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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, 2022
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:
Title of each class Trading symbol(s) Name of each exchange on which registered
Ordinary shares, nominal value $0.0001 per share
ENDPQ (1)
 (1)
(1) 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.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The number of ordinary shares, nominal value $0.0001 per share outstanding as of November 1, 2022 was 235,199,746.


ENDO INTERNATIONAL PLC
(DEBTOR-IN-POSSESSION)
INDEX
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FORWARD-LOOKING STATEMENTS
Statements contained or incorporated by reference in this document contain information that includes or is based on “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act) 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 the novel strain of coronavirus referred to as COVID-19 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; the risks related to the impact of COVID-19 (such as, without limitation, the scope and duration of the pandemic, governmental actions and restrictive measures, delays and cancellations of medical procedures, manufacturing and supply chain disruptions and other impacts to our business); 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 QWO®, 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, 2021 filed with the Securities and Exchange Commission (SEC) on March 1, 2022 (the Annual Report), in Part II, Item 1A of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 filed with the SEC on May 6, 2022 (the First Quarter 2022 Form 10-Q), in Part II, Item 1A of 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), in Part II, Item 1A of this report and in other reports that we file with the SEC.
These risks and uncertainties, many of which are outside of our control, and any other risks and uncertainties that we are not currently able to predict or identify, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations and cash flows and could cause our actual results to differ materially and adversely from those expressed in forward-looking statements contained or referenced in this document, 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.
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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, Part II, Item 1A of the First Quarter 2022 Form 10-Q, Part II, Item 1A of the Second Quarter 2022 Form 10-Q and Part II, Item 1A of this report, 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.
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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, 2022 December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,053,892  $ 1,507,196 
Restricted cash and cash equivalents 145,486  124,114 
Accounts receivable, net 423,460  592,019 
Inventories, net 288,914  283,552 
Prepaid expenses and other current assets 141,120  200,484 
Income taxes receivable 1,290  7,221 
Total current assets $ 2,054,162  $ 2,714,586 
PROPERTY, PLANT AND EQUIPMENT, NET 431,445  396,712 
OPERATING LEASE ASSETS 31,342  34,832 
GOODWILL 1,352,011  3,197,011 
OTHER INTANGIBLES, NET 1,992,932  2,362,823 
DEFERRED INCOME TAXES —  1,138 
OTHER ASSETS 144,565  60,313 
TOTAL ASSETS $ 6,006,457  $ 8,767,415 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 538,730  $ 836,898 
Current portion of legal settlement accrual —  580,994 
Current portion of operating lease liabilities 724  10,992 
Current portion of long-term debt —  200,342 
Income taxes payable 3,599  736 
Total current liabilities $ 543,053  $ 1,629,962 
DEFERRED INCOME TAXES 11,634  21,628 
LONG-TERM DEBT, LESS CURRENT PORTION, NET —  8,048,980 
OPERATING LEASE LIABILITIES, LESS CURRENT PORTION 4,363  33,727 
OTHER LIABILITIES 27,198  277,104 
LIABILITIES SUBJECT TO COMPROMISE 9,345,250  — 
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, 2022 and December 31, 2021
 39  45 
Ordinary shares, $0.0001 par value; 1,000,000,000 shares authorized; 235,199,746 and 233,690,816 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
 24  23 
Additional paid-in capital 8,965,514  8,953,906 
Accumulated deficit (12,661,085) (9,981,515)
Accumulated other comprehensive loss (229,533) (216,445)
Total shareholders’ deficit $ (3,925,041) $ (1,243,986)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT $ 6,006,457  $ 8,767,415 
See accompanying Notes to Condensed Consolidated Financial Statements.
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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,
2022 2021 2022 2021
TOTAL REVENUES, NET $ 541,690  $ 772,028  $ 1,763,063  $ 2,203,777 
COSTS AND EXPENSES:
Cost of revenues 261,232  286,068  798,233  909,841 
Selling, general and administrative 192,221  246,864  600,212  611,657 
Research and development 31,885  25,616  97,803  85,024 
Acquired in-process research and development 800  —  68,700  5,000 
Litigation-related and other contingencies, net 419,376  83,495  444,738  119,327 
Asset impairment charges 150,200  42,155  1,951,216  50,393 
Acquisition-related and integration items, net (1,399) (1,432) (951) (6,357)
Interest expense, net 74,753  142,958  349,486  418,852 
Loss on extinguishment of debt —  —  —  13,753 
Reorganization items, net 124,212  —  124,212  — 
Other income, net (3,998) (5,955) (22,147) (4,671)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX $ (707,592) $ (47,741) $ (2,648,439) $ 958 
INCOME TAX EXPENSE 10,680  1,548  16,016  13,372 
LOSS FROM CONTINUING OPERATIONS $ (718,272) $ (49,289) $ (2,664,455) $ (12,414)
DISCONTINUED OPERATIONS, NET OF TAX (NOTE 4) (3,897) (27,918) (15,115) (38,769)
NET LOSS $ (722,169) $ (77,207) $ (2,679,570) $ (51,183)
NET LOSS PER SHARE—BASIC:
Continuing operations $ (3.05) $ (0.21) $ (11.35) $ (0.05)
Discontinued operations (0.02) (0.12) (0.07) (0.17)
Basic $ (3.07) $ (0.33) $ (11.42) $ (0.22)
NET LOSS PER SHARE—DILUTED:
Continuing operations $ (3.05) $ (0.21) $ (11.35) $ (0.05)
Discontinued operations (0.02) (0.12) (0.07) (0.17)
Diluted $ (3.07) $ (0.33) $ (11.42) $ (0.22)
WEIGHTED AVERAGE SHARES:
Basic 235,160  233,578  234,719  232,487 
Diluted 235,160  233,578  234,719  232,487 
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,
2022 2021 2022 2021
NET LOSS $ (722,169) $ (77,207) $ (2,679,570) $ (51,183)
OTHER COMPREHENSIVE (LOSS) INCOME:
Net unrealized (loss) gain on foreign currency $ (10,649) $ (3,293) $ (13,088) $ 637 
Total other comprehensive (loss) income $ (10,649) $ (3,293) $ (13,088) $ 637 
COMPREHENSIVE LOSS $ (732,818) $ (80,500) $ (2,692,658) $ (50,546)
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,
2022 2021
OPERATING ACTIVITIES:
Net loss $ (2,679,570) $ (51,183)
Adjustments to reconcile Net loss to Net cash provided by operating activities:
Depreciation and amortization 302,338  350,455 
Share-based compensation 13,506  22,237 
Amortization of debt issuance costs and discount 9,406  10,755 
Deferred income taxes (8,337) (3,633)
Change in fair value of contingent consideration (951) (6,771)
Loss on extinguishment of debt —  13,753 
Acquired in-process research and development charges 68,700  5,000 
Asset impairment charges 1,951,216  50,393 
Non-cash reorganization items, net 89,197  — 
(Gain) loss on sale of business and other assets (11,760) 198 
Other 2,083  — 
Changes in assets and liabilities which provided (used) cash:
Accounts receivable 154,645  (23,601)
Inventories (31,100) 29,729 
Prepaid and other assets 72,111  5,508 
Accounts payable, accrued expenses and other liabilities 219,668  4,486 
Income taxes payable/receivable, net 8,459  53,588 
Net cash provided by operating activities $ 159,611  $ 460,914 
INVESTING ACTIVITIES:
Capital expenditures, excluding capitalized interest (77,865) (61,496)
Capitalized interest payments (3,140) (2,721)
Proceeds from the U.S. Government Agreement 13,601  — 
Acquisitions, including in-process research and development, net of cash and restricted cash acquired (89,520) (5,000)
Product acquisition costs and license fees —  (2,486)
Proceeds from sale of business and other assets, net 22,378  1,357 
Net cash used in investing activities $ (134,546) $ (70,346)
FINANCING ACTIVITIES:
Proceeds from issuance of notes, net —  1,279,978 
Proceeds from issuance of term loans, net —  1,980,000 
Repayments of notes (180,342) — 
Repayments of term loans (10,000) (3,305,475)
Adequate protection payments (168,643) — 
Repayments of other indebtedness (4,501) (4,044)
Payments for debt issuance and extinguishment costs —  (8,574)
Payments for contingent consideration (1,939) (3,355)
Payments of tax withholding for restricted shares (1,898) (14,688)
Proceeds from exercise of options —  622 
Net cash used in financing activities $ (367,323) $ (75,536)
Effect of foreign exchange rate (4,674) 238 
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS $ (346,932) $ 315,270 
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD 1,631,310  1,385,000 
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD $ 1,284,378  $ 1,700,270 
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, 2022
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 10 of Regulation S-X of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements of Endo International plc and its subsidiaries, which are unaudited, include all normal and recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2022 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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The year-end Condensed Consolidated Balance Sheet data as of December 31, 2021 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying Notes included in the Annual Report.
Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassification adjustments primarily relate to changes to the presentation of certain costs and expenses in our Condensed Consolidated Statements of Operations. Specifically, effective with the first quarter of 2022, the Company has added a new financial statement line item labeled Acquired in-process research and development. Any prior period amounts of acquired in-process research and development charges presented in this report have been reclassified to this line item from the existing financial statement line item labeled Research and development.
