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WCRX Warner Chilcott

Filed: 5 Nov 19, 5:00pm
0001578845 srt:RestatementAdjustmentMember 2019-01-01 2019-09-30

 

 

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 September 30, 2019

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

 

Bermuda

 

98-0496358

 

 

Victoria Place, 5th Floor

 

 

 

 

 

 

Hamilton HM 10

 

 

 

 

 

 

Bermuda

 

 

 

 

 

 

(441) 295-2244

 

 

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Allergan plc Ordinary Shares, $0.0001 par value

AGN

New York Stock Exchange

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 every Interactive Data File required to be submitted 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 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.

 

Allergan plc

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

 

Warner Chilcott Limited

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

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 November 1, 2019: 328,277,336. There is 0 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 SEPTEMBER 30, 2019

 

 

 

 

PAGE

PART I. FINANCIAL INFORMATION

 

Item 1.

 

Consolidated Financial Statements (unaudited)

3

 

 

Consolidated Balance Sheets of Allergan plc as of September 30, 2019 and December 31, 2018

3

 

 

Consolidated Statements of Operations of Allergan plc for the three and nine months ended September 30, 2019 and September 30, 2018

4

 

 

Consolidated Statements of Comprehensive Income / (Loss) of Allergan plc for the three and nine months ended September 30, 2019 and September 30, 2018 

5

 

 

Consolidated Statements of Cash Flows of Allergan plc for the nine months ended September 30, 2019 and September 30, 2018

6

 

 

Consolidated Statements of Equity of Allergan plc for the three and nine months ended September 30, 2019 and September 30, 2018

7

 

 

Consolidated Balance Sheets of Warner Chilcott Limited as of September 30, 2019 and December 31, 2018

8

 

 

Consolidated Statements of Operations of Warner Chilcott Limited for the three and nine months ended September 30, 2019 and September 30, 2018

9

 

 

Consolidated Statements of Comprehensive Income / (Loss) of Warner Chilcott Limited for the three and nine months ended September 30, 2019 and September 30, 2018

10

 

 

Consolidated Statements of Cash Flows of Warner Chilcott Limited for the nine months ended September 30, 2019 and September 30, 2018

11

 

 

Consolidated Statements of Equity of Warner Chilcott Limited for the three and nine months ended September 30, 2019 and September 30, 2018

12

 

 

Notes to the Consolidated Financial Statements

13

Item 2.

 

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

64

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

87

Item 4.

 

Controls and Procedures

88

PART II. OTHER INFORMATION

90

Item 1.

 

Legal Proceedings

90

Item 1A.

 

Risk Factors

90

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

93

Item 6.

 

Exhibits

94

 

 

Signatures

95

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

ALLERGAN PLC

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions, except par value)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,237.5

 

 

$

880.4

 

Marketable securities

 

 

3,318.4

 

 

 

1,026.9

 

Accounts receivable, net

 

 

3,012.3

 

 

 

2,868.1

 

Inventories

 

 

1,083.1

 

 

 

846.9

 

Current assets held for sale

 

 

-

 

 

 

34.0

 

Prepaid expenses and other current assets

 

 

942.3

 

 

 

819.1

 

Total current assets

 

 

9,593.6

 

 

 

6,475.4

 

Property, plant and equipment, net

 

 

1,857.0

 

 

 

1,787.0

 

Right of use asset - operating leases

 

 

478.2

 

 

 

-

 

Investments and other assets

 

 

367.9

 

 

 

1,970.6

 

Non current assets held for sale

 

 

32.5

 

 

 

882.2

 

Deferred tax assets

 

 

487.4

 

 

 

1,063.7

 

Product rights and other intangibles

 

 

39,526.8

 

 

 

43,695.4

 

Goodwill

 

 

42,065.5

 

 

 

45,913.3

 

Total assets

 

$

94,408.9

 

 

$

101,787.6

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

5,692.2

 

 

$

4,787.2

 

Income taxes payable

 

 

88.9

 

 

 

72.4

 

Current portion of long-term debt

 

 

3,739.2

 

 

 

868.3

 

Current portion of lease liability - operating

 

 

118.4

 

 

 

-

 

Total current liabilities

 

 

9,638.7

 

 

 

5,727.9

 

Long-term debt

 

 

18,786.0

 

 

 

22,929.4

 

Lease liability - operating

 

 

437.4

 

 

 

-

 

Other long-term liabilities

 

 

810.9

 

 

 

882.0

 

Other taxes payable

 

 

1,718.4

 

 

 

1,615.5

 

Deferred tax liabilities

 

 

4,519.3

 

 

 

5,501.8

 

Total liabilities

 

 

35,910.7

 

 

 

36,656.6

 

Commitments and contingencies (Refer to Note 21)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

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

   328.1 million and 332.6 million shares issued and outstanding, respectively

 

$

-

 

 

$

-

 

Additional paid-in capital

 

 

55,882.4

 

 

 

56,510.0

 

Retained earnings

 

 

1,551.7

 

 

 

7,258.9

 

Accumulated other comprehensive income

 

 

1,041.1

 

 

 

1,345.2

 

Total shareholders’ equity

 

 

58,475.2

 

 

 

65,114.1

 

Noncontrolling interest

 

 

23.0

 

 

 

16.9

 

Total equity

 

 

58,498.2

 

 

 

65,131.0

 

Total liabilities and equity

 

$

94,408.9

 

 

$

101,787.6

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net revenues

 

$

4,050.7

 

 

$

3,911.4

 

 

$

11,737.9

 

 

$

11,707.7

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excludes amortization and impairment of

   acquired intangibles including product rights)

 

 

639.0

 

 

 

596.8

 

 

 

1,789.1

 

 

 

1,601.4

 

Research and development

 

 

474.5

 

 

 

424.2

 

 

 

1,359.5

 

 

 

1,588.1

 

Selling and marketing

 

 

901.4

 

 

 

755.6

 

 

 

2,578.7

 

 

 

2,409.0

 

General and administrative

 

 

1,092.7

 

 

 

289.2

 

 

 

1,725.2

 

 

 

919.2

 

Amortization

 

 

1,537.7

 

 

 

1,588.5

 

 

 

4,339.1

 

 

 

4,983.2

 

Goodwill impairments

 

 

-

 

 

 

-

 

 

 

3,552.8

 

 

 

-

 

In-process research and development impairments

 

 

-

 

 

 

-

 

 

 

436.0

 

 

 

798.0

 

Asset sales and impairments, net

 

 

2.0

 

 

 

(0.4

)

 

 

126.2

 

 

 

272.3

 

Total operating expenses

 

 

4,647.3

 

 

 

3,653.9

 

 

 

15,906.6

 

 

 

12,571.2

 

Operating (loss) / income

 

 

(596.6

)

 

 

257.5

 

 

 

(4,168.7

)

 

 

(863.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

20.5

 

 

 

10.0

 

 

 

51.5

 

 

 

33.6

 

Interest (expense)

 

 

(193.9

)

 

 

(220.4

)

 

 

(591.1

)

 

 

(701.0

)

Other income, net

 

 

2.5

 

 

 

130.0

 

 

 

11.6

 

 

 

266.6

 

Total other (expense), net

 

 

(170.9

)

 

 

(80.4

)

 

 

(528.0

)

 

 

(400.8

)

(Loss) / income before income taxes and noncontrolling

   interest

 

 

(767.5

)

 

 

177.1

 

 

 

(4,696.7

)

 

 

(1,264.3

)

Provision (benefit) for income taxes

 

 

18.1

 

 

 

213.4

 

 

 

251.1

 

 

 

(474.0

)

Net (loss)

 

 

(785.6

)

 

 

(36.3

)

 

 

(4,947.8

)

 

 

(790.3

)

(Income) attributable to noncontrolling interest

 

 

(1.2

)

 

 

(1.6

)

 

 

(6.0

)

 

 

(6.2

)

Net (loss) attributable to shareholders

 

 

(786.8

)

 

 

(37.9

)

 

 

(4,953.8

)

 

 

(796.5

)

Dividends on preferred shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

46.4

 

Net (loss) attributable to ordinary shareholders

 

$

(786.8

)

 

$

(37.9

)

 

$

(4,953.8

)

 

$

(842.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) per share attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(2.40

)

 

$

(0.11

)

 

$

(15.04

)

 

$

(2.50

)

Diluted

 

$

(2.40

)

 

$

(0.11

)

 

$

(15.04

)

 

$

(2.50

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

328.0

 

 

 

339.0

 

 

 

329.3

 

 

 

337.6

 

Diluted

 

 

328.0

 

 

 

339.0

 

 

 

329.3

 

 

 

337.6

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

4


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

(Unaudited; in millions)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net (loss)

 

$

(785.6

)

 

$

(36.3

)

 

$

(4,947.8

)

 

$

(790.3

)

Other comprehensive (loss) / income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (losses)

 

 

(241.3

)

 

 

(87.3

)

 

 

(302.6

)

 

 

(352.1

)

Unrealized gains / (losses), net of tax

 

 

0.7

 

 

 

(1.4

)

 

 

(1.5

)

 

 

(1.4

)

Total other comprehensive (loss), net of tax

 

 

(240.6

)

 

 

(88.7

)

 

 

(304.1

)

 

 

(353.5

)

Comprehensive (loss)

 

 

(1,026.2

)

 

 

(125.0

)

 

 

(5,251.9

)

 

 

(1,143.8

)

Comprehensive (income) attributable to noncontrolling

  interest

 

 

(1.2

)

 

 

(1.6

)

 

 

(6.0

)

 

 

(6.2

)

Comprehensive (loss) attributable to ordinary

   shareholders

 

$

(1,027.4

)

 

$

(126.6

)

 

$

(5,257.9

)

 

$

(1,150.0

)

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

5


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net (loss)

 

$

(4,947.8

)

 

$

(790.3

)

Reconciliation to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

150.6

 

 

 

149.7

 

Amortization

 

 

4,339.1

 

 

 

4,983.2

 

Provision for inventory reserve

 

 

127.8

 

 

 

74.9

 

Share-based compensation

 

 

161.7

 

 

 

185.2

 

Deferred income tax benefit

 

 

(365.3

)

 

 

(1,362.8

)

Goodwill impairments

 

 

3,552.8

 

 

 

-

 

In-process research and development impairments

 

 

436.0

 

 

 

798.0

 

Loss on asset sales and impairments, net

 

 

126.2

 

 

 

272.3

 

Gain on sale of Teva securities, net

 

 

-

 

 

 

(60.9

)

Gain on sale of businesses

 

 

-

 

 

 

(182.6

)

Non-cash extinguishment of debt

 

 

0.2

 

 

 

17.4

 

Cash charge related to extinguishment of debt

 

 

-

 

 

 

(18.2

)

Amortization of deferred financing costs

 

 

13.3

 

 

 

17.4

 

Non-cash lease expense

 

 

93.5

 

 

 

-

 

Contingent consideration adjustments, including accretion

 

 

49.5

 

 

 

(113.1

)

Other, net

 

 

(2.3

)

 

 

0.5

 

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

 

 

 

 

 

 

 

 

Decrease / (increase) in accounts receivable, net

 

 

(184.6

)

 

 

17.0

 

Decrease / (increase) in inventories

 

 

(328.9

)

 

 

(136.2

)

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

 

 

(36.2

)

 

 

(5.4

)

Increase / (decrease) in accounts payable and accrued expenses

 

 

874.9

 

 

 

(46.1

)

Increase / (decrease) in income and other net taxes payable

 

 

1,638.7

 

 

 

415.5

 

Increase / (decrease) in other assets and liabilities

 

 

(130.8

)

 

 

(74.0

)

Net cash provided by operating activities

 

 

5,568.4

 

 

 

4,141.5

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(253.3

)

 

 

(165.1

)

Additions to product rights and other intangibles

 

 

(46.0

)

 

 

-

 

Additions to investments

 

 

(3,738.0

)

 

 

(1,456.4

)

Proceeds from sale of investments and other assets

 

 

1,466.7

 

 

 

6,201.3

 

Payments to settle Teva related matters

 

 

-

 

 

 

(466.0

)

Proceeds from sales of property, plant and equipment

 

 

18.5

 

 

 

24.6

 

Acquisitions of businesses, net of cash acquired

 

 

(80.6

)

 

 

-

 

Net cash (used in) / provided by investing activities

 

 

(2,632.7

)

 

 

4,138.4

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

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

 

 

3.3

 

 

 

717.2

 

Payments on debt, including finance lease obligations and credit facility

 

 

(1,044.9

)

 

 

(7,115.9

)

Payments of contingent consideration and other financing

 

 

(6.3

)

 

 

(21.7

)

Proceeds from stock plans

 

 

45.0

 

 

 

98.2

 

Proceeds from forward sale of Teva securities

 

 

-

 

 

 

465.5

 

Payments to settle Teva related matters

 

 

-

 

 

 

(234.0

)

Repurchase of ordinary shares

 

 

(834.3

)

 

 

(2,023.5

)

Dividends paid

 

 

(731.4

)

 

 

(808.1

)

Net cash (used in) financing activities

 

 

(2,568.6

)

 

 

(8,922.3

)

Effect of currency exchange rate changes on cash and cash equivalents

 

 

(10.0

)

 

 

13.1

 

Net increase / (decrease) in cash and cash equivalents

 

 

357.1

 

 

 

(629.3

)

Cash and cash equivalents at beginning of period

 

 

880.4

 

 

 

1,817.2

 

Cash and cash equivalents at end of period

 

$

1,237.5

 

 

$

1,187.9

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Income taxes other, net of refunds

 

$

(1,019.8

)

 

$

510.1

 

Interest

 

$

642.2

 

 

$

817.6

 

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

)

Dividends accrued

 

$

1.1

 

 

$

1.4

 

 

See accompanying Notes to the Consolidated Financial Statements.

