GOODWILL AND OTHER INTANGIBLES

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLES

NOTE 11. GOODWILL AND OTHER INTANGIBLES

Goodwill

Changes in the carrying amounts of our goodwill for the years ended December 31, 2022 and December 31, 2021 were as follows (in thousands):

	Branded Pharmaceuticals		Sterile Injectables		Generic Pharmaceuticals		International Pharmaceuticals		Total
Goodwill as of December 31, 2020	$	828,818	$	2,731,193	$	—	$	—	$	3,560,011
Goodwill impairment charges	—		(363,000)		—		—		(363,000)
Goodwill as of December 31, 2021	$	828,818	$	2,368,193	$	—	$	—	$	3,197,011
Goodwill impairment charges	—		(1,845,000)		—		—		(1,845,000)
Goodwill as of December 31, 2022	$	828,818	$	523,193	$	—	$	—	$	1,352,011

The carrying amounts of goodwill at December 31, 2022 and December 31, 2021 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, 2021	$	855,810	$	363,000	$	3,142,657	$	550,355	$	4,911,822
Accumulated impairment losses as of December 31, 2022	$	855,810	$	2,208,000	$	3,142,657	$	513,211	$	6,719,678

Other Intangible Assets

Changes in the amounts of other intangible assets for the year ended December 31, 2022 are set forth in the table below (in thousands).

Cost basis:	Balance as of December 31, 2021		Acquisitions		Impairments		Effect of Currency Translation		Balance as of December 31, 2022
Licenses (weighted average life of 14 years)	$	442,107	$	—	$	—	$	—	$	442,107
Tradenames	6,409		—		—		—		6,409
Developed technology (weighted average life of 12 years)	6,226,139		—		(288,701)		(17,417)		5,920,021
Total other intangibles (weighted average life of 12 years)	$	6,674,655	$	—	$	(288,701)	$	(17,417)	$	6,368,537
Accumulated amortization:	Balance as of December 31, 2021		Amortization		Impairments		Effect of Currency Translation		Balance as of December 31, 2022
Licenses	$	(419,932)	$	(4,576)	$	—	$	—	$	(424,508)
Tradenames	(6,409)		—		—		—		(6,409)
Developed technology	(3,885,491)		(332,735)		—		13,541		(4,204,685)
Total other intangibles	$	(4,311,832)	$	(337,311)	$	—	$	13,541	$	(4,635,602)
Net other intangibles	$	2,362,823							$	1,732,935

Amortization expense for the years ended December 31, 2022, 2021 and 2020 totaled $337.3 million, $372.9 million and $427.5 million, respectively. Amortization expense is included in Cost of revenues in the Consolidated Statements of Operations. For intangible assets subject to amortization, estimated amortization expense for the five fiscal years subsequent to December 31, 2022 is as follows (in thousands):

2023	$	255,869
2024	$	245,751
2025	$	232,668
2026	$	209,532
2027	$	134,364

Impairments

Goodwill and, if applicable, indefinite-lived intangible assets are tested for impairment annually, as of October 1, and when events or changes in circumstances indicate that the asset might be impaired.

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 reflect our estimates of future cash flows and other factors including estimates of: (i) future operating performance, including future sales, long-term growth rates, gross margins, operating expenses, discount rates and the probability of achieving the estimated cash flows, and (ii) future economic conditions. These assumptions are based on significant inputs and judgments not observable in the market, and thus represent Level 3 measurements within the fair value hierarchy. The discount rates used in the determination of fair value reflect our judgments regarding the risks and uncertainties inherent in the estimated future cash flows and may differ over time depending on the risk profile of the particular assets and other market factors. We believe the discount rates and other inputs and assumptions are consistent with those 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 Consolidated Statements of Operations.

Annual Goodwill Impairment Tests

The Company performed its annual goodwill impairment tests as of October 1, 2022, 2021 and 2020. For the purposes of these annual tests, the Company had two reporting units with goodwill: Branded Pharmaceuticals and Sterile Injectables. The discount rates used for the Branded Pharmaceuticals reporting units in these annual tests were 15.0%, 14.5% and 15.0%, respectively, and the discount rates used for the Sterile Injectables reporting units in these annual tests were 19.5%, 11.0% and 10.0%, respectively.

