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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________ 
FORM 10-Q
____________________________________________________________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                          TO
Commission File Number: 001-36326
____________________________________________________________________________________________
Endo International plc
(Exact name of registrant as specified in its charter)
____________________________________________________________________________________________

Ireland
68-0683755
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
First Floor, Minerva House, Simmonscourt Road
 
Ballsbridge, Dublin 4,
Ireland
Not Applicable
(Address of Principal Executive Offices)
(Zip Code)
011-353-1-268-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
 
 
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
 
 
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
 
 
 
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
 
 
No
Securities registered pursuant to Section 12(b) of the Exchange Act:
 
 
 
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Ordinary shares, nominal value $0.0001 per share
ENDP
The Nasdaq Global Select Market
The number of Ordinary shares, nominal value $0.0001 per share outstanding as of April 30, 2020 was 229,704,840.



ENDO INTERNATIONAL PLC
INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




FORWARD-LOOKING STATEMENTS
Statements contained or incorporated by reference in this document contain information that includes or is based on “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). Forward-looking statements include, without limitation, estimated future results of operations, estimates of future revenues, future expenses, future net income and future net income per share, as well as statements regarding future financing activities, the impact of the novel strain of coronavirus referred to as COVID-19 on the health and welfare of our employees and on our business, including any response to COVID-19 such as anticipated return to historical purchasing decisions by customers, the economic impact of COVID-19, changes in consumer spending, decisions to engage in certain medical procedures, future governmental orders that could impact our operations and the ability of our manufacturing facilities and suppliers to fulfill their obligations to us, and any other statements that refer to Endo’s expected, estimated or anticipated future results. We have tried, whenever possible, to identify such statements by words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project,” “forecast,” “will,” “may” or similar expressions. We have based these forward-looking statements on our current expectations, assumptions and projections about the growth of our business, our financial performance and the development of our industry. Because these statements reflect our current views concerning future events, these forward-looking statements involve risks and uncertainties including, without limitation, the risks related to the impact of COVID-19 (such as, without limitation, the scope and duration of the pandemic and the resulting economic crisis and levels of unemployment, governmental actions and restrictive measures implemented in response, material delays and cancellations of certain medical procedures, potential manufacturing and supply chain disruptions and other potential impacts to the business as a result of COVID-19) and the other risks and uncertainties more fully described under the caption “Risk Factors” in Part II, Item 1A of this document and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (SEC) on February 26, 2020 (the Annual Report). These risks and uncertainties, many of which are outside of our control, and any other risks and uncertainties that we are not currently able to predict or identify, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations and cash flows and could cause our actual results to differ materially and adversely from those expressed in forward-looking statements contained or incorporated by reference in this document. Additionally, the prolonged impact of COVID-19 could heighten the impact of one or more of such risk factors.
We do not undertake any obligation to update our forward-looking statements after the date of this document for any reason, even if new information becomes available or other events occur in the future, except as may be required under applicable securities laws. You are advised to consult any further disclosures we make on related subjects in our reports filed with the SEC and with securities regulators in Canada on the System for Electronic Document Analysis and Retrieval. Also note that, in Part II, Item 1A of this document and in Part I, Item 1A of the Annual Report, and as otherwise enumerated herein, we provide a cautionary discussion of the risks, uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by Section 27A of the Securities Act and Section 21E of the Exchange Act. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider this to be a complete discussion of all potential risks or uncertainties.

i


PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except share and per share data)
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
1,531,538

 
$
1,454,531

Restricted cash and cash equivalents
200,666

 
247,457

Accounts receivable, net
536,903

 
467,953

Inventories, net
324,962

 
327,865

Prepaid expenses and other current assets
46,537

 
40,845

Income taxes receivable
94,729

 
47,567

Total current assets
$
2,735,335

 
$
2,586,218

PROPERTY, PLANT AND EQUIPMENT, NET
492,346

 
504,865

OPERATING LEASE ASSETS
49,349

 
51,700

GOODWILL
3,560,011

 
3,595,184

OTHER INTANGIBLES, NET
2,382,374

 
2,571,267

DEFERRED INCOME TAXES
114

 
2,192

OTHER ASSETS
86,351

 
78,101

TOTAL ASSETS
$
9,305,880

 
$
9,389,527

LIABILITIES AND SHAREHOLDERS' DEFICIT
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable and accrued expenses
$
854,958

 
$
899,949

Current portion of legal settlement accrual
442,233

 
513,005

Current portion of operating lease liabilities
11,512

 
10,763

Current portion of long-term debt
34,150

 
34,150

Income taxes payable
4,138

 
2,422

Total current liabilities
$
1,346,991

 
$
1,460,289

DEFERRED INCOME TAXES
27,024

 
31,703

LONG-TERM DEBT, LESS CURRENT PORTION, NET
8,354,920

 
8,359,899

OPERATING LEASE LIABILITIES, LESS CURRENT PORTION
45,057

 
48,299

OTHER LIABILITIES
269,705

 
355,881

COMMITMENTS AND CONTINGENCIES (NOTE 12)


 


SHAREHOLDERS' DEFICIT:
 
 
 
Euro deferred shares, $0.01 par value; 4,000,000 shares authorized and issued at both March 31, 2020 and December 31, 2019
44

 
45

Ordinary shares, $0.0001 par value; 1,000,000,000 shares authorized; 228,442,736 and 226,802,609 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
23

 
23

Additional paid-in capital
8,917,927

 
8,904,692

Accumulated deficit
(9,422,284
)
 
(9,552,214
)
Accumulated other comprehensive loss
(233,527
)
 
(219,090
)
Total shareholders' deficit
$
(737,817
)
 
$
(866,544
)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
$
9,305,880

 
$
9,389,527

See accompanying Notes to Condensed Consolidated Financial Statements.

