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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________ 
FORM 10-Q
____________________________________________________________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                          TO
Commission File Number: 001-36326
____________________________________________________________________________________________
Endo International plc
(Exact name of registrant as specified in its charter)
____________________________________________________________________________________________

Ireland
68-0683755
(State or other jurisdiction of incorporation or organization)
(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)
011-353-1-268-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
 
 
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
 
 
No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
 
 
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
 
 
No
Securities registered pursuant to Section 12(b) of the Exchange Act:
 
 
 
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Ordinary shares, nominal value $0.0001 per share
ENDP
The Nasdaq Global Select Market
Indicate the number of shares outstanding of each of the issuer’s classes of ordinary shares, as of the latest practicable date.
Ordinary shares, $0.0001 par value
Number of ordinary shares outstanding as of October 29, 2019:
226,776,161



ENDO INTERNATIONAL PLC
INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

FORWARD-LOOKING STATEMENTS
Statements contained or incorporated by reference in this document contain information that includes or is based on “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These statements, including estimates of future revenues, future expenses, future net income and future net income per share contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this document, are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed results of operations. We have tried, whenever possible, to identify such statements by words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project,” “forecast,” “will,” “may” or similar expressions. We have based these forward-looking statements on our current expectations and projections about the growth of our business, our financial performance and the development of our industry. Because these statements reflect our current views concerning future events, these forward-looking statements involve risks and uncertainties. Investors should note that many factors, as more fully described under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (SEC) on February 28, 2019 (the Annual Report), as amended and supplemented by the risk factors previously disclosed by us in Part II, Item 1A under the caption “Risk Factors” of our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2019 and June 30, 2019, and as otherwise enumerated herein, could affect our future financial results and could cause our actual results to differ materially from those expressed in forward-looking statements contained or incorporated by reference in this document.
We do not undertake any obligation to update our forward-looking statements after the date of this document for any reason, even if new information becomes available or other events occur in the future, except as may be required under applicable securities law. You are advised to consult any further disclosures we make on related subjects in our reports filed with the SEC and with securities regulators in Canada on the System for Electronic Document Analysis and Retrieval (SEDAR). Also note that in Part I, Item 1A of the Annual Report, as amended and supplemented by the risk factors previously disclosed by us in Part II, Item 1A under the caption “Risk Factors” of our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2019 and June 30, 2019, and as otherwise enumerated herein, we provide a cautionary discussion of the risks, uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by Section 27A of the Securities Act and Section 21E of the Exchange Act. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider this to be a complete discussion of all potential risks or uncertainties.

i

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except share and per share data)
 
September 30, 2019
 
December 31, 2018
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
1,526,250

 
$
1,149,113

Restricted cash and cash equivalents
222,491

 
305,368

Accounts receivable, net
420,195

 
470,570

Inventories, net
338,513

 
322,179

Prepaid expenses and other current assets
105,349

 
56,139

Income taxes receivable
36,337

 
39,781

Total current assets
$
2,649,135

 
$
2,343,150

PROPERTY, PLANT AND EQUIPMENT, NET
501,352

 
498,892

OPERATING LEASE ASSETS
53,839

 

GOODWILL
3,615,322

 
3,764,636

OTHER INTANGIBLES, NET
2,938,217

 
3,457,306

DEFERRED INCOME TAXES

 
678

OTHER ASSETS
77,001

 
67,731

TOTAL ASSETS
$
9,834,866

 
$
10,132,393

LIABILITIES AND SHAREHOLDERS' DEFICIT
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable and accrued expenses
$
937,181

 
$
1,009,200

Current portion of legal settlement accrual
674,943

 
905,085

Current portion of operating lease liabilities
10,575

 

Current portion of long-term debt
34,150

 
34,150

Income taxes payable
10,878

 
1,661

Total current liabilities
$
1,667,727

 
$
1,950,096

DEFERRED INCOME TAXES
32,105

 
34,487

LONG-TERM DEBT, LESS CURRENT PORTION, NET
8,364,911

 
8,224,269

LONG-TERM LEGAL SETTLEMENT ACCRUAL, LESS CURRENT PORTION
9,113

 

OPERATING LEASE LIABILITIES, LESS CURRENT PORTION
50,965

 

OTHER LIABILITIES
371,522

 
421,824

COMMITMENTS AND CONTINGENCIES (NOTE 13)


 


SHAREHOLDERS' DEFICIT:
 
 
 
Euro deferred shares, $0.01 par value; 4,000,000 shares authorized and issued at both September 30, 2019 and December 31, 2018
44

 
46

Ordinary shares, $0.0001 par value; 1,000,000,000 shares authorized; 226,763,072 and 224,382,791 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
23

 
22

Additional paid-in capital
8,894,646

 
8,855,810

Accumulated deficit
(9,333,571
)
 
(9,124,932
)
Accumulated other comprehensive loss
(222,619
)
 
(229,229
)
Total shareholders' deficit
$
(661,477
)
 
$
(498,283
)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
$
9,834,866

 
$
10,132,393

See accompanying Notes to Condensed Consolidated Financial Statements.

