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Documents found in this filing:

  1. 8-K
  2. Ex-99.1
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  4. Graphic
Unassociated Document
 
Exhibit 99.1

NEWS RELEASE

Watson Pharmaceuticals, Inc.
 
Patty Eisenhaur
 
(951) 493-5611

WATSON PHARMACEUTICALS REPORTS
 FOURTH QUARTER AND FULL YEAR 2008 RESULTS;
PROVIDES 2009 OUTLOOK

Fourth Quarter 2008 Total Net Revenue of $645.2 Million;
Adjusted EPS $0.53; GAAP EPS $0.50;

Full Year 2008 Total Net Revenue of $2.54 Billion
Adjusted EPS $2.03; GAAP EPS $2.09

CORONA, CA – February 19, 2009 – Watson Pharmaceuticals, Inc. (NYSE: WPI), a leader in generic and specialty branded pharmaceuticals, today reported financial results for its fourth quarter and fiscal year ended December 31, 2008.

Fourth Quarter 2008 Results
 
Net revenue for the fourth quarter 2008 increased $17.9 million or 3 percent from the fourth quarter 2007 to $645.2 million. Excluding special items as detailed in the reconciliation table below, adjusted net income for the fourth quarter was $60.6 million, or $0.53 per diluted share.  GAAP net income was $56.4 million, or $0.50 per diluted share. Adjusted EBITDA for the fourth quarter 2008 was $143.2 million and cash flow from operations was $176.3 million. Cash and marketable securities were $520.8 million as of December 31, 2008.
 
“This was a very positive quarter for Watson, capping off what proved to be a watershed year for the Company,” said Paul Bisaro, President and Chief Executive Officer of Watson.  “We demonstrated strong performance in all our divisions, delivered on the aggressive goals and strategic initiatives we set at the outset of 2008, and continued to provide shareholder value while building our pipelines, efficiencies and momentum for 2009 and beyond.”
 
“While we made significant progress on each of our initiatives and in each of our divisions, the biggest news of 2008 came from the Brand division where we received first cycle approvals on two new products and had one new NDA accepted by the FDA, putting us in the unique position to potentially introduce three new brand products in 2009 to treat the top three conditions in urology -- a specialty focus for Watson.  This accomplishment speaks volumes about the high quality and efficiency of our R&D and regulatory groups, and signals our ability and commitment to growing and expanding our business across divisions and around the globe,” concluded Mr. Bisaro.
 


Full Year 2008 Results
 
For the full year ended December 31, 2008, net revenue was a record $2.54 billion, as compared to $2.50 billion for fiscal year 2007.  On an adjusted basis, as detailed in the attached reconciliation table, net income for 2008 was $231.2 million, or $2.03 per diluted share, as compared to adjusted net income of $152.0 million, or $1.37 per diluted share, for the same period of 2007.  GAAP net income for 2008 was $238.4 million, or $2.09 per diluted share, as compared to GAAP net income of $141.0 million, or $1.27 per diluted share, for 2007.

Fourth Quarter and Full Year 2008 Business Segment Results
 
Generic Segment Information

   
Three Months Ended
   
Twelve Months Ended
 
   
December 31,
   
December 31,
 
(Unaudited; $ in thousands)
 
2008
   
2007
   
2008
   
2007
 
Generic Segment Contribution
                       
Product sales
  $ 365,037     $ 343,733     $ 1,403,975     $ 1,408,885  
Other revenue
    2,109       30,157       70,358       92,991  
Net revenue
    367,146       373,890       1,474,333       1,501,876  
Cost of sales
    214,156       223,967       883,832       917,863  
Gross profit
    152,990       149,923       590,501       584,013  
Gross margin
    41.7 %     40.1 %     40.1 %     38.9 %
                                 
Research and development
    35,760       25,390       119,218       102,426  
Selling and marketing
    13,362       13,586       55,230       55,350  
Segment contribution
  $ 103,868     $ 110,947     $ 416,053     $ 426,237  
Segment margin
    28.3 %     29.7 %     28.2 %     28.4 %

Generic product sales for the fourth quarter of 2008 increased $21.3 million to $365.0 million, reflecting the launch of new products.  Generic other revenue decreased $28.0 million to $2.1 million, due primarily to a decline in royalties related to Sandoz’s sales of metoprolol succinate extended-release tablets 50mg.
 