1


ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars and shares in thousands, except per share data)
 
Three Months Ended March 31,
 
2020
 
2019
TOTAL REVENUES, NET
$
820,405

 
$
720,411

COSTS AND EXPENSES:
 
 
 
Cost of revenues
388,799

 
391,909

Selling, general and administrative
166,768

 
151,123

Research and development
31,615

 
33,486

Litigation-related and other contingencies, net
(17,176
)
 
6

Asset impairment charges
97,785

 
165,448

Acquisition-related and integration items, net
12,462

 
(37,501
)
Interest expense, net
132,877

 
132,675

Gain on extinguishment of debt

 
(119,828
)
Other (income) expense, net
(13,974
)
 
4,802

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX
$
21,249

 
$
(1,709
)
INCOME TAX (BENEFIT) EXPENSE
(136,332
)
 
10,903

INCOME (LOSS) FROM CONTINUING OPERATIONS
$
157,581

 
$
(12,612
)
DISCONTINUED OPERATIONS, NET OF TAX (NOTE 3)
(27,651
)
 
(5,961
)
NET INCOME (LOSS)
$
129,930

 
$
(18,573
)
NET INCOME (LOSS) PER SHARE—BASIC:
 
 
 
Continuing operations
$
0.69

 
$
(0.06
)
Discontinued operations
(0.12
)
 
(0.02
)
Basic
$
0.57

 
$
(0.08
)
NET INCOME (LOSS) PER SHARE—DILUTED:
 
 
 
Continuing operations
$
0.68

 
$
(0.06
)
Discontinued operations
(0.12
)
 
(0.02
)
Diluted
$
0.56

 
$
(0.08
)
WEIGHTED AVERAGE SHARES:
 
 
 
Basic
227,198

 
224,594

Diluted
233,014

 
224,594

See accompanying Notes to Condensed Consolidated Financial Statements.

2


ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Dollars in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
NET INCOME (LOSS)
$
129,930

 
$
(18,573
)
OTHER COMPREHENSIVE (LOSS) INCOME:
 
 
 
Net unrealized (loss) gain on foreign currency
$
(14,437
)
 
$
4,730

Total other comprehensive (loss) income
$
(14,437
)
 
$
4,730

COMPREHENSIVE INCOME (LOSS)
$
115,493

 
$
(13,843
)
See accompanying Notes to Condensed Consolidated Financial Statements.

3


ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
129,930

 
$
(18,573
)
Adjustments to reconcile Net income (loss) to Net cash provided by (used in) operating activities:





Depreciation and amortization
141,588


162,733

Share-based compensation
17,645


24,733

Amortization of debt issuance costs and discount
4,339


5,586

Deferred income taxes
(911
)

(785
)
Change in fair value of contingent consideration
12,462


(37,501
)
Gain on extinguishment of debt


(119,828
)
Asset impairment charges
97,785


165,448

(Gain) loss on sale of business and other assets
(8,192
)

1,294

Changes in assets and liabilities which (used) provided cash:





Accounts receivable
(72,833
)

(14,389
)
Inventories
(324
)

(11,928
)
Prepaid and other assets
(3,581
)

5,059

Accounts payable, accrued expenses and other liabilities
(112,625
)
 
(258,202
)
Income taxes payable/receivable, net
(142,727
)

5,770

Net cash provided by (used in) operating activities
$
62,556


$
(90,583
)
INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment, excluding capitalized interest
(19,638
)
 
(15,386
)
Capitalized interest payments
(492
)
 
(1,094
)
Proceeds from sale of business and other assets, net
4,167

 
103

Net cash used in investing activities
$
(15,963
)
 
$
(16,377
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of notes, net

 
1,483,125

Repayments of notes

 
(1,499,998
)
Repayments of term loans
(8,537
)
 
(8,538
)
Repayments of other indebtedness
(1,184
)
 
(1,174
)
Payments for debt issuance and extinguishment costs

 
(211
)
Payments for contingent consideration
(364
)
 
(4,565
)
Payments of tax withholding for restricted shares
(4,398
)
 
(2,414
)
Proceeds from exercise of options

 
4

Net cash used in financing activities
$
(14,483
)
 
$
(33,771
)
Effect of foreign exchange rate
(1,894
)
 
537

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS
$
30,216

 
$
(140,194
)
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD
1,720,388

 
1,476,837

CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD
$
1,750,604

 
$
1,336,643

SUPPLEMENTAL INFORMATION:
 
 
 
Cash paid into Qualified Settlement Funds for mesh legal settlements
$

 
$
81,582

Cash paid out of Qualified Settlement Funds for mesh legal settlements
$
47,801

 
$
54,984

Other cash distributions for mesh legal settlements
$
17,819

 
$
10,239

See accompanying Notes to Condensed Consolidated Financial Statements.

