SUBSCRIBE TO TMCnet
TMCnet - World's Largest Communications and Technology Community

TMCNet:  ACTAVIS PLC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[August 05, 2014]

ACTAVIS PLC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion of our financial condition and the results of operations should be read in conjunction with the "Consolidated Financial Statements" and notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the "Annual Report"), as revised by Form 8-K filed on May 20, 2014. This discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, among others, those identified under "Risk Factors" in our Annual Report, and elsewhere in this Quarterly Report.


In prior periods, our consolidated financial statements presented the accounts of Actavis, Inc. On May 16, 2013, Actavis plc was incorporated in Ireland as a private limited company and re-registered effective September 18, 2013 as a public limited company. It was established for the purpose of facilitating the business combination between Actavis, Inc. and Warner Chilcott plc ("Warner Chilcott"). On October 1, 2013, pursuant to the transaction agreement dated May 19, 2013 among Actavis, Inc., Warner Chilcott, the Company, Actavis Ireland Holding Limited, Actavis W.C. Holding LLC (now known as Actavis W.C. Holding Inc.) and Actavis W.C. Holding 2 LLC (now known as Actavis W.C. Holding 2 Inc.) ("MergerSub"), (i) the Company acquired Warner Chilcott (the "Warner Chilcott Acquisition") pursuant to a scheme of arrangement under Section 201, and a capital reduction under Sections 72 and 74, of the Irish Companies Act of 1963 where each Warner Chilcott ordinary share was converted into 0.160 of a Company ordinary share (the "Company Ordinary Shares"), or $5,833.9 million in equity consideration, and (ii) MergerSub merged with and into Actavis, Inc., with Actavis, Inc. as the surviving corporation in the merger (the "Merger" and, together with the Warner Chilcott Acquisition, the "Transactions"). Following the consummation of the Transactions, Actavis, Inc. and Warner Chilcott became wholly-owned subsidiaries of Actavis plc. Each of Actavis, Inc.'s common shares was converted into one Company Ordinary Share.

References throughout to "ordinary shares" refer to Actavis Inc.'s Class A common shares, par value $0.0033 per share, prior to the consummation of the Transactions and to the Company's ordinary shares, par value $0.0001 per share, since the consummation of the Transactions.

On October 31, 2012, Watson Pharmaceuticals, Inc. completed the acquisition of the Actavis Group for a cash payment of €4.2 billion, or approximately $5.5 billion, and contingent consideration of 5.5 million newly issued shares of Actavis, Inc., which have since been issued (the "Actavis Group Acquisition").

Watson Pharmaceuticals, Inc.'s Common Stock was traded on the NYSE under the symbol "WPI" until close of trading on January 23, 2013, at which time Watson Pharmaceuticals, Inc. changed its corporate name to "Actavis, Inc." and changed its ticker symbol to "ACT." References throughout to "we," "our," "us," the "Company" or "Actavis" refer to financial information and transactions of Watson Pharmaceuticals, Inc. prior to January 23, 2013, Actavis, Inc. from January 23, 2013 until October 1, 2013 and Actavis plc on and subsequent to October 1, 2013.

Overview We are an integrated global specialty pharmaceutical company engaged in the development, manufacturing, marketing, sale and distribution of generic, branded generic, brand name ("brand", "specialty brand" or "branded"), biosimilar and over-the-counter ("OTC") pharmaceutical products. We also develop and out-license generic pharmaceutical products primarily in Europe through our Medis third-party business. The Company operates manufacturing, distribution, research and development ("R&D") and administrative facilities in many of the world's established and growing international markets, including the United States of America ("U.S."), Canada and Puerto Rico (together "North America"), and its key international markets around the world ("International").

2014 Significant Business Developments During 2014, we announced the following transactions that impacted our results of operations and will continue to have an impact on our future operations.

Acquisition of Forest Laboratories On February 17, 2014, we entered into a Merger Agreement (the "Forest Merger Agreement") by and among the Company, Tango US Holdings Inc., a Delaware corporation and a direct wholly owned subsidiary of the Company ("US Holdco"), Tango Merger Sub 1 LLC, a Delaware limited liability company and a direct wholly owned subsidiary of US Holdco ("Merger Sub 1"), Tango Merger Sub 2 LLC, a Delaware limited liability company and a direct wholly owned subsidiary of US Holdco ("Merger Sub 2" and, together with Merger Sub 1, the "Merger Subs") and Forest Laboratories, Inc., a Delaware corporation ("Forest").

65-------------------------------------------------------------------------------- Table of Contents Under the terms of the Forest Merger Agreement, the acquisition of Forest was accomplished through a merger of Merger Sub 1 with and into Forest ("Merger 1"), with Forest being the surviving entity (the "First Surviving Corporation").

Immediately following the consummation of Merger 1, the First Surviving Corporation merged with and into Merger Sub 2 ("Merger 2" and, together with Merger 1, the "Mergers"), with Merger Sub 2 being the surviving entity.

At the effective time of Merger 1, each share of Forest's common stock issued and outstanding immediately prior to Merger 1 (other than dissenting shares) was converted into the right to receive, at the election of the holder of such share of Forest common stock, (i) a combination of $26.04 in cash, plus .3306 Company shares (the "Mixed Election"), (ii) $86.81 in cash (the "Cash Election") or (iii) .4723 Company shares (the "Stock Election"). On July 1, 2014, the transaction closed and Actavis acquired Forest for equity consideration which includes outstanding equity awards (approximately $20.6 billion) and cash consideration (approximately $7.0 billion which was funded in part with cash on hand and financing available on July 1, 2014) of approximately $27.6 billion (the "Forest Acquisition"). Under the terms of the transaction, Forest shareholders received 89.8 million outstanding Actavis plc ordinary shares, 6.0 million Actavis plc non-qualified stock options and 1.1 million of Actavis plc restricted shares / share units. The assets acquired and the results of operations of Forest will be included in Actavis plc's financial statements from the date of acquisition, July 1, 2014.

Forest was a leading, fully integrated, specialty pharmaceutical company largely focused on the United States market. Forest marketed a portfolio of branded drug products and developed new medicines to treat patients suffering from diseases principally in the following therapeutic areas: central nervous system, cardiovascular, gastrointestinal, respiratory, anti-infective, and cystic fibrosis.

As a result of the transaction, we incurred transaction and integration costs of $39.8 million, including severance-related charges of $14.8 million, financing-related charges of $5.8 million and other costs associated with the acquisition of $19.2 million in the three months ended June 30, 2014. For the six months ended June 30, 2014, we incurred transaction and integration costs of $53.9 million, including severance-related charges of $14.8 million, financing-related charges of $8.7 million and other costs associated with the acquisition of $30.4 million. We also incurred $13.5 million and $23.0 million of other expenses relating to the bridge loan commitments as a result of the transaction in the three and six months ended June 30, 2014, respectively.

In order to complete the acquisition, we divested two Actavis products to Impax Laboratories, Inc. ("Impax"); Lamotrigine ODT and Ursodiol Tablets for cash consideration. In exchange for the products, the Company received $8.0 million on July 1, 2014. In addition, the Company and Impax entered into a supply agreement whereby we will supply product to Impax. Revenues recognized from the divested products were deminimis in the three and six months ended June 30, 2014 and 2013. In addition, on July 1, 2014, the Company divested two acquired Forest products for a combined consideration of $13.5 million. The product revenues were not included in the results of operations of Actavis plc.

May 2014 Acquisition On May 20, 2014, we entered into an agreement to license the product rights for an injectable (the "May 2014 Acquisition") in certain European territories for an upfront and milestone payments of € 5.7 million, or approximately $7.8 million. Under acquisition accounting, the full consideration includes the fair value contingent consideration of € 12.5 million, or approximately $17.1 million, for a total consideration equal to approximately € 18.2 million, or approximately $24.9 million. We are accounting for the acquisition as a business combination requiring that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. As a result of this transaction, we recognized intangible assets of € 18.2 million, or $24.9 million, in the six months ended June 30, 2014. We also entered into a supply agreement, under which we will receive product for a period of five years from the launch of the product with potential renewals thereafter.

Akorn On April 17, 2014, we entered into agreements with Akorn, Inc. ("Akorn") and Hi-Tech Pharmacal Co. Inc. to purchase four currently marketed products and one product under development for cash consideration of $16.8 million. The agreements include three products marketed under Abbreviated New Drug Applications ("ANDA"): Ciprofloxacin Hydrochloride Ophthalmic Solution, Levofloxacin Ophthalmic Solution and Lidocaine Hydrochloride Jelly, and one product marketed under a New Drug Application ("NDA"): Lidocaine/Prilocaine Topical Cream. The Company treated the purchase of the specific products as an acquisition of a business requiring that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. Included in the purchase price allocation was the fair value of inventory that the Company purchased of $0.7 million and $16.1 million for intangible assets. The Company also entered into a supply agreement with Akorn, under which Akorn will supply product for a period of either of two years or until an alternative supplier is found.