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 have been exploring a wide array of potential actions as part of our contingency planning and, as further described in our 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, 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 the creditors from taking any action to enforce the related financial obligations and the 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, the Debtors filed voluntary petitions for relief under the Bankruptcy Code. 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 the creditors from taking any action to enforce the related financial obligations and the 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).
The Stalking Horse Bidder’s bid (the Stalking Horse Bid), which is 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. Pursuant to the RSA, the definitive purchase and sale agreement with respect to the Stalking Horse Bid will include customary representations and warranties and customary covenants by the parties thereto.
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The RSA contemplates a marketing process and auction that will be conducted under the supervision of the Bankruptcy Court, during which interested parties will have an opportunity to conduct due diligence and determine whether to submit a bid to acquire the Debtors’ assets. If the Stalking Horse Bid is selected as the highest or otherwise best offer following said marketing process and auction, 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. 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.
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 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), 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 the date that is one hundred (100) calendar days after the Petition Date, the Bankruptcy Court shall have entered an order approving the bidding procedures; (iii) not later than 11:59 p.m. prevailing Eastern Time on the date that is two hundred forty-five (245) calendar days after the Petition Date, the Bankruptcy Court shall have entered an order approving the Sale; and (iv) not later than 11:59 p.m. prevailing Eastern Time on the date that is three hundred thirty (330) calendar days after the Petition Date (the Outside Date), the closing of the Sale shall have occurred, subject to certain extensions of the Outside Date 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.
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.
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.
Subsequent Developments
Cash Collateral
In October 2022, the Bankruptcy Court entered the Cash Collateral Order approving the Debtors’ consensual use of their secured creditors’ cash collateral. 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. As described in additional detail elsewhere in this report, including in Note 14. Debt, the Cash Collateral Order obligates the Debtors to make certain adequate protection payments during the bankruptcy proceedings, establishes a budget for the Debtors’ use of cash collateral, establishes certain informational rights for the Debtors’ secured creditors and provides for the waiver of certain Bankruptcy Code provisions. The Cash Collateral Order also 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).
Asset Sale
As further discussed in Note 4. Discontinued Operations, during the second quarter of 2022, the Debtors entered into a definitive agreement to sell certain assets located in Chestnut Ridge, New York to Ram Ridge Partners (as defined below). In October 2022, the Bankruptcy Court approved the sale of the assets. The sale is currently expected to close in the fourth quarter of 2022.
Potential Claims
The Debtors intend to file with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions to be filed in connection therewith. The schedules and statements may be subject to further amendment or modification after filing. 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. The Debtors have not yet set a bar date (deadline) for holders of claims to file proofs of claim.
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The Debtors have received numerous claims as of the date of this report including, in certain cases, duplicate claims across multiple Debtors. We expect that the Debtors may continue to receive a significant number of claims in the future. As claims are filed, they are being evaluated for validity and compared to amounts recorded in our accounting records. 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, 2022.
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 may be filed, the claims resolution process may take considerable time to complete and may continue for the duration of the Debtors’ bankruptcy proceedings.
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.
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 our 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, 2022, information about the amounts presented as Liabilities subject to compromise in our Condensed Consolidated Balance Sheets (in thousands):
September 30, 2022
Accounts payable $ 16,121 
Accrued interest 160,097 
Debt 7,979,183 
Litigation accruals 794,578 
Uncertain tax positions 232,920 
Other (1) 162,351 
Total $ 9,345,250 
__________
(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, certain employee compensation-related liabilities 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.
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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, 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,
2022 2022
Professional fees $ 35,015  $ 35,015 
Debt valuation adjustments 89,197  89,197 
Total $ 124,212  $ 124,212 
Since the Petition Date, our operating cash flows included net cash outflows of $2.9 million related to amounts 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; Endo’s ordinary shares were subsequently delisted from the Nasdaq Global Select Market.
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 continued magnitude and duration of the COVID-19 pandemic, the extent to which it will impact our estimated future financial results, worldwide macroeconomic conditions including interest rates, employment rates, consumer spending, health insurance coverage, the speed of the anticipated recovery and governmental and business reactions to the pandemic, including any possible re-initiation of shutdowns or renewed restrictions, have increased the complexity of developing these estimates, including the allowance for expected credit losses and the carrying amounts of long-lived assets, goodwill and other intangible assets. 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, 2021
Except as described in Note 2. Bankruptcy Proceedings, there have been no significant changes to our significant accounting policies since December 31, 2021. For additional discussion of the Company’s significant accounting policies, see Note 2. Summary of Significant Accounting Policies in the Consolidated Financial Statements included in Part IV, Item 15 of the Annual Report.
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NOTE 4. DISCONTINUED OPERATIONS
Astora
The operating results of the Company’s Astora business, which the Board of Directors (the Board) resolved to wind down in 2016, are reported as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for all periods presented. The following table provides the operating results of Astora Discontinued operations, net of tax, for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Litigation-related and other contingencies, net $ —  $ 25,000  $ —  $ 25,000 
Loss from discontinued operations before income taxes $ (3,897) $ (31,306) $ (15,115) $ (43,400)
Income tax benefit $ —  $ (3,388) $ —  $ (4,631)
Discontinued operations, net of tax $ (3,897) $ (27,918) $ (15,115) $ (38,769)
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 $15.1 million and $38.8 million for the nine months ended September 30, 2022 and 2021, 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.
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.
Certain of these sites were sold in 2021, resulting in the recognition of the following amounts during the third quarter of 2021: (i) an estimated expected pre-tax disposal loss of $42.2 million to write down the carrying amount of the disposal group to fair value, less cost to sell, which we recorded in Asset impairment charges in the Condensed Consolidated Statements of Operations and (ii) a net pre-tax reversal of $19.8 million of expense, primarily related to avoided severance costs for employees that transitioned to the purchasers in connection with these 2021 sales. The 2021 sales are further discussed in the Annual Report.
Additionally, during the second quarter of 2022, we entered into a definitive agreement to sell certain additional assets located in Chestnut Ridge, New York that supported our retail generics business to Ram Ridge Partners BH LLC (Ram Ridge Partners). We previously concluded that, as of June 30, 2022, these assets, which included property, plant and equipment with a carrying amount of approximately $11 million, met the criteria to be classified as held for sale in the Condensed Consolidated Balance Sheets. At September 30, 2022, as a result of the Chapter 11 Cases and the fact that the sale of these assets had become subject to approval by the Bankruptcy Court, we concluded these assets no longer met the criteria to be classified as held for sale. As a result, these assets were included in Property, plant and equipment, net in the Condensed Consolidated Balance Sheets as of September 30, 2022. In October 2022, the Bankruptcy Court approved the sale of the assets. The sale is currently expected to close in the fourth quarter of 2022. These assets, 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
As noted above, in November 2020, the Company announced the initiation of several strategic actions to further optimize the Company’s operations and increase overall efficiency. These actions were initiated with the expectation of generating significant cost savings to be reinvested, among other things, to support the Company’s key strategic priority to expand and enhance its product portfolio. These actions, which we have been progressing, include the following:
•Optimizing the Company’s retail generics business cost structure by exiting manufacturing and other sites in Irvine, California, Chestnut Ridge, New York and India. Certain sites have already been exited and certain products historically manufactured at these sites have been transferred to other internal and external sites within the Company’s manufacturing network.
•Improving operating flexibility and reducing general and administrative costs by transferring certain transaction processing activities to third-party global business process service providers.
•Increasing organizational effectiveness by further integrating the Company’s commercial, operations and research and development functions, respectively, to support the Company’s key strategic priorities.
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As a result of the 2020 Restructuring Initiative, the Company’s global workforce was reduced by approximately 300 net full-time positions. The Company expects to realize annualized pre-tax cash savings (without giving effect to the costs described below) of approximately $85 million to $95 million by the first half of 2023, primarily related to reductions in Cost of revenues of approximately $65 million to $70 million and other expenses, including Selling, general and administrative and Research and development expenses, of approximately $20 million to $25 million. Future costs associated with the 2020 Restructuring Initiative are not expected to be material.
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 and 2021 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net restructuring charges (charge reversals) related to:
Accelerated depreciation $ —  $ 6,350  $ 3,824  $ 22,329 
Asset impairments —  42,155  —  42,155 
Inventory adjustments 408  719  1,435  6,513 
Employee separation, continuity and other benefit-related costs (433) (14,481) 1,290  (6,150)
Certain other restructuring costs 116  1,209  798  3,003 
Total $ 91  $ 35,952  $ 7,347  $ 67,850 
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, and $31.0 million and $53.5 million of pre-tax net charges during the three and nine months ended September 30, 2021, respectively. The remaining amounts related to our other segments and certain corporate unallocated costs.