4


ENDO INTERNATIONAL PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2020
NOTE 1. BASIS OF PRESENTATION
Endo International plc is an Ireland-domiciled specialty branded and generics pharmaceutical company that conducts business through its operating subsidiaries. Unless otherwise indicated or required by the context, references throughout to “Endo,” the “Company,” “we,” “our” or “us” refer to Endo International plc and its subsidiaries.
The accompanying unaudited Condensed Consolidated Financial Statements of Endo International plc and its subsidiaries have been prepared in accordance with United States (U.S.) generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements of Endo International plc and its subsidiaries, which are unaudited, include all normal and recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2020 and the results of its operations and its cash flows for the periods presented. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The year-end Condensed Consolidated Balance Sheet data as of December 31, 2019 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying notes included in the Annual Report.
Certain prior period amounts have been reclassified to conform to the current period presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires us to make estimates that affect the amounts and disclosures in the Condensed Consolidated Financial Statements, including the notes thereto, and elsewhere in this report. Uncertainties related to the magnitude and duration of COVID-19, the extent to which it will impact our estimated future financial results, worldwide macroeconomic conditions including interest rates, employment rates, consumer spending and health insurance coverage, the speed of the anticipated recovery and governmental and business reactions to the pandemic have increased the complexity of developing these estimates, including the allowance for expected credit losses and the carrying amounts of long-lived assets, goodwill and other intangible assets. Actual results may differ significantly from our estimates, including as a result of COVID-19.
Significant Accounting Policies Added or Updated since December 31, 2019
Significant changes to our significant accounting policies since December 31, 2019 are detailed below. For additional discussion of the Company’s significant accounting policies, see Note 2. Summary of Significant Accounting Policies in the Consolidated Financial Statements, included in Part IV, Item 15 of the Annual Report.
Accounts Receivable. The Company adopted Accounting Standards Codification (ASC) Topic 326, Financial Instruments-Credit Losses (ASC 326) on January 1, 2020. For further discussion of the adoption, refer to the “Recent Accounting Pronouncements Adopted or Otherwise Effective as of March 31, 2020” section below. Subsequent to the adoption of ASC 326, our accounts receivable balance is stated at amortized cost less an allowance for expected credit losses. In addition, our accounts receivable balance is reduced by certain sales deduction reserves where we have the right of offset with the customer. We generally do not require collateral.
Concentrations of Credit Risk and Credit Losses. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents, restricted cash equivalents and accounts receivable. From time to time, we invest our excess cash in high-quality, liquid money market instruments maintained by major banks and financial institutions. We have not experienced any losses on our cash equivalents.
With respect to our accounts receivable, we have no history of significant losses. Approximately 89% and 88% of our gross trade accounts receivable balances represent amounts due from three customers (Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen Corporation) at March 31, 2020 and December 31, 2019, respectively. We perform ongoing credit evaluations of these and our other customers based on information available to us. We consider these and other factors, including changes in the composition and aging of our accounts receivable, in developing our allowance for expected credit losses. The estimated allowance was not material to the Company’s Condensed Consolidated Financial Statements at March 31, 2020 or December 31, 2019, nor were the changes to the allowance during any of the periods presented.

5


We do not currently expect our current or future exposures to credit losses to have a significant impact on us. However, our customers’ ability to pay us on a timely basis, or at all, could be affected by factors specific to their respective businesses and/or by economic conditions, including those related to the COVID-19 pandemic, the extent of which cannot be fully predicted.
Recent Accounting Pronouncements Adopted or Otherwise Effective as of March 31, 2020
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13, together with a series of subsequently-issued related ASUs, has been codified in ASC 326. ASC 326 establishes new requirements for companies to estimate expected credit losses when measuring certain financial assets, including accounts receivables. The Company adopted ASC 326 using a modified retrospective approach with an effective date of January 1, 2020. The adoption of ASC 326 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
NOTE 3. DISCONTINUED OPERATIONS
Astora
The operating results of the Company’s Astora business, which the Company’s board of directors (the Board) resolved to wind-down in 2016, 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 Astora Discontinued operations, net of tax, for the three months ended March 31, 2020 and 2019 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Litigation-related and other contingencies, net
$
30,454

 
$

Loss from discontinued operations before income taxes
$
(33,517
)
 
$
(5,961
)
Income tax benefit
$
(5,866
)
 
$

Discontinued operations, net of tax
$
(27,651
)
 
$
(5,961
)

Loss from discontinued operations before income taxes includes Litigation-related and other contingencies, net, mesh-related legal defense costs and certain other items.
The cash flows from discontinued operating activities related to Astora included the impact of net losses of $27.7 million and $6.0 million for the three months ended March 31, 2020 and 2019, respectively, and the impact of cash activity related to vaginal mesh cases. There were no material net cash flows related to Astora discontinued investing activities during the three months ended March 31, 2020 and 2019. There was no depreciation or amortization during the three months ended March 31, 2020 and 2019 related to Astora.
NOTE 4. SEGMENT RESULTS
The Company’s four reportable business segments are Branded Pharmaceuticals, Sterile Injectables, Generic Pharmaceuticals and International Pharmaceuticals. These segments reflect the level at which the chief operating decision maker (CODM) regularly reviews financial information to assess performance and to make decisions about resources to be allocated. Each segment derives revenue from the sales or licensing of its respective products and is discussed in more detail below.
We evaluate segment performance based on segment adjusted income from continuing operations before income tax, which we define as Income (loss) from continuing operations before income tax and before certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs and changes in the fair value of contingent consideration; cost reduction and integration-related initiatives such as separation benefits, continuity payments, other exit costs and certain costs associated with integrating an acquired company’s operations; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; certain legal costs; gains or losses from early termination of debt; gains or losses from the sales of businesses and other assets; foreign currency gains or losses on intercompany financing arrangements; and certain other items. Effective January 1, 2020, the Company revised its definition of segment adjusted income from continuing operations before income tax to exclude certain legal costs in order to reflect changes in how the CODM reviews segment performance. The Company believes that such costs are not indicative of business performance and that excluding them more accurately reflects each segment’s results and better enables management to compare financial results between periods. Prior period results have been adjusted to reflect this change. Specifically, for the three months ended March 31, 2019, certain legal costs of $16.3 million and $0.4 million have been excluded from our Branded Pharmaceuticals and Generic Pharmaceuticals segments, respectively, resulting in increases to the segment adjusted income from continuing operations before income tax for these segments. This change had no impact on our Total consolidated income (loss) from continuing operations before income tax.

