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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, 2023
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)

__________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None (*)
(*)On August 26, 2022, Endo International plc’s ordinary shares, which previously traded on the Nasdaq Global Select Market under the symbol ENDP, began trading exclusively on the over-the-counter market under the symbol ENDPQ. On September 14, 2022, Nasdaq filed a Form 25-NSE with the United States Securities and Exchange Commission and Endo International plc’s ordinary shares were subsequently delisted from the Nasdaq Global Select Market. On December 13, 2022, Endo International plc’s ordinary shares were deregistered under Section 12(b) of the Securities Exchange Act of 1934, as amended.
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
(†)The registrant is a voluntary filer that is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended. It has filed all reports that otherwise would be required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the past 90 days.
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
The number of ordinary shares, nominal value $0.0001 per share outstanding as of October 30, 2023 was 235,219,612.



ENDO INTERNATIONAL PLC
(DEBTOR-IN-POSSESSION)
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) and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statements relating to future financial results, cost savings, revenues, expenses, net income and income per share; the status, progress and/or outcome of litigation, proceedings under chapter 11 of title 11 of the United States (U.S.) Code (the Bankruptcy Code) and/or any other contingency planning initiatives, including the application and effect of the automatic stay thereunder; future financing activities; the impact of public health crises and epidemics on the health and welfare of our employees and on our business (including any economic impact, anticipated return to historical purchasing decisions by customers, 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); the expansion of our product pipeline and any development, approval, launch or commercialization activities; and any other statements that refer to Endo’s expected, estimated or anticipated future results. We have tried, whenever possible, to identify such statements with 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, among other things, 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 timing or results of any pending or future litigation, investigations, claims, actual or contingent liabilities, settlement discussions, negotiations or other adverse proceedings, including proceedings involving opioid-related matters, antitrust matters and tax matters with the U.S. Internal Revenue Service (IRS); unfavorable publicity regarding the misuse of opioids; the status, progress and/or outcome of our ongoing bankruptcy proceedings; changing competitive, market and regulatory conditions; changes in legislation; our ability to obtain and maintain adequate protection for our intellectual property rights; the impacts of competition such as those related to the loss of VASOSTRICT® exclusivity; 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; our ability to develop or expand our product pipeline and to continue to develop the market for XIAFLEX® and other branded or unbranded products; the impact that known and unknown side effects may have on market perception and consumer preference; the success of any acquisition, licensing or commercialization; 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, 2022 filed with the Securities and Exchange Commission (SEC) on March 6, 2023 (the Annual Report), in Part II, Item 1A of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 filed with the SEC on May 8, 2023 (the First-Quarter 2023 Form 10-Q) 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, including with respect to opioid, tax or antitrust related proceedings or any other litigation; the effects of our ongoing bankruptcy proceedings and the related events of default under our indebtedness on our current and future liquidity and ability to fund our working capital, capital expenditures, business development, debt service requirements, acquisitions and any other obligations; our ability to attract and retain key personnel; our ability to adjust to changing market conditions; and/or the potential for a significant reduction in our short-term and long-term revenues and/or any other factor that could cause us to be unable to fund our operations and liquidity needs.
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 Part II, Item 1A of the First-Quarter 2023 Form 10-Q, we provide a cautionary discussion of 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
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except share and per share data)
September 30, 2023December 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$823,305 $1,018,883 
Restricted cash and cash equivalents167,939 145,358 
Accounts receivable, net387,485 493,988 
Inventories, net273,831 274,499 
Prepaid expenses and other current assets93,872 136,923 
Income taxes receivable6,844 7,117 
Total current assets$1,753,276 $2,076,768 
PROPERTY, PLANT AND EQUIPMENT, NET461,687 438,314 
OPERATING LEASE ASSETS24,125 28,070 
GOODWILL1,352,011 1,352,011 
OTHER INTANGIBLES, NET1,538,832 1,732,935 
OTHER ASSETS125,864 129,839 
TOTAL ASSETS$5,255,795 $5,757,937 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses$562,628 $687,183 
Current portion of operating lease liabilities898 903 
Income taxes payable1,106 1,541 
Total current liabilities$564,632 $689,627 
DEFERRED INCOME TAXES9,432 13,825 
OPERATING LEASE LIABILITIES, LESS CURRENT PORTION4,411 5,129 
OTHER LIABILITIES49,943 42,746 
LIABILITIES SUBJECT TO COMPROMISE8,786,571 9,168,782 
COMMITMENTS AND CONTINGENCIES (NOTE 15)
SHAREHOLDERS’ DEFICIT:
Euro deferred shares, $0.01 par value; 4,000,000 shares authorized and issued at both September 30, 2023 and December 31, 2022
42 43 
Ordinary shares, $0.0001 par value; 1,000,000,000 shares authorized; 235,219,612 and 235,208,039 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively
24 24 
Additional paid-in capital8,980,561 8,969,322 
Accumulated deficit(12,912,944)(12,904,620)
Accumulated other comprehensive loss(226,877)(226,941)
Total shareholders’ deficit$(4,159,194)$(4,162,172)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT$5,255,795 $5,757,937 
See accompanying Notes to Condensed Consolidated Financial Statements.
1

Table of Contents
ENDO INTERNATIONAL PLC
(DEBTOR-IN-POSSESSION)
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,
2023202220232022
TOTAL REVENUES, NET$451,665 $541,690 $1,513,784 $1,763,063 
COSTS AND EXPENSES:
Cost of revenues230,286 261,232 696,880 798,233 
Selling, general and administrative138,772 192,221 427,294 600,212 
Research and development31,582 31,885 87,322 97,803 
Acquired in-process research and development 800  68,700 
Litigation-related and other contingencies, net11,104 419,376 54,317 444,738 
Asset impairment charges 150,200 146 1,951,216 
Acquisition-related and integration items, net1,062 (1,399)1,824 (951)
Interest expense, net10 74,753 239 349,486 
Reorganization items, net57,960 124,212 227,579 124,212 
Other income, net(2,217)(3,998)(2,163)(22,147)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX$(16,894)$(707,592)$20,346 $(2,648,439)
INCOME TAX EXPENSE11,042 10,680 27,094 16,016 
LOSS FROM CONTINUING OPERATIONS$(27,936)$(718,272)$(6,748)$(2,664,455)
DISCONTINUED OPERATIONS, NET OF TAX (NOTE 4)(547)(3,897)(1,576)(15,115)
NET LOSS$(28,483)$(722,169)$(8,324)$(2,679,570)
NET (LOSS) INCOME PER SHARE—BASIC:
Continuing operations$(0.12)$(3.05)$(0.03)$(11.35)
Discontinued operations (0.02)(0.01)(0.07)
Basic$(0.12)$(3.07)$(0.04)$(11.42)
NET (LOSS) INCOME PER SHARE—DILUTED:
Continuing operations$(0.12)$(3.05)$(0.03)$(11.35)
Discontinued operations (0.02)(0.01)(0.07)
Diluted$(0.12)$(3.07)$(0.04)$(11.42)
WEIGHTED AVERAGE SHARES:
Basic235,220 235,160 235,219 234,719 
Diluted235,220 235,160 235,219 234,719 
See accompanying Notes to Condensed Consolidated Financial Statements.
