UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Commission File Number
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Exact name of registrant as specified in its charter, principal office and address and telephone number
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State of incorporation or organization
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I.R.S. Employer Identification No.
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered |
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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:
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Allergan plc |
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YES ☒ |
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NO ☐ |
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Warner Chilcott Limited |
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YES ☒ |
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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).
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Allergan plc |
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YES ☒ |
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NO ☐ |
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Warner Chilcott Limited |
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YES ☒ |
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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.
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Allergan plc |
Large accelerated filer |
☒ |
Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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Warner Chilcott Limited |
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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).
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Allergan plc |
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YES |
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NO ☒ |
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Warner Chilcott Limited |
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YES |
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NO ☒ |
Number of shares of Allergan plc’s Ordinary Shares outstanding on November 1, 2019:
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
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Item 1. |
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Consolidated Balance Sheets of Allergan plc as of September 30, 2019 and December 31, 2018 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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2
PART I. FINANCIAL INFORMATION
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ITEM 1. |
CONSOLIDATED FINANCIAL STATEMENTS |
ALLERGAN PLC
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except par value)
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September 30, |
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December 31, |
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2019 |
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2018 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Accounts receivable, net |
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Inventories |
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Current assets held for sale |
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- |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Right of use asset - operating leases |
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Investments and other assets |
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Non current assets held for sale |
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Deferred tax assets |
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Product rights and other intangibles |
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Goodwill |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Income taxes payable |
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Current portion of long-term debt |
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Current portion of lease liability - operating |
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Total current liabilities |
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Long-term debt |
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Lease liability - operating |
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Other long-term liabilities |
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Other taxes payable |
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Deferred tax liabilities |
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Total liabilities |
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Commitments and contingencies (Refer to Note 21) |
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Equity: |
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Ordinary shares; $ |
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$ |
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$ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income |
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Total shareholders’ equity |
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Noncontrolling interest |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See accompanying Notes to the Consolidated Financial Statements.
3
ALLERGAN PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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Net revenues |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Cost of sales (excludes amortization and impairment of acquired intangibles including product rights) |
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Research and development |
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Selling and marketing |
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General and administrative |
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Amortization |
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Goodwill impairments |
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- |
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- |
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- |
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In-process research and development impairments |
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- |
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- |
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Asset sales and impairments, net |
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Total operating expenses |
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Operating (loss) / income |
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Interest income |
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Interest (expense) |
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Other income, net |
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Total other (expense), net |
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(Loss) / income before income taxes and noncontrolling interest |
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( |
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( |
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Provision (benefit) for income taxes |
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Net (loss) |
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( |
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( |
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(Income) attributable to noncontrolling interest |
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( |
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Net (loss) attributable to shareholders |
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( |
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Dividends on preferred shares |
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- |
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- |
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- |
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Net (loss) attributable to ordinary shareholders |
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$ |
( |
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$ |
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$ |
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$ |
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(Loss) per share attributable to ordinary shareholders |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See accompanying Notes to the Consolidated Financial Statements.
4
ALLERGAN PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)
(Unaudited; in millions)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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Net (loss) |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) / income |
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Foreign currency translation (losses) |
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Unrealized gains / (losses), net of tax |
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Total other comprehensive (loss), net of tax |
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Comprehensive (loss) |
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( |
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( |
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( |
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Comprehensive (income) attributable to noncontrolling interest |
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( |
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( |
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( |
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Comprehensive (loss) attributable to ordinary shareholders |
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$ |
( |
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$ |
( |
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$ |
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$ |
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See accompanying Notes to the Consolidated Financial Statements.