6


Certain of the corporate expenses incurred by the Company are not directly attributable to any specific segment. Accordingly, these costs are not allocated to any of the Company’s segments and are included in the results below as “Corporate unallocated costs.” Interest income and expense are also considered corporate items and not allocated to any of the Company’s segments. The Company’s total segment adjusted income from continuing operations before income tax is equal to the combined results of each of its segments.
Branded Pharmaceuticals
Our Branded Pharmaceuticals segment includes a variety of branded prescription products to treat and manage conditions in urology, urologic oncology, endocrinology, pain and orthopedics. The products in this segment include XIAFLEX®, SUPPRELIN® LA, NASCOBAL® Nasal Spray, AVEED®, PERCOCET®, EDEX®, LIDODERM® and TESTOPEL®, among others.
Sterile Injectables
Our Sterile Injectables segment consists primarily of branded sterile injectable products such as VASOSTRICT®, ADRENALIN® and APLISOL®, among others, and certain generic sterile injectable products, including ertapenem for injection, the authorized generic of Merck Sharp & Dohme Corp.’s (Merck) Invanz®, and ephedrine sulfate injection, among others.
Generic Pharmaceuticals
Our Generic Pharmaceuticals segment consists of a differentiated product portfolio including solid oral extended-release, solid oral immediate-release, liquids, semi-solids, patches, powders, ophthalmics and sprays and includes products in the pain management, urology, central nervous system disorders, immunosuppression, oncology, women’s health and cardiovascular disease markets, among others.
International Pharmaceuticals
Our International Pharmaceuticals segment includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin Labs Inc. (Paladin). The key products of this segment serve various therapeutic areas, including attention deficit hyperactivity disorder, pain, women’s health and oncology.
The following represents selected information for the Company’s reportable segments for the three months ended March 31, 2020 and 2019 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Net revenues from external customers:
 
 
 
Branded Pharmaceuticals
$
204,073

 
$
203,525

Sterile Injectables
336,390

 
270,048

Generic Pharmaceuticals
251,283

 
218,526

International Pharmaceuticals (1)
28,659

 
28,312

Total net revenues from external customers
$
820,405

 
$
720,411

Segment adjusted income from continuing operations before income tax:
 
 
 
Branded Pharmaceuticals
$
98,422


$
95,283

Sterile Injectables
263,896


196,183

Generic Pharmaceuticals
57,327


50,411

International Pharmaceuticals
14,197


12,095

Total segment adjusted income from continuing operations before income tax
$
433,842


$
353,972

__________
(1)
Revenues generated by our International Pharmaceuticals segment are primarily attributable to external customers located in Canada.
There were no material revenues from external customers attributed to an individual country outside of the U.S. during any of the periods presented.

7


The table below provides reconciliations of our Total consolidated income (loss) from continuing operations before income tax, which is determined in accordance with U.S. GAAP, to our total segment adjusted income from continuing operations before income tax for the three months ended March 31, 2020 and 2019 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Total consolidated income (loss) from continuing operations before income tax
$
21,249

 
$
(1,709
)
Interest expense, net
132,877

 
132,675

Corporate unallocated costs (1)
43,322

 
48,095

Amortization of intangible assets
117,237

 
145,599

Upfront and milestone payments to partners
1,750

 
939

Continuity and separation benefits and other cost reduction initiatives (2)
23,220

 
2,025

Certain litigation-related and other contingencies, net (3)
(17,176
)
 
6

Certain legal costs (4)
15,536

 
16,689

Asset impairment charges (5)
97,785

 
165,448

Acquisition-related and integration items, net (6)
12,462

 
(37,501
)
Gain on extinguishment of debt

 
(119,828
)
Foreign currency impact related to the remeasurement of intercompany debt instruments
(7,094
)
 
1,534

Other, net (7)
(7,326
)
 

Total segment adjusted income from continuing operations before income tax
$
433,842

 
$
353,972

__________
(1)
Amounts include certain corporate overhead costs, such as headcount, facility and corporate litigation expenses and certain other income and expenses.
(2)
Amounts for the three months ended March 31, 2020 include $13.7 million of costs associated with certain continuity and transitional compensation arrangements for certain senior management of the Company. Other amounts in 2020 related primarily to certain cost reduction initiatives. Such amounts included accelerated depreciation of $6.6 million, employee separation costs of $0.1 million and other charges of $2.8 million. Amounts for the three months ended March 31, 2019 primarily relate to employee separation costs of $1.8 million and other charges of $0.2 million.
(3)
Amounts include adjustments to our accruals for litigation-related settlement charges and certain settlement proceeds related to suits filed by our subsidiaries. Our material legal proceedings and other contingent matters are described in more detail in Note 12. Commitments and Contingencies.
(4)
Amounts relate to opioid-related legal expenses.
(5)
Amounts primarily relate to charges to impair goodwill and intangible assets as further described in Note 8. Goodwill and Other Intangibles.
(6)
Amounts primarily relate to changes in the fair value of contingent consideration.
(7)
Amounts primarily relate to gains on sales of businesses and other assets, as further described in Note 15. Other (Income) Expense, Net.
Asset information is not reviewed or included within our internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.