1

Table of Contents

ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars and shares in thousands, except per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
TOTAL REVENUES, NET
$
729,426

 
$
745,466

 
$
2,149,564

 
$
2,160,689

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of revenues
389,165

 
412,965

 
1,169,282

 
1,198,468

Selling, general and administrative
168,329

 
163,791

 
471,749

 
478,615

Research and development
36,519

 
39,683

 
96,353

 
160,431

Litigation-related and other contingencies, net
(14,414
)
 
(1,750
)
 
(4,093
)
 
15,370

Asset impairment charges
4,766

 
142,217

 
258,652

 
613,400

Acquisition-related and integration items
16,025

 
1,288

 
(26,983
)
 
13,284

Interest expense, net
136,903

 
131,847

 
404,387

 
385,896

Gain on extinguishment of debt

 

 
(119,828
)
 

Other expense (income), net
16,203

 
(1,507
)
 
20,408

 
(33,216
)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX
$
(24,070
)
 
$
(143,068
)
 
$
(120,363
)
 
$
(671,559
)
INCOME TAX EXPENSE
17,361

 
3,003

 
31,732

 
24,729

LOSS FROM CONTINUING OPERATIONS
$
(41,431
)

$
(146,071
)

$
(152,095
)
 
$
(696,288
)
DISCONTINUED OPERATIONS, NET OF TAX (NOTE 3)
(37,984
)
 
(27,134
)
 
(51,898
)
 
(43,273
)
NET LOSS
$
(79,415
)
 
$
(173,205
)
 
$
(203,993
)
 
$
(739,561
)
NET LOSS PER SHARE—BASIC:
 
 
 
 
 
 
 
Continuing operations
$
(0.18
)
 
$
(0.65
)
 
$
(0.67
)
 
$
(3.11
)
Discontinued operations
(0.17
)
 
(0.12
)
 
(0.23
)
 
(0.19
)
Basic
$
(0.35
)
 
$
(0.77
)
 
$
(0.90
)
 
$
(3.30
)
NET LOSS PER SHARE—DILUTED:
 
 
 
 
 
 
 
Continuing operations
$
(0.18
)
 
$
(0.65
)
 
$
(0.67
)
 
$
(3.11
)
Discontinued operations
(0.17
)
 
(0.12
)
 
(0.23
)
 
(0.19
)
Diluted
$
(0.35
)
 
$
(0.77
)
 
$
(0.90
)
 
$
(3.30
)
WEIGHTED AVERAGE SHARES:
 
 
 
 
 
 
 
Basic
226,598

 
224,132

 
225,804

 
223,829

Diluted
226,598

 
224,132

 
225,804

 
223,829

See accompanying Notes to Condensed Consolidated Financial Statements.

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ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(Dollars in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
NET LOSS
 
 
$
(79,415
)
 
 
 
$
(173,205
)
 
 
 
$
(203,993
)
 
 
 
$
(739,561
)
OTHER COMPREHENSIVE (LOSS) INCOME:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized (loss) gain on foreign currency:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation (loss) gain arising during the period
$
(2,515
)
 
 
 
$
4,735

 
 
 
$
6,610

 
 
 
$
(7,033
)
 
 
Less: reclassification adjustments for (gain) loss realized in net loss

 
(2,515
)
 

 
4,735

 

 
6,610

 

 
(7,033
)
OTHER COMPREHENSIVE (LOSS) INCOME
 
 
$
(2,515
)
 
 
 
$
4,735

 
 
 
$
6,610

 
 
 
$
(7,033
)
COMPREHENSIVE LOSS
 
 
$
(81,930
)
 
 
 
$
(168,470
)
 
 
 
$
(197,383
)
 
 
 
$
(746,594
)
See accompanying Notes to Condensed Consolidated Financial Statements.

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ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
 
Nine Months Ended September 30,
 
2019
 
2018
OPERATING ACTIVITIES:
 
 
 
Net loss
$
(203,993
)
 
$
(739,561
)
Adjustments to reconcile Net loss to Net cash provided by operating activities:





Depreciation and amortization
468,409


556,503

Inventory step-up


261

Share-based compensation
48,909


43,722

Amortization of debt issuance costs and discount
13,799


15,289

Deferred income taxes
(2,452
)

13,118

Change in fair value of contingent consideration
(26,983
)

11,731

Gain on extinguishment of debt
(119,828
)


Asset impairment charges
258,652


613,400

Gain on sale of business and other assets
(3,101
)

(29,859
)
Changes in assets and liabilities which provided (used) cash:





Accounts receivable
58,630


31,634

Inventories
(32,761
)

52,499

Prepaid and other assets
15,577


993

Accounts payable, accrued expenses and other liabilities
(378,547
)
 