As a result of our annual tests performed as of October 1, 2021, the Company determined that the carrying amount of the Sterile Injectables reporting unit exceeded its estimated fair value; therefore, the Company recorded a pre-tax non-cash goodwill impairment charge of $363.0 million during the fourth quarter of 2021. The Sterile Injectables impairment was primarily a result of changes in assumptions related to competition, including assumptions related to competing generic alternatives to VASOSTRICT®, which were subsequently introduced beginning with Eagle’s at-risk launch in January 2022.

We did not record any other goodwill impairment charges as a result of our October 1, 2022, 2021 and 2020 annual impairment tests.

First-Quarter 2020 Interim Goodwill Impairment Test

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.

Second-Quarter 2022 Interim Goodwill Impairment Tests

Beginning in May 2022, our share price and the aggregate estimated fair value of our debt experienced significant declines. We believe these declines, which persisted through the end of the second quarter of 2022, were predominantly attributable to continuing and increasing investor and analyst uncertainty with respect to: (i) ongoing opioid and other litigation matters for which we had been unable to reach a broad-based resolution of outstanding claims and (ii) speculation surrounding the possibility of a bankruptcy filing. Further, rising inflation and interest rates unfavorably affected the cost of borrowing, which is one of several inputs used in the determination of the discount rates used in our discounted cash flow models. For example, the U.S. Federal Reserve raised its benchmark interest rate by 50 basis points in May 2022 and by an additional 75 basis points in June 2022. Taken together, we determined that these factors represented triggering events that required the performance of interim goodwill impairments tests for both our Sterile Injectables and Branded Pharmaceuticals reporting units as of June 30, 2022.

When performing these goodwill impairment tests, we estimated the fair values of our reporting units taking into consideration management’s continued commitment to Endo’s strategic plans and the corresponding projected cash flows, as well as the fact that management’s views on litigation risk had not materially changed since our annual goodwill impairment tests performed on October 1, 2021. However, when analyzing our aggregated estimated internal valuation of our reporting units as of June 30, 2022 compared to our market capitalization and the aggregate estimated fair value of our debt, we also considered the increased level of investor and analyst uncertainty described above, coupled with our belief that investors and analysts were unlikely to modify their projections or valuation models unless or until we could demonstrate significant progression on the resolution of outstanding litigation matters and/or demonstrate that the risks of potential future strategic alternatives, including the possibility of a future bankruptcy filing, were no longer applicable. After performing this analysis, we made certain adjustments to incorporate these factors into the valuations of our reporting units, primarily through adjustments to the discount rate resulting from an increase in the company-specific risk premium (CSRP), and determined that: (i) the estimated fair value of our Sterile Injectables reporting unit was less than its carrying amount, resulting in a pre-tax non-cash goodwill impairment charge of $1,748.0 million, and (ii) while the estimated fair value declined, there was no goodwill impairment for our Branded Pharmaceuticals reporting unit, for which the estimated fair value exceeded the carrying amount by more than 10%. The discount rates used in the June 30, 2022 goodwill tests were 13.5% and 18.5% for the Branded Pharmaceuticals and Sterile Injectables reporting units, respectively.

Third-Quarter 2022 Interim Goodwill Impairment Tests

As further described in Note 2. Bankruptcy Proceedings, during the third quarter of 2022, in connection with the Sale, we received the Stalking Horse Bid, subject to higher or otherwise better bids from other parties. The value of the bid, as well as our market capitalization and the aggregate estimated fair value of our debt, was considered when determining whether it was more likely than not that the carrying amounts of one or more of our reporting units exceeded their respective fair values. Further, rising inflation and interest rates unfavorably affected the cost of borrowing, which is one of several inputs used in the determination of the discount rates used in our discounted cash flow models. For example, the U.S. Federal Reserve raised its benchmark interest rate by 75 basis points in July 2022 and by an additional 75 basis points in September 2022. Taken together, we determined that these factors represented triggering events that required the performance of interim goodwill impairments tests for both our Sterile Injectables and Branded Pharmaceuticals reporting units as of September 30, 2022.

