INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The major components of intangible assets consist of:



	March 31, 2019							December 31, 2018
(in millions)	Gross Carrying Amount		Accumulated Amortization and Impairments			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization and Impairments			Net Carrying Amount
Finite-lived intangible assets:
Product brands	$	21,066	$	(12,376	)	$	8,690	$	20,891	$	(11,958	)	$	8,933
Corporate brands	927		(281		)	646		926		(263		)	663
Product rights/patents	3,293		(2,713		)	580		3,292		(2,658		)	634
Partner relationships	165		(163		)	2		168		(166		)	2
Technology and other	208		(177		)	31		208		(173		)	35
Total finite-lived intangible assets	25,659		(15,710		)	9,949		25,485		(15,218		)	10,267
Acquired IPR&D not in service	36		—			36		36		—			36
Bausch + Lomb Trademark	1,698		—			1,698		1,698		—			1,698
	$	27,393	$	(15,710	)	$	11,683	$	27,219	$	(15,218	)	$	12,001

Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company continues to monitor the recoverability of its finite-lived intangible assets and tests the intangible assets for impairment if indicators of impairment are present.

Asset impairments for the three months ended March 31, 2019 were $3 million due to the discontinuance of a specific product line not aligned with the focus of the Company's core businesses.

Asset impairments for the three months ended March 31, 2018 include impairments of: (i) $34 million reflecting decreases in forecasted sales for a certain product line due to generic competition, (ii) $6 million, in aggregate, related to certain product/patent assets associated with the discontinuance of specific product lines not aligned with the focus of the Company's core businesses and revisions to forecasted sales and (iii) $4 million related to assets being classified as held for sale.

Periodically, the Company’s products face the expiration of their patent or regulatory exclusivity. The Company anticipates that product sales for such product would decrease shortly following a loss of exclusivity, due to the possible entry of a generic competitor. Where the Company has the rights, it may elect to launch an authorized generic of such product (either as the Company’s own branded generic or through a third-party). This may occur prior to, upon or following generic entry, which may mitigate the anticipated decrease in product sales; however, even with launch of an authorized generic, the decline in product sales of such product could still be significant, and the effect on future revenues could be material.

Management continually assesses the useful lives related to the Company's long-lived assets to reflect the most current assumptions. In review of the Company’s finite-lived intangible assets, management revised the estimated useful lives of certain intangible assets in 2018.

Effective September 12, 2018, the Company changed the estimated useful life of its Xifaxan^®-related intangible assets due to the positive impact of the agreement between the Company and Actavis resolving the intellectual property litigation regarding Xifaxan^® tablets, 550 mg. As discussed in further detail in Note 20, "LEGAL PROCEEDINGS" to the Company's Annual Consolidated Financial Statements contained in its Annual Report on Form 10-K for the year ended December 31, 2018, the parties have agreed to dismiss all litigation related to Xifaxan^® tablets, 550 mg and all intellectual property protecting Xifaxan^® will remain intact and enforceable. As a result, the useful life of the Xifaxan^®-related intangible assets was extended from 2024 to January 1, 2028. As this change in the estimated useful life is a change in an accounting estimate, amortization expense is impacted prospectively. The change in the estimated useful life of the Xifaxan^®-related intangible assets resulted in a decrease to the Net loss attributable to Bausch Health Companies Inc. of $118 million, and a decrease to the Basic and Diluted Loss per share attributable to Bausch Health Companies Inc. of $0.34 for the three months ended March 31, 2019. As of March 31, 2019, the net carrying value of the Xifaxan^®-related intangible assets was $4,713 million.

