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Equity | 12 Months Ended
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Dec. 31, 2018
Equity | NOTE 14—EQUITY:
a. | Ordinary shares and ADSs
As of December 31, 2018 and 2017, Teva had approximately 1.2 billion and 1.1 billion ordinary shares issued, respectively. Teva ordinary shares are traded on the Tel-Aviv Stock Exchange and on the New York Stock Exchange, in the form of American Depositary Shares (“ADSs”), each of which represents one ordinary share. On December 8, 2015, Teva completed an offering of 54 million ADSs at $62.50 per share. On January 6, 2016, Teva sold an additional 5.4 million ADSs, pursuant to the underwriters’ exercise in full of their overallotment option. As a result, Teva received an additional $329 million in net proceeds, for an aggregate of approximately $3.62 billion, including the initial closing. On August 2, 2016, Teva issued approximately 100.3 million Teva shares to Allergan in connection with the closing of the Actavis Generics acquisition. On December 17, 2018, the mandatory convertible preferred shares automatically converted into ordinary shares. As a result of this conversion, Teva issued 70.6 million ADSs.
b. | Mandatory convertible preferred shares
On December 8, 2015, Teva completed an offering of 3,375,000 of its 7% mandatory convertible preferred shares. The mandatory convertible preferred shares had no voting rights and ranked senior to Teva’s ordinary shares with respect to dividends and distributions upon liquidation, winding-up or dissolution. On January 6, 2016, Teva sold an additional 337,500 mandatory convertible preferred shares pursuant to the underwriters exercise in full of their overallotment option. As a result, Teva received an additional $329 million in net proceeds, for an aggregate of approximately $3.62 billion including the initial closing. On December 17, 2018, the mandatory convertible preferred shares automatically converted into ordinary shares at a ratio of 1 mandatory convertible preferred share to 16 ADSs, and all of the accumulated and unpaid dividends on the mandatory convertible preferred shares were paid in ADSs, at a ratio of 3.0262 ADSs per mandatory convertible preferred share, all in accordance with the conversion mechanism set forth in the terms of the mandatory convertible preferred shares. Share repurchase program In December 2011, Teva’s Board of Directors authorized it to repurchase up to an aggregate amount of $3.0 billion of its ordinary shares/ADSs, of which $1.3 billion remained available for purchase. In October 2014, the Board of Directors authorized Teva to increase its share repurchase program by $1.7 billion to $3.0 billion, of which $2.1 billion remained available as of December 31, 2018. Teva did not repurchase any of its shares during 2018 and currently cannot do so due to its accumulated deficit. The repurchase program has no time limit. Repurchases may be commenced or suspended at any time, subject to applicable law.
c. | Stock-based compensation plans:
Stock-based compensation plans are comprised of employee stock options, RSUs, PSUs, and other equity-based awards to employees, officers and directors. The purpose of the plans is to enable the Company to attract and retain qualified personnel and to motivate such persons by providing them with equity participation in the Company. On June 29, 2010, the Teva 2010 Long-Term Equity-Based Incentive Plan was approved by Teva’s shareholders, under which 70 million equivalent share units, including options exercisable into ordinary shares, RSUs and PSUs, were approved for grant. The 2010 Plan expired on June 28, 2015 (except with respect to awards outstanding on that date), and no additional awards under the 2010 Plan may be made. On September 3, 2015, the Teva 2015 Long-Term Equity-Based Incentive Plan was approved by Teva’s shareholders, under which 43.7 million equivalent share units, including options exercisable into ordinary shares, RSUs and PSUs, were approved for grant. On April 18, 2016, Teva’s shareholders approved an increase of an additional 33.3 million equivalent share units to the share reserve of Teva’s 2015 Long-Term Equity-Based Incentive Plan, so that 77 million equivalent share units, including options exercisable into ordinary shares, RSUs and PSUs, are approved for grant. On July 13, 2017, Teva’s shareholders approved an increase of an additional 65 million equivalent share units to the share reserve of Teva’s 2015 Long-Term Equity-Based Incentive Plan, so that 142 million equivalent share units, including options exercisable into ordinary shares, RSUs and PSUs, are approved for grant. As of December 31, 2018, 76.6 million equivalent share units remain available for future awards. In the past, Teva had various employee stock and incentive plans under which stock options and other share-based awards were granted. Stock options and other share-based awards granted under such prior plans continue in accordance with the terms of the respective plans. The vesting period of the outstanding options, RSUs and PSUs is generally from 1 to 4 years from the date of grant. The rights of the ordinary shares obtained from the exercise of options, RSUs or PSUs are identical to those of the other ordinary shares of the Company. The contractual term of these options is primarily for seven years in prior plans and ten years for options granted under the 2010 and 2015 plans described above. Status of options A summary of the status of the options as of December 31, 2018, 2017 and 2016, and changes during the years ended on those dates, is presented below (the number of options represents ordinary shares exercisable in respect thereof).