    
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ENDO INTERNATIONAL PLC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(Dollars in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
NET LOSS$(28,483)$(722,169)$(8,324)$(2,679,570)
OTHER COMPREHENSIVE (LOSS) INCOME:
Net unrealized (loss) gain on foreign currency$(3,434)$(10,649)$64 $(13,088)
Total other comprehensive (loss) income$(3,434)$(10,649)$64 $(13,088)
COMPREHENSIVE LOSS$(31,917)$(732,818)$(8,260)$(2,692,658)
See accompanying Notes to Condensed Consolidated Financial Statements.
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ENDO INTERNATIONAL PLC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended September 30,
20232022
OPERATING ACTIVITIES:
Net loss$(8,324)$(2,679,570)
Adjustments to reconcile Net loss to Net cash provided by operating activities:
Depreciation and amortization232,090 302,338 
Share-based compensation11,240 13,506 
Amortization of debt issuance costs and discount 9,406 
Deferred income taxes(4,424)(8,337)
Change in fair value of contingent consideration1,824 (951)
Acquired in-process research and development charges 68,700 
Asset impairment charges146 1,951,216 
Non-cash reorganization items, net 89,197 
Gain on sale of business and other assets(1,309)(11,760)
Other(21)2,083 
Changes in assets and liabilities which provided (used) cash:
Accounts receivable101,485 154,645 
Inventories412 (31,100)
Prepaid and other assets28,849 72,111 
Accounts payable, accrued expenses and other liabilities(41,754)219,668 
Income taxes payable/receivable, net(173)8,459 
Net cash provided by operating activities$320,041 $159,611 
INVESTING ACTIVITIES:
Capital expenditures, excluding capitalized interest(74,245)(77,865)
Capitalized interest payments (3,140)
Proceeds from the U.S. Government Agreement32,560 13,601 
Acquisitions, including in-process research and development, net of cash and restricted cash acquired (89,520)
Proceeds from sale of business and other assets3,538 22,378 
Net cash used in investing activities$(38,147)$(134,546)
FINANCING ACTIVITIES:
Repayments of notes (180,342)
Repayments of term loans (10,000)
Adequate protection payments(445,519)(168,643)
Repayments of other indebtedness(4,999)(4,501)
Payments for contingent consideration(4,353)(1,939)
Payments of tax withholding for restricted shares (1,898)
Net cash used in financing activities$(454,871)$(367,323)
Effect of foreign exchange rate(20)(4,674)
NET DECREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS$(172,997)$(346,932)
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD1,249,241 1,631,310 
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD$1,076,244 $1,284,378 
See accompanying Notes to Condensed Consolidated Financial Statements.
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ENDO INTERNATIONAL PLC
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
NOTE 1. BASIS OF PRESENTATION
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 8-03 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, 2023 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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The year-end Condensed Consolidated Balance Sheet data as of December 31, 2022 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.
Going Concern
As further discussed herein, thousands of governmental and private plaintiffs have filed suit against us and/or certain of our subsidiaries alleging opioid-related claims, most of which we have not been able to settle. As a result of the possibility or occurrence of an unfavorable outcome with respect to these proceedings, other legal proceedings and certain other risks and uncertainties, we explored a wide array of potential actions as part of our contingency planning and, as further described in the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022 filed with the SEC on August 9, 2022 (the Second-Quarter 2022 Form 10-Q), we previously concluded that the related conditions and events gave rise to substantial doubt about our ability to continue as a going concern.
Subsequent to the filing of the Second-Quarter 2022 Form 10-Q, beginning on August 16, 2022 (the Petition Date), Endo International plc, together with certain of its direct and indirect subsidiaries (the Debtors), filed voluntary petitions for relief under the Bankruptcy Code, which constituted an event of default that accelerated our obligations under substantially all of our then-outstanding debt instruments. However, section 362 of the Bankruptcy Code stays creditors from taking any action to enforce the related financial obligations and creditors’ rights of enforcement in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code. Refer to Note 2. Bankruptcy Proceedings and Note 14. Debt for additional information. As a result of these conditions and events, management continues to believe there is substantial doubt about our ability to continue as a going concern within one year after the date of issuance of these Condensed Consolidated Financial Statements. The accompanying Condensed Consolidated Financial Statements have been prepared under the going concern basis of accounting as required by U.S. GAAP and do not include any adjustments that might be necessary should we be unable to continue as a going concern.
NOTE 2. BANKRUPTCY PROCEEDINGS
Chapter 11 Filing
As noted above, on the Petition Date, certain of the Debtors filed voluntary petitions for relief under the Bankruptcy Code. Certain additional Debtors filed voluntary petitions for relief under the Bankruptcy Code on May 25, 2023 and May 31, 2023. The Debtors have received approval from the U.S. Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) to jointly administer their chapter 11 cases (the Chapter 11 Cases) for administrative purposes only pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure under the caption In re Endo International plc, et al. Certain entities consolidated by Endo International plc and included in these Condensed Consolidated Financial Statements are not party to the Chapter 11 Cases. These entities are collectively referred to herein as the Non-Debtor Affiliates.
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The Debtors will continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. As debtors-in-possession, the Debtors are generally permitted to continue to operate as ongoing businesses and pay debts and honor obligations arising in the ordinary course of their businesses after the Petition Date. However, the Debtors generally may not pay third-party claims or creditors on account of obligations arising before the Petition Date or engage in transactions outside the ordinary course of business without approval of the Bankruptcy Court. Under the Bankruptcy Code, third-party actions to collect pre-petition indebtedness owed by the Debtors, as well as most litigation pending against the Debtors as of the Petition Date, are generally subject to an automatic stay. However, under the Bankruptcy Code, certain legal proceedings, such as those involving the assertion of a governmental entity’s police or regulatory powers, may not be subject to the automatic stay and may continue unless otherwise ordered by the Bankruptcy Court.
Among other requirements, chapter 11 proceedings must comply with the priority scheme established by the Bankruptcy Code, under which certain post-petition and secured or “priority” pre-petition liabilities generally need to be satisfied before general unsecured creditors and shareholders are entitled to receive any distribution.
Under the Bankruptcy Code, the Debtors may assume, modify, assign or reject certain executory contracts and unexpired leases, including, without limitation, leases of real property and equipment, subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease in this report, including, where applicable, the express termination rights thereunder or a quantification of obligations, must be read in conjunction with, and is qualified by, any overriding rejection rights the Debtors have under the Bankruptcy Code.
To ensure their ability to continue operating in the ordinary course of business, the Debtors have filed with the Bankruptcy Court a variety of motions seeking “first day” relief, including the authority to access cash collateral, continue using their cash management system, pay employee wages and benefits and pay vendors in the ordinary course of business. At a hearing held on August 18, 2022, the Bankruptcy Court generally approved the relief sought in these motions on an interim basis. Following subsequent hearings held on September 28, 2022, October 13, 2022 and October 19, 2022, the Bankruptcy Court entered orders approving substantially all of the relief sought on a final basis.
Events of Default
The August 16, 2022 bankruptcy filings by the Debtors constituted an event of default that accelerated our obligations under substantially all of our then-outstanding debt instruments. However, section 362 of the Bankruptcy Code stays creditors from taking any action to enforce the related financial obligations and creditors’ rights of enforcement in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code. Refer to Note 14. Debt for additional information.
