9.30.2017 Earnings Release 8-K Shell


________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________________________________________________________

FORM 8-K

______________________________________________________________________________________________________

CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): November 9, 2017

______________________________________________________________________________________________________
ENDO INTERNATIONAL PLC
(Exact Name of Registrant as Specified in Its Charter)

______________________________________________________________________________________________________
Ireland
001-36326
68-0683755
(State or other jurisdiction
of incorporation)
(Commission File Number)
(I.R.S. Employer
Identification No.)
First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland
Not Applicable
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 011-353-1-268-2000
Not Applicable
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
o    Emerging growth company
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






Item 2.02.
Results of Operations and Financial Condition.
On November 9, 2017, Endo International plc (the “Company,” “Endo,” or “we”) issued an earnings release announcing its financial results for the three and nine months ended September 30, 2017 (the “Earnings Release”). A copy of the Earnings Release is attached as Exhibit 99.1 hereto and is incorporated herein by reference.
The Company utilizes certain financial measures that are not prescribed by or prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). The Company utilizes these financial measures, commonly referred to as “non-GAAP,” because (i) they are used by the Company, along with financial measures in accordance with GAAP, to evaluate the Company's operating performance; (ii) the Company believes that they will be used by certain investors to measure the Company’s operating results; (iii) the Compensation Committee of the Company's Board of Directors uses adjusted diluted EPS and Adjusted EBITDA, or measures derived from such, in assessing the performance and compensation of substantially all of the Company's employees, including executive officers and (iv) the Company’s leverage ratio, as defined by the Company’s credit agreement, is calculated based on non-GAAP financial measures. The Company believes that presenting these non-GAAP measures provides useful information about the Company's performance across reporting periods on a consistent basis by excluding certain items, which may be favorable or unfavorable, pursuant to the procedure as described in the succeeding paragraph.
The initial identification and review of the non-GAAP adjustments necessary to arrive at these non-GAAP financial measures are performed by a team of finance professionals that include the Chief Accounting Officer and segment finance leaders in accordance with the Company’s Adjusted Income Statement Policy, which is reviewed and approved by the Company’s Audit Committee. Company tax professionals, including the Vice President of Tax, review and determine the tax effect of adjusted pre-tax income at applicable tax rates and other tax adjustments as described below. Proposed adjustments, along with any items considered but excluded, are presented to the Chief Accounting Officer, Chief Executive Officer and/or the Chief Financial Officer for their consideration. In turn, the non-GAAP adjustments are presented to the Audit Committee on a quarterly basis as part of the Company’s standard procedures for preparation and review of the earnings release and other quarterly materials.
These non-GAAP measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. The Company's definition of these non-GAAP measures may differ from similarly titled measures used by others. The definitions of the most commonly used non-GAAP financial measures are presented below:
Adjusted income from continuing operations
Adjusted income from continuing operations represents income (loss) from continuing operations, prepared in accordance with GAAP, adjusted for certain items. Adjustments to GAAP amounts may include, but are not limited to, certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; excess costs that will be eliminated pursuant to integration plans; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; certain non-cash interest expense; litigation-related and other contingent matters; gains or losses from early termination of debt; foreign currency gains or losses on intercompany financing arrangements; and certain other items; further adjusted for the tax effect of adjusted pre-tax income at applicable tax rates and other tax adjustments as described below.
Adjusted diluted earnings per share from continuing operations and adjusted diluted weighted average shares
Adjusted diluted earnings per share from continuing operations represent adjusted income from continuing operations divided by the number of adjusted diluted weighted average shares.
Both GAAP and non-GAAP diluted per share data is computed based on weighted average shares outstanding and, if there is net income from continuing operations (rather than net loss) during the period, the dilutive impact of share equivalents outstanding during the period. Diluted weighted average shares outstanding and adjusted diluted weighted average shares outstanding are calculated on the same basis except for the net income or loss figure used in determining whether to include such dilutive impact.
Adjusted gross margin
Adjusted gross margin represents total revenues less cost of revenues, prepared in accordance with GAAP, adjusted for the items enumerated above under the heading "Adjusted income from continuing operations," to the extent such items relate to cost of revenues. Such items may include, but are not limited to, amortization of intangible assets and inventory step-up recorded as part of our acquisitions, certain excess inventory reserves resulting from restructuring initiatives, separation benefits and certain excess costs that will be eliminated pursuant to integration plans.





