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What changed in Amneal Pharmaceuticals, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Amneal Pharmaceuticals, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+335 added−366 removedSource: 10-K (2024-03-14) vs 10-K (2023-03-03)

Top changes in Amneal Pharmaceuticals, Inc.'s 2023 10-K

335 paragraphs added · 366 removed · 261 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

36 edited+20 added−40 removed2 unchanged
Biggest changeRisk Factors in this Form 10-K may be heightened 51 Table of Contents Results of Operations Consolidated Results The following table sets forth our summarized, consolidated results of operations (dollars in thousands): Years Ended December 31, Increase (Decrease) 2022 2021 $ % Net revenue $ 2,212,304 $ 2,093,669 $ 118,635 5.7% Cost of goods sold 1,416,485 1,302,004 114,481 8.8% Cost of goods sold impairment charges 11,111 22,692 (11,581) (51.0)% Gross profit 784,708 768,973 15,735 2.0% Selling, general and administrative 399,700 365,504 34,196 9.4% Research and development 195,688 201,847 (6,159) (3.1)% In-process research and development impairment charges 12,970 710 12,260 nm Intellectual property legal development expenses 4,358 7,716 (3,358) (43.5)% Acquisition, transaction-related and integration expenses 709 8,055 (7,346) (91.2)% Restructuring and other charges 1,421 1,857 (436) (23.5)% Change in fair value of contingent consideration 731 200 531 nm (Insurance recoveries) charges for property losses and associated expenses, net (1,911) 5,368 (7,279) (135.6)% Charges related to legal matters, net 269,930 25,000 244,930 nm Other operating income (3,960) — (3,960) nm Operating (loss) income (94,928) 152,716 (247,644) (162.2)% Total other expense, net (153,199) (121,350) (31,849) 26.2% (Loss) income before income taxes (248,127) 31,366 (279,493) nm Provision for income taxes 6,662 11,196 (4,534) (40.5)% Net (loss) income $ (254,789) $ 20,170 $ (274,959) nm nm - not meaningful Net Revenue Net revenue for the year ended December 31, 2022 increased by 5.7%, or $118.6 million, compared to the prior year, and was attributable to growth in net revenue in both the Generics and AvKARE segments, partially offset by a slight decrease in net revenue in the Specialty segment as follows: • Generics net revenue for the year ended December 31, 2022 increased by 4.8%, or $65.7 million, as compared to the prior year, primarily due to new products launched in 2022 and 2021 that contributed net revenue growth of $42.4 million, the favorable year-over-year impact of lower returns relating to Oseltamivir (generic Tamiflu®), volume growth, and $8.0 million in license revenue from an agreement with Orion Corporation (“Orion”), partially offset by continued price erosion.
Biggest changeNotwithstanding our estimates, rising inflationary pressures due to higher input costs, including higher material, transportation, labor and other costs, could exceed our expectations and may adversely impact our operating results in future periods. 52 Results of Operations Consolidated Results The following table sets forth our summarized, consolidated results of operations (dollars in thousands): Years Ended December 31, Increase (Decrease) 2023 2022 $ % Net revenue $ 2,393,607 $ 2,212,304 $ 181,303 8.2% Cost of goods sold 1,573,042 1,427,596 145,446 10.2% Gross profit 820,565 784,708 35,857 4.6% Selling, general and administrative 429,675 399,700 29,975 7.5% Research and development 163,950 195,688 (31,738) (16.2)% In-process research and development impairment charges 30,800 12,970 17,830 137.5% Intellectual property legal development expenses 3,828 4,358 (530) (12.2)% Acquisition, transaction-related and integration expenses — 709 (709) (100.0)% Restructuring and other charges 1,749 1,421 328 23.1% Change in fair value of contingent consideration (14,497) 731 (15,228) nm Insurance recoveries for property losses and associated expenses — (1,911) 1,911 (100.0)% Charges related to legal matters, net 1,824 269,930 (268,106) (99.3)% Other operating income (1,138) (3,960) 2,822 (71.3)% Operating income (loss) 204,374 (94,928) 299,302 nm Total other expense, net (244,644) (153,199) (91,445) 59.7% Loss before income taxes (40,270) (248,127) 207,857 (83.8)% Provision for income taxes 8,452 6,662 1,790 26.9% Net loss $ (48,722) $ (254,789) $ 206,067 (80.9)% nm - not meaningful Net Revenue Net revenue for the year ended December 31, 2023 increased 8.2% from the prior year primarily due to: • Growth in our Generics segment of $39.3 million primarily due to new generics products launched in 2023 and 2022, which included biosimilars that contributed $62.6 million and new generic products that contributed $47.4 million, partially offset by price erosion.
Item 1. Business and Item 1A. Risk Factors in this Form 10-K. Inflation While it is difficult to accurately measure the impact of inflation, we estimate our business experienced an increase in costs due to inflation of approximately $30.0 million for the year ended December 31, 2022.
Item 1. Business and Item 1A. Risk Factors in this Form 10-K. Inflation While it is difficult to accurately measure the impact of inflation, we estimate our business experienced an increase in costs due to inflation of approximately $15.0 million for the year ended December 31, 2023.
Charges Related to Legal Matters, Net Generics charges related to legal matters, net for the year ended December 31, 2022 were $22.4 million and were primarily comprised of $18.0 million of charges for civil prescription opioid litigation. Refer to Note 21.
For the year ended December 31, 2022, Generics charges related to legal matters, net were $22.4 million, primarily comprised of $18.0 million of charges for civil prescription opioid litigation. Refer to Note 21. Commitments and Contingencies for additional information.
Other Operating Income Other operating income for the year ended December 31, 2022 of $4.0 million was comprised of income earned from the India Production Linked Incentive Scheme for the Pharmaceutical Sector in our Generics segment. Refer to Note 6. Government Grants for additional information.
Other Operating Income Other operating income for the year ended December 31, 2023 and 2022 was comprised of income earned from the India Production Linked Incentive Scheme for the Pharmaceutical Sector in our Generics segment. Refer to Note 6. Government Grants for additional information.
In-Process Research and Development Impairment Charges Generics IPR&D impairment charges of $13.0 million for the year ended December 31, 2022 were related to one asset that experienced a delay in its expected launch date and one asset that experienced significant expected price erosion, both of which resulted in significantly lower than expected future cash flows.
Generics IPR&D impairment charges of $13.0 million in the prior year were related to one asset that experienced a delay in its expected launch date and one asset that experienced significant expected price erosion, both of which resulted in significantly lower than expected future cash flows .
We estimate that we will invest approximately $50.0 million to $60.0 million during 2023 for capital expenditures to support and grow our existing operations, primarily related to investments in manufacturing equipment, information technology and facilities. 57 Table of Contents Debt Instruments Over the next 12 months, we expect to make substantial payments for monthly interest and quarterly principal amounts due for our debt instruments, including our Term Loan and Rondo Term Loan, contractual payments for leased premises, and payments for legal settlements.
We estimate that we will invest approximately $60.0 million to $70.0 million during 2024 for capital expenditures to support and grow our existing operations, primarily related to investments in manufacturing equipment, IT and facilities. 57 Debt Instruments Over the next 12 months, we expect to make substantial payments for monthly interest and quarterly principal amounts due for our Term Loan Due 2028, monthly interest under our Term Loan Due 2025, and contractual payments for leased premises.
Commitments and Contingencies for additional information. 55 Table of Contents Other Operating Income Generics other operating income for the year ended December 31, 2022 of $4.0 million was comprised of income earned from the India Production Linked Incentive Scheme for the Pharmaceutical Sector. Refer to Note 6. Government Grants for additional information.
Other Operating Income Generics other operating income for the years ended December 31, 2023 and 2022 was comprised of income earned from the India Production Linked Incentive Scheme for the Pharmaceutical Sector. Refer to Note 6. Government Grants for additional information.
We make our investments in accordance with our investment policy. The primary objectives of our investment policy are liquidity and safety of principal. Cash Flows For a discussion comparing of our cash flows for the fiscal years 2021 to 2020, see Cash Flows under
The primary objectives of our investment policy are liquidity and safety of principal. 58 Cash Flows For a discussion comparing of our cash flows for the fiscal years 2022 to 2021, see Cash Flows under
Provision For Income Taxes The provision for income taxes was $6.7 million and $11.2 million for the years ended December 31, 2022 and 2021, respectively. The effective tax rates for the years ended December 31, 2022 and 2021 were (2.7%) and 35.7%, respectively.
Provision For Income Taxes The provision for income taxes was $8.5 million and $6.7 million for the years ended December 31, 2023 and 2022 , respectively. The effective tax rates for the years ended December 31, 2023 and 2022 were (21.0)% and (2.7%), respectively.
Annually, we are also required to calculate the amount of excess cash flows, as defined in the Term Loan agreement. Based on the results of the excess cash flows calculation for the year ended December 31, 2020, the Company made a $14.4 million additional principal payment towards our Term Loan March 2021.
Based on the results of the excess cash flows calculation for the year ended December 31, 2020, the Company made a $14.4 million additional principal payment towards our Term Loan Due 2025 in March 2021.
(Insurance Recoveries) Charges for Property Losses and Associated Expenses, Net for additional information. 53 Table of Contents Charges Related to Legal Matters, Net For the year ended December 31, 2022, we recorded charges of $269.9 million, primarily for corporate Opana® ER antitrust litigation of $262.8 million and Generics segment civil prescription opioid litigation of $18.0 million, partially offset by corporate insurance recoveries associated with securities class actions of $15.5 million.
For the year ended December 31, 2022, we recorded charges of $269.9 million primarily for the corporate Opana® ER antitrust litigation of $262.8 million and Generics segment civil prescription opioid litigation of $18.0 million, partially offset by corporate insurance recoveries associated with securities class actions of $15.5 million. For further details, refer to Note 21. Commitments and Contingencies.
In-Process Research and Development Impairment Charges IPR&D impairment charges of $13.0 million for the year ended December 31, 2022 were related to one Generics asset which experienced a delay in its expected launch date and one Generics asset which experienced significant expected price erosion, both of which resulted in significantly lower than expected future cash flows.
IPR&D impairment charges of $13.0 million in the prior year were related to one Generics asset which experienced a delay in its expected launch date and one Generics asset which experienced significant expected price erosion, both of which resulted in significantly lower than expected future cash flows. Change in Fair Value of Contingent Consideration Refer to Note 19.
As a result, we are subject to market risk associated with changes in foreign exchange rates. We maintain cash balances at both U.S. based and foreign country based commercial banks. At various times during the year, our cash balances held in the United States may exceed amounts that are insured by the Federal Deposit Insurance Corporation.
A portion of our cash flows are derived outside the U.S. As a result, we are subject to market risk associated with changes in foreign exchange rates. We maintain cash balances at both U.S. based and foreign country based commercial banks.
Generics gross profit for the year ended December 31, 2022 was $536.0 million (37.4% of net revenue) as compared to gross profit of $518.1 million (37.9% of net revenue) for the prior year as a result of the factors described above.
Specialty gross profit as a percentage of net revenue decreased to 45.1% for the year ended December 31, 2023 as compared to 51.2% in the prior year as a result of the factors described above.
Based on the results of the excess cash flows calculation for the years ended December 31, 2022 and 2021, no excess cash flows principal payments were required. Related to our Rondo Term Loan, we made prepayments totaling $58.3 million towards the outstanding principal during the year ended December 31, 2022, in addition to planned principal payments .
Annually, we are also required to calculate the amount of excess cash flow payments, as defined in our term loan agreements. Based on the results of the excess cash flows calculation for the years ended December 31, 2023, 2022 and 2021, no excess cash flows principal payments were required.
The increase was primarily attributable to increased volume, inflation, and a year-over-year reduction in operating efficiency, partially offset by a reduction in marketed product intangible asset impairment charges. Year-over-year, inflation increased cost of goods sold by approximately $17.0 million, primarily related to freight costs.
The increase in cost of goods sold was primarily due to increased AvKARE and Generics volume, a $25.0 million increase in marketed product intangible asset impairment charges primarily related to a reduction in promotional focus on LYVISPAH™ in our Specialty segment, and an increase in the inventory provision, partially offset by efficiencies in our supply costs.
We believe these sources are sufficient to fund our planned operations, meet our interest and contractual obligations and provide sufficient liquidity over the next 12 months.
Debt ), including $225.2 million of available capacity on our Amended New Revolving Credit Facility and $28.0 million of available capacity under the Amended Rondo Revolving Credit Facility as of December 31, 2023 . We believe these sources are sufficient to fund our planned operations, meet our interest and contractual obligations and provide sufficient liquidity over the next 12 months.
Generics The following table sets forth the results of operations for our Generics segment (dollars in thousands): Years Ended December 31, Increase (Decrease) 2022 2021 $ % Net revenue $ 1,432,073 $ 1,366,338 $ 65,735 4.8% Cost of goods sold 890,245 825,568 64,677 7.8% Cost of goods sold impairment charges 5,786 22,692 (16,906) (74.5)% Gross profit 536,042 518,078 17,964 3.5% Selling, general and administrative 109,781 64,500 45,281 70.2% Research and development 167,509 158,365 9,144 5.8% In-process research and development impairment charges 12,970 710 12,260 nm Intellectual property legal development expenses 4,251 7,562 (3,311) (43.8)% Acquisition, transaction-related and integration expenses 25 — 25 nm Restructuring and other charges 821 80 741 nm (Insurance recoveries) charges for property losses and associated expenses, net (1,911) 5,368 (7,279) (135.6)% Charges related to legal matters, net 22,400 — 22,400 nm Other operating income (3,960) — (3,960) nm Operating income $ 224,156 $ 281,493 $ (57,337) (20.4)% nm - not meaningful Net Revenue Generics net revenue for the year ended December 31, 2022 increased by 4.8%, or $65.7 million, as compared to the prior year, primarily due to new products launched in 2022 and 2021 that contributed net revenue growth of $42.4 million, the favorable year-over-year impact of lower returns relating to Oseltamivir (generic Tamiflu®), volume growth, and $8.0 million in license 54 Table of Contents revenue from the agreement with Orion, partially offset by continued price erosion.
The year-over-year change in the provision for income taxes was primarily related to the timing and mix of income, and to the release of liabilities for uncertain tax positions in 2022. 54 Generics The following table sets forth the results of operations for our Generics segment (dollars in thousands): Years Ended December 31, Increase (Decrease) 2023 2022 $ % Net revenue $ 1,471,401 $ 1,432,073 $ 39,328 2.7% Cost of goods sold 913,869 896,031 17,838 2.0% Gross profit 557,532 536,042 21,490 4.0% Selling, general and administrative 119,912 109,781 10,131 9.2% Research and development 132,233 167,509 (35,276) (21.1)% In-process research and development impairment charges 26,500 12,970 13,530 104.3% Intellectual property legal development expenses 3,708 4,251 (543) (12.8)% Acquisition, transaction-related and integration expenses — 25 (25) (100.0)% Restructuring and other charges 211 821 (610) (74.3)% Insurance recoveries for property losses and associated expenses — (1,911) 1,911 (100.0)% (Credit) charges related to legal matters, net (64) 22,400 (22,464) (100.3)% Other operating income (1,138) (3,960) 2,822 (71.3)% Operating income $ 276,170 $ 224,156 $ 52,014 23.2% nm - not meaningful Net Revenue Generics net revenue for the year ended December 31, 2023 increased 2.7% as compared to the prior year, primarily due to new generic products launched in 2023 and 2022, which included biosimilars that contributed $62.6 million and new generic products that contributed $47.4 million, partially offset by price erosion.
The timing and amount of any payments under the TRA will also vary, depending upon a number of factors including the timing and number of Amneal common units sold or exchanged for our class A Common Stock, the price of our class A Common Stock on the date of sale or exchange, the timing and amount of our taxable income, and the tax rate in effect at the time of realization of our taxable income.