Restructuring Support Agreement
On August 16, 2022, we entered into a Restructuring Support Agreement (the RSA) with an ad hoc group (the Ad Hoc First Lien Group) of certain creditors holding in excess of 50% of the aggregate outstanding principal amount of Secured Debt (as defined in that certain collateral trust agreement, dated as of April 27, 2017, among Endo International plc, certain subsidiaries of Endo International plc, the other grantors from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent under the Credit Agreement (as defined below), and Wells Fargo Bank, National Association, as indenture trustee, and Wilmington Trust, National Association, as collateral trustee (the Collateral Trust Agreement)), pursuant to which, among other things, one or more entities formed in a manner acceptable to the Ad Hoc First Lien Group (the Stalking Horse Bidder or the Purchaser) will serve as stalking horse bidder as we seek to sell all or substantially all of our assets in a sale pursuant to section 363 of the Bankruptcy Code (the Sale).
As described in the RSA, the Stalking Horse Bidder’s bid (the Stalking Horse Bid), which was subject to higher or otherwise better bids from other parties, includes an offer to purchase substantially all of our assets for an aggregate purchase price including: (i) a credit bid in full satisfaction of the Prepetition First Lien Indebtedness (as defined in the RSA); (ii) $5 million in cash on account of certain unencumbered assets; (iii) $122 million to wind-down our operations following the Sale closing date (the Wind-Down Amount); (iv) pre-closing professional fees; and (v) the assumption of certain liabilities. As part of the Stalking Horse Bid, the Stalking Horse Bidder will also make offers of employment to all of our active employees. The proposed purchase and sale agreement with respect to the Stalking Horse Bid as filed with the Bankruptcy Court on November 23, 2022, and as amended and subsequently filed with the Bankruptcy Court on March 24, 2023 and July 7, 2023, includes customary representations and warranties and customary covenants by the parties thereto.
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On November 23, 2022, we filed: (i) a motion seeking Bankruptcy Court approval of bidding procedures in connection with the Sale and (ii) a motion seeking to set deadlines (bar dates) for all claimants to file claims against the Debtors. At a hearing on December 15, 2022, the Bankruptcy Court directed the Debtors and certain key parties in interest in the Chapter 11 Cases to participate in a mediation process to attempt to resolve certain objections and contested issues relating to the bidding procedures motion, the Sale and other critical matters in the Chapter 11 Cases.
In March 2023, the Debtors announced that, as a result of the mediation process, the Ad Hoc First Lien Group (and Stalking Horse Bidder) reached certain resolutions in principle with both the unsecured creditors' committee (the UCC) and opioid claimants' committee (the OCC) appointed in the Chapter 11 Cases and certain ad hoc groups of debtholders. These resolutions, documented in the stipulation filed with the Bankruptcy Court on March 24, 2023 (and described in further detail below), are supported by the Debtors. In connection with such resolutions, the Company agreed in principle with the Ad Hoc First Lien Group to reduce the Wind-Down Amount associated with the Stalking Horse Bid from $122 million to approximately $116 million, subject to definitive documentation. Following a hearing, the Bankruptcy Court entered orders on April 3, 2023 approving the bidding procedures motion (the Bidding Procedures Order) and the bar date motion.
As part of the Bidding Procedures Order, the Bankruptcy Court also approved certain internal restructuring transactions under Irish law that will allow us to pursue the Sale in a tax efficient manner (the Reconstruction Steps). The Reconstruction Steps were completed on May 31, 2023, and involved, among other things: (i) the conversion from private limited companies to private unlimited companies under Irish law of our subsidiaries Endo Ventures Limited and Endo Global Biologics Limited and their re-registration as Endo Ventures Unlimited (EVU) and Endo Global Biologics Unlimited (EGBU), respectively; and (ii) the transfer of the business and assets of EVU and EGBU to our newly-formed subsidiaries Operand Pharmaceuticals II Limited and Operand Pharmaceuticals III Limited.
As contemplated by the RSA, the bidding procedures order approved a marketing process and auction that was conducted under the supervision of the Bankruptcy Court, during which interested parties had an opportunity to conduct due diligence and determine whether to submit a bid to acquire the Debtors’ assets. In the months following the entry of the Bidding Procedures Order, the Company conducted a robust marketing process. Following the passing of the deadline for potential bidders to submit indications of interest, on June 20, 2023, in accordance with the Bidding Procedures Order, the Company filed with the Bankruptcy Court a notice of termination of the sale and marketing process (the Sale Acceleration Election), naming the Stalking Horse Bidder as the Successful Bidder (as defined in the Bidding Procedures Order) and accelerating the hearing to approve the Sale from August 31, 2023 to July 28, 2023. The hearing to approve the Sale was subsequently adjourned and is currently scheduled for November 16, 2023.
Now that the Stalking Horse Bid has been selected as the highest or otherwise best offer following said marketing process, the Ad Hoc First Lien Group will direct the Collateral Trustee (as defined in the Collateral Trust Agreement) to assign its rights to credit bid, on behalf of the Secured Parties (as defined in the Collateral Trust Agreement), to the Stalking Horse Bidder, so as to enable the Stalking Horse Bidder to credit bid for all or substantially all of our assets in exchange for the extinguishment of the obligations to the Secured Parties.
Pursuant to the RSA, each of the parties agreed to, among other things, take all actions as are necessary and appropriate to facilitate the implementation and consummation of the Restructuring (as defined in the RSA), negotiate in good faith certain definitive documents relating to the Restructuring and obtain required approvals. In addition, we agreed to conduct our business in the ordinary course, provide notice and certain materials relating to the Restructuring to the consenting creditors’ advisors and pay certain fees and expenses of the consenting creditors. The RSA further contemplates that the Purchaser will fund one or more trusts for parties with opioid-related claims against us, as further discussed in Note 15. Commitments and Contingencies.
The RSA provides certain milestones for the Restructuring. If we fail to satisfy these milestones and such failure is not the result of a breach of the RSA by the Required Consenting First Lien Creditors (as defined in the RSA), the Required Consenting First Lien Creditors will have the right to terminate the RSA. These milestones, as modified since we entered into the RSA (and which may be further modified from time to time) and as adjusted to reflect our exercise of the Sale Acceleration Election, include: (i) not later than 11:59 p.m. prevailing Eastern Time on October 25, 2022, the Bankruptcy Court shall have entered the Cash Collateral Order (as defined below) on a final basis; (ii) not later than 11:59 p.m. prevailing Eastern Time on April 11, 2023, the Bankruptcy Court shall have entered an order approving the bidding procedures; (iii) not later than 11:59 p.m. prevailing Eastern Time on November 20, 2023, the Bankruptcy Court shall have entered an order approving the Sale (the Sale Order Date); and (iv) not later than the earlier of (x) 11:59 p.m. prevailing Eastern Time on November 20, 2023 and (y) the date that is thirty (30) calendar days after the date the order approving the sale is entered (the Outside Date), the closing of the Sale shall have occurred, in which case the Outside Date is subject to certain extensions as a result of the Sale Acceleration Election as set forth in the RSA, including: (a) for extensions of prior milestones; (b) to close the Sale transaction with a backup bidder; and (c) for delays in obtaining regulatory or third-party approvals or consents. As of the date of this report, milestones (i) and (ii) referenced above have been satisfied. The dates in milestones (iii) and (iv) have been modified with the agreement of the Required Consenting First Lien Creditors. Each of the parties to the RSA may terminate the agreement (and thereby their support for the Sale) under certain limited circumstances, including for material breaches and materially untrue representations and warranties by their counterparties, if a governmental agency enjoins the Sale or if the purchase and sale agreement with respect to the Sale is terminated under certain circumstances.