|  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | Number (in thousands) |  |  | Weighted average exercise price |  |  | Number (in thousands) |  |  | Weighted average exercise price |  |  | Number (in thousands) |  |  | Weighted average exercise price |
Balance outstanding at beginning of year |  |  | 43,121 |  |  | $ | 44.32 |  |  |  | 32,789 |  |  | $ | 50.71 |  |  |  | 25,233 |  |  | $ | 49.69 |
Changes during the year: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Granted |  |  | 12,401 |  |  |  | 19.12 |  |  |  | 15,467 |  |  |  | 32.08 |  |  |  | 10,895 |  |  |  | 53.21 |
Exercised |  |  | (84 | ) |  |  | 17.01 |  |  |  | (7 | ) |  |  | 17.44 |  |  |  | (766 | ) |  |  | 44.24 |
Forfeited |  |  | (7,040 | ) |  |  | 39.38 |  |  |  | (4,953 | ) |  |  | 47.92 |  |  |  | (1,382 | ) |  |  | 54.09 |
Expired |  |  | (5 | ) |  |  | 50.65 |  |  |  | (175 | ) |  |  | 59.81 |  |  |  | (1,191 | ) |  |  | 52.79 |
Balance outstanding at end of year |  |  | 48,393 |  |  |  | 38.62 |  |  |  | 43,121 |  |  |  | 44.32 |  |  |  | 32,789 |  |  |  | 50.71 |
Balance exercisable at end of year |  |  | 24,086 |  |  |  | 46.89 |  |  |  | 19,129 |  |  |  | 47.94 |  |  |  | 14,468 |  |  |  | 46.06 |
The weighted average fair value of options granted during the years was generally estimated by using the Black-Scholes option-pricing model as follows:
|  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Weighted average fair value |  | $ | 7.4 |  |  | $ | 5.7 |  |  | $ | 9.4 |
The fair value of these options was estimated on the date of grant, based on the following weighted average assumptions:
|  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Dividend yield |  |  | 0 | % |  |  | 3.7 | % |  |  | 2.6 | %
Expected volatility |  |  | 40 | % |  |  | 29 | % |  |  | 25 | %
Risk-free interest rate |  |  | 2.6 | % |  |  | 2.1 | % |  |  | 1.4 | %
Expected term |  |  | 5 years |  |  |  | 5 years |  |  |  | 5 years |
The expected term was estimated based on the weighted average period for which the options granted are expected to be outstanding, taking into consideration the current vesting of options and the historical exercise patterns of existing options. The expected volatility assumption used is based on a blend of the historical and implied volatility of the Company’s stock. The risk-free interest rate used is based on the yield of U.S. Treasuries with a maturity closest to the expected term of the options granted. The dividend yield assumption reflects the expected dividend yield based on historical dividends and expected dividend growth. The following tables summarize information at December 31, 2018 regarding the number of ordinary shares issuable upon (1) outstanding options and (2) vested options:
(1) Number of ordinary shares issuable upon exercise of outstanding options |
Range of exercise prices |  | Balance at end of period (in thousands) |  |  | Weighted average exercise price |  |  | Weighted average remaining life |  |  | Aggregate intrinsic value (in millions) |
|  | Number of shares |  |  | $ |  |  | Years |  |  | $ |
Lower than $15.01 |  |  | 593 |  |  |  | 11.40 |  |  |  | 8.85 |  |  |  | 2.4 |
$15.01 - $25.00 |  |  | 12,398 |  |  |  | 18.92 |  |  |  | 9.13 |  |  |  | * |
$25.01 - $35.00 |  |  | 9,615 |  |  |  | 34.63 |  |  |  | 8.17 |  |  |  | — |
$35.01 - $45.00 |  |  | 6,703 |  |  |  | 40.57 |  |  |  | 3.58 |  |  |  | — |
$45.01 - $55.00 |  |  | 12,908 |  |  |  | 50.84 |  |  |  | 5.64 |  |  |  | — |
$55.01 - $65.00 |  |  | 6,167 |  |  |  | 59.34 |  |  |  | 6.30 |  |  |  | — |
$65.01 - $70.00 |  |  | 9 |  |  |  | 66.85 |  |  |  | 0.03 |  |  |  | — |
Total |  |  | 48,393 |  |  |  | 38.62 |  |  |  | 6.87 |  |  |  | 2.4 |
(2) Number of ordinary shares issuable upon exercise of vested options |