The timing and amount of any payments under the TRA may vary, depending upon a number of factors including the timing and amount of our taxable income, and the corporate tax rate in effect at the time of realization of our taxable income (the TRA liability is determined based on a percentage of the corporate tax savings from the use of the TRA’s attributes).
Specialty The following table sets forth the results of operations for our Specialty segment (dollars in thousands): Years Ended December 31, Increase (Decrease) 2022 2021 $ % Net revenue $ 374,121 $ 378,319 $ (4,198) (1.1)% Cost of goods sold 177,107 193,562 (16,455) (8.5)% Cost of goods sold impairment charges 5,325 — 5,325 nm Gross profit 191,689 184,757 6,932 3.8% Selling, general and administrative 90,031 84,481 5,550 6.6% Research and development 28,179 43,482 (15,303) (35.2)% Intellectual property legal development expenses 107 154 (47) (30.5)% Acquisition, transaction-related and integration expenses 49 16 33 nm Change in fair value of contingent consideration 731 200 531 nm Operating income $ 72,592 $ 56,424 $ 16,168 28.7% nm - not meaningful Net Revenue Specialty net revenue for the year ended December 31, 2022 decreased 1.1%, or $4.2 million, compared to the prior year, driven by the loss of exclusivity of Zomig® nasal spray and a decline in our other non-promoted products.
Specialty The following table sets forth the results of operations for our Specialty segment (dollars in thousands): Years Ended December 31, Increase (Decrease) 2023 2022 $ % Net revenue $ 390,457 $ 374,121 $ 16,336 4.4% Cost of goods sold 214,277 182,432 31,845 17.5% Gross profit 176,180 191,689 (15,509) (8.1)% Selling, general and administrative 88,137 90,031 (1,894) (2.1)% Research and development 31,717 28,179 3,538 12.6% In-process research and development impairment charges 4,300 — 4,300 nm Intellectual property legal development expenses 120 107 13 12.1% Acquisition, transaction-related and integration expenses — 49 (49) (100.0)% Restructuring and other charges 1,105 — 1,105 nm Change in fair value of contingent consideration (14,497) 731 (15,228) nm Operating income $ 65,298 $ 72,592 $ (7,294) (10.0)% nm - not meaningful Net Revenue Specialty net revenue for the year ended December 31, 2023 increased 4.4% as compared to the prior year, driven by the growth in our endocrinology portfolio of $21.0 million, or 23.8%, and a $2.2 million, or 1.2%, increase in our neurology portfolio, which was negatively impacted by Medicare rebates associated with the Inflation Reduction Act of approximately $6.4 million.
AvKARE gross profit for the year ended December 31, 2022 was $57.0 million (14.0% of net revenue) as compared to gross profit of $66.1 million (19.0% of net revenue) for the prior year. The year-over-year decrease in gross profit as a percentage of net revenue primarily related to the increase in sales through our lower margin distribution channel.
Cost of Goods Sold and Gross Profit AvKARE cost of goods sold for the year ended December 31, 2023 increased 27.4% as compared to the prior year, and gross profit as a percentage of net revenue increased to 16.3% for the year ended December 31, 2023 from 14.0% in the prior year primarily due to the increase in sales through our higher margin government channel, including higher margin new product introductions.
Our gross profit as a percentage of net revenue decreased as compared to the prior year primarily as a result of the factors noted above. Selling, General and Administrative Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2022 increased 9.4%, or $34.2 million, compared to the prior period.
Gross profit as a percentage of net revenue decreased to 34.3% for the year ended December 31, 2023 from 35.5% in the prior year, primarily as a result of the factors noted above. 53 Selling, General and Administrative Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2023 increased 7.5% as compared to the prior year primarily due to increases in employee compensation, higher costs associated with our biosimilar launches, higher freight charges driven by increased sales volume, and higher professional fees associated with the Reorganization, partially offset by a decrease of $5.0 million associated with a biosimilar regulatory approval in the prior year.
Generics IPR&D impairment charges of $0.7 million in the prior year were related to one asset that experienced a delay in its expected launch date, resulting in significantly lower than expected future cash flows.
In-Process Research and Development Impairment Charges Generics IPR&D impairment charges of $26.5 million for the year ended December 31, 2023 were related to one asset that experienced adverse clinical trials results in the fourth quarter of 2023 and resulted in significantly lower than expected future 55 cash flows.
Cost of Goods Sold and Gross Profit AvKARE cost of goods sold for the year ended December 31, 2022 increased 23.4%, or $66.3 million, compared to the prior year.
Excluding these rebates, net revenue from our neurology portfolio increased 4.7%. Cost of Goods Sold and Gross Profit Cost of goods sold increased 10.2% for the year ended December 31, 2023 as compared to the prior year.
The increase was primarily due to an increase in employee compensation, costs associated with our biosimilar launches, including a $5.0 million expense associated with a biosimilar regulatory approval, the launches of our new specialty products and increased logistics costs.
Selling, General, and Administrative Generics SG&A for the year ended December 31, 2023 increased by 9.2% compared to the prior year primarily due to an increase in employee compensation, higher costs associated with our biosimilar launches, and higher freight charges driven by increased sales volume, partially offset by a decrease of $5.0 million associated with a biosimilar regulatory approval in the prior year.
Selling, General, and Administrative Specialty SG&A expense for the year ended December 31, 2022 increased $5.6 million, or 6.6%, as compared to the prior year, driven by an increase in expenses related to upcoming launches of specialty products and the launch of Lyvispah™ during 2022.
Selling, General, and Administrative Specialty SG&A expense for the year ended December 31, 2023 decreased 2.1% as compared to the prior year primarily due to a decrease in third-party marketing spend for our promoted products. 56 Research and Development Specialty R&D expense for the year ended December 31, 2023 increased 12.6% as compared to the prior year primarily due to an increase in project related spend of $7.7 million and increased employee compensation, partially offset by a decrease in in-licensing and upfront milestone payments of $4.5 million.
Liquidity and Capital Resources Our primary source of liquidity is cash generated from operations, available cash and borrowings under debt financing arrangements, including $285.9 million of available capacity on our New Revolving Credit Facility as of December 31, 2022, as defined in Note 16. Debt .
Selling, General, and Administrative AvKARE SG&A expense for the year ended December 31, 2023 increased 3.1% as compared to the prior year primarily due to higher employee compensation. Liquidity and Capital Resources Our primary source of liquidity is cash generated from operations, available cash and borrowings under debt financing arrangements (as defined and described in Note 16.
Overall, the increase of $31.8 million from the prior year was primarily due to a $22.1 million increase in interest expense as a result of higher rates on our variable rate debt and a $12.0 million increase in net foreign exchange losses related to the Indian rupee and the Euro.
The increase was primarily driven by a $52.3 million increase in net interest expense as a result of higher rates on our variable rate debt and a $40.8 million loss on refinancing the Term Loan Due 2025 and amending the New Revolving Credit Facility.
During the years ended December 31, 2022 and 2021, we made tax distributions of $10.6 million and $53.5 million, respectively, to Amneal's members. Cash Balances At December 31, 2022, our cash and cash equivalents consist of cash on deposit and highly liquid investments. A portion of our cash flows are derived outside the U.S.
Subsequent to the Reorganization, we are no longer obligated to make tax distributions to the Members. There was no liability for tax distributions payable to the Members as of December 31, 2023 and 2022. Cash Balances At December 31, 2023, our cash and cash equivalents consist of cash on deposit and highly liquid investments.
Year-over-year, inflation increased cost of goods sold by approximately $17.0 million, primarily related to freight charges. Gross profit for the year ended December 31, 2022 was $784.7 million (35.5% of net revenue) as compared to gross profit of $769.0 million (36.7% of net revenue) for the prior year.
Cost of Goods Sold and Gross Profit Specialty cost of goods sold for the year ended December 31, 2023 increased 17.5% as compared to the prior year primarily due to an increase in volumes and a $25.0 million increase in marketed product intangible asset impairment charges primarily related to a reduction in promotional focus on LYVISPAH™ .
Research and Development Specialty R&D expense for the year ended December 31, 2022 decreased 35.2% or $15.3 million, compared to the prior year, driven by lower project costs as our IPX203 study wound down and a decrease in in-licensing and upfront milestone payments of $2.9 million. 56 Table of Contents AvKARE The following table sets forth the results of operations for our AvKARE segment (dollars in thousands): Years Ended December, 31 Increase (Decrease) 2022 2021 $ % Net revenue $ 406,110 $ 349,012 $ 57,098 16.4% Cost of goods sold 349,133 282,874 66,259 23.4% Gross profit 56,977 66,138 (9,161) (13.9)% Selling, general and administrative 53,659 57,918 (4,259) (7.4)% Acquisition, transaction-related and integration expenses — 1,422 (1,422) (100.0)% Operating income (loss) $ 3,318 $ 6,798 $ (3,480) (51.2)% Net Revenue AvKARE net revenue for the year ended December 31, 2022 increased 16.4%, or $57.1 million, compared to the prior year, driven by growth in our distribution channel.
AvKARE The following table sets forth the results of operations for our AvKARE segment (dollars in thousands): Years Ended December, 31 Increase 2023 2022 $ % Net revenue $ 531,749 $ 406,110 $ 125,639 30.9% Cost of goods sold 444,896 349,133 95,763 27.4% Gross profit 86,853 56,977 29,876 52.4% Selling, general and administrative 55,341 53,659 1,682 3.1% Operating income $ 31,512 $ 3,318 $ 28,194 849.7% Net Revenue AvKARE net revenue for the year ended December 31, 2023 increased 30.9% as compared to the prior year primarily driven by growth in our distribution and government channels resulting from new product introductions.
Research and Development R&D expenses for the year ended December 31, 2022 decreased 3.1%, or $6.2 million, compared to the prior year .
Research and Development R&D expenses for the year ended December 31, 2023 decreased 16.2% from the prior year primarily due to lower project spend of $17.3 million, a decrease in in-licensing and upfront milestone payments of $2.5 million and operating efficiencies in our infrastructure.
IPR&D impairment charges of $0.7 million in the prior year were related to one Generics asset which experienced a delay in its expected launch date, resulting in significantly lower than expected future cash flows.
In-Process Research and Development Impairment Charges In process research and development (“IPR&D”) impairment charges of $30.8 million for the year ended December 31, 2023 were related to one Generics asset and one Specialty asset, both of which experienced adverse clinical trials results in the fourth quarter of 2023 and resulted in significantly lower than expected future cash flows.
Total Other Expense, Net Total other expense, net was $153.2 million for the year ended December 31, 2022, as compared to $121.4 million in the prior year.
Total Other Expense, Net Total other expense, net increased 59.7% for the year ended December 31, 2023.
We expect an inflationary impact of approximately $15.0 million for the year ending December 31, 2023. Notwithstanding our estimates, rising inflationary pressures due to higher input costs, including higher material, transportation, labor and other costs, could exceed our expectations and may adversely impact our operating results in future periods.
We expect an inflationary impact of approximately $15.0 million to $20.0 million for the year ending December 31, 2024.
As a result of the foregoing, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity. For further information, refer to Item 1A. Risk Factors and Note 7. Income Taxes .
The timing and amount of payments may also be accelerated under certain conditions, such as a change of control or other early termination event, which could give rise to our obligation to make TRA payments in advance of tax benefits being realized. For further information, refer to Item 1A. Risk Factors and Note 7. Income Taxes .
Removed
COVID-19 Pandemic In March 2020, the World Health Organization designated the outbreak of a novel strain of coronavirus (“COVID-19”) as a global pandemic.
Added
Net revenue for the year ended December 31, 2023 included a non-recurring customer order of $21.0 million. • Growth in our AvKARE segment of $125.6 million primarily driven by growth in our distribution and government channels resulting from new product introductions. • Growth in our Specialty segment of $16.3 million primarily driven by growth in our endocrinology portfolio of $21.0 million, or 23.8% and a $2.2 million, or 1.2% increase in our neurology portfolio, which was negatively impacted by Medicare rebates associated with the Inflation Reduction Act of approximately $6.4 million.
Removed
Governments and businesses around the world took unprecedented actions to mitigate the spread of COVID-19, including imposing restrictions on movement and travel such as quarantines and shelter-in-place requirements, and restricting or prohibiting outright some or all commercial and business activity, including the manufacture and distribution of certain goods and the provision of non-essential services.
Added
Cost of goods sold for the year ended December 31, 2023 included $11.0 million associated with the non-recurring customer order in our Generics segment discussed above.
Removed
The occurrence of regional epidemics or a global pandemic, such as the COVID-19 pandemic, have had and may continue to have an adverse effect on how we and our customers are operating our respective businesses and our operating results.
Added
Fair Value Measurements for information about the estimation of our contingent consideration liabilities. The $15.2 million decrease in the change in fair value of contingent consideration for the year ended December 31, 2023 as compared to the prior year was primarily related to a reduction in promotional focus on LYVISPAH TM .
Removed
Our operations have also been and may in the future be negatively affected by a range of external factors related to the pandemic that are not within our control, including the emergence and spread of more transmissible variants.
Added
Charges Related to Legal Matters, Net For the year ended December 31, 2023, charges related to legal matters, net was $1.8 million, comprised of $3.9 million in charges associated with Generics civil prescription opioid litigation, a $3.0 million charge for the settlement of a Generics customer claim, a $3.0 million charge for the settlement of Generics commercial antitrust litigation, and a $1.9 million charge for the settlement of a corporate stockholder derivative lawsuit, partially offset by a $10.0 million credit from the settlement of Generics patent infringement matters.
Removed
The extent to which global pandemics, such as the COVID-19 pandemic, impact our financial condition or results of operations will depend on factors such as the duration and scope of the pandemic, as well as whether there is a material impact on the businesses or productivity of our customers, partners, employee, suppliers and other partners.
Added
Net revenue for the year ended December 31, 2023 included a non-recurring customer order of $21.0 million.
Removed
To the extent that the pandemic harms our business and results of operations, many of the risks described in Item 1A.
Added
Cost of Goods Sold and Gross Profit Generics cost of goods sold for the year ended December 31, 2023 increased 2.0% compared to the prior year primarily due to costs associated with increased sales volume and an increased inventory provision, partially offset by efficiencies in our supply costs.
Removed
Alliance and Collaboration for additional information on the agreement with Orion. • AvKARE net revenue for the year ended December 31, 2022 increased 16.4%, or $57.1 million, compared to the prior year, driven by growth in our distribution channel. • Specialty net revenue for the year ended December 31, 2022 decreased 1.1%, or $4.2 million, compared to the prior year, driven by the loss of exclusivity of Zomig® nasal spray and a decline in our other non-promoted products.
Added
Cost of goods sold for the year ended December 31, 2023 included $11.0 million associated with the non-recurring customer order discussed above. Generics gross profit as a percentage of net revenue increased to 37.9% for the year ended December 31, 2023 from 37.4% in the prior year as a result of the factors described above.
Removed
Net revenue from our promoted products, including Unithroid® and Rytary®, increased 33% and 8%, respectively, as prescription growth remained strong for both products.
Added
Research and Development Generics R&D expense for the year ended December 31, 2023 decreased 21.1% compared to the prior year primarily due to lower project spend of $25.0 million and operating efficiencies in our infrastructure, including reduced employee compensation costs, partially offset by an increase in in-licensing and upfront milestone payments of $2.0 million.
Removed
Cost of Goods Sold and Gross Profit Cost of goods sold, including impairment charges, increased 7.8%, or $102.9 million, for the year ended December 31, 2022 as compared to the prior year, and was attributable to increased Generics and AvKARE volume, inflation and a year-over-year reduction in operating efficiency, partially offset by the loss of exclusivity on Zomig® nasal spray and a reduction in marketed 52 Table of Contents product intangible asset impairment charges.
