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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Teva Pharmaceutical Industries
Limited page 6
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Note 11 - Additional Financial Statement Information:
a. Inventories:
| |
December 31 |
| |
2000 |
1999 |
| |
U.S. $ in thousands |
| Raw and packaging materials |
$ 115,723 |
$ 85,321 |
| Products in process |
85,269 |
80,692 |
| Finished products |
255,563 |
161,409 |
| Purchased products |
35,683
 |
19,138
|
| |
492,238 |
346,560 |
| Materials in transit and payments on account |
11,255
|
4,918
|
| |
$ 503,493
|
$ 351,478
|
b. Short-term credit - mainly from banks:
Short-term credit includes current portion of long-term loans and other long-term liabilities. Other short-term credit at of December 31, 2000 amounts to $ 283.4 million and bears interest at a weight average rate of 6%.
As of December 31, 2000, the Group had $ 525 million available under unused lines of credit.
c. Accounts payable and accruals:
| |
December 31 |
| |
2000 |
1999 |
| |
U.S. $ in thousands |
| Trade accounts payable |
$ 161,844 |
$ 114,454 |
| Employees and employee related obligations |
50,586 |
37,958 |
| Other |
229,803
|
115,908
|
| |
$ 442,233
|
$ 268,320
|
d. Linkage terms of balances in Israeli currency:
As follows:
| |
December 31 |
| |
Linked to the Israeli CPI |
Unlinked |
| |
U.S. $ in thousands |
| Assets |
$ 3,840
|
$ 104,455
|
| Liabilities |
$ 20,077
|
$ 130,128
|
The above balances do not include Israeli currency balances linked to the dollar.
Data regarding the rate of exchange and the Israeli CPI:
| |
Year ended December 31 |
| |
2000 |
1999 |
1998 |
| |
U.S. $ in thousands |
| Increase (decrease) in exchange rate Of Israeli currency against The dollar |
(2.7%) |
(0.2%) |
17.6% |
| Rate of increase in the Israeli CPI |
0% |
1.3% |
8.6% |
| Exchange rate (at end of year) -$ 1 = |
NIS 4.04 |
NIS 4.15 |
NIS 4.16 |
e. Financial instruments:
Foreign exchange risk management
The Group enters into forward exchange contracts in foreign currencies and purchases and writes foreign currency options in order to hedge cash flows (mainly in dollars) resulting from existing assets and liabilities anticipated transaction for the current year which are probable, in currencies other than the functional currency. In addition, the Group takes steps to reduce exposure by using "natural" hedging. The Company also acts to offset risks in opposite directions among the companies in the Group. The currency hedged items are usually denominated in the following currencies: European (mainly - the euro), Israeli (NIS) and Canadian (CAD $). The writing of options is part of a comprehensive currency hedging strategy. The Group does not hold or issue derivative financial instruments for trading purposes.
As the counterparties to the derivatives are banks, the Company considers the inherent credit risks to be remote.
The notional amounts of foreign currency derivatives as of December 31, 2000 are as follows: forward exchange contracts for conversion of NIS into dollars - $ 11 million (December 31, 1999 for conversion of Hungarian forints into dollars - $ 1 million); currency options purchased for conversion of euro into dollars - $ 19 million (December 31, 1999 - $ 14 million); currency options purchased for conversion of NIS into dollars - $ 40 million (December 31, 1999 - $ 36.5 million); currency options purchased for conversion of CAD $ into dollars - $6 million; currency options written: for conversion of euro into dollars - $ 19 million (December 31 1999 - $ 12 million), for conversion of NIS into dollars - $ 40 million (December 31, 1999 - $ 30 million), and for conversion of CAD $ into dollars - $ 6 million.
These transactions are for periods of less than one year.
Fair value of financial instruments:
The financial instruments of the Group consist mainly of cash and cash equivalents, short-term investments, current and non-current receivables, short-term credit, accounts payable and accruals, long-term loans and other long-term liabilities, convertible senior debentures and derivatives.
In view of their nature, the fair value of the financial instruments included in working capital of the Group is usually identical or close to their carrying value. The fair value of non-current receivables and long-term loans and other long-term liabilities also approximates the carrying value, since they bear interest at rates close to the prevailing market rates.
The fair value of the convertible senior debentures at December 31, 2000, based on quoted market values of instruments with similar terms, approximates $ 601 million.
The carrying value of derivatives at December 31, 2000, which is close to their fair value is a liability of $ 1.5 million (December 31, 1999 - a liability of $ 0.2 million).
f. Information on operating segments:
Operating segments:
1) General:
The Group's reportable segments are strategic businesses differentiated by the nature of their products and customers. The segments are managed separately due to the differences in production technologies and marketing methods and can be described as follows:
| Pharmaceutical segment |
development, production, marketing and distribution of medicines in various dosages and forms, in most areas of medicinal treatment and disposable hospital supplies. |
| Active Pharmaceutical Ingredients segment ("A.P.I.") - |
development, production, marketing and distribution of A.P.I. for the pharmaceutical industry including the Group's pharmaceutical segment. |
2) Information on revenues and assets of the reportable operating segments:
a) Measurement of revenues and assets of the operating segments
The measurement of revenues and assets of the reportable operating segments is based on the same accounting principles applied in these financial statements, as described in the note on significant accounting policies.
