Company Quick10K Filing
Quick10K
Bausch
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$26.09 350 $9,120
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-09 Other Events, Exhibits
8-K 2019-05-06 Earnings, Exhibits
8-K 2019-05-01 Shareholder Vote
8-K 2019-04-30 Regulation FD, Exhibits
8-K 2019-04-17 Other Events
8-K 2019-03-08 Enter Agreement, Off-BS Arrangement, Off-BS Arrangement, Other Events, Exhibits
8-K 2019-02-22 Other Events, Exhibits
8-K 2019-02-20 Earnings, Exhibits
8-K 2018-12-11 Enter Agreement, Other Events, Exhibits
8-K 2018-11-21 Enter Agreement, Off-BS Arrangement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-11-07 Regulation FD, Other Events, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-10-31 Enter Agreement, Exhibits
8-K 2018-10-29 Officers, Exhibits
8-K 2018-08-10 Other Events, Exhibits
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-07-13 Amend Bylaw, Exhibits
8-K 2018-06-01 Enter Agreement, Off-BS Arrangement, Off-BS Arrangement, Exhibits
8-K 2018-05-17 Other Events, Exhibits
8-K 2018-05-14 Regulation FD
8-K 2018-05-10 Other Events, Exhibits
8-K 2018-05-01 Shareholder Vote
8-K 2018-03-26 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-03-12 Other Events, Exhibits
8-K 2018-03-06 Officers
8-K 2018-01-09 Regulation FD, Exhibits
WLTW Willis Towers Watson 22,620
PRAH PRA Health Sciences 6,010
BGS B&G Foods 1,430
SASR Sandy Spring Bancorp 1,240
XENE Xenon Pharmaceuticals 239
XBIO Xenetic Biosciences 13
CTIB CTI Industries 12
BVSN Broadvision 6
BOXS Boxscore Brands 0
BCDA Biocardia 0
BHC 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.2 a10qq12019-exhibit102.htm
EX-10.3 a10qq12019-exhibit103.htm
EX-31.1 exhibit311q12019.htm
EX-31.2 exhibit312q12019.htm
EX-32.1 exhibit321q12019.htm
EX-32.2 exhibit322q12019.htm

Bausch Earnings 2019-03-31

BHC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 bauschhealthcompaniesincq1.htm BHC Q1 2019 FORM 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-14956
Bausch Health Companies Inc.
(Exact name of registrant as specified in its charter)
British Columbia, Canada 
(State or other jurisdiction of
incorporation or organization)
98-0448205 
(I.R.S. Employer Identification No.)
2150 St. Elzéar Blvd. West, Laval, Québec 
(Address of principal executive offices)
H7L 4A8 
(Zip Code)
(514) 744-6792
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer 
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares, No Par Value
BHC
New York Stock Exchange, Toronto Stock Exchange
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common shares, no par value — 351,883,887 shares outstanding as of May 2, 2019.





BAUSCH HEALTH COMPANIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
INDEX
Part I.
Financial Information
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II.
Other Information
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


i



BAUSCH HEALTH COMPANIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
Introductory Note
Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 (this “Form 10-Q”) to the “Company”, “we”, “us”, “our” or similar words or phrases are to Bausch Health Companies Inc. and its subsidiaries, taken together. In this Form 10-Q, references to “$” are to United States (“U.S.”) dollars and references to “€” are to euros. Unless otherwise indicated, the statistical and financial data contained in this Form 10-Q are presented as of March 31, 2019.
Forward-Looking Statements
Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws:
To the extent any statements made in this Form 10-Q contain information that is not historical, these statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and may be forward-looking information within the meaning defined under applicable Canadian securities laws (collectively, “forward-looking statements”).
These forward-looking statements relate to, among other things: our business strategy, business plans and prospects and forecasts and changes thereto; product pipeline, prospective products and product approvals, product development and future performance and results of current and anticipated products; anticipated revenues for our products, including the Significant Seven; anticipated growth in our Ortho Dermatologics business; expected research and development ("R&D") and marketing spend, including in connection with the promotion of the Significant Seven; our expected primary cash and working capital requirements for 2019 and beyond; the Company's plans for continued improvement in operational efficiency and the anticipated impact of such plans; our liquidity and our ability to satisfy our debt maturities as they become due; our ability to reduce debt levels; the impact of our distribution, fulfillment and other third-party arrangements; proposed pricing actions; exposure to foreign currency exchange rate changes and interest rate changes; the outcome of contingencies, such as litigation, subpoenas, investigations, reviews, audits and regulatory proceedings; the anticipated impact of the adoption of new accounting standards; general market conditions; our expectations regarding our financial performance, including revenues, expenses, gross margins and income taxes; our ability to meet the financial and other covenants contained in our Fourth Amended and Restated Credit and Guaranty Agreement (the "Restated Credit Agreement"), and indentures; and our impairment assessments, including the assumptions used therein and the results thereof.
Forward-looking statements can generally be identified by the use of words such as “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “continue”, “will”, “may”, “could”, “would”, “should”, “target”, “potential”, “opportunity”, “designed”, “create”, “predict”, “project”, “forecast”, “seek”, “strive”, “ongoing” or “increase” and variations or other similar expressions. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes. Although we have previously indicated certain of these statements set out herein, all of the statements in this Form 10-Q that contain forward-looking statements are qualified by these cautionary statements. These statements are based upon the current expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making such forward-looking statements, including, but not limited to, factors and assumptions regarding the items previously outlined, those factors, risks and uncertainties outlined below and the assumption that none of these factors, risks and uncertainties will cause actual results or events to differ materially from those described in such forward-looking statements. Actual results may differ materially from those expressed or implied in such statements. Important factors, risks and uncertainties that could cause actual results to differ materially from these expectations include, among other things, the following:
the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating to, among other matters, our past distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former relationship with Philidor Rx Services, LLC ("Philidor")), including pending investigations by the U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern District of New York, the pending investigations by the U.S. Securities and Exchange Commission (the “SEC”) of the Company, the investigation order issued by the Company from the Autorité des marchés financiers (the “AMF”) (the Company’s principal securities regulator in Canada), a number of pending putative securities class action litigations in the U.S. (including

ii



related opt-out actions) and Canada (including related opt-out actions) and purported class actions under the federal RICO statute and other claims, investigations or proceedings that may be initiated or that may be asserted;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm on our Company, products and business that may result from the past and ongoing public scrutiny of our past distribution, marketing, pricing, disclosure and accounting practices and from our former relationship with Philidor;
the past and ongoing scrutiny of our legacy business practices, including with respect to pricing (including the investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York), and any pricing controls or price adjustments that may be sought or imposed on our products as a result thereof;
pricing decisions that we have implemented, or may in the future elect to implement, whether as a result of recent scrutiny or otherwise, such as the Patient Access and Pricing Committee’s commitment that the average annual price increase for our branded prescription pharmaceutical products will be set at no greater than single digits, or any future pricing actions we may take following review by our Patient Access and Pricing Committee (which is responsible for the pricing of our drugs);
legislative or policy efforts, including those that may be introduced and passed by the U.S. Congress, designed to reduce patient out-of-pocket costs for medicines, which could result in new mandatory rebates and discounts or other pricing restrictions, controls or regulations (including mandatory price reductions);
ongoing oversight and review of our products and facilities by regulatory and governmental agencies, including periodic audits by the U.S. Food and Drug Administration (the "FDA") and the results thereof;
actions by the FDA or other regulatory authorities with respect to our products or facilities;
our substantial debt (and potential additional future indebtedness) and current and future debt service obligations, our ability to reduce our outstanding debt levels and the resulting impact on our financial condition, cash flows and results of operations;
our ability to meet the financial and other covenants contained in our Restated Credit Agreement, indentures and other current or future debt agreements and the limitations, restrictions and prohibitions such covenants impose or may impose on the way we conduct our business, including prohibitions on incurring additional debt if certain financial covenants are not met, limitations on the amount of additional debt we are able to incur where not prohibited, and restrictions on our ability to make certain investments and other restricted payments;
any default under the terms of our senior notes indentures or Restated Credit Agreement and our ability, if any, to cure or obtain waivers of such default;
any delay in the filing of any future financial statements or other filings and any default under the terms of our senior notes indentures or Restated Credit Agreement as a result of such delays;
any downgrade by rating agencies in our credit ratings, which may impact, among other things, our ability to raise debt and the cost of capital for additional debt issuances;
any reductions in, or changes in the assumptions used in, our forecasts for fiscal year 2019 or beyond, which could lead to, among other things: (i) a failure to meet the financial and/or other covenants contained in our Restated Credit Agreement and/or indentures and/or (ii) impairment in the goodwill associated with certain of our reporting units or impairment charges related to certain of our products or other intangible assets, which impairments could be material;
changes in the assumptions used in connection with our impairment analyses or assessments, which would lead to a change in such impairment analyses and assessments and which could result in an impairment in the goodwill associated with any of our reporting units or impairment charges related to certain of our products or other intangible assets;
any additional divestitures of our assets or businesses and our ability to successfully complete any such divestitures on commercially reasonable terms and on a timely basis, or at all, and the impact of any such divestitures on our Company, including the reduction in the size or scope of our business or market share, loss of revenue, any loss on sale, including any resultant impairments of goodwill or other assets, or any adverse tax consequences suffered as a result of any such divestitures;
the uncertainties associated with the acquisition and launch of new products, including, but not limited to, our ability to provide the time, resources, expertise and costs required for the commercial launch of new products, the acceptance and

