AMNEAL PHARMACEUTICALS, INC., 10-Q filed on 5/11/2020
Quarterly Report
v3.20.1
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2020
Apr. 30, 2020
Entity Information [Line Items]    
Entity Registrant Name Amneal Pharmaceuticals, Inc.  
Entity Central Index Key 0001723128  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Current Reporting Yes  
Entity Interactive Data Current Yes  
Entity Shell Company false  
Entity Tax Identification Number 32-0546926  
Entity File Number 001-38485  
Entity Address, Address Line One Amneal Pharmaceuticals, Inc.  
Entity Address, Address Line Two 400 Crossing Boulevard  
Entity Address, City or Town Bridgewater  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 08807  
City Area Code 908  
Local Phone Number 947-3120  
Document Quarterly Report true  
Document Transition Report false  
Entity Incorporation, State or Country Code DE  
Title of 12(b) Security Class A Common Stock, par value $0.01 per share  
Security Exchange Name NYSE  
Trading Symbol AMRX  
Class A Common Stock    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   147,314,497
Class B Common Stock    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   152,116,890
v3.20.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Net revenue $ 498,533 $ 446,120
Cost of goods sold 313,578 309,743
Cost of goods sold impairment charges 1,456 53,297
Gross profit 183,499 83,080
Selling, general and administrative 77,976 84,436
Research and development 36,379 53,858
In-process research and development impairment charges 960 22,787
Intellectual property legal development expenses 1,270 4,166
Acquisition, transaction-related and integration expenses 2,575 6,032
Charges related to legal matters 4,500 0
Restructuring and other charges 2,048 6,161
Operating income (loss) 57,791 (94,360)
Other (expense) income:    
Interest expense, net (39,899) (43,281)
Foreign exchange loss, net (5,181) (5,464)
Gain on sale of international business 0 8,818
Other income, net 633 1,107
Total other expense, net (44,447) (38,820)
Income (loss) before income taxes 13,344 (133,180)
Benefit from income taxes (108,173) (8,428)
Net income (loss) 121,517 (124,752)
Less: Net (income) loss attributable to non-controlling interests (6,450) 76,871
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. $ 115,067 $ (47,881)
Net income (loss) per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:    
Class A and Class B-1 basic $ 0.78 $ (0.37)
Class A and Class B-1 diluted $ 0.78 $ (0.37)
Weighted-average common shares outstanding:    
Class A and Class B-1 basic 147,180 127,687
Class A and Class B-1 diluted 147,956 127,687
v3.20.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement Of Other Comprehensive Income [Abstract]    
Net income (loss) $ 121,517 $ (124,752)
Less: Net (income) loss attributable to non-controlling interests (6,450) 76,871
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. 115,067 (47,881)
Other comprehensive income (loss):    
Foreign currency translation adjustments arising during the period (5,135) 5,236
Less: Reclassification of foreign currency translation adjustment included in net loss 0 3,373
Foreign currency translation adjustments, net (5,135) 8,609
Unrealized loss on cash flow hedge, net of tax (62,658) 0
Less: Other comprehensive income (loss) attributable to non-controlling interests 34,456 (4,927)
Other comprehensive (loss) income attributable to Amneal Pharmaceuticals, Inc. (33,337) 3,682
Comprehensive income (loss) attributable to Amneal Pharmaceuticals, Inc. $ 81,730 $ (44,199)
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 405,238 $ 151,197
Restricted cash 1,687 1,625
Trade accounts receivable, net 722,682 604,390
Inventories 437,959 381,067
Prepaid expenses and other current assets 204,409 70,164
Related party receivables 1,725 1,767
Total current assets 1,773,700 1,210,210
Property, plant and equipment, net 467,559 477,997
Goodwill 514,733 419,504
Intangible assets, net 1,475,161 1,382,753
Other assets 26,456 44,270
Total assets 4,390,800 3,665,890
Current liabilities:    
Accounts payable and accrued expenses 606,925 507,483
Current portion of long-term debt, net 29,736 21,479
Revolving credit facility 300,000 0
Related party payable 11,195 5,969
Total current liabilities 965,065 550,406
Long-term debt, net 2,772,029 2,609,046
Note payable - related party 35,281 0
Other long-term liabilities 80,846 39,583
Total long-term liabilities 3,009,714 2,768,696
Commitments and contingencies (Notes 5 and 17) 0 0
Redeemable non-controlling interests 12,563 0
Stockholders' Equity    
Preferred stock, $0.01 par value, 2,000 shares authorized; none issued at both March 31, 2020 and December 31, 2019 0 0
Additional paid-in capital 611,600 606,966
Stockholders' accumulated deficit (262,813) (377,880)
Accumulated other comprehensive loss (33,405) (68)
Total Amneal Pharmaceuticals, Inc. stockholders' equity 318,376 232,010
Non-controlling interests 85,082 114,778
Total stockholders' equity 403,458 346,788
Total liabilities and stockholders' equity 4,390,800 3,665,890
Class A Common Stock    
Stockholders' Equity    
Common stock 1,472 1,470
Class B Common Stock    
Stockholders' Equity    
Common stock 1,522 1,522
Excluding Related Party    
Current assets:    
Operating lease right-of-use assets 50,943 53,344
Current liabilities:    
Current portion of operating lease liabilities 12,125 11,874
Operating lease liabilities 40,615 43,135
Related Party    
Current assets:    
Operating lease right-of-use assets 21,616 16,528
Financing lease right-of-use assets - related party 60,632 61,284
Current liabilities:    
Current portion of operating and financing lease liabilities - related party 4,084 3,601
Current portion of note payable- related party 1,000 0
Operating lease liabilities 19,874 15,469
Financing lease liabilities - related party $ 61,069 $ 61,463
v3.20.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 2,000,000 2,000,000
Preferred stock, shares issued (in shares) 0 0
Class A Common Stock    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 900,000,000 900,000,000
Common stock, shares issued (in shares) 147,311,000 147,070,000
Common stock, shares outstanding (in shares) 147,311,000 147,070,000