When performing these goodwill impairment tests, we estimated the fair values of our reporting units taking into consideration management’s continued commitment to Endo’s strategic plans and the corresponding projected cash flows. However, when analyzing our aggregated estimated internal valuation of our reporting units as of September 30, 2022 compared to our market capitalization and the aggregate estimated fair value of our debt, as well as the par value and fair value of the Stalking Horse Bid, we made adjustments to reflect certain risks and uncertainties, including those related to the Chapter 11 Cases and the Sale, into the valuations of our reporting units, primarily through adjustments to the discount rate resulting from an increase in the CSRP, and determined that: (i) the estimated fair value of our Sterile Injectables reporting unit was less than its carrying amount, resulting in a pre-tax non-cash goodwill impairment charge of $97.0 million, and (ii) the estimated fair value of our Branded Pharmaceuticals reporting unit exceeded the carrying amount by more than 10%. The discount rates used in the September 30, 2022 goodwill tests were 15.0% and 19.5% for the Branded Pharmaceuticals and Sterile Injectables reporting units, respectively.

Fourth-Quarter 2022 Interim Goodwill Impairment Test

Beginning in late fourth-quarter 2022 and concluding in February 2023, the Company completed its annual enterprise-wide long-term strategic planning process, which resulted in updates to its projected future cash flows. Among other items, these updates primarily reflected the anticipated impacts on the Company’s projected future cash flows resulting from: (i) the discontinuation of QWO®; (ii) the disruption to XIAFLEX® revenues that occurred in the second half of 2022; (iii) routine updates to our assumptions regarding anticipated competitive events for currently marketed products, as well as probabilities of success, launch timing and the anticipated competitive landscape surrounding new product launches, including with respect to TLC599 and certain product candidates in our Sterile Injectables reporting unit pipeline; (iv) expected changes in the Company’s future manufacturing expense profile, including delays related to construction, FDA inspections and product transfers to our Sterile Injectables facility in Indore, India; and (v) changes in the Company’s future operating expense profile. Due to the extent of the changes to the projected future cash flows, coupled with the fact that we had recorded impairments for our Sterile Injectables reporting unit during the second and third quarters of 2022, we concluded that it was more likely than not that the carrying amount of our Sterile Injectables reporting unit may exceed its fair value. As a result, an interim impairment test was performed as of December 31, 2022. The updates to the projected future cash flows did not result in an interim goodwill impairment test for our Branded Pharmaceuticals reporting unit due to the significant headroom in this reporting unit.

When performing the goodwill impairment test, we estimated the fair value of our Sterile Injectables reporting unit taking into consideration management’s updated forecasts of projected cash flows, as further discussed above. The updated forecast of projected future cash flows was reduced in comparison to the prior 2022 tests. However, in reducing the cash flows, we believe the level of risk and uncertainty of the cash flows also decreased resulting in a corresponding decrease in the CSRP and, in turn, the discount rate used in the determination of fair value of our Sterile Injectables reporting unit. The discount rate used in the December 31, 2022 goodwill impairment test was 14.5%. We believe this discount rate and the other inputs and assumptions used to estimate fair value were consistent with those that a market participant would have used in light of the degree of risk associated with the updated estimated future cash flows. Consistent with the goodwill impairment tests performed earlier in 2022, we compared our aggregated estimated internal valuation of our reporting units as of December 31, 2022 to our market capitalization and the aggregate estimated fair value of our debt, as well as the par value and fair value of the Stalking Horse Bid. As a result of the December 31, 2022 test, we determined that there was no impairment of goodwill.

Other Intangible Asset Impairments

With respect to other intangible assets, we recorded asset impairment charges of $288.7 million, $7.8 million and $79.9 million during the years ended December 31, 2022, 2021 and 2020, respectively. These pre-tax non-cash asset impairment charges related primarily to certain developed technology intangible assets that were tested for impairment following changes in market conditions and certain other factors impacting recoverability. The amount recorded in 2022 included charges related to the 2022 Restructuring Initiative, as further discussed in Note 5. Restructuring.