66-------------------------------------------------------------------------------- Table of Contents Silom Medical Company On April 1, 2014, we acquired the Silom Medical Company ("Silom"), a privately held generic pharmaceutical company focused on developing and marketing therapies in Thailand, for consideration of approximately $103.0 million in cash (the "Silom Acquisition"). The Silom Acquisition immediately elevates us into a top-five position in the Thai generic pharmaceutical market, with leading positions in the ophthalmic and respiratory therapeutic categories and a strong cardiovascular franchise.

Lincolnton Manufacturing Facility During the six months ended June 30, 2014, we sold assets in our Lincolnton manufacturing facility. As of March 31, 2014, these assets were held for sale resulting in an impairment charge of $5.7 million in the three months ended March 31, 2014. During the three months ended June 30, 2014, we sold the manufacturing facility to G&W NC Laboratories, LLC ("G&W") for $21.5 million. In addition, the Company and G&W entered into a supply agreement, whereby G&W will supply the Company product during a specified transition period. We allocated the fair value of the consideration to the business sold of $25.8 million and the supply agreement, which resulted in a prepaid asset to be amortized into cost of sales over the transition period of $4.3 million. As a result of the final sales terms, we recorded a gain on business sold of $6.6 million and $0.9 million during the three and six months ended June 30, 2014, respectively.

Corona Facility During the quarter ended June 30, 2014, we held for sale assets in our Corona, California manufacturing facility. As a result, the Company recognized an impairment charge of $18.6 million in the quarter ended June 30, 2014, including a write-off of property, plant and equipment, net, due to the integration of Warner Chilcott of $5.8 million.

Valeant During the second quarter of 2014, the Company and Valeant Pharmaceuticals International, Inc.'s ("Valeant") terminated our existing co-promotion agreements relating to Zovirax and Cordan®Tape. Prior to this termination, we co-promoted Zovirax® cream (acyclovir 5%) to obstetricians and gynecologists in the U.S. and Valeant co-promoted Actavis Pharma's Cordran® Tape (flurandrenolide) product in the U.S. Under terms of the agreement related to the co-promotion of Zovirax® cream, we utilized our existing Actavis Pharma sales and marketing structure to promote the product and received a co-promotion fee from sales generated by prescriptions written by our defined targeted physician group. The fees we earned under the Zovirax cream co-promotion arrangement were recognized in other revenues in the period in which the revenues are earned. Under the terms of the Cordran® Tape co-promotion agreement, Valeant utilized its existing Dermatology sales and marketing structure to promote the product, and received a co-promotion fee on sales. The fees we paid under the Cordran Tape arrangement were recognized in the period incurred as an operating expense.

Metronidazole 1.3% Vaginal Gel On May 1, 2013, we entered into an agreement to acquire the worldwide rights to Valeant's metronidazole 1.3% vaginal gel antibiotic development product, a topical antibiotic for the treatment of bacterial vaginosis, which is being accounted for as a business combination. Under the terms of the agreement, we acquired the product upon U.S. Food and Drug Administration ("FDA") approval on March 25, 2014 for acquisition accounting consideration of approximately $62.3 million, which includes the fair value contingent consideration of $50.3 million and upfront and milestone payments of $12.0 million, of which $9.0 million was incurred in the six months ended June 30, 2014. As a result of this transaction we recognized intangible assets and goodwill of $61.8 million and $0.5 million, respectively in the six months ended June 30, 2014.

Columbia Laboratories Inc.

During the six months ended June 30, 2014, we sold our minority interest in Columbia Laboratories Inc. for $8.5 million. As a result, we recorded a gain on the sale of the investment of $4.3 million in the six months ended June 30, 2014. Our former investment in Columbia Laboratories, Inc. was accounted for as an equity method investment.

2013 Significant Business Developments During 2013, we completed and / or initiated the following transactions that impacted our results of operations and will continue to have an impact on our future operations.

67 -------------------------------------------------------------------------------- Table of Contents Actavis (Foshan) Pharmaceuticals Co., Ltd. Assets Held for Sale During the year ended December 31, 2013, we held our Chinese subsidiary, Actavis (Foshan) Pharmaceuticals Co., Ltd. ("Foshan"), for sale, which resulted in an impairment charge of $8.4 million in the fourth quarter of 2013. On January 24, 2014, we completed an agreement with Zhejiang Chiral Medicine Chemicals Co., Ltd to acquire our interest in Foshan (the "Foshan Sale"). The Company intends to continue further commercial operations in China in collaboration with our preferred business partners.

Western European Assets Held for Sale During the year ended December 31, 2013, we held for sale our commercial infrastructure in France, Italy, Spain, Portugal, Belgium, Germany and the Netherlands, including products, marketing authorizations and dossier license rights. We believe that the divestiture allows us to focus on faster growth markets including Central and Eastern Europe, and other emerging markets which we believe will enhance our long-term strategic objectives. On January 17, 2014, we announced our intention to enter into an agreement with Aurobindo Pharma Limited ("Aurobindo") to sell these businesses. On April 1, 2014, we completed the sale of the assets in Western Europe.

In connection with the sale of our Western European assets, we entered into a supply agreement whereby the Company will supply product to Aurobindo over a period of five years. In the second quarter of 2014, we allocated the fair value of the consideration for the sale of the Western European assets of $65.0 million to each element of the agreement, including the supply of product.

As a result of the transactions, we recognized income / (loss) on the net assets held for sale of $3.4 million and $(34.3) million in the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. In addition, the Company recognized a loss on the disposal of the assets in the three and six months ended June 30, 2014 of $20.9 million and deferred revenue of $10.1 million to be recognized over the course of the supply agreement.

Amendment to Sanofi Collaboration Agreement On October 28, 2013, Warner Chilcott Company, LLC ("WCCL"), one of our indirect wholly-owned subsidiaries, and Sanofi-Aventis U.S. LLC ("Sanofi") entered into an amendment (the "Sanofi Amendment") to the global collaboration agreement as amended (the "Collaboration Agreement") to which WCCL and Sanofi are parties.

WCCL and Sanofi co-develop and market Actonel® and Atelvia® (risedronate sodium) on a global basis, excluding Japan.

Pursuant to the Sanofi Amendment, the parties amended the Collaboration Agreement with respect to Actonel® and Atelvia® in the U.S. and Puerto Rico (the "Exclusive Territory") to provide that, in exchange for the payment of a lump sum of $125.0 million by WCCL to Sanofi in the year ended December 31, 2013, WCCL's obligations with respect to the global reimbursement payment, which represented a percentage of Actavis' net sales as defined, as it relates to the Exclusive Territory for the year ended December 31, 2014, shall be satisfied in full. The Sanofi Amendment did not and does not apply to or affect the parties' respective rights and obligations under the Collaboration Agreement with respect to (i) the year ended December 31, 2013 or (ii) territories outside the Exclusive Territory. The $125.0 million was recorded as an intangible asset during the year ended December 31, 2013, which will be amortized over the course of the year ending December 31, 2014 using the economic benefit model.

Acquisition of Warner Chilcott On October 1, 2013, we completed the Warner Chilcott Acquisition for a transaction value, including the assumption of debt, of $9.2 billion. Warner Chilcott was a leading specialty pharmaceutical company focused on women's healthcare, gastroenterology, urology and dermatology segments of the branded pharmaceuticals market, primarily in North America. The Warner Chilcott Acquisition expands our presence in our Actavis Pharma segment. For additional information, refer to "NOTE 3 - Acquisitions and Other Agreements" in the accompanying "Notes to Consolidated Financial Statements" in this Quarterly Report.

Endo Pharmaceuticals Inc.

We entered into an agreement with Endo Pharmaceuticals Inc. ("Endo") and Teikoku Seiyaku Co., Ltd to settle all outstanding patent litigation related to our generic version of Lidoderm®. Per the terms of the agreement, on September 15, 2013, we launched our generic version of Lidoderm® (lidocaine topical patch 5%) to customers in the U.S. more than two years before the product's patents expire. Lidoderm®is a local anesthetic indicated to relieve post-shingles pain.

Additionally, under the terms of the agreement, we received and distributed branded Lidoderm® prior to the launch of the generic version of Lidoderm®.

