AMNEAL PHARMACEUTICALS, INC., 10-Q filed on 11/6/2020
Quarterly Report
v3.20.2
Document And Entity Information - shares
9 Months Ended
Sep. 30, 2020
Oct. 31, 2020
Entity Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 001-38485  
Entity Registrant Name Amneal Pharmaceuticals, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 32-0546926  
Entity Address, Address Line One Amneal Pharmaceuticals, Inc.  
Entity Address, Address Line Two 400 Crossing Boulevard,  
Entity Address, City or Town Bridgewater  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 08807  
City Area Code 908  
Local Phone Number 947-3120  
Title of 12(b) Security Class A Common Stock, par value $0.01 per share  
Trading Symbol AMRX  
Security Exchange Name NYSE  
Entity Current Reporting Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Central Index Key 0001723128  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Class A Common Stock    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   147,628,440
Class B Common Stock    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   152,116,890
v3.20.2
Consolidated Statements of Operations (unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Net revenue $ 519,294 $ 378,283 $ 1,482,489 $ 1,229,045
Cost of goods sold 353,345 267,717 986,589 873,841
Cost of goods sold impairment charges 32,364 56,132 34,579 112,441
Gross profit 133,585 54,434 461,321 242,763
Selling, general and administrative 83,120 63,797 242,040 215,514
Research and development 44,519 38,125 126,470 139,999
In-process research and development impairment charges 0 23,382 960 46,169
Intellectual property legal development expenses 2,134 2,586 6,954 9,263
Acquisition, transaction-related and integration expenses 1,041 3,131 5,403 12,682
Charges related to legal matters, net 60 14,750 5,860 14,750
Restructuring and other charges 276 20,937 2,657 29,933
Operating income (loss) 2,435 (112,274) 70,977 (225,547)
Other (expense) income:        
Interest expense, net (34,895) (42,209) (111,463) (129,376)
Foreign exchange gain (loss), net 9,673 (12,531) 7,958 (9,684)
Gain on sale of international businesses, net 0 0 123 6,930
Gain from reduction of tax receivable agreement liability 0 192,844 0 192,844
Other income, net 898 446 2,102 1,702
Total other (expense) income, net (24,324) 138,550 (101,280) 62,416
(Loss) income before income taxes (21,889) 26,276 (30,303) (163,131)
Provision for (benefit from) income taxes 144 389,668 (105,843) 375,539
Net (loss) income (22,033) (363,392) 75,540 (538,670)
Less: Net loss attributable to non-controlling interests 13,058 98,386 18,556 208,881
Net (loss) income attributable to Amneal Pharmaceuticals, Inc. $ (8,975) $ (265,006) $ 94,096 $ (329,789)
Net (loss) earnings per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:        
Class A and Class B-1 basic (in usd per share) $ (0.06) $ (2.03) $ 0.64 $ (2.56)
Class A and Class B-1 diluted (in usd per share) $ (0.06) $ (2.03) $ 0.63 $ (2.56)
Weighted-average common shares outstanding:        
Class A and Class B-1 basic (in shares) 147,558 130,729 147,377 128,822
Class A and Class B-1 diluted (in shares) 147,558 130,729 148,622 128,822
v3.20.2
Consolidated Statements of Comprehensive (Loss) Income (unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement of Other Comprehensive Income [Abstract]        
Net (loss) income $ (22,033) $ (363,392) $ 75,540 $ (538,670)
Less: Net loss attributable to non-controlling interests 13,058 98,386 18,556 208,881
Net (loss) income attributable to Amneal Pharmaceuticals, Inc. (8,975) (265,006) 94,096 (329,789)
Foreign currency translation adjustments:        
Foreign currency translation adjustments arising during the period (1,646) 4,997 (9,748) 4,014
Less: Reclassification of foreign currency translation adjustment included in net loss 0 0 0 3,413
Foreign currency translation adjustments, net (1,646) 4,997 (9,748) 7,427
Unrealized loss on cash flow hedge, net of tax (1,599) 0 (74,031) 0
Less: Other comprehensive loss (income) attributable to non-controlling interests 1,648 (2,813) 42,575 (4,207)
Other comprehensive (loss) income attributable to Amneal Pharmaceuticals, Inc. (1,597) 2,184 (41,204) 3,220
Comprehensive (loss) income attributable to Amneal Pharmaceuticals, Inc. $ (10,572) $ (262,822) $ 52,892 $ (326,569)
v3.20.2
Consolidated Balance Sheets (unaudited) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 281,278 $ 151,197
Restricted cash 2,372 1,625
Trade accounts receivable, net 707,103 604,390
Inventories 475,760 381,067
Prepaid expenses and other current assets 76,264 70,164
Related party receivables 942 1,767
Total current assets 1,543,719 1,210,210
Property, plant and equipment, net 462,438 477,997
Goodwill 522,690 419,504
Intangible assets, net 1,349,113 1,382,753
Other assets 31,142 44,270
Total assets 4,037,536 3,665,890
Current liabilities:    
Accounts payable and accrued expenses 613,619 507,483
Current portion of long-term debt, net 29,776 21,479
Related party payable - short term 8,069 5,969
Total current liabilities 667,886 550,406
Long-term debt, net 2,757,139 2,609,046
Note payable - related party 36,048 0
Related party payable - long term 1,031 0
Other long-term liabilities 96,188 39,583
Total long-term liabilities 3,009,522 2,768,696
Commitments and contingencies (Notes 5 and 17)
Redeemable non-controlling interests 11,932 0
Stockholders' Equity    
Preferred stock, $0.01 par value, 2,000 shares authorized; none issued at both September 30, 2020 and December 31, 2019 0 0
Additional paid-in capital 623,133 606,966
Stockholders' accumulated deficit (283,784) (377,880)
Accumulated other comprehensive loss (41,306) (68)
Total Amneal Pharmaceuticals, Inc. stockholders' equity 301,040 232,010
Non-controlling interests 47,156 114,778
Total stockholders' equity 348,196 346,788
Total liabilities and stockholders' equity 4,037,536 3,665,890
Class A Common Stock    
Stockholders' Equity    
Common stock 1,475 1,470
Class B Common Stock    
Stockholders' Equity    
Common stock 1,522 1,522
Excluding Related Party    
Current assets:    
Operating lease right-of-use assets 43,643 53,344
Current liabilities:    
Current portion of operating lease liabilities 11,527 11,874
Operating lease liabilities 34,849 43,135
Related Party    
Current assets:    
Operating lease right-of-use assets 25,463 16,528
Financing lease right-of-use assets - related party 59,328 61,284
Current liabilities:    
Current portion of operating and financing lease liabilities - related party 3,895 3,601
Current portion of note payable - related party 1,000 0
Operating lease liabilities 23,777 15,469
Financing lease liabilities - related party $ 60,490 $ 61,463
v3.20.2
Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares
Sep. 30, 2020
Dec. 31, 2019
Preferred stock, par value (in usd per share) $ 0.01  
Preferred stock, shares authorized (in shares) 2,000,000 2,000,000
Preferred stock, shares issued (in shares) 0 0
Common stock, par value (in usd per share)   $ 0.01
Class A Common Stock    
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 900,000,000 900,000,000
Common stock, shares issued (in shares) 147,587,000 147,070,000
Class B Common Stock    
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 300,000,000 300,000,000
Common stock, shares issued (in shares) 152,117,000 152,117,000
v3.20.2
Consolidated Statements of Cash Flows (unaudited) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities:    
Net (loss) income $ 75,540 $ (538,670)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Gain from reduction of tax receivable agreement liability 0 (192,884)
Depreciation and amortization 175,514 152,932
Amortization of Levothyroxine Transition Agreement asset 0 36,393
Unrealized foreign currency (gain) loss (7,779) 10,552
Amortization of debt issuance costs and discount 6,449 4,849
Gain on sale of international businesses, net (123) (6,930)
Intangible asset impairment charges 35,539 158,610
Non-cash restructuring and asset-related (credit) charges (536) 11,923
Deferred tax benefit 0 371,683
Stock-based compensation 15,617 16,666
Inventory provision 56,198 67,844
Other operating charges and credits, net 6,248 5,945
Changes in assets and liabilities:    
Trade accounts receivable, net (50,748) (46,457)
Inventories (80,722) (25,906)
Prepaid expenses, other current assets and other assets 17,638 41,256
Related party receivables 870 (1,305)
Accounts payable, accrued expenses and other liabilities 21,737 (13,932)
Related party payables 1,601 25
Net cash provided by operating activities 273,043 52,594
Cash flows from investing activities:    
Purchases of property, plant and equipment (26,912) (42,664)
Deposits for future acquisition of property, plant, and equipment (4,229) 0
Acquisition of intangible assets (3,250) (50,000)
Acquisitions, net of cash acquired (251,360) 0
Proceeds from surrender of corporate owned life insurance 0 43,017
Proceeds from sale of international businesses, net of cash sold 0 34,834
Net cash used in investing activities (285,751) (14,813)
Cash flows from financing activities:    
Proceeds from issuance of debt 180,000 0
Payments of principal on debt, financing leases and other (26,500) (20,250)
Payments of deferred financing costs (4,102) 0
Proceeds from exercise of stock options 216 1,385
Employee payroll tax withholding on restricted stock unit vesting (795) (926)
Tax distributions to non-controlling interests (1,628) (13,494)