Added
(Credit) Charges Related to Legal Matters, Net For the year ended December 31, 2023, Generics credit related to legal matters, net was $(0.1) million, comprised of a $(10.0) million credit from the settlement of patent infringement matters, net of $3.9 million in charges associated with civil prescription opioid litigation, a $3.0 million charge for the settlement of a customer claim, and a $3.0 million charge for the settlement of commercial antitrust litigation.
Removed
The decrease was primarily attributable to a decrease in in-licensing and upfront milestone payments of $15.3 million and reduced project spend primarily related to IPX203, partially offset by inflation, costs related to complex generics of $17.9 million associated with acquired businesses in 2021.
Added
Excluding these rebates, net revenue from our neurology portfolio increased 4.7%.
Removed
Intellectual Property Legal Development Expenses Intellectual property legal development expenses for the year ended December 31, 2022 were $4.4 million as compared to $7.7 million in the prior year. These costs include, but are not limited to, formulation assessments, patent challenge opinions and strategy, and litigation expenses to defend our intellectual property.
Added
Change in Fair Value of Contingent Consideration Refer to Note 19. Fair Value Measurements for information about the estimation of our contingent consideration liabilities.
Removed
The $3.3 million decrease from the prior year was due to the timing of specific cases. Expenses may vary based upon the number of individual cases and corresponding litigation outstanding in a particular period.
Added
The $15.2 million decrease in the change in fair value of contingent consideration for the year ended December 31, 2023 as compared to the prior year was primarily related to a reduction in promotional focus on LYVISPAH TM .
Removed
Acquisition, Transaction-Related and Integration Expenses Acquisition, transaction-related and integration expenses, primarily consisting of legal, investment banking and consulting fees, were $0.7 million for the year ended December 31, 2022, as compared to $8.1 million in the prior year. Acquisition, transaction-related and integration expenses for the year ended December 31, 2022 were primarily related to the Saol Acquisition.
Added
In the year ended December 31, 2023, we paid the remaining outstanding principal under our Rondo Term Loan from cash on hand, of which we made prepayments totaling $63.0 million in excess of planned principal payments (refer to No te 16 . Debt for additional information).
Removed
For the year ended December 31, 2021 , acquisition, transaction-related and integration expenses primarily related to the acquisitions and integration of Puniska and KSP, and the integration of the businesses that comprise our AvKARE segment. Refer to Note 3. Acquisitions for additional information.
Added
Legal Settlements In January 2024, we paid $52.4 million to the plaintiffs of the O pana ER® antitrust litigation under the terms of the related settlement agreements with cash on hand (refer to Note 21. Commitments and Contingencies for additional information).
Removed
(Insurance Recoveries) Charges for Property Losses and Associated Expenses, Net On September 1, 2021, Tropical Storm Ida brought extreme rainfall and flash flooding to New Jersey that caused damage to two of our facilities.
Added
Tax Receivable Agreement In 2018, we entered into a tax receivable agreement (“TRA”) for which we were generally required to pay the other holders of Amneal Common Units 85% of the applicable tax savings, if any, in U.S. federal and state income tax that we were deemed to realize as a result of certain tax attributes of their Amneal Common Units sold to us (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Amneal Common Units for shares of Class A common stock and (ii) tax benefits attributable to payments made under the TRA.
Removed
We concluded that all inventory on-hand at the time of the flooding was damaged and unsellable and that a majority of the equipment was damaged beyond repair. In addition, we incurred significant costs to repair both facilities.
Added
As part of the Reorganization, the TRA was amended to reduce our future obligation to pay 85% of the realized tax benefits subject to the TRA to 75% of such realized benefits. As of December 31, 2023, the contingent TRA liability, including the impact of the amendment, was $185.2 million.
Removed
Accordingly, we recorded $10.4 million of charges for property losses and associated expenses in our Generics segment for the year ended December 31, 2021. For the years ended December 31, 2022 and December 31, 2021, we recorded insurance recoveries of $1.9 million and $5.0 million, respectively, as a reduction of property losses and associated expenses in our Generics segment.
Added
Because the Amneal Group has exchanged all of its Amneal Common Units pursuant to the Reorganization, the primary remaining factor that could increase the contingent TRA liability is an increase in the effective tax rate.
Removed
For the year ended December 31, 2021, we recorded a net charge of $25.0 million for corporate securities class actions. For further details, refer to Note 21. Commitments and Contingencies.
Added
In addition, any future payments under the TRA may create additional basis adjustments, which may result in an additional layer of depreciation and amortization allocable to the Company, resulting in additional TRA payments.
Removed
The year-over-year change in the provision for income taxes was primarily related to the timing and mix of income, and to the release of reserves for uncertain tax positions under FIN 48 (codified at ASC 740-10, Income Taxes ).
Added
Tax-related Distributions to Amneal Members Prior to the Reorganization, Amneal was obligated to make tax distributions to the Members. For the years ended December 31, 2023, 2022, and 2021, the Company recorded net tax distributions of $56.7 million, $10.6 million, and $53.5 million, respectively, as a reduction of non-controlling interests.
Removed
Refer to Note 5. Alliance and Collaboration for additional information on the agreement with Orion. Cost of Goods Sold and Gross Profit Generics cost of goods sold, including impairment charges increased 5.6%, or $47.8 million, for the year ended December 31, 2022 as compared to the prior year.
Added
At various times during the year, our cash balances held in the U.S. may exceed amounts that are insured by the Federal Deposit Insurance Corporation. We make our investments in accordance with our investment policy.
Removed
Selling, General, and Administrative Generics SG&A for the year ended December 31, 2022 increased by 70.2% or $45.3 million, compared to the prior year.
Removed
The increase was primarily attributable to an increase in employee compensation, costs associated with our biosimilar launches, including the Saol Acquisition and a $5.0 million expense associated with a biosimilar regulatory approval, and increased freight due to rising fuel costs.
Removed
Research and Development Generics R&D expense for the year ended December 31, 2022 increased 5.8%, or $9.1 million, as compared to the prior year.
Removed
The increase was primarily associated with increased project spending as our complex portfolio continued to advance, inflation, and the costs related to complex generics of $16.3 million associated with acquired businesses in 2021, partially offset by a decrease in in-licensing and upfront milestone payments of $12.4 million.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

151 edited+32 added−53 removed236 unchanged
Biggest changeOur credit agreements contain a number of restrictive covenants that impose operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on the ability to: • incur additional indebtedness; • pay dividends or make other distributions or repurchase or redeem capital stock; • prepay, redeem or repurchase certain debt; • make loans and investments; • sell assets; • incur liens; • enter into transactions with affiliates; • alter the businesses conducted by us; • enter into agreements restricting subsidiaries’ ability to pay dividends; and • consolidate, merge or sell all or substantially all of our assets.
Biggest changeOur credit agreements contain a number of restrictive covenants that impose operating and financial restrictions on us and may limit our ability to, among other things: incur additional indebtedness; pay dividends or make other distributions or repurchase or redeem capital stock; prepay, redeem or repurchase certain debt; make loans and investments or sell assets.
We may make acquisitions of, or investments in, complementary businesses or products, which may be on terms that may not turn out to be commercially advantageous, or may require additional debt or equity financing, which could increase our leverage and dilute equity holders.
We may make acquisitions of, or investments in, complementary businesses or products, which may be on terms that may not turn out to be commercially advantageous, or may require additional debt or equity financing, which could increase our leverage and/or dilute equity holders.
For example, the legislation includes measures that (i) significantly increase Medicaid rebates through both the expansion of the program; (ii) substantially expand the Public Health System (340B) program to allow other entities to purchase prescription drugs at substantial discounts; (iii) extend the Medicaid rebate rate to a significant portion of Managed Medicaid enrollees; (iv) apply a 75% discount to Medicare Part D beneficiary spending in the coverage gap for branded and authorized generic prescription drugs; and (v) levy a significant excise tax on the industry to fund healthcare reform.
For example, the legislation includes measures that (i) significantly increase Medicaid rebates through the expansion of the program; (ii) substantially expand the Public Health System (340B) program to allow other entities to purchase prescription drugs at substantial discounts; (iii) extend the Medicaid rebate rate to a significant portion of Managed Medicaid enrollees; (iv) apply a 75% discount to Medicare Part D beneficiary spending in the coverage gap for branded and authorized generic prescription drugs; and (v) levy a significant excise tax on the industry to fund healthcare reform.
A determination that we are in violation of these and/or other government regulations and legal requirements may result in civil damages and penalties, criminal fines and prosecution, administrative remedies, the recall of products, the total or partial suspension of manufacturing and/or distribution activities, seizure of products, injunctions, whistleblower lawsuits, failure to obtain approval of pending product applications, withdrawal of existing product approvals, exclusion from participation in government healthcare programs and other sanctions.
A 35 determination that we are in violation of these and/or other government regulations and legal requirements may result in civil damages and penalties, criminal fines and prosecution, administrative remedies, the recall of products, the total or partial suspension of manufacturing and/or distribution activities, seizure of products, injunctions, whistleblower lawsuits, failure to obtain approval of pending product applications, withdrawal of existing product approvals, exclusion from participation in government healthcare programs and other sanctions.
As discussed in Note 7, Income Taxes we have determined it is more-likely-than-not we will be unable to utilize all of our deferred tax assets (“DTAs”) subject to the TRA and, therefore, reversed the substantially all of the liability under the TRA related to the tax savings we may realize from common units sold or exchanged through December 31, 2019.
As discussed in Note 7, Income Taxes, we have determined it is more - likely - than - not we will be unable to utilize all of our deferred tax assets (“DTAs”) subject to the TRA and, therefore, reversed substantially all of the liability under the TRA related to the tax savings we may realize from Amneal Common Units sold or exchanged through December 31, 2019.
The impact of federal regulation of arrangements between manufacturers of brand and generic/biosimilar products, further legislation and the potential for private-party lawsuits associated with such arrangements could adversely affect our business. From time to time we may need to rely on licenses to proprietary technologies, which may be difficult or expensive to obtain.
The impact of federal regulation of arrangements between manufacturers of brand 32 and generic/biosimilar products, further legislation and the potential for private-party lawsuits associated with such arrangements could adversely affect our business. From time to time we may need to rely on licenses to proprietary technologies, which may be difficult or expensive to obtain.
We cannot assure you that our expenses related to clinical trials will lead to the development of brand-name drugs that will generate revenues in the near future. Delays or failure in the development and commercialization of our own branded products could have a material adverse effect on our business, results of operations and financial condition.
We cannot assure you that 29 our expenses related to clinical trials will lead to the development of brand-name drugs that will generate revenues in the near future. Delays or failure in the development and commercialization of our own branded products could have a material adverse effect on our business, results of operations and financial condition.
Should we determine that a DTA with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be released and if a resulting TRA payment is determined to be probable, a corresponding liability will be recorded. As a result, our future results of operations and earnings could be significantly impacted as results of these matters.
Should we determine that a DTA with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be released and if a resulting TRA payment is determined to be probable, a corresponding liability will be recorded. As a result, our future results of operations and earnings could be significantly impacted by these matters.
Any such acquisitions, joint ventures or other business combinations may involve significant integration challenges, operational complexities and time consumption, adversely affect liquidity and require substantial resources and effort. It may also disrupt our ongoing businesses, which may adversely affect our relationships with customers, employees, regulators and others with whom we conduct business or other dealings.
Any such acquisitions, joint ventures or other business combinations may involve significant integration challenges, operational complexities and time consumption, adversely affect liquidity and require substantial resources and effort. It may also disrupt our ongoing businesses, which may adversely affect our relationships with customers, employees, regulators and others with whom we conduct business.
Following an inspection, agencies have in the past issued, and may in the future issue a notice listing conditions that are believed to violate cGMP or other regulations, or a warning letter for violations of “regulatory significance” that may result in enforcement action if not promptly and adequately corrected.
Following an inspection, agencies have in the past issued, and may in the future issue, a notice listing conditions that are believed to violate cGMP or other regulations, or a warning letter for violations of “regulatory significance” that may result in enforcement action if not 26 promptly and adequately corrected.
In order to grow and achieve success in our branded product business, we must continually identify, develop, acquire and license new products that we can ultimately market. There are many difficulties and uncertainties inherent in pharmaceutical R&D, and there is a high rate of failure inherent in new drug discovery and development.
To grow and achieve success in our branded product business, we must continually identify, develop, acquire and license new products that we can ultimately market. There are many difficulties and uncertainties inherent in pharmaceutical R&D, and there is a high rate of failure inherent in new drug discovery and development.
The materialization of any of these risks could have a material adverse effect on our business, results of operations and financial condition. Operational and Competitive Risks If we are unable to successfully develop or commercialize new products, our operating results will suffer.
The materialization of any of these risks could have a material adverse effect on our business, results of operations and financial condition. 21 Operational and Competitive Risks If we are unable to successfully develop or commercialize new products, our operating results will suffer.
There is no guarantee that any drug that we market will be offered by drug plans participating under the Medicare Part D program or of the terms of any such coverage, or that covered drugs will be reimbursed at amounts that reflect current or historical levels.
There is no guarantee that any drug that we market will be offered by 36 drug plans participating under the Medicare Part D program or of the terms of any such coverage, or that covered drugs will be reimbursed at amounts that reflect current or historical levels.
However, as other generic manufacturers receive regulatory approvals for their own generic versions, that market share, and the price of that product, will typically decline depending on several factors, including the number of competitors, the price of the branded product and the pricing strategy of the new competitors.
However, as other generic manufacturers receive regulatory approvals for their own generic versions, that market share, and the price of that product, will typically decline depending on several factors, including the number of competitors, the price of the branded product and the 24 pricing strategy of the new competitors.
We may experience decreases in the sale of our products in the future as a result of actions taken by our competitors, such as price reductions, or as a result of regulatory actions related to our products or to competing products, which could have a material impact on our results of operations.
We may experience decreases in the sale of our products in the future as a result of actions taken by our competitors, such as price reductions, or as a result of 25 regulatory actions related to our products or to competing products, which could have a material impact on our results of operations.
Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies which could have a material adverse effect on our business, operations and financial results.
Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross - acceleration or cross - default provision applies which could have a material adverse effect on our business, 39 operations and financial results.
We face several challenges when developing and commercializing new products, including: • our ability to develop products in a timely and cost-efficient manner and in compliance with regulatory requirements, including delays associated with the FDA listing and approval process and our ability to obtain required regulatory approvals in a timely manner, or at all, and maintain such approvals if obtained; • the success of our clinical testing process to ensure that new products are safe and effective or bioequivalent to the reference listed drug; 20 Table of Contents • the risk that legal action may be brought against our generic drug products by our branded drug product competitors, including patent infringement claims among others; • the availability, on commercially reasonable terms, of raw materials, including APIs and other key ingredients necessary to the development of our drug products; and • Our ability to scale-up manufacturing methods to successfully manufacture commercial quantities of drug product in compliance with regulatory requirements.
We face several challenges when developing and commercializing new products, including: • our ability to develop products in a timely and cost-efficient manner and in compliance with regulatory requirements, including delays associated with the FDA listing and approval process and our ability to obtain required regulatory approvals in a timely manner, or at all, and maintain such approvals if obtained; • the success of our clinical testing process to ensure that new products are safe and effective or bioequivalent to the reference listed drug; • the risk that legal action may be brought against our generic drug products by our branded drug product competitors, including patent infringement claims among others; • the availability, on commercially reasonable terms, of raw materials, including APIs and other key ingredients necessary to the development of our drug products; and • Our ability to scale-up manufacturing methods to successfully manufacture commercial quantities of drug product in compliance with regulatory requirements.