68 -------------------------------------------------------------------------------- Table of Contents Acquisition of Uteron Pharma, S.A On January 23, 2013, we completed the acquisition of Belgium-based Uteron Pharma SA. The acquisition was consummated for a cash payment of $142.0 million, plus the assumption of debt and other liabilities of $7.7 million and up to $155.0 million in potential future milestone payments, of which $43.4 million was recognized on the date of acquisition (the "Uteron Acquisition"). The Uteron Acquisition expanded our pipeline of Women's Health products, including two potential near term commercial opportunities in contraception and infertility, and one oral contraceptive project. Several additional products in earlier stages of development were also included in the Uteron Acquisition.

2012 Significant Business Development During 2012, we completed the following transaction that impacted our results of operations and will continue to have an impact on our future operations.

Acquisition of Actavis Group On October 31, 2012, we completed the Actavis Group Acquisition. The Actavis Group was a privately held generic pharmaceutical company specializing in the development, manufacture and sale of generic pharmaceuticals.

Operating results Segments In the first quarter of 2014, we realigned our global strategic business structure. Prior to the realignment, we operated and managed our business as three distinct operating segments: Actavis Pharma, Actavis Specialty Brands and Anda Distribution.

Under the new organizational structure in place for the six months ended June 30, 2014, generics, specialty brands and third-party commercial operations have been consolidated into a single new division. As a result of the realignment, we organized our business into two operating segments: Actavis Pharma and Anda Distribution. The Actavis Pharma segment includes patent-protected products and certain trademarked off-patent products that the Company sells and markets as brand pharmaceutical products and off-patent pharmaceutical products that are therapeutically equivalent to proprietary products. The Anda Distribution segment distributes generic and brand pharmaceutical products manufactured by third parties, as well as by the Company, primarily to independent pharmacies, pharmacy chains, pharmacy buying groups and physicians' offices. The Anda Distribution segment operating results exclude sales of products developed, acquired, or licensed by the Actavis Pharma segment.

We evaluate segment performance based on segment contribution. Segment contribution for Actavis Pharma and Anda Distribution represents segment net revenues less cost of sales (excluding amortization and impairment of acquired intangibles including product rights), selling and marketing expenses and general and administrative expenses. The Company does not report total assets, capital expenditures, R&D, amortization, goodwill impairments and asset sales, impairments and contingent consideration adjustment, net by segment as not all such information has been accounted for at the segment level, nor has such information been used by all segments. R&D related to our Actavis Pharma segment was $158.0 million and $329.5 million in the three and six months ended June 30, 2014, respectively. Within R&D, $124.3 million and $238.2 million was generic development, $9.4 million and $42.6 million was invested in brand development and $24.3 million and $48.7 million was invested in biosimilar development during the three and six months ended June 30, 2014, respectively. With the acquisition of Forest Laboratories, the Company will evaluate all current R&D projects in development, including those with IPR&D assets. Some current projects being worked on may be placed on hold or terminated based upon Company priorities.

69 -------------------------------------------------------------------------------- Table of Contents Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013 Results of operations, including segment net revenues, segment operating expenses and segment contribution information for our Actavis Pharma and Anda Distribution segments consisted of the following ($ in millions): Three months Ended June 30, 2014 2013 Actavis Anda Actavis Anda Pharma Distribution Total Pharma Distribution Total Product sales $ 2,199.0 $ 427.0 $ 2,626.0 $ 1,652.4 $ 275.8 $ 1,928.2 Other revenue 41.2 - 41.2 61.6 - 61.6 Net revenues 2,240.2 427.0 2,667.2 1,714.0 275.8 1,989.8 Operating expenses: Cost of sales(1) 922.0 374.5 1,296.5 811.5 238.8 1,050.3 Selling and marketing 264.3 27.2 291.5 212.9 22.7 235.6 General and administrative 261.3 8.8 270.1 218.0 7.8 225.8 Contribution $ 792.6 $ 16.5 $ 809.1 $ 471.6 $ 6.5 $ 478.1 Contribution margin 35.4 % 3.9 % 30.3 % 27.5 % 2.4 % 24.0 % Research and development 158.0 136.3 Amortization 422.9 149.6 Goodwill impairment - 647.5 Asset sales, impairments and contingent consideration adjustment, net 22.1 7.8 Operating income $ 206.1 $ (463.1 ) Operating margin 7.7 % (23.3 )% (1) Excludes amortization and impairment of acquired intangibles including product rights.

Actavis Pharma Segment The following table presents net contribution for the Actavis Pharma segment for the three months ended June 30, 2014 and 2013 ($ in millions): Three Months Ended June 30, Change 2014 2013 Dollars % Product sales $ 2,199.0 $ 1,652.4 $ 546.6 33.1 % Other revenue 41.2 61.6 (20.4 ) (33.1) % Net revenues 2,240.2 1,714.0 526.2 30.7 % Operating expenses: Cost of sales(1) 922.0 811.5 110.5 13.6 % Selling and marketing 264.3 212.9 51.4 24.1 % General and administrative 261.3 218.0 43.3 19.9 % Segment contribution $ 792.6 $ 471.6 $ 321.0 68.1 % Segment margin 35.4 % 27.5 % 7.9 % (1) Excludes amortization and impairment of acquired intangibles including product rights.

70 -------------------------------------------------------------------------------- Table of Contents Net Revenues The following table presents net revenues for the reporting units in the Actavis Pharma segment for the three months ended June 30, 2014 and 2013 ($ in millions): Three Months Ended June 30, Change 2014 2013 Dollars % North American Brands: Women's Health Lo Loestrin® Fe $ 68.0 $ - $ 68.0 100.0 % Minastrin® 24 Fe 56.5 - 56.5 100.0 % Estrace® Cream 57.9 - 57.9 100.0 % Other Women's Health 48.4 21.3 27.1 127.2 % Total Women's Health 230.8 21.3 209.5 983.6 % Urology / Gastroenterology Rapaflo® 25.3 21.2 4.1 19.3 % Delzicol® / Asacol®HD 136.4 - 136.4 100.0 % Other Urology / Gastroenterology 52.8 34.6 18.2 52.6 % Total Urology / Gastroenterology 214.5 55.8 158.7 284.4 % Dermatology / Established Brands Doryx® 17.5 - 17.5 100.0 % Actonel® 54.2 - 54.2 100.0 % Other Dermatology / Established Brands 70.2 67.7 2.5 3.7 % Total Dermatology / Established Brands 141.9 67.7 74.2 109.6 % Total North American Brands 587.2 144.8 442.4 305.5 % North American Generics 1,031.4 949.8 81.6 8.6 % International 621.6 619.4 2.2 0.4 % Net Revenues $ 2,240.2 $ 1,714.0 $ 526.2 30.7 % North American Brand revenues are classified based on the current mix of promoted products within Women's Health, Urology / Gastroenterology and Dermatology / Established Brands. Movement of products between categories may occur from time to time based on changes in promotional activities.

Net revenues in our Actavis Pharma segment include product sales and other revenue derived from generic, branded generic, branded and OTC products. Our Actavis Pharma segment product line includes a variety of products and dosage forms. Indications for this line include, but are not limited to, pregnancy prevention, ulcerative colitis, acne, pain management, depression, hypertension, attention-deficit/hyperactivity disorder and smoking cessation. Dosage forms include oral solids, semi-solids, liquids, gels, transdermals, injectables, inhalation and oral transmucosals. In October 2013, as a result of the Warner Chilcott Acquisition, we began promoting a number of products, including, but not limited to, Asacol® HD, Delzicol®, Doryx®, Estrace® Cream, Lo Loestrin® Fe and Minastrin® 24 Fe. Beginning on July 1, 2014, as a result of the Forest Acquisition, the Company also began promoting North American brands, including, but not limited to, Bystolic®, Daliresp®, Linzess®, Namenda®, Namenda XR®, Savella® and Vibryd®. The results of these products, and other products acquired in the Forest Acquisition will be included in the three months ending September 30, 2014.

The increase in the Actavis Pharma net revenues is primarily due to the Warner Chilcott Acquisition, which contributed three months of sales in 2014 compared to no sales in the prior period ($493.2 million worldwide), including $443.5 million in North American Brands. The increase in North American Generics revenues was primarily the result of period-over-period increases in Lidocaine topical patch 5% (generic of Lidoderm®) of $116.1 million due to the timing of the launch in 2013 and Duloxetine HCI (generic of Cymbalta®), which was not sold in the first six months of 2013, of $47.5 million, offset, in part, by a decline in Methlyphenidate ER (generic of Concerta®) of $78.1 million due primarily to decreased volume. Other movements within this category are due to product mix.

71 -------------------------------------------------------------------------------- Table of Contents Other revenues consist primarily of royalties, milestone receipts, commission income and revenue from licensing arrangements, co-promotion revenue and the recognition of deferred revenue relating to our obligation to manufacture and supply brand products to third parties. Other revenues also include revenue recognized from R&D and licensing agreements.