As of September 30, 2022, cumulative amounts incurred to date include charges related to accelerated depreciation of approximately $51.0 million, asset impairments related to certain identifiable intangible assets, operating lease assets and disposal groups totaling approximately $49.5 million, inventory adjustments of approximately $11.5 million, employee separation, continuity and other benefit-related costs, net of approximately $53.9 million and certain other restructuring costs of approximately $3.5 million. Of these amounts, approximately $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 and 2021 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net restructuring charges (charge reversals) included in:
Cost of revenues $ 375  $ (11,050) $ 4,025  $ 9,294 
Selling, general and administrative (243) 4,946  201  15,174 
Research and development (41) (99) 3,121  1,227 
Asset impairment charges —  42,155  —  42,155 
Total $ 91  $ 35,952  $ 7,347  $ 67,850 
Changes to the liability for the 2020 Restructuring Initiative during the nine months ended September 30, 2022 were as follows (in thousands):
Employee Separation, Continuity and Other Benefit-Related Costs Certain Other Restructuring Costs Total
Liability balance as of December 31, 2021 $ 10,979  $ 205  $ 11,184 
Net charges 1,290  798  2,088 
Cash payments (10,671) (1,003) (11,674)
Liability balance as of September 30, 2022 $ 1,598  $ —  $ 1,598 
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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 (the 2022 Restructuring Initiative). These actions were initiated with the expectation of generating cost savings, with a portion to be reinvested to support the Company’s key strategic priority to expand and enhance its product portfolio.
As a result of the 2022 Restructuring Initiative, the Company’s global workforce is ultimately expected to be reduced by up to approximately 100 net full-time positions. The Company expects to realize annualized pre-tax cash savings (without giving effect to the costs described below) of approximately $55 million to $65 million by the second quarter of 2023, primarily related to reductions in Selling, general and administrative expenses. Future costs associated with the 2022 Restructuring Initiative are not expected to be material.
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,
2022 2022
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 costs 1,102  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, respectively. 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,
2022 2022
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 
Changes to the liability for the 2022 Restructuring Initiative during the nine months ended September 30, 2022 were as follows (in thousands):
Employee Separation, Continuity and Other Benefit-Related Costs Certain Other Restructuring Costs Total
Liability balance as of December 31, 2021 $ —  $ —  $ — 
Net charges 18,406  1,102  19,508 
Cash payments (12,871) (551) (13,422)
Liability balance as of September 30, 2022 $ 5,535  $ 551  $ 6,086 
Substantially all of the remaining liability at September 30, 2022 is classified as Liabilities subject to compromise in the Condensed Consolidated Balance Sheets.
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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, medical aesthetics and bariatrics, among others. Products in this segment include XIAFLEX®, SUPPRELIN® LA, AVEED®, NASCOBAL® Nasal Spray, QWO®, PERCOCET®, TESTOPEL® and EDEX®, among others.
Sterile Injectables
Our Sterile Injectables segment consists primarily of branded sterile injectable products such as VASOSTRICT®, ADRENALIN® and APLISOL®, among others, and certain generic sterile injectable products, including ertapenem for injection (the authorized generic of Merck Sharp & Dohme Corp.’s (Merck) Invanz®) and ephedrine sulfate injection, among others.
Generic Pharmaceuticals
Our Generic Pharmaceuticals segment consists of a product portfolio including solid oral extended-release 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 sold outside the U.S., primarily in Canada through our operating company Paladin Labs Inc. (Paladin). The key products of this segment serve various therapeutic areas, including attention deficit hyperactivity disorder, pain, women’s health, oncology and transplantation.
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The following represents selected information for the Company’s reportable segments for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net revenues from external customers:
Branded Pharmaceuticals $ 203,501  $ 230,977  $ 627,314  $ 665,652 
Sterile Injectables 118,693  343,653  481,892  946,998 
Generic Pharmaceuticals 201,435  174,306  590,756  522,451 
International Pharmaceuticals (1) 18,061  23,092  63,101  68,676 
Total net revenues from external customers $ 541,690  $ 772,028  $ 1,763,063  $ 2,203,777 
Segment adjusted income from continuing operations before income tax:
Branded Pharmaceuticals $ 84,940  $ 105,849  $ 251,219  $ 301,277 
Sterile Injectables 58,633  282,300  318,284  751,922 
Generic Pharmaceuticals 87,675  34,010  237,394  89,036 
International Pharmaceuticals 4,296  6,764  17,149  24,337 
Total segment adjusted income from continuing operations before income tax $ 235,544  $ 428,923  $ 824,046  $ 1,166,572 
__________
(1)Revenues generated by our International Pharmaceuticals segment are primarily attributable to external customers located in Canada.
There were no material revenues from external customers attributed to an individual country outside of the U.S. during any of the periods presented.
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The table below provides reconciliations of our Total consolidated (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, 2022 and 2021 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Total consolidated (loss) income from continuing operations before income tax $ (707,592) $ (47,741) $ (2,648,439) $ 958 
Interest expense, net 74,753  142,958  349,486  418,852 
Corporate unallocated costs (1) 44,182  65,317  125,851  141,291 
Amortization of intangible assets 84,042  91,901  261,844  281,101 
Acquired in-process research and development charges 800  —  68,700  5,000 
Amounts related to continuity and separation benefits, cost reductions and strategic review initiatives (2) 44,029  19,829  139,025  58,632 
Certain litigation-related and other contingencies, net (3) 419,376  83,495  444,738  119,327 
Certain legal costs (4) 8,052  38,842  31,322  82,961 
Asset impairment charges (5) 150,200  42,155  1,951,216  50,393 
Acquisition-related and integration items, net (6) (1,399) (1,432) (951) (6,357)
Loss on extinguishment of debt —  —  —  13,753 
Foreign currency impact related to the remeasurement of intercompany debt instruments (6,220) (2,036) (7,114) 466 
Reorganization items, net (7) 124,212  —  124,212  — 
Other, net (8) 1,109  (4,365) (15,844) 195 
Total segment adjusted income from continuing operations before income tax $ 235,544  $ 428,923  $ 824,046  $ 1,166,572 
__________
(1)Amounts include certain corporate overhead costs, such as headcount, facility and corporate litigation expenses and certain other income and expenses.
(2)Amounts for the three months ended 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 $77.1 million. Amounts for the three months ended September 30, 2021 include net employee separation, continuity and other benefit-related charge reversals of $11.3 million, accelerated depreciation charges of $6.4 million and other net charges, including those related to strategic review initiatives, of $24.8 million. Amounts for the nine months ended September 30, 2021 include net employee separation, continuity and other benefit-related charge reversals of $1.2 million, accelerated depreciation charges of $22.3 million and other net charges, including those related to strategic review initiatives, of $37.5 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.
(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. The amount during the nine months ended September 30, 2022 reflects the recovery of certain previously-incurred opioid-related legal expenses.
(5)Amounts primarily relate to charges to impair goodwill and intangible assets as further described in Note 10. Goodwill and Other Intangibles as well as certain disposal group impairment charges as further described in Note 4. Discontinued Operations.
(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)Amounts for the three and nine months ended September 30, 2021 primarily relate to a gain of $4.9 million associated with the resolution of a prior contract dispute. For the nine months ended September 30, 2021, this gain was partially offset by $3.9 million of third-party fees incurred in connection with the March 2021 Refinancing Transactions, which were accounted for as debt modification costs. Refer to Note 14. Debt for additional information. Other amounts in this row relate to gains and losses on sales of businesses 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.
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During the three and nine months ended September 30, 2022 and 2021, 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,
2022 2021 2022 2021
Branded Pharmaceuticals:
Specialty Products:
XIAFLEX® $ 104,014  $ 105,509  $ 324,376  $ 312,266 
SUPPRELIN® LA 31,283  30,069  84,852  85,665 
Other Specialty (1) 11,033  26,339  50,023  74,407 
Total Specialty Products $ 146,330  $ 161,917  $ 459,251  $ 472,338 
Established Products:
PERCOCET® $ 25,052  $ 26,914  $ 77,483  $ 78,695 
TESTOPEL® 9,430  11,686  28,331  32,314 
Other Established (2) 22,689  30,460  62,249  82,305 
Total Established Products $ 57,171  $ 69,060  $ 168,063  $ 193,314 
Total Branded Pharmaceuticals (3) $ 203,501  $ 230,977  $ 627,314  $ 665,652 
Sterile Injectables:
VASOSTRICT® $ 33,697  $ 255,697  $ 225,217  $ 676,764 
ADRENALIN® 24,917  28,722  85,514  88,136 
Other Sterile Injectables (4) 60,079  59,234  171,161  182,098 
Total Sterile Injectables (3) $ 118,693  $ 343,653  $ 481,892  $ 946,998 
Total Generic Pharmaceuticals (5) $ 201,435  $ 174,306  $ 590,756  $ 522,451 
Total International Pharmaceuticals (6) $ 18,061  $ 23,092  $ 63,101  $ 68,676 
Total revenues, net $ 541,690  $ 772,028  $ 1,763,063  $ 2,203,777 
__________
(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, 2022, and/or any product having revenues in excess of $25 million during any completed quarterly period in 2022 or 2021.
(4)Products included within Other Sterile Injectables include ertapenem for injection, APLISOL® and others.
(5)The Generic Pharmaceuticals segment is comprised of a portfolio of products that are generic versions of branded products, are distributed primarily through the same wholesalers, generally have no intellectual property protection and are sold within the U.S. During the three and nine months ended September 30, 2022, varenicline tablets (Endo’s generic version of Pfizer Inc.’s Chantix®), which launched in September 2021, made up 15% and 13%, respectively, of consolidated total revenues. During the three months ended September 30, 2022, lubiprostone capsules (the authorized generic of Mallinckrodt plc’s Amitiza®), which launched in January 2021, made up 5% 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.