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The transactions contemplated by the RSA are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated.
The Chapter 11 Proceedings
Cash Collateral
As part of the RSA, the Company and the Ad Hoc First Lien Group agreed on the terms of a proposed order authorizing the Company’s use of cash collateral (as modified and entered by the Bankruptcy Court on a final (amended) basis in October 2022, the Cash Collateral Order) in connection with the Chapter 11 Cases on certain terms and conditions set forth therein. The Debtors intend to use the cash collateral to, among other things, permit the orderly continuation of their businesses, pay the costs of administration of their estates and satisfy other working capital and general corporate purposes.
The Cash Collateral Order: (i) obligates the Debtors to make certain adequate protection payments during the bankruptcy proceedings, which are further discussed in Note 14. Debt of this report and Note 15. Debt in the Consolidated Financial Statements included in Part IV, Item 15 of the Annual Report; (ii) establishes a budget for the Debtors’ use of cash collateral; (iii) establishes certain informational rights for the Debtors’ secured creditors; (iv) provides for the waiver of certain Bankruptcy Code provisions; and (v) requires the Debtors to maintain at least $600.0 million of “liquidity,” calculated at the end of each week as unrestricted cash and cash equivalents plus certain specified amounts of restricted cash associated with the TLC Agreement, which is defined and further discussed below in Note 11. License, Collaboration and Asset Acquisition Agreements.
The foregoing description of the Cash Collateral Order does not purport to be complete and is qualified in its entirety by reference to the Cash Collateral Order entered by the Bankruptcy Court in the Chapter 11 Cases.
Claims Reconciliation Process
In November 2022, the Debtors filed with the Bankruptcy Court schedules and statements, subject to further amendment or modification, which set forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith.
As part of the Chapter 11 Cases, persons and entities believing that they have claims or causes of action against the Debtors may file proofs of claim evidencing such claims. As noted above, the Debtors have filed a motion seeking to set a bar date (deadline) for holders of claims to file proofs of claim (including general claims and claims of governmental units). On April 3, 2023, the Bankruptcy Court entered an order, as subsequently amended on June 23, 2023 and July 14, 2023 (the Bar Date Order) setting July 7, 2023 as the general bar date (deadline) for persons and non-governmental entities to file proofs of claim against the Debtors. The Bankruptcy Court also set May 31, 2023 as the bar date for governmental entities to file claims other than certain claims relating to opioids against the Debtors. Certain claims, including most governmental claims relating to opioids, are subject to separate bar date procedures as set forth in more detail in the Bar Date Order.
As of October 30, 2023, approximately 906,400 claims, totaling approximately $973 billion, have been filed against the Debtors, including, in certain cases, duplicate claims across multiple Debtors. For example, the IRS has filed multiple proofs of claim against several of the Debtors, as further discussed in Note 19. Income Taxes. As claims are filed, they are being evaluated for validity and compared to amounts recorded in our accounting records. Due to the voluminous number of claims received, Endo is continuing to review the proofs of claims filed in the Chapter 11 Cases to identify which, if any, additional claims constitute unresolved claims not previously known. As of the date of this report, the amounts of certain of the claims received exceed the amounts of the corresponding liabilities, if any, that we have recorded based on our assessments of the purported liabilities underlying such claims, and it is likely this will continue to be the case in future periods. We are not aware of any claims that we currently expect will require a material adjustment to the accounts and balances as reported as of September 30, 2023.
Differences in amounts recorded and claims filed by creditors will continue to be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Debtors may ask the Bankruptcy Court to disallow claims that the Debtors believe are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Debtors may identify additional liabilities that will need to be recorded or reclassified to Liabilities subject to compromise in the Condensed Consolidated Balance Sheets. In light of the substantial number of claims that have been filed as of the date of this report and may be filed in the future, the claims resolution process may take considerable time to complete and may continue for the duration of the Debtors’ bankruptcy proceedings.
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Resolutions in the Chapter 11 Cases
In March 2023, the Debtors announced that, in connection with the mediation process and as referenced in an amended RSA, the Ad Hoc First Lien Group (and Stalking Horse Bidder) reached certain resolutions in principle with the UCC and the OCC appointed in the Chapter 11 Cases and certain ad hoc groups of debtholders. In July 2023, the Debtors announced an additional resolution between the Stalking Horse Bidder and the Future Claimants' Representative (the FCR). In August 2023, a resolution was reached between the Stalking Horse Bidder and an ad hoc group of public school district creditors (the Public School District Creditors). In September 2023, a resolution was reached between the Stalking Horse Bidder and certain Canadian governmental entities that had previously filed an objection to the Sale (the Canadian Governments). These resolutions, which are set forth in greater detail in filings with the Bankruptcy Court dated as of March 24, 2023, July 13, 2023, August 15, 2023 and September 29, 2023, respectively, are supported by the Debtors.
The resolution reached between the Ad Hoc First Lien Group and the UCC provides that, upon the consummation of the Sale, the Stalking Horse Bidder will create a trust for the benefit of eligible general unsecured creditors. As consideration, the trust will receive, among other things, (i) $60 million in cash; (ii) 4.25% of equity in the Stalking Horse Bidder (subject to dilution by equity issued pursuant to rights offerings and under the management incentive plan); (iii) a litigation trust, which will have the right to pursue certain estate claims and causes of action against (1) non-continuing directors and former officers (as against certain specified insurance policies and proceeds), (2) certain third-party advisors to the Debtors, and (3) certain additional third parties, including parties to certain pre-petition transactions with the Debtors; and (iv) a rights offering for certain eligible trust beneficiaries, subject to certain subscription requirements, for up to $160 million of equity in the Stalking Horse Bidder. The resolution also contemplates a fee cap of $15 million for the UCC professionals for any work done after April 1, 2023.
The resolution reached between the Ad Hoc First Lien Group and the OCC provides that, upon the consummation of the Sale, the Stalking Horse Bidder will create a trust for the benefit of certain private present opioid claimants (such as non-governmental entities). As consideration, the trust will receive, among other things, $119.7 million of gross cash consideration payable in three installments (subject to the Stalking Horse Bidder's exercise of certain prepayment options and triggers) to be distributed to eligible private present opioid claimants. As set forth in the amended RSA, the Stalking Horse Bidder has agreed, upon the consummation of the Sale, to fund a trust for the benefit of certain public and tribal opioid claimants. The trust to be created pursuant to the resolution reached with the OCC is intended to be structured similarly to the public/tribal opioid trust and includes prepayment obligations triggered upon certain prepayments made to the public/tribal opioid trust. The resolution also contemplates a fee cap of $8.5 million for opioid claimants’ committee hourly professionals.