8


During the three months ended March 31, 2020 and 2019, the Company disaggregated its revenue from contracts with customers into the categories included in the table below (in thousands). The Company believes these categories depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors.

Three Months Ended March 31,

2020

2019
Branded Pharmaceuticals:
 
 
 
Specialty Products:
 
 
 
XIAFLEX®
$
89,072

 
$
68,507

SUPPRELIN® LA
19,720

 
22,056

Other Specialty (1)
25,505

 
24,403

Total Specialty Products
$
134,297

 
$
114,966

Established Products:
 
 
 
PERCOCET®
$
27,703

 
$
30,760

EDEX®
8,568

 
5,971

Other Established (2)
33,505

 
51,828

Total Established Products
$
69,776

 
$
88,559

Total Branded Pharmaceuticals (3)
$
204,073

 
$
203,525

Sterile Injectables:
 
 
 
VASOSTRICT®
$
202,904


$
139,137

ADRENALIN®
56,512


47,322

Ertapenem for injection
17,874

 
32,219

APLISOL®
9,867

 
12,381

Other Sterile Injectables (4)
49,233


38,989

Total Sterile Injectables (3)
$
336,390


$
270,048

Total Generic Pharmaceuticals (5)
$
251,283

 
$
218,526

Total International Pharmaceuticals (6)
$
28,659

 
$
28,312

Total revenues, net
$
820,405

 
$
720,411

__________
(1)
Products included within Other Specialty are NASCOBAL® Nasal Spray and AVEED®.
(2)
Products included within Other Established include, but are not limited to, LIDODERM® and TESTOPEL®.
(3)
Individual products presented above represent the top two performing products in each product category for the three months ended March 31, 2020 and/or any product having revenues in excess of $25 million during any quarterly period in 2020 or 2019.
(4)
Products included within Other Sterile Injectables include ephedrine sulfate injection and others.
(5)
The Generic Pharmaceuticals segment is comprised of a portfolio of products that are generic versions of branded products, are distributed primarily through the same wholesalers, generally have no intellectual property protection and are sold within the U.S. During the three months ended March 31, 2019, colchicine tablets, the authorized generic of Takeda Pharmaceuticals U.S.A., Inc.’s (Takeda) Colcrys®, which launched in July 2018, made up 6% of consolidated total revenue. No other individual product within this segment has exceeded 5% of consolidated total revenues for the periods presented.
(6)
The International Pharmaceuticals segment, which accounted for 3% and 4% of consolidated total revenues during the three months ended March 31, 2020 and 2019, respectively, includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin.
NOTE 5. FAIR VALUE MEASUREMENTS
Financial Instruments
The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents (including money market funds), restricted cash and cash equivalents, accounts receivable, equity method investments, accounts payable and accrued expenses, acquisition-related contingent consideration and debt obligations. Included in cash and cash equivalents and restricted cash and cash equivalents are money market funds representing a type of mutual fund required by law to invest in low-risk securities (for example, U.S. government bonds, U.S. Treasury Bills and commercial paper). Money market funds pay dividends that generally reflect short-term interest rates. Due to their short-term maturity, the carrying amounts of non-restricted and restricted cash and cash equivalents (including money market funds), accounts receivable, accounts payable and accrued expenses approximate their fair values.

9


The following table presents current and noncurrent restricted cash and cash equivalent balances at March 31, 2020 and December 31, 2019 (in thousands):
 
March 31, 2020
 
December 31, 2019
Restricted cash and cash equivalents—current portion (1)
$
200,666

 
$
247,457

Restricted cash and cash equivalents—noncurrent portion (2)
18,400

 
18,400

Restricted cash and cash equivalents—total (3)
$
219,066

 
$
265,857

__________
(1)
These amounts are reported in our Condensed Consolidated Balance Sheets as Restricted cash and cash equivalents.
(2)
These amounts are reported in our Condensed Consolidated Balance Sheets as Other assets.
(3)
Approximately $195.7 million and $242.8 million of our restricted cash and cash equivalents are held in Qualified Settlement Funds (QSFs) for mesh-related matters at March 31, 2020 and December 31, 2019, respectively. The remaining restricted cash and cash equivalents primarily relates to other litigation-related matters. See Note 12. Commitments and Contingencies for further information.
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Acquisition-Related Contingent Consideration
The fair value of contingent consideration liabilities is determined using unobservable inputs; hence, these instruments represent Level 3 measurements within the above-defined fair value hierarchy. These inputs include the estimated amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is remeasured at current fair value with changes recorded in earnings. The estimates of fair value are uncertain and changes in any of the estimated inputs used as of the date of this report could have resulted in significant adjustments to fair value. See the “Recurring Fair Value Measurements” section below for additional information on acquisition-related contingent consideration.
Recurring Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019 were as follows (in thousands):
 
Fair Value Measurements at March 31, 2020 using:
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds
$
635,365

 
$

 
$

 
$
635,365

Liabilities:
 
 
 
 
 
 
 
Acquisition-related contingent consideration—current
$

 
$

 
$
8,459

 
$
8,459

Acquisition-related contingent consideration—noncurrent
$

 
$

 
$
30,480

 
$
30,480

 
Fair Value Measurements at December 31, 2019 using:
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds
$
427,033

