Full Press Release Details
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
| Reports of Independent Registered Public Accounting Firm | 2 | |||
| Consolidated Balance Sheets of Allergan plc as of December 31, 2018 and 2017 | 3 | |||
| Consolidated Statements of Operations of Allergan plc for the years ended December 31, 2018, 2017 and 2016 | 4 | |||
| Consolidated Statements of Comprehensive (Loss) / Income of Allergan plc for the years ended December 31, 2018, 2017 and 2016 | 5 | |||
| Consolidated Statements of Cash Flows of Allergan plc for the years ended December 31, 2018, 2017 and 2016 | 6 | |||
| Consolidated Statements of Equity of Allergan plc for the years ended December 31, 2018, 2017 and 2016 | 7 | |||
| Notes to the Consolidated Financial Statements | 8 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Allergan plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Allergan plc and its subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive (loss)/income, equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principles
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for income taxes and the manner in which it accounts for goodwill in 2018.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 15, 2019
We have served as the Company's auditor since at least 1994. We have not been able to determine the specific year we began serving as auditor of the Company.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value and share data)
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 880.4 | $ | 1,817.2 | ||||
| Marketable securities | 1,026.9 | 4,632.1 | ||||||
| Accounts receivable, net | 2,868.1 | 2,899.0 | ||||||
| Inventories | 846.9 | 904.5 | ||||||
| Current assets held for sale | 34.0 | - | ||||||
| Prepaid expenses and other current assets | 819.1 | 1,123.9 | ||||||
| Total current assets | 6,475.4 | 11,376.7 | ||||||
| Property, plant and equipment, net | 1,787.0 | 1,785.4 | ||||||
| Investments and other assets | 1,970.6 | 267.9 | ||||||
| Non current assets held for sale | 882.2 | 81.6 | ||||||
| Deferred tax assets | 1,063.7 | 319.1 | ||||||
| Product rights and other intangibles | 43,695.4 | 54,648.3 | ||||||
| Goodwill | 45,913.3 | 49,862.9 | ||||||
| Total assets | $ | 101,787.6 | $ | 118,341.9 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 4,787.2 | $ | 5,541.4 | ||||
| Income taxes payable | 72.4 | 74.9 | ||||||
| Current portion of long-term debt and capital leases | 868.3 | 4,231.8 | ||||||
| Total current liabilities | 5,727.9 | 9,848.1 | ||||||
| Long-term debt and capital leases | 22,929.4 | 25,843.5 | ||||||
| Other long-term liabilities | 882.0 | 886.9 | ||||||
| Other taxes payable | 1,615.5 | 1,573.9 | ||||||
| Deferred tax liabilities | 5,501.8 | 6,352.4 | ||||||
| Total liabilities | 36,656.6 | 44,504.8 | ||||||
| Commitments and contingencies (Refer to Note 24) | ||||||||
| Equity: | ||||||||
| Preferred shares, $0.0001 par value per share, zero and 5.1 million shares authorized, issued and outstanding, respectively | - | 4,929.7 | ||||||
| Ordinary shares; $0.0001 par value per share; 1,000.0 million shares authorized, 332.6 million and 330.2 million shares issued and outstanding, respectively | - | - | ||||||
| Additional paid-in capital | 56,510.0 | 54,013.5 | ||||||
| Retained earnings | 7,258.9 | 12,957.2 | ||||||
| Accumulated other comprehensive income | 1,345.2 | 1,920.7 | ||||||
| Total shareholders' equity | 65,114.1 | 73,821.1 | ||||||
| Noncontrolling interest | 16.9 | 16.0 | ||||||
| Total equity | 65,131.0 | 73,837.1 | ||||||
| Total liabilities and equity | $ | 101,787.6 | $ | 118,341.9 |
