NOTE 14 – Other asset impairments, restructuring and other items:

Other impairments, restructuring and other items consisted of the following:


	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
	(U.S. $ in millions)
Restructuring expenses	$	88	$	72	$	442	$	300
Integration and acquisition expenses		4		31		9		87
Contingent consideration		29		18		84		179
Impairments of long-lived assets		521		408		1,501		564
Other		16		21		44		79

Total	$	658	$	550	$	2,080	$	1,209

In determining the estimated fair value of long-lived assets, Teva utilized a discounted cash flow model. The key assumptions within the model related to forecasting future revenue and operating income, an appropriate WACC and an appropriate terminal value based on the nature of the long-lived asset. The Company’s updated forecasts of net cash flows for the impaired assets reflect, among others, the following: (i) for IPR&D assets, the impact of changes to the development programs, the projected development and regulatory timeframes and the risks associated with these assets; and (ii) for product rights, pricing and volume projections, as well as patent life and any significant changes to the competitive environment.

As a result of Teva’s plant rationalization acceleration, following the two year restructuring plan that was announced in December, 2017, to the extent the Company will change its plans on any given asset and/or the assumptions underlying such plan, there could be additional impairments in the future.

Impairments

•

Impairments of long-lived intangible assets in the third quarter of 2018 were $519 million, mainly consisting of:

IPR&D assets of $306 million, mainly related to revaluation of generic products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, legal landscape, launch date or discount rate).

Identifiable product rights of $185 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics currently marketed in the United States and supply constraints.

•

Impairments of property, plant and equipment of $2 million.

•

Impairments of long-lived intangible assets in the first nine months of 2018 were $1,246 million, mainly consisting of:

IPR&D assets of $867 million, mainly related to revaluation of generic products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, legal landscape, launch date or discount rate).

Identifiable product rights of $328 million due to updated market assumptions regarding price and volume of products acquired from Actavis Generics currently marketed in the United States and supply constraints.

•

Impairments of property, plant and equipment in the first nine months of 2018 were $255 million, mainly consisting of:

$155 million related to the restructuring plan, including:

•

$113 million related to site closures in Israel; and

•

$42 million related to the consolidation of headquarters and distribution sites in the United States.

Other impairment costs, mainly $64 million related to a plant located in India in connection with the P&G separation agreement. See note 3.

Restructuring

In the three months ended September 30, 2018, Teva recorded $88 million of restructuring expenses, compared to $72 million in the three months ended September 30, 2017.

In the first nine months of 2018, Teva recorded $442 million of restructuring expenses, compared to $300 million in the first nine months of 2017. The expenses in the first nine months of 2018 were primarily related to headcount reductions across all functions.

Since the announcement of its restructuring plan, Teva reduced its global headcount by approximately 9,100 full-time-equivalent employees.

During the three months ended September 30, 2018, Teva recorded a $2 million impairment of property, plant and equipment related to restructuring costs.

During the first nine months of 2018 Teva recorded a $155 million impairment of property, plant and equipment related to restructuring costs as detailed in “— Impairments” above.

The following tables provide the components of costs associated with Teva’s restructuring plan, including other costs associated with Teva’s restructuring plan and recorded under different items:


	Three months ended September 30,
	2018		2017
	(U.S. $ in millions)
Restructuring
Employee termination	$	62	$	54
Other		26		18

Total	$	88	$	72


	Three months ended September 30,
	2018		2017
	(U.S. $ in millions)
Other
Cost of sales	$	8	$	3
Selling and marketing expenses		—		3
Other items		16		—

	Nine months ended September 30,
	2018		2017
	(U.S. $ in millions)
Restructuring
Employee termination	$	380	$	228
Other		62		72

Total	$	442	$	300


	Nine months ended September 30,
	2018		2017
	(U.S. $ in millions)
Other
Cost of sales	$	23	$	5
Selling and marketing expenses		—		3
Other items		54		—

The following table provides the components of and changes in the Company’s restructuring accruals:


	Employee termination costs			Other			Total
	(U.S. $ in millions)
Balance as of January 1, 2018	$	(294	)	$	(17	)	$	(311	)
Provision		(380	)		(62	)		(442	)
Utilization and other*		418			51			469

Balance as of September 30, 2018	$	(256	)	$	(28	)	$	(284	)

*	Includes adjustments for foreign currency translation.

In July 2018, the FDA completed an inspection of Teva’s manufacturing plant in Davie, Florida in the United States and issued a Form FDA-483 to the site. In October 2018, the FDA notified Teva that the inspection of the site is classified as “official action indicated” (OAI). Teva is working diligently to investigate the FDA’s observations in a manner consistent with Current Good Manufacturing Practices (CGMPs) and to address those observations as quickly and as thoroughly as possible. The impact of such investigation and remediation on the financial statements in the third quarter of 2018 was immaterial. However, if Teva is unable to remediate the findings in a timely manner, Teva may face additional consequences, including potential delays in FDA approval for future products from the site, other financial implications due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges and other costs of remediation.

In July 2018, Teva announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of an unexpected impurity in the API provided by a third party supplier, Zhejiang Huahai Pharmaceutical (“Zhejiang”), used in the production of such medicines. On September 28, 2018, the FDA issued an import ban on all APIs and other drug products made by Zhejiang in its Chuannan site into the United States. On the same date, the EU authorities issued to Zhejiang a statement of non-compliance for the manufacture of valsartan (and its intermediates) for EU medicines produced in the Chuannan site, thus prohibiting marketing authorization holders in the EU from using such valsartan materials in the production of finished products. On October 15, 2018, the EU authorities announced that Zhejiang was under increased supervision with respect to other APIs produced by Zhejiang. Many regulatory agencies around the world continue to review information relating to valsartan medicines and the sartan products as a group. The impact of this recall on the Company’s financial statements in the first nine months of 2018 was $46 million, primarily related to recall and inventory reserves. Depending on the scope of regulatory actions, duration of the API outage and severity of the impurity, Teva may face additional loss of revenues and profits, customer penalties, impairments and/or other litigation costs.