AMNEAL PHARMACEUTICALS, INC., 10-K filed on 3/1/2019
Annual Report
v3.10.0.1
Document And Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 21, 2019
Jun. 30, 2018
Entity Information [Line Items]      
Entity Registrant Name Amneal Pharmaceuticals, Inc.    
Trading Symbol AMRX    
Entity Central Index Key 0001723128    
Current Fiscal Year End Date --12-31    
Entity Filer Category Non-accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Current Reporting Status Yes    
Entity Well-Known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Entity Public Float     $ 1,970,292,676
Common Class A      
Entity Information [Line Items]      
Entity Common Stock, Shares Outstanding   115,420,925  
Common Class B      
Entity Information [Line Items]      
Entity Common Stock, Shares Outstanding   170,940,707  
Common Class B-1      
Entity Information [Line Items]      
Entity Common Stock, Shares Outstanding   12,328,767  
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Net revenue $ 1,662,991 $ 1,033,654 $ 1,018,225
Cost of goods sold 946,588 507,476 420,770
Gross profit 716,403 526,178 597,455
Selling, general and administrative 230,435 109,046 118,757
Research and development 194,190 171,420 179,019
In-process research and development impairment charges 39,259 0 0
Acquisition, transaction-related and integration expenses 221,818 9,403 70
Restructuring and asset-related charges 56,413 0 0
Legal settlement gain (22,300) (29,312) (11,000)
Intellectual property legal development expenses 16,261 20,518 25,728
Operating (loss) income (19,673) 245,103 284,881
Other (expense) income:      
Interest expense, net (143,571) (71,061) (55,283)
Foreign exchange (loss) gain (19,701) 29,092 (14,108)
Loss on extinguishment of debt (19,667) (2,532) 0
Loss on sale of certain international businesses (2,958) (29,232) 0
Other income (expense) 2,848 (47) (669)
Total other expense, net (183,049) (73,780) (70,060)
(Loss) income before income taxes (202,722) 171,323 214,821
(Benefit from) provision for income taxes (1,419) 1,998 5,395
Net (loss) income (201,303) 169,325 209,426
Less: Net loss (income) attributable to Amneal Pharmaceuticals LLC pre-Combination 148,806 (167,648) (207,378)
Less: Net loss (income) attributable to non-controlling interests 32,753 (1,677) (2,048)
Net loss attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest (19,744) 0 0
Accretion of redeemable non-controlling interest (1,176) 0 0
Net loss attributable to Amneal Pharmaceuticals, Inc. $ (20,920) $ 0 $ 0
Net loss per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:      
Class A and Class B-1 basic and diluted (in dollars per share) $ (0.16)  
Weighted-average common shares outstanding:      
Class A and Class B-1 basic and diluted (in dollars per share) 127,252  
v3.10.0.1
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Other Comprehensive Income [Abstract]      
Net (loss) income $ (201,303) $ 169,325 $ 209,426
Less: Net loss (income) attributable to Amneal Pharmaceuticals LLC pre-Combination 148,806 (167,648) (207,378)
Less: Net loss (income) attributable to non-controlling interests 32,753 (1,677) (2,048)
Net loss attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest (19,744) 0 0
Accretion of redeemable non-controlling interest (1,176) 0 0
Net loss attributable to Amneal Pharmaceuticals, Inc. (20,920) 0 0
Other comprehensive (loss) income:      
Foreign currency translation adjustment (3,952) (1,435) 3,047
Less: Other comprehensive (income) loss attributable to Amneal Pharmaceuticals LLC pre-Combination (1,721) 1,435 (3,047)
Less: Other comprehensive loss attributable to non-controlling interests 3,256 0 0
Other comprehensive loss attributable to Amneal Pharmaceuticals, Inc. (2,417) 0 0
Comprehensive loss attributable to Amneal Pharmaceuticals, Inc. $ (23,337) $ 0 $ 0
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 213,394 $ 74,166
Restricted cash 5,385 3,756
Trade accounts receivable, net 481,495 351,367
Inventories 457,219 284,038
Prepaid expenses and other current assets 128,321 42,396
Related party receivables 830 16,210
Total current assets 1,286,644 771,933
Property, plant and equipment, net 544,146 486,758
Goodwill 426,226 26,444
Intangible assets, net 1,654,969 44,599
Deferred tax asset, net 373,159 898
Other assets 67,592 11,257
Total assets 4,352,736 1,341,889
Current liabilities:    
Accounts payable and accrued expenses 514,440 194,779
Current portion of long-term debt, net 21,449 89,171
Current portion of financing obligation - related party 266 311
Related party payables 17,695 12,622
Total current liabilities 553,850 296,883
Long-term debt, net 2,630,598 1,355,274
Financing obligations - related party 39,083 39,987
Deferred income taxes 1,178 2,491
Liabilities under tax receivable agreement 192,884 0
Other long-term liabilities 38,780 7,793
Related party payable - long term 0 15,043
Total long-term liabilities 2,902,523 1,420,588
Commitments and contingencies (Notes 5 & 18)
Stockholders' equity (members' deficit):    
Members' equity, 189,000 units authorized, issued and outstanding at December 31, 2017   2,716
Members' / Stockholders' accumulated deficit (20,920) (382,785)
Preferred stock, $0.01 par value, 2,000 shares authorized; none issued and outstanding at December 31, 2018 0  
Additional paid-in capital 530,438 8,562
Accumulated other comprehensive loss (7,755) (14,232)
Members' deficit   (385,739)
Members' deficit, Non-controlling interests   10,157
Total members' deficit   (375,582)
Total Amneal Pharmaceuticals, Inc. stockholders' equity 504,750  
Non-controlling interests 391,613  
Total stockholders' equity 896,363  
Total liabilities and stockholders' equity (members’ deficit) 4,352,736 $ 1,341,889
Common Class A    
Stockholders' equity (members' deficit):    
Common stock 1,151  
Common Class B    
Stockholders' equity (members' deficit):    
Common stock 1,713  
Common Class B-1    
Stockholders' equity (members' deficit):    
Common stock $ 123  
v3.10.0.1
Consolidated Balance Sheets (Parenthetical)
Dec. 31, 2018
$ / shares
shares
Preferred stock, par value (in dollars per share) | $ / shares $ 0.01
Preferred stock, shares authorized (in shares) 2,000,000
Preferred stock, shares issued (in shares) 0
Preferred stock, shares outstanding (in shares) 0
Common Class A  
Common stock, par value (in dollars per share) | $ / shares $ 0.01
Common stock, shares authorized (in shares) 900,000,000
Common stock, shares issued (in shares) 115,047,000
Common stock, shares outstanding (in shares) 115,047,000
Common Class B  
Common stock, par value (in dollars per share) | $ / shares $ 0.01
Common stock, shares authorized (in shares) 300,000,000
Common stock, shares issued (in shares) 171,261,000
Common stock, shares outstanding (in shares) 171,261,000