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Net revenues | $ | 15,787.4 | $ | 15,940.7 | $ | 14,570.6 | ||||||
| Operating expenses: | ||||||||||||
| Cost of sales (excludes amortization and impairment of acquired intangibles including product rights) | 2,191.4 | 2,168.0 | 1,860.8 | |||||||||
| Research and development | 2,266.2 | 2,100.1 | 2,575.7 | |||||||||
| Selling and marketing | 3,250.6 | 3,514.8 | 3,266.4 | |||||||||
| General and administrative | 1,271.2 | 1,501.9 | 1,473.9 | |||||||||
| Amortization | 6,552.3 | 7,197.1 | 6,470.4 | |||||||||
| Goodwill impairments | 2,841.1 | - | - | |||||||||
| In-process research and development impairments | 804.6 | 1,452.3 | 743.9 | |||||||||
| Asset sales and impairments, net | 2,857.6 | 3,927.7 | 5.0 | |||||||||
| Total operating expenses | 22,035.0 | 21,861.9 | 16,396.1 | |||||||||
| Operating (loss) | (6,247.6 | ) | (5,921.2 | ) | (1,825.5 | ) | ||||||
| Interest income | 45.2 | 67.7 | 69.9 | |||||||||
| Interest (expense) | (911.2 | ) | (1,095.6 | ) | (1,295.6 | ) | ||||||
| Other income / (expense), net | 256.7 | (3,437.3 | ) | 219.2 | ||||||||
| Total other (expense), net | (609.3 | ) | (4,465.2 | ) | (1,006.5 | ) | ||||||
| (Loss) before income taxes and noncontrolling interest | (6,856.9 | ) | (10,386.4 | ) | (2,832.0 | ) | ||||||
| (Benefit) for income taxes | (1,770.7 | ) | (6,670.4 | ) | (1,897.0 | ) | ||||||
| Net (loss) from continuing operations, net of tax | (5,086.2 | ) | (3,716.0 | ) | (935.0 | ) | ||||||
| (Loss) / income from discontinued operations, net of tax | - | (402.9 | ) | 15,914.5 | ||||||||
| Net (loss) / income | (5,086.2 | ) | (4,118.9 | ) | 14,979.5 | |||||||
| (Income) attributable to noncontrolling interest | (10.2 | ) | (6.6 | ) | (6.1 | ) | ||||||
| Net (loss) / income attributable to shareholders | (5,096.4 | ) | (4,125.5 | ) | 14,973.4 | |||||||
| Dividends on preferred shares | 46.4 | 278.4 | 278.4 | |||||||||
| Net (loss) / income attributable to ordinary shareholders | $ | (5,142.8 | ) | $ | (4,403.9 | ) | $ | 14,695.0 | ||||
| (Loss) / income per share attributable to ordinary shareholders - basic: | ||||||||||||
| Continuing operations | $ | (15.26 | ) | $ | (11.99 | ) | $ | (3.17 | ) | |||
| Discontinued operations | - | (1.20 | ) | 41.35 | ||||||||
| Net (loss) / income per share - basic | $ | (15.26 | ) | $ | (13.19 | ) | $ | 38.18 | ||||
| (Loss) / income per share attributable to ordinary shareholders - diluted: | ||||||||||||
| Continuing operations | $ | (15.26 | ) | $ | (11.99 | ) | $ | (3.17 | ) | |||
| Discontinued operations | - | (1.20 | ) | 41.35 | ||||||||
| Net (loss) / income per share - diluted | $ | (15.26 | ) | $ | (13.19 | ) | $ | 38.18 | ||||
| Dividends per ordinary share | $ | 2.88 | $ | 2.80 | $ | - | ||||||
| Weighted average ordinary shares outstanding: | ||||||||||||
| Basic | 337.0 | 333.8 | 384.9 | |||||||||
| Diluted | 337.0 | 333.8 | 384.9 |
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Net (loss) / income | $ | (5,086.2 | ) | $ | (4,118.9 | ) | $ | 14,979.5 | ||||
| Other comprehensive (loss) / income | ||||||||||||
| Foreign currency translation (losses) / gains | (474.4 | ) | 1,248.0 | (441.6 | ) | |||||||
| Net impact of other-than-temporary loss on investment in Teva securities | - | 1,599.4 | - | |||||||||
| Impact of Teva Transaction | - | - | 1,544.8 | |||||||||
| Unrealized (losses) / gains, net of tax | (38.1 | ) | 111.7 | (1,647.5 | ) | |||||||
| Total other comprehensive (loss) / income, net of tax | (512.5 | ) | 2,959.1 | (544.3 | ) | |||||||
| Comprehensive (loss) / income | (5,598.7 | ) | (1,159.8 | ) | 14,435.2 | |||||||
| Comprehensive (income) attributable to noncontrolling interest | (10.2 | ) | (6.6 | ) | (6.1 | ) | ||||||