Class B Common Stock    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 300,000,000 300,000,000
Common stock, shares issued (in shares) 152,117,000 152,117,000
Common stock, shares outstanding (in shares) 152,117,000 152,117,000
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net income (loss) $ 121,517 $ (124,752)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation and amortization 58,083 48,868
Amortization of Levothyroxine Transition Agreement asset 0 36,393
Unrealized foreign currency loss 5,514 6,490
Amortization of debt issuance costs and discount 2,004 1,601
Gain on sale of international business 0 (8,818)
Intangible asset impairment charges 2,416 76,084
Deferred tax benefit 0 (9,884)
Stock-based compensation 4,539 4,347
Inventory provision 15,200 15,650
Other operating charges and credits, net 1,266 1,109
Changes in assets and liabilities:    
Trade accounts receivable, net (60,893) (165,012)
Inventories (2,778) (14,180)
Income taxes receivable associated with the CARES Act (110,069) 0
Prepaid expenses, other current assets and other assets (26,383) 22,657
Related party receivables 76 (314)
Accounts payable, accrued expenses and other liabilities 34,839 695
Related party payables 3,695 656
Net cash provided by (used in) operating activities 49,026 (108,410)
Cash flows from investing activities:    
Purchases of property, plant and equipment (7,367) (17,988)
Acquisition of intangible assets (1,050) 0
Acquisitions, net of cash acquired (253,625) 0
Cash sold with international business 0 (3,478)
Net cash used in investing activities (262,042) (21,466)
Cash flows from financing activities:    
Proceeds from issuance of debt 180,000 0
Payments of principal on debt and financing leases (7,158) (6,750)
Net borrowings on revolving credit facility 300,000 0
Payments of deferred financing costs (4,102) 0
Proceeds from exercise of stock options 5 1,010
Employee payroll tax withholding on restricted stock unit vesting (503) 0
Acquisition of non-controlling interest 0 (2,011)
Tax distribution to non-controlling interest 0 (13,494)
Net cash provided by (used in) financing activities 467,979 (21,864)
Effect of foreign exchange rate on cash (860) (296)
Net increase (decrease) in cash, cash equivalents, and restricted cash 254,103 (152,036)
Cash, cash equivalents, and restricted cash - beginning of period 152,822 218,779
Cash, cash equivalents, and restricted cash - end of period 406,925 66,743
Cash and cash equivalents - end of period 405,238 63,946
Restricted cash - end of period 1,687 2,797
Supplemental disclosure of cash flow information:    
Cash paid for interest 35,386 40,032
Cash (paid) received for income taxes, net (3,430) 9,713
Supplemental disclosure of non-cash investing and financing activity:    
Receivable from the sale of international business 0 35,837
Payable for acquisition of product rights and licenses 0 50,000
Related Party    
Cash flows from financing activities:    
Payments of principal on financing lease - related party (263) (619)
Supplemental disclosure of non-cash investing and financing activity:    
Notes payable for acquisitions - related party $ 36,033 $ 0
v3.20.1
Consolidated Statement of Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Class A Common Stock
Common Stock
Class B Common Stock
Common Stock
Class B-1 Common Stock
Additional Paid-in Capital
Stockholders' Accumulated Deficit
Accumulated Other Comprehensive (Loss) Income
Non-Controlling Interests
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Cumulative-effective adjustment from adoption of Topic 842, net of tax | Adoption of Topic 842 $ 13,561         $ 4,957   $ 8,604
Stockholders' equity beginning balance at Dec. 31, 2018 896,363 $ 1,151 $ 1,713 $ 123 $ 530,438 (20,920) $ (7,755) 391,613
Shares beginning balance (in shares) at Dec. 31, 2018   115,047 171,261 12,329        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) (124,752)         (47,881)   (76,871)
Foreign currency translation adjustment 5,236           2,238 2,998
Stock-based compensation 4,347       4,347      
Exercise of stock options 1,010 $ 2     748   (7) 267
Exercise of stock options (in shares)   197            
Unrealized loss on cash flow hedge, net of tax 0              
Redemption of Class B Common Stock 223 $ 3 $ (3)   1,124   (19) (882)
Redemption of Class B Common Stock (in shares)   320 (320)          
Reclassification of foreign currency translation adjustment included in net loss 3,373           1,444 1,929
Tax distribution (82)             (82)
Other 502       502      
Stockholders' equity ending balance at Mar. 31, 2019 799,781 $ 1,156 $ 1,710 $ 123 537,159 (63,844) (4,099) 327,576
Shares ending balance (in shares) at Mar. 31, 2019   115,564 170,941 12,329        
Stockholders' equity beginning balance at Dec. 31, 2019 346,788 $ 1,470 $ 1,522   606,966 (377,880) (68) 114,778
Shares beginning balance (in shares) at Dec. 31, 2019   147,070 152,117          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 120,429         115,067   5,362
Net income (loss) 121,517              
Foreign currency translation adjustment (5,135)           (2,525) (2,610)
Stock-based compensation 4,539       4,539      
Exercise of stock options 5       5      
Exercise of stock options (in shares)   1            
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (510) $ 2     90     (602)
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)   240            
Unrealized loss on cash flow hedge, net of tax (62,658)           (30,812) (31,846)
Stockholders' equity ending balance at Mar. 31, 2020 403,458 $ 1,472 $ 1,522   $ 611,600 $ (262,813) $ (33,405) $ 85,082
Shares ending balance (in shares) at Mar. 31, 2020   147,311 152,117          
Redeemable Noncontrolling Interests, balance at Dec. 31, 2019 0              
Increase (Decrease) in Temporary Equity [Roll Forward]                
Net income 1,088              
Redeemable non-controlling interests issued for acquisitions 11,475              
Redeemable Noncontrolling Interests, balance at Mar. 31, 2020 $ 12,563              
v3.20.1
Nature of Operations
3 Months Ended
Mar. 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Nature of Operations

