October 26, 2022
Securities and Exchange Commission
Division of Corporation Finance, Office of Life Sciences
100 F Street, N.E.
Washington, D.C. 20549
Attn: Li Xiao and Frank Wyman
Re: | Teva Pharmaceutical Industries Limited Form 10-K for the Fiscal Year Ended December 31, 2021 filed February 9, 2022 File No. 001-16174 |
Ladies and Gentlemen:
On behalf of Teva Pharmaceutical Industries Limited (“Teva” or the “Company”), set forth below is Teva’s response to the comment of the staff (the “Staff”) of the Securities and Exchange Commission contained in your letter dated September 13, 2022 to Eli Kalif, Teva’s Executive Vice President and Chief Financial Officer.
For your ease of reference, we have set forth below the Staff’s comment in italics, followed by Teva’s response thereto.
Form 10-K for the Fiscal Year Ended December 31, 2021
Management’s Discussion and Analysis of Financial Condition and Results of Operations Supplemental Non-GAAP Income Data, page 73
1. We note that you modified your non-GAAP reconciliation in your 2021 Annual and Quarterly Reports to essentially present a full non-GAAP Statement of Income, which is specifically prohibited by Question 102.10 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures. Please confirm that you will revise your future filings to eliminate the full non-GAAP Statement of Income and provide us with a draft of your proposed changes.
Response: The Company acknowledges the Staff’s comment and confirms that the Company will not present a full non-GAAP Statement of Income in its filings for future financial periods. To address the concerns raised by the Staff, the Company will revise its presentation of its non-GAAP financial measures in future filings to substantially reflect the proposed changes to the presentation of the Company’s reconciliation of its non-GAAP financial measures for the years ended December 31, 2021 and 2020 set forth in Exhibit A hereto in connection with future Form 10-K and Form 10-Q filings and as set forth in Exhibit B hereto in connection with future earnings press releases.
* * * * * *
Should any member of the Staff have any questions or comments concerning this letter, please do not hesitate to call me.
Very Truly Yours,
/s/ Eli Kalif |
Eli Kalif |
Executive Vice President, Chief Financial Officer |
Teva Pharmaceutical Industries Limited |
cc:
David Stark, Executive Vice President, Chief Legal Officer, Teva
Amir Weiss, Senior Vice President Finance, Chief Accounting Officer, Teva
Ross M. Leff, Kirkland & Ellis LLP
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Exhibit A
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Non-GAAP Net Income and Non-GAAP EPS Data
We present non-GAAP net income and non-GAAP earnings per share (“EPS”) as management believes that such data provide useful information to investors because they are used by management and our Board of Directors, in conjunction with other performance metrics, to evaluate our operational performance, to prepare and evaluate our work plans and annual budgets and ultimately to evaluate the performance of management, including annual compensation. While other qualitative factors and judgment also affect annual compensation, the principal quantitative element in the determination of such compensation are performance targets tied to the work plan, which are based on these non-GAAP measures.
Non-GAAP financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. Investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies. These non-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the pharmaceutical industry. Investors should consider non-GAAP net income and non-GAAP EPS in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.
In preparing our non-GAAP net income and non-GAAP EPS data, we exclude items that either have a non-recurring impact on our financial performance or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not excluded, potentially cause investors to extrapolate future performance from an improper base that is not reflective of our underlying business performance. Certain of these items are also excluded because of the difficulty in predicting their timing and scope. The items excluded from our non-GAAP net income and non-GAAP EPS include:
• | amortization of purchased intangible assets; |
• | legal settlements and material litigation fees and/or loss contingencies, due to the difficulty in predicting their timing and scope; |
• | impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill; |
• | restructuring expenses, including severance, retention costs, contract cancellation costs and certain accelerated depreciation expenses primarily related to the rationalization of our plants or to certain other strategic activities, such as the realignment of R&D focus or other similar activities; |
• | acquisition- or divestment- related items, including changes in contingent consideration, integration costs, banker and other professional fees and inventory step-up; |