| Comprehensive (loss) / income attributable to ordinary shareholders | $ | (5,608.9 | ) | $ | (1,166.4 | ) | $ | 14,429.1 |
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Cash Flows From Operating Activities: | ||||||||||||
| Net (loss) / income | $ | (5,086.2 | ) | $ | (4,118.9 | ) | $ | 14,979.5 | ||||
| Reconciliation to net cash provided by operating activities: | ||||||||||||
| Depreciation | 196.3 | 171.5 | 155.8 | |||||||||
| Amortization | 6,552.3 | 7,197.1 | 6,475.2 | |||||||||
| Provision for inventory reserve | 96.4 | 102.2 | 181.4 | |||||||||
| Share-based compensation | 239.8 | 293.3 | 334.5 | |||||||||
| Deferred income tax benefit | (1,255.7 | ) | (7,783.1 | ) | (1,443.9 | ) | ||||||
| Pre-tax gain on sale of businesses to Teva | - | - | (24,511.1 | ) | ||||||||
| Non-cash tax effect of gain on sale of businesses to Teva | - | - | 5,285.2 | |||||||||
| Goodwill impairments | 2,841.1 | - | - | |||||||||
| In-process research and development impairments | 804.6 | 1,452.3 | 743.9 | |||||||||
| Loss on asset sales and impairments, net | 2,857.6 | 3,927.7 | 5.0 | |||||||||
| Net income impact of other-than-temporary loss on investment in Teva securities | - | 3,273.5 | - | |||||||||
| Charge to settle Teva related matters | - | 387.4 | - | |||||||||
| Loss on forward sale of Teva shares | - | 62.9 | - | |||||||||
| Gain on sale of Teva securities, net | (60.9 | ) | - | - | ||||||||
| Amortization of inventory step-up | - | 131.7 | 42.4 | |||||||||
| Gain on sale of businesses | (182.6 | ) | - | - | ||||||||
| Non-cash extinguishment of debt | 30.0 | (15.7 | ) | - | ||||||||
| Cash (discount) / charge related to extinguishment of debt | (45.6 | ) | 205.6 | - | ||||||||
| Amortization of deferred financing costs | 22.6 | 27.8 | 51.0 | |||||||||
| Contingent consideration adjustments, including accretion | (106.5 | ) | (133.2 | ) | (66.8 | ) | ||||||
| Other, net | 29.0 | (37.0 | ) | (59.9 | ) | |||||||
| Changes in assets and liabilities (net of effects of acquisitions): | ||||||||||||
| Decrease / (increase) in accounts receivable, net | (37.0 | ) | (188.3 | ) | (191.0 | ) | ||||||
| Decrease / (increase) in inventories | (145.7 | ) | (144.8 | ) | (268.4 | ) | ||||||
| Decrease / (increase) in prepaid expenses and other current assets | 4.3 | 27.9 | 29.9 | |||||||||
| Increase / (decrease) in accounts payable and accrued expenses | 151.6 | 95.9 | 313.5 | |||||||||
| Increase / (decrease) in income and other taxes payable | (1,191.6 | ) | 1,114.1 | (326.6 | ) | |||||||
| Increase / (decrease) in other assets and liabilities | (73.7 | ) | 29.1 | (283.9 | ) | |||||||
| Net cash provided by operating activities | 5,640.1 | 6,079.0 | 1,445.7 | |||||||||
| Cash Flows From Investing Activities: | ||||||||||||
| Additions to property, plant and equipment | (253.5 | ) | (349.9 | ) | (331.4 | ) | ||||||
| Additions to product rights and other intangibles | - | (614.3 | ) | (2.0 | ) | |||||||
| Sale of businesses to Teva | - | - | 33,804.2 | |||||||||
| Additions to investments | (2,471.7 | ) | (9,783.8 | ) | (15,743.5 | ) | ||||||
| Proceeds from sale of investments and other assets | 6,259.3 | 15,153.3 | 7,771.6 | |||||||||
| Payments to settle Teva related matters | (466.0 | ) | - | - | ||||||||
| Proceeds from sales of property, plant and equipment | 30.4 | 7.1 | 33.3 | |||||||||
| Acquisitions of businesses, net of cash acquired | - | (5,290.4 | ) | (1,198.9 | ) | |||||||
| Net cash provided by / (used in) investing activities | 3,098.5 | (878.0 | ) | 24,333.3 | ||||||||
| Cash Flows From Financing Activities: | ||||||||||||