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.
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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, 2022 and December 31, 2021 (in thousands):
Balance Sheet Line Items September 30, 2022 December 31, 2021
Restricted cash and cash equivalents—current (1) Restricted cash and cash equivalents $ 145,486  $ 124,114 
Restricted cash and cash equivalents—noncurrent (2) Other assets 85,000  — 
Total restricted cash and cash equivalents $ 230,486  $ 124,114 
__________
(1)Amounts at September 30, 2022 and December 31, 2021 include: (i) restricted cash and cash equivalents associated with litigation-related matters, including $58.5 million and $78.4 million, respectively, held in Qualified Settlement Funds (QSFs) for mesh- and/or opioid-related matters, and (ii) approximately $86.0 million and $45.0 million, respectively, of restricted cash and cash equivalents related to certain insurance-related matters. See Note 15. Commitments and Contingencies for further information about litigation-related matters.
(2)The amount at September 30, 2022 relates to the TLC Agreement. See Note 11. License, Collaboration and Asset Acquisition Agreements for further information about this amount.
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, 2022 and December 31, 2021 were as follows (in thousands):
Fair Value Measurements at September 30, 2022 using:
Level 1 Inputs Level 2 Inputs Level 3 Inputs Total
Assets:
Money market funds (1) $ 14,539  $ —  $ —  $ 14,539 
Liabilities:
Acquisition-related contingent consideration (2) $ —  $ —  $ 15,812  $ 15,812 
Fair Value Measurements at December 31, 2021 using:
Level 1 Inputs Level 2 Inputs Level 3 Inputs Total
Assets:
Money market funds (1) $ 134,847  $ —  $ —  $ 134,847 
Liabilities:
Acquisition-related contingent consideration (2) $ —  $ —  $ 20,076  $ 20,076 
__________
(1)At September 30, 2022 and December 31, 2021, money market funds include $14.5 million and $16.2 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, 2022 and December 31, 2021, 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, 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. At December 31, 2021, this amount is classified in the Condensed Consolidated Balance Sheets as follows: $5.7 million is classified as a current liability and included within Accounts payable and accrued expenses and $14.3 million is classified as a noncurrent liability and included within Other liabilities.
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, 2022 and 2021 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Beginning of period $ 18,242  $ 27,447  $ 20,076  $ 36,249 
Amounts settled (286) (2,612) (2,445) (6,302)
Changes in fair value recorded in earnings (1,399) (1,435) (951) (6,771)
Effect of currency translation (745) (188) (868) 36 
End of period (1) $ 15,812  $ 23,212  $ 15,812  $ 23,212 
__________
(1)At September 30, 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.
At September 30, 2022, 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 10.8%, 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.
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The following table presents changes to the Company’s liability for acquisition-related contingent consideration during the nine months ended September 30, 2022 by acquisition (in thousands):
Balance as of December 31, 2021 Changes in Fair Value Recorded in Earnings Amounts Settled and Other Balance as of September 30, 2022 (1)
Auxilium acquisition $ 9,038  $ 422  $ (536) $ 8,924 
Lehigh Valley Technologies, Inc. acquisitions 3,600  (694) (506) 2,400 
Other 7,438  (679) (2,271) 4,488 
Total $ 20,076  $ (951) $ (3,313) $ 15,812 
__________
(1)At September 30, 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.
Nonrecurring Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a nonrecurring basis during the nine months ended September 30, 2022 were as follows (in thousands):
Fair Value Measurements during the Nine Months Ended September 30, 2022 (1) using: Total Expense for the Nine Months Ended September 30, 2022
Level 1 Inputs Level 2 Inputs Level 3 Inputs
Intangible assets, excluding goodwill (2)(3) $ —  $ —  $ 65,407  $ (103,153)
Certain property, plant and equipment —  —  —  (3,063)
Total $ —  $ —  $ 65,407  $ (106,216)
__________
(1)The fair value amounts are presented as of the date of the fair value measurement as these assets are not measured at fair value on a recurring basis. Such measurements generally occur in connection with our quarter-end financial reporting close procedures.
(2)These fair value measurements were determined using risk-adjusted discount rates ranging from 9.5% to 12.0% (weighted average rate of approximately 11.7%, weighted based on relative fair value).
(3)The Company also performed fair value measurements in connection with its goodwill impairment tests. Refer to Note 10. Goodwill and Other Intangibles for additional information on goodwill and other intangible asset impairment tests, including information about the valuation methodologies used.
NOTE 8. INVENTORIES
Inventories consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022 December 31, 2021
Raw materials (1) $ 101,407  $ 90,453 
Work-in-process (1) 59,630  82,728 
Finished goods (1) 127,877  110,371 
Total $ 288,914  $ 283,552 
__________
(1)The components of inventory shown in the table above are net of allowance for obsolescence.
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, 2022 and December 31, 2021, $35.3 million and $10.7 million, respectively, of noncurrent inventory was included in Other assets in the Condensed Consolidated Balance Sheets. As of September 30, 2022 and December 31, 2021, the Company’s Condensed Consolidated Balance Sheets included approximately $11.3 million and $12.2 million, respectively, of capitalized pre-launch inventories related to products that were not yet available to be sold.
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NOTE 9. LEASES
The following table presents information about the Company’s right-of-use assets and lease liabilities at September 30, 2022 and December 31, 2021 (in thousands):
Balance Sheet Line Items September 30, 2022 December 31, 2021
Right-of-use assets:
Operating lease right-of-use assets Operating lease assets $ 31,342  $ 34,832 
Finance lease right-of-use assets Property, plant and equipment, net 28,819  38,365 
Total right-of-use assets $ 60,161  $ 73,197 
Operating lease liabilities (1):
Current operating lease liabilities Current portion of operating lease liabilities $ 724  $ 10,992 
Noncurrent operating lease liabilities Operating lease liabilities, less current portion 4,363  33,727 
Total operating lease liabilities $ 5,087  $ 44,719 
Finance lease liabilities (1):
Current finance lease liabilities Accounts payable and accrued expenses $ —  $ 6,841 
Noncurrent finance lease liabilities Other liabilities 1,415  18,374 
Total finance lease liabilities $ 1,415  $ 25,215 
__________
(1)Amounts at September 30, 2022 exclude operating lease liabilities of $33.6 million and finance lease liabilities of $18.8 million that are classified as Liabilities subject to compromise in the Condensed Consolidated Balance Sheets.
The following table presents information about lease costs and expenses and sublease income for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
Statement of Operations Line Items 2022 2021 2022 2021
Operating lease cost Various (1) $ 3,415  $ 3,612  $ 8,452  $ 10,869 
Finance lease cost:
Amortization of right-of-use assets Various (1) $ 2,024  $ 2,311  $ 6,455  $ 6,933 
Interest on lease liabilities Interest expense, net $ 271  $ 310  $ 877  $ 1,015 
Other lease costs and income:
Variable lease costs (2) Various (1) $ 3,525  $ 3,035  $ 8,220  $ 9,099 
Finance lease right-of-use asset impairment charges Asset impairment charges $ —  $ —  $ 3,063  $ — 
Sublease income Various (1) $ (1,560) $ (957) $ (4,810) $ (2,837)
__________
(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, 2022 and 2021 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Cost of revenues $ 1,539  $ 2,988  $ 4,668  $ 9,032 
Selling, general and administrative $ 5,812  $ 4,959  $ 13,488  $ 14,870 
Research and development $ 53  $ 54  $ 161  $ 162 
(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.
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The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the nine months ended September 30, 2022 and 2021 (in thousands):
Nine Months Ended September 30,
2022 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash payments for operating leases $ 9,746  $ 10,010 
Operating cash payments for finance leases $ 1,439  $ 1,791 
Financing cash payments for finance leases $ 4,501  $ 4,044 
Lease liabilities arising from obtaining right-of-use assets:
Operating leases (1) $ 1,296  $ 4,985 
__________
(1)The amount in 2022 primarily relates to a new lease agreement. The amount in 2021 primarily relates to an increase in lease liabilities and right-of-use assets related to a lease modification.
NOTE 10. GOODWILL AND OTHER INTANGIBLES
Goodwill
Changes in the carrying amounts of our goodwill for the nine months ended September 30, 2022 were as follows (in thousands):
Branded Pharmaceuticals Sterile Injectables Generic Pharmaceuticals International Pharmaceuticals Total
Goodwill as of December 31, 2021 $ 828,818  $ 2,368,193  $ —  $ —  $ 3,197,011 
Goodwill impairment charges —  (1,845,000) —  —  (1,845,000)
Goodwill as of September 30, 2022 $ 828,818  $ 523,193  $ —  $ —  $ 1,352,011 
The carrying amounts of goodwill at September 30, 2022 and December 31, 2021 are net of the following accumulated impairments (in thousands):
Branded Pharmaceuticals Sterile Injectables Generic Pharmaceuticals International Pharmaceuticals Total
Accumulated impairment losses as of December 31, 2021 $ 855,810  $ 363,000  $ 3,142,657  $ 550,355  $ 4,911,822 
Accumulated impairment losses as of September 30, 2022 $ 855,810  $ 2,208,000  $ 3,142,657  $ 502,985  $ 6,709,452 
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Other Intangible Assets
Changes in the amounts of other intangible assets for the nine months ended September 30, 2022 are set forth in the table below (in thousands).
