Item 7.01.
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Regulation FD Disclosure.
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On January 9, 2017, Endo International plc (the
Company) intends to make an investor presentation at the
J.P. Morgan Healthcare Conference
(the Presentation), a copy of which is furnished as Exhibit 99.1 hereto and incorporated herein by reference. The Presentation
will also be available on the Companys website at www.endo.com.
The Presentation includes certain financial measures that are not
prescribed by or prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The Company utilizes these financial measures, commonly referred to as
non-GAAP,
because (i) they are used by the Company, along with financial measures in accordance with GAAP, to evaluate the Companys operating performance; (ii) the Company believes
that they will be used by certain investors to measure the Companys operating results; (iii) adjusted diluted EPS is used by the Compensation Committee of the Companys Board of Directors in assessing the performance and compensation
of substantially all of its employees, including its executive officers and (iv) the Companys leverage and interest coverage ratios as defined by the Companys credit facility are calculated based on
non-GAAP
financial measures. The Company believes that presenting these
non-GAAP
measures provide useful information about the Companys performance across
reporting periods on a consistent basis by excluding items, which may be favorable or unfavorable.
The initial identification and review
of the
non-GAAP
adjustments to continuing operations is performed by a team of finance professionals that include the Chief Accounting Officer and segment finance leaders, and are identified in accordance with
the Companys Adjusted Income Statement Policy, which is reviewed and approved by the Companys Audit Committee. The Companys tax professionals, including the Senior Vice President of Tax, review and determine the tax effect of
adjusted
pre-tax
income at applicable tax rates and other tax adjustments as described below. Proposed adjustments, along with any items considered but excluded, are presented to the Chief Executive Officer
and the Chief Financial Officer for their consideration. In turn, the
non-GAAP
adjustments are presented to the Audit Committee on a quarterly basis as part of the Companys standard procedures for
preparation and reviewing the earnings release and other quarterly materials.
These
non-GAAP
measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. The Companys definition of these
non-GAAP
measures may differ from similarly
titled measures used by others. The definitions of the most commonly used
non-GAAP
financial measures are presented below:
Adjusted income from continuing operations
Adjusted income from continuing operations represents income (loss) from continuing operations, prepared in accordance with GAAP, adjusted for
certain items. Adjustments to GAAP amounts may include, but are not limited to, certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs,
earn-out
payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention
payments, excess inventory reserves, other exit costs and certain costs associated with integrating an acquired companys operations; excess costs that will be eliminated pursuant to integration plans; asset impairment charges; amortization of
intangible assets; inventory
step-up
recorded as part of our acquisitions; certain
non-cash
interest expense; litigation-related and other contingent matters; gains or
losses from early termination of debt and
hedging activities; foreign currency gains or losses on intercompany financing arrangements; certain other items; and the tax effect of adjusted
pre-tax
income at applicable tax rates and other tax adjustments as described below.
Adjusted diluted earnings per share from continuing operations
Adjusted diluted earnings per share from continuing operations represent adjusted income from continuing operations divided by the
number of diluted shares.
Adjusted gross margin
Adjusted gross margin represents total revenues less cost of revenues, prepared in accordance with GAAP, adjusted for certain items that may
include, but are not limited to, amortization of intangible assets and inventory
step-up
recorded as part of our acquisitions, excess inventory reserves resulting from restructuring initiatives, separation
benefits and certain excess costs that will be eliminated pursuant to integration plans.
Adjusted operating expenses
Adjusted operating expenses represent operating expenses, prepared in accordance with GAAP, adjusted for certain items that may include, but
are not limited to, acquisition and integration items, including transaction costs, earn out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration related
initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired companys operations; excess costs that will be eliminated pursuant to integration plans; asset impairment
charges; and litigation-related and other contingent matters.
Adjusted interest expense
Adjusted interest expense represents interest expense, net, prepared in accordance with GAAP, adjusted for
non-cash
interest expense and penalty interest.
Adjusted income taxes
Adjusted income taxes are calculated by tax effecting adjusted
pre-tax
income from continuing
operations at the applicable effective tax rate that will be determined by reference to statutory tax rates in the relevant jurisdictions in which the Company operates and includes current and deferred income tax expense. Adjustments are then made
for certain items relating to prior years and for tax planning actions that are expected to be distortive to the underlying effective tax rate and trend in the effective tax rate. The adjusted effective tax rate represents the rate generated when
dividing adjusted income tax expense or benefit as described above by the amount of adjusted
pre-tax
income from continuing operations as described above.
EBITDA
EBITDA represents net
(loss) income, prepared in accordance with GAAP, before interest expense, net; income tax; depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding inventory
step-up
amortization
recorded as part of our acquisitions, other (income) expense, net; stock-based compensation; certain upfront and milestone payments to partners; acquisition-related
and integration items, including transaction costs,
earn-out
payments or adjustments, changes in the fair value of contingent consideration and bridge
financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, excess inventory reserves, other exit costs and certain costs associated with integrating an acquired companys operations;
excess costs that will be eliminated pursuant to integration plans; asset impairment charges; litigation-related and other contingent matters; gains or losses from early termination of debt and hedging activities; discontinued operations, net of tax
and certain other items. Implied Adjusted EBITDA is calculated as Adjusted income from continuing operations (as defined above), adjusted to exclude the impact of Adjusted interest expense, Adjusted income taxes, depreciation and stock-based
compensation.
Net Debt Leverage Ratio
The net debt leverage ratio is calculated as net debt (total principal debt outstanding less unrestricted cash) divided by adjusted EBITDA for
the trailing twelve-month period.
Underlying revenue growth
U.S. Generics underlying revenue growth is calculated as the change in total revenues period-over-period, prepared in accordance with GAAP,
adjusted to include Par Pharmaceutical pro forma revenues and to exclude Lidoderm
®
AG revenues. U.S. Branded underlying revenue growth is calculated as the change in total revenues
period-over-period, prepared in accordance with GAAP, adjusted to include Auxilium pro forma revenues and to exclude Lidoderm
®
sales and Actavis royalties. Litha and Somar underlying revenue
growth is calculated as the change in total combined revenues period-over-period, prepared in accordance with GAAP, adjusted to exclude the impact of revenues from Lithas acquisition of Aspen Holdings and Lithas divestiture of its
medical and vaccine business, and calculated using a constant exchange rate.
Because adjusted financial measures exclude the effect of
items that will increase or decrease the Companys reported results of operations, the Company strongly encourages investors to review the Companys consolidated financial statements and publicly filed reports in their entirety. Investors
are also encouraged to review the reconciliation of the
non-GAAP
financial measures used in the Presentation to their most directly comparable GAAP financial measures as included in the appendix of the
Presentation and in Exhibit 99.1 of Form
8-K
filed with the U.S. Securities and Exchange Commission on November 8, 2016. However, other than with respect to projected adjusted diluted EPS, the Company
only provides guidance on a
non-GAAP
basis and does not provide reconciliations of such forward-looking
non-GAAP
measures to GAAP due to the inherent difficulty in
forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for asset impairments, contingent consideration adjustments, legal settlements, loss on extinguishment of debt,
adjustments to inventory and other charges reflected in the reconciliation of historic numbers, the amount of which could be significant.
The information in this Item 7.01 and in Exhibit 99.1 attached hereto shall not be deemed to be filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information contained in this Item 7.01 and in Exhibit 99.1 attached hereto shall not be incorporated into any
registration statement or other document filed by the Company with the U.S. Securities and Exchange Commission under the Securities Act of 1933, whether made before or after the date hereof, regardless of any general incorporation language in such
filing, except as shall be expressly set forth by specific reference in such filing.