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Endo Reports Fourth-Quarter And Full-Year 2016 Financial Results

February 28, 2017

DUBLIN, Feb. 28, 2017 /PRNewswire/ -- 

  • Fourth-quarter 2016 revenues of $1,242 million brings full-year 2016 revenues of $4,010 million to top end of guidance
  • Company reports $3.5 billion of asset impairment charges in fourth-quarter 2016 associated with the write-down of goodwill and intangible assets primarily related to the Company's Generics reporting unit
  • Fourth-quarter reported $14.96 diluted (GAAP) loss per share from continuing operations; Full-year 2016 reported $14.48 diluted (GAAP) loss per share from continuing operations
  • Fourth-quarter $1.77 adjusted diluted EPS from continuing operations; Full-year 2016 adjusted diluted EPS of $4.73 at top end of guidance
  • Company expects 2017 revenues to range from $3.45 billion to $3.60 billion
  • Company expects 2017 Adjusted EBITDA from $1.50 billion to $1.58 billion
  • Company also announces divestiture of Litha Healthcare Group for $100 million

Endo International plc (NASDAQ/TSX: ENDP) today reported fourth-quarter 2016 financial results, including:

  • Revenues of $1,242 million, a 16 percent increase compared to fourth-quarter 2015 revenues of $1,074 million.
  • Reported net loss from continuing operations of $3,333 million compared to fourth-quarter 2015 reported net income from continuing operations of $444 million.
  • Reported diluted loss per share from continuing operations of $14.96 compared to fourth-quarter 2015 reported diluted earnings per share (EPS) from continuing operations of $1.97.
  • Adjusted net income from continuing operations of $396 million, a 29 percent increase compared to fourth-quarter 2015 adjusted net income from continuing operations of $307 million.1
  • Adjusted diluted EPS from continuing operations of $1.77, a 30 percent increase compared to fourth-quarter 2015 adjusted diluted EPS from continuing operations of $1.36.1

EXECUTIVE COMMENTARY

"After I was named CEO last September, Endo began a comprehensive strategic review that has resulted in a series of definitive actions. First, we streamlined our global supply chain and restructured our Pain franchise, including the divestiture of BELBUCA. We then executed a Corporate restructuring and have begun divesting non-core businesses with today's announced sale of Litha Healthcare Group. All of these measures better position Endo to focus on its core assets, drive margin expansion and de-lever over a period of time," said Paul Campanelli, President and CEO of Endo.

"Endo's core assets include a Generics business, which is the fourth largest in the U.S. based on sales, that possesses a growing sterile injectables portfolio and a promising ANDA pipeline. Complementing our generics unit is a revamped specialty Branded business focusing on our flagship product XIAFLEX®. Despite industry headwinds and other challenges, we are excited about our future and have the people, products, and pipeline in place that we believe will enable us, in time, to create value for our shareholders," Mr. Campanelli concluded.

Blaise Coleman, Executive Vice President and Chief Financial Officer, added, "Expected 2017 revenues of between $3.45 billion and $3.60 billion are forecasted to be lower than 2016 revenues primarily due to the expected revenue decline in our Generics base business and legacy Branded pain franchise, as well as the impact of divestitures and product discontinuations. We estimate 2017 adjusted EBITDA from continuing operations of between $1.50 billion and $1.58 billion due, in part, to cost reduction initiatives undertaken in 2016 and early 2017 that have resulted in a significant year-over-year increase in Endo's adjusted EBITDA margin as a percentage of revenue. Finally, estimated 2017 adjusted diluted EPS from continuing operations of between $3.45 and $3.75 is significantly impacted by a higher adjusted effective tax rate and an anticipated increase in variable-rate interest expense."

 

FINANCIAL PERFORMANCE

(in thousands, except per share amounts)

 
 

Three Months Ended
December 31,

     

Year Ended December 31,

   
 

2016

 

2015

 

Change

 

2016

 

2015

 

Change

Total Revenues

$

1,241,513

   

$

1,073,697

   

16

%

 

$

4,010,274

   

$

3,268,718

   

23

%

Reported Income (Loss) from
Continuing Operations

$

(3,333,325)

   

$

443,709

   

NM

   

$

(3,223,772)

   

$

(300,399)

   

NM

 

Reported Diluted Weighted
Average Shares

222,870

   

225,321

   

(1)

%

 

222,651

   

197,100

   

13

%

Reported Diluted Income (Loss)
per Share from Continuing Operations

$

(14.96)

   

$

1.97

   

NM

   

$

(14.48)

   

$

(1.52)

   

NM

 

Adjusted Income from
Continuing Operations

$

395,791

   

$

307,430

 

1

29

%

 

$

1,054,382

   

$

933,235

 

1

13

%

Adjusted Diluted Weighted
Average Shares

223,178

   

225,321

   

(1)

%

 

223,090

   

200,438

   

11

%

Adjusted Diluted EPS from
Continuing Operations

$

1.77

   

$

1.36

 

1

30

%

 

$

4.73

   

$

4.66

 

1

2

%

 

(1) Refer to footnote 14 in the Reconciliation of GAAP and Non-GAAP Financial Measures tables for the twelve months ended December 31, 2016 and 2015, for further discussion.

 

 

 

CONSOLIDATED RESULTS

Total revenues increased by 16 percent to $1,242 million in fourth-quarter 2016 compared to the same period in 2015, primarily attributable to the launch of key first-to-file generic products, quetiapine and ezetimibe. GAAP net loss from continuing operations in fourth-quarter 2016 was $3,333 million compared to GAAP net income from continuing operations of $444 million during the same period in 2015, primarily attributable to the amount of goodwill and intangible asset impairment charges recorded during fourth-quarter 2016. GAAP net loss per share from continuing operations for the three months ended December 31, 2016 was $14.96, compared to GAAP net earnings from continuing operations of $1.97 in fourth-quarter 2015.