Cost basis: Balance as of December 31, 2021 Acquisitions Impairments Effect of Currency Translation Balance as of September 30, 2022
Licenses (weighted average life of 14 years)
 $ 442,107  $ —  $ —  $ —  $ 442,107 
Tradenames 6,409  —  —  —  6,409 
Developed technology (weighted average life of 12 years)
 6,226,139  —  (103,153) (22,210) 6,100,776 
Total other intangibles (weighted average life of 12 years years)
 $ 6,674,655  $ —  $ (103,153) $ (22,210) $ 6,549,292 
Accumulated amortization: Balance as of December 31, 2021 Amortization Impairments Effect of Currency Translation Balance as of September 30, 2022
Licenses $ (419,932) $ (3,432) $ —  $ —  $ (423,364)
Tradenames (6,409) —  —  —  (6,409)
Developed technology (3,885,491) (258,412) —  17,316  (4,126,587)
Total other intangibles $ (4,311,832) $ (261,844) $ —  $ 17,316  $ (4,556,360)
Net other intangibles $ 2,362,823  $ 1,992,932 
Amortization expense for the three and nine months ended September 30, 2022 totaled $84.0 million and $261.8 million, respectively. Amortization expense for the three and nine months ended September 30, 2021 totaled $91.9 million and $281.1 million, respectively. Amortization expense is included in Cost of revenues in the Condensed Consolidated Statements of Operations.
Impairments
Goodwill and, if applicable, indefinite-lived intangible assets are tested for impairment annually and when events or changes in circumstances indicate that the asset might be impaired. Our annual assessment is performed as of October 1.
As part of our goodwill and intangible asset impairment assessments, we estimate the fair values of our reporting units and our intangible assets using an income approach that utilizes a discounted cash flow model or, where appropriate, a market approach.
The discounted cash flow models are dependent upon our estimates of future cash flows and other factors including estimates of (i) future operating performance, including future sales, long-term growth rates, gross margins, operating expenses, discount rate and the probability of achieving the estimated cash flows and (ii) future economic conditions. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rates applied to the estimated cash flows are determined depending on the overall risk associated with the particular assets and other market factors. We believe the discount rates and other inputs and assumptions are consistent with those a market participant would use. Any impairment charges resulting from annual or interim goodwill and intangible asset impairment assessments are recorded to Asset impairment charges in our Condensed Consolidated Statements of Operations.
Second-Quarter 2022 Goodwill Impairment Tests
Beginning in May 2022, our share price and the aggregate estimated fair value of our debt experienced significant declines. We believe these declines, which persisted through the end of the second quarter of 2022, were predominantly attributable to continuing and increasing investor and analyst uncertainty with respect to: (i) ongoing opioid and other litigation matters for which we had been unable to reach a broad-based resolution of outstanding claims and (ii) speculation surrounding the possibility of a bankruptcy filing. Further, rising inflation and interest rates unfavorably affected the cost of borrowing, which is one of several inputs used in the determination of the discount rates used in our discounted cash flow models. For example, the U.S. Federal Reserve raised its benchmark interest rate by 50 basis points in May 2022 and by an additional 75 basis points in June 2022. Taken together, we determined that these factors represented triggering events that required the performance of interim goodwill impairments tests for both our Sterile Injectables and Branded Pharmaceuticals reporting units as of June 30, 2022.
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When performing these goodwill impairment tests, we estimated the fair values of our reporting units taking into consideration management’s continued commitment to Endo’s strategic plans and the corresponding projected cash flows, as well as the fact that management’s views on litigation risk had not materially changed since our annual goodwill impairment tests performed on October 1, 2021. However, when analyzing our aggregated estimated internal valuation of our reporting units as of June 30, 2022 compared to our market capitalization, we also considered the increased level of investor and analyst uncertainty described above, coupled with our belief that investors and analysts were unlikely to modify their projections or valuation models unless or until we could demonstrate significant progression on the resolution of outstanding litigation matters and/or demonstrate that the risks of potential future strategic alternatives, including the possibility of a future bankruptcy filing, were no longer applicable. After performing this analysis, we made certain adjustments to incorporate these factors into the valuations of our reporting units and determined that: (i) the estimated fair value of our Sterile Injectables reporting unit was less than its carrying amount, resulting in a pre-tax non-cash goodwill impairment charge of $1,748.0 million, and (ii) while the estimated fair value declined, there was no goodwill impairment for our Branded Pharmaceuticals reporting unit, for which the estimated fair value exceeded the carrying amount by more than 10%. The discount rates used in the June 30, 2022 goodwill tests were 13.5% and 18.5% for the Branded Pharmaceuticals and Sterile Injectables reporting units, respectively.
Third-Quarter 2022 Goodwill Impairment Tests
As further described in Note 2. Bankruptcy Proceedings, during the third quarter of 2022, we received the Stalking Horse Bid, which is subject to higher or otherwise better bids from other parties, in connection with the Sale. The value of the bid, as well as our market capitalization, was considered when determining whether it was more likely than not that the carrying amounts of one or more of our reporting units exceeds their respective fair values. Further, rising inflation and interest rates unfavorably affected the cost of borrowing, which is one of several inputs used in the determination of the discount rates used in our discounted cash flow models. For example, the U.S. Federal Reserve raised its benchmark interest rate by 75 basis points in July 2022 and by an additional 75 basis points in September 2022. Taken together, we determined that these factors represented triggering events that required the performance of interim goodwill impairments tests for both our Sterile Injectables and Branded Pharmaceuticals reporting units as of September 30, 2022.
When performing these goodwill impairment tests, we estimated the fair values of our reporting units taking into consideration management’s continued commitment to Endo’s strategic plans and the corresponding projected cash flows. However, when analyzing our aggregated estimated internal valuation of our reporting units as of September 30, 2022 compared to our market capitalization and the Stalking Horse Bid, we made adjustments to incorporate certain risks and uncertainties, including those related to the Chapter 11 Cases and the Sale, into the valuations of our reporting units and determined that: (i) the estimated fair value of our Sterile Injectables reporting unit was less than its carrying amount, resulting in a pre-tax non-cash goodwill impairment charge of $97.0 million, and (ii) the estimated fair value of our Branded Pharmaceuticals reporting unit exceeded the carrying amount by more than 10%. The discount rates used in the September 30, 2022 goodwill tests were 15.0% and 19.5% for the Branded Pharmaceuticals and Sterile Injectables reporting units, respectively.
Other Intangible Asset Impairments
With respect to other intangible assets, we recorded asset impairment charges of $53.2 million and $103.2 million during the three and nine months ended September 30, 2022, respectively, and $7.8 million during the nine months ended September 30, 2021. These pre-tax non-cash asset impairment charges related primarily to certain developed technology intangible assets that were tested for impairment following changes in market conditions and certain other factors impacting recoverability.
NOTE 11. LICENSE, COLLABORATION AND ASSET ACQUISITION AGREEMENTS
We have entered into certain license, collaboration and discovery agreements with third parties for product development. Generally, these agreements require us to share in the development costs of such product candidates with third parties who in turn grant us marketing rights for such product candidates. Under these agreements we are generally required to: (i) make upfront payments and/or other payments upon successful completion of regulatory, sales and/or other milestones and/or (ii) pay royalties on sales of the products arising from these agreements. We have also, from time to time, entered into agreements to directly acquire certain assets from third parties.
2022 Nevakar Agreement
In May 2022, we announced that our Endo Ventures Limited subsidiary had entered into an agreement to acquire six development-stage ready-to-use injectable product candidates from Nevakar Injectables, Inc., a subsidiary of Nevakar, Inc., for an upfront cash payment of $35.0 million (the 2022 Nevakar Agreement). The acquisition closed during the second quarter of 2022. The acquired set of assets and activities did not meet the definition of a business. As a result, we accounted for the transaction as an asset acquisition. Upon closing, the upfront payment was recorded as Acquired in-process research and development in the Condensed Consolidated Statements of Operations.
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The product candidates, which relate to our Sterile Injectables segment, are in various stages of development. The first commercial launch is expected in 2025; however, there can be no assurance this will occur within this timeframe or at all. With this acquisition, the Company will control all remaining development, regulatory, manufacturing and commercialization activities for the acquired product candidates.
TLC Agreement
In June 2022, we announced that our Endo Ventures Limited subsidiary had entered into an agreement with Taiwan Liposome Company, Ltd. (TLC) to commercialize TLC599 (the TLC Agreement). We are accounting for the agreement as an asset acquisition. TLC599 is an injectable compound in Phase 3 development for the treatment of osteoarthritis knee pain. The TLC Agreement provides us the opportunity to commercialize this differentiated nonsurgical product candidate to complement our Branded Pharmaceuticals segment’s current on-market and in-development orthopedic-focused opportunities.
Under the terms of the TLC Agreement, TLC is primarily responsible for the development of the product and we are primarily responsible for obtaining regulatory approval and for commercialization of the product in the U.S. Upon receipt of regulatory approval, if obtained, we will have exclusive rights to manufacture, market, sell and distribute the product in the U.S.