• | expenses related to our equity compensation; |
• | significant one-time financing costs, amortization of issuance costs and terminated derivative instruments, and marketable securities investment valuation gains/losses; |
• | unusual tax items; |
• | other awards or settlement amounts, either paid or received; |
• | other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, such as impacts due to changes in accounting, significant costs for remediation of plants or related consulting costs, or other unusual events; and |
• | corresponding tax effects of the foregoing items. |
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The following table presents our non-GAAP net income and non-GAAP EPS for the years ended December 31, 2021 and December 31, 2020, as well as reconciliations of each measure to their nearest GAAP equivalents:
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
(U.S. dollars and shares in millions, except per share amounts) | ||||||||
Net Income (loss) attributable to Teva | $ | 417 | $ | (3,990 | ) | |||
Increase (decrease) for excluded items: | ||||||||
Amortization of purchased intangible assets | 802 | 1,020 | ||||||
Legal settlements and loss contingencies | 717 | 60 | ||||||
Goodwill impairment | — | 4,628 | ||||||
Impairment of long-lived assets | 584 | 1,918 | ||||||
Other R&D expenses | 15 | 37 | ||||||
Restructuring costs | 133 | 120 | ||||||
Costs related to regulatory actions taken in facilities | 23 | 23 | ||||||
Equity compensation | 118 | 129 | ||||||
Contingent consideration | 7 | (81 | ) | |||||
Gain on sale of business | (51 | ) | (8 | ) | ||||
Financial expenses | 128 | (85 | ) | |||||
Share in profits (losses) of associated companies – net | — | (134 | ) | |||||
Items attributable to non-controlling interests | (15 | ) | (177 | ) | ||||
Other non-GAAP items* | 337 | 114 | ||||||
Corresponding tax effects and unusual tax items | (360 | ) | (745 | ) | ||||
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Non-GAAP net income attributable to Teva | $ | 2,855 | $ | 2,830 | ||||
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Diluted earnings (loss) per share attributable to Teva | $ | 0.38 | $ | (3.64 | ) | |||
EPS difference** | 2.20 | 6.22 | ||||||
Diluted Non-GAAP EPS attributable to Teva** | $ | 2.58 | $ | 2.57 |
* | Other non-GAAP items include other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, primarily related to the rationalization of our plants and other unusual events. |
** | EPS difference and diluted non-GAAP EPS are calculated by dividing the sum of our non-GAAP adjustments and our non-GAAP net income attributable to Teva, respectively, by our non-GAAP diluted weighted average number of shares. The non-GAAP diluted weighted average number of shares for the years ended December 31, 2021 and 2020 were 1,107 million and 1,099 million, respectively. |
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Exhibit B
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Three Months Ended December 31, 2021
(U.S. $ and shares in millions, except per share amounts)
GAAP | Excluded for non-GAAP measurement | Non-GAAP | ||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of purchased intangible assets | Legal settlements and loss contingencies | Impairment of long-lived assets | Other R&D expenses | Restructuring costs | Costs related to regulatory actions taken in facilities | Equity compensation | Contingent consideration | Gain on sale of business | Other non-GAAP items* | Other items | ||||||||||||||||||||||||||||||||||||||||||
R&D expenses | 244 | 10 | 5 | 229 | ||||||||||||||||||||||||||||||||||||||||||||||||
S&M expenses | 632 | 24 | 8 | 600 | ||||||||||||||||||||||||||||||||||||||||||||||||
G&A expenses | 276 | 12 | 20 | 244 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other (income) expense | (26 | ) | (7 | ) | (19 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses | 253 | 25 | 229 | |||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | (24 | ) | (178 | ) | 153 | |||||||||||||||||||||||||||||||||||||||||||||||
Gross profit | 2,050 | 165 | 5 | 6 | 75 | 2,301 | ||||||||||||||||||||||||||||||||||||||||||||||
Gross profit margin | 50.0 | % | 56.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | 78 | 188 | 604 | 183 | 10 | 37 | 5 | 32 | 14 | (7 | ) | 103 | 1,248 | |||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to Teva | (159 | ) | 188 | 604 | 183 | 10 | 37 | 5 | 32 | 14 | (7 | ) | 103 | (158 | ) | 854 | ||||||||||||||||||||||||||||||||||||
EPS - Diluted | (0.14 | ) | 0.17 | 0.54 | 0.17 | 0.01 | 0.03 | § | 0.03 | 0.01 | (0.01 | ) | 0.09 | (0.14 | ) | 0.77 |
The non-GAAP diluted weighted average number of shares was 1,108 million for the three months ended December 31, 2021.
Non-GAAP income taxes for the three months ended December 31, 2021 were 15% on pre-tax non-GAAP income.