5
ALLERGAN PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
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Nine Months Ended September 30, |
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2019 |
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2018 |
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Cash Flows From Operating Activities: |
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Net (loss) |
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$ |
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$ |
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Reconciliation to net cash provided by operating activities: |
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Depreciation |
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Amortization |
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Provision for inventory reserve |
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Share-based compensation |
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Deferred income tax benefit |
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Goodwill impairments |
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- |
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In-process research and development impairments |
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Loss on asset sales and impairments, net |
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Gain on sale of Teva securities, net |
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- |
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Gain on sale of businesses |
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- |
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Non-cash extinguishment of debt |
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Cash charge related to extinguishment of debt |
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- |
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Amortization of deferred financing costs |
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Non-cash lease expense |
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- |
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Contingent consideration adjustments, including accretion |
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Other, net |
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Changes in assets and liabilities (net of effects of acquisitions): |
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Decrease / (increase) in accounts receivable, net |
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Decrease / (increase) in inventories |
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Decrease / (increase) in prepaid expenses and other current assets |
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Increase / (decrease) in accounts payable and accrued expenses |
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Increase / (decrease) in income and other net taxes payable |
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Increase / (decrease) in other assets and liabilities |
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Net cash provided by operating activities |
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Cash Flows From Investing Activities: |
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Additions to property, plant and equipment |
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Additions to product rights and other intangibles |
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- |
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Additions to investments |
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Proceeds from sale of investments and other assets |
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Payments to settle Teva related matters |
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- |
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Proceeds from sales of property, plant and equipment |
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Acquisitions of businesses, net of cash acquired |
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- |
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Net cash (used in) / provided by investing activities |
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Cash Flows From Financing Activities: |
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Proceeds from borrowings of long-term indebtedness, including credit facility |
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Payments on debt, including finance lease obligations and credit facility |
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Payments of contingent consideration and other financing |
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( |
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( |
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Proceeds from stock plans |
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Proceeds from forward sale of Teva securities |
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- |
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Payments to settle Teva related matters |
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- |
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( |
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Repurchase of ordinary shares |
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( |
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( |
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Dividends paid |
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( |
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( |
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Net cash (used in) financing activities |
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( |
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( |
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Effect of currency exchange rate changes on cash and cash equivalents |
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( |
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|
|
|
|
Net increase / (decrease) in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
Income taxes other, net of refunds |
|
$ |
( |
) |
|
$ |
|
|
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
Schedule of Non-Cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
Conversion of mandatory convertible preferred shares |
|
$ |
- |
|
|
$ |
|
|
|
Settlement of Teva Shares |
|
$ |
- |
|
|
$ |
|
|
|
Settlement of secured financing |
|
$ |
- |
|
|
$ |
( |
) |
|
Dividends accrued |
|
$ |
|
|
|
$ |
|
|
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 |
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Implementation of new accounting pronouncements |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
BALANCE, January 1, 2018 |
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to shareholders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive income, net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Ordinary shares issued under employee stock plans |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Dividends declared |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Conversion of Mandatory Preferred Shares |
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Repurchase of ordinary shares under the share repurchase programs |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Repurchase of ordinary shares |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2018 |
|
|
|
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to shareholders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive (loss), net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Ordinary shares issued under employee stock plans |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Dividends declared |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Repurchase of ordinary shares |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2018 |
|
|
|
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to shareholders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive (loss), net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Ordinary shares issued under employee stock plans |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Dividends declared |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Repurchase of ordinary shares under the share repurchase programs |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Repurchase of ordinary shares |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
BALANCE, September 30, 2018 |
|
|
|
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2018 |
|
|
|
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Implementation of new accounting pronouncement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
BALANCE, January 1, 2019 |
|
|
|
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to shareholders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive (loss), net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Ordinary shares issued under employee stock plans |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Dividends declared |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Repurchase of ordinary shares under the share repurchase programs |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Repurchase of ordinary shares |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2019 |
|
|
|
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to shareholders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive income, net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Ordinary shares issued under employee stock plans |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Dividends declared |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Repurchase of ordinary shares |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2019 |