Cost of Sales Cost of sales includes production and packaging costs for the products we manufacture, third party acquisition costs for products manufactured by others, profit-sharing or royalty payments for products sold pursuant to licensing agreements, inventory reserve charges and excess capacity utilization charges, where applicable. Cost of sales does not include amortization or impairment costs for acquired product rights or other acquired intangibles.

The increase in cost of sales was due to higher product sales as a result of the Warner Chilcott Acquisition ($134.7 million), including the impact of selling through a portion of the inventory associated with the fair value step-up of the October 1, 2013 Warner Chilcott inventory acquired ($84.9 million).

Selling and Marketing Expenses Selling and marketing expenses consist mainly of personnel-related costs, product promotion costs, distribution costs, professional service costs, insurance, depreciation and travel costs.

The increase in selling and marketing expenses was primarily due to higher selling and marketing costs associated with the Warner Chilcott Acquisition ($59.9 million), offset, in part, by decreased spending as a result of restructuring activities related to the Actavis Group during the year ended December 31, 2013.

General and Administrative Expenses General and administrative expenses consist mainly of personnel-related costs, facilities costs, transaction costs, insurance, depreciation, litigation and settlement costs and professional services costs which are general in nature.

72 -------------------------------------------------------------------------------- Table of Contents The increase in general and administrative expenses was due in part to increased operating costs related to the expansion of the Company's size, including costs incurred by Warner Chilcott for ongoing operating expenses of $44.3 million.

Included in the three months ended June 30, 2014, were costs incurred relating to the Forest Acquisition of $34.5 million. Included in the three months ended June 30, 2013 were $25.5 million of charges incurred associated with the settlements of ongoing litigation, as well as $22.6 million of costs incurred for the Warner Chilcott Acquisition.

Anda Distribution Segment The following table presents net contribution for the Anda Distribution segment for the three months ended June 30, 2014 and 2013 ($ in millions): Three Months Ended June 30, Change 2014 2013 Dollars % Net revenues $ 427.0 $ 275.8 $ 151.2 54.8 % Operating expenses: Cost of sales(1) 374.5 238.8 135.7 56.8 % Selling and marketing 27.2 22.7 4.5 19.8 % General and administrative 8.8 7.8 1.0 12.8 % Segment contribution $ 16.5 $ 6.5 $ 10.0 153.8 % Segment margin 3.9 % 2.4 % 1.5 % (1) Excludes amortization and impairment of acquired intangibles including product rights.

Net Revenues Our Anda Distribution segment distributes generic and brand pharmaceutical products manufactured by third parties, as well as by Actavis, primarily to independent pharmacies, pharmacy chains, pharmacy buying groups and physicians' offices. Sales are principally generated through an in-house telemarketing staff and through internally developed ordering systems. The Anda Distribution segment operating results exclude sales by Anda of products developed, acquired, or licensed by the Actavis Pharma segment.

The increase was primarily due to an increase in U.S. base product sales due to volume increases ($138.1 million) and an increase in period-over-period third party launches ($13.1 million).

Cost of Sales Cost of sales includes third party acquisition costs, profit-sharing or royalty payments for products sold pursuant to licensing agreements and inventory reserve charges, where applicable. Cost of sales does not include amortization or impairment costs for other acquired intangibles.

The increase in cost of sales within our Anda Distribution segment was due to higher product sales. Cost of sales as a percentage of revenue increased to 87.7% compared to 86.6% in the prior year period primarily due to product and customer mix.

Selling and Marketing Expenses Selling and marketing expenses consist mainly of personnel costs, facilities costs, insurance and freight costs which support the Anda Distribution segment sales and marketing functions. Selling and marketing costs exclude fees allocated from the Anda Distribution segment for services they provide on behalf of Actavis Pharma.

The increase in selling and marketing expenses relate to higher freight costs and higher personnel costs.

General and Administrative Expenses General and administrative expenses consist mainly of personnel-related costs, facilities costs, insurance, depreciation and professional services costs.

General and administrative costs within the Actavis Pharma segment exclude fees allocated from the Anda Distribution segment for services they provide on behalf of Actavis Pharma.

73 -------------------------------------------------------------------------------- Table of Contents Research and Development Expenses Three Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Research and development $ 158.0 $ 136.3 $ 21.7 15.9 % as % of net revenues 5.9 % 6.8 % R&D expenses consist predominantly of personnel-related costs, API costs, contract research, clinical, biostudy and facilities costs associated with product development. The increase in R&D expenses was primarily due to higher costs associated with the Warner Chilcott Acquisition ($18.2 million) and higher legacy spend for both generics ($20.5 million) and branded products ($11.9 million), including biologics of $6.2 million, offset, in part, by $28.2 million of income relating to the reduction of acquisition related contingent consideration liabilities, net of accretion expense, including $24.3 million associated with the contingent consideration write-off of Estelle and Colvir.

Amortization Three Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Amortization $ 422.9 $ 149.6 $ 273.3 182.7 % as % of net revenues 15.9 % 7.5 % Amortization for the three months ended June 30, 2014 increased as compared to the prior year period primarily as a result of amortization of identifiable assets acquired in the Warner Chilcott Acquisition ($282.8 million).

Goodwill Impairments During the second quarter of 2013, concurrent with the availability of discrete financial information for our then new reporting units, we completed an extensive review of our operating businesses, including exploring options for addressing overall profitability of seven Western European commercial operations consisting of, among other things, restructuring their operations, refocusing their activities on specific sub-markets, as well as potential divestitures of such businesses to other third parties. The potential impact of these conditions was considered in our projections when determining the indicated fair value of our reporting units for the impairment tests that were performed. In the quarter ended June 30, 2013, we recorded an impairment charge related to the goodwill in the Actavis Pharma - Europe reporting unit of $647.5 million as a result of our review.

Asset sales, impairments and contingent consideration adjustment, net Three Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Asset sales, impairments and contingent consideration adjustment, net $ 22.1 $ 7.8 $ 14.3 183.3 % Asset sales, impairments and contingent consideration adjustment, net for the three months ended June 30, 2014 primarily included the impact of our Corona manufacturing facility assets held for sale of $12.8 million and IPR&D impairments related to the Estelle and Colvir assets acquired in the Uteron Acquisition of $15.1 million offset, in part, by a gain on sale of the Lincolnton facility of $6.6 million.

Asset sales, impairments and contingent consideration adjustment, net for three months ended June 30, 2013 included impairment charges relating to a facility in Greece of $19.4 million, IPR&D intangibles in connection with the Arrow Group (acquired on December 2, 2009, in exchange for cash consideration of $1.05 billion, approximately 16.9 million shares of the Company's Restricted Ordinary Shares and 200,000 shares of the Company's Mandatorily Redeemable Preferred Stock and certain contingent consideration (the "Arrow Group Acquisition")) of $4.4 million and net losses on miscellaneous asset sales, offset in part by gains related to the sale of a Russian subsidiary and a manufacturing facility in India totaling $16.2 million.

74-------------------------------------------------------------------------------- Table of Contents Interest Income Three Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Interest income $ 1.2 $ 1.2 $ - 0.0 % Interest income represents interest earned on cash and cash equivalents held during the respective periods.

Interest Expense Three Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Interest expense - 2009 Senior Notes $ 6.3 $ 12.4 $ (6.1 ) (49.2 )% Interest expense - 2012 Senior Notes 32.9 32.5 0.4 1.2 % Interest expense - 2014 New Notes 4.6 - 4.6 100.0 % Interest expense - WC Notes 18.8 - 18.8 100.0 % Interest expense - Term Loans 14.6 7.9 6.7 84.8 % Interest expense - Revolving Credit Facility 0.6 0.4 0.2 50.0 % Interest expense - Other 1.3 1.9 (0.6 ) (31.6 )% Interest Expense $ 79.1 $ 55.1 $ 24.0 43.6 % Interest expense increased for the three months ended June 30, 2014 over the prior year primarily due to the indebtedness under the 2014 New Notes (defined below) incurred in connection with the Forest Acquisition, WC Notes (defined below) and the WC Term Loan Agreement (defined below) incurred in connection with the Warner Chilcott Acquisition.

Other Income (expense), net Three Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Bridge loan commitment fee $ (13.5 ) $ - (13.5 ) (100.0 )% Disposal of a business (20.9 ) - (20.9 ) (100.0 )% Earnings on equity method investments 0.7 1.1 (0.4 ) (36.4 )% Other income (2.1 ) 2.7 (4.8 ) (177.8 )% Other income (expense), net $ (35.8 ) $ 3.8 $ (39.6 ) (1,042.1 )% Bridge Loan Commitment Fee In connection with the Forest Merger Agreement, we secured a bridge loan commitment of up to $7.0 billion and incurred associated commitment costs of $25.8 million. During the three months ended June 30, 2014, recorded an expense of $13.5 million associated with the amortization and write-off of such deferred fees.