Common Class B-1  
Common stock, par value (in dollars per share) | $ / shares $ 0.01
Common stock, shares authorized (in shares) 18,000,000
Common stock, shares issued (in shares) 12,329,000
Common stock, shares outstanding (in shares) 12,329,000
v3.10.0.1
Consolidated Statement of Changes in Stockholders' / Members’ Deficit - USD ($)
$ in Thousands
Total
Common Class B
Members' Equity
Members' Accumulated Deficit
Common Stock
Common Class A
Common Stock
Common Class B
Common Stock
Common Class B-1
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Non-Controlling Interests
Members' Equity Beginning Ealance at Dec. 31, 2015 $ (186,873)   $ 2,675 $ (181,974)       $ 0 $ (15,844) $ 8,270
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Net (loss) income 209,426     207,378           2,048
Dividend to non-controlling interest (973)                 (973)
Distributions to members (200,615)     (200,615)            
Foreign currency translation adjustment 3,047               3,047  
Return of capital 43     43            
Members' Equity Ending Balance at Dec. 31, 2016 (175,945)   2,675 (175,168)       0 (12,797) 9,345
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Net (loss) income 169,325     167,648           1,677
Dividend to non-controlling interest (865)                 (865)
Distributions to members (375,265)     (375,265)            
Foreign currency translation adjustment (1,435)               (1,435)  
Capital contribution 8,603   41         8,562    
Members' Equity Ending Balance at Dec. 31, 2017 (375,582)   $ 2,716 (382,785)       8,562 (14,232) 10,157
Ending balance at Dec. 31, 2017 0                  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Net (loss) income (201,303)                  
Dividend to non-controlling interest (49,000)                  
Foreign currency translation adjustment $ (3,952)                  
Exercise of stock options (in shares) 351,668                  
Stockholders' Equity Ending Balance (in shares) at Dec. 31, 2018   171,261,000     115,047,000   12,329,000      
Stockholders' Equity Ending Balance at Dec. 31, 2018 $ 896,363     $ (20,920) $ 1,151 $ 1,713 $ 123 $ 530,438 $ (7,755) $ 391,613
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)                  
Ending balance at Dec. 31, 2018 $ 0                  
v3.10.0.1
Consolidated Statements of Cash Flows
$ in Thousands
12 Months Ended
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Dec. 31, 2016
USD ($)
Cash flows from operating activities:      
Net (loss) income $ (201,303) $ 169,325 $ 209,426
Adjustments to reconcile net (loss) income to net cash provided by operating activities:      
Depreciation and amortization 137,403 45,936 33,016
Unrealized foreign currency loss (gain) 18,582 (30,823) 12,162
Amortization of debt issuance costs 5,859 4,585 3,055
Loss on extinguishment of debt 19,667 2,532 0
Loss on sale of certain international businesses 2,958 29,232 0
Intangible asset impairment charges 47,928 0 0
Non-cash restructuring and asset-related charges 11,295 0 0
Deferred tax (benefit) provision (9,439) 742 121
Stock-based compensation and PPU expense 167,597 0 0
Inventory provision 44,539 3,771 9,235
Other operating charges and credits, net (1,866) 9,935 197
Changes in assets and liabilities:      
Trade accounts receivable, net 89,084 35,255 (122,482)
Inventories (42,875) (31,826) (42,587)
Prepaid expenses, other current assets and other assets 19,198 (25,305) 2,042
Related party receivables 10,928 (5,485) 307
Accounts payable, accrued expenses and other liabilities (55,212) 18,105 6,265
Related party payables (14,113) 8,208 4,303
Net cash provided by operating activities 250,230 234,187 115,060
Cash flows from investing activities:      
Purchases of property, plant and equipment (83,088) (94,771) (122,756)
Acquisition of product rights and licenses (14,000) (19,500) (1,850)
Acquisitions, net of cash acquired (324,634) 0 0
Proceeds from sales of property, plant and equipment 25,344 0 0
Proceeds from sale of certain international businesses, net of cash sold 0 15,717 0
Net cash used in investing activities (396,378) (98,554) (124,606)
Cash flows from financing activities:      
Payments of deferred financing costs and debt extinguishment costs (54,955) (5,026) (6,506)
Proceeds from issuance of debt 1,325,383 250,000 225,000
Payments of principal on debt and capital leases (617,051) (13,625) (11,137)
Net (payments) borrowings on revolving credit line (75,000) 50,000 (25,000)
Payments of principal on financing obligation - related party (243) (274) (259)
Proceeds from exercise of stock options 3,797 0 0
Equity contributions 27,742 40  
Payments for equity     (5)
Capital contribution from (dividend to) non-controlling interest 360 (865) (973)
Acquisition of redeemable non-controlling interest (11,775) 0 0
Tax distribution to non-controlling interest (35,543) 0 0
Distributions to members (182,998) (375,265) (200,615)
Repayment of related party notes (92,042) 0 0
Net cash provided by (used in) financing activities 287,675 (95,015) (19,495)
Effect of foreign exchange rate on cash (670) (242) 1,481
Net increase (decrease) in cash, cash equivalents, and restricted cash 140,857 40,376 (27,560)
Cash, cash equivalents, and restricted cash - beginning of period 77,922 37,546 65,106
Cash, cash equivalents, and restricted cash - end of period 218,779 77,922 37,546
Cash and cash equivalents - end of period 213,394 74,166 27,367
Restricted cash - end of period 5,385 3,756 10,179
Supplemental disclosure of cash flow information:      
Cash paid for interest 131,505 65,086 50,569
Cash received, net for income taxes 34,952    
Cash paid, net for income taxes   (5,780) (4,922)
Supplemental disclosure of non-cash investing and financing activity:      
Acquisition of non-controlling interest 3,485 0 0
Tax distribution to non-controlling interest 13,412 0 0
Distribution to members 8,562 0 0
Receivable from the sale of certain international businesses 0 1,936 0
Note payable resulting from the Ireland building purchase 0 14,758 0
Transaction costs paid by Amneal Holdings $ 0 $ 8,561 $ 0
v3.10.0.1
Nature of Operations and Basis of Presentation
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations and Basis of Presentation
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, Switzerland, India, Ireland and the United Kingdom, and certain other countries, primarily in Western Europe. 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 $855.0 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 upon the consummation of the Combination, PIPE Investment and Closing Date Redemption was approximately 57%. As of December 31, 2018, the overall interest percentage held by non-controlling interest holders was approximately 57%.