|
|
|
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to shareholders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive (loss), net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Ordinary shares issued under employee stock plans |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Dividends declared |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Repurchase of ordinary shares |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, September 30, 2019 |
|
|
|
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
Receivables from Parents |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
Current assets held for sale |
|
|
- |
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
Right of use asset - operating leases |
|
|
|
|
|
|
- |
|
|
Investments and other assets |
|
|
|
|
|
|
|
|
|
Non current assets held for sale |
|
|
|
|
|
|
|
|
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
Product rights and other intangibles |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
|
|
|
$ |
|
|
|
Payables to Parents |
|
|
|
|
|
|
|
|
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
Current portion of lease liability - operating |
|
|
|
|
|
|
- |
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
Lease liability - operating |
|
|
|
|
|
|
- |
|
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
Other taxes payable |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Refer to Note 21) |
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
Members' capital |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
( |
) |
|
|
( |
) |
|
Accumulated other comprehensive income |
|
|
|
|
|
|
|
|
|
Total members’ equity |
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excludes amortization and impairment of acquired intangibles including product rights) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairments |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
In-process research and development impairments |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Asset sales and impairments, net |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) / income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense), net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
(Loss) / income before income taxes and noncontrolling interest |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Provision / (benefit) for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Net (loss) / income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
(Income) attributable to noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net (loss) / income attributable to members |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
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 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive (loss) / income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (losses) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Unrealized gains / (losses), net of tax |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total other comprehensive (loss), net of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Comprehensive (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Comprehensive (income) attributable to noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Comprehensive (loss) attributable to members |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
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) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Reconciliation to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
Provision for inventory reserve |
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
Deferred income tax benefit |
|
|
( |
) |
|
|
( |
) |
|
Goodwill impairments |
|
|
|
|
|
|
- |
|
|
In-process research and development impairments |
|
|
|
|
|
|
|
|
|
Loss on asset sales and impairments, net |
|
|
|
|
|
|
|
|
|
Gain on sale of Teva securities, net |
|
|
- |
|
|
|
( |
) |
|
Gain on sale of businesses |
|
|
- |
|
|
|
( |
) |
|
Non-cash extinguishment of debt |
|
|
|
|
|
|
|
|
|
Cash charge related to extinguishment of debt |
|
|
- |
|
|
|
( |
) |
|
Amortization of deferred financing costs |
|
|
|
|
|
|
|
|
|
Non-cash lease expense |
|
|
|
|
|
|
- |
|
|
Contingent consideration adjustments, including accretion |
|
|
|
|
|
|
( |
) |
|
Other, net |
|
|
( |
) |
|
|
|
|
|
Changes in assets and liabilities (net of effects of acquisitions): |
|
|
|
|
|
|
|
|
|
Decrease / (increase) in accounts receivable, net |
|
|
( |
) |
|
|
|
|
|
Decrease / (increase) in inventories |
|
|
( |
) |
|
|
( |
) |
|
Decrease / (increase) in prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
|
Increase / (decrease) in accounts payable and accrued expenses |
|
|
|
|
|
|
( |
) |
|
Increase / (decrease) in income and other net taxes payable |
|
|
|
|
|
|
|
|
|
Increase / (decrease) in other assets and liabilities, including receivable / payable with Parents |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
|
Additions to product rights and other intangibles |
|
|
( |
) |
|
|
- |
|
|
Additions to investments |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of investments and other assets |
|
|
|
|
|
|
|
|
|
Payments to settle Teva related matters |
|
|
- |
|
|
|
( |
) |
|
Proceeds from sales of property, plant and equipment |
|
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired |
|
|
( |
) |
|
|
- |
|
|
Net cash (used in) / provided by investing activities |
|
|
( |
) |
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
Proceeds from borrowings of long-term indebtedness, including credit facility |
|
|
|
|
|
|
|
|
|
Payments on debt, including finance lease obligations and credit facility |
|
|
( |
) |
|
|
( |
) |
|
Payments of contingent consideration and other financing |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from forward sale of Teva securities |
|
|
- |
|
|
|
|
|
|
Payments to settle Teva related matters |
|
|
- |
|
|
|
( |
) |
|
Dividends to Parents |
|
|
( |
) |
|
|
( |
) |
|
Net cash (used in) financing activities |
|
|
( |
) |
|
|
( |
) |
|
Effect of currency exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Net increase / (decrease) in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
Schedule of Non-Cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
Settlement of Teva Shares |
|
$ |
- |
|
|
$ |
|
|
|
Settlement of secured financing |
|
$ |
- |
|
|
$ |
( |
) |
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 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Implementation of new accounting pronouncements |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
BALANCE, January 1, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to members |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive income, net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Dividends to Parents |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to members |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive (loss), net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Dividends to Parents |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to members |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Other comprehensive (loss), net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Dividends to Parents |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
BALANCE, September 30, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Implementation of new accounting pronouncement |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
BALANCE, January 1, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to members |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive (loss), net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Dividends to Parents |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to members |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive income, net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Dividends to Parents |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to members |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Other comprehensive (loss), net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Dividends to Parents |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Movement in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
BALANCE, September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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
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 $
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
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Other taxes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
(Loss) before income taxes and noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
- |
|
|
Net (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net (loss) attributable to ordinary shareholders/members |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating income / (loss) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Income / (loss) before income taxes and noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Provision / (benefit) for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Net (loss) / income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Dividends on preferred shares |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Net (loss) / income attributable to ordinary shareholders/members |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
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 $
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 |
|
$ |
|
|
|
$ |
|
|
|
Fleet |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Total operating leases |
|
$ |
|
|
|
$ |
|
|
The cumulative effective adjustment as of the effective date of $
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.