6


 

ALLERGAN PLC

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited; in millions)

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings/

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Ordinary Shares

 

 

Preferred Shares

 

 

Paid-in-

 

 

(Accumulated

 

 

Comprehensive

 

 

Noncontrolling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Income / (Loss)

 

 

Interest

 

 

Total

 

BALANCE, December 31, 2017

 

 

330.2

 

 

$

-

 

 

 

5.1

 

 

$

4,929.7

 

 

$

54,013.5

 

 

$

12,957.2

 

 

$

1,920.7

 

 

$

16.0

 

 

$

73,837.1

 

Implementation of new accounting

   pronouncements

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

424.7

 

 

 

(63.0

)

 

 

-

 

 

 

361.7

 

BALANCE, January 1, 2018

 

 

330.2

 

 

$

-

 

 

 

5.1

 

 

$

4,929.7

 

 

$

54,013.5

 

 

$

13,381.9

 

 

$

1,857.7

 

 

$

16.0

 

 

$

74,198.8

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to shareholders

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(286.1

)

 

 

-

 

 

 

-

 

 

 

(286.1

)

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

183.8

 

 

 

-

 

 

 

183.8

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

72.5

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

72.5

 

Ordinary shares issued under employee stock plans

 

 

0.7

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35.5

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35.5

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(296.3

)

 

 

-

 

 

 

-

 

 

 

(296.3

)

Conversion of Mandatory Preferred Shares

 

 

17.8

 

 

 

-

 

 

 

(5.1

)

 

 

(4,929.7

)

 

 

4,929.7

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Repurchase of ordinary shares under the

   share repurchase programs

 

 

(9.6

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,540.0

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,540.0

)

Repurchase of ordinary shares

 

 

(0.1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24.3

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24.3

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2.1

 

 

 

2.1

 

BALANCE, March 31, 2018

 

 

339.0

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

57,486.9

 

 

$

12,799.5

 

 

$

2,041.5

 

 

$

18.1

 

 

$

72,346.0

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to shareholders

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(472.5

)

 

 

-

 

 

 

-

 

 

 

(472.5

)

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(448.6

)

 

 

-

 

 

 

(448.6

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

54.9

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

54.9

 

Ordinary shares issued under employee stock plans

 

 

0.3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33.7

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33.7

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(244.1

)

 

 

-

 

 

 

-

 

 

 

(244.1

)

Repurchase of ordinary shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7.8

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7.8

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2.4

 

 

 

2.4

 

BALANCE, June 30, 2018

 

 

339.3

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

57,567.7

 

 

$

12,082.9

 

 

$

1,592.9

 

 

$

20.5

 

 

$

71,264.0

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to shareholders

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(37.9

)

 

 

-

 

 

 

-

 

 

 

(37.9

)

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(88.7

)

 

 

-

 

 

 

(88.7

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

57.8

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

57.8

 

Ordinary shares issued under employee stock plans

 

 

0.3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29.0

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29.0

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(244.4

)

 

 

-

 

 

 

-

 

 

 

(244.4

)

Repurchase of ordinary shares under the

   share repurchase programs

 

 

(2.4

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(450.1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(450.1

)

Repurchase of ordinary shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1.4

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1.4

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7.4

)

 

 

(7.4

)

BALANCE, September 30, 2018

 

 

337.2

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

57,203.0

 

 

$

11,800.6

 

 

$

1,504.2

 

 

$

13.1

 

 

$

70,520.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2018

 

 

332.6

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

56,510.0

 

 

$

7,258.9

 

 

$

1,345.2

 

 

$

16.9

 

 

$

65,131.0

 

Implementation of new accounting

   pronouncement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22.0

)

 

 

-

 

 

 

-

 

 

 

(22.0

)

BALANCE, January 1, 2019

 

 

332.6

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

56,510.0

 

 

$

7,236.9

 

 

$

1,345.2

 

 

$

16.9

 

 

$

65,109.0

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to shareholders

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,408.0

)

 

 

-

 

 

 

-

 

 

 

(2,408.0

)

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(128.8

)

 

 

-

 

 

 

(128.8

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

52.3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

52.3

 

Ordinary shares issued under employee stock plans

 

 

0.7

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9.7

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9.7

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(246.1

)

 

 

-

 

 

 

-

 

 

 

(246.1

)

Repurchase of ordinary shares under the

   share repurchase programs

 

 

(5.3

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(799.7

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(799.7

)

Repurchase of ordinary shares

 

 

(0.2

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(29.5

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(29.5

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.7

 

 

 

0.7

 

BALANCE, March 31, 2019

 

 

327.8

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

55,742.8

 

 

$

4,582.8

 

 

$

1,216.4

 

 

$

17.6

 

 

$

61,559.6

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to shareholders

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,759.0

)

 

 

-

 

 

 

-

 

 

 

(1,759.0

)

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

65.3

 

 

 

-

 

 

 

65.3

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

59.5

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

59.5

 

Ordinary shares issued under employee stock plans

 

 

0.1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13.9

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13.9

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(242.7

)

 

 

-

 

 

 

-

 

 

 

(242.7

)

Repurchase of ordinary shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4.3

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4.3

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3.8

 

 

 

3.8

 

BALANCE, June 30, 2019

 

 

327.9

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

55,811.9

 

 

$

2,581.1

 

 

$

1,281.7

 

 

$

21.4

 

 

$

59,696.1

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to shareholders

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(786.8

)

 

 

-

 

 

 

-

 

 

 

(786.8

)

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(240.6

)

 

 

-

 

 

 

(240.6

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

49.9

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

49.9

 

Ordinary shares issued under employee stock plans

 

 

0.2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

21.4

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

21.4

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(242.6

)

 

 

-

 

 

 

-

 

 

 

(242.6

)

Repurchase of ordinary shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.8

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.8

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1.6

 

 

 

1.6

 

BALANCE, September 30, 2019

 

 

328.1

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

55,882.4

 

 

$

1,551.7

 

 

$

1,041.1

 

 

$

23.0

 

 

$

58,498.2

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

7


 

WARNER CHILCOTT LIMITED

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,230.3

 

 

$

878.6

 

Marketable securities

 

 

3,318.4

 

 

 

1,026.9

 

Accounts receivable, net

 

 

3,012.3

 

 

 

2,868.1

 

Receivables from Parents

 

 

286.5

 

 

 

640.9

 

Inventories

 

 

1,083.1

 

 

 

846.9

 

Current assets held for sale

 

 

-

 

 

 

34.0

 

Prepaid expenses and other current assets

 

 

940.7

 

 

 

818.7

 

Total current assets

 

 

9,871.3

 

 

 

7,114.1

 

Property, plant and equipment, net

 

 

1,857.0

 

 

 

1,787.0

 

Right of use asset - operating leases

 

 

478.2

 

 

 

-

 

Investments and other assets

 

 

367.9

 

 

 

1,970.6

 

Non current assets held for sale

 

 

32.5

 

 

 

882.2

 

Deferred tax assets

 

 

487.4

 

 

 

1,063.7

 

Product rights and other intangibles

 

 

39,526.8

 

 

 

43,695.4

 

Goodwill

 

 

42,065.5

 

 

 

45,913.3

 

Total assets

 

$

94,686.6

 

 

$

102,426.3

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

5,690.6

 

 

$

4,787.4

 

Payables to Parents

 

 

2,581.6

 

 

 

2,829.2

 

Income taxes payable

 

 

88.9

 

 

 

72.4

 

Current portion of long-term debt

 

 

3,739.2

 

 

 

868.3

 

Current portion of lease liability - operating

 

 

118.4

 

 

 

-

 

Total current liabilities

 

 

12,218.7

 

 

 

8,557.3

 

Long-term debt

 

 

18,786.0

 

 

 

22,929.4

 

Lease liability - operating

 

 

437.4

 

 

 

-

 

Other long-term liabilities

 

 

810.9

 

 

 

882.0

 

Other taxes payable

 

 

1,713.4

 

 

 

1,615.5

 

Deferred tax liabilities

 

 

4,519.3

 

 

 

5,501.8

 

Total liabilities

 

 

38,485.7

 

 

 

39,486.0

 

Commitments and contingencies (Refer to Note 21)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Members' capital

 

 

64,266.7

 

 

 

65,797.9

 

Retained earnings

 

 

(9,129.9

)

 

 

(4,219.7

)

Accumulated other comprehensive income

 

 

1,041.1

 

 

 

1,345.2

 

Total members’ equity

 

 

56,177.9

 

 

 

62,923.4

 

Noncontrolling interest

 

 

23.0

 

 

 

16.9

 

Total equity

 

 

56,200.9

 

 

 

62,940.3

 

Total liabilities and equity

 

$

94,686.6

 

 

$

102,426.3

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

8


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in millions)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net revenues

 

$

4,050.7

 

 

$

3,911.4

 

 

$

11,737.9

 

 

$

11,707.7

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excludes amortization and impairment of

   acquired intangibles including product rights)

 

 

639.0

 

 

 

596.8

 

 

 

1,789.1

 

 

 

1,601.4

 

Research and development

 

 

474.5

 

 

 

424.2

 

 

 

1,359.5

 

 

 

1,588.1

 

Selling and marketing

 

 

901.4

 

 

 

755.6

 

 

 

2,578.7

 

 

 

2,409.0

 

General and administrative

 

 

1,037.1

 

 

 

272.4

 

 

 

1,659.6

 

 

 

866.0

 

Amortization

 

 

1,537.7

 

 

 

1,588.5

 

 

 

4,339.1

 

 

 

4,983.2

 

Goodwill impairments

 

 

-

 

 

 

-

 

 

 

3,552.8

 

 

 

-

 

In-process research and development impairments

 

 

-

 

 

 

-

 

 

 

436.0

 

 

 

798.0

 

Asset sales and impairments, net

 

 

2.0

 

 

 

(0.4

)

 

 

126.2

 

 

 

272.3

 

Total operating expenses

 

 

4,591.7

 

 

 

3,637.1

 

 

 

15,841.0

 

 

 

12,518.0

 

Operating (loss) / income

 

 

(541.0

)

 

 

274.3

 

 

 

(4,103.1

)

 

 

(810.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

20.5

 

 

 

77.3

 

 

 

51.5

 

 

 

219.4

 

Interest (expense)

 

 

(193.9

)

 

 

(220.4

)

 

 

(591.1

)

 

 

(701.0

)

Other income, net

 

 

2.5

 

 

 

130.0

 

 

 

11.6

 

 

 

266.6

 

Total other (expense), net

 

 

(170.9

)

 

 

(13.1

)

 

 

(528.0

)

 

 

(215.0

)

(Loss) / income before income taxes and noncontrolling

   interest

 

 

(711.9

)

 

 

261.2

 

 

 

(4,631.1

)

 

 

(1,025.3

)

Provision / (benefit) for income taxes

 

 

18.2

 

 

 

208.3

 

 

 

251.1

 

 

 

(479.1

)

Net (loss) / income

 

 

(730.1

)

 

 

52.9

 

 

 

(4,882.2

)

 

 

(546.2

)

(Income) attributable to noncontrolling interest

 

 

(1.2

)

 

 

(1.6

)

 

 

(6.0

)

 

 

(6.2

)

Net (loss) / income attributable to members

 

$

(731.3

)

 

$

51.3

 

 

$

(4,888.2

)

 

$

(552.4

)

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

9


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

(Unaudited; in millions)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net (loss) / income

 

$

(730.1

)

 

$

52.9

 

 

$

(4,882.2

)

 

$

(546.2

)

Other comprehensive (loss) / income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (losses)

 

 

(241.3

)

 

 

(87.3

)

 

 

(302.6

)

 

 

(352.1

)

Unrealized gains / (losses), net of tax

 

 

0.7

 

 

 

(1.4

)

 

 

(1.5

)

 

 

(1.4

)

Total other comprehensive (loss), net of tax

 

 

(240.6

)

 

 

(88.7

)

 

 

(304.1

)

 

 

(353.5

)

Comprehensive (loss)

 

 

(970.7

)

 

 

(35.8

)

 

 

(5,186.3

)

 

 

(899.7

)

Comprehensive (income) attributable to noncontrolling

   interest

 

 

(1.2

)

 

 

(1.6

)

 

 

(6.0

)

 

 

(6.2

)

Comprehensive (loss) attributable to members

 

$

(971.9

)

 

$

(37.4

)

 

$

(5,192.3

)

 

$

(905.9

)

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

10


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net (loss)

 

$

(4,882.2

)

 

$

(546.2

)

Reconciliation to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

150.6

 

 

 

149.7

 

Amortization

 

 

4,339.1

 

 

 

4,983.2

 

Provision for inventory reserve

 

 

127.8

 

 

 

74.9

 

Share-based compensation

 

 

161.7

 

 

 

185.2

 

Deferred income tax benefit

 

 

(365.3

)

 

 

(1,362.8

)

Goodwill impairments

 

 

3,552.8

 

 

 

-

 

In-process research and development impairments

 

 

436.0

 

 

 

798.0

 

Loss on asset sales and impairments, net

 

 

126.2

 

 

 

272.3

 

Gain on sale of Teva securities, net

 

 

-

 

 

 

(60.9

)

Gain on sale of businesses

 

 

-

 

 

 

(182.6

)

Non-cash extinguishment of debt

 

 

0.2

 

 

 

17.4

 

Cash charge related to extinguishment of debt

 

 

-

 