| Proceeds from borrowings of long-term indebtedness, including credit facility | 2,657.0 | 3,550.0 | 1,050.0 | |||||||||
| Payments on debt, including capital lease obligations and credit facility | (8,804.5 | ) | (6,413.6 | ) | (10,848.7 | ) | ||||||
| Debt issuance and other financing costs | (10.4 | ) | (20.6 | ) | - | |||||||
| Cash charge related to extinguishment of debt | - | (205.6 | ) | - | ||||||||
| Payments of contingent consideration and other financing | (30.9 | ) | (511.6 | ) | (161.1 | ) | ||||||
| Proceeds from stock plans | 102.4 | 183.4 | 172.1 | |||||||||
| Proceeds from forward sale of Teva securities | 465.5 | - | - | |||||||||
| Payments to settle Teva related matters | (234.0 | ) | - | - | ||||||||
| Repurchase of ordinary shares | (2,775.4 | ) | (493.0 | ) | (15,076.4 | ) | ||||||
| Dividends paid | (1,049.8 | ) | (1,218.2 | ) | (278.4 | ) | ||||||
| Net cash (used in) financing activities | (9,680.1 | ) | (5,129.2 | ) | (25,142.5 | ) | ||||||
| Effect of currency exchange rate changes on cash and cash equivalents | 4.7 | 21.4 | (8.5 | ) | ||||||||
| Net (decrease) / increase in cash and cash equivalents | (936.8 | ) | 93.2 | 628.0 | ||||||||
| Cash and cash equivalents at beginning of period | 1,817.2 | 1,724.0 | 1,096.0 | |||||||||
| Cash and cash equivalents at end of period | $ | 880.4 | $ | 1,817.2 | $ | 1,724.0 | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||||||
| Cash paid during the year for: | ||||||||||||
| Income taxes other, net of refunds | $ | 717.4 | $ | (5.1 | ) | $ | 3,692.7 | |||||
| Interest | $ | 965.7 | $ | 1,144.4 | $ | 1,277.9 | ||||||
| Schedule of Non-Cash Investing and Financing Activities: | ||||||||||||
| Conversion of mandatory convertible preferred shares | $ | 4,929.7 | $ | - | $ | - | ||||||
| Settlement of Teva Shares | $ | 465.5 | $ | - | $ | - | ||||||
| Settlement of secured financing | $ | (465.5 | ) | $ | - | $ | - | |||||
| Receipt of Teva Pharmaceuticals Industries Ltd. ordinary shares in connection with the sale of the generics business | $ | - | $ | - | $ | 5,038.6 | ||||||
| Non-cash equity issuance for the acquisition of Zeltiq net assets | $ | - | $ | 8.5 | $ | - | ||||||
| Dividends accrued | $ | 1.4 | $ | 24.6 | $ | 23.2 |
See accompanying Notes to the Consolidated Financial Statements .
CONSOLIDATED STATEMENTS OF EQUITY
| 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, January 1, 2016 | 394.5 | $ | - | 5.1 | $ | 4,929.7 | $ | 68,508.3 | $ | 3,647.5 | $ | (494.1 | ) | $ | (2.1 | ) | $ | 76,589.3 | ||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||
| Net income attributable to shareholders | - | - | - | - | - | 14,973.4 | - | - | 14,973.4 | |||||||||||||||||||||||||||
| Other comprehensive (loss), net of tax | - | - | - | - | - | - | (2,089.1 | ) | - | (2,089.1 | ) | |||||||||||||||||||||||||
| Other comprehensive income resulting from the Teva Transaction | - | - | - | - | - | - | 1,544.8 | - | 1,544.8 | |||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 334.5 | - | - | - | 334.5 | |||||||||||||||||||||||||||
| Ordinary shares issued under employee stock plans | 2.3 | - | - | - | 172.1 | - | - | - | 172.1 | |||||||||||||||||||||||||||
| Tax benefits from exercise of options | - | - | - | - | 20.4 | - | - | - | 20.4 | |||||||||||||||||||||||||||
| Dividends declared | - | - | - | - | - | (278.4 | ) | - | - | (278.4 | ) | |||||||||||||||||||||||||
| Repurchase of ordinary shares under the share repurchase programs | (61.6 | ) | - | - | - | (15,000.0 | ) | - | - | - | (15,000.0 | ) | ||||||||||||||||||||||||
| Repurchase of ordinary shares | (0.3 | ) | - | - | - | (76.4 | ) | - | - | - | (76.4 | ) | ||||||||||||||||||||||||