Distribution of earnings to and acquisition of non-controlling interests (3,300) (3,543)
Net cash provided by (used in) financing activities 143,089 (38,535)
Effect of foreign exchange rate on cash 447 (967)
Net increase (decrease) in cash, cash equivalents, and restricted cash 130,828 (1,721)
Cash, cash equivalents, and restricted cash - beginning of period 152,822 218,779
Cash, cash equivalents, and restricted cash - end of period 283,650 217,058
Cash and cash equivalents - end of period 281,278 212,738
Restricted cash - end of period 2,372 4,320
Supplemental disclosure of cash flow information:    
Cash paid for interest 99,207 121,872
Cash received for income taxes, net 109,444 11,857
Supplemental disclosure of non-cash investing and financing activity:    
Payments for restricted stock unit tax vesting 6 0
Related Party    
Cash flows from financing activities:    
Payments of principal on financing lease - related party (802) (1,707)
Supplemental disclosure of non-cash investing and financing activity:    
Notes payable for acquisitions - related party $ 36,033 $ 0
v3.20.2
Consolidated Statement of Stockholders' Equity (unaudited) - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Stock
Class A Common Stock
Common Stock
Class B Common Stock
Common Stock
Class B-1 Common Stock
Additional Paid-in Capital
Stockholders' Accumulated Deficit
Stockholders' Accumulated Deficit
Cumulative Effect, Period of Adoption, Adjustment
Accumulated Other Comprehensive (Loss) Income
Non-Controlling Interests
Non-Controlling Interests
Cumulative Effect, Period of Adoption, Adjustment
Shares beginning balance (in shares) at Dec. 31, 2018     115,047,000 171,261,000 12,329,000            
Stockholders' equity beginning balance at Dec. 31, 2018 $ 896,363 $ 13,561 $ 1,151 $ 1,713 $ 123 $ 530,438 $ (20,920) $ 4,957 $ (7,755) $ 391,613 $ 8,604
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net (loss) income (538,670)           (329,789)     (208,881)  
Foreign currency translation adjustment 4,014               1,759 2,255  
Stock-based compensation 16,666         16,666          
Exercise of stock options (in shares)     205,000                
Exercise of stock options 1,385   $ 2     922     (7) 468  
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)     253,000                
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (926)   $ 2     10     (5) (933)  
Unrealized loss on cash flow hedge, net of tax 0                    
Redemption of Class B Common Stock (in shares)     6,256,000 6,256,000              
Redemption of Class B Common Stock 0   $ 62 $ (62)   17,605     (332) (17,273)  
Conversion of Class B-1 Common Stock (in shares)     12,329,000   (12,329,000)            
Conversion of Class B-1 Common Stock     $ 123   $ (123)            
Reclassification of foreign currency translation adjustment included in net loss 3,413               1,461 1,952  
Tax distribution (82)                 (82)  
Shares ending balance (in shares) at Sep. 30, 2019     134,090,000 165,005,000 0            
Stockholders' equity ending balance at Sep. 30, 2019 395,724   $ 1,340 $ 1,651 $ 0 565,641 (345,752)   (4,879) 177,723  
Shares beginning balance (in shares) at Dec. 31, 2018     115,047,000 171,261,000 12,329,000            
Stockholders' equity beginning balance at Dec. 31, 2018 896,363 $ 13,561 $ 1,151 $ 1,713 $ 123 530,438 (20,920) $ 4,957 (7,755) 391,613 $ 8,604
Shares ending balance (in shares) at Dec. 31, 2019     147,070,000 152,117,000              
Stockholders' equity ending balance at Dec. 31, 2019 346,788   $ 1,470 $ 1,522   606,966 (377,880)   (68) 114,778  
Redeemable Non-Controlling Interests, ending balance at Dec. 31, 2019 $ 0                    
Increase (Decrease) in Temporary Equity [Roll Forward]                      
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201602Member                    
Shares beginning balance (in shares) at Jun. 30, 2019     128,151,000 170,941,000              
Stockholders' equity beginning balance at Jun. 30, 2019 $ 749,352   $ 1,281 $ 1,710   544,161 (80,746)   (6,750) 289,696  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net (loss) income (363,392)           (265,006)     (98,386)  
Foreign currency translation adjustment 4,997               2,184 2,813  
Stock-based compensation 6,095         6,095          
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)     3,000                
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (5)   $ 0     4     0 (9)  
Unrealized loss on cash flow hedge, net of tax 0                    
Conversion of Class B-1 Common Stock (in shares)     5,936,000 (5,936,000)              
Conversion of Class B-1 Common Stock (223)   $ 59 $ (59)   16,481     (313) (16,391)  
Other (1,100)         (1,100)          
Shares ending balance (in shares) at Sep. 30, 2019     134,090,000 165,005,000 0            
Stockholders' equity ending balance at Sep. 30, 2019 395,724   $ 1,340 $ 1,651 $ 0 565,641 (345,752)   (4,879) 177,723  
Shares beginning balance (in shares) at Dec. 31, 2019     147,070,000 152,117,000              
Stockholders' equity beginning balance at Dec. 31, 2019 346,788   $ 1,470 $ 1,522   606,966 (377,880)   (68) 114,778  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net loss 74,625           94,096     (19,471)  
Net (loss) income 75,540                    
Foreign currency translation adjustment (9,748)               (4,795) (4,953)  
Stock-based compensation 15,617         15,617          
Exercise of stock options (in shares)     79,000                
Exercise of stock options 216   $ 1     217     (9) 7  
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)     438,000                
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (801)   $ 4     227     (25) (1,007)  
Unrealized loss on cash flow hedge, net of tax (74,031)               (36,409) (37,622)  
Distribution of earnings to and acquisition of non- controlling interests (3,300)         106       (3,406)  
Tax distribution (1,170)                 (1,170)  
Shares ending balance (in shares) at Sep. 30, 2020     147,587,000 152,117,000              
Stockholders' equity ending balance at Sep. 30, 2020 348,196   $ 1,475 $ 1,522   623,133 (283,784)   (41,306) 47,156  
Increase (Decrease) in Temporary Equity [Roll Forward]                      
Net loss 915                    
Non-controlling interests from Rondo transaction 11,475                    
Tax distribution (458)                    
Redeemable Non-Controlling Interests, ending balance at Sep. 30, 2020 11,932                    
Shares beginning balance (in shares) at Jun. 30, 2020     147,493,000 152,117,000              
Stockholders' equity beginning balance at Jun. 30, 2020 371,016   $ 1,474 $ 1,522   617,504 (274,809)   (39,696) 65,021  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net loss (21,640)           (8,975)     (12,665)  
Net (loss) income (22,033)                    
Foreign currency translation adjustment (1,646)               (810) (836)  
Stock-based compensation 5,415         5,415          
Exercise of stock options (in shares)     21,000                
Exercise of stock options 58   $ 0     59     (3) 2  
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)     73,000                
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (108)   $ 1     49     (10) (148)  
Unrealized loss on cash flow hedge, net of tax (1,599)               (787) (812)  
Distribution of earnings to and acquisition of non- controlling interests (3,300)         106       (3,406)  
Shares ending balance (in shares) at Sep. 30, 2020     147,587,000 152,117,000              
Stockholders' equity ending balance at Sep. 30, 2020 348,196   $ 1,475 $ 1,522   $ 623,133 $ (283,784)   $ (41,306) $ 47,156  
Redeemable Non-Controlling Interests, beginning balance at Jun. 30, 2020 12,380                    
Increase (Decrease) in Temporary Equity [Roll Forward]                      
Net loss (393)                    
Tax distribution (55)                    
Redeemable Non-Controlling Interests, ending balance at Sep. 30, 2020 $ 11,932                    
v3.20.2
Nature of Operations
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations Nature of Operations
Amneal Pharmaceuticals, Inc., formerly known as Atlas Holdings, Inc. (the "Company"), was formed along with its wholly owned subsidiary, K2 Merger Sub Corporation, a Delaware corporation ("Merger Sub"), on October 4, 2017, for the purpose of facilitating the combination of Impax Laboratories, Inc. (now Impax Laboratories, LLC), a Delaware corporation then listed on the Nasdaq Stock Market ("Impax") and Amneal Pharmaceuticals LLC, a Delaware limited liability company ("Amneal"). The Company is a holding company, whose principal assets are Amneal Common Units.
Amneal was formed in 2002 and operates through various subsidiaries. Amneal is a vertically integrated developer, manufacturer, and seller of generic pharmaceutical products. Amneal’s pharmaceutical research includes analytical and formulation development and stability. Amneal operates principally in the United States, India, and Ireland.  Amneal sells to wholesalers, distributors, hospitals, chain pharmacies and individual pharmacies, either directly or indirectly.
On October 17, 2017, Amneal, Impax, the Company and Merger Sub entered into the Business Combination Agreement, as amended on November 21, 2017 and December 16, 2017 (the "BCA").
