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Goodwill | 9 Months Ended
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Sep. 30, 2020
Goodwill | NOTE 6 – Goodwill: The changes in the carrying amount of goodwill for the period ended September 30, 2020 were as follows:
|  | North America |  |  | Europe |  |  | International Markets |  |  | Other |  |  | Total |
|  | (U.S. $ in millions) |  |  |  |  |
Balance as of December 31, 2019 (1) |  | $ | 11,091 |  |  | $ | 8,536 |  |  | $ | 2,532 |  |  | $ | 2,687 |  |  | $ | 24,846 |
Changes during the period: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill reclassified as assets held for sale |  |  | — |  |  |  | (8 | ) |  |  | (19 | ) |  |  | — |  |  |  | (27 | )
Goodwill impairment |  |  | (4,628 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,628 | )
Translation differences |  |  | (10 | ) |  |  | 253 |  |  |  | (206 | ) |  |  | — |  |  |  | 37 |
Balance as of S eptember 30, 2020 (1) |  | $ | 6,453 |  |  | $ | 8,781 |  |  | $ | 2,307 |  |  | $ | 2,687 |  |  | $ | 20,228 |
(1) | Accumulated goodwill impairment as of September 30, 2020 and December 31, 2019 was approximately $25.6 billion and $21.0 billion , respectively.
Teva operates its business through three reporting segments: North America, Europe and International Markets. Each of these business segments is a reporting unit. Additional reporting units include Teva’s production and sale of APIs to third parties (“Teva API”) and an out-licensing platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis. The Teva API and Medis reporting units are included under “Other” in the above table. See note 15 for additional segment information. 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 weighted average cost of capital (“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 may record an impairment of goodwill allocated to these reporting units in the future. First Quarter Developments During the first quarter of 2020, management assessed developments that occurred during the quarter, including expected effects of the COVID-19 pandemic on its business, to determine if it was more likely than not that the fair value of any of its reporting units was below its carrying amount. As part of this assessment, management 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. Based on this assessment, management concluded that it was not more likely than not that the fair value of any of the reporting units was below its carrying value as of March 31, 2020 and, therefore, no quantitative assessment was performed. Second Quarter Developments Pursuant to Company policy, the Company has historically performed its annual goodwill assessment during the fourth quarter of each year. During the second quarter of 2020, the Company changed its annual impairment assessment date from October 1 to June 30 to more closely align the impairment assessment date with the Company’s long-term planning and forecasting process. During the second quarter of 2020, Teva conducted a quantitative analysis of all reporting units as part of its annual goodwill impairment test and utilized the assistance of an independent valuation expert. No goodwill impairment charge was recorded during the second quarter of 2020. As part of the aforementioned analysis, Teva analyzed the aggregated fair value of its reporting units compared to its market capitalization as part of its annual goodwill impairment test, in order to assess the reasonableness of the results of its cash flow projections used for its goodwill impairment analysis. Management noted differences between the market capitalization and management’s internal projections as of the end of the second quarter. As of June 30, 2020, those differences were believed to be attributable to the following:
| • |  | Management noted a portion of the difference can be attributed to sales projections of AJOVY and AUSTEDO in the International Markets reporting unit. Management continues to believe that the majority of analysts do not focus on these brands in preparing their financial models and, as a result, have not attributed value to the launch potential in this reporting unit
| • |  | Management noted an additional difference can be attributed to sales projections of AUSTEDO in the North America reporting unit, resulting in higher fair value as analyzed by management compared to Teva’s market capitalization. Management continues to believe that it has more accurate information based on its knowledge of the market and its growth and therefore no adjustment was incorporated to the fair value.
| • |  | Management noted that market concerns regarding the uncertainty related to the opioid and price fixing litigation risks are impacting its market capitalization. Management believes that these concerns led to an acute reaction, which resulted in a decline in Teva’s share price. Management believed developments in the opioids case would clarify the outlook with regards to the opioid litigation, when the proposed settlement framework is finalized, which was expected in the near term.
Even if management was to adjust the fair value of the North America reporting unit for any one of the uncertainties noted, the estimated fair value would still exceed its carrying amount. Management also noted that negative results related to all the uncertainties noted may lead to a material goodwill impairment charge. Third Quarter Developments During the third quarter of 2020, Teva’s share price experienced further decline. Teva analyzed its aggregated internal valuation of its reporting units compared to its market capitalization as part of its goodwill impairment test. Management believes there are similar reconciling factors to those referenced in the second quarter with additional declines occurring due to increasing uncertainty related to certain litigation actions in the third quarter and the related uncertainties it added to the existing concerns around financial strength. During the third quarter of 2020, management noted the following factors that led to an assessment of the North America reporting unit for impairment:
| • |  | The Company noted a 25% reduction in its market capitalization from the second quarter of 2020 to the third quarter of 2020.
| • |  | With respect to the opioids litigation, as discussions continue with the group of Attorneys General regarding the nationwide framework and trial dates are postponed largely due to the COVID-19 pandemic, a resolution of this matter is taking longer than anticipated. Accordingly, the Company is currently unable to predict the timing of any final settlement or whether the settlement will be finalized based upon the current settlement framework.
| • |  | On August 25, 2020, the Company was indicted by the U.S. Department of Justice for alleged violations of the Sherman Act.
| • |  | On August 18, 2020, the Company was sued by the U.S. Department of Justice alleging violations of the federal Anti-Kickback Statute, and asserting causes of action under the federal False Claims Act and state law.
The Company is committed to its projected cash flow targets and management’s views on the litigation exposures have not changed. However, recent developments indicate the timeframe for resolution will take significantly longer than previously expected which introduces greater uncertainty to a favorable resolution. In addition, management believes that analysts are unlikely to modify their projections until the Company can demonstrate progression on the resolution with respect to some or all of the above legal matters. As such, for purposes of testing the goodwill in the North America reporting unit under ASC 350, management has incorporated these factors into its valuation of the North America reporting unit, resulting in an impairment charge of $4,628 million. Teva does not believe there has been a triggering event related to the other reporting units. The other reporting units all have fair values in excess of 10% over their book values.

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- Definition The entire disclosure for goodwill. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2144439 + Details
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