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, 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.
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
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 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, bill backs, 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.

A rollforward of the major categories of sales-related deductions for the years ended December 31, 2018, 2017 and 2016 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 January 1, 2016
 
$
330,811

 
$
14,894

 
$
32,124

 
$
14,385

Provision related to sales recorded in the period
 
2,182,606

 
70,662

 
31,741

 
17,181

Credits/payments issued during the period
 
(2,146,569
)
 
(67,118
)
 
(17,670
)
 
(23,509
)
Balance at December 31, 2016
 
366,848

 
18,438

 
46,195

 
8,057

Provision related to sales recorded in the period
 
2,489,681

 
79,837

 
24,571

 
25,982

Credits/payments issued during the period
 
(2,402,826
)
 
(77,867
)
 
(25,591
)
 
(21,128
)
Balance at December 31, 2017
 
453,703

 
20,408

 
45,175

 
12,911

Liabilities assumed from acquisitions

222,970


11,781


102,502


51,618

Provision related to sales recorded in the period
 
3,463,983

 
117,010

 
85,996

 
104,664

Credits/payments issued during the period
 
(3,311,060
)
 
(113,042
)
 
(79,170
)
 
(94,991
)
Balance at December 31, 2018
 
$
829,596

 
$
36,157

 
$
154,503

 
$
74,202



Stock-Based Compensation

The Company’s stock-based compensation consists of stock options and restricted stock units ("RSUs") 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 RSU vestings.

Foreign Currencies

The Company has operations in the U.S., Switzerland, India, the U.K., 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 ("FDIC").

Restricted Cash

At December 31, 2018 and 2017, respectively, the Company had restricted cash balances of $5 million and $4 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
 
7 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.

The impairment model prescribes a two-step method for determining goodwill impairment. However, an entity is permitted to first assess qualitative factors to determine whether the two-step goodwill impairment test 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. In the first step, the Company determines the fair value of its reporting unit using a discounted cash flow analysis. If the net book value of the reporting unit exceeds its fair value, the Company then performs the second step of the impairment test, which requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations with any residual fair value being allocated to goodwill. An impairment charge is recognized when the implied fair value of the Company’s reporting unit’s goodwill is less than its carrying amount.

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.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes ("ASC 740"), 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 equity for cumulative translation adjustments resulting from the consolidation of foreign subsidiaries’ financial statements.

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 $21 million, $15 million and $13 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation, including combining depreciation and amortization expense into the respective cost of goods sold, selling, general and administrative and R&D expense presentation on the consolidated statements of operations, as well as combining accounts payable and accrued expenses and combining long-term debt and revolving credit facility in the balance sheet presentation.

Recently Adopted Accounting Pronouncements

In May 2017, the FASB issued Accounting Standards Update ("ASU") 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a stock-based payment award require an entity to apply modification accounting in Topic 718. The guidance will be effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company adopted ASU 2017-09 on January 1, 2018 and it did not have an effect on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), to clarify how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. The guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows.