 

 

(18.2

)

Amortization of deferred financing costs

 

 

13.3

 

 

 

17.4

 

Non-cash lease expense

 

 

93.5

 

 

 

-

 

Contingent consideration adjustments, including accretion

 

 

49.5

 

 

 

(113.1

)

Other, net

 

 

(2.3

)

 

 

0.5

 

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

 

 

 

 

 

 

 

 

Decrease / (increase) in accounts receivable, net

 

 

(184.6

)

 

 

17.0

 

Decrease / (increase) in inventories

 

 

(328.9

)

 

 

(136.2

)

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

 

 

(35.0

)

 

 

(4.5

)

Increase / (decrease) in accounts payable and accrued expenses

 

 

876.7

 

 

 

(43.7

)

Increase / (decrease) in income and other net taxes payable

 

 

1,638.7

 

 

 

415.5

 

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

 

 

(194.3

)

 

 

(257.7

)

Net cash provided by operating activities

 

 

5,573.5

 

 

 

4,205.2

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(253.3

)

 

 

(165.1

)

Additions to product rights and other intangibles

 

 

(46.0

)

 

 

-

 

Additions to investments

 

 

(3,738.0

)

 

 

(1,456.4

)

Proceeds from sale of investments and other assets

 

 

1,466.7

 

 

 

6,201.3

 

Payments to settle Teva related matters

 

 

-

 

 

 

(466.0

)

Proceeds from sales of property, plant and equipment

 

 

18.5

 

 

 

24.6

 

Acquisitions of businesses, net of cash acquired

 

 

(80.6

)

 

 

-

 

Net cash (used in) / provided by investing activities

 

 

(2,632.7

)

 

 

4,138.4

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

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

 

 

3.3

 

 

 

717.2

 

Payments on debt, including finance lease obligations and credit facility

 

 

(1,044.9

)

 

 

(7,115.9

)

Payments of contingent consideration and other financing

 

 

(6.3

)

 

 

(21.7

)

Proceeds from forward sale of Teva securities

 

 

-

 

 

 

465.5

 

Payments to settle Teva related matters

 

 

-

 

 

 

(234.0

)

Dividends to Parents

 

 

(1,531.2

)

 

 

(2,798.2

)

Net cash (used in) financing activities

 

 

(2,579.1

)

 

 

(8,987.1

)

Effect of currency exchange rate changes on cash and cash equivalents

 

 

(10.0

)

 

 

13.1

 

Net increase / (decrease) in cash and cash equivalents

 

 

351.7

 

 

 

(630.4

)

Cash and cash equivalents at beginning of period

 

 

878.6

 

 

 

1,816.3

 

Cash and cash equivalents at end of period

 

$

1,230.3

 

 

$

1,185.9

 

Schedule of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Settlement of Teva Shares

 

$

-

 

 

$

465.5

 

Settlement of secured financing

 

$

-

 

 

$

(465.5

)

 

See accompanying Notes to the Consolidated Financial Statements.

11


 

WARNER CHILCOTT LIMITED

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited; in millions, except share data)

 

 

 

Members' Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income / (Loss)

 

 

Noncontrolling

Interest

 

 

Total

 

BALANCE, December 31, 2017

 

 

100.0

 

 

$

72,935.1

 

 

$

6,410.4

 

 

$

1,920.7

 

 

$

16.0

 

 

$

81,282.2

 

Implementation of new accounting

   pronouncements

 

 

-

 

 

 

-

 

 

 

424.7

 

 

 

(63.0

)

 

 

-

 

 

 

361.7

 

BALANCE, January 1, 2018

 

 

100.0

 

 

$

72,935.1

 

 

$

6,835.1

 

 

$

1,857.7

 

 

$

16.0

 

 

$

81,643.9

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to members

 

 

-

 

 

 

-

 

 

 

(231.3

)

 

 

-

 

 

 

-

 

 

 

(231.3

)

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

183.8

 

 

 

-

 

 

 

183.8

 

Dividends to Parents

 

 

-

 

 

 

-

 

 

 

(1,859.5

)

 

 

-

 

 

 

-

 

 

 

(1,859.5

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2.1

 

 

 

2.1

 

BALANCE, March 31, 2018

 

 

100.0

 

 

$

72,935.1

 

 

$

4,744.3

 

 

$

2,041.5

 

 

$

18.1

 

 

$

79,739.0

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to members

 

 

-

 

 

 

-

 

 

 

(372.4

)

 

 

-

 

 

 

-

 

 

 

(372.4

)

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(448.6

)

 

 

-

 

 

 

(448.6

)

Dividends to Parents

 

 

-

 

 

 

-

 

 

 

(244.2

)

 

 

-

 

 

 

-

 

 

 

(244.2

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2.4

 

 

 

2.4

 

BALANCE, June 30, 2018

 

 

100.0

 

 

$

72,935.1

 

 

$

4,127.7

 

 

$

1,592.9

 

 

$

20.5

 

 

$

78,676.2

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to members

 

 

-

 

 

 

-

 

 

 

51.3

 

 

 

-

 

 

 

-

 

 

 

51.3

 

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(88.7

)

 

 

-

 

 

 

(88.7

)

Dividends to Parents

 

 

-

 

 

 

-

 

 

 

(694.5

)

 

 

-

 

 

 

-

 

 

 

(694.5

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7.4

)

 

 

(7.4

)

BALANCE, September 30, 2018

 

 

100.0

 

 

$

72,935.1

 

 

$

3,484.5

 

 

$

1,504.2

 

 

$

13.1

 

 

$

77,936.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2018

 

 

100.0

 

 

$

65,797.9

 

 

$

(4,219.7

)

 

$

1,345.2

 

 

$

16.9

 

 

$

62,940.3

 

Implementation of new accounting

   pronouncement

 

 

-

 

 

 

-

 

 

 

(22.0

)

 

 

-

 

 

 

-

 

 

 

(22.0

)

BALANCE, January 1, 2019

 

 

100.0

 

 

$

65,797.9

 

 

$

(4,241.7

)

 

$

1,345.2

 

 

$

16.9

 

 

$

62,918.3

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to members

 

 

-

 

 

 

-

 

 

 

(2,405.7

)

 

 

-

 

 

 

-

 

 

 

(2,405.7

)

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(128.8

)

 

 

-

 

 

 

(128.8

)

Dividends to Parents

 

 

-

 

 

 

(1,045.8

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,045.8

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.7

 

 

 

0.7

 

BALANCE, March 31, 2019

 

 

100.0

 

 

$

64,752.1

 

 

$

(6,647.4

)

 

$

1,216.4

 

 

$

17.6

 

 

$

59,338.7

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to members

 

 

-

 

 

 

-

 

 

 

(1,751.2

)

 

 

-

 

 

 

-

 

 

 

(1,751.2

)

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

65.3

 

 

 

-

 

 

 

65.3

 

Dividends to Parents

 

 

-

 

 

 

(242.7

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(242.7

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3.8

 

 

 

3.8

 

BALANCE, June 30, 2019

 

 

100.0

 

 

$

64,509.4

 

 

$

(8,398.6

)

 

$

1,281.7

 

 

$

21.4

 

 

$

57,413.9

 

Comprehensive (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to members

 

 

-

 

 

 

-

 

 

 

(731.3

)

 

 

-

 

 

 

-

 

 

 

(731.3

)

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(240.6

)

 

 

-

 

 

 

(240.6

)

Dividends to Parents

 

 

-

 

 

 

(242.7

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(242.7

)

Movement in noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1.6

 

 

 

1.6

 

BALANCE, September 30, 2019

 

 

100.0

 

 

$

64,266.7

 

 

$

(9,129.9

)

 

$

1,041.1

 

 

$

23.0

 

 

$

56,200.9

 

 

See accompanying Notes to the Consolidated Financial Statements.

12


 

ALLERGAN PLC AND WARNER CHILCOTT LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 — General

Allergan plc is a global pharmaceutical leader focused on developing, manufacturing and commercializing branded pharmaceutical, device, biologic, surgical and regenerative medicine products for patients around the world. Allergan markets a portfolio of leading brands and best-in-class products primarily focused on four key therapeutic areas including medical aesthetics, eye care, central nervous system and gastroenterology. 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.

Merger Agreement with AbbVie Inc.

On June 25, 2019, the Company announced that it entered into a transaction agreement (the “AbbVie Agreement”) under which AbbVie Inc. (“AbbVie”), a global, research-driven biopharmaceutical company, would acquire Allergan plc in a stock and cash transaction (the “AbbVie Transaction”), valued at $188.24 per Allergan share, or approximately $63.0 billion, based on AbbVie’s then-current stock price at the time the AbbVie Transaction was announced. At the closing of the proposed AbbVie Transaction, Company shareholders will receive 0.8660 shares of AbbVie common stock and $120.30 in cash for each of their existing shares. On October 14, 2019, the Company’s shareholders voted to approve the AbbVie Transaction.  The AbbVie Transaction is subject to customary regulatory approvals and other customary closing conditions. The AbbVie Transaction is anticipated to close in early 2020.

 

On October 25, 2019, in connection with the AbbVie Transaction, AbbVie commenced an offer to exchange all Allergan Senior Notes issued by Allergan and maturing from September 15, 2020 through March 15, 2045 for up to approximately $19.6 billion aggregate principal amount of new notes to be issued by AbbVie and cash.  In conjunction with the exchange offer, AbbVie is concurrently soliciting consents from eligible holders of the Allergan Senior Notes to amend each of the indentures governing the Allergan Senior Notes to eliminate substantially all of the restrictive covenants in such indentures and eliminate any guarantees of the related Allergan Senior Notes. The exchange offer and consent solicitations are conditioned upon, among other things, the closing of the AbbVie Transaction.  The exchange offers are expected to close on or about the closing date of the AbbVie Transaction.

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, 2018 (“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. 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 de minimis 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):

13


 

 

 

 

As of September 30, 2019

 

 

As of December 31, 2018

 

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

Cash and cash equivalents

 

$

1,237.5

 

 

$

1,230.3

 

 

$

7.2

 

 

$

880.4

 

 

$

878.6

 

 

$

1.8

 

Prepaid expenses and other current assets

 

 

942.3

 

 

 

940.7

 

 

 

1.6

 

 

 

819.1

 

 

 

818.7

 

 

 

0.4

 

Accounts payable and accrued liabilities

 

 

5,692.2

 

 

 

5,690.6

 

 

 

1.6

 

 

 

4,787.2

 

 

 

4,787.4

 

 

 

(0.2

)

Other taxes payable

 

 

1,718.4

 

 

 

1,713.4

 

 

 

5.0

 

 

 

1,615.5

 

 

 

1,615.5

 

 

 

-

 

Total equity

 

 

58,498.2

 

 

 

56,200.9

 

 

 

2,297.3

 

 

 

65,131.0

 

 

 

62,940.3

 

 

 

2,190.7

 

 

 

 

Three Months Ended September 30, 2019

 

 

Nine Months Ended September 30, 2019

 

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

General and administrative expenses

 

$

1,092.7

 

 

$

1,037.1

 

 

$

55.6

 

 

$

1,725.2

 

 

$

1,659.6

 

 

$

65.6

 

Operating (loss)

 

 

(596.6

)

 

 

(541.0

)

 

 

(55.6

)

 

 

(4,168.7

)

 

 

(4,103.1

)

 

 

(65.6

)

(Loss) before income taxes and

   noncontrolling interest

 

 

(767.5

)

 

 

(711.9

)

 

 

(55.6

)

 

 

(4,696.7

)

 

 

(4,631.1

)

 

 

(65.6

)

Provision for income taxes

 

 

18.1

 

 

 

18.2

 

 

 

(0.1

)

 

 

251.1

 

 

 

251.1

 

 

 

-

 

Net (loss)

 

 

(785.6

)

 

 

(730.1

)

 

 

(55.5

)

 

 

(4,947.8

)

 

 

(4,882.2

)

 

 

(65.6

)

Net (loss) attributable to ordinary

   shareholders/members

 

 

(786.8

)

 

 

(731.3

)

 

 

(55.5

)

 

 

(4,953.8

)

 

 

(4,888.2

)

 

 

(65.6

)

 

 

 

Three Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2018

 

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

 

Allergan plc

 

 

Warner

Chilcott

Limited

 

 

Difference

 

General and administrative expenses

 

$

289.2

 

 

$

272.4

 

 

$

16.8

 

 

$

919.2

 

 

$

866.0

 

 

$

53.2

 

Operating income / (loss)

 

 

257.5

 

 

 

274.3

 

 

 

(16.8

)

 

 

(863.5

)

 

 

(810.3

)

 

 

(53.2

)

Interest income

 

 

10.0

 

 

 

77.3

 

 

 

(67.3

)

 

 

33.6

 

 

 

219.4

 

 

 

(185.8

)

Income / (loss) before income taxes and

   noncontrolling interest

 

 

177.1

 

 

 

261.2

 

 

 

(84.1

)

 

 

(1,264.3

)

 

 

(1,025.3

)

 

 

(239.0

)

Provision / (benefit) for income taxes

 

 

213.4

 

 

 

208.3

 

 

 

5.1

 

 

 

(474.0

)

 

 

(479.1

)

 

 

5.1

 

Net (loss) / income

 

 

(36.3

)

 

 

52.9

 

 

 

(89.2

)

 

 

(790.3

)

 

 

(546.2

)

 

 

(244.1

)

Dividends on preferred shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

46.4

 

 

 

-

 

 

 

46.4

 

Net (loss) / income attributable to ordinary

   shareholders/members

 

 

(37.9

)

 

 

51.3

 

 

 

(89.2

)

 

 

(842.9

)

 

 

(552.4

)

 

 

(290.5

)

 

The differences between general and administrative expenses in the three and nine months ended September 30, 2019 and 2018 were due to corporate related expenses incurred at Allergan plc.  The differences in total equity were due to historical differences in the results of operations of the companies and differences in equity awards and dividends.