1. Nature of Operations

Amneal Pharmaceuticals, Inc., formerly known as Atlas Holdings, Inc. (the "Company"), was formed along with its wholly owned subsidiary, K2 Merger Sub Corporation, a Delaware corporation ("Merger Sub"), on October 4, 2017, for the purpose of facilitating the combination of Impax Laboratories, Inc. (now Impax Laboratories, LLC), a Delaware corporation then listed on the Nasdaq Stock Market ("Impax") and Amneal Pharmaceuticals LLC, a Delaware limited liability company ("Amneal"). The Company is a holding company, whose principal assets are Amneal Common Units.

Amneal was formed in 2002 and operates through various subsidiaries. Amneal is a vertically integrated developer, manufacturer, and seller of generic pharmaceutical products. Amneal’s pharmaceutical research includes analytical and formulation development and stability. Amneal operates principally in the United States, India, and Ireland.  Amneal sells to wholesalers, distributors, hospitals, chain pharmacies and individual pharmacies, either directly or indirectly.

On October 17, 2017, Amneal, Impax, the Company and Merger Sub entered into the Business Combination Agreement, as amended on November 21, 2017 and December 16, 2017 (the "BCA").

On May 4, 2018, pursuant to the BCA, Impax and Amneal combined the generics and specialty pharmaceutical business of Impax with the generic drug development and manufacturing business of Amneal to create the Company as a new generics and specialty pharmaceutical company, through the following transactions (together, the "Combination", and the closing of the Combination, the "Closing"): (i) Merger Sub merged with and into Impax, with Impax surviving as a wholly owned subsidiary of the Company, (ii) each share of Impax’s common stock, par value $0.01 per share ("Impax Common Stock"), issued and outstanding immediately prior to the Closing, other than Impax Common Stock held by Impax in treasury, by the Company or by any of their respective subsidiaries, was converted into the right to receive one fully paid and non-assessable share of Class A common stock of the Company, par value $0.01 per share ("Class A Common Stock"), (iii) Impax converted to a Delaware limited liability company, (iv) the Company contributed to Amneal all of the Company’s equity interests in Impax, in exchange for Amneal common units ("Amneal Common Units"), (v) the Company issued an aggregate number of shares of Class B common stock of the Company, par value $0.01 per share ("Class B Common Stock", and collectively, with the Class A Common Stock and Class B-1 common stock of the Company, par value $0.01 , ("Class B-1 Common Stock"), the "Company Common Stock") to APHC Holdings, LLC, (formerly Amneal Holdings, LLC), the parent entity of Amneal as of the Closing ("Holdings"), and (vi) the Company became the managing member of Amneal.

Immediately upon the Closing, holders of Impax Common Stock prior to the Closing collectively held approximately 25% of the Company and Holdings held a majority interest in the Company with an effective voting interest of approximately 75% on a fully diluted and as converted basis through its ownership of Class B Common Stock. Holdings also held a corresponding number of Amneal Common Units, which entitled it to approximately 75% of the economic interests in the combined businesses of Impax and Amneal. The Company held an interest in Amneal of approximately 25% and became its managing member.

In connection with the Combination, on May 4, 2018, Holdings entered into definitive purchase agreements which provided for a private placement of certain shares of Class A Common Stock and Class B-1 Common Stock (the "PIPE Investment") with select institutional investors (the "PIPE Investors"). Pursuant to the terms of the purchase agreements, upon the Closing, Holdings exercised its right to cause the Company to redeem approximately 15% of its ownership interests in the Company in exchange for 34.5 million shares of Class A Common Stock and 12.3 million unregistered shares of Class B-1 Common Stock (the "Redemption"). The shares of Class A Common Stock and Class B-1 Common Stock received in the Redemption were sold immediately following the Closing by Holdings to the PIPE Investors at a per share purchase price of $18.25 for gross proceeds of $855 million. Following the PIPE Investment, the PIPE Investors owned collectively approximately 15% of the Company Common Stock on a fully diluted and as converted basis. On May 4, 2018, Holdings also caused Amneal to redeem (the "Closing Date Redemption") 6.9 million of Amneal Common Units held by Holdings for a like number of shares of Class A Common Stock, for future distribution to certain direct and indirect members of Holdings who were or are employees of the Company and to whom were previously issued (prior to the Closing) profit participation units ("PPUs") in Amneal. As a result of the PIPE Investment and Closing Date Redemption, the voting and economic interest of approximately 75% held by Holdings immediately upon Closing was reduced by approximately 18%. The overall interest percentage held by non-controlling interest holders (the "Amneal Group") upon the consummation of the Combination, PIPE Investment and Closing Date Redemption was approximately 57%. As of both March 31, 2020 and December 31, 2019, the overall interest percentage held by non-controlling interest holders was approximately 51%.

On July 5, 2018, Holdings distributed to its members all Amneal Common Units and shares of Class B Common Stock held by Holdings. As a result, as of March 31, 2020, Holdings did not hold any equity interest in Amneal or the Company.

During the year ended December 31, 2019, pursuant to the Company's certificate of incorporation, the Company converted all (12.3 million) of its issued and outstanding shares of Class B-1 Common Stock to Class A Common Stock and such shares of Class B-1 Common Stock have been retired and may not be reissued by the Company. The rights of Class A Common Stock and Class B-1 Common Stock were identical, except that the Class B-1 Common Stock had certain director appointment rights and the Class B-1 Common Stock had no voting rights (other than with respect to its director appointment right and as otherwise required by law).

v3.20.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States of America, should be read in conjunction with Amneal’s annual audited financial statements for the year ended December 31, 2019 included in the Company’s 2019 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements have been omitted from the accompanying unaudited consolidated financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of March 31, 2020, cash flows for the three months ended March 31, 2020 and 2019 and the results of its operations, its comprehensive income (loss) and changes in stockholders' equity for the three months ended March 31, 2020 and 2019. The consolidated balance sheet data at December 31, 2019 was derived from the Company's audited annual financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America.

The accounting policies of the Company are set forth in Note 2. Summary of Significant Accounting Policies contained in the Company’s 2019 Annual Report on Form 10-K, except for the impact of the adoption of new accounting standards discussed under Recently Adopted Accounting Pronouncements. The following new significant accounting policy relates to the acquisitions of AvKARE, Inc. and Dixon-Shane, LLC d/b/a R&S Northeast LLC (refer to Note 3. Acquisitions and Divestitures).

Chargebacks Receivable

When a sale occurs on a contracted item, the difference between the cost the Company pays to the manufacturer of that item and the contract price that the end customer has with the manufacturer is rebated to the Company by the manufacturer. The Company establishes a chargeback (rebate) receivable and a reduction to cost of goods sold in the same period as the related sale. At March 31, 2020, chargebacks receivable was $24 million, net of an immaterial allowance for doubtful accounts.

Use of Estimates

The preparation of financial statements requires the Company's management to make estimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during the reporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The following are some, but not all, of such estimates: the determination of chargebacks, sales returns, rebates, billbacks, distribution fees, allowances for accounts receivable, accrued liabilities, chargeback receivables, stock-based compensation, valuation of inventory balances, the determination of useful lives for product rights, allowances for deferred tax assets, measurement of assets acquired and liabilities assumed in business combinations at fair value and the assessment of expected cash flows used in evaluating goodwill and other long-lived assets for impairment. Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 82): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurement.  The Company adopted ASU 2018-13 effective January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, guidance that changes the impairment model for most financial assets including trade receivables and certain other instruments that are not measured at fair value through net income. The standard 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 Company adopted ASU 2016-13 effective January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provided elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.  The amendments may be applied to impacted contracts and hedges prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

v3.20.1
Acquisitions and Divestitures
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Acquisitions and Divestitures

3. Acquisitions and Divestitures

AvKARE and R&S Acquisitions

On December 10, 2019, the Company, through its investment in Rondo Partners, LLC (“Rondo”), entered into an equity purchase and operating agreements to acquire approximately a 65.1% controlling financing interest in both AvKARE Inc., a Tennessee corporation, and Dixon-Shane, LLC d/b/a R&S Northeast LLC, a Kentucky limited liability company (“R&S”) (collectively the “Acquisitions”). Prior to closing, AvKARE, Inc. converted to a limited liability company, AvKARE, LLC. AvKARE, LLC is one of the largest private label providers of generic pharmaceuticals in the U.S. federal agency sector, primarily focused on serving the Department of Defense and the Department of Veterans Affairs. R&S is a national pharmaceutical wholesaler focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.  

