AMNEAL PHARMACEUTICALS, INC., 10-K filed on 3/2/2020
Annual Report
v3.19.3.a.u2
Document And Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Feb. 13, 2020
Jun. 28, 2019
Entity Information [Line Items]      
Document Type 10-K    
Amendment Flag false    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001723128    
Current Fiscal Year End Date --12-31    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Annual Report true    
Document Transition Report false    
Entity File Number 001-38485    
Entity Registrant Name Amneal Pharmaceuticals, Inc.    
Entity Incorporation, State or Country Code DE    
Entity Address, Address Line One 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    
Entity Tax Identification Number 32-0546926    
Title of 12(b) Security Class A Common Stock, par value $0.01 per share    
Security Exchange Name NYSE    
Trading Symbol AMRX    
Entity Well-Known Seasoned Issuer Yes    
Entity Emerging Growth Company false    
Entity Voluntary Filers No    
Entity Small Business false    
Entity Current Reporting Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Shell Company false    
Entity Public Float     $ 1,201,759,491
Documents Incorporated by Reference

Certain information required to be furnished pursuant to Part III of this Form 10-K will be set forth in, and is hereby incorporated by reference herein from, the registrant’s definitive proxy statement for its 2020 Annual Meeting of Stockholders, to be filed by the registrant with the Securities and Exchange Commission pursuant to Regulation 14A no later than 120 days after December 31, 2019 (the “2020 Proxy Statement”).