Adjusted net income from continuing operations in fourth-quarter 2016 increased by 29 percent to $396 million compared to fourth-quarter 2015, driven primarily by the contribution of quetiapine and ezetimibe. Adjusted net income per share from continuing operations for the three months ended December 31, 2016 increased 30 percent to $1.77 compared to fourth-quarter 2015.

U.S. GENERIC PHARMACEUTICALS

During fourth-quarter 2016, the U.S. Generic Pharmaceuticals business unit completed the restructuring of its product portfolio as well as its manufacturing facility network, including the divestiture of the Charlotte, North Carolina facility.

Fourth-quarter 2016 U.S. Generic Pharmaceuticals results include:

  • Revenues of $882 million, a 45 percent increase compared to fourth-quarter 2015; this increase was primarily attributable to the launches of quetiapine extended-release tablets, the generic version of SEROQUEL XR®, and ezetimibe tablets, the generic equivalent of ZETIA®. Par has first-to-file status and associated marketing exclusivity for each product. The introduction of ezetimibe tablets represented the largest product launch in Par Pharmaceutical's history.
  • Sterile injectables increased 43 percent compared to fourth-quarter 2015; this increase was driven primarily by VASOSTRICT®, which benefited from the market withdrawal of its only competitor's product in 2015.
  • Generics base business decreased 23 percent compared to fourth-quarter 2015; this decrease resulted from continued pricing pressure due to increased competition, particularly among Solid Oral Immediate Release (IR) products.

U.S. BRANDED PHARMACEUTICALS

During fourth-quarter 2016, Endo announced highly statistically significant Phase 2b study results on the primary composite endpoint and all secondary endpoints for XIAFLEX® in patients with cellulite. The Company also announced its intention to return the BELBUCA™ (buprenorphine) buccal film product to its developer, eliminate its U.S. Branded pain sales field force and manage the Company's legacy pain portfolio as mature brands. Endo's U.S. Branded segment will now focus on its core Specialty products, including its flagship product XIAFLEX®, as well as SUPPRELIN® LA, TESTOPEL®, and AVEED®.

Fourth-quarter 2016 U.S. Branded Pharmaceuticals results include:

  • Revenues of $289 million, a 24 percent decrease compared to fourth-quarter 2015; this decrease was primarily attributable to generic erosion adversely impacting the Company's Pain and Established Products portfolios, including VOLTAREN® Gel, LIDODERM® and FROVA®, along with the divestiture of STENDRA®.
  • Among Endo's Specialty products, net sales of XIAFLEX® increased 11 percent compared to fourth-quarter 2015; this increase was primarily attributable to double-digit demand growth for the product. Net sales of SUPPRELIN® LA increased 23 percent, driven, in part, by continued demand growth.
  • In January 2017, the U.S. Food and Drug Administration announced that it will hold an advisory committee meeting in March 2017 to discuss certain pre- and post-marketing data relating to OPANA® ER, and the overall risk-benefit of that product. The advisory committees will also discuss generic oxymorphone extended-release and oxymorphone immediate-release products.

INTERNATIONAL PHARMACEUTICALS

As with Endo's U.S. businesses, International Pharmaceuticals underwent a product-by-product and business-by-business assessment. Today, the Company announced the divestiture of Litha Healthcare Group to Acino for approximately $100 million. As part of Endo's strategic assessment and comprehensive asset review, the Company determined that Litha no longer aligned with its strategy and was not considered a core asset. The divestiture of Litha helps simplify the Endo organization and permits it to better focus on the core Generics and Specialty Branded Pharmaceutical businesses. The transaction is expected to close in the second quarter of 2017, subject to customary conditions, including the expiration or termination of any waiting periods under applicable competition laws. The final purchase price will be subject to cash, debt, working capital and other potential contractual adjustments.

Endo's International Pharmaceuticals unit continued to effectively manage its business operations in anticipation of the impact of the loss-of-exclusivity for certain Paladin products, during the fourth-quarter 2016, while continuing its efforts to improve adjusted operating margins.

Fourth-quarter 2016 International Pharmaceuticals results include:

  • Revenues of $70 million, an 18 percent decrease compared to fourth-quarter 2015.
  • Paladin revenues of $28 million, a 2 percent decrease compared to fourth-quarter 2015, due to expected competition on certain products. In the fourth quarter, Paladin began promoting XIAFLEX® and NUCYNTA® in Canada. Paladin also retains Canadian marketing rights to serelaxin and looks forward to the results of a Phase III clinical trial expected in 2017.
  • Emerging market revenues from Litha and Somar of $38 million, a 25 percent decrease compared to fourth-quarter 2015, attributable, in part, to a decrease in Litha revenues as the result of the divestiture of non-core assets in first-quarter 2016. Revenues were also impacted by lower demand for certain products in Mexico and the unfavorable impact of foreign exchange.

2017 FINANCIAL GUIDANCE

For the full twelve months ended December 31, 2017, at current exchange rates, Endo is providing guidance on revenue, GAAP and adjusted diluted EPS guidance from continuing operations and adjusted EBITDA from continuing operations. The Company estimates:

  • Total revenues to be between $3.45 billion to $3.60 billion;
  • Reported diluted GAAP EPS from continuing operations to be between $0.04 and $0.34;
  • Adjusted diluted EPS from continuing operations to be between $3.45 to $3.75; and
  • Adjusted EBITDA from continuing operations to be between $1.50 billion to $1.58 billion.