iii



demand for new pharmaceutical products, and the impact of competitive products and pricing, which could lead to material impairment charges;
our ability or inability to extend the profitable life of our products, including through line extensions and other life-cycle programs;
our ability to retain, motivate and recruit executives and other key employees;
our ability to implement effective succession planning for our executives and key employees;
factors impacting our ability to achieve anticipated growth in our Ortho Dermatologics business, including the approval of pending and pipeline products (and the timing of such approvals), the ability to successfully implement and operate our new cash-pay prescription program for certain of our Ortho Dermatologics branded products and the ability of such program to achieve the anticipated goals respecting patient access and fulfillment, expected geographic expansion, changes in estimates on market potential for dermatology products and continued investment in and success of our sales force;
factors impacting our ability to achieve anticipated revenues for our Significant Seven products, including changes in anticipated marketing spend on such products and launch of competing products;
the challenges and difficulties associated with managing a large complex business, which has, in the past, grown rapidly;
our ability to compete against companies that are larger and have greater financial, technical and human resources than we do, as well as other competitive factors, such as technological advances achieved, patents obtained and new products introduced by our competitors;
our ability to effectively operate, stabilize and grow our businesses in light of the challenges that the Company currently faces, including with respect to its substantial debt, pending investigations and legal proceedings, scrutiny of our past pricing, distribution and other practices, reputational harm and limitations on the way we conduct business imposed by the covenants in our Restated Credit Agreement, indentures and the agreements governing our other indebtedness;
the extent to which our products are reimbursed by government authorities, pharmacy benefit managers ("PBMs") and other third-party payors; the impact our distribution, pricing and other practices (including as it relates to our current relationship with Walgreen Co. ("Walgreens")) may have on the decisions of such government authorities, PBMs and other third-party payors to reimburse our products; and the impact of obtaining or maintaining such reimbursement on the price and sales of our products;
the inclusion of our products on formularies or our ability to achieve favorable formulary status, as well as the impact on the price and sales of our products in connection therewith;
the consolidation of wholesalers, retail drug chains and other customer groups and the impact of such industry consolidation on our business;
our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business profits of certain of our subsidiaries;
the actions of our third-party partners or service providers of research, development, manufacturing, marketing, distribution or other services, including their compliance with applicable laws and contracts, which actions may be beyond our control or influence, and the impact of such actions on our Company, including the impact to the Company of our former relationship with Philidor and any alleged legal or contractual non-compliance by Philidor;
the risks associated with the international scope of our operations, including our presence in emerging markets and the challenges we face when entering and operating in new and different geographic markets (including the challenges created by new and different regulatory regimes in such countries and the need to comply with applicable anti-bribery and economic sanctions laws and regulations);
adverse global economic conditions and credit markets and foreign currency exchange uncertainty and volatility in certain of the countries in which we do business;
the impact of the recently signed United States-Mexico-Canada Agreement (“USMCA”) and any potential changes to other trade agreements;
the final outcome and impact of Brexit negotiations;

iv



the trade conflict between the United States and China;
our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend against challenges to such intellectual property;
the introduction of generic, biosimilar or other competitors of our branded products and other products, including the introduction of products that compete against our products that do not have patent or data exclusivity rights;
our ability to identify, finance, acquire, close and integrate acquisition targets successfully and on a timely basis and the difficulties, challenges, time and resources associated with the integration of acquired companies, businesses and products;
the expense, timing and outcome of pending or future legal and governmental proceedings, arbitrations, investigations, subpoenas, tax and other regulatory audits, examinations, reviews and regulatory proceedings against us or relating to us and settlements thereof;
our ability to negotiate the terms of or obtain court approval for the settlement of certain legal and regulatory proceedings;
our ability to obtain components, raw materials or finished products supplied by third parties (some of which may be single-sourced) and other manufacturing and related supply difficulties, interruptions and delays;
the disruption of delivery of our products and the routine flow of manufactured goods;
economic factors over which the Company has no control, including changes in inflation, interest rates, foreign currency rates, and the potential effect of such factors on revenues, expenses and resulting margins;
interest rate risks associated with our floating rate debt borrowings;
our ability to effectively distribute our products and the effectiveness and success of our distribution arrangements, including the impact of our arrangements with Walgreens;
our ability to effectively promote our own products and those of our co-promotion partners, such as Doptelet® (Dova Pharmaceuticals, Inc.) and LucemyraTM (US WorldMeds, LLC);
the success of our fulfillment arrangements with Walgreens, including market acceptance of, or market reaction to, such arrangements (including by customers, doctors, patients, PBMs, third-party payors and governmental agencies), the continued compliance of such arrangements with applicable laws, and our ability to successfully negotiate any improvements to our arrangements with Walgreens;
our ability to secure and maintain third-party research, development, manufacturing, licensing, marketing or distribution arrangements;
the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to potential lawsuits, product liability claims and damages and/or recalls or withdrawals of products from the market;
the mandatory or voluntary recall or withdrawal of our products from the market and the costs associated therewith;
the availability of, and our ability to obtain and maintain, adequate insurance coverage and/or our ability to cover or insure against the total amount of the claims and liabilities we face, whether through third-party insurance or self-insurance;
the difficulty in predicting the expense, timing and outcome within our legal and regulatory environment, including with respect to approvals by the FDA, Health Canada and similar agencies in other countries, legal and regulatory proceedings and settlements thereof, the protection afforded by our patents and other intellectual and proprietary property, successful generic challenges to our products and infringement or alleged infringement of the intellectual property of others;
the results of continuing safety and efficacy studies by industry and government agencies;
the success of preclinical and clinical trials for our drug development pipeline or delays in clinical trials that adversely impact the timely commercialization of our pipeline products, as well as other factors impacting the commercial success of our products, which could lead to material impairment charges;
the results of management reviews of our research and development portfolio (including following the receipt of clinical results or feedback from the FDA or other regulatory authorities), which could result in terminations of specific projects which, in turn, could lead to material impairment charges;

v



the seasonality of sales of certain of our products;
declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over which we have no or limited control;
compliance by the Company or our third party partners and service providers (over whom we may have limited influence), or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other extensive regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide anti-bribery laws (including the U.S. Foreign Corrupt Practices Act and the Canadian Corruption of Foreign Public Officials Act), worldwide economic sanctions and/or export laws, worldwide environmental laws and regulation and privacy and security regulations;
the impacts of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Health Care Reform Act”) and potential amendment thereof and other legislative and regulatory health care reforms in the countries in which we operate, including with respect to recent government inquiries on pricing;
the impact of any changes in or reforms to the legislation, laws, rules, regulation and guidance that apply to the Company and its business and products or the enactment of any new or proposed legislation, laws, rules, regulations or guidance that will impact or apply to the Company or its businesses or products;
the impact of changes in federal laws and policy under consideration by the Trump administration and Congress, including the effect that such changes will have on fiscal and tax policies, the potential revision of all or portions of the Health Care Reform Act, international trade agreements and policies and policy efforts designed to reduce patient out-of-pocket costs for medicines (which could result in new mandatory rebates and discounts or other pricing restrictions);
illegal distribution or sale of counterfeit versions of our products;
interruptions, breakdowns or breaches in our information technology systems; and
risks in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 20, 2019, and risks detailed from time to time in our other filings with the SEC and the Canadian Securities Administrators (the “CSA”), as well as our ability to anticipate and manage the risks associated with the foregoing.
Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found in our Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 20, 2019, under Item 1A. “Risk Factors” and in the Company’s other filings with the SEC and CSA. When relying on our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. These forward-looking statements speak only as of the date made. We undertake no obligation to update or revise any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes, except as required by law. We caution that, as it is not possible to predict or identify all relevant factors that may impact forward-looking statements, the foregoing list of important factors that may affect future results is not exhaustive and should not be considered a complete statement of all potential risks and uncertainties.

vi



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
(Unaudited)
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
782

 
$
721

Restricted cash
2

 
2

Trade receivables, net
1,786

 
1,865

Inventories, net
1,012

 
934

Prepaid expenses and other current assets
693

 
689

Total current assets
4,275

 
4,211

Property, plant and equipment, net
1,341

 
1,353

Intangible assets, net
11,683

 
12,001

Goodwill
13,121

 
13,142

Deferred tax assets, net
1,754

 
1,676

Other non-current assets
377

 
109

Total assets
$
32,551

 
$
32,492

Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
429

 
$
411

Accrued and other current liabilities
3,255

 
3,197

Current portion of long-term debt and other
257

 
228

Total current liabilities
3,941

 
3,836

Acquisition-related contingent consideration
264

 
298

Non-current portion of long-term debt
23,924

 
24,077

Deferred tax liabilities, net
880

 
885

Other non-current liabilities
763

 
581

Total liabilities
29,772

 
29,677

Commitments and contingencies (Note 19)


 


Equity
 
 
 
Common shares, no par value, unlimited shares authorized, 351,873,984 and 349,871,102 issued and outstanding at March 31, 2019 and December 31, 2018, respectively
10,151

 
10,121

Additional paid-in capital
374

 
413

Accumulated deficit
(5,716
)
 
(5,664
)
Accumulated other comprehensive loss
(2,116
)
 
(2,137
)
Total Bausch Health Companies Inc. shareholders’ equity
2,693

 
2,733

Noncontrolling interest
86

 
82

Total equity
2,779

 
2,815

Total liabilities and equity
$
32,551

 
$
32,492


The accompanying notes are an integral part of these consolidated financial statements.

1



BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
Revenues
 
 
 
Product sales
$
1,989

 
$
1,965

Other revenues
27

 
30


2,016

 
1,995

Expenses
 
 
 
Cost of goods sold (excluding amortization and impairments of intangible assets)
524

 
560

Cost of other revenues
13

 
13

Selling, general and administrative
587

 
591

Research and development
117

 
92

Amortization of intangible assets
489

 
743

Goodwill impairments

 
2,213

Asset impairments
3

 
44

Restructuring and integration costs
20

 
6

Acquired in-process research and development costs
1

 
1

Acquisition-related contingent consideration
(21
)
 
2

Other (income) expense, net
(4
)
 
11

 
1,729

 
4,276

Operating income (loss)
287

 
(2,281
)
Interest income
4

 
3

Interest expense
(406
)
 
(416
)
Loss on extinguishment of debt
(7
)
 
(27
)
Foreign exchange and other

 
27

Loss before benefit from income taxes
(122
)
 
(2,694
)
Benefit from income taxes
74

 
115

Net loss
(48
)

(2,579
)
Net income attributable to noncontrolling interest
(4
)
 
(2
)
Net loss attributable to Bausch Health Companies Inc.
$
(52
)
 
$
(2,581
)
 
 
 
 
Loss per share attributable to Bausch Health Companies Inc.:
 
 
 
Basic
$
(0.15
)
 
$
(7.36
)
Diluted
$
(0.15
)
 
$
(7.36
)
 
 
 
 
Weighted-average common shares
 
 
 
Basic
351.3

 
350.7

Diluted
351.3

 
350.7


The accompanying notes are an integral part of these consolidated financial statements.

2



BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in millions)
(Unaudited)
    
 
Three Months Ended
March 31,
 
2019
 
2018
Net loss
$
(48
)
 
$
(2,579
)
Other comprehensive income
 
 
 
Foreign currency translation adjustment
21

 
46

Pension and postretirement benefit plan adjustments, net of income taxes

 

Other comprehensive income
21

 
46

Comprehensive loss
(27
)
 
(2,533
)
Comprehensive income attributable to noncontrolling interest
(4
)
 
(4
)
Comprehensive loss attributable to Bausch Health Companies Inc.
$
(31
)
 
$
(2,537
)

The accompanying notes are an integral part of these consolidated financial statements.

