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Goodwill
 3 Months Ended
Mar. 31, 2019
Goodwill
NOTE 7 – Goodwill:
The changes in the carrying amount of goodwill for the period ended March 31, 2019 were as follows:
 
 
North
 
America
 
 
Europe
 
 
International
 
Markets
 
 
Other
 
 
Total
 
 
(U.S. $ in millions)
 
 
 
 
 
Balance as of January 1, 2019
$
11,098
 
 
$
8,653
 
 
$
2,479
 
 
$
2,687
 
 
$
24,917
 
Changes during the period:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill reclassified as assets to held for sale
 
(23
)
 
 
(5
)
 
 
—
 
 
 
—
 
 
 
(28
)
Translation differences
 
8
 
 
 
(117
)
 
 
41
 
 
 
1
 
 
 
(67
)
Balance as of March 31, 2019
$
11,083
 
 
$
8,531
 
 
$
2,520
 
 
$
2,688
 
 
$
24,822
 
Teva operates its business through three segments: North America, Europe and International Markets. Teva began reporting its financial results under this structure in the first quarter of 2018. In addition to these three segments, Teva has other sources of revenues, primarily the sale of APIs to third parties, certain contract manufacturing services and an out-licensing platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis. See note 17.
Teva determines the fair value of its reporting units using the income approach. The income approach is a forward-looking approach for estimating fair value. Within the income approach, the method used is the discounted cash flow method. Teva starts with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the WACC, adjusted for the relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from Teva’s assumptions, Teva could face impairment of goodwill allocated to these reporting units in the future.
During the first quarter of 2019, management assessed developments during the quarter to determine if it was more likely than not that the fair value of any of its reporting units was below its carrying amount. This includes the International Markets, Medis and Europe reporting units, which had headroom of 6% or less as of December 31, 2018. As part of this assessment, the Company also considered the sensitivity of its conclusions as they relate to changes in the estimates and assumptions used in the latest forecast available for each period.
In addition, Teva analyzed the aggregate fair value of its reporting units, calculated as part of the annual goodwill impairment test performed in the fourth quarter of 2018, compared to its market capitalization. Despite the decrease in share price during the first quarter of 2019 compared to the average share price used to assess the reasonableness of the results of the cash flow projections used for the goodwill impairment analysis in the fourth quarter of 2018, management believes that its fair value assessment is reasonably supported by Teva’s market capitalization. Management will continue to monitor business conditions and will also consider future developments in Teva’s market capitalization when assessing whether additional goodwill impairment is required in future periods.
Based on this assessment, management has concluded that it is not more likely than not that the fair value of any of the reporting units is below its carrying value as of March 31, 2019 and, therefore, no quantitative assessments were performed.