On May 4, 2018, pursuant to the BCA, Impax and Amneal combined the generics and specialty pharmaceutical business of Impax with the generic drug development and manufacturing business of Amneal to create the Company as a new generics and specialty pharmaceutical company, through the following transactions (together, the "Combination", and the closing of the Combination, the "Closing"): (i) Merger Sub merged with and into Impax, with Impax surviving as a wholly owned subsidiary of the Company, (ii) each share of Impax’s common stock, par value $0.01 per share ("Impax Common Stock"), issued and outstanding immediately prior to the Closing, other than Impax Common Stock held by Impax in treasury, by the Company or by any of their respective subsidiaries, was converted into the right to receive one fully paid and non-assessable share of Class A common stock of the Company, par value $0.01 per share ("Class A Common Stock"), (iii) Impax converted to a Delaware limited liability company, (iv) the Company contributed to Amneal all of the Company’s equity interests in Impax, in exchange for Amneal common units ("Amneal Common Units"), (v) the Company issued an aggregate number of shares of Class B common stock of the Company, par value $0.01 per share ("Class B Common Stock", and collectively, with the Class A Common Stock and Class B-1 common stock of the Company, par value $0.01 ("Class B-1 Common Stock"), the "Company Common Stock") to APHC Holdings, LLC (formerly Amneal Holdings, LLC), the parent entity of Amneal as of the Closing ("Holdings"), and (vi) the Company became the managing member of Amneal.
Immediately upon the Closing, holders of Impax Common Stock prior to the Closing collectively held approximately 25% of the Company and Holdings held a majority interest in the Company with an effective voting interest of approximately 75% on a fully diluted and as converted basis through its ownership of Class B Common Stock. Holdings also held a corresponding number of Amneal Common Units, which entitled it to approximately 75% of the economic interests in the combined businesses of Impax and Amneal. The Company held an interest in Amneal of approximately 25% and became its managing member.
In connection with the Combination, on May 4, 2018, Holdings entered into definitive purchase agreements which provided for a private placement of certain shares of Class A Common Stock and Class B-1 Common Stock (the "PIPE Investment") with select institutional investors (the "PIPE Investors"). Pursuant to the terms of the purchase agreements, upon the Closing, Holdings exercised its right to cause the Company to redeem approximately 15% of its ownership interests in the Company in exchange for 34.5 million shares of Class A Common Stock and 12.3 million unregistered shares of Class B-1 Common Stock (the "Redemption"). The shares of Class A Common Stock and Class B-1 Common Stock received in the Redemption were sold immediately following the Closing by Holdings to the PIPE Investors at a per share purchase price of $18.25 for gross proceeds of $855 million. Following the PIPE Investment, the PIPE Investors owned collectively approximately 15% of the Company Common Stock on a fully diluted and as converted basis. On May 4, 2018, Holdings also caused Amneal to redeem (the "Closing Date Redemption") 6.9 million of Amneal Common Units held by Holdings for a like number of shares of Class A Common Stock, for future distribution to certain direct and indirect members of Holdings who were or are employees of the Company and to whom were previously issued (prior to the Closing) profit participation units ("PPUs") in Amneal. As a result of the PIPE Investment and Closing Date Redemption, the voting and economic interest of approximately 75% held by Holdings immediately upon Closing was reduced by approximately 18%. The overall interest percentage held by non-controlling interest holders (the "Amneal Group") upon the consummation of the Combination, PIPE Investment and Closing Date Redemption was approximately 57%. As of both September 30, 2020 and December 31, 2019, the overall interest percentage held by non-controlling interest holders was approximately 51%.
On July 5, 2018, Holdings distributed to its members all Amneal Common Units and shares of Class B Common Stock held by Holdings. As a result, as of September 30, 2020, Holdings did not hold any equity interest in Amneal or the Company.
During the year ended December 31, 2019, pursuant to the Company's certificate of incorporation, the Company converted all (12.3 million) of its issued and outstanding shares of Class B-1 Common Stock to Class A Common Stock and such shares of Class B-1 Common Stock have been retired and may not be reissued by the Company. The rights of Class A Common Stock and Class B-1 Common Stock were identical, except that the Class B-1 Common Stock had certain director appointment rights and the Class B-1 Common Stock had no voting rights (other than with respect to its director appointment right and as otherwise required by law).
v3.20.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States of America, should be read in conjunction with Amneal’s annual audited financial statements for the year ended December 31, 2019 included in the Company’s 2019 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements have been omitted from the accompanying unaudited consolidated financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of September 30, 2020, cash flows for the nine months ended September 30, 2020 and 2019 and the results of its operations, its comprehensive income (loss) and its changes in stockholders' equity for the three and nine months ended September 30, 2020 and 2019. The consolidated balance sheet data at December 31, 2019 was derived from the Company's audited annual financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America.
The accounting policies of the Company are set forth in Note 2. Summary of Significant Accounting Policies contained in the Company’s 2019 Annual Report on Form 10-K, except for the impact of the adoption of new accounting standards discussed under Recently Adopted Accounting Pronouncements. The following new significant accounting policy relates to the acquisitions of AvKARE, Inc. and Dixon-Shane, LLC d/b/a R&S Northeast LLC (refer to Note 3. Acquisitions and Divestitures).
Chargebacks Received From Manufacturers
When a sale occurs on a contracted item, the difference between the cost the Company pays to the manufacturer of that item and the contract price that the end customer has with the manufacturer is rebated to the Company by the manufacturer as a chargeback. Chargebacks are recorded as a reduction to cost of sales and either a reduction in the amount due to the manufacturer (if there is a right of offset) or as a receivable from the manufacturer.
Use of Estimates
The preparation of financial statements requires the Company's management to make estimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during the reporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The following are some, but not all, of such estimates: the determination of chargebacks, sales returns, rebates, billbacks, distribution fees, allowances for accounts receivable, accrued liabilities, chargebacks received from manufacturers, stock-based compensation, valuation of inventory balances, the determination of useful lives for product rights, allowances for deferred tax assets, measurement of assets acquired and liabilities assumed in business combinations at fair value and the assessment of expected cash flows used in evaluating goodwill and other long-lived assets for impairment. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 82): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modified the disclosure requirements on fair value measurement.  The Company adopted ASU 2018-13 effective January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, guidance that changes the impairment model for most financial assets including trade receivables and certain other instruments that are not measured at fair value through net income. The standard replaced today’s "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost and requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they did under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company adopted ASU 2016-13 effective January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provided elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.  The amendments may be applied to impacted contracts and hedges prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
v3.20.2
Acquisitions and Divestitures
9 Months Ended
Sep. 30, 2020
Business Combinations [Abstract]  
Acquisitions and Divestitures Acquisitions and Divestitures
AvKARE and R&S Acquisitions
On December 10, 2019, the Company, through its investment in Rondo Partners, LLC (“Rondo”), entered into an equity purchase and operating agreements to acquire approximately a 65.1% controlling financing interest in both AvKARE Inc., a Tennessee corporation, and Dixon-Shane, LLC d/b/a R&S Northeast LLC, a Kentucky limited liability company (“R&S”) (collectively the “Acquisitions”). Prior to closing, AvKARE, Inc. converted to a limited liability company, AvKARE, LLC. AvKARE, LLC is one of the largest private label providers of generic pharmaceuticals in the U.S. federal agency sector, primarily focused on serving the Department of Defense and the Department of Veterans Affairs. R&S is a national pharmaceutical wholesaler focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
On January 31, 2020, the Company completed the Acquisitions.  The purchase price of $294 million, included cash of $254 million and the issuance of long-term promissory notes to the sellers with an aggregate principal amount of $44 million (estimated fair value of $35 million) (the “Sellers Notes”) and a short-term promissory note (the “Short-Term Seller Note”) with a principal amount of $1 million to the sellers.  The cash purchase price was funded by $76 million of cash on hand and $178 million of proceeds from a $180 million term loan.  The remaining $2 million consisted of working capital costs. The Company is not party to or a guarantor of the term loan, Sellers Notes or Short-Term Sellers Note. (refer to Note 13. Debt).  For further detail of the preliminary purchase price, refer to the table below.
For the nine months ended September 30, 2020, there were $1 million of transaction costs associated with the Acquisitions recorded in acquisition, transaction-related and integration expenses (none for the three months ended September 30, 2020).
The Acquisitions were accounted for under the acquisition method of accounting, with Amneal as the accounting acquirer of AvKARE, LLC and R&S.
The preliminary purchase price is calculated as follows (in thousands):
Cash$254,000 
Sellers Notes (1)
35,033 
Settlement of Amneal trade accounts receivable from R&S (2)
6,855 
Short-Term Seller Note (3)
1,000 
Working capital adjustment (4)
(2,640)
Fair value consideration transferred$294,248 
(1)In accordance with ASC 805, Business Combinations, all consideration transferred was measured at its acquisition-date fair value. The Sellers Notes are stated at the preliminary fair value estimate of $35 million, which is the $44 million aggregate principal amount less a $9 million discount.  The fair value of the Sellers Notes was estimated using the Monte-Carlo simulation approach under the option pricing framework.
(2)Represents trade accounts receivable from R&S that was effectively settled upon closing of the Acquisitions.
(3)Represents the principal amount due on the Short-Term Seller Note, which approximates fair value.
(4)Represents a working capital adjustment pursuant to the terms of the purchase agreement. The entire amount was received in cash by the Company in September 2020.