   
Class A Common Stock      
Entity Information [Line Items]      
Entity Common Stock, Shares Outstanding (in shares)   147,109,015  
Class B Common Stock      
Entity Information [Line Items]      
Entity Common Stock, Shares Outstanding (in shares)   152,116,890  
v3.19.3.a.u2
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Net revenue $ 1,626,373 $ 1,662,991 $ 1,033,654
Cost of goods sold 1,147,214 938,773 507,476
Cost of goods sold impairment charges 126,162 7,815 0
Gross profit 352,997 716,403 526,178
Selling, general and administrative 289,598 227,846 109,046
Research and development 188,049 194,190 171,420
In-process research and development impairment charges 46,619 39,259 0
Acquisition, transaction-related and integration expenses 16,388 221,818 9,403
Restructuring and other charges 34,345 56,413 0
Charges (gains) related to legal matters, net 12,442 (19,711) (29,312)
Intellectual property legal development expenses 14,238 16,261 20,518
Operating (loss) income (248,682) (19,673) 245,103
Other (expense) income:      
Interest expense, net (168,205) (143,571) (71,061)
Foreign exchange (loss) gain (4,962) (19,701) 29,092
Loss on extinguishment of debt 0 (19,667) (2,532)
Gain (loss) on sale of international businesses 7,258 (2,958) (29,232)
Gain from reduction of tax receivable agreement liability 192,884 1,665 0
Other income (expense) 1,465 1,183 (47)
Total other income (expense), net 28,440 (183,049) (73,780)
(Loss) income before income taxes (220,242) (202,722) 171,323
Provision for (benefit from) income taxes 383,331 (1,419) 1,998
Net (loss) income (603,573) (201,303) 169,325
Less: Net loss (income) attributable to Amneal Pharmaceuticals LLC pre-Combination 0 148,806 (167,648)
Less: Net loss (income) attributable to non-controlling interests 241,656 32,753 (1,677)
Net loss attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest (361,917) (19,744) 0
Accretion of redeemable non-controlling interest 0 (1,176) 0
Net loss attributable to Amneal Pharmaceuticals, Inc. $ (361,917) $ (20,920) $ 0
Net loss per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:      
Class A and Class B-1 basic and diluted $ (2.74) $ (0.16)  
Weighted-average common shares outstanding:      
Class A and Class B-1 basic and diluted 132,106 127,252  
v3.19.3.a.u2
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement Of Other Comprehensive Income [Abstract]      
Net (loss) income $ (603,573) $ (201,303) $ 169,325
Less: Net loss (income) attributable to Amneal Pharmaceuticals LLC pre-Combination 0 148,806 (167,648)
Less: Net loss (income) attributable to non-controlling interests 241,656 32,753 (1,677)
Net loss attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest (361,917) (19,744) 0
Accretion of redeemable non-controlling interest 0 (1,176) 0
Net loss attributable to Amneal Pharmaceuticals, Inc. (361,917) (20,920) 0
Other comprehensive (loss) income:      
Foreign currency translation adjustments arising during the period (1,233) (3,952) (2,238)
Less: Reclassification of foreign currency translation adjustment included in net loss 3,413 0 803
Foreign currency translation adjustments, net 2,180 (3,952) (1,435)
Less: Other comprehensive (income) loss attributable to Amneal Pharmaceuticals LLC pre-Combination 0 (1,721) 1,435
Unrealized gain on cash flow hedge, net of tax 16,373 0 0
Less: Other comprehensive (income) loss attributable to non-controlling interests (10,058) 3,256 0
Other comprehensive income (loss) attributable to Amneal Pharmaceuticals, Inc. 8,495 (2,417) 0
Comprehensive loss attributable to Amneal Pharmaceuticals, Inc. $ (353,422) $ (23,337) $ 0
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 151,197 $ 213,394
Restricted cash 1,625 5,385
Trade accounts receivable, net 604,390 481,495
Inventories 381,067 457,219
Prepaid expenses and other current assets 70,164 128,321
Related party receivables 1,767 830
Total current assets 1,210,210 1,286,644
Property, plant and equipment, net 477,997 544,146
Goodwill 419,504 426,226
Intangible assets, net 1,382,753 1,654,969
Deferred tax asset, net 0 373,159
Operating lease right-of-use assets 69,872  
Financing lease right-of-use assets - related party 61,284  
Other assets 44,270 67,592
Total assets 3,665,890 4,352,736
Current liabilities:    
Accounts payable and accrued expenses 507,483 514,440
Current portion of long-term debt, net 21,479 21,449
Related party payables 5,969 17,695
Total current liabilities 550,406 553,850
Long-term debt, net 2,609,046 2,630,598
Deferred income taxes 0 1,178
Liabilities under tax receivable agreement 0 192,884
Other long-term liabilities 39,583 38,780
Total long-term liabilities 2,768,696 2,902,523
Commitments and contingencies (Notes 5 & 20) 0 0
Stockholders' equity:    
Preferred stock, $0.01 par value, 2,000 shares authorized; none issued at both December 31, 2019 and 2018 0 0
Additional paid-in capital 606,966 530,438
Stockholders' accumulated deficit (377,880) (20,920)
Accumulated other comprehensive loss (68) (7,755)
Total Amneal Pharmaceuticals, Inc. stockholders' equity 232,010 504,750
Non-controlling interests 114,778 391,613
Total stockholders' equity 346,788 896,363
Total liabilities and stockholders' equity 3,665,890 4,352,736
Common Class A    
Stockholders' equity:    
Common stock 1,470 1,151
Common Class B    
Stockholders' equity:    
Common stock 1,522 1,713
Common Class B-1    
Stockholders' equity:    
Common stock 0 123
Excluding Related Party    
Current assets:    
Operating lease right-of-use assets 53,344 0
Current liabilities:    
Current portion of operating lease liabilities 11,874 0
Operating lease liabilities 43,135 0
Related Party    
Current assets:    
Operating lease right-of-use assets 16,528 0
Financing lease right-of-use assets - related party 61,284 0
Current liabilities:    
Current portion of operating lease liabilities 2,547  
Current portion of operating and financing lease liabilities - related party 3,601 0
Current portion of financing obligation - related party 0 266
Financing obligations - related party 0 39,083
Operating lease liabilities 15,469 0
Financing lease liabilities - related party $ 61,463 $ 0
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 2,000,000 2,000,000
Preferred stock, shares issued (in shares) 0 0
Class A Common Stock    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 900,000,000 900,000,000
Common stock, shares issued (in shares) 147,070,000 115,047,000
Common stock, shares outstanding (in shares) 147,070,000 115,047,000
Class B Common Stock    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 300,000,000 300,000,000
Common stock, shares issued (in shares) 152,117,000 171,261,000
Common stock, shares outstanding (in shares) 152,117,000 171,261,000
Class B-1 Common Stock    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 18,000,000 18,000,000
Common stock, shares issued (in shares) 0 12,329,000
Common stock, shares outstanding (in shares) 0 12,329,000
v3.19.3.a.u2
Consolidated Statement of Stockholders' Equity / Members' Deficit - USD ($)
$ in Thousands
Total
Period Prior to the Combination
Period Subsequent to the Combination
Period Subsequent to the Combination
Private Placement
Period Subsequent to the Combination
PPU Holders Distribution
Common Stock
Class A Common Stock
Common Stock
Class A Common Stock
Period Subsequent to the Combination
Common Stock
Class A Common Stock
Period Subsequent to the Combination
Private Placement
Common Stock
Class A Common Stock
Period Subsequent to the Combination
PPU Holders Distribution
Common Stock
Class B Common Stock
Common Stock
Class B Common Stock
Period Subsequent to the Combination
Common Stock
Class B Common Stock
Period Subsequent to the Combination
Private Placement
Common Stock
Class B Common Stock
Period Subsequent to the Combination
PPU Holders Distribution
Common Stock
Class B-1 Common Stock
Common Stock
Class B-1 Common Stock
Period Subsequent to the Combination
Private Placement
Additional Paid-in Capital
Additional Paid-in Capital
Period Prior to the Combination
Additional Paid-in Capital
Period Subsequent to the Combination
Additional Paid-in Capital
Period Subsequent to the Combination
Private Placement
Additional Paid-in Capital
Period Subsequent to the Combination
PPU Holders Distribution
Members' and Stockholders' Accumulated Deficit
Members' and Stockholders' Accumulated Deficit
Period Prior to the Combination
Members' and Stockholders' Accumulated Deficit
Period Subsequent to the Combination
Accumulated Other Comprehensive (Loss) Income
Accumulated Other Comprehensive (Loss) Income
Period Prior to the Combination
Accumulated Other Comprehensive (Loss) Income
Period Subsequent to the Combination
Accumulated Other Comprehensive (Loss) Income
Period Subsequent to the Combination
Private Placement
Accumulated Other Comprehensive (Loss) Income
Period Subsequent to the Combination
PPU Holders Distribution
Non-Controlling Interests
Non-Controlling Interests
Period Prior to the Combination
Non-Controlling Interests
Period Subsequent to the Combination
Non-Controlling Interests
Period Subsequent to the Combination
Private Placement
Non-Controlling Interests
Period Subsequent to the Combination
PPU Holders Distribution
Members' Equity
Members' Equity
Period Prior to the Combination
Members' Equity
Period Subsequent to the Combination
Members' equity beginning balance at Dec. 31, 2016 $ (175,945)                                       $ (175,168)     $ (12,797)         $ 9,345         $ 2,675    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                                                        
Net (loss) income 169,325                                                                      
Dividend to non-controlling interest   $ (865)                                                       $ (865)            
Net (loss) income, Period Prior to the Combination 167,648 169,325                                       $ 167,648               1,677            
Distributions to members   (375,265)                                       (375,265)                            
Foreign currency translation adjustment (2,238) (1,435)                                             $ (1,435)                      
Capital contribution   8,603                             $ 8,562                                   $ 41  
Unrealized gain on cash flow hedge, net of tax 0                                                                      
Stockholders' equity ending balance at Dec. 31, 2017                                               (14,232)                        
Members' equity ending balance at Dec. 31, 2017 (375,582)                             $ 8,562         (382,785)     (14,232)         10,157         $ 2,716    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                                                        