As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance should be applied retrospectively and is effective for the annual period beginning after December 15, 2018. The Company early adopted ASU 2016-18 on January 1, 2018. This guidance was applied retrospectively and, accordingly, prior period amounts have been revised.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, that will require companies to account for the income tax effects of intercompany transfers of assets other than inventory (e.g., intangible assets) when the transfer occurs. The guidance is effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period (i.e., early adoption is permitted only in the first interim period). The Company early adopted ASU 2016-16 on January 1, 2018 and it did not have an effect on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), to clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be applied retrospectively and is effective for the Company for the annual period beginning after December 15, 2018. Early adoption is permitted. The Company early adopted ASU 2016-15 on January 1, 2018 and it did not have an effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Subsequent to the issuance of Topic 606, the FASB clarified the guidance through several Accounting Standard Updates. This guidance represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which that company expects to be entitled to receive in exchange for those goods or services. This update 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 pieces of revenue recognition guidance that have historically existed.

On January 1, 2018, the Company adopted Accounting Standards Codification ("ASC") 2014-09 and associated ASU's (collectively "Topic 606"), using the modified retrospective method, applied to all contracts not completed as of the date of adoption. This method requires the cumulative effect of the adoption to be recognized as an adjustment to opening retained earnings in the period of adoption.

The Company recorded a $5 million reduction to accumulated deficit as of January 1, 2018 due to the cumulative impact of adoption Topic 606. There is an acceleration of revenue for certain product sale arrangements which are designed to include profit share payments upon the customer’s sell-through of certain products purchased from the Company. Previously under Topic 605, the Company deferred revenue until its customers sold the product through to their end customers, at which point the Company considered the profit share payments to be earned and collection reasonably assured. Under Topic 606, an estimate of the profit share payments is included in the transaction price as variable consideration and is recognized at the time the Company transfers control of the product to its customer. This change resulted in a cumulative-effect adjustment upon adoption of the ASU as of January 1, 2018 which was not material to the financial statements. In the second quarter of 2018, the Company made a correction to the cumulative impact adjustment as of January 1, 2018 by reducing accumulated deficit by $2 million. The Company does not believe that this adjustment is material to its financial statements and it had no impact on any prior periods. Refer to Note 4. Revenue Recognition for additional disclosures required by Topic 606.

Under the modified retrospective method of adoption of Topic 606, the Company is also required to disclose the impact to revenues had the Company continued to follow its accounting policies under the previous revenue recognition guidance. For the year ended December 31, 2018 the impact of adopting ASC 606 was not material to reported revenue, therefore comparison of revenue and operating income between periods are not materially affected by the adoption of Topic 606. Refer to Note 4. Revenue Recognition for additional disclosures required by Topic 606.

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 Company is currently evaluating the impact that the standard will have on its consolidated financial statements.

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. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on today’s Step 1). The standard will be applied prospectively and is effective for the Company’s annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is evaluating the impact of this new guidance on its 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 Company is evaluating the impact of this new guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to improve financial reporting of leasing transactions. Topic 842 requires lessees to recognize most leases on their balance sheet, makes selected changes to lessor accounting and requires disclose of additional key information about leases. In July 2018, the FASB issued clarifying guidance to the topic in ASU No. 2018-11 and No. 2018-10, “Leases (Topic 842),” which defined several practical expedients for adoption and clarified new accounting methodologies. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. The Company will adopt Topic 842 on a modified retrospective basis, applying the transition requirements as of January 1, 2019 with certain practical expedients available.

As part of the Company's impact assessment, it has performed a scoping exercise and determined its lease population. A framework for the lease identification process has been developed and the Company is in the process of assessing any potential impacts on its internal controls and processes related to both the implementation and ongoing compliance of the new guidance.

While the Company is still finalizing the potential impacts of the standard, it currently expects the most significant impact will be the recognition of right of use assets and lease liabilities for operating leases. The Company estimates adoption of the standard will result in an increase of less than 5% of total assets and liabilities in its consolidated balance sheet as of January 1, 2019. The Company does not expect the adoption will have a material impact on its consolidated statements of operations.

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 guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is not permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
v3.10.0.1
Acquisitions and Divestitures
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisitions and Divestitures
Acquisitions and Divestitures

Acquisitions

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, 2018 and 2017, transaction costs associated with the Impax acquisition of $23 million and $9 million were recorded in acquisition, transaction-related and integration expenses (none for the year ended December 31, 2016).

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 preliminary purchase price allocation for the Impax acquisition (in thousands):

 
 
Preliminary Fair Values
As of December 31, 2018
Trade accounts receivable, net
 
$
211,762

Inventories
 
183,088

Prepaid expenses and other current assets
 
91,430

Property, plant and equipment
 
87,472

Goodwill
 
399,988

Intangible assets
 
1,574,929

Other
 
55,790

   Total assets acquired
 
2,604,459

Accounts payable
 
47,912

Accrued expenses and other current liabilities
 
277,176

Long-term debt
 
599,400

Other long-term liabilities
 
33,793

   Total liabilities assumed
 
958,281

Net assets acquired
 
$
1,646,178



Intangible Assets

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

 
 
Preliminary 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 $359 million has been allocated to the Company’s Specialty segment and approximately $41 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 21. 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 years ended December 31, 2017 and 2016). The Gemini acquisition was accounted for under the acquisition method of accounting.