The following is a summary of the preliminary purchase price allocation for the Acquisitions (in thousands):
Preliminary Fair Values as of
January 31, 2020
Trade accounts receivable, net$46,702 
Inventories71,908 
Prepaid expenses and other current assets11,316 
Related party receivables61 
Property, plant and equipment5,278 
Goodwill103,679 
Intangible assets, net130,800 
Operating lease right-of-use assets - related party5,544 
Total assets acquired375,288 
Accounts payable and accrued expenses62,489 
Related party payables1,532 
Operating lease liabilities - related party5,544 
Total liabilities assumed69,565 
Redeemable non-controlling interests11,475 
Fair value of consideration transferred$294,248 
The acquired intangible assets are being amortized over their estimated useful lives as follows (in thousands):
Preliminary
Fair Values
Weighted-Average
Useful Life
Government licenses$66,700 7 years
Government contracts22,000 4 years
National contracts28,600 5 years
Customer relationships13,000 10 years
Trade name500 6 years
$130,800 
The estimated fair values of the customer relationships, government contracts and national contracts were determined using the “income approach,” which is a valuation technique that provides an estimate of the fair value of an intangible asset based on market participant expectations of the cash flows that an intangible asset would generate over its remaining useful life.  The estimated fair value of the trade name was determined using the “relief from royalty method,” which is a valuation technique that provides an estimate of the fair value of an intangible asset equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. The estimated fair value of the government licenses was determined using the “with-and-without method,” which is a valuation technique that provides an estimate of the fair value of an intangible asset that is equal to the difference between the present value of the prospective revenues and expenses for the business with and without the subject intangible asset in place. The assumptions, including the expected projected cash flows, utilized in the preliminary purchase price allocation and in determining the purchase price were based on management's best estimates as of the closing date of the Acquisitions on January 31, 2020.
Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each asset (including net revenues, cost of sales, selling and marketing costs and working capital / contributory asset charges), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, competitive trends impacting the asset and each cash flow stream, as well as
other factors. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.
The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets, assumed liabilities and redeemable non-controlling interests. The Company obtains this information during due diligence and through other sources.  In the months after closing, as the Company obtains additional information about these assets and liabilities and learns more about the newly acquired businesses, it is able to refine the estimates of fair value and more accurately allocate the purchase price.  Only items identified as of the acquisition date are considered for subsequent adjustment.  The Company is continuing to evaluate the acquired assets, assumed liabilities and redeemable non-controlling interests associated with the Acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.
The Sellers Notes and redeemable non-controlling interests were estimated using the Monte-Carlo simulation approach under the option pricing framework.  The non-controlling interests are redeemable at the option of either the non-controlling interest holder and Amneal. The fair value of the redeemable non-controlling interests considers these redemption rights.
Of the $104 million of goodwill acquired in connection with the Acquisitions, approximately $70 million was allocated to the Company’s AvKARE segment (refer to Note 18. Segment Information) and approximately $34 million was allocated to the Generics segment.  Goodwill was allocated to the Generics segment as net revenue of products manufactured from Amneal and distributed by the Acquisitions is reflected in Generics’ segment results.  Goodwill is calculated as the excess of the fair value of the consideration transferred and the fair value of the redeemable non-controlling interests over the fair value of the net assets recognized. Factors that contributed to the recognition of goodwill include Amneal’s intent to diversify its business and open growth opportunities in the large, complex and growing federal healthcare market.
For the three months ended September 30, 2020, the Acquisitions contributed total net revenue of approximately $94 million and operating income of $3 million, which included approximately $9 million of amortization expense from intangible assets acquired in the Acquisitions, to the Company’s consolidated results of operations. 
For the nine months ended September 30, 2020, the Acquisitions contributed total net revenue of approximately $226 million and operating income of $4 million, which included approximately $23 million of amortization expense from intangible assets acquired in the Acquisitions, to the Company’s consolidated results of operations.  
Unaudited Pro Forma Information
The unaudited pro forma combined results of operations for the three and nine months ended September 30, 2020 and 2019 (assuming the closing of the Acquisitions occurred on January 1, 2019) are as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net revenue$519,294 $452,405 $1,513,197 $1,443,501 
Net (loss) income$(22,033)$(357,972)$75,550 $(535,978)
Net (loss) income attributable to Amneal Pharmaceuticals, Inc.$(8,975)$(263,464)$94,099 $(329,176)
The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the closing of the Acquisitions taken place on January 1, 2019. Furthermore, the pro forma results do not purport to project the future results of operations of the Company.
Adjustments to arrive at the unaudited pro forma information primarily related to increases in selling, general and administrative expenses for amortization of acquired intangible assets, net of the applicable tax impact.
U.K. Divestiture

On March 30, 2019, the Company sold 100% of the stock of its Creo Pharma Holding Limited subsidiary, which comprised substantially all of the Company's operations in the United Kingdom, to AI Sirona (Luxembourg) Acquisition S.a.r.l ("AI Sirona") for net cash consideration of approximately $32 million which was received in April 2019. The carrying value of the net assets sold was $22 million, including intangible assets of $7 million and goodwill of $5 million. As a result of the sale, the Company recognized a pre-tax gain of $9 million, inclusive of transaction costs and the recognition of accumulated foreign currency translation adjustment losses of $3 million, within gain on sale of international businesses, net for the nine months
ended September 30, 2019. For the nine months ended September 30, 2020, the Company made a $0.5 million payment to AI Sirona for and recognized a $0.1 million gain on sale of international business for final settlement of the divestiture. As part of the disposition, the Company entered into a supply and license agreement with AI Sirona to supply certain products for a period of up to two years.
Germany Divestiture

On May 3, 2019, the Company sold 100% of the stock of its Amneal Deutschland GmbH subsidiary, which comprised substantially all of the Company's operations in Germany, to EVER Pharma Holding Ges.m.b.H. (“EVER”) for net cash consideration of approximately $3 million which was received in May 2019. The carrying value of the net assets sold was $7 million, including goodwill of $0.5 million. As a result of the sale, the Company recognized a pre-tax loss of $2 million, inclusive of transaction costs and the recognition of accumulated foreign currency translation adjustment losses, within gain on sale of international businesses, net for the nine months ended September 30, 2019. As part of the disposition, the Company also entered into a license and supply agreement with EVER to supply certain products for an 18 month period.
v3.20.2
Revenue Recognition
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
Performance Obligations
The Company’s performance obligation is the supply of finished pharmaceutical and related products to its customers. The Company’s customers consist primarily of major wholesalers, retail pharmacies, managed care organizations, purchasing co-ops, hospitals, government agencies, institutions, and pharmaceutical companies. The Company’s customer contracts generally consist of both a master agreement, which is signed by the Company and its customer, and/or a customer submitted purchase order, which is governed by the terms and conditions of the master agreement. Customers purchase product by direct channel sales from the Company or by indirect channel sales through various distribution channels.
Revenue is recognized when the Company transfers control of its products to the customer, which typically occurs at a point-in-time, either upon shipment or delivery. Substantially all of the Company’s net revenues relate to products which are transferred to the customer at a point-in-time.
The Company offers standard payment terms to its customers and has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing, since the period between when the Company transfers the product to the customer and when the customer pays for that product is one year or less. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The consideration amounts due from customers as a result of product sales are subject to variable consideration, as described further below.
The Company offers standard product warranties which provide assurance that the product will function as expected and in accordance with specifications. Customers cannot purchase warranties separately and these warranties do not give rise to a separate performance obligation.
The Company permits the return of product under certain circumstances, mainly upon product expiration, instances of shipping errors or where product is damaged in transit. The Company accrues for the customer’s right to return as part of its variable consideration. See below for further details.
Variable Consideration
The Company includes an estimate of variable consideration in its transaction price at the time of sale, when control of the product transfers to the customer. Variable consideration includes but is not limited to: chargebacks, distribution fees, rebates, group purchasing organization ("GPO") fees, prompt payment (cash) discounts, consideration payable to the customer, billbacks, Medicaid and other government pricing programs, price protection and shelf stock adjustments, sales returns, and profit shares.
The Company assesses whether or not an estimate of its variable consideration is constrained and has determined that the constraint does not apply, since it is probable that a significant reversal in the amount of cumulative revenue will not occur in the future when the uncertainty associated with the variable consideration is subsequently resolved. The Company’s estimates for variable consideration are adjusted as required at each reporting period for specific known developments that may result in a change in the amount of total consideration it expects to receive.
Chargebacks
In the case an indirect customer purchases product from their preferred wholesaler instead of directly from the Company, and the contract price charged to the indirect customer is lower than the wholesaler pricing, the Company pays the direct customer (wholesaler) a chargeback for the price differential. The Company estimates its chargeback accrual based on its estimates of the level of inventory of its products in the distribution channel that remain subject to chargebacks and historical chargeback rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Rebates
The Company pays fixed or volume-based rebates to its customers based on a fixed amount, fixed percentage of product sales or based on the achievement of a specified level of purchases. The Company’s rebate accruals are based on actual net sales, contractual rebate rates negotiated with customers, and expected purchase volumes / corresponding tiers based on actual sales to date and forecasted amounts.
Group Purchasing Organization Fees
The Company pays fees to GPOs for administrative services that the GPOs perform in connection with the purchases of product by the GPO participants who are the Company’s customers. The Company’s GPO fee accruals are based on actual net sales, contractual fee rates negotiated with GPOs and the mix of the products in the distribution channel that remain subject to GPO fees.
Prompt Payment (Cash) Discounts
The Company provides customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. The Company’s prompt payment discount accruals are based on actual net sales and contractual discount rates.