 

During the three and nine months ended September 30, 2018, the difference in interest income between Allergan plc and Warner Chilcott Limited was due to $0.8 billion and $9.0 billion in Receivables from the Parents and Non-current Receivables from the Parents, respectively.  These Receivables related to intercompany loans between Allergan plc and subsidiaries of Warner Chilcott Limited generated related party interest income in Warner Chilcott Limited.  These Receivables were contributed to the Parents during the year ended December 31, 2018 as an equity contribution and were reclassified from receivables to equity.  

 

 

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, 2018 included in the Annual Report.  

Implementation of New Guidance

In February 2016, the Financial Accounting Standards Board (“FASB”) established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease

14


 

liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

On January 1, 2019, the Company adopted the new standard using the modified retrospective transition approach applied to all leases existing at the effective date of initial application of January 1, 2019. Prior period amounts are not adjusted and continue to be reported in accordance with historical accounting practices and the disclosures under the new standard are not required for dates and periods prior to January 1, 2019.

When evaluating whether a contract contains a lease under the new standard, Allergan considers whether (1) the contract explicitly or implicitly identifies assets that are contractually defined and (2) the Company obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. The Company does not have the right to use an identified asset if the supplier has the substantive right to substitute the asset throughout the period without the Company’s approval.

The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’ which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs under the new standard. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter was not applicable to the Company.

This standard has a significant impact on our consolidated balance sheet but did not have a significant impact on our consolidated statements of operations. The most significant effects relate to the recognition of ROU assets and lease liabilities on our balance sheet for our real estate and fleet operating leases.

Upon adoption, the Company recognized lease liabilities and corresponding ROU assets as follows ($ in millions):

 

 

 

ROU Asset

 

 

Lease Liability

 

Real estate

 

$

304.2

 

 

$

370.6

 

Fleet

 

 

100.4

 

 

 

100.4

 

Other

 

 

57.5

 

 

 

77.6

 

Total operating leases

 

$

462.1

 

 

$

548.6

 

 

The cumulative effective adjustment as of the effective date of $22.0 million was recorded to opening retained earnings.  The Company has an immaterial amount of finance leases.

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the lease recognition exemption for all leases with lease terms of 12 months or less. For leases that qualify under this exception, the Company will not recognize ROU assets or lease liabilities and did not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for leases of real estate, fleet, IT and office equipment.

Refer to “NOTE 13 – Leases” for further information related to the Company’s leases.

 

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update allows for the optional reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”) from accumulated other comprehensive income to retained earnings. The amount of the reclassification is calculated as the difference between the historical and newly enacted tax rates on deferred taxes originally recorded through accumulated other comprehensive income. The Company adopted the standard as of January 1, 2019; however, due to the immaterial amount of the stranded tax effects, the Company elected not to reclassify the income tax effects from accumulated other comprehensive income to retained earnings. Tax effects unrelated to the TCJA are released from accumulated other comprehensive income using either the specific identification approach or the portfolio approach based on the nature of the underlying item.

 

The Company adopted ASU 2016-01, Financial Instruments on January 1, 2018. The new standard required modified retrospective adoption through 2018 beginning Retained Earnings and Accumulated Other Comprehensive Income. This was incorrectly recorded as a loss through Other Comprehensive Income of $63.0 million during the quarter ended March 31, 2018.  This was corrected during 2018 and therefore, has no impact on the annual consolidated financial statements. The Company has determined that the adjustment was not material to any previously reported interim period.  The Consolidated Statement of Comprehensive (Loss) for the nine months ended September 30, 2018 has been adjusted to correct for this error. 

 

Revenue Recognition

 

General

 

15


 

ASU No. 2014-09, “Revenue from Contracts with Customers” (“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”).

 

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 as that is when the customer has obtained control of significantly all of the economic benefits.

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.  

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

 

 

 

Chargebacks

 

 

Rebates

 

 

Returns

and

Other

Allowances

 

 

Cash

Discounts

 

 

Total

 

Balance at December 31, 2018

 

$

61.8

 

 

$

1,908.5

 

 

$

566.6

 

 

$

30.7

 

 

$

2,567.6

 

Provision related to sales in 2019

 

 

840.1

 

 

 

4,427.4

 

 

 

1,227.0

 

 

 

244.8

 

 

 

6,739.3

 

Credits and payments

 

 

(835.1

)

 

 

(4,241.5

)

 

 

(1,174.9

)

 

 

(241.2

)

 

 

(6,492.7

)

Balance at September 30, 2019

 

$

66.8

 

 

$

2,094.4

 

 

$

618.7

 

 

$

34.3

 

 

$

2,814.2

 

Contra accounts receivable

   at September 30, 2019

 

$

66.8

 

 

$

94.6

 

 

$

41.7

 

 

$

34.3

 

 

$

237.4

 

Accounts payable and accrued expenses

   at September 30, 2019

 

$

-

 

 

$

1,999.8

 

 

$

577.0

 

 

$

-

 

 

$

2,576.8

 

 

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

 

 

 

September 30, 2019

 

 

December 31, 2018

 

Contra accounts receivable

 

$

237.4

 

 

$

207.7

 

Accounts payable and accrued expenses

 

 

2,576.8

 

 

 

2,359.9

 

Total

 

$

2,814.2

 

 

$

2,567.6

 

 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Gross product sales

 

$

6,254.7

 

 

$

6,054.3

 

 

$

18,210.2

 

 

$

17,765.9

 

Provisions to reduce gross product sales to net product sales

 

 

(2,314.8

)

 

 

(2,214.6

)

 

 

(6,739.3

)

 

 

(6,337.0

)

Net product sales

 

$

3,939.9

 

 

$

3,839.7

 

 

$

11,470.9

 

 

$

11,428.9

 

Percentage of SRA provisions to gross sales

 

 

37.0

%

 

 

36.6

%

 

 

37.0

%

 

 

35.7

%

 

16


 

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 receivables considered uncollectible after sale to the customer to reflect allowances for doubtful accounts.  Provision for bad debts, included in general and administrative expenses, were $19.0 million and $0.8 million in the three months ended September 30, 2019 and 2018, respectively.  Provision for bad debts, included in general and administrative expenses, were $26.3 million and $14.9 million in the nine months ended September 30, 2019 and 2018, respectively.

 

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 an 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 as of the measurement date of the 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 2018 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.  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.  

Acquired in-process research and development (“IPR&D”) intangible assets represent the value assigned to research and development (“R&D”) 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 management to develop significant estimates and assumptions involving the determination of the fair value of the IPR&D asset, including estimated revenues, the probability of success of the project, determination of the appropriate discount rate, assessment of the asset’s life, potential regulatory risks, and net revenue growth curve assumptions.  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.

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.

Refer to “NOTE 11 –Goodwill, Product Rights, and Other Intangible Assets” for further discussion on the Company’s goodwill and intangible assets balances and impairments.

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

17


 

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. Ordinary share equivalents have been excluded where their inclusion would be anti-dilutive.

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) attributable to ordinary shareholders

 

$

(786.8

)

 

$

(37.9

)

 

$

(4,953.8

)

 

$

(842.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average ordinary shares outstanding

 

 

328.0

 

 

 

339.0

 

 

 

329.3

 

 

 

337.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) per share

 

$

(2.40

)

 

$

(0.11

)

 

$

(15.04

)

 

$

(2.50

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per ordinary share

 

$

0.74

 

 

$

0.72

 

 

$

2.22

 

 

$

2.16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average ordinary shares outstanding

 

 

328.0

 

 

 

339.0

 

 

 

329.3

 

 

 

337.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) per share

 

$

(2.40

)

 

$

(0.11

)

 

$

(15.04

)

 

$

(2.50

)

 

Stock awards to purchase 2.2 million and 1.8 million ordinary shares for the three and nine months ended September 30, 2019, respectively, were outstanding, but not included in the computation of diluted EPS, because the awards were anti-dilutive.  NaN shares were repurchased in the three months ended September 30, 2019.  The impact of the 5.3 million shares repurchased in the nine months ended September 30, 2019 on basic EPS was 3.8 million weighted average shares.  

 

Stock awards to purchase 2.7 million and 2.3 million ordinary shares for the three and nine months ended September 30, 2018, respectively, were outstanding, but not included in the computation of diluted EPS, because the awards were anti-dilutive.  During the three and nine months ended September 30, 2018, the Company repurchased shares under its share repurchase programs.  The impact of the 2.4 million and 12.0 million shares repurchased in the three and nine months ended September 30, 2018 on basic EPS was 0.5 million and 7.2 million, respectively.  

 

The Company’s preferred shares were mandatorily converted to ordinary shares on March 1, 2018.  The weighted average impact of ordinary share equivalents of 3.9 million for the nine months ended September 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.

 

Refer to “NOTE 16 –Shareholders’ Equity” for further discussion on the Company’s share repurchase programs.

Research and Development Activities

Research and development (“R&D”) activities are expensed as incurred and consist of self-funded R&D costs, the costs associated with work performed under collaborative R&D agreements, regulatory fees, and acquisition and license related milestone payments, if any.

18


 

As of September 30, 2019, we are developing a number of products, some of which utilize novel drug delivery systems, through a combination of internal and collaborative programs, and we additionally have products in development as part of our life-cycle management strategy for our existing product portfolio.  These development projects include but are not limited to the following:

 

Product

 

Therapeutic Area

 

Indication

 

Expected

Launch

Year

 

Phase

Cariprazine

 

Central Nervous System

 

Bipolar Depression

 

2019

 

Approved

Ubrogepant

 

Central Nervous System

 

Acute Migraine

 

2020

 

Review

Bimatoprost SR

 

Eye Care

 

Glaucoma

 

2020

 

Review

Abicipar

 

Eye Care

 

Age Related Macular Degeneration

 

2020

 

Review

Atogepant

 

Central Nervous System

 

Prophylaxis Migraine

 

2021

 

III

Presbysol

 

Eye Care

 

Presbyopia

 

2021

 

III

Cenicriviroc

 

Gastrointestinal

 

NASH

 

2022

 

III

Brimonidine DDS

 

Eye Care

 

Geographic Atrophy

 

2023

 

II

Relamorelin

 

Gastrointestinal

 

Gastroparesis

 

2024

 

III

Botox

 

Medical Aesthetics

 

Platysma/Masseter

 

2025/2024

 

II

Abicipar

 

Eye Care

 

Diabetic Macular Edema

 

2025

 

II

 

In addition to the projects listed in the table above, the Company continues to develop brazikumab, a gastrointestinal development project for indications of Crohn’s disease and ulcerative colitis.  In connection with the proposed AbbVie Transaction, the Company is actively seeking to divest brazikumab, with any such divestiture contingent on the closing of the AbbVie Transaction.

 

Recent Accounting Pronouncements

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606.  The ASU provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants and only allows a company to present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition standard.  The amendments in ASU No. 2018-18 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  The adoption of this guidance is not anticipated to have a material impact on the Company’s financial position and results of operations.  

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40), relating to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (i.e., a service contract). Under the new guidance, a customer will apply the same criteria for capitalizing implementation costs as it would for an arrangement that has a software license.  The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted.  The Company will adopt the new guidance prospectively to eligible costs incurred on or after the date this guidance is first applied. The adoption of this guidance is not anticipated to have a material impact on the Company’s financial position and results of operations.  

 

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) – Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The revisions to the disclosure requirements affect only the year-end financial statements of plan sponsors, as there are no changes related to interim financial statements. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is permitted.  The ASU provisions will be applied on a retrospective basis to all periods presented.  This pronouncement only has an impact to disclosure requirements and does not have an impact on our financial position or results of operations.

 

19


 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which removes, adds and modifies certain disclosure requirements for fair value measurements in Topic 820. The Company will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and the valuation processes of Level 3 fair value measurements. However, the Company will be required to additionally disclose the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of assumptions used to develop significant unobservable inputs for Level 3 fair value measurements. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  The amendments relating to additional disclosure requirements will be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments will be applied retrospectively to all periods presented upon their effective date. The Company is permitted to early adopt either the entire ASU or only the provisions that eliminate or modify the requirements.  This pronouncement only has an impact to disclosure requirements and does not have an impact on our financial position or results of operations.

 

 

NOTE 4 — Business Transactions

 

2019 Transactions

 

The following transaction was announced and completed in the nine months ended September 30, 2019.

Envy Medical, Inc.

 

On March 26, 2019, the Company acquired Envy Medical, Inc. (“Envy”), a privately held medical aesthetics company that specializes in non-surgical, non-invasive skin resurfacing systems for an acquisition accounting purchase price of $81.4 million, which includes $67.4 million of product rights and other intangibles, $34.1 million of goodwill and other assets and liabilities.  The transaction was treated as a business combination.  The acquisition combines Envy’s skin care product portfolio with the Company’s leading medical aesthetics business.