During the second quarter of 2022, we made an upfront payment of $30.0 million to TLC and recorded a corresponding charge to Acquired in-process research and development in the Condensed Consolidated Statements of Operations. TLC is also eligible to receive: (i) payments of up to an additional $110.0 million based on the achievement of certain development, regulatory and manufacturing milestones related to the initial indication for the treatment of osteoarthritis knee pain; (ii) payments of up to an additional $30.0 million based on the achievement of certain development and regulatory milestones related to certain potential future indications; (iii) payments of up to an additional $500.0 million based on the achievement of certain commercial milestones; and (iv) tiered royalties based on net sales of TLC599 in the U.S. Unless terminated earlier or extended, the term of the TLC Agreement generally extends until the 20-year anniversary of the first commercial sale of TLC599.
Pursuant to the terms of the TLC Agreement, we have deposited approximately $85.0 million of cash into a bank account which may be used to fund certain future obligations under the TLC Agreement or returned to us upon satisfaction of certain conditions. As further described in Note 7. Fair Value Measurements, this amount is considered restricted cash as of September 30, 2022 and is included in our Condensed Consolidated Balance Sheets at September 30, 2022 as Other assets.
In September 2022, we were informed by TLC of the top-line results from TLC’s Phase 3 clinical study to evaluate the efficacy and safety of TLC599 in patients with pain from osteoarthritis of the knee. While study participants treated with TLC599 showed improvement on the primary endpoint (change from baseline to week 12 on the WOMAC pain scale) consistent with the level of improvement reported in the previously conducted TLC599 Phase 2 clinical study, the difference compared to those receiving placebo was not statistically significant. Based on this data, we are evaluating options for TLC599 with TLC.
NOTE 12. CONTRACT ASSETS AND LIABILITIES
Our revenue consists almost entirely of sales of our products to customers, whereby we ship products to a customer pursuant to a purchase order. Revenue contracts such as these do not generally give rise to contract assets or contract liabilities because: (i) the underlying contracts generally have only a single performance obligation and (ii) we do not generally receive consideration until the performance obligation is fully satisfied. At September 30, 2022, the unfulfilled performance obligations for these types of contracts relate to ordered but undelivered products. We generally expect to fulfill the performance obligations and recognize revenue within one week of entering into the underlying contract. Based on the short-term initial contract duration, additional disclosure about the remaining performance obligations is not required.
Certain of our other revenue-generating contracts, including license and collaboration agreements, may result in contract assets and/or contract liabilities. For example, we may recognize contract liabilities upon receipt of certain upfront and milestone payments from customers when there are remaining performance obligations.
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The following table shows the opening and closing balances of contract assets and contract liabilities from contracts with customers (dollars in thousands):
September 30, 2022 December 31, 2021 $ Change % Change
Contract assets (1) $ 2,737  $ 13,005  $ (10,268) (79) %
Contract liabilities (2) $ 4,240  $ 4,663  $ (423) (9) %
__________
(1)At September 30, 2022 and December 31, 2021, approximately $1.2 million and $2.8 million, respectively, of these contract asset amounts are classified as current and are included in Prepaid expenses and other current assets in the Company’s Condensed Consolidated Balance Sheets. The remaining amounts are classified as noncurrent and are included in Other assets. The decrease in contract assets during the nine months ended September 30, 2022 primarily relates to: (i) reclassifications of certain amounts to receivables as a result of rights to consideration becoming unconditional and (ii) changes in estimates with respect to amounts of consideration expected to be received from sales of certain intellectual property rights.
(2)At September 30, 2022 and December 31, 2021, approximately $0.6 million and $0.6 million, respectively, of these contract liability amounts are classified as current and are included in Accounts payable and accrued expenses in the Company’s Condensed Consolidated Balance Sheets. The remaining amounts are classified as noncurrent and are included in Other liabilities. During the nine months ended September 30, 2022, approximately $0.4 million of revenue was recognized that was included in the contract liability balance at December 31, 2021.
During the nine months ended September 30, 2022, we recognized revenue of $10.2 million relating to performance obligations satisfied, or partially satisfied, in prior periods. Such revenue generally relates to changes in estimates with respect to our variable consideration.
NOTE 13. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses included the following at September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022 December 31, 2021
Trade accounts payable $ 84,999  $ 123,129 
Returns and allowances 159,215  183,116 
Rebates 148,165  150,039 
Chargebacks 834  2,617 
Other sales deductions 6,551  2,500 
Accrued interest 43  106,735 
Accrued payroll and related benefits 39,465  90,029 
Accrued royalties and other distribution partner payables 15,934  58,422 
Acquisition-related contingent consideration—current —  5,748 
Other (1) 83,524  114,563 
Total $ 538,730  $ 836,898 
__________
(1)Amounts include a wide variety of accrued expenses, the most significant of which relate to accrued legal and other professional fees.
The amounts in the table above do not include amounts classified as Liabilities subject to compromise in our Condensed Consolidated Balance Sheets. Refer to Note 2. Bankruptcy Proceedings for additional information about Liabilities subject to compromise.
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NOTE 14. DEBT
The following table presents information about the Company’s total indebtedness at September 30, 2022 and December 31, 2021 (dollars in thousands):
September 30, 2022 December 31, 2021
Effective Interest Rate (1) Principal Amount (2) Carrying Amount (2) Effective Interest Rate Principal Amount Carrying Amount
7.25% Senior Notes due 2022
 $ —  $ —  7.25  % $ 8,294  $ 8,294 
5.75% Senior Notes due 2022
 —  —  5.75  % 172,048  172,048 
5.375% Senior Notes due 2023
 5.38  % 6,127  6,127  5.62  % 6,127  6,111 
6.00% Senior Notes due 2023
 6.00  % 56,436  56,436  6.28  % 56,436  56,203 
5.875% Senior Secured Notes due 2024
 6.88  % 300,000  291,531  6.14  % 300,000  297,928 
6.00% Senior Notes due 2025
 6.00  % 21,578  21,578  6.27  % 21,578  21,413 
7.50% Senior Secured Notes due 2027
 8.50  % 2,015,479  1,937,603  7.70  % 2,015,479  1,997,777 
9.50% Senior Secured Second Lien Notes due 2027
 9.50  % 940,590  940,590  9.68  % 940,590  933,330 
6.00% Senior Notes due 2028
 6.00  % 1,260,416  1,260,416  6.11  % 1,260,416  1,252,667 
6.125% Senior Secured Notes due 2029
 7.13  % 1,295,000  1,253,866  6.34  % 1,295,000  1,278,718 
Term Loan Facility 12.25  % 1,975,000  1,937,854  6.12  % 1,985,000  1,947,633 
Revolving Credit Facility 9.75  % 277,200  273,182  2.63  % 277,200  277,200 
Total (3) $ 8,147,826  $ 7,979,183  $ 8,338,168  $ 8,249,322 
__________
(1)As noted below, beginning on the Petition Date, we ceased recognition of interest expense related to all of our debt instruments and began to incur “adequate protection payments” (further discussed below) related to our First Lien Debt Instruments (representing all of our debt instruments except for our senior unsecured notes and the 9.75% Senior Secured Second Lien Notes due 2027). The September 30, 2022 “effective interest rates” included in the table above represent the rates in effect on such date used to calculate: (i) future adequate protection payments related to our First Lien Debt Instruments and (ii) future contractual interest related to our other debt instruments, notwithstanding the fact that such interest is not currently being recognized. These rates are expressed as a percentage of the contractual principal amounts outstanding as of such date and, with respect to our First Lien Debt Instruments, without consideration of any reductions related to adequate protection payments made through such date.
(2)The September 30, 2022 principal amounts represent the amount of unpaid contractual principal owed on the respective instruments. During the third quarter of 2022, in accordance with ASC 852, we adjusted the carrying amounts of all unsecured and potentially undersecured debt instruments to equal the expected amount of the allowed claim by expensing (within Reorganization items, net in the Condensed Consolidated Statements of Operations) $89.2 million of previously-deferred and unamortized costs associated with these instruments. The September 30, 2022 carrying amounts of our First Lien Debt Instruments also reflect reductions for certain adequate protection payments made since the Petition Date, as further discussed herein.
(3)As of September 30, 2022, the entire carrying amount our debt, as well as any related remaining accrued and unpaid interest that existed as of the Petition Date, is included in the Liabilities subject to compromise line in the Condensed Consolidated Balance Sheets. As of December 31, 2021, $200.3 million of the carrying amount of our debt is classified as a current liability and is included in the Current portion of long-term debt line in the Condensed Consolidated Balance Sheets. The remaining carrying amount of our debt as of December 31, 2021 is included in the Long-term debt, less current portion, net line in the Condensed Consolidated Balance Sheets.