The resolution reached between the Ad Hoc First Lien Group and the FCR provides that, upon the consummation of the Sale, the Stalking Horse Bidder will create trusts (the Future Trusts) for the benefit of certain private opioid and mesh claimants whose first injury did not arise until after the general bar date. As consideration, the Future Trusts will receive, among other things, $12 million of gross cash consideration payable in installments to be distributed to eligible private future opioid and mesh claimants.
The resolution reached between the Ad Hoc First Lien Group and the Public School District Creditors provides that, upon the consummation of the Sale, the Stalking Horse Bidder will fund a special education initiative for the benefit of public school districts that elect to participate in such initiative. As consideration, the initiative will receive up to $3 million of gross cash consideration payable in installments to provide grants and other funding to participating school districts for the purpose of funding opioid abuse/misuse abatement or remediation programs.
The resolution reached between the Ad Hoc First Lien Group and the Canadian Governments provides that, upon the consummation of the Sale, the Stalking Horse Bidder will create a trust for the benefit of the Canadian Governments. As consideration, the trust will receive $7.3 million of gross cash consideration payable in installments expected to be used for government programs and services aimed at assisting Canadians who suffer from opioid misuse or addiction disorder.
In connection with the resolutions, the UCC, the OCC, the FCR, the Public School District Creditors, the Canadian Governments and the ad hoc groups of debtholders party thereto have agreed to support the Sale.
Bankruptcy Accounting
As a result of the Chapter 11 Cases, we have applied the provisions of Accounting Standards Codification Topic 852, Reorganizations (ASC 852) in preparing the accompanying Condensed Consolidated Financial Statements. ASC 852 requires that, for periods including and after the filing of a chapter 11 petition, the Condensed Consolidated Financial Statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.
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Accordingly, for periods beginning with the third quarter of 2022, pre-petition unsecured and undersecured claims related to the Debtors that may be impacted by the bankruptcy reorganization process have been classified as Liabilities subject to compromise in the Condensed Consolidated Balance Sheets. Liabilities subject to compromise include pre-petition liabilities for which there is uncertainty about whether such pre-petition liabilities could be impaired as a result of the Chapter 11 Cases. Liabilities subject to compromise are recorded at the expected amount of the total allowed claim, even if they may ultimately be settled for different amounts. The following table sets forth, as of September 30, 2023 and December 31, 2022, information about the amounts presented as Liabilities subject to compromise in our Condensed Consolidated Balance Sheets (in thousands):
September 30, 2023December 31, 2022
Accounts payable$32,361 $30,317 
Accrued interest160,617 160,617 
Debt7,389,198 7,834,717 
Litigation accruals875,096 820,805 
Uncertain tax positions261,152 235,176 
Other (1)68,147 87,150 
Total$8,786,571 $9,168,782 
__________
(1)Amounts include operating and finance lease liabilities as further described in Note 9. Leases, acquisition-related contingent consideration liabilities as further described in Note 7. Fair Value Measurements and a variety of other miscellaneous liabilities.
The determination of how liabilities will ultimately be settled or treated cannot be made until approved by the Bankruptcy Court. Therefore, the amounts in the table above are preliminary and may be subject to future adjustments as a result of, among other things, the possibility or occurrence of certain Bankruptcy Court actions, further developments with respect to disputed claims, any rejection by us of executory contracts and/or any payments by us of amounts classified as Liabilities subject to compromise, which may be allowed in certain limited circumstances. Amounts are also subject to adjustments if we make changes to our assumptions or estimates related to claims as additional information becomes available to us including, without limitation, those related to the expected amounts of allowed claims, the value of any collateral securing claims and the secured status of claims. Such adjustments may be material. Additionally, as a result of our ongoing bankruptcy proceedings, we may sell or otherwise dispose of or liquidate assets or settle liabilities for amounts other than those reflected in the accompanying Condensed Consolidated Financial Statements. The possibility or occurrence of any such actions could materially impact the amounts and classifications of such assets and liabilities reported in our Condensed Consolidated Balance Sheets and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Certain expenses, gains and losses resulting from and recognized during our bankruptcy proceedings are now being recorded in Reorganization items, net in our Condensed Consolidated Statements of Operations. The following table sets forth, for the three and nine months ended September 30, 2023 and 2022, information about the amounts presented as Reorganization items, net in our Condensed Consolidated Statements of Operations (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Professional fees$57,960 $35,015 $227,579 $35,015 
Debt valuation adjustments 89,197  89,197 
Total$57,960 $124,212 $227,579 $124,212 
During the nine months ended September 30, 2023 and 2022, our operating cash flows included net cash outflows of $220.6 million and $2.9 million, respectively, related to amounts classified or expected to be classified as Reorganization items, net, which primarily consisted of payments for professional fees.
Refer also to Note 14. Debt for information about how our bankruptcy proceedings and certain related developments have affected our debt service payments and how such payments are being reflected in our Condensed Consolidated Financial Statements.
Nasdaq Delisting
On August 17, 2022, we received a letter (the Notice) from The Nasdaq Stock Market LLC (Nasdaq) stating that, in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that Endo’s ordinary shares would be delisted. In accordance with the Notice, trading of Endo’s ordinary shares was suspended at the opening of business on August 26, 2022. As a result, Endo’s ordinary shares began trading exclusively on the over-the-counter market on August 26, 2022. On the over-the-counter market, Endo’s ordinary shares, which previously traded on the Nasdaq Global Select Market under the symbol ENDP, began to trade under the symbol ENDPQ. On September 14, 2022, Nasdaq filed a Form 25-NSE with the SEC and Endo’s ordinary shares were subsequently delisted from the Nasdaq Global Select Market. On December 13, 2022, Endo’s ordinary shares were deregistered under Section 12(b) of the Exchange Act.
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NOTE 3. 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, share-based compensation, liabilities subject to compromise and reorganization items, net, among others. Some of these estimates can be subjective and complex. Uncertainties related to the magnitude and duration of public health crises, like the recent COVID-19 pandemic, and epidemics, the extent to which it may 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 a public health emergency and/or epidemic, 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. Additionally, as a result of our ongoing bankruptcy proceedings, we may sell or otherwise dispose of or liquidate assets or settle liabilities for amounts other than those reflected in the accompanying Condensed Consolidated Financial Statements. The possibility or occurrence of any such actions could materially impact the amounts and classifications of such assets and liabilities reported in our Condensed Consolidated Balance Sheets. Furthermore, our ongoing bankruptcy proceedings and planned sale process have resulted in and are likely to continue to result in significant changes to our business, which could ultimately result in, among other things, asset impairment charges that may be material. 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 the uncertainties described in this report, those described in our other reports filed with the SEC or other uncertainties.
Significant Accounting Policies Added or Updated since December 31, 2022
There have been no significant changes to our significant accounting policies since December 31, 2022. For additional discussion of the Company’s significant accounting policies, see Note 3. Summary of Significant Accounting Policies in the Consolidated Financial Statements included in Part IV, Item 15 of the Annual Report.
NOTE 4. DISCONTINUED OPERATIONS AND ASSET SALES
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 and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Litigation-related and other contingencies, net$ $ $500 $ 
Loss from discontinued operations before income taxes$(631)$(3,897)$(1,817)$(15,115)
Income tax benefit$(84)$ $(241)$ 
Discontinued operations, net of tax$(547)$(3,897)$(1,576)$(15,115)
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 $1.6 million and $15.1 million for the nine months ended September 30, 2023 and 2022, 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.