Consideration Payable to the Customer
The Company pays administrative and service fees to its customers based on a fixed percentage of the product price. These fees are not in exchange for a distinct good or service and therefore are recognized as a reduction of the transaction price. The Company accrues for these fees based on actual net sales, contractual fee rates negotiated with the customer and the mix of the products in the distribution channel that remain subject to fees.
Billbacks
In the case an indirect customer purchases product from their preferred wholesaler instead of directly from the Company, and the contract price charged to the indirect customer is higher than contractual pricing, the Company pays the indirect customer a billback for the price differential. The Company estimates its billback accrual based on its estimates of the level of inventory of its products in the distribution channel that remain subject to billbacks and historical billback rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Medicaid and Other Government Pricing Programs
The Company complies with required rebates mandated by law under Medicaid and other government pricing programs. The Company estimates its government pricing accruals based on monthly sales, historical experience of claims submitted by the various states and jurisdictions, historical rates and estimated lag time of the rebate invoices.
Price Protection and Shelf Stock Adjustments
The Company provides customers with price protection and shelf stock adjustments which may result in an adjustment to the price charged for the product transferred, based on differences between old and new prices which may be applied to the customer’s on-hand inventory at the time of the price change. The Company accrues for these adjustments when its expected value of an adjustment is greater than zero, based on contractual pricing, actual net sales, accrual rates based on historical average rates, and estimates of the level of inventory of its products in the distribution channel that remain subject to these adjustments. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Sales Returns
The Company permits the return of product under certain circumstances, mainly upon product expiration, instances of shipping errors or where product is damaged in transit, and occurrences of product recalls. The Company’s product returns accrual is primarily based on estimates of future product returns based generally on actual net sales, estimates of the level of inventory of its products in the distribution channel that remain subject to returns, estimated lag time of returns and historical return rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Profit Shares
For certain product sale arrangements, the Company earns a profit share upon the customer’s sell-through of the product purchased from the Company. The Company estimates its profit shares based on actual net sales, estimates of the level of inventory of its products in the distribution channel that remain subject to profit shares, and historical rates of profit shares earned. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Concentration of Revenue
The Company's three largest customers accounted for approximately 84% of total gross sales of products for both the three and nine months ended September 30, 2020. The Company's three largest customers accounted for approximately 81% and 80% of total gross sales of products for the three and nine months ended September 30, 2019, respectively.
Disaggregated Revenue
The Company's significant therapeutic classes for its Generics and Specialty segments and sales channels for its AvKARE segment, as determined based on net revenue for each of the three and nine months ended September 30, 2020 and 2019 are set forth below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Generics
Anti-Infective$9,813 $9,915 $32,589 $24,004 
Hormonal/Allergy93,580 85,253 271,499 280,271 
Antiviral9,236 3,572 26,015 19,374 
Central Nervous System (1)
107,139 93,819 302,949 335,992 
Cardiovascular System28,517 26,240 82,876 93,595 
Gastroenterology21,371 9,077 59,249 28,571 
Oncology13,927 16,271 45,349 52,976 
Metabolic Disease/Endocrine9,987 12,570 33,395 41,304 
Respiratory10,875 7,772 28,203 25,408 
Dermatology14,818 15,767 42,402 43,511 
Other therapeutic classes22,657 10,128 74,592 43,568 
International and other— 637 1,947 19,988 
Total Generics net revenue341,920 291,021 1,001,065 1,008,562 
Specialty
Hormonal/Allergy13,039 11,521 40,662 32,308 
Central Nervous System (1)
68,061 67,448 210,428 161,041 
Gastroenterology1,247 406 1,734 1,339 
Metabolic Disease/Endocrine(105)124 371 754 
Other therapeutic classes5,626 7,763 16,906 25,041 
Total Specialty net revenue87,868 87,262 270,101 220,483 
AvKARE
Distribution53,399 — 116,824 — 
Government Label28,902 — 75,353 — 
Institutional4,890 — 12,814 — 
Other2,315 — 6,332 — 
Total AvKARE net revenue89,506 — 211,323 — 
Total net revenue$519,294 $378,283 $1,482,489 $1,229,045 
(1)During the three months ended September 30, 2019, operating results for Oxymorphone were reclassified from Generics to Specialty, where it is sold as a non-promoted product.  Prior period results have not been restated to reflect the reclassification.
A rollforward of the major categories of sales-related deductions for the nine months ended September 30, 2020 is as follows (in thousands):
Contract
Charge - Backs
and Sales
Volume
Allowances
Cash Discount
Allowances
Accrued
Returns
Allowance
Accrued
Medicaid and
Commercial
Rebates
Balance at December 31, 2019$829,807 $34,308 $150,361 $114,960 
Impact from the Acquisitions12,444 944 11,606 10 
Provision related to sales recorded in the period3,010,776 90,720 74,153 104,511 
Credits/payments issued during the period(3,248,364)(100,515)(68,955)(76,320)
Balance at September 30, 2020$604,663 $25,457 $167,165 $143,161 
v3.20.2
Alliance and Collaboration
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Alliance and Collaboration Alliance and Collaboration
The Company has entered into several alliance, collaboration, license, distribution and similar agreements with respect to certain of its products and services with third-party pharmaceutical companies. The consolidated statements of operations include revenue recognized under agreements the Company has entered into to develop marketing and/or distribution relationships with its partners to fully leverage the technology platform and revenue recognized under development agreements which generally obligate the Company to provide research and development services over multiple periods. The Company's significant arrangements are discussed below.
Levothyroxine License and Supply Agreement; Transition Agreement
On August 16, 2018, the Company entered into a license and supply agreement with Jerome Stevens Pharmaceuticals, Inc. ("JSP") for levothyroxine sodium tablets ("Levothyroxine"). This agreement designated the Company as JSP's exclusive commercial partner for Levothyroxine in the U.S. market for a 10-year term commencing on March 22, 2019. Additionally, under this license and supply agreement, the Company accrued the up-front license payment of $50 million on March 22, 2019, which was paid in April 2019. The agreement also provides for the Company to pay a profit share to JSP based on net profits of the Company's sales of Levothyroxine, after considering product costs.
On November 9, 2018, the Company entered into a transition agreement ("Transition Agreement") with Lannett Company (“Lannett”) and JSP. Under the terms of the Transition Agreement, the Company assumed the distribution and marketing of Levothyroxine from Lannett beginning December 1, 2018 through March 22, 2019, ahead of the commencement date of the license and supply agreement with JSP described above.
In accordance with the terms of the Transition Agreement, the Company made $47 million of non-refundable payments to Lannett. For the nine months ended September 30, 2019, $37 million, was expensed to cost of goods sold, as the Company sold Levothyroxine (none in the nine months ended September 30, 2020). As of December 31, 2018 the Company had a $4 million transition contract liability, which was fully settled in February 2019.
Additionally, during the year ended December 31, 2019, the Company recorded $1 million in cost of sales related to reimbursement due to Lannett for certain of its unsold inventory at the end of the transition period, which was fully settled in March 2020.
Biosimilar Licensing and Supply Agreement
On May 7, 2018, the Company entered into a licensing and supply agreement, with Mabxience S.L., for its biosimilar candidate for Avastin® (bevacizumab). The Company will be the exclusive partner in the U.S. market. The Company will pay development and regulatory milestone payments as well as commercial milestone payments on reaching pre-agreed sales targets in the market to Mabxience, up to $72 million. For the nine months ended September 30, 2019 the Company expensed a milestone payment of $1 million (none for the three months ended September 30, 2019) to research and development. For the nine months ended September 30, 2020 the Company expensed a milestone payment of $5 million to research and development (none for the three months ended September 30, 2020).
Distribution, License, Development and Supply Agreement with AstraZeneca UK Limited
In January 2012, Impax entered into an agreement with AstraZeneca UK Limited ("AstraZeneca") to distribute branded products under the terms of a distribution, license, development and supply agreement (the "AZ Agreement"). The parties subsequently entered into a First Amendment to the AZ Agreement dated May 31, 2016 (as amended, the "AZ Amendment"). Under the terms of the AZ Agreement, AstraZeneca granted to Impax an exclusive license to commercialize the tablet, orally disintegrating tablet and nasal spray formulations of Zomig® (zolmitriptan) products for the treatment of migraine headaches in the United States and in certain U.S. territories, except during an initial transition period when AstraZeneca fulfilled all orders of Zomig® products on Impax’s behalf and AstraZeneca paid to Impax the gross profit on such Zomig® products. Pursuant to the AZ Amendment, under certain conditions, and depending on the nature and terms of the study agreed to with the FDA, Impax agreed to conduct, at its own expense, the juvenile toxicity study and pediatric study required by the FDA under the Pediatric Research Equity Act ("PREA") for approval of the nasal formulation of Zomig ® for the acute treatment of migraine in pediatric patients ages six through eleven years old, as further described in the study protocol mutually agreed to by the parties (the "PREA Study"). In consideration for Impax conducting the PREA Study at its own expense, the AZ Amendment provides for the total royalty payments payable by Impax to AstraZeneca on net sales of Zomig ® products under the AZ Agreement to be reduced by an aggregate amount of $30 million to be received in quarterly amounts specified in the AZ Amendment beginning from the quarter ended June 30, 2016 and through the quarter ended December 31, 2020. In the event
the royalty reduction amounts exceed the royalty payments payable by Impax to AstraZeneca pursuant to the AZ Agreement in any given quarter, AstraZeneca will be required to pay Impax an amount equal to the difference between the royalty reduction amount and the royalty payment payable by Impax to AstraZeneca. Impax’s commitment to perform the PREA Study may be terminated, without penalty, under certain circumstances as set forth in the AZ Amendment. The Company recognizes the amounts received from AstraZeneca for the PREA Study as a reduction to research and development expense.