Segment profits reflect the income from operations of the segment and do not include net interest income or expense, other expenses or income, minority interest and income tax expenses, since those items are not allocated to the segments.
Sales of the A.P.I. segment to the pharmaceutical segment are recorded at the market prices of sales of similar products to non-related customers.
The amortization of intangible assets are allocated to the segment's operating income without allocating the related intangible asset to that segment.
b) Financial data relating to reportable operating segments:
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Pharmaceuticals |
A.P.I. |
Other |
Total |
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U.S. $ in thousands |
| Year ended December 31, 2000: |
|
|
|
|
| Sales: |
|
|
|
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| To unaffiliated customers |
$ 1,548,210 |
$ 180,633 |
$ 21,011 |
$ 1,749,854 |
| Intersegment |
451
|
134,574
|
699
|
$135,724
|
| T o t a l sales |
$ 1,548,661
|
$ 315,207
|
$ 21,710
|
$ 1,885,578
|
| Operating income |
$ 222,941
|
$ 100,696
|
$ 3,219
|
$ 326,856
|
| Assets (at end of year) |
$ 1,438,947
|
$ 391,324
|
$ 21,580
|
$ 1,851,851
|
| Expenditures for segment assets |
$ 44,020
|
$ 33,861
|
$ 794
|
$ 78,675
|
| Depreciation and amortization of segment assets |
$ 61,783
|
$ 20,568
|
$ 535
|
$ 82,886
|
| Year ended December 31, 1999: |
|
|
|
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| Sales: |
|
|
|
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| To unaffiliated customers |
$ 1,091,732 |
$ 169,023 |
$ 21,651 |
$ 1,282,406 |
| Intersegment |
209
|
98,572
|
698
|
99,479
|
| T o t a l sales |
$ 1,091,941
|
$ 267,595
|
$ 22,349
|
$ 1,381,885
|
| Operating income |
$ 162,041
|
$ 80,496
|
$ 3,037
|
$ 245,574
|
| Assets (at end of year) |
$ 1,117,122
|
$ 313,379
|
$ 19,984
|
$ 1,450,485
|
| Expenditures for segment assets |
$ 32,324
|
$ 25,820
|
$ 417
|
$ 58,561
|
| Depreciation and amortization of segment assets |
$ 39,142
|
$ 18,886
|
$ 606
|
$ 58,634
|
| Year ended December 31, 1998: |
|
|
|
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| Sales: |
|
|
|
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| To unaffiliated customers |
$ 931,816 |
$ 154,275 |
$ 29,837 |
$ 1,115,928 |
| Intersegment |
|
$ 102,672
|
|
$ 102,672
|
| T o t a l sales |
$ 931,816
|
$ 256,947
|
$ 29,837
|
$ 1,218,600
|
| Operating income |
$ 93,256
|
$ 62,860
|
$ 1,738
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$ 157,854
|
| Assets (at end of year) |
$ 908,044
|
$ 315,104
|
$ 21,289
|
$ 1,244,437
|
| Expenditures for segment assets |
$ 27,452
|
$ 20,931
|
$ 1,203
|
$ 49,586
|
| Depreciation and amortization of segment assets |
$ 35,105
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$ 17,843
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$ 1,448
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$ 54,396
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c) Following is a reconciliation of the net sales, operating income and assets of the reportable segments to the data included in the consolidated financial statements:
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2000
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1999
|
1998
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| |
U.S. $ in thousands |
| Sales: |
|
|
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| Total sales of reportable segments |
$ 1,863,868 |
$ 1,359,536 |
$ 1,188,763 |
| Other sales |
21,710 |
22,349 |
29,837 |
| Elimination of intersegment sales |
(135,724)
|
(99,479)
|
(102,672)
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| Total consolidated net sales |
$ 1,749,854
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$ 1,282,406
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$ 1,115,928
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| Operating income: |
|
|
|
| Total operating income of reportable segments |
$ 323,637 |
$ 242,537 |
$ 156,116 |
| Other |
3,219 |
3,037 |
1,738 |
| Amounts not allocated to segments: |
|
|
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| Acquisition of research and development in process |
(35,697) |
(17,700) |
|
| Restructuring expenses |
|
|
(15,030) |
| Profits not yet realized |
(5,915) |
(9,783) |
(2,065) |
| General and administrative expenses |
(37,206) |
(30,405) |
(24,675) |
| Other expenses |
(3,510) |
(6,340) |
457 |
| Financial expenses - net |
(46,015) |
(30,598) |
(23,328) |
| Losses from realization of assets and discontinuation of activities - net |
|
|
(3,308) |
| Other income - net |
9,848
|
11,214
|
8,940
|