 

NOTE 5 — Assets Held for Sale

 

The following represents the assets held for sale ($ in millions):

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets held for sale:

 

 

 

 

 

 

 

 

Inventories

 

$

-

 

 

$

34.0

 

Property, plant and equipment, net

 

 

32.5

 

 

 

32.8

 

Product rights and other intangibles

 

 

-

 

 

 

849.4

 

Total assets held for sale

 

$

32.5

 

 

$

916.2

 

 

As of December 31, 2018, the Company had concluded that its Anti-Infectives business met the criteria for held for sale based on management’s intent and ability to divest the business within the next twelve months.  Assets held for sale also include miscellaneous properties.  As of June 30, 2019, and as a result of the proposed AbbVie Transaction, the Company concluded that the Anti-Infectives business no longer met the criteria for held for sale.  The Anti-Infectives intangible assets and inventory were reclassified to held in use at the lower of their carrying amount before the assets were recorded as held for sale less any amortization that would have been recognized had the assets been continuously classified as held and used or their fair value at the date of the subsequent decision not to sell.  As a result of the reclassification, the Company recorded a charge of $129.6 million, primarily related to amortization that would have been recorded if the assets were held and used, within Assets, sales and impairments, net for the nine month period the assets were held for sale.

 

 

20


 

NOTE 6 – Other Income / (Expense)

Other income, net consisted of the following ($ in millions):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Teva Share Activity

 

$

-

 

 

$

-

 

 

$

-

 

 

$

60.9

 

Sale of businesses

 

 

-

 

 

 

129.6

 

 

 

-

 

 

 

182.6

 

Debt extinguishment other

 

 

-

 

 

 

(8.3

)

 

 

(0.2

)

 

 

0.8

 

Other income, net

 

 

2.5

 

 

 

8.7

 

 

 

11.8

 

 

 

22.3

 

Other income, net

 

$

2.5

 

 

$

130.0

 

 

$

11.6

 

 

$

266.6

 

Teva Share Activity

During the nine months ended September 30, 2018, the Company recorded the following movements in its investment in Teva securities (“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

   during the three months

   ended March 31, 2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(129.3

)

 

 

-

 

 

 

-

 

 

 

129.3

 

Settlement of initial accelerated

   share repurchase ("ASR"), net

   during the three months

   ended March 31, 2018

 

 

(25.0

)

 

 

18.95

 

 

 

16.53

 

*

 

413.3

 

 

 

(473.8

)

 

 

-

 

 

 

2.5

 

 

 

62.9

 

 

 

-

 

Settlement of forward sale

   entered into during the

   three months ended

   March 31, 2018, net

 

 

(25.0

)

 

 

17.09

 

 

 

18.61

 

**

 

465.5

 

 

 

(427.3

)

 

 

-

 

 

 

38.2

 

 

 

-

 

 

 

-

 

Open market sales during

   the nine months ended

   September 30, 2018

 

 

(45.9

)

 

n.a.

 

 

 

20.41

 

 

 

936.7

 

 

 

(916.6

)

 

 

-

 

 

 

20.2

 

 

 

-

 

 

 

-

 

Teva securities as of

   and for the nine months

   ended September 30, 2018

 

 

-

 

 

$

-

 

 

$

-

 

 

$

1,815.5

 

 

$

-

 

 

$

-

 

 

$

60.9

 

 

$

-

 

 

$

129.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Market price represented 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.

 

**Market price represented 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.

 

 

 

Sale of Businesses

During the three and nine months ended September 30, 2018, the Company recorded a net gain of $129.6 million as a result of the sale of five medical dermatology products to Almirall, S.A.

21


 

During the nine months ended September 30, 2018, the Company completed the sale of a non-strategic asset group that qualified as a business, 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 nine months ended September 30, 2019, the Company repurchased $249.8 million of senior notes in the open market.  The net gain / (loss) on the debt extinguishments was not material.    

During the three and nine months ended September 30, 2018, the Company repurchased $1,767.2 million and $2,223.1 million, respectively, of senior notes in the open market.  During the three months ended September 30, 2018, as a result of the debt extinguishment, the Company recognized a net loss of $8.3 million, within “Other income / (expense), net” for the discount received upon repurchase of $5.1 million, offset by the non-cash write-off of premiums and debt fees related to the repaid notes of $13.4 million.  During the nine months ended September 30, 2018, as a result of the debt extinguishment, the Company recognized a net gain of $0.8 million within “other income / (expense), net” for the discount received upon repurchase of $18.2 million, offset by the non-cash write-off of premiums and debt fees related to the repaid notes of $17.4 million.

During the three and nine months ended September 30, 2019 and 2018, the Company redeemed and retired the following senior notes ($ in millions):

 

 

 

Three Months Ended September 30, 2019

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

Tranche

 

Face Value

Retired

 

 

Cash Paid

for Retirement

 

 

Face Value

Retired

 

 

Cash Paid

for Retirement

 

 

Remaining Face Value at

September 30, 2019

 

3.000% due 2020

 

$

-

 

 

$

-

 

 

$

180.7

 

 

$

180.7

 

 

$

2,526.0

 

3.450% due 2022

 

 

-

 

 

 

-

 

 

 

62.3

 

 

 

62.3

 

 

 

2,878.2

 

3.800% due 2025

 

 

-

 

 

 

-

 

 

 

6.8

 

 

 

6.8

 

 

 

3,020.7

 

Total

 

$

-

 

 

$

-

 

 

$

249.8

 

 

$

249.8

 

 

$

8,424.9

 

 

 

 

Three Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

Tranche

 

Face Value

Retired

 

 

Cash Paid

for Retirement

 

 

Face Value

Retired

 

 

Cash Paid

for Retirement

 

 

Remaining Face Value at

September 30, 2018

 

2.450% due 2019

 

$

-

 

 

$

-

 

 

$

8.8

 

 

$

8.8

 

 

$

491.2

 

3.000% due 2020

 

 

408.6

 

 

 

407.8

 

 

 

449.3

 

 

 

448.4

 

 

 

3,050.6

 

3.450% due 2022

 

 

-

 

 

 

-

 

 

 

59.5

 

 

 

58.6

 

 

 

2,940.5

 

3.850% due 2024

 

 

52.1

 

 

 

52.0

 

 

 

63.3

 

 

 

62.9

 

 

 

1,136.7

 

3.800% due 2025

 

 

787.5

 

 

 

784.4

 

 

 

872.5

 

 

 

867.0

 

 

 

3,127.5

 

4.550% due 2035

 

 

345.0

 

 

 

344.7

 

 

 

460.0

 

 

 

454.8

 

 

 

2,040.0

 

4.850% due 2044

 

 

140.1

 

 

 

139.5

 

 

 

199.1

 

 

 

196.8

 

 

 

1,300.9

 

4.750% due 2045

 

 

33.9

 

 

 

33.7

 

 

 

110.6

 

 

 

107.6

 

 

 

1,089.4

 

Total

 

$

1,767.2

 

 

$

1,762.1

 

 

$

2,223.1

 

 

$

2,204.9

 

 

$

15,176.8

 

 

Other Income, Net

Other income, net includes the mark to market losses of $5.1 million and $1.9 million, respectively, on equity securities held by the Company during the three and nine months ended September 30, 2019.

 

 

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.

22


 

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.

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:

 

 

 

2019

Grants

 

 

2018

Grants

 

Dividend yield

 

1.7 - 1.8%

 

 

1.5%

 

Expected volatility

 

26.4%

 

 

27.0%

 

Risk-free interest rate

 

1.9%

 

 

2.2 - 2.9%

 

Expected term (years)

 

7.0

 

 

7.0

 

 

Share-Based Compensation Expense

Share-based compensation expense recognized in the Company’s results of operations for the three and nine months ended September 30, 2019 and 2018 was as follows ($ in millions):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Equity-based compensation awards

 

$

49.9

 

 

$

57.8

 

 

$

161.7

 

 

$

185.2

 

Total share-based compensation expense

 

$

49.9

 

 

$

57.8

 

 

$

161.7

 

 

$

185.2

 

 

Unrecognized future share-based compensation expense was $354.9 million as of September 30, 2019. This amount will be recognized as an expense over a remaining weighted average period of 1.5 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.

23


 

Share Activity

The following is a summary of equity award activity for unvested restricted stock and stock units in the period from December 31, 2018 through September 30, 2019 (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, 2018

 

 

2.5

 

 

$

190.27

 

 

 

1.6

 

 

$

472.9

 

Granted

 

 

1.5

 

 

 

140.11

 

 

 

 

 

 

 

210.5

 

Vested

 

 

(0.7

)

 

 

209.70

 

 

 

 

 

 

 

(141.5

)

Forfeited

 

 

(0.1

)

 

 

176.45

 

 

 

 

 

 

 

(26.6

)

Restricted shares / units outstanding at September 30, 2019

 

 

3.2

 

 

$

161.17

 

 

 

1.6

 

 

$

515.3

 

 

 

The following is a summary of equity award activity for non-qualified options to purchase ordinary shares in the period from December 31, 2018 through September 30, 2019 (in millions, except per share data):

 

 

 

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding, vested and expected to vest at December 31, 2018

 

 

6.3

 

 

$

122.74

 

 

 

4.4

 

 

$

69.0

 

Granted

 

 

0.3

 

 

 

140.56

 

 

 

 

 

 

 

 

 

Exercised

 

 

(0.5

)

 

 

91.45

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(0.1

)

 

 

220.61

 

 

 

 

 

 

 

 

 

Outstanding, vested and expected to vest at September 30, 2019

 

 

6.0

 

 

$

125.55

 

 

 

4.0

 

 

$

255.5

 

 

The increase in the aggregate intrinsic value of the options is primarily related to an increase in the Company’s stock from $133.66 as of December 31, 2018 to $168.29 as of September 30, 2019.

 

 

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 3 segments.  During the second quarter of 2019, the Company changed the operational and management structure for its in-development calcitonin gene-related peptide (“CGRP”) receptors, Ubrogepant and Atogepant.  These development products were previously reported within the US Specialized Therapeutics segment and have been transferred to the US General Medicine segment to align these development products with the management structure and reporting.  The revenues and cost of sales related to these products in the prior periods were zero and any selling and marketing expenses and general and administrative expenses were de minimis and therefore it was not necessary to recast prior periods.

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 through September 20, 2018, 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.

24


 

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.

 

Other select revenues and operating expenses including R&D expenses, amortization, IPR&D impairments, goodwill 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.

 

Total assets including capital expenditures.

The Company defines segment net revenues as product sales and other revenue derived from our 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.

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 nine months ended September 30, 2019 and 2018 ($ in millions):

 

 

 

Three Months Ended September 30, 2019

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

1,670.8

 

 

$

1,518.6

 

 

$

835.1

 

 

$

4,024.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

151.1

 

 

 

245.2

 

 

 

144.6

 

 

 

540.9

 

Selling and marketing

 

 

389.5

 

 

 

261.2

 

 

 

226.9

 

 

 

877.6

 

General and administrative

 

 

50.1

 

 

 

45.0

 

 

 

26.0

 

 

 

121.1

 

Segment contribution

 

$

1,080.1

 

 

$

967.2

 

 

$

437.6

 

 

$

2,484.9

 

Contribution margin

 

 

64.6

%

 

 

63.7

%

 

 

52.4

%

 

 

61.7

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,067.3

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

474.5

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,537.7

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.0

 

Operating (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(596.6

)

Operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14.8

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 $26.2 million.

 

25


 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

4,998.8

 

 

$

4,224.2

 

 

$

2,484.3

 

 

$

11,707.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

422.2

 

 

 

667.0

 

 

 

399.9

 

 

 

1,489.1

 

Selling and marketing

 

 

1,114.3

 

 

 

721.8

 

 

 

718.1

 

 

 

2,554.2

 

General and administrative

 

 

142.3

 

 

 

119.2

 

 

 

80.1

 

 

 

341.6

 

Segment contribution

 

$

3,320.0

 

 

$

2,716.2

 

 

$

1,286.2

 

 

$

7,322.4

 

Contribution margin

 

 

66.4

%

 

 

64.3

%

 

 

51.8

%

 

 

62.5

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,677.5

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,359.5

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,339.1

 

Goodwill impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,552.8

 

In-process research and development impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

436.0

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

126.2

 

Operating (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(4,168.7

)

Operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35.6

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 $30.6 million.

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

1,706.2

 

 

$

1,381.3

 

 

$

821.6

 

 

$

3,909.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

143.0

 

 

 

219.6

 

 

 

130.7

 

 

 

493.3

 

Selling and marketing

 

 

313.7

 

 

 

233.2

 

 

 

206.0

 

 

 

752.9

 

General and administrative

 

 

47.3

 

 

 

37.7

 

 

 

35.1

 

 

 

120.1

 

Segment contribution

 

$

1,202.2

 

 

$

890.8

 

 

$

449.8

 

 

$

2,542.8

 

Contribution margin

 

 

70.5

%

 

 

64.5

%

 

 

54.7

%

 

 

65.0

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

273.0

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

424.2

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,588.5

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.4

)

Operating income

 

 

 

 

 

 

 

 

 

 

 

 

 

$

257.5

 

Operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 $2.3 million.

 

26


 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Net revenues

 

$

5,111.5

 

 

$

3,925.0

 

 

$

2,634.5

 

 

$

11,671.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales(1)

 

 

425.9

 

 

 

604.0

 

 

 

391.0

 

 

 

1,420.9

 

Selling and marketing

 

 

970.2

 

 

 

713.5

 

 

 

697.9

 

 

 

2,381.6

 

General and administrative

 

 

145.6

 

 

 

111.3

 

 

 

100.4

 

 

 

357.3

 

Segment contribution

 

$

3,569.8

 

 

$

2,496.2

 

 

$

1,445.2

 

 

$

7,511.2

 

Contribution margin

 

 

69.8

%

 

 

63.6

%

 

 

54.9

%

 

 

64.4

%

Corporate(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

733.1

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,588.1

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,983.2

 

In-process research and development impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

798.0

 

Asset sales and impairments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

272.3

 

Operating (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(863.5

)

Operating margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7.4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 $36.7 million.