In May 2013, Impax’s exclusivity period for branded Zomig® tablets and orally disintegrating tablets expired and Impax launched authorized generic versions of those products in the United States. As discussed above, pursuant to the AZ Amendment, the total royalty payments payable by Impax to AstraZeneca on net sales of Zomig ® products under the AZ Agreement is reduced by certain specified amounts beginning from the quarter ended June 30, 2016 and through the quarter ended December 31, 2020, with such reduced royalty amounts totaling an aggregate amount of $30 million. The Company recorded cost of sales for royalties under this agreement of $3 million and $12 million for the three and nine months ended September 30, 2020, respectively, and $5 million and $14 million for the three and nine ended September 30, 2019, respectively.
During the three months ended March 31, 2020, AstraZeneca and the Company agreed to terminate the AZ Agreement and subsequent AZ Amendment effective January 2021.
For detail on the Company’s related party agreements with Kashiv Biosciences, LLC, refer to Note 19. Related Party Transactions.
v3.20.2
Restructuring and Other Charges
9 Months Ended
Sep. 30, 2020
Restructuring and Related Activities [Abstract]  
Restructuring and Other Charges Restructuring and Other Charges
During the three months ended June 30, 2018, in connection with the Combination, the Company committed to a restructuring plan to achieve cost savings. The Company expected to integrate its operations and reduce its combined cost structure through workforce reductions that eliminated duplicative positions and consolidated certain administrative, manufacturing and research and development facilities. In connection with this plan, the Company announced on May 10, 2018 that it intended to close its Hayward, California-based operations.
On July 10, 2019, the Company announced a plan to restructure its operations that was intended to reduce costs and optimize its organizational and manufacturing infrastructure. Pursuant to the restructuring plan as revised, the Company expects to reduce its headcount by approximately 300 to 350 employees through December 31, 2021, primarily by ceasing manufacturing at its Hauppauge, NY facility.  Collectively these actions comprise the "Plans".
The following table sets forth the components of the Company's restructuring and other charges (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Employee restructuring separation charges (1)
$292 $6,187 $338 $8,607 
Asset-related (credit) charges (2)
(536)10,609 (536)11,923 
Total employee and asset-related restructuring charges(244)16,796 (198)20,530 
Other employee severance charges (3)
520 4,141 2,855 9,403 
Total restructuring and other charges$276 $20,937 $2,657 $29,933 
(1)Employee restructuring separation charges include the cost of benefits provided pursuant to the Company's severance programs for employees impacted by the Plans at the Company's Hauppauge, NY, Hayward, CA and other facilities.
(2)For the three and nine months ended September 30, 2020, asset-related credit was primarily associated with the contractual cancellation of an asset retirement obligation related to a lease that was terminated during August 2020. For the three and nine months ended September 30, 2019, asset-related charges were primarily associated with the write-off of property, plant and equipment in connection with the closing of the Company's Hayward, CA facilities.
(3)For the three and nine months ended September 30, 2019, other employee severance charges were primarily associated with the cost of benefits for former senior executives.
The charges related to restructuring impacted segment earnings as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Generics$(244)$14,888 $(198)$17,201 
Specialty— 213 — 391 
Corporate— 1,695 — 2,938 
Total employee and asset-related restructuring charges$(244)$16,796 $(198)$20,530 
The following table shows the change in the employee separation-related liability associated with the Plans, which is included in accounts payable and accrued expenses (in thousands):
Employee
Restructuring
Balance at December 31, 2019$3,900 
Charges to income338 
Payments(2,189)
Balance at September 30, 2020$2,049 
v3.20.2
(Loss) Earnings per Share
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
(Loss) Earnings per Share (Loss) Earnings per Share
Basic (loss) earnings per share of Class A and Class B-1 Common Stock is computed by dividing net (loss) income attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A and Class B-1 Common Stock outstanding during the period. Diluted (loss) earnings per share of Class A and Class B-1 Common Stock is computed by dividing net (loss) income attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A and Class B-1 Common Stock outstanding, adjusted to give effect to potentially dilutive securities.
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted (loss) earnings per share of Class A and Class B-1 Common Stock (in thousands, except per share amounts):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Numerator:
Net (loss) income attributable to Amneal Pharmaceuticals, Inc.$(8,975)$(265,006)$94,096 $(329,789)
Denominator:
Weighted-average shares outstanding - basic (1)
147,558 130,729 147,377 128,822 
Effect of dilutive securities:
Stock options— — 320 — 
Restricted stock units— — 925 — 
Weighted-average shares outstanding - diluted
147,558 130,729 148,622 128,822 
Net (loss) earnings per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:
Class A and Class B-1 basic$(0.06)$(2.03)$0.64 $(2.56)
Class A and Class B-1 diluted$(0.06)$(2.03)$0.63 $(2.56)
(1)     During the three months ended June 30, 2019, pursuant to the Company’s certificate of incorporation, the Company converted all 12.3 million of its issued and outstanding shares of Class B-1 Common Stock and such shares of Class B-1 Common Stock have been retired and may not be reissued by the Company. The weighted-average shares for the three and nine months ended September 30, 2020 do not include Class B-1 Common Stock.
Shares of the Company's Class B Common Stock do not share in the earnings or losses of the Company and, therefore, are not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B Common Stock under the two-class method has not been presented.
The following table presents potentially dilutive securities excluded from the computations of diluted earnings per share of Class A and Class B-1 Common Stock (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Stock options
3,923 
(4)
7,973 
(4)
671 
(1)
7,973 
(4)
Restricted stock units
9,266 
(4)
2,915 
(4)
— 2,915 
(4)
Performance stock units
3,001 
(4)
357 
(4)
3,001 
(2)
357 
(4)
Shares of Class B Common Stock
152,117 
(3)
165,004 
(3)
152,117 
(3)
165,004 
(3)
(1)Excluded from the computation of diluted earnings per share of Class A Common Stock because the exercise price of the stock options exceeded the average market price of the Class A Common Stock during the period (out-of-the-money).
(2)Excluded from the computation of diluted earnings per share of Class A Common Stock because the performance vesting conditions were not met for the nine months ended September 30, 2020.
(3)Shares of Class B Common Stock are considered potentially dilutive shares of Class A and Class B-1 Common Stock. Shares of Class B Common Stock have been excluded from the computations of diluted earnings per share of Class A and Class B-1 Common Stock because the effect of their inclusion would have been anti-dilutive under the if-converted method. As noted above, the weighted-average shares for the three and nine months ended September 30, 2020 do not include Class B-1 Common Stock.  
(4)Excluded from the computation of diluted loss per share of Class A and Class B-1 Common Stock because the effect of their inclusion would have been anti-dilutive since there was a net loss attributable to the Company for three months ended September 30, 2020 and the three and nine months ended September 30, 2019. As noted above, the weighted-average shares for the three and nine months ended September 30, 2020 do not include Class B-1 Common Stock.
v3.20.2
Income Taxes
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For the three months ended September 30, 2020 and 2019, the Company's provision for (benefit from) income taxes and effective tax rates were $0.1 million and (0.7)% and $390 million and 1483.0%, respectively. The income tax provision for the three and nine months ended September 30, 2019 was primarily impacted by a $372 million valuation allowance against the Company's deferred tax assets ("DTAs"). The Company recorded valuation allowances against its various DTAs on a jurisdictional basis after it was determined that it is more likely than not that the Company's DTAs will not be realized.
For the nine months ended September 30, 2020 and 2019, the Company's (benefit from) provision for income taxes and effective tax rates were $(106) million and 349.3% and $376 million and (230.2)%, respectively. The year over year change in benefit from income taxes was primarily related to the Company’s full valuation allowance and the effects of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The income tax benefit for the nine months ended September 30, 2020 was primarily impacted by the $110 million benefit from the carryback of U.S. Federal net operating losses ("NOL") (deferred tax assets) under the CARES Act. The income tax provision for the nine months ended September 30, 2019 was primarily impacted by a $372 million valuation allowance against the Company's DTAs.
As of September 30, 2019, the Company established a valuation allowance based upon all available objective and verifiable evidence both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies. The Company estimated that as of September 30, 2019 it had generated a cumulative consolidated three-year pre-tax loss, which continued as of December 31, 2019.  As a result of the initial September 30, 2019 and December 31, 2019 analyses, the Company determined that it remained more likely than not that it would not realize the benefits of its gross DTAs and therefore recorded an additional valuation allowance of $428 million for the year ended December 31, 2019 to reduce the carrying value of these gross DTAs, net of the impact of the reversal of taxable temporary differences, to zero. As of September 30, 2020, based on its evaluation of available positive and negative evidence, the Company has maintained its position with respect to the valuation allowance.
On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act is an emergency economic stimulus package in response to the COVID-19 pandemic which, among other things, includes provisions relating to income and non-income-based tax laws. Some of the key income tax-related provisions include net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Some of these tax provisions are effective retroactively for years ending before the date of enactment. Other non-income-based tax provisions include deferral of the employer share of Social Security payroll
taxes due from the CARES Act date of enactment through December 31, 2020, and a potential 50% credit on qualified wages against employment taxes each quarter with any excess credits eligible for refunds.