| Movement in noncontrolling interest | - | - | - | - | - | - | - | 9.9 | 9.9 | |||||||||||||||||||||||||||
| BALANCE, December 31, 2016 | 334.9 | $ | - | 5.1 | $ | 4,929.7 | $ | 53,958.9 | $ | 18,342.5 | $ | (1,038.4 | ) | $ | 7.8 | $ | 76,200.5 | |||||||||||||||||||
| Comprehensive (loss): | ||||||||||||||||||||||||||||||||||||
| Net (loss) attributable to shareholders | - | - | - | - | - | (4,125.5 | ) | - | - | (4,125.5 | ) | |||||||||||||||||||||||||
| Other comprehensive income, net of tax | - | - | - | - | - | - | 1,359.7 | - | 1,359.7 | |||||||||||||||||||||||||||
| Net impact of other-than-temporary loss on investment in Teva securities | - | - | - | - | - | - | 1,599.4 | - | 1,599.4 | |||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 293.3 | - | - | - | 293.3 | |||||||||||||||||||||||||||
| Issuance for the Zeltiq acquisition | - | - | - | - | 8.5 | - | - | - | 8.5 | |||||||||||||||||||||||||||
| Ordinary shares issued under employee stock plans | 2.2 | - | - | - | 183.4 | - | - | - | 183.4 | |||||||||||||||||||||||||||
| Impact of change in accounting for share-based compensation plans | - | - | - | - | 62.4 | (41.6 | ) | - | - | 20.8 | ||||||||||||||||||||||||||
| Dividends declared | - | - | - | - | - | (1,218.2 | ) | - | - | (1,218.2 | ) | |||||||||||||||||||||||||
| Repurchase of ordinary shares under the share repurchase programs,including non-cash settlement of ASR program | (6.8 | ) | - | - | - | (450.0 | ) | - | - | - | (450.0 | ) | ||||||||||||||||||||||||
| Repurchase of ordinary shares | (0.1 | ) | - | - | - | (43.0 | ) | - | - | - | (43.0 | ) | ||||||||||||||||||||||||
| Movement in noncontrolling interest | - | - | - | - | - | - | - | 8.2 | 8.2 | |||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||
| Comprehensive (loss): | ||||||||||||||||||||||||||||||||||||
| Net (loss) attributable to shareholders | - | - | - | - | - | (5,096.4 | ) | - | - | (5,096.4 | ) | |||||||||||||||||||||||||
| Other comprehensive (loss), net of tax | - | - | - | - | - | - | (512.5 | ) | - | (512.5 | ) | |||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 239.8 | - | - | - | 239.8 | |||||||||||||||||||||||||||
| Ordinary shares issued under employee stock plans | 1.6 | - | - | - | 102.4 | - | - | - | 102.4 | |||||||||||||||||||||||||||
| Dividends declared | - | - | - | - | - | (1,026.6 | ) | - | - | (1,026.6 | ) | |||||||||||||||||||||||||
| Conversion of Mandatory Preferred Shares | 17.8 | - | (5.1 | ) | (4,929.7 | ) | 4,929.7 | - | - | - | - | |||||||||||||||||||||||||
| Implementation of new accounting pronouncements | - | - | - | - | - | 424.7 | (63.0 | ) | - | 361.7 | ||||||||||||||||||||||||||
| Repurchase of ordinary shares under the share repurchase programs, including non-cash settlement of ASR program | (16.8 | ) | - | - | - | (2,740.4 | ) | - | - | - | (2,740.4 | ) | ||||||||||||||||||||||||
| Repurchase of ordinary shares | (0.2 | ) | - | - | (35.0 | ) | - | - | - | (35.0 | ) | |||||||||||||||||||||||||
| Movement in noncontrolling interest | - | - | - | - | - | - | - | 0.9 | 0.9 | |||||||||||||||||||||||||||
| BALANCE, December 31, 2018 | 332.6 | $ | - | - | $ | - | $ | 56,510.0 | $ | 7,258.9 | $ | 1,345.2 | $ | 16.9 | $ | 65,131.0 |
See accompanying Notes to the Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Description of Business
Allergan plc is a global pharmaceutical leader. Allergan is 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. Allergan is an industry leader in Open Science, a model of research and development, which defines our approach to identifying and developing game-changing ideas and innovation for better patient care. The Company has operations in more than 100 countries.
