments are of a normal, recurring nature. All intercompany transactions and balances have been eliminated in consolidation. The Company’s results of operations, comprehensive (loss) / income and cash flows for the interim periods are not necessarily indicative of the results of operations, comprehensive (loss) / income and cash flows that it may achieve in future periods.

References throughout to “we,” “our,” “us,” the “Company” or “Allergan” refer to financial information and transactions of Allergan plc. References to “Warner Chilcott Limited” refer to Warner Chilcott Limited, the Company’s indirect wholly-owned subsidiary, and, unless the context otherwise requires, its subsidiaries.

 

 

NOTE 2 – Reconciliation of Warner Chilcott Limited results to Allergan plc results

Warner Chilcott Limited is an indirect wholly-owned subsidiary of Allergan plc, the ultimate parent of the group (together with other direct or indirect parents of Warner Chilcott Limited, the “Parents”). The results of Warner Chilcott Limited are consolidated into the results of Allergan plc. Due to the deminimis activity between Warner Chilcott Limited and the Parents (including Allergan plc), content throughout this filing relates to both Allergan plc and Warner Chilcott Limited. Warner Chilcott Limited disclosures relate only to itself and not to any other company.  Except where otherwise indicated, and excluding certain insignificant cash and non-cash transactions at the Allergan plc level, these notes relate to the consolidated financial statements for both separate registrants, Allergan plc and Warner Chilcott Limited. In addition to certain inter-company payable and receivable amounts between the entities, the following is a reconciliation of the financial position and results of operations of Warner Chilcott Limited to Allergan plc ($ in millions):

 

 

 

As of June 30, 2018

 

 

As of December 31, 2017

 

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

Cash and cash equivalents

 

$

1,674.7

 

 

$

1,673.5

 

 

$

1.2

 

 

$

1,817.2

 

 

$

1,816.3

 

 

$

0.9

 

Prepaid expenses and other current assets

 

 

724.2

 

 

 

722.9

 

 

 

1.3

 

 

 

1,123.9

 

 

 

1,123.0

 

 

 

0.9

 

Deferred tax assets

 

 

899.9

 

 

 

896.8

 

 

 

3.1

 

 

 

319.1

 

 

 

316.0

 

 

 

3.1

 

Accounts payable and accrued liabilities

 

 

4,683.8

 

 

 

4,681.6

 

 

 

2.2

 

 

 

5,541.4

 

 

 

5,515.6

 

 

 

25.8

 

Income taxes payable

 

 

93.0

 

 

 

92.5

 

 

 

0.5

 

 

 

74.9

 

 

 

74.9

 

 

 

-

 

Other taxes payables

 

 

1,576.6

 

 

 

1,576.2

 

 

 

0.4

 

 

 

1,573.9

 

 

 

1,573.5

 

 

 

0.4

 

Deferred tax liabilities

 

 

5,137.5

 

 

 

5,140.5

 

 

 

(3.0

)

 

 

6,352.4

 

 

 

6,349.4

 

 

 

3.0

 

Total equity

 

 

71,264.0

 

 

 

78,676.2

 

 

 

(7,412.2

)

 

 

73,837.1

 

 

 

81,282.2

 

 

 

(7,445.1

)

11


 

 

 

 

Three Months Ended June 30, 2018

 

 

Six Months Ended June 30, 2018

 

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

General and administrative expenses

 

$

334.1

 

 

$

299.5

 

 

$

34.6

 

 

$

630.0

 

 

$

593.6

 

 

$

36.4

 

Operating (loss)

 

 

(467.0

)

 

 

(432.4

)

 

 

(34.6

)

 

 

(1,121.0

)

 

 

(1,084.6

)

 

 

(36.4

)

Interest income

 

 

6.3

 

 

 

71.8

 

 

 

(65.5

)

 

 

23.6

 

 

 

142.1

 

 

 

(118.5

)

(Loss) before income taxes and noncontrolling

   interest

 

 

(475.3

)

 

 

(375.2

)

 

 

(100.1

)

 

 

(1,441.4

)

 

 

(1,286.5

)

 

 

(154.9

)

Net (loss) from continuing operations, net of

   tax

 

 

(470.1

)

 

 

(370.0

)

 

 

(100.1

)

 

 

(754.0

)

 

 

(599.1

)

 

 

(154.9

)

Net (loss)

 

 

(470.1

)

 

 

(370.0

)

 

 

(100.1

)

 

 

(754.0

)

 

 

(599.1

)

 

 

(154.9

)

Dividends on preferred shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

46.4

 

 

 

-

 

 

 

46.4

 

Net (loss) attributable to ordinary

   shareholders/members

 

 

(472.5

)

 

 

(372.4

)

 

 

(100.1

)

 

 

(805.0

)

 

 

(603.7

)

 

 

(201.3

)

 

 

 

Three Months Ended June 30, 2017

 

 

Six Months Ended June 30, 2017

 

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

General and administrative expenses

 

$

459.8

 

 

$

447.7

 

 

$

12.1

 

 

$

775.9

 

 

$

762.0

 

 

$

13.9

 

Operating (loss)

 

 

(902.4

)

 

 

(890.3

)

 

 

(12.1

)

 

 

(1,808.4

)

 

 

(1,794.5

)

 

 

(13.9

)

Interest income

 

 

16.6

 

 

 

37.2

 

 

 

(20.6

)

 

 

41.9

 

 

 

88.6

 

 

 

(46.7

)

(Loss) before income taxes and noncontrolling

   interest

 

 

(1,296.7

)

 

 

(1,264.0

)

 

 

(32.7

)

 

 

(4,389.9

)

 

 

(4,329.3

)

 

 

(60.6

)

Net (loss) from continuing operations, net of

   tax

 

 

(715.5

)

 

 

(682.8

)

 

 

(32.7

)

 

 

(3,276.6

)

 

 

(3,216.0

)

 

 

(60.6

)

Net (loss)

 

 

(723.9

)

 

 

(691.2

)

 

 

(32.7

)

 

 

(3,288.1

)

 

 

(3,227.5

)

 

 

(60.6

)

Dividends on preferred shares

 

 

69.6

 

 

 

-

 

 

 

69.6

 

 

 

139.2

 

 

 

-

 

 

 

139.2

 

Net (loss) attributable to ordinary

   shareholders/members

 

 

(795.5

)

 

 

(693.2

)

 

 

(102.3

)

 

 

(3,430.3

)

 

 

(3,230.5

)

 

 

(199.8

)

 

The difference between general and administrative expenses in the three and six months ended June 30, 2018 and 2017 was due to corporate related expenses incurred by Allergan plc.  Movements in equity were due to historical differences in the results of operations of the companies and differences in equity awards.

 

As of June 30, 2018 and December 31, 2017, Warner Chilcott Limited had $5.8 billion in Receivables from the Parents. As of June 30, 2018 and December 31, 2017, Warner Chilcott Limited had $4.0 billion in Non-current Receivables from the Parents.  These receivables related to intercompany loans between Allergan plc and subsidiaries of Warner Chilcott Limited.  These loans are interest-bearing loans with varying term dates and cause a difference in interest income between the two entities.  Total interest income recognized during the three and six months ended June 30, 2018 was $65.5 million and $118.5 million, respectively.  Total interest income recognized during the three and six months ended June 30, 2017 was $20.6 million and $46.7 million, respectively.

 

 

NOTE 3 — Summary of Significant Accounting Policies

The following are interim updates to certain of the policies described in “Note 4” of the notes to the Company’s audited consolidated financial statements for the year ended December 31, 2017 included in the Annual Report.

Implementation of New Guidance

 

On January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers" (“Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting practices.  The impact to revenues for the three and six months ended June 30, 2018 was not significant as a result of the adoption.  The adoption of this guidance does not have a material impact on the Company’s financial position or results of operations as the Company’s sales primarily are governed by standard bill and ship terms of pharmaceutical products to customers.  

 

12


 

The Company applies the practical expedient as defined in Topic 606 to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs which are included in selling, general, and administrative expenses are consistent with the accounting prior to the adoption of Topic 606. The Company also elected to use the practical expedient to not adjust the promised amount of consideration for the effects of the time value of money for contracts in which the anticipated period between when the Company transfers the goods or services to the customer and when the customer pays is equal to one year or less.

On January 1, 2018, the Company adopted ASU No. 2016-01, which now requires equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income.  Under the previous guidance, changes in the fair value of equity securities were recognized through other comprehensive income.

On January 1, 2018, the Company adopted ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Previously, GAAP prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition was an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The amendment to the guidance eliminated the exception for an intra-entity transfer of an asset other than inventory and required an entity to recognize the income tax consequences when the transfer occurs.

The following represents the impact on the Company's Consolidated Balance Sheet as a result of the adoption on January 1, 2018 of these accounting pronouncements ($ in millions):

 

 

 

Increase / (decrease)

 

Pronouncement

 

Accounts receivable, net

 

 

Prepaid expenses and other current assets

 

 

Accounts payable and accrued expenses

 

 

Deferred tax liabilities

 

 

Retained earnings

 

 

Accumulated other comprehensive income / (loss)

 

Accounting Standards Update No.

   2014-09

 

$

1.9

 

 

$

-

 

 

$

(3.6

)

 

$

-

 

 

$

5.5

 

 

$

-

 

Accounting Standards Update No.

   2016-01

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

63.0

 

 

$

(63.0

)

Accounting Standards Update No.

   2016-16

 

$

-

 

 

$

(44.8

)

 

$

-

 

 

$

(401.0

)

 

$

356.2

 

 

$

-

 

 

On January 1, 2018, the Company adopted ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This standard amends and adjusts how cash receipts and cash payments are presented and classified in the statement of cash flows. As a result of the guidance, the Company retrospectively applied the standard which resulted in a reclassification of debt extinguishment costs from cash flows from operating activities to cash flows from financing activities.  As a result of the guidance cash flows from operating activities increased by $170.5 million and cash flows from financing activities decreased by $170.5 million in the six months ended June 30, 2017.  Cash flows from operating activities will increase by $205.6 million and cash flows from financing activities will decrease by $205.6 million for the year ended December 31, 2017.

 

On January 1, 2018, the Company adopted ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This update requires that an employer disaggregate the service cost component from the other components of net periodic benefit cost.  Upon adoption, the Company recorded other components of the net periodic benefit cost with “other income / (expense), net.”

Revenue Recognition

 

General

 

Topic 606 provides that revenues are recognized when control of the promised goods under a contract is transferred to a customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods as specified in the underlying terms with the customer. The Company warrants products against defects and for specific quality standards, permitting the return of products under certain circumstances. Product sales are recorded net of all sales-related deductions including, but not limited to: chargebacks, trade discounts, commercial and government rebates, customer loyalty programs fee-for-service arrangements with certain distributors, returns, and other allowances which we refer to in the aggregate as sales returns and allowances (“SRA”).

13


 

 

The Company’s performance obligations are primarily achieved when control of the products is transferred to the customer. Transfer of control is based on contractual performance obligations, but typically occurs upon receipt of the goods by the customer.

 

Prior to the achievement of performance obligations, shipping and handling costs associated with outbound freight for a product to be transferred to a customer are accounted for as a fulfillment cost and are included in selling and marketing expenses.

Other revenues earned are mainly comprised of royalty income from licensing of intellectual property. Royalty income is recognized when the licensee’s subsequent sale occurs.

Refer to “NOTE 8 –Reportable Segments” for our revenues disaggregated by product and segment and our revenues disaggregated by geography for our international segment.  We believe this level of disaggregation best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.  

Significant Payment Terms

 

A contract with a customer states the final terms of the sale, including the description, quantity, and price of each product purchased. The Company’s payment terms vary by the type and location of the customer and the products offered. A customer agrees to a stated rate and price in the contract and given that most of the products sold contain variable consideration, the amount of revenue recognized incorporates adjustments for SRAs as appropriate.

 

 

Determining the Transaction Price

The Company offers discounts and rebates to certain customers who participate in various programs that are referred to as SRA allowances as described further below in the section “Provisions for SRAs”. Such discounting and rebating activity is included as part of the Company’s estimate of the transaction price and is accounted for as a reduction to gross sales. At time of sale, the Company records the related SRA adjustments to sales as described further below in the section “Provisions for SRAs”. The Company performs a level of validation each period to assess the adequacy of the liability or contra receivable recorded to reflect actual activity and will adjust the reserve balances accordingly.