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

 
 
Preliminary Fair Values
As of December 31, 2018
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):

 
 
Preliminary 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 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 and assumed liabilities.  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 business, 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 certain pre-acquisition contingencies associated with its 2018 acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

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, 2017 and 2016 (assuming the closing of the Combination occurred on January 1, 2016) are as follows (in thousands):
 
Years Ended December 31,
 
2018
 
2017
 
2016
Net revenue
$
1,839,083

 
$
1,809,441

 
$
1,842,654

Net loss
(163,915
)
 
(340,223
)
 
(535,087
)
Net loss attributable to Amneal Pharmaceuticals, Inc.
$
(30,270
)
 
$
(109,920
)
 
$
(110,638
)


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

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 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.
v3.10.0.1
Revenue Recognition
12 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
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 83%, 79% and 78% of total gross sales of products for the years ended December 31, 2018, 2017 and 2016, respectively.
v3.10.0.1
Alliance and Collaboration
12 Months Ended
Dec. 31, 2018
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"). The Company will be JSP's exclusive commercial partner in the U.S. market for a 10-year term commencing on March 22, 2019. The Company will be required to make a payment of $50 million to JSP within 30 days of the Company's first commercial sale of Levothyroxine. Additionally, the agreement requires the Company to make an additional $20 million payment to JSP if the Food and Drug Administration ("FDA") has not given final approval to a third-party competitor's abbreviated new drug application for generic levothyroxine sodium tablets with an AB1, AB2, AB3 or AB4 designation by the first anniversary date of the Company's first sale of Levothyroxine. During January 2019, the FDA approved a third-party competitor's abbreviated new drug application for generic levothyroxine with an AB2 designation. Therefore, the Company does not believe that it will be required to make the additional $20 million payment to JSP. 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. For the year ended December 31, 2018, the Company has made no payments under this agreement. The Company will not be required to make any payments to JSP prior to March 22, 2019.

On November 9, 2018, the Company entered into a transition agreement ("Transition Agreement") with Lannett Company (“Lannett”) and JSP. Under the terms of the 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 agreed to make $50 million of non-refundable payments to Lannett, subject to certain adjustments, which will be expensed to cost of goods sold as the Company sells Levothyroxine through March 22, 2019. In December 2018, the Company recorded a $3 million adjustment to the $50 million Transition Agreement to create a net payable of approximately $47 million.

The Company made a $43 million non-refundable upfront profit-sharing payment to Lannett in December 2018. During the fourth quarter of 2018, the Company recognized $10 million of the $47 million transition contract asset to cost of goods sold. As of December 31, 2018, the Company has a remaining $36 million transition contract asset in prepaid expenses and other current assets and a $4 million transition contract liability in accounts payable and accrued expenses.

In February 2019, the Company made the remaining $4 million payment to fully settle the remaining non-refundable amount owed to Lannett under the Transition Agreement.

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 up-front, 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 year ended December 31, 2018, the Company expensed milestone payments of $5 million in research and development expense.

Adello License and Commercialization Agreement
On October 1, 2017, Amneal and Adello Biologics, LLC ("Adello"), a related party, entered into a license and commercialization agreement. Adello granted Amneal an exclusive license, under its New Drug Application, to distribute and sell two bio-similar products in the U.S. Adello is responsible for development, regulatory filings, obtaining FDA approval, and manufacturing, and Amneal is responsible for marketing, selling and pricing activities. The term of the agreement is 10-years from the respective product’s launch date.
In connection with the agreement, Amneal paid an upfront amount of $2 million in October 2017 for execution of the agreement which was expensed in research and development expenses. The agreement also provides for potential future milestone payments to Adello of (i) up to $21 million relating to regulatory approval, (ii) up to $43 million for successful delivery of commercial launch inventory, (iii) between $20 million and $50 million relating to number of competitors at launch for one product, and (iv) between $15 million and $68 million for the achievement of cumulative net sales for both products. The milestones are subject to certain performance conditions which may or may not be achieved, including FDA filing, FDA approval, launch activities and commercial sales volume objectives. In addition, the agreement provides for Amneal to pay a profit share equal to 50% of net profits, after considering manufacturing and marketing costs. The research and development expenses for payments made to Adello during the years ended December 31, 2018 and 2017 were immaterial.
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 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 goods sold for royalties under this agreement of $15 million for the year ended December 31, 2018.
v3.10.0.1
Restructuring and Asset-Related Charges
12 Months Ended
Dec. 31, 2018
Restructuring and Related Activities [Abstract]  
Restructuring and Asset-Related Charges
Restructuring and Asset-Related Charges

During the second quarter of 2018, in connection with the Combination, the Company committed to a restructuring plan to achieve cost savings. The Company expects to integrate its operations and reduce its combined cost structure through workforce reductions that eliminate duplicative positions and the consolidation of 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 (the "Plan").  

The following table sets forth the components of the Company's restructuring and asset-related charges for the years ended December 31, 2018, 2017 and 2016 (in thousands):

 
Years Ended December 31,
 
2018
 
2017
 
2016
Employee separation charges (1)
$
45,118

 
$

 
$

Asset-related charges(2)
11,295

 

 

Total restructuring and asset-related charges
$
56,413

 
$

 
$


(1) Employee separation charges include the cost of benefits provided pursuant to the Company’s severance programs for employees at the Company's Hayward, CA facility and other facilities.
(2) Asset-related charges are primarily associated with the write-off of leasehold improvements in connection with the closing of our Hayward, CA facility.  

The charges related to restructuring impacted segment earnings as follows (in thousands):


Years Ended December 31,

2018
 
2017
 
2016
Generics
$
33,943

 
$

 
$

Specialty
4,076

 

 

Corporate
18,394

 

 

Total restructuring and asset-related charges
$
56,413

 
$

 
$



The following table shows the change in the employee separation-related liability associated with the Company's restructuring programs, which is included in accounts payable and accrued expenses (in thousands):


Employee Separation
Balance at December 31, 2017
$

Liabilities assumed in Impax acquisition
2,199

Charges to income
48,246

Change in estimated liability
(3,128
)
Payments
(25,205
)
Balance at December 31, 2018
$
22,112

v3.10.0.1
Acquisition, Transaction-Related and Integration Expenses
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisition, Transaction-Related and Integration Expenses
Acquisition, Transaction-Related and Integration Expenses

The following table sets forth the components of the Company’s acquisition, transaction-related and integration expenses for the years ended December 31, 2018, 2017 and 2016 (in thousands).