Refer to Note 15. Commitments and Contingencies for amounts and additional information relating to vaginal mesh-related matters.
Certain Assets and Liabilities of Endo’s Retail Generics Business
In November 2020, we announced the initiation of several strategic actions to further optimize the Company’s operations and increase overall efficiency (the 2020 Restructuring Initiative), which are further discussed in Note 5. Restructuring. These actions include an initiative to exit certain of our manufacturing and other sites to optimize our retail generics business cost structure.
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Certain of these sites and certain corresponding assets and liabilities were sold in 2021. The assets sold included certain of our manufacturing facilities and related fixed assets in Chestnut Ridge, New York and Irvine, California, as well as certain U.S. retail generics products and certain related product inventory.
In 2022, we entered into a definitive agreement to sell certain additional assets located in Chestnut Ridge, New York to Ram Ridge Partners BH LLC. The assets primarily consisted of property, plant and equipment. In October 2022, the Bankruptcy Court approved the sale of the assets. The sale closed during the fourth quarter of 2022. As a result of this sale, we became entitled to aggregate cash consideration of approximately $18.5 million, substantially all of which was received by December 31, 2022. In connection with this sale, we recognized a pre-tax disposal gain of approximately $8.4 million during the fourth quarter of 2022, which we recorded in Other income, net in the Condensed Consolidated Statements of Operations.
The assets described in this section, which primarily related to the Company’s Generic Pharmaceuticals segment, did not meet the requirements for treatment as a discontinued operation.
NOTE 5. RESTRUCTURING
2020 Restructuring Initiative
There have been no material charges or cash payments associated with the 2020 Restructuring Initiative in 2023.
The following pre-tax net amounts related to the 2020 Restructuring Initiative are included in the Company’s Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20222022
Net restructuring charges (charge reversals) related to:
Accelerated depreciation$ $3,824 
Inventory adjustments408 1,435 
Employee separation, continuity and other benefit-related costs(433)1,290 
Certain other restructuring costs116 798 
Total$91 $7,347 
These pre-tax net amounts were primarily attributable to our Generic Pharmaceuticals segment, which incurred $0.4 million and $5.5 million of pre-tax net charges during the three and nine months ended September 30, 2022, respectively. The remaining amounts related to our other segments and certain corporate unallocated costs.
As of December 31, 2022, cumulative amounts incurred to date included charges related to accelerated depreciation of $51.0 million, asset impairments related to certain identifiable intangible assets, operating lease assets and disposal groups totaling $49.5 million, inventory adjustments of $11.6 million, employee separation, continuity and other benefit-related costs, net of $53.9 million and certain other restructuring costs of $3.5 million. Of these amounts, $134.3 million was attributable to the Generic Pharmaceuticals segment, with the remaining amounts relating to our other segments and certain corporate unallocated costs.
The following pre-tax net amounts related to the 2020 Restructuring Initiative are included in the Company’s Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20222022
Net restructuring charges (charge reversals) related to:
Cost of revenues$375 $4,025 
Selling, general and administrative(243)201 
Research and development(41)3,121 
Total$91 $7,347 
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2022 Restructuring Initiative
In April 2022, the Company communicated the initiation of actions to streamline and simplify certain functions, including its commercial organization, to increase its overall organizational effectiveness and better align with current and future needs. In December 2022, the Company announced it would be taking certain additional actions to cease the production and sale of QWO® in light of market concerns about the extent and variability of bruising following initial treatment as well as the potential for prolonged skin discoloration. These actions, which are collectively referred to herein as the 2022 Restructuring Initiative, were initiated with the expectation of, among other things, generating cost savings, with a portion to be reinvested to support the Company’s key strategic priority to expand and enhance its product portfolio. In December 2022, the Bankruptcy Court approved an order authorizing the Company to cease the production and commercialization of QWO® and granting related relief.
As a result of the 2022 Restructuring Initiative, the Company’s global workforce will be reduced by approximately 175 net full-time positions, substantially all of which has occurred as of September 30, 2023. Future costs associated with the 2022 Restructuring Initiative are not expected to be material.
There have been no material charges associated with the 2022 Restructuring Initiative in 2023.
The following pre-tax net amounts related to the 2022 Restructuring Initiative are included in the Company’s Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20222022
Net restructuring (charge reversals) charges related to:
Inventory adjustments$ $2,462 
Employee separation, continuity and other benefit-related costs(1,681)18,406 
Certain other restructuring costs1,102 8,657 
Total$(579)$29,525 
These pre-tax net amounts were primarily attributable to our Branded Pharmaceuticals segment, which incurred $0.1 million and $17.0 million of pre-tax net charges during the three and nine months ended September 30, 2022. The remaining amounts related to our Generic Pharmaceuticals segment and certain corporate unallocated costs.
As of December 31, 2022, cumulative amounts incurred to date included charges related to asset impairments related to certain identifiable intangible assets of $180.2 million, inventory adjustments of $34.9 million, employee separation, continuity and other benefit-related costs, net of $28.3 million and certain other restructuring costs of $8.7 million. Of these amounts, $238.6 million was attributable to the Branded Pharmaceuticals segment, with the remaining amounts related to our Generic Pharmaceuticals segment and certain corporate unallocated costs.
The following pre-tax net amounts related to the 2022 Restructuring Initiative are included in the Company’s Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20222022
Net restructuring (charge reversals) charges included in:
Cost of revenues$68 $13,352 
Selling, general and administrative(644)12,075 
Research and development(3)4,098 
Total$(579)$29,525 
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Changes to the liability for the 2022 Restructuring Initiative during the nine months ended September 30, 2023 were as follows (in thousands):
Employee Separation, Continuity and Other Benefit-Related Costs
Liability balance as of December 31, 2022$14,997 
Net charge reversals(226)
Cash payments(12,897)
Liability balance as of September 30, 2023$1,874 
The liability at September 30, 2023 is classified as current and is included in Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets.
NOTE 6. 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.
We evaluate segment performance based on Segment adjusted income from continuing operations before income tax, which we define as (Loss) income from continuing operations before income tax and before acquired in-process research and development charges; 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; certain amounts related to strategic review initiatives; 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; reorganization items, net; and certain other items.
Certain 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 in the areas of urology, orthopedics, endocrinology and bariatrics, among others. Products in this segment include XIAFLEX®, SUPPRELIN® LA, AVEED®, NASCOBAL® Nasal Spray, PERCOCET®, TESTOPEL® and EDEX®, among others.
Sterile Injectables
Our Sterile Injectables segment consists primarily of branded sterile injectable products such as ADRENALIN®, VASOSTRICT® and APLISOL®, among others, and certain generic sterile injectable products.
Generic Pharmaceuticals
Our Generic Pharmaceuticals segment consists of a product portfolio including solid oral extended-release products, solid oral immediate-release products, liquids, semi-solids, patches, powders, ophthalmics and sprays and includes products that treat and manage a wide variety of medical conditions.
