GOODWILL AND OTHER INTANGIBLES

6 Months Ended

Jun. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 10. GOODWILL AND OTHER INTANGIBLES

Goodwill

The following table presents information about our goodwill at June 30, 2023 and December 31, 2022 (in thousands):


	Branded Pharmaceuticals		Sterile Injectables		Generic Pharmaceuticals		International Pharmaceuticals		Total





Goodwill as of December 31, 2022	$	828,818	$	523,193	$	—	$	—	$	1,352,011



Goodwill as of June 30, 2023	$	828,818	$	523,193	$	—	$	—	$	1,352,011

The carrying amounts of goodwill at June 30, 2023 and December 31, 2022 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, 2022	$	855,810	$	2,208,000	$	3,142,657	$	513,211	$	6,719,678
Accumulated impairment losses as of June 30, 2023	$	855,810	$	2,208,000	$	3,142,657	$	525,314	$	6,731,781

Other Intangible Assets

Changes in the amounts of other intangible assets for the six months ended June 30, 2023 are set forth in the table below (in thousands).


Cost basis:	Balance as of December 31, 2022		Acquisitions		Other (1)		Effect of Currency Translation		Balance as of June 30, 2023




Licenses (weighted average life of 14 years)	$	442,107	$	—	$	(10,000)	$	—	$	432,107
Tradenames	6,409		—		—		—		6,409
Developed technology (weighted average life of 12 years)	5,920,021		—		—		5,674		5,925,695

Total other intangibles (weighted average life of 12 years)	$	6,368,537	$	—	$	(10,000)	$	5,674	$	6,364,211

Accumulated amortization:	Balance as of December 31, 2022		Amortization		Other (1)		Effect of Currency Translation		Balance as of June 30, 2023

Licenses	$	(424,508)	$	(2,288)	$	10,000	$	—	$	(416,796)
Tradenames	(6,409)		—		—		—		(6,409)
Developed technology	(4,204,685)		(127,393)		—		(4,657)		(4,336,735)
Total other intangibles	$	(4,635,602)	$	(129,681)	$	10,000	$	(4,657)	$	(4,759,940)
Net other intangibles	$	1,732,935							$	1,604,271

__________

(1)Other adjustments relate to the removal of certain fully amortized intangible assets.

Amortization expense for the three and six months ended June 30, 2023 totaled $64.4 million and $129.7 million, respectively. Amortization expense for the three and six months ended June 30, 2022 totaled $87.6 million and $177.8 million, respectively. Amortization expense is included in Cost of revenues in the Condensed Consolidated Statements of Operations.

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 Condensed Consolidated Statements of Operations.

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.

During the three and six months ended June 30, 2023, we did not record any impairment charges associated with intangible assets or goodwill. During the three and six months ended June 30, 2022, we recorded impairment charges of $30.0 million and $50.0 million, respectively, associated with other intangible assets. 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.