Disposal of a business Disposal of a business includes the loss on the disposal of our Western European operations divested in the second quarter of 2014 of $20.9 million.

75-------------------------------------------------------------------------------- Table of Contents Provision for Income Taxes Three Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Provision for income taxes $ 43.6 $ 51.4 $ 7.8 15.2 % Effective tax rate 47.2 % (10.0 )% The Company's effective tax rate for the three months ended June 30, 2014 was 47.2% compared to (10.0)% for the three months ended June 30, 2013. The effective tax rate for the three months ended June 30, 2014 was impacted by losses in certain jurisdictions for which no tax benefit is provided and the amortization of the step-up in inventory tax benefited at a lower rate than the Irish statutory rate. This was partially offset by the amortization of intangibles tax benefited at a higher rate than the Irish statutory rate. The effective tax rate for the three months ended June 30, 2013 was impacted by certain one-time non-deductible pre-tax expenses including a goodwill impairment charge of $647.5 million.

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013 Results of operations, including segment net revenues, segment operating expenses and segment contribution information for our Actavis Pharma and Anda Distribution segments consisted of the following ($ in millions): Six Months Ended June 30, 2014 2013 Actavis Anda Actavis Anda Pharma Distribution Total Pharma Distribution Total Product sales $ 4,405.7 $ 817.2 $ 5,222.9 $ 3,292.7 $ 506.8 $ 3,799.5 Other revenue 99.4 - 99.4 85.8 - 85.8 Net revenues 4,505.1 817.2 5,322.3 3,378.5 506.8 3,885.3 Operating expenses: Cost of sales(1) 1,883.8 705.7 2,589.5 1,703.6 433.3 2,136.9 Selling and marketing 520.4 54.2 574.6 420.2 42.6 462.8 General and administrative 529.3 16.6 545.9 396.3 15.3 411.6 Contribution $ 1,571.6 $ 40.7 $ 1,612.3 $ 858.4 $ 15.6 $ 874.0 Contribution margin 34.9 % 5.0 % 30.3 % 25.4 % 3.1 % 22.5 % Research and development 329.5 268.4 Amortization 847.1 308.0 Goodwill impairment - 647.5 Asset sales, impairments and contingent consideration adjustment, net 21.7 155.8 Operating income $ 414.0 $ (505.7 ) Operating margin 7.8 % (13.0 )% (1) Excludes amortization and impairment of acquired intangibles including product rights.

76 -------------------------------------------------------------------------------- Table of Contents Actavis Pharma Segment The following table presents net contribution for the Actavis Pharma segment for the six months ended June 30, 2014 and 2013 ($ in millions): Six Months Ended June 30, Change 2014 2013 Dollars % Product sales $ 4,405.7 $ 3,292.7 $ 1,113.0 33.8 % Other revenue 99.4 85.8 13.6 15.9 % Net revenues 4,505.1 3,378.5 1,126.6 33.3 % Operating expenses: Cost of sales(1) 1,883.8 1,703.6 180.2 10.6 % Selling and marketing 520.4 420.2 100.2 23.8 % General and administrative 529.3 396.3 133.0 33.6 % Segment contribution $ 1,571.6 $ 858.4 $ 713.2 83.1 % Segment margin 34.9 % 25.4 % 9.5 % (1) Excludes amortization and impairment of acquired intangibles including product rights.

77 -------------------------------------------------------------------------------- Table of Contents Net Revenues The following table presents net revenues for the reporting units in the Actavis Pharma segment for the six months ended June 30, 2014 and 2013 ($ in millions): Six Months Ended June 30, Change 2014 2013 Dollars % North American Brands: Women's Health Lo Loestrin® Fe $ 130.4 $ - $ 130.4 100.0 % Minastrin® 24 Fe 104.4 - 104.4 100.0 % Estrace® Cream 111.2 - 111.2 100.0 % Other Women's Health 97.4 41.3 56.1 135.8 % Total Women's Health 443.4 41.3 402.1 973.6 % Urology / Gastroenterology Rapaflo® 56.5 43.8 12.7 29.0 % Delzicol® / Asacol®HD 277.2 - 277.2 100.0 % Other Urology / Gastroenterology 106.0 68.7 37.3 54.3 % Total Urology / Gastroenterology 439.7 112.5 327.2 290.8 % Dermatology / Established Brands Doryx® 29.4 - 29.4 100.0 % Actonel® 115.3 - 115.3 100.0 % Other Dermatology / Established Brands 153.4 120.6 32.8 27.2 % Total Dermatology / Established Brands 298.1 120.6 177.5 147.2 % Total North American Brands 1,181.2 274.4 906.8 330.5 % North American Generics 2,055.6 1,906.5 149.1 7.8 % International 1,268.3 1,197.6 70.7 5.9 % Net Revenues $ 4,505.1 $ 3,378.5 $ 1,126.6 33.3 % The increase in the Actavis Pharma net revenues is primarily due to the Warner Chilcott Acquisition, which contributed six months of sales in 2014 compared to no sales in the prior period ($974.5 million worldwide), including $877.3 million in North American Brands. The increase in North American Generics revenues was primarily the result of period-over-period increases in Lidocaine topical patch 5% (generic of Lidoderm®) of $251.3 million due to the timing of the launch in 2013 and Duloxetine HCI (generic of Cymbalta®), which was not sold in the first six months of 2013, of $110.1 million, offset in part by declines in Methlyphenidate ER (generic of Concerta®) of $196.3 million due primarily to decreased volume. Other movements within this category are due to product mix.

Cost of Sales The increase in cost of sales was due to higher product sales as a result of the Warner Chilcott Acquisition ($306.7 million), including the impact of selling through a portion of the inventory associated with the fair value step-up of the October 1, 2013 Warner Chilcott inventory acquired ($209.5 million). Included in the six months ended June 30, 2013 was $93.5 million relating to the impact of selling through a portion of the inventory associated with the fair value step-up on inventory related to the Actavis Group Acquisition.

78-------------------------------------------------------------------------------- Table of Contents Selling and Marketing Expenses The increase in selling and marketing expenses was primarily due to higher selling and marketing costs associated with the Warner Chilcott Acquisition ($115.8 million), offset, in part, by decreased spending as a result of restructuring activities related to the Actavis Group during the year ended December 31, 2013.

General and Administrative Expenses The increase in general and administrative expenses was due in part to increased operating costs related to the expansion of the Company's size, including costs incurred by Warner Chilcott for ongoing operating expenses of $91.1 million.

Included in the six months ended June 30, 2014, were costs incurred relating to the Forest Acquisition of $48.6 million. Included in the six months ended June 30, 2013 were $30.8 million of charges incurred due to the settlements of ongoing litigation, as well as $22.6 million of costs incurred for the Warner Chilcott Acquisition and other costs associated with the restructuring of the Actavis Group.

Anda Distribution Segment The following table presents net contribution for the ANDA Distribution segment for the six months ended June 30, 2014 and 2013 ($ in millions): Six Months Ended June 30, Change 2014 2013 Dollars % Net revenues $ 817.2 $ 506.8 $ 310.4 61.2 % Operating expenses: Cost of sales(1) 705.7 433.3 272.4 62.9 % Selling and marketing 54.2 42.6 11.6 27.2 % General and administrative 16.6 15.3 1.3 8.5 % Segment contribution $ 40.7 $ 15.6 $ 25.1 160.9 % Segment margin 5.0 % 3.1 % 1.9 % (1) Excludes amortization and impairment of acquired intangibles including product rights.

Net Revenues The increase in revenues was primarily due to an increase in U.S. base product sales due to volume increases ($289.7 million) and an increase in period-over-period third party launches ($20.7 million).

Cost of Sales The increase in cost of sales within our Anda Distribution segment was due to higher product sales. Cost of sales as a percentage of revenue increased to 86.4% compared to 85.5% in the prior year period primarily due to product and customer mix.

Selling and Marketing Expenses The increase in selling and marketing expenses relate to higher freight costs and higher personnel costs.

General and Administrative Expenses General and administrative expenses were in line period-over-period.

79-------------------------------------------------------------------------------- Table of Contents Research and Development Expenses Six Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Research and development $ 329.5 $ 268.4 $ 61.1 22.8 % as % of net revenues 6.2 % 6.9 % The increase in R&D expenses was primarily due to higher costs associated with the Warner Chilcott Acquisition ($38.1 million) and higher legacy spend for both generics ($35.6 million) and branded products ($23.4 million), including biologics of $14.6 million, offset, in part, by $35.4 million of income relating to the reduction of acquisition related contingent consideration liabilities, net of accretion expense, including $24.7 million associated with the write-off of contingent consideration associated with Estelle and Colvir.

