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INTANGIBLE ASSETS AND GOODWILL | 6 Months Ended
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Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract] |
INTANGIBLE ASSETS AND GOODWILL | INTANGIBLE ASSETS AND GOODWILL Intangible Assets The major components of intangible assets consist of:
|  | June 30, 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 |  | $ | 21,011 |  |  | $ | (14,315) |  |  | $ | 6,696 |  |  | $ | 21,011 |  |  | $ | (13,544) |  |  | $ | 7,467 |
Corporate brands |  | 918 |  |  | (368) |  |  | 550 |  |  | 930 |  |  | (338) |  |  | 592 |
Product rights/patents |  | 3,290 |  |  | (2,966) |  |  | 324 |  |  | 3,297 |  |  | (2,887) |  |  | 410 |
Partner relationships |  | 161 |  |  | (160) |  |  | 1 |  |  | 166 |  |  | (165) |  |  | 1 |
Technology and other |  | 206 |  |  | (191) |  |  | 15 |  |  | 209 |  |  | (189) |  |  | 20 |
Total finite-lived intangible assets |  | 25,586 |  |  | (18,000) |  |  | 7,586 |  |  | 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 |
|  | $ | 27,297 |  |  | $ | (18,000) |  |  | $ | 9,297 |  |  | $ | 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 six months ended June 30, 2020 were $15 million and include impairments of: (i) $14 million due to decreases in forecasted sales of a certain product line and (ii) $1 million, in aggregate, related to the discontinuance of certain product lines not aligned with the focus of the Company's core businesses. Asset impairments for the six months ended June 30, 2019 were $16 million and include impairments of: (i) $13 million reflecting decreases in forecasted sales of a certain product line due to generic competition and (ii) $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 |  | $ | 769 |  |  | $ | 1,405 |  |  | $ | 1,224 |  |  | $ | 1,053 |  |  | $ | 924 |  |  | $ | 820 |  |  | $ | 1,391 |  |  | $ | 7,586 |  |
Goodwill The changes in the carrying amounts of goodwill during the six months ended June 30, 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 |  | (60) |  |  | — |  |  | — |  |  | — |  |  | (60) |
Balance, June 30, 2020 |  | $ | 5,744 |  |  | $ | 3,159 |  |  | $ | 1,267 |  |  | $ | 2,914 |  |  | $ | 13,084 |
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 and such charges could be material. 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. 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 Assessments 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, may include the costs of idling and reopening certain facilities in affected areas. Further, social restrictions and other 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 revenues for the six months ended June 30, 2020 were less than those forecasted on the date goodwill was last tested for impairment (October 1, 2019) and additional pandemic-related declines in revenues are expected for the remainder of 2020, there are no indications that these trends are materially related to developments other than the COVID-19 pandemic. The negative impacts of the COVID-19 pandemic on the global economy were not existing conditions on the date goodwill was last tested for impairment (October 1, 2019) 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 engage in certain "social restrictions" such as: (i) remaining at home or shelter-in-place, (ii) limiting social interaction, (iii) closing non-essential businesses and (iv) postponing certain surgical and elective medical procedures in order to prioritize/conserve available health care resources. During the three months ended March 31, 2020, these factors negatively impacted, most notably, the revenues of the Company's Global Vision Care and Global Surgical businesses in Asia where the COVID-19 pandemic originated. Beginning in March and throughout most of the second quarter, the Company experienced steeper declines in these revenues and the revenues of other businesses as social restrictions expanded worldwide, particularly in the U.S. and Europe. Social restrictions negatively impacted the Company's revenues for contact lenses, intraocular lenses, medical devices, surgical systems and certain pre- and post-operative eye-medications of its Ophthalmology business, medical aesthetics and therapeutic products of its Global Solta business, and certain branded pharmaceutical products of its Salix, Ortho Dermatologics and Dentistry businesses, as the offices of many health care providers were closed and certain surgeries and elective medical procedures were deferred. The Company’s revenues for the six months ended June 30, 2020 were negatively impacted by the social restrictions and other precautionary measures taken in response to the COVID-19 pandemic. However, as governments began lifting social restrictions, allowing offices of certain health care providers to reopen and certain surgeries and elective medical procedures to proceed, the negative trend in the revenues of certain businesses began to level off and stabilize. The Company therefore believes that its revenues for the year 2020 will be most impacted by the COVID-19 pandemic in its second quarter, although the Company expects additional COVID-19 pandemic related declines in the year-over-year revenues in its third quarter and possibly the remainder of 2020 in many of its businesses and geographies. Assuming social restrictions are not reenacted, the Company anticipates that its affected businesses could possibly return to pre-pandemic levels as early as late 2020 or in 2021. However, the rates of recovery for each business will vary by geography and will be dependent upon government responses, rates of economic recovery, precautionary measures taken by patients and customers, the rate at which social restrictions are lifted and the presumption that they will not be reenacted and other actions taken in response to the COVID-19 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, with the exception of the Ortho Dermatologics reporting unit as discussed below, 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 continues to assess the performance of the Ortho Dermatologics reporting unit and the Neuro and Other reporting unit and performs quarterly qualitative assessments of their respective carrying values and fair values to determine if quantitative fair value testing is warranted. As part of these qualitative assessments, management considers the totality of all relevant events or circumstances that effect the carrying amount and fair value of each reporting unit, including comparing actual 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. Neuro and Other Reporting Unit Management believed that based on its qualitative assessments as of March 31, 2020 and June 30, 2020, 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 and June 30, 2020. Ortho Dermatologics Reporting Unit The operating results for the Ortho Dermatologics reporting unit for the three months ended March 31, 2020 were less than those forecasted at October 1, 2019 for that period. As part of its qualitative assessment as of March 31, 2020, the Company revised its forecasts for the year 2020, for among other matters, the lower than originally forecasted operating results for the three months ended March 31, 2020 and the range of potential impacts of the COVID-19 pandemic including longer than expected launch cycles for certain new products. Management believed that the revisions to its forecasts for the year 2020, were indicators that there was less headroom as of March 31, 2020 as compared to the headroom calculated on the date goodwill was last tested for impairment (October 1, 2019). Therefore, a quantitative test for the Ortho Dermatologics reporting unit was performed at March 31, 2020. 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 at March 31, 2020. During the three months ended June 30, 2020, the Company identified certain Ortho Dermatologics’ products that were experiencing longer launch cycles than originally anticipated due to the COVID-19 pandemic, and as a direct result, took actions to mitigate the impact of these matters including right-sizing its Ortho Dermatologics’ sales force. As part of its qualitative assessment as of June 30, 2020, the Company revised its long-term forecasts for, among other matters, the decrease in forecasted revenues of the identified products, the reduction in sales force and related costs and a range of potential impacts of COVID-19 pandemic related matters. Management believes that these events are indicators that there is less headroom as of June 30, 2020 as compared to the headroom calculated on the date goodwill was last tested for impairment (March 31, 2020). Therefore, a quantitative test for the Ortho Dermatologics reporting unit was performed. The quantitative 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 was 10% to 15% greater than its carrying value and as a result there was no impairment to the goodwill of the reporting unit at June 30, 2020. 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 June 30, 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 June 30, 2020 were $3,711 million.

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