Endo Reports Second Quarter Financial Results

($ in thousands, except per share amounts)

2nd Quarter

Six Months Ended June 30,

2014

2013

Change

2014

2013

Change

Total Revenues

$

718,684

$

712,148

1

%

$

1,313,293

$

1,370,642

(4)

%

Reported Net Income

$

21,160

$

34,999

(40)

%

$

(415,752)

$

50,348

Reported Diluted EPS

$

0.13

$

0.30

(57)

%

$

$

0.44

NM

Adjusted Net Income

$

173,682

$

166,348

4

%

$

307,747

$

289,586

6

%

Adjusted Diluted Weighted Average Shares

163,369

117,221

39

%

154,365

115,205

34

%

Adjusted Diluted EPS

$

1.06

$

1.42

(25)

%

$

1.99

$

2.51

(21)

%

Three Months Ended June 30, 2014 (unaudited)

 Actual Reported
 (GAAP)

Adjustments

Non-GAAP Adjusted

 REVENUES

$

718,684

$

—

$

718,684

 COSTS AND EXPENSES:

Cost of revenues

345,739

(84,899)

(1)

260,840

Selling, general and administrative

171,609

(15,890)

(2)

155,719

Research and development

41,174

(10,646)

(3)

30,528

Litigation-related and other contingencies, net

35,954

(35,954)

(4)

—

Acquisition-related and integration items

19,618

(19,618)

(5)

—

 OPERATING INCOME

$

104,590

$

167,007

$

271,597

 INTEREST EXPENSE, NET

52,181

(3,346)

(6)

48,835

 LOSS ON EXTINGUISHMENT OF DEBT

20,089

(20,089)

(7)

—

 OTHER INCOME, NET

(6,828)

3,850

(8)

(2,978)

 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

39,148

$

186,592

$

225,740

 INCOME TAX

15,594

35,489

(9)

51,083

 INCOME FROM CONTINUING OPERATIONS

$

23,554

$

151,103

$

174,657

 DISCONTINUED OPERATIONS, NET OF TAX

(3,168)

3,363

(10)

195

 CONSOLIDATED NET INCOME

$

20,386

$

154,466

$

174,852

 Less: Net (loss) income attributable to noncontrolling interests

(774)

1,944

(11)

1,170

 NET INCOME ATTRIBUTABLE TO ENDO INTERNATIONAL PLC

$

21,160

$

152,522

$

173,682

 DILUTED EARNINGS PER SHARE DATA ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS:

 Continuing operations

$

0.15</p>

$

1.06

 Discontinued operations

(0.02)

—

 DILUTED EARNINGS PER SHARE

$

0.13

$

1.06

 DILUTED WEIGHTED AVERAGE SHARES

163,369

163,369

Notes to reconciliation of our GAAP statements of operations to our adjusted statements of operations:

(1)

To exclude amortization of commercial intangible assets related to developed technology of $65,755 and a fair value step-up in inventory of $19,144.

(2)

To exclude certain separation benefits and other costs incurred in connection with continued efforts to enhance the company's operations of $11,167, amortization of intangible assets of $2,518, mesh litigation-related defense costs of $18,905, offset by insurance recoveries of $(22,000), an adjustment to the accrual for excise tax payments of $(4,700) and a charge of $10,000 related to the non-recoverability of certain non-trade receivables that did not relate to our core operating activities.

(3)

To exclude milestone payments to partners of $10,350 and adjustments to accruals for other costs incurred in connection with continued efforts to enhance the company's operations of $296.

(4)

To exclude the impact of net charges primarily for mesh-related product liability.

(5)

To exclude acquisition and integration costs of $19,618 associated with the Paladin, Boca and other acquisitions.

(6)

To exclude additional non-cash interest expense related to our 1.75% Convertible Senior Subordinated Notes.

(7)

To exclude the unamortized debt issuance costs written off and recorded as a net loss on extinguishment of debt in connection with various refinancing and note repurchase activity.

(8)

To exclude the net gain on sale of certain early-stage drug discovery and development assets.