On January 31, 2020, the Company completed the Acquisitions.  The purchase price of $295 million, included cash of $254 million and the issuance of long-term promissory notes to the sellers with an aggregate principal amount of $44 million (estimated fair value of $35 million) (the “Sellers Notes”) and a short-term promissory note (the “Short-Term Seller Note”) with a principal amount of $1 million to the sellers.  The cash purchase price was funded by $76 million of cash on hand and $178 million of proceeds from a $180 million term loan.  The remaining $2 million consisted of working capital costs (refer to Note 13. Debt).  For further detail of the preliminary purchase price, refer to the table below.

For the three months ended March 31, 2020, there were $1 million of transaction costs associated with the Acquisitions recorded in acquisition, transaction-related and integration expenses.

The Acquisitions were accounted for under the acquisition method of accounting, with Amneal as the accounting acquirer of AvKARE, LLC and R&S.

The preliminary purchase price is calculated as follows (in thousands):

 

Cash

 

$

254,000

 

Sellers Notes (1)

 

 

35,033

 

Settlement of Amneal trade accounts receivable from R&S (2)

 

 

7,440

 

Short-Term Seller Note (3)

 

 

1,000

 

Working capital adjustment (4)

 

 

(2,640

)

Fair value consideration transferred

 

$

294,833

 

 

(1)

In accordance with ASC 805, Business Combinations, all consideration transferred was measured at its acquisition-date fair value. The Sellers Notes are stated at the preliminary fair value estimate of $35 million, which is the $44 million aggregate principal amount less a $9 million discount.  The fair value of the Sellers Notes was estimated using the Monte-Carlo simulation approach under the option pricing framework.

 

(2)

Represents trade accounts receivable from R&S that was effectively settled upon closing of the Acquisitions.

 

(3)

Represents the principal amount due on the Short-Term Seller Note, which approximates fair value.

 

(4)

Represents estimated working capital adjustment pursuant to the terms of the purchase agreement.

 

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

 

 

 

Preliminary Fair Values

As of March 31,

2020

 

Restricted cash

 

$

375

 

Trade accounts receivable, net

 

 

52,223

 

Inventories

 

 

72,615

 

Prepaid expenses and other current assets

 

 

33,525

 

Related party receivables

 

 

61

 

Property, plant and equipment

 

 

5,278

 

Goodwill

 

 

95,955

 

Intangible assets, net

 

 

137,400

 

Operating lease right-of-use assets - related party

 

 

5,544

 

Total assets acquired

 

 

402,976

 

Accounts payable and accrued expenses

 

 

89,592

 

Related party payables

 

 

1,532

 

Operating lease liabilities - related party

 

 

5,544

 

Total liabilities assumed

 

 

96,668

 

Redeemable non-controlling interests

 

 

11,475

 

Fair value of consideration transferred

 

$

294,833

 

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

 

 

Preliminary

Fair Values

 

 

Weighted-Average

Useful Life

Government licenses

 

$

66,700

 

 

7 years

Government contracts

 

 

28,600

 

 

4 years

National contracts

 

 

28,600

 

 

5 years

Customer relationships

 

 

13,000

 

 

10 years

Trade name

 

 

500

 

 

6 years

 

 

$

137,400

 

 

 

The estimated fair values of the customer relationships, government contracts and national contracts were determined using the “income approach,” which is a valuation technique that provides an estimate of the fair value of an intangible asset based on market participant expectations of the cash flows that an intangible asset would generate over its remaining useful life.  The estimated fair value of the trade name was determined using the “relief from royalty method,” which is a valuation technique that provides an estimate of the fair value of an intangible asset equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. The estimated fair value of the government licenses was determined using the “with-and-without method,” which is a valuation technique that provides an estimate of the fair value of an intangible asset that is equal to the difference between the present value of the prospective revenues and expenses for the business with and without the subject intangible asset in place. The assumptions, including the expected projected cash flows, utilized in the preliminary purchase price allocation and in determining the purchase price were based on management's best estimates as of the closing date of the Acquisitions on January 31, 2020.

Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each asset (including net revenues, cost of sales, selling and marketing costs and working capital / contributory asset charges), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, competitive trends impacting the asset and each cash flow stream, as well as other factors. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.

The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets, assumed liabilities and redeemable non-controlling interests. The Company obtains this information during due diligence and through other sources.  In the months after closing, as the Company obtains additional information about these assets and liabilities and learns more about the newly acquired businesses, it is able to refine the estimates of fair value and more accurately allocate the purchase price.  Only items identified as of the acquisition date are considered for subsequent adjustment.  The Company is continuing to evaluate the acquired assets, assumed liabilities and redeemable non-controlling interests associated with the Acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

The Sellers Notes and redeemable non-controlling interests were estimated using the Monte-Carlo simulation approach under the option pricing framework.  The non-controlling interests are redeemable at the option of either the non-controlling interest holder and Amneal. The fair value of the redeemable non-controlling interests considers these redemption rights.

Of the $96 million of goodwill acquired in connection with the Acquisitions, approximately $65 million was allocated to the Company’s AvKARE segment (refer to Note 18. Segment Information) and approximately $31 million was allocated to the Generics segment.  Goodwill was allocated to the Generics segment as net revenue of products manufactured from Amneal and distributed by the Acquisitions is reflected in Generics’ segment results.  Goodwill is calculated as the excess of the fair value of the consideration transferred and the fair value of the redeemable non-controlling interests over the fair value of the net assets recognized. Factors that contributed to the recognition of goodwill include Amneal’s intent to diversify its business and open growth opportunities in the large, complex and growing federal healthcare market.

For the three months ended March 31, 2020, the Acquisitions contributed total net revenue of approximately $65 million and operating loss of $1 million, which included approximately $6 million of amortization expense from intangible assets acquired in the Acquisitions, to the Company’s consolidated results of operations.  

Unaudited Pro Forma Information

The unaudited pro forma combined results of operations for the three months ended March 31, 2020 and 2019 (assuming the closing of the Acquisitions occurred on January 1, 2019) are as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net revenue

 

$

525,303

 

 

$

511,205

 

Net income (loss)

 

$

122,521

 

 

$

(133,410

)

Net income (loss) attributable to Amneal Pharmaceuticals, Inc.