The CARES Act permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs originating in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate refunds of previously paid income taxes. As a result of the CARES Act, the Company carried back approximately $345 million in NOLs generated in 2018 to prior taxable income years.
ASC 740, Income Taxes, requires the effect from adjusting deferred tax assets or changes to valuation allowances due to the CARES Act to be recognized as a component of income taxes expense or benefit in the interim period that includes the period in which the new legislation is enacted (quarter ended March 31, 2020), and it cannot be allocated to subsequent interim periods by an adjustment of the estimated annual effective tax rate. In the three months ended March 31, 2020, the Company reclassified the 2018 NOL carryback amount for previously paid income taxes to income tax receivable and reversed the corresponding valuation allowance. In carrying back the 2018 loss to an earlier year, the Company is able to benefit the losses at a 35% tax rate rather than the current U.S. corporate tax rate of 21%.  Accordingly, the Company recorded a discrete income tax benefit of $114 million, including $4 million of interest, for the nine months ended September 30, 2020. During July 2020, the Company received a cash refund for $106 million of the $110 million NOL carryback, plus interest of approximately $4 million, with the remainder of the NOL carryback expected to be received before December 31, 2020. 
In connection with the Combination, the Company entered into a tax receivable agreement (“TRA”) for which it is generally required to pay the other holders of Amneal Common Units 85% of the applicable tax savings, if any, in U.S. federal and state income tax that it is deemed to realize as a result of certain tax attributes of their Amneal Common Units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Amneal Common Units for shares of Class A Common Stock and (ii) tax benefits attributable to payments made under the TRA.  In conjunction with the valuation allowance recorded on the DTAs at September 30, 2019, the Company reversed the TRA liability, which had been recorded at the time of the Combination.
The projection of future taxable income involves significant judgment. Actual taxable income may differ from the Company’s estimates, which could significantly impact the timing of the recognition of the contingent liability under the TRA. As noted above, the Company has determined it is more-likely-than-not it will be unable to utilize all of its DTAs subject to the TRA; therefore, as of September 30, 2020, the Company has not recognized the contingent liability under the TRA related to the tax savings it may realize from common units sold or exchanged. If utilization of these DTAs becomes more likely than not in the future, at such time, Amneal will recognize a liability under the TRA, which amounts to approximately $203 million as of September 30, 2020 as a result of basis adjustments under Internal Revenue Code Section 754.
The timing and amount of any payments under the TRA may vary, depending upon a number of factors including the timing and number of Amneal common units sold or exchanged for the Company's Class A Common Stock, the price of the Company's Class A Common Stock on the date of sale or exchange, the timing and amount of the Company's taxable income, and the tax rate in effect at the time of realization of the Company's taxable income (the TRA liability is determined based on a percentage of the corporate tax savings from the use of the TRA's attributes). Further sales or exchanges occurring subsequent to September 30, 2020 could result in future Amneal tax deductions and obligations to pay 85% of such benefits to the holders of Amneal common units. These obligations could be incremental to and substantially larger than the approximate $203 million contingent liability as of September 30, 2020 described above. Under certain conditions, such as a change of control or other early termination event, the Company could be obligated to make TRA payments in advance of tax benefits being realized. Payments could also be in excess of the tax savings that we ultimately realize.

Any future recognition of these TRA liabilities will be recorded through charges in the Company’s consolidated statements of operations.  However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRA.  Should the Company determine that a DTA with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be released and if a resulting TRA payment is determined to be probable, a corresponding TRA liability will be recorded.
v3.20.2
Trade Accounts Receivable, Net
9 Months Ended
Sep. 30, 2020
Receivables [Abstract]  
Trade Accounts Receivable, Net Trade Accounts Receivable, NetTrade accounts receivable, net is comprised of the following (in thousands):
September 30,
2020
December 31,
2019
Gross accounts receivable$1,337,951 $1,470,706 
Allowance for doubtful accounts(728)(2,201)
Contract charge-backs and sales volume allowances(604,663)(829,807)
Cash discount allowances(25,457)(34,308)
Subtotal(630,848)(866,316)
Trade accounts receivable, net$707,103 $604,390 
Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at September 30, 2020, equal to 37%, 26%, and 23%, respectively.  Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at December 31, 2019, equal to 39%, 25%, and 25%, respectively.
v3.20.2
Inventories
9 Months Ended
Sep. 30, 2020
Inventory Disclosure [Abstract]  
Inventories Inventories
Inventories are comprised of the following (in thousands):
September 30,
2020
December 31,
2019
Raw materials
$194,020 $172,159 
Work in process
44,550 58,188 
Finished goods
237,190 150,720 
Total inventories$475,760 $381,067 
v3.20.2
Prepaid Expenses and Other Current Assets
9 Months Ended
Sep. 30, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid Expenses and Other Current Assets Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are comprised of the following (in thousands):
September 30,
2020
December 31,
2019
Deposits and advances$700 $1,123 
Prepaid insurance8,480 3,858 
Prepaid regulatory fees219 4,016 
Income and other tax receivables (1)
12,772 13,740 
Prepaid taxes3,424 3,255 
Other current receivables14,619 15,996 
Chargebacks receivable (2)
7,910 — 
Other prepaid assets28,140 28,176 
Total prepaid expenses and other current assets$76,264 $70,164 
(1)On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act is an emergency economic stimulus package in response to the COVID-19 pandemic which, among other things, includes provisions relating to income and non-income-based tax laws.  Amneal recorded a U.S. federal income tax receivable of $110 million related to benefits associated with the CARES Act, of which $106 million was received in July 2020 and the remainder is expected to be received before December 31, 2020.  For further details, refer to Note 8. Income Taxes.
(2)When a sale occurs on a contract item, the difference between the cost paid to the manufacturer by the Company and the contract cost that the end customer has with the manufacturer is rebated back to the Company by the manufacturer. The Company establishes a chargeback (rebate) receivable and a reduction to cost of goods sold in the same period as the related sale.
v3.20.2
Other Assets
9 Months Ended
Sep. 30, 2020
Other Assets [Abstract]  
Other Assets Other AssetsOther assets are comprised of the following (in thousands):
September 30,
2020
December 31,
2019
Deferred revolving credit facility costs$2,908 $3,099 
Security deposits2,731 1,938 
Long-term prepaid expenses5,110 6,438 
Interest rate swap— 16,373 
Financing lease right-of-use assets10,023 11,442 
Deposit for the purchase of property, plant and equipment 4,229 — 
Other long-term assets6,141 4,980 
Total other assets$31,142 $44,270 
v3.20.2
Debt
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Debt Debt
The following is a summary of the Company's long-term debt (in thousands):
September 30,
2020
December 31,
2019
Term Loan due May 2025$2,638,626 $2,658,876 
Rondo Term Loan due January 2025175,500 — 
Other624 624 
Total long-term debt2,814,750 2,659,500 
Less: debt issuance costs(27,835)(28,975)
Total debt, net of debt issuance costs2,786,915 2,630,525 
Less: current portion of long-term debt(29,776)(21,479)
Total long-term debt, net$2,757,139 $2,609,046 
Senior Secured Credit Facilities
On May 4, 2018 the Company entered into a senior credit agreement that provided a term loan ("Term Loan") with a principal amount of $2.7 billion and an asset backed revolving credit facility ("Revolving Credit Facility") under which loans and letters of credit up to a principal amount of $500 million, of which $498 million were available at September 30, 2020 (principal amount of up to $25 million is available for letters of credit) (collectively, the "Senior Secured Credit Facilities").  
The Term Loan is repayable in equal quarterly installments at a rate of 1.00% of the original principal amount annually, with the balance payable at maturity on May 4, 2025. The Term Loan bears a variable annual interest rate, which is one-month LIBOR plus 3.5% at September 30, 2020. In October 2019, the Company entered into an interest rate lock agreement for a total notional amount of $1.3 billion to hedge part of the Company's interest rate exposure associated with the variability in future c ash flows from changes in the one-month LIBOR associated with its Term Loan. For further details, refer to Note 16. Financial Instruments.
The Revolving Credit Facility bears an annual interest rate of one-month LIBOR plus 1.25% at September 30, 2020 and matures on May 4, 2023. The annual interest rate for the Revolving Credit Facility may be reduced or increased by 0.25% based on step-downs and step-ups determined by the average historical excess availability.
The proceeds of any loans made under the Senior Secured Credit Facilities can be used for capital expenditures, acquisitions, working capital needs and other general purposes, subject to covenants as described below. The Company pays a commitment fee based on the average daily unused amount of the Revolving Credit Facility at a rate based on average historical excess availability, between 0.25% and 0.375% per annum. At September 30, 2020, the Revolving Credit Facility commitment fee rate was 0.375% per annum.
During March 2020, as a precautionary measure to mitigate the uncertainty surrounding overall market liquidity due to the COVID-19 pandemic, the Company borrowed $300 million on the Revolving Credit Facility.  As the financial markets stabilized following a period of high volatility due to the COVID-19 pandemic, the Company repaid all borrowings under the Revolving Credit Facility as of June 30, 2020.