 

 

 

The following table presents our net revenue disaggregated by geography for our international segment for the three and nine months ended September 30, 2019 and 2018 ($ in millions):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Europe

 

$

346.5

 

 

$

329.8

 

 

$

1,087.1

 

 

$

1,141.5

 

Asia Pacific, Middle East and Africa

 

 

266.9

 

 

 

272.4

 

 

 

779.1

 

 

 

796.8

 

Latin America and Canada

 

 

199.9

 

 

 

203.3

 

 

 

560.2

 

 

 

646.2

 

Other*

 

 

21.8

 

 

 

16.1

 

 

 

57.9

 

 

 

50.0

 

Total International

 

$

835.1

 

 

$

821.6

 

 

$

2,484.3

 

 

$

2,634.5

 

*Includes royalty and other revenue

 

 

 

27


 

The following tables present global net revenues for the top products greater than 10% of total revenues of the Company as well as a reconciliation of segment revenues to total net revenues for the three and nine months ended September 30, 2019 and 2018 ($ in millions):

 

 

 

Three Months Ended September 30, 2019

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

669.2

 

 

$

-

 

 

$

259.5

 

 

$

928.7

 

Restasis®

 

 

286.8

 

 

 

-

 

 

 

9.2

 

 

 

296.0

 

Juvederm® Collection

 

 

134.8

 

 

 

-

 

 

 

144.7

 

 

 

279.5

 

Vraylar®

 

 

-

 

 

 

234.6

 

 

 

-

 

 

 

234.6

 

Linzess®/Constella®

 

 

-

 

 

 

214.7

 

 

 

6.7

 

 

 

221.4

 

Lo Loestrin®

 

 

-

 

 

 

161.4

 

 

 

-

 

 

 

161.4

 

Lumigan®/Ganfort®

 

 

67.5

 

 

 

-

 

 

 

89.7

 

 

 

157.2

 

Bystolic® / Byvalson®

 

 

-

 

 

 

152.2

 

 

 

0.6

 

 

 

152.8

 

Alphagan®/Combigan®

 

 

90.9

 

 

 

-

 

 

 

40.4

 

 

 

131.3

 

Eye Drops

 

 

62.0

 

 

 

-

 

 

 

63.8

 

 

 

125.8

 

Viibryd®/Fetzima®

 

 

-

 

 

 

105.1

 

 

 

3.0

 

 

 

108.1

 

Ozurdex ®

 

 

33.7

 

 

 

-

 

 

 

63.8

 

 

 

97.5

 

Alloderm ®

 

 

95.0

 

 

 

-

 

 

 

2.1

 

 

 

97.1

 

Zenpep®

 

 

-

 

 

 

74.2

 

 

 

0.7

 

 

 

74.9

 

Breast Implants

 

 

58.5

 

 

 

-

 

 

 

5.7

 

 

 

64.2

 

Coolsculpting ® Consumables

 

 

40.4

 

 

 

-

 

 

 

21.6

 

 

 

62.0

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

55.1

 

 

 

0.8

 

 

 

55.9

 

Armour Thyroid

 

 

-

 

 

 

54.4

 

 

 

-

 

 

 

54.4

 

Viberzi®

 

 

-

 

 

 

50.1

 

 

 

0.6

 

 

 

50.7

 

Teflaro®

 

 

-

 

 

 

38.4

 

 

 

2.1

 

 

 

40.5

 

Skin Care

 

 

36.1

 

 

 

-

 

 

 

4.0

 

 

 

40.1

 

Saphris®

 

 

-

 

 

 

34.5

 

 

 

-

 

 

 

34.5

 

Avycaz®

 

 

-

 

 

 

29.6

 

 

 

-

 

 

 

29.6

 

Dalvance®

 

 

-

 

 

 

23.2

 

 

 

1.4

 

 

 

24.6

 

Coolsculpting ® Systems & Add On Applicators

 

 

12.6

 

 

 

-

 

 

 

11.4

 

 

 

24.0

 

Savella®

 

 

-

 

 

 

24.0

 

 

 

-

 

 

 

24.0

 

Namzaric®

 

 

-

 

 

 

22.4

 

 

 

-

 

 

 

22.4

 

Liletta®

 

 

-

 

 

 

19.9

 

 

 

-

 

 

 

19.9

 

Asacol®/Delzicol®

 

 

-

 

 

 

11.9

 

 

 

7.2

 

 

 

19.1

 

Canasa®/Salofalk®

 

 

-

 

 

 

5.8

 

 

 

4.4

 

 

 

10.2

 

Rapaflo®

 

 

5.2

 

 

 

-

 

 

 

1.5

 

 

 

6.7

 

Kybella® / Belkyra®

 

 

5.3

 

 

 

-

 

 

 

0.3

 

 

 

5.6

 

Namenda®

 

 

-

 

 

 

4.0

 

 

 

-

 

 

 

4.0

 

Aczone®

 

 

3.4

 

 

 

-

 

 

 

-

 

 

 

3.4

 

Other

 

 

69.4

 

 

 

203.1

 

 

 

89.9

 

 

 

362.4

 

Total segment revenues

 

$

1,670.8

 

 

$

1,518.6

 

 

$

835.1

 

 

$

4,024.5

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26.2

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,050.7

 

28


 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

1,995.7

 

 

$

-

 

 

$

775.4

 

 

$

2,771.1

 

Juvederm® Collection

 

 

421.1

 

 

 

-

 

 

 

475.2

 

 

 

896.3

 

Restasis®

 

 

829.4

 

 

 

-

 

 

 

31.5

 

 

 

860.9

 

Linzess®/Constella®

 

 

-

 

 

 

572.0

 

 

 

17.0

 

 

 

589.0

 

Vraylar®

 

 

-

 

 

 

574.4

 

 

 

-

 

 

 

574.4

 

Lumigan®/Ganfort®

 

 

187.3

 

 

 

-

 

 

 

265.2

 

 

 

452.5

 

Lo Loestrin®

 

 

-

 

 

 

432.7

 

 

 

-

 

 

 

432.7

 

Bystolic® / Byvalson®

 

 

-

 

 

 

431.0

 

 

 

1.5

 

 

 

432.5

 

Alphagan®/Combigan®

 

 

265.5

 

 

 

-

 

 

 

118.9

 

 

 

384.4

 

Eye Drops

 

 

169.2

 

 

 

-

 

 

 

176.5

 

 

 

345.7

 

Viibryd®/Fetzima®

 

 

-

 

 

 

297.9

 

 

 

7.8

 

 

 

305.7

 

Ozurdex ®

 

 

93.9

 

 

 

-

 

 

 

207.9

 

 

 

301.8

 

Alloderm ®

 

 

291.2

 

 

 

-

 

 

 

5.9

 

 

 

297.1

 

Coolsculpting ® Consumables

 

 

148.9

 

 

 

-

 

 

 

59.7

 

 

 

208.6

 

Zenpep®

 

 

-

 

 

 

207.2

 

 

 

0.7

 

 

 

207.9

 

Breast Implants

 

 

187.3

 

 

 

-

 

 

 

(14.5

)

 

 

172.8

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

165.6

 

 

 

2.1

 

 

 

167.7

 

Armour Thyroid

 

 

-

 

 

 

161.1

 

 

 

-

 

 

 

161.1

 

Viberzi®

 

 

-

 

 

 

138.1

 

 

 

1.2

 

 

 

139.3

 

Skin Care

 

 

113.4

 

 

 

-

 

 

 

10.4

 

 

 

123.8

 

Teflaro®

 

 

-

 

 

 

108.9

 

 

 

2.3

 

 

 

111.2

 

Saphris®

 

 

-

 

 

 

99.0

 

 

 

-

 

 

 

99.0

 

Asacol®/Delzicol®

 

 

-

 

 

 

68.2

 

 

 

27.2

 

 

 

95.4

 

Avycaz®

 

 

-

 

 

 

86.0

 

 

 

-

 

 

 

86.0

 

Coolsculpting ® Systems & Add On Applicators

 

 

45.9

 

 

 

-

 

 

 

33.6

 

 

 

79.5

 

Namzaric®

 

 

-

 

 

 

68.4

 

 

 

-

 

 

 

68.4

 

Savella®

 

 

-

 

 

 

67.0

 

 

 

-

 

 

 

67.0

 

Dalvance®

 

 

-

 

 

 

55.5

 

 

 

3.6

 

 

 

59.1

 

Liletta®

 

 

-

 

 

 

56.6

 

 

 

-

 

 

 

56.6

 

Canasa®/Salofalk®

 

 

-

 

 

 

24.0

 

 

 

12.1

 

 

 

36.1

 

Rapaflo®

 

 

21.5

 

 

 

-

 

 

 

3.5

 

 

 

25.0

 

Kybella® / Belkyra®

 

 

21.1

 

 

 

-

 

 

 

2.5

 

 

 

23.6

 

Namenda®

 

 

-

 

 

 

19.6

 

 

 

-

 

 

 

19.6

 

Aczone®

 

 

6.8

 

 

 

-

 

 

 

-

 

 

 

6.8

 

Other

 

 

200.6

 

 

 

591.0

 

 

 

257.1

 

 

 

1,048.7

 

Total segment revenues

 

$

4,998.8

 

 

$

4,224.2

 

 

$

2,484.3

 

 

$

11,707.3

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30.6

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

11,737.9

 

29


 

 

 

 

Three Months Ended September 30, 2018

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

623.4

 

 

$

-

 

 

$

256.3

 

 

$

879.7

 

Restasis®

 

 

298.0

 

 

 

-

 

 

 

13.6

 

 

 

311.6

 

Juvederm® Collection

 

 

127.2

 

 

 

-

 

 

 

138.6

 

 

 

265.8

 

Linzess®/Constella®

 

 

-

 

 

 

204.8

 

 

 

5.7

 

 

 

210.5

 

Lumigan®/Ganfort®

 

 

78.0

 

 

 

-

 

 

 

94.8

 

 

 

172.8

 

Bystolic® / Byvalson®

 

 

-

 

 

 

151.2

 

 

 

0.5

 

 

 

151.7

 

Lo Loestrin®

 

 

-

 

 

 

141.5

 

 

 

-

 

 

 

141.5

 

Vraylar®

 

 

-

 

 

 

138.0

 

 

 

-

 

 

 

138.0

 

Alphagan®/Combigan®

 

 

95.4

 

 

 

-

 

 

 

40.5

 

 

 

135.9

 

Eye Drops

 

 

54.8

 

 

 

-

 

 

 

66.8

 

 

 

121.6

 

Alloderm ®

 

 

105.8

 

 

 

-

 

 

 

1.0

 

 

 

106.8

 

Breast Implants

 

 

58.2

 

 

 

-

 

 

 

35.6

 

 

 

93.8

 

Viibryd®/Fetzima®

 

 

-

 

 

 

88.5

 

 

 

1.8

 

 

 

90.3

 

Coolsculpting ® Consumables

 

 

55.5

 

 

 

-

 

 

 

14.2

 

 

 

69.7

 

Zenpep®

 

 

-

 

 

 

62.1

 

 

 

-

 

 

 

62.1

 

Ozurdex ®

 

 

28.6

 

 

 

-

 

 

 

25.8

 

 

 

54.4

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

53.4

 

 

 

0.7

 

 

 

54.1

 

Canasa®/Salofalk®

 

 

-

 

 

 

46.8

 

 

 

4.4

 

 

 

51.2

 

Armour Thyroid

 

 

-

 

 

 

48.0

 

 

 

-

 

 

 

48.0

 

Viberzi®

 

 

-

 

 

 

46.8

 

 

 

0.3

 

 

 

47.1

 

Asacol®/Delzicol®

 

 

-

 

 

 

32.1

 

 

 

10.9

 

 

 

43.0

 

Coolsculpting ® Systems & Add On Applicators

 

 

29.4

 

 

 

-

 

 

 

8.3

 

 

 

37.7

 

Saphris®

 

 

-

 

 

 

36.4

 

 

 

-

 

 

 

36.4

 

Skin Care

 

 

32.2

 

 

 

-

 

 

 

3.7

 

 

 

35.9

 

Teflaro®

 

 

-

 

 

 

33.4

 

 

 

-

 

 

 

33.4

 

Namzaric®

 

 

-

 

 

 

28.0

 

 

 

-

 

 

 

28.0

 

Avycaz®

 

 

-

 

 

 

24.7

 

 

 

-

 

 

 

24.7

 

Savella®

 

 

-

 

 

 

22.4

 

 

 

-

 

 

 

22.4

 

Rapaflo®

 

 

20.5

 

 

 

-

 

 

 

1.8

 

 

 

22.3

 

Aczone®

 

 

17.4

 

 

 

-

 

 

 

0.1

 

 

 

17.5

 

Namenda®

 

 

-

 

 

 

16.3

 

 

 

-

 

 

 

16.3

 

Liletta®

 

 

-

 

 

 

12.7

 

 

 

-

 

 

 

12.7

 

Dalvance®

 

 

-

 

 

 

9.2

 

 

 

-

 

 

 

9.2

 

Kybella® / Belkyra®

 

 

5.2

 

 

 

-

 

 

 

1.6

 

 

 

6.8

 

Other

 

 

76.6

 

 

 

185.0

 

 

 

94.6

 

 

 

356.2

 

Total segment revenues

 

$

1,706.2

 

 

$

1,381.3

 

 

$

821.6

 

 

$

3,909.1

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.3

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,911.4

 

30


 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

US Specialized

Therapeutics

 

 

US General

Medicine

 

 

International

 

 

Total

 

