INTANGIBLE ASSETS AND GOODWILL

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

The major components of intangible assets consist of:



	March 31, 2020							December 31, 2019
(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	$	20,989	$	(13,924	)	$	7,065	$	21,011	$	(13,544	)	$	7,467
Corporate brands	914		(348		)	566		930		(338		)	592
Product rights/patents	3,284		(2,918		)	366		3,297		(2,887		)	410
Partner relationships	155		(154		)	1		166		(165		)	1
Technology and other	203		(186		)	17		209		(189		)	20
Total finite-lived intangible assets	25,545		(17,530		)	8,015		25,613		(17,123		)	8,490
Acquired IPR&D not in service	13		—			13		13		—			13
Bausch + Lomb Trademark	1,698		—			1,698		1,698		—			1,698
	$	27,256	$	(17,530	)	$	9,726	$	27,324	$	(17,123	)	$	10,201

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. Impairment charges associated with these assets are included in Asset impairments in the Consolidated Statement of Operations. 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, 2020 were $14 million due to decreases in forecasted sales of a certain product line.

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.

Estimated amortization expense of finite-lived intangible assets for the remainder of 2020 and each of the five succeeding years ending December 31 and thereafter is as follows:



(in millions)	Remainder of 2020		2021		2022		2023		2024		2025		Thereafter		Total
Amortization	$	1,188	$	1,374	$	1,217	$	1,071	$	942	$	832	$	1,391	$	8,015

Goodwill

The changes in the carrying amounts of goodwill during the three months ended March 31, 2020 and the year ended December 31, 2019 were as follows:



(in millions)	Bausch + Lomb/ International			Salix		Ortho Dermatologics		Diversified Products		Total
Balance, January 1, 2019	$	5,805		$	3,156	$	1,267	$	2,914	$	13,142
Acquisition of certain assets of Synergy	—			3		—		—		3
Goodwill reclassified to assets held for sale (Note 4)	(18		)	—		—		—		(18		)
Foreign exchange and other	(1		)	—		—		—		(1		)
Balance, December 31, 2019	5,786			3,159		1,267		2,914		13,126
Assets held for sale reclassified to goodwill (Note 4)	18			—		—		—		18
Foreign exchange and other	(110		)	—		—		—		(110		)
Balance, March 31, 2020	$	5,694		$	3,159	$	1,267	$	2,914	$	13,034

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, 2019 by first assessing qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount (Step 0). Where the qualitative assessment suggested that it was more likely than not that the fair value of a reporting unit was less than its carrying amount, a quantitative fair value test was performed for that reporting unit (Step 1). The quantitative fair value test was performed utilizing long-term growth rates and discount rates applied to the estimated cash flows 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.

2019 Goodwill Impairment Testing

During the interim periods of 2019, no events occurred, or circumstances changed that would indicate that the fair value of any reporting unit might be below its carrying value and therefore, no impairments were recorded. The Company conducted its annual goodwill impairment test as of October 1, 2019 by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Where the qualitative assessment suggested that it was more likely than not that the fair value of a reporting unit was less than its carrying amount, a quantitative fair value test was performed for that reporting unit. In each quantitative fair value test performed, the fair value was greater than the carrying value of the reporting unit. As a result, there was no impairment to the goodwill of any reporting unit. 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. Specifically, the Company continues to assess the performance of the Ortho Dermatologics reporting unit and

the Neurology and Other reporting unit as compared to their respective projections and will perform qualitative interim assessments of the carrying value and fair value on a quarterly basis to determine if impairment testing of goodwill will be warranted. The Company performed quantitative fair value tests for the Ortho Dermatologics reporting unit and the Neuro and Other reporting unit as of October 1, 2019, utilizing long-term growth rates of 2.0% and 1.5%, and discount rates of 9.8% and 9.0%, respectively, in estimation of the fair value of these reporting units.

2020 Interim Goodwill Impairment Assessment

The unprecedented nature of the COVID-19 pandemic has adversely impacted the global economy. As the global economic landscape changes, there is a wide range of possible outcomes regarding the nature and timing of events and reactions to the COVID-19 pandemic, each of which are highly dependent on variables that are difficult to predict at this time.

In response to the COVID-19 pandemic, the Company has taken actions to protect its employees, customers and other stakeholders and mitigate the negative impact of the COVID-19 pandemic on its operations and operating results. These and additional actions can increase the costs of doing business during the pandemic and in the periods that follow, including the costs of idling and reopening certain facilities in affected areas. Further, precautionary measures taken by customers, health care patients and consumers in response to the pandemic are expected to impact the timing and amount of revenues during the COVID-19 pandemic. Although the Company's reported revenues for the three months ended March 31, 2020 are less than forecasted and additional pandemic-related declines in revenues are expected in the second quarter and possibly the remainder of 2020, there is currently no indication that these trends are materially other than COVID-19 related.

The negative impacts of the COVID-19 pandemic on the global economy were not existing conditions as of October 1, 2019 (the date goodwill was last tested for impairment) and have led to significant volatility in the global equity markets. The Company has been able to continue its operations with limited disruptions and has assessed the potential impact that the COVID-19 pandemic is likely to have on its forecasted cash flows. In performing its assessment, the Company considered the possible affects and outcomes of the COVID-19 pandemic on, among other things, its supply chain, customers and distributors, employee base, product sustainability, research and development activities, product pipeline and consumer demand and related rebates and discounts and has made adjustments, although not considered to be material, to its long-term forecasts as of October 1, 2019 (the date goodwill was last tested for impairment) for these and other matters. After completing this assessment, although not completely insulated from the negative effects of the COVID-19 pandemic, the Company believes that its long-term forecasted cash flows, as adjusted for the possible outcome of the COVID-19 pandemic and other matters, do not indicate that the fair value of any reporting unit may be below its carrying value.