Provisions for SRAs

 

As is customary in the pharmaceutical industry, certain customers may receive cash-based incentives or credits, which are variable consideration accounted for as SRAs. The Company estimates SRA amounts based on the expected amount to be provided to customers, which reduces the revenues recognized. The Company believes that there will not be significant changes to our estimates of variable consideration. The Company uses a variety of methods to assess the adequacy of the SRA reserves to ensure that our financial statements are fairly stated.  These provisions are estimated based on historical payment experience, the historical relationship of the deductions to gross product revenues, government regulations, estimated utilization or redemption rates, estimated customer inventory levels and current contract sales terms. The estimation process used to determine our SRA provisions has been applied on a consistent basis and no material revenue adjustments have been necessary to increase or decrease our reserves for SRA as a result of a significant change in underlying estimates.

Chargebacks — A chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid by such wholesaler customer for a particular product and the negotiated contract price that the wholesaler’s customer pays for that product. The chargeback provision and related reserve varies with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventories. The provision for chargebacks also takes into account an estimate of the expected wholesaler sell-through levels to indirect customers at certain contract prices. The Company validates the chargeback accrual quarterly through a review of the inventory reports obtained from our largest wholesale customers. This customer inventory information is used to verify the estimated liability for future chargeback claims based on historical chargeback and contract rates. These large wholesalers represent the vast majority of the recipients of the Company’s chargeback credits. We continually monitor current pricing trends and wholesaler inventory levels to ensure the contra-receivable for future chargebacks is fairly stated.

Rebates — Rebates include volume related incentives to direct and indirect customers, third-party managed care and Medicare Part D rebates, Medicaid rebates and other government rebates. Rebates are accrued based on an estimate of claims to be paid for product sold into trade by the Company. Volume rebates are generally contractually offered to customers as an incentive to use the Company’s products and to encourage greater product sales. These rebate programs include contracted rebates based on customers’ purchases made during an applicable monthly, quarterly or annual period. The provision for third-party rebates is estimated based on our customers’ contracted rebate programs and the Company’s historical experience of rebates paid. Any significant changes to our customer rebate programs are considered in establishing the provision for rebates. The provisions for government rebates are based, in part, upon historical experience of claims submitted by the various states and authorities, contractual terms and government regulations. We monitor legislative changes to determine what impact such legislation may have on our provision.

14


 

Cash Discounts — Cash discounts are provided to customers that pay within a specific time period. The provision for cash discounts is estimated based upon invoice billings and historical customer payment experience. The Company’s experience of payment history is fairly consistent and most customer payments qualify for a cash discount.

Returns and Other Allowances — The Company’s provision for returns and other allowances include returns, promotional allowances and loyalty cards.

Consistent with industry practice, the Company maintains a returns policy that allows customers to return product for a credit. In accordance with the Company’s policy, credits for customer returns of products are applied against outstanding account activity or are settled in cash. Product exchanges are generally not permitted. Customer returns of product are generally not resalable. The Company’s estimate of the provision for returns is based upon historical experience and current trends of actual customer returns. Additionally, we consider other factors when estimating the current period returns provision, including levels of inventory in the distribution channel, as well as significant market changes which may impact future expected returns.

Promotional allowances are credits with no discernable benefit offered to Allergan that are issued in connection with a product launch or as an incentive for customers to carry our product. The Company establishes a reserve for promotional allowances based upon contractual terms.

Loyalty cards allow end-user patients a discount per prescription and are accrued based on historical experience, contract terms and the volume of product and cards in the distribution channel.

The following table summarizes the activity from continuing operations in the Company’s major categories of SRA ($ in millions):

 

 

 

Chargebacks

 

 

Rebates

 

 

Returns and

Other

Allowances

 

 

Cash Discounts

 

 

Total

 

Balance at December 31, 2017

 

$

77.2

 

 

$

1,799.2

 

 

$

517.6

 

 

$

36.5

 

 

$

2,430.5

 

Provision related to sales in 2018

 

 

550.9

 

 

 

2,556.5

 

 

 

859.6

 

 

 

155.4

 

 

 

4,122.4

 

Credits and payments

 

 

(565.6

)

 

 

(2,622.2

)

 

 

(842.1

)

 

 

(161.8

)

 

 

(4,191.7

)

Balance at June 30, 2018

 

$

62.5

 

 

$

1,733.5

 

 

$

535.1

 

 

$

30.1

 

 

$

2,361.2

 

Contra accounts receivable at June 30, 2018

 

$

62.5

 

 

$

67.4

 

 

$

42.9

 

 

$

30.1

 

 

$

202.9

 

Accounts payable and accrued expenses

   at June 30, 2018

 

$

-

 

 

$

1,666.1

 

 

$

492.2

 

 

$

-

 

 

$

2,158.3

 

 

The following table summarizes the balance sheet classification of our SRA reserves ($ in millions):

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Contra accounts receivable

 

$

202.9

 

 

$

250.6

 

Accounts payable and accrued expenses

 

 

2,158.3

 

 

 

2,179.9

 

Total

 

$

2,361.2

 

 

$

2,430.5

 

 

The SRA provisions recorded to reduce gross product sales to net product sales, excluding discontinued operations, were as follows ($ in millions):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Gross product sales

 

$

6,095.5

 

 

$

5,888.4

 

 

$

11,711.6

 

 

$

11,270.8

 

Provisions to reduce gross product sales to net product sales

 

 

(2,087.3

)

 

 

(1,977.3

)

 

 

(4,122.4

)

 

 

(3,869.9

)

Net product sales

 

$

4,008.2

 

 

$

3,911.1

 

 

$

7,589.2

 

 

$

7,400.9

 

Percentage of SRA provisions to gross sales

 

 

34.2

%

 

 

33.6

%

 

 

35.2

%

 

 

34.3

%

 

15


 

Collectability Assessment

At the time of contract inception or customer account set-up, the Company performs a collectability assessment on the creditworthiness of such customer. The Company assesses the probability that the Company will collect the consideration to which it will be entitled in exchange for the goods sold. In evaluating collectability, the Company considers the customer’s ability and intention to pay consideration when it is due. On a recurring basis, the Company estimates the amount of uncollectible receivables to reflect allowances for doubtful accounts.

 

Practical Expedients and Exemptions

 

The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling and marketing expenses.

 

The Company does not adjust the promised amount of consideration for the effects of the time value of money for contracts in which the anticipated period between when the Company transfers the goods or services to the customer and when the customer pays is equal to one year or less.

 

The Company has chosen not to elect the remaining practical expedients.

 

Goodwill and Intangible Assets with Indefinite Lives

 

General

 

The Company tests goodwill and intangible assets with indefinite lives for impairment annually in the second quarter. Additionally, the Company may perform interim tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit or indefinite lived intangible asset below its carrying amount. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors, including Reporting Unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a Reporting Unit is less than its carrying amount, including goodwill. The Company may elect to bypass this qualitative assessment for some or all of its Reporting Units and perform a quantitative test.

Goodwill is considered impaired if the carrying amount of the net assets exceeds the fair value of the reporting unit. Impairment, if any, would be recorded in operating income / (loss) and this could result in a material impact to net income / (loss) and income / (loss) per share.

Prior to Allergan’s annual impairment test, the Company adopted the new guidance under Accounting Standard Update No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment which eliminated step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment loss as of January 1, 2018.  A goodwill impairment loss under the new guidance is instead measured using a single step test based on the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill.  Based on the Company’s impairment test, no impairments were noted.

Acquired in-process research and development (“IPR&D”) intangible assets represent the value assigned to research and development projects acquired in a business combination that, as of the date acquired, represent the right to develop, use, sell and/or offer for sale a product or other intellectual property that has not been completed or approved. The IPR&D intangible assets are subject to impairment testing until completion or abandonment of each project. Upon abandonment, the assets are impaired if there is no future alternative use or ability to sell the asset. Impairment testing requires the development of significant estimates and assumptions involving the determination of estimated net cash flows for each year for each project or product (including net revenues, cost of sales, research and development (“R&D”) costs, selling and marketing costs and other costs which may be allocated), determination of the appropriate discount rate in order to measure the risk inherent in each future cash flow stream, assessment of each asset’s life cycle, potential regulatory and commercial success risks, and competitive trends impacting the asset and each cash flow stream as well as other factors. The major risks and uncertainties associated with the timely and successful completion of IPR&D projects include legal risk, market risk and regulatory risk. Changes in our assumptions could result in future impairment charges. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change or the timely completion of each project and commercial success will occur. For these and other reasons, actual results may vary significantly from estimated results.

16


 

Upon successful completion of each project and approval of a product, we will make a separate determination of the useful life of the intangible asset, transfer the amount to currently marketed products (“CMP”) and amortization expense will be recorded over the estimated useful life.

 

Annual Testing

2018

The Company performed its annual goodwill impairment test during the second quarter of 2018 by evaluating its five Reporting Units.  In performing this test, the Company utilized long-term growth rates for its Reporting Units ranging from 1.0% to 2.0% in its estimation of fair value and discount rates ranging from 8.5% to 10.0%, which is an increase versus the prior year discount rates of 7.5% to 8.5% to reflect changes in market conditions.  The assumptions used in evaluating goodwill for impairment are subject to change and are tracked against historical results by management. Changes in the key assumptions by management can change the results of testing.

Of the Reporting Units tested, the Company’s US Eye Care Reporting Unit, which is a component of its US Specialized Therapeutics Segment and has an allocated goodwill balance of $9,824.8 million and its General Medicine Reporting Unit are the most sensitive to a change in future valuation assumptions.  These Reporting Units had the lowest level of headroom.  While management believes the assumptions used are reasonable and commensurate with the views of a market participant, changes in key assumptions for these Reporting Units, including increasing the discount rate, lowering revenue forecasts, lowering the operating margin or lowering long-term growth rate, could result in a future impairment.

The Company performed its annual IPR&D impairment test in the second quarter of 2018.  Based on events occurring or decisions made within the quarter ended June 30, 2018, the Company recorded the following impairments:

 

The Company impaired an eye care project obtained as part of the acquisition of Allergan, Inc. (the “Allergan Acquisition”) by $164.0 million as a result of changes in launch plans based on clinical results.

 

The Company impaired a project obtained as part of the acquisition of Vitae Pharmaceuticals, Inc. by $40.0 million due to a delay in clinical studies and anticipated approval date.

 

The Company impaired a medical dermatology project obtained as part of the Allergan Acquisition by $27.0 million due to a delay in clinical studies and anticipated approval date.

 

The Company impaired an eye care project obtained as part of the Allergan Acquisition by $20.0 million as the result of a strategic decision to no longer pursue approval internationally.

 

The Company impaired a CNS project obtained as part of the Allergan Acquisition by $19.0 million due to a delay in clinical studies and anticipated approval date.

 

The Company impaired an eye care project obtained as part of the Allergan Acquisition by $6.0 million due to a delay in clinical studies and anticipated approval date.

 

2017

During the second quarter of 2017, the Company performed its annual IPR&D impairment test and recorded the following IPR&D impairments:

 

$486.0 million related to an anticipated approval delay due to certain product specifications for a CNS project obtained as part of the Allergan Acquisition;

 

a $91.3 million impairment of a women’s healthcare project based on the Company’s intention to divest a non-strategic asset;

 

a $57.0 million ($257.0 million year to date) impairment due to a delay in an anticipated launch of a women’s healthcare project;

17


 

 

a $44.0 million impairment resulting from a decrease in projected cash flows due to a decline in market demand assumptions of an eye care project obtained as part of the Allergan Acquisition; and

 

a $20.0 million impairment of an eye care project obtained as part of the Allergan Acquisition.

 

Earnings Per Share (“EPS”)

The Company computes EPS in accordance with Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share” (“ASC 260”) and related guidance, which requires two calculations of EPS to be disclosed: basic and diluted. Basic EPS is computed by dividing net (loss) by the weighted average ordinary shares outstanding during a period. Diluted EPS is based on the treasury stock method and includes the effect from potential issuance of ordinary shares, such as shares issuable pursuant to the exercise of stock options and restricted stock units. Diluted EPS also includes the impact of ordinary share equivalents issued (or issuable in 2017) upon the mandatory conversion of the Company’s preferred shares which occurred on March 1, 2018.  Ordinary share equivalents have been excluded where their inclusion would be anti-dilutive to continuing operations.