International Pharmaceuticals
Our International Pharmaceuticals segment includes a variety of specialty pharmaceutical products, including over-the-counter (OTC) products, sold outside the U.S., primarily in Canada through our operating company Paladin Labs Inc. (Paladin).
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The following represents selected information for the Company’s reportable segments for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net revenues from external customers:
Branded Pharmaceuticals$203,368 $203,501 $613,318 $627,314 
Sterile Injectables95,381 118,693 333,664 481,892 
Generic Pharmaceuticals134,382 201,435 511,141 590,756 
International Pharmaceuticals (1)18,534 18,061 55,661 63,101 
Total net revenues from external customers$451,665 $541,690 $1,513,784 $1,763,063 
Segment adjusted income from continuing operations before income tax:
Branded Pharmaceuticals$105,696 $84,940 $317,301 $251,219 
Sterile Injectables27,966 58,633 138,602 318,284 
Generic Pharmaceuticals32,057 87,675 204,148 237,394 
International Pharmaceuticals4,804 4,296 15,012 17,149 
Total segment adjusted income from continuing operations before income tax$170,523 $235,544 $675,063 $824,046 
__________
(1)Revenues generated by our International Pharmaceuticals segment are primarily attributable to external customers located in Canada.
There were no material revenues from external customers attributed to an individual country outside of the U.S. during any of the periods presented.
The table below provides reconciliations of our Total consolidated (loss) income from continuing operations before income tax, which is determined in accordance with U.S. GAAP, to our Total segment adjusted income from continuing operations before income tax for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Total consolidated (loss) income from continuing operations before income tax$(16,894)$(707,592)$20,346 $(2,648,439)
Interest expense, net10 74,753 239 349,486 
Corporate unallocated costs (1)40,118 44,182 117,471 125,851 
Amortization of intangible assets64,429 84,042 194,110 261,844 
Acquired in-process research and development charges 800  68,700 
Amounts related to continuity and separation benefits, cost reductions and strategic review initiatives (2)10,764 44,029 36,718 139,025 
Certain litigation-related and other contingencies, net (3)11,104 419,376 54,317 444,738 
Certain legal costs (4)1,514 8,052 5,187 31,322 
Asset impairment charges (5) 150,200 146 1,951,216 
Acquisition-related and integration items, net (6)1,062 (1,399)1,824 (951)
Foreign currency impact related to the remeasurement of intercompany debt instruments(2,203)(6,220)3 (7,114)
Reorganization items, net (7)57,960 124,212 227,579 124,212 
Other, net (8)2,659 1,109 17,123 (15,844)
Total segment adjusted income from continuing operations before income tax$170,523 $235,544 $675,063 $824,046 
__________
(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 and nine months ended September 30, 2023 include net employee separation, continuity and other benefit-related charges of $10.4 million and $36.3 million, respectively, as well as other net charges of $0.3 million and $0.4 million, respectively. Amounts for the three months ended September 30, 2022 include net employee separation, continuity and other benefit-related charges of $14.1 million and other net charges, including those related to strategic review initiatives, of $30.0 million. Amounts for the nine months ended September 30, 2022 include net employee separation, continuity and other benefit-related charges of $58.1 million, accelerated depreciation charges of $3.8 million and other net charges, including those related to strategic review initiatives, of $73.2 million. These amounts relate primarily to our restructuring activities as further described in Note 5. Restructuring, certain continuity and transitional compensation arrangements, certain other cost reduction initiatives and certain strategic review initiatives, including costs incurred in connection with our bankruptcy proceedings, which are included in this row until the Petition Date and in the Reorganization items, net row thereafter.
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(3)Amounts include adjustments to our accruals for litigation-related settlement charges. Our material legal proceedings and other contingent matters are described in more detail in Note 15. Commitments and Contingencies.
(4)Amounts relate to opioid-related legal expenses.
(5)Amounts primarily relate to charges to impair goodwill and intangible assets. For additional information, refer to Note 10. Goodwill and Other Intangibles.
(6)Amounts primarily relate to changes in the fair value of contingent consideration.
(7)Amounts relate to the net expense or income recognized during our bankruptcy proceedings required to be presented as Reorganization items, net under ASC 852. Refer to Note 2. Bankruptcy Proceedings for further details.
(8)The amount for the nine months ended September 30, 2023 primarily relates to a charge of approximately $9.2 million associated with the rejection of certain equity award agreements, which was approved by the Bankruptcy Court in March 2023. Other amounts in this row relate to gains and losses on sales of business and other assets and certain other items.
Asset information is not reviewed or included within our internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.
During the three and nine months ended September 30, 2023 and 2022, 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 September 30,Nine Months Ended September 30,
2023202220232022
Branded Pharmaceuticals:
Specialty Products:
XIAFLEX®$113,053 $104,014 $327,254 $324,376 
SUPPRELIN® LA21,590 31,283 73,390 84,852 
Other Specialty (1)15,749 11,033 57,282 50,023 
Total Specialty Products$150,392 $146,330 $457,926 $459,251 
Established Products:
PERCOCET®$26,290 $25,052 $78,791 $77,483 
TESTOPEL®9,610 9,430 32,199 28,331 
Other Established (2)17,076 22,689 44,402 62,249 
Total Established Products$52,976 $57,171 $155,392 $168,063 
Total Branded Pharmaceuticals (3)$203,368 $203,501 $613,318 $627,314 
Sterile Injectables:
ADRENALIN®$22,873 $24,917 $75,581 $85,514 
VASOSTRICT®20,827 33,697 71,197 225,217 
Other Sterile Injectables (4)51,681 60,079 186,886 171,161 
Total Sterile Injectables (3)$95,381 $118,693 $333,664 $481,892 
Total Generic Pharmaceuticals (5)$134,382 $201,435 $511,141 $590,756 
Total International Pharmaceuticals (6)$18,534 $18,061 $55,661 $63,101 
Total revenues, net$451,665 $541,690 $1,513,784 $1,763,063 
__________
(1)Products included within Other Specialty include AVEED®, NASCOBAL® Nasal Spray and QWO®.
(2)Products included within Other Established include, but are not limited to, EDEX®.
(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, 2023 and/or any product having revenues in excess of $25 million during any completed quarterly period in 2023 or 2022.
(4)Products included within Other Sterile Injectables include, but are not limited to, APLISOL®. No individual product within Other Sterile Injectables has exceeded 5% of consolidated total revenues for the periods presented.
(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 limited or no intellectual property protection and are sold within the U.S. Varenicline tablets (Endo’s generic version of Pfizer Inc.’s Chantix®), which launched in September 2021, made up 10%, for the nine months ended September 30, 2023 and 15% and 13% for the three and nine months ended September 30, 2022, respectively, of consolidated total revenues. Dexlansoprazole delayed release capsules (Endo’s generic version of Takeda Pharmaceuticals USA, Inc.’s Dexilant®), which launched in November 2022, made up 7% and 6%, respectively, for the three and nine months ended September 30, 2023, of consolidated total revenues. Lubiprostone capsules (the authorized generic of Mallinckrodt plc’s Amitiza®), which launched in January 2021, made up 5%, for the three months ended September 30, 2022, of consolidated total revenues. No other 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 Endo’s operating company Paladin.
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NOTE 7. 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.