 
Generic gross profit was $153.0 million, or 41.7 percent of revenue, in the fourth quarter of 2008, compared to $149.9 million in the fourth quarter of 2007 and $151.4 million in the third quarter of 2008.  Generic gross profit was positively influenced by certain new products, including omeprazole delayed-release capsules 40mg and transdermal fentanyl, which was offset by lower other revenue.  Generic gross profit for the fourth quarter 2008 reflects approximately $6.0 million in costs related to Watson's Global Supply Chain Initiative. Excluding this item, Generic gross profit was $159.0 million, or 43.3 percent of revenue in the fourth quarter 2008.
 
Generic research and development expense increased $10.4 million to $35.8 million, reflecting an acceleration in activities following rationalization of the development portfolio.  Watson currently has approximately 60 ANDAs on file, including tentative approvals.
 
For the full year 2008, Generic product sales were essentially unchanged at $1.40 billion.  An increase of new product launches, including the launch of omeprazole delayed-release capsules 40mg and increased sales of transdermal fentanyl was offset by a loss in revenue from oxycodone HCl extended-release tablets.  Generic other revenue decreased $22.6 million to $70.4 million due primarily to a decline in royalties related to Sandoz’s sales of metoprolol succinate extended-release tablets 50mg.
 
Generic gross margin increased from 38.9 percent in 2007 to 40.1 percent in 2008, due to enhanced operational efficiencies and an improved product mix.  Generic gross profit for 2008 reflects approximately $27.8 million in costs related to Watson's Global Supply Chain Initiative. Excluding this item, Generic gross profit was $618.3 million, or 41.9 percent of revenue in 2008.

Brand Segment Information

   
Three Months Ended
   
Twelve Months Ended
 
   
December 31,
   
December 31,
 
(Unaudited; $ in thousands)
 
2008
   
2007
   
2008
   
2007
 
Brand Segment Contribution
                       
Product sales
  $ 102,269     $ 94,106     $ 397,025     $ 375,202  
Other revenue
    13,442       15,232       57,953       53,520  
Net revenue
    115,711       109,338       454,978       428,722  
Cost of sales
    24,912       25,814       107,079       99,913  
Gross profit
    90,799       83,524       347,899       328,809  
Gross margin
    78.5 %     76.4 %     76.5 %     76.7 %
                                 
Research and development
    11,809       10,435       50,904       42,367  
Selling and marketing
    31,605       28,664       118,198       108,061  
Segment contribution
  $ 47,385     $ 44,425     $ 178,797     $ 178,381  
Segment margin
    41.0 %     40.6 %     39.3 %     41.6 %
 
Brand product sales for the fourth quarter of 2008 increased $8.2 million or 9 percent to $102.3 million, primarily due to increased sales of Specialty products.  Brand other revenue decreased $1.8 million to $13.4 million.
 

 
Gross margin for the Brand segment increased from 76.4 percent in the fourth quarter 2007 to 78.5 percent in the fourth quarter 2008, reflecting a more favorable product mix.

For the full year 2008, Brand segment product sales increased 6 percent or $21.8 million to $397.0 million, compared to $375.2 million for 2007, due primarily to increased sales of Trelstar®.  Brand other revenue increased $4.4 million to $58.0 million.

Brand segment gross margin for 2008 was 76.5%, consistent with 2007 levels.

Brand research and development increased 20 percent or $8.5 million to $50.9 million, due primarily to milestone payments made following the RapafloTM and Trelstar® New Drug Application (NDA) filings.

The Company recently received FDA approval for RapafloTM (silodosin), its alpha blocker for the treatment of the signs and symptoms of benign prostatic hyperplasia.  The Company plans to launch RapafloTM in late March.  Additionally, the Company recently received FDA approval for GelniqueTM (oxybutynin chloride) Gel 10%, its topical gel for the treatment of overactive bladder. Watson plans to launch GelniqueTM in late April. Also, during the fourth quarter 2008, Watson filed an NDA with FDA for its six month formulation of Trelstar® (triptorelin pamoate for injection suspension). The Company anticipates that FDA will take action on the Trelstar® application in the third quarter of 2009.