Amortization Six Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Amortization $ 847.1 $ 308.0 $ 539.1 175.0 % as % of net revenues 15.9 % 7.9 % Amortization for the six months ended June 30, 2014 increased as compared to the prior year period primarily as a result of amortization of identifiable assets acquired in the Warner Chilcott Acquisition ($567.4 million).

Goodwill Impairments In the six months ended June 30, 2013, we recorded an impairment charge related to the goodwill in the Actavis Pharma - Europe reporting unit of $647.5 million.

Asset sales, impairments and contingent consideration adjustment, net Six Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Asset sales, impairments and contingent consideration adjustment, net $ 21.7 $ 155.8 $ (134.1 ) (86.1 )% Asset sales, impairments and contingent consideration adjustment, net for the six months ended June 30, 2014 primarily included the gain on assets related to our Western European assets held for sale of $3.4 million, the expenses related to our Corona manufacturing facility assets held for sale of $12.8 million, and IPR&D impairments related to the Estelle and Colvir assets acquired in the Uteron Acquisition of $15.1 million.

Asset sales, impairments and contingent consideration adjustment, net for the six months ended June 30, 2013 includes a non-cash fair value adjustment for contingent consideration as a result of the decision to award the remaining 1.65 million contingent shares in connection with the Actavis Group Acquisition of $150.3 million, an impairment charge related to a facility in Greece of $19.4 million and an impairment of IPR&D intangibles in connection with the Arrow Group acquisition of $4.4 million, offset, in part, by gains related to the sale of a Russian subsidiary and a manufacturing facility in India totaling $16.2 million, as well as other miscellaneous gains.

80-------------------------------------------------------------------------------- Table of Contents Interest Income Six Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Interest income $ 2.2 $ 2.0 $ 0.2 10.0 % Interest Expense Six Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Interest expense - 2009 Senior Notes $ 12.6 $ 24.7 $ (12.1 ) (49.0 )% Interest expense - 2012 Senior Notes 65.4 64.3 1.1 1.7 % Interest expense - 2014 New Notes 4.6 - 4.6 100.0 % Interest expense - WC Notes 37.6 - 37.6 100.0 % Interest expense - Term Loans 28.3 16.1 12.2 75.8 % Interest expense - Revolving Credit Facility 1.3 1.0 0.3 30.0 % Interest expense - Other 2.1 3.1 (1.0 ) (32.3 )% Interest Expense $ 151.9 $ 109.2 $ 42.7 39.1 % Interest expense increased for the six months ended June 30, 2014 over the prior year primarily due to the indebtedness under the WC Notes and the WC Term Loan Agreement incurred in connection with the Warner Chilcott Acquisition.

Other Income (expense), net Six Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Gain on sale of investments $ 4.3 $ - 4.3 100.0 % Bridge loan commitment fee (23.0 ) - (23.0 ) (100.0 )% Disposal of a business (20.9 ) - (20.9 ) (100.0 )% Earnings on equity method investments 1.8 2.0 (0.2 ) (10.0 )% Other income 7.0 22.4 (15.4 ) (68.8 )% Other income (expense), net $ (30.8 ) $ 24.4 $ (55.2 ) (226.2 )% Gain on Sale of Investment During the six months ended June 30, 2014, we sold our minority interest in Columbia Laboratories Inc. for $8.5 million. As a result, we recognized a gain on the sale of $4.3 million.

Bridge Loan Commitment Fee In connection with the Forest Merger Agreement, we secured a bridge loan commitment of up to $7.0 billion and incurred associated commitment costs of $25.8 million. During the six months ended June 30, 2014, we recorded an expense of $23.0 million associated with these fees.

Disposal of a business Disposal of a business includes the loss on the disposal of our Western European operations divested in the second quarter of 2014 of $20.9 million.

81-------------------------------------------------------------------------------- Table of Contents Other Income In the six months ended June 30, 2014, we recorded income of $5.0 million, in connection with the agreement entered into on January 24, 2014 with Nitrogen DS Limited, one of the sellers associated with the Actavis Group Acquisition, in which we received payment from Nitrogen DS Limited in exchange for their right to transfer, sell, or assign or otherwise dispose of 50% of the locked up Actavis shares owned.

Other (expense), net for the six months ended June 30, 2013 includes a gain on the purchase of Icelandic krona of $14.8 million.

Provision for Income Taxes Six Months Ended June 30, Change ($ in millions) 2014 2013 Dollars % Provision for income taxes $ 88.0 $ 79.6 $ 8.4 10.6 % Effective tax rate 37.7 % (13.5 )% The Company's effective tax rate for the six months ended June 30, 2014 was 37.7% compared to (13.5)% for the six months ended June 30, 2013. The effective tax rate for the six months ended June 30, 2014 was impacted by income earned in jurisdictions with tax rates higher than the Irish statutory rate, losses in certain jurisdictions for which no tax benefit is provided, and the amortization of the step-up in inventory tax benefited at a lower rate than the Irish statutory rate. This was partially offset by the amortization of intangibles tax benefited at a higher rate than the Irish statutory rate. Additionally, the tax provision included a benefit of $9.7 million related to certain changes in the Company's uncertain tax positions. The effective tax rate for the six months ended June 30, 2013 was impacted by certain one-time non-deductible pre-tax expenses including a goodwill impairment charge of $647.5 million and a charge for consideration due to the former Actavis stakeholders of $150.3 million. This was partially offset by non-taxable pre-tax income of $15.0 million related to the Arrow Acquisition.

82 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Working Capital Position Working capital at June 30, 2014 and December 31, 2013 is summarized as follows: June 30, December 31, Increase ($ in millions): 2014 2013 (Decrease) Current Assets: Cash and cash equivalents $ 4,293.6 $ 329.0 $ 3,964.6 Marketable securities 2.5 2.5 - Accounts receivable, net 1,567.7 1,404.9 162.8 Inventories, net 1,633.3 1,786.3 (153.0 ) Prepaid expenses and other current assets 534.8 409.2 125.6 Current assets held for sale 37.6 271.0 (233.4 ) Deferred tax assets 203.4 231.8 (28.4 ) Total current assets 8,272.9 4,434.7 3,838.2 Current liabilities: Accounts payable and accrued expenses $ 2,443.1 $ 2,343.2 $ 99.9 Income taxes payable 82.2 96.6 (14.4 ) Current portion of long-term debt and capital leases 1,588.8 534.6 1,054.2 Deferred revenue 39.5 38.8 0.7 Current liabilities held for sale - 246.6 (246.6 ) Deferred tax liabilities 29.8 35.1 (5.3 ) Total current liabilities 4,183.4 3,294.9 888.5 Working Capital $ 4,089.5 $ 1,139.8 $ 2,949.7 Working Capital excluding assets held for sale, net $ 4,051.9 $ 1,115.4 $ 2,936.5 Adjusted Current Ratio 1.97 1.37 Working capital excluding assets held for sale, net, increased $2,936.5 million to $4,051.9 million at June 30, 2014 compared to $1,115.4 million at December 31, 2013. This increase is due primarily to net proceeds received in connection with the 2104 New Notes issuance of approximately $3,650.0 million, which was used in part to fund the Forest Acquisition on July 1, 2014 and net income excluding non-cash charges of $1,272.2 million, offset in part by an increase in the current portion of long-term debt due to the classification of the WC Notes, a decrease in inventories, primarily due to the portion of the fair value step-up of the October 1, 2013 Warner Chilcott inventory acquired that was sold in the six months ended June 30, 2014 of $209.5 million.

83-------------------------------------------------------------------------------- Table of Contents Cash Flows from Operations Summarized cash flow from operations is as follows: Six Months Ended June 30, ($ in millions) 2014 2013 Net cash provided by operating activities $ 909.1 $ 291.0 Cash flows from operations represent net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities increased $618.1 million in the six months ended June 30, 2014 versus the prior year period, due primarily to an increase in net income, adjusted for non-cash activity of $730.1 million ($1,272.2 million and $542.1 million of net income, adjusted for non-cash activity in the six months ended June 30, 2014 and 2013, respectively), offset, in part, by a decrease in working capital movements.

Management expects that available cash balances and the remaining 2014 cash flows from operating activities will provide sufficient resources to fund our operating liquidity needs and expected 2014 non-operating funding requirements.

Investing Cash Flows Our cash flows from investing activities are summarized as follows: Six Months Ended June 30, ($ in millions) 2014 2013 Net cash (used in) investing activities $ (177.8 ) $ (253.0 ) Investing cash flows consist primarily of cash used in acquisitions of businesses and intangibles (primarily product rights), capital expenditures for property, plant and equipment and purchases of investments and marketable securities partially offset by proceeds from the sale of investments and marketable securities. Included in the six months ended June 30, 2014 was cash used in connection with capital expenditures for property, plant and equipment of $80.8 million and the purchases of businesses, net of cash acquired of $119.2 million, offset, in part by cash received from the sale of assets of $18.0 million.