A reconciliation of the numerators and denominators of basic and diluted EPS consisted of the following ($ in millions, except per share amounts):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to ordinary shareholders excluding

   income from discontinued operations, net of tax

 

$

(472.5

)

 

$

(787.1

)

 

$

(805.0

)

 

$

(3,418.8

)

(Loss) from discontinued operations, net of tax

 

 

-

 

 

 

(8.4

)

 

 

-

 

 

 

(11.5

)

Net (loss) attributable to ordinary shareholders

 

$

(472.5

)

 

$

(795.5

)

 

$

(805.0

)

 

$

(3,430.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average ordinary shares outstanding

 

 

339.1

 

 

 

335.2

 

 

 

336.9

 

 

 

335.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(1.39

)

 

$

(2.35

)

 

$

(2.39

)

 

$

(10.20

)

Discontinued operations

 

$

-

 

 

$

(0.02

)

 

$

-

 

 

$

(0.03

)

Net (loss) per share

 

$

(1.39

)

 

$

(2.37

)

 

$

(2.39

)

 

$

(10.23

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per ordinary share

 

$

0.72

 

 

$

0.70

 

 

$

1.44

 

 

$

1.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average ordinary shares outstanding

 

 

339.1

 

 

 

335.2

 

 

 

336.9

 

 

 

335.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(1.39

)

 

$

(2.35

)

 

$

(2.39

)

 

$

(10.20

)

Discontinued operations

 

$

-

 

 

$

(0.02

)

 

$

-

 

 

$

(0.03

)

Net (loss) per share

 

$

(1.39

)

 

$

(2.37

)

 

$

(2.39

)

 

$

(10.23

)

 

Stock awards to purchase 2.2 million ordinary shares for the three and six months ended June 30, 2018 were outstanding, but not included in the computation of diluted EPS, because the awards were anti-dilutive.  Stock awards to purchase 3.9 million and 4.2 million ordinary shares for the three and six months ended June 30, 2017, respectively, were outstanding, but not included in the computation of diluted EPS, because the awards were anti-dilutive.

 

The weighted average impact of ordinary share equivalents of 5.8 million for the six months ended June 30, 2018, which would result from the mandatory conversion of the Company’s preferred shares at the beginning of the period were not included in the calculation of diluted EPS as their impact would be anti-dilutive.  The Company’s preferred shares were converted to ordinary shares on March 1, 2018.  The weighted average impact of ordinary share equivalents of 17.6 million for the three and six months ended June 30, 2017, which were anticipated to result from the mandatory conversion of the Company’s preferred shares were not included in the calculation of diluted EPS as their impact would be anti-dilutive.  

Refer to “NOTE 15 –Shareholders’ Equity” for further discussion on the Company’s Share Repurchase Program.

 

18


 

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, which states that a lessee should recognize the assets and liabilities that arise from leases. This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. While the Company has not yet completed its assessment, the adoption of the guidance is anticipated to have a material impact on the Company’s financial position.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is evaluating the impact, if any, that this pronouncement will have on our financial position and results of operations.

In March 2017, The FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date, but does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  The amendments are effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Entities are required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The entity is required to provide disclosures about a change in accounting principle in the period of adoption. The Company is evaluating the impact these amendments will have on our financial position and results of operations.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) — Targeted Improvements to Accounting for Hedging Activities. The amendments to the guidance will better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments also make certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted in any interim period or fiscal years before the effective date of the amendments.

 

 

NOTE 4 — Acquisitions and Other Agreements

 

2018 Transactions

 

The following are the significant transactions that were completed in the six months ended June 30, 2018.

 

Held for Sale

 

As of June 30, 2018, the Company determined that certain assets related to a non-strategic medical dermatology product was deemed held for sale based on the Company’s intention and ability to dispose of the related assets.  As a result, the Company recorded an impairment of $252.0 million to the anticipated sale value and reclassified the “product rights and other intangibles, net” balance of $130.5 million to “non-current assets held for sale.”  

Elastagen Pty Ltd

On April 6, 2018, the Company completed the acquisition of Elastagen Pty Ltd, which was accounted for as an asset acquisition as the purchase primarily related to one asset.  An upfront expense of $96.1 million was expensed as a component of R&D during the three and six months ended June 30, 2018.  Under the terms of the agreement, Elastagen Pty Ltd is eligible to receive additional consideration of up to $165.0 million.

19


 

Repros Therapeutics, Inc.

On January 31, 2018, the Company completed the acquisition of Repros Therapeutics, Inc., which was accounted for as an asset acquisition as the purchase primarily related to one asset.  A net charge of $33.2 million was expensed as a component of R&D during the six months ended June 30, 2018.

 

2017 Acquisitions with Purchase Accounting Finalized in 2018

ZELTIQ® Aesthetics, Inc.

On April 28, 2017 the Company acquired Zeltiq® Aesthetics, Inc. (“Zeltiq”) for an acquisition accounting purchase price of $2,405.4 million (the “Zeltiq Acquisition”). Zeltiq was focused on developing and commercializing products utilizing its proprietary controlled-cooling technology platform (Coolsculpting®). The Zeltiq Acquisition combined Zeltiq’s body contouring business with the Company’s leading portfolio of medical aesthetics.

Assets Acquired and Liabilities Assumed at Fair Value

The Zeltiq Acquisition has been accounted for using the acquisition method of accounting. This method requires that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date.

The following table summarizes the final fair values of the assets acquired and liabilities assumed at the acquisition date and reflects purchase accounting adjustments subsequent to the acquisition date ($ in millions):

 

 

 

Final

Valuation

 

Cash and cash equivalents

 

$

36.7

 

Accounts receivable

 

 

47.0

 

Inventories

 

 

59.3

 

Property, plant and equipment

 

 

12.4

 

Intangible assets

 

 

1,185.0

 

Goodwill

 

 

1,211.6

 

Other assets

 

 

17.1

 

Accounts payable and accrued expenses

 

 

(104.6

)

Deferred revenue

 

 

(10.6

)

Deferred taxes, net

 

 

(47.2

)

Other liabilities

 

 

(1.3

)

Net assets acquired

 

$

2,405.4

 

Inventories

The fair value of inventories acquired included an acquisition accounting fair market value step-up of $22.9 million which was recognized as a component of cost of sales as the inventory acquired was sold to the Company’s customers in the year ended December 31, 2017, including $11.9 million in the three and six months ended June 30, 2017.

Deferred Tax Liabilities

Deferred tax liabilities result from identifiable intangible assets’ fair value adjustments. These adjustments create excess book basis over tax basis which is tax-affected by the statutory tax rates of applicable jurisdictions.

 

NOTE 5 — Discontinued Operations

 

Global Generics Business

On July 27, 2015, the Company announced that it entered into a divestiture agreement for our global generics business and certain other assets to Teva Pharmaceutical Industries Ltd. (“Teva”) (the “Teva Transaction”), which closed on August 2, 2016.  On October 3, 2016, the Company completed the divestiture of the Anda Distribution business to Teva for $500.0 million.  The Company recognized a combined gain on the sale of the Anda Distribution business and the sale of the global generics business of $15,932.2 million.

 

20


 

In October 2016, pursuant to our agreement with Teva, Teva provided the Company with its proposed estimated adjustment to the closing date working capital balance.  The Company disagreed with Teva’s proposed adjustment, and, pursuant to our agreement with Teva, each of the Company’s and Teva’s proposed adjustments were submitted to arbitration to determine the working capital amount in accordance with GAAP as applied by the Company consistent with past practice.

 

On January 31, 2018, Allergan plc and Teva entered into a Settlement Agreement and Mutual Releases (the “Agreement”) pursuant to which the Company made a one-time payment of $700.0 million to Teva; the Company and Teva jointly dismissed their working capital dispute arbitration, and the Company and Teva released all actual or potential indemnification and other claims under the Master Purchase Agreement, dated July 26, 2015, by and between the Company and Teva, that were known as of the date of the Agreement.  The Company recorded a pre-tax charge of $466.0 million as a component of other (expense) / income, net from discontinued operations relating to the settlement in the year ended December 31, 2017.  The one-time payment of $700.0 million is shown in the Consolidated Statement of Cash Flows as both a cash outflow in investing activities of $466.0 million and a cash outflow in financing cash flows of $234.0 million for the portion of the payment which was outstanding greater than one year.

 

 

NOTE 6 – Other Income / (Expense)

Other income / (expense) consisted of the following ($ in millions):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Teva Share Activity

 

$

138.6

 

 

$

-

 

 

$

60.9

 

 

$

(1,978.0

)

Sale of business

 

 

53.0

 

 

 

-

 

 

 

53.0

 

 

 

-

 

Debt extinguishment other

 

 

9.1

 

 

 

-

 

 

 

9.1

 

 

 

-

 

Debt extinguishment costs as part of the debt tender offer

 

 

-

 

 

 

(161.5

)

 

 

-

 

 

 

(161.5

)

Dividend income

 

 

-

 

 

 

34.1

 

 

 

-

 

 

 

68.2

 

Naurex recovery

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20.0

 

Other income / (expense), net

 

 

14.7

 

 

 

(6.1

)

 

 

13.6

 

 

 

(5.0

)

Other income / (expense), net

 

$

215.4

 

 

$

(133.5

)

 

$

136.6

 

 

$

(2,056.3

)

21


 

Teva Share Activity

During the three and six months ended June 30, 2018, the Company recorded the following movements in its investment in Teva securities (defined herein as “Teva Share Activity”) ($ in millions except per share information):

 

 

 

Shares

 

 

Carrying

Value

per Share

 

 

Market

Price

 

 

Proceeds Received

 

 

Value of

Marketable

Securities

 

 

Unrealized

Gain / (Loss) as

a Component

of Other

Comprehensive

Income

 

 

Gain / (Loss)

Recognized

in Other

Income/

(Expense),

Net

 

 

Derivative Instrument (Liability)/

Asset

 

 

Retained Earnings

 

Teva securities as of

   December 31, 2017

 

 

95.9

 

 

$

17.60

 

 

$

18.95

 

 

n.a.

 

 

$

1,817.7

 

 

$

129.3

 

 

$

-

 

 

$

(62.9

)

 

$

-

 

Impact of ASU No. 2016-01

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(129.3

)

 

 

-

 

 

 

-

 

 

 

129.3

 

Settlement of initial accelerated

   share repurchase ("ASR"), net

 

 

(25.0

)

 

 

18.95

 

 

 

16.53

 

*

 

413.3

 

 

 

(473.8

)

 

 

-

 

 

 

2.5

 

 

 

62.9

 

 

 

-

 

Forward sale entered into during

   the three months ended

   March 31, 2018

 

**

 

 

n.a.

 

 

n.a.

 

 

 

372.3

 

 

n.a.

 

 

 

-

 

 

 

19.0

 

 

 

(353.3

)

 

 

-

 

Open market sales

 

 

(11.5

)

 

n.a.

 

 

 

19.95

 

 

 

229.9

 

 

 

(218.5

)

 

 

-

 

 

 

11.5

 

 

 

-

 

 

 

-

 

Other fair value movements during

   the three months ended

   March 31, 2018

 

 

-

 

 

n.a.

 

 

n.a.

 

 

n.a.

 

 

 

(110.7

)

 

 

-

 

 

 

(110.7

)

 

 

-

 

 

 

-

 

Teva securities as of and for the

   three months ended

   March 31, 2018

 

 

59.4

 

 

$

17.09

 

 

$

17.09

 

 

$

1,015.5

 

 

$

1,014.7

 

 

$

-

 

 

$

(77.7

)

 

$

(353.3

)

 

$

129.3

 

Settlement of forward sale entered

   into during the three months

   ended March 31, 2018, net

 

 

(25.0

)

 

 

17.09

 

 

 

18.61

 

***

 

93.2

 

 

 

(427.3

)

 

 

-

 

 

 

19.2

 

 

 

353.3

 

 

 

-

 

Open market sales

 

 

(34.4

)

 

n.a.

 

 

 

20.55

 

 

 

706.8

 

 

 

(587.4

)

 

 

-

 

 

 

119.4

 

 

 

-

 

 

 

-

 

Teva securities as of

   and for the six months

   ended June 30, 2018

 

 

-

 

 

$

-

 

 

$

-

 

 

$

1,815.5

 

 

$

-

 

 

$

-

 

 

$

60.9

 

 

$

-

 

 

$

129.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Market price represents average price over the life of the contract.  On the January 17, 2018 settlement date, the closing stock price of Teva securities was $21.48.

 

** On February 13, 2018, the Company entered into a forward sale transaction under which we delivered 25.0 million Teva shares to the transaction counterparty and received proceeds of $372.3 million in exchange for the shares.  The forward sale transaction settled during the second quarter of 2018.  As a result of the transaction, and in accordance with ASC Topic 860 - Transfers and Servicing, the marketable securities were reported on the Company's balance sheet until the contract settled on May 7, 2018.

 

*** Market price represents average price over the life of the contract.  On the May 7, 2018 settlement date, the closing stock price of Teva securities was $18.62.