Cumulative-effective adjustment from adoption of ASU | Adoption of ASU 2014-09 (Topic 606)   4,977                                       4,977                            
Net (loss) income (201,303)   $ (52,661)                                       $ (19,744)               $ (32,917)          
Dividend to non-controlling interest (49,000)                                                                      
Net (loss) income, Period Prior to the Combination (148,806) (148,709)                                       (148,806)               97            
Capital contribution from non-controlling interest   360                                                       $ 360            
Distributions to members   (191,560)                             $ (8,562)         $ (182,998)                            
Foreign currency translation adjustment $ (3,952) 1,721 (5,673)                                           $ 1,721 $ (2,417)         (3,256)          
PPU expense   158,757                                                                 158,757  
Capital contribution   $ 27,742                                                                 $ 27,742  
Effect of the Combination     1,490,232       $ 733       $ 2,250             $ 330,678         709,612     9,437         626,737         $ (189,215)
Effect of the Combination (in shares)             73,289,000       224,996,000                                                  
Redemption of Class B Common Stock       $ 32,714 $ 4,823     $ 345 $ 69     $ (468) $ (69)   $ 123       $ 165,180 $ 24,293             $ (1,965) $ (289)       $ (130,501) $ (19,181)      
Redemption of Class B Common Stock (in shares)               34,520,000 6,886,000     (46,849,000) (6,886,000)   12,329,000                                          
Stock-based compensation     8,840                             8,840                                    
Exercise of stock options     3,797       $ 4                     2,184               $ (10)         1,619          
Exercise of stock options (in shares) 351,668           352,000                                                          
Reclassification of redeemable non-controlling interest     (11,708)                                       $ (1,176)               (10,532)          
Non-controlling interests from acquisition of Gemini     2,518                                                       2,518          
Acquisition of redeemable non-controlling interest     (11,775)                                                                  
Acquisition of non-controlling interests     (3,485)                             (920)                         (2,565)          
Tax distribution     (48,955)                                                       (48,955)          
Other     (1,785)                             $ 183                         $ (1,968)          
Unrealized gain on cash flow hedge, net of tax $ 0                                                                      
Stockholders' equity ending balance at Dec. 31, 2018 896,363         $ 1,151       $ 1,713       $ 123   530,438         (20,920)     (7,755)         391,613              
Shares ending balance (in shares) at Dec. 31, 2018           115,047,000       171,261,000       12,329,000                                            
Increase (Decrease) in Temporary Equity [Roll Forward]                                                                        
Net (loss) income     67                                                                  
Reclassification of redeemable non-controlling interest     11,708                                                                  
Acquisition of redeemable non-controlling interest     $ (11,775)                                                                  
Cumulative-effective adjustment from adoption of ASU | Adoption of Topic 842 13,561                                       4,957               8,604              
Net (loss) income (603,573)                                       (361,917)               (241,656)              
Dividend to non-controlling interest 0                                                                      
Net (loss) income, Period Prior to the Combination 0                                                                      
Foreign currency translation adjustment (1,233)                                             (729)         (504)              
Redemption of Class B Common Stock           $ 191       $ (191)           53,858               (795)         (53,063)              
Redemption of Class B Common Stock (in shares)           19,144,000       (19,144,000)                                                    
Stock-based compensation 21,679                             21,679                                        
Exercise of stock options $ 1,400         $ 2                   937               (7)         468              
Exercise of stock options (in shares) 210,806         211,000                                                            
Tax distribution $ (82)                                                       (82)              
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (1,113)         $ 3                   54               (7)         (1,163)              
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)           339,000                                                            
Conversion of Class B-1 Common Stock           $ 123               $ (123)                                            
Conversion of Class B-1 Common Stock (in shares)           12,329,000               (12,329,000)                                            
Unrealized gain on cash flow hedge, net of tax 16,373                                             7,764         8,609              
Reclassification of foreign currency translation adjustment included in net loss 3,413                                             1,461         1,952              
Stockholders' equity ending balance at Dec. 31, 2019 $ 346,788         $ 1,470       $ 1,522           $ 606,966         $ (377,880)     $ (68)         $ 114,778              
Shares ending balance (in shares) at Dec. 31, 2019           147,070,000       152,117,000                                                    
v3.19.3.a.u2
Consolidated Statements of Cash Flows
$ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Cash flows from operating activities:      
Net (loss) income $ (603,573) $ (201,303) $ 169,325
Adjustments to reconcile net (loss) income to net cash provided by operating activities:      
Gain from reduction of tax receivable agreement liability (192,884) (1,665) 0
Depreciation and amortization 207,235 137,403 45,936
Amortization of Levothyroxine Transition Agreement asset 36,393 10,423 0
Unrealized foreign currency loss (gain) 7,342 18,582 (30,823)
Amortization of debt issuance costs 6,478 5,859 4,585
Loss on extinguishment of debt 0 19,667 2,532
(Gain) loss on sale of international businesses, net (7,258) 2,958 29,232
Intangible asset impairment charges 172,781 47,074 0
Non-cash restructuring and asset-related charges 12,459 11,295 0
Deferred tax provision (benefit) 371,716 (9,439) 742
Stock-based compensation and PPU expense 21,679 167,597 0
Inventory provision 82,245 44,539 3,771
Other operating charges and credits, net 7,309 (1,866) 9,935
Changes in assets and liabilities:      
Trade accounts receivable, net (132,726) 89,084 35,255
Inventories (20,393) (42,021) (31,826)
Prepaid expenses, other current assets and other assets 38,870 8,775 (25,305)
Related party receivables (939) 10,928 (5,485)
Accounts payable, accrued expenses and other liabilities (10,257) (53,547) 18,105
Related party payables 5,228 (14,113) 8,208
Net cash provided by operating activities 1,705 250,230 234,187
Cash flows from investing activities:      
Purchases of property, plant and equipment (47,181) (83,088) (94,771)
Acquisition of product rights and licenses (50,250) (14,000) (19,500)
Acquisitions, net of cash acquired 0 (324,634) 0
Proceeds from surrender of corporate owned life insurance 43,017 0 0
Proceeds from sales of property, plant and equipment 0 25,344 0
Proceeds from sale of international businesses, net of cash sold 34,834 0 15,717
Net cash used in investing activities (19,580) (396,378) (98,554)
Cash flows from financing activities:      
Payments of deferred financing costs and debt extinguishment costs 0 (54,955) (5,026)
Proceeds from issuance of debt 0 1,325,383 250,000
Payments of principal on debt and capital leases (27,000) (617,051) (13,625)
Net (payments) borrowings on revolving credit line 0 (75,000) 50,000
Proceeds from exercise of stock options 1,400 3,797 0
Employee payroll tax withholding on restricted stock unit vesting (926) 0 0
Equity contributions 0 27,742 40
Capital contribution from (dividend to) non-controlling interest 0 360 (865)
Acquisition of redeemable non-controlling interest 0 (11,775) 0
Acquisition of non-controlling interest (3,543) 0 0
Tax distribution to non-controlling interest (13,494) (35,543) 0
Distributions to members 0 (182,998) (375,265)
Payments of principal on financing lease - related party (2,256)    
Repayment of related party notes 0 (92,042) 0
Net cash (used in) provided by financing activities (45,833) 287,675 (95,015)
Effect of foreign exchange rate on cash (2,249) (670) (242)
Net (decrease) increase in cash, cash equivalents, and restricted cash (65,957) 140,857 40,376
Cash, cash equivalents, and restricted cash - beginning of period 218,779 77,922 37,546
Cash, cash equivalents, and restricted cash - end of period 152,822 218,779 77,922
Cash and cash equivalents - end of period 151,197 213,394 74,166
Restricted cash - end of period 1,625 5,385 3,756
Supplemental disclosure of cash flow information:      
Cash paid for interest 158,568 131,505 65,086
Cash received (paid), net for income taxes 10,255 34,952 (5,780)
Supplemental disclosure of non-cash investing and financing activity:      
Acquisition of non-controlling interest 0 3,485 0
Tax distribution to non-controlling interest 0 13,412 0
Distribution to members 0 8,562 0
Receivable from the sale of international businesses 0 0 1,936
Note payable resulting from the Ireland building purchase 0 0 14,758
Transaction costs paid by Amneal Holdings 0 0 8,561
Related Party      
Cash flows from financing activities:      
Payments of principal on financing obligation - related party 0 (243) (274)
Payments of principal on financing lease - related party $ (2,270) $ 0 $ 0
v3.19.3.a.u2
Nature of Operations and Basis of Presentation
12 Months Ended
Dec. 31, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Nature of Operations and Basis of Presentation