 
$

 
$

 
$
427,033

Liabilities:
 
 
 
 
 
 
 
Acquisition-related contingent consideration—current
$

 
$

 
$
6,534

 
$
6,534

Acquisition-related contingent consideration—noncurrent
$

 
$

 
$
23,123

 
$
23,123


At March 31, 2020 and December 31, 2019, money market funds include $37.4 million and $70.2 million, respectively, in QSFs to be disbursed to mesh-related or other product liability claimants. Amounts in QSFs are considered restricted cash equivalents. See Note 12. Commitments and Contingencies for further discussion of our product liability cases. At March 31, 2020 and December 31, 2019, the differences between the amortized cost and the fair value of our money market funds were not material, individually or in the aggregate.

10


Fair Value Measurements Using Significant Unobservable Inputs
The following table presents changes to the Company’s liability for acquisition-related contingent consideration, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3), for the three months ended March 31, 2020 and 2019 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Beginning of period
$
29,657

 
$
116,703

Amounts settled
(2,461
)
 
(11,591
)
Changes in fair value recorded in earnings
12,462

 
(37,501
)
Effect of currency translation
(719
)
 
231

End of period
$
38,939

 
$
67,842


At March 31, 2020, the fair value measurements of the contingent consideration obligations were determined using risk-adjusted discount rates ranging from approximately 10.0% to 15.0% (weighted average rate of approximately 12.3%, weighted based on relative fair value). Changes in fair value recorded in earnings related to acquisition-related contingent consideration are included in our Condensed Consolidated Statements of Operations as Acquisition-related and integration items, net. Amounts recorded for the current and noncurrent portions of acquisition-related contingent consideration are included in Accounts payable and accrued expenses and Other liabilities, respectively, in our Condensed Consolidated Balance Sheets.
The following table presents changes to the Company’s liability for acquisition-related contingent consideration during the three months ended March 31, 2020 by acquisition (in thousands):
 
Balance as of December 31, 2019
 
Changes in Fair Value Recorded in Earnings
 
Amounts Settled and Other
 
Balance as of March 31, 2020
Auxilium acquisition
$
13,207

 
$
(54
)
 
$

 
$
13,153

Lehigh Valley Technologies, Inc. acquisitions
6,800

 
12,897

 
(2,097
)
 
17,600

Other
9,650

 
(381
)
 
(1,083
)
 
8,186

Total
$
29,657

 
$
12,462

 
$
(3,180
)
 
$
38,939


Nonrecurring Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2020 were as follows (in thousands):
 
Fair Value Measurements during the Three Months Ended March 31, 2020 (1) using:
 
Total Expense for the Three Months Ended March 31, 2020
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Intangible assets, excluding goodwill (2)
$

 
$

 
$
24,377

 
$
(63,751
)
Certain property, plant and equipment

 

 

 
(1,248
)
Total
$

 
$

 
$
24,377

 
$
(64,999
)

__________
(1)
The fair value amounts are presented as of the date of the fair value measurement as these assets are not measured at fair value on a recurring basis. Such measurements generally occur in connection with our quarter-end financial reporting close procedures.
(2)
These fair value measurements were determined using risk-adjusted discount rates ranging from approximately 10.0% to 12.0% (weighted average rate of approximately 11.1%, weighted based on relative fair value). The Company also performed fair value measurements in connection with its goodwill impairment tests. Refer to Note 8. Goodwill and Other Intangibles for additional information on goodwill and other intangible asset impairment tests, including information about the valuation methodologies utilized.

11


NOTE 6. INVENTORIES
Inventories consist of the following at March 31, 2020 and December 31, 2019 (in thousands):
 
March 31, 2020
 
December 31, 2019
Raw materials (1)
$
115,436

 
$
124,171

Work-in-process (1)
67,983

 
65,392

Finished goods (1)
141,543

 
138,302

Total
$
324,962

 
$
327,865


__________
(1) The components of inventory shown in the table above are net of allowance for obsolescence.
Inventory that is in excess of the amount expected to be sold within one year is classified as noncurrent inventory and is not included in the table above. At March 31, 2020 and December 31, 2019, $31.1 million and $29.0 million, respectively, of noncurrent inventory was included in Other assets in the Condensed Consolidated Balance Sheets. As of March 31, 2020 and December 31, 2019, the Company’s Condensed Consolidated Balance Sheets included approximately $23.3 million and $17.6 million, respectively, of capitalized pre-launch inventories related to products that were not yet available to be sold.
NOTE 7. LEASES
The following table presents information about the Company's right-of-use (ROU) assets and lease liabilities at March 31, 2020 and December 31, 2019 (in thousands):
 
Condensed Consolidated Balance Sheets Line Items
 
March 31, 2020
 
December 31, 2019
ROU assets:
 
 
 
 
 
Operating lease ROU assets
Operating lease assets
 
$
49,349

 
$
51,700

Finance lease ROU assets
Property, plant and equipment, net
 
54,482

 
56,793

Total ROU assets
 
$
103,831

 
$
108,493

Operating lease liabilities:
 
 
 
 
 
Current operating lease liabilities
Current portion of operating lease liabilities
 
$
11,512

 
$
10,763

Noncurrent operating lease liabilities
Operating lease liabilities, less current portion
 
45,057

 
48,299

Total operating lease liabilities
 
$
56,569

 
$
59,062

Finance lease liabilities:
 
 
 
 
 