 

$

115,388

 

 

$

(50,463

)

 

The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the closing of the Acquisitions taken place on January 1, 2019. Furthermore, the pro forma results do not purport to project the future results of operations of the Company.

Adjustments to arrive at the unaudited pro forma information primarily related to increases in selling, general and administrative expenses for amortization of acquired intangible assets, net of the applicable tax impact.

 

U.K. Divestiture

On March 30, 2019, the Company sold 100% of the stock of its Creo Pharma Holding Limited subsidiary, which comprised substantially all of the Company's operations in the United Kingdom, to AI Sirona (Luxembourg) Acquisition S.a.r.l ("AI Sirona") for net cash consideration of approximately $32 million which was received in April 2019. The carrying value of the net assets sold was $22 million, including intangible assets of $7 million and goodwill of $5 million. As a result of the sale, the Company recognized a pre-tax gain of $9 million, inclusive of transaction costs and the recognition of accumulated foreign currency translation adjustment losses of $3 million, within gain on sale of international business for the three months ended March 31, 2019. As part of the disposition, the Company entered into a supply and license agreement with AI Sirona to supply certain products for a period of up to two years.

v3.20.1
Revenue Recognition
3 Months Ended
Mar. 31, 2020
Revenue From Contract With Customer [Abstract]  
Revenue Recognition

4. Revenue Recognition

Performance Obligations

The Company’s performance obligation is the supply of finished pharmaceutical and related products to its customers. The Company’s customers consist primarily of major wholesalers, retail pharmacies, managed care organizations, purchasing co-ops, hospitals, government agencies, institutions, and pharmaceutical companies. The Company’s customer contracts generally consist of both a master agreement, which is signed by the Company and its customer, and/or a customer submitted purchase order, which is governed by the terms and conditions of the master agreement. Customers purchase product by direct channel sales from the Company or by indirect channel sales through various distribution channels.

Revenue is recognized when the Company transfers control of its products to the customer, which typically occurs at a point-in-time, either upon shipment or delivery. Substantially all of the Company’s net revenues relate to products which are transferred to the customer at a point-in-time.

The Company offers standard payment terms to its customers and has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing, since the period between when the Company transfers the product to the customer and when the customer pays for that product is one year or less. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The consideration amounts due from customers as a result of product sales are subject to variable consideration, as described further below.

The Company offers standard product warranties which provide assurance that the product will function as expected and in accordance with specifications. Customers cannot purchase warranties separately and these warranties do not give rise to a separate performance obligation.

The Company permits the return of product under certain circumstances, mainly upon product expiration, instances of shipping errors or where product is damaged in transit. The Company accrues for the customer’s right to return as part of its variable consideration. See below for further details.

Variable Consideration

The Company includes an estimate of variable consideration in its transaction price at the time of sale, when control of the product transfers to the customer. Variable consideration includes but is not limited to: chargebacks, distribution fees, rebates, group purchasing organization ("GPO") fees, prompt payment (cash) discounts, consideration payable to the customer, billbacks, Medicaid and other government pricing programs, price protection and shelf stock adjustments, sales returns, and profit shares.

The Company assesses whether or not an estimate of its variable consideration is constrained and has determined that the constraint does not apply, since it is probable that a significant reversal in the amount of cumulative revenue will not occur in the future when the uncertainty associated with the variable consideration is subsequently resolved. The Company’s estimates for variable consideration are adjusted as required at each reporting period for specific known developments that may result in a change in the amount of total consideration it expects to receive.

Chargebacks

In the case an indirect customer purchases product from their preferred wholesaler instead of directly from the Company, and the contract price charged to the indirect customer is lower than the wholesaler pricing, the Company pays the direct customer (wholesaler) a chargeback for the price differential. The Company estimates its chargeback accrual based on its estimates of the level of inventory of its products in the distribution

channel that remain subject to chargebacks and historical chargeback rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.

Rebates

The Company pays fixed or volume-based rebates to its customers based on a fixed amount, fixed percentage of product sales or based on the achievement of a specified level of purchases. The Company’s rebate accruals are based on actual net sales, contractual rebate rates negotiated with customers, and expected purchase volumes / corresponding tiers based on actual sales to date and forecasted amounts.

Group Purchasing Organization Fees

The Company pays fees to GPOs for administrative services that the GPOs perform in connection with the purchases of product by the GPO participants who are the Company’s customers. The Company’s GPO fee accruals are based on actual net sales, contractual fee rates negotiated with GPOs and the mix of the products in the distribution channel that remain subject to GPO fees.

Prompt Payment (Cash) Discounts

The Company provides customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. The Company’s prompt payment discount accruals are based on actual net sales and contractual discount rates.

Consideration Payable to the Customer

The Company pays administrative and service fees to its customers based on a fixed percentage of the product price. These fees are not in exchange for a distinct good or service and therefore are recognized as a reduction of the transaction price. The Company accrues for these fees based on actual net sales, contractual fee rates negotiated with the customer and the mix of the products in the distribution channel that remain subject to fees.

Billbacks

In the case an indirect customer purchases product from their preferred wholesaler instead of directly from the Company, and the contract price charged to the indirect customer is higher than contractual pricing, the Company pays the indirect customer a billback for the price differential. The Company estimates its billback accrual based on its estimates of the level of inventory of its products in the distribution channel that remain subject to billbacks and historical billback rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.

Medicaid and Other Government Pricing Programs

The Company complies with required rebates mandated by law under Medicaid and other government pricing programs. The Company estimates its government pricing accruals based on monthly sales, historical experience of claims submitted by the various states and jurisdictions, historical rates and estimated lag time of the rebate invoices.

Price Protection and Shelf Stock Adjustments

The Company provides customers with price protection and shelf stock adjustments which may result in an adjustment to the price charged for the product transferred, based on differences between old and new prices which may be applied to the customer’s on-hand inventory at the time of the price change. The Company accrues for these adjustments when its expected value of an adjustment is greater than zero, based on contractual pricing, actual net sales, accrual rates based on historical average rates, and estimates of the level of inventory of its products in the distribution channel that remain subject to these adjustments. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.

Sales Returns

The Company permits the return of product under certain circumstances, mainly upon product expiration, instances of shipping errors or where product is damaged in transit, and occurrences of product recalls. The Company’s product returns accrual is primarily based on estimates of future product returns based generally on actual net sales, estimates of the level of inventory of its products in the distribution channel that remain subject to returns, estimated lag time of returns and historical return rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.