* | Other non-GAAP items include other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, primarily related to the rationalization of our plants and other unusual events. |
§ | Represents an amount less than $0.01 |
Adjusted EBITDA reconciliation | ||||
Net income (loss) | (151 | ) | ||
Add: | ||||
Financial expenses | 253 | |||
Income taxes | (24 | ) | ||
Depreciation | 132 | |||
Amortization | 188 | |||
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EBITDA | 397 | |||
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Legal settlements and loss contingencies | 604 | |||
Impairment of long lived assets | 183 | |||
Other R&D costs | 10 | |||
Restructuring costs | 37 | |||
Costs related to regulatory actions taken in facilities | 5 | |||
Equity compensation | 32 | |||
Contingent consideration | 14 | |||
Gain on sale of business | (7 | ) | ||
Other non-GAAP items (excluding accelerated depreciation of $18 million)* | 98 | |||
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Adjusted EBITDA | 1,373 | |||
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* | Includes other items primarily related to the rationalization of our plants and other exceptional events. |
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Three Months Ended December 31, 2020
(U.S. $ and shares in millions, except per share amounts)
GAAP | Excluded for non-GAAP measurement | Non-GAAP | ||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of purchased intangible assets | Legal settlements and loss contingencies | Impairment of long-lived assets | Other R&D expenses | Restructuring costs | Costs related to regulatory actions taken in facilities | Equity compensation | Contingent consideration | Gain on sale of business | Other non-GAAP items* | Other items | ||||||||||||||||||||||||||||||||||||||||||
R&D expenses | 293 | 34 | 6 | — | 254 | |||||||||||||||||||||||||||||||||||||||||||||||
S&M expenses | 683 | 31 | 11 | 14 | 627 | |||||||||||||||||||||||||||||||||||||||||||||||
G&A expenses | 327 | 15 | — | 312 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other (income) expense | (10 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses | 268 | 33 | 235 | |||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | (22 | ) | (162 | ) | 141 | |||||||||||||||||||||||||||||||||||||||||||||||
Gross profit | 2,048 | 231 | 7 | 8 | 34 | 2,327 | ||||||||||||||||||||||||||||||||||||||||||||||
Gross profit margin | 46.0 | % | 52.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | 406 | 262 | 50 | 233 | 34 | 38 | 7 | 40 | 15 | (5 | ) | 62 | — | 1,140 | ||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to Teva | 150 | 262 | 50 | 233 | 34 | 38 | 7 | 40 | 15 | (5 | ) | 62 | (131 | ) | 753 | |||||||||||||||||||||||||||||||||||||
EPS - Diluted | 0.14 | 0.24 | 0.05 | 0.21 | 0.03 | 0.04 | 0.01 | 0.04 | 0.01 | § | 0.06 | (0.12 | ) | 0.68 |
The non-GAAP diluted weighted average number of shares was 1,100 million for the three months ended December 31, 2020.
Non-GAAP income taxes for the three months ended December 31, 2020 were 16% on pre-tax non-GAAP income.
* | Other non-GAAP items include other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, primarily related to the rationalization of our plants and other unusual events. |
§ | Represents an amount less than $0.01 |
Adjusted EBITDA reconciliation | ||||
Net income (loss) | 162 | |||
Add: | ||||
Financial expenses | 268 | |||
Income taxes | (22 | ) | ||
Share in profits (losses) of associated companies – net | (3 | ) | ||
Depreciation | 140 | |||
Amortization | 262 | |||
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EBITDA | 808 | |||
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Legal settlements and loss contingencies | 50 | |||
Impairment of long lived assets | 233 | |||
Other R&D costs | 34 | |||
Restructuring costs | 38 | |||
Costs related to regulatory actions taken in facilities | 7 | |||
Equity compensation | 40 | |||
Contingent consideration | 15 | |||
Gain on sale of business | (5 | ) | ||
Other non-GAAP items (excluding accelerated depreciation of $18 million)* | 58 | |||
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Adjusted EBITDA | 1,277 | |||
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* | Includes other items primarily related to the rationalization of our plants and other exceptional events. |
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Year Ended December 31, 2021
(U.S. $ and shares in millions, except per share amounts)
GAAP | Excluded for non-GAAP measurement | Non-GAAP | ||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of purchased intangible assets | Legal settlements and loss contingencies | Impairment of long-lived assets | Other R&D expenses | Restructuring costs | Costs related to regulatory actions taken in facilities | Equity compensation | Contingent consideration | Gain on sale of business | Other non-GAAP items* | Other items | ||||||||||||||||||||||||||||||||||||||||||
R&D expenses | 967 | 15 | 19 | 933 | ||||||||||||||||||||||||||||||||||||||||||||||||
S&M expenses | 2,429 | 99 | 33 | 2,297 | ||||||||||||||||||||||||||||||||||||||||||||||||
G&A expenses | 1,099 | 43 | 27 | 1,029 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other (income) expense | (98 | ) | (51 | ) | (48 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses | 1,058 | 128 | 930 | |||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | 211 | (360 | ) | 570 | ||||||||||||||||||||||||||||||||||||||||||||||||
Gross profit | 7,594 | 702 | 23 | 23 | 270 | 8,612 | ||||||||||||||||||||||||||||||||||||||||||||||
Gross profit margin | 48.0 | % | 54.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | 1,716 | 802 | 717 | 584 | 15 | 133 | 23 | 118 | 7 | (51 | ) | 337 | 4,401 | |||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to Teva | 417 | 802 | 717 | 584 | 15 | 133 | 23 | 118 | 7 | (51 | ) | 337 | (247 | ) | 2,855 | |||||||||||||||||||||||||||||||||||||
EPS - Diluted | 0.38 | 0.72 | 0.65 | 0.53 | 0.01 | 0.12 | 0.02 | 0.11 | 0.01 | (0.05 | ) | 0.30 | (0.22 | ) | 2.58 |
The non-GAAP diluted weighted average number of shares was 1,107 million for the year ended December 31, 2021.
