Goodwill And Other Intangibles

3 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 8. GOODWILL AND OTHER INTANGIBLES

Goodwill

Changes in the carrying amount of our goodwill for the three months ended March 31, 2017 were as follows (in thousands):



	Carrying Amount
	U.S. Generic Pharmaceuticals		U.S. Branded Pharmaceuticals		International Pharmaceuticals			Total
Goodwill as of December 31, 2016	$	3,531,301	$	1,009,248	$	188,846		$	4,729,395
Effect of currency translation on gross balance	—		—		10,448			10,448
Effect of currency translation on accumulated impairment	—		—		(6,914		)	(6,914		)
Goodwill impairment charges	—		—		(82,602		)	(82,602		)
Goodwill as of March 31, 2017	$	3,531,301	$	1,009,248	$	109,778		$	4,650,327

The carrying amount of goodwill at March 31, 2017 and December 31, 2016 is net of the following accumulated impairments:



	Accumulated Impairment
	U.S. Generic Pharmaceuticals		U.S. Branded Pharmaceuticals		International Pharmaceuticals		Total
Accumulated impairment losses as of December 31, 2016	$	2,342,549	$	675,380	$	408,280	$	3,426,209
Accumulated impairment losses as of March 31, 2017	$	2,342,549	$	675,380	$	497,796	$	3,515,725

Other Intangible Assets

The following is a summary of other intangible assets held by the Company at March 31, 2017 and December 31, 2016 (in thousands):



Cost basis:	Balance as of December 31, 2016			Acquisitions			Impairments (1)			Other (2)			Effect of Currency Translation (1)			Balance as of March 31, 2017
Indefinite-lived intangibles:
In-process research and development	$	1,123,581		$	—		$	(45,489	)	$	(128,600	)	$	209		$	949,701
Total indefinite-lived intangibles	$	1,123,581		$	—		$	(45,489	)	$	(128,600	)	$	209		$	949,701
Finite-lived intangibles:
Licenses (weighted average life of 12 years)	$	465,720		$	—		$	—		$	—		$	—		$	465,720
Tradenames (weighted average life of 12 years)	7,345			—			—			—			101			7,446
Developed technology (weighted average life of 11 years)	6,223,004			—			(73,417		)	128,600			13,745			6,291,932
Total finite-lived intangibles (weighted average life of 11 years)	$	6,696,069		$	—		$	(73,417	)	$	128,600		$	13,846		$	6,765,098
Total other intangibles	$	7,819,650		$	—		$	(118,906	)	$	—		$	14,055		$	7,714,799

Accumulated amortization:	Balance as of December 31, 2016			Amortization			Impairments			Other			Effect of Currency Translation			Balance as of March 31, 2017
Finite-lived intangibles:
Licenses	$	(341,600	)	$	(7,293	)	$	—		$	—		$	—		$	(348,893	)
Tradenames	(6,599		)	(20		)	—			—			(22		)	(6,641		)
Developed technology	(1,612,154		)	(255,821		)	—			—			(3,425		)	(1,871,400		)
Total other intangibles	$	(1,960,353	)	$	(263,134	)	$	—		$	—		$	(3,447	)	$	(2,226,934	)
Net other intangibles	$	5,859,297														$	5,487,865

__________


(1)	Additional information on the changes in the total gross carrying amount of our other intangible assets is presented below (in thousands):



	Gross Carrying Amount
December 31, 2016	$	7,819,650
Impairment of certain U.S. Generic Pharmaceuticals intangible assets	(72,700		)
Impairment of certain International Pharmaceuticals intangible assets	(46,206		)
Effect of currency translation	14,055
March 31, 2017	$	7,714,799


(2)	Includes reclassification adjustments of $128.6 million for certain developed technology intangible assets, previously classified as in-process research and development, that were placed in service during the three months ended March 31, 2017.

Amortization expense for the three months ended March 31, 2017 and 2016 totaled $263.1 million and $211.7 million, respectively. Estimated amortization of intangibles for the five fiscal years subsequent to December 31, 2016 is as follows (in thousands):



2017	$	780,548
2018	$	579,733
2019	$	513,371
2020	$	482,111
2021	$	467,639

Impairments

A summary of significant goodwill and other intangible asset impairment charges by reportable segment for the three months ended March 31, 2017 and 2016 is included below.

U.S. Generic Pharmaceuticals Segment

During the three months ended March 31, 2017, the Company identified certain market conditions impacting the recoverability of developed technology intangible assets in its U.S. Generic Pharmaceuticals segment. Accordingly, we tested these assets for impairment and determined that their carrying amounts were no longer fully recoverable, resulting in pre-tax, non-cash asset impairment charges totaling $72.7 million during the first quarter of 2017.

During the three months ended March 31, 2016, the Company identified certain market and regulatory conditions impacting the recoverability of certain indefinite and finite-lived intangible assets in our U.S. Generic Pharmaceuticals segment. Accordingly, we tested these assets for impairment and determined that the carrying amount of certain of these assets was no longer fully recoverable, resulting in pre-tax, non-cash asset impairment charges of $29.3 million during the first quarter of 2016. In addition, during the first quarter of 2016, the Company recognized pre-tax, non-cash asset impairment charges of $100.3 million related to the 2016 U.S. Generic Pharmaceuticals restructuring initiative, which resulted from the discontinuation of certain commercial products and the abandonment of certain IPR&D projects. See Note 4. Restructuring for discussion of our material restructuring initiatives.

International Pharmaceuticals Segment

Pursuant to an existing agreement with a wholly owned subsidiary of Novartis AG (Novartis), Paladin licensed the Canadian rights to commercialize serelaxin, an investigational drug for the treatment of acute heart failure (AHF). In March 2017, Novartis announced that a Phase III study of serelaxin in patients with AHF failed to meet its primary endpoints. As a result, Endo has concluded that its serelaxin in-process research and development intangible asset is fully impaired resulting in a $45.5 million impairment charge for the three months ended March 31, 2017.

In addition and as a result of the serelaxin impairment, the Company assessed the recoverability of its Paladin goodwill balance and determined that the estimated fair value of the Paladin reporting unit was below its book value. Based on the provisions of ASU 2017-04, which the Company adopted as of January 1, 2017, the Company recorded a pre-tax, non-cash asset impairment charge of $82.6 million during the three months ended March 31, 2017. The Company estimated the fair value of the Paladin reporting unit using an income approach that utilizes a discounted cash flow model, which is dependent upon the Company’s estimates of future cash flows and other factors. This estimate involves assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amount and timing of cash flows and the probability of achieving the estimated cash flows and (ii) future economic conditions. The underlying assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rate applied to the estimated cash flows for our Paladin goodwill impairment test was 10.0%, reflecting the overall risk associated with the reporting unit and other market factors. We believe the discount rate and other inputs and assumptions are consistent with those that a market participant would use. The remaining goodwill for the Company’s Paladin reporting unit was approximately $85 million as of March 31, 2017.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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