We are increasingly dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity and data leakage risks. Significant disruptions to our information technology systems or breaches of information security could adversely affect our business.
We are increasingly dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity and data leakage risks. Significant disruptions to our IT systems or breaches of information security could adversely affect our business.
Some countries may be subject to periods of financial instability, may have reduced resources to spend on healthcare or may be subject to economic sanctions, and our business in these countries may be disproportionately affected by these changes.
Some countries may be subject to 40 periods of financial instability, may have reduced resources to spend on healthcare or may be subject to economic sanctions, and our business in these countries may be disproportionately affected by these changes.
With respect to our branded products which do not qualify for the FDA’s abbreviated application procedures, we must demonstrate through clinical trials that these products are safe and effective for use. We have only limited experience in conducting and supervising clinical trials. The process of completing clinical trials and preparing a NDA may take several years and requires substantial resources.
With respect to our branded products which do not qualify for the FDA’s abbreviated application procedures, we must demonstrate through clinical trials that these products are safe and effective for use. We have only limited experience in conducting and supervising clinical trials. The process of completing clinical trials and preparing an NDA may take several years and requires substantial resources.
Physician Payments Sunshine Act, which among other things, requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under a federal healthcare program to report annually information related to "payments or other transfers of value" made to physicians, physician assistants, advanced practice nurses and teaching hospitals, and ownership and investment interests held by certain healthcare professionals and their immediate family members, and similar state laws; (v) the government pricing rules applicable to the Medicaid, Medicare Part B, 340B Drug Pricing Program, the U.S.
Physician Payments Sunshine Act, which among other things, requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under a federal healthcare program to report annually information related to “payments or other transfers of value” made to physicians, physician assistants, advanced practice nurses and teaching hospitals, and ownership and investment interests held by certain healthcare professionals and their immediate family members, and similar state laws; (v) the government pricing rules applicable to the Medicaid, Medicare Part B, 340B Drug Pricing Program, the U.S.
Accompanying the press and media coverage of pharmaceutical pricing practices and public complaints about the same, has been increasing U.S. federal and state legislative and enforcement interest with respect to drug pricing. For instance, the DOJ issued subpoenas to pharmaceutical companies, including to the Company, seeking information about the sales, marketing and pricing of certain generic drugs. See Note 21.
Accompanying the press and media coverage of pharmaceutical pricing practices and public complaints about the same, has been increasing U.S. federal and state legislative and enforcement interest with respect to drug pricing. For instance, the DOJ issued subpoenas to pharmaceutical companies, including us, seeking information about the sales, marketing and pricing of certain generic drugs. See Note 21.
Although we believe our reserves are adequate as of the date of this report, we cannot provide assurances that our reserves will ultimately prove to be adequate. Increases in sales allowances may exceed our estimates for a variety of reasons, including unanticipated competition or an unexpected change in one or more of our contractual relationships.
Although we believe our liabilities are adequate as of the date of this report, we cannot provide assurances that our reserves will 41 ultimately prove to be adequate. Increases in sales allowances may exceed our estimates for a variety of reasons, including unanticipated competition or an unexpected change in one or more of our contractual relationships.
Additionally, our information technology systems are critical to our ability to store electronic and financial information and to manage a variety of business processes and activities, including manufacturing, financial, logistics, sales, marketing and administrative functions. We depend on our information technology infrastructure to communicate internally and externally with employees, customers, suppliers and others.
Additionally, our IT systems are critical to our ability to store electronic and financial information and to manage a variety of business processes and activities, including manufacturing, financial, logistics, sales, marketing and administrative functions. We depend on our IT infrastructure to communicate internally and externally with employees, customers, suppliers and others.
A decline in our market capitalization, even if otherwise due to macroeconomic or industry-wide factors, could put pressure on the carrying value of our goodwill in both our Generics and Specialty segments and cause the Company to conduct an interim impairment test.
A decline in our market capitalization, even if otherwise due to macroeconomic or industry - wide factors, could put pressure on the carrying value of our goodwill in both our Generics and Specialty segments and cause us to conduct an interim impairment test.
The TRA provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control or if, at any time, we elect an early termination of the TRA, then our obligations under the TRA to make payments would be based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA.
The TRA continues to provide that upon certain mergers, asset sales, other forms of business combinations or other changes of control or if, at any time, we elect an early termination of the TRA, then our obligations under the TRA to make payments would be based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA.
Our competitors or other third parties may allege that we are infringing upon their intellectual property, forcing us to expend substantial resources in litigation, the outcome of which is uncertain. Any unfavorable outcome of such litigation, including losses related to "at-risk" product launches, could have a material adverse effect on our business, financial position and results of operations.
Our competitors or other third parties may allege that we are infringing upon their IP, forcing us to expend substantial resources in litigation, the outcome of which is uncertain. Any unfavorable outcome of such litigation, including losses related to "at-risk" product launches, could have a material adverse effect on our business, financial position and results of operations.
Health Insurance Portability and Accountability Act of 1996, ("HIPAA"), which among other things created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters, and HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and our implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information 36 Table of Contents and place restrictions on the use of such information for marketing communications; (iv) the U.S.
Health Insurance Portability and Accountability Act of 1996, (“HIPAA”), which among other things created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters, and HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and our implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information and place restrictions on the use of such information for marketing communications; (iv) the U.S.
Our international operations may be adversely affected by general economic conditions (including inflation, expropriation and other government actions), economic and fiscal policy (including changes in exchange rates and controls, interest rates and taxation policies), changes in intellectual property protections and remedies, trade regulations, tax laws, and increased government regulation (including those affecting approval, production, pricing, and marketing of, reimbursement for and access to our products).
Our international operations may be adversely affected by general economic conditions (including inflation, expropriation and other government actions), economic and fiscal policy (including changes in exchange rates and controls, interest rates and taxation policies), changes in IP protections and remedies, trade regulations, tax laws, and increased government regulation (including those affecting approval, production, pricing, and marketing of, reimbursement for and access to our products).
Although we may establish reserves based on our estimates of these amounts, if estimates are incorrect and the reserves are inadequate, it may result in adjustments to these reserves that may have a material adverse effect on our financial position and results of operations.
Although we may establish liabilities based on our estimates of these amounts, if estimates are incorrect and the liabilities are inadequate, it may result in adjustments to these liabilities that may have a material adverse effect on our financial position and results of operations.
We rely particularly on trade secrets, trademarks, unpatented proprietary expertise and continuing innovation that we seek to protect, in part, by registering and using marks; and by entering into confidentiality agreements with licensees, suppliers, employees, consultants and other parties. We use this approach to protecting our intellectual property in large part because few of our products are protected by patents.
We rely particularly on trade secrets, trademarks, unpatented proprietary expertise and continuing innovation that we seek to protect, in part, by registering and using marks; and by entering into confidentiality agreements with licensees, suppliers, employees, consultants and other parties. We use this approach to protecting our IP in large part because few of our products are protected by patents.
The Amneal Group may have different interests than our other stockholders and may make decisions adverse to such interests. 43 Table of Contents In the ordinary course of their business activities, the Amneal Group may engage in activities where their interests conflict with our interests or those of our other stockholders.
The Amneal Group may have different interests than our other stockholders and may make decisions adverse to such interests. 43 In the ordinary course of their business activities, the Amneal Group may engage in activities where their interests conflict with our interests or those of our other stockholders.
For example, it could: • increase our vulnerability to adverse economic and industry conditions; • limit our ability to obtain additional financing for future working capital, capital expenditures, raw materials, strategic acquisitions and other general corporate requirements; • expose us to unhedged interest rate fluctuations (such as recent increases in interest rates during 2022, which are expected to continue into 2023 and potentially beyond) because the interest on certain debt under the credit facilities is imposed at variable rates; 31 Table of Contents • require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of cash flow for operations and other purposes; • make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness; • limit our ability to refinance indebtedness or increase the associated costs; • require us to sell assets to reduce debt or influence the decision about whether to do so; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or prevent us from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve operating margins or our business; and • place us at a competitive disadvantage compared to any competitors that have less debt or comparable debt at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturn.
For example, it could: • increase our vulnerability to adverse economic and industry conditions; • limit our ability to obtain additional financing for future working capital, capital expenditures, raw materials, strategic acquisitions and other general corporate requirements; 38 • expose us to unhedged interest rate fluctuations (such as recent increases in interest rates from 2022 through 2023, which may to continue into 2024 and potentially beyond) because the interest on certain debt under the credit facilities is imposed at variable rates; • require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of cash flow for operations and other purposes; • make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness; • limit our ability to refinance indebtedness or increase the associated costs; • require us to sell assets to reduce debt or influence the decision about whether to do so; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or prevent us from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve operating margins or our business; and • place us at a competitive disadvantage compared to any competitors that have less debt or comparable debt at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturn.
The adverse effects of any such catastrophic event would be exacerbated if experienced at the same time as another unexpected and adverse event, such as the COVID-19 pandemic. Additionally, the impacts of the changing weather on water resources may result in water scarcity, limiting our ability to access sufficient high-quality water in certain locations, which may increase operational costs.
The adverse effects of any such catastrophic event would be exacerbated if experienced at the same time as another unexpected and adverse event. Additionally, the impacts of the changing weather on water resources may result in water scarcity, limiting our ability to access sufficient high-quality water in certain locations, which may increase operational costs.
Some of the applicable laws may impose liability even in the absence of specific intent to defraud.
Some of the applicable 37 laws may impose liability even in the absence of specific intent to defraud.
Instead, any excess cash payments made by us to the Members or their permitted transferees will be netted against any future cash payments that we might otherwise be required to make to Holdings or its permitted transferees under the terms of the TRA.
Instead, any excess cash payments made by us to the Members or their permitted transferees will be netted against any future cash payments that we might otherwise be required to make to Members or their permitted transferees under the terms of the TRA.
New product candidates that appear promising in development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, inability to obtain necessary regulatory approvals and payer reimbursement, limited scope of approved uses, difficulty or excessive costs to manufacture, or infringement of the patents or intellectual property rights of others.
New product candidates that appear promising in development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, inability to obtain necessary regulatory approvals and payer reimbursement, limited scope of approved uses, difficulty or excessive costs to manufacture, or infringement of the patents or IP rights of others.
These matters may include compliance matters, product regulation or safety, taxes, employee benefit plans, employment discrimination, health and safety, environmental, antitrust, securities law, customs, import/export, government contract compliance, financial controls or reporting, intellectual property, allegations of misrepresentation, false claims or false statements, commercial claims, claims regarding promotion of our products and services, or other similar matters.
These matters may include compliance matters, product regulation or safety, taxes, employee benefit plans, employment discrimination, health and safety, environmental, antitrust, securities law, customs, import/export, government contract compliance, financial controls or reporting, IP, allegations of misrepresentation, false claims or false statements, commercial claims, claims regarding promotion of our products and services, or other similar matters.
To the extent that we expend significant resources on R&D efforts and are not ultimately able to successfully introduce new products as a result of those efforts, our business, financial position and results of operations may be materially adversely affected. We depend on our ability to protect our intellectual property and proprietary rights.
To the extent that we expend significant resources on R&D efforts and are not ultimately able to successfully introduce new products as a result of those efforts, our business, financial position and results of operations may be materially adversely affected. We depend on our ability to protect our IP and proprietary rights.
A catastrophic event that results in the destruction or disruption of any of our or our third-party partners’ business centers, manufacturing facilities, data centers, R&D or manufacturing facilities, or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected.
A catastrophic event that results in the destruction or disruption of any of our or our third-party partners’ business centers, manufacturing facilities, data centers, R&D or manufacturing facilities, or our critical business or IT systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected.
Companies that produce branded pharmaceutical products routinely bring litigation against ANDA filers or similar applicants that seek regulatory approval to manufacture and market generic forms of their branded products alleging patent infringement or other violations of intellectual property rights. Patent holders may also bring patent infringement suits against companies that are currently marketing and selling approved generic products.
Companies that produce branded pharmaceutical products routinely bring litigation against ANDA filers or similar applicants that seek regulatory approval to manufacture and market generic forms of their branded products alleging patent infringement or other violations of IP rights. Patent holders may also bring patent infringement suits against companies that are currently marketing and selling approved generic products.
These laws are referred to herein as "healthcare reform." A number of provisions of the healthcare reform laws continue to have a negative impact on the price of our products sold to U.S. government entities.
These laws are referred to herein as “healthcare reform.” A number of provisions of the healthcare reform laws continue to have a negative impact on the price of our products sold to U.S. government entities.
Many government and third-party payers, including Medicare, Medicaid, HMOs and others, reimburse doctors and others for the purchase of certain prescription drugs based on a drug’s average wholesale price ("AWP").
Many government and third-party payers, including Medicare, Medicaid, HMOs and others, reimburse doctors and others for the purchase of certain prescription drugs based on a drug’s average wholesale price (“AWP”).
The majority of our Common Stock is held by the Amneal Group and is eligible for sale or transfer (subject to certain continuing restrictions). The Amneal Group may elect to sell their shares.
The majority of our Class A common stock is held by the Amneal Group and is eligible for sale or transfer (subject to certain continuing restrictions). The Amneal Group may elect to sell their shares.
If we fail to obtain exclusive marketing rights for our products or fail to introduce our products on a timely basis, our revenues, gross margin and operating results may decline significantly.
If we fail to obtain exclusive marketing rights for our products or fail to introduce our products to the market on a timely basis, our revenues, gross margin and operating results may decline significantly.
Additionally, certain of our products utilize a contract manufacturing company in Taiwan, and an escalation of tensions between China and Taiwan could impair or prevent altogether our ability to source these products.
Separately, certain of our products utilize a contract manufacturing company in Taiwan, and an escalation of tensions between China and Taiwan could impair or prevent altogether our ability to source these products.
For example, developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s recently proposed climate-related reporting requirements, and similar proposals by other international regulatory bodies.
Developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements, and similar proposals by other international regulatory bodies.
If we are unable to execute acquisitions or other strategic transactions, or manage our growth therefrom, it could have a material adverse effect on our business. We may seek to expand our business through complementary or strategic acquisitions of other businesses, products or assets, or through joint ventures, strategic agreements or other arrangements.
If we are unable to execute acquisitions or other strategic transactions, or successfully integrate such acquisitions or manage our growth therefrom, it could have a material adverse effect on our business. We may seek to expand our business through complementary or strategic acquisitions of other businesses, products or assets, or through joint ventures, strategic agreements or other arrangements.
Pursuant to the provisions of the Hatch- 22 Table of Contents Waxman Act, manufacturers of branded products often bring lawsuits to enforce their patent rights against generic products released prior to the expiration of branded products’ patents, but it is possible for generic manufacturers to offer generic products while such litigation is pending.
Pursuant to the provisions of the Hatch-Waxman Act, manufacturers of branded products often bring lawsuits to enforce their patent rights against generic products released prior to the expiration of branded products’ patents, but it is possible for generic manufacturers to offer generic products while such litigation is pending.
In some cases, an increase in adverse event reports 35 Table of Contents may be an indication that there has been a change in a product’s specifications or efficacy. Such changes could lead to a recall of the product in question or, in some cases, increases in product liability claims related to the product in question.
In some cases, an increase in adverse event reports may be an indication that there has been a change in a product’s specifications or efficacy. Such changes could lead to a recall of the product in question or, in some cases, increases in product liability claims related to the product in question.
As part of commercializing our products, we have obtained authorization to receive reimbursement at varying levels for the cost of certain products and related treatments from governmental authorities and private health insurers and other organizations, such as health maintenance organizations ("HMOs") and managed care organizations ("MCOs").
As part of commercializing our products, we have obtained authorization to receive reimbursement at varying levels for the cost of certain products and related treatments from governmental authorities and private health insurers and other organizations, such as HMOs and managed care organizations (“MCOs”).
