Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2018 are as follows:



(In millions)	North America Segment			Europe Segment			Rest of World Segment			Total
Balance at December 31, 2017:
Goodwill	$	3,934.6		$	4,967.1		$	1,689.0		$	10,590.7
Accumulated impairment losses	(385.0		)	—			—			(385.0		)
	3,549.6			4,967.1			1,689.0			10,205.7
Foreign currency translation	(16.8		)	(255.1		)	(137.2		)	(409.1		)
	$	3,532.8		$	4,712.0		$	1,551.8		$	9,796.6
Balance at September 30, 2018:
Goodwill	$	3,917.8		$	4,712.0		$	1,551.8		$	10,181.6
Accumulated impairment losses	(385.0		)	—			—			(385.0		)
	$	3,532.8		$	4,712.0		$	1,551.8		$	9,796.6

Intangible assets consist of the following components at September 30, 2018 and December 31, 2017:



(In millions)	Weighted Average Life (Years)	Original Cost		Accumulated Amortization		Net Book Value
September 30, 2018
Product rights, licenses and other ⁽¹⁾	15	$	20,407.7	$	6,857.5	$	13,550.2
In-process research and development		688.8		—		688.8
		$	21,096.5	$	6,857.5	$	14,239.0
December 31, 2017
Product rights, licenses and other ⁽¹⁾	15	$	20,338.7	$	5,906.1	$	14,432.6
In-process research and development		813.2		—		813.2
		$	21,151.9	$	5,906.1	$	15,245.8

____________


⁽¹⁾	Represents amortizable intangible assets. Other intangible assets consists principally of customer lists and contractual rights.

In December 2011, the Company completed the acquisition of the exclusive worldwide rights to develop, manufacture and commercialize a generic equivalent to GlaxoSmithKline’s Advair® Diskus and Seretide® Diskus incorporating Pfizer Inc.’s proprietary dry powder inhaler delivery platform (the “respiratory delivery platform”). The Company accounted for this transaction as a purchase of a business and utilized the acquisition method of accounting. As of September 30, 2018, the Company has an IPR&D asset of $347.2 million and a related contingent consideration liability of $326.6 million. The Company performed an analysis and valuation of the IPR&D asset and the fair value of the related contingent consideration liability using a discounted cash flow model. The model contained certain key assumptions including: the expected product launch date, the number of competitors, the timing of competition and a discount factor based on an industry specific weighted average cost of capital. Based on the analysis performed, the Company determined that the fair value of the IPR&D asset was substantially in excess of its carrying value, and the asset was not impaired at September 30, 2018. Additionally, fair value adjustments of $19.3 million and $49.3 million were recorded for the three and nine months ended September 30, 2018, respectively, to reduce the contingent consideration liability. The fair value of the contingent consideration liability was determined based upon detailed valuations employing the income approach which utilized Level 3 inputs, as defined in Note 11 - Financial Instruments and Risk Management. Resolution of the matters with the FDA, market conditions and other factors may result in significant future changes in the projections and assumptions utilized in the discounted cash flow model, which could lead to material adjustments to the amounts recorded for IPR&D and contingent consideration.

During the three and nine months ended September 30, 2018, the Company recognized impairment charges of $15.5 million and $87.5 million, respectively, which has been recorded as a component of amortization expense, for the impairment of certain IPR&D assets. The impairment charge recorded during the third quarter of 2018 related to certain assets acquired as part of the acquisition of Agila Specialties Private Limited (“Agila”). The remaining impairment charges during the nine months ended September 30, 2018 related to certain assets acquired as part of the acquisition of the non-sterile, topicals-focused business (the “Topicals Business”) of Renaissance Acquisition Holdings, LLC. The impairment charges resulted from the Company’s updated estimate of the fair value of certain assets, which were based upon revised forecasts and future development plans. The Company performed its annual impairment testing of IPR&D assets acquired as part of the Topicals Business acquisition during the three months ended June 30, 2018. The impairment testing involved calculating the fair value of the assets based upon detailed valuations employing the income approach which utilized Level 3 inputs, as defined in Note 11 - Financial Instruments and Risk Management. These valuations reflect, among other things, the impact of changes to the development programs, the projected development and regulatory time frames and the current competitive environment. Changes in any of the Company’s assumptions may result in a further reduction to the estimated fair values of these IPR&D assets and could result in additional future impairment charges.

The Company has performed its annual goodwill impairment test as of April 1, 2018 on a quantitative basis for its four reporting units, North America Generics, North America Brands, Europe and Rest of World. In estimating each reporting unit’s fair value, the Company performed an extensive valuation analysis, utilizing both income and market-based approaches, except for the North America Brands reporting unit where the fair value was estimated utilizing the income approach. The determination of the fair value of the reporting units requires the Company to make significant estimates and assumptions that affect the reporting unit’s expected future cash flows. These estimates and assumptions, utilizing Level 3 inputs, primarily include, but are not limited to, market multiples, control premiums, the discount rate, terminal growth rates, operating income before depreciation and amortization, and capital expenditures forecasts. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in underlying assumptions, especially as it relates to the key assumptions detailed, could have a significant impact on the fair value of the reporting units.

As of the date of our annual impairment test, the allocation of the Company’s total goodwill was as follows: North America Generics $2.89 billion, North America Brands $0.66 billion, Europe $4.97 billion and Rest of World $1.80 billion. The fair value of the North America Generics, North America Brands and Rest of World reporting units was substantially in excess of the respective unit’s carrying value. For the Europe reporting unit, the estimated fair value exceeded its carrying value by approximately $800 million or 6.0%. The excess fair value for the Europe reporting unit is consistent with the result of the Company’s 2017 annual impairment test. As it relates to the income approach for the Europe reporting unit at April 1, 2018, the Company forecasted cash flows for the next 5 years. During the forecast period, the revenue compound annual growth rate was approximately 3.5%. A terminal value year was calculated with a 2% revenue growth rate applied. The discount rate utilized was 9.0% and the estimated tax rate was 24.0%. Under the market-based approach, we utilized an estimated range of market multiples of 9.0 to 10.5 times EBITDA plus a control premium of 15.0%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 2.0% or an increase in discount rate by 1.5% would result in an impairment charge for the Europe reporting unit.

Amortization expense, which is classified primarily within cost of sales in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 totaled:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2018		2017		2018		2017
Intangible asset amortization expense	$	412.2	$	369.4	$	1,191.9	$	1,052.6
Intangible asset impairment charges	15.5		—		87.5		13.0
Total Intangible asset amortization expense (including impairment charges)	$	427.7	$	369.4	$	1,279.4	$	1,065.6

Intangible asset amortization expense over the remainder of 2018 and for the years ended December 31, 2019 through 2022 is estimated to be as follows:



(In millions)
2018	$	383
2019	1,446
2020	1,283
2021	1,203
2022	1,137