Adjusted operating expenses
Adjusted operating expenses represent operating expenses, prepared in accordance with GAAP, adjusted for the items enumerated above under the heading "Adjusted income from continuing operations," to the extent such items relate to operating expenses. Such items may include, but are not limited to, certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; excess costs that will be eliminated pursuant to integration plans; asset impairment charges; amortization of intangible assets; litigation-related and other contingent matters; and certain other items.
Adjusted interest expense
Adjusted interest expense represents interest expense, net, prepared in accordance with GAAP, adjusted for non-cash interest expense and penalty interest.
Adjusted income taxes
Adjusted income taxes are calculated by tax effecting adjusted pre-tax income and permanent book-tax differences 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. Adjusted income taxes include current and deferred income tax expense commensurate with the non-GAAP measure of profitability. Adjustments are then made for certain items relating to prior years and for tax planning actions that are expected to be distortive to the underlying effective tax rate and trend in the effective tax rate. The most directly comparable GAAP financial measure for Adjusted income taxes is income tax expense (benefit), prepared in accordance with GAAP. The adjusted effective tax rate represents the rate generated when dividing adjusted income tax expense or benefit by the amount of adjusted pre-tax income.
EBITDA and Adjusted EBITDA
EBITDA represents net income (loss) before interest expense, net; income tax; depreciation; and amortization, each prepared in accordance with GAAP. Adjusted EBITDA further adjusts EBITDA by excluding other (income) expense, net; share-based compensation; certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, excess inventory reserves, other exit costs and certain costs associated with integrating an acquired company’s operations; excess costs that will be eliminated pursuant to integration plans; asset impairment charges; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; gains or losses from early termination of debt; discontinued operations, net of tax; and certain other items.
Net Debt and Net Debt Leverage Ratio
Net debt is calculated as the aggregate carrying amount of debt outstanding less unrestricted cash and cash equivalents.
The net debt leverage ratio is calculated as net debt divided by adjusted EBITDA for the trailing twelve-month period.
Because adjusted financial measures exclude the effect of items that will increase or decrease the Company's reported results of operations, the Company strongly encourages investors to review the Company's consolidated financial statements and publicly filed reports in their entirety. Investors are also encouraged to review the reconciliation of the non-GAAP financial measures used in the Earnings Release to their most directly comparable GAAP financial measures as included in the Earnings Release and within the quarterly earnings presentation available in the Investor Relations section of the Registrant’s website at http://www.endo.com. However, the Company does not provide reconciliations of projected non-GAAP financial measures to GAAP financial measures, nor does it provide comparable projected GAAP financial measures for such projected non-GAAP financial measures, except for projected adjusted diluted EPS. The Company is unable to provide such reconciliations without unreasonable efforts due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for asset impairments, contingent consideration adjustments, legal settlements, loss on extinguishment of debt, adjustments to inventory and other charges reflected in the reconciliation of historic numbers, the amount of which could be significant.
The information in this Item 2.02 and in Exhibit 99.1 attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information contained in this Item 2.02 and in Exhibit 99.1 attached hereto shall not be incorporated into any registration statement or other document filed by the Registrant with the U.S. Securities and Exchange Commission under the Securities Act of 1933, whether made before or after the date hereof, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.





Item 9.01.    Financial Statements and Exhibits.
(d)
Exhibits.
Exhibit Number
Description
99.1





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
 
ENDO INTERNATIONAL PLC
 
 
By:
/s/ Matthew J. Maletta
Name:
Matthew J. Maletta
Title:
Executive Vice President,
 
Chief Legal Officer
Dated: November 9, 2017





INDEX TO EXHIBITS
Exhibit Number
Description
99.1


Ex99.1-9.30.2017-Earnings Release


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11883400&doc=3
ENDO REPORTS THIRD-QUARTER 2017 FINANCIAL RESULTS
Third-quarter 2017 revenues of $787 million and reported $0.45 diluted (GAAP) loss per share from continuing operations
Third-quarter 2017 adjusted diluted earnings per share (EPS) from continuing operations of $0.91
Third-quarter 2017 Sterile Injectables revenues increased 28 percent to $175 million
Third-quarter 2017 Branded Specialty Products revenues increased 11 percent to $114 million
Third-quarter 2017 reported (GAAP) consolidated net loss of $97 million
Third-quarter 2017 adjusted EBITDA of $375 million
Company reaffirms full year 2017 revenues, adjusted diluted EPS and adjusted EBITDA financial guidance provided in August 2017
DUBLIN, November 9, 2017 -- Endo International plc (NASDAQ: ENDP) today reported third-quarter 2017 financial results, including:
Revenues of $787 million, an 11 percent decrease compared to third-quarter 2016 revenues of $884 million.
Reported net loss from continuing operations of $100 million compared to third-quarter 2016 reported net loss from continuing operations of $191 million.
Reported diluted loss per share from continuing operations of $0.45 compared to third-quarter 2016 reported diluted loss per share from continuing operations of $0.86.
Adjusted income from continuing operations of $204 million compared to third-quarter 2016 adjusted income from continuing operations of $226 million.
Adjusted diluted EPS from continuing operations of $0.91 compared to third-quarter 2016 adjusted diluted EPS from continuing operations of $1.01.
Adjusted EBITDA of $375 million compared to third-quarter 2016 adjusted EBITDA of $367 million.
"We continue to execute against our key priorities and deliver solid operating results," said Paul Campanelli, President and CEO of Endo. “Our core areas of focus, Sterile Injectables and Branded Specialty Products, are achieving impressive growth while we continue to drive margin expansion. We look forward to a strong finish to 2017 and we reaffirm the revenue and adjusted financial guidance we provided in August 2017."

1


FINANCIAL PERFORMANCE
(in thousands, except per share amounts)
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Total Revenues
$
786,887

 
$
884,335

 
(11
)%
 
$
2,700,218

 
$
2,768,761

 
(2
)%
Reported (Loss) Income from Continuing Operations
$
(99,687
)
 
$
(191,496
)
 
(48
)%
 
$
(961,130
)
 
$
109,553

 
NM

Reported Diluted Weighted Average Shares
223,299

 
222,767

 
 %
 
223,157

 
223,060

 
 %
Reported Diluted (Loss) Income per Share from Continuing Operations
$
(0.45
)
 
$
(0.86
)
 
(48
)%
 
$
(4.31
)
 