Range of exercise prices |  | Balance at end of period (in thousands) |  |  | Weighted average exercise price |  |  | Weighted average remaining life |  |  | Aggregate intrinsic value (in millions) |
|  | Number of shares |  |  | $ |  |  | Years |  |  | $ |
$15.01 - $25.00 |  |  | 548 |  |  |  | 16.99 |  |  |  | 8.68 |  |  |  | * |
$25.01 - $35.00 |  |  | 2,464 |  |  |  | 34.60 |  |  |  | 8.18 |  |  |  | — |
$35.01 - $45.00 |  |  | 6,655 |  |  |  | 40.59 |  |  |  | 3.55 |  |  |  | — |
$45.01 - $55.00 |  |  | 10,041 |  |  |  | 50.17 |  |  |  | 5.17 |  |  |  | — |
$55.01 - $65.00 |  |  | 4,369 |  |  |  | 59.58 |  |  |  | 6.25 |  |  |  | — |
$65.01 - $70.00 |  |  | 9 |  |  |  | 66.85 |  |  |  | 0.03 |  |  |  | — |
Total |  |  | 24,086 |  |  |  | 46.89 |  |  |  | 5.30 |  |  |  | * |
* | Represents an amount less than 0.5 million.
The aggregate intrinsic value in the above tables represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $15.42 on December 31, 2018, less the weighted average exercise price in each range. This represents the potential amount receivable by the option holders had all option holders exercised their options as of such date. As of December 31, 2018, there was an immaterial amount of options exercisable that were in-the-money. The total intrinsic value of options exercised during the years ended December 31, 2018 and 2017 were immaterial, based on the Company’s average stock price of $20.92 and $25.62, for the years then ended, respectively. The total intrinsic value of options exercised during the year ended December 31, 2016 was $5 million based on the Company’s average stock price of $50.96. Status of non-vested RSUs The fair value of RSUs and PSUs is estimated based on the market value of the Company’s stock on the date of award grant, less an estimate of dividends that will not accrue to RSU and PSU holders prior to vesting. The following table summarizes information about the number of RSUs and PSUs issued and outstanding:
|  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | Number (in thousands) |  |  | Weighted average grant date fair value |  |  | Number (in thousands) |  |  | Weighted average grant date fair value |  |  | Number (in thousands) |  |  | Weighted average grant date fair value |
Balance outstanding at beginning of year |  |  | 7,468 |  |  | $ | 27.95 |  |  |  | 4,636 |  |  | $ | 45.15 |  |  |  | 2,551 |  |  | $ | 51.43 |
Granted |  |  | 5,900 |  |  |  | 18.80 |  |  |  | 5,461 |  |  |  | 20.10 |  |  |  | 3,193 |  |  |  | 40.78 |
Vested |  |  | (1,638 | ) |  |  | 37.30 |  |  |  | (1,884 | ) |  |  | 39.63 |  |  |  | (830 | ) |  |  | 45.79 |
Forfeited |  |  | (1,327 | ) |  |  | 32.5 |  |  |  | (745 | ) |  |  | 42.84 |  |  |  | (278 | ) |  |  | 46.08 |
Balance outstanding at end of year |  |  | 10,403 |  |  |  | 20.93 |  |  |  | 7,468 |  |  |  | 27.95 |  |  |  | 4,636 |  |  |  | 45.15 |
The Company expenses compensation costs based on the grant-date fair value. For the years ended December 31, 2018, 2017 and 2016, the Company recorded stock-based compensation costs as follows:
|  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | (U.S. $ in millions) |
Employee stock options |  | $ | 74 |  |  | $ | 64 |  |  | $ | 56 |
RSUs and PSUs |  |  | 81 |  |  |  | 69 |  |  |  | 66 |
Total stock-based compensation expense |  |  | 155 |  |  |  | 133 |  |  |  | 122 |
Tax effect on stock-based compensation expense |  |  | 18 |  |  |  | 24 |  |  |  | 26 |
Net effect |  | $ | 137 |  |  | $ | 109 |  |  | $ | 96 |
At December 31, 2018, the total unrecognized compensation cost before tax on employee stock options and RSU/PSUs amounted to $112 million and $138 million, respectively, and is expected to be recognized over a weighted average period of approximately 2.5 years.