(367,979
)
Income taxes payable/receivable
22,933


(4,759
)
Net cash provided by operating activities
$
119,244


$
196,992

INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment, excluding capitalized interest
(47,812
)
 
(56,544
)
Capitalized interest payments
(3,207
)
 
(2,569
)
Proceeds from sale of business and other assets, net
4,780

 
43,753

Other investing activities
912

 
1,678

Net cash used in investing activities
$
(45,327
)
 
$
(13,682
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of notes, net
1,483,125

 

Repayments of notes
(1,501,788
)
 

Repayments of term loans
(25,614
)
 
(25,614
)
Proceeds from draw of revolving debt
300,000

 

Repayments of other indebtedness
(7,826
)
 
(3,921
)
Payments for debt issuance and extinguishment costs
(6,414
)
 

Payments for contingent consideration
(11,846
)
 
(28,664
)
Payments of tax withholding for restricted shares
(10,077
)
 
(5,082
)
Proceeds from exercise of options
4

 
473

Net cash provided by (used in) financing activities
$
219,564

 
$
(62,808
)
Effect of foreign exchange rate
780

 
(608
)
NET INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS
$
294,261

 
$
119,894

CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD
1,476,837

 
1,311,014

CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD
$
1,771,098

 
$
1,430,908

SUPPLEMENTAL INFORMATION:
 
 
 
Cash paid into Qualified Settlement Funds for mesh legal settlements
$
185,745

 
$
216,770

Cash paid out of Qualified Settlement Funds for mesh legal settlements
$
266,958

 
$
248,485

Other cash distributions for mesh legal settlements
$
13,334

 
$
17,114

See accompanying Notes to Condensed Consolidated Financial Statements.

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ENDO INTERNATIONAL PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019
NOTE 1. BASIS OF PRESENTATION
Endo International plc is an Ireland-domiciled, global specialty pharmaceutical company focused on generic and branded pharmaceuticals. We aim to be the premier partner to healthcare professionals and payment providers, delivering an innovative suite of generic and branded drugs to meet patients’ needs.
Unless otherwise indicated or required by the context, references throughout to “Endo,” the “Company,” “we,” “our” or “us” refer to financial information and transactions of Endo International plc and its subsidiaries.
The accompanying unaudited Condensed Consolidated Financial Statements of Endo International plc and its subsidiaries have been prepared in accordance with United States (U.S.) generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements of Endo International plc and its subsidiaries, which are unaudited, include all normal and recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2019 and the results of its operations and its cash flows for the periods presented. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The year-end Condensed Consolidated Balance Sheet data as of December 31, 2018 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying notes included in the Annual Report.
Certain prior period amounts have been reclassified to conform to the current period presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies Added or Updated since December 31, 2018
Significant changes to our significant accounting policies since December 31, 2018 are detailed below. For additional discussion of the Company’s significant accounting policies, see Note 2. Summary of Significant Accounting Policies in the Consolidated Financial Statements, included in Part IV, Item 15 of the Annual Report.
Lease Accounting. The Company adopted Accounting Standards Codification Topic 842, Leases (ASC 842) on January 1, 2019. For further discussion of the adoption, refer to the “Recent Accounting Pronouncements Adopted or Otherwise Effective as of September 30, 2019” section below. ASC 842 applies to a number of arrangements to which the Company is party.
Whenever the Company enters into a new arrangement, it must determine, at the inception date, whether the arrangement is or contains a lease. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset.
If a lease exists, the Company must then determine the separate lease and nonlease components of the arrangement. Each right to use an underlying asset conveyed by a lease arrangement should generally be considered a separate lease component if it both: (i) can benefit the Company without depending on other resources not readily available to the Company and (ii) does not significantly affect and is not significantly affected by other rights of use conveyed by the lease. Aspects of a lease arrangement that transfer other goods or services to the Company but do not meet the definition of lease components are considered nonlease components. The consideration owed by the Company pursuant to a lease arrangement is generally allocated to each lease and nonlease components for accounting purposes. However, the Company has elected, for all of its leases, to not separate lease and nonlease components. Each lease component is accounted for separately from other lease components, but together with the associated nonlease components.
For each lease, the Company must then determine the lease term, the present value of lease payments and the classification of the lease as either an operating or finance lease.
The lease term is the period of the lease not cancellable by the Company, together with periods covered by: (i) renewal options the Company is reasonably certain to exercise, (ii) termination options the Company is reasonably certain not to exercise and (iii) renewal or termination options that are controlled by the lessor.