 

 

22


 

During the three and six months ended June 30, 2017, the Company recorded the following movements in its investment in Teva securities ($ in millions except per share information):

 

 

 

Shares

 

 

Carrying

Value

per Share

 

 

Market

Price

 

 

Discount

 

 

Movement

in the

Value of

Marketable

Securities

 

 

Unrealized

Gain / (Loss) as

a Component

of Other

Comprehensive

Income

 

 

Gain / (Loss)

Recognized

in Other

Income/

(Expense),

Net

 

Teva securities as of December 31, 2016

 

 

100.3

 

 

$

53.39

 

 

$

36.25

 

 

 

5.4

%

 

$

3,439.2

 

 

$

(1,599.4

)

 

$

-

 

Other-than-temporary impairment recognized at

   March 31, 2017

 

 

100.3

 

 

 

32.09

 

 

 

32.09

 

 

 

4.9

%

 

 

(378.6

)

 

 

1,599.4

 

 

 

(1,978.0

)

Teva securities as of and for the three

   months ended March 31, 2017

 

 

100.3

 

 

$

32.09

 

 

$

32.09

 

 

 

4.9

%

 

$

3,060.6

 

 

$

-

 

 

$

(1,978.0

)

Other fair value movements during the

   three months ended June 30, 2017

 

 

100.3

 

 

 

32.09

 

 

 

33.22

 

 

 

1.9

%

 

 

207.8

 

 

 

207.8

 

 

 

-

 

Teva securities as of and for the six

   months ended June 30, 2017

 

 

100.3

 

 

$

32.09

 

 

$

33.22

 

 

 

1.9

%

 

$

3,268.4

 

 

$

207.8

 

 

$

(1,978.0

)

The Teva stock price was discounted due to the lack of marketability.

 

Sale of Business

During the three and six months ended June 30, 2018, the Company completed the sale of a non-strategic asset group held for sale as of December 31, 2017, which was deemed a business based on the applicable guidance at the time, for $55.0 million in cash plus deferred consideration of $20.0 million.  As a result of this transaction, the Company recognized a gain of $53.0 million.

Debt Extinguishment Other

During the three and six months ended June 30, 2018, the Company repurchased $455.9 million of senior notes in the open market.  As a result of the debt extinguishment, the Company recognized a net gain of $9.1 million, within “Other income / (expense)” for the cash discount received of $13.1 million, including the non-cash write-off of premiums and debt fees related to the repaid notes of $4.0 million.

During the three and six months ended June 30, 2018, the Company redeemed and retired the following senior notes ($ in millions):

 

Tranche

 

Face Value

Retired

 

 

Cash Paid

for Retirement

 

 

Remaining Value

at June 30, 2018

 

2.450% due 2019

 

$

8.8

 

 

$

8.8

 

 

$

491.2

 

3.000% due 2020

 

 

40.7

 

 

 

40.6

 

 

 

3,459.3

 

3.450% due 2022

 

 

59.5

 

 

 

58.6

 

 

 

2,940.5

 

3.850% due 2024

 

 

11.2

 

 

 

10.9

 

 

 

1,188.8

 

3.800% due 2025

 

 

85.0

 

 

 

82.6

 

 

 

3,915.0

 

4.550% due 2035

 

 

115.0

 

 

 

110.1

 

 

 

2,385.0

 

4.850% due 2044

 

 

59.0

 

 

 

57.3

 

 

 

1,441.0

 

4.750% due 2045

 

 

76.7

 

 

 

73.9

 

 

 

1,123.3

 

Total

 

$

455.9

 

 

$

442.8

 

 

$

16,944.1

 

Debt Extinguishment Costs as Part of the Debt Tender Offer

On May 30, 2017, the Company completed the repurchase of certain debt securities issued for cash under a previously announced tender offer.  During the three and six months ended June 30, 2017, as a result of the debt extinguishment, the Company recognized a loss of $161.5 million, within “Other income / (expense)” for the early tender payment and non-cash write-off of premiums and debt fees related to the repurchased notes, including $170.5 million of a make-whole premium.

23


 

Dividend Income

During the three and six months ended June 30, 2017, the Company received dividend income of $34.1 million and $68.2 million, respectively, on the 100.3 million Teva ordinary shares acquired as a result of the Teva Transaction.  On February 8, 2018, Teva suspended all dividends on ordinary shares.

Naurex Recovery

On August 28, 2015, the Company acquired certain products in early stage development of Naurex, Inc. (“Naurex”) in an all-cash transaction, which was accounted for as an asset acquisition.  The Company received a purchase price reduction of $20.0 million in the six months ended June 30, 2017 based on the settlement of an open contract dispute.

 

 

NOTE 7 — Share-Based Compensation

The Company recognizes compensation expense for all share-based compensation awards made to employees and directors based on the fair value of the awards on the date of grant.

The Company grants awards with the following features:

 

Time-based restricted stock and restricted stock unit awards (including, in certain foreign jurisdictions, cash-settled restricted stock unit awards, which are recorded as a liability);

 

Performance-based restricted stock unit awards measured against performance-based targets defined by the Company, including, but not limited to, total shareholder return metrics and R&D milestones, as defined by the Company; and

 

Non-qualified options to purchase outstanding shares.

The Company recognizes share-based compensation expense for granted awards over the applicable vesting period.

Cash-settled performance-based awards are recorded as a liability. These cash-settled performance-based awards are measured against pre-established total shareholder returns metrics.

Fair Value Assumptions

All restricted stock and restricted stock units (whether time-based or performance-based) are granted and expensed using the fair value per share on the applicable grant date, over the applicable vesting period. Non-qualified options to purchase ordinary shares are granted to employees at exercise prices per share equal to the closing market price per share on the date of grant. The fair value of non-qualified options is determined on the applicable grant dates using the Black-Scholes method of valuation and that amount is recognized as an expense over the vesting period. Using the Black-Scholes valuation model, the fair value of options is based on the following assumptions:

 

 

 

2018

Grants

 

2017

Grants

Dividend yield

 

1.8 - 1.9%

 

1.2%

Expected volatility

 

27.0%

 

27.0%

Risk-free interest rate

 

2.2 - 2.8%

 

2.0 - 2.3%

Expected term (years)

 

7.0

 

7.0

 

24


 

Share-Based Compensation Expense

Share-based compensation expense recognized in the Company’s results of operations for the three and six months ended June 30, 2018 and 2017 was as follows ($ in millions):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Equity-based compensation awards

 

$

54.9

 

 

$

85.8

 

 

$

127.4

 

 

$

148.5

 

Cash-settled awards in connection with the Zeltiq Acquisition

 

 

-

 

 

 

31.5

 

 

 

-

 

 

 

31.5

 

Non-equity settled awards other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13.1

 

Total share-based compensation expense

 

$

54.9

 

 

$

117.3

 

 

$

127.4

 

 

$

193.1

 

 

Included in the share-based compensation awards for the three and six months ended June 30, 2018 and 2017 is the impact of accelerations and step-ups relating to the acquisition accounting treatment of outstanding awards acquired in the Zeltiq Acquisition, the Allergan Acquisition, and the acquisition of Forest Laboratories, Inc. (the “Forest Acquisition”) as follows ($ in millions):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Zeltiq Acquisition

 

$

2.4

 

 

$

37.7

 

 

$

6.5

 

 

$

37.7

 

Allergan Acquisition

 

 

1.0

 

 

 

10.4

 

 

 

6.7

 

 

 

27.8

 

Forest Acquisition

 

 

-

 

 

 

2.9

 

 

 

-

 

 

 

7.5

 

Total

 

$

3.4

 

 

$

51.0

 

 

$

13.2

 

 

$

73.0

 

 

 

Unrecognized future share-based compensation expense was $431.7 million as of June 30, 2018, including $18.6 million from the Zeltiq Acquisition and $12.1 million from the Allergan Acquisition. This amount will be recognized as an expense over a remaining weighted average period of 1.7 years. Share-based compensation is being amortized and charged to operations over the same period as the restrictions are eliminated for the participants, which is generally on a straight-line basis.

Share Activity

The following is a summary of equity award activity for unvested restricted stock and stock units in the period from December 31, 2017 through June 30, 2018 (in millions, except per share data):

 

 

 

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

 

Weighted

Average

Remaining

Contractual

Term (Years)

 

 

Aggregate

Grant Date

Fair Value

 

Restricted shares / units outstanding at December 31, 2017

 

 

2.0

 

 

$

237.72

 

 

 

1.8

 

 

$

484.1

 

Granted

 

 

1.4

 

 

 

140.43

 

 

 

 

 

 

 

196.6

 

Vested

 

 

(0.5

)

 

 

(251.60

)

 

 

 

 

 

 

(125.8

)

Forfeited

 

 

(0.2

)

 

 

(205.00

)

 

 

 

 

 

 

(41.0

)

Restricted shares / units outstanding at June 30, 2018

 

 

2.7

 

 

$

190.48

 

 

 

2.0

 

 

$

513.9

 

 

 

25


 

The following is a summary of equity award activity for non-qualified options to purchase ordinary shares in the period from December 31, 2017 through June 30, 2018 (in millions, except per share data):

 

 

 

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding, December 31, 2017

 

 

7.3

 

 

$

120.94

 

 

 

5.2

 

 

$

312.7

 

Granted

 

 

0.2

 

 

 

150.82

 

 

 

 

 

 

 

 

 

Exercised

 

 

(0.6

)

 

 

105.85

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(0.1

)

 

 

244.14

 

 

 

 

 

 

 

 

 

Outstanding, vested and expected to vest at June 30, 2018

 

 

6.8

 

 

$

122.06

 

 

 

4.8

 

 

$

303.6

 

 

 

NOTE 8 — Reportable Segments

The Company’s businesses are organized into the following segments: US Specialized Therapeutics, US General Medicine and International. In addition, certain revenues and shared costs, and the results of corporate initiatives, are managed outside of the three segments.

The operating segments are organized as follows:

 

The US Specialized Therapeutics segment includes sales and expenses relating to branded products within the U.S., including Medical Aesthetics, Medical Dermatology, Eye Care and Neuroscience and Urology therapeutic products.

 

The US General Medicine segment includes sales and expenses relating to branded products within the U.S. that do not fall into the US Specialized Therapeutics business units, including Central Nervous System, Gastrointestinal, Women’s Health, Anti-Infectives and Diversified Brands.

 

The International segment includes sales and expenses relating to products sold outside the U.S.

The Company evaluates segment performance based on segment contribution. Segment contribution for our segments represents net revenues less cost of sales (defined below), selling and marketing expenses, and select general and administrative expenses. The Company does not evaluate the following items at the segment level:

 

Revenues and operating expenses within cost of sales, selling and marketing expenses, and general and administrative expenses that result from the impact of corporate initiatives. Corporate initiatives primarily include integration, restructuring, divestitures, acquisitions, certain milestones and other shared costs.

 

General and administrative expenses that result from shared infrastructure, including certain expenses located within the United States.

 

Total assets including capital expenditures.

 

Other select revenues and operating expenses including R&D expenses, amortization, IPR&D impairments and asset sales and impairments, net as not all such information has been accounted for at the segment level, or such information has not been used by all segments.  

The Company defines segment net revenues as product sales and other revenue derived from branded products or licensing agreements.

Cost of sales within segment contribution includes standard production and packaging costs for the products we manufacture, third party acquisition costs for products manufactured by others, profit-sharing or royalty payments for products sold pursuant to licensing agreements and finished goods inventory reserve charges.  Cost of sales within segment contribution excludes non-standard production costs, such as non-finished goods inventory obsolescence charges, manufacturing variances and excess capacity utilization charges, where applicable. Cost of sales does not include amortization or impairment costs for acquired product rights or other acquired intangibles.

26


 

Selling and marketing expenses consist mainly of personnel-related costs, product promotion costs, distribution costs, professional service costs, insurance, depreciation and travel costs.

General and administrative expenses consist mainly of personnel-related costs, facilities costs, transaction costs, insurance, depreciation, litigation costs and professional services costs which are general in nature and attributable to the segment.

Segment net revenues, segment operating expenses and segment contribution information consisted of the following for the three and six months ended June 30, 2018 and 2017 ($ in millions):

 

 

 

Three Months Ended June 30, 2018

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

1,826.7

 

 

$

1,320.0

 

 

$

948.9

 

 

$

4,095.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

148.7

 

 

 

201.8

 

 

 

139.4

 

 

 

489.9

 

Selling and marketing

 

 

343.3

 

 

 

254.8

 

 

 

246.2

 

 

 

844.3

 

General and administrative

 

 

48.1

 

 

 

34.7

 

 

 

33.9

 

 

 

116.7

 

Segment contribution

 

$

1,286.6

 

 

$

828.7

 

 

$

529.4

 

 

$

2,644.7

 

Contribution margin

 

 

70.4

%

 

 

62.8

%

 

 

55.8

%

 

 

64.6

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

189.8

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

689.2

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,697.1

 

In-process research and development impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

276.0

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

259.6

 

Operating (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(467.0

)

Segment operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11.4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales not attributable to segment results.