We have increased exposure to tax liabilities, including foreign tax liabilities. As a U.S. company with subsidiaries in, among other countries, India, Switzerland, Ireland and the U.K., we are subject to, or potentially subject to, income and other taxes in these jurisdictions as well as the United States.
We have increased exposure to tax liabilities, including foreign tax liabilities. As a U.S. company with subsidiaries in, among other countries, India, Switzerland, Ireland and the United Kingdom, we are subject to, or potentially subject to, income and other taxes in these jurisdictions as well as the U.S.
The interests of the Amneal Group may differ from the interests of our other stockholders. As of December 31, 2022, the Amneal Group controlled the majority of the voting power of all of our outstanding shares of common stock.
The interests of the Amneal Group may differ from the interests of our other stockholders. As of December 31, 2023, the Amneal Group controlled the majority of the voting power of all of our outstanding shares of common stock.
We cannot provide assurance that these agreements will not be breached or circumvented. We also cannot be certain that we will have recourse to adequate remedies in the event of a breach of such agreements. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements.
We cannot provide assurance that these agreements will not be breached or circumvented. We also cannot be certain that we will have recourse to adequate remedies in the event of a breach of such agreements. Disputes may arise concerning the ownership of IP or the applicability of confidentiality agreements.
Numerous pharmaceutical companies have been named as defendants in actions brought by various State Attorneys General and have faced state law qui tam actions brought on behalf of various states, alleging generally that the defendants defrauded state Medicaid systems by purportedly reporting or causing the reporting of AWP and/or "Wholesale Acquisition Costs" that exceeded the actual selling price of the defendants’ prescription drugs.
Numerous pharmaceutical companies have been named as defendants in actions brought by various State Attorneys General and have faced state law qui tam actions brought on behalf of various states, alleging generally that the defendants defrauded state Medicaid systems by purportedly reporting or causing the reporting of AWP and/or “Wholesale Acquisition Costs” that exceeded the actual selling price of the defendants’ prescription drugs.
"First filers" are often able to price the applicable generic drug to yield relatively high gross margins during this 180-day marketing exclusivity period. With respect to our generic products, ANDAs containing Paragraph IV certifications generally become the subject of patent litigation that can be both lengthy and costly.
“First filers” are often able to price the applicable generic drug to yield relatively high gross margins during this 180-day marketing exclusivity period. With respect to our generic products, ANDAs containing Paragraph IV certifications generally become the subject of patent litigation that can be both lengthy and costly.
If we cannot make scheduled payments on our debt, we will be in default and, as a result: 32 Table of Contents • our debt holders could declare all outstanding principal and interest to be due and payable; • the lenders under our credit agreements could terminate their commitments to lend us capital; and • we could be forced into bankruptcy or liquidation.
If we cannot make scheduled payments on our debt, we will be in default and, as a result: • our debt holders could declare all outstanding principal and interest to be due and payable; • the lenders under our credit agreements could terminate their commitments to lend us capital; and • we could be forced into bankruptcy or liquidation.
Additionally, continuing and increasingly sophisticated studies of the proper utilization, safety and efficacy of pharmaceutical 24 Table of Contents products are being conducted by the industry, government agencies and others which can call into question the utilization, safety and efficacy of products currently or previously marketed by us.
Additionally, continuing and increasingly sophisticated studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others which can call into question the utilization, safety and efficacy of products currently or previously marketed by us.
We cannot provide assurance that the development, supply, marketing and/or distribution efforts of our contractual partners will continue to be successful, that we will be able to renew such agreements or that we will be able to enter into new agreements for additional products.
We cannot provide assurance that the development, supply, marketing and/or distribution efforts of our contractual partners will continue to be successful, that we will be able to renew such agreements or that we will be able to enter into new agreements with favorable terms for additional products.
If we make any acquisitions or investments, we may finance such acquisitions or investments through our cash reserves, debt financing, which may increase our leverage, or by issuing additional equity interests, which 40 Table of Contents could dilute the holdings of our then-existing shareholders.
If we make any acquisitions or investments, we may finance such acquisitions or investments through our cash reserves, debt financing, which may increase our leverage, or by issuing additional equity interests, which could dilute the holdings of our then - existing shareholders.
In addition, efforts to ensure our intellectual property rights may be costly, time-consuming and/or ultimately unsuccessful. We cannot be sure that we will have the resources to protect our own rights against infringement by third parties.
In addition, efforts to ensure our IP rights may be costly, time-consuming and/or ultimately unsuccessful. We cannot be sure that we will have the resources to protect our own rights against infringement by third parties.
In the United States, many of our products are eligible for reimbursement under federal and state health care programs such as Medicaid, Medicare, TRICARE, and/or state pharmaceutical assistance programs, and as a result, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are, and will be, applicable to our business.
In the U.S., many of our products are eligible for reimbursement under federal and state health care programs such as Medicaid, Medicare, TRICARE, and/or state pharmaceutical assistance programs, and as a result, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are, and will be, applicable to our business.
Disruptions at these facilities or within our supply chain can occur for many reasons, including events unrelated to us or beyond our control, such as fires and other industrial accidents, floods and other severe weather events, natural disasters, environmental incidents or other catastrophes, utility and transportation infrastructure disruptions, shortages of raw materials, pandemic diseases or viral contagions such as 25 Table of Contents COVID-19, and acts of war or terrorism.
Disruptions at these facilities or within our supply chain can occur for many reasons, including events unrelated to us or beyond our control, such as fires and other industrial accidents, floods and other severe weather events, natural disasters, environmental incidents or other catastrophes, utility and transportation infrastructure disruptions, shortages of raw materials, pandemic diseases or viral contagions, and acts of war or terrorism.
For example, we have been the victim of phishing attempts, some of which have been successful. While we have experienced threats to our data and systems, to date, we are not aware that we have experienced a material cyber-security breach. Over time, however, the sophistication of these threats continues to increase.
For example, we have been the victim of phishing attempts, some of which have been successful in evading detection and blocking. While we have experienced threats to our data and systems, to date, we are not aware that we have experienced a material cyber-security breach. Over time, however, the sophistication of these threats continues to increase.
The size and complexity of our information technology systems, and those of our third-party vendors, make such systems potentially vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners or vendors.
The size and complexity of our IT systems, and those of our third-party vendors, make such systems potentially vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners or vendors.
If we fail to protect our intellectual property adequately, competitors may manufacture and market products similar to, or that may be confused with, our products, and our generic competitors may obtain regulatory approval to make and distribute generic versions of our branded products.
If we fail to protect our IP adequately, competitors may manufacture and market products similar to, or that may be confused with, our products, and our generic competitors may obtain regulatory approval to make and distribute generic versions of our branded products.
Any alteration to, or termination of, our current distribution and marketing agreements, failure to enter into new and similar agreements, or interruption of our 38 Table of Contents product supply under the such agreements, could have a material adverse effect on our business, condition (financial and otherwise), prospects or results of operations.
Any alteration to, or termination of, our current distribution and marketing agreements, failure to enter into new and similar agreements, or interruption of our product supply under such agreements, could have a material adverse effect on our business, condition (financial and otherwise), prospects or results of operations.
Like other 29 Table of Contents public companies, our computer systems and those of our third-party vendors and service providers are regularly subject to, and will continue to be the target of, computer viruses, malware or other malicious codes (including ransomware), unauthorized access, cyber-attacks or other computer-related penetrations, which have caused, and may continue to cause, disruptions to our operations.
Like other public companies, our computer systems and those of our third-party vendors and service providers are regularly subject to, and will continue to be the target of, computer viruses, malware or other malicious code (including ransomware), unauthorized access, cyber-attacks or other computer-related penetrations, which have caused, and may continue to cause, disruptions to our operations.
A disruption, infiltration or failure of these systems, facilities or third-party hosted services in the event of a hurricane, tsunami, tornado, earthquake, wildfire or flooding or other weather event, power loss, telecommunications failure, software or hardware malfunctions, pandemics (including the COVID-19 pandemic), cyber-attack, war, terrorist attack or other catastrophic event that our disaster recovery plans do not adequately address, could cause system interruptions, reputational harm, loss of intellectual property, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data.
A disruption, infiltration or failure of these systems, facilities or third-party hosted services in the event of a hurricane, tsunami, tornado, earthquake, wildfire or flooding or other weather event, power loss, telecommunications failure, software or hardware malfunctions, pandemics, cyber-attack, war, terrorist attack or other catastrophic event that our disaster recovery plans do not adequately address, could cause system interruptions, reputational harm, loss of IP, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data.
Similarly, a voluntary or forced sale could cause us to lose our “controlled company” status under the New York Stock Exchange listing requirements, which would require us to comply over a transition period with certain corporate governance requirements from which we are currently exempt, including having a fully independent compensation committee.
Similarly, a voluntary or forced sale could cause us to lose our “controlled company” status under the Nasdaq listing requirements, which would require us to comply over a transition period with certain corporate governance requirements from which we are currently exempt, including having a fully independent compensation committee.
These systems are also vulnerable to attacks by malicious third parties, such as phishing or ransomware attacks, and may be susceptible to intentional or accidental physical damage to the infrastructure maintained by us or by third parties, including as a result of extreme weather events, such as fires, floods, hurricanes, or tornadoes.
These systems are also vulnerable to attacks by malicious third parties, such as phishing or ransomware attacks, and may be susceptible to intentional or accidental physical damage to the infrastructure maintained by us or by third parties, including as a result of extreme weather events, such as fires, floods, hurricanes, or tornadoes or as the result of the use of AI or other new technologies.
We can give no assurance that we will be able to settle current or future actions on terms that we deem reasonable, or that such settlements or adverse judgments, if entered, will not exceed the amount of any reserve.
We can give no assurance that we will be able to settle current or future actions on terms that we deem reasonable, or that such settlements or adverse judgments, if entered, will not exceed the amount of any liability we have recorded.
Our inability to protect our intellectual property and proprietary rights could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our inability to protect our IP and proprietary rights could have a material adverse effect on our business, results of operations, financial condition and cash flows.
It is also possible for the manufacturer of the brand-name product for which we are developing a generic drug to obtain approvals from the FDA to switch the brand-name drug from the prescription market to the OTC market.
It is also possible for the manufacturer of the brand-name product for which we are developing a generic drug to obtain approvals from the FDA to switch the brand-name drug from the prescription market to the over-the counter (“OTC”) market.
Furthermore, we may not be able to (i) differentiate our products from those of our competitors, (ii) successfully develop or introduce new products, on a timely basis or at all, that are less costly than those of our competitors, or (iii) offer customers payment and other commercial terms as favorable as those offered by our competitors.
Furthermore, we may not be able to (i) differentiate our products from those of our competitors, (ii) successfully develop or introduce new products, on a timely basis or at all, that are less costly than those of our competitors, (iii) integrate new systems or technology, such as AI, as quickly or successfully as our competitors, or (iv) offer customers payment and other commercial terms as favorable as those offered by our competitors.
Such changes may cause our development of such generic drugs to be significantly more difficult or result in delays in FDA approval or result in our decision to abandon or terminate certain projects.
Such changes may cause our development of such generic drugs to be significantly more difficult or result in delays in FDA approval or result in our decision to abandon or terminate certain projects or the marketing of certain approved products.
For example, there has been a recent trend of large wholesalers and retailer customers forming partnerships, such as the alliance between Walgreens and AmerisourceBergen Corporation, the alliance between Rite Aid and McKesson Drug Company, and the alliance between CVS Caremark and Cardinal Health.
For example, there has been a recent trend of large wholesalers and retailer customers forming partnerships, such as the alliance between Walgreens and Cencora, Inc., the alliance between Rite Aid and McKesson Drug Company, and the 27 alliance between CVS Caremark and Cardinal Health.
We believe our principal competitors in the U.S. generic/biosimilar pharmaceutical products market, where we primarily compete, are Teva Pharmaceutical Industries Ltd., Viatris Inc., Endo International plc, Sandoz International GmbH, Pfizer Inc., Fresenius Kabi KGaA, Sun Pharmaceutical Industries Ltd., Lupin Pharmaceuticals, Inc., Hikma Pharmaceuticals PLC, Dr. Reddy's Laboratories Ltd., Coherus Biosciences, Inc., Amphastar Pharmaceuticals, Inc., and Aurobindo Pharma Limited.
Our principal competitors in the U.S. generic/biosimilar pharmaceutical products market, where we primarily compete, are Teva Pharmaceutical Industries Ltd., Viatris Inc., Sandoz Group, Pfizer Inc., Fresenius Kabi KGaA, Hikma Pharmaceuticals PLC, Endo International plc, Dr. Reddy’s Laboratories Ltd., Amphastar Pharmaceuticals, Inc., Sun Pharmaceutical Industries Ltd., Lupin Pharmaceuticals, Inc., Zydus Pharmaceuticals USA Inc., and Aurobindo Pharma Limited.
Based on estimates, we establish reserves for sales allowances including, but not limited to: sales discounts and returns, chargebacks, sales volume rebates, shelf stocks, re-procurement charges, cash discounts, and Medicaid rebate obligations at the time of sale.
Based on estimates, we establish liabilities for sales allowances including, but not limited to: sales discounts and returns, chargebacks, sales volume rebates, shelf stocks, cash discounts, and Medicaid rebate obligations at the time of sale.
As a result, payments could be made under the TRA in excess of the tax savings that we ultimately realize in respect of the tax attributes with respect to the Members or their permitted transferees. Risks Related to Our Class A Common Stock We are controlled by the Amneal Group.
As a result, payments could be made under the TRA in excess of the tax savings that we ultimately realize in respect of the tax attributes with respect to the Members or their permitted transferees. Risks Related to Our Class A Common Stock The Amneal Group owns a majority of our outstanding Class A Common Stock.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur significant properties are as follows: Property Address Legal Status Purpose Bridgewater, New Jersey Leased Executive Office Glasgow, Kentucky Leased Administrative, Distribution and Warehouse Glasgow, Kentucky Leased Warehouse Yaphank, New York Leased Warehouse Glasgow, Kentucky Owned Warehouse Piscataway, New Jersey Leased Warehouse Piscataway, New Jersey Leased Manufacturing Piscataway, New Jersey Leased R&D, manufacturing Branchburg, New Jersey Leased Manufacturing Branchburg, New Jersey Leased Manufacturing Piscataway, New Jersey Leased Manufacturing Branchburg, New Jersey Leased Warehouse East Hanover, New Jersey Leased Packaging Bridgewater, New Jersey Leased R&D Yaphank, New York Leased Manufacturing, R&D, Quality and Regulatory Pulaski, Tennessee Leased Warehouse and office space Philadelphia, Pennsylvania Leased Warehouse and office space Fountain Run, Kentucky Leased Warehouse and office space Cashel Co, Tipperary, Ireland Owned R&D, Manufacturing Ahmedabad, Gujarat, India Owned Oral Solids Manufacturing and R&D Matoda, Gujarat, India Leased Oral Solids and Injectables Manufacturing and R&D Ahmedabad, Gujarat, India Leased R&D (Injectables), Corporate Office Ahmedabad, Gujarat, India Leased Corporate Office Ahmedabad, Gujarat, India Leased Warehouse Mahabubnagar, Telangana, India Leased Oncology R&D and Manufacturing Visakhapatam, Apandhra Pradesh, India Owned API Manufacturing and R&D Bharuch, Gujarat, India Leased API Manufacturing Ahmedabad, Gujarat, India Leased R&D Mehsana, Gujarat, India Owned Injectables Manufacturing Ahmedabad, Gujarat, India Leased Office space Ahmedabad, Gujarat, India Owned Biologics manufacturing Ahmedabad, Gujarat, India Owned Injectables Manufacturing and R&D Mumbai, Maharashtra, India Leased Office Space Ahmedabad, Gujarat, India Leased Warehouse Item 3.