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The present value of lease payments is calculated based on:
Lease payments—Lease payments include fixed and certain variable payments, less lease incentives, together with amounts probable of being owed by the Company under residual value guarantees and, if reasonably certain of being paid, the cost of certain renewal options and early termination penalties set forth in the lease arrangement. Lease payments exclude consideration that is not related to the transfer of goods and services to the Company.
Discount rate—The discount rate must be determined based on information available to the Company upon the commencement of a lease. Lessees are required to use the rate implicit in the lease whenever such rate is readily available; however, as the implicit rate in the Company’s leases is generally not readily determinable, the Company generally uses the hypothetical incremental borrowing rate it would have to pay to borrow an amount equal to the lease payments, on a collateralized basis, over a timeframe similar to the lease term.
In making the determination of whether a lease is an operating lease or a finance lease, the Company considers the lease term in relation to the economic life of the leased asset, the present value of lease payments in relation to the fair value of the leased asset and certain other factors, including the lessee's and lessor's rights, obligations and economic incentives over the term of the lease.
Generally, upon the commencement of a lease, the Company will record a lease liability and a right-of-use (ROU) asset. However, the Company has elected, for all underlying assets with initial lease terms of twelve months or less (known as short-term leases), to not recognize a lease liability or ROU asset. Lease liabilities are initially recorded at lease commencement as the present value of future lease payments. ROU assets are initially recorded at lease commencement as the initial amount of the lease liability, together with the following, if applicable: (i) initial direct costs incurred by the lessee and (ii) lease payments made by the lessor, net of lease incentives received, prior to lease commencement.
Over the lease term, the Company generally increases its lease liabilities using the effective interest method and decreases its lease liabilities for lease payments made. The Company generally amortizes its ROU assets over the shorter of the estimated useful life and the lease term and assesses its ROU assets for impairment, similar to other long-lived assets.
For finance leases, amortization expense and interest expense are recognized separately in the Condensed Consolidated Statements of Operations, with amortization expense generally recorded on a straight-line basis and interest expense recorded using the effective interest method. For operating leases, a single lease cost is generally recognized in the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term unless an impairment has been recorded with respect to a leased asset. Lease costs for short-term leases not recognized in the Condensed Consolidated Balance Sheets are recognized in the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as incurred.
Cloud Computing Arrangements. The Company may from time to time incur costs in connection with hosting arrangements that are service contracts. Subsequent to the Company’s January 1, 2019 adoption of Accounting Standards Update (ASU) No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (ASU 2018-15), which is further described below, the Company capitalizes any such implementation costs, expenses them over the terms of the respective hosting arrangements and subjects them to impairment testing consistent with other long-lived assets.
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted as of September 30, 2019
In August 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (ASU 2018-13). ASU 2018-13 modifies the disclosure requirements on fair value measurements in Accounting Standards Codification Topic 820, Fair Value Measurement. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Certain aspects of ASU 2018-13 require prospective treatment, while others require retrospective treatment. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2018-13 on the Company’s disclosures.
In November 2018, the FASB issued ASU No. 2018-18, “Clarifying the Interaction Between Topic 808 and Topic 606” (ASU 2018-18). The main provisions of ASU 2018-18 include: (i) clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and (ii) precluding the presentation of transactions with collaborative arrangement participants that are not directly related to sales to third parties together with revenue. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. ASU 2018-18 should be applied retrospectively to the date of initial application of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), which was January 1, 2018 for the Company. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2018-18 on the Company’s consolidated results of operations, financial position and disclosures.

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Recent Accounting Pronouncements Adopted or Otherwise Effective as of September 30, 2019
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (ASU 2016-02) to establish a comprehensive new accounting standard for leases. ASU 2016-02, together with a series of subsequently-issued related ASUs, has been codified in ASC 842. ASC 842 supersedes the lease accounting requirements in Accounting Standards Codification Topic 840, Leases (ASC 840), and requires lessees to, among other things, recognize on the balance sheet a right-of-use asset and a right-of-use lease liability, representing the present value of future minimum lease payments, for most leases.
The Company adopted ASC 842 using the modified retrospective approach with an effective date of January 1, 2019 for leases that existed on that date. Prior period results continue to be presented under ASC 840 based on the accounting standards originally in effect for such periods.
The Company has elected certain practical expedients permitted under the transition guidance within ASC 842 to leases that commenced before January 1, 2019, including the package of practical expedients, as well as the practical expedient permitting the Company to not assess whether certain land easements contain leases. Due to the Company's election of these practical expedients, the Company has carried forward certain historical conclusions for existing contracts, including conclusions relating to initial direct costs and to the existence and classification of leases.
On January 1, 2019, as a result of adopting ASC 842, the Company recognized new ROU assets, current lease liabilities and noncurrent lease liabilities associated with operating leases of $59.4 million, $11.0 million and $57.3 million, respectively, which were recorded in the Condensed Consolidated Balance Sheets as Operating lease assets, Current portion of operating lease liabilities and Operating lease liabilities, less current portion, respectively. The Company also derecognized certain assets and liabilities related to existing build-to-suit lease arrangements for which construction was completed prior to the date of transition and recognized new finance lease ROU assets and lease liabilities related to those lease arrangements. The net effect of the Company’s adoption of ASC 842 resulted in a net increase to Accumulated deficit of $4.6 million.
In August 2018, the FASB issued ASU 2018-15. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (including hosting arrangements where a software license is deemed to exist). ASU 2018-15 also requires the customer to expense any such capitalized implementation costs over the term of the hosting arrangement and to apply the existing impairment guidance for long-lived assets to such capitalized costs. Additionally, ASU 2018-15 sets forth required disclosures and guidance on financial statement classification for expenses, cash flows and balances related to implementation costs within the scope of ASU 2018-15. The Company early adopted this guidance during the first quarter of 2019 on a prospective basis.
NOTE 3. DISCONTINUED OPERATIONS
Astora
The operating results of the Company’s Astora business, which the Board of Directors resolved to wind-down in 2016, are reported as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for all periods presented.
The following table provides the operating results of Astora Discontinued operations, net of tax, for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Litigation-related and other contingencies, net
$
30,000