The Company's 2017 non-GAAP financial guidance is based on the following assumptions:

  • Adjusted gross margin of approximately 62.0% to 63.0%;
  • Adjusted operating expenses as a percentage of revenues to be approximately 22.5% to 23.0%;
  • Adjusted interest expense of approximately $470 million to $480 million;
  • Adjusted effective tax rate of approximately 13.0% to 14.0%;
  • Adjusted diluted EPS from continuing operations assumes full-year adjusted diluted shares outstanding of approximately 224 million shares; and
  • Adoption of Accounting Standard Update 2016-09 ("ASU 2016-09") in the first quarter of 2017, changing the GAAP reporting of excess tax benefits and deficiencies associated with employee stock-based compensation. The Company estimates there could be at least a $10 million tax detriment (~$0.04 GAAP and Adjusted diluted earnings per share estimated impact) recognized primarily in the first quarter of 2017 when most employee stock awards vest or expire during the year.

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

As of December 31, 2016, the Company had $517.3 million in unrestricted cash; net debt of approximately $7.8 billion and a net debt to adjusted EBITDA ratio of 4.6.

Fourth-quarter 2016 cash provided by operating activities was $81.1 million, primarily attributable to the benefit of no interest payments related to high-yield notes and lower mesh payments during the quarter, offset partially by increases in working capital resulting from the fourth-quarter quetiapine and ezetimibe launches in our generics segment.

During fourth-quarter 2016, the Company conducted an annual goodwill impairment assessment, resulting in a pre-tax, non-cash impairment charge of $2,674 million, including the following items:

  • $2,342.5 million related to the Generics reporting unit, which represents the difference between the estimated implied fair value of the reporting unit's goodwill and its book value. The impairment charge was driven by a reduction in the expected future cash flows in the Generics reporting unit primarily due to a change in pricing expectations partly driven by an expected increased level of competition and increased buying power from the continued consolidation of the generic business customer base. These charges are primarily due to industry and competitive pressures in the sector, which resulted in a reduction of the Generics reporting unit's fair value.
  • $272.6 million related to the Paladin Canada reporting unit, was driven primarily by a reduction in pricing expectations and additional generic competitors for several of Paladin's products.
  • $33.0 million and $26.3 million related to the Somar and Litha reporting units, respectively.

In addition to the Company's goodwill assessment, the Company also incurred pre-tax, non-cash intangible asset impairment charges in the fourth-quarter of approximately $830.3 million, including:

  • $507.2 million and $285.5 million in our U.S. Generic Pharmaceutical and International Pharmaceutical segments, respectively, resulting from certain market conditions impacting the commercial potential of definite and indefinite-lived intangible assets.
  • $37.6 million in the U.S. Branded Pharmaceuticals segment primarily resulting from the termination of BELBUCA and the return of this product to BioDelivery Sciences International, Inc.

Conference Call Information

Endo will conduct a conference call with financial analysts to discuss this press release today at 8:30 a.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 58581981. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from February 28, 2017 at 11:30 a.m. ET until 12:30 p.m. ET on March 14, 2017 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 58581981.

A simultaneous webcast of the call can be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available until 12:30 p.m. ET on March 14, 2017. The replay can be accessed by clicking on the Investor Relations section of the Endo website.

The following table presents Endo's unaudited Net Revenues for the three and twelve months ended December 31, 2016 and 2015:

 

 

Endo International plc

Net Revenues (unaudited)

(in thousands)

 
 

Three Months Ended December 31,

 

Percent
Growth

 

Year Ended December 31,

 

Percent
Growth

 

2016

 

2015

   

2016

 

2015

 

U.S. Generic Pharmaceuticals:

                     

U.S. Generics Base

$

288,142

   

$

372,417

   

(23)

%

 

$

1,230,097

   

$

1,083,809

   

13

%

Sterile Injectables

143,905

   

100,511

   

43

%

 

530,805

   

107,592

   

393

%

New Launches and Alternative Dosages

450,127

   

136,267

   

230

%

 

803,711

   

481,015

   

67

%

Total U.S. Generic Pharmaceuticals

$

882,174

   

$

609,195

   

45

%

 

$

2,564,613

   

$

1,672,416

   

53

%

U.S. Branded Pharmaceuticals:

                     

Pain Management:

                     

LIDODERM®

$

21,122

   

$

40,234

   

(48)

%

 

$

87,577

   

$

125,269

   

(30)

%

OPANA® ER

38,880

   

43,610

   

(11)

%

 

158,938

   

175,772

   

(10)

%

PERCOCET®

36,029

   

35,181

   

2

%

 

139,211

   

135,822

   

2

%

Voltaren® Gel

18,612

   

62,169

   

(70)

%

 

100,642

   

207,161

   

(51)

%

 

$

114,643

   

$

181,194

   

(37)

%

 

$

486,368

   

$

644,024

   

(24)

%

Specialty Pharmaceuticals:

                     

SUPPRELIN® LA

$

20,793

   

$

16,926

   

23

%

 

$

78,648

   

$

70,099

   

12

%

XIAFLEX®

55,530

   

50,197

   

11

%

 

189,689

   

158,115

   

20

%

 

$

76,323

   

$

67,123

   

14

%

 

$

268,337

   

$

228,214

   

18

%

Branded Other Revenues (1)

98,330

   

131,092

   

(25)

%

 

411,589

   

412,369

   

%

Total U.S. Branded Pharmaceuticals (2)

$

289,296

   

$

379,409

   

(24)

%

 

$

1,166,294

   

$

1,284,607

   

(9)

%

Total International Pharmaceuticals

$

70,043

   

$

85,093

   

(18)

%

 

$

279,367

   

$

311,695

   

(10)

%

Total Revenues

$

1,241,513

   

$

1,073,697

   

16

%

 

$

4,010,274

   

$

3,268,718

   

23

%

   

__________

(1)

Products included within Branded Other Revenues in the table above include, but are not limited to, TESTOPEL®, Testim®, Fortesta® Gel, including authorized generic, and Nascobal® Nasal Spray.