On August 2, 2016 we completed the divestiture of our global generics business and certain other assets to Teva Pharmaceutical Industries Ltd. ("Teva") (the "Teva Transaction") for $33.3 billion in cash, net of cash acquired by Teva, which included estimated working capital and other contractual adjustments, and 100.3 million unregistered Teva ordinary shares (or American Depository Shares with respect thereto) ("Teva Shares"). As part of the Teva Transaction, Teva acquired our global generics business, including the United States ("U.S.") and international generic commercial units, our third-party supplier Medis, our global generic manufacturing operations, our global generic research and development ("R&D") unit, our international over-the-counter ("OTC") commercial unit (excluding OTC eye care products) and certain established international brands.
On October 3, 2016, the Company completed the divestiture of the Anda Distribution business to Teva for $500.0 million. The Anda Distribution business distributed generic, branded, specialty and OTC pharmaceutical products from more than 300 manufacturers to retail independent and chain pharmacies, nursing homes, mail order pharmacies, hospitals, clinics and physician offices across the U.S.
The Company recognized a combined gain on the sale of the Anda Distribution business and the Teva Transaction of $15,932.2 million in the year ended December 31, 2016.
As a result of the Teva Transaction and the divestiture of the Company's Anda Distribution business, and in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2014-08 "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," the financial results of the businesses held for sale were reclassified to discontinued operations for all periods presented in our consolidated financial statements. The results of our discontinued operations include the results of our generic product development, manufacturing and distribution of off-patent pharmaceutical products, certain established international brands marketed similarly to generic products and out-licensed generic pharmaceutical products primarily in Europe through our Medis third-party business through August 2, 2016, as well as our Anda Distribution business through October 3, 2016.
NOTE 2 - Formation of the Company
Allergan plc was incorporated in Ireland on May 16, 2013 as a private limited company and re-registered effective September 20, 2013 as a public limited company. It was established for the purpose of facilitating the business combination between Allergan Finance, LLC (formerly known as Actavis, Inc.) and Warner Chilcott plc ("Warner Chilcott"). Following the consummation of the acquisition of Warner Chilcott on October 1, 2013 (the "Warner Chilcott Acquisition"), Allergan Finance, LLC and Warner Chilcott became wholly-owned subsidiaries of Allergan plc. Each of Allergan Finance, LLC's common shares was converted into one Company ordinary share. Effective October 1, 2013, through a series of related-party transactions, Allergan plc contributed its indirect subsidiaries, including Allergan Finance, LLC, to its subsidiary Warner Chilcott Limited.
Pursuant to Rule 12g-3(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Allergan plc "AGN" ordinary shares are deemed to be registered under Section 12(b) of the Exchange Act, are subject to the informational requirements of the Exchange Act, and the rules and regulations promulgated thereunder.
References throughout to "we," "our," "us," the "Company" or "Allergan" refer to financial information and transactions of Allergan plc.
References throughout to "Ordinary Shares" refer to Allergan plc's ordinary shares, par value $0.0001 per share.
NOTE 3 - Summary of Significant Accounting Policies
Basis of Presentation
The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("U.S.") ("GAAP"). The consolidated financial statements include the accounts of wholly owned subsidiaries, after elimination of intercompany accounts and transactions. The consolidated financial information presented herein reflects all financial information that, in the opinion of management, is necessary for a fair statement of financial position, results of operations and cash flows for the periods presented.
The Company's consolidated financial statements include the financial results of all acquired companies subsequent to the acquisition date.
Implementation of New Guidance
On January 1, 2018, we adopted ASU No. 2014-09, "Revenue from Contracts with Customers" ("Topic 606"), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting practices. The impact to revenues for the year ended December 31, 2018 was not significant as a result of the adoption. The adoption of this guidance does not have a material impact on the Company's financial position or results of operations as the Company's sales primarily are governed by standard ship and bill terms of pharmaceutical products to customers.
The Company applies the "practical expedient" as defined in Topic 606 to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs which are included in selling, general, and administrative expenses are consistent with the accounting prior to the adoption of Topic 606. The Company also elected to use the practical expedient to not adjust the promised amount of consideration for the effects of the time value of money for contracts in which the anticipated period between when the Company transfers the goods or services to the customer and when the customer pays is equal to one year or less.
On January 1, 2018, the Company adopted ASU No. 2016-01, which now requires equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. Under the previous guidance, changes in the fair value of equity securities were recognized through other comprehensive income.