Distribution Segment Information

   
Three Months Ended
   
Twelve Months Ended
 
   
December 31,
   
December 31,
 
(Unaudited; $ in thousands)
 
2008
   
2007
   
2008
   
2007
 
Distribution Segment Contribution
                   
Net revenue
  $ 162,368     $ 144,107     $ 606,190     $ 566,053  
Cost of sales
    137,099       123,397       511,911       486,980  
Gross profit
    25,269       20,710       94,279       79,073  
Gross margin
    15.6 %     14.4 %     15.6 %     14.0 %
Selling and marketing
    15,819       12,777       59,514       52,023  
Segment contribution
  $ 9,450     $ 7,933     $ 34,765     $ 27,050  
Segment margin
    5.8 %     5.5 %     5.7 %     4.8 %
 
Distribution segment net revenue for the fourth quarter of 2008 increased 13 percent or $18.3 million to $162.4 million. The increase was primarily due to new product launches. Distribution revenue excludes sales of Watson products.

Distribution segment gross margin increased to 15.6 percent in the fourth quarter 2008, compared to 14.4 percent in the fourth quarter 2007, due primarily to recent cost savings initiatives.
 

 
For the full year 2008, Distribution segment net revenues increased seven percent or $40.1 million to $606.2 million, compared to $566.1 million in 2007. This increase was largely driven by new product launches.

Other Operating Expenses
 
Amortization expense declined $24.0 million to $20.1 million for the fourth quarter 2008 and declined $95.7 million to $80.7 million for the full year 2008, reflecting the full amortization of Ferrlecit® product rights as of December 31, 2007.

2009 Financial Outlook
 
Watson’s estimates are based on actual results for 2008 and management's current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches and events.
 
Watson estimates total net revenue for the full year of 2009 at approximately $2.65 billion. Estimates for segment revenue are:

— Total Generic segment revenue between $1.45 billion and $1.55 billion.
— Total Brand segment revenue between $445 million and $470 million.
— Total Distribution segment revenue between $660 and $710 million.
 
Research and development investment for 2009 is expected to be $180 to $190 million.  Selling, general and administrative expenses for 2009 are expected to be $450 to $470 million.  Amortization expense for 2009 is expected to be approximately $88 million.
 
In 2009, the Company expects to incur pre-tax costs associated with the planned closure of its Carmel, NY manufacturing facilities of approximately $23 million which includes accelerated depreciation, severance, retention and other related plant closure costs.  These charges and other items are excluded from Watson’s 2009 adjusted EBITDA and earnings per diluted share forecasts as detailed in Table 6 and 7 below.
 
For 2009, the Company expects adjusted diluted earnings per share to be between $2.18 and $2.28 and GAAP earnings per diluted share between $2.03 and $2.13.  Adjusted EBITDA is expected to be between $600 million and $620 million.
 
This forecast includes only a modest contribution from Watson’s sales of generic Micro-K® and generic Toprol XL®. Due to production issues experienced by certain competitors, there is currently a supply disruption for these products. If the current competitive landscape for these two products does not change significantly and we are able to obtain timely approval for our generic Toprol XL® product, it is likely that the Company will significantly exceed its current earnings per share forecast.
 


Webcast and Conference Call Details
 
Watson will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time to discuss fourth quarter 2008 results, the outlook for 2009 and recent corporate developments.  The dial-in number to access the call is (877) 251-7980, or from international locations, (706) 643-1573.  A taped replay of the call will be available by calling (800) 642-1687 with access pass code 82174623.  The replay may be accessed from international locations by dialing (706) 645-9291 and using the same pass code.  This replay will remain in effect until midnight Eastern Standard Time, February 27, 2009.  To access the live webcast, go to Watson Investor Relations Web site at http://ir.watson.com.

About Watson Pharmaceuticals, Inc.
 
Watson Pharmaceuticals, Inc. is a global leader in the development and distribution of pharmaceuticals with a broad portfolio of generic products and a specialized portfolio of branded pharmaceuticals focused on Urology, Gynecology and Nephrology/Medical.  Watson pursues a growth strategy combining internal product development, strategic alliances and collaborations, and synergistic acquisitions of products and businesses.
 
For press release and other company information, visit the Watson Pharmaceuticals Web site at http://www.watson.com.
 