Years Ended December 31,

2018
 
2017
 
2016
Acquisition, transaction-related and integration expenses (1)
$
35,319

 
$
9,403

 
$
70

Profit participation units (2)
158,757

 

 

Transaction-related bonus (3)
27,742

 

 

Total
$
221,818

 
$
9,403

 
$
70


(1) Acquisition, transaction-related and integration expenses include professional service fees (e.g. legal, investment banking and accounting), information technology systems conversions, and contract termination/renegotiation costs.
(2) Profit Participation Units expense relates to the accelerated vesting of certain of Amneal's profit participation units that occurred prior to the Closing of the Combination for current and former employees of Amneal for service prior to the Combination (see additional information in the paragraph below and Note 19. Stockholders' Equity/ Members' Deficit).
(3) Transaction-related bonus is a cash bonus that was funded by Holdings for employees of Amneal for service prior to the closing of the Combination (see additional information in Note 19. Stockholders' Equity/ Members' Deficit).

Accelerated Vesting of Profit Participation Units

Amneal’s historical capital structure included several classifications of membership and profit participation units. During the second quarter of 2018, the Board of Managers of Amneal Pharmaceuticals LLC approved a discretionary modification to certain profit participation units concurrent with the Combination that immediately caused the vesting of all profit participation units that were previously issued to certain current or former employees for service prior to the Combination. The modification entitled the holders to 6,886,140 shares of Class A Common Stock with a fair value of $126 million on the date of the Combination and $33 million of cash. The cash and shares were distributed by Holdings with no additional shares issued by the Company. As a result of this transaction, the Company recorded a charge in acquisition, transaction-related and integration expenses and a corresponding capital contribution of $159 million for the year ended December 31, 2018.
v3.10.0.1
Income taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income taxes
Income taxes

As a result of the Combination (refer to Note 1. Nature of Operations and Basis of Presentation), the Company became the sole managing member of Amneal, with Amneal being the predecessor for accounting purposes. Amneal is a limited liability company that is treated as a partnership for U.S. federal and for most applicable state and local income tax purposes. As a partnership, Amneal is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Amneal is passed through to and included in the taxable income or loss of its members, including the Company, on a pro rata basis subject to applicable tax regulations. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its allocable share of any taxable income or loss of Amneal, as well as any stand-alone income or loss generated by the Company. Additionally, Amneal provides for income taxes in the various foreign jurisdictions in which it operates.

In connection with the Combination, the Company recorded a deferred tax asset for its outside basis difference in its investment in Amneal which was $306 million at May 4, 2018. Also, in connection with the Combination, the Company recorded a deferred tax asset of $55 million related to the net operating loss of Impax from January 1, 2018 through May 4, 2018 as well as certain federal and state credits and interest carryforwards of Impax that were attributable to the Company.

The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized. As of December 31, 2018, the Company concluded, based on the weight of all available positive and negative evidence, those deferred tax assets recorded as part of the Combination are more likely than not to be realized. As such, no valuation allowance was recognized. The Company maintains a valuation allowance against certain of Amneal's foreign jurisdiction tax attributes.

In connection with the Combination, the Company entered into a tax receivable agreement ("TRA") for which it is generally required to pay to the other holders of Amneal Common Units 85% of the applicable tax savings, if any, in U.S. federal and state income tax that the Company 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 tax receivable agreement (including imputed interest). In connection with the exchanges which occurred as part of the PIPE Investment and the Closing Date Redemption (Note 1. Nature of Operations and Basis of Presentation), the Company recorded a TRA liability. At December 31, 2018, the Company has a $193 million TRA liability. Such amounts will be paid when such deferred tax assets are realized as a reduction to income taxes due or payable.
 
The components of the Company's (loss) income before income taxes for the years ended December 31, 2018, 2017 and 2016 were as follows (in thousands):
 
Years Ended December 31,
 
2018
 
2017
 
2016
United States
$
(138,484
)
 
$
275,235

 
$
334,750

International
(64,238
)
 
(103,912
)
 
(119,929
)
Total (loss) income before income taxes
$
(202,722
)
 
$
171,323

 
$
214,821



The (benefit from) provision for income taxes is comprised of the following for the years ended December 31, 2018, 2017 and 2016 (in thousands):
 
Years Ended December 31,
 
2018
 
2017
 
2016
Current:
 
 
 
 
 
Domestic
$
2,299

 
$

 
$

Foreign
5,721

 
1,256

 
5,274

Total current income tax
8,020

 
1,256

 
5,274

Deferred:
 
 
 
 
 
Domestic
(2,967
)
 

 

Foreign
(6,472
)
 
742

 
121

Total deferred income tax
(9,439
)
 
742

 
121

Total (benefit from) provision for income tax
$
(1,419
)
 
$
1,998

 
$
5,395



Prior to the Combination, the provision was primarily due to certain limited liability company entity-level taxes and foreign taxes being recorded for Amneal prior to the Combination. Subsequent to May 4, 2018, federal income taxes were also provided related to the Company’s allocable share of income (losses) from Amneal at the prevailing U.S. federal, state, and local corporate income tax rates. No United States federal income taxes were incurred by the partnership in the years ended December 31, 2017 and 2016.