Restricted Cash and Cash Equivalents
The following table presents current and noncurrent restricted cash and cash equivalent balances at September 30, 2023 and December 31, 2022 (in thousands):
Balance Sheet Line ItemsSeptember 30, 2023December 31, 2022
Restricted cash and cash equivalents—current (1)Restricted cash and cash equivalents$167,939 $145,358 
Restricted cash and cash equivalents—noncurrent (2)Other assets85,000 85,000 
Total restricted cash and cash equivalents$252,939 $230,358 
__________
(1)Amounts at September 30, 2023 and December 31, 2022 include: (i) restricted cash and cash equivalents associated with litigation-related matters, including $50.2 million and $50.7 million, respectively, held in Qualified Settlement Funds (QSFs) for mesh- and/or opioid-related matters, and (ii) approximately $85.9 million and $86.0 million, respectively, of restricted cash and cash equivalents related to certain self-insurance related matters. These balances are classified as current assets in the Condensed Consolidated Balance Sheets as the potential for, and timing of, future claims is unknown and could result in distributions within the next twelve months. See Note 15. Commitments and Contingencies for further information about litigation-related matters.
(2)The amounts at September 30, 2023 and December 31, 2022 relate to the TLC Agreement. This balance, which may be used to fund certain future contractual obligations or returned to us upon satisfaction of certain conditions, is classified as a noncurrent asset in the Condensed Consolidated Balance Sheets. See Note 11. License, Collaboration and Asset Acquisition Agreements for further information.
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.
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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, 2023 and December 31, 2022 were as follows (in thousands):
Fair Value Measurements at September 30, 2023 using:
Level 1 InputsLevel 2 InputsLevel 3 InputsTotal
Assets:
Money market funds (1)$7,108 $ $ $7,108 
Liabilities:
Acquisition-related contingent consideration (2)$ $ $13,017 $13,017 
Fair Value Measurements at December 31, 2022 using:
Level 1 InputsLevel 2 InputsLevel 3 InputsTotal
Assets:
Money market funds (1)$12,226 $ $ $12,226 
Liabilities:
Acquisition-related contingent consideration (2)$ $ $16,571 $16,571 
__________
(1)At September 30, 2023 and December 31, 2022, money market funds include $7.1 million and $12.2 million, respectively, in QSFs. Amounts in QSFs are considered restricted cash equivalents. See Note 15. Commitments and Contingencies for further discussion of our litigation. At September 30, 2023 and December 31, 2022, the differences between the amortized cost and the fair value of our money market funds were not material, individually or in the aggregate.
(2)At September 30, 2023 and December 31, 2022, the balance of the Company’s liability for acquisition-related contingent consideration, which is governed by executory contracts and recorded at the expected amount of the total allowed claim, is classified within Liabilities subject to compromise in the Condensed Consolidated Balance Sheets.
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 and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Beginning of period$14,653 $18,242 $16,571 $20,076 
Amounts settled(2,625)(286)(5,394)(2,445)
Changes in fair value recorded in earnings1,062 (1,399)1,824 (951)
Effect of currency translation(73)(745)16 (868)
End of period$13,017 $15,812 $13,017 $15,812 
At September 30, 2023, the fair value measurements of the contingent consideration obligations were determined using risk-adjusted discount rates ranging from 10.0% to 15.0% (weighted average rate of approximately 10.5%, 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.
The following table presents changes to the Company’s liability for acquisition-related contingent consideration during the nine months ended September 30, 2023 by acquisition (in thousands):
Balance as of December 31, 2022Changes in Fair Value Recorded in EarningsAmounts Settled and OtherBalance as of September 30, 2023
Auxilium acquisition$10,618 $927 $(2,165)$9,380 
Lehigh Valley Technologies, Inc. acquisitions2,300 109 (1,209)1,200 
Other3,653 788 (2,004)2,437 
Total$16,571 $1,824 $(5,378)$13,017 
Nonrecurring Fair Value Measurements
Long-lived assets, goodwill and other intangible assets may be subject to nonrecurring fair value measurement for the evaluation of potential impairment. During the nine months ended September 30, 2023, nonrecurring fair value measurements, which related primarily to certain property, plant and equipment, were not material.
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NOTE 8. INVENTORIES
Inventories consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Raw materials (1)$98,942 $105,975 
Work-in-process (1)55,971 43,057 
Finished goods (1)118,918 125,467 
Total$273,831 $274,499 
__________
(1)The components of inventory shown in the table above are net of allowances.
Inventory 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 September 30, 2023 and December 31, 2022, $23.2 million and $23.0 million, respectively, of noncurrent inventory was included in Other assets in the Condensed Consolidated Balance Sheets. As of September 30, 2023 and December 31, 2022, the Company’s Condensed Consolidated Balance Sheets included approximately $6.7 million and $5.8 million, respectively, of capitalized pre-launch inventories related to products that were not yet available to be sold.
NOTE 9. LEASES
The following table presents information about the Company’s right-of-use assets and lease liabilities at September 30, 2023 and December 31, 2022 (in thousands):
Balance Sheet Line ItemsSeptember 30, 2023December 31, 2022
Right-of-use assets:
Operating lease right-of-use assetsOperating lease assets$24,125 $28,070 
Finance lease right-of-use assetsProperty, plant and equipment, net20,692 26,761 
Total right-of-use assets$44,817 $54,831 
Operating lease liabilities (1):
Current operating lease liabilitiesCurrent portion of operating lease liabilities$898 $903 
Noncurrent operating lease liabilitiesOperating lease liabilities, less current portion4,411 5,129 
Total operating lease liabilities$5,309 $6,032 
Finance lease liabilities (1):
Noncurrent finance lease liabilitiesOther liabilities$1,386 $1,392 
Total finance lease liabilities$1,386 $1,392 
__________
(1)Amounts at September 30, 2023 exclude operating lease liabilities of $22.3 million and finance lease liabilities of $11.8 million that are classified as Liabilities subject to compromise in the Condensed Consolidated Balance Sheets. Amounts at December 31, 2022 exclude operating lease liabilities of $28.4 million and finance lease liabilities of $17.1 million that are classified as Liabilities subject to compromise in the Condensed Consolidated Balance Sheets.
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The following table presents information about lease costs and expenses and sublease income for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
Statement of Operations Line Items2023202220232022
Operating lease costVarious (1)$1,283 $3,415 $5,313 $8,452 
Finance lease cost:
Amortization of right-of-use assetsVarious (1)$2,027 $2,024 $6,071 $6,455 
Interest on lease liabilitiesInterest expense, net$184 $271 $619 $877 
Other lease costs and income:
Variable lease costs (2)Various (1)$3,131 $3,525 $8,332 $8,220 
Finance lease right-of-use asset impairment chargesAsset impairment charges$ $ $ $3,063 
Sublease incomeVarious (1)$(1,119)$(1,560)$(4,207)$(4,810)
__________
(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 and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Cost of revenues$1,557 $1,539 $4,610 $4,668 
Selling, general and administrative$3,765 $5,812 $10,797 $13,488 
Research and development$ $53 $102 $161 
(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 additional information related to our leases for the nine months ended September 30, 2023 and 2022 (in thousands):
Nine Months Ended September 30,
20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash payments for operating leases$8,681 $9,746 
Operating cash payments for finance leases$938 $1,439