3



BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
(Unaudited)
 
 
Bausch Health Companies Inc. Shareholders' Equity
 
 
 
 
 
 
Common Shares
 
 
 
 
 
Accumulated
Other
Comprehensive
Loss
 
Bausch Health
Companies Inc.
Shareholders'
Equity
 
 
 
 
 
 
Shares
 
Amount
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2019
 
349.9

 
$
10,121

 
$
413

 
$
(5,664
)
 
$
(2,137
)
 
$
2,733

 
$
82

 
$
2,815

Common shares issued under share-based compensation plans
 
2.0

 
30

 
(29
)
 

 

 
1

 

 
1

Share-based compensation
 

 

 
24

 

 

 
24

 

 
24

Employee withholding taxes related to share-based awards
 

 

 
(34
)
 

 

 
(34
)
 

 
(34
)
Net (loss) income
 

 

 

 
(52
)
 

 
(52
)
 
4

 
(48
)
Other comprehensive income
 

 

 

 

 
21

 
21

 

 
21

Balance, March 31, 2019
 
351.9

 
$
10,151

 
$
374

 
$
(5,716
)
 
$
(2,116
)
 
$
2,693

 
$
86

 
$
2,779

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2018
 
348.7

 
$
10,090

 
$
380

 
$
(2,725
)
 
$
(1,896
)
 
$
5,849

 
$
95

 
$
5,944

Effect of application of new accounting standard: Income taxes
 

 

 

 
1,209

 

 
1,209

 

 
1,209

Common shares issued under share-based compensation plans
 
0.5

 
13

 
(13
)
 

 

 

 

 

Share-based compensation
 

 

 
21

 

 

 
21

 

 
21

Employee withholding taxes related to share-based awards
 

 

 
(6
)
 

 

 
(6
)
 

 
(6
)
Net (loss) income
 

 

 

 
(2,581
)
 

 
(2,581
)
 
2

 
(2,579
)
Other comprehensive income
 

 

 

 

 
44

 
44

 
2

 
46

Balance, March 31, 2018
 
349.2

 
$
10,103

 
$
382

 
$
(4,097
)
 
$
(1,852
)
 
$
4,536

 
$
99

 
$
4,635


The accompanying notes are an integral part of these consolidated financial statements.

4



BAUSCH HEALTH COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
Cash Flows From Operating Activities
 
 
 
Net loss
$
(48
)
 
$
(2,579
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization of intangible assets
532

 
786

Amortization and write-off of debt premiums, discounts and issuance costs
17

 
23

Asset impairments
3

 
44

Acquisition-related contingent consideration
(21
)
 
2

Allowances for losses on trade receivable and inventories
13

 
17

Deferred income taxes
(116
)
 
(152
)
Gain on sale of assets
(10
)
 

Additions to accrued legal settlements
2

 
11

Payments of accrued legal settlements
(1
)
 
(170
)
Goodwill impairments

 
2,213

Share-based compensation
24

 
21

Foreign exchange gain

 
(25
)
Loss on extinguishment of debt
7

 
27

Other
9

 
(3
)
Changes in operating assets and liabilities:
 
 
 
Trade receivables
89

 
204

Inventories
(68
)
 

Prepaid expenses and other current assets
(15
)
 
(70
)
Accounts payable, accrued and other liabilities
(4
)
 
89

Net cash provided by operating activities
413

 
438

 
 
 
 
Cash Flows From Investing Activities
 
 
 
Acquisition of businesses, net of cash acquired
(180
)
 
5

Payments for intangible and other assets

 
(14
)
Purchases of property, plant and equipment
(47
)
 
(33
)
Purchases of marketable securities
(2
)
 

Proceeds from sale of marketable securities
1

 
2

Proceeds from sale of assets and businesses, net of costs to sell
25

 
(8
)
Net cash used in investing activities
(203
)
 
(48
)
 
 
 
 
Cash Flows From Financing Activities
 
 
 
Net proceeds from the issuances of long-term debt
1,514

 
1,481

Repayments of long-term debt
(1,621
)
 
(1,731
)
Repayments of short-term debt

 
(1
)
Payments of employee withholding taxes related to share-based awards
(34
)
 
(5
)
Payments of acquisition-related contingent consideration
(9
)
 
(11
)
Debt extinguishment costs
(1
)
 
(20
)
Other
1

 
(1
)
Net cash used in financing activities
(150
)
 
(288
)
Effect of exchange rate changes on cash and cash equivalents
1

 
10

Net increase in cash and cash equivalents and restricted cash
61

 
112

Cash and cash equivalents and restricted cash, beginning of period
723

 
797

Cash and cash equivalents and restricted cash, end of period
$
784

 
$
909

 
 
 
 
Cash and cash equivalents
$
782

 
$
909

Restricted cash, current
2

 

Cash and cash equivalents and restricted cash, end of period
$
784

 
$
909


The accompanying notes are an integral part of these consolidated financial statements.

5



BAUSCH HEALTH COMPANIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
DESCRIPTION OF BUSINESS
Bausch Health Companies Inc. (the “Company”) is a pharmaceutical and medical device company that develops, manufactures, and markets, primarily in the therapeutic areas of eye-health, gastroenterology ("GI") and dermatology, a broad range of: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) over-the-counter (“OTC”) products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices), which are marketed directly or indirectly in over 90 countries.
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The accompanying unaudited Consolidated Financial Statements have been prepared by the Company in United States (“U.S.”) dollars and in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting, which do not conform in all respects to the requirements of U.S. GAAP for annual financial statements. Accordingly, these notes to the unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements prepared in accordance with U.S. GAAP that are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC and the Canadian Securities Administrators on February 20, 2019. The unaudited Consolidated Financial Statements have been prepared using accounting policies that are consistent with the policies used in preparing the Company’s audited Consolidated Financial Statements for the year ended December 31, 2018, except for the new accounting guidance adopted during the period. The unaudited Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.
In preparing the unaudited Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited Consolidated Financial Statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the Company’s business and new information as it becomes available. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, the Company’s results of operations and financial position could be materially impacted.
Principles of Consolidation
The unaudited Consolidated Financial Statements include the accounts of the Company and those of its subsidiaries and any variable interest entities for which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated.
Revisions to the Three Months Ended March 31, 2018
As originally disclosed in the financial statements for the quarterly period ended June 30, 2018, the Company identified an understatement of the Benefit from income taxes for the three months ended March 31, 2018 of $112 million due to an error in the forecasted effective tax rate. The revision decreased the Net loss and Net loss attributable to Bausch Health Companies Inc. by $112 million, or $0.32 per basic and diluted share, and affects Net loss and Deferred income taxes presented on the Consolidated Statement of Cash Flows by $112 million, with no net impact to total Net cash provided by operating activities. The Company also identified an understatement of the foreign currency translation adjustment as presented in the Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2018 which did not impact the Net loss and Net loss attributable to Bausch Health Companies Inc. reported for the same period. Based on its evaluation, the Company concluded that these misstatements were not material to its Consolidated Balance Sheet and Consolidated Statements of Operations, Comprehensive Loss, Equity and Cash Flows as of and for the three months ended March 31, 2018 or related disclosures. The March 31, 2018 financial information has been revised to correct these misstatements. There was no impact to the March 31, 2019 reported amounts.

6

   

The following table presents the effect of the revisions on the Company’s Consolidated Balance Sheet as of March 31, 2018:
(in millions)
As Previously Reported
 
Adjustment
 
As Revised
Deferred tax liabilities, net
$
1,139

 
$
(112
)
 
$
1,027

Total liabilities
31,275

 
(112
)
 
31,163

Accumulated deficit
(4,209
)
 
112

 
(4,097
)
Total Bausch Health Companies Inc. shareholders' equity
4,424

 
112

 
4,536

Total equity
4,523

 
112

 
4,635

The following table presents the effect of the revisions on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2018:
(in millions, except per share amounts)
As Previously Reported
 
Adjustment
 
As Revised
Consolidated Statement of Operations
 
 
 
 
 
Benefit from income taxes
$
(3
)
 
$
(112
)
 
$
(115
)
Net loss
(2,691
)
 
112

 
(2,579
)
Net loss attributable to Bausch Health Companies Inc.
(2,693
)
 
112

 
(2,581
)
Basic and diluted loss per share attributable to Bausch Health Companies Inc.
(7.68
)
 
0.32

 
(7.36
)
Consolidated Statement of Comprehensive Loss
 
 
 
 
 
Foreign currency translation adjustment
(46
)
 
92

 
46

Other comprehensive (loss) income
(46
)
 
92

 
46

Comprehensive loss
(2,737
)
 
204

 
(2,533
)
Comprehensive loss (income) attributable to noncontrolling interest
2

 
(6
)
 
(4
)
Comprehensive loss attributable to Bausch Health Companies Inc.
(2,735
)
 
198

 
(2,537
)
Reclassifications
Changes in Reportable Segments
In the second quarter of 2018, the Company began operating in the following operating segments: (i) Bausch + Lomb/International, (ii) Salix, (iii) Ortho Dermatologics and (iv) Diversified Products. Prior to the second quarter of 2018, the Company operated in the following operating segments: (i) Bausch + Lomb/International, (ii) Branded Rx and (iii) U.S. Diversified Products. The Bausch + Lomb/International segment consists of the: (i) U.S. Bausch + Lomb and (ii) International reporting units. The Salix segment consists of the Salix reporting unit (originally part of the former Branded Rx segment). The Ortho Dermatologics segment consists of the: (i) Ortho Dermatologics (originally part of the former Branded Rx segment) and (ii) Global Solta (originally part of the former Branded Rx segment) reporting units. The Diversified Products segment consists of the: (i) Neurology and Other (originally part of the former U.S. Diversified Product segment), (ii) Generics (originally part of the former U.S. Diversified Product segment) and (iii) Dentistry (originally part of the former Branded Rx segment) reporting units. Prior period presentations of segment revenues and segment profits have been recast to conform to the current segment reporting structure. See Note 20, "SEGMENT INFORMATION" for additional information.
Certain other reclassifications have been made to prior year amounts to conform to the current year presentation.
Adoption of New Accounting Guidance
In February 2016, the Financial Accounting Standards Board ("FASB") issued a new standard revising the accounting for leases to increase transparency and comparability among organizations that lease buildings, equipment and other assets by requiring the recognition of lease assets and lease liabilities on the balance sheet. Under the new standard, all leases are classified as either a finance lease or an operating lease. The classification is determined based on whether substantive control has been transferred to the lessee and its determination will govern the pattern of lease cost recognition. Finance leases are accounted for in substantially the same manner as capital leases under the former U.S. GAAP standard. Operating leases are