The effective tax rate for the years ended December 31, 2018, 2017 and 2016 are as follows:
 
Years Ended December 31,
 
2018
 
2017
 
2016
Federal income tax at the statutory rate
21.0
 %
 
 %
 
 %
State income tax, net of federal benefit
(1.1
)%
 
 %
 
 %
Losses for which no benefit has been recognized
(12.3
)%
 
10.6
 %
 
8.2
 %
Foreign rate differential
(6.3
)%
 
(6.5
)%
 
(5.4
)%
Other
(0.6
)%
 
(2.9
)%
 
(0.3
)%
Effective income tax rate
0.7
 %
 
1.2
 %
 
2.5
 %


The decrease in effective income tax rate for the year ended December 31, 2018 compared to the year ended December 31, 2017, is primarily due to losses attributable to the non-controlling interest.

The following table summarizes the changes in the Company's valuation allowance on deferred tax assets for the period indicated for the years ended December 31, 2018, 2017 and 2016 (in thousands):
 
Years Ended December 31,
 
2018
 
2017
 
2016
Balance at the beginning of the period
$
41,617

 
$
42,231

 
$
22,567

(Decreases) increases due to net operating losses and temporary differences
(382
)
 
23,286

 
19,664

Divestitures

 
(23,900
)
 

Balance at the end of the period
$
41,235

 
$
41,617

 
$
42,231



At December 31, 2018, the Company has approximately $364 million of foreign net operating loss carry forwards. The majority of these net operating loss carry forwards will expire, if unused, between 2021 and 2024. Also at December 31, 2018, the Company had approximately $303 million of federal and $104 million of state net operating loss carry forwards. The federal net operating losses are generally allowed to be carried forward indefinitely, and the majority of the state net operating losses will expire, if unused, between 2033 and 2038.

The tax effects of temporary differences that give rise to future income tax benefits and payables as of December 31, 2018 and 2017 were as follows (in thousands):
 
 
December 31, 2018
 
December 31, 2017
Deferred tax assets:
 
 
 
Partnership interest in Amneal
$
240,044

 
$

Projected imputed interest on TRA
9,838

 

Net operating loss carryforward
107,942

 
34,889

IRC Section 163(j) interest carryforward
33,789

 

Capitalized costs
900

 
949

Accrued expenses
4,298

 
985

Intangible assets
1,553

 
122

Tax credits and other
16,030

 
6,366

Total deferred tax assets
414,394

 
43,311

Valuation allowance
(41,235
)
 
(41,617
)
Net deferred tax assets
373,159

 
1,694

Deferred tax liabilities:
 
 
 
Fixed assets

 
(3,287
)
Intangible assets
(1,178
)
 

Total deferred tax liabilities
(1,178
)
 
(3,287
)
Net deferred tax assets (liabilities)
$
371,981

 
$
(1,593
)


The Company's Indian subsidiaries are primarily export-oriented and in some cases are eligible for certain limited income tax holiday benefits granted by the government of India for export activities conducted within Special Economic Zones, or SEZs, for periods of up to 15 years. Amneal’s SEZ income tax holiday benefits are currently scheduled to expire in whole or in part during the years 2028 to 2030. Indian profits ineligible for SEZ benefits are subject to corporate income tax at the rate of 34.9%. In addition, all Indian profits, including those generated within SEZs, are subject to the Minimum Alternate Tax (MAT), at the rate of 21.5%. For each of the years ended December 31, 2018, 2017 and 2016, the effect of the income tax holidays granted by the Indian government reduced the overall income tax provision and increased net income by approximately $2 million.

The Company accounts for income tax contingencies using the benefit recognition model. The Company will recognize a benefit if a tax position is more likely than not to be sustained upon audit, based solely on the technical merits. The benefit is measured by determining the amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. During the years ended December 31, 2017 and 2016, the Company did not have an accrual for uncertain tax positions. The amount of unrecognized tax benefits at December 31, 2018, was $7 million, of which $7 million would impact the Company’s effective tax rate if recognized. The Company currently does not believe that the total amount of unrecognized tax benefits will increase or decrease significantly over the next 12 months. Interest expense related to income taxes is included in (Benefit from) provision for income taxes. Net interest expense related to unrecognized tax benefits for the year ended December 31, 2018 was $0.2 million. Accrued interest expense as of December 31, 2018 was $0.6 million. Income tax penalties are included in (Benefit from) provision for income taxes. Accrued tax penalties as of December 31, 2018 were immaterial.

A rollforward of unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016 is as follows (in thousands):
 
Years Ended December 31,
 
2018
 
2017
 
2016
Unrecognized tax benefits at the beginning of the period
$

 
$

 
$

Gross change for current period positions
182

 

 

Gross change for prior period positions
2,346

 

 

Gross change due to Combination
5,208

 

 

Decrease due to expiration of statutes of limitations
(530
)
 

 

Decrease due to settlements and payments

 

 

Unrecognized tax benefits at the end of the period
$
7,206

 
$

 
$



The Company and its subsidiaries file income tax returns in the U.S. federal, and various state, local and foreign jurisdictions. The Company is not currently under income tax audit in any jurisdiction, and it will file its first income tax returns for the period ended December 31, 2018. The Amneal partnership was audited for the tax year ended December 31, 2015 without any adjustments to taxable income. Income tax returns are generally subject to examination for a period of 3 years in the U.S. The statute of limitations for the 2016 and 2017 tax years will, therefore, expire no earlier than 2020. However, any adjustments to the 2016 or 2017 tax years would be pre-transaction when the Company had no ownership interest in Amneal. Under the partnership income tax regulations and audit guidelines, the Company is not responsible for any hypothetical pre-transaction income tax liabilities which pass through to the owners as of the year of any potential income tax adjustment. The IRS statute of limitations is open for the 2015, 2016 and 2017 tax years for the Company’s Impax subsidiary. If there were adjustments to the attributes of Impax, they could impact the carryforward losses at the Company, which is the successor in interest to Impax. Neither the Company nor any of its other affiliates is currently under audit for state income tax.