(9)

Primarily to reflect the cash tax savings from acquired tax attributes and the tax effect of the pre-tax adjustments above at applicable tax rates.

(10)

To exclude the after-tax adjustment to the previously recorded gain on sale of the HealthTronics business and certain other sale-related costs.

(11)

To exclude the impact of the portion of certain of the above adjustments attributable to noncontrolling interests.

Three Months Ended June 30, 2013 (unaudited)

 Actual Reported
 (GAAP)

Adjustments

Non-GAAP Adjusted

 REVENUES

$

712,148

$

—

$

712,148

 COSTS AND EXPENSES:

Cost of revenues

273,413

(53,729)

(1)

219,684

Selling, general and administrative

244,302

(63,819)

(2)

180,483

Research and development

33,393

(3,367)

(3)

30,026

Litigation-related and other contingencies

59,971

(59,971)

(4)

—

Asset impairment charges

2,849

(2,849)

(5)

—

Acquisition-related and integration items

1,825

(1,825)

(6)

—

 OPERATING INCOME

$

96,395

$

185,560

$

281,955

 INTEREST EXPENSE, NET

42,334

(5,662)

(7)

36,672

 OTHER (INCOME) EXPENSE, NET

(16,700)

17,593

(8)

893

$

70,761

$

173,629

$

244,390

 INCOME TAX

29,012

50,834

(9)

79,846

 INCOME FROM CONTINUING OPERATIONS

$

41,749

$

122,795

$

164,544

 DISCONTINUED OPERATIONS, NET OF TAX

6,362

8,554

(10)

14,916

 CONSOLIDATED NET INCOME

$

48,111

$

131,349

$

179,460

 Less: Net income attributable to noncontrolling interests

13,112

—

13,112

 NET INCOME ATTRIBUTABLE TO ENDO INTERNATIONAL PLC

$

34,999

$

131,349

$

166,348

 DILUTED EARNINGS PER SHARE DATA ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS:

 Continuing operations

$

0.36

$

1.40

 Discontinued operations

(0.06)

0.02

 DILUTED EARNINGS PER SHARE

$

0.30

$

1.42

 DILUTED WEIGHTED AVERAGE SHARES

117,221

117,221

Notes to reconciliation of our GAAP statements of operations to our adjusted statements of operations:

(1)

To exclude amortization of commercial intangible assets related to marketed products of $48,587, certain separation benefits and other costs incurred in connection with continued efforts to enhance the company's operations of $1,142 and accruals for milestone payments to partners of $4,000.

(2)

To exclude certain separation benefits and other costs incurred in connection with continued efforts to enhance the company's operations of $48,451, amortization of customer relationships of $2,502 and mesh litigation-related defense costs of $12,866.

(3)

To exclude milestone payments to partners of $1,398 and certain separation benefits and other costs incurred in connection with continued efforts to enhance the company's operations of $1,969.

(4)

To exclude the impact of charges primarily for mesh-related product liability.

(5)

To exclude asset impairment charges.

(6)

To exclude acquisition and integration costs.

(7)

To exclude additional non-cash interest expense related to our 1.75% Convertible Senior Subordinated Notes.

(8)

To exclude $(16,545) related to patent litigation settlement income and other income of $(1,048).

(9)

Primarily to reflect the cash tax savings from acquired tax attributes and the tax effect of the pre-tax adjustments above at applicable tax rates.

(10)

To exclude certain items related to the HealthTronics business, which is reported as Discontinued operations, net of tax.