d. | Dividends:
Commencing in April 2015, dividends on Teva’s ordinary shares were declared in U.S. dollars. Dividends paid per share in the years ended December 31, 2018, 2017 and 2016 were $0, $0.85 and $1.36, respectively. In addition, dividends paid on Teva’s mandatory convertible preferred shares per share in the years ended December 31, 2018 and 2017 were $0 and $70 million, respectively. In December 2017, Teva announced an immediate suspension of dividends on its ordinary shares and ADSs. Teva suspended cash dividends on its mandatory convertible preferred shares in the fourth quarter of 2017, due to its accumulated deficit. The mandatory conversion date of the mandatory convertible preferred shares was in December 2018. All of the accumulated and unpaid dividends on the mandatory convertible preferred shares were paid in ADSs, at a ratio of 3.0262 ADSs per mandatory convertible preferred share, according to the conversion mechanism set forth in the terms of the mandatory convertible preferred shares.
e. | Accumulated other comprehensive loss:
The components of accumulated other comprehensive loss attributable to Teva are presented in the table below:
|  | Net Unrealized Gains/(Losses) |  |  | Benefit Plans |  |  |  |
|  | Foreign currency translation adjustments |  |  | Available-for- sale securities |  |  | Derivative financial instruments |  |  | Actuarial gains/(losses) and prior service (costs)/credits |  |  | Total |
Balance, January 1, 2016 |  |  | (2,384 | ) |  |  | 312 |  |  |  | 175 |  |  |  | (58 | ) |  |  | (1,955 | )
Other comprehensive loss before reclassifications |  |  | (355 | ) |  |  | (456 | ) |  |  | (491 | ) |  |  | (26 | ) |  |  | (1,328 | )
Amounts reclassified to the statements of income |  |  | 3 |  |  |  | 140 |  |  |  | 14 |  |  |  | (6 | ) |  |  | 151 |
Net other comprehensive loss before tax |  |  | (352 | ) |  |  | (316 | ) |  |  | (477 | ) |  |  | (32 | ) |  |  | (1,177 | )
Corresponding income tax |  |  | (33 | ) |  |  | (3 | ) |  |  | — |  |  |  | 9 |  |  |  | (27 | )
Net other comprehensive loss after tax* |  |  | (385 | ) |  |  | (319 | ) |  |  | (477 | ) |  |  | (23 | ) |  |  | (1,204 | )
Balance, December 31, 2016 |  |  | (2,769 | ) |  |  | (7 | ) |  |  | (302 | ) |  |  | (81 | ) |  |  | (3,159 | )
Other comprehensive income/(loss) before reclassifications |  |  | 1,075 |  |  |  | 64 |  |  |  | (167 | ) |  |  | (3 | ) |  |  | 969 |
Amounts reclassified to the statements of income |  |  | 378 |  |  |  | (66 | ) |  |  | 27 |  |  |  | (5 | ) |  |  | 334 |
Net other comprehensive income/(loss) before tax |  |  | 1,453 |  |  |  | (2 | ) |  |  | (140 | ) |  |  | (8 | ) |  |  | 1,303 |
Corresponding income tax |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | (2 | ) |  |  | 3 |
Net other comprehensive income/(loss) after tax* |  |  | 1,453 |  |  |  | 3 |  |  |  | (140 | ) |  |  | (10 | ) |  |  | 1,306 |
Balance, December 31, 2017 |  |  | (1,316 | ) |  |  | (4 | ) |  |  | (442 | ) |  |  | (91 | ) |  |  | (1,853 | )
Cumulative effect of new accounting standard (See Note 1) |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | — |  |  |  | 5 |
Other comprehensive income/(loss) before reclassifications |  |  | (739 | ) |  |  | (1 | ) |  |  | 87 |  |  |  | 4 |  |  |  | (649 | )
Amounts reclassified to the statements of income |  |  |  |  |  |  | 1 |  |  |  | 28 |  |  |  | 13 |  |  |  | 42 |
Net other comprehensive income/(loss) before tax |  |  | (739 | ) |  |  | — |  |  |  | 115 |  |  |  | 17 |  |  |  | (607 | )
Corresponding income tax |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4 | ) |  |  | (4 | )
Net other comprehensive income/(loss) after tax* |  |  | (739 | ) |  |  | — |  |  |  | 115 |  |  |  | 13 |  |  |  | (611 | )
Balance, December 31, 2018 |  |  | (2,055 | ) |  |  | 1 |  |  |  | (327 | ) |  |  | (78 | ) |  |  | (2,459 | )
* | Amounts do not include foreign currency translation adjustments attributable to non-controlling interests of $26 million gain in 2018, $63 million loss in 2017 and $60 million loss in 2016

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- Definition The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -URI http://asc.fasb.org/topic&trid=2208762 + Details
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