Goodwill and Other Intangibles

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLES

NOTE 8. GOODWILL AND OTHER INTANGIBLES

Goodwill

Changes in the carrying amount of our goodwill for the three months ended March 31, 2020 were as follows (in thousands):

	Branded Pharmaceuticals		Sterile Injectables		Generic Pharmaceuticals		International Pharmaceuticals			Total
Goodwill as of December 31, 2019	$	828,818	$	2,731,193	$	—	$	35,173		$	3,595,184
Effect of currency translation	—		—		—		(2,387		)	(2,387		)
Goodwill impairment charges	—		—		—		(32,786		)	(32,786		)
Goodwill as of March 31, 2020	$	828,818	$	2,731,193	$	—	$	—		$	3,560,011

The carrying amounts of goodwill at March 31, 2020 and December 31, 2019 are net of the following accumulated impairments (in thousands):

	Branded Pharmaceuticals		Sterile Injectables		Generic Pharmaceuticals		International Pharmaceuticals		Total
Accumulated impairment losses as of December 31, 2019	$	855,810	$	—	$	3,142,657	$	500,417	$	4,498,884
Accumulated impairment losses as of March 31, 2020	$	855,810	$	—	$	3,142,657	$	494,499	$	4,492,966

Other Intangible Assets

Changes in the amount of other intangible assets for the three months ended March 31, 2020 were as follows (in thousands):

Cost basis:	Balance as of December 31, 2019			Acquisitions			Impairments			Effect of Currency Translation			Balance as of March 31, 2020
Indefinite-lived intangibles:
In-process research and development	$	93,900		$	—		$	—		$	—		$	93,900
Total indefinite-lived intangibles	$	93,900		$	—		$	—		$	—		$	93,900
Finite-lived intangibles:
Licenses (weighted average life of 14 years)	$	457,402		$	—		$	(8,700	)	$	—		$	448,702
Tradenames	6,409			—			—			—			6,409
Developed technology (weighted average life of 11 years)	5,844,439			—			(55,051		)	(19,839		)	5,769,549
Total finite-lived intangibles (weighted average life of 11 years)	$	6,308,250		$	—		$	(63,751	)	$	(19,839	)	$	6,224,660
Total other intangibles	$	6,402,150		$	—		$	(63,751	)	$	(19,839	)	$	6,318,560
Accumulated amortization:	Balance as of December 31, 2019			Amortization			Impairments			Effect of Currency Translation			Balance as of March 31, 2020
Finite-lived intangibles:
Licenses	$	(410,336	)	$	(2,429	)	$	—		$	—		$	(412,765	)
Tradenames	(6,409		)	—			—			—			(6,409		)
Developed technology	(3,414,138		)	(114,808		)	—			11,934			(3,517,012		)
Total other intangibles	$	(3,830,883	)	$	(117,237	)	$	—		$	11,934		$	(3,936,186	)
Net other intangibles	$	2,571,267											$	2,382,374

Amortization expense for the three months ended March 31, 2020 and 2019 totaled $117.2 million and $145.6 million, respectively. Amortization expense is included in Cost of revenues in the Condensed Consolidated Statements of Operations. Estimated amortization of intangibles for the five fiscal years subsequent to December 31, 2019 is as follows (in thousands):

2020	$	427,824
2021	$	389,418
2022	$	373,293
2023	$	331,379
2024	$	292,903

Impairments

Goodwill and indefinite-lived intangible assets are tested for impairment annually and when events or changes in circumstances indicate that the asset might be impaired. Our annual assessment is performed as of October 1.

As part of our goodwill and intangible asset impairment assessments, we estimate the fair values of our reporting units and our intangible assets using an income approach that utilizes a discounted cash flow model or, where appropriate, a market approach.

The discounted cash flow models are dependent upon our estimates of future cash flows and other factors including estimates of (i) future operating performance, including future sales, long-term growth rates, operating margins, discount rates, variations in the amount and timing of cash flows and the probability of achieving the estimated cash flows and (ii) future economic conditions. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rates applied to the estimated cash flows are based on the overall risk associated with the particular assets and other market factors. We believe the discount rates and other inputs and assumptions are consistent with those that a market participant would use. Any impairment charges resulting from annual or interim goodwill and intangible asset impairment assessments are recorded to Asset impairment charges in our Condensed Consolidated Statements of Operations.

During the three months ended March 31, 2020 and 2019, the Company incurred the following goodwill and other intangible asset impairment charges (in thousands):

	Three Months Ended March 31,
	2020		2019
Goodwill impairment charges	$	32,786	$	86,000
Other intangible asset impairment charges	$	63,751	$	78,700

Except as described below, pre-tax non-cash asset impairment charges related primarily to certain in-process research and development and/or developed technology intangible assets that were tested for impairment following changes in market conditions and certain other factors impacting recoverability.

As a result of certain business decisions that occurred during the first quarter of 2020, we tested the goodwill of our Paladin reporting unit for impairment as of March 31, 2020. The fair value of the reporting unit was estimated using an income approach that utilized a discounted cash flow model. The discount rate utilized in this test was 9.5%. This goodwill impairment test resulted in a pre-tax non-cash goodwill impairment charge of $32.8 million during the three months ended March 31, 2020, representing the remaining carrying amount. This impairment was primarily attributable to portfolio decisions and updated market expectations during the quarter.

As a result of certain competitive events that occurred during the first quarter of 2019, we tested the goodwill of our Generic Pharmaceuticals reporting unit for impairment as of March 31, 2019. The fair value of the reporting unit was estimated using an income approach that utilized a discounted cash flow model. The discount rate utilized in this test was 10.5%. This goodwill impairment test resulted in a pre-tax non-cash goodwill impairment charge of $86.0 million during the three months ended March 31, 2019, representing the excess of this reporting unit’s carrying amount over its estimated fair value. This Generic Pharmaceuticals impairment can be primarily attributed to the impact of the competitive events referenced above and an increase in the discount rate used in the determination of fair value.

We are closely monitoring the impact of COVID-19 on our business. It is possible that COVID-19 could result in reductions to the estimated fair values of our goodwill and other intangible assets, which could ultimately result in asset impairment charges that may be material.