General Information
The Company and its subsidiaries, with certain customary exceptions, guarantee or serve as issuers or borrowers of the debt instruments representing substantially all of the Company’s indebtedness at September 30, 2022. The obligations under (i) the 5.875% Senior Secured Notes due 2024, (ii) the 7.50% Senior Secured Notes due 2027, (iii) the 6.125% Senior Secured Notes due 2029 and (iv) the Credit Agreement (as defined below) and related loan documents are secured on a pari passu basis by a first priority lien (subject to certain permitted liens) on the collateral securing such instruments, which collateral represents substantially all of the assets of the issuers or borrowers and guarantors party thereto (subject to customary exceptions). The obligations under the 9.50% Senior Secured Second Lien Notes due 2027 are secured by a second priority lien (subject to certain permitted liens) on, and on a junior basis with respect to, the collateral securing the obligations under the Credit Agreement, the 5.875% Senior Secured Notes due 2024, the 7.50% Senior Secured Notes due 2027 and the 6.125% Senior Secured Notes due 2029 and the related guarantees. Our senior unsecured notes are unsecured and effectively subordinated in right of priority to the obligations under the Credit Agreement, the 5.875% Senior Secured Notes due 2024, the 7.50% Senior Secured Notes due 2027, the 9.50% Senior Secured Second Lien Notes due 2027 and the 6.125% Senior Secured Notes due 2029, in each case to the extent of the value of the collateral securing such instruments.
The aggregate estimated fair value of the Company’s long-term debt, which was estimated using inputs based on quoted market prices for the same or similar debt issuances, was $5.1 billion and $8.0 billion at September 30, 2022 and December 31, 2021, respectively. Based on this valuation methodology, we determined these debt instruments represent Level 2 measurements within the fair value hierarchy.
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Credit Facilities
The Company and certain of its subsidiaries are party to the Credit Agreement, which immediately following the March 2021 Refinancing Transactions (as defined and further described below) provided for (i) a $1,000.0 million senior secured revolving credit facility (the Revolving Credit Facility) and (ii) a $2,000.0 million senior secured term loan facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facilities). Current amounts outstanding as of September 30, 2022 under the Credit Facilities are set forth in the table above. As of September 30, 2022, $76.0 million of commitments under the Revolving Credit Facility have matured and $924.0 million of commitments have been terminated as a result of the Chapter 11 Cases.
Covenants, Events of Default and Bankruptcy-Related Matters
As further described below and in the Annual Report, the agreements relating to our outstanding indebtedness contain certain covenants and events of default.
Beginning during the second quarter of 2022, we elected to not make the following interest payments on or prior to their scheduled due dates: (i) approximately $38 million that was due on June 30, 2022 with respect to our outstanding 6.00% Senior Notes due 2028; (ii) approximately $2 million that was due on July 15, 2022 with respect to our outstanding 5.375% Senior Notes due 2023 and 6.00% Senior Notes due 2023; (iii) approximately $45 million that was due on July 31, 2022 with respect to our outstanding 9.50% Senior Secured Second Lien Notes due 2027; and (iv) approximately $1 million that was due on August 1, 2022 with respect to our outstanding 6.00% Senior Notes due 2025. Under each of the indentures governing these notes, we had a 30-day grace period from the respective due dates to make these interest payments before such non-payments constituted events of default with respect to such notes. We chose to enter these grace periods while continuing discussions with certain creditors in connection with our evaluation of strategic alternatives. Our decision to enter these grace periods was not driven by liquidity constraints. We made the interest payment of approximately $38 million that became due on June 30, 2022 with respect to our outstanding 6.00% Senior Notes due 2028 on July 28, 2022, which was prior to the end of the applicable grace period. We also made the interest payments totaling approximately $2 million that became due on July 15, 2022 with respect to our outstanding 5.375% Senior Notes due 2023 and 6.00% Senior Notes due 2023 on August 11, 2022, which was prior to the end of the applicable grace periods.
On the Petition Date, 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 the creditors from taking any action to enforce the related financial obligations and the creditors’ rights of enforcement in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code.
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. Because the Company has not yet obtained approval by the Bankruptcy Court regarding such transactions, there remains uncertainty with respect to the ability of our creditors, including our secured and unsecured debt holders, to recover the full amount of their claims against us. As a result, all secured and unsecured debt instruments have been classified as Liabilities subject to compromise in our Condensed Consolidated Balance Sheets as of September 30, 2022 and we ceased the recognition of interest expense related to these instruments as of the Petition Date. During the third quarter of 2022, we did not recognize approximately $77 million of contractual interest expense that would have been recognized if not for the Chapter 11 Cases.
As part of the RSA that is further discussed in Note 2. Bankruptcy Proceedings, 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.
Pursuant to the Cash Collateral Order, we are obligated to make certain adequate protection payments during our bankruptcy proceedings on each of our First Lien Debt Instruments. These adequate protection payments include the payment of amounts equal to any accrued and unpaid interest that existed as of the Petition Date by no later than eight business days after entry of the interim Cash Collateral Order, as well as the following payments, to be paid on the last business day of each calendar month, calculated based upon a rate of:
•with respect to the Revolving Credit Facility and the Term Loan Facility, 200 basis points plus: (i) if denominated in dollars, ABR plus the Applicable Rate (each as defined in the Credit Agreement), or (ii) if denominated in Canadian dollars, the Canadian Prime Rate plus the Applicable Rate (each as defined in the Credit Agreement); and
•with respect to the applicable senior secured notes, 100 basis points plus the applicable rate of interest set forth on the face of the applicable note.
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The rates in the foregoing bullet points, which are used to calculate any applicable adequate protection payments, are expressed as a percentage of the contractual principal amounts outstanding without consideration of any reductions related to adequate protection payments. On a cumulative basis through September 30, 2022, we made the following adequate protection payments pursuant to the Cash Collateral Order:
•$4.0 million with respect to the Revolving Credit Facility;
•$37.1 million with respect to the Term Loan Facility; and
•$127.5 million with respect to the applicable senior secured notes.
As required by ASC 852, these adequate protection payments are recorded as a reduction of the carrying amount of the respective First Lien Debt Instruments, which are classified as Liabilities subject to compromise. This accounting treatment is due to the aforementioned uncertainties with respect to the ultimate outcome of the bankruptcy proceedings, including the proposed sale transaction, which in turn creates uncertainties surrounding the first lien debt holders’ ability to recover in full the amount of outstanding principal associated with those instruments. Some or all of the adequate protection payments may later be recharacterized as interest expense depending upon certain developments in the Chapter 11 Cases.
In addition to the terms described above, the Cash Collateral Order among other things establishes a budget for the Company’s use of cash collateral, establishes certain informational rights for the Company’s secured creditors and provides for the waiver of certain Bankruptcy Code provisions. 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.
Debt Financing Transactions
Set forth below are certain disclosures relating to debt financing transactions that occurred during the nine months ended September 30, 2022 or the year ended December 31, 2021. For additional disclosures relating to debt financing transactions that occurred during the year ended December 31, 2021, refer to Note 15. Debt in the Consolidated Financial Statements included in Part IV, Item 15 of the Annual Report.
March 2021 Refinancing
In March 2021, the Company executed certain transactions (the March 2021 Refinancing Transactions) that included:
•refinancing in full its previously-existing term loans, which had approximately $3,295.5 million of principal outstanding immediately before refinancing (the Existing Term Loans), with the proceeds from: (i) a new $2,000.0 million term loan (the Term Loan Facility) and (ii) $1,295.0 million of newly issued 6.125% Senior Secured Notes due 2029 (collectively, the Term Loan Refinancing);
•extending the maturity of approximately $675.3 million of existing revolving commitments under the Revolving Credit Facility to March 2026; and
•making certain other modifications to the credit agreement that was in effect immediately prior to the March 2021 Refinancing Transactions (the Prior Credit Agreement).
The changes to the Credit Facilities and the Prior Credit Agreement were effected pursuant to an amendment and restatement agreement entered into by the Company in March 2021 (the Restatement Agreement), which amended and restated the Prior Credit Agreement (as amended and restated by the Restatement Agreement, the Credit Agreement), among Endo International plc, certain of its subsidiaries, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender.
The $2,000.0 million portion of the Term Loan Refinancing associated with the new term loan was accounted for as a debt modification, while the $1,295.0 million portion associated with the new notes issued was accounted for as an extinguishment. During the first quarter of 2021, in connection with the Term Loan Refinancing, $7.8 million of deferred and unamortized costs associated with the Existing Term Loans, representing the portion associated with the extinguishment, was charged to expense and is included in the Loss on extinguishment of debt line item in the Condensed Consolidated Statements of Operations. The Company also incurred an additional $56.7 million of new costs and fees, of which: (i) $29.2 million and $17.6 million were initially deferred to be amortized as interest expense over the terms of the Term Loan Facility and the newly issued 6.125% Senior Secured Notes due 2029, respectively; (ii) $6.0 million was considered debt extinguishment costs and was charged to expense in the first quarter of 2021 and is included in the Loss on extinguishment of debt line item in the Condensed Consolidated Statements of Operations; and (iii) $3.9 million was considered debt modification costs and was charged to expense in the first quarter of 2021 and is included in the Selling, general and administrative expense line item in the Condensed Consolidated Statements of Operations. The deferred amounts were being amortized as interest expense until the initiation of our bankruptcy proceedings during the third quarter of 2022, at which time the remaining unamortized costs were expensed as Reorganization items, net in the Condensed Consolidated Statements of Operations.
During the first quarter of 2021, the Company also incurred $2.1 million of new costs and fees associated with the extension of the Revolving Credit Facility, which have been deferred and are being amortized as interest expense over the new term of the Revolving Credit Facility.