1. Nature of Operations and Basis of Presentation

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").

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 has operations 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 listed on the New York Stock Exchange, 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 direct 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 of the non-controlling interest holders upon the consummation of the Combination, PIPE Investment and Closing Date Redemption was approximately 57%.  As of December 31, 2019, the overall interest percentage of the non-controlling interest holders was approximately 51%.

On July 5, 2018, Holdings distributed to its members (collectively, the "Amneal Group") all Amneal Common Units and shares of Class B Common Stock held by Holdings. As a result, as of December 31, 2019 and 2018, Holdings did not hold any equity interest in Amneal or the Company.

The Company is a holding company, whose principal assets are Amneal Common Units.

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 are 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).

v3.19.3.a.u2
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Accounting Principles

The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). All intercompany accounts and transactions have been eliminated.

Principles of Consolidation

Although the Company has a minority economic interest in Amneal, it is Amneal’s sole managing member, having the sole voting power to make all of Amneal’s business decisions and control its management. Therefore, the Company consolidates the financial statements of Amneal and its subsidiaries. The Company’s consolidated financial statements are a continuation of Amneal’s financial statements, with adjustments to equity to reflect the Combination, the PIPE Investment and non-controlling interests for the portion of Amneal’s economic interests that is not held by the Company. Prior to the closing of the Combination and PIPE Investment, the Company did not conduct any activities other than those incidental to the formation of it and Merger Sub and the matters contemplated by the BCA and had no operations and no material assets or liabilities. The current year results and balances may not be comparable to prior years as the current year includes the full year impact of the Combination, the year ended December 31, 2018 includes the impact of the Combination from May 4, 2018 to December 31, 2018, and the year ended December 31, 2017 does not include the impact of the Combination.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP 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, allowances for accounts receivable, accrued liabilities, stock-based compensation, valuation of inventory balances, the determination of useful lives for product rights 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.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers and associated ASUs (collectively "Topic 606"), which sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific sections of revenue recognition guidance that have historically existed.

When assessing its revenue recognition, the Company performs the following five steps in accordance with Topic 606: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies the performance obligation. The Company recognizes revenue when it transfers control of its products to customers, in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those products. For further details on the Company’s revenue recognition policies under Topic 606, refer to Note 4. Revenue Recognition.

Stock-Based Compensation

The Company’s stock-based compensation consists of stock options, restricted stock units ("RSUs") and market performance-based restricted stock units (“MPRSUs”) awarded to employees and non-employee directors. Stock options are measured at their fair value on the grant date or date of modification, as applicable. RSUs are measured at the stock price on the grant date or date of modification, as applicable. The Company recognizes compensation expense on a straight-line basis over the requisite service and/or performance period, as applicable. Forfeitures of awards are accounted for as a reduction in stock-based compensation expense in the period such awards are forfeited. The Company's policy is to issue new shares upon option exercises and the vesting of RSUs and MPRSUs.

Foreign Currencies

The Company has operations in the U.S., India, Ireland, and other international jurisdictions.  The results of its non-U.S. dollar based operations are translated to U.S. Dollars at the average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date. Investment accounts are translated at historical exchange rates. Translation adjustments are accumulated in a separate component of stockholders’/members’ deficit in the consolidated balance sheet and are included in the determination of comprehensive income. Transaction gains and losses are included in the determination of net (loss) income in the Company consolidated statements of operations as a component of foreign exchange gains and losses. Such foreign currency transaction gains and losses include fluctuations related to long term intercompany loans that are payable in the foreseeable future.

Business Combinations

Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, the acquiring entity in a business combination records the assets acquired and liabilities assumed at the date of acquisition at their fair values. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. Acquisition-related costs, primarily professional fees, are expensed as incurred.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit and highly liquid investments with original maturities of three months or less. A portion of the Company’s cash flows are derived outside the U.S. As a result, the Company is subject to market risk associated with changes in foreign exchange rates. The Company maintains cash balances at both U.S.-based and foreign-based commercial banks. At various times during the year, cash balances in the U.S. may exceed amounts that are insured by the Federal Deposit Insurance Corporation.

Restricted Cash

At December 31, 2019 and 2018, respectively, the Company had restricted cash balances of $2 million and $5 million in its bank accounts primarily related to the purchase of certain land and equipment.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company limits its credit risk with respect to accounts receivable by performing credit evaluations when deemed necessary. The Company does not require collateral to secure amounts owed to it by its customers.

The allowance for doubtful accounts is management’s best estimate of the amount of probable collection losses in the Company’s existing accounts receivable. Management determines the allowance based on historical experience along with the present knowledge of potentially uncollectible accounts. Account balances are charged off against the allowance when management believes it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to customers.

Inventories

Inventories consist of finished goods held for sale, raw materials, and work in process. Inventories are stated at net realizable value, with cost determined using the first-in, first-out method. Adjustments for excess and obsolete inventories are established based upon historical experience and management’s assessment of current product demand. These assessments include inventory obsolescence based on its expiration date, damaged or rejected product, and slow-moving products.