Forward-Looking Statement
 
Statements contained in this press release that refer to Watson’s estimated or anticipated future results or other non-historical facts are forward-looking statements that reflect Watson’s current perspective of existing trends and information as of the date of this release.  For instance, any statements in this press release concerning prospects related to Watson’s strategic initiatives, product introductions and anticipated financial performance are forward-looking statements.  It is important to note that Watson’s goals and expectations are not predictions of actual performance.  Watson’s performance, at times, will differ from its goals and expectations.  Actual results may differ materially from Watson’s current expectations depending upon a number of factors affecting Watson’s business.  These factors include, among others, the inherent uncertainty associated with financial projections; the impact of competitive products and pricing; the difficulty of predicting the timing or outcome of litigation; successful integration of strategic transactions; the ability to recognize the anticipated synergies and benefits of strategic transactions; variability of revenue mix between the Company’s Brand, Generic and Distribution business units; periodic dependence on a small number of products for a material source of net revenue or income; variability of trade buying patterns; changes in generally accepted accounting principles; risks that the carrying values of assets may be negatively impacted by future events and circumstances; timely and successful consummation and implementation of strategic initiatives; the timing and success of product launches; the difficulty of predicting the timing or outcome of product development efforts and FDA or other regulatory agency approvals or actions; the uncertainty associated with the identification and successful consummation of external business development transactions; market acceptance of and continued demand for Watson’s products; costs and efforts to defend or enforce intellectual property rights; difficulties or delays in manufacturing; the availability and pricing of third party sourced products and materials; successful compliance with FDA and other governmental regulations applicable to Watson’s and its third party manufacturers’ facilities, products and/or businesses; uncertainties related to the timing and outcome of litigation and other claims; changes in the laws and regulations, including Medicare and Medicaid, affecting among other things, pricing and reimbursement of pharmaceutical products; and such other risks and uncertainties detailed in Watson’s periodic public filings with the Securities and Exchange Commission, including but not limited to Watson’s Annual Report. Except as expressly required by law, Watson disclaims any intent or obligation to update these forward-looking statements.

Toprol XL® and Micro-K® trademarks are the property of their registered owners.

 
 

 
The following table presents Watson’s results of operations for the three and twelve months ended December 31, 2008 and 2007:

Table 1
Watson Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share amounts)

   
Three Months Ended
   
Twelve Months Ended
 
    
December 31,
   
December 31,
 
   
2008
   
2007
   
2008
   
2007
 
                         
Net revenues
  $ 645,225     $ 627,335     $ 2,535,501     $ 2,496,651  
Cost of sales (excludes amortization, presented below)
    376,167       373,178       1,502,822       1,504,756  
Gross profit
    269,058       254,157       1,032,679       991,895  
Operating expenses:
                               
Research and development
    47,569       35,825       170,122       144,793  
Selling, general and administrative
    111,231       108,284       423,428       421,151  
Amortization
    20,121       44,158       80,690       176,409  
Loss (gain) on asset sales/impairments
    8       -       311       (6,118 )
Total operating expenses
    178,929       188,267       674,551       736,235  
Operating income
    90,129       65,890       358,128       255,660  
Non-operating (expense) income, net:
                               
Loss on early extinguishment of debt
    -       (1,143 )     (1,095 )     (5,553 )
Interest income
    2,904       2,190       9,055       8,886  
Interest expense
    (7,452 )     (8,997 )     (28,184 )     (44,473 )
Other income
    1,034       1,878       20,409       9,764  
Total non-operating (expense) income, net
    (3,514 )     (6,072 )     185       (31,376 )
Income before income taxes
    86,615       59,818       358,313       224,284  
Provision for income taxes
    30,229       21,415       119,934       83,254  
Net income
  $ 56,386     $ 38,403     $ 238,379     $ 141,030  
Diluted earnings per share
  $ 0.50     $ 0.34     $ 2.09     $ 1.27  
Diluted weighted average shares outstanding
    117,997       117,374       117,723       117,039  

 
 

 

The following table presents Watson’s Condensed Consolidated Balance Sheets as of December 31, 2008 and 2007.