Current finance lease liabilities
Accounts payable and accrued expenses
 
$
5,799

 
$
5,672

Noncurrent finance lease liabilities
Other liabilities
 
29,706

 
31,312

Total finance lease liabilities
 
$
35,505

 
$
36,984



12


The following table presents information about lease costs and expenses and sublease income for the three months ended March 31, 2020 and 2019 (in thousands):
 
 
 
Three Months Ended March 31,
 
Condensed Consolidated Statements of Operations Line Items
 
2020
 
2019
Operating lease cost
Various (1)
 
$
3,992

 
$
3,499

Finance lease cost:
 
 
 
 
 
Amortization of ROU assets
Various (1)
 
$
2,311

 
$
2,296

Interest on lease liabilities
Interest expense, net
 
$
466

 
$
500

Other lease costs and income:
 
 
 
 
 
Variable lease costs (2)
Various (1)
 
$
2,658

 
$
2,089

Sublease income
Various (1)
 
$
(861
)
 
$
(964
)
__________
(1)
Amounts are included in the Condensed Consolidated Statements of Operations based on the function that the underlying leased asset supports. The following table presents the components of such aggregate amounts for the three months ended March 31, 2020 and 2019 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Cost of revenues
$
3,328

 
$
2,700

Selling, general and administrative
$
4,721

 
$
4,169

Research and development
$
51

 
$
51

(2)
Amounts represent variable lease costs incurred that were not included in the initial measurement of the lease liability such as common area maintenance and utilities costs associated with leased real estate and certain costs associated with our automobile leases.
The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the three months ended March 31, 2020 and 2019 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash payments for operating leases
$
2,981

 
$
3,692

Operating cash payments for finance leases
$
648

 
$
473

Financing cash payments for finance leases
$
1,184

 
$
1,174


NOTE 8. GOODWILL AND OTHER INTANGIBLES
Goodwill
Changes in the carrying amount of our goodwill for the three months ended March 31, 2020 were as follows (in thousands):
 
Branded Pharmaceuticals
 
Sterile Injectables
 
Generic Pharmaceuticals
 
International Pharmaceuticals
 
Total
Goodwill as of December 31, 2019
$
828,818

 
$
2,731,193

 
$

 
$
35,173

 
$
3,595,184

Effect of currency translation

 

 

 
(2,387
)
 
(2,387
)
Goodwill impairment charges

 

 

 
(32,786
)
 
(32,786
)
Goodwill as of March 31, 2020
$
828,818

 
$
2,731,193

 
$

 
$

 
$
3,560,011


The carrying amounts of goodwill at March 31, 2020 and December 31, 2019 are net of the following accumulated impairments (in thousands):
 
Branded Pharmaceuticals
 
Sterile Injectables
 
Generic Pharmaceuticals
 
International Pharmaceuticals
 
Total
Accumulated impairment losses as of December 31, 2019
$
855,810

 
$

 
$
3,142,657

 
$
500,417

 
$
4,498,884

Accumulated impairment losses as of March 31, 2020
$
855,810

 
$

 
$
3,142,657

 
$
494,499

 
$
4,492,966



13


Other Intangible Assets
Changes in the amount of other intangible assets for the three months ended March 31, 2020 were as follows (in thousands):
Cost basis:
Balance as of December 31, 2019
 
Acquisitions
 
Impairments
 
Effect of Currency Translation
 
Balance as of March 31, 2020
Indefinite-lived intangibles:
 
 
 
 
 
 
 
 
 
In-process research and development
$
93,900

 
$

 
$

 
$

 
$
93,900

Total indefinite-lived intangibles
$
93,900

 
$

 
$

 
$

 
$
93,900

Finite-lived intangibles:
 
 
 
 
 
 
 
 
 
Licenses (weighted average life of 14 years)
$
457,402

 
$

 
$
(8,700
)
 
$

 
$
448,702

Tradenames
6,409

 

 

 

 
6,409

Developed technology (weighted average life of 11 years)
5,844,439

 

 
(55,051
)
 
(19,839
)
 
5,769,549

Total finite-lived intangibles (weighted average life of 11 years)
$
6,308,250

 
$

 
$
(63,751
)
 
$
(19,839
)
 
$
6,224,660

Total other intangibles
$
6,402,150

 
$

 
$
(63,751
)
 
$
(19,839
)
 
$
6,318,560

 
 
 
 
 
 
 
 
 
 
Accumulated amortization:
Balance as of December 31, 2019
 
Amortization
 
Impairments
 
Effect of Currency Translation
 
Balance as of March 31, 2020
Finite-lived intangibles:
 
 
 
 
 
 
 
 
 
Licenses
$
(410,336
)
 
$
(2,429
)
 
$

 
$

 
$
(412,765
)
Tradenames
(6,409
)
 

 

 

 
(6,409
)
Developed technology
(3,414,138
)
 
(114,808
)
 

 
11,934

 
(3,517,012
)
Total other intangibles
$
(3,830,883
)
 
$
(117,237
)
 
$

 
$
11,934

 
$
(3,936,186
)
Net other intangibles
$
2,571,267

 
 
 
 
 
 
 
$
2,382,374


Amortization expense for the three months ended March 31, 2020 and 2019 totaled $117.2 million and $145.6 million, respectively. Amortization expense is included in Cost of revenues in the Condensed Consolidated Statements of Operations. Estimated amortization of intangibles for the five fiscal years subsequent to December 31, 2019 is as follows (in thousands):
2020
$
427,824