Property, Plant, and Equipment

Property, plant, and equipment are stated at historical cost less accumulated depreciation. Depreciation expense is computed primarily using the straight-line method over the estimated useful lives of the assets, which are as follows:

 

Asset Classification

 

Estimated Useful Life

Buildings

 

30 years

Computer equipment

 

5 years

Furniture and fixtures

 

7 years

Leasehold improvements

 

Shorter of asset's useful life or remaining life of lease

Machinery and equipment

 

5 - 10 years

Vehicles

 

5 years

 

Upon retirement or disposal, the cost of the asset disposed and the accumulated depreciation are removed from the accounts, and any gain or loss is reflected as part of operating income (loss) in the period of disposal. Expenditures that significantly increase value or extend useful lives of property, plant, and equipment are capitalized, whereas those for normal maintenance and repairs are expensed. The Company capitalizes interest on borrowings during the construction period of major capital projects as part of the related asset and amortizes the capitalized interest into earnings over the related asset’s remaining useful life.

In-Process Research and Development

The fair value of in-process research and development ("IPR&D") acquired in a business combination is determined based on the present value of each research project’s projected cash flows using an income approach. Revenues are estimated based on relevant market size and growth factors, expected industry trends, individual project life cycles and the life of each research project’s underlying marketability. In determining the fair value of each research project, expected cash flows are adjusted for certain risks of completion, including technical and regulatory risk.

The value attributable to IPR&D projects at the time of acquisition is capitalized as an indefinite-lived intangible asset and tested for impairment until the project is completed or abandoned. Upon completion of the project, the indefinite-lived intangible asset is then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is abandoned, the indefinite-lived intangible asset is charged to expense.

Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually. However, an entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company considers many factors in evaluating whether the value of its intangible assets with indefinite lives may not be recoverable, including, but not limited to, expected growth rates, the cost of equity and debt capital, general economic conditions, the Company's outlook and market performance of the Company's industry and recent and forecasted financial performance.

Goodwill

Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value based test. The Company reviews goodwill for possible impairment annually during the fourth quarter, or whenever events or circumstances indicate that the carrying amount may not be recoverable.

In order to test goodwill for impairment, an entity is permitted to first assess qualitative factors to determine whether a quantitative assessment of goodwill is necessary. The qualitative factors considered by the Company may include, but are not limited to, general economic conditions, the Company’s outlook, market performance of the Company’s industry and recent and forecasted financial performance. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. If a quantitative assessment is required, the Company determines the fair value of its reporting unit using a combination of the income and market approaches.  If the net book value of the reporting unit exceeds its fair value, the Company recognizes a goodwill impairment charge for the reporting unit equal to the lesser of (i) the total goodwill allocated to that reporting unit and (ii) the amount by which that reporting unit’s carrying amount exceeds its fair value.

Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Such assumptions include projections of future cash flows and the current fair value of the asset.

Impairment of Long-Lived Assets (Including Intangible Assets with Finite Lives)

The Company reviews its long-lived assets, including intangible assets with finite lives, for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company evaluates assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the asset. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value which is generally an expected present value cash flow technique. Management’s policy in determining whether an impairment indicator exists comprises measurable operating performance criteria as well as other qualitative measures.

Intangible assets, other than indefinite-lived intangible assets, are amortized over the estimated useful life of the asset based on the pattern in which the economic benefits are expected to be consumed or otherwise used up or, if that pattern is not readily determinable, on a straight-line basis. The useful life is the period over which the assets are expected to contribute directly or indirectly to future cash flows. Intangible assets are not written-off in the period of acquisition unless they become impaired during that period.

The Company regularly evaluates the remaining useful life of each intangible asset that is being amortized to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life.

Financial Instruments

The Company minimizes its risks from interest fluctuations through its normal operating and financing activities and, when deemed appropriate through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. The Company does not use leveraged derivative financial instruments.  Derivative financial instruments that qualify for hedge accounting must be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract.

All derivatives are recorded on the balance sheet as assets or liabilities and measured at fair value.  For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives are recorded in accumulated other comprehensive income (loss), net of income taxes and subsequently amortized as an adjustment to interest expense over the period during which the hedged forecasted transaction affects earnings, which is when the Company recognizes interest expense on the hedged cash flows.  Cash flows of such derivative financial instruments are classified consistent with the underlying hedged item.

Highly effective hedging relationships that use interest rate swaps as the hedging instrument and that meet criteria under ASC 815, Derivatives and Hedging, may qualify for the “short-cut method” of assessing effectiveness.  The short-cut method allows the Company to make the assumption of no ineffectiveness, which means that the change in fair value of the hedged item can be assumed to be equal to the change in fair value of the derivative. Unless, critical terms change, no further evaluation of effectiveness is performed for these hedging relationships unless a critical term is changed.

For a hedging relationship that does not qualify for the short-cut method, the Company measures its effectiveness using the “hypothetical derivative method”, in which the change in fair value of the hedged item must be measured separately from the change in fair value of the derivative.  At inception and quarterly thereafter, the Company formally assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of the hedged item.  The Company compares the change in the fair value of the actual interest rate derivative to the change in the fair value of a hypothetical interest rate derivative with critical terms that match the hedged interest rate payments.  After the initial quantitative assessment, this analysis is performed on a qualitative basis and, if it is determined that the hedging relationship was and continues to be highly effective, no further analysis is required.

All components of each derivative financial instrument's gain or loss are included in the assessment of hedge effectiveness. If it is determined that a derivative ceases to be a highly effective hedge, the Company discontinues hedge accounting and any deferred gains or losses related to a discontinued cash flow hedge shall continue to be reported in accumulated other comprehensive income (loss) net of income taxes, unless it is probable that the forecasted transaction will not occur. If it is probable that the forecasted transaction will not occur by the originally specified time period, the Company discontinues hedge accounting, and any deferred gains or losses reported in accumulated other comprehensive income (loss) are classified into earnings immediately.

The Company is subject to credit risk as a result of nonperformance by counterparties to the derivative agreements.  Upon inception and quarterly thereafter, the Company makes judgments on each counterparty’s creditworthiness for nonperformance by counterparties.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, which requires the recognition of tax benefits or expenses on temporary differences between the financial reporting and tax bases of its assets and liabilities by applying the enacted tax rates in effect for the year in which the differences are expected to reverse. Such net tax effects on temporary differences are reflected on the Company’s consolidated balance sheets as deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when the Company believes that it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.