7

   

accounted for in the statements of operations and statements of cash flows in a manner substantially consistent with operating leases under the former U.S. GAAP standard. However, as it relates to the balance sheet, lessees are, with limited exception, required to record a right-of-use asset and a corresponding lease liability, equal to the present value of the lease payments for each operating lease. Lessees are not required to recognize a right-of-use asset or lease liability for short-term leases, but instead recognizes lease payments as an expense on a straight-line basis over the lease term. The standard also requires lessees and lessors to provide additional qualitative and quantitative disclosures to help financial statement users assess the amounts, timing and uncertainty of cash flows arising from leases.
The Company adopted the new standard effective January 1, 2019, using the modified retrospective approach. Upon adoption, the Company elected the available practical expedients, including: (i) the package of practical expedients as defined in the accounting guidance, which among other things, allowed the carry forward of historical lease classifications, (ii) the election to use hindsight in determining the lease terms for all leases, (iii) the transition method, which does not require the restatement of prior periods, (iv) the election to aggregate lease components with non-lease components and account for these payments as a single lease component and (v) the short-term lease exemption, which does not require recognition on the balance sheet for leases with an initial term of 12 months or less. The Company has updated its systems, processes and controls to track, record and account for its lease portfolio, including implementation of a third-party software tool to assist in complying with the new standard. Upon adoption of the new standard, the Company recognized a right-of-use asset and a corresponding lease liability of $302 million. In addition, approximately $20 million of restructuring liabilities associated with facility closures and deferred rents, included in Other non-current liabilities as of December 31, 2018 were reclassified to reduce right-of-use assets. The adoption of the standard did not have a material impact on the Consolidated Statements of Operations, Comprehensive Loss, Equity and Cash Flows for any of the periods presented. See Note 12, "LEASES" for additional details and application of this standard.
In August 2018, the FASB issued guidance aligning the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.  The guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted.  The Company has early-adopted this guidance prospectively for all implementation costs incurred after January 1, 2019.
Recently Issued Accounting Standards, Not Adopted as of March 31, 2019
In June 2016, the FASB issued guidance on the impairment of financial instruments requiring an impairment model based on expected losses rather than incurred losses. Under this guidance, an entity recognizes as an allowance its estimate of expected credit losses. The guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is evaluating the impact of adoption of this guidance on its financial position, results of operations and cash flows.
In August 2018, the FASB issued guidance modifying the disclosure requirements for fair value measurement.  The guidance is effective for annual periods beginning after December 15, 2019.  The Company is permitted to early-adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until the effective date.  The Company is evaluating the impact of adoption of this guidance on its disclosures.
In August 2018, the FASB issued guidance modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  The guidance is effective for annual periods ending after December 15, 2020, with early adoption permitted.  The Company is evaluating the impact of adoption of this guidance on its disclosures.
3.
REVENUE RECOGNITION
The Company’s revenues are primarily generated from product sales, primarily in the therapeutic areas of eye-health, GI and dermatology, that consist of: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) OTC products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetics devices). Other revenues include alliance and service revenue from the licensing and co-promotion of products and contract service revenue primarily in the areas of dermatology and topical medication. Contract service revenue is derived primarily from contract manufacturing for third parties and is not material. See Note 20, "SEGMENT INFORMATION" for the disaggregation of revenue which depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by the economic factors of each category of customer contracts.

8

   

Product Sales Provisions
As is customary in the pharmaceutical industry, gross product sales are subject to a variety of deductions in arriving at reported net product sales.  The transaction price for product sales is typically adjusted for variable consideration, which may be in the form of cash discounts, allowances, returns, rebates, chargebacks and distribution fees paid to customers. Provisions for variable consideration are established to reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in the future period.
Provisions for these deductions are recorded concurrently with the recognition of gross product sales revenue and include cash discounts and allowances, chargebacks, and distribution fees, which are paid to direct customers, as well as rebates and returns, which can be paid to direct and indirect customers. Returns provision balances and volume discounts to direct customers are included in Accrued and other current liabilities. All other provisions related to direct customers are included in Trade receivables, net, while provision balances related to indirect customers are included in Accrued and other current liabilities.
The following tables present the activity and ending balances of the Company’s variable consideration provisions for the three months ended March 31, 2019 and 2018.
 
 
Three Months Ended March 31, 2019
(in millions)
 
Discounts
and
Allowances
 
Returns
 
Rebates
 
Chargebacks
 
Distribution
Fees
 
Total
Reserve balances, January 1, 2019
 
$
175

 
$
813

 
$
1,024

 
$
209

 
$
163

 
$
2,384

Acquisition of Synergy
 

 
3

 
12

 

 
1

 
16

Current period provisions
 
204

 
33

 
533

 
443

 
48

 
1,261

Payments and credits
 
(210
)
 
(55
)
 
(568
)
 
(497
)
 
(85
)
 
(1,415
)
Reserve balances, March 31, 2019
 
$
169

 
$
794

 
$
1,001

 
$
155

 
$
127

 
$
2,246

Included in Rebates in the table above are cooperative advertising credits due to customers of approximately $27 million and $26 million as of March 31, 2019 and January 1, 2019, respectively, which are reflected as a reduction of Trade receivables, net in the Consolidated Balance Sheets. There were no price appreciation credits for the three months ended March 31, 2019.
 
 
Three Months Ended March 31, 2018
(in millions)
 
Discounts
and
Allowances
 
Returns
 
Rebates
 
Chargebacks
 
Distribution
Fees
 
Total
Reserve balances, January 1, 2018
 
$
167

 
$
863

 
$
1,094

 
$
274

 
$
148

 
$
2,546

Current period provisions
 
184

 
88

 
635

 
477

 
48

 
1,432

Payments and credits
 
(199
)
 
(75
)
 
(620
)
 
(474
)
 
(81
)
 
(1,449
)
Reserve balances, March 31, 2018
 
$
152

 
$
876

 
$
1,109

 
$
277

 
$
115

 
$
2,529

Included as a reduction of current period provisions for Distribution Fees in the table above are price appreciation credits of $15 million for the three months ended March 31, 2018.
Contract Assets and Contract Liabilities
There are no contract assets for any period presented. Contract liabilities consist of deferred revenue, the balance of which is not material to any period presented.

9

   

4.
ACQUISITION
Synergy Pharmaceuticals Inc.
On March 6, 2019, the Company acquired certain assets of Synergy Pharmaceuticals Inc. ("Synergy") for a cash purchase price of approximately $180 million and the assumption of certain assumed liabilities, pursuant to the terms approved by the U.S. Bankruptcy Court for the Southern District of New York on March 1, 2019. Among the assets acquired are the worldwide rights to the Trulance® (plecanatide) product, a once-daily tablet for adults with chronic idiopathic constipation and irritable bowel syndrome with constipation. This acquisition is expected to result in additional revenues and costs savings associated with business synergies.
Assets Acquired and Liabilities Assumed
The acquisition of certain assets of Synergy has been accounted for as a business combination under the acquisition method of accounting since: (i) substantially all of the fair value of the assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets and (ii) sufficient inputs and processes were acquired to contribute to the creation of outputs. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to the acquisition of certain assets of Synergy as of the acquisition date:
(in millions)
 
Accounts receivable
$
7

Inventories
24

Prepaid expenses and other current assets
5

Product brand intangible assets (7 years)
159

Accounts payable
(1
)
Accrued expenses
(17
)
Total identifiable net assets
177

Goodwill
3

Total fair value of consideration transferred
$
180

Due to the timing of the acquisition, the following are provisional and are subject to change:
amounts for intangible assets, property and equipment, inventories, receivables and other working capital adjustments pending finalization of the valuation;
amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction; and
amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed.
The Company will finalize these amounts no later than one year from the acquisition date, once it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in adjustments to the provisional amounts recognized at the acquisition date which will impact the reported results in the period those adjustments are identified. These adjustments, if any, could be material.
Goodwill associated with the acquisition of certain assets of Synergy is not deductible for income tax purposes.
Revenue and Operating Results
Revenues associated with the acquired assets of Synergy during the period March 6, 2019 through March 31, 2019 were $6 million. Operating results associated with the acquired assets of Synergy during the period March 6, 2019 through March 31, 2019 and pro-forma revenues and operating results for the three months ended March 31, 2019 and 2018 were not material. Included in Other (income) expense, net during the three months ended March 31, 2019 are acquisition-related costs of $8 million directly related to the acquisition of certain assets of Synergy, which includes expenditures for advisory, legal, valuation, accounting and other similar services.

10

   

5.
RESTRUCTURING AND INTEGRATION COSTS
The Company evaluates opportunities to improve its operating results and implements cost savings programs to streamline its operations and eliminate redundant processes and expenses. The expenses associated with the implementation of these cost savings programs include expenses associated with: (i) reducing headcount, (ii) eliminating real estate costs associated with unused or under-utilized facilities and (iii) implementing contribution margin improvement and other cost reduction initiatives. The remaining liability associated with restructuring and integration costs as of March 31, 2019 was $31 million.
During the three months ended March 31, 2019, the Company incurred $20 million of restructuring and integration costs. These costs included: (i) $10 million of severance costs associated with Synergy, which were not essential to complete, close and report the acquisition, (ii) $6 million of other severance costs and (iii) $4 million of facility closure costs. The Company made payments of $16 million for the three months ended March 31, 2019.
During the three months ended March 31, 2018, the Company incurred $6 million of restructuring and integration costs. These costs included: (i) $4 million of severance costs and (ii) $2 million of facility closure costs. The Company made payments of $6 million for the three months ended March 31, 2018.
6.
FAIR VALUE MEASUREMENTS
Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities;
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following fair value hierarchy table presents the components and classification of the Company’s financial assets and liabilities measured at fair value on a recurring basis.
 
 
March 31, 2019
 
December 31, 2018
(in millions)
 
Carrying
Value
 
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Carrying
Value
 
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
263

 
$
235

 
$
28

 
$

 
$
197

 
$
166

 
$
31

 
$

Restricted cash
 
$
2

 
$
2

 
$

 
$

 
$
2

 
$
2

 
$

 
$

Liabilities:
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
Acquisition-related contingent consideration
 
$
309

 
$

 
$

 
$
309

 
$
339

 
$

 
$

 
$
339

Cash equivalents consist of highly liquid investments, primarily money market funds, with maturities of three months or less when purchased, and are reflected in the Consolidated Balance Sheets at carrying value, which approximates fair value due to their short-term nature.
There were no transfers between Level 1, Level 2 or Level 3 during the three months ended March 31, 2019.