(2)

Individual products presented above represent the top two performing products in each product category and/or any product having revenues in excess of $25 million during the three months ended December 31, 2016 or December 31, 2015.

 

The following table presents unaudited consolidated Statement of Operations data for the three and twelve months ended December 31, 2016 and 2015 (in thousands, except per share data):

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

2016

 

2015

 

2016

 

2015

TOTAL REVENUES

$

1,241,513

   

$

1,073,697

   

$

4,010,274

   

$

3,268,718

 

COSTS AND EXPENSES:

             

Cost of revenues

756,578

   

810,068

   

2,634,973

   

2,075,651

 

Selling, general and administrative

212,568

   

212,014

   

770,728

   

741,304

 

Research and development

46,206

   

43,989

   

183,372

   

102,197

 

Litigation-related and other contingencies, net

(4,765)

   

17,207

   

23,950

   

37,082

 

Asset impairment charges

3,518,085

   

139,859

   

3,781,165

   

1,140,709

 

Acquisition-related and integration items

7,400

   

54,073

   

87,601

   

105,250

 

OPERATING (LOSS) INCOME FROM CONTINUING OPERATIONS

$

(3,294,559)

   

$

(203,513)

   

$

(3,471,515)

   

$

(933,475)

 

INTEREST EXPENSE, NET

111,783

   

123,018

   

452,679

   

373,214

 

LOSS ON EXTINGUISHMENT OF DEBT

   

25,595

   

   

67,484

 

OTHER (INCOME) EXPENSE, NET

(740)

   

1,102

   

(338)

   

63,691

 

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

(3,405,602)

   

$

(353,228)

   

$

(3,923,856)

   

$

(1,437,864)

 

INCOME TAX (BENEFIT) EXPENSE

(72,277)

   

(796,937)

   

(700,084)

   

(1,137,465)

 

(LOSS) INCOME FROM CONTINUING OPERATIONS

$

(3,333,325)

   

$

443,709

   

$

(3,223,772)

   

$

(300,399)

 

DISCONTINUED OPERATIONS, NET OF TAX

(4,531)

   

(562,302)

   

(123,278)

   

(1,194,926)

 

CONSOLIDATED NET LOSS

$

(3,337,856)

   

$

(118,593)

   

$

(3,347,050)

   

$

(1,495,325)

 

Less: Net income (loss) attributable to noncontrolling interests

   

(130)

   

16

   

(283)

 

NET LOSS ATTRIBUTABLE TO ENDO INTERNATIONAL PLC

$

(3,337,856)

   

$

(118,463)

   

$

(3,347,066)

   

$

(1,495,042)

 

NET LOSS PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—BASIC:

             

Continuing operations

$

(14.96)

   

$

1.98

   

$

(14.48)

   

$

(1.52)

 

Discontinued operations

(0.02)

   

(2.51)

   

(0.55)

   

(6.07)

 

Basic

$

(14.98)

   

$

(0.53)

   

$

(15.03)

   

$

(7.59)

 

NET LOSS PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—DILUTED:

             

Continuing operations

$

(14.96)

   

$

1.97

   

$

(14.48)

   

$

(1.52)

 

Discontinued operations

(0.02)

   

(2.50)

   

(0.55)

   

(6.07)

 

Diluted

$

(14.98)

   

$

(0.53)

   

$

(15.03)

   

$

(7.59)

 

WEIGHTED AVERAGE SHARES:

             

Basic

222,870

   

224,147

   

222,651

   

197,100

 

Diluted

222,870

   

225,321

   

222,651

   

197,100

 

 

 

The following table presents unaudited condensed consolidated Balance Sheet data at December 31, 2016 and December 31, 2015 (in thousands):

 

 

December 31,
2016

 

December 31,
2015

ASSETS

     

CURRENT ASSETS:

     

Cash and cash equivalents

$

517,250

   

$

272,348

 

Restricted cash and cash equivalents

282,074

   

585,379

 

Accounts receivable

992,153

   

1,014,808

 

Inventories, net

555,671

   

752,493

 

Assets held for sale

116,985

   

36,522

 

Other assets

125,326

   

790,987

 

Total current assets

$

2,589,459

   

$

3,452,537

 

TOTAL NON-CURRENT ASSETS

11,685,650

   

15,897,799

 

TOTAL ASSETS

$

14,275,109

   

$

19,350,336

 

LIABILITIES AND STOCKHOLDERS' EQUITY

     

CURRENT LIABILITIES:

     

Accounts payable and accrued expenses

$

2,470,016

   

$

3,116,841

 

Liabilities held for sale

24,338

   

20,215

 

Other current liabilities

140,391

   

337,256

 

Total current liabilities

$

2,634,745

   

$

3,474,312

 

LONG-TERM DEBT, LESS CURRENT PORTION, NET

8,141,378

   

8,251,657

 