ASC 740-10 prescribes a two-step approach for the recognition and measurement of tax benefits associated with the positions taken or expected to be taken in a tax return that affect amounts reported in the financial statements. The Company has reviewed and will continue to review the conclusions reached regarding uncertain tax positions, which may be subject to review and adjustment at a later date based on ongoing analyses of tax laws, regulations and interpretations thereof. To the extent that the Company’s assessment of the conclusions reached regarding uncertain tax positions changes as a result of the evaluation of new information, such change in estimate will be recorded in the period in which such determination is made. The Company reports income tax-related interest and penalties relating to uncertain tax positions, if applicable, as a component of income tax expense.

Comprehensive Loss

Comprehensive loss includes net loss and all changes in stockholders’ equity (except those arising from transactions with stockholders) and includes foreign currency translation adjustments resulting from the consolidation of foreign subsidiaries’ financial statements and unrealized gains on cash flows hedges, net of income taxes.

Research and Development

Research and development ("R&D") activities are expensed as incurred. Primarily R&D costs consist of direct and allocated expenses incurred with the process of formulation, clinical research, and validation associated with new product development. Upfront and milestone payments made to third parties in connection with R&D collaborations are expensed as incurred up to the point of regulatory approval or when there is no alternative future use.

Intellectual Property Legal Development Expenses

The Company expenses external intellectual property legal development expenses as incurred. These costs relate to legal challenges of innovator’s patents for invalidity or non-infringement, which are customary in the generic pharmaceutical industry, and are incurred predominately during development of a product and prior to regulatory approval. Associated costs include, but are not limited to, formulation assessments, patent challenge opinions and strategy, and litigation expenses to defend the intellectual property supporting the Company's regulatory filings.

Shipping Costs

The Company records the costs of shipping product to its customers as a component of selling, general, and administrative expenses as incurred. Shipping costs were $15 million, $21 million and $15 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation.  These reclassifications did not have a material impact on the consolidated statements of operations, consolidated balance sheets, consolidated statements of cash flows or notes to the consolidated financial statements.

Recently Adopted Accounting Pronouncements

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes.  The Company has elected to early adopt ASU 2019-12 effective January 1, 2019 and it did not have a material impact on the Company's consolidated financial statements.

Leases

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases, which was subsequently supplemented by clarifying guidance (collectively, "Topic 842") to improve financial reporting of leasing transactions. Topic 842 requires a lessee to recognize most leases, including those classified as operating, on its balance sheets as right of use ("ROU") assets and lease liabilities and requires disclosure of additional key information about leases.

The Company elected to apply the modified retrospective transition provisions of Topic 842 on January 1, 2019, the date of adoption. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard. This allowed the Company to carry forward historical lease classifications. Adoption of this standard resulted in the recording of operating lease ROU assets and operating lease liabilities of $85 million and $86 million, respectively.

The transition guidance of Topic 842 also required the Company to de-recognize the build to suit accounting associated with a related party lease for integrated manufacturing and office space and recognize that transaction as a financing lease as of January 1, 2019. The resulting de-recognition reduced leasehold improvements and a financing obligation by $24 million and $39 million, respectively, and increased non-controlling interests and stockholders' accumulated deficit, net of income taxes, by $9 million and $5 million, respectively. The arrangement was then recognized as a financing lease with an ROU asset and lease liability of $64 million on January 1, 2019. Leases with related parties, the details of which are described in Note 23. Related Party Transactions, are presented separately in the Company's balance sheets.

The adoption of Topic 842 did not have a material impact on the Company's consolidated statements of operations. ROU assets and lease liabilities for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts were not adjusted and continue to be reported in accordance with previous guidance.

All significant lease arrangements after January 1, 2019 are recognized as ROU assets and lease liabilities at lease commencement. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of the future lease payments using the Company's incremental borrowing rate, which is assessed quarterly.

Operating lease expense is recognized on a straight-line basis over the lease term. At each balance sheet date, operating and financing lease liabilities continue to represent the present value of the future payments. Financing lease ROU assets are expensed using the straight-line method, unless another basis is more representative of the pattern of economic benefit, to lease expense. Interest on financing lease liabilities is recognized in interest expense.

Leases with an initial term of 12 months or less (short-term leases) are not recognized in the balance sheet and the related lease payments are recognized as incurred over the lease term. The Company separates lease and non-lease components. A portion of the Company's real estate leases are subject to periodic changes in the Consumer Price Index ("CPI"). The changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

For further details regarding the Company's leases, refer to Note 12. Leases.

Financial Instruments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted ASU 2016-01 effective January 1, 2019 and it did not have a material impact on the Company's consolidated financial statements.

The Company adopted ASU 2017-12, Changes to Accounting for Hedging Activities, effective January 1, 2019, which eliminates the requirement to separately measure and report hedge ineffectiveness among other items.  The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Goodwill

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. The Company adopted ASU 2017-04 as of April 1, 2019 on a prospective basis and it did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 82): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurement. The guidance is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, and early adoption is permitted.  The adoption of this standard is not expected to 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 will replace today’s "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will 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 guidance is effective for the Company for the annual period beginning after December 15, 2019.  The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

v3.19.3.a.u2
Acquisitions and Divestitures
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Acquisitions and Divestitures

3. Acquisitions and Divestitures

Acquisitions

AvKARE and R&S Purchase Agreement

On December 10, 2019, the Company entered into an equity purchase agreement (the “Purchase Agreement”) to acquire approximately 65% of AvKARE Inc., a Tennessee corporation (“AvKARE”), and Dixon-Shane, LLC d/b/a R&S Northeast LLC, a Kentucky limited liability company (“R&S”).  AvKARE 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 for a purchase price of $299 million, which included cash of $255 million and long-term promissory notes to the sellers of $44 million.  The cash purchase price was funded by $76 million of cash on hand and debt of $179 million. The Company expects the acquisitions will be accounted for as business combinations.

Impax Acquisition

On May 4, 2018, the Company completed the Combination, as described in Note 1. Nature of Operations and Basis of Presentation.  For the years ended December 31, 2019 2018 and 2017, transaction costs associated with the Impax acquisition of $23 million $9 million were recorded in acquisition, transaction-related and integration expenses (none in 2019).