On January 1, 2018, the Company adopted ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Previously, GAAP prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition was an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The amendment to the guidance eliminated the exception for an intra-entity transfer of an asset other than inventory and required an entity to recognize the income tax consequences when the transfer occurs.
The following represents the impact on the Company's Consolidated Balance Sheet as a result of the adoption on January 1, 2018 of these accounting pronouncements ($ in millions):
| Increase / (decrease) | ||||||||||||||||||||||||
| Pronouncement | Accounts receivable, net | Prepaid expenses and other current assets | Accounts payable and accrued expenses | Deferred tax liabilities | Retained earnings | Accumulated other comprehensive income / (loss) | ||||||||||||||||||
| Accounting Standards Update No. 2014-09 | $ | 1.9 | $ | - | $ | (3.6 | ) | $ | - | $ | 5.5 | $ | - | |||||||||||
| Accounting Standards Update No. 2016-01 | $ | - | $ | - | $ | - | $ | - | $ | 63.0 | $ | (63.0 | )* | |||||||||||
| Accounting Standards Update No. 2016-16 | $ | - | $ | (44.8 | ) | $ | - | $ | (401.0 | ) | $ | 356.2 | $ | - | ||||||||||
| * 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 for 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 periods. |
On January 1, 2018, the Company adopted ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This standard amends and adjusts how cash receipts and cash payments are presented and classified in the statement of cash flows. As a result of the guidance, the Company retrospectively applied the standard which resulted in a reclassification of debt extinguishment costs from cash flows from operating activities to cash flows from financing activities. As a result of the application of the guidance, cash flows from operating activities increased by $205.6 million and cash flows from financing activities decreased by $205.6 million in the year ended December 31, 2017.
On January 1, 2018, the Company adopted ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This update requires that an employer disaggregate the service cost component from the other components of net periodic benefit cost. Upon adoption, the Company recorded other components of the net periodic benefit cost with "other income / (expense), net."
On July 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities, which now better aligns the Company's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments also make certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness on a prospective basis. After the adoption, the Company presents the entire change in fair value of a hedging instrument in the same income statement line item(s) as the earnings effect of the hedged item when that hedged item affects earnings.
Use of Estimates
Management is required to make certain estimates and assumptions in order to prepare consolidated financial statements in conformity with GAAP. Such estimates and assumptions affect the reported financial statements. The Company's most significant estimates relate to the determination of SRAs (defined below) included within either accounts receivable or accrued liabilities, the valuation of inventory balances, the determination of useful lives for intangible assets, pension and other post-retirement benefit plan assumptions, the assessment of expected cash flows used in evaluating goodwill and other long-lived assets for impairment and recognition and measurement of assets acquired and liabilities assumed in business combinations at fair value. The estimation process required to prepare the Company's consolidated financial statements requires assumptions to be made about future events and conditions, and as such, is inherently subjective and uncertain. The Company's actual results could differ materially from those estimates.
Foreign Currency Translation
For most of the Company's international operations, the local currency has been determined to be the functional currency. The results of its non-U.S. dollar based operations are translated to U.S. dollars at the average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date. Equity is translated at the prevailing rate of exchange at the date of the equity transaction. Translation adjustments are reflected in shareholders' equity and are included as a component of other comprehensive (loss) / income. The translational effects of revaluing non-functional currency assets and liabilities into the functional currency are recorded as general and administrative expenses in the consolidated statements of operations.
The Company realizes foreign currency gains / (losses) in the normal course of business based on movement in the applicable exchange rates. These transactional gains / (losses) are included as a component of general and administrative expenses.
Cash and Cash Equivalents
The Company considers cash and cash equivalents to include cash in banks, commercial paper and deposits with financial institutions that can be liquidated without prior notice or penalty. The Company considers all highly liquid investments with an original maturity from the date acquired of three months or less to be cash equivalents.
Fair Value of Other Financial Instruments
The Company's financial instruments consist primarily of cash and cash equivalents, marketable securities, accounts and other receivables, investments, trade accounts payable, and long-term debt, including the current portion. The carrying amounts of cash and cash equivalents, marketable securities, accounts and other receivables and trade accounts payable are representative of their respective fair values due to their relatively short maturities. The fair values of investments in companies that are publicly traded are based on quoted market prices. The Company estimates the fair value of its fixed rate long-term obligations based on quoted market rates.