11

   

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
The fair value measurement of contingent consideration obligations arising from business combinations is determined via a probability-weighted discounted cash flow analysis or Monte Carlo Simulation, using unobservable (Level 3) inputs. These inputs may include: (i) the estimated amount and timing of projected cash flows, (ii) the probability of the achievement of the factor(s) on which the contingency is based, (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows and (iv) volatility of projected performance (Monte Carlo Simulation). Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. At March 31, 2019, the fair value measurements of acquisition-related contingent consideration were determined using risk-adjusted discount rates ranging from 5% to 25%.
The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2019 and 2018:
(in millions)
 
2019
 
2018
Balance, beginning of period
 
 
 
$
339

 
 
 
$
387

Adjustments to Acquisition-related contingent consideration:
 
 
 
 
 
 
 
 
Accretion for the time value of money
 
$
6

 
 
 
$
6

 
 
Fair value adjustments due to changes in estimates of other future payments
 
(27
)
 
 
 
(4
)
 
 
Acquisition-related contingent consideration
 
 
 
(21
)
 
 
 
2

Foreign currency translation adjustment included in other comprehensive loss
 
 
 

 
 
 
1

Payments
 
 
 
(9
)
 
 
 
(12
)
Balance, end of period
 
 
 
309

 
 
 
378

Current portion included in Accrued and other current liabilities
 
 
 
45

 
 
 
58

Non-current portion
 
 
 
$
264

 
 
 
$
320

Fair Value of Long-term Debt
The fair value of long-term debt as of March 31, 2019 and December 31, 2018 was $25,003 million and $23,357 million, respectively, and was estimated using the quoted market prices for the same or similar debt issuances (Level 2).
7.
INVENTORIES
Inventories, net of allowances for obsolescence consist of:
(in millions)
 
March 31,
2019

December 31,
2018
Raw materials
 
$
291

 
$
275

Work in process
 
136

 
95

Finished goods
 
585

 
564

 
 
$
1,012

 
$
934


12

   

8.
INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The major components of intangible assets consist of:
 
 
March 31, 2019
 
December 31, 2018
(in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
and
Impairments
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
and
Impairments
 
Net
Carrying
Amount
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Product brands
 
$
21,066

 
$
(12,376
)
 
$
8,690

 
$
20,891

 
$
(11,958
)
 
$
8,933

Corporate brands
 
927

 
(281
)
 
646

 
926

 
(263
)
 
663

Product rights/patents
 
3,293

 
(2,713
)
 
580

 
3,292

 
(2,658
)
 
634

Partner relationships
 
165

 
(163
)
 
2

 
168

 
(166
)
 
2

Technology and other
 
208

 
(177
)
 
31

 
208

 
(173
)
 
35

Total finite-lived intangible assets
 
25,659

 
(15,710
)
 
9,949

 
25,485

 
(15,218
)
 
10,267

Acquired IPR&D not in service
 
36

 

 
36

 
36

 

 
36

Bausch + Lomb Trademark
 
1,698

 

 
1,698

 
1,698

 

 
1,698

 
 
$
27,393

 
$
(15,710
)
 
$
11,683

 
$
27,219

 
$
(15,218
)
 
$
12,001

Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company continues to monitor the recoverability of its finite-lived intangible assets and tests the intangible assets for impairment if indicators of impairment are present.
Asset impairments for the three months ended March 31, 2019 were $3 million due to the discontinuance of a specific product line not aligned with the focus of the Company's core businesses.
Asset impairments for the three months ended March 31, 2018 include impairments of: (i) $34 million reflecting decreases in forecasted sales for a certain product line due to generic competition, (ii) $6 million, in aggregate, related to certain product/patent assets associated with the discontinuance of specific product lines not aligned with the focus of the Company's core businesses and revisions to forecasted sales and (iii) $4 million related to assets being classified as held for sale.
Periodically, the Company’s products face the expiration of their patent or regulatory exclusivity. The Company anticipates that product sales for such product would decrease shortly following a loss of exclusivity, due to the possible entry of a generic competitor. Where the Company has the rights, it may elect to launch an authorized generic of such product (either as the Company’s own branded generic or through a third-party). This may occur prior to, upon or following generic entry, which may mitigate the anticipated decrease in product sales; however, even with launch of an authorized generic, the decline in product sales of such product could still be significant, and the effect on future revenues could be material.
Management continually assesses the useful lives related to the Company's long-lived assets to reflect the most current assumptions. In review of the Company’s finite-lived intangible assets, management revised the estimated useful lives of certain intangible assets in 2018.
Effective September 12, 2018, the Company changed the estimated useful life of its Xifaxan®-related intangible assets due to the positive impact of the agreement between the Company and Actavis resolving the intellectual property litigation regarding Xifaxan® tablets, 550 mg. As discussed in further detail in Note 20, "LEGAL PROCEEDINGS" to the Company's Annual Consolidated Financial Statements contained in its Annual Report on Form 10-K for the year ended December 31, 2018, the parties have agreed to dismiss all litigation related to Xifaxan® tablets, 550 mg and all intellectual property protecting Xifaxan® will remain intact and enforceable. As a result, the useful life of the Xifaxan®-related intangible assets was extended from 2024 to January 1, 2028. As this change in the estimated useful life is a change in an accounting estimate, amortization expense is impacted prospectively. The change in the estimated useful life of the Xifaxan®-related intangible assets resulted in a decrease to the Net loss attributable to Bausch Health Companies Inc. of $118 million, and a decrease to the Basic and Diluted Loss per share attributable to Bausch Health Companies Inc. of $0.34 for the three months ended March 31, 2019. As of March 31, 2019, the net carrying value of the Xifaxan®-related intangible assets was $4,713 million.

13

   

Estimated amortization expense of finite-lived intangible assets for the remainder of 2019 and each of the five succeeding years ending December 31 and thereafter is as follows:
(in millions)
 
 
April through December 2019
 
$
1,410

2020
 
1,639

2021
 
1,389

2022
 
1,237

2023
 
1,088

2024
 
954

Thereafter
 
2,232

Total
 
$
9,949

Goodwill
The changes in the carrying amounts of goodwill during the three months ended March 31, 2019 and the year ended December 31, 2018 were as follows:
(in millions)
 
Bausch + Lomb/ International
 
Branded Rx
 
U.S. Diversified Products
 
Salix
 
Ortho Dermatologics
 
Diversified Products
 
Total
Balance, January 1, 2018
 
$
6,016

 
$
6,631

 
$
2,946

 
$

 
$

 
$

 
$
15,593

Impairment of the Salix and Ortho Dermatologics reporting units
 

 
(2,213
)
 

 

 

 

 
(2,213
)
Realignment of Global Solta reporting unit goodwill
 
(82
)
 
115

 
(33
)
 

 

 

 

Goodwill reclassified to assets held for sale and subsequently disposed
 
(2
)
 

 

 

 

 

 
(2
)
Realignment of segment goodwill
 

 
(4,533
)
 
(2,913
)
 
3,156

 
1,267

 
3,023

 

Impairment of the Dentistry reporting unit
 

 

 

 

 

 
(109
)
 
(109
)
Foreign exchange and other
 
(127
)
 

 

 

 

 

 
(127
)
Balance, December 31, 2018
 
5,805

 

 

 
3,156

 
1,267

 
2,914

 
13,142

Acquisition of certain assets of Synergy
 

 

 

 
3

 

 

 
3

Foreign exchange and other
 
(24
)
 

 

 

 

 

 
(24
)
Balance, March 31, 2019
 
$
5,781

 
$

 
$

 
$
3,159

 
$
1,267

 
$
2,914

 
$
13,121

Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit is the same as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants. The Company estimates the fair values of all reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs.
The discounted cash flow model relies on assumptions regarding revenue growth rates, gross profit, projected working capital needs, selling, general and administrative expenses, research and development expenses, capital expenditures, income tax rates, discount rates and terminal growth rates. To estimate fair value, the Company discounts the forecasted cash flows of each reporting unit. The discount rate the Company uses represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in its reporting unit operations and the rate of return a market participant would expect to earn. The Company performed its annual impairment test as of October 1, 2018, utilizing long-term growth rates for its reporting units ranging from 1.0% to 3.0% and discount rates applied to the estimated cash flows ranging from 7.5% to 14.0% in estimation of fair value. To estimate cash flows beyond the final year of its model, the Company estimates a terminal value by applying an in perpetuity growth assumption and discount factor to determine the reporting unit's terminal value.
The Company forecasts cash flows for each reporting unit and takes into consideration economic conditions and trends, estimated future operating results, management's and a market participant's view of growth rates and product lives, and

14

   