Estimated amortization expense of finite-lived intangible assets for the remainder of 2019 and each of the five succeeding years ending December 31 and thereafter is as follows:



(in millions)
April through December 2019	$	1,410
2020	1,639
2021	1,389
2022	1,237
2023	1,088
2024	954
Thereafter	2,232
Total	$	9,949

Goodwill

The changes in the carrying amounts of goodwill during the three months ended March 31, 2019 and the year ended December 31, 2018 were as follows:



(in millions)	Bausch + Lomb/ International			Branded Rx			U.S. Diversified Products			Salix		Ortho Dermatologics		Diversified Products			Total
Balance, January 1, 2018	$	6,016		$	6,631		$	2,946		$	—	$	—	$	—		$	15,593
Impairment of the Salix and Ortho Dermatologics reporting units	—			(2,213		)	—			—		—		—			(2,213		)
Realignment of Global Solta reporting unit goodwill	(82		)	115			(33		)	—		—		—			—
Goodwill reclassified to assets held for sale and subsequently disposed	(2		)	—			—			—		—		—			(2		)
Realignment of segment goodwill	—			(4,533		)	(2,913		)	3,156		1,267		3,023			—
Impairment of the Dentistry reporting unit	—			—			—			—		—		(109		)	(109		)
Foreign exchange and other	(127		)	—			—			—		—		—			(127		)
Balance, December 31, 2018	5,805			—			—			3,156		1,267		2,914			13,142
Acquisition of certain assets of Synergy	—			—			—			3		—		—			3
Foreign exchange and other	(24		)	—			—			—		—		—			(24		)
Balance, March 31, 2019	$	5,781		$	—		$	—		$	3,159	$	1,267	$	2,914		$	13,121

Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit is the same as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants. The Company estimates the fair values of all reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs.

The discounted cash flow model relies on assumptions regarding revenue growth rates, gross profit, projected working capital needs, selling, general and administrative expenses, research and development expenses, capital expenditures, income tax rates, discount rates and terminal growth rates. To estimate fair value, the Company discounts the forecasted cash flows of each reporting unit. The discount rate the Company uses represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in its reporting unit operations and the rate of return a market participant would expect to earn. The Company performed its annual impairment test as of October 1, 2018, utilizing long-term growth rates for its reporting units ranging from 1.0% to 3.0% and discount rates applied to the estimated cash flows ranging from 7.5% to 14.0% in estimation of fair value. To estimate cash flows beyond the final year of its model, the Company estimates a terminal value by applying an in perpetuity growth assumption and discount factor to determine the reporting unit's terminal value.

The Company forecasts cash flows for each reporting unit and takes into consideration economic conditions and trends, estimated future operating results, management's and a market participant's view of growth rates and product lives, and anticipates future economic conditions. Revenue growth rates inherent in these forecasts were based on input from internal and external market research that compare factors such as growth in global economies, recent industry trends and product life-cycles. Macroeconomic factors such as changes in economies, changes in the competitive landscape including the unexpected loss of exclusivity to the Company's product portfolio, changes in government legislation, product life-cycles, industry consolidations and other changes beyond the Company’s control could have a positive or negative impact on achieving its targets. Accordingly, if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.

2018

Adoption of New Accounting Guidance for Goodwill Impairment Testing

In January 2017, the FASB issued guidance which simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. Instead, goodwill impairment is measured as the amount by which a reporting unit's carrying value exceeds its fair value. The Company elected to adopt this guidance effective January 1, 2018.

Upon adopting the new guidance, the Company tested goodwill for impairment and determined that the carrying value of the Salix reporting unit exceeded its fair value. As a result of the adoption of new accounting guidance, the Company recognized a goodwill impairment of $1,970 million associated with the Salix reporting unit.

As of October 1, 2017, the date of the 2017 annual goodwill impairment test, the fair value of the Ortho Dermatologics reporting unit exceeded its carrying value. However, at January 1, 2018 unforeseen changes in the business dynamics of the Ortho Dermatologics reporting unit, such as: (i) changes in the dermatology sector, (ii) increased pricing pressures from third-party payors, (iii) additional risks to the exclusivity of certain products and (iv) an expected longer launch cycle for a new product, were factors that negatively impacted the reporting unit's operating results beyond management's expectations as of October 1, 2017, when the Company performed its 2017 annual goodwill impairment test. In response to these adverse business indicators, as of January 1, 2018 the Company reduced its near and long term financial projections for the Ortho Dermatologics reporting unit. As a result of the reductions in the near and long term financial projections, the carrying value of the Ortho Dermatologics reporting unit exceeded its fair value at January 1, 2018 and the Company recognized a goodwill impairment of $243 million.