$
0.49

 
NM

Adjusted Income from Continuing Operations
$
204,052

 
$
225,519

 
(10
)%
 
$
686,498

 
$
658,591

 
4
 %
Adjusted Diluted Weighted Average Shares1
224,216

 
223,139

 
 %
 
223,779

 
223,060

 
 %
Adjusted Diluted EPS from Continuing Operations
$
0.91

 
$
1.01

 
(10
)%
 
$
3.07

 
$
2.95

 
4
 %
(1)
Diluted per share data is computed based on weighted average shares outstanding and, if there is income from continuing operations during the period, the dilutive impact of share equivalents outstanding during the period. In the case of Adjusted Diluted Weighted Average Shares, Adjusted Income from Continuing Operations is used in determining whether to include such dilutive impact.
CONSOLIDATED RESULTS
Total revenues decreased by 11 percent to $787 million in third-quarter 2017 compared to the same period in 2016. The decline was primarily due to previously announced U.S. Generic Pharmaceuticals product discontinuances, pricing pressure from increased competition primarily impacting the U.S. Generics Base business, generic competition adversely impacting the Branded Established Products portfolio and the ceasing of shipments of OPANA® ER to customers by September 1, 2017.
GAAP net loss from continuing operations in third-quarter 2017 was $100 million compared to GAAP net loss from continuing operations of $191 million during the same period in 2016. This decrease included the impact of lower amortization of intangible assets in third-quarter 2017 and higher third-quarter 2016 tax expense primarily due to the amortization of a deferred charge. GAAP net loss per share from continuing operations for third-quarter 2017 was $0.45, compared to diluted GAAP loss per share from continuing operations of $0.86 in third-quarter 2016.
Adjusted income from continuing operations in third-quarter 2017 was $204 million compared to $226 million in third-quarter 2016. This decrease included the impact of an increase to interest expense, mainly due to the refinancing of the Company's secured debt in April 2017, and adjusted tax expense. Adjusted EPS from continuing operations in third-quarter 2017 was $0.91 compared to $1.01 in third-quarter 2016.

2


U.S. GENERIC PHARMACEUTICALS
During third-quarter 2017, the U.S. Generic Pharmaceuticals segment launched vigabatrin for oral solution USP, the first generic version of Sabril®, and sodium phenylbutyrate tablets, the first generic equivalent of Buphenyl®. Year-to-date in 2017, Par has launched 14 new generic products and has made nine submissions to regulatory authorities.
Third-quarter 2017 U.S. Generic Pharmaceuticals results include:
Revenues of $497 million, a 7 percent decrease compared to third-quarter 2016, as the decline in the U.S. Generics Base business was partially offset by strong growth in Sterile Injectables.
Sterile Injectables revenue increased 28 percent compared to third-quarter 2016; this increase was driven primarily by ADRENALIN® and VASOSTRICT®.
The U.S. Generics Base business revenues decreased 27 percent compared to third-quarter 2016; this decrease primarily resulted from the impact on third-quarter 2017 related to 2016 and 2017 competitive events, previously announced product discontinuances and the continued impact on pricing due to consolidation among our trade accounts.
U.S. BRANDED PHARMACEUTICALS
During third-quarter 2017, Endo, in partnership with Tim Herron, a four-time PGA Tour winner, and Damon Adamany, MD, of the CORE Institute, launched Facts on Hand, an unbranded campaign to raise awareness of Dupuytren’s Contracture, a progressive, potentially disfiguring hand condition. Endo also recently launched several direct-to-consumer initiatives intended to increase patient awareness of XIAFLEX® as a possible treatment option for Dupuytren’s Contracture and Peyronie’s Disease.
Third-quarter 2017 U.S. Branded Pharmaceuticals results include:
Revenues of $234 million, a 16 percent decrease compared to third-quarter 2016; this decrease was primarily attributable to generic competition adversely impacting the Company's established products portfolio, the divestitures of STENDRA® and BELBUCA® and the decline in revenues of OPANA® ER resulting from the cessation of product shipments by September 1, 2017.
Specialty Products revenues increased 11 percent in third-quarter 2017 versus the same period in 2016, driven by strong performance from XIAFLEX® and other products within our Specialty Products portfolio. Sales of XIAFLEX®, our flagship Branded product, increased 10 percent compared to third-quarter 2016; this increase was primarily attributable to volume growth.

3


INTERNATIONAL PHARMACEUTICALS
During third-quarter 2017, Endo announced it had entered into a definitive agreement to sell its Mexican subsidiary, Somar, to Advent International. The transaction closed on October 25, 2017.
Third-quarter 2017 International Pharmaceuticals revenues were $56 million, compared to $71 million in the same period in 2016. The decline is primarily attributable to the sale of the Company’s South African business, Litha Healthcare Group, to Acino Pharma AG, which closed on July 3, 2017.
2017 FINANCIAL GUIDANCE
For the full twelve months ended December 31, 2017, at current exchange rates, Endo is reaffirming its full-year guidance on revenue, adjusted diluted EPS from continuing operations and adjusted EBITDA from continuing operations provided in August 2017. The Company estimates:
Total revenues to be between $3.38 billion to $3.53 billion;
Reported diluted GAAP loss per share from continuing operations to be between $4.94 and $4.64;
Adjusted diluted EPS from continuing operations to be between $3.35 to $3.65; and
Adjusted EBITDA from continuing operations to be between $1.48 billion to $1.56 billion.
The Company’s 2017 non-GAAP financial guidance is based on the following assumptions:
Adjusted gross margin of approximately 62.5% to 63.5%;
Adjusted operating expenses as a percentage of revenues of approximately 22.0%;
Adjusted interest expense of approximately $490 million to $500 million;
Adjusted effective tax rate of approximately 12.0% to 13.0%; and
Adjusted diluted EPS from continuing operations assumes full-year adjusted diluted shares outstanding of approximately 224 million shares.
BALANCE SHEET, LIQUIDITY AND OTHER UPDATES
As of September 30, 2017, the Company had $738 million in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.5 billion and a net debt to adjusted EBITDA ratio of 4.2.
Third-quarter 2017 cash provided by operating activities was $83 million, compared to $115 million of net cash used in operating activities in the comparable 2016 period. The 2016 period was impacted by higher funding of payments related to settled U.S. mesh product liability claims.