The Impax acquisition was accounted for under the acquisition method of accounting, with Amneal as the accounting acquirer of Impax. Amneal was identified as the accounting acquirer because: (i) Amneal exchanged Amneal Common Units with the Company for the Company’s interest in Impax, (ii) 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, and (iii) a majority of the directors on the Company's board of directors were designated by Holdings. As such, the cost to acquire Impax was allocated to the respective assets acquired and liabilities assumed based on their estimated fair values as of the closing date of the Combination.

The measurement of the consideration transferred by Amneal for its interest in Impax is based on the fair value of the equity interest that Amneal would have had to issue to give the Impax shareholders the same percentage equity interest in the Company, which is equal to approximately 25% of Amneal, on May 4, 2018. However, the fair value of Impax's common stock was used to calculate the consideration for the Combination because Impax's common stock had a quoted market price and the Combination involved only the exchange of equity.

The purchase price, net of cash acquired, is calculated as follows (in thousands, except share amount and price per share):

 

Fully diluted Impax share number (1)

 

 

73,288,792

 

Closing quoted market price of an Impax common share on May 4, 2018

 

$

18.30

 

Equity consideration - subtotal

 

$

1,341,185

 

Add: Fair value of Impax stock options as of May 4, 2018 (2)

 

 

22,610

 

Total equity consideration

 

 

1,363,795

 

Add: Extinguishment of certain Impax obligations, including  accrued and unpaid interest

 

 

320,290

 

Less: Cash acquired

 

 

(37,907

)

Purchase price, net of cash acquired

 

$

1,646,178

 

 

(1)

Represents shares of Impax Common Stock issued and outstanding immediately prior to the Combination.

(2)

Represents the fair value of 3.0 million fully vested Impax stock options valued using the Black-Scholes options pricing model.

The following is a summary of the purchase price allocation for the Impax acquisition (in thousands):

 

 

 

Final Fair Values

As of December 31,

2019

 

Trade accounts receivable, net

 

$

210,820

 

Inventories

 

 

183,088

 

Prepaid expenses and other current assets

 

 

91,430

 

Property, plant and equipment

 

 

87,472

 

Goodwill

 

 

398,733

 

Intangible assets

 

 

1,574,929

 

Other

 

 

55,790

 

Total assets acquired

 

 

2,602,262

 

Accounts payable

 

 

47,912

 

Accrued expenses and other current liabilities

 

 

274,979

 

Long-term debt

 

 

599,400

 

Other long-term liabilities

 

 

33,793

 

Total liabilities assumed

 

 

956,084

 

Net assets acquired

 

$

1,646,178

 

 

 

Intangible Assets

The acquired intangible assets are being amortized over their estimated useful lives as follows (in thousands):

 

 

 

Final

Fair Values

 

 

Weighted-Average

Useful Life (Years)

 

Marketed product rights

 

$

1,045,617

 

 

 

12.9

 

 

In addition to the amortizable intangible assets noted above, $529 million was allocated to IPR&D, which is currently not subject to amortization.

The estimated fair value of the in-process research and development and identifiable intangible assets was determined using the "income approach," which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. 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 Combination on May 4, 2018.

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 or product (including net revenues, cost of sales, R&D, 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, the potential regulatory and commercial success risks, 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.

Goodwill

Of the total goodwill acquired in connection with the Impax acquisition, approximately $360 million has been allocated to the Company’s Specialty segment and approximately $39 million has been allocated to the Generics segment. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company. Factors that contributed to the Company’s recognition of goodwill include the Company’s intent to expand its generic and specialty product portfolios and to acquire certain benefits from the Impax product pipelines, in addition to the anticipated synergies that the Company expects to generate from the acquisition.

Gemini Laboratories, LLC Acquisition

On May 7, 2018, the Company acquired 98.0% of the outstanding equity interests in Gemini Laboratories, LLC ("Gemini") for total consideration of $120 million, net of $4 million cash acquired. At closing, the acquisition was funded by a $43 million up-front cash payment (including $3 million related to a preliminary working capital adjustment) from cash on hand and a $77 million unsecured promissory note. The note payable bears interest at 3% annually. The note payable and related accrued interest was paid on November 7, 2018, its maturity date. Additionally, the Company made a payment of $3 million in July 2018 related to the final working capital adjustment. In connection with the acquisition of Gemini, the Company recorded an amount representing the non-controlling interest of Gemini of $3 million.

Gemini is a pharmaceutical company with a portfolio that includes licensed and owned, niche and mature branded products. Gemini was a related party of the Company; refer to Note 23. Related Party Transactions, for further details.

For the year ended December 31, 2018, transaction costs associated with the Gemini acquisition of $0.4 million were recorded in acquisition, transaction-related and integration expenses (none for the year ended December 31, 2019). The Gemini acquisition was accounted for under the acquisition method of accounting.

The following is a summary of the purchase price allocation for the Gemini acquisition (in thousands):

 

 

 

Final Fair Values

As of December 31,

2019

 

Trade accounts receivable, net

 

$

8,158

 

Inventories

 

 

1,851

 

Prepaid expenses and other current assets

 

 

3,795

 

Property, plant and equipment, net

 

 

11

 

Goodwill

 

 

1,500

 

Intangible assets

 

 

142,740

 

Other

 

 

324

 

Total assets acquired

 

 

158,379

 

Accounts payable

 

 

1,764

 

Accrued expenses and other current liabilities

 

 

14,644

 

License liability

 

 

20,000

 

Total liabilities assumed

 

 

36,408

 

Net assets acquired

 

$

121,971

 

 

The acquired intangible assets are being amortized over their estimated useful lives as follows (in thousands):

 

 

 

Final

Fair Values

 

 

Weighted-Average

Useful Life

Product rights for licensed / developed technology

 

$

110,350

 

 

10 years

Product rights for developed technologies

 

 

5,500

 

 

9 years

Product rights for out-licensed generics royalty agreement

 

 

390

 

 

2 years

 

 

$

116,240

 

 

 

 

In addition to the amortizable intangibles noted above, $27 million was allocated to IPR&D, which is currently not subject to amortization.

The goodwill recognized of $2 million is allocated to the Company's Specialty segment.

The Company made an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities.  The Company obtained this information during due diligence and through other sources.  In the months after closing, as the Company obtained additional information about these assets and liabilities and learned more about the newly acquired business, it was able to refine the estimates of fair value and more accurately allocate the purchase price.  Only items identified as of the acquisition date were considered for subsequent adjustment.