 

(2) Corporate includes net revenues of $28.6 million.

 

 

 

 

Three Months Ended June 30, 2017

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

1,715.0

 

 

$

1,427.7

 

 

$

858.5

 

 

$

4,001.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

128.8

 

 

 

203.2

 

 

 

125.0

 

 

 

457.0

 

Selling and marketing

 

 

356.8

 

 

 

288.1

 

 

 

238.9

 

 

 

883.8

 

General and administrative

 

 

49.8

 

 

 

41.3

 

 

 

28.3

 

 

 

119.4

 

Segment contribution

 

$

1,179.6

 

 

$

895.1

 

 

$

466.3

 

 

$

2,541.0

 

Contribution margin

 

 

68.8

%

 

 

62.7

%

 

 

54.3

%

 

 

63.5

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

478.8

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

489.4

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,757.9

 

In-process research and development impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

703.3

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14.0

 

Operating (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(902.4

)

Segment operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22.6

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales not attributable to segment results.

 

(2) Corporate includes net revenues of $6.2 million.

 

27


 

 

 

 

Six Months Ended June 30, 2018

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

3,405.3

 

 

$

2,543.7

 

 

$

1,812.9

 

 

$

7,761.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

282.9

 

 

 

384.4

 

 

 

260.3

 

 

 

927.6

 

Selling and marketing

 

 

656.5

 

 

 

480.3

 

 

 

491.9

 

 

 

1,628.7

 

General and administrative

 

 

98.3

 

 

 

73.6

 

 

 

65.3

 

 

 

237.2

 

Segment contribution

 

$

2,367.6

 

 

$

1,605.4

 

 

$

995.4

 

 

$

4,968.4

 

Contribution margin

 

 

69.5

%

 

 

63.1

%

 

 

54.9

%

 

 

64.0

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

460.1

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,163.9

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,394.7

 

In-process research and development impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

798.0

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

272.7

 

Operating (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(1,121.0

)

Segment operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14.4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales not attributable to segment results.

 

(2) Corporate includes net revenues of $34.4 million.

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

3,197.0

 

 

$

2,773.5

 

 

$

1,595.8

 

 

$

7,566.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

218.0

 

 

 

397.7

 

 

 

225.3

 

 

 

841.0

 

Selling and marketing

 

 

687.2

 

 

 

590.6

 

 

 

448.4

 

 

 

1,726.2

 

General and administrative

 

 

94.6

 

 

 

82.0

 

 

 

58.2

 

 

 

234.8

 

Segment contribution

 

$

2,197.2

 

 

$

1,703.2

 

 

$

863.9

 

 

$

4,764.3

 

Contribution margin

 

 

68.7

%

 

 

61.4

%

 

 

54.1

%

 

 

63.0

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

764.8

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,249.3

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,493.9

 

In-process research and development impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,043.3

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21.4

 

Operating (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(1,808.4

)

Segment operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23.9

)%

 

 

 

 

 

��

 

 

 

 

 

 

 

 

 

 

 

(1) Excludes amortization and impairment of acquired intangibles including product rights, as well as indirect cost of sales not attributable to segment results.

 

(2) Corporate includes net revenues of $14.0 million.

 

 

28


 

The following table presents our net revenue disaggregated by geography for our international segment for the three and six months ended June 30, 2018 and 2017 ($ in millions):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Europe

 

$

413.3

 

 

$

378.1

 

 

$

811.7

 

 

$

704.7

 

Asia Pacific, Middle East and Africa

 

 

283.6

 

 

 

236.3

 

 

 

524.4

 

 

 

448.4

 

Latin America and Canada

 

 

230.8

 

 

 

215.6

 

 

 

442.9

 

 

 

398.4

 

Other*

 

 

21.2

 

 

 

28.5

 

 

 

33.9

 

 

 

44.3

 

Total International

 

$

948.9

 

 

$

858.5

 

 

$

1,812.9

 

 

$

1,595.8

 

*Includes royalty and other revenue

 

 

29


 

The following tables present global net revenues for the top products of the Company as well as a reconciliation of segment revenues to total net revenues for the three and six months ended June 30, 2018 and 2017 ($ in millions):

 

 

 

Three Months Ended June 30, 2018

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

658.5

 

 

$

-

 

 

$

276.0

 

 

$

934.5

 

Restasis®

 

 

318.2

 

 

 

-

 

 

 

16.0

 

 

 

334.2

 

Juvederm® Collection

 

 

139.8

 

 

 

-

 

 

 

156.1

 

 

 

295.9

 

Linzess®/Constella®

 

 

-

 

 

 

191.8

 

 

 

6.4

 

 

 

198.2

 

Lumigan®/Ganfort®

 

 

73.0

 

 

 

-

 

 

 

100.5

 

 

 

173.5

 

Bystolic® / Byvalson®

 

 

-

 

 

 

148.1

 

 

 

0.6

 

 

 

148.7

 

Alphagan®/Combigan®

 

 

98.1

 

 

 

-

 

 

 

44.6

 

 

 

142.7

 

Lo Loestrin®

 

 

-

 

 

 

127.8

 

 

 

-

 

 

 

127.8

 

Eye Drops

 

 

53.8

 

 

 

-

 

 

 

72.4

 

 

 

126.2

 

Breast Implants

 

 

75.9

 

 

 

-

 

 

 

39.9

 

 

 

115.8

 

Vraylar

 

 

-

 

 

 

114.2

 

 

 

-

 

 

 

114.2

 

Alloderm ®

 

 

107.1

 

 

 

-

 

 

 

2.3

 

 

 

109.4

 

Ozurdex ®

 

 

27.6

 

 

 

-

 

 

 

67.9

 

 

 

95.5

 

Coolsculpting ® Consumables

 

 

71.9

 

 

 

-

 

 

 

18.5

 

 

 

90.4

 

Viibryd®/Fetzima®

 

 

-

 

 

 

86.7

 

 

 

1.6

 

 

 

88.3

 

Zenpep®

 

 

-

 

 

 

55.5

 

 

 

-

 

 

 

55.5

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

54.3

 

 

 

0.7

 

 

 

55.0

 

Canasa®/Salofalk®

 

 

-

 

 

 

45.0

 

 

 

4.5

 

 

 

49.5

 

Armour Thyroid

 

 

-

 

 

 

49.2

 

 

 

-

 

 

 

49.2

 

Coolsculpting ® Systems & Add On Applicators

 

 

36.4

 

 

 

-

 

 

 

12.4

 

 

 

48.8

 

Viberzi®

 

 

-

 

 

 

44.9

 

 

 

0.3

 

 

 

45.2

 

Asacol®/Delzicol®

 

 

-

 

 

 

32.6

 

 

 

12.4

 

 

 

45.0

 

Saphris®

 

 

-

 

 

 

33.8

 

 

 

-

 

 

 

33.8

 

Teflaro®

 

 

-

 

 

 

32.4

 

 

 

0.6

 

 

 

33.0

 

Namzaric®

 

 

-

 

 

 

31.8

 

 

 

-

 

 

 

31.8

 

Avycaz®

 

 

-

 

 

 

23.5

 

 

 

-

 

 

 

23.5

 

SkinMedica®

 

 

20.8

 

 

 

-

 

 

 

2.0

 

 

 

22.8

 

Rapaflo®

 

 

19.7

 

 

 

-

 

 

 

1.6

 

 

 

21.3

 

Aczone®

 

 

21.1

 

 

 

-

 

 

 

0.1

 

 

 

21.2

 

Savella®

 

 

-

 

 

 

19.1

 

 

 

-

 

 

 

19.1

 

Dalvance®

 

 

-

 

 

 

17.7

 

 

 

1.3

 

 

 

19.0

 

Latisse®

 

 

13.5

 

 

 

-

 

 

 

2.1

 

 

 

15.6

 

Liletta®

 

 

-

 

 

 

15.5

 

 

 

-

 

 

 

15.5

 

Lexapro®

 

 

-

 

 

 

14.5

 

 

 

-

 

 

 

14.5

 

Kybella® / Belkyra®

 

 

11.2

 

 

 

-

 

 

 

2.3

 

 

 

13.5

 

Estrace® Cream

 

 

-

 

 

 

13.1

 

 

 

-

 

 

 

13.1

 

Tazorac®

 

 

6.4

 

 

 

-

 

 

 

0.2

 

 

 

6.6

 

Namenda XR®

 

 

-

 

 

 

3.4

 

 

 

-

 

 

 

3.4

 

Minastrin® 24

 

 

-

 

 

 

0.8

 

 

 

-

 

 

 

0.8

 

Other

 

 

73.7

 

 

 

164.3

 

 

 

105.6

 

 

 

343.6

 

Total segment revenues

 

$

1,826.7

 

 

$

1,320.0

 

 

$

948.9

 

 

$

4,095.6

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28.6

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,124.2

 

30


 

 

 

 

Three Months Ended June 30, 2017

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

574.0

 

 

$

-

 

 

$

242.1

 

 

$

816.1

 

Restasis®

 

 

336.4

 

 

 

-

 

 

 

17.3

 

 

 

353.7

 

Juvederm® Collection

 

 

126.2

 

 

 

-

 

 

 

137.3

 

 

 

263.5

 

Lumigan®/Ganfort®

 

 

79.0

 

 

 

-

 

 

 

94.4

 

 

 

173.4

 

Linzess®/Constella®

 

 

-

 

 

 

167.8

 

 

 

5.5

 

 

 

173.3

 

Bystolic® / Byvalson®

 

 

-

 

 

 

150.7

 

 

 

0.5

 

 

 

151.2

 

Alphagan®/Combigan®

 

 

96.4

 

 

 

-

 

 

 

42.7

 

 

 

139.1

 

Eye Drops

 

 

50.7

 

 

 

-

 

 

 

70.7

 

 

 

121.4

 

Namenda XR®

 

 

-

 

 

 

118.7

 

 

 

-

 

 

 

118.7

 

Lo Loestrin®

 

 

-

 

 

 

113.0

 

 

 

-

 

 

 

113.0

 

Breast Implants

 

 

61.3

 

 

 

-

 

 

 

41.1

 

 

 

102.4

 

Estrace® Cream

 

 

-

 

 

 

90.1

 

 

 

-

 

 

 

90.1

 

Alloderm ®

 

 

84.6

 

 

 

-

 

 

 

2.3

 

 

 

86.9

 

Viibryd®/Fetzima®

 

 

-

 

 

 

85.2

 

 

 

0.7

 

 

 

85.9

 

Ozurdex ®

 

 

24.9

 

 

 

-

 

 

 

51.2

 

 

 

76.1

 

Vraylar

 

 

-

 

 

 

66.3

 

 

 

-

 

 

 

66.3

 

Coolsculpting ® Consumables

 

 

47.9

 

 

 

-

 

 

 

12.5

 

 

 

60.4

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

59.2

 

 

 

0.7

 

 

 

59.9

 

Asacol®/Delzicol®

 

 

-

 

 

 

45.6

 

 

 

12.8

 

 

 

58.4

 

Zenpep®

 

 

-

 

 

 

50.5

 

 

 

-

 

 

 

50.5

 

Saphris®

 

 

-

 

 

 

43.0

 

 

 

-

 

 

 

43.0

 

Canasa®/Salofalk®

 

 

-

 

 

 

38.4

 

 

 

4.3

 

 

 

42.7

 

Armour Thyroid

 

 

-

 

 

 

42.0

 

 

 

-

 

 

 

42.0

 

Viberzi®

 

 

-

 

 

 

41.3

 

 

 

0.1

 

 

 

41.4

 

Coolsculpting ® Systems & Add On Applicators

 

 

31.0

 

 

 

-

 

 

 

10.2

 

 

 

41.2

 

Aczone®

 

 

41.0

 

 

 

-

 

 

 

0.1

 

 

 

41.1

 

Namzaric®

 

 

-

 

 

 

33.4

 

 

 

-

 

 

 

33.4

 

Teflaro®

 

 

-

 

 

 

33.0

 

 

 

-

 

 

 

33.0

 

Rapaflo®

 

 

25.7

 

 

 

-

 

 

 

1.7

 

 

 

27.4

 

Savella®

 

 

-

 

 

 

26.0

 

 

 

-

 

 

 

26.0

 

SkinMedica®

 

 

25.4

 

 

 

-

 

 