OTHER LIABILITIES

797,397

   

1,656,391

 

STOCKHOLDERS' EQUITY:

     

Total Endo International plc shareholders' equity

$

2,701,589

   

$

5,968,030

 

Noncontrolling interests

   

(54)

 

Total shareholders' equity

$

2,701,589

   

$

5,967,976

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

14,275,109

   

$

19,350,336

 

 

 

The following table presents unaudited condensed consolidated Statement of Cash Flow data for the year ended December 31, 2016 and 2015 (in thousands):

 

 

Year Ended December 31,

 

2016

 

2015

OPERATING ACTIVITIES:

     

Consolidated net loss

$

(3,347,050)

   

$

(1,495,325)

 

Adjustments to reconcile consolidated net loss to Net cash provided by operating activities

     

Depreciation and amortization

983,309

   

632,756

 

Asset impairment charges

3,802,493

   

1,390,281

 

Other

(914,313)

   

(465,686)

 

Net cash provided by operating activities

$

524,439

   

$

62,026

 

INVESTING ACTIVITIES:

     

Purchases of property, plant and equipment, net

$

(132,094)

   

$

(81,774)

 

Acquisitions, net of cash acquired

(30,394)

   

(7,650,404)

 

Proceeds from sale of business, net

4,108

   

1,588,779

 

Increase in restricted cash and cash equivalents, net

(831,321)

   

(747,649)

 

Decrease in restricted cash and cash equivalents

1,134,734

   

688,999

 

Other

(19,172)

   

(42,721)

 

Net cash provided by (used in) investing activities

$

125,861

   

$

(6,244,770)

 

FINANCING ACTIVITIES:

     

(Payments on) proceeds from borrowings, net

$

(336,361)

   

$

4,228,919

 

Issuance of ordinary shares

   

2,300,000

 

Other

(57,621)

   

(473,452)

 

Net cash (used in) provided by financing activities

$

(393,982)

   

$

6,055,467

 

Effect of foreign exchange rate

$

328

   

$

(7,068)

 

Movement in cash held for sale

(11,744)

   

997

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

$

244,902

   

$

(133,348)

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

272,348

   

405,696

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

517,250

   

$

272,348

 

 

 

 

The following schedule presents the significant pre-tax cash outlays and cash receipts impacting our Net cash provided by operating activities for the years ended December 31, 2016 and 2015 (in thousands):

 

 

Year Ended December 31,

 

2016

 

2015

Payments for mesh-related product liability and other litigation matters (1)

$

1,195,932

   

$

699,347

 

Redemption fees paid in connection with debt retirements

   

31,496

 

Unused commitment fees

   

78,352

 

Separation and restructuring payments

97,869

   

73,655

 

Transaction costs and certain integration charges paid in connection with acquisitions

68,249

   

191,195

 

U.S. Federal tax refunds received

(759,950)

   

(155,814)

 

Total

$

602,100

   

$

918,231

 
 

(1) Cash payments into QSFs result in a cash outflow for investing activities (CFI). Cash releases from QSFs result in a cash inflow for investing activities and a corresponding outflow for cash provided by (used in) operating activities (CFO). The following table reflects the mesh-related payment activities for the twelve months ended December 31, 2016 and 2015 by cash flow component:

 
 

Year Ended December 31,

 

2016

 

2015

 

Impact on CFO (1)

 

Impact on CFI

 

Impact on CFO (1)

 

Impact on CFI

Cash contributions to Qualified Settlement Funds

$

   

(831,131)

   

$

   

$

(743,132)

 

Cash payments to claimants from Qualified Settlement Funds

(1,134,734)

   

1,134,734

   

(649,391)

   

649,391

 

Cash payments made directly to claimants

(7,830)

   

   

(27,379)

   

 

Total

$

(1,142,564)

   

$

303,603

   

$

(676,770)

   

$

(93,741)

 
                               

(1)     These amounts are included in Changes in assets and liabilities which used cash in the table above.

 

Supplemental Financial Information

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures. For additional information on the Company's use of such non-GAAP financial measures, refer to Endo's Current Report on Form 8-K furnished today to the Securities and Exchange Commission, which includes an explanation of the Company's reasons for using non-GAAP measures.

The table below provides reconciliations of our consolidated income (loss) from continuing operations (GAAP) to our adjusted income from continuing operations (non-GAAP) for the three and twelve months ended December 31, 2016 and 2015:

 

 

ENDO INTERNATIONAL PLC

Reconciliation of GAAP and Non-GAAP Financial Measures

(UNAUDITED)

(In thousands)

 
 

Three Months Ended December 31,

 

Year Ended December 31,

 

2016

 

2015

 

2016

 

2015

(Loss) Income from continuing operations (GAAP)

$

(3,333,325)

   

$

443,709

   

$

(3,223,772)

   

$

(300,399)

 

Non-GAAP adjustments:

             

  Amortization of intangible assets

240,390

   

227,543

   

876,451

   

561,302

 

  Inventory step-up and other cost savings

13,912

   

117,681

   

125,699

   

249,464

 

  Upfront and milestone related payments

2,455

   

2,092

   

8,330

   

16,155

 

  Inventory reserve (decrease) increase from restructuring

(137)

   

   

24,455

   

 

  Royalty obligations

   

   

(7,750)

   

 

  Separation benefits and other restructuring

37,216

   

55,151

   

83,036

   

125,407

 

  Acceleration of Auxilium employee equity awards

   

   

   

37,603

 

  Charges for litigation and other legal matters

(4,765)

   

17,207

   

23,950

   

37,082

 

  Asset impairment charges

3,518,085

   

139,859

   

3,781,165

   

1,140,709

 

  Acquisition-related and integration costs

8,356

   

36,112

   

63,778

   

170,890

 

  Fair value of contingent consideration

(956)

   

17,961

   

23,823

   

(65,640)

 

  Non-cash and penalty interest charges

   

1,965

   

4,092

   

8,267

 

  Other

(1,836)

   

27,501

   

(7,273)

   

130,165

 

  Tax adjustments

(83,604)

   

(779,351)

   

(721,602)

   

(1,177,770)

 

Adjusted income from continuing operations (non-GAAP)

$

395,791

   

$

307,430

   

$

1,054,382

   

$

933,235

 
 

__________

Refer to the following tables for additional information regarding non-GAAP financial measures.