Non-GAAP income taxes for the year ended December 31, 2021 were 16% on pre-tax non-GAAP income.
* | Other non-GAAP items include other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, primarily related to the rationalization of our plants and other unusual events. |
Adjusted EBITDA reconciliation | ||||
Net income (loss) | 456 | |||
Add: | ||||
Financial expenses | 1,058 | |||
Income taxes | 211 | |||
Share in profits (losses) of associated companies – net | (9 | ) | ||
Depreciation | 528 | |||
Amortization | 802 | |||
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EBITDA | 3,046 | |||
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Legal settlements and loss contingencies | 717 | |||
Impairment of long lived assets | 584 | |||
Other R&D costs | 15 | |||
Restructuring costs | 133 | |||
Costs related to regulatory actions taken in facilities | 23 | |||
Equity compensation | 118 | |||
Contingent consideration | 7 | |||
Gain on sale of business | (51 | ) | ||
Other non-GAAP items (excluding accelerated depreciation of $18 million)* | 318 | |||
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Adjusted EBITDA | 4,911 | |||
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* | Includes other items primarily related to the rationalization of our plants and other exceptional events. |
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Year Ended December 31, 2020
(U.S. $ and shares in millions, except per share amounts)
GAAP | Excluded for non-GAAP measurement | Non-GAAP | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of purchased intangible assets | Legal settlements and loss contingencies | Goodwill impairment | Impairment of long-lived assets | Other R&D expenses | Restructuring costs | Costs related to regulatory actions taken in facilities | Equity compensation | Contingent consideration | Gain on sale of business | Other non-GAAP items* | Other items | |||||||||||||||||||||||||||||||||||||||||||||
R&D expenses | 997 | 37 | 20 | — | 941 | |||||||||||||||||||||||||||||||||||||||||||||||||||
S&M expenses | 2,498 | 126 | 36 | 14 | 2,322 | |||||||||||||||||||||||||||||||||||||||||||||||||||
G&A expenses | 1,173 | 46 | 12 | 1,115 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other (income) expense | (40 | ) | (8 | ) | (31 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Financial expenses | 834 | (85 | ) | 918 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | (168 | ) | (745 | ) | 577 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Gross profit | 7,726 | 894 | 23 | 27 | 63 | 8,734 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Gross profit margin | 46.4 | % | 52.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | (3,572 | ) | 1,020 | 60 | 4,628 | 1,918 | 37 | 120 | 23 | 129 | (81 | ) | (8 | ) | 114 | — | 4,388 | |||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to Teva | (3,990 | ) | 1,020 | 60 | 4,628 | 1,918 | 37 | 120 | 23 | 129 | (81 | ) | (8 | ) | 114 | (1,140 | ) | 2,830 | ||||||||||||||||||||||||||||||||||||||
EPS - Diluted | (3.63 | ) | 0.93 | 0.05 | 4.21 | 1.75 | 0.03 | 0.11 | 0.02 | 0.12 | (0.07 | ) | (0.01 | ) | 0.10 | (1.04 | ) | 2.58 |
The non-GAAP diluted weighted average number of shares was 1,099 million for the year ended December 31, 2020.
Non-GAAP income taxes for the year ended December 31, 2020 were 17% on pre-tax non-GAAP income.
* | Other non-GAAP items include other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, primarily related to the rationalization of our plants and other unusual events. |
Adjusted EBITDA reconciliation | ||||
Net income (loss) | (4,099 | ) | ||
Add: | ||||
Financial expenses | 834 | |||
Income taxes | (168 | ) | ||
Share in profits (losses) of associated companies – net | (138 | ) | ||
Depreciation | 545 | |||
Amortization | 1,020 | |||
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EBITDA | (2,007 | ) | ||
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Legal settlements and loss contingencies | 60 | |||
Goodwill impairment | 4,628 | |||
Impairment of long lived assets | 1,918 | |||
Other R&D costs | 37 | |||
Restructuring costs | 120 | |||
Costs related to regulatory actions taken in facilities | 23 | |||
Equity compensation | 129 | |||
Contingent consideration | (81 | ) | ||
Gain on sale of business | (8 | ) | ||
Other non-GAAP items (excluding accelerated depreciation of $18 million)* | 93 | |||
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Adjusted EBITDA | 4,912 | |||
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* | Includes other items primarily related to the rationalization of our plants and other exceptional events. |
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