 

-

 

 

 

25.4

 

Dalvance®

 

 

-

 

 

 

15.2

 

 

 

1.2

 

 

 

16.4

 

Latisse®

 

 

13.3

 

 

 

-

 

 

 

2.4

 

 

 

15.7

 

Kybella® / Belkyra®

 

 

12.7

 

 

 

-

 

 

 

2.0

 

 

 

14.7

 

Avycaz®

 

 

-

 

 

 

14.5

 

 

 

-

 

 

 

14.5

 

Lexapro®

 

 

-

 

 

 

13.1

 

 

 

-

 

 

 

13.1

 

Tazorac®

 

 

12.8

 

 

 

-

 

 

 

0.2

 

 

 

13.0

 

Minastrin® 24

 

 

-

 

 

 

11.4

 

 

 

-

 

 

 

11.4

 

Liletta®

 

 

-

 

 

 

6.6

 

 

 

-

 

 

 

6.6

 

Other

 

 

71.7

 

 

 

162.7

 

 

 

104.5

 

 

 

338.9

 

Total segment revenues

 

$

1,715.0

 

 

$

1,427.7

 

 

$

858.5

 

 

$

4,001.2

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.2

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,007.4

 

31


 

 

 

 

Six Months Ended June 30, 2018

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

1,231.0

 

 

$

-

 

 

$

520.8

 

 

$

1,751.8

 

Restasis®

 

 

574.0

 

 

 

-

 

 

 

34.3

 

 

 

608.3

 

Juvederm® Collection

 

 

262.6

 

 

 

-

 

 

 

302.2

 

 

 

564.8

 

Linzess®/Constella®

 

 

-

 

 

 

351.1

 

 

 

12.0

 

 

 

363.1

 

Lumigan®/Ganfort®

 

 

139.8

 

 

 

-

 

 

 

200.9

 

 

 

340.7

 

Bystolic® / Byvalson®

 

 

-

 

 

 

280.9

 

 

 

1.1

 

 

 

282.0

 

Alphagan®/Combigan®

 

 

182.3

 

 

 

-

 

 

 

88.8

 

 

 

271.1

 

Lo Loestrin®

 

 

-

 

 

 

242.4

 

 

 

-

 

 

 

242.4

 

Eye Drops

 

 

100.0

 

 

 

-

 

 

 

141.2

 

 

 

241.2

 

Breast Implants

 

 

136.6

 

 

 

-

 

 

 

84.0

 

 

 

220.6

 

Alloderm ®

 

 

206.6

 

 

 

-

 

 

 

4.5

 

 

 

211.1

 

Vraylar

 

 

-

 

 

 

198.6

 

 

 

-

 

 

 

198.6

 

Ozurdex ®

 

 

53.1

 

 

 

-

 

 

 

132.3

 

 

 

185.4

 

Viibryd®/Fetzima®

 

 

-

 

 

 

158.4

 

 

 

3.1

 

 

 

161.5

 

Coolsculpting ® Consumables

 

 

125.3

 

 

 

-

 

 

 

26.6

 

 

 

151.9

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

110.3

 

 

 

1.4

 

 

 

111.7

 

Zenpep®

 

 

-

 

 

 

108.4

 

 

 

-

 

 

 

108.4

 

Armour Thyroid

 

 

-

 

 

 

97.4

 

 

 

-

 

 

 

97.4

 

Asacol®/Delzicol®

 

 

-

 

 

 

70.8

 

 

 

24.1

 

 

 

94.9

 

Canasa®/Salofalk®

 

 

-

 

 

 

83.6

 

 

 

8.7

 

 

 

92.3

 

Coolsculpting ® Systems & Add On Applicators

 

 

70.1

 

 

 

-

 

 

 

13.5

 

 

 

83.6

 

Viberzi®

 

 

-

 

 

 

80.8

 

 

 

0.4

 

 

 

81.2

 

Saphris®

 

 

-

 

 

 

66.5

 

 

 

-

 

 

 

66.5

 

Namzaric®

 

 

-

 

 

 

65.2

 

 

 

-

 

 

 

65.2

 

Teflaro®

 

 

-

 

 

 

64.6

 

 

 

0.6

 

 

 

65.2

 

Rapaflo®

 

 

42.5

 

 

 

-

 

 

 

2.8

 

 

 

45.3

 

Avycaz®

 

 

-

 

 

 

45.3

 

 

 

-

 

 

 

45.3

 

Namenda XR®

 

 

-

 

 

 

43.9

 

 

 

-

 

 

 

43.9

 

SkinMedica®

 

 

38.9

 

 

 

-

 

 

 

3.6

 

 

 

42.5

 

Savella®

 

 

-

 

 

 

39.0

 

 

 

-

 

 

 

39.0

 

Aczone®

 

 

37.1

 

 

 

-

 

 

 

0.2

 

 

 

37.3

 

Latisse®

 

 

27.3

 

 

 

-

 

 

 

4.3

 

 

 

31.6

 

Dalvance®

 

 

-

 

 

 

29.6

 

 

 

1.3

 

 

 

30.9

 

Lexapro®

 

 

-

 

 

 

29.2

 

 

 

-

 

 

 

29.2

 

Liletta®

 

 

-

 

 

 

23.6

 

 

 

-

 

 

 

23.6

 

Kybella® / Belkyra®

 

 

19.4

 

 

 

-

 

 

 

3.7

 

 

 

23.1

 

Estrace® Cream

 

 

-

 

 

 

19.5

 

 

 

-

 

 

 

19.5

 

Tazorac®

 

 

15.8

 

 

 

-

 

 

 

0.4

 

 

 

16.2

 

Minastrin® 24

 

 

-

 

 

 

6.0

 

 

 

-

 

 

 

6.0

 

Namenda® IR

 

 

-

 

 

 

0.1

 

 

 

-

 

 

 

0.1

 

Other

 

 

142.9

 

 

 

328.5

 

 

 

196.1

 

 

 

667.5

 

Total segment revenues

 

$

3,405.3

 

 

$

2,543.7

 

 

$

1,812.9

 

 

$

7,761.9

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34.4

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

7,796.3

 

32


 

 

 

 

Six Months Ended June 30, 2017

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

1,083.4

 

 

$

-

 

 

$

446.7

 

 

$

1,530.1

 

Restasis®

 

 

645.2

 

 

 

-

 

 

 

31.2

 

 

 

676.4

 

Juvederm® Collection

 

 

246.0

 

 

 

-

 

 

 

259.5

 

 

 

505.5

 

Lumigan®/Ganfort®

 

 

153.3

 

 

 

-

 

 

 

180.3

 

 

 

333.6

 

Linzess®/Constella®

 

 

-

 

 

 

315.4

 

 

 

10.4

 

 

 

325.8

 

Bystolic® / Byvalson®

 

 

-

 

 

 

290.5

 

 

 

1.0

 

 

 

291.5

 

Alphagan®/Combigan®

 

 

182.8

 

 

 

-

 

 

 

85.0

 

 

 

267.8

 

Namenda XR®

 

 

-

 

 

 

240.7

 

 

 

-

 

 

 

240.7

 

Eye Drops

 

 

98.5

 

 

 

-

 

 

 

136.0

 

 

 

234.5

 

Lo Loestrin®

 

 

-

 

 

 

212.8

 

 

 

-

 

 

 

212.8

 

Breast Implants

 

 

115.6

 

 

 

-

 

 

 

78.7

 

 

 

194.3

 

Estrace® Cream

 

 

-

 

 

 

163.5

 

 

 

-

 

 

 

163.5

 

Viibryd®/Fetzima®

 

 

-

 

 

 

157.7

 

 

 

1.1

 

 

 

158.8

 

Ozurdex ®

 

 

47.4

 

 

 

-

 

 

 

102.3

 

 

 

149.7

 

Alloderm ®

 

 

138.7

 

 

 

-

 

 

 

3.5

 

 

 

142.2

 

Asacol®/Delzicol®

 

 

-

 

 

 

103.2

 

 

 

24.9

 

 

 

128.1

 

Vraylar

 

 

-

 

 

 

119.9

 

 

 

-

 

 

 

119.9

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

117.9

 

 

 

1.4

 

 

 

119.3

 

Zenpep®

 

 

-

 

 

 

97.0

 

 

 

-

 

 

 

97.0

 

Canasa®/Salofalk®

 

 

-

 

 

 

76.7

 

 

 

8.7

 

 

 

85.4

 

Aczone®

 

 

81.6

 

 

 

-

 

 

 

0.1

 

 

 

81.7

 

Saphris®

 

 

-

 

 

 

80.3

 

 

 

-

 

 

 

80.3

 

Armour Thyroid

 

 

-

 

 

 

79.3

 

 

 

-

 

 

 

79.3

 

Viberzi®

 

 

-

 

 

 

72.8

 

 

 

0.1

 

 

 

72.9

 

Teflaro®

 

 

-

 

 

 

63.6

 

 

 

-

 

 

 

63.6

 

Coolsculpting ® Consumables

 

 

47.9

 

 

 

-

 

 

 

12.5

 

 

 

60.4

 

Namzaric®

 

 

-

 

 

 

57.0

 

 

 

-

 

 

 

57.0

 

Rapaflo®

 

 

51.6

 

 

 

-

 

 

 

3.7

 

 

 

55.3

 

SkinMedica®

 

 

53.4

 

 

 

-

 

 

 

-

 

 

 

53.4

 

Minastrin® 24

 

 

-

 

 

 

52.5

 

 

 

-

 

 

 

52.5

 

Savella®

 

 

-

 

 

 

50.3

 

 

 

-

 

 

 

50.3

 

Coolsculpting ® Systems & Add On Applicators

 

 

31.0

 

 

 

-

 

 

 

10.2

 

 

 

41.2

 

Tazorac®

 

 

36.2

 

 

 

-

 

 

 

0.4

 

 

 

36.6

 

Kybella® / Belkyra®

 

 

27.8

 

 

 

-

 

 

 

3.5

 

 

 

31.3

 

Latisse®

 

 

26.9

 

 

 

-

 

 

 

4.3

 

 

 

31.2

 

Lexapro®

 

 

-

 

 

 

26.5

 

 

 

-

 

 

 

26.5

 

Dalvance®

 

 

-

 

 

 

24.8

 

 

 

1.2

 

 

 

26.0

 

Avycaz®

 

 

-

 

 

 

25.8

 

 

 

-

 

 

 

25.8

 

Liletta®

 

 

-

 

 

 

13.8

 

 

 

-

 

 

 

13.8

 

Namenda® IR

 

 

-

 

 

 

0.1

 

 

 

-

 

 

 

0.1

 

Other

 

 

129.7

 

 

 

331.4

 

 

 

189.1

 

 

 

650.2

 

Total segment revenues

 

$

3,197.0

 

 

$

2,773.5

 

 

$

1,595.8

 

 

$

7,566.3

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14.0

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

7,580.3

 

 

Unless included above, no product represents ten percent or more of total net revenues.

 

33


 

NOTE 9 — Inventories

 

Inventories consist of finished goods held for sale and distribution, raw materials and work-in-process.  Inventories are stated at the lower of cost (first-in, first-out method) or market (net realizable value).  The Company writes down inventories to net realizable value based on forecasted demand, market conditions or other factors, which may differ from actual results.