In India, income tax returns for fiscal years ending March 31, 2016 through March 31, 2018 are currently being reviewed by tax authorities as part of the normal procedures and Amneal is not expecting any material adjustments. There are no other income tax returns in the process of examination, administrative appeal, or litigation. Income tax returns are generally subject to examination for a period of 3 years, 5 years, and 2 years after the tax year in India, Switzerland, and United Kingdom, respectively.

Applicable foreign taxes (including withholding taxes) have not been provided on the approximately $56 million of undistributed earnings of foreign subsidiaries as at December 31, 2018. These earnings have been and currently are considered to be indefinitely reinvested. Quantification of additional taxes that may be payable on distribution is not practicable.

The Company continuously monitors government proposals to make changes to tax laws, including comprehensive tax reform in the United States and proposed legislation in certain foreign jurisdictions resulting from the adoption of the Organization for Economic Cooperation and Development policies.

For the year ended December 31, 2018, the Company recorded taxes related to global intangible low-taxed income ("GILTI") of $0.4 million. The Company made an accounting policy election to treat GILTI as a current-period expense at the partnership level.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the United States, which significantly reforms U.S. tax legislation. In December 2017, the SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting for the effects of the Tax Cuts and Jobs Act ("TCJA"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under Accounting Standards Codification Topic 740, "Income Taxes" ("ASC 740") is complete. To the extent that a company’s accounting for TCJA-related income tax effects is incomplete, but the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.

The Company has completed its analysis of the TCJA’s income tax effects. In total, the Company recorded a non-cash charge of $0.2 million to income tax expense for TCJA-related impacts, comprised of provisional estimates of $0.1 million recorded in the first quarter of 2018 and an additional $0.1 million charge when the Company's analysis was completed in the fourth quarter of 2018. In accordance with SAB 118, the TCJA-related income tax effects that were initially reported as provisional estimates were refined as additional analysis was performed.

If legislative changes are enacted in other countries, any of these proposals may include increasing or decreasing existing statutory tax rates. A change in statutory tax rates in any country would result in the revaluation of Amneal’s deferred tax assets and liabilities related to that particular jurisdiction in the period in which the new tax law is enacted. During 2018, the state of New Jersey enacted comprehensive budget legislation that included various changes to the state's tax laws. This legislation did not have a material effect on the Company’s income tax provision for the fourth quarter or the full year.
v3.10.0.1
Earnings per Share
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Earnings per Share
Earnings per Share

Basic earnings per share of Class A Common Stock and Class B-1 Common Stock is computed by dividing net loss attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A Common Stock and Class B-1 Common Stock outstanding during the period. Diluted earnings per share of Class A Common Stock and Class B-1 Common Stock is computed by dividing net loss attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A Common Stock and Class B-1 Common Stock outstanding during the period, 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 earnings per share of Class A Common Stock and Class B-1 Common Stock (in thousands, except per share amounts):
 
Years Ended December 31,
 
2018
 
2017
 
2016
Numerator:
 
 
 
 
 
Net loss attributable to Amneal Pharmaceuticals, Inc.
$
(20,920
)
 
$

 
$

 
 
 
 
 
 
Denominator:
 
 
 
 
 
Weighted-average shares of Class A Common Stock and Class B-1 Common Stock outstanding-basic and diluted
127,252

 
 
 
 
 
 
 
 
 
 
Net loss per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:
 
 
 
 
 
Class A and Class B-1 basic and diluted
$(0.16)
 
 
 
 


The allocation of net loss to the holders of shares of Class A Common Stock and Class B-1 Common Stock began following the closing of the Combination on May 4, 2018. 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. Therefore, 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 Common Stock and Class B-1 Common Stock (in thousands).

 
Years Ended December 31,
 
2018
 
2017
 
2016
Stock options(1)
5,815



 

Restricted stock units(1)
1,331



 

Shares of Class B Common Stock(2)
171,261



 


(1) Excluded from the computation of diluted earnings per share of Class A Common Stock 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 the year ended December 31, 2018.
(2) Shares of Class B Common Stock are considered potentially dilutive shares of Class A Common Stock 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 Common Stock and Class B-1 Common Stock because the effect of their inclusion would have been anti-dilutive under the if-converted method.
v3.10.0.1
Trade Accounts Receivable, Net
12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Trade Accounts Receivable, Net
Trade Accounts Receivable, Net

Trade accounts receivable, net is comprised of the following (in thousands):

 
December 31, 2018
 
December 31, 2017
Gross accounts receivable
$
1,349,588

 
$
827,302

Allowance for doubtful accounts
(2,340
)
 
(1,824
)
Contract charge-backs and sales volume allowances
(829,596
)
 
(453,703
)
Cash discount allowances
(36,157
)
 
(20,408
)
Subtotal
(868,093
)
 
(475,935
)
Trade accounts receivable, net
$
481,495

 
$
351,367



Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at December 31, 2018, equal to 30%, 28%, and 24%, respectively. Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at December 31, 2017, equal to 36%, 27%, and 19%, respectively.
v3.10.0.1
Inventories
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
Inventories
Inventories

Inventories, net of reserves, are comprised of the following (in thousands):


December 31, 2018
 
December 31, 2017
Raw materials
$
181,654

 
$
140,051

Work in process
54,152

 
38,146

Finished goods
221,413

 
105,841

Total inventories
$
457,219