Six Months Ended June 30, 2014 (unaudited)

 Actual
Reported
 (GAAP)

Adjustments

Non-GAAP Adjusted

 REVENUES

$

1,313,293

$

—

$

1,313,293

 COSTS AND EXPENSES:

Cost of revenues

597,700

(141,314)

(1)

456,386

Selling, general and administrative

398,313

(94,555)

(2)

303,758

Research and development

82,854

(20,722)

(3)

62,132

Litigation-related and other contingencies, net

662,105

(662,105)

(4)

—

Acquisition-related and integration items

64,887

(64,887)

(5)

—

 OPERATING (LOSS) INCOME

$

(492,566)

$

983,583

$

491,017

 INTEREST EXPENSE, NET

105,579

(9,315)

(6)

96,264

 LOSS ON EXTINGUISHMENT OF DEBT

29,685

(29,685)

(7)

—

 OTHER INCOME, NET

(12,860)

3,850

(8)

(9,010)

 (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

(614,970)

$

1,018,733

$

403,763

 INCOME TAX

(199,827)

293,984

(9)

94,157

 (LOSS) INCOME FROM CONTINUING OPERATIONS

$

(415,143)

$

724,749

$

309,606

 DISCONTINUED OPERATIONS, NET OF TAX

2,251

694

(10)

2,945

 CONSOLIDATED NET (LOSS) INCOME

$

(412,892)

$

725,443

$

312,551

 Less: Net income attributable to noncontrolling interests

2,860

1,944

(11)

4,804

$

(415,752)

$

723,499

$

307,747

 DILUTED EARNINGS PER SHARE DATA ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS:

 Continuing operations

$

(2.96)

$

2.00

 Discontinued operations

—

(0.01)

 DILUTED (LOSS) EARNINGS PER SHARE

$

(2.96)

$

1.99

 DILUTED WEIGHTED AVERAGE SHARES

140,252

154,365

Notes to reconciliation of our GAAP statements of operations to our adjusted statements of operations:

(1)

To exclude amortization of commercial intangible assets related to developed technology of $118,434, a fair value step-up in inventory of $22,725 and accruals for milestone payments to partners of $155.

(2)

To exclude certain separation benefits and other costs incurred in connection with continued efforts to enhance the company's operations of $12,368, amortization of intangible assets of $5,033, mesh litigation-related defense costs of $33,854, offset by insurance recoveries of $(22,000), accruals for excise tax payments of $55,300 and a charge of $10,000 related to the non-recoverability of certain non-trade receivables that did not relate to our core operating activities.

(3)

To exclude milestone payments to partners of $21,350 and adjustments to accruals for other costs incurred in connection with continued efforts to enhance the company's operations of $(628).

(4)

To exclude the impact of net charges primarily for mesh-related product liability.

(5)

To exclude acquisition and integration costs of $64,887 associated with the Paladin, Boca and other acquisitions.

(6)

To exclude additional non-cash interest expense related to our 1.75% Convertible Senior Subordinated Notes.

(7)

To exclude the unamortized debt issuance costs written off and recorded as a net loss on extinguishment of debt in connection with various refinancing and note repurchase activity.

(8)

To exclude the net gain on sale of certain early-stage drug discovery and development assets.

(9)

Primarily to reflect the cash tax savings from acquired tax attributes and the tax effect of the pre-tax adjustments above at applicable tax rates.

(10)

To exclude the after-tax adjustment to the previously recorded gain on sale of the HealthTronics business and certain other sale-related costs.

(11)

To exclude the impact of the portion of certain of the above adjustments attributable to noncontrolling interests.

Six Months Ended June 30, 2013 (unaudited)

 Actual
Reported
 (GAAP)

Adjustments

Non-GAAP Adjusted

 REVENUES

$

1,370,642

$

—

$

1,370,642

 COSTS AND EXPENSES:

Cost of revenues

527,794

(98,465)

(1)

429,329

Selling, general and administrative

471,534

(85,086)

(2)

386,448

Research and development

72,162

(9,182)

(3)

62,980

Litigation-related and other contingencies

128,203

(128,203)

(4)

—

Asset impairment charges

3,949

(3,949)

(5)

—

Acquisition-related and integration items

2,383

(2,383)

(6)

—

 OPERATING INCOME

$

164,617

$

327,268

$

491,885

 INTEREST EXPENSE, NET

86,610

(11,112)

(7)

75,498

 LOSS ON EXTINGUISHMENT OF DEBT

11,312

(11,312)

(8)

—

 OTHER (INCOME) EXPENSE, NET

(34,969)

36,820

(9)