Biggest changeOur properties are generally used to support the operations of our Generics, Specialty and AvKARE segments. 46 Our significant properties are as follows: Property Address Legal Status Purpose Bridgewater, New Jersey Leased Executive Office Glasgow, Kentucky Leased Administrative, Distribution and Warehouse Glasgow, Kentucky Leased Warehouse Yaphank, New York Leased Warehouse Glasgow, Kentucky Owned Warehouse Piscataway, New Jersey Leased Warehouse Piscataway, New Jersey Leased Manufacturing Piscataway, New Jersey Leased R&D, manufacturing Branchburg, New Jersey Leased Manufacturing Branchburg, New Jersey Leased Manufacturing Piscataway, New Jersey Leased Manufacturing Branchburg, New Jersey Leased Warehouse East Hanover, New Jersey Leased Warehouse Bridgewater, New Jersey Leased R&D Yaphank, New York Leased Manufacturing, R&D, Quality and Regulatory Pulaski, Tennessee Leased Warehouse and office space Philadelphia, Pennsylvania Leased Warehouse and office space Fountain Run, Kentucky Leased Warehouse and office space Cashel Co, Tipperary, Ireland Owned R&D, Manufacturing Ahmedabad, Gujarat, India Owned Oral Solids Manufacturing and R&D Matoda, Gujarat, India Leased Oral Solids and Injectables Manufacturing and R&D Ahmedabad, Gujarat, India Leased R&D (Injectables), Corporate Office Ahmedabad, Gujarat, India Leased Corporate Office Ahmedabad, Gujarat, India Leased Warehouse Mahabubnagar, Telangana, India Leased Oncology R&D and Manufacturing Visakhapatam, Apandhra Pradesh, India Owned API Manufacturing and R&D Bharuch, Gujarat, India Leased API Manufacturing Ahmedabad, Gujarat, India Leased R&D Mehsana, Gujarat, India Owned Injectables Manufacturing Ahmedabad, Gujarat, India Leased Office space Ahmedabad, Gujarat, India Owned Biologics manufacturing Ahmedabad, Gujarat, India Owned Injectables Manufacturing and R&D Mumbai, Maharashtra, India Leased Office Space Ahmedabad, Gujarat, India Leased Warehouse Item 3.
Legal Proceedings Information pertaining to legal proceedings can be found in Note 21. Commitments and Contingencies and is incorporated by reference herein. Item 4. Mine Safety Disclosures Not applicable. 46 Table of Contents PART II.
Legal Proceedings Information pertaining to legal proceedings can be found in Note 21. Commitments and Contingencies and is incorporated by reference herein. Item 4. Mine Safety Disclosures Not applicable. 47 PART II.
Item 2. Properties Amneal owns or leases numerous properties in domestic and foreign locations. Amneal’s principal properties include manufacturing facilities, R&D laboratories, warehouses, and corporate offices. Our properties are generally used to support the operations of our Generics, Specialty and AvKARE segments.
Item 2. Properties Amneal owns or leases numerous properties in domestic and foreign locations. Amneal’s principal properties include manufacturing facilities, R&D laboratories, warehouses, and corporate offices.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn the U.S., when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s sales. AvKARE Our AvKARE segment provides pharmaceuticals, medical and surgical products and services primarily to governmental agencies.
Biggest changeFor Specialty products, the majority of the product’s commercial value is usually realized during the period in which the product has market exclusivity. In the U.S., when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s sales.
Performance Graph Set forth below is a line graph comparing the change in the cumulative total shareholder return on our Class A Common Stock with the cumulative total returns of the NYSE Composite Index, the Russell 2000 Index and the Dow Jones U.S.
Performance Graph Set forth below is a line graph comparing the change in the cumulative total shareholder return on our Class A common stock with the cumulative total returns of the Nasdaq Composite Total Return Index, the Russell 2000 Index and the Dow Jones U.S.
The Class A Common Stock price performance shown on the graph only reflects the change in our Class A Common Stock price relative to the noted indices and is not necessarily indicative of future price performance. 47 Table of Contents Dividends We have never paid cash dividends on any class of our common stock and have no present plans to do so.
The Class A common stock price performance shown on the graph only reflects the change in our Class A common stock price relative to the noted indices and is not necessarily indicative of future price performance. 48 Dividends We have never paid cash dividends on any class of our common stock and have no present plans to do so.
AvKARE is also a wholesale distributor of pharmaceuticals, over the counter products and medical supplies to institutional customers which are located throughout the U.S. focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing. The Pharmaceutical Industry The pharmaceutical industry is highly competitive and highly regulated.
AvKARE is also a wholesale distributor of pharmaceuticals, over the counter drugs and medical supplies to its retail and institutional customers that are located throughout the U.S. focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing. The Pharmaceutical Industry The pharmaceutical industry is highly competitive and highly regulated.
We focus on developing products with substantial barriers-to-entry resulting from complex drug formulations or manufacturing, or legal or regulatory challenges. Generic products, particularly in the United States (“U.S.”), generally contribute most significantly to revenues and gross margins at the time of their launch, and even more so in periods of market exclusivity, or in periods of limited generic competition.
We focus on developing products with substantial barriers-to-entry resulting due to complex drug formulations or manufacturing, or legal or regulatory challenges. Generic products, particularly in the U.S., generally contribute most significantly to revenues and gross margins at the time of their launch, and even more so in periods of market exclusivity, or in periods of limited generic competition.
According to the records of our transfer agent, we had 147 holders of record of our Class A Common Stock as of February 14, 2022. A substantially greater number of holders of our Class A Common Stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
According to the records of our transfer agent, we had 170 holders of record of our Class A common stock as of February 29, 2024. A substantially greater number of holders of our Class A common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
Reserved 49 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Amneal Pharmaceuticals, Inc. (the “Company”, “we,” “us,” or “our”) is a global pharmaceutical company that develops, manufactures, markets and distributes a diverse portfolio of essential medicines, including complex generics, injectables, biosimilars and specialty branded pharmaceuticals.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Amneal Pharmaceuticals, Inc. (the “Company”, “we,” “us,” or “our”) is a global pharmaceutical company that develops, manufactures, markets, and distributes a diverse portfolio of essential medicines, including retail generics, injectables, biosimilars and specialty branded pharmaceuticals.
Our current policy is to retain all earnings, if any, for use in the operation of our business or to reduce our debt. Issuer Purchases of Equity Securities We did not purchase any shares of our Class A Common Stock during the three months ended December 31, 2022. 48 Table of Contents Item 6.
Our current policy is to retain all earnings, if any, for use in the operation of our business or to reduce our debt. Issuer Purchases of Equity Securities We did not purchase any shares of our Class A common stock during the three months ended December 31, 2023. 49 Item 6. Reserved 50 Item 7.
The Company records non-controlling interests for the portion of Amneal’s economic interests that it does not hold. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Item 1A.
We recorded non-controlling interests for the portion of Amneal’s economic interests that we did not hold prior to the Reorganization. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Item 1A.
Generics Our Generics segment includes over 250 product families covering an extensive range of dosage forms and delivery systems, including both immediate and extended release oral solids, powders, liquids, sterile injectables, nasal sprays, inhalation and respiratory products, ophthalmics, films, transdermal patches and topicals.
Overview Segments We have three reportable segments: Generics, Specialty, and AvKARE. Generics Our Generics segment includes over 260 product families covering an extensive range of dosage forms and delivery systems, including both immediate and extended release oral solids, powders, liquids, sterile injectables, nasal sprays, inhalation and respiratory products, ophthalmics, films, transdermal patches and topicals.
We operate principally in the United States, India, and Ireland, and sell to wholesalers, distributors, hospitals, chain pharmacies and individual pharmacies, either directly or indirectly. We are a holding company, whose principal assets are common units (“Amneal Common Units”) of Amneal Pharmaceuticals, LLC (“Amneal”).
We operate principally in the United States (“U.S.”), India, and Ireland, and sell to wholesalers, distributors, hospitals, governmental agencies, chain pharmacies and individual pharmacies, either directly or indirectly. Prior to the Reorganization (as defined herein), the Company was a holding company, whose principal assets were common units (the “Amneal Common Units”) of Amneal Pharmaceuticals, LLC (“Amneal”).
For a discussion of our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, see “Results of Operations” and “Liquidity and Capital Resources” under Part II, Item 7.
For a discussion of our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, see “Results of Operations” and “Liquidity and Capital Resources” under Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report on Form 10-K.
As such, the timing of new product introductions can have a significant impact on the Company’s financial results. The entrance into the market of additional competition generally has a negative impact on the volume and / or pricing of the affected products.
As such, the timing of new product introductions can have a significant impact on our financial results. The entrance into the market of additional competition generally has a negative impact on the volume and/or pricing of the affected products. Additionally, pricing is determined by market place dynamics and is often affected by factors outside of our control.
Our Specialty products are marketed through skilled specialty sales and marketing teams, who call on neurologists, movement disorder specialists, endocrinologists and primary care physicians in key markets throughout the U.S.
Our Specialty products are marketed through skilled specialty sales and marketing teams, who call on neurologists, movement disorder specialists, endocrinologists and primary care physicians in key markets throughout the U.S. Our Specialty segment also has a number of product candidates that are in varying stages of development.
The group, together with their affiliates and certain assignees, who owned Amneal when it was a private company (the “Amneal Group”) held 50.1% of Amneal Common Units and the Company held the remaining 49.9% as of December 31, 2022.
As of September 30, 2023, we held 50.4% of the Amneal Common Units and the group, together with their affiliates and certain assignees, who owned Amneal when it was a private company (the “Members” or the “Amneal Group”) held the remaining 49.6%.
Although the Company has a minority economic interest in Amneal, it is Amneal’s sole managing member, having the sole voting power to make all of Amneal’s business decisions and control its management. Therefore, the Company consolidates the financial statements of Amneal and its subsidiaries.
Although we had a minority economic interest in Amneal prior to March 31, 2023, we were Amneal’s sole managing member, having the sole voting power to make all of Amneal’s business decisions and control its management. Therefore, we consolidated the financial statements of Amneal and its subsidiaries prior to the Reorganization.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders The principal market for our Class A Common Stock is the New York Stock Exchange ("NYSE"). Our Class A Common Stock has been traded on the NYSE under the symbol “AMRX” since it began trading on May 7, 2018.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders Effective December 27, 2023, our Class A common stock began trading under the symbol “AMRX” on the Nasdaq Stock Market LLC (“Nasdaq”). Our Class A common stock previously traded on the New York Stock Exchange.
Additionally, pricing is determined by market place dynamics and is often affected by factors outside of the Company’s control. Specialty Our Specialty segment is engaged in the development, promotion, sale and distribution of proprietary branded pharmaceutical products, with a focus on products addressing CNS disorders, including Parkinson’s disease, and endocrine disorders.
Specialty Our Specialty segment is engaged in the development, promotion, sale and distribution of proprietary branded pharmaceutical products, with a focus on products addressing central nervous system (“CNS”) disorders, including Parkinson’s disease, and endocrine disorders.
AvKARE is a re-packager of bottle and unit dose pharmaceuticals under the registered names of AvKARE and AvPAK, which service the Department of Defense and Department of Veteran Affairs as well as institutional customers.
AvKARE Our AvKARE segment provides pharmaceuticals, medical and surgical products and services primarily to governmental agencies. AvKARE is a re-packager of bottle and unit dose pharmaceuticals under the registered names of AvKARE and AvPAK, which service the Department of Defense and Department of Veteran Affairs.
Pharmaceuticals Index for the period from May 7, 2018, the day our Class A Common Stock began trading on the NYSE, to December 31, 2022, assuming the investment of $100 on May 7, 2018, and the reinvestment of dividends.
Select Pharmaceuticals Index for the period from December 31, 2018 to December 31, 2023, assuming the investment of $100 on December 31, 2018, and the reinvestment of dividends.
In addition to Rytary®, our promoted Specialty portfolio also includes Unithroid® (levothyroxine sodium), for the treatment of hypothyroidism, which is sold under a license and distribution agreement with Jerome Stevens Pharmaceuticals, Inc., and Lyvispah® (baclofen), a unique dissolvable granule formulation used to treat muscle stiffness, spasms and pain from multiple sclerosis.
In addition to RYTARY®, our promoted Specialty portfolio also includes 51 UNITHROID® (levothyroxine sodium), for the treatment of hypothyroidism, which is sold under a license and distribution agreement with Jerome Stevens Pharmaceuticals, Inc., and ONGENTYS® (opicapone), an add-on treatment to carbidopa/levodopa in patients with Parkinson’s disease experiencing “Off” episodes, which we commenced selling in early 2024 under a license agreement with BIAL.
Removed
As of February 14, 2022, there were 32 record holders of our Class B Common Stock. All of our issued and outstanding Class B Common Stock is held by the Amneal Group. Our Class B Common Stock is not listed or traded on any stock exchange.
Added
For the years ended December 31, 2023 and December 31, 2022, we utilized the Russell 2000 Index as a broad equity market index for purposes of meeting the disclosure requirements of Regulation S-K Item 201(e)(1)(i) and the Dow Jones U.S. Select Pharmaceuticals Index as a published industry index for purposes of meeting the disclosure requirements of Regulation S-K Item 201(e)(1)(ii)(A).
Removed
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K, which discussion is incorporated herein by reference. Overview Segments We have three reportable segments: Generics, Specialty, and AvKARE.
Added
On November 7, 2023, we implemented a plan pursuant to which the Company and Amneal reorganized and simplified our corporate structure by eliminating our umbrella partnership-C-corporation structure and converting to a more traditional structure whereby all stockholders hold their voting and economic interests directly through the public company (the “Reorganization”).
Removed
Our Specialty segment also has a number of product candidates that are in varying stages of development. 50 Table of Contents For Specialty products, the majority of the product’s commercial value is usually realized during the period in which the product has market exclusivity.
Added
Effective with the Reorganization, the Company holds 100% of the Amneal Common Units and consolidates the financial statements of Amneal and its subsidiaries. Refer to Note 1. Nature of Operations in our consolidated financial statements for additional information about the Reorganization.
Added
On June 30, 2023, we received a complete response letter (“CRL”) from the FDA regarding our new drug application (“NDA”) for IPX203 for the treatment of Parkinson’s disease.
Added
The CRL indicated that although an adequate scientific bridge was established for the safety of one ingredient, levodopa, based on pharmacokinetic studies, it was not adequately established for the other ingredient, carbidopa, and the FDA requested additional information. The CRL did not identify any issues with respect to the efficacy or manufacturing of IPX203.
Added
During October 2023, we met with the FDA to align on the path to approval for IPX203. During the meeting, the FDA asked us to complete a QT study, a routine cardiac safety study that is required for new drugs. We completed the QT study and resubmitted our NDA for IPX203 on February 7, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

34 edited+11 added−8 removed27 unchanged
Biggest changeIncome Taxes , we are a party to a TRA under which we are generally required to pay to the other holders of Amneal Common Units 85% of the applicable tax savings, if any, in U.S. federal and state income tax that we are deemed to realize as a result of certain tax attributes of their Amneal Common Units sold to us (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Amneal Common Units for shares of Class A common stock and (ii) tax benefits attributable to payments made under the TRA. 62 Table of Contents The timing and amount of any payments under the TRA may vary, depending upon a number of factors including the timing and number of Amneal common units sold or exchanged for our Class A Common Stock, the price of our Class A Common Stock on the date of sale or exchange, the timing and amount of our taxable income, and the tax rate in effect at the time of realization of the our taxable income (the TRA liability is determined based on a percentage of the corporate tax savings from the use of the TRA’s attributes).