Botox®

 

$

1,854.4

 

 

$

-

 

 

$

777.1

 

 

$

2,631.5

 

Restasis®

 

 

872.0

 

 

 

-

 

 

 

47.9

 

 

 

919.9

 

Juvederm® Collection

 

 

389.8

 

 

 

-

 

 

 

440.8

 

 

 

830.6

 

Linzess®/Constella®

 

 

-

 

 

 

555.9

 

 

 

17.7

 

 

 

573.6

 

Lumigan®/Ganfort®

 

 

217.8

 

 

 

-

 

 

 

295.7

 

 

 

513.5

 

Bystolic® / Byvalson®

 

 

-

 

 

 

432.1

 

 

 

1.6

 

 

 

433.7

 

Alphagan®/Combigan®

 

 

277.7

 

 

 

-

 

 

 

129.3

 

 

 

407.0

 

Lo Loestrin®

 

 

-

 

 

 

383.9

 

 

 

-

 

 

 

383.9

 

Eye Drops

 

 

154.8

 

 

 

-

 

 

 

208.0

 

 

 

362.8

 

Vraylar®

 

 

-

 

 

 

336.6

 

 

 

-

 

 

 

336.6

 

Alloderm ®

 

 

312.4

 

 

 

-

 

 

 

5.5

 

 

 

317.9

 

Breast Implants

 

 

194.8

 

 

 

-

 

 

 

119.6

 

 

 

314.4

 

Viibryd®/Fetzima®

 

 

-

 

 

 

246.9

 

 

 

4.9

 

 

 

251.8

 

Ozurdex ®

 

 

81.7

 

 

 

-

 

 

 

158.1

 

 

 

239.8

 

Coolsculpting ® Consumables

 

 

180.8

 

 

 

-

 

 

 

40.8

 

 

 

221.6

 

Zenpep®

 

 

-

 

 

 

170.5

 

 

 

-

 

 

 

170.5

 

Carafate ® / Sulcrate ®

 

 

-

 

 

 

163.7

 

 

 

2.1

 

 

 

165.8

 

Armour Thyroid

 

 

-

 

 

 

145.4

 

 

 

-

 

 

 

145.4

 

Canasa®/Salofalk®

 

 

-

 

 

 

130.4

 

 

 

13.1

 

 

 

143.5

 

Asacol®/Delzicol®

 

 

-

 

 

 

102.9

 

 

 

35.0

 

 

 

137.9

 

Viberzi®

 

 

-

 

 

 

127.6

 

 

 

0.7

 

 

 

128.3

 

Coolsculpting ® Systems & Add On Applicators

 

 

99.5

 

 

 

-

 

 

 

21.8

 

 

 

121.3

 

Skin Care

 

 

98.4

 

 

 

-

 

 

 

11.6

 

 

 

110.0

 

Saphris®

 

 

-

 

 

 

102.9

 

 

 

-

 

 

 

102.9

 

Teflaro®

 

 

-

 

 

 

98.0

 

 

 

0.6

 

 

 

98.6

 

Namzaric®

 

 

-

 

 

 

93.2

 

 

 

-

 

 

 

93.2

 

Avycaz®

 

 

-

 

 

 

70.0

 

 

 

-

 

 

 

70.0

 

Rapaflo®

 

 

63.0

 

 

 

-

 

 

 

4.6

 

 

 

67.6

 

Savella®

 

 

-

 

 

 

61.4

 

 

 

-

 

 

 

61.4

 

Namenda®

 

 

-

 

 

 

60.3

 

 

 

-

 

 

 

60.3

 

Aczone®

 

 

54.5

 

 

 

-

 

 

 

0.3

 

 

 

54.8

 

Dalvance®

 

 

-

 

 

 

38.8

 

 

 

1.3

 

 

 

40.1

 

Liletta®

 

 

-

 

 

 

36.3

 

 

 

-

 

 

 

36.3

 

Kybella® / Belkyra®

 

 

24.6

 

 

 

-

 

 

 

5.3

 

 

 

29.9

 

Other

 

 

235.3

 

 

 

568.2

 

 

 

291.1

 

 

 

1,094.6

 

Total segment revenues

 

$

5,111.5

 

 

$

3,925.0

 

 

$

2,634.5

 

 

$

11,671.0

 

Corporate revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36.7

 

Total net revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

$

11,707.7

 

 

 

In connection with the proposed AbbVie Transaction, the Company is actively seeking to divest Zenpep, with any such divestiture contingent on the closing of the AbbVie Transaction.

 

On July 24, 2019, the Company announced a voluntary worldwide recall of BIOCELL® textured breast implants and tissue expanders as a precaution following notification of recently updated global safety information concerning the uncommon incidence of breast implant-associated anaplastic large cell lymphoma (BIA-ALCL) provided by the U.S. Food and Drug Administration (“FDA”).

 

In connection with the voluntary recall, the Company recorded an unfavorable adjustment to operating income of $114.8 million for the nine months ended September 30, 2019. Of this amount, $43.5 million related to estimated customer returns of product previously sold and was recorded as a reduction of net revenues, $61.3 million related to write-offs of inventory and other costs and was recorded in cost of sales, and $10.0 million related to the estimated penalties and costs to undertake the voluntary recall was recorded in selling, general and administrative expense.

 

31


 

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 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):

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Raw materials

 

$

399.6

 

 

$

303.2

 

Work-in-process

 

 

161.8

 

 

 

145.7

 

Finished goods

 

 

704.2

 

 

 

520.2

 

 

 

 

1,265.6

 

 

 

969.1

 

Less: inventory reserves

 

 

182.5

 

 

 

122.2

 

Total Inventories

 

$

1,083.1

 

 

$

846.9

 

 

 

In connection with the voluntary recall of BIOCELL® textured breast implants and tissue expanders, the Company recorded a $61.3 million charge in Cost of Sales, including $42.1 million to write down inventory held by the Company related to the recall, as of September 30, 2019.

 

 

NOTE 10 — Accounts Payable and Accrued Expenses

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued expenses:

 

 

 

 

 

 

 

 

Accrued third-party rebates

 

$

1,999.8

 

 

$

1,832.1

 

Litigation-related reserves and legal fees

 

 

881.6

 

 

 

92.0

 

Accrued payroll and related benefits

 

 

635.0

 

 

 

694.3

 

Accrued returns and other allowances

 

 

577.0

 

 

 

527.8

 

Royalties payable

 

 

189.3

 

 

 

155.1

 

Accrued R&D expenditures

 

 

174.7

 

 

 

215.5

 

Interest payable

 

 

140.3

 

 

 

191.4

 

Accrued pharmaceutical fees

 

 

85.6

 

 

 

145.3

 

Accrued non-provision taxes

 

 

69.2

 

 

 

68.5

 

Accrued selling and marketing expenditures

 

 

68.4

 

 

 

61.1

 

Accrued severance, retention and other shutdown costs

 

 

19.3

 

 

 

71.6

 

Current portion of contingent consideration obligations

 

 

11.6

 

 

 

8.3

 

Dividends payable

 

 

1.1

 

 

 

1.4

 

Other accrued expenses

 

 

368.1

 

 

 

373.0

 

Total accrued expenses

 

$

5,221.0

 

 

$

4,437.4

 

Accounts payable

 

 

471.2

 

 

 

349.8

 

Total accounts payable and accrued expenses

 

$

5,692.2

 

 

$

4,787.2

 

 

 

32


 

NOTE 11 — Goodwill, Product Rights and Other Intangible Assets

Goodwill

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, 2018

 

$

20,675.6

 

 

$

17,936.6

 

 

$

7,301.1

 

 

$

45,913.3

 

Acquisitions

 

 

34.1

 

 

 

-

 

 

 

-

 

 

 

34.1

 

Impairments

 

 

-

 

 

 

(3,552.8

)

 

 

-

 

 

 

(3,552.8

)

Re-allocation to current segments

 

 

(340.0

)

 

 

340.0

 

 

 

-

 

 

 

-

 

Foreign exchange and other adjustments

 

 

-

 

 

 

-

 

 

 

(329.1

)

 

 

(329.1

)

Balance as of September 30, 2019

 

$

20,369.7

 

 

$

14,723.8

 

 

$

6,972.0

 

 

$

42,065.5

 

 

During the second quarter of 2019, the Company changed the operational and management structure for its in-development CGRP receptors, Ubrogepant and Atogepant.  The development products were previously reported within the US Specialized Therapeutics segment and have been transferred to the US General Medicine segment to align these development products with the management structure and reporting.  These development products were acquired as part of an asset acquisition and were therefore expensed in prior years.  Goodwill of $340.0 million was re-allocated from the US Specialized Therapeutics segment to the US General Medicine segment based on relative fair value as of June 30, 2019.  As a result of the transfer of these development projects, the Company performed its annual goodwill impairment test, both prior to and after, transfer.

Annual Testing

The Company performed its annual goodwill impairment test during the second quarter of 2019 by quantitatively evaluating its 5 Reporting Units.  As of June 30, 2019, the net asset value of the General Medicine Reporting Unit exceeded its fair value prior to the transfer of the products noted above and the Company recorded a $1,085.8 million goodwill impairment charge to its General Medicine Reporting Unit.  The charge is due in part to delays in the clinical studies as well as a reduction in the expected value of certain R&D projects. 

 

As of June 30, 2019 the fair value of each of the Company’s other four reporting units exceeded its fair value by less than five percent except for the U.S. Botox Therapeutic Reporting Unit.  The General Medicine Reporting Unit, International Reporting Unit, US Eye Care Reporting Unit and US Medical Aesthetics Reporting Unit were the most sensitive to change in future valuation assumptions.  The Company’s US Eye Care Reporting Unit and US Medical Aesthetics Reporting Unit, which are components of its US Specialized Therapeutics Segment, have an allocated goodwill balance of $9,824.8 million and $7,698.8 million, respectively.  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, R&D pipeline delays, or lowering the long-term growth rate could result in a future impairment.  Other market factors and conditions could also result in downward revisions of the Company’s forecasts on future projected cash flows for these reporting units.  Negative events regarding R&D pipeline assets including, but not limited to, Abicipar, Atogepant, Bimatoprost SR, Ceniciviroc, and Ubrogepant, as well as next generation aesthetic products, could lead to further goodwill impairment charges.  As a result of the proposed AbbVie Transaction, a component of the Company’s implied enterprise value contemplates the share price of AbbVie as attributed to the Company.  If the AbbVie share price were to decline, the overall consideration associated with the AbbVie Transaction could be reduced which could result in a future goodwill impairment triggering event.

 

In performing the annual impairment test, the Company utilized discount rates ranging from 9.5% to 11.0%, which were consistent with the rates utilized in the impairment testing performed in the first quarter of 2019.  These rates increased versus the prior year annual testing discount rates of 8.5% to 10.0% to reflect changes in market conditions.  The Company also reduced long-term growth rate assumptions consistent with the implied enterprise value.  The assumptions used in evaluating goodwill for impairment are significant estimates, are subject to change, are assessed against historical performance by management and could result in additional impairment charges.

 

33


 

Non-Annual Testing

 

As of December 31, 2018, the net asset value of the General Medicine Reporting Unit equaled fair value.  On March 6, 2019, Allergan announced negative topline results from three pivotal studies of rapastinel as an adjunctive treatment of Major Depressive Disorder (MDD). These results represented a triggering event to perform an impairment test for the Company’s General Medicine Reporting Unit. During the first quarter of 2019, primarily as a result of the impairment test noted above and a delay in clinical studies and anticipated launch of brazikumab, the Company recorded a $2,467.0 million goodwill impairment charge to its General Medicine Reporting Unit.

 

As of September 30, 2019 and December 31, 2018, the gross balance of goodwill, prior to the consideration of impairments, was $48,476.7 million and $48,771.7 million, respectively.

Product Rights and Other Intangible Assets

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

 

Cost Basis

 

Balance as of December 31, 2018

 

 

Additions

 

 

Impairments

 

 

IPR&D to

CMP

Transfers

 

 

Foreign

Currency

Translation

/ Other

 

 

Balance as of September 30, 2019

 

Intangibles with definite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product rights and other intangibles

 

$

70,235.1

 

 

$

90.9

 

 

$

-

 

 

$

75.6

 

 

$

1,549.8

 

 

$

71,951.4

 

Trade name

 

 

690.0

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

690.0

 

Total definite lived intangible

   assets

 

$

70,925.1

 

 

$

90.9

 

 

$

-

 

 

$

75.6

 

 

$

1,549.8

 

 

$

72,641.4

 

Intangibles with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPR&D

 

$

5,048.1

 

 

$

-

 

 

$

(436.0

)

 

$

(75.6

)

 

$

-

 

 

$

4,536.5

 

Total indefinite lived intangible

   assets

 

$

5,048.1

 

 

$

-

 

 

$

(436.0

)

 

$

(75.6

)

 

$

-

 

 

$

4,536.5

 

Total product rights and other

   intangibles

 

$

75,973.2

 

 

$

90.9

 

 

$

(436.0

)

 

$

-

 

 

$

1,549.8

 

 

$

77,177.9

 

 

Accumulated Amortization

 

Balance as of December 31, 2018

 

 

Amortization

 

 

Impairments

 

 

IPR&D to

CMP

Transfers

 

 

Foreign

Currency

Translation

/ Other

 

 

Balance as of September 30, 2019

 

Intangibles with definite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product rights and other intangibles

 

$

(31,985.0

)

 

$

(4,279.2

)

 

$

(129.6

)

 

$

-

 

 

$

(904.6

)

 

$

(37,298.4

)

Trade name

 

 

(292.8

)

 

 

(59.9

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(352.7

)

Total definite lived intangible

   assets

 

$

(32,277.8

)

 

$

(4,339.1

)

 

$

(129.6

)

 

$

-

 

 

$

(904.6

)

 

$

(37,651.1

)

Total product rights and other

   intangibles

 

$

(32,277.8

)

 

$

(4,339.1

)

 

$

(129.6

)

 

$

-

 

 

$

(904.6

)

 

$

(37,651.1

)

Net Product Rights and Other

   Intangibles

 

$

43,695.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

39,526.8

 

 

Nine Months Ended September 30, 2019

During the second quarter of 2019, the Company performed its annual IPR&D impairment test and based on events occurring or decisions made within the quarter ended June 30, 2019, the Company recorded the following impairments:

 

a $133.0 million impairment as a result of competition and a decline in market opportunities of a facial aesthetic product obtained as part of the acquisition of Allergan, Inc. (the “Allergan Acquisition”);

 

a $176.0 million impairment as a result of reduced cash flow projections including higher than anticipated clinical trial costs for a GI project obtained as part of the acquisition of Tobira Therapeutics, Inc.; and

 

a $127.0 million impairment for two pipeline programs that had previously been deprioritized and were subsequently deemed to have no alternative use in the period.

