Discontinued Operations and Held For Sale

3 Months Ended

Mar. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations and Held For Sale

NOTE 3. DISCONTINUED OPERATIONS AND HELD FOR SALE

American Medical Systems

On February 24, 2015, the Board of Directors approved a plan to sell the Company’s American Medical Systems Holdings, Inc. (AMS) business, which comprised the entirety of our former Devices segment. The AMS business was comprised of the Men’s Health and Prostate Health business as well as the Women’s Health business (referred to herein as Astora). On August 3, 2015, the Company sold the Men’s Health and Prostate Health business to Boston Scientific Corporation (Boston Scientific) for $1.65 billion, with $1.60 billion paid upfront in cash and $50.0 million in cash contingent on Boston Scientific achieving certain product revenue milestones in the Men’s Health and Prostate Health business in 2016. In addition, Boston Scientific paid $60.0 million in exchange for 60,000 shares of American Medical Systems Holdings, Inc. Series B Non-Voting Preferred Stock (Series B Senior Preferred Stock) sold by our subsidiary Endo Pharmaceuticals Inc. (EPI). On December 11, 2015, the Company redeemed all 60,000 shares of the Series B Senior Preferred Stock from Boston Scientific for $61.6 million, including accrued and unpaid dividends.

In addition to selling the Men’s Health and Prostate Health business in 2015, as of December 31, 2015 and continuing into 2016, the Company was actively pursuing a sale of the Astora business with the Company in active negotiations with multiple potential buyers. The majority of the remaining assets and liabilities of the AMS business, which were related to the Astora business, were classified as held for sale in the Consolidated Balance Sheet as of December 31, 2015 in the Company’s Form 10-K filed with the SEC on February 29, 2016. Certain of AMS’s assets and liabilities, primarily with respect to its product liability accrual related to vaginal mesh cases, the related Qualified Settlement Funds and certain intangible and fixed assets, were not classified as held for sale based on management’s expectation that these assets and liabilities would remain with the Company.

On February 24, 2016, the Company’s Board of Directors resolved to wind down the Company’s Astora business as it did not align with the Company’s strategic direction and to reduce the additional exposure to mesh-related product liability. The Company conducted a wind down process to transition physicians to alternative products during the first quarter of 2016. The Company ceased business operations for Astora on March 31, 2016 and exited its AMS business. As a result, as of March 31, 2016, the remaining assets and liabilities of the AMS business, which were related to the Astora business, were no longer classified as held for sale in the Condensed Consolidated Balance Sheets. In accordance with applicable accounting guidance, the Company also reclassified the Astora assets and liabilities previously presented as held for sale as of December 31, 2015 to held and used on its Condensed Consolidated Balance Sheets.

The operating results of the AMS business are reported as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for all periods presented.

The following table provides the operating results of the Discontinued operations of AMS, net of tax for the three months ended March 31, 2016 and 2015 (in thousands):

	Three Months Ended March 31,
	2016			2015
Revenue	$	28,851		$	118,665
Litigation related and other contingencies, net	$	2,450		$	5,200
Asset impairment charges	$	21,179		$	222,753
Loss from discontinued operations before income taxes	$	(68,832	)	$	(229,858	)
Income tax benefit	$	(23,724	)	$	(3,648	)
Discontinued operations, net of tax	$	(45,108	)	$	(226,210	)

As a result of the Astora wind down initiative announced in the first quarter of 2016, the Company incurred asset impairment charges of $21.2 million. See below for discussion of our material wind down initiatives.

The following table provides the Depreciation and amortization and Purchases of property, plant and equipment of AMS for the three months ended March 31, 2016 and 2015 (in thousands):

	Three Months Ended March 31,
	2016			2015
Cash flows from discontinued operating activities:
Net loss	$	(45,108	)	$	(226,210	)
Depreciation and amortization	$	—		$	11,555
Net cash used in discontinued investing activities:
Purchases of property, plant and equipment	$	(138	)	$	(934	)

Astora Restructuring

The wind down process includes a restructuring initiative implemented during the three months ended March 31, 2016, which includes the reduction of the Astora workforce consisting of approximately 250 employees. Under this restructuring initiative, separation costs are expensed over the requisite service period, if any, while retention is being expensed ratably over the respective retention period.

As a result of the Astora restructuring initiative, the Company incurred expenses of $60.7 million during the three months ended March 31, 2016, consisting of employee separation, retention and other benefit-related costs, asset impairment charges, contract termination charges and other general restructuring costs. There were no restructuring expenses related to this initiative during the three months ended March 31, 2015. The Company anticipates there will be additional pre-tax restructuring expenses of $12.8 million related to employee separation, retention and other benefit-related costs, contract termination charges, and other restructuring costs and the majority of these actions are expected to be completed by September 30, 2016, with substantially all cash payments made by the end of 2016. These restructuring costs are included in Discontinued operations in the Condensed Consolidated Statements of Operations.

A summary of expenses related to the Astora restructuring initiative is included below for the three months ended March 31, 2016 (in thousands):

	Three Months Ended March 31, 2016
Employee separation, retention and other benefit-related costs	$	16,149
Asset impairment charges	21,179
Contract termination charges	10,224
Other wind down costs	13,121
Total	$	60,673

The liability related to the Astora restructuring initiative totaled $39.0 million as of March 31, 2016 and is included in Accrued expenses in the Condensed Consolidated Balance Sheets. Changes to this accrual during the three months ended March 31, 2016 were as follows (in thousands):

	Employee Separation, Retention and Other Benefit-Related Costs		Contract Termination Charges		Other Restructuring Costs			Total
Liability balance as of January 1, 2016	$	—	$	—	$	—		$	—
Expenses	16,149		10,224		13,121			39,494
Cash distributions	—		—		(445		)	(445		)
Liability balance as of March 31, 2016	$	16,149	$	10,224	$	12,676		$	39,049

Other

During the three months ended March 31, 2016, the Company divested a component of its international business that was not individually material.