 

Inventories consisted of the following ($ in millions):

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Raw materials

 

$

339.6

 

 

$

326.9

 

Work-in-process

 

 

147.9

 

 

 

158.1

 

Finished goods

 

 

552.8

 

 

 

527.8

 

 

 

 

1,040.3

 

 

 

1,012.8

 

Less: inventory reserves

 

 

117.8

 

 

 

108.3

 

Total Inventories

 

$

922.5

 

 

$

904.5

 

 

 

NOTE 10 — Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following ($ in millions):

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Accrued expenses:

 

 

 

 

 

 

 

 

Accrued third-party rebates

 

$

1,666.1

 

 

$

1,713.7

 

Accrued payroll and related benefits

 

 

550.7

 

 

 

635.6

 

Accrued returns and other allowances

 

 

492.2

 

 

 

466.2

 

Accrued R&D expenditures

 

 

320.1

 

 

 

165.9

 

Accrued pharmaceutical fees

 

 

220.4

 

 

 

186.4

 

Interest payable

 

 

202.5

 

 

 

245.9

 

Royalties payable

 

 

157.3

 

 

 

189.2

 

Litigation-related reserves and legal fees

 

 

132.6

 

 

 

78.3

 

Accrued non-provision taxes

 

 

67.4

 

 

 

76.5

 

Accrued severance, retention and other shutdown costs

 

 

63.6

 

 

 

132.8

 

Accrued selling and marketing expenditures

 

 

60.9

 

 

 

53.0

 

Current portion of contingent consideration obligations

 

 

6.5

 

 

 

56.2

 

Contractual commitments (including amounts due to Teva)

 

 

5.2

 

 

 

705.4

 

Dividends payable

 

 

1.4

 

 

 

24.6

 

Other accrued expenses

 

 

451.1

 

 

 

487.2

 

Total accrued expenses

 

$

4,398.0

 

 

$

5,216.9

 

Accounts payable

 

 

285.8

 

 

 

324.5

 

Total accounts payable and accrued expenses

 

$

4,683.8

 

 

$

5,541.4

 

 

 

NOTE 11 — Goodwill, Product Rights and Other Intangible Assets

Goodwill for the Company’s reporting segments consisted of the following ($ in millions):

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Balance as of December 31, 2017

 

$

20,859.6

 

 

$

21,399.7

 

 

$

7,603.6

 

 

$

49,862.9

 

Foreign exchange and other adjustments

 

 

-

 

 

 

-

 

 

 

(175.7

)

 

 

(175.7

)

Balance as of June 30, 2018

 

$

20,859.6

 

 

$

21,399.7

 

 

$

7,427.9

 

 

$

49,687.2

 

 

As of June 30, 2018 and December 31, 2017, the gross balance of goodwill, prior to the consideration of impairments, was $49,704.5 million and $49,880.2 million, respectively.

34


 

Product rights and other intangible assets consisted of the following ($ in millions):

 

Cost Basis

 

Balance as of December 31, 2017

 

 

Impairments

 

 

Held for Sale

 

 

Foreign

Currency

Translation

 

 

Balance as of June 30, 2018

 

Intangibles with definite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product rights and other intangibles

 

$

73,892.5

 

 

$

-

 

 

$

(430.0

)

 

$

(191.7

)

 

$

73,270.8

 

Trade name

 

 

690.0

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

690.0

 

Total definite lived intangible assets

 

$

74,582.5

 

 

$

-

 

 

$

(430.0

)

 

$

(191.7

)

 

$

73,960.8

 

Intangibles with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPR&D

 

$

5,874.1

 

 

$

(798.0

)

 

$

-

 

 

$

-

 

 

$

5,076.1

 

Total indefinite lived

   intangible assets

 

$

5,874.1

 

 

$

(798.0

)

 

$

-

 

 

$

-

 

 

$

5,076.1

 

Total product rights

   and other intangibles

 

$

80,456.6

 

 

$

(798.0

)

 

$

(430.0

)

 

$

(191.7

)

 

$

79,036.9

 

 

Accumulated Amortization

 

Balance as of December 31, 2017

 

 

Amortization

 

 

Impairments

 

 

Held for Sale

 

 

Foreign

Currency

Translation

 

 

Balance as of June 30, 2018

 

Intangibles with definite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product rights and other

   intangibles

 

$

(25,593.6

)

 

$

(3,355.7

)

 

$

(258.8

)

 

$

299.5

 

 

$

53.7

 

 

$

(28,854.9

)

Trade name

 

 

(214.7

)

 

 

(39.0

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(253.7

)

Total definite lived intangible

   assets

 

$

(25,808.3

)

 

$

(3,394.7

)

 

$

(258.8

)

 

$

299.5

 

 

$

53.7

 

 

$

(29,108.6

)

Total product rights and

   other intangibles

 

$

(25,808.3

)

 

$

(3,394.7

)

 

$

(258.8

)

 

$

299.5

 

 

$

53.7

 

 

$

(29,108.6

)

Net Product Rights and Other

   Intangibles

 

$

54,648.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

49,928.3

 

 

Refer to the “Annual Testing” section in “NOTE 3 – Summary of Significant Accounting Policies” for the IPR&D impairments that the Company recorded in the three months ended June 30, 2018.

Additionally the Company impaired its RAR-related orphan receptor gamma (“RORyt”) IPR&D project obtained as part of the acquisition of Vitae Pharmaceuticals, Inc. by $522.0 million as a result of negative clinical data related to the oral psoriasis indication received in March 2018.

Assuming no additions, disposals or adjustments are made to the carrying values and/or useful lives of the intangible assets, annual amortization expense on product rights and other related intangibles as of June 30, 2018 over the remainder of 2018 and each of the next five years is estimated to be as follows ($ in millions):

 

 

 

Amortization

Expense

 

2018 remaining

 

$

3,070.5

 

2019

 

$

5,988.2

 

2020

 

$

5,684.5

 

2021

 

$

4,742.6

 

2022

 

$

4,382.1

 

2023

 

$

3,968.8

 

 

The above amortization expense is an estimate. Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions, potential impairments, accelerated amortization or other events.  In addition, the Company has certain currently marketed products for which operating contribution performance has been below that which was originally assumed in the products’ initial valuations, and certain IPR&D projects which are subject to delays in timing or other events which may negatively impact the asset’s value.  The Company, on a quarterly basis, monitors the related intangible assets for these products for potential impairments.  It is reasonably possible that impairments may occur in future periods, which may have a material adverse effect on the Company’s results of operations and financial position.

 

35


 

NOTE 12 — Long-Term Debt and Capital Leases

Debt consisted of the following ($ in millions):

 

 

 

 

 

 

 

Balance As of

 

 

Fair Market Value As of

 

 

 

Issuance Date /

Acquisition Date

 

Interest

Payments

 

June 30, 2018

 

 

December 31, 2017

 

 

June 30, 2018

 

 

December 31, 2017

 

Senior Notes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floating Rate Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$500.0 million floating rate notes due March 12, 2018 (1)

 

March 4, 2015

 

Quarterly

 

$

-

 

 

$

500.0

 

 

$

-

 

 

$

500.6

 

$500.0 million floating rate notes due March 12, 2020 (2)

 

March 4, 2015

 

Quarterly

 

 

500.0

 

 

 

500.0

 

 

 

504.7

 

 

 

508.1

 

 

 

 

 

 

 

 

500.0

 

 

 

1,000.0

 

 

 

504.7

 

 

 

1,008.7

 

Fixed Rate Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$3,000.0 million 2.350% notes due March 12, 2018

 

March 4, 2015

 

Semi-annually

 

 

-

 

 

 

3,000.0

 

 

 

-

 

 

 

3,001.9

 

$250.0 million 1.350% notes due March 15, 2018

 

March 17, 2015

 

Semi-annually

 

 

-

 

 

 

250.0

 

 

 

-

 

 

 

249.7

 

$500.0 million 2.450% notes due June 15, 2019

 

June 10, 2014

 

Semi-annually

 

 

491.2

 

 

 

500.0

 

 

 

489.1

 

 

 

499.7

 

$3,500.0 million 3.000% notes due March 12, 2020

 

March 4, 2015

 

Semi-annually

 

 

3,459.3

 

 

 

3,500.0

 

 

 

3,443.6

 

 

 

3,528.4

 

$650.0 million 3.375% notes due September 15, 2020

 

March 17, 2015

 

Semi-annually

 

 

650.0

 

 

 

650.0

 

 

 

648.5

 

 

 

661.3

 

$750.0 million 4.875% notes due February 15, 2021

 

July 1, 2014

 

Semi-annually

 

 

450.0

 

 

 

450.0

 

 

 

461.9

 

 

 

474.3

 

$1,200.0 million 5.000% notes due December 15, 2021

 

July 1, 2014

 

Semi-annually

 

 

1,200.0

 

 

 

1,200.0

 

 

 

1,242.1

 

 

 

1,282.6

 

$3,000.0 million 3.450% notes due March 15, 2022

 

March 4, 2015

 

Semi-annually

 

 

2,940.5

 

 

 

3,000.0

 

 

 

2,891.8

 

 

 

3,044.5

 

$1,700.0 million 3.250% notes due October 1, 2022

 

October 2, 2012

 

Semi-annually

 

 

1,700.0

 

 

 

1,700.0

 

 

 

1,650.3

 

 

 

1,703.0

 

$350.0 million 2.800% notes due March 15, 2023

 

March 17, 2015

 

Semi-annually

 

 

350.0

 

 

 

350.0

 

 

 

329.9

 

 

 

341.6

 

$1,200.0 million 3.850% notes due June 15, 2024

 

June 10, 2014

 

Semi-annually

 

 

1,188.8

 

 

 

1,200.0

 

 

 

1,165.0

 

 

 

1,232.3

 

$4,000.0 million 3.800% notes due March 15, 2025

 

March 4, 2015

 

Semi-annually

 

 

3,915.0

 

 

 

4,000.0

 

 

 

3,801.3

 

 

 

4,067.1

 

$2,500.0 million 4.550% notes due March 15, 2035

 

March 4, 2015

 

Semi-annually

 

 

2,385.0

 

 

 

2,500.0

 

 

 

2,261.1

 

 

 

2,631.9

 

$1,000.0 million 4.625% notes due October 1, 2042

 

October 2, 2012

 

Semi-annually

 

 

456.7

 

 

 

456.7

 

 

 

418.8

 

 

 

471.2

 

$1,500.0 million 4.850% notes due June 15, 2044

 

June 10, 2014

 

Semi-annually

 

 

1,441.0

 

 

 

1,500.0

 

 

 

1,389.0

 

 

 

1,606.2

 

$2,500.0 million 4.750% notes due March 15, 2045

 

March 4, 2015

 

Semi-annually

 

 

1,123.3

 

 

 

1,200.0

 

 

 

1,080.1

 

 

 

1,277.3

 

 

 

 

 

 

 

 

21,750.8

 

 

 

25,456.7

 

 

 

21,272.5

 

 

 

26,073.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Euro Denominated Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

€750.0 million 0.500% notes due June 1, 2021

 

May 26, 2017

 

Annually

 

 

876.3

 

 

 

900.4

 

 

 

867.7

 

 

 

895.8

 

€700.0 million 1.250% notes due June 1, 2024

 

May 26, 2017

 

Annually

 

 

817.9

 

 

 

840.4

 

 

 

792.4

 

 

 

831.1

 

€550.0 million 2.125% notes due June 1, 2029

 

May 26, 2017

 

Annually

 

 

642.6

 

 

 

660.3

 

 

 

619.1

 

 

 

657.8

 

€700.0 million floating rate notes due June 1, 2019 (3)

 

May 26, 2017

 

Quarterly

 

 

817.9

 

 

 

840.4

 

 

 

810.8

 

 

 

837.2

 

 

 

 

 

 

 

 

3,154.7

 

 

 

3,241.5

 

 

 

3,090.0

 

 

 

3,221.9

 

Total Senior Notes Gross

 

 

 

 

 

 

25,405.5

 

 

 

29,698.2

 

 

 

24,867.2

 

 

 

30,303.6

 

Unamortized premium

 

 

 

 

 

 

76.6

 

 

 

88.9

 

 

 

-

 

 

 

-

 

Unamortized discount

 

 

 

 

 

 

(74.8

)

 

 

(81.7

)

 

 

-

 

 

 

-

 

Total Senior Notes Net

 

 

 

 

 

 

25,407.3

 

 

 

29,705.4

 

 

 

24,867.2

 

 

 

30,303.6

 

Other Indebtedness

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Issuance Costs

 

 

 

 

 

 

(107.2

)

 

 

(121.5

)

 

 

 

 

 

 

 

 

Margin Loan

 

 

 

 

 

 

-

 

 

 

459.0

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

41.0

 

 

 

29.7

 

 

 

 

 

 

 

 

 

Total Other Borrowings

 

 

 

 

 

 

(66.2

)

 

 

367.2

 

 

 

 

 

 

 

 

 

Capital Leases

 

 

 

 

 

 

9.4

 

 

 

2.7

 

 

 

 

 

 

 

 

 

Total Indebtedness

 

 

 

 

 

$

25,350.5

 

 

$

30,075.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)    Interest on the 2018 floating rate note is three month USD LIBOR plus 1.080% per annum

 

(2)    Interest on the 2020 floating rate note is three month USD LIBOR plus 1.255% per annum

 

(3)    Interest on the 2019 floating rate notes is the three month EURIBOR plus 0.350% per annum

 

 

Fair market value in the table above is determined in accordance with Fair Value Leveling (defined below) under Level 2 based upon quoted prices for similar items in active markets.

 

36


 

Companies are required to use a fair value hierarchy as defined in ASC Topic 820 “Fair Value Measurement,” (“ASC 820”) which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value (“Fair Value Leveling”). There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity. The Level 3 assets are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as instruments for which the determination of fair value requires significant judgment or estimation.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants.