Profit Shares

For certain product sale arrangements, the Company earns a profit share upon the customer’s sell-through of the product purchased from the Company. The Company estimates its profit shares based on actual net sales, estimates of the level of inventory of its products in the distribution channel that remain subject to profit shares, and historical rates of profit shares earned. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.

Concentration of Revenue

The Company's three largest customers accounted for approximately 81% and 79% of total gross sales of products for the three months ended March 31, 2020 and 2019, respectively.

Disaggregated Revenue

The Company's significant therapeutic classes for its Generics and Specialty segments and sales channels for its AvKARE segment, as determined based on net revenue for each of the three months ended March 31, 2020 and 2019 are set forth below (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

Generics

 

 

 

 

 

 

 

 

 

 

Anti-Infective

 

$

13,253

 

 

$

5,942

 

 

Hormonal/Allergy

 

 

87,481

 

 

 

102,725

 

 

Antiviral

 

 

15,824

 

 

 

14,456

 

 

Central Nervous System (1)

 

 

101,575

 

 

 

124,775

 

 

Cardiovascular System

 

 

29,679

 

 

 

36,217

 

 

Gastroenterology

 

 

23,536

 

 

 

9,556

 

 

Oncology

 

 

15,966

 

 

 

14,959

 

 

Metabolic Disease/Endocrine

 

 

17,229

 

 

 

17,847

 

 

Respiratory

 

 

10,067

 

 

 

9,218

 

 

Dermatology

 

 

15,245

 

 

 

12,973

 

 

Other therapeutic classes

 

 

21,746

 

 

 

18,177

 

 

International and other

 

 

985

 

 

 

15,632

 

 

   Total Generics net revenue

 

 

352,586

 

 

 

382,477

 

Specialty

 

 

 

 

 

 

 

 

 

 

Hormonal/Allergy

 

 

13,954

 

 

 

10,899

 

 

Central Nervous System (1)

 

 

68,311

 

 

 

42,899

 

 

Gastroenterology

 

 

48

 

 

 

481

 

 

Metabolic Disease/Endocrine

 

 

273

 

 

 

541

 

 

Other therapeutic classes

 

 

5,391

 

 

 

8,823

 

 

   Total Specialty net revenue

 

 

87,977

 

 

 

63,643

 

AvKARE

 

 

 

 

 

 

 

 

 

 

Distribution

 

 

31,586

 

 

 

 

 

Government Label

 

 

21,378

 

 

 

 

 

Institutional

 

 

3,413

 

 

 

 

 

Other

 

 

1,593

 

 

 

 

 

   Total AvKARE net revenue

 

 

57,970

 

 

 

 

 

       Total net revenue

 

$

498,533

 

 

$

446,120

 

 

 

(1)

During the three months ended September 30, 2019, operating results for Oxymorphone were reclassified from Generics to Specialty, where it is sold as a non-promoted product.  Prior period results have not been restated to reflect the reclassification.

 

A rollforward of the major categories of sales-related deductions for the three months ended March 31, 2020 is as follows (in thousands):

 

 

 

Contract

Charge - Backs

and Sales

Volume

Allowances

 

 

Cash Discount

Allowances

 

 

Accrued

Returns

Allowance

 

 

Accrued

Medicaid and

Commercial

Rebates

 

Balance at December 31, 2019

 

$

829,807

 

 

$

34,308

 

 

$

150,361

 

 

$

114,960

 

Impact from the Acquisitions

 

 

15,292

 

 

 

944

 

 

 

15,229

 

 

 

10

 

Provision related to sales recorded in the period

 

 

1,080,290

 

 

 

32,947

 

 

 

47,163

 

 

 

36,472

 

Credits/payments issued during the period

 

 

(1,244,302

)

 

 

(35,371

)

 

 

(26,301

)

 

 

(40,067

)

Balance at March 31, 2020

 

$

681,087

 

 

$

32,828

 

 

$

186,452

 

 

$

111,375

 

 

v3.20.1
Alliance and Collaboration
3 Months Ended
Mar. 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Alliance and Collaboration

5. Alliance and Collaboration

The Company has entered into several alliance, collaboration, license, distribution and similar agreements with respect to certain of its products and services with third-party pharmaceutical companies. The consolidated statements of operations include revenue recognized under agreements the Company has entered into to develop marketing and/or distribution relationships with its partners to fully leverage the technology platform and revenue recognized under development agreements which generally obligate the Company to provide research and development services over multiple periods. The Company's significant arrangements are discussed below.

Levothyroxine License and Supply Agreement; Transition Agreement

On August 16, 2018, the Company entered into a license and supply agreement with Jerome Stevens Pharmaceuticals, Inc. ("JSP") for levothyroxine sodium tablets ("Levothyroxine"). This agreement designated the Company as JSP's exclusive commercial partner for Levothyroxine in the U.S. market for a 10-year term commencing on March 22, 2019. Additionally, under this license and supply agreement, the Company accrued the up-front license payment of $50 million on March 22, 2019, which was paid in April 2019. The agreement also provides for the Company to pay a profit share to JSP based on net profits of the Company's sales of Levothyroxine, after considering product costs.

On November 9, 2018, the Company entered into a transition agreement ("Transition Agreement") with Lannett Company (“Lannett”) and JSP. Under the terms of the Transition Agreement, the Company assumed the distribution and marketing of Levothyroxine from Lannett beginning December 1, 2018 through March 22, 2019, ahead of the commencement date of the license and supply agreement with JSP described above.

In accordance with the terms of the Transition Agreement, the Company made $47 million of non-refundable payments to Lannett. For the three months ended March 31, 2019, $37 million, was expensed to cost of goods sold, as the Company sold Levothyroxine (none in the three months ended March 31, 2020). As of December 31, 2018, the Company had a $4 million transition contract liability, which was fully settled in February 2019.

Additionally, during the year ended December 31, 2019, the Company recorded $1 million in cost of sales related to reimbursement due to Lannett for certain of its unsold inventory at the end of the transition period, which was fully settled in March 2020.

Biosimilar Licensing and Supply Agreement

On May 7, 2018, the Company entered into a licensing and supply agreement, with Mabxience S.L., for its biosimilar candidate for Avastin® (bevacizumab). The Company will be the exclusive partner in the U.S. market. The Company will pay development and regulatory milestone payments as well as commercial milestone payments on reaching pre-agreed sales targets in the market to Mabxience, up to $72 million. For the three months ended March 31, 2019 the Company expensed a milestone payment of $1 million, to research and development (none in the three months ended March 31, 2020).