anticipates future economic conditions. Revenue growth rates inherent in these forecasts were based on input from internal and external market research that compare factors such as growth in global economies, recent industry trends and product life-cycles. Macroeconomic factors such as changes in economies, changes in the competitive landscape including the unexpected loss of exclusivity to the Company's product portfolio, changes in government legislation, product life-cycles, industry consolidations and other changes beyond the Company’s control could have a positive or negative impact on achieving its targets. Accordingly, if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.
2018
Adoption of New Accounting Guidance for Goodwill Impairment Testing
In January 2017, the FASB issued guidance which simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. Instead, goodwill impairment is measured as the amount by which a reporting unit's carrying value exceeds its fair value. The Company elected to adopt this guidance effective January 1, 2018.
Upon adopting the new guidance, the Company tested goodwill for impairment and determined that the carrying value of the Salix reporting unit exceeded its fair value. As a result of the adoption of new accounting guidance, the Company recognized a goodwill impairment of $1,970 million associated with the Salix reporting unit.
As of October 1, 2017, the date of the 2017 annual goodwill impairment test, the fair value of the Ortho Dermatologics reporting unit exceeded its carrying value. However, at January 1, 2018 unforeseen changes in the business dynamics of the Ortho Dermatologics reporting unit, such as: (i) changes in the dermatology sector, (ii) increased pricing pressures from third-party payors, (iii) additional risks to the exclusivity of certain products and (iv) an expected longer launch cycle for a new product, were factors that negatively impacted the reporting unit's operating results beyond management's expectations as of October 1, 2017, when the Company performed its 2017 annual goodwill impairment test. In response to these adverse business indicators, as of January 1, 2018 the Company reduced its near and long term financial projections for the Ortho Dermatologics reporting unit. As a result of the reductions in the near and long term financial projections, the carrying value of the Ortho Dermatologics reporting unit exceeded its fair value at January 1, 2018 and the Company recognized a goodwill impairment of $243 million.
As of January 1, 2018, with the exception of the Salix reporting unit and Ortho Dermatologics reporting unit, the fair value of all reporting units exceeded their respective carrying value by more than 15%.
2018 Realignment of Solta Business
Effective March 1, 2018, revenues and profits from the U.S. Solta business included in the former U.S. Diversified Products segment in prior periods and revenues and profits from the international Solta business included in the Bausch + Lomb/International segment in prior periods, are reported in the new Global Solta reporting unit, which, at that time, was a part of the former Branded Rx segment. As a result of this change, $115 million of goodwill was reallocated to the new Global Solta reporting unit and the Company assessed the impact on the fair values of each of the reporting units affected. After considering, among other matters: (i) the limited period of time between last impairment test (January 1, 2018) and the realignment (March 1, 2018), (ii) the results of the last impairment test and (iii) the amount of goodwill reallocated to the new Global Solta reporting unit, the Company did not identify any indicators of impairment at the time of the realignment.
2018 Realignment of Segment Structure
In the second quarter of 2018, the Company began operating in the following reportable segments: (i) Bausch + Lomb/International segment, (ii) Salix segment, (iii) Ortho Dermatologics segment and (iv) Diversified Products segment. The Bausch + Lomb/International segment consists of the: (i) U.S. Bausch + Lomb and (ii) International reporting units. The Salix segment consists of the Salix reporting unit. The Ortho Dermatologics segment consists of the: (i) Ortho Dermatologics and (ii) Global Solta reporting units. The Diversified Products segment consists of the: (i) Neurology and Other, (ii) Generics and (iii) Dentistry reporting units. There was no triggering event which would require the Company to test goodwill for impairment as a result of the second quarter realignment of the segment structure as it did not result in a change in the reporting units.

15

   

2018 Annual Goodwill Impairment Test
The Company conducted its annual goodwill impairment test as of October 1, 2018 and determined that the carrying value of the Dentistry reporting unit exceeded its fair value and, as a result, the Company recognized a goodwill impairment of $109 million for the Dentistry reporting unit, representing the full amount of goodwill for the reporting unit. Changing market conditions such as: (i) an increasing competitive environment and (ii) increasing pricing pressures negatively impacted the reporting unit's operating results. The Company is taking steps to address these changing market and business conditions.
The Company's remaining reporting units passed the goodwill impairment test as the estimated fair value of each reporting unit exceeded its carrying value at the date of testing and, therefore, there was no impairment to goodwill for any reporting unit other than the Dentistry reporting unit. In order to evaluate the sensitivity of its fair value calculations on the goodwill impairment test, the Company compared the carrying value of each reporting unit to its fair value as of October 1, 2018, the date of testing. As of October 1, 2018, the fair value of each reporting unit with associated goodwill exceeded its carrying value by more than 15%.
2019 Interim Goodwill Impairment Assessment
No events occurred or circumstances changed during the period October 1, 2018 (the date goodwill was last tested for impairment) through March 31, 2019 that would indicate that the fair value of any reporting unit might be below its carrying value. Based on the results of the October 1, 2018 annual goodwill impairment test, the Company continues to perform qualitative interim assessments of the carrying value and fair value of the Ortho Dermatologics reporting unit on a quarterly basis to determine if impairment testing of goodwill will be warranted. As part of the qualitative assessment as of March 31, 2019, management compared the reporting unit’s operating results to the forecast used to test the goodwill of the Ortho Dermatologics reporting unit as of October 1, 2018. Based on the qualitative assessment, management believed that the carrying value of Ortho Dermatologics reporting unit did not exceed its fair value and, therefore, concluded a quantitative assessment was not required at March 31, 2019.
If market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future and those charges can be material.
Accumulated goodwill impairment charges through March 31, 2019 were $3,711 million.
9.
ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of:
(in millions)
 
March 31,
2019
 
December 31, 2018
Product rebates
 
$
974

 
$
998

Product returns
 
794

 
813

Interest
 
387

 
273

Employee compensation and benefit costs
 
238

 
301

Income taxes payable
 
167

 
167

Other
 
695

 
645

 
 
$
3,255

 
$
3,197


16

   

10.
FINANCING ARRANGEMENTS
Principal amounts of debt obligations and principal amounts of debt obligations net of premiums, discounts and issuance costs consist of the following:




March 31, 2019

December 31, 2018
(in millions)

Maturity

Principal Amount

Net of Premiums, Discounts and Issuance Costs

Principal Amount

Net of Premiums, Discounts and Issuance Costs
Senior Secured Credit Facilities:













2023 Revolving Credit Facility

June 2023

$


$


$
75


$
75

June 2025 Term Loan B Facility
 
June 2025
 
4,222

 
4,104

 
4,394

 
4,269

November 2025 Term Loan B Facility
 
November 2025
 
1,425

 
1,402

 
1,481

 
1,456

Senior Secured Notes:










6.50% Secured Notes

March 2022

1,250


1,239


1,250


1,239

7.00% Secured Notes

March 2024

2,000


1,980


2,000


1,979

5.50% Secured Notes
 
November 2025
 
1,750

 
1,731

 
1,750

 
1,730

5.75% Secured Notes
 
August 2027
 
500

 
493

 

 

Senior Unsecured Notes:

 








5.625%

December 2021

182


181


700


697

5.50%

March 2023

784


780


1,000


995

5.875%

May 2023

2,666


2,650


3,250


3,229

4.50% euro-denominated debt

May 2023

1,683


1,673


1,720


1,709

6.125%

April 2025

3,250


3,227


3,250


3,226

9.00%
 
December 2025
 
1,500

 
1,470

 
1,500

 
1,469

9.25%
 
April 2026
 
1,500

 
1,482

 
1,500

 
1,482

8.50%
 
January 2027
 
1,750

 
1,757

 
750

 
738

Other

Various

12


12


12


12

Total long-term debt and other

 

$
24,474


24,181


$
24,632


24,305

Less: Current portion of long-term debt and other

 

257





228

Non-current portion of long-term debt

 



$
23,924





$
24,077

Covenant Compliance
The Senior Secured Credit Facilities (as defined below) and the indentures governing the Senior Secured Notes and Senior Unsecured Notes contain customary affirmative and negative covenants and specified events of default. These affirmative and negative covenants include, among other things, and subject to certain qualifications and exceptions, covenants that restrict the Company’s ability and the ability of its subsidiaries to: incur or guarantee additional indebtedness; create or permit liens on assets; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; make certain investments and other restricted payments; engage in mergers, acquisitions, consolidations and amalgamations; transfer and sell certain assets; and engage in transactions with affiliates. The 2023 Revolving Credit Facility also contains a financial maintenance covenant that requires the Company to maintain a first lien net leverage ratio of not greater than 4.00:1.00. The financial maintenance covenant may be waived or amended without the consent of the term loan facility lenders and contains a customary term loan facility standstill.
As of March 31, 2019, the Company was in compliance with its financial maintenance covenant related to its debt obligations. The Company, based on its current forecast for the next twelve months from the date of issuance of these financial statements, expects to remain in compliance with its financial maintenance covenant and meet its debt service obligations over that same period.
The Company continues to take steps to improve its operating results to ensure continual compliance with its financial maintenance covenant and may take other actions to reduce its debt levels to align with the Company’s long term strategy, including divesting other businesses, refinancing debt and issuing equity or equity-linked securities as deemed appropriate.

17

   

Senior Secured Credit Facilities
On February 13, 2012, the Company and certain of its subsidiaries as guarantors entered into the “Senior Secured Credit Facilities” under the Company’s Third Amended and Restated Credit and Guaranty Agreement, as amended (the “Third Amended Credit Agreement”) with a syndicate of financial institutions and investors, as lenders. As of January 1, 2018, the Third Amended Credit Agreement, as amended, provided for: (i) a $1,500 million Revolving Credit Facility maturing on April 20, 2018 (the "2018 Revolving Credit Facility"), which included a sublimit for the issuance of standby and commercial letters of credit and a sublimit for swing line loans and (ii) $4,150 million of tranche B term loans maturing on April 1, 2022 (the "Series F Tranche B Term Loan Facility").
On June 1, 2018, the Company entered into a Restatement Agreement in respect of a Fourth Amended and Restated Credit and Guaranty Agreement (the “Restated Credit Agreement”). The Restated Credit Agreement amended and restated in full the Third Amended Credit Agreement. The Restated Credit Agreement replaced the 2020 Revolving Credit Facility with a revolving credit facility of $1,225 million (the "2023 Revolving Credit Facility") and replaced the Series F Tranche B Term Loan Facility principal amount outstanding of $3,315 million with a seven year Tranche B Term Loan Facility of $4,565 million (the “June 2025 Term Loan B Facility”) borrowed by the Company’s subsidiary, Bausch Health Americas, Inc. ("BHA") (formerly Valeant Pharmaceuticals International).
The 2023 Revolving Credit Facility matures on the earlier of June 1, 2023 and the date that is 91 calendar days prior to the scheduled maturity of indebtedness for borrowed money of the Company or BHA in an aggregate principal amount in excess of $1,000 million. Both the Company and BHA are borrowers with respect to the 2023 Revolving Credit Facility. Borrowings under the 2023 Revolving Credit Facility may be made in U.S. dollars, Canadian dollars or euros.
On June 1, 2018, the Company issued an irrevocable notice of redemption for the remaining outstanding principal amounts of: (i) $691 million of 5.375% Senior Unsecured Notes due 2020 (the "March 2020 Unsecured Notes"), (ii) $578 million of 6.75% Senior Unsecured Notes due 2021(the "August 2021 Unsecured Notes"), (iii) $550 million of 7.25% Senior Unsecured Notes due 2022 (the “July 2022 Unsecured Notes”) and (iv) $146 million of 6.375% Senior Unsecured Notes due 2020 (the “6.375% October 2020 Unsecured Notes” and together with the March 2020 Unsecured Notes, August 2021 Unsecured Notes and July 2022 Unsecured Notes the “June 2018 Unsecured Refinanced Debt”). On June 1, 2018, using the remaining net proceeds from the June 2025 Term Loan B Facility, the net proceeds from the issuance of $750 million in aggregate principal amount of 8.50% Senior Unsecured Notes due 2027 (the "January 2027 Unsecured Notes") by BHA and cash on hand, the Company prepaid the remaining Series F Tranche B Term Loan Facility and redeemed the June 2018 Unsecured Refinanced Debt at its aggregate redemption price and the indentures governing the June 2018 Unsecured Refinanced Debt were discharged (collectively, the “June 2018 Refinancing Transactions”).
The Restated Credit Agreement was accounted for as a modification of debt, to the extent the June 2018 Unsecured Refinanced Debt was replaced with newly issued debt to the same creditor, and as an extinguishment of debt if: (i) the June 2018 Unsecured Refinanced Debt was replaced with newly issued debt to a different creditor, (ii) a portion of the unamortized deferred financing fees was allocated to debt that was paid down or (iii) the borrowing capacity declined when issuing a new revolving credit facility. The following was accounted for as an extinguishment of debt: (i) the difference between the amounts paid to redeem the June 2018 Unsecured Refinanced Debt and the June 2018 Unsecured Refinanced Debt’s carrying value, (ii) the replacement of the Series F Tranche B Term Loan with the June 2025 Term Loan B Facility to the extent any unamortized deferred financing fees were associated with the portion of the Series F Tranche B Term Loan that was paid down and (iii) the replacement of the 2020 Revolving Credit Facility with the 2023 Revolving Credit Facility to the extent any unamortized deferred financing fees were associated with the decline in borrowing capacity. For amounts accounted for as an extinguishment of debt, the Company incurred a loss on extinguishment of debt of $48 million. Payments made to the lenders and a portion of payments made to third parties of $74 million associated with the June 2018 Refinancing Transactions were capitalized and are being amortized as interest expense over the remaining terms of the debt, ranging from 2023 through 2027. Third-party expenses of $4 million associated with the modification of debt were expensed as incurred and included in Interest expense.
On November 27, 2018, the Company entered into the First Incremental Amendment to the Restated Credit Agreement, which provided an additional seven year Tranche B Term Loan Facility of $1,500 million (the "November 2025 Term Loan B Facility") and used the net proceeds, and cash on hand, to repay $1,483 million of 7.50% Senior Unsecured Notes due July 2021 (the “July 2021 Unsecured Notes”) in a tender offer (the "November 2018 Refinancing Transactions"). On December 27, 2018, the Company redeemed, using cash on hand, the remaining outstanding principal amount of $17 million of the July 2021 Unsecured Notes.