1,851

 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

101,664

$

312,872

$

414,536

 INCOME TAX

38,262

87,392

(10)

125,654

 INCOME FROM CONTINUING OPERATIONS

$

63,402

$

225,480

$

288,882

DISCONTINUED OPERATIONS, NET OF TAX

11,312

13,758

(11)

25,070

 CONSOLIDATED NET INCOME

$

74,714

$

239,238

$

313,952

 Less: Net income attributable to noncontrolling interests

24,366

—

24,366

 NET INCOME ATTRIBUTABLE TO ENDO INTERNATIONAL PLC

$

50,348

$

239,238

$

289,586

 DILUTED EARNINGS PER SHARE DATA ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS:

 Continuing operations

$

0.55

$

2.51

 Discontinued operations

(0.11)

—

 DILUTED EARNINGS PER SHARE

$

0.44

$

2.51

 DILUTED WEIGHTED AVERAGE SHARES

115,205

<span class="prnews_span">115,205

Notes to reconciliation of our GAAP statements of operations to our adjusted statements of operations:

(1)

To exclude amortization of commercial intangible assets related to marketed products of $93,323, certain separation benefits and other costs incurred in connection with continued efforts to enhance the company's operations of $1,142 and accruals for milestone payments to partners of $4,000.

(2)

To exclude certain separation benefits and other costs incurred in connection with continued efforts to enhance the company's operations of $58,904, amortization of customer relationships of $5,016 and mesh litigation-related defense costs of $21,166.

(3)

To exclude milestone payments to partners of $3,972 and certain separation benefits and other costs incurred in connection with continued efforts to enhance the company's operations of $5,210.

(4)

To exclude the impact of charges primarily for mesh-related product liability.

(5)

To exclude asset impairment charges.

(6)

To exclude acquisition and integration costs.

(7)

To exclude additional non-cash interest expense related to our 1.75% Convertible Senior Subordinated Notes.

(8)

To exclude the unamortized debt issuance costs written off and recorded as a loss on extinguishment of debt upon our March 2013 prepayment on our Term Loan indebtedness as well as upon the amendment and restatement of our existing credit facility.

(9)

To exclude $(35,772) related to patent litigation settlement income and other income of $(1,048).

(10)

Primarily to reflect the cash tax savings from acquired tax attributes and the tax effect of the pre-tax adjustments above at applicable tax rates.

(11)

To exclude certain items related to the HealthTronics business, which is reported as Discontinued operations, net of tax.

Reconciliation of Projected GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share Guidance for 2014

Year Ending

December 31, 2014

Projected GAAP diluted income per common share

$

(1.77)

$

(1.57)

Upfront and milestone-related payments to partners

0.17

0.17

Amortization of commercial intangible assets and fair value inventory step-up

1.70

1.70

Acquisition related, integration and restructuring charges

1.14

1.14

Basic to Diluted weighted average share count effect

0.10

0.10

Charges for litigation and other legal matters

4.53

4.53

Interest expense adjustment for non-cash interest related to our 1.75% Convertible Senior Subordinated Notes and other treasury related items

0.09

0.09

Tax effect of pre-tax adjustments at the applicable tax rates and certain other expected cash tax savings as a result of acquisitions

(2.16)

(2.16)

Diluted adjusted income per common share guidance

$

3.80

To

$

4.00

Endo International plc

Net Revenues (unaudited)

(in thousands)

Three Months Ended June 30,

Percent Growth

Six Months Ended June 30,

2014

2013

2014

2013

LIDODERM®

$

43,002

$

229,656

(81)

%

$

76,082

$

416,680

(82)

%

OPANA® ER

54,109

57,951

(7)

%

101,062

114,278

(12)

%

Voltaren® Gel

45,797

42,783

7

%

83,356

78,893

6

%

PERCOCET®

31,543

25,950

22

%

60,523

52,568

15

%

FORTESTA® Gel

12,004

17,477

(31)

%

23,147

32,131

(28)