Distribution, License, Development and Supply Agreement with AstraZeneca UK Limited

In January 2012, Impax entered into an agreement with AstraZeneca UK Limited ("AstraZeneca") to distribute branded products under the terms of a distribution, license, development and supply Agreement (the "AZ Agreement"). The parties subsequently entered into a First Amendment to the AZ Agreement dated May 31, 2016 (as amended, the "AZ Amendment"). Under the terms of the AZ Agreement, AstraZeneca granted to Impax an exclusive license to commercialize the tablet, orally disintegrating tablet and nasal spray formulations of Zomig® (zolmitriptan)

products for the treatment of migraine headaches in the United States and in certain U.S. territories, except during an initial transition period when AstraZeneca fulfilled all orders of Zomig® products on Impax’s behalf and AstraZeneca paid to Impax the gross profit on such Zomig® products. Pursuant to the AZ Amendment, under certain conditions, and depending on the nature and terms of the study agreed to with the FDA, Impax agreed to conduct, at its own expense, the juvenile toxicity study and pediatric study required by the FDA under the Pediatric Research Equity Act ("PREA") for approval of the nasal formulation of Zomig ® for the acute treatment of migraine in pediatric patients ages six through eleven years old, as further described in the study protocol mutually agreed to by the parties (the "PREA Study"). In consideration for Impax conducting the PREA Study at its own expense, the AZ Amendment provides for the total royalty payments payable by Impax to AstraZeneca on net sales of Zomig ® products under the AZ Agreement to be reduced by an aggregate amount of $30 million to be received in quarterly amounts specified in the AZ Amendment beginning from the quarter ended June 30, 2016 and through the quarter ended December 31, 2020 . In the event the royalty reduction amounts exceed the royalty payments payable by Impax to AstraZeneca pursuant to the AZ Agreement in any given quarter, AstraZeneca will be required to pay Impax an amount equal to the difference between the royalty reduction amount and the royalty payment payable by Impax to AstraZeneca. Impax’s commitment to perform the PREA Study may be terminated, without penalty, under certain circumstances as set forth in the AZ Amendment. The Company recognizes the amounts received from AstraZeneca for the PREA Study as a reduction to research and development expense.

In May 2013, Impax’s exclusivity period for branded Zomig® tablets and orally disintegrating tablets expired and Impax launched authorized generic versions of those products in the United States. As discussed above, pursuant to the AZ Amendment, the total royalty payments payable by Impax to AstraZeneca on net sales of Zomig ® products under the AZ Agreement is reduced by certain specified amounts beginning from the quarter ended June 30, 2016 and through the quarter ended December 31, 2020, with such reduced royalty amounts totaling an aggregate amount of $30 million. The Company recorded cost of sales for royalties under this agreement of $4 million for both the three months ended March 31, 2020 and 2019.

During the three months ended March 31, 2020, AstraZeneca and the Company agreed to terminate the AZ Agreement and subsequent AZ Amendment effective January 2021.  

For detail on the Company’s related party agreements with Kashiv Biosciences, LLC, refer to Note 19. Related Party Transactions.

v3.20.1
Restructuring and Other Charges
3 Months Ended
Mar. 31, 2020
Restructuring And Related Activities [Abstract]  
Restructuring and Other Charges

6. Restructuring and Other Charges

During the three months ended June 30, 2018, in connection with the Combination, the Company committed to a restructuring plan to achieve cost savings. The Company expected to integrate its operations and reduce its combined cost structure through workforce reductions that eliminated duplicative positions and consolidated certain administrative, manufacturing and research and development facilities. In connection with this plan, the Company announced on May 10, 2018 that it intended to close its Hayward, California-based operations.

On July 10, 2019, the Company announced a plan to restructure its operations that was intended to reduce costs and optimize its organizational and manufacturing infrastructure. Pursuant to the restructuring plan as revised, the Company expects to reduce its headcount by approximately 300 to 350 employees, primarily by ceasing manufacturing at its Hauppauge, NY facility.  Collectively these actions comprise the "Plans".

The following table sets forth the components of the Company's restructuring and other charges (in thousands):

 

 

Three Months Ended

March 31,

 

 

2020

 

 

2019

 

Employee restructuring separation charges (1)

$

46

 

 

$

2,318

 

Other employee severance charges (2)

 

2,002

 

 

 

3,843

 

Total restructuring and other charges

$

2,048

 

 

$

6,161

 

 

(1)

Employee restructuring separation charges include the cost of benefits provided pursuant to the Company's severance programs for employees impacted by the Plans at the Company's Hauppauge, NY, Hayward, CA and other facilities.

(2)

Other employee severance charges are primarily associated with the cost of benefits for former senior executives.

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

 

 

Three Months Ended

March 31,

 

 

2020

 

 

2019

 

Generics

$

46

 

 

$

996

 

Specialty

 

 

 

 

178

 

Corporate

 

 

 

 

1,144

 

Total employee restructuring charges

$

46

 

 

$

2,318

 

 

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

 

 

 

Employee

Restructuring

 

Balance at December 31, 2019

 

$

3,900

 

Charges to income

 

 

46

 

Payments

 

 

(2,077

)

Balance at March 31, 2020

 

$

1,869

 

 

v3.20.1
Earnings (Loss) per Share
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Earnings (Loss) per Share

7. Earnings (Loss) per Share

Basic earnings (loss) 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 (loss) per share of Class A Common Stock and Class B-1 Common Stock is computed by dividing net income (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, 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 (loss) per share of Class A Common Stock and Class B-1 Common Stock (in thousands, except per share amounts):

 

 

Three Months Ended

March 31,

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

Net income (loss) attributable to Amneal Pharmaceuticals, Inc.

$

115,067

 

 

$

(47,881

)

Denominator:

 

 

 

 

 

 

 

Weighted-average shares of Class A Common Stock and Class B-1 Common Stock outstanding - basic (1)

 

147,180

 

 

 

127,687

 

Effect of dilutive securities:

 

 

 

 

 

 

 

    Stock options

 

230

 

 

 

 

    Restricted stock units

 

546

 

 

 

 

Weighted-average shares of Class A Common Stock and Class B-1 Common Stock outstanding - diluted

 

147,956

 

 

 

127,687

 

Net earnings (loss) per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:

 

 

 

 

 

 

 

Class A and Class B-1 basic

$

0.78

 

 

$

(0.37

)

Class A and Class B-1 diluted

$

0.78

 

 

$

(0.37

)

 

(1)

During the three months ended June 30, 2019, pursuant to the Company’s certificate of incorporation, the Company converted all 12.3 million of its issued and outstanding shares of Class B-1 Common Stock and such shares of Class B-1 Common Stock have been retired and may not be reissued by the Company.  The weighted-average shares for the three months ended March 31, 2020 do not include Class B-1 Common Stock.