2021
$
389,418

2022
$
373,293

2023
$
331,379

2024
$
292,903


Impairments
Goodwill and indefinite-lived intangible assets are tested for impairment annually and when events or changes in circumstances indicate that the asset might be impaired. Our annual assessment is performed as of October 1.
As part of our goodwill and intangible asset impairment assessments, we estimate the fair values of our reporting units and our intangible assets using an income approach that utilizes a discounted cash flow model or, where appropriate, a market approach.
The discounted cash flow models are dependent upon our estimates of future cash flows and other factors including estimates of (i) future operating performance, including future sales, long-term growth rates, operating margins, discount rates, variations in the amount and timing of cash flows and the probability of achieving the estimated cash flows and (ii) future economic conditions. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rates applied to the estimated cash flows are based on the overall risk associated with the particular assets and other market factors. We believe the discount rates and other inputs and assumptions are consistent with those that a market participant would use. Any impairment charges resulting from annual or interim goodwill and intangible asset impairment assessments are recorded to Asset impairment charges in our Condensed Consolidated Statements of Operations.

14


During the three months ended March 31, 2020 and 2019, the Company incurred the following goodwill and other intangible asset impairment charges (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Goodwill impairment charges
$
32,786

 
$
86,000

Other intangible asset impairment charges
$
63,751

 
$
78,700


Except as described below, pre-tax non-cash asset impairment charges related primarily to certain in-process research and development and/or developed technology intangible assets that were tested for impairment following changes in market conditions and certain other factors impacting recoverability.
As a result of certain business decisions that occurred during the first quarter of 2020, we tested the goodwill of our Paladin reporting unit for impairment as of March 31, 2020. The fair value of the reporting unit was estimated using an income approach that utilized a discounted cash flow model. The discount rate utilized in this test was 9.5%. This goodwill impairment test resulted in a pre-tax non-cash goodwill impairment charge of $32.8 million during the three months ended March 31, 2020, representing the remaining carrying amount. This impairment was primarily attributable to portfolio decisions and updated market expectations during the quarter.
As a result of certain competitive events that occurred during the first quarter of 2019, we tested the goodwill of our Generic Pharmaceuticals reporting unit for impairment as of March 31, 2019. The fair value of the reporting unit was estimated using an income approach that utilized a discounted cash flow model. The discount rate utilized in this test was 10.5%. This goodwill impairment test resulted in a pre-tax non-cash goodwill impairment charge of $86.0 million during the three months ended March 31, 2019, representing the excess of this reporting unit’s carrying amount over its estimated fair value. This Generic Pharmaceuticals impairment can be primarily attributed to the impact of the competitive events referenced above and an increase in the discount rate used in the determination of fair value.
We are closely monitoring the impact of COVID-19 on our business. It is possible that COVID-19 could result in reductions to the estimated fair values of our goodwill and other intangible assets, which could ultimately result in asset impairment charges that may be material.
NOTE 9. CONTRACT ASSETS AND LIABILITIES
Our revenue consists almost entirely of sales of our pharmaceutical products to customers, whereby we ship products to a customer pursuant to a purchase order. Revenue contracts such as these do not generally give rise to contract assets or contract liabilities because: (i) the underlying contracts generally have only a single performance obligation and (ii) we do not generally receive consideration until the performance obligation is fully satisfied. At March 31, 2020, the unfulfilled performance obligations for these types of contracts relate to ordered but undelivered products. We generally expect to fulfill the performance obligations and recognize revenue within one week of entering into the underlying contract. Based on the short-term initial contract duration, additional disclosure about the remaining performance obligations is not required.
Certain of our other revenue-generating contracts, including license and collaboration agreements, may result in contract assets and/or contract liabilities. For example, we may recognize contract liabilities upon receipt of certain upfront and milestone payments from customers when there are remaining performance obligations.
The following table shows the opening and closing balances of contract assets and contract liabilities from contracts with customers (dollars in thousands):
 
March 31, 2020
 
December 31, 2019
 
$ Change
 
% Change
Contract assets, net (1)
$
7,325

 
$

 
$
7,325

 
NM

Contract liabilities, net (2)
$
6,451

 
$
6,592

 
$
(141
)
 
(2
)%
__________
NM indicates that the percentage change is not meaningful or is greater than 100%
(1)
At March 31, 2020, the entire contract asset amount is classified as a noncurrent asset and is included in Other assets. The net increase in contract assets during the three months ended March 31, 2020 was primarily due to the Company’s estimated consideration for the sale of certain intellectual property rights.
(2)
At both March 31, 2020 and December 31, 2019, approximately $1.4 million of these contract liability amounts are classified as current liabilities and are included in Accounts payable and accrued expenses in the Company’s Condensed Consolidated Balance Sheets. The remaining amounts are classified as noncurrent and are included in Other liabilities. The decrease to contract liabilities was due to approximately $0.1 million in revenue recognized during the period.
During the three months ended March 31, 2020, we recognized revenue of $3.9 million relating to performance obligations satisfied, or partially satisfied, in prior periods. Such revenue generally relates to changes in estimates with respect to our variable consideration.

15


NOTE 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following at March 31, 2020 and December 31, 2019 (in thousands):
 
March 31, 2020
 
December 31, 2019
Trade accounts payable
$
88,211

 
$
101,532

Returns and allowances
213,756

 
206,248

Rebates
115,763

 
129,056

Chargebacks
1,630

 
1,594

Accrued interest
100,249

 
112,860

Accrued payroll and related benefits