Biggest changeThe timing and amount of any payments under the TRA may vary, depending upon a number of factors including the timing and amount of our taxable income, and the tax rate in effect at the time of realization of the our taxable income (the TRA liability is determined based on a percentage of the corporate tax savings from the use of the TRA’s attributes).
Cost of sales impairment charges for the year ended December 31, 2022 of $11.1 million related to currently marketed products, of which (i) one product experienced significant price erosion during 2022, resulting in significantly lower than expected future cash flows and negative margins, (ii) the supply agreement of one product was terminated during 2022 and therefore the asset was not recoverable and (iii) one product was no longer expected to be sold to a key customer, and therefore the asset was not recoverable.
Cost of sales impairment charges for the year ended December 31, 2022 of $11.1 million related to currently marketed products of which (i) one product experienced significant price erosion during 2022, resulting in significantly lower than expected future cash flows and negative margins, (ii) the supply agreement of one product was terminated during 2022 and therefore the asset was not recoverable and (iii) one product was no longer expected to be sold to a key customer, therefore, the asset was not recoverable.
Included within these policies are certain policies which contain critical accounting estimates and, therefore, have been deemed to be “critical accounting policies.” Critical accounting estimates are those which require management to make assumptions about matters that were uncertain at the time the estimate was made and for which the use of different estimates, which reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur from period to period could have a material impact on our financial condition or results of operations.
Included within these policies are certain policies which contain critical accounting estimates and, therefore, have been deemed to be “critical accounting policies.” Critical accounting estimates are those which require management to make assumptions about matters that were uncertain at the time the estimate was made and for which the use of different estimates, which reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur from period to 60 period could have a material impact on our financial condition or results of operations.
The ultimate resolution of any or all claims, legal proceedings or investigations are inherently uncertain and difficult to predict, could differ materially from our estimates and could have a material adverse effect on our results of operations and/or cash flows in any given accounting period, or on the Company's overall financial condition. For further details, see Note 21.
The ultimate resolution of any or all claims, legal proceedings or investigations are inherently uncertain and difficult to predict, could differ materially from our estimates and could have a material adverse effect on our results of operations and/or cash flows in any given accounting period, or on our overall financial condition. For further details, see Note 21.
As of December 31, 2022, based upon all available objective and verifiable evidence both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies, we determined that it is more likely than not that we will not realize the benefits of our gross DTAs.
As of December 31, 2023, based upon all available objective and verifiable evidence both positive and negative, including historical levels of pre-tax loss and income both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies, we determined that it is more likely than not that we will not realize the benefits of our gross DTAs.
Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters. 60 Table of Contents Business Combinations We account for acquired businesses using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values.
Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters. Business Combinations We account for acquired businesses using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values.
As noted above, we have determined it is more-likely-than-not we will be unable to utilize all of our DTAs subject to the TRA; therefore, as of December 31, 2022 and 2021, we had not recognized the entire contingent liability under the TRA related to the tax savings we may realize from common units sold or exchanged.
As noted above, we have determined it is more-likely-than-not we will be unable to utilize all of our DTAs subject to the TRA; and, as of December 31, 2023 and 2022, we had not recognized the entire contingent liability under the TRA related to the tax savings we may realize from Amneal common units sold or exchanged.
Those deductions represent estimates of rebates and discounts related to gross sales for the reporting period and, as such, knowledge and judgment of market conditions and practice are required when estimating the impact of these revenue deductions on gross sales for a reporting period.
Certain deductions represent estimates of rebates related to gross sales for the reporting period and, as such, knowledge and judgment of market conditions and practice are required when estimating the impact of these revenue deductions on gross sales for a reporting period.
Our 61 Table of Contents policy in determining whether an impairment indicator exists comprises measurable operating performance criteria as well as other qualitative measures. Events giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted.
Our policy in determining whether an impairment indicator exists comprises measurable operating performance criteria as well as other qualitative measures. Events giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted.
If the net book value of the reporting unit exceeds its fair value, the Company recognizes a goodwill impairment charge for the reporting unit equal to the lesser of (i) the total goodwill allocated to that reporting unit and (ii) the amount by which that reporting unit’s carrying amount exceeds its fair value.
If the net book value of the reporting unit exceeds its fair value, we recognize a goodwill impairment charge for the reporting unit equal to the lesser of (i) the total goodwill allocated to that reporting unit and (ii) the amount by which that reporting unit’s carrying amount exceeds its fair value.
If utilization of these DTAs becomes more-likely-than-not in the future, at such time, these TRA liabilities (which amount to approximately $202.7 million as of December 31, 2022, as a result of basis adjustments under Internal Revenue Code Section 754) will be recorded through charges to our statements of operations.
If utilization of these DTAs becomes more-likely-than-not in the future, at such time, these TRA liabilities (which amount to approximately $185.2 million as of December 31, 2023, as a result of basis adjustments under Internal Revenue Code Section 754) will be recorded through charges to our statements of operations.
However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRA in excess of the $0.6 million accrued as of December 31, 2022.
However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRA in excess of the $3.7 million accrued as of December 31, 2023.
However, estimates associated with governmental allowances, Medicaid and other performance-based contract rebates are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year.
However, estimates associated with Medicaid rebates and sales returns are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year.
If a quantitative assessment is required, the Company determines the fair value of its reporting unit using a combination of the income and market approaches.
If a quantitative assessment is required, we determine the fair value of our reporting unit using a combination of the income and market approaches.
Accordingly, as of December 31, 2022, this valuation allowance was $434.9 million and reduced the carrying value of these gross DTAs, net of the impact of the reversal of taxable temporary differences, to zero. As described in Note 7.
Accordingly, as of December 31, 2023, this valuation allowance was $566.5 million and reduced the carrying value of these gross DTAs, net of the impact of the reversal of taxable temporary differences, to zero. As described in Item 1A. Risk Factors and Note 7.
(3) Amounts primarily represent future minimum rental payments under non-cancelable financing lease obligation for a production facility in New York. A discussion of our financing lease obligations is contained in Note 18. Leases . (4) Rondo Term Loan relates to the Rondo Acquisitions (each as defined in Note 3. Acquisitions ).
(3) Amounts represent future minimum rental payments under non-cancelable facility leases. A discussion of our operating lease obligations is contained in Note 18. Leases . (4) Amounts primarily represent future minimum rental payments under a non-cancelable financing lease obligation for a production facility in New York. A discussion of our financing lease obligations is contained in Note 18. Leases .
The qualitative factors considered by the Company may include, but are not limited to, general economic conditions, the Company’s outlook, market performance of the Company’s industry and recent and forecasted financial performance.
The qualitative factors that we consider may include, but are not limited to, general economic conditions, our outlook, market performance of our industry and recent and forecasted financial performance.
While these accruals have been deemed reasonable by our management, the assessment process relies heavily on estimates and assumptions that may ultimately prove inaccurate or incomplete. Additionally, unforeseen circumstances or events may lead us to subsequently change our estimates and assumptions. The process of analyzing, assessing and establishing reserve estimates relative to legal proceedings involves a high degree of judgment.
While 63 these accruals have been deemed reasonable by our management, the assessment process relies heavily on estimates and assumptions that may ultimately prove inaccurate or incomplete. Additionally, unforeseen circumstances or events may lead us to subsequently change our estimates and assumptions.
Additionally, for each of our reporting units, there are a number of future events and factors that may impact future results and the outcome of subsequent goodwill impairment testing. For a list of these factors, see Item 1A. Risk Factors .
Accordingly, any changes in assumptions described above could have a material impact on our consolidated results of operations. Additionally, for each of our reporting units, there are a number of future events and factors that may impact future results and the outcome of subsequent goodwill impairment testing. For a list of these factors, see Item 1A. Risk Factors .
For the year ended December 31, 2022, we recognized a total of $24.1 million of intangible asset impairment charges, of which $11.1 million was recognized in cost of goods sold and $13.0 million was recognized in IPR&D. The impairment charges for the year ended December 31, 2022 primarily related to three currently marketed products and two IPR&D products.
For the year ended December 31, 2022, we recognized a total of $24.1 million of intangible asset impairment charges, of which $11.1 million was recognized in cost of goods sold and $13.0 million was recognized in in-process research and development impairment charges.
IPR&D impairment charges for the year ended December 31, 2022 of $13.0 million related to (i) one asset that experienced a delay in its expected launch date and (ii) one asset that experienced significant expected price erosion, both of which resulted in significantly lower than expected future cash flows.
IPR&D impairment charges for the year ended December 31, 2022 of $13.0 million related to (i) one asset that experienced a delay in its expected launch date and (ii) one asset that experienced significant expected price erosion, both of which resulted in significantly lower than expected future cash flows. 62 Income Taxes We record valuation allowances against our DTAs when it is more likely than not that all or a portion of a DTA will not be realized.
These estimates and assumptions primarily included, but were not limited to: the selection of appropriate peer group companies, the discount rate, terminal growth rates, forecasts of revenue, operating income, depreciation and amortization, restructuring charges and capital expenditures. For more information see Note 13. Goodwill and Other Intangible Assets .
The determination of fair value in the quantitative assessment required us to make significant estimates and assumptions. These estimates and assumptions primarily included, but were not limited to: the selection of appropriate peer group companies, the discount rate, terminal growth rates, forecasts of revenue, operating income, depreciation and amortization, restructuring charges and capital expenditures.
We have identified the following to be our critical accounting policies: sales-related deductions, business combinations (including contingent consideration) impairment of goodwill and intangible assets, income taxes and contingencies.
We have identified the following to be our critical accounting policies: certain sales-related deductions, business combinations (including contingent consideration) impairment of goodwill and intangible assets, income taxes and contingencies. Certain Sales-Related Deductions Our gross product revenue is subject to a variety of deductions, which are estimated and recorded in the same period that the revenue is recognized.
As of December 31, 2022, $366.3 million, $163.1 million, and $69.5 million of goodwill was allocated to our Specialty, Generics, and AvKARE segments, respectively. During the fourth quarter of 2022, we tested each of the reporting units for impairment using a quantitative assessment. The determination of fair value in the quantitative assessment required us to make significant estimates and assumptions.
As of December 31, 2023, $366.3 million, $162.8 million, and $69.5 million of goodwill was allocated to our Specialty, 61 Generics, and AvKARE segments, respectively. During the fourth quarter of 2023, we tested our Specialty and Generics reporting units for impairment using a quantitative assessment and utilized a qualitative assessment for our AvKARE reporting unit.
Interest on the Rondo Term Loan was calculated based on the applicable rate at December 31, 2022. A discussion of the Rondo Term Loan, and related debt service and interest requirements is contained in Note 16. Debt . (5) Represents the amount due on the New Revolving Credit Facility (as defined in Note 16. Debt ).
Debt. Interest on our Term Loan Due 2025 and Term Loan Due 2028 was calculated based on applicable rates at December 31, 2023, excluding the impact of our interest rate swap. (2) A description of our Amended New Revolving Credit Facility is contained in Note 16. Debt .
The foregoing table does not include milestone payments potentially payable by the Company under its collaboration agreements and potential payments under the Company’s contingent consideration arrangements. Such payments are dependent upon the occurrence of specific and contingent events, and not the passage of time. A discussion of our significant contingent milestones is contained in Note 5.
Such payments are dependent upon the occurrence of specific and contingent events, and not the passage of time. A discussion of our significant contingent milestones is contained in Note 5. Alliance and Collaboration and Note 24. Related Party Transactions and a discussion of our contingent consideration arrangements is contained in Note 3. Acquisitions and Note 19. Fair Value Measurements .
Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of December 31, 2022. Critical Accounting Policies Our significant accounting policies are described in Note 2. Summary of Significant Accounting Policies .
Refer to the section Rondo Acquisitions Financing – Notes Payable-Related Party in Note 16. Debt for a discussion of the terms of this indebtedness and descriptions of terms. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of December 31, 2023. Critical Accounting Policies Our significant accounting policies are described in Note 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K. 58 Table of Contents The following table sets forth our summarized, consolidated cash flows for the years ended December 31, 2022 and 2021 (in thousands): Years Ended December 31, Increase (Decrease) 2022 2021 $ % Cash provided by (used in): Operating activities $ 65,100 $ 241,820 $ (176,720) (73.1) % Investing activities (174,309) (194,182) 19,873 (10.2) % Financing activities (106,620) (138,122) 31,502 (22.8) % Effect of exchange rate changes on cash (5,683) 102 (5,785) (5671.6) % Net decrease in cash, cash equivalents, and restricted cash $ (221,512) $ (90,382) $ (131,130) 145.1 % Cash Flows from Operating Activities Net cash provided by operating activities was $65.1 million for the year ended December 31, 2022 as compared to $241.8 million for the prior year.
The following table sets forth our summarized, consolidated cash flows for the years ended December 31, 2023 and 2022 (in thousands): Years Ended December 31, Increase (Decrease) 2023 2022 $ % Cash provided by (used in): Operating activities $ 345,577 $ 65,100 $ 280,477 430.8 % Investing activities (69,189) (174,309) 105,120 (60.3) % Financing activities (212,573) (106,620) (105,953) 99.4 % Effect of exchange rate changes on cash 65 (5,683) 5,748 (101.1) % Net increase (decrease) in cash, cash equivalents, and restricted cash $ 63,880 $ (221,512) $ 285,392 (128.8) % Cash Flows from Operating Activities Net cash provided by operating activities was $345.6 million for the year ended December 31, 2023 as compared to $65.1 million for the prior year.
There was no impairment of goodwill in any reporting unit for the year ended December 31, 2022. Significant judgment is used in determining the assumptions utilized in our quantitative assessment. Accordingly, any changes in assumptions described above could have a material impact on our consolidated results of operations.
For more information about goodwill, including our interim impairment test, see Note 13. Goodwill and Other Intangible Assets . There was no impairment of goodwill in any reporting unit for the year ended December 31, 2023. Significant judgment is used in determining the assumptions utilized in our quantitative assessment.
Cash Flows from Investing Activities Net cash used in investing activities was $174.3 million for the year ended December 31, 2022 compared to $194.2 million for the prior year. The $19.9 million year-over-year decrease was primarily due to a decrease of $61.8 million in cash paid for business acquisitions (refer to Note 3.
Cash Flows from Financing Activities Net cash used in financing activities was $212.6 million for the year ended December 31, 2023 as compared to net cash used in financing activities of $106.6 million for prior year. The year-over-year increase was primarily due to: (i) an increase in debt related costs due to the Refinancing (refer to Note 16.
Further sales or exchanges occurring subsequent to December 31, 2022 could result in future Amneal tax deductions and obligations to pay 85% of such benefits to the holders of Amneal common units. The projection of future taxable income involves significant judgment. Actual taxable income may differ materially from our estimates, which could significantly impact our liabilities under the TRA.
The projection of future taxable income involves significant judgment. Actual taxable income may differ materially from our estimates, which could significantly impact the timing and payment of the TRA.
Alliance and Collaboration and Note 24. Related Party Transactions and a discussion of our contingent consideration arrangements is contained in Note 3. Acquisitions and Note 19. Fair Value Measurements . Additionally, the foregoing table does not include $44.2 million of aggregate principal and related interest due on the Sellers Notes (as defined in Note 3.
Additionally, the foregoing table does not include $44.2 million of aggregate principal and related interest due on the Sellers Notes as of December 31, 2023 (as defined in Note 16. Debt ). The Sellers Notes are not included because the timing of the associated payments is dependent on the occurrence of future events.
Acquisitions for additional information), partially offset by a $40.1 million increase in cash paid for intangible assets associated with marketed product licenses. Cash Flows from Financing Activities Net cash used in financing activities was $106.6 million for the year ended December 31, 2022 as compared to net cash used in financing activities of $138.1 million for prior year.