%

FROVA®

18,398

14,312

29

%

33,678

28,089

20

%

SUPPRELIN® LA

17,049

16,597

3

%

30,806

30,023

3

%

VALSTAR®

6,657

4,888

36</span>

%

12,036

10,303

17

%

VANTAS®

2,416

3,107

(22)

%

4,114

6,974

(41)

%

SUMAVEL®

3,176

—

NM

3,176

—

NM

AVEED™

324

—

NM

324</span>

—

NM

Other Branded Products

605

1,052

(42)

%

1,181

1,325

(11)

%

Royalty and Other Revenue

13,467

1,874

619

%

53,227

1,972

2,599

%

Total U.S. Branded Pharmaceuticals

$

248,547

$

415,647

(40)

%

$

482,712

$

773,236

(38)

%

Total U.S. Generic Pharmaceuticals

$

272,213

$

170,530

60

%

$

484,068

$

348,783

39

%

Total International Pharmaceuticals

72,088

—

NM

96,910

—

NM

Devices:

Men's Health

70,069

68,081

3

%

138,390

135,649

2

%

Women's Health

26,393

27,666

(5)

%

52,230

56,270

(7)

%

BPH Therapy

29,374

30,224

(3)

%

58,983

56,704

4

%

Total Devices

125,836

125,971

—

%

249,603

248,623

—

%

Total Revenue

$

718,684

$

712,148

1

%

$

1,313,293

$

1,370,642

(4)

%

June 30,
 2014

December 31,
 2013

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

1,427,244

$

526,597

Restricted cash and cash equivalents

65,777

770,000

Marketable securities

46,279

—

Accounts receivable

875,932

725,827

Inventories, net

427,199

374,439

Assets held for sale

—

160,257

Other assets

322,346

297,387

Total current assets

$

3,164,777

$

2,854,507

TOTAL NON-CURRENT ASSETS

6,797,129

3,717,349

TOTAL ASSETS

$

9,961,906

$

6,571,856

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable and accrued expenses

$

1,989,757

$

1,247,083

Liabilities related to assets held for sale

—

31,571

Other current liabilities

186,478

418,018

Total current liabilities

$

2,176,235

$

1,696,672

LONG-TERM DEBT, LESS CURRENT PORTION, NET

4,229,895

3,323,844

OTHER LIABILITIES

711,156

966,124

STOCKHOLDERS' EQUITY:

Total Endo International plc shareholders' equity

$

2,807,489

$

526,018

Noncontrolling interests

37,131

59,198

Total shareholders' equity

$

2,844,620

$

585,216

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

9,961,906

$

6,571,856

Six Months Ended June 30,

2014

OPERATING ACTIVITIES:

Consolidated net (loss) income

$

(412,892)

$

74,714

Adjustments to reconcile consolidated Net (loss) income to Net cash (used in) provided by operating activities

Depreciation and amortization

152,818

135,051

Share-based compensation

14,376

22,753

Amortization of debt issuance costs and premium / discount

17,993

18,567

Other

(140,231)

29,237

Changes in assets and liabilities which provided (used) cash

315,305

(163,291)

Net cash (used in) provided by operating activities

(52,631)

117,031

INVESTING ACTIVITIES:

Purchases of property, plant and equipment, net

(40,379)

(37,029)

Acquisitions, net of cash acquired

(203,088)

(3,645)

Proceeds from sale of business, net

54,521

—

Settlement escrow

3,148

—

Decrease in restricted cash and cash equivalents

704,223

—

Other

69,916

(12,673)

Net cash provided by (used in) investing activities

588,341

(53,347)

FINANCING ACTIVITIES:

Cash distributions to noncontrolling interests

(6,144)

(24,349)

Borrowings (payments) on indebtedness, net

373,875

(119,359)

Exercise of options

31,616

52,483

Other

(56,539)

(15,715)

Net cash provided by (used in) financing activities

342,808

(106,940)

Effect of foreign exchange rate

4,716

948

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

883,234

(42,308)

LESS: NET DECREASE IN CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS

(17,413)

(5,968)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS

900,647

(36,340)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

526,597

529,689

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

1,427,244

$

493,349