 

 

 

ENDO INTERNATIONAL PLC

Reconciliation of GAAP and Non-GAAP Financial Measures

(UNAUDITED)

(In thousands, except per share data)

 
 

Three Months Ended December 31, 2016

 

Total revenues

 

Cost of revenues

 

Gross margin

 

Gross margin %

 

Total operating expenses

 

Operating expense to revenue %

 

Operating loss from continuing operations

 

Operating margin %

 

Other non-operating expense, net

 

Loss from continuing operations before income tax

 

Income tax benefit

 

Effective tax rate

 

Loss from continuing operations

 

Discontinued operations, net of tax

 

Net loss attributable to Endo International plc (14)

 

Diluted loss per share (15)

Reported (GAAP)

$ 1,241,513

 

$    756,578

 

$    484,935

 

39 %

 

$ 3,779,494

 

304 %

 

$ (3,294,559)

 

(265)%

 

$ 111,043

 

$ (3,405,602)

 

$      (72,277)

 

2 %

 

$ (3,333,325)

 

$        (4,531)

 

$ (3,337,856)

 

$   (14.96)

Items impacting comparability:

                                                             

Amortization of intangible assets (1)

 

(240,390)

 

240,390

     

     

240,390

     

 

240,390

 

     

240,390

 

 

240,390

 

1.08

Inventory step-up and other costs savings (2)

 

(13,912)

 

13,912

     

     

13,912

     

 

13,912

 

     

13,912

 

 

13,912

 

0.06

Upfront and milestone-related payments (3)

 

(655)

 

655

     

(1,800)

     

2,455

     

 

2,455

 

     

2,455

 

 

2,455

 

0.01

Inventory reserve decrease from restructuring (4)

 

137

 

(137)

     

     

(137)

     

 

(137)

 

     

(137)

 

 

(137)

 

Separation benefits and other restructuring (5)

 

(9,284)

 

9,284

     

(27,932)

     

37,216

     

 

37,216

 

     

37,216

 

 

37,216

 

0.17

Charges for litigation and other legal matters (6)

 

 

     

4,765

     

(4,765)

     

 

(4,765)

 

     

(4,765)

 

 

(4,765)

 

(0.02)

Asset impairment charges (7)

 

 

     

(3,518,085)

     

3,518,085

     

 

3,518,085

 

     

3,518,085

 

 

3,518,085

 

15.79

Acquisition-related and integration costs (8)

 

 

     

(8,356)

     

8,356

     

 

8,356

 

     

8,356

 

 

8,356

 

0.04

Fair value of contingent consideration (9)

 

 

     

956

     

(956)

     

 

(956)

 

     

(956)

 

 

(956)

 

Other (11)

 

 

     

     

     

1,836

 

(1,836)

 

     

(1,836)

 

 

(1,836)

 

(0.01)

Tax adjustments (12)

 

 

     

     

     

 

 

83,604

     

(83,604)

 

 

(83,604)

 

(0.38)

Exclude discontinued operations, net of tax (13)

 

 

     

     

     

 

 

     

 

4,531

 

4,531

 

After considering items (non-GAAP)

$ 1,241,513

 

$    492,474

 

$    749,039

 

60 %

 

$    229,042

 

18 %

 

$     519,997

 

42 %

 

$ 112,879

 

$     407,118

 

$       11,327

 

3 %

 

$     395,791

 

$               —

 

$     395,791

 

$       1.77

                                                               
                                                               
 

Three Months Ended December 31, 2015

 

Total revenues

 

Cost of revenues

 

Gross margin

 

Gross margin %

 

Total operating expenses

 

Operating expense to revenue %

 

Operating loss from continuing operations

 

Operating margin %

 

Other non-operating expense, net

 

Loss from continuing operations before income tax

 

Income tax benefit

 

Effective tax rate

 

Income from continuing operations

 

Discontinued operations, net of tax

 

Net loss attributable to Endo International plc (14)

 

Diluted earnings per share (15)

Reported (GAAP)

$ 1,073,697

 

$    810,068

 

$    263,629

 

25 %

 

$    467,142

 

44 %

 

$    (203,513)

 

(19)%

 

$ 149,715

 

$    (353,228)

 

$    (796,937)

 

226 %

 

$     443,709

 

$    (562,302)

 

$    (118,463)

 

$       1.97

Items impacting comparability:

                                                             

Amortization of intangible assets (1)

 

(227,543)

 

227,543

     

     

227,543

     

 

227,543

 

     

227,543

 

 

227,543

 

1.02

Inventory step-up and other costs savings (2)

 

(117,681)

 

117,681

     

     

117,681

     

 

117,681

 

     

117,681

 

 

117,681

 

0.52

Upfront and milestone-related payments (3)

 

(1,089)

 

1,089

     

(1,003)

     