 

The following represents the significant activity during the six months ended June 30, 2018 to the Company’s total indebtedness:

 

The Company borrowed $700.0 million, and subsequently repaid $700.0 million, under its revolving credit facility to fund, in part, the repurchase of the Company’s ordinary shares;

 

The Company repurchased and retired $455.9 million of senior notes at face value as a result of open market redemptions;

 

The Company repaid scheduled maturities on senior notes of $3,750.0 million; and

 

The Company prepaid $459.0 million of indebtedness under the Company’s margin loan.

Annual Debt Maturities

As of June 30, 2018, annual debt maturities were as follows ($ in millions):

 

 

 

Total Payments

 

2018 remaining

 

$

-

 

2019

 

 

1,309.1

 

2020

 

 

4,609.3

 

2021

 

 

2,526.3

 

2022

 

 

4,640.5

 

2023

 

 

350.0

 

2024 and after

 

 

11,970.3

 

Total senior notes gross

 

$

25,405.5

 

Capital leases

 

 

9.4

 

Debt issuance costs

 

 

(107.2

)

Other short-term borrowings

 

 

41.0

 

Unamortized premium

 

 

76.6

 

Unamortized discount

 

 

(74.8

)

Total Indebtedness

 

$

25,350.5

 

 

Amounts represent total anticipated cash payments assuming scheduled repayments.

 

 

37


 

NOTE 13 — Other Long-Term Liabilities

Other long-term liabilities consisted of the following ($ in millions):

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Acquisition related contingent consideration liabilities

 

$

358.0

 

 

$

420.7

 

Long-term pension and post retirement liability

 

 

149.9

 

 

 

162.7

 

Legacy Allergan deferred executive compensation

 

 

105.2

 

 

 

113.8

 

Long-term contractual obligations

 

 

43.8

 

 

 

45.2

 

Deferred revenue

 

 

33.8

 

 

 

37.9

 

Product warranties

 

 

28.7

 

 

 

28.7

 

Long-term severance and restructuring liabilities

 

 

13.0

 

 

 

53.1

 

Other long-term liabilities

 

 

21.0

 

 

 

24.8

 

Total other long-term liabilities

 

$

753.4

 

 

$

886.9

 

 

 

NOTE 14 — Income Taxes

The Company’s effective tax rate for the six months ended June 30, 2018 was 47.7%, compared to 25.4% for the six months ended June 30, 2017. The effective tax rate for the six months ended June 30, 2018 was favorably impacted by income earned in jurisdictions with tax rates lower than the Irish statutory rate and U.S. losses tax benefited at rates greater than the Irish statutory rate. This was offset by the additional U.S. tax on the earnings of certain non-U.S. subsidiaries which are considered Global Intangible Low Taxed Income (“GILTI”) and the tax impact of amortization of intangible assets at rates less than the Irish statutory rate. Additionally, the tax benefit for the six months ended June 30, 2018 included tax benefits of $421.9 million related to the restructuring of an acquired business, $231.0 million related to the impairment of certain intangible assets and $79.8 million related to excess tax over book basis in a U.S. subsidiary expected to reverse in the foreseeable future. This was partially offset by tax detriments of $21.2 million for the gain on sale of investments and $25.9 million related to a change in the applicable tax rate on certain temporary differences.

The effective tax rate for the six months ended June 30, 2017 was favorably impacted by income earned in jurisdictions with tax rates lower than the Irish statutory rate and U.S. losses tax benefited at rates greater than the Irish statutory rate. This was offset by a pre-tax charge for the impairment of the Company’s investment in Teva Shares of $1,978.0 million and the tax impact of amortization of intangible assets, both at rates less than the Irish statutory rate. Additionally, the tax benefit for the six months ended June 30, 2017 included tax benefits of $288.1 million related to the impairment of certain intangible assets and $69.4 million related to the integration of an acquired business and debt restructuring. During the three months ended June 30, 2017, the Company determined that a temporary difference related to excess tax over book basis in a U.S. subsidiary will reverse in the foreseeable future and recorded a corresponding tax benefit of $179.6 million.

U.S. Tax Reform

For the year ended December 31, 2017, the income tax effects of the Tax Cuts and Jobs Act (“TCJA”) were accounted for on a provisional basis pursuant to the guidance in Staff Accounting Bulletin (“SAB”) 118. In the fourth quarter of 2017, the Company recorded provisional deferred tax benefits of $2,340.4 million related to the change in Federal Corporate tax rates applicable to our deferred tax liabilities and $1,260.0 million related to the net reversal of prior amounts accrued for taxes on unremitted earnings of certain subsidiaries. The accounting for these amounts will be finalized during the measurement period upon the completion of the 2017 tax returns. The Company also recorded a provisional income tax expense of $728.1 million related to the tax on the deemed repatriation of deferred foreign earnings (“toll charge”) which is payable over eight years. The final toll charge is dependent on amounts that cannot be determined until the 2018 financial results of certain non-U.S. subsidiaries are completed.

The provisional estimates related to the TCJA recorded in the 2017 consolidated financial statements were based on all available information and the Company’s initial analysis and current interpretation of the legislation under the TCJA as of the time of the filing of the Company’s Form 10-K. These estimates represented amounts for which our accounting was incomplete but a reasonable estimate could be determined. Given the complexity of the TCJA, anticipated guidance from the U.S. Treasury and Internal Revenue Service (“IRS”) and the potential for additional guidance from the Securities and Exchange Commission (“SEC”) or the FASB, our accounting continues to be incomplete, and therefore the Company has not recorded any adjustments to these provisional estimates in the June 30, 2018 consolidated financial statements. Guidance from the SEC provides for a measurement period of up to one year from the enactment date of the TCJA for which adjustments to provisional amounts may be recorded as a component of tax expense or benefit in the period the adjustment is determined.

38


 

On August 1, 2018, the U.S. Treasury released proposed regulations regarding the one-time transition tax (i.e. toll charge) on the pre-2018 earnings of certain non-U.S. subsidiaries. The Company is evaluating the proposed regulations as part of its overall analysis of the TCJA’s impact pursuant to the guidance in SAB 118.

Due to the complexity of the new GILTI tax rules, we continue to evaluate this provision of the TCJA and the application of ASC-740 and are considering if deferred tax amounts should be recorded. Our accounting policies depend, in part, on analyzing our global income to determine whether we expect material tax liabilities resulting from the application of this provision and, if so, whether and when to record related current and deferred income taxes and whether such amounts can be reasonably estimated. Anticipated further guidance from the IRS may also clarify the manner in which the GILTI tax is computed. For these reasons, we are continuing to provisionally treat the GILTI tax as a period cost and have not made a final policy election on whether to record deferred taxes for this provision.

Tax Audits

The Company conducts business globally and, as a result, it files U.S. federal, state and foreign tax returns. The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for amounts it believes are in accordance with the accounting standard, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the consolidated financial statements. Furthermore, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal. The uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations with tax authorities, identification of new issues and issuance of new legislation, regulations or case law.

The Company has several concurrent audits open and pending with the IRS as set forth below:

 

IRS Audits

 

Taxable Years

Allergan W.C. Holding Inc. f/k/a Actavis W.C. Holding Inc.

 

2013, 2014, 2015 and 2016

Warner Chilcott Corporation

 

2010, 2011, 2012 and 2013

Forest Laboratories, Inc.

 

2010, 2011, 2012, 2013 and 2014

Allergan, Inc.

 

2009, 2010, 2011, 2012, 2013, 2014 and 3/7/2015

 

 

NOTE 15 — Shareholders’ Equity

A summary of the changes in shareholders’ equity for the six months ended June 30, 2018 consisted of the following ($ in millions):

 

 

 

Allergan plc

 

Shareholders’ equity as of December 31, 2017

 

$

73,821.1

 

Net (loss) attributable to shareholders

 

 

(758.6

)

Other comprehensive (loss), net of tax

 

 

(264.8

)

Share-based compensation

 

 

127.4

 

Ordinary shares issued under employee stock plans

 

 

69.2

 

Implementation of new accounting pronouncements (Refer to Note 3)

 

 

361.7

 

Dividends declared

 

 

(540.4

)

Repurchase of ordinary shares under the share repurchase programs

 

 

(1,540.0

)

Repurchase of ordinary shares

 

 

(32.1

)

Shareholders’ equity as of June 30, 2018

 

$

71,243.5

 

 

 

 

Warner Chilcott

Limited

 

Members' equity as of December 31, 2017

 

$

81,266.2

 

Net (loss) attributable to members

 

 

(603.7

)

Other comprehensive (loss), net of tax

 

 

(264.8

)

Implementation of new accounting pronouncements (Refer to Note 3)

 

 

361.7

 

Dividends to Parents

 

 

(2,103.7

)

Members' equity as of June 30, 2018

 

$

78,655.7

 

 

39


 

Share Repurchase Program

On September 25, 2017, the Company’s Board of Directors approved a $2.0 billion share repurchase program.  As of June 30, 2018, the Company has completed this share repurchase program, repurchasing 12.2 million shares under the program.

On July 26, 2018, the Company announced that its Board of Directors approved a new $2.0 billion share repurchase program, which is anticipated to be completed by the end of 2019.  

Preferred Shares

In the six months ended June 30, 2018 and 2017, the Company paid $69.6 million and $139.2 million, respectively, of dividends on preferred shares. Each preferred share automatically converted to approximately 3.53 ordinary shares on March 1, 2018, for a total of 17,876,930 ordinary shares.

 

NOTE 16 — Hedging Activities

The Company’s revenue, earnings, cash flows and fair value of its assets and liabilities can be impacted by fluctuations in foreign exchange risks and interest rates, as applicable. The Company manages the impact of foreign exchange risk and interest rate movements through operational means and through the use of various financial instruments, including derivative instruments such as foreign currency derivatives.  As of June 30, 2018 and December 31, 2017, the Company had no material outstanding third-party foreign currency instruments.

Internationally, the Company is a net recipient of currencies other than the U.S. dollar and, as such, benefits from a weaker dollar and is adversely affected by a stronger dollar relative to major currencies worldwide. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may negatively affect the Company’s consolidated revenues and favorably impact operating expenses in U.S. dollars.

Net Investment Hedge

In the normal course of business, we manage certain foreign exchange risks through a variety of strategies, including hedging.  Our hedging strategies include the use of net investment hedges.  For net investment hedges, the effective portion of the gains and losses on the instruments arising from the effects of foreign exchange are recorded in the currency translation adjustment component of accumulated other comprehensive income / (loss), consistent with the underlying hedged item. Hedging transactions are limited to an underlying exposure. As a result, any change in the value of our hedging instruments would be substantially offset by an opposite change in the value of the underlying hedged items.

The Company is exposed to foreign exchange risk in its international operations from foreign currency purchases, net investments in foreign subsidiaries, and foreign currency assets and liabilities created in the normal course of business, including the Euro Denominated Notes. In the six months ended June 30, 2018, we used effective net investment hedges to partially offset the effects of foreign currency on our investments in certain of our foreign subsidiaries. The total notional amount of our instruments designated as net investment hedges was $3.6 billion as of June 30, 2018 and December 31, 2017.  During the three and six months ended June 30, 2018, the impact of the net investment hedges on other comprehensive income was a gain of $197.1 million and $102.0 million, respectively, which offset the impact of the Euro denominated notes.  During the three and six months ended June 30, 2017, the impact of the net investment hedges on other comprehensive income was a loss of $57.2 million.

 

 

40


 

NOTE 17 — Fair Value Measurement

Assets and liabilities are measured at fair value using Fair Value Leveling or that are disclosed at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 consisted of the following ($ in millions):

 

 

 

Fair Value Measurements as of June 30, 2018 Using:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents*

 

$

1,249.9

 

 

$

1,249.9

 

 

$

-

 

 

$

-

 

Short-term investments

 

 

21.5

 

 

 

-

 

 

 

21.5

 

 

 

-

 

Deferred executive compensation investments

 

 

105.2

 

 

 

86.8

 

 

 

18.4

 

 

 

-

 

Investments and other

 

 

73.3

 

 

 

73.3

 

 

 

-

 

 

 

-

 

Total assets

 

$

1,449.9

 

 

$

1,410.0

 

 

$

39.9

 

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred executive compensation liabilities

 

$

105.2

 

 

$

86.8

 

 

$

18.4

 

 

$

-

 

Contingent consideration obligations

 

 

364.4

 

 

 

-

 

 

 

-

 

 

 

364.4

 

Total liabilities

 

$

469.6

 

 

$

86.8

 

 

$

18.4

 

 

$

364.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Marketable securities with less than 90 days remaining until maturity at the time of acquisition are classified as cash equivalents.

 

 

 

 

Fair Value Measurements as of December 31, 2017 Using:

 

 

 

Total