The Company's consolidated statements of operations for the year ended December 31, 2018 include the results of operations of Impax and Gemini subsequent to May 4, 2018 and May 7, 2018, respectively. For the periods from their respective acquisition dates to December 31, 2018, Impax contributed net revenue of $399 million and an estimated pre-tax loss of $104 million and Gemini contributed net revenue of $32 million and estimated pre-tax income of $10 million.

Unaudited Pro Forma Information

The unaudited pro forma combined results of operations for the years ended December 31, 2018 and 2017 (assuming the closing of the Combination occurred on January 1, 2016) are as follows (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

Net revenue

 

$

1,839,083

 

 

$

1,809,441

 

Net loss

 

 

(163,915

)

 

 

(340,223

)

Net loss attributable to Amneal Pharmaceuticals, Inc.

 

$

(30,270

)

 

$

(109,920

)

 

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 Combination taken place on January 1, 2016. Furthermore, the pro forma results do not purport to project the future results of operations of the Company.

The unaudited pro forma information reflects primarily the following non-recurring adjustments (all of which were adjusted for the applicable tax impact):

 

Adjustments to costs of goods sold related to the inventory acquired; and

 

Adjustments to selling, general and administrative expense related to transaction costs directly attributable to the transactions. 

Divestitures

UK 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 (loss) on sale of international business for the year ended December 31, 2019. 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 (loss) on sale of international business for the year ended December 31, 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.

Australia Divestiture

On August 31, 2017, Amneal sold 100% of the equity of its Australian business, Amneal Pharma Pty Ltd, to Arrow Pharmaceuticals Pty Ltd (“Arrow”) for cash consideration of $10 million which was received in October 2017. The consideration received was subject to certain working capital adjustments. The carrying value of the net assets sold was $32 million, including intangible assets of $14 million and goodwill of $2 million. As a result of the sale, Amneal recognized a loss of $24 million, inclusive of divestiture costs of $2 million and a release of foreign currency translation adjustment loss of $0.4 million, within the gain (loss) on sale of certain international businesses for the year ended December 31, 2017.

As part of the disposition, Amneal agreed to indemnify Arrow for certain claims for up to 18 months from the closing date of the disposition. Additionally, Amneal will allow Arrow to use the Amneal trademark in Australia to enable Arrow to transfer the labeling and marketing authorizations from the Amneal name to the Arrow name for a period of three years. Amneal will supply Arrow with Linezolid for a period of three years and will further develop four other products for sale in Australia during the three years period. All terms of the sale were settled in 2018.

Spain/Nordics Divestitures

On September 30, 2017, Amneal sold 100% of the equity and certain marketing authorizations, including associated dossiers, of its Amneal Nordic ApS and Amneal Pharma Spain S.L. subsidiaries to Aristo Pharma GmbH (“Aristo”) for cash consideration of $8 million. Amneal received $7 million in October 2017 and the remainder was to be paid within 60 days of closing of the disposition based on the actual closing date net working capital of the entities sold. The carrying value of the net assets sold was $13 million, including intangible assets of $1 million and goodwill of $2 million. As a result of the sale, Amneal recognized a loss of $5 million, inclusive of a release of foreign currency translation adjustment loss of $0.5 million, within the loss on sale of certain international businesses for the year ended December 31, 2017.

Aristo was also required to make an additional payment within 12 months of the closing date of the disposition based on the actual inventory, transferred as part of the transaction, that the buyer sold over this period. All terms of the sale were settled in 2018.

v3.19.3.a.u2
Revenue Recognition
12 Months Ended
Dec. 31, 2019
Revenue From Contract With Customer [Abstract]  
Revenue Recognition

4. Revenue Recognition

Performance Obligations

The Company’s performance obligation is the supply of finished pharmaceutical products to its customers. The Company’s customers consist primarily of major wholesalers, retail pharmacies, managed care organizations, purchasing co-ops, hospitals, government agencies 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 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, upon 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, 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 account for approximately 81%, 83% and 79% of total gross sales of products for the years ended December 31, 2019, 2018 and 2017, respectively.

 

Disaggregated Revenue

The Company's significant therapeutic classes for each of its reportable segments, as determined based on net revenue for each of the years ended December 31, 2019, 2018 and 2017 are set forth below (in thousands):

 

 

 

Year ended December 31, 2019

 

 

 

Generics

 

 

Specialty

 

 

Total

 

Anti Infective

 

$

36,320

 

 

$

 

 

$

36,320

 

Hormonal/Allergy

 

 

364,658

 

 

 

45,547

 

 

 

410,205

 

Antiviral

 

 

27,488

 

 

 

 

 

 

27,488

 

Central Nervous System

 

 

423,416

 

 

 

235,846

 

 

 

659,262

 

Cardiovascular System

 

 

117,065

 

 

 

 

 

 

117,065

 

Gastroenterology

 

 

42,783

 

 

 

4,223

 

 

 

47,006

 

Oncology

 

 

62,721

 

 

 

 

 

 

62,721

 

Metabolic Disease/Endocrine

 

 

55,786

 

 

 

894

 

 

 

56,680

 

Respiratory

 

 

34,920

 

 

 

 

 

 

34,920

 

Dermatology

 

 

60,186

 

 

 

 

 

 

60,186

 

Other

 

 

60,041

 

 

 

31,020

 

 

 

91,061

 

Total US product revenue

 

 

1,285,384

 

 

 

317,530

 

 

 

1,602,914

 

Royalties

 

 

2,859

 

 

 

 

 

 

2,859

 

International

 

 

20,600

 

 

 

 

 

 

20,600

 

Total

 

$

1,308,843

 

 

$

317,530

 

 

$

1,626,373

 

 

 

 

Year ended December 31, 2018

 

 

 

Generics

 

 

Specialty

 

 

Total

 

Anti Infective

 

$

37,988

 

 

$

 

 

$

37,988

 

Hormonal/Allergy

 

 

246,765

 

 

 

29,048

 

 

 

275,813

 

Antiviral

 

 

44,334

 

 

 

 

 

 

44,334

 

Central Nervous System

 

 

476,046

 

 

 

146,812

 

 

 

622,858

 

Cardiovascular System

 

 

182,990

 

 

 

 

 

 

182,990

 

Gastroenterology

 

 

52,878

 

 

 

1,141