 

Shares of the Company's Class B Common Stock do not share in the earnings or losses of the Company and, therefore, are not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B Common Stock under the two-class method has not been presented.

The following table presents potentially dilutive securities excluded from the computations of diluted earnings per share of Class A Common Stock and Class B-1 Common Stock (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

 

2019

 

 

Stock options

 

683

 

(1)

 

 

8,400

 

(4)

Restricted stock units

 

 

 

 

 

3,282

 

(4)

Performance stock units

 

3,054

 

(2)

 

 

520

 

(4)

Shares of Class B Common Stock

 

152,117

 

(3)

 

 

171,041

 

(3)

(1)

Excluded from the computation of diluted earnings per share of Class A Common Stock because the exercise price of the stock options exceeded the average market price of the Class A Common Stock during the period (out-of-the-money).

(2)

Excluded from the computation of diluted earnings per share of Class A Common Stock because the performance vesting conditions were not met for the three months ended March 31, 2020.

(3)

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.  As noted above, the weighted-average shares for the three months ended March 31, 2020 do not include Class B-1 Common Stock.

(4)

Excluded from the computation of diluted loss 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 three months ended March 31, 2019.

v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

8. Income Taxes

For the three months ended March 31, 2020 and 2019, the Company's benefit from income taxes and effective tax rates were $108 million and (810.6%) and $8 million and 6.3%, respectively. The year over year change in benefit from income taxes was primarily related to the Company’s full valuation allowance and the effects of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act.”)

As of September 30, 2019, the Company established a valuation allowanced based upon all available objective and verifiable evidence both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies.  The Company estimated that as of September 30, 2019 it had generated a cumulative consolidated three-year pre-tax loss, which continued as of December 31, 2019.  As a result of the initial September 30, 2019 and December 31, 2019 analyses, the Company determined that it remained more likely than not that it will not realize the benefits of its gross DTAs and therefore recorded an additional valuation allowance of $428 million for the year ended December 31, 2019 to reduce the carrying value of these gross DTAs, net of the impact of the reversal of taxable temporary differences, to zero. As of March 31, 2020, based on its evaluation of available positive and negative evidence, the Company has maintained its position with respect to the valuation allowance.

On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, includes provisions relating to income and non-income-based tax laws. Some of the key income tax-related provisions include net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Some of these tax provisions are effective retroactively for years ending before the date of enactment. Other non-income-based tax provisions include deferral of the employer share of Social Security payroll taxes due from the CARES Act date of enactment through December 31, 2020, and a potential 50% credit on qualified wages against employment taxes each quarter with any excess credits eligible for refunds. The Company continues to carefully analyze eligibility and application of both the income tax and non-income-based tax provisions.

The CARES Act permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs originating in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate refunds of previously paid income taxes. As a result of the CARES Act, the Company expects to carry back approximately $345 million in NOLs generated in 2018 to prior taxable income years.

ASC 740 requires the effect from adjusting deferred tax assets or changes to valuation allowances due to the CARES Act to be recognized as a component of income taxes expense or benefit in the interim period that includes the period in which the new legislation is enacted (quarter ended March 31, 2020), and it cannot be allocated to subsequent interim periods by an adjustment of the estimated annual effective tax rate. In the three months ended March 31, 2020, the Company reclassified the 2018 NOL carryback amount for previously paid income tax to income tax receivable and reversed the corresponding valuation allowance. In carrying back the 2018 loss to an earlier year, the Company is able to benefit the losses at a 35% tax rate rather than the current U.S. corporate tax rate of 21%.  Accordingly, the Company recorded a discrete income tax benefit of $110 million for the three months ended March 31, 2020.  

In connection with the Combination, the Company entered into a tax receivable agreement (“TRA”) for which it is generally required to pay the other holders of Amneal Common Units 85% of the applicable tax savings, if any, in U.S. federal and state income tax that it is deemed to realize as a result of certain tax attributes of their Amneal Common Units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Amneal Common Units for shares of Class A Common Stock and (ii) tax benefits attributable to payments made under the TRA (including imputed interest).  In conjunction with the valuation allowance recorded on the DTAs at September 30, 2019, the Company reversed the TRA liability, which had been recorded at the time of the Combination.

The projection of future taxable income involves significant judgment. Actual taxable income may differ from the Company’s estimates, which could significantly impact the liability under the TRA. As noted above, the Company has determined it is more-likely-than-not it will be unable to utilize all of its DTAs subject to TRA; therefore, the Company has not accrued the liability under the TRA related to the tax savings it may realize from common units sold or exchanged through March 31, 2020. If utilization of these DTAs becomes more-likely- than-not in the future, at such time, Amneal will record liabilities under the TRA, which amounts to approximately $202 million as of March 31, 2020 as a result of basis adjustments under Internal Revenue Code Section 754. Any future recognition of these TRA liabilities will be recorded through charges in the Company’s consolidated statements of operations.  However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRA.  Should the Company determine that a DTA with a valuation allowance is realizable in a subsequent

period, the related valuation allowance will be released and if a resulting TRA payment is determined to be probable, a corresponding TRA liability will be recorded.

v3.20.1
Trade Accounts Receivable, Net
3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Trade Accounts Receivable, Net

9. Trade Accounts Receivable, Net

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

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Gross accounts receivable

 

$

1,437,336

 

 

$

1,470,706

 

Allowance for doubtful accounts

 

 

(739

)

 

 

(2,201

)

Contract charge-backs and sales volume allowances

 

 

(681,087

)

 

 

(829,807

)

Cash discount allowances

 

 

(32,828

)

 

 

(34,308

)

Subtotal

 

 

(714,654

)

 

 

(866,316

)

Trade accounts receivable, net

 

$

722,682

 

 

$

604,390

 

 

Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at March 31, 2020, equal to 38%, 24%, and 21%, respectively.  Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at December 31, 2019, equal to 39%, 25%, and 25%, respectively.

v3.20.1
Inventories
3 Months Ended
Mar. 31, 2020
Inventory Disclosure [Abstract]  
Inventories

10. Inventories

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

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Raw materials

 

$

162,725

 

 

$

172,159

 

Work in process

 

 

53,071

 

 

 

58,188

 

Finished goods

 

 

222,163

 

 

 

150,720

 

Total inventories

 

$

437,959

 

 

$

381,067

 

 

v3.20.1
Prepaid and Other Current Assets
3 Months Ended
Mar. 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Prepaid and Other Current Assets

11. Prepaid and Other Current Assets

 

Prepaid expenses and other current assets are comprised of the following (in thousands):