During the pandemic, the public has been advised to: (i) remain at home, (ii) limit social interaction, (iii) close non-essential businesses and (iv) postpone certain surgical and elective medical procedures in order to prioritize/conserve available health care resources. During the three months ended March 31, 2020, this has negatively impacted, most notably, the revenues of the Company's Global Vision Care and Global Surgical businesses particularly in Asia where the COVID-19 pandemic originated. The Company anticipates further revenue declines in these businesses during 2020 as it experienced steeper declines in these business revenues in the month of March. Beginning in the second quarter, the Company started experiencing and is anticipating COVID-19 pandemic-related revenue declines in intraocular lenses, medical devices, surgical systems and certain pre- and post-operative eye-medications of its Ophthalmology business, in medical aesthetics and therapeutic products of its Global Solta business, and in certain branded pharmaceutical products of its Salix, Ortho Dermatologics and Dentistry businesses. These revenues declines are expected, as the offices of many health care providers are closed and certain surgeries and elective medical procedures are being deferred. To date, the COVID-19 pandemic appears to have had only a limited impact on the revenues of the Company's Xifaxan^® products.

Based on its assessment the Company believes its revenues will be most impacted by the pandemic during the second quarter, as the infection rate of the COVID-19 virus accelerated in March into April, and the virus had spread beyond Asia into different geographies, including the U.S. and Europe, and the number of shelter-in-place directives issued by local authorities increased. Although the affected businesses and geographies are expected to recover at different rates, overall the Company anticipates that the negative trend in revenues will begin to stabilize during its second quarter and continue into its third quarter with the revenues of all businesses possibly returning to pre-pandemic levels as early as late 2020, but, if not, then in 2021. This assessment assumes, among other matters, that the precautionary measures taken by the public are successful in decelerating the spread of the virus, there will be no resurgence of the virus in the second half of 2020 that will lead to significant social restrictions, there will be no significant social restrictions in place at the end of 2020, responses from governments and private sector participants will be successful in bringing about a quick orderly recovery of the global economy, there will be no major

interruptions in the Company's supply, manufacturing and distribution channels and the Company continues to execute on its strategies in response to the pandemic.

The Company's latest forecasts of cash flows gives consideration to the nature and timing of the expected revenue losses disclosed above. The changes in the amounts and timing of these revenues as presented in the latest forecasts include a range of potential outcomes and are not substantial enough to materially adversely affect the recoverability of any of the associated reporting units’ assets and are not material enough to indicate that the fair values of those reporting units might be below their respective carrying values.

Based on the results of the October 1, 2019 annual goodwill impairment test, the Company performed qualitative interim assessments of the respective carrying values and fair values of the Ortho Dermatologics reporting unit and the Neuro and Other reporting unit as of March 31, 2020 to determine if quantitative fair value testing was warranted. As part of these qualitative assessments, management considered the totality of all relevant events or circumstances that effect the carrying amount or fair value of each reporting unit, including comparing the reporting units’ operating results to the forecast used to test the goodwill of the Ortho Dermatologics reporting unit and the Neuro and Other reporting unit as of October 1, 2019. Management believed that based on its qualitative assessment, it was more likely than not that the carrying amount of the Neuro and Other reporting unit was less than its fair value and, therefore, concluded a quantitative assessment was not required at March 31, 2020. However, the operating results for the Ortho Dermatologics reporting unit for three months ended March 31, 2020 were less than those forecasted as of October 1, 2019 for the same period. Further, the Company adjusted its forecasted cash flows for the Ortho Dermatologics reporting unit for the wide range of potential impacts of the COVID-19 pandemic and longer launch cycles for certain new products. These factors are indicators that there is less headroom as of March 31, 2020 as compared to the headroom calculated on the date goodwill was last tested for impairment. Therefore, a quantitative fair value test for the Ortho Dermatologics reporting unit was performed. The quantitative fair value test utilized the Company's most recent cash flow projections, including a range of potential outcomes, along with a long-term growth rate of 2.0% and a range of discount rates between 9.5% and 10.0%. Based on the quantitative test, the fair value of the Ortho Dermatologics reporting unit continued to be greater than its carrying value and as a result, there was no impairment to the goodwill of the reporting unit, however, the headroom was reduced from the prior year’s assessment. The Company continues to monitor the market conditions impacting the Ortho Dermatologics reporting unit and Neuro and Other reporting unit including: (i) the impacts of the COVID-19 pandemic on operations, (ii) the impact of the loss of exclusivity of certain products, (iii) the impact of longer launch cycles for new products and (iv) ongoing pricing pressures, which could negatively impact the reporting units' results over the long term.

If market conditions further deteriorate, if the factors and circumstances regarding the COVID-19 pandemic escalate beyond management’s current expectations, 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.

No other events occurred or circumstances changed during the period October 1, 2019 (the date goodwill was last tested for impairment) through March 31, 2020 that indicate it is more likely than not the fair value of any reporting unit, other than the Ortho Dermatologics reporting unit may be below its carrying value.

Accumulated goodwill impairment charges through March 31, 2020 were $3,711 million.