| Consolidated income before income taxes |
$ 208,361
|
$ 161,962
|
$ 98,845
|
| Assets (at end of year): |
|
|
|
| Total assets of reportable segments |
$ 1,830,271 |
$ 1,430,501 |
$ 1,223,148 |
| Other assets |
21,580 |
19,984 |
21,289 |
| Elimination of intersegment balances |
(302,054) |
(286,960) |
(188,909) |
| Elimination of unrealized income from inventories |
(4,962) |
(7,991) |
(541) |
| Assets not allocated to segments: |
|
|
|
| Current assets |
561,689 |
205,260 |
156,751 |
| Investments and other assets |
100,054 |
65,393 |
63,479 |
| Property, plant and equipment, net |
36,462 |
35,773 |
27,836 |
| Intangible assets, net |
612,578
|
293,319
|
172,205
|
| Consolidated assets (at end of year) |
$ 2,855,618
|
$ 1,755,279
|
$ 1,475,258
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Geographical information:
Sales by geographical areas:
| |
Year ended December 31 |
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2000
|
1999
|
1998
|
| |
U.S. $ in thousands |
| Israel |
$ 244,588 |
$ 240,121 |
$ 253,457 |
| U.S.A. |
882,586 |
589,021 |
511,758 |
| Europe |
398,889 |
384,181 |
286,050 |
| Canada |
148,041 |
15,140 |
3,804 |
| Other |
75,750
|
53,943
|
60,859
|
| |
$ 1,749,854
|
$ 1,282,406
|
$ 1,115,928
|
The geographical sales information is classified by the geographical location of the customers.
Investments and property, plant and equipment - by geographical location:
| |
December 31 |
| |
2000 |
1999 |
| |
U.S. $ in thousands |
| Israel |
$ 317,081 |
$ 271,570 |
| U.S.A. |
122,054 |
132,914 |
| Europe |
115,981 |
95,486 |
| Canada |
32,865 |
|
| Other |
366
|
389
|
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$ 588,347
|
$ 500,359
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g. Acquisition of rights in respect of products in research and development stage:
The amounts charged to income in 2000 and 1999 relate mainly to in-process research and development, identified at the time of acquisition of Novopharm and Copley, respectively - see note 2a. The amount charged in 1998 represents certain rights in several controlled-release generic products, which at the time of purchase were still in the development stage.
h. Restructuring expenses:
The components of the restructuring expenses in the 1998 consolidated statement of income, consisted of $ 6.6 million related to plant closures and moving of production lines between locations, $ 4.6 million related to termination of employees and $ 3.8 million related primarily to assets write-downs, of which $ 5.9 million, $ 1.3 million and $ 3.6 million, respectively, were expended during 1998, and the balance in 1999. The Group's head count was reduced by 260 as a result of the structural changes.
i. Financial expenses - net:
| |
Year ended December 31 |
| |
2000 |
1999 |
1998 |
| |
U.S. $ in thousands |
| Interest expense |
$ 52,991 |
$ 34,579 |
$ 29,920 |
| Interest income |
(10,305) |
(3,056) |
(5,792) |
| Exchange differences - net |
3,329
|
(925)
|
(800)
|
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$ 46,015
|
$ 30,598
|
$ 23,328
|
j. Other income - net:
In 2000, 1999 and 1998, other income - net included, among others: (1) amounts received by subsidiaries in consideration for rights they granted to use certain technology (including patents) developed by them, and (2) the part of amounts to which the Company is entitled following early termination of certain agreements for production and marketing of products. In 2000 and 1998, this item also included amounts received from investments carried at cost and sale of marketing rights, respectively.
k. Earnings per ADR:
The net income and the weighted average number of ADRs used in computation of basic and diluted earnings per ADR for the years ended December 31, 2000, 1999 and 1998 are as follows:
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2000
|
1999
|
1998
|
| |
U.S. $ in thousands
|
| Net income |
$ 148,417 |
$ 116,779 |
$ 70,803 |
| Interest expense on convertible senior debentures, and issuance costs, net of tax benefit |
1,378
|
-
|
-
|
| Net income used for the computation of diluted earnings per ADR |
$ 149,795
|
$ 116,779
|
$ 70,803
|
| Weighted average number of ADRs used in the computation of basic earnings per ADR |
128,965 |
122,613 |
122,569 |
| Add: |
|
|
|
| Net additional shares from the assumed exercise of stock options |
1,459 |
674 |
540 |
| Weighted average shares issued upon the assumed conversion of the convertible senior debentures |
1,415
|
-
|
-
|
| Weighted average number of ADRs used in the computation of diluted earnings per ADR |
131,839
|
123,287
|
123,109
|
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