18

   

The repayment of the July 2021 Unsecured Notes was accounted for as an extinguishment of debt and the Company incurred a loss on extinguishment of debt of $43 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt’s carrying value. Payments made to the lenders and other third parties of $25 million associated with the issuance of the November 2025 Term Loan B Facility were capitalized and are being amortized as interest expense over the remaining term of the November 2025 Term Loan B Facility.
As of March 31, 2019, the Company had no outstanding borrowings, $170 million of issued and outstanding letters of credit and remaining availability of $1,055 million under its 2023 Revolving Credit Facility. During April and May 2019, the Company had drawn net borrowings of $175 million under its 2023 Revolving Credit Facility.
Current Description of Senior Secured Credit Facilities
Borrowings under the Senior Secured Credit Facilities in U.S. dollars bear interest at a rate per annum equal to, at the Company's option, either: (i) a base rate determined by reference to the higher of: (a) the prime rate (as defined in the Restated Credit Agreement), (b) the federal funds effective rate plus 1/2 of 1.00% or (c) the eurocurrency rate (as defined in the Restated Credit Agreement) for a period of one month plus 1.00% (or if such eurocurrency rate shall not be ascertainable, 1.00%) or (ii) a eurocurrency rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs (provided however, that the eurocurrency rate shall at no time be less than zero), in each case plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in euros bear interest at a eurocurrency rate determined by reference to the costs of funds for euro deposits for the interest period relevant to such borrowing (provided however, that the eurocurrency rate shall at no time be less than 0.00% per annum), plus an applicable margin.
Borrowings under the 2023 Revolving Credit Facility in Canadian dollars bear interest at a rate per annum equal to, at the Company's option, either: (i) a prime rate determined by reference to the higher of: (a) the rate of interest last quoted by The Wall Street Journal as the “Canadian Prime Rate” or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Bank of Canada as its prime rate and (b) the 1 month BA rate (as defined below) calculated daily plus 1.00% (provided however, that the prime rate shall at no time be less than 0.00%) or (ii) the bankers’ acceptance rate for Canadian dollar deposits in the Toronto interbank market (the “BA rate”) for the interest period relevant to such borrowing (provided however, that the BA rate shall at no time be less than 0.00% per annum), in each case plus an applicable margin.
Subject to certain exceptions and customary baskets set forth in the Restated Credit Agreement, the Company is required to make mandatory prepayments of the loans under the Senior Secured Credit Facilities under certain circumstances, including from: (i) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to reinvestment rights and net proceeds threshold), (ii) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as described in the Restated Credit Agreement), (iii) 50% of Excess Cash Flow (as defined in the Restated Credit Agreement) subject to decrease based on leverage ratios and subject to a threshold amount and (iv) 100% of net cash proceeds from asset sales (subject to reinvestment rights). These mandatory prepayments may be used to satisfy future amortization.
The applicable interest rate margins for the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility are 2.00% and 1.75%, respectively, with respect to base rate and prime rate borrowings and 3.00% and 2.75%, respectively, with respect to eurocurrency rate and BA rate borrowings. As of March 31, 2019, the stated rates of interest on the Company’s borrowings under the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility were 5.48% and 5.23% per annum, respectively.
The amortization rate for both the June 2025 Term Loan B Facility and the November 2025 Term Loan B Facility is 5.00% per annum. The Company may direct that prepayments be applied to such amortization payments in order of maturity. As of March 31, 2019, the remaining mandatory quarterly amortization payments for the Senior Secured Credit Facilities were $1,630 million through November 1, 2025.
The applicable interest rate margins for borrowings under the 2023 Revolving Credit Facility are 1.50%-2.00% with respect to base rate or prime rate borrowings and 2.50%-3.00% with respect to eurocurrency rate or BA rate borrowings.  As of March 31, 2019, the stated rate of interest on the 2023 Revolving Credit Facility was 5.48% per annum. In addition, the Company is required to pay commitment fees of 0.25%-0.50% per annum with respect to the unutilized commitments under the 2023 Revolving Credit Facility, payable quarterly in arrears. The Company also is required to pay: (i) letter of credit fees on the

19

   

maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on eurocurrency rate borrowings under the 2023 Revolving Credit Facility on a per annum basis, payable quarterly in arrears, (ii) customary fronting fees for the issuance of letters of credit and (iii) agency fees.
The Restated Credit Agreement permits the incurrence of incremental credit facility borrowings up to the greater of $1,000 million and 28.5% of Consolidated Adjusted EBITDA (as defined in the Restated Credit Agreement), subject to customary terms and conditions, as well as the incurrence of additional incremental credit facility borrowings subject to a secured leverage ratio of not greater than 3.50:1.00.
Senior Secured Notes
The Senior Secured Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under the Restated Credit Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The Senior Secured Notes and the guarantees related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by the same first priority liens that secure the Company’s obligations under the Restated Credit Agreement under the terms of the indentures governing the Senior Secured Notes.
The Senior Secured Notes and the guarantees rank equally in right of repayment with all of the Company’s and Note Guarantors’ respective existing and future unsubordinated indebtedness and senior to the Company’s and Note Guarantors’ respective future subordinated indebtedness. The Senior Secured Notes and the guarantees related thereto are effectively pari passu with the Company’s and the Note Guarantors’ respective existing and future indebtedness secured by a first priority lien on the collateral securing the Senior Secured Notes and effectively senior to the Company’s and the Note Guarantors’ respective existing and future indebtedness that is unsecured, including the existing Senior Unsecured Notes, or that is secured by junior liens, in each case to the extent of the value of the collateral. In addition, the Senior Secured Notes are structurally subordinated to: (i) all liabilities of any of the Company’s subsidiaries that do not guarantee the Senior Secured Notes and (ii) any of the Company’s debt that is secured by assets that are not collateral.
Upon the occurrence of a change in control (as defined in the indentures governing the Senior Secured Notes), unless the Company has exercised its right to redeem all of the notes of a series, holders of the Senior Secured Notes may require the Company to repurchase such holder’s notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest.
5.75% Senior Secured Notes due 2027 - March 2019 Refinancing Transactions
On March 8, 2019 BHA and the Company issued: (i) $1,000 million aggregate principal amount of January 2027 Unsecured Notes and (ii) $500 million aggregate principal amount of 5.75% Senior Secured Notes due August 2027 (the "August 2027 Secured Notes"), respectively, in a private placement, a portion of the net proceeds of which, and cash on hand, were used to: (i) repurchase $584 million of 5.875% Senior Unsecured Notes due 2023 (the "May 2023 Unsecured Notes"), (ii) repurchase $518 million of 5.625% Senior Unsecured Notes due 2021 (the “December 2021 Unsecured Notes”), (iii) repurchase $216 million of 5.50% Senior Unsecured Notes due 2023 (the "March 2023 Unsecured Notes”) and (iv) pay all fees and expenses associated with these transactions (collectively, the “March 2019 Refinancing Transactions”). During April 2019, the Company redeemed $182 million of the December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt in connection with the March 2019 Refinancing Transactions. The March 2019 Refinancing Transactions were accounted for as an extinguishment of debt and the Company incurred a loss on extinguishment of debt of $7 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt’s carrying value. Interest on the August 2027 Secured Notes is payable semi-annually in arrears on each February 15 and August 15.
The August 2027 Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after August 15, 2022, at the redemption prices set forth in the indenture. The Company may redeem some or all of the August 2027 Secured Notes prior to August 15, 2022 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to August 15, 2022, the Company may redeem up to 40% of the aggregate principal amount of the August 2027 Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.
Senior Unsecured Notes
The Senior Unsecured Notes issued by the Company are the Company’s senior unsecured obligations and are jointly and severally guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor under the Senior Secured Credit

20

   

