Item 7.01.
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Regulation FD Disclosure.
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On May 23, 2017, Endo International plc (the
Company) intends to make an investor presentation at the
UBS 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 and Adjusted EBITDA, or measures derived from such, are used by the Compensation Committee of its Board of Directors in
assessing the performance and compensation of substantially all of the Companys employees, including executive officers and (iv) the Companys leverage ratio, as defined by the Companys credit agreement, is 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 necessary to arrive at these
non-GAAP
financial measures 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. Company 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 Accounting Officer, Chief Executive Officer and/or the Chief Financial Officer for their consideration. In turn, the
non-GAAP
adjustments are presented to the Audit Committee on a
quarterly basis as part of the 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, 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; foreign currency gains or losses on intercompany financing arrangements; and certain other items; further adjusted for the tax effect of adjusted
pre-tax
income at applicable tax rates and
other tax adjustments as described below.
Adjusted diluted earnings per share from continuing operations
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 the items enumerated
above under the heading Adjusted income from continuing operations, to the extent such items relate to cost of revenues. Such items may include, but are not limited to, amortization of intangible assets and inventory
step-up
recorded as part of our acquisitions, certain excess inventory reserves resulting from restructuring initiatives, separation benefits and certain excess costs that will be eliminated pursuant to integration
plans.
Adjusted operating expenses
Adjusted operating expenses represent operating expenses, prepared in accordance with GAAP, adjusted for the items enumerated above under the
heading Adjusted income from continuing operations, to the extent such items relate to operating expenses. Such items may include, but are not limited to, certain upfront and milestone payments to partners; acquisition-related and
integration items, including transaction costs,
earn-out
payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related
initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired companys operations; excess costs that will be eliminated pursuant to integration plans; asset impairment
charges; amortization of intangible assets; litigation-related and other contingent matters; and certain other items.
Adjusted interest expense
Adjusted interest expense represents interest expense, net, prepared in accordance with GAAP, adjusted for certain
non-cash
interest expense and penalty interest.
Adjusted income taxes
Adjusted income taxes are calculated by tax effecting adjusted
pre-tax
income and permanent
book-tax
differences at the applicable effective tax rate that will be determined by reference to statutory tax rates in the relevant jurisdictions in which the Company operates. Adjusted income taxes include
current and deferred income tax expense commensurate with the
non-GAAP
measure of profitability. Adjustments are then made for certain items relating to prior years and for tax planning actions that are
expected to be distortive to the underlying effective tax rate and trend in the effective tax rate. The most directly comparable GAAP financial measure for Adjusted income taxes is income tax expense (benefit), prepared in accordance with GAAP. The
adjusted effective tax rate represents the rate generated when dividing adjusted income tax expense or benefit by the amount of adjusted
pre-tax
income.
EBITDA and Adjusted EBITDA
EBITDA
represents net income (loss) before interest expense, net; income tax; depreciation; and amortization, each prepared in accordance with GAAP. Adjusted EBITDA further adjusts EBITDA by excluding other (income) expense, net; share-based compensation;
certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs,
earn-out
payments or adjustments, changes in the fair value of contingent
consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, excess inventory reserves, other exit costs and certain costs associated with integrating an acquired
companys operations; excess costs that will be eliminated pursuant to integration plans; asset impairment charges; inventory
step-up
recorded as part of our acquisitions; litigation-related and other
contingent matters; gains or losses from early termination of debt; discontinued operations, net of tax; and certain other items.
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 May 9, 2017. However, the Company does not provide
reconciliations of projected non-GAAP financial measures to GAAP financial measures, nor does it provide comparable projected GAAP financial measures for such projected
non-GAAP
financial measures, except for
projected adjusted diluted EPS. The Company is unable to provide such reconciliations without unreasonable efforts due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including
adjustments that could be made for asset impairments, contingent consideration adjustments, legal settlements, loss on extinguishment of debt, adjustments to inventory and other charges reflected in the reconciliation of historic numbers, the amount
of which could be significant.
The information in this Item 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.