 
$
19,000

 
$
30,400

 
$
19,000

Loss from discontinued operations before income taxes
$
(37,984
)
 
$
(27,134
)
 
$
(51,898
)
 
$
(43,273
)
Income tax benefit
$

 
$

 
$

 
$

Discontinued operations, net of tax
$
(37,984
)
 
$
(27,134
)
 
$
(51,898
)
 
$
(43,273
)

Loss from discontinued operations before income taxes includes Litigation-related and other contingencies, net, mesh-related legal defense costs and certain other items.
The cash flows from discontinued operating activities related to Astora included the impact of net losses of $51.9 million and $43.3 million for the nine months ended September 30, 2019 and 2018, respectively, and the impact of cash activity related to vaginal mesh cases. There were no material net cash flows related to Astora discontinued investing activities during the nine months ended September 30, 2019 or 2018. There was no depreciation or amortization during the nine months ended September 30, 2019 or 2018 related to Astora.

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NOTE 4. RESTRUCTURING
Set forth below are disclosures relating to restructuring initiatives that resulted in material expenses or cash expenditures during any of the three- or nine-month periods ended September 30, 2019 or 2018 or had material restructuring liabilities at either September 30, 2019 or December 31, 2018. Employee separation, retention and certain other employee benefit-related costs related to our restructurings are expensed ratably over the requisite service period. Other restructuring costs are generally expensed as incurred.
2017 Generic Pharmaceuticals Restructuring Initiative
On July 21, 2017, the Company announced that after completing a comprehensive review of its manufacturing network, it would be ceasing operations and closing its manufacturing and distribution facilities in Huntsville, Alabama (the 2017 Generic Pharmaceuticals Restructuring Initiative). The closure of the facilities was completed in June 2018 and the facilities were sold in the fourth quarter of 2018 for net cash proceeds of $23.1 million, resulting in a net gain on disposal of $12.5 million.
As a result of the 2017 Generic Pharmaceuticals Restructuring Initiative, the Company incurred pre-tax charges of $4.8 million and $59.6 million during the three and nine months ended September 30, 2018, respectively. During the three months ended September 30, 2018, the expenses consisted of employee separation, retention and other benefit-related costs of $2.1 million and certain other charges of $2.7 million. During the nine months ended September 30, 2018, the expenses consisted of charges relating to accelerated depreciation of $35.2 million, employee separation, retention and other benefit-related costs of $9.8 million, asset impairment charges of $2.6 million and certain other charges of $12.0 million. These charges are included in the Generic Pharmaceuticals segment. Accelerated depreciation and employee separation, retention and other benefit-related costs are primarily included in Cost of revenues in the Condensed Consolidated Statements of Operations. Certain other charges are included in both Cost of revenues and Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.
The Company did not incur any material pre-tax charges as a result of the 2017 Generic Pharmaceuticals Restructuring Initiative during the three and nine months ended September 30, 2019 and does not expect to incur additional material pre-tax restructuring-related expenses related to this initiative.
The liability related to the 2017 Generic Pharmaceuticals Restructuring Initiative is primarily included in Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets. Changes to this liability during the nine months ended September 30, 2019 were as follows (in thousands):
 
Employee Separation and Other Benefit-Related Costs
 
Other Restructuring Costs
 
Total
Liability balance as of January 1, 2019
$
4,239

 
$
48

 
$
4,287

Cash distributions
(4,239
)
 
(48
)
 
(4,287
)
Liability balance as of September 30, 2019
$

 
$

 
$


January 2018 Restructuring Initiative
In January 2018, the Company initiated a restructuring initiative that included a reorganization of its Generic Pharmaceuticals segment’s research and development network, a further simplification of the Company’s manufacturing networks and a company-wide unification of certain corporate functions (the January 2018 Restructuring Initiative). As a result of the January 2018 Restructuring Initiative, the Company incurred pre-tax charges of $23.8 million during the nine months ended September 30, 2018. The expenses primarily consisted of employee separation, retention and other benefit-related costs of $22.1 million and certain other charges of $1.7 million. Of the total charges incurred, $10.8 million are included in the Generic Pharmaceuticals segment, $5.2 million are included in Corporate unallocated costs, $4.0 million are included in the Sterile Injectables segment, $3.1 million are included in the International Pharmaceuticals segment and $0.7 million are included in the Branded Pharmaceuticals segment. Employee separation, retention and other benefit-related costs are included in Cost of revenues, Selling, general and administrative and Research and development expenses in the Condensed Consolidated Statements of Operations. Certain other charges are primarily included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.
The Company did not incur any material pre-tax charges as a result of the January 2018 Restructuring Initiative during any of the other periods presented and does not expect to incur additional material pre-tax restructuring-related expenses related to this initiative. At December 31, 2018, the remaining liability balance was $1.1 million. Substantially all related cash payments were made by the end of the first quarter of 2019.

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Table of Contents

NOTE 5. SEGMENT RESULTS
During the first quarter of 2019, the Company changed the names of its reportable segments. This change, which was intended to simplify the segments’ names, had no impact on the Company’s unaudited Condensed Consolidated Financial Statements or segment results for any of the periods presented. The Company’s four reportable business segments are set forth below. These segments reflect the level at which the chief operating decision maker regularly reviews financial information to assess performance and to make decisions about resources to be allocated. Each segment derives revenue from the sales or licensing of its respective products and is discussed in more detail below.
We evaluate segment performance based on each segment’s adjusted income from continuing operations before income tax, which we define as Loss from continuing operations before income tax and before certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs and changes in the fair value of contingent consideration; 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; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; gains or losses from early termination of debt; gains or losses from the sales of businesses and other assets; foreign currency gains or losses on intercompany financing arrangements; and certain other items.
Certain of the corporate expenses incurred by the Company are not directly attributable to any specific segment. Accordingly, these costs are not allocated to any of the Company’s segments and are included in the results below as “Corporate unallocated costs.” Interest income and expense are also considered corporate items and not allocated to any of the Company’s segments. The Company’s consolidated adjusted income from continuing operations before income tax is equal to the combined results of each of its segments less these unallocated corporate items.
Branded Pharmaceuticals
Our Branded Pharmaceuticals segment includes a variety of branded prescription products to treat and manage conditions in urology, urologic oncology, endocrinology, pain and orthopedics. The products in this segment include XIAFLEX®, SUPPRELIN® LA, NASCOBAL® Nasal Spray, AVEED®, PERCOCET®, TESTOPEL®, LIDODERM®, VOLTAREN® Gel, EDEX®, FORTESTA® Gel and TESTIM®, among others.
Sterile Injectables
Our Sterile Injectables segment consists primarily of branded sterile injectable products such as VASOSTRICT®, ADRENALIN® and APLISOL®, among others, and certain generic sterile injectable products, including ertapenem for injection, the authorized generic of Merck Sharp & Dohme Corp’s Invanz®, and ephedrine sulfate injection, among others.
Generic Pharmaceuticals
Our Generic Pharmaceuticals segment consists of a differentiated product portfolio including solid oral extended-release, solid oral immediate-release, liquids, semi-solids, patches, powders, ophthalmics and sprays and includes products in the pain management, urology, central nervous system disorders, immunosuppression, oncology, women’s health and cardiovascular disease markets, among others.
International Pharmaceuticals
Our International Pharmaceuticals segment includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin Labs Inc. (Paladin). This segment’s key products serve growing therapeutic areas, including attention deficit hyperactivity disorder, pain, women’s health and oncology.

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Table of Contents

The following represents selected information for the Company’s reportable segments for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net revenues from external customers:
 
 
 
 
 
 
 
Branded Pharmaceuticals
$
217,313

 
$
220,100

 
$
629,851

 
$
632,972

Sterile Injectables
263,635

 
237,150

 
777,963

 
670,847

Generic Pharmaceuticals
218,012

 
257,969

 
654,322

 
748,445

International Pharmaceuticals (1)
30,466

 
30,247

 
87,428

 
108,425

Total net revenues from external customers
$
729,426

 
$
745,466

 
$
2,149,564

 
$
2,160,689

Adjusted income from continuing operations before income tax:
 
 
 
 
 
 
 
Branded Pharmaceuticals
$
91,444


$
84,891


$
253,417


$
262,454

Sterile Injectables
197,974


170,329


566,345


513,082

Generic Pharmaceuticals
29,433


82,555


128,738


247,137

International Pharmaceuticals
11,511


13,377


35,053


45,594

Total segment adjusted income from continuing operations before income tax
$
330,362


$
351,152


$
983,553


$
1,068,267

__________
(1)
Revenues generated by our International Pharmaceuticals segment are primarily attributable to external customers located in Canada.
There were no material revenues from external customers attributed to an individual country outside of the U.S. during any of the periods presented. There were no material tangible long-lived assets in an individual country other than the U.S. as of September 30, 2019 or December 31, 2018.
The table below provides reconciliations of our Total consolidated loss from continuing operations before income tax, which is determined in accordance with U.S. GAAP, to our total segment adjusted income from continuing operations before income tax for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Total consolidated loss from continuing operations before income tax
$
(24,070
)
 
$
(143,068
)
 
$
(120,363
)
 
$
(671,559
)
Interest expense, net
136,903

 
131,847

 
404,387

 
385,896

Corporate unallocated costs (1)
37,891

 
49,187

 
124,351

 
144,693

Amortization of intangible assets
131,932

 
161,275

 
417,949

 
471,662

Inventory step-up

 
71

 

 
261

Upfront and milestone payments to partners
1,672

 
4,731

 
4,055

 
43,027

Retention and separation benefits and other cost reduction initiatives (2)
11,023

 
4,001

 
15,172

 
82,141

Certain litigation-related and other contingencies, net (3)
(14,414
)
 
(1,750
)
 
(4,093
)
 
15,370

Asset impairment charges (4)
4,766

 
142,217

 
258,652

 
613,400

Acquisition-related and integration items (5)
16,025

 
1,288

 
(26,983
)
 
13,284

Gain on extinguishment of debt

 

 
(119,828
)
 

Foreign currency impact related to the remeasurement of intercompany debt instruments
(922
)
 
1,528

 
2,874

 
(1,560
)
Other, net (6)
29,556

 
(175
)
 
27,380

 
(28,348
)
Total segment adjusted income from continuing operations before income tax
$
330,362

 
$
351,152

 
$
983,553

 
$
1,068,267

__________
(1)
Amounts include certain corporate overhead costs, such as headcount, facility and corporate litigation expenses and certain other income and expenses.

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(2)
Amounts for both the three and nine months ended September 30, 2019 include $6.7 million of costs associated with retention bonuses awarded to certain senior management of the Company. Other amounts during each of the periods presented related primarily to our restructuring initiatives. Such amounts included employee separation costs of $2.2 million during the nine months ended September 30, 2019 and other charges of $4.4 million and $6.3 million during the three and nine months ended September 30, 2019, respectively. During the three and nine months ended September 30, 2018, such amounts included employee separation costs of $2.1 million and $32.7 million, respectively, charges to increase excess inventory reserves of $0.2 million and $2.8 million, respectively, and other charges of $1.7 million and $11.4 million, respectively. Also included in the amount for the nine months ended September 30, 2018 is accelerated depreciation of $35.2 million. See Note 4. Restructuring for discussion of our material restructuring initiatives.
(3)
Amounts include adjustments to our accruals for litigation-related settlement charges and certain settlement proceeds related to suits filed by our subsidiaries. Our material legal proceedings and other contingent matters are described in more detail in Note 13. Commitments and Contingencies.
(4)
Amounts primarily relate to charges to impair goodwill and intangible assets as further described in Note 9. Goodwill and Other Intangibles.
(5)
Amounts primarily relate to changes in the fair value of contingent consideration.
(6)
Amounts during the three and nine months ended September 30, 2019 include $17.5 million for contract termination costs incurred as a result of certain product discontinuation activities in our International Pharmaceuticals segment and $14.1 million for a premium associated with an extended reporting period endorsement on an expiring insurance program. The remaining amounts primarily relate to gains on sales of businesses and other assets.
Asset information is not reviewed or included within our internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.
The Company disaggregates its revenue from contracts with customers into the categories included in the table below (in thousands). The Company believes these categories depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors.

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018
Branded Pharmaceuticals:
 
 
 
 
 
 
 
Specialty Products:
 
 
 
 
 
 
 
XIAFLEX®
$
82,756

 
$
64,214

 
$
226,118

 
$
184,855

SUPPRELIN® LA
20,772

 
20,408

 
66,542

 
60,948

Other Specialty (1)
28,470

 
27,614

 
78,397

 
69,226

Total Specialty Products
$
131,998

 
$
112,236

 
$
371,057

 
$
315,029

Established Products:
 
 
 
 
 
 
 
PERCOCET®
$
28,561

 
$
30,730

 
$
88,199

 
$
93,539

TESTOPEL®
13,236

 
15,962

 
40,830

 
44,976

Other Established (2)
43,518

 
61,172

 
129,765

 
179,428

Total Established Products
$
85,315

 
$
107,864

 
$
258,794

 
$
317,943

Total Branded Pharmaceuticals (3)
$
217,313

 
$
220,100

 
$
629,851

 
$
632,972

Sterile Injectables:
 
 
 
 
 
 
 
VASOSTRICT®
$
129,691


$
112,333


$
384,854


$
332,387

ADRENALIN®
40,311


35,460


133,468


101,858

APLISOL®
28,085

 
15,992

 
55,996

 
49,064

Ertapenem for injection
21,853

 
25,798

 
79,619

 
25,798

Other Sterile Injectables (4)
43,695


47,567


124,026


161,740

Total Sterile Injectables (3)
$
263,635


$
237,150


$
777,963


$
670,847

Total Generic Pharmaceuticals (5)
$
218,012

 
$
257,969

 
$
654,322

 
$
748,445

Total International Pharmaceuticals (6)
$
30,466

 
$
30,247

 
$
87,428

 
$
108,425

Total revenues, net
$
729,426

 
$
745,466

 
$
2,149,564

 
$
2,160,689

__________
(1)
Products included within Other Specialty are NASCOBAL® Nasal Spray and AVEED®. Beginning with our first-quarter 2019 reporting, TESTOPEL®, which was previously included in Other Specialty, has been reclassified and is now included in the Established Products portfolio for all periods presented.
(2)
Products included within Other Established include, but are not limited to, LIDODERM®, VOLTAREN® Gel, EDEX®, FORTESTA® Gel and TESTIM®, including the authorized generics of FORTESTA® Gel and TESTIM®.
(3)
Individual products presented above represent the top two performing products in each product category for either the three or nine months ended September 30, 2019 and/or any product having revenues in excess of $25 million during any quarterly period in 2019 or 2018.
(4)
Products included within Other Sterile Injectables include ephedrine sulfate injection and others.
(5)
The Generic Pharmaceuticals segment is comprised of a portfolio of products that are generic versions of branded products, are distributed primarily through the same wholesalers, generally have no intellectual property protection and are sold within the U.S. During the three and nine months ended September 30, 2019, colchicine tablets, the authorized generic of Takeda Pharmaceuticals U.S.A., Inc.’s Colcrys®, which launched in July 2018, made up 7% and 6% of consolidated total revenue, respectively. No other individual product within this segment has exceeded 5% of consolidated total revenues for the periods presented.

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(6)
The International Pharmaceuticals segment, which accounted for 4% of consolidated total revenues during both the three and nine months ended September 30, 2019 and 4% and 5% of consolidated total revenues during the three and nine months ended September 30, 2018, respectively, includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin.
NOTE 6. FAIR VALUE MEASUREMENTS
Financial Instruments
The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents (including money market funds), restricted cash and cash equivalents, accounts receivable, equity method investments, accounts payable and accrued expenses, acquisition-related contingent consideration and debt obligations. Included in cash and cash equivalents and restricted cash and cash equivalents are money market funds representing a type of mutual fund required by law to invest in low-risk securities (for example, U.S. government bonds, U.S. Treasury Bills and commercial paper). Money market funds pay dividends that generally reflect short-term interest rates. Due to their short-term maturity, the carrying amounts of non-restricted and restricted cash and cash equivalents (including money market funds), accounts receivable, accounts payable and accrued expenses approximate their fair values.
The following table presents current and noncurrent restricted cash and cash equivalent balances at September 30, 2019 and December 31, 2018 (in thousands):
 
September 30, 2019
 
December 31, 2018
Restricted cash and cash equivalents—current portion (1)
$
222,491

 
$
305,368

Restricted cash and cash equivalents—noncurrent portion (2)
22,357

 
22,356

Restricted cash and cash equivalents—total (3)
$
244,848

 
$
327,724

__________
(1)
These amounts are reported in our Condensed Consolidated Balance Sheets as Restricted cash and cash equivalents.
(2)
These amounts are reported in our Condensed Consolidated Balance Sheets as Other assets.
(3)
Approximately $221.6 million and $299.7 million of our restricted cash and cash equivalents are held in qualified settlement funds (QSFs) for mesh-related matters at September 30, 2019 and December 31, 2018, respectively. The remaining amount of restricted cash and cash equivalents at September 30, 2019 primarily relates to other litigation-related matters. See Note 13. Commitments and Contingencies for further information.
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Acquisition-Related Contingent Consideration
The fair value of contingent consideration liabilities is determined using unobservable inputs; hence, these instruments represent Level 3 measurements within the above-defined fair value hierarchy. These inputs include the estimated amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is remeasured at current fair value with changes recorded in earnings. Changes in any of these estimated inputs used as of the date of this report could have resulted in significant adjustments to fair value. See the “Recurring Fair Value Measurements” section below for additional information on acquisition-related contingent consideration.

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Recurring Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018 were as follows (in thousands):
 
Fair Value Measurements at September 30, 2019 using:
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds
$
748,441

 
$

 
$

 
$
748,441

Liabilities:
 
 
 
 
 
 
 
Acquisition-related contingent consideration—current
$

 
$

 
$
20,974

 
$
20,974

Acquisition-related contingent consideration—noncurrent
$

 
$

 
$
38,520

 
$
38,520

 
Fair Value Measurements at December 31, 2018 using:
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds
$
137,215

 
$

 
$

 
$
137,215