4


During third-quarter 2017, the Company recorded pre-tax, non-cash asset impairment charges of $95 million, $78 million of which related to in-process research and development intangible assets in its U.S. Generic Pharmaceuticals segment and certain finite-lived intangible assets in its U.S. Branded Pharmaceuticals segment.
CONFERENCE CALL INFORMATION
Endo will conduct a conference call with financial analysts to discuss this press release today at 4:30 p.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 92375212. Please dial in 10 minutes prior to the scheduled start time.
A replay of the call will be available from November 9, 2017 at 7:30 p.m. ET until 7:30 p.m. ET on November 12, 2017 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 92375212.
A simultaneous webcast of the call can be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available on the Company website for one year following the event. The replay can be accessed by clicking on the Investor Relations section of the Endo website.

5


FINANCIAL SCHEDULES
The following table presents Endo's unaudited Total Revenues for the three and nine months ended September 30, 2017 and 2016 (in thousands):
 
Three Months Ended September 30,
 
Percent Growth
 
Nine Months Ended September 30,
 
Percent Growth
 
2017
 
2016
 
 
2017
 
2016
 
U.S. Generic Pharmaceuticals:
 
 
 
 
 
 
 
 
 
 
 
U.S. Generics Base
$
192,333

 
$
263,431

 
(27
)%
 
$
647,415

 
$
941,955

 
(31
)%
Sterile Injectables
174,982

 
136,966

 
28
 %
 
486,928

 
386,900

 
26
 %
New Launches and Alternative Dosages
129,339

 
133,294

 
(3
)%
 
647,606

 
353,584

 
83
 %
Total U.S. Generic Pharmaceuticals
$
496,654

 
$
533,691

 
(7
)%
 
$
1,781,949

 
$
1,682,439

 
6
 %
U.S. Branded Pharmaceuticals:
 
 
 
 
 
 
 
 
 
 
 
Specialty Products:
 
 
 
 
 
 
 
 
 
 
 
XIAFLEX®
$
52,511

 
$
47,695

 
10
 %
 
$
152,113

 
$
134,159

 
13
 %
SUPPRELIN® LA
20,638

 
19,392

 
6
 %
 
63,468

 
57,855

 
10
 %
Other Specialty (1)
40,634

 
35,298

 
15
 %
 
113,407

 
100,240

 
13
 %
Total Specialty Products
$
113,783

 
$
102,385

 
11
 %
 
$
328,988

 
$
292,254

 
13
 %
Established Products:
 
 
 
 
 
 
 
 
 
 
 
OPANA® ER
$
14,756

 
$
36,834

 
(60
)%
 
$
82,056

 
$
120,058

 
(32
)%
PERCOCET®
31,349

 
33,881

 
(7
)%
 
93,183

 
103,182

 
(10
)%
VOLTAREN® Gel
19,102

 
18,993

 
1
 %
 
53,646

 
82,030

 
(35
)%
LIDODERM®
12,851

 
19,704

 
(35
)%
 
37,705

 
66,455

 
(43
)%
Other Established (2)
41,962

 
68,046

 
(38
)%
 
133,572

 
213,019

 
(37
)%
Total Established Products
$
120,020

 
$
177,458

 
(32
)%
 
$
400,162

 
$
584,744

 
(32
)%
Total U.S. Branded Pharmaceuticals (3)
$
233,803

 
$
279,843

 
(16
)%
 
$
729,150

 
$
876,998

 
(17
)%
Total International Pharmaceuticals
$
56,430

 
$
70,801

 
(20
)%
 
$
189,119

 
$
209,324

 
(10
)%
Total Revenues
$
786,887

 
$
884,335

 
(11
)%
 
$
2,700,218

 
$
2,768,761

 
(2
)%
__________
(1)
Products included within Other Specialty include TESTOPEL®, NASCOBAL® Nasal Spray, and AVEED®.
(2)
Products included within Other Established include, but are not limited to, TESTIM® and FORTESTA® Gel, including the authorized generic.
(3)
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 any quarterly period in 2017 or 2016. LIDODERM® is separately presented as its revenues exceeded $25 million in certain quarterly periods in 2016.

6


The following table presents unaudited Condensed Consolidated Statement of Operations data for the three and nine months ended September 30, 2017 and 2016 (in thousands, except per share data):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
TOTAL REVENUES
$
786,887

 
$
884,335

 
$
2,700,218

 
$
2,768,761

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of revenues
514,522

 
557,472

 
1,722,885

 
1,878,395

Selling, general and administrative
135,880

 
186,735

 
468,675

 
558,160

Research and development
39,644

 
44,885

 
123,522

 
137,166

Litigation-related and other contingencies, net
(12,352
)
 
18,256

 
(14,016
)
 
28,715

Asset impairment charges
94,924

 
93,504

 
1,023,930

 
263,080

Acquisition-related and integration items
16,641

 
19,476

 
31,711

 
80,201

OPERATING LOSS FROM CONTINUING OPERATIONS
$
(2,372
)
 
$
(35,993
)
 
$
(656,489
)
 
$
(176,956
)
INTEREST EXPENSE, NET
127,521

 
112,184

 
361,267

 
340,896

LOSS ON EXTINGUISHMENT OF DEBT

 

 
51,734

 

OTHER (INCOME) EXPENSE, NET
(2,097
)
 
(2,866
)
 
(10,843
)
 
402

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX
$
(127,796
)
 
$
(145,311
)
 
$
(1,058,647
)
 
$
(518,254
)
INCOME TAX (BENEFIT) EXPENSE
(28,109
)
 
46,185

 
(97,517
)
 
(627,807
)
(LOSS) INCOME FROM CONTINUING OPERATIONS
$
(99,687
)
 
$
(191,496
)
 
$
(961,130
)
 
$
109,553

DISCONTINUED OPERATIONS, NET OF TAX
3,017

 
(27,423
)
 
(705,886
)
 
(118,747
)
CONSOLIDATED NET LOSS
$
(96,670
)
 
$
(218,919
)
 
$
(1,667,016
)
 
$
(9,194
)
Less: Net income attributable to noncontrolling interests

 

 

 
16

NET LOSS ATTRIBUTABLE TO ENDO INTERNATIONAL PLC
$
(96,670
)
 
$
(218,919
)
 
$
(1,667,016
)
 
$
(9,210
)
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—BASIC:
 
 
 
 
 
 
 
Continuing operations
$
(0.45
)
 
$
(0.86
)
 
$
(4.31
)
 
$
0.49

Discontinued operations
0.02

 
(0.12
)
 
(3.16
)
 
(0.53
)
Basic
$
(0.43
)
 
$
(0.98
)
 
$
(7.47
)
 
$
(0.04
)
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—DILUTED:
 
 
 
 
 
 
 
Continuing operations
$
(0.45
)
 
$
(0.86
)
 
$
(4.31
)
 
$
0.49

Discontinued operations
0.02

 
(0.12
)
 
(3.16
)
 
(0.53
)
Diluted
$
(0.43
)
 
$
(0.98
)
 
$
(7.47
)
 
$
(0.04
)
WEIGHTED AVERAGE SHARES:
 
 
 
 
 
 
 
Basic
223,299

 
222,767

 
223,157

 
222,579

Diluted
223,299

 
222,767

 
223,157

 
223,060


7


The following table presents unaudited Condensed Consolidated Balance Sheet data at September 30, 2017 and December 31, 2016 (in thousands):
 
September 30, 2017
 
December 31, 2016
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
738,393

 
$
517,250

Restricted cash and cash equivalents
361,137

 
282,074

Accounts receivable
531,488

 
992,153

Inventories, net
443,270

 
555,671

Assets held for sale
65,565

 
116,985

Other current assets
56,626

 
125,326

Total current assets
$
2,196,479

 
$
2,589,459

TOTAL NON-CURRENT ASSETS
9,698,992

 
11,685,650

TOTAL ASSETS
$
11,895,471

 
$
14,275,109

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable and accrued expenses, including legal settlement accruals
$
1,986,405

 
$
2,470,016

Liabilities held for sale
13,456

 
24,338

Other current liabilities
42,260

 
140,391

Total current liabilities
$
2,042,121

 
$
2,634,745

LONG-TERM DEBT, LESS CURRENT PORTION, NET
8,246,605

 
8,141,378

OTHER LIABILITIES
841,761

 
797,397

TOTAL SHAREHOLDERS' EQUITY
764,984

 
2,701,589

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
11,895,471

 
$
14,275,109


8


The following table presents unaudited Condensed Consolidated Statement of Cash Flow data for the nine months ended September 30, 2017 and 2016 (in thousands):
 
Nine Months Ended September 30,
 
2017

2016
OPERATING ACTIVITIES:
 
 
 
Consolidated net loss
$
(1,667,016
)
 
$
(9,194
)
Adjustments to reconcile consolidated net loss to Net cash provided by operating activities:
 
 
 
Depreciation and amortization
742,936

 
716,332

Asset impairment charges
1,023,930

 
284,409

Other, including cash payments to claimants from Qualified Settlement Funds (1)
324,212

 
(548,170
)
Net cash provided by operating activities
$
424,062

 
$
443,377

INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment
$
(94,102
)
 
$
(88,087
)
Acquisitions, net of cash acquired

 
(30,394
)
Proceeds from sale of business and other assets, net
96,066

 
6,686

Increase in restricted cash and cash equivalents (1)
(624,145
)
 
(588,455
)
Decrease in restricted cash and cash equivalents (1)
545,379

 
898,288

Other
7,000

 
(19,172
)
Net cash (used in) provided by investing activities
$
(69,802
)
 
$
178,866

FINANCING ACTIVITIES:
 
 
 
Payments on borrowings, net
$
(12,325
)
 
$
(305,634
)
Other
(123,028
)
 
(28,877
)
Net cash used in financing activities
$
(135,353
)
 
$
(334,511
)
Effect of foreign exchange rate
$
3,686

 
$
1,497

Movement in cash held for sale
(1,450
)
 

NET INCREASE IN CASH AND CASH EQUIVALENTS
$
221,143

 
$
289,229

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
517,250

 
272,348

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
738,393

 
$
561,577

(1)
Included within the above Condensed Consolidated Statements of Cash Flows is the impact of payments into and out of QSFs for mesh-related product liability. 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 operating activities (CFO). The following table reflects the mesh-related payment activities for the nine months ended September 30, 2017 and 2016 by cash flow component:
 
Nine Months Ended September 30,
 
2017
 
2016
 
Impact on CFO (a)
 
Impact on CFI
 
Impact on CFO (a)
 
Impact on CFI
Cash contributions to Qualified Settlement Funds
$

 
$
(623,128
)
 
$

 
$
(587,782
)
Cash payments to claimants from Qualified Settlement Funds
(545,379
)
 
545,379

 
(898,288
)
 
898,288

Cash payments made directly to claimants
(3,625
)
 

 
(5,561
)
 

Total
$
(549,004
)
 
$
(77,749
)
 
$
(903,849
)
 
$
310,506

(a)
These amounts are included in "Other, including cash payments to claimants from Qualified Settlement Funds (1)" in the Condensed Consolidated Statements of Cash Flows above.

9


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 tables below provide reconciliations of certain of our non-GAAP financial measures, both historical and forward-looking, to their most directly comparable GAAP amounts. Refer to the "Notes to the Reconciliations of GAAP and Non-GAAP Financial Measures" section below for additional details regarding the adjustments to the non-GAAP financial measures detailed throughout this Supplemental Financial Information section.
Reconciliation of EBITDA and Adjusted EBITDA (non-GAAP)
The following table provides a reconciliation of Net loss attributable to Endo International plc (GAAP) to Adjusted EBITDA (non-GAAP) for the three and nine months ended September 30, 2017 and 2016 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017

2016
 
2017
 
2016
Net loss attributable to Endo International plc (GAAP)
$
(96,670
)
 
$
(218,919
)
 
$
(1,667,016
)
 
$
(9,210
)
Income tax (benefit) expense
(28,109
)
 
46,185

 
(97,517
)
 
(627,807
)
Interest expense, net
127,521

 
112,184

 
361,267

 
340,896

Depreciation and amortization (18)
183,475

 
230,520

 
680,385

 
695,432

EBITDA (non-GAAP)
$
186,217

 
$
169,970

 
$
(722,881
)
 
$
399,311

 


 


 
 
 
 
Inventory step-up and other cost savings (2)
$
66

 
$
14,208

 
$
281

 
$
111,787

Upfront and milestone-related payments (3)
775

 
1,770

 
6,952

 
5,875

Inventory reserve (decrease) increase from restructuring (4)

 
(9,041
)
 
7,899

 
24,592

Royalty obligations (5)

 

 

 
(7,750
)
Separation benefits and other restructuring (6)
80,693

 
18,823

 
120,078

 
45,820

Certain litigation-related and other contingencies, net (7)
(12,352
)
 
18,256

 
(14,016
)
 
28,715

Asset impairment charges (8)
94,924

 
93,504

 
1,023,930

 
263,080

Acquisition-related and integration costs (9)
1,201

 
7,907

 
8,137

 
55,422

Fair value of contingent consideration (10)
15,440

 
11,569

 
23,574

 
24,779

Loss on extinguishment of debt (11)

 

 
51,734

 

Share-based compensation
13,247

 
14,953

 
40,252

 
43,473

Other (income) expense, net (19)
(2,097
)
 
(2,866
)
 
(10,843
)
 
402

Other adjustments
(58
)
 
614

 
(75
)
 
(781
)
Discontinued operations, net of tax (15)
(3,017
)
 
27,423

 
705,886

 
118,747

Net income attributable to noncontrolling interests (16)

 

 

 
16

Adjusted EBITDA (non-GAAP)
$
375,039

 
$
367,090

 
$
1,240,908

 
$
1,113,488


10


Reconciliation of Adjusted Income from Continuing Operations (non-GAAP)
The following table provides a reconciliation of our (Loss) income from continuing operations (GAAP) to our Adjusted income from continuing operations (non-GAAP) for the three and nine months ended September 30, 2017 and 2016 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
(Loss) income from continuing operations (GAAP)
$
(99,687
)
 
$
(191,496
)
 
$
(961,130
)
 
$
109,553

Non-GAAP adjustments:


 


 


 


Amortization of intangible assets (1)
161,413

 
211,548

 
615,490

 
636,061

Inventory step-up and other cost savings (2)
66

 
14,208

 
281

 
111,787

Upfront and milestone-related payments (3)
775

 
1,770

 
6,952

 
5,875

Inventory reserve (decrease) increase from restructuring (4)

 
(9,041
)
 
7,899

 
24,592

Royalty obligations (5)

 

 

 
(7,750
)
Separation benefits and other restructuring (6)
80,693

 
18,823

 
120,078

 
45,820

Certain litigation-related and other contingencies, net (7)
(12,352
)
 
18,256

 
(14,016
)
 
28,715

Asset impairment charges (8)
94,924

 
93,504

 
1,023,930

 
263,080

Acquisition-related and integration costs (9)
1,201

 
7,907

 
8,137

 
55,422

Fair value of contingent consideration (10)
15,440

 
11,569

 
23,574

 
24,779

Loss on extinguishment of debt (11)

 

 
51,734

 

Non-cash and penalty interest charges (12)

 

 

 
4,092

Other (13)
3,035

 
53

 
(1,133
)
 
(5,437
)
Tax adjustments (14)
(41,456
)
 
48,418

 
(195,298
)
 
(637,998
)
Adjusted income from continuing operations (non-GAAP)
$
204,052

 
$
225,519

 
$
686,498

 
$
658,591


11


Reconciliation of Other Adjusted Income Statement Data (non-GAAP)
The following tables provide detailed reconciliations of various other income statement data between the GAAP and non-GAAP amounts for the three and nine months ended September 30, 2017 and 2016 (in thousands, except per share data):
Three Months Ended September 30, 2017
 
Total revenues
 
Cost of revenues
 
Gross margin
 
Gross margin %
 
Total operating expenses
 
Operating expense to revenue %
 
Operating (loss) income from continuing operations
 
Operating margin %
 
Other non-operating expense, net
 
(Loss) income from continuing operations before income tax
 
Income tax (benefit) expense
 
Effective tax rate
 
(Loss) income from continuing operations
 
Discontinued operations, net of tax
 
Net (loss) income attributable to Endo International plc
 
Diluted (loss) income per share from continuing operations (17)
Reported (GAAP)
$
786,887

 
$
514,522

 
$
272,365

 
35
%
 
$
274,737

 
35
%
 
$
(2,372
)
 
 %
 
$
125,424

 
$
(127,796
)
 
$
(28,109
)
 
22
%
 
$
(99,687
)
 
$
3,017

 
$
(96,670
)
 
$
(0.45
)
Items impacting comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangible assets (1)

 
(161,413
)
 
161,413

 
 
 

 
 
 
161,413

 
 
 

 
161,413

 

 
 
 
161,413

 

 
161,413

 
0.73

Inventory step-up and other cost savings (2)

 
(66
)
 
66

 
 
 

 
 
 
66

 
 
 

 
66

 

 
 
 
66

 

 
66

 

Upfront and milestone-related payments (3)

 
(688
)
 
688

 
 
 
(87
)
 
 
 
775

 
 
 

 
775

 

 
 
 
775

 

 
775

 

Separation benefits and other restructuring (6)

 
(78,680
)
 
78,680

 
 
 
(2,013
)
 
 
 
80,693

 
 
 

 
80,693

 

 
 
 
80,693

 

 
80,693

 
0.36

Certain litigation-related and other contingencies, net (7)

 

 

 
 
 
12,352

 
 
 
(12,352
)
 
 
 

 
(12,352
)
 

 
 
 
(12,352
)
 

 
(12,352
)
 
(0.06
)
Asset impairment charges (8)

 

 

 
 
 
(94,924
)
 
 
 
94,924

 
 
 

 
94,924

 

 
 
 
94,924

 

 
94,924

 
0.43

Acquisition-related and integration costs (9)

 

 

 
 
 
(1,201
)
 
 
 
1,201

 
 
 

 
1,201

 

 
 
 
1,201

 

 
1,201

 
0.01

Fair value of contingent consideration (10)

 

 

 
 
 
(15,440
)
 
 
 
15,440

 
 
 

 
15,440

 

 
 
 
15,440

 

 
15,440

 
0.07

Other (13)

 

 

 
 
 

 
 
 

 
 
 
(3,035
)
 
3,035

 

 
 
 
3,035

 

 
3,035

 
0.01

Tax adjustments (14)

 

 

 
 
 

 
 
 

 
 
 

 

 
41,456

 
 
 
(41,456
)
 

 
(41,456
)
 
(0.19
)
Exclude discontinued operations, net of tax (15)

 

 

 
 
 

 
 
 

 
 
 

 

 

 
 
 

 
(3,017
)
 
(3,017
)
 

After considering items (non-GAAP)
$
786,887

 
$
273,675

 
$
513,212

 
65
%
 
$
173,424

 
22
%
 
$
339,788

 
43
 %
 
$
122,389

 
$
217,399

 
$
13,347

 
6
%
 
$
204,052

 
$

 
$
204,052

 
$
0.91

Three Months Ended September 30, 2016
 
Total revenues
 
Cost of revenues
 
Gross margin
 
Gross margin %
 
Total operating expenses
 
Operating expense to revenue %
 
Operating (loss) income from continuing operations
 
Operating margin %
 
Other non-operating expense, net
 
(Loss) income from continuing operations before income tax
 
Income tax expense (benefit)
 
Effective tax rate
 
(Loss) income from continuing operations
 
Discontinued operations, net of tax
 
Net (loss) income attributable to Endo International plc (16)
 
Diluted (loss) income per share from continuing operations (17)
Reported (GAAP)
$
884,335

 
$
557,472

 
$
326,863

 
37
%
 
$
362,856

 
41
%
 
$
(35,993
)
 
(4
)%
 
$
109,318

 
$
(145,311
)
 
$
46,185

 
(32
)%
 
$
(191,496
)
 
$
(27,423
)
 
$
(218,919
)
 
$
(0.86
)
Items impacting comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangible assets (1)

 
(211,548
)
 
211,548

 
 
 

 
 
 
211,548

 
 
 

 
211,548

 

 
 
 
211,548

 

 
211,548

 
0.95

Inventory step-up and other cost savings (2)

 
(14,208
)
 
14,208

 
 
 

 
 
 
14,208

 
 
 

 
14,208

 

 
 
 
14,208

 

 
14,208

 
0.06

Upfront and milestone-related payments (3)

 
(664
)
 
664

 
 
 
(1,106
)
 
 
 
1,770

 
 
 

 
1,770

 

 
 
 
1,770

 

 
1,770

 
0.01

Inventory reserve decrease from restructuring (4)

 
9,041

 
(9,041
)
 
 
 

 
 
 
(9,041
)
 
 
 

 
(9,041
)
 

 
 
 
(9,041
)
 

 
(9,041
)
 
(0.04
)
Separation benefits and other restructuring (6)

 
(12,989
)
 
12,989

 
 
 
(5,834
)
 
 
 
18,823

 
 
 

 
18,823

 

 
 
 
18,823

 

 
18,823

 
0.08

Certain litigation-related and other contingencies, net (7)

 

 

 
 
 
(18,256
)
 
 
 
18,256

 
 
 

 
18,256

 

 
 
 
18,256

 

 
18,256

 
0.08

Asset impairment charges (8)

 

 

 
 
 
(93,504
)
 
 
 
93,504

 
 
 

 
93,504

 

 
 
 
93,504

 

 
93,504

 
0.42

Acquisition-related and integration costs (9)

 

 

 
 
 
(7,907
)
 
 
 
7,907

 
 
 

 
7,907

 

 
 
 
7,907

 

 
7,907

 
0.04

Fair value of contingent consideration (10)

 

 

 
 
 
(11,569
)
 
 
 
11,569

 
 
 

 
11,569

 

 
 
 
11,569

 

 
11,569

 
0.05

Other (13)

 

 

 
 
 

 
 
 

 
 
 
(53
)
 
53

 

 
 
 
53

 

 
53

 

Tax adjustments (14)

 

 

 
 
 

 
 
 

 
 
 

 

 
(48,418
)
 
 
 
48,418

 

 
48,418

 
0.22

Exclude discontinued operations, net of tax (15)

 

 

 
 
 

 
 
 

 
 
 

 

 

 
 
 

 
27,423

 
27,423

 

After considering items (non-GAAP)
$
884,335

 
$
327,104

 
$
557,231

 
63
%
 
$
224,680

 
25
%
 
$
332,551

 
38
 %
 
$
109,265

 
$
223,286

 
$
(2,233
)
 
(1
)%
 
$
225,519

 
$

 
$
225,519

 
$
1.01


12


Nine Months Ended September 30, 2017
 
Total revenues
 
Cost of revenues
 
Gross margin
 
Gross margin %
 
Total operating expenses
 
Operating expense to revenue %
 
Operating (loss) income from continuing operations
 
Operating margin %
 
Other non-operating expense, net
 
(Loss) income from continuing operations before income tax
 
Income tax (benefit) expense
 
Effective tax rate
 
(Loss) income from continuing operations
 
Discontinued operations, net of tax
 
Net (loss) income attributable to Endo International plc
 
Diluted (loss) income per share from continuing operations (17)
Reported (GAAP)
$
2,700,218

 
$
1,722,885

 
$
977,333

 
36
%
 
$
1,633,822

 
61
%
 
$
(656,489
)
 
(24
)%
 
$
402,158

 
$
(1,058,647
)
 
$
(97,517
)
 
9
%
 
$
(961,130
)
 
$
(705,886
)
 
$
(1,667,016
)
 
$
(4.31
)
Items impacting comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangible assets (1)

 
(615,490
)
 
615,490

 
 
 

 
 
 
615,490

 
 
 

 
615,490

 

 
 
 
615,490

 

 
615,490

 
2.75

Inventory step-up and other cost savings (2)

 
(281
)
 
281

 
 
 

 
 
 
281

 
 
 

 
281

 

 
 
 
281

 

 
281

 

Upfront and milestone-related payments (3)

 
(2,039
)
 
2,039

 
 
 
(4,913
)
 
 
 
6,952

 
 
 

 
6,952

 

 
 
 
6,952

 

 
6,952

 
0.03

Inventory reserve increase from restructuring (4)

 
(7,899
)
 
7,899

 
 
 

 
 
 
7,899

 
 
 

 
7,899

 

 
 
 
7,899

 

 
7,899

 
0.04

Separation benefits and other restructuring (6)

 
(85,367
)
 
85,367

 
 
 
(34,711
)
 
 
 
120,078

 
 
 

 
120,078

 

 
 
 
120,078

 

 
120,078

 
0.54

Certain litigation-related and other contingencies, net (7)

 

 

 
 
 
14,016

 
 
 
(14,016
)
 
 
 

 
(14,016
)
 

 
 
 
(14,016
)
 

 
(14,016
)
 
(0.06
)
Asset impairment charges (8)

 

 

 
 
 
(1,023,930
)
 
 
 
1,023,930

 
 
 

 
1,023,930

 

 
 
 
1,023,930

 

 
1,023,930

 
4.59

Acquisition-related and integration costs (9)

 

 

 
 
 
(8,137
)
 
 
 
8,137

 
 
 

 
8,137

 

 
 
 
8,137

 

 
8,137

 
0.04

Fair value of contingent consideration (10)

 

 

 
 
 
(23,574
)
 
 
 
23,574

 
 
 

 
23,574

 

 
 
 
23,574

 

 
23,574

 
0.11

Loss on extinguishment of debt (11)

 

 

 
 
 

 
 
 

 
 
 
(51,734
)
 
51,734

 

 
 
 
51,734

 

 
51,734

 
0.23

Other (13)

 

 

 
 
 

 
 
 

 
 
 
1,133

 
(1,133
)
 

 
 
 
(1,133
)
 

 
(1,133
)
 
(0.01
)
Tax adjustments (14)

 

 

 
 
 

 
 
 

 
 
 

 

 
195,298

 
 
 
(195,298
)
 

 
(195,298
)
 
(0.88
)
Exclude discontinued operations, net of tax (15)

 

 

 
 
 

 
 
 

 
 
 

 

 

 
 
 

 
705,886

 
705,886

 

After considering items (non-GAAP)
$
2,700,218

 
$
1,011,809

 
$
1,688,409

 
63
%
 
$
552,573

 
20
%
 
$
1,135,836

 
42
 %
 
$
351,557

 
$
784,279

 
$
97,781

 
12
%
 
$
686,498

 
$