34


 

Nine Months Ended September 30, 2018

The Company divested net product rights and other intangibles of $205.4 million as part of the divestiture of the Medical Dermatology business to Almirall, S.A.  

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

 

a $164.0 million impairment as a result of changes in launch plans based on clinical results of an eye care project obtained as part of the Allergan Acquisition;

 

a $40.0 million impairment due to a delay in clinical studies and anticipated approval date of a project obtained as part of the acquisition of Vitae Pharmaceuticals, Inc. (the “Vitae Acquisition”);

 

a $27.0 million impairment due to a delay in clinical studies and anticipated approval date of a medical dermatology project obtained as part of the Allergan Acquisition;

 

a $20.0 million impairment as a result of a strategic decision to no longer pursue approval internationally of an eye care project obtained as part of the Allergan Acquisition;

 

a $19.0 million impairment due to a delay in clinical studies and anticipated approval date for a CNS project obtained as part of the Allergan Acquisition; and

 

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

In addition to the Company’s annual IPR&D impairment test, the Company impaired its retinoic acid receptor-related orphan receptor gamma (“RORyt”) IPR&D project obtained as part of the Vitae Acquisition 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 September 30, 2019 over the remainder of 2019 and each of the next five years is estimated to be as follows ($ in millions):

 

 

 

Amortization

Expense

 

2019 remaining

 

$

1,532.1

 

2020

 

$

5,745.6

 

2021

 

$

4,680.5

 

2022

 

$

4,188.9

 

2023

 

$

3,732.8

 

2024

 

$

2,856.0

 

 

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, finalization of preliminary fair value estimates, potential impairments, accelerated amortization or other events.  Additional amortization may occur as products are approved.  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

Debt consisted of the following ($ in millions):

 

 

 

 

 

 

 

 

 

Balance As of

 

 

Fair Market Value As of

 

 

 

Guarantor

 

Issuance Date /

Acquisition Date

 

Interest

Payments

 

September 30, 2019

 

 

December 31, 2018

 

 

September 30, 2019

 

 

December 31, 2018

 

Senior Notes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floating Rate Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$500.0 million floating rate notes due March 12, 2020 (1)

 

(4)

 

March 4, 2015

 

Quarterly

 

 

500.0

 

 

 

500.0

 

 

 

502.1

 

 

 

501.9

 

 

 

 

 

 

 

 

 

 

500.0

 

 

 

500.0

 

 

 

502.1

 

 

 

501.9

 

Fixed Rate Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(4)

 

March 4, 2015

 

Semi-annually

 

 

2,526.0

 

 

 

2,706.7

 

 

 

2,533.5

 

 

 

2,694.8

 

$650.0 million 3.375% notes due September 15, 2020

 

(5)

 

March 17, 2015

 

Semi-annually

 

 

650.0

 

 

 

650.0

 

 

 

655.5

 

 

 

648.7

 

$750.0 million 4.875% notes due February 15, 2021

 

(6)

 

July 1, 2014

 

Semi-annually

 

 

450.0

 

 

 

450.0

 

 

 

464.8

 

 

 

459.4

 

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

 

(6)

 

July 1, 2014

 

Semi-annually

 

 

1,200.0

 

 

 

1,200.0

 

 

 

1,268.6

 

 

 

1,234.8

 

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

 

(4)

 

March 4, 2015

 

Semi-annually

 

 

2,878.2

 

 

 

2,940.5

 

 

 

2,955.3

 

 

 

2,891.0

 

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

 

(5)

 

October 2, 2012

 

Semi-annually

 

 

1,700.0

 

 

 

1,700.0

 

 

 

1,739.0

 

 

 

1,652.2

 

$350.0 million 2.800% notes due March 15, 2023

 

(5)

 

March 17, 2015

 

Semi-annually

 

 

350.0

 

 

 

350.0

 

 

 

352.9

 

 

 

332.8

 

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

 

(4)

 

June 10, 2014

 

Semi-annually

 

 

1,036.7

 

 

 

1,036.7

 

 

 

1,090.2

 

 

 

1,021.0

 

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

 

(4)

 

March 4, 2015

 

Semi-annually

 

 

3,020.7

 

 

 

3,027.5

 

 

 

3,167.0

 

 

 

2,956.0

 

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

 

(4)

 

March 4, 2015

 

Semi-annually

 

 

1,789.0

 

 

 

1,789.0

 

 

 

1,909.5

 

 

 

1,690.7

 

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

 

(5)

 

October 2, 2012

 

Semi-annually

 

 

456.7

 

 

 

456.7

 

 

 

467.3

 

 

 

412.4

 

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

 

(4)

 

June 10, 2014

 

Semi-annually

 

 

1,079.4

 

 

 

1,079.4

 

 

 

1,149.8

 

 

 

1,019.1

 

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

 

(4)

 

March 4, 2015

 

Semi-annually

 

 

881.0

 

 

 

881.0

 

 

 

937.3

 

 

 

836.6

 

 

 

 

 

 

 

 

 

 

18,017.7

 

 

 

18,267.5

 

 

 

18,690.7

 

 

 

17,849.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Euro Denominated Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

€700.0 million floating rate notes due June 1, 2019 (2)

 

(4)

 

May 26, 2017

 

Quarterly

 

 

-

 

 

 

802.7

 

 

 

-

 

 

 

794.9

 

€700.0 million floating rate notes due November 15, 2020 (3)

 

(4)

 

November 15, 2018

 

Quarterly

 

 

762.9

 

 

 

802.7

 

 

 

766.3

 

 

 

791.3

 

€750.0 million 0.500% notes due June 1, 2021

 

(4)

 

May 26, 2017

 

Annually

 

 

817.4

 

 

 

860.0

 

 

 

827.2

 

 

 

849.7

 

€500.0 million 1.500% notes due November 15, 2023

 

(4)

 

November 15, 2018

 

Annually

 

 

545.0

 

 

 

573.4

 

 

 

576.9

 

 

 

572.4

 

€700.0 million 1.250% notes due June 1, 2024

 

(4)

 

May 26, 2017

 

Annually

 

 

762.9

 

 

 

802.7

 

 

 

796.2

 

 

 

775.5

 

€500.0 million 2.625% notes due November 15, 2028

 

(4)

 

November 15, 2018

 

Annually

 

 

545.0

 

 

 

573.4

 

 

 

627.8

 

 

 

573.4

 

€550.0 million 2.125% notes due June 1, 2029

 

(4)

 

May 26, 2017

 

Annually

 

 

599.4

 

 

 

630.7

 

 

 

663.0

 

 

 

594.7

 

 

 

 

 

 

 

 

 

 

4,032.6

 

 

 

5,045.6

 

 

 

4,257.4

 

 

 

4,951.9

 

Total Senior Notes Gross

 

 

 

 

 

 

 

 

22,550.3

 

 

 

23,813.1

 

 

 

23,450.2

 

 

 

23,303.3

 

Unamortized premium

 

 

 

 

 

 

 

 

45.9

 

 

 

64.3

 

 

 

-

 

 

 

-

 

Unamortized discount

 

 

 

 

 

 

 

 

(56.9

)

 

 

(64.5

)

 

 

-

 

 

 

-

 

Total Senior Notes Net

 

 

 

 

 

 

 

$

22,539.3

 

 

$

23,812.9

 

 

$

23,450.2

 

 

$

23,303.3

 

Other Indebtedness

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Issuance Costs

 

 

 

 

 

 

 

 

(77.4

)

 

 

(92.1

)

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

63.3

 

 

 

69.3

 

 

 

 

 

 

 

 

 

Total Other Borrowings

 

 

 

 

 

 

 

 

(14.1

)

 

 

(22.8

)

 

 

 

 

 

 

 

 

Capital Leases (7)

 

 

 

 

 

 

 

n.a.

 

 

 

7.6

 

 

 

 

 

 

 

 

 

Total Indebtedness

 

 

 

 

 

 

 

$

22,525.2

 

 

$

23,797.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

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

 

(3)    Interest on the 2020 floating rate notes is the three month EURIBOR plus 0.350% per annum

 

(4)    Guaranteed by Warner Chilcott Limited, Allergan Capital S.à r.l. and Allergan Finance, LLC

 

(5)    Guaranteed by Allergan plc and Warner Chilcott Limited

 

(6)    Guaranteed by Allergan plc

 

(7)    The Company adopted ASU No. 2016-02 which changed the recognition of leases on the balance sheet.  As of January 1, 2019, capital leases are no longer recognized within long-term

       debt.

 

 

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 nine months ended September 30, 2019 to the Company’s total indebtedness:

 

The Company repurchased and retired $249.8 million of senior notes at face value as a result of open market redemptions; and

 

The Company repaid the scheduled maturity of the €700.0 million floating rate notes due June 1, 2019.

 

Annual Debt Maturities

As of September 30, 2019, annual debt maturities of senior notes gross were as follows ($ in millions):

 

 

 

Total Payments

 

2019 remaining

 

$

-

 

2020

 

 

4,438.9

 

2021

 

 

2,467.4

 

2022

 

 

4,578.2

 

2023

 

 

895.0

 

2024

 

 

1,799.6

 

2025 and after

 

 

8,371.2

 

Total senior notes gross

 

$

22,550.3

 

 

Amounts represent total anticipated cash payments assuming scheduled repayments.

 

 

 

NOTE 13 — Leases

 

Leases are accounted for under ASC Topic 842.  The Company has entered into various lease contracts, mainly operating leases for the use of real estate, fleet, and operating equipment.  The Company leases certain assets to limit exposure to the risks of ownership as well as to reduce administrative burdens inherent in the ownership of assets.

 

Term

 

The remaining terms for leases other than real estate leases are between 1 and 9 years as of September 30, 2019. For real estate leases, the remaining lease terms are between 1 and 14 years as of September 30, 2019.

 

37


 

The Company has an option for certain lease contracts, mainly for real estate lease contracts, to renew the lease term beyond the noncancelable lease period. The payments associated with the renewal will only be included in the measurement of the lease liability and ROU asset if the exercise of the renewal option is determined to be reasonably certain. The Company considers the timing of the renewal period and other economic factors such as the financial consequences of a decision to extend or not to extend a lease in determining if the renewal option is reasonably certain to be exercised.   

 

Discount Rate

 

The Company is primarily a lessee, not a lessor.  The Company discounts future lease payments to calculate the present value when determining the lease classification and measuring the lease liability. The rate utilized is either the implicit rate or the incremental borrowing rate.  The incremental borrowing rate is not a commonly quoted rate and is derived through a combination of inputs including the Company’s credit rating and the impact of full collateralization.  The incremental borrowing rate is based on the Company’s collateralized borrowing capabilities over a similar term of the lease payments.  The Company utilizes the consolidated group incremental borrowing rate for all leases as the Company has centralized treasury operations.

 

Other

 

The Company does not have any material residual value guarantee terms in its lease contracts.  The Company does not have material variable leases.

 

The Company has chosen to separate lease and non-lease components for its plant operations and research and development equipment.  The Company allocates the contract consideration to the lease component using the standalone price from our supplier.

 

As of September 30, 2019, the Company had the following operating ROU assets and lease liabilities ($ in millions):

 

 

 

September 30, 2019

 

 

 

ROU Asset

 

 

Lease Liability

 

Real estate

 

$

317.0

 

 

$

380.1

 

Fleet

 

 

114.2

 

 

 

114.0

 

Other

 

 

47.0

 

 

 

61.7

 

Total operating leases

 

$

478.2

 

 

$

555.8

 

 

 

 

September 30, 2019

 

Current lease liability - operating

 

$

118.4

 

Long-term lease liability - operating

 

 

437.4

 

Total lease liability - operating

 

$

555.8

 

 

Finance leases are not material as of September 30, 2019.

 

For the three and nine months ended September 30, 2019, the Company noted the following lease expense ($ in millions):

 

 

 

Three Months Ended September 30, 2019

 

 

Nine Months Ended September 30, 2019

 

Operating lease expense*

 

$

40.9

 

 

$

113.3

 

Sublease (income)

 

 

(3.5

)

 

 

(10.5

)

Net operating lease expense

 

$

37.4

 

 

$

102.8

 

* Includes short-term and variable lease expenses of $3.8 million and $5.4 million, respectively, for the three and nine months ended September 30, 2019.

 

 

38


 

As of September 30, 2019, the Company had the following lease commitments ($ in millions):

 

 

 

Total Payments