Facilities. The Senior Unsecured Notes issued by BHA are senior unsecured obligations of BHA and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than BHA) that is a guarantor under the Senior Secured Credit Facilities. Future subsidiaries of the Company and BHA, if any, may be required to guarantee the Senior Unsecured Notes.
If the Company experiences a change in control, the Company may be required to make an offer to repurchase each series of Senior Unsecured Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount of the Senior Unsecured Notes repurchased, plus accrued and unpaid interest.
9.25% Senior Unsecured Notes due 2026 - March 2018 Refinancing Transactions
On March 26, 2018, BHA issued $1,500 million in aggregate principal amount of 9.25% Senior Unsecured Notes due 2026 (the “April 2026 Unsecured Notes”) in a private placement, the net proceeds of which, and cash on hand, were used to repurchase $1,500 million in aggregate principal amount of unsecured notes, which consisted of: (i) $1,017 million in principal amount of the March 2020 Unsecured Notes, (ii) $411 million in principal amount of the 6.375% October 2020 Unsecured Notes and (iii) $72 million in principal amount of the August 2021 Unsecured Notes. All fees and expenses associated with these transactions were paid with cash on hand (collectively, the “March 2018 Refinancing Transactions”). The March 2018 Refinancing Transactions were accounted for as an extinguishment of debt and the Company incurred a loss on extinguishment of debt of $26 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt’s carrying value. The April 2026 Unsecured Notes accrue interest at the rate of 9.25% per year, payable semi-annually in arrears on each of April 1 and October 1.
8.50% Senior Unsecured Notes due 2027 - June 2018 Refinancing Transactions and March 2019 Refinancing Transactions
As part of the June 2018 Refinancing Transactions, BHA issued $750 million in aggregate principal amount of January 2027 Unsecured Notes in a private placement, the proceeds of which, when combined with the remaining net proceeds from the June 2025 Term Loan B Facility and cash on hand, were deposited with The Bank of New York Mellon Trust Company, N.A., as trustee under the indentures governing the June 2018 Unsecured Refinanced Debt, to redeem the June 2018 Unsecured Refinanced Debt at its aggregate redemption price and the indentures governing the June 2018 Unsecured Refinanced Debt were discharged. The January 2027 Unsecured Notes accrue interest at the rate of 8.50% per year, payable semi-annually in arrears on each of January 31 and July 31.
As part of the March 2019 Refinancing Transactions described above, BHA issued $1,000 million aggregate principal amount of 8.50% Senior Unsecured Notes due January 2027. These are additional notes and form part of the same series as BHA’s existing January 2027 Unsecured Notes.
Weighted Average Stated Rate of Interest
The weighted average stated rate of interest for the Company's outstanding debt obligations as of March 31, 2019 and December 31, 2018 was 6.38% and 6.23%, respectively.

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Maturities and Mandatory Payments
Maturities and mandatory payments of debt obligations for the period April through December 2019, the five succeeding years ending December 31 and thereafter are as follows:
(in millions)
 
April through December 2019
$
182

2020
303

2021
303

2022
1,553

2023
5,436

2024
2,303

Thereafter
14,394

Total debt obligations
24,474

Unamortized premiums, discounts and issuance costs
(293
)
Total long-term debt and other
$
24,181

During April and May 2019, the Company: (i) redeemed $182 million of the December 2021 Unsecured Notes, representing the remaining outstanding principal balance of the December 2021 Unsecured Notes and completing the refinancing of $1,500 million of debt in connection with the March 2019 Refinancing Transactions and (ii) had drawn net borrowings of $175 million under its 2023 Revolving Credit Facility. These transactions are not reflected in the table above.
11.
PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit plans and a participatory defined benefit postretirement medical and life insurance plan, which covers certain U.S. employees and employees in certain other countries. Net periodic (benefit) cost for the Company’s defined benefit pension plans and postretirement benefit plan for the three months ended March 31, 2019 and 2018 consists of:
 
 
Pension Benefit Plans
 
Postretirement
Benefit
Plan
 
U.S. Plan
 
Non-U.S. Plans
 
 
 
Three Months Ended March 31,
(in millions)
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Service cost
 
$

 
$

 
$
1

 
$
1

 
$

 
$

Interest cost
 
2

 
2

 
1

 
1

 

 

Expected return on plan assets
 
(3
)
 
(4
)
 
(1
)
 
(1
)
 

 

Net periodic (benefit) cost
 
$
(1
)
 
$
(2
)
 
$
1

 
$
1

 
$

 
$

12.
LEASES
The Company leases certain facilities, vehicles and equipment principally under multi-year agreements generally having a lease term of one to twenty years, some of which include termination options and options to extend the lease term from one to five years or on a month-to-month basis. The Company includes options that are reasonably certain to be exercised as part of the lease term. The Company may negotiate termination clauses in anticipation of changes in market conditions but generally, these termination options are not exercised. Certain lease agreements also include variable payments that are dependent on usage or may vary month-to-month such as insurance, taxes and maintenance costs. None of the Company's lease agreements contain material residual value guarantees or material restrictive covenants.
As discussed in Note 2, "SIGNIFICANT ACCOUNTING POLICIES" under the new standard for accounting for leases, which the Company adopted effective January 1, 2019, the Company is required to record a right-of-use asset and corresponding lease liability, equal to the present value of the lease payments at the commencement date of each lease. For all asset classes, in determining future lease payments, the Company has elected to aggregate lease components, such as payments for rent,

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taxes and insurance costs with non-lease components such as maintenance costs, and account for these payments as a single lease component. In limited circumstances, when the information necessary to determine the rate implicit in a lease is available, the present value of the lease payments is determined using the rate implicit in that lease. If the information necessary to determine the rate implicit in a lease is not available, the Company uses its incremental borrowing rate at the commencement of the lease, which represents the rate of interest that the Company would incur to borrow on a collateralized basis over a similar term.
All leases must be classified as either an operating lease or finance lease. The classification is determined based on whether substantive control has been transferred to the lessee. The classification governs the pattern of lease expense recognition. For leases classified as operating leases, total lease expense over the term of the lease is equal to the undiscounted payments due in accordance with the lease arrangement. Fixed lease expense is recognized periodically on a straight-line basis over the term of each lease and includes: (i) imputed interest during the period on the lease liability determined using the effective interest rate method plus (ii) amortization of the right-of-use asset for that period. Amortization of the right-of-use asset during the period is calculated as the difference between the straight-line expense and the imputed interest on the lease liability for that period. Variable lease expense is recognized when the achievement of the specific target is considered probable. As of March 31, 2019, the Company's finance leases were not material.
Right-of-use assets and lease liabilities associated with the Company's operating leases are included in the Consolidated Balance Sheet as of March 31, 2019 as follows:
(in millions)
 
Right-of-use assets included in:
 
Other non-current assets
$
274

Lease liabilities included in:
 
Accrued and other current liabilities
$
55

Other non-current liabilities
238

Total lease liabilities
$
293

Short-term lease costs and sub-lease income for the three months ended March 31, 2019 were not material. Lease expense for the three months ended March 31, 2019 includes:
(in millions)
 
Operating lease costs
$
16

Variable operating lease costs
$
4

Other information related to operating leases for the three months ended March 31, 2019 are as follows:
(dollars in millions)
 
Cash paid from operating cash flows for amounts included in the measurement of lease liabilities
$
20

Right-of-use assets obtained in exchange for new operating lease liabilities
$
7

Weighted-average remaining lease term
8.6 years

Weighted-average discount rate
6.2
%
Right-of-use assets obtained in exchange for new operating lease liabilities during the three months ended March 31, 2019 of $7 million in the table above, does not include $282 million of right-of-use assets recognized upon adoption of the new standard for accounting for leases on January 1, 2019. See Note 2, "SIGNIFICANT ACCOUNTING POLICIES" for further detail regarding the impact of adoption.

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As of March 31, 2019, future payments under noncancelable operating leases for the remainder of 2019, each of the five succeeding years ending December 31 and thereafter are as follows:
(in millions)
 
Remainder of 2019
$
54

2020
57

2021
42

2022
36

2023
32

2024
27

Thereafter
138

Total
386

Less: Imputed interest
93

Present value of remaining lease payments
293

Less: Current portion
55

Non-current portion
$
238

Upon adopting the new lease guidance, the Company elected the modified retrospective approach without revising prior periods. Accordingly, the Company is providing the following table of future payments under noncancelable operating leases as of December 31, 2018, for each of the five succeeding years ending December 31 and thereafter as previously disclosed under prior accounting guidance:
(in millions)
 
2019
$
78

2020
60

2021
44

2022
39

2023
32

Thereafter
166

Total
$
419


13.
SHARE-BASED COMPENSATION
In May 2014, shareholders approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”) which replaced the Company’s 2011 Omnibus Incentive Plan (the “2011 Plan”) for future equity awards granted by the Company. The Company transferred the common shares available under the 2011 Plan to the 2014 Plan. The maximum number of common shares that may be issued to participants under the 2014 Plan is equal to 18,000,000 common shares, plus the number of common shares under the 2011 Plan reserved but unissued and not underlying outstanding awards and the number of common shares becoming available for reuse after awards are terminated, forfeited, cancelled, exchanged or surrendered under the 2011 Plan and the Company’s 2007 Equity Compensation Plan. The Company registered 20,000,000 common shares of common stock for issuance under the 2014 Plan.
Effective April 30, 2018, the Company amended and restated the 2014 Plan (the “Amended and Restated 2014 Plan”). The Amended and Restated 2014 Plan includes the following amendments: (i) the number of common shares authorized for issuance under the Amended and Restated 2014 Plan has been increased by an additional 11,900,000 common shares, as approved by the requisite number of shareholders at the Company’s annual general meeting held on April 30, 2018, (ii) introduction of a $750,000 aggregate fair market value limit on awards (in either equity, cash or other compensation) that can be granted in any calendar year to a participant who is a non-employee director, (iii) housekeeping changes to address recent changes to Section 162(m) of the Internal Revenue Code, (iv) awards are expressly subject to the Company’s clawback policy and (v) awards not assumed or substituted in connection with a Change of Control (as defined in the Amended and Restated 2014 Plan) will only vest on a pro rata basis.
Approximately 9,691,000 common shares were available for future grants as of March 31, 2019. The Company uses reserved and unissued common shares to satisfy its obligations under its share-based compensation plans.

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During the three months ended March 31, 2017, the Company introduced a long-term incentive program with the objective to re-align the share-based awards granted to senior management with the Company’s focus on improving its tangible capital usage and allocation while maintaining focus on improving total shareholder return over the long-term. The share-based awards granted under this long-term incentive program consist of time-based stock options, time-based restricted share units (“RSUs”) and performance-based RSUs. Performance-based RSUs are comprised of awards that vest upon achievement of certain share price appreciation conditions that are based on total shareholder return (“TSR”) and awards that vest upon attainment of certain performance targets that are based on the Company’s return on tangible capital (“ROTC”).
The following table summarizes the components and classification of share-based compensation expense related to stock options and RSUs for the three months ended March 31, 2019 and 2018: