SEC Filing | Endo International plc

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endp-20210331

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 MARCH 31, 2021

☐ 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 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


The number of ordinary shares, nominal value $0.0001 per share outstanding as of April 29, 2021 was 233,305,326.

ENDO INTERNATIONAL PLC

INDEX


		Page
Forward-Looking Statements		i

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Operations (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50

Signatures		51

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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). Forward-looking statements include, without limitation, any future financial results, cost savings, revenues, expenses, net income and income per share, as well as future financing activities, the impact of the novel strain of coronavirus referred to as COVID-19 on the health and welfare of our employees and on our business (including any response to COVID-19 such as anticipated return to historical purchasing decisions by customers, the economic impact of COVID-19, changes in consumer spending, decisions to engage in certain medical procedures, future governmental orders that could impact our operations and the ability of our manufacturing facilities and suppliers to fulfill their obligations to us), and any other statements that refer to Endo’s expected, estimated or anticipated future results. 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, assumptions 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 including, without limitation, the risks related to the impact of COVID-19 (such as, without limitation, the scope and duration of the pandemic and the resulting economic crisis and levels of unemployment, governmental actions and restrictive measures implemented in response, material delays and cancellations of certain medical procedures, potential manufacturing and supply chain disruptions and other potential impacts to our business as a result of COVID-19); the timing or results of any pending or future litigation, investigations or claims or actual or contingent liabilities, settlement discussions, negotiations or other adverse proceedings, including proceedings involving opioid-related matters, tax matters with the United States (U.S.) Internal Revenue Service (IRS) and key products such as VASOSTRICT®; unfavorable publicity regarding the misuse of opioids; changing competitive, market and regulatory conditions; changes in legislation; our ability to obtain and maintain adequate protection for our intellectual property rights; the timing and uncertainty of the results of both the research and development and regulatory processes, including regulatory decisions, product recalls, withdrawals and other unusual items; domestic and foreign health care and cost containment reforms, including government pricing, tax and reimbursement policies; technological advances and patents obtained by competitors; the performance, including the approval, introduction and consumer and physician acceptance of new products and the continuing acceptance of currently marketed products; the effectiveness of advertising and other promotional campaigns; the timely and successful implementation of any strategic and/or optimization initiatives; the uncertainty associated with the identification of and successful consummation and execution of external corporate development initiatives and strategic partnering transactions; our ability to obtain and successfully manufacture, maintain and distribute a sufficient supply of products to meet market demand in a timely manner; and the other risks and uncertainties more fully described under the caption “Risk Factors” in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (SEC) on February 26, 2021 (the Annual Report), in Part II, Item 1A of this report and in other reports that we file with the SEC. These risks and uncertainties, many of which are outside of our control, and any other risks and uncertainties that we are not currently able to predict or identify, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations and cash flows and could cause our actual results to differ materially and adversely from those expressed in forward-looking statements contained or referenced in this document. Additionally, the prolonged impact of COVID-19 could heighten the impact of one or more of such risk factors.

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 laws. 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 and in Part II, Item 1A of this report, 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.

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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)


	March 31, 2021		December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,427,775	$	1,213,437
Restricted cash and cash equivalents	137,066		171,563
Accounts receivable, net	473,152		511,262
Inventories, net	362,180		352,260
Prepaid expenses and other current assets	86,056		100,899
Income taxes receivable	9,002		63,837

Total current assets	$	2,495,231	$	2,413,258

PROPERTY, PLANT AND EQUIPMENT, NET	452,172		458,471
OPERATING LEASE ASSETS	34,389		37,030
GOODWILL	3,560,011		3,560,011
OTHER INTANGIBLES, NET	2,643,989		2,740,808
DEFERRED INCOME TAXES	1,828		1,824
OTHER ASSETS	46,551		53,235
TOTAL ASSETS	$	9,234,171	$	9,264,637
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	855,405	$	835,940
Current portion of legal settlement accrual	327,896		372,121
Current portion of operating lease liabilities	11,813		11,613
Current portion of long-term debt	200,342		34,150
Income taxes payable	36		—

Total current liabilities	$	1,395,492	$	1,253,824
DEFERRED INCOME TAXES	24,352		26,066
LONG-TERM DEBT, LESS CURRENT PORTION, NET	8,077,622		8,280,578

OPERATING LEASE LIABILITIES, LESS CURRENT PORTION	35,738		38,132
OTHER LIABILITIES	299,940		313,976
COMMITMENTS AND CONTINGENCIES (NOTE 13)
SHAREHOLDERS' DEFICIT:
Euro deferred shares, $0.01 par value; 4,000,000 shares authorized and issued at both March 31, 2021 and December 31, 2020	47		49
Ordinary shares, $0.0001 par value; 1,000,000,000 shares authorized; 231,459,092 and 230,315,768 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	23		23
Additional paid-in capital	8,943,764		8,938,012
Accumulated deficit	(9,326,746)		(9,368,270)
Accumulated other comprehensive loss	(216,061)		(217,753)
Total shareholders' deficit	$	(598,973)	$	(647,939)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	9,234,171	$	9,264,637
See accompanying Notes to Condensed Consolidated Financial Statements.

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ENDO INTERNATIONAL PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars and shares in thousands, except per share data)


	Three Months Ended March 31,
		2021		2020
TOTAL REVENUES, NET		$	717,919	$	820,405
COSTS AND EXPENSES:
Cost of revenues		305,293		388,799
Selling, general and administrative		187,174		166,768
Research and development		29,739		31,615
Litigation-related and other contingencies, net		637		(17,176)
Asset impairment charges		3,309		97,785
Acquisition-related and integration items, net		(5,022)		12,462

Interest expense, net		134,341		132,877
Loss on extinguishment of debt		13,753		—
Other expense (income), net		912		(13,974)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX		$	47,783	$	21,249
INCOME TAX EXPENSE (BENEFIT)		724		(136,332)
INCOME FROM CONTINUING OPERATIONS		$	47,059	$	157,581
DISCONTINUED OPERATIONS, NET OF TAX (NOTE 3)		(5,535)		(27,651)
NET INCOME		$	41,524	$	129,930
NET INCOME (LOSS) PER SHARE—BASIC:
Continuing operations		$	0.20	$	0.69
Discontinued operations		(0.02)		(0.12)
Basic		$	0.18	$	0.57
NET INCOME (LOSS) PER SHARE—DILUTED:
Continuing operations		$	0.20	$	0.68
Discontinued operations		(0.03)		(0.12)
Diluted		$	0.17	$	0.56
WEIGHTED AVERAGE SHARES:
Basic		230,551		227,198
Diluted		238,671		233,014
See accompanying Notes to Condensed Consolidated Financial Statements.

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ENDO INTERNATIONAL PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)


	Three Months Ended March 31,
		2021		2020
NET INCOME		$	41,524	$	129,930
OTHER COMPREHENSIVE INCOME (LOSS):





Net unrealized gain (loss) on foreign currency		$	1,692	$	(14,437)
Total other comprehensive income (loss)		$	1,692	$	(14,437)
COMPREHENSIVE INCOME		$	43,216	$	115,493
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)


	Three Months Ended March 31,
	2021		2020
OPERATING ACTIVITIES:
Net income	$	41,524	$	129,930
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation and amortization	118,485		141,588

Share-based compensation	9,993		17,645
Amortization of debt issuance costs and discount	3,551		4,339
Deferred income taxes	(1,719)		(911)

Change in fair value of contingent consideration	(5,453)		12,462
Loss on extinguishment of debt	13,753		—

Asset impairment charges	3,309		97,785
Loss (gain) on sale of business and other assets	355		(8,192)
Changes in assets and liabilities which provided (used) cash:
Accounts receivable	37,182		(72,833)
Inventories	(3,802)		(324)
Prepaid and other assets	16,606		(3,581)
Accounts payable, accrued expenses and other liabilities	(44,868)		(112,625)
Income taxes payable/receivable, net	54,924		(142,727)
Net cash provided by operating activities	$	243,840	$	62,556
INVESTING ACTIVITIES:
Capital expenditures, excluding capitalized interest	(16,733)		(19,638)
Capitalized interest payments	(1,133)		(492)






Proceeds from sale of business and other assets, net	818		4,167

Net cash used in investing activities	$	(17,048)	$	(15,963)

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	Three Months Ended March 31,
	2021		2020
FINANCING ACTIVITIES:
Proceeds from issuance of notes, net	1,279,978		—
Proceeds from issuance of term loans, net	1,980,000		—

Repayments of term loans	(3,295,475)		(8,537)


Repayments of other indebtedness	(1,321)		(1,184)
Payments for debt issuance and extinguishment costs	(5,904)		—
Payments for contingent consideration	(387)		(364)
Payments of tax withholding for restricted shares	(4,863)		(4,398)
Proceeds from exercise of options	622		—
Net cash used in financing activities	$	(47,350)	$	(14,483)
Effect of foreign exchange rate	399		(1,894)

NET INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS	$	179,841	$	30,216
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD	1,385,000		1,720,388
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD	$	1,564,841	$	1,750,604
SUPPLEMENTAL INFORMATION:



Cash paid into Qualified Settlement Funds for mesh legal settlements	$	2,000	$	—
Cash paid out of Qualified Settlement Funds for mesh legal settlements	$	17,853	$	47,801
Other cash distributions for mesh legal settlements	$	3,734	$	17,819
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 MONTHS ENDED MARCH 31, 2021

NOTE 1. BASIS OF PRESENTATION

Endo International plc is an Ireland-domiciled specialty pharmaceutical company that conducts business through its operating subsidiaries. Unless otherwise indicated or required by the context, references throughout to “Endo,” the “Company,” “we,” “our” or “us” refer to 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 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 March 31, 2021 and the results of its operations and its cash flows for the periods presented. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The year-end Condensed Consolidated Balance Sheet data as of December 31, 2020 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

Use of Estimates

The preparation of our Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts and disclosures in our Condensed Consolidated Financial Statements, including the Notes thereto, and elsewhere in this report. For example, we are required to make significant estimates and assumptions related to revenue recognition, including sales deductions, long-lived assets, goodwill, other intangible assets, income taxes, contingencies, financial instruments and share-based compensation, among others. Some of these estimates can be subjective and complex. Uncertainties related to the continued magnitude and duration of the COVID-19 pandemic, the extent to which it will impact our estimated future financial results, worldwide macroeconomic conditions including interest rates, employment rates, consumer spending, health insurance coverage, the speed of the anticipated recovery and governmental and business reactions to the pandemic, including any possible re-initiation of shutdowns or renewed restrictions, have increased the complexity of developing these estimates, including the allowance for expected credit losses and the carrying amounts of long-lived assets, goodwill and other intangible assets. Although we believe that our estimates and assumptions are reasonable, there may be other reasonable estimates or assumptions that differ significantly from ours. Further, our estimates and assumptions are based upon information available at the time they were made. Actual results may differ significantly from our estimates, including as a result of COVID-19.

Significant Accounting Policies Added or Updated since December 31, 2020

There have been no significant changes to our significant accounting policies since December 31, 2020. 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.

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NOTE 3. DISCONTINUED OPERATIONS

Astora

The operating results of the Company’s Astora business, which the board of directors (the Board) 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 months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
		2021		2020
Litigation-related and other contingencies, net		$	—	$	30,454
Loss from discontinued operations before income taxes		$	(6,221)	$	(33,517)
Income tax benefit		$	(686)	$	(5,866)
Discontinued operations, net of tax		$	(5,535)	$	(27,651)

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 $5.5 million and $27.7 million for the three months ended March 31, 2021 and 2020, respectively, and the impact of cash activity related to vaginal mesh cases. During the periods presented above, there were no material net cash flows related to Astora discontinued investing activities and there was no depreciation or amortization expense related to Astora.

NOTE 4. RESTRUCTURING

Set forth below are disclosures relating to restructuring initiatives that resulted in material expenses or cash expenditures during the three-month periods ended March 31, 2021 or 2020 or had material restructuring liabilities at either March 31, 2021 or December 31, 2020.

2020 Restructuring Initiative

On November 5, 2020, the Company announced the initiation of several strategic actions to further optimize the Company’s operations and increase overall efficiency (the 2020 Restructuring Initiative). These actions are expected to generate significant cost savings that will be reinvested, among other things, to support the Company’s key strategic priority to expand and enhance its product portfolio. These actions include the following:

•Optimizing the Company’s generic retail business cost structure by exiting manufacturing sites in Irvine, California and Chestnut Ridge, New York, as well as active pharmaceutical ingredient manufacturing and bioequivalence study sites in India. The sites will be exited in a phased approach that is expected to be completed in the second half of 2022. Certain products currently manufactured at the Irvine and Chestnut Ridge sites are expected to be transferred to other internal and external sites within the Company’s manufacturing network.

•Improving operating flexibility and reducing general and administrative costs by transferring certain transaction processing activities to third-party global business process service providers.

•Increasing organizational effectiveness by further integrating the Company’s commercial, operations and research and development functions, respectively, to support the Company’s key strategic priorities.

As a result of the 2020 Restructuring Initiative, the Company’s global workforce is expected to be reduced by approximately 525 net full-time positions. The Company expects to realize annualized pre-tax cash savings (without giving effect to the costs described below) of approximately $85 million to $95 million by the first half of 2023, primarily related to reductions in Cost of revenues of approximately $65 million to $70 million and other expenses, including Selling, general and administrative and Research and development expenses, of approximately $20 million to $25 million.

As a result of the 2020 Restructuring Initiative, the Company expects to incur total pre-tax restructuring-related expenses of approximately $163 million to $183 million, of which approximately $135 million to $150 million relates to the Generic Pharmaceuticals segment, with the remaining amounts relating to our other segments and certain corporate unallocated costs. These estimated restructuring charges consist of accelerated depreciation charges of approximately $56 million to $66 million, asset impairment charges of approximately $7 million, employee separation, continuity and other benefit-related costs of approximately $85 million to $90 million and certain other restructuring costs of approximately $15 million to $20 million. Cash outlays associated with the 2020 Restructuring Initiative are expected to be approximately $100 million and consist primarily of employee separation, continuity and other benefit-related costs and certain other restructuring costs. The Company anticipates these actions will be substantially completed by the end of 2022, with substantially all cash payments made by then.

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As a result of the 2020 Restructuring Initiative, the Company incurred the following pre-tax net charges during the three months ended March 31, 2021 (in thousands):




	Three Months Ended March 31, 2021
Accelerated depreciation charges	$	6,907

Charges to increase excess inventory reserves	5,049
Employee separation, continuity and other benefit-related costs	6,610
Certain other restructuring costs	858
Total	$	19,424

During the three months ended March 31, 2021, these pre-tax net charges were primarily attributable to our Generic Pharmaceuticals segment, which incurred $14.9 million of these pre-tax net charges. The remaining amounts related to our other segments and certain corporate unallocated costs.

As of March 31, 2021, cumulative amounts incurred to date include accelerated depreciation charges of approximately $29.4 million, asset impairment charges related to identifiable intangible assets and certain operating lease assets of approximately $7.4 million, charges to increase excess inventory reserves of approximately $8.1 million, employee separation, continuity and other benefit-related costs of approximately $66.6 million and certain other restructuring costs of approximately $1.5 million. Of these amounts, approximately $93.8 million were attributable to the Generic Pharmaceuticals segment, with the remaining amounts relating to our other segments and certain corporate unallocated costs.

During the three months ended March 31, 2021, the pre-tax net charges related to the 2020 Restructuring Initiative were included in our Condensed Consolidated Statements of Operations as follows (in thousands):




	Three Months Ended March 31, 2021
Cost of revenues	$	15,296
Selling, general and administrative	3,542
Research and development	586


Total	$	19,424

Changes to the liability for the 2020 Restructuring Initiative during the three months ended March 31, 2021 were as follows (in thousands):


	Employee Separation, Continuity and Other Benefit-Related Costs		Certain Other Restructuring Costs		Total
Liability balance as of December 31, 2020	$	58,338	$	664	$	59,002
Net charges	6,610		858		7,468
Cash payments	(9,054)		(1,346)		(10,400)
Liability balance as of March 31, 2021	$	55,894	$	176	$	56,070

Of the liability at March 31, 2021, $41.9 million is classified as current and is included in Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets, with the remaining amount classified as noncurrent and included in Other liabilities.

NOTE 5. SEGMENT RESULTS

The Company’s four reportable business segments are Branded Pharmaceuticals, Sterile Injectables, Generic Pharmaceuticals and International Pharmaceuticals. 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.

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We evaluate segment performance based on Segment adjusted income from continuing operations before income tax, which we define as Income 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, continuity 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; certain legal costs; gains or losses from early termination of debt; debt modification costs; 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 Total segment adjusted income from continuing operations before income tax is equal to the combined results of each of its segments.

Branded Pharmaceuticals

Our Branded Pharmaceuticals segment includes a variety of branded products to treat and manage conditions in the areas of urology, orthopedics, endocrinology and bariatrics, among others. The products in this segment include XIAFLEX®, SUPPRELIN® LA, NASCOBAL® Nasal Spray, AVEED®, PERCOCET®, TESTOPEL®, EDEX® and LIDODERM® 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 (Merck) Invanz®) and ephedrine sulfate injection, among others.

Generic Pharmaceuticals

Our Generic Pharmaceuticals segment consists of a product portfolio including solid oral extended-release, solid oral immediate-release, liquids, semi-solids, patches, powders, ophthalmics and sprays and includes products that treat and manage a wide of medical conditions.

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). The key products of this segment serve various therapeutic areas, including attention deficit hyperactivity disorder, pain, women’s health, oncology and transplantation.

The following represents selected information for the Company’s reportable segments for the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
		2021		2020
Net revenues from external customers:
Branded Pharmaceuticals		$	206,635	$	204,073
Sterile Injectables		308,745		336,390
Generic Pharmaceuticals		180,873		251,283
International Pharmaceuticals (1)		21,666		28,659
Total net revenues from external customers		$	717,919	$	820,405
Segment adjusted income from continuing operations before income tax:
Branded Pharmaceuticals		$	93,769	$	98,422
Sterile Injectables		242,639		263,896
Generic Pharmaceuticals		34,104		57,327
International Pharmaceuticals		7,471		14,197
Total segment adjusted income from continuing operations before income tax		$	377,983	$	433,842

__________

(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.

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The table below provides reconciliations of our Total consolidated income 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 months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
		2021		2020
Total consolidated income from continuing operations before income tax		$	47,783	$	21,249
Interest expense, net		134,341		132,877
Corporate unallocated costs (1)		39,474		43,322
Amortization of intangible assets		95,130		117,237

Upfront and milestone payments to partners		556		1,750
Continuity and separation benefits and other cost reduction initiatives (2)		23,720		23,220
Certain litigation-related and other contingencies, net (3)		637		(17,176)
Certain legal costs (4)		19,276		15,536
Asset impairment charges (5)		3,309		97,785
Acquisition-related and integration items, net (6)		(5,022)		12,462
Loss on extinguishment of debt		13,753		—

Foreign currency impact related to the remeasurement of intercompany debt instruments		1,147		(7,094)
Other, net (7)		3,879		(7,326)
Total segment adjusted income from continuing operations before income tax		$	377,983	$	433,842

__________

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

(2)Amounts for the three months ended March 31, 2021 include employee separation, continuity and other benefit-related costs of $8.5 million, accelerated depreciation charges of $6.9 million and miscellaneous charges of $8.3 million. Amounts for the three months ended March 31, 2020 include employee separation, continuity and other benefit-related costs of $13.8 million, accelerated depreciation charges of $6.6 million and miscellaneous charges of $2.8 million. These costs relate primarily to our restructuring activities as further described in Note 4. Restructuring, certain continuity and transitional compensation arrangements for certain senior management of the Company and certain other cost reduction 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 relate to opioid-related legal expenses.

(5)Amounts primarily relate to charges to impair goodwill and intangible assets as further described in Note 9. Goodwill and Other Intangibles.

(6)Amounts primarily relate to changes in the fair value of contingent consideration.

(7)Amounts for the three months ended March 31, 2021 primarily relate to $3.9 million of third party fees incurred in connection with the March 2021 Refinancing Transactions, which were accounted for as debt modification costs. Refer to Note 12. Debt for additional information. Other amounts in this row 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.

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During the three months ended March 31, 2021 and 2020, the Company disaggregated 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 March 31,
		2021		2020
Branded Pharmaceuticals:
Specialty Products:
XIAFLEX®		$	95,270	$	89,072
SUPPRELIN® LA		28,028		19,720
Other Specialty (1)		20,032		25,505
Total Specialty Products		$	143,330	$	134,297
Established Products:
PERCOCET®		$	25,625	$	27,703
TESTOPEL®		11,189		8,192

Other Established (2)		26,491		33,881
Total Established Products		$	63,305	$	69,776
Total Branded Pharmaceuticals (3)		$	206,635	$	204,073
Sterile Injectables:
VASOSTRICT®		$	223,946	$	202,904
ADRENALIN®		29,437		56,512


Other Sterile Injectables (4)		55,362		76,974
Total Sterile Injectables (3)		$	308,745	$	336,390
Total Generic Pharmaceuticals (5)		$	180,873	$	251,283
Total International Pharmaceuticals (6)		$	21,666	$	28,659
Total revenues, net		$	717,919	$	820,405

__________

(1)Products included within Other Specialty include NASCOBAL® Nasal Spray and AVEED®.

(2)Products included within Other Established include, but are not limited to, EDEX® and LIDODERM®.

(3)Individual products presented above represent the top two performing products in each product category for the three months ended March 31, 2021 and/or any product having revenues in excess of $25 million during any quarterly period in 2021 or 2020.

(4)Products included within Other Sterile Injectables include ertapenem for injection, APLISOL® 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. No individual product within this segment has exceeded 5% of consolidated total revenues for the periods presented.

(6)The International Pharmaceuticals segment, which accounted for less than 5% of consolidated total revenues for each of the periods presented, 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

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.

Financial Instruments

The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, 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 initial maturities, 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.

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Restricted Cash and Cash Equivalents

Amounts reported as Restricted cash and cash equivalents in our Condensed Consolidated Balance Sheets primarily relate to litigation-related matters, including approximately $111.2 million and $127.0 million held in Qualified Settlement Funds (QSFs) for mesh-related matters at March 31, 2021 and December 31, 2020, respectively. See Note 13. Commitments and Contingencies for further information about mesh-related and other litigation-related matters. Additionally, at March 31, 2021 and December 31, 2020, approximately $25.0 million of restricted cash and cash equivalents related to certain insurance-related matters.

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. The estimates of fair value are uncertain and changes in any of the 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.

Recurring Fair Value Measurements

The Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 were as follows (in thousands):


	Fair Value Measurements at March 31, 2021 using:
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Assets:
Money market funds	$	212,115	$	—	$	—	$	212,115
Liabilities:
Acquisition-related contingent consideration—current	$	—	$	—	$	6,861	$	6,861
Acquisition-related contingent consideration—noncurrent	$	—	$	—	$	22,902	$	22,902


	Fair Value Measurements at December 31, 2020 using:
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Assets:
Money market funds	$	214,120	$	—	$	—	$	214,120
Liabilities:
Acquisition-related contingent consideration—current	$	—	$	—	$	8,566	$	8,566
Acquisition-related contingent consideration—noncurrent	$	—	$	—	$	27,683	$	27,683

At March 31, 2021 and December 31, 2020, money market funds include $24.5 million and $26.5 million, respectively, in QSFs to be disbursed to mesh-related or other product liability claimants. Amounts in QSFs are considered restricted cash equivalents. See Note 13. Commitments and Contingencies for further discussion of our product liability cases. At March 31, 2021 and December 31, 2020, the differences between the amortized cost and the fair value of our money market funds were not material, individually or in the aggregate.

Fair Value Measurements Using Significant Unobservable Inputs

The following table presents changes to the Company’s liability for acquisition-related contingent consideration, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3), for the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
		2021		2020
Beginning of period		$	36,249	$	29,657
Amounts settled		(1,151)		(2,461)
Changes in fair value recorded in earnings		(5,453)		12,462
Effect of currency translation		118		(719)
End of period		$	29,763	$	38,939

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At March 31, 2021, the fair value measurements of the contingent consideration obligations were determined using risk-adjusted discount rates ranging from approximately 10.0% to 15.0% (weighted average rate of approximately 11.1%, weighted based on relative fair value). Changes in fair value recorded in earnings related to acquisition-related contingent consideration are included in our Condensed Consolidated Statements of Operations as Acquisition-related and integration items, net. Amounts recorded for the current and noncurrent portions of acquisition-related contingent consideration are included in Accounts payable and accrued expenses and Other liabilities, respectively, in our Condensed Consolidated Balance Sheets.

The following table presents changes to the Company’s liability for acquisition-related contingent consideration during the three months ended March 31, 2021 by acquisition (in thousands):


	Balance as of December 31, 2020		Changes in Fair Value Recorded in Earnings		Amounts Settled and Other		Balance as of March 31, 2021
Auxilium acquisition	$	14,484	$	96	$	—	$	14,580
Lehigh Valley Technologies, Inc. acquisitions	13,100		(5,536)		(764)		6,800

Other	8,665		(13)		(269)		8,383
Total	$	36,249	$	(5,453)	$	(1,033)	$	29,763

Nonrecurring Fair Value Measurements

The Company’s financial assets and liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2021 were as follows (in thousands):


	Fair Value Measurements during the Three Months Ended March 31, 2021 (1) using:						Total Expense for the Three Months Ended March 31, 2021
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs

Intangible assets, excluding goodwill (2)	$	—	$	—	$	—	$	(2,882)
Certain property, plant and equipment	—		—		—		(427)

Total	$	—	$	—	$	—	$	(3,309)

__________

(1)The fair value amounts are presented as of the date of the fair value measurement as these assets are not measured at fair value on a recurring basis. Such measurements generally occur in connection with our quarter-end financial reporting close procedures.

(2)This fair value measurement was determined using a risk-adjusted discount rate of 10.0%.

NOTE 7. INVENTORIES

Inventories consist of the following at March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020
Raw materials (1)	$	101,622	$	99,495
Work-in-process (1)	104,511		98,753
Finished goods (1)	156,047		154,012
Total	$	362,180	$	352,260

__________

(1)The components of inventory shown in the table above are net of allowance for obsolescence.

Inventory that is in excess of the amount expected to be sold within one year is classified as noncurrent inventory and is not included in the table above. At March 31, 2021 and December 31, 2020, $7.4 million and $13.2 million, respectively, of noncurrent inventory was included in Other assets in the Condensed Consolidated Balance Sheets. As of March 31, 2021 and December 31, 2020, the Company’s Condensed Consolidated Balance Sheets included approximately $7.8 million and $37.5 million, respectively, of capitalized pre-launch inventories related to products that were not yet available to be sold.

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NOTE 8. LEASES

The following table presents information about the Company’s right-of-use assets and lease liabilities at March 31, 2021 and December 31, 2020 (in thousands):


	Balance Sheet Line Items	March 31, 2021		December 31, 2020
Right-of-use assets:
Operating lease right-of-use assets	Operating lease assets	$	34,389	$	37,030
Finance lease right-of-use assets	Property, plant and equipment, net	45,238		47,549
Total right-of-use assets		$	79,627	$	84,579
Operating lease liabilities:
Current operating lease liabilities	Current portion of operating lease liabilities	$	11,813	$	11,613
Noncurrent operating lease liabilities	Operating lease liabilities, less current portion	35,738		38,132
Total operating lease liabilities		$	47,551	$	49,745
Finance lease liabilities:
Current finance lease liabilities	Accounts payable and accrued expenses	$	6,376	$	6,227
Noncurrent finance lease liabilities	Other liabilities	23,355		25,027
Total finance lease liabilities		$	29,731	$	31,254

The following table presents information about lease costs and expenses and sublease income for the three months ended March 31, 2021 and 2020 (in thousands):


		Three Months Ended March 31,
	Statement of Operations Line Items		2021		2020
Operating lease cost	Various (1)		$	3,736	$	3,992
Finance lease cost:
Amortization of right-of-use assets	Various (1)		$	2,311	$	2,311
Interest on lease liabilities	Interest expense, net		$	367	$	466
Other lease costs and income:
Variable lease costs (2)	Various (1)		$	3,022	$	2,658

Sublease income	Various (1)		$	(933)	$	(861)

__________

(1)Amounts are included in the Condensed Consolidated Statements of Operations based on the function that the underlying leased asset supports. The following table presents the components of such aggregate amounts for the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
		2021		2020
Cost of revenues		$	3,058	$	3,328
Selling, general and administrative		$	5,024	$	4,721
Research and development		$	54	$	51

(2)Amounts represent variable lease costs incurred that were not included in the initial measurement of the lease liability such as common area maintenance and utilities costs associated with leased real estate and certain costs associated with our automobile leases.

The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash payments for operating leases	$	2,883	$	2,981
Operating cash payments for finance leases	$	548	$	648
Financing cash payments for finance leases	$	1,321	$	1,184

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NOTE 9. GOODWILL AND OTHER INTANGIBLES

Goodwill

Changes in the carrying amount of our goodwill for the three months ended March 31, 2021 were as follows (in thousands):


	Branded Pharmaceuticals		Sterile Injectables		Generic Pharmaceuticals		International Pharmaceuticals		Total




Goodwill as of December 31, 2020	$	828,818	$	2,731,193	$	—	$	—	$	3,560,011


Goodwill as of March 31, 2021	$	828,818	$	2,731,193	$	—	$	—	$	3,560,011

The carrying amounts of goodwill at March 31, 2021 and December 31, 2020 are net of the following accumulated impairments (in thousands):


	Branded Pharmaceuticals		Sterile Injectables		Generic Pharmaceuticals		International Pharmaceuticals		Total
Accumulated impairment losses as of December 31, 2020	$	855,810	$	—	$	3,142,657	$	546,251	$	4,544,718
Accumulated impairment losses as of March 31, 2021	$	855,810	$	—	$	3,142,657	$	553,764	$	4,552,231

Other Intangible Assets

Changes in the amount of other intangible assets for the three months ended March 31, 2021 are set forth in the table below (in thousands):


Cost basis:	Balance as of December 31, 2020		Acquisitions		Impairments		Effect of Currency Translation		Balance as of March 31, 2021
Indefinite-lived intangibles:
In-process research and development	$	3,000	$	—	$	—	$	—	$	3,000
Total indefinite-lived intangibles	$	3,000	$	—	$	—	$	—	$	3,000
Finite-lived intangibles:
Licenses (weighted average life of 14 years)	$	439,230	$	—	$	—	$	—	$	439,230
Tradenames	6,409		—		—		—		6,409
Developed technology (weighted average life of 12 years)