The Company incurred costs associated with the Term Loan due May 2025 of $38 million and the Revolving Credit Facility of $5 million, which have been capitalized and are being amortized over the life of the applicable debt agreement to interest expense using the effective interest method. The Term Loan has been recorded in the balance sheet net of issuance costs. Costs associated with the Revolving Credit Facility have been recorded in other assets because there were no borrowings outstanding on the effective date of the Revolving Credit Facility. For both the three months ended September 30, 2020 and 2019, amortization of deferred financing costs related to the Term Loan and the Revolving Credit Facility was $2 million. For both the nine months ended September 30, 2020 and 2019, amortization of deferred financing costs related to the Term Loan and the Revolving Credit Facility was $5 million.
The Senior Secured Credit Facilities contain a number of covenants that, among other things, create liens on Amneal's and its subsidiaries' assets. The Senior Secured Credit Facilities contain certain negative covenants that, among other things and subject to certain exceptions, restrict Amneal’s and its subsidiaries' ability to incur additional debt or guarantees, grant liens, make loans, acquisitions or other investments, dispose of assets, merge, dissolve, liquidate or consolidate, pay dividends or other payments on capital stock, make optional payments or modify certain debt instruments, modify certain organizational documents, enter into arrangements that restrict the ability to pay dividends or grant liens, or enter into or consummate transactions with affiliates. The Revolving Credit Facility also includes a financial covenant whereby Amneal must maintain a minimum fixed charge coverage ratio if certain borrowing conditions are met. The Senior Secured Credit Facilities contain customary events of default, subject to certain exceptions. Upon the occurrence of certain events of default, the obligations under the Senior Secured Credit Facilities may be accelerated and the commitments may be terminated. At September 30, 2020, Amneal was in compliance with all covenants.
Acquisition Financing - Revolving Credit and Term Loan Agreement
On January 31, 2020, in connection with the Acquisitions, Rondo Intermediate Holdings, LLC (“Rondo Holdings”), a wholly-owned subsidiary of Rondo, entered into a revolving credit and term loan agreement (“Rondo Credit Facility”) that provided a term loan ("Rondo Term Loan") with a principal amount of $180 million and a revolving credit facility (“Rondo Revolving Credit Facility”) which loans up to a principal amount of $30 million. The Rondo Term Loan is repayable in equal quarterly installments at a rate of 5.0% of the original principal amount annually, with the balance payable at maturity on January 31, 2025. The Rondo Credit Facility bears a variable annual interest rate, which is one-month LIBOR plus 3.0% at September 30, 2020 and matures on January 31, 2025. The annual interest rate for borrowings under the Rondo Credit Facility may be reduced or increased by 0.25% based on step-downs and step-ups determined by the total net leverage ratio, as defined in that agreement.  At September 30, 2020, the Company had no outstanding borrowings under the Rondo Revolving Credit Facility.  
A commitment fee based on the average daily unused amount of the Rondo Credit Facility is assessed at a rate based on total net leverage ratio, between 0.25% and 0.50% per annum. At September 30, 2020, the Rondo Credit Facility commitment fee rate was 0.4% per annum.
Costs associated with the Rondo Term Loan of $3 million and the Rondo Credit Facility of $1 million have been capitalized and are being amortized over the life of the applicable debt instrument to interest expense using the effective interest method. The Rondo Term Loan has been recorded in the balance sheet net of issuance costs.  Costs associated with the Rondo Revolving Credit Facility have been recorded in other assets.  For both the three and nine months ended September 30, 2020, amortization of deferred financing costs associated with the Rondo Credit Facility was less than $1 million.
The Rondo Credit Facility contains a number of covenants that, among other things, create liens on the equity securities and assets of Rondo Holdings, Rondo, AvKARE, LLC and R&S.  The Rondo Credit Facility contains certain negative, affirmative and financial covenants that, among other things, restrict the ability to incur additional debt, grant liens, transact in mergers and acquisitions, make certain investments and payments or engage in certain transactions with affiliates.  The Rondo Credit Facility also contains customary events of default. Upon the occurrence of certain events of default, the obligations under the Rondo Credit Facility may be accelerated and/ or the interest rate may be increased.  At September 30, 2020, Rondo was in compliance with all covenants.  The Company is not party to the Rondo Credit Facility and is not a guarantor of any debt incurred thereunder.
The Term Loan and Rondo Term Loan require payments of $27 million and $9 million, respectively, per year for the next four years and the balance thereafter.
Acquisition Financing – Notes Payable-Related Party
The Sellers Notes with a stated aggregate principal amount of $44 million and the Short-Term Sellers Note with a stated principal amount of $1 million were issued by Rondo or its subsidiary, Rondo Top Holdings, LLC, on January 31, 2020, the
closing date of the Acquisitions.  The Sellers Notes are unsecured and accrue interest at a rate of 5% per annum, not compounded, until June 30, 2025.  The Sellers Notes are subject to prepayment at the option of Rondo, as the obligor, without premium or penalty. Mandatory payment of the outstanding principal and interest is due on June 30, 2025 if certain financial targets are achieved, the borrowers’ cash flows are sufficient (as defined in the Sellers Notes) and repayment is not prohibited by senior debt.   If repayment of all outstanding principal and accrued interest on the Sellers Notes is not made on June 30, 2025, the requirements for repayment are revisited on June 30 of each subsequent year until all principal and accrued interest are satisfied no later than January 31, 2030 or earlier, upon a change in control.  The Short-Term Sellers Note is also unsecured and accrues interest at a rate of 1.6% and is due on January 31, 2021.
In accordance with ASC 805, Business Combinations, all consideration transferred was measured at its acquisition-date fair value.  The Sellers Notes were stated at the preliminary fair value estimate of $35 million, which was estimated using the Monte-Carlo simulation approach under the option pricing framework.  The Short-Term Sellers Note of $1 million was recorded at the stated principal amount of $1 million, which approximates fair value.  The $9 million discount on the Sellers Notes will be amortized to interest expense using the effective interest method from January 31, 2020 to June 30, 2025 and the carrying value of the Sellers Notes will accrete to the stated principal amount of $44 million.
The Company is not party to or a guarantor of the Sellers Notes or Short-Term Sellers Notes. The Sellers Notes and the Short-Term Sellers Note are recorded in notes payable-related party within long-term liabilities and notes payable-related party within current liabilities, respectively.
v3.20.2
Other Long-Term Liabilities
9 Months Ended
Sep. 30, 2020
Other Liabilities [Abstract]  
Other Long-Term Liabilities Other Long-Term Liabilities
Other long-term liabilities are comprised of the following (in thousands):
September 30,
2020
December 31,
2019
Interest rate swap (1)
$57,658 $— 
Uncertain tax positions3,680 5,088 
Long-term compensation (2)
20,469 22,735 
Financing lease liabilities2,815 3,869 
Other long-term liabilities11,566 7,891 
Total other long-term liabilities$96,188 $39,583 
(1)Refer to Notes 15. Fair Value Measurements and 16. Financial Instruments for information about the Company’s interest rate swap.
(2)Includes $12 million of long-term deferred compensation plan liabilities (refer to Note 15. Fair Value Measurements), $8 million of long-term employee benefits for the Company’s international employees and $0.5 million of long-term severance liabilities (refer to Note 6. Restructuring and Other Charges).
v3.20.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Value is determined using pricing models, discounted cash flow methodologies, or similar techniques and also includes instruments for which the determination of fair value requires significant judgment or estimation.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification for each reporting period. The following table sets forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 (in thousands):
Fair Value Measurement Based on
September 30, 2020TotalQuoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Liabilities
Interest rate swap (1)
$57,658 $— $57,658 $— 
Deferred compensation plan liabilities (2)
13,883 — 13,883 — 
December 31, 2019
Assets
Interest rate swap (1)
$16,373 $— $16,373 $— 
Liabilities
Deferred compensation plan liabilities (2)
$18,396 $— $18,396 $— 
(1)The fair value measurement of the Company’s interest rate swap classified within Level 2 of the fair value hierarchy is a model-derived valuation as of a given date in which all significant inputs are observable in active markets including certain financial information and certain assumptions regarding past, present, and future market conditions.
(2)As of September 30, 2020, deferred compensation plan liabilities of $2 million and $12 million were recorded in current and non-current liabilities, respectively. As of December 31, 2019, deferred compensation plan liabilities of $4 million and $14 million were recorded in current and non-current liabilities, respectively. These liabilities are recorded at the value of the amount owed to the plan participants, with changes in value recognized as compensation expense. The calculation of the deferred compensation plan obligation is derived from observable market data by reference to hypothetical investments selected by the participants.
There were no transfers between levels in the fair value hierarchy during the nine months ended September 30, 2020.
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
The carrying amounts of cash, accounts receivable and accounts payable approximate their fair values due to the short-term maturity of these instruments.
The $2.6 billion Term Loan falls into the Level 2 category within the fair value level hierarchy. The fair value was determined using market data for valuation. The fair value of the Term Loan at September 30, 2020 and December 31, 2019 was approximately $2.5 billion and $2.4 billion, respectively.
The $176 million Rondo Term Loan entered into on January 31, 2020 falls into the Level 2 category within the fair value level hierarchy. The fair value of the Rondo Term Loan at September 30, 2020 was approximately $172 million.
The Sellers Notes and the Short-Term Sellers Note fall into the Level 2 category within the fair value level hierarchy. At September 30, 2020, the carrying value of the Sellers Notes and the Short-Term Sellers Note of $36 million and $1 million, respectively, approximate their fair values.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
There were no non-recurring fair value measurements during the nine months ended September 30, 2020 and 2019.