The year-over-year decrease in net cash used in investing activities was primarily due to $84.7 million of cash paid to acquire the baclofen franchise from entities affiliated with Saol International Limited during the prior year period and a year-over-year decrease in cash paid for intangible assets associated with marketed product licenses.
Commitments and Contractual Obligations Our contractual obligations as of December 31, 2022 were as follows (in thousands): Payments Due by Period Contractual Obligations Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Term Loan and other (1) $ 2,563,876 $ 27,000 $ 2,536,876 $ — $ — Interest payments on Term Loan (1) 487,155 209,487 277,668 — — Operating lease obligations (2) 76,028 15,843 30,822 17,813 11,550 Financing lease obligation (3) 118,209 7,976 13,379 11,634 85,220 Rondo Term Loan (4) 72,000 9,000 63,000 — — Interest payments on Rondo Term Loan (4) 7,986 4,120 3,866 — — New Revolving Credit Facility (5) 60,000 60,000 — — — Interest payments on New Revolving Credit Facility (5) 4,259 4,259 — — — Opana ER® antitrust litigation settlements (6) 133,944 83,944 50,000 — — Interest associated with Opana ER® antitrust litigation settlements (6) 3,951 1,536 2,415 — — Total $ 3,527,408 $ 423,165 $ 2,978,026 $ 29,447 $ 96,770 59 Table of Contents (1) A description of our Term Loan due May 2025, and related debt service and interest requirements is contained in Note 16.
Debt ) and (ii) a payment made in the prior year for the acquisition of the baclofen franchise of certain entities affiliated with Saol International Limited (refer to Note 3 ). 59 Commitments and Contractual Obligations Our contractual obligations as of December 31, 2023 were as follows (in thousands): Payments Due by Period Contractual Obligations Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Term Loan Due 2025 (1) $ 191,979 $ — $ 191,979 $ — $ — Interest payments on Term Loan Due 2025 (1) 23,440 17,508 5,932 — — Term Loan Due 2028 (1) 2,351,647 58,791 117,582 2,175,274 — Interest payments on Term Loan Due 2028 (1) 1,067,102 257,107 493,382 316,613 — Amended New Revolving Credit Facility (2) 179,000 179,000 — — — Operating lease obligations (3) 61,340 15,978 25,237 13,209 6,916 Financing lease obligation (4) 110,737 6,856 13,014 11,294 79,573 Opana ER® antitrust litigation settlements and associated interest (5) 52,415 52,415 — — — Non-cancelable marketing and royalty obligations (6) 28,000 13,000 15,000 — — Total $ 4,065,660 $ 600,655 $ 862,126 $ 2,516,390 $ 86,489 (1) A description of our Term Loan Due 2025 and Term Loan Due 2028, and related debt service and interest requirements is contained in Note 16.
Removed
The year-over-year decrease was primarily driven by $140.6 million in payments associated with the Opana® ER antitrust litigation and the securities class action - Cambridge Retirement System v. Amneal, in addition to the corresponding legal fees. Refer to Note 21. Commitments and Contingencies for additional information.
Added
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report on Form 10-K.
Removed
The year-over-year decrease of $31.5 million was primarily due to $85.0 million of borrowings under the New Revolving Credit Facility and a $39.6 million decrease in tax distributions, partially offset by $44.5 million paid for deferred consideration associated with the acquisition of Kashiv Specialty Pharmaceuticals, LLC and Puniska Healthcare Pvt. Ltd. (refer to Note 3.
Added
The year-over-year increase was primarily driven by increased profitability adjusted for non-cash items and timing of collections of receivables, partially offset by other working capital uses of cash. Cash Flows from Investing Activities Net cash used in investing activities was $69.2 million for the year ended December 31, 2023 as compared to $174.3 million for the prior year.
Removed
Acquisitions ) and an increase in principal payments made on borrowings of $45.2 million, including repayment of $25.0 million of borrowings under the New Revolving Credit Facility (refer to Note 16. Debt ).
Added
Debt ) and (ii) an increase in tax distributions, partially offset by (i) a net increase in long-term debt (refer to Note 16.
Removed
Debt. Interest on our Term Loan was calculated based on applicable rates at December 31, 2022, excluding the impact of our interest rate swap. (2) Amounts represent future minimum rental payments under non-cancelable facility leases. A discussion of our operating lease obligations is contained in Note 18. Leases .
Added
The table assumes the balance outstanding as of December 31, 2023 will be repaid by December 31, 2024. The actual balance outstanding may fluctuate significantly in future periods. The interest rate on borrowings under the Amended New Revolving Credit Facility resets every 30, 90 or 180 days based on the term that we select.
Removed
Interest on the New Revolving Credit Facility was calculated based on the applicable rate at December 31, 2022. A discussion of the New Revolving Credit Facility is contained in Note 16. Debt . (6) Refer to Note 21. Commitments and Contingencies for additional information.
Added
(5) Refer to Note 21. Commitments and Contingencies for additional information. (6) Represents minimum sales and marketing spending obligations and a minimum royalty obligation. The foregoing table does not include milestone payments potentially payable by us under our collaboration agreements and potential payments under our contingent consideration arrangements.
Removed
Acquisitions ) because the timing of the associated payments is dependent on the occurrence of future events. Refer to the section Rondo Acquisitions Financing – Notes Payable-Related Party in Note 16. Debt for a discussion of the terms of this indebtedness and descriptions of terms.
Added
For the year ended December 31, 2023, we recognized $66.9 million of intangible asset impairment charges, of which $36.1 million was recognized in cost of goods sold and $30.8 million was recognized in in-process research and development impairment charges.
Removed
Sales-Related Deductions Our gross product revenue is subject to a variety of deductions, which are estimated and recorded in the same period that the revenue is recognized, and primarily represent chargebacks, rebates, group purchasing organization fees, prompt payment (cash) discounts, consideration payable to the customer, billbacks, Medicaid and other government pricing programs, price protection and shelf stock adjustments, and sales returns.
Added
Cost of sales impairment charges for the year ended December 31, 2023 of $36.1 million primarily related to a reduction in promotional focus on LYVISPAH™ in our Specialty segment, resulting in significantly lower than expected future cash flows.
Removed
Income Taxes We record valuation allowances against our DTAs when it is more likely than not that all or a portion of a DTA will not be realized.
Added
IPR&D impairment charges for the year ended December 31, 2023 of $30.8 million were related to one Generics asset and one Specialty asset, both of which experienced adverse clinical trials results in the fourth quarter of 2023 and resulted in significantly lower than expected future cash flows.
Added
Income Taxes in our consolidated financial statements, we are a party to a TRA under which we are generally required to pay to the Amneal Group 75% of the applicable tax savings, if any, in U.S. federal and state income tax that we are deemed to realize and that are created as a result of tax benefits attributable to payments made under the TRA.
Added
Because the Amneal Group has sold or exchanged all of their Amneal Common Units, effective with the Reorganization, there is no longer the associated risk of increased future obligations under the TRA (i.e., there cannot be further sales or exchanges giving rise to increased TRA liability occurring subsequent to December 31, 2023).
Added
The process of analyzing, assessing and establishing reserve estimates relative to legal proceedings involves a high degree of judgment.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

16 edited+5 added−1 removed5 unchanged
Biggest changeWe estimated that a hypothetical 100 basis point increase in the forward one-month LIBOR curve would potentially increase the fair value of the variable-to-fixed interest rate swap to $114.0 million while a hypothetical 100 basis point decrease in the forward one-month LIBOR curve would potentially decrease the fair value to $58.2 million as of December 31, 2022.
Biggest changeThe fair value of the variable-to-fixed interest rate swap was an asset of $37.1 million as of December 31, 2023. We estimated that a hypothetical 100 basis point increase in the forward one-month SOFR curve would potentially increase the fair value of the variable-to-fixed interest rate swap asset to $73.4 million.
Adjustments to translate the assets and liabilities of these foreign operations into U.S. dollars are accumulated as a component of other comprehensive income/(loss). Transaction gains and losses are included in the determination of our net income in our statements of operations.
Adjustments to translate the assets and liabilities of these foreign operations into U.S. dollars are accumulated as a component of other comprehensive (loss) income. Transaction gains and losses are included in the determination of our net (loss) income in our statements of operations.
We had no short-term investments as of December 31, 2022 or December 31, 2021. Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash equivalents and accounts receivable.
We had no short-term investments as of December 31, 2023 or December 31, 2022. Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash equivalents and accounts receivable.
We expect an inflationary impact of approximately $15.0 million for the year ending December 31, 2023. However, rising inflationary pressures due to higher input costs, including higher material, transportation, labor and other costs, could exceed our expectations and may adversely impact our operating results in future periods.
We expect an inflationary impact of approximately $15.0 million to $20.0 million for the year ending December 31, 2024. However, rising inflationary pressures due to higher input costs, including higher material, transportation, labor and other costs, could exceed our expectations and may adversely impact our operating results in future periods.
Such foreign currency transaction gains and losses include fluctuations related to long term intercompany loans that are payable in the foreseeable future. While it is difficult to accurately measure the impact of inflation, we estimate our business experienced an increase in costs due to inflation of approximately $30.0 million for the year ended December 31, 2022.
Such foreign currency transaction gains and losses include fluctuations related to long term intercompany loans that are payable in the foreseeable future. While it is difficult to accurately measure the impact of inflation, we estimate our business experienced an increase in costs due to inflation of approximately $15.0 million for the year ended December 31, 2023.
We estimated the fair values of the Term Loan and Rondo Term loan using quoted prices in active markets and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments.
We estimated the fair values of the Term Loan Due 2028 and Term Loan Due 2025 using quoted prices in active markets and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments.
Debt , we are party to a term loan with a principal amount of $2.7 billion and an asset backed revolving credit facility under which loans and letters of credit up to a principal amount of $285.9 million are available as of December 31, 2022 (principal amount of up to $20.9 million remains available for letters of credit).
Debt , we are party to term loans with an aggregate principal amount of $2.5 billion and an asset backed revolving credit facility under which loans and letters of credit up to a principal amount of $225.2 million are available as of December 31, 2023 (principal amount of up to $20.9 million remains available for letters of credit).
The proceeds for any loans made under our asset backed revolving credit facility are available for capital expenditures, acquisitions, working capital needs and other general corporate purposes. 63 Table of Contents We limit our credit risk with respect to accounts receivable by performing credit evaluations when deemed necessary.
The proceeds for any loans made under our asset backed revolving credit facility are available for capital expenditures, acquisitions, working capital needs and other general corporate purposes. We limit our credit risk with respect to accounts receivable by performing credit evaluations when deemed necessary. We do not require collateral to secure amounts owed to us by our customers.
Exhibits, Financial Statement Schedules are filed as part of this Annual Report on Form 10-K and incorporated by reference herein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 64 Table of Contents
Item 8. Financial Statements and Supplementary Data The consolidated financial statements listed in Item 15. Exhibits, Financial Statement Schedules are filed as part of this Annual Report on Form 10-K and incorporated by reference herein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.
Since we manufacture and sell our products throughout the world, we believe our foreign currency risk is diversified. Principal drivers of this diversified foreign exchange exposure include the European Euro, Indian Rupee, and the Swiss Franc. Our transactional exposure arises from the purchase and sale of goods and services in currencies other than the functional currency of our operational units.
Principal drivers of this diversified foreign exchange exposure include the European Euro and the Indian Rupee. Our transactional exposure arises from the purchase and sale of goods and services in currencies other than the functional currency of our operational units.
Increases or decreases in interest rates would affect our annual interest expense. Based on the principal amount of the Term Loan outstanding as of December 31, 2022, a hypothetical 100 basis point increase or decrease in interest rates would have affected our annual interest expense by approximately $26.0 million (before the impact of the interest rate lock agreement discussed above).
Based on the principal amount of the Term Loan Due 2028 and Term Loan Due 2025 outstanding as of December 31, 2023, a hypothetical 100 basis point increase or decrease in interest rates would have affected our annual interest expense by approximately $23.5 million and $1.9 million, respectively, before the impact of the interest rate lock agreement discussed above.
At December 31, 2022 and 2021, we had $2.64 billion and $2.73 billion, respectively, of variable rate debt. Our debt as of December 31, 2022 comprised of our Term Loan, with principal outstanding of $2.56 billion, and our Rondo Term Loan, with principal outstanding of $72.0 million.
At December 31, 2023 and 2022, we had $2.54 billion and $2.64 billion, respectively, of variable rate debt. Our debt as of December 31, 2023 comprised of our Term Loan Due 2028 with principal outstanding of $2.35 billion and our Term Loan Due 64 2025 with principal outstanding of $192.0 million.
At both December 31, 2022 and 2021, we estimated the fair value of the Term Loan to be $2.3 billion and $2.6 billion, respectively. We estimated the fair value of the Rondo Term loan to be $70.9 million and $138.9 million at December 31, 2022 and 2021, respectively.
At December 31, 2022, we estimated the fair value of the Rondo Term Loan to be $70.9 million.
In October 2019, we entered into an interest rate lock agreement for a total notional amount of $1.3 billion whereby we exchanged floating for fixed rate interest payments for our LIBOR based borrowing under our Term Loan. At inception and at year end, we assessed hedge effectiveness and determined it to continue to be highly effective.
In October 2019, we entered into an interest rate lock agreement for a total notional amount of $1.3 billion whereby we exchanged floating for fixed rate interest payments for our LIBOR based borrowing under our Term Loan Due 2025 (the “October 2019 Swap”).
We do not require collateral to secure amounts owed to us by our customers. By the nature of our global operations, we are exposed to cash flow and earnings fluctuations resulting from foreign exchange rate variation. These exposures are transactional and translational in nature.
By the nature of our global operations, we are exposed to cash flow and earnings fluctuations resulting from foreign exchange rate variation. These exposures are transactional and translational in nature. Since we manufacture and sell our products throughout the world, we believe our foreign currency risk is diversified.
We also reviewed the credit standing of the counterparty at year end and deemed the counterparties to have the ability to honor their obligations. The fair value of the variable-to-fixed interest rate swap was an asset of $85.6 million as of December 31, 2022.
Financial Instruments for additional information. At inception and at year end, we assessed hedge effectiveness and determined it to continue to be highly effective. We also reviewed the credit standing of the counterparty at year end and deemed the counterparties to have the ability to honor their obligations.
Removed
Based on the principal amount of the Rondo Term Loan outstanding as of December 31, 2022, a hypothetical 100 basis point increase or decrease in interest rates would have affected our annual interest expense by approximately $0.7 million. Item 8. Financial Statements and Supplementary Data The consolidated financial statements listed in Item 15.
Added
At December 31, 2023 and 2022, we estimated the fair value of the Term Loan Due 2025 to be $190.8 million and $2.29 billion, respectively. At December 31, 2023, we estimated the fair value of the Term Loan Due 2028 to be $2.33 billion.
Added
On May 31, 2023, we executed an amendment to the interest rate swap that changed the reference rate from LIBOR to the one-month secured overnight financing rate (“SOFR”). On November 14, 2023, in connection with our refinancing of the Term Loan Due 2025 and the New Credit Facility, as defined in Note 16.
Added
Debt , we novated the October 2019 Swap to another counterparty and, in connection with such novation, amended the October 2019 Swap.
Added
Specifically, the amendments modified (i) the fixed rate payable by the counterparty from 1.366% to a new fixed rate of 2.7877% and (ii) extended the termination date through May 4, 2027 (i.e., one year before the Term Loan Due 2028 matures). The amendments did not change the notional amount of $1.3 billion. Refer to Note 20.
Added
We estimated that a hypothetical 100 basis point decrease in the forward one-month SOFR curve would potentially change the fair value of the variable-to fixed interest rate swap from an asset of $37.1 million to a liability of $5.0 million as of December 31, 2023. Increases or decreases in interest rates would affect our annual interest expense.

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