Note 6: Intangibles and Goodwill
Intangibles
At December 31, 2013 and 2012, the components of intangibles and certain other related information were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | December 31, 2012 |
| Gross Amount | | Accumulated Amortization | | Weighted Average Amortization Period | | Gross Amount | | Accumulated Amortization | | Weighted Average Amortization Period |
| (in millions) | | (in years) | | (in millions) | | (in years) |
Amortizable Intangible Assets: | | | | | | | |
Developed technology | $ | 647.7 |
| | $ | (343.8 | ) | | 11.1 | | $ | 644.2 |
| | $ | (284.5 | ) | | 11.1 |
Customer relationships | 54.7 |
| | (21.8 | ) | | 2.7 | | 54.5 |
| | (1.2 | ) | | 2.7 |
Licensing | 185.8 |
| | (164.8 | ) | | 9.3 | | 185.9 |
| | (157.8 | ) | | 9.3 |
Trademarks | 89.6 |
| | (29.7 | ) | | 12.4 | | 87.9 |
| | (25.3 | ) | | 12.3 |
Core technology | 327.5 |
| | (66.9 | ) | | 14.8 | | 93.8 |
| | (46.5 | ) | | 14.4 |
Other | 30.7 |
| | (12.8 | ) | | 7.6 | | 43.9 |
| | (14.1 | ) | | 6.4 |
| 1,336.0 |
| | (639.8 | ) | | 11.4 | | 1,110.2 |
| | (529.4 | ) | | 10.6 |
Unamortizable Intangible Assets: | |
| | |
| | | | |
| | |
| | |
In-process research and development | 953.8 |
| | — |
| | | | 279.3 |
| | — |
| | |
| $ | 2,289.8 |
| | $ | (639.8 | ) | | | | $ | 1,389.5 |
| | $ | (529.4 | ) | | |
Developed technology consists primarily of current product offerings, primarily breast aesthetics products, dermal fillers, skin care products and eye care products acquired in connection with business combinations, asset acquisitions and initial licensing transactions for products previously approved for marketing. Customer relationship assets consist of the estimated value of relationships with customers acquired in connection with business combinations. Licensing assets consist primarily of capitalized payments to third party licensors related to the achievement of regulatory approvals to commercialize products in specified markets and up-front payments associated with royalty obligations for products that have achieved regulatory approval for marketing. Core technology consists of a drug delivery technology acquired in connection with the Company's 2013 acquisition of MAP, proprietary technology associated with silicone gel breast implants acquired in connection with the Company's 2006 acquisition of Inamed Corporation, dermal filler technology acquired in connection with the Company’s 2007 acquisition of Groupe Cornéal Laboratoires and a drug delivery technology acquired in connection with the Company’s 2003 acquisition of Oculex Pharmaceuticals, Inc. Other intangible assets consist primarily of acquired product registration rights, distributor relationships, distribution rights, government permits, non-compete agreements and a defensive asset associated with developed technology that has been commercialized. The in-process research and development assets consist primarily of an orally inhaled drug for the potential acute treatment of migraine in adults acquired in connection with the Company's 2013 acquisition of MAP and a novel compound to treat erythema associated with rosacea acquired in connection with the Company’s 2011 acquisition of Vicept Therapeutics, Inc. (Vicept) that is currently under development.
In the fourth quarter of 2013, the Company recorded a pre-tax charge of $11.4 million related to the impairment of an intangible asset for distribution rights acquired in connection with the Company's 2011 acquisition of Precision Light, Inc. as a result of the Company's decision to discontinue the sale of products related to those distribution rights.
In the fourth quarter of 2012, the Company recorded a pre-tax charge of $17.0 million related to the partial impairment of the in-process research and development asset acquired in connection with the Company’s 2011 acquisition of Vicept. The impairment charge was recognized because the carrying amount of the asset was determined to be in excess of its estimated fair value.
In the third quarter of 2011, the Company recorded a pre-tax charge of $4.3 million related to the impairment of an in-process research and development asset associated with a tissue reinforcement technology that has not yet achieved regulatory approval acquired in connection with the Company’s 2010 acquisition of Serica Technologies, Inc. The impairment charge was recognized because estimates of the anticipated future undiscounted cash flows of the asset were not sufficient to recover its carrying amount.
The following table provides amortization expense by major categories of intangible assets for the years ended December 31, 2013, 2012 and 2011, respectively:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
| (in millions) |
Developed technology | $ | 57.2 |
| | $ | 53.4 |
| | $ | 53.7 |
|
Customer relationships | 20.5 |
| | 1.1 |
| | — |
|
Licensing | 7.4 |
| | 20.4 |
| | 20.4 |
|
Trademarks | 4.4 |
| | 0.4 |
| | 1.4 |
|
Core technology | 19.4 |
| | 6.5 |
| | 6.7 |
|
Other | 7.8 |
| | 8.4 |
| | 3.9 |
|
| $ | 116.7 |
| | $ | 90.2 |
| | $ | 86.1 |
|
Amortization expense related to intangible assets generally benefits multiple business functions within the Company, such as the Company’s ability to sell, manufacture, research, market and distribute products, compounds and intellectual property. The amount of amortization expense excluded from cost of sales consists primarily of amounts amortized with respect to developed technology and licensing intangible assets.
Estimated amortization expense is $110.3 million for 2014, $96.7 million for 2015, $76.4 million for 2016, $57.9 million for 2017 and $55.9 million for 2018.
Goodwill
Changes in the carrying amount of goodwill by operating segment for the years ended December 31, 2013 and 2012 were as follows:
|
| | | | | | | | | | | |
| Specialty Pharmaceuticals | | Medical Devices | | Total |
| (in millions) |
Balance at December 31, 2011 | $ | 150.1 |
| | $ | 1,832.6 |
| | $ | 1,982.7 |
|
SkinMedica acquisition | 142.7 |
| | — |
| | 142.7 |
|
Purchase of distributor’s business in Russia | 3.8 |
| | — |
| | 3.8 |
|
Foreign exchange translation effects and other | 3.2 |
| | 1.4 |
| | 4.6 |
|
Balance at December 31, 2012 | 299.8 |
| | 1,834.0 |
| | 2,133.8 |
|
MAP acquisition | 175.0 |
| | — |
| | 175.0 |
|
Exemplar acquisition | 14.0 |
| | — |
| | 14.0 |
|
SkinMedica acquisition adjustments | 17.6 |
| | — |
| | 17.6 |
|
Foreign exchange translation effects and other | (5.2 | ) | | 4.2 |
| | (1.0 | ) |
Balance at December 31, 2013 | $ | 501.2 |
| | $ | 1,838.2 |
| | $ | 2,339.4 |
|
The SkinMedica acquisition adjustments primarily relate to adjusting the assigned fair values associated with deferred tax assets and deferred tax liabilities and a contractual purchase price adjustment of $2.8 million. The Company does not consider the adjustments to be material.