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October 2021 Revolving Credit Facility Repayment and January 2022 Senior Notes Repayments
In October 2021, commitments under the Revolving Credit Facility of approximately $76.0 million matured, thereby reducing the remaining commitments outstanding under the Revolving Credit Facility. This maturity, which reduced the remaining credit available under the Revolving Credit Facility, occurred because the 7.25% Senior Notes due 2022 and the 5.75% Senior Notes due 2022 were not refinanced or repaid in full prior to the date that was 91 days prior to their January 15, 2022 maturity dates. As a result of this maturity, the Company repaid approximately $22.8 million of borrowings in October 2021, representing the amount that had been borrowed pursuant to these matured commitments. The 7.25% Senior Notes due 2022 and the 5.75% Senior Notes due 2022 were repaid in January 2022.
NOTE 15. COMMITMENTS AND CONTINGENCIES
Legal Proceedings and Investigations
We and certain of our subsidiaries are involved in various claims, legal proceedings and internal and governmental investigations (collectively, proceedings) arising from time to time, including, among others, those relating to product liability, intellectual property, regulatory compliance, consumer protection, tax and commercial matters. An adverse outcome in any of these proceedings could have a material adverse effect on our business, financial condition, results of operations and cash flows. We are also subject to a number of matters that are not being disclosed herein because, in the opinion of our management, these matters are immaterial both individually and in the aggregate with respect to our financial position, results of operations and cash flows.
As further discussed in Note 2. Bankruptcy Proceedings, on the Petition Date, the Debtors filed voluntary petitions for relief under the Bankruptcy Code. 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. As a result, some proceedings may continue (or certain parties may attempt to argue that such proceedings should continue) notwithstanding the automatic stay. Where no stay is in place or expected, and in the event the stays in place were to be lifted, we intend to vigorously prosecute or defend our position as appropriate. We cannot predict the outcome of any proceeding, and there can be no assurance that we will be successful or obtain any requested relief.
We believe that certain settlements and judgments, as well as legal defense costs, relating to certain product liability or other matters are or may be covered in whole or in part under our insurance policies with a number of insurance carriers. In certain circumstances, insurance carriers reserve their rights to contest or deny coverage. We intend to contest vigorously any disputes with our insurance carriers and to enforce our rights under the terms of our insurance policies. Accordingly, we will record receivables with respect to amounts due under these policies only when the realization of the potential claim for recovery is considered probable.
Notwithstanding the foregoing, amounts recovered under our insurance policies could be materially less than stated coverage limits and may not be adequate to cover damages, other relief and/or costs relating to claims. In addition, there is no guarantee that insurers will pay claims in the amounts we expect or that coverage will otherwise be available. We may not have and may be unable to obtain or maintain insurance on acceptable terms or with adequate coverage against potential liabilities or other losses, including costs, judgments, settlements and other liabilities incurred in connection with current or future legal proceedings, regardless of the success or failure of the claim. For example, we do not have insurance sufficient to satisfy all of the opioid claims that have been made against us and, should we suffer an adverse judgment, appeal and similar bonds may not be available in such amounts as may be necessary to further challenge all or part of such judgment. We also generally no longer have product liability insurance to cover claims in connection with the mesh-related litigation described herein. Additionally, we may be limited by the surviving insurance policies of acquired entities, which may not be adequate to cover potential liabilities or other losses. Even where claims are submitted to insurance carriers for defense and indemnity, there can be no assurance that the claims will be covered by insurance or that the indemnitors or insurers will remain financially viable or will not challenge our right to reimbursement in whole or in part. The failure to generate sufficient cash flow or to obtain other financing could affect our ability to pay amounts due under those liabilities not covered by insurance. Additionally, the nature of our business, the legal proceedings to which we are exposed and any losses we suffer may increase the cost of insurance, which could impact our decisions regarding our insurance programs.
As of September 30, 2022, our accrual for loss contingencies totaled $794.6 million, the most significant components of which relate to: (i) product liability and related matters associated with transvaginal surgical mesh products, which we have not sold since March 2016 and (ii) various opioid-related matters as further described herein. Although we believe there is a possibility that a loss in excess of the amount recognized exists, we are unable to estimate the possible loss or range of loss in excess of the amount recognized at this time. As of September 30, 2022, our entire accrual for loss contingencies is classified as Liabilities subject to compromise in the Condensed Consolidated Balance Sheets. As a result of the automatic stay under the Bankruptcy Code and the uncertain treatment of these liabilities pursuant to a chapter 11 plan or otherwise, the timing and amount of payment, if any, related to the amounts accrued for loss contingencies is uncertain.
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As part of the Chapter 11 Cases, persons and entities believing that they have claims or causes of action against the Debtors, including litigants, may file proofs of claim evidencing such claims. The Debtors have not yet set a bar date (deadline) for holders of claims to file proofs of claim.
At the Company’s request, the Bankruptcy Court has appointed a future claims representative (FCR) in the Company’s Chapter 11 Cases. As further described in the applicable bankruptcy court filings, the FCR represents the rights of individuals who may in the future assert one or more claims against the Company or a successor of the Company’s businesses for personal injury based on the Company’s opioid, transvaginal mesh or ranitidine products, but who could not assert such claims in the Chapter 11 Cases because, among other reasons, the claimant was unaware of the alleged injury, had a latent manifestation of the alleged injury or was otherwise unable to assert or incapable of asserting the claims based on the alleged injury.
Vaginal Mesh Matters
Since 2008, we and certain of our subsidiaries, including American Medical Systems Holdings, Inc. (AMS) (subsequently converted to Astora Women’s Health Holding LLC and merged into Astora Women’s Health LLC and referred to herein as AMS and/or Astora), have been named as defendants in multiple lawsuits in various state and federal courts in the U.S., Canada, Australia and other countries, alleging personal injury resulting from the use of transvaginal surgical mesh products designed to treat pelvic organ prolapse (POP) and stress urinary incontinence (SUI). We have not sold such products since March 2016. Plaintiffs claim a variety of personal injuries, including chronic pain, incontinence, inability to control bowel function and permanent deformities, and seek compensatory and punitive damages, where available.
At various times from June 2013 through the Petition Date, the Company and/or certain of its subsidiaries entered into various Master Settlement Agreements (MSAs) and other agreements intended to resolve approximately 71,000 filed and unfiled U.S. mesh claims. These MSAs and other agreements were solely by way of compromise and settlement and were not an admission of liability or fault by us or any of our subsidiaries. All MSAs are subject to a process that includes guidelines and procedures for administering the settlements and the release of funds. In certain cases, the MSAs provide for the creation of QSFs into which the settlement funds are deposited, establish participation requirements and allow for a reduction of the total settlement payment in the event participation thresholds are not met. In certain circumstances, participation requirements or other conditions for payment were not satisfied prior to the Petition Date. Funds deposited in QSFs are considered restricted cash and/or restricted cash equivalents. Distribution of funds to any individual claimant is conditioned upon the receipt of documentation substantiating product use, the dismissal of any lawsuit and the release of the claim as to us and all affiliates. Prior to receiving funds, an individual claimant must represent and warrant that liens, assignment rights or other claims identified in the claims administration process have been or will be satisfied by the individual claimant. Confidentiality provisions apply to the settlement funds, amounts allocated to individual claimants and other terms of the agreements.
The following table presents the changes in the mesh-related QSFs and liability accrual balances during the nine months ended September 30, 2022 (in thousands):
Mesh Qualified Settlement Funds Mesh Liability Accrual
Balance as of December 31, 2021 $ 78,402  $ 258,137 
Cash received for reversionary interests, net of cash contributions to Qualified Settlement Funds (367) — 
Cash distributions to settle disputes from Qualified Settlement Funds (20,089) (20,089)
Other cash distributions to settle disputes —  (6,499)
Other (1) 149  (820)
Balance as of September 30, 2022 (2) $ 58,095  $ 230,729 
__________
(1)Amounts deposited in the QSFs earn interest from time to time that is reflected in the table above as an increase to the QSF and Mesh Liability Accrual balances. Subject to any restrictions on making payments as a result of the Chapter 11 Cases, such interest is generally used to pay administrative costs of the funds and any interest remaining after all claims have been paid will generally be distributed to the claimants who participated in that settlement. Also included within this line are foreign currency adjustments for settlements not denominated in U.S. dollars.
(2)As of September 30, 2022, this balance is classified as Liabilities subject to compromise in the Condensed Consolidated Balance Sheets.
Charges related to vaginal mesh liability and associated legal fees and other expenses for all periods presented are reported in Discontinued operations, net of tax in our Condensed Consolidated Statements of Operations.
As of September 30, 2022, the Company has made total cumulative mesh liability payments of approximately $3.6 billion, $58.1 million of which remains in the QSFs as of September 30, 2022. In light of the filing of petitions for relief under the Bankruptcy Code, we do not expect to make new payments under previously executed mesh settlement agreements within the next 12 months. As funds are disbursed out of the QSFs from time to time, the liability accrual will be reduced accordingly with a corresponding reduction to restricted cash and cash equivalents.
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As of the Petition Date, mesh personal injury claims against AMS and Astora in the U.S. became subject to the automatic stay, and a similar cessation of litigation activity is in p