As of January 1, 2018, with the exception of the Salix reporting unit and Ortho Dermatologics reporting unit, the fair value of all reporting units exceeded their respective carrying value by more than 15%.

2018 Realignment of Solta Business

Effective March 1, 2018, revenues and profits from the U.S. Solta business included in the former U.S. Diversified Products segment in prior periods and revenues and profits from the international Solta business included in the Bausch + Lomb/International segment in prior periods, are reported in the new Global Solta reporting unit, which, at that time, was a part of the former Branded Rx segment. As a result of this change, $115 million of goodwill was reallocated to the new Global Solta reporting unit and the Company assessed the impact on the fair values of each of the reporting units affected. After considering, among other matters: (i) the limited period of time between last impairment test (January 1, 2018) and the realignment (March 1, 2018), (ii) the results of the last impairment test and (iii) the amount of goodwill reallocated to the new Global Solta reporting unit, the Company did not identify any indicators of impairment at the time of the realignment.

2018 Realignment of Segment Structure

In the second quarter of 2018, the Company began operating in the following reportable segments: (i) Bausch + Lomb/International segment, (ii) Salix segment, (iii) Ortho Dermatologics segment and (iv) Diversified Products segment. The Bausch + Lomb/International segment consists of the: (i) U.S. Bausch + Lomb and (ii) International reporting units. The Salix segment consists of the Salix reporting unit. The Ortho Dermatologics segment consists of the: (i) Ortho Dermatologics and (ii) Global Solta reporting units. The Diversified Products segment consists of the: (i) Neurology and Other, (ii) Generics and (iii) Dentistry reporting units. There was no triggering event which would require the Company to test goodwill for impairment as a result of the second quarter realignment of the segment structure as it did not result in a change in the reporting units.

2018 Annual Goodwill Impairment Test

The Company conducted its annual goodwill impairment test as of October 1, 2018 and determined that the carrying value of the Dentistry reporting unit exceeded its fair value and, as a result, the Company recognized a goodwill impairment of $109 million for the Dentistry reporting unit, representing the full amount of goodwill for the reporting unit. Changing market conditions such as: (i) an increasing competitive environment and (ii) increasing pricing pressures negatively impacted the reporting unit's operating results. The Company is taking steps to address these changing market and business conditions.

The Company's remaining reporting units passed the goodwill impairment test as the estimated fair value of each reporting unit exceeded its carrying value at the date of testing and, therefore, there was no impairment to goodwill for any reporting unit other than the Dentistry reporting unit. In order to evaluate the sensitivity of its fair value calculations on the goodwill impairment test, the Company compared the carrying value of each reporting unit to its fair value as of October 1, 2018, the date of testing. As of October 1, 2018, the fair value of each reporting unit with associated goodwill exceeded its carrying value by more than 15%.

2019 Interim Goodwill Impairment Assessment

No events occurred or circumstances changed during the period October 1, 2018 (the date goodwill was last tested for impairment) through March 31, 2019 that would indicate that the fair value of any reporting unit might be below its carrying value. Based on the results of the October 1, 2018 annual goodwill impairment test, the Company continues to perform qualitative interim assessments of the carrying value and fair value of the Ortho Dermatologics reporting unit on a quarterly basis to determine if impairment testing of goodwill will be warranted. As part of the qualitative assessment as of March 31, 2019, management compared the reporting unit’s operating results to the forecast used to test the goodwill of the Ortho Dermatologics reporting unit as of October 1, 2018. Based on the qualitative assessment, management believed that the carrying value of Ortho Dermatologics reporting unit did not exceed its fair value and, therefore, concluded a quantitative assessment was not required at March 31, 2019.

If market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future and those charges can be material.

Accumulated goodwill impairment charges through March 31, 2019 were $3,711 million.