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Provision related to sales in 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credits and payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at September 30, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Contra accounts receivable at September 30, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Accounts payable and accrued expenses at September 30, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table summarizes the balance sheet classification of our SRA reserves ($ in millions):
|
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Contra accounts receivable |
|
$ |
|
|
|
$ |
|
|
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Provisions to reduce gross product sales to net product sales |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net product sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Percentage of SRA provisions to gross sales |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
16
Collectability Assessment
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 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average ordinary shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per ordinary share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average ordinary shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Stock awards to purchase
Stock awards to purchase
The Company’s preferred shares were mandatorily converted to ordinary shares on March 1, 2018. The weighted average impact of ordinary share equivalents of
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 $
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 |
|
$ |
- |
|
|
$ |
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
Product rights and other intangibles |
|
|
- |
|
|
|
|
|
|
Total assets held for sale |
|
$ |
|
|
|
$ |
|
|
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 $
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 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
Sale of businesses |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Debt extinguishment other |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
n.a. |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
- |
|
|
|
Impact of ASU No. 2016-01 during the three months ended March 31, 2018 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Settlement of initial accelerated share repurchase ("ASR"), net during the three months ended March 31, 2018 |
|
|
( |
) |
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Settlement of forward sale entered into during the three months ended March 31, 2018, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
Open market sales during the nine months ended September 30, 2018 |
|
|
( |
) |
|
n.a. |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
Teva securities as of and for the nine months ended September 30, 2018 |
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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 $ |
|
|||||||||||||||||||||||||||||||||||
|
**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 $ |
|
|||||||||||||||||||||||||||||||||||
Sale of Businesses
During the three and nine months ended September 30, 2018, the Company recorded a net gain of $
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 $
Debt Extinguishment Other
During the nine months ended September 30, 2019, the Company repurchased $
During the three and nine months ended September 30, 2018, the Company repurchased $
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 |
|
|||||
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
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 |
|
|||||
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other Income, Net
Other income, net includes the mark to market losses of $
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.
|
|
|
2019 Grants |
|
|
2018 Grants |
|
|
Dividend yield |
|
1.7 - 1.8% |
|
|
|
|
|
Expected volatility |
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total share-based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Unrecognized future share-based compensation expense was $
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 |
|
|
|
|
|
$ |
|
|
|
|
1.6 |
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Restricted shares / units outstanding at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
1.6 |
|
|
$ |
|
|
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 |
|
|
|
|
|
$ |
|
|
|
|
4.4 |
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, vested and expected to vest at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
4.0 |
|
|
$ |
|
|
The increase in the aggregate intrinsic value of the options is primarily related to an increase in the Company’s stock from $
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
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Contribution margin |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Corporate(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset sales and impairments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
Operating margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $ |
|
|||||||||||||||
25
|
|
|
Nine Months Ended September 30, 2019 |
|
|||||||||||||
|
|
|
US Specialized Therapeutics |
|
|
US General Medicine |
|
|
International |
|
|
Total |
|
||||
|
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Contribution margin |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Corporate(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset sales and impairments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
Operating margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $ |
|
|||||||||||||||
|
|
|
Three Months Ended September 30, 2018 |
|
|||||||||||||
|
|
|
US Specialized Therapeutics |
|
|
US General Medicine |
|
|
International |
|
|
Total |
|
||||
|
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Contribution margin |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Corporate(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|||||||||||