2,092

     

 

2,092

 

     

2,092

 

 

2,092

 

0.01

Separation benefits and other restructuring (5)

 

(40,304)

 

40,304

     

(14,847)

     

55,151

     

 

55,151

 

     

55,151

 

 

55,151

 

0.24

Charges for litigation and other legal matters (6)

 

 

     

(17,207)

     

17,207

     

 

17,207

 

     

17,207

 

 

17,207

 

0.08

Asset impairment charges (7)

 

 

     

(139,859)

     

139,859

     

 

139,859

 

     

139,859

 

 

139,859

 

0.62

Acquisition-related and integration costs (8)

 

 

     

(36,112)

     

36,112

     

 

36,112

 

     

36,112

 

 

36,112

 

0.16

Fair value of contingent consideration (9)

 

 

     

(17,961)

     

17,961

     

 

17,961

 

     

17,961

 

 

17,961

 

0.08

Non-cash and penalty interest charges (10)

 

 

     

     

     

(1,965)

 

1,965

 

     

1,965

 

 

1,965

 

0.01

Other (11)

 

 

     

(3,079)

     

3,079

     

(24,422)

 

27,501

 

     

27,501

 

 

27,501

 

0.12

Tax adjustments (12)

 

 

     

     

     

 

 

779,351

     

(779,351)

 

 

(779,351)

 

(3.47)

Exclude discontinued operations, net of tax (13)

 

 

     

     

     

 

 

     

 

560,762

 

560,762

 

After considering items (non-GAAP)

$ 1,073,697

 

$    423,451

 

$    650,246

 

61 %

 

$    237,074

 

22 %

 

$     413,172

 

38 %

 

$ 123,328

 

$     289,844

 

$      (17,586)

 

(6)%

 

$     307,430

 

$        (1,540)

 

$     306,020

 

$       1.36

 

 

Notes to the reconciliation of certain line items included in the GAAP Statements of Operations to the Non-GAAP line items are as follows:

 

(1)  Adjustments for amortization of commercial intangible assets included the following:

 
 

Three Months Ended December 31,

 

2016

 

2015

Amortization of intangible assets excluding fair value step-up from contingent consideration

$

228,876

   

$

218,491

 

Amortization of intangible assets related to fair value step-up from contingent consideration

11,514

   

9,052

 

Total

$

240,390

   

$

227,543

 
 

(2)  Adjustments for inventory step-up and other cost savings included the following:

 
 

Three Months Ended December 31,

 

2016

 

2015

Fair value step-up of inventory sold

$

9,669

   

$

109,746

 

Excess manufacturing costs that will be eliminated pursuant to integration plans

4,243

   

7,935

 

Total

$

13,912

   

$

117,681

 
 

(3)  Adjustments for upfront and milestone-related payments to partners included the following:

 
 

Three Months Ended December 31,

 

2016

 

2015

 

 Cost of
revenues

 

 Operating
expenses

 

 Cost of
revenues

 

 Operating
expenses

Sales-based milestones

$

655

   

$

   

$

1,089

   

$

 

Development-based milestones

   

1,800

   

   

1,003

 

Total

$

655

   

$

1,800

   

$

1,089

   

$

1,003

 
 

(4) To exclude decreases of restructuring related excess inventory reserves of $0.1 million recorded during the three months ended December 31, 2016.

 

(5) Adjustments for separation benefits and other restructuring included the following:

 
 

Three Months Ended December 31,

 

2016

 

2015

 

 Cost of
revenues

 

 Operating
expenses

 

 Cost of
revenues

 

 Operating
expenses

Separation benefits

$

6,150

   

$

21,772

   

$

40,304

   

$

1,828

 

Accelerated depreciation

3,134

   

5,729

   

   

10,361

 

Other

   

431

   

   

2,658

 

Total

$

9,284

   

$

27,932

   

$

40,304

   

$

14,847

 
 

(6) To exclude litigation settlement charges or reimbursements.

 

(7) To exclude goodwill and intangible asset impairment charges. During the three months ended December 31, 2016, we recorded total impairment charges of $3.5 billion. These charges primarily related to the Company's annual goodwill impairment assessment, which resulted in non-cash impairment charges of $2,343 million, $273 million, $33 million and $26 million for its U.S. Generics, Paladin, Somar and Litha reporting units, respectively. Intangible asset impairment charges of $830 million primarily included non-cash impairment charges of $507 million and $285 million in the Company's U.S. Generic Pharmaceuticals  and International Pharmaceuticals segments, respectively, resulting from certain market conditions, including price erosion and increased competition, and $38 million in our U.S. Branded Pharmaceuticals segment resulting primarily from the termination of our BELBUCA product. During the three months ended December 31, 2015, we recorded impairment charges of $140 million resulting primarily from a non-cash goodwill impairment charge of $86 million related to our Paladin reporting unit, non-cash intangible asset impairment charges of $38 million related to our U.S. Generic Pharmaceuticals segment and $10 million related to our U.S. Branded Pharmaceuticals segment.

 

(8) Adjustments for acquisition and integration items primarily relate to various acquisitions, including Par Pharmaceuticals and Auxilium Pharmaceuticals, and included the following:

 
 

Three Months Ended December 31,

 

2016

 

2015

Integration costs (primarily third-party consulting fees)

$

6,441

   

$

17,892

 

Transaction costs

   

8,498

 

Transition services

   

8,858

 

Other

1,915

   

864

 

Total

$

8,356

   

$

36,112

 
 

(9) To exclude the impact of the change in fair value of contingent consideration resulting from certain market conditions impacting the commercial potential of the underlying products.