Included in the six months ended June 30, 2013 was cash used in connection with the Uteron Acquisition, net of cash acquired of $141.3 million, cash used in connection with the acquisition of Medicines360 of $52.3 million and capital expenditures for property, plant and equipment of $73.8 million.

Financing Cash Flows Our cash flows from financing activities are summarized as follows: Six Months Ended June 30, ($ in millions) 2014 2013 Net cash provided by / (used in) financing activities $ 3,200.1 $ (107.1 ) Financing cash flows consist primarily of borrowings and repayments of debt, repurchases of ordinary shares and proceeds from the exercise of stock options.

Cash used in financing activities in the six months ended June 30, 2014 includes the proceeds from the issuance of the 2014 New Notes of $3,676.2 million, offset, in part, by net repayments of other indebtedness, net of $387.8 million, and the payment of debt issuance costs of $51.9 million.

Included in the six months ended June 30, 2013 were net payments on long-term debt of $91.7 million, acquisition of non-controlling interests of $10.4 million and the repurchase of outstanding shares of $22.5 million, partially offset, by proceeds from stock option exercises of $5.5 million.

84-------------------------------------------------------------------------------- Table of Contents Debt and Borrowing Capacity Debt consisted of the following (in millions): June 30, December 31, 2014 2013 WC Term Loan Agreement $ 1,786.2 $ 1,832.8 Amended and Restated ACT Term Loan 1,237.2 1,310.0 Revolving Credit Facility - 265.0 Senior Notes: $ 500.0 million 1.300% notes due June 15, 2017 500.0 - $ 1,200.0 million 1.875% notes due October 1, 2017 1,200.0 1,200.0 $ 1,250.0 million 7.75% notes due September 15, 2018 1,250.0 1,250.0 $ 500.0 million 2.450% notes due June 15, 2019 500.0 - $ 400.0 million 6.125% notes due August 14, 2019 400.0 400.0 $ 1,700.0 million 3.250% notes due October 1, 2022 1,700.0 1,700.0 $ 1,200.0 million 3.850% notes due June 15, 2024 1,200.0 - $ 1,000.0 million 4.625% notes due October 1, 2042 1,000.0 1,000.0 $ 1,500.0 million 4.850% notes due June 15, 2044 1,500.0 - Plus: Unamortized premium 93.0 103.9 Less: Unamortized discount (54.4 ) (31.9 ) Senior Notes, net 9,288.6 5,622.0 Capital leases 19.4 22.2 Total debt and capital leases 12,331.4 9,052.0 Less: Current portion 1,588.8 534.6 Total long-term debt and capital leases $ 10,742.6 $ 8,517.4 July 1, 2014 Financing On July 1, 2014, in connection with the Forest Acquisition, the Company incurred indebtedness not included in the table above. The indebtedness assumed / incurred is discussed below.

Notes On July 1, 2014, in connection with the Forest Acquisition, Actavis plc guaranteed certain of the acquired indebtedness of Forest in exchange for the elimination of the existing registration right obligations of the Company with respect to those outstanding debt securities, which are a component of the Company's outstanding indebtedness effective July 1, 2014. Actavis plc issued a guarantee for the $1.05 billion 4.375% senior notes due 2019, the $750.0 million senior notes due 2021 and the $1.2 billion senior notes due 2021 (together the "Acquired Forest Notes") acquired July 1, 2014.

Term Debt On July 1, 2014, in connection with the Forest Acquisition, we borrowed $2.0 billion of term loan indebtedness which is due July 1, 2019. The outstanding principal amount of loans is payable in equal quarterly amounts of 2.50% per quarter prior to the fifth anniversary, with the remaining balance payable on the fifth year anniversary.

85 -------------------------------------------------------------------------------- Table of Contents Credit Facility Indebtedness 2013 Term Loan WC Term Loan Agreement On October 1, 2013 (the "Closing Date"), Warner Chilcott Corporation ("WC Corporation"), WC Luxco S.à r.l. ("WC Luxco"), WCCL ("WC Company" and, together with WC Corporation and WC Luxco, the "WC Borrowers"), as borrowers, and Warner Chilcott Finance LLC, as a subsidiary guarantor, became parties to the Warner Chilcott Term Loan Credit and Guaranty Agreement (the "WC Term Loan Agreement"), dated as of August 1, 2013, by and among the Company, as parent guarantor, Bank of America ("BofA"), as administrative agent thereunder and a syndicate of banks participating as lenders. Pursuant to the WC Term Loan Agreement, on the Closing Date, the lenders party thereto provided term loans to the WC Borrowers in a total aggregate principal amount of $2.0 billion, comprised of (i) a $1.0 billion tranche that will mature on October 1, 2016 (the "Three Year Tranche") and (ii) a $1.0 billion tranche that will mature on October 1, 2018 (the "Five Year Tranche"). The proceeds of borrowings under the WC Term Loan Agreement, together with $41.0 million of cash on hand, were used to finance, the repayment in full of all amounts outstanding under Warner Chilcott's then-existing Credit Agreement, dated as of March 17, 2011, as amended by Amendment No. 1 on August 20, 2012, among the WC Borrowers, BofA, as administrative agent and a syndicate of banks participating as lenders.

Borrowings under the WC Term Loan Agreement bear interest at the applicable WC Borrower's choice of a per annum rate equal to either (a) a base rate plus an applicable margin per annum varying from (x) 0.00% per annum to 0.75% per annum under the Three Year Tranche and (y) 0.125% per annum to 0.875% per annum under the Five Year Tranche, depending on the publicly announced debt ratings for non-credit-enhanced, senior unsecured long-term indebtedness of the parent (such applicable debt rating the "Debt Rating") or (b) a Eurodollar rate, plus an applicable margin varying from (x) 1.00% per annum to 1.75% per annum under the Three Year Tranche and (y) 1.125% per annum to 1.875% per annum under the Five Year Tranche, depending on the Debt Rating.

The outstanding principal amount of loans under the Three Year Tranche is not subject to quarterly amortization and shall be payable in full on the three year anniversary of the Closing Date. The outstanding principal amount of loans under the Five Year Tranche is payable in equal quarterly amounts of 2.50% per quarter prior to the fifth anniversary of the Closing Date, with the remaining balance payable on the fifth year anniversary of the Closing Date.

The Company is subject to, and, at June 30, 2014, was in compliance with, all financial and operational covenants under the terms of the WC Term Loan Agreement. As of June 30, 2014, the outstanding indebtedness under the Three Year Tranche and the Five Year Tranche was $925.0 million and $861.2 million, respectively. The book value of the outstanding indebtedness approximates fair value as the debt is at variable interest rates and re-prices frequently.

Amended and Restated Actavis, Inc. Credit and Guaranty Agreements Amended and Restated ACT Term Loan On the Closing Date and pursuant to the Term Loan Amendment Agreement (the "Term Amendment Agreement"), by and among Actavis, Inc., a wholly owned subsidiary of the Company, BofA, as administrative agent thereunder, and the lenders party thereto, dated as of August 1, 2013, the Company, as parent guarantor, Actavis WC Holding S.à r.l. (the "ACT Borrower"), as borrower, Actavis, Inc., as a subsidiary guarantor, and BofA, as administrative agent, entered into the Amended and Restated Actavis Term Loan Credit and Guaranty Agreement (the "Existing ACT Term Loan Agreement"), dated as of October 1, 2013. The ACT Term Loan Agreement amended and restated Actavis, Inc.'s $1,800.0 million senior unsecured term loan credit facility, dated as of June 22, 2012. At closing, an aggregate principal amount of $1,572.5 million was outstanding under the ACT Term Loan Agreement.

On March 31, 2014, Actavis plc, Actavis Capital, Actavis, Inc., BofA, as Administrative Agent, and a syndicate of banks participating as lenders entered into an amendment agreement (the "ACT Term Loan Amendment") to amend and restate Actavis Capital's Existing ACT Term Loan Agreement. The Existing ACT Term Loan Agreement together with the ACT Term Loan Amendment is referred to herein as the "ACT Term Loan Agreement." The ACT Term Loan Agreement became effective in accordance with its terms on March 31, 2014.

The Amended and Restated Term Loan provides that loans thereunder will bear interest, at the Company's choice, of a per annum rate equal to either (a) a base rate, plus an applicable margin per annum varying from 0.00% per annum to 1.00% per annum depending on the Debt Rating or (b) a Eurodollar rate, plus an applicable margin varying from 1.00% per annum to 2.00% per annum depending on the Debt Rating.

