01—Abstract
Summary
Summary of the 20-F filed February 11, 2016. Cited figures are marked; the original filing is the authoritative source.
Teva Pharmaceutical Industries Limited's annual report for fiscal 2015 shows net revenues of $19.65 billiona, down from $20.27 billion in 2014, with operating income of $3.35 billion (versus $3.95 billion) and net income attributable to Teva of $1.59 billion (versus $3.06 billion).
The decline was driven by higher impairments, restructuring and others ($1.13 billionb), legal settlements and loss contingencies of $631 million, and a $1.0 billion financial expense line that includes a $623 million loss on Teva's Mylan shares. Diluted EPS was $1.82 versus $3.56 in 2014. Revenue was hurt by $1.3 billion of currency movements, though local-currency revenues rose 4%.
The Generic Medicines segment grew profit to $2.68 billionc (28.1% of segment revenues) on higher gross margin and lower S&M spending, while Specialty Medicines profit declined 5% to $4.36 billion, reflecting pressure on Copaxone, which generated $4.0 billion in 2015 sales, down 5%. Teva ended 2015 with $6.9 billion in cash and cash equivalents, total debt of $9.97 billion, and total equity of $29.9 billion, after raising about $7.24 billion of net proceeds from equity and mandatory convertible preferred offerings to help fund the pending Actavis Generics acquisition. The filing is dominated by forward-looking transaction risk.
Teva agreed to pay $33.75 billiond in cash plus about 100 million shares for Actavis Generics, and expects approximately $27 billion of acquisition-related borrowings, which would raise consolidated debt to about $37 billion on a pro forma basis. Credit ratings were downgraded to BBB+ and Baa1, with further downgrades expected on closing. The company also disclosed an ongoing FCPA investigation that it said is substantially complete and is expected to conclude in 2016, with potential material fines.
02—Key points
Key Highlights
- Net revenues fell 3% to $19.65 billion in 2015; local-currency revenues rose 4%, but currency movements reduced revenues by about $1.3 billion.
- Operating income declined to $3.35 billion from $3.95 billion, weighed down by $1.13 billion of impairments, restructuring and others and $631 million of legal settlements and loss contingencies.
- Net income attributable to Teva was $1.59 billion ($1.82 diluted EPS) versus $3.06 billion ($3.56) in 2014, with a $623 million loss on Mylan shares in financial expenses.
- Generic Medicines segment profit rose 24% to $2.68 billion, while Specialty Medicines profit fell 5% to $4.36 billion; Copaxone revenue was $4.0 billion, down 5%.
- Pending Actavis Generics acquisition for $33.75 billion in cash plus about 100 million shares; about $27 billion of debt financing is expected, taking pro forma consolidated debt to about $37 billion.
- Credit ratings downgraded to BBB+ (S&P) and Baa1 (Moody's), with further downgrades expected upon closing; cash on hand is expected to be significantly lower after closing.
- Ongoing FCPA investigation, described as substantially complete, could result in material fines, monitorship or other penalties; a $1.2 billion FTC modafinil settlement payment was made in 2015.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Teva Pharmaceutical Industries kept $0.08.
- Revenue$19.65B100.0%
- Cost of revenue−$8.30B42.2%
- Gross profit$11.36B57.8%
- Operating costs−$8.00B40.7%
- Operating income$3.35B17.1%
- Interest, other & tax−$1.75B8.9%
- Net income$1.60B8.1%
Where FY2015 revenue went
$19.65B- Cost of revenue: $8.30B, 42% of revenue
- Other operating costs: $7.97B, 41% of revenue
- Net income: $1.60B, 8.1% of revenue
- R&D: $35.0M, 0.2% of revenue
- Interest, other & tax: $1.75B, 8.9% of revenue
Kept 8.1% as net incomeNet income $1.60B · 8.1%R&D $35.0M · 0.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 11, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $19.65B$20.27B | −3.1% |
| Cost of Revenue | $8.30B$9.22B | −10.0% |
| Gross Profit | $11.36B$11.06B | +2.7% |
| R&D Expenses | $35.00M$0 | — |
| Operating Income | $3.35B$3.95B | −15.2% |
| Interest Expense | $270.00M$300.00M | −10.0% |
| Net Income | $1.60B$3.06B | −47.7% |
| EPS (Basic) | $1.84$3.58 | −48.6% |
| EPS (Diluted) | $1.82$3.56 | −48.9% |
| Shares Outstanding (Basic) | 855.00M853.00M | +0.2% |
| Shares Outstanding (Diluted) | 864.00M858.00M | +0.7% |
05—Questions
Frequently Asked Questions
How did Teva's profitability change in 2015?
Net income attributable to Teva fell to $1.59 billion from $3.06 billion, and diluted EPS dropped to $1.82 from $3.56. The decline came mainly from higher impairments, restructuring and others ($1.13 billion), legal settlements and loss contingencies ($631 million, versus a $111 million gain in 2014), and a $1.0 billion financial expense line that includes losses on Mylan shares.
What is the Actavis Generics acquisition and how will it affect the balance sheet?
Teva agreed to acquire Allergan's worldwide generic pharmaceuticals business for $33.75 billion in cash and about 100 million Teva shares. The filing says Teva expects one or more subsidiaries to borrow about $27 billion, which on a pro forma basis would raise consolidated debt to about $37 billion as of December 31, 2015. Closing was targeted for the end of the first quarter of 2016, though it could be slightly delayed.
Which segments drove results?
Generic Medicines revenue was $9.5 billion (down 3%), with segment profit up to $2.68 billion as gross margin improved to 47.1% and S&M expenses fell. Specialty Medicines revenue was $8.3 billion (down 3%), with profit down 5% to $4.36 billion, mainly because of lower Copaxone sales and higher R&D spending.
What are the main risks highlighted in the filing?
Key risks include competition to Copaxone from oral MS therapies and a generic 20 mg/mL version launched in June 2015; increased leverage and credit rating downgrades after the Actavis Generics deal; a voluntary FCPA investigation that could lead to material fines; patent settlement scrutiny by the FTC and EU Commission; and currency exposure, with about 43% of 2015 revenues generated outside the United States.
How strong is Teva's balance sheet at year-end 2015?
Cash and cash equivalents were $6.9 billion, with total financial assets of $8.4 billion. Total debt was $9.97 billion, and total equity rose to $29.9 billion, largely from the December 2015 equity and mandatory convertible preferred offerings. Working capital fell to $32 million from $1.6 billion, mainly due to higher sales reserves and allowances.
06—Continue