 

(10) To exclude penalty interest charges of $1,965.

 

(11) Adjustments to other included the following:

 
 

Three Months Ended December 31,

 

2016

 

2015

 

 Operating
expenses

 

Other
non-operating
expenses

 

 Operating
expenses

 

Other
non-operating
expenses

Costs associated with unused financing commitments

$

   

$

   

$

   

$

 

Foreign currency impact related to the re-measurement of intercompany debt instruments

   

(1,192)

   

   

(1,130)

 

Loss on extinguishment of debt

   

   

   

25,595

 

Other miscellaneous

   

(644)

   

3,079

   

(43)

 

Total

$

   

$

(1,836)

   

$

3,079

   

$

24,422

 
 

(12) Adjusted income taxes are calculated by tax effecting adjusted pre-tax income at the applicable effective tax rate that will be determined by reference to statutory tax rates in the relevant jurisdictions in which the Company operates and includes current and deferred income tax expense commensurate with the non-GAAP measure of profitability.

 

(13) To exclude the results of the Astora business reported as discontinued operations, net of tax.

 

(14) This amount includes non-controlling interest of $(130) for the three months ended December 31, 2015.

 

(15) Calculated as income (loss) from continuing operations divided by the applicable weighted average share number. The applicable weighted average share number for the three months ended December 31, 2016 is 222,870 and 223,178 for the GAAP and non-GAAP EPS calculations, respectively. The applicable weighted average share number for the three months ended December 31, 2015 is 225,321 for both the GAAP EPS calculation and the non-GAAP EPS calculations.

 

 

ENDO INTERNATIONAL PLC

Reconciliation of GAAP and Non-GAAP Financial Measures

(UNAUDITED)

(In thousands, except per share data)

 
 

Year Ended December 31, 2016

 

Total revenues

 

Cost of revenues

 

Gross margin

 

Gross margin %

 

Total operating expenses

 

Operating expense to revenue %

 

Operating loss from continuing operations

 

Operating margin %

 

Other non-operating expense, net

 

Loss from continuing operations before income tax

 

Income tax benefit

 

Effective tax rate

 

Loss from continuing operations

 

Discontinued operations, net of tax

 

Net loss attributable to Endo International plc (16)

 

Diluted loss per share (17)

Reported (GAAP)

$ 4,010,274

 

$ 2,634,973

 

$ 1,375,301

 

34 %

 

$ 4,846,816

 

121 %

 

$ (3,471,515)

 

(87)%

 

$ 452,341

 

$ (3,923,856)

 

$    (700,084)

 

18 %

 

$ (3,223,772)

 

$    (123,278)

 

$ (3,347,066)

 

$   (14.48)

Items impacting comparability:

                                                             

Amortization of intangible assets (1)

 

(876,451)

 

876,451

     

     

876,451

     

 

876,451

 

     

876,451

 

 

876,451

 

3.94

Inventory step-up and other costs savings (2)

 

(124,349)

 

124,349

     

(1,350)

     

125,699

     

 

125,699

 

     

125,699

 

 

125,699

 

0.56

Upfront and milestone-related payments (3)

 

(2,628)

 

2,628

     

(5,702)

     

8,330

     

 

8,330

 

     

8,330

 

 

8,330

 

0.04

Inventory reserve increase from restructuring (4)

 

(24,455)

 

24,455

     

     

24,455

     

 

24,455

 

     

24,455

 

 

24,455

 

0.11

Royalty obligations (5)

 

7,750

 

(7,750)

     

     

(7,750)

     

 

(7,750)

 

     

(7,750)

 

 

(7,750)

 

(0.03)

Separation benefits and other restructuring (6)

 

(28,678)

 

28,678

     

(54,358)

     

83,036

     

 

83,036

 

     

83,036

 

 

83,036

 

0.37

Charges for litigation and other legal matters (8)

 

 

     

(23,950)

     

23,950

     

 

23,950

 

     

23,950

 

 

23,950

 

0.11

Asset impairment charges (9)

 

 

     

(3,781,165)

     

3,781,165

     

 

3,781,165

 

     

3,781,165

 

 

3,781,165

 

16.98

Acquisition-related and integration costs (10)

 

 

     

(63,778)

     

63,778

     

 

63,778

 

     

63,778

 

 

63,778

 

0.29

Fair value of contingent consideration (11)

 

 

     

(23,823)

     

23,823

     

 

23,823

 

     

23,823

 

 

23,823

 

0.11

Non-cash and penalty interest charges (12)

 

 

     

     

     

(4,092)

 

4,092

 

     

4,092

 

 

4,092

 

0.02

Other (13)

 

 

     

8,350

     

(8,350)

     

(1,077)

 

(7,273)

 

     

(7,273)

 

 

(7,273)

 

(0.03)

Tax adjustments (14)

 

 

     

     

     

 

 

721,602

     

(721,602)

 

 

(721,602)

 

(3.25)

Exclude discontinued operations, net of tax (15)

 

 

     

     

     

 

 

     

 

123,278

 

123,278

 

After considering items (non-GAAP)

$ 4,010,274

 

$ 1,586,162

 

$ 2,424,112

 

60 %

 

$    901,040

 

22 %

 

$  1,523,072

 

38 %

 

$ 447,172

 

$  1,075,900

 

$       21,518

 

2 %

 

$  1,054,382

 

$               —

 

$  1,054,366

 

$       4.73

                                                               
                                                               
 

Year Ended December 31, 2015

 

Total revenues

 

Cost of revenues

 

Gross margin