Inventories consist of finished goods held for sale and distribution, raw materials and work in process. Inventory includes brand and aesthetic products which represent Food and Drug Administration ("FDA") approved or likely to be approved indications. Inventory valuation reserves are established based on a number of factors/situations including, but not limited to, raw materials, work in process or finished goods not meeting product specifications, product obsolescence, or application of the lower of cost (first-in, first-out method) or net realizable value concepts. The determination of events requiring the establishment of inventory valuation reserves, together with the calculation of the amount of such reserves may require judgment. Assumptions utilized in our quantification of inventory reserves include, but are not limited to, estimates of future product demand, consideration of current and future market conditions, product net selling price, anticipated product launch dates, competition and potential product obsolescence and other events relating to special circumstances surrounding certain products. No material adjustments have been required to our inventory reserve estimates for the periods presented. Adverse changes in assumptions utilized in our inventory reserve calculations could result in an increase to our inventory valuation reserves and higher cost of sales.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Major renewals and improvements are capitalized if they add functionality or extend the life of the asset, while routine maintenance and repairs are expensed as incurred. The Company capitalizes interest on qualified construction projects. At the time property, plant and equipment are retired from service, the cost and accumulated depreciation are removed from the respective accounts.
Depreciation expense is computed principally on the straight-line method, over the estimated useful lives of the related assets. The following table provides the range of estimated useful lives used for each asset type:
| Computer software/hardware (including internally developed) | 3-10 years | |
| Machinery and equipment | 3-15 years | |
| Research and laboratory equipment | 3-10 years | |
| Furniture and fixtures | 3-10 years | |
| Buildings, improvements, leasehold improvements and other | 4-50 years | |
| Transportation equipment | 3-20 years |
The Company assesses property, plant and equipment for impairment whenever events or changes in circumstances indicate that an asset's carrying amount may not be recoverable.
The Company's equity investments are accounted for under the equity method of accounting when the Company can exert significant influence and the Company's ownership interest does not exceed 50%. The Company records equity method investments at cost and adjusts for the appropriate share of investee net earnings or losses. Investments in which the Company owns less than a 20% interest and cannot exert significant influence are recorded at fair value and the Company recognizes any changes in fair value in net income. For equity investments without readily determinable fair values, the Company may make a separate election for each eligible investment to use a measurement alternative until the investment's fair value becomes readily determinable. Under the alternative method, the equity investments are accounted for at cost, less any impairment, plus or minus changes resulting from observable price changes in an orderly transaction for an identical or similar investment of the same issuer.
Marketable Securities
The Company's marketable securities consist of U.S. treasury and agency securities and debt and equity securities of publicly-held companies. The Company's marketable securities are recorded at fair value, based upon quoted market prices with an offset to interest income.
Product Rights and Other Definite Lived Intangible Assets
Our product rights and other definite lived intangible assets are stated at cost, less accumulated amortization, and are amortized using the economic benefit model or the straight-line method, if results are materially aligned, over their estimated useful lives. We determine amortization periods for product rights and other definite lived intangible assets based on our assessment of various factors impacting estimated cash flows. Such factors include the product's position in its life cycle, the existence or absence of like products in the market, various other competitive and regulatory issues, and contractual terms. Significant changes to any of these factors may result in an impairment, a reduction in the intangibles useful life or an acceleration of related amortization expense, which could cause our net results to decline.
Product rights and other definite lived intangible assets are tested periodically for impairment when events or changes in circumstances indicate that an asset's carrying value may not be recoverable. The impairment testing involves comparing the carrying amount of the asset to the forecasted undiscounted pre-tax future cash flows over its useful life, including any salvage value. In the event the carrying value of the asset exceeds the undiscounted future cash flows, the carrying value is considered not recoverable and an impairment exists. An impairment loss is measured as the excess of the asset's carrying value over its fair value, calculated using discounted future cash flows. The computed impairment loss is recognized in net (loss) / income in the period that the impairment occurs. Assets which are not impaired may require an adjustment to the remaining useful lives for which to amortize the asset. Our projections of discounted cash flows use a discount rate determined by our management to be commensurate with the risk inherent in our business model. Our estimates of future cash flows attributable to our other definite lived intangible assets require significant judgment based on our historical and anticipated results and are subject to many factors. Different assumptions and judgments could materially affect the calculation of the undiscounted cash flows of the other definite lived intangible assets which could trigger impairment.