The Amended and Restated Term Loan matures on October 31, 2017. The outstanding principal amount is payable in equal quarterly installments of 2.50% per quarter, with the remaining balance payable on the maturity date.

The Company is subject to, and at June 30, 2014 was in compliance with, all financial and operational covenants under the terms of the ACT Term Loan Agreement. The outstanding balance of the Term Loan at June 30, 2014 was $1,237.2 million. The book value of the outstanding indebtedness approximates fair value as the debt is at variable interest rates and re-prices frequently.

86 -------------------------------------------------------------------------------- Table of Contents Revolving Credit Facility On the Closing Date and pursuant to the Revolver Loan Amendment Agreement (the "Revolver Amendment Agreement" and, together with the Term Amendment Agreement, the "Amendment Agreements"), by and among Actavis, Inc., as subsidiary guarantor, BofA, as administrative agent thereunder, and the lenders party thereto, dated as of August 1, 2013, the Company, as parent guarantor, the ACT Borrower, as borrower, Actavis, Inc., as a subsidiary guarantor, and BofA, as administrative agent, entered into that certain Amended and Restated Actavis Revolving Credit and Guaranty Agreement (the "ACT Revolving Credit Agreement" and, together with the ACT Term Loan Agreement, the "Amended and Restated Credit Agreements"), dated as of October 1, 2013. The ACT Revolving Credit Agreement amended and restated Actavis, Inc.'s $750.0 million senior unsecured revolving credit facility dated as of September 16, 2011, as amended by that certain Amendment No. 1 to the credit agreement and joinder agreement, dated as of May 21, 2012. At closing, $9.4 million of letters of credit were outstanding under the ACT Revolving Credit Agreement. At closing, no loans were outstanding under the ACT Revolving Credit Agreement.

The ACT Revolving Credit Agreement provides that loans thereunder will bear interest, at the Company's choice, of a per annum rate equal to either (a) a base rate, plus an applicable margin per annum varying from 0.00% per annum to 0.75% per annum depending on the Debt Rating or (b) a Eurodollar rate, plus an applicable margin varying from 0.875% per annum to 1.75% per annum depending on the Debt Rating. Additionally, to maintain availability of funds, the Company pays an unused commitment fee, which according to the pricing grid is set at 0.15% of the unused portion of the revolver.

The Company is subject to, and as of June 30, 2014 was in compliance with, all financial and operational covenants under the terms of the Revolving Credit Facility. At June 30, 2014, letters of credit outstanding were $8.8 million. The net availability under the Revolving Credit Facility was $741.2 million.

Senior Notes Indebtedness 2014 Notes Issuance On June 10, 2014, Actavis Funding SCS, a limited partnership (societe en commandite simple), organized under the laws of the Grand Duchy of Luxembourg, an indirect subsidiary of Actavis plc, issued $500.0 million 1.300% notes due 2017, $500.0 million 2.450% notes due 2019, $1,200.0 million 3.850% notes due 2024 and $1,500.0 million 4.850% notes due 2044 (collectively the "2014 New Notes"). Interest payments are due on the 2014 New Notes on June 15 and December 15 annually, beginning on December 15, 2014. The guarantors of the debt are Warner Chilcott Limited, Actavis Capital Sarl, and Actavis, Inc. Actavis plc will not guarantee the 2014 New Notes. The fair value of the Company's outstanding 2014 New Notes ($3,700 million face value), as determined in accordance with ASC Topic 820 "Fair Value Measurement" ("ASC 820") under Level 2 based upon quoted prices for similar items in active markets, was $3,711.3 million as of June 30, 2014.

Actavis, Inc. Supplemental Indenture On October 1, 2013, the Company, Actavis, Inc., a wholly owned subsidiary of the Company, and Wells Fargo Bank, National Association, as trustee, entered into a fourth supplemental indenture (the "Fourth Supplemental Indenture") to the indenture, dated as of August 24, 2009 (the "Base Indenture" and, together with the First Supplemental Indenture, the Second Supplemental Indenture and the Third Supplemental Indenture (each as defined below), the "Indenture"), as supplemented by the first supplemental indenture, dated as of August 24, 2009 (the "First Supplemental Indenture"), the second supplemental indenture, dated as of May 7, 2010 (the "Second Supplemental Indenture"), and the third supplemental indenture, dated as of October 2, 2012 (the "Third Supplemental Indenture"). Pursuant to the Fourth Supplemental Indenture, the Company has provided a full and unconditional guarantee of Actavis, Inc.'s obligations under its then outstanding $450.0 million 5.000% senior notes due August 15, 2014, (the "2014 Notes"), its $400.0 million 6.125% senior notes due August 15, 2019 (the "2019 Notes"), its $1,200.0 million 1.875% senior notes due October 1, 2017 (the "2017 Notes"), its $1,700.0 million 3.250% senior notes due October 1, 2022 (the "2022 Notes") and its $1,000.0 million 4.625% Senior Notes due October 1, 2042 (the "2042 Notes", and together with the 2014 Notes, the 2019 Notes, the 2017 Notes and the 2022 Notes, the "Notes").

WC Supplemental Indenture On October 1, 2013, the Company, WCCL, Warner Chilcott Finance LLC (the "Co-Issuer" and together with WC Company, the "Issuers") and Wells Fargo Bank, National Association, as trustee (the "WC Trustee"), entered into a third supplemental indenture (the "Supplemental Indenture") to the indenture, dated as of August 20, 2010 (the "WC Indenture"), among the Issuers, the guarantors party thereto and the WC Trustee, with respect to the Issuers' 7.75% senior notes due 2018 (the "WC Notes"). Pursuant to the Supplemental Indenture, the Company has provided a full and unconditional guarantee of the Issuers' obligations under the WC Notes and the WC Indenture.

The fair value of the Company's outstanding WC Notes ($1,250.0 million face value), as determined in accordance with ASC 820 under Level 2 based upon quoted prices for similar items in active markets, was $1,314.1 million and $1,357.4 million as of June 30, 2014 and December 31, 2013, respectively.

87-------------------------------------------------------------------------------- Table of Contents In June 2014, the Company notified the Issuers that it will irrevocably call the WC Notes in July 2014. On July 21, 2014, the Company redeemed the WC Notes for $1,311.8 million, which includes a make-whole premium of $61.8 million and the principal amount of the WC Notes of $1,250.0 million. As a result of the transaction, the Company recognized a gain in July of 2014 of $29.9 million, which includes the write-off of the unamortized premium.

2012 Notes Issuance On October 2, 2012, Actavis, Inc. issued the 2017 Notes, the 2022 Notes, and the 2042 Notes (collectively the "2012 Senior Notes"). Interest payments are due on the 2012 Senior Notes semi-annually in arrears on April 1 and October 1 beginning April 1, 2013. Net proceeds from the offering of the 2012 Senior Notes were used for the Actavis Group Acquisition. The fair value of the Company's outstanding 2012 Senior Notes ($3,900.0 million face value), as determined in accordance with ASC 820 under Level 2 based upon quoted prices for similar items in active markets, was $3,855.7 million and $3,683.2 million as of June 30, 2014 and December 31, 2013, respectively.

2009 Notes Issuance On August 24, 2009, Actavis, Inc. issued the 2014 Notes and the 2019 Notes (collectively the "2009 Senior Notes"). Interest payments are due on the 2009 Senior Notes semi-annually in arrears on February 15 and August 15, respectively, beginning February 15, 2010. Net proceeds from the offering of 2009 Senior Notes were used to repay certain debt with the remaining net proceeds being used to fund a portion of the cash consideration for the Arrow Group Acquisition. The 2014 Notes, which had an outstanding principal balance of $450.0 million and which were fully and unconditionally guaranteed by us, were redeemed on November 5, 2013 at a redemption price equal to $465.6 million, which resulted in a cash expense of $15.6 million in the fourth quarter of 2013.

The fair value of the Company's outstanding 2009 Senior Notes ($400.0 million face value), as determined in accordance with ASC 820 under Level 2 based upon quoted prices for similar items in active markets, was $467.6 million and $460.9 million as of June 30, 2014 and December 31, 2013, respectively.

Off-Balance Sheet Arrangements We do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, net revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

[ Back To Technology News's Homepage ]

OTHER NEWS PROVIDERS







Technology Marketing Corporation

800 Connecticut Ave, 1st Floor East, Norwalk, CT 06854 USA
Ph: 800-243-6002, 203-852-6800
Fx: 203-866-3326

General comments: tmc@tmcnet.com.
Comments about this site: webmaster@tmcnet.com.

STAY CURRENT YOUR WAY

© 2014 Technology Marketing Corporation. All rights reserved | Privacy Policy