Table 2
Watson Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(Unaudited; in thousands)

   
December 31,
   
December 31,
 
   
2008
   
2007
 
             
Assets
           
Cash and cash equivalents
  $ 507,578     $ 204,554  
Marketable securities
    13,202       11,799  
Accounts receivable, net
    305,009       267,117  
Inventories
    473,127       490,601  
Other current assets
    159,501       199,705  
Property and equipment, net
    658,465       688,185  
Investments and other assets
    132,897       129,920  
Product rights and other intangibles, net
    560,023       603,697  
Goodwill
    868,085       876,449  
Total assets
  $ 3,677,887     $ 3,472,027  
                 
Liabilities & Stockholders' Equity
               
Current liabilities
  $ 481,995     $ 444,927  
Long-term debt
    824,678       899,408  
Deferred income taxes and other liabilities
    262,629       278,227  
Stockholders' equity
    2,108,585       1,849,465  
Total liabilities and stockholders' equity
  $ 3,677,887     $ 3,472,027  

 
 

 

The following table presents Watson’s Condensed Consolidated Statements of Cash Flows for the twelve months ended December 31, 2008 and 2007.

Table 3
Watson Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited; in thousands)

   
Twelve Months Ended
December 31,
 
   
2008
   
2007
 
             
Cash Flows from Operating Activities:
           
Net income
  $ 238,379     $ 141,030  
Reconciliation to net cash provided by operating activities:
               
Depreciation and amortization
    170,737       253,559  
Deferred income tax provision (benefit)
    3,513       (6,250 )
Provision for inventory reserve
    45,693       46,853  
Restricted stock and stock option compensation
    18,537       14,244  
Other adjustments
    (22,987 )     (4,511 )
Changes in assets and liabilities:
               
Accounts receivable, net
    (37,892 )     120,575  
Inventories
    (28,219 )     (25,093 )
Accounts payable and accrued expenses
    (17,658 )     (117,751 )
Income taxes payable
    24,393       7,703  
Other assets and liabilities
    22,058       (3,181 )
Total adjustments
    178,175       286,148  
Net cash provided by operating activities
    416,554       427,178  
Cash Flows from Investing Activities:
               
Additions to property, equipment and product rights
    (100,488 )     (75,870 )
Additions to marketable securities and long-term investments
    (8,202 )     (8,451 )
Proceeds from sale of marketable securities and investments
    14,933       4,113  
Other investing activities, net
    400       15,916  
Net cash used in investing activities
    (93,357 )     (64,292 )
Cash Flows from Financing Activities:
               
Payments on term loan, current debt and other long-term liabilities
    (95,635 )     (329,532 )
Proceeds from issuance of short-term debt
    67,909       2,645  
Proceeds from stock plans
    8,438       16,160  
Repurchase of common stock
    (885 )     (1,776 )
Net cash used in financing activities
    (20,173 )     (312,503 )
Net increase in cash and cash equivalents
    303,024       50,383  
Cash and cash equivalents at beginning of period
    204,554       154,171  
Cash and cash equivalents at end of period
  $ 507,578     $ 204,554  

 
 

 
The following table presents a reconciliation of reported net income and diluted earnings per share to adjusted net income and diluted earnings per share for the three and nine months ended December 31, 2008 and 2007:
Table 4
Watson Pharmaceuticals, Inc.
Reconciliation Table
(Unaudited; in thousands except per share amounts)

   
Three Months Ended
December 31,
   
Twelve Months Ended 
December 31,
 
   
2008
   
2007
   
2008
   
2007
 
                         
GAAP to adjusted net income calculation
                       
                         
Reported GAAP net income
  $ 56,386     $ 38,403     $ 238,379     $ 141,030  
Adjusted for:
                               
Global supply chain initiative(1)
    6,532       -       30,436       -  
Acquisition and licensing charges
    -       1,494       6,500       12,782  
Gain on sale of assets
    -       -       (9,605 )     (13,089 )
Loss on asset sales and impairments
    8       132       311       4,631  
Favorable settlement of tax related liability
    -       -       (5,928 )     -  
Loss on debt repurchases
    -       1,143       1,095       5,553  
Legal settlements
    -       (800 )     (15,000 )     7,858  
Income taxes
    (2,282 )     (704 )     (14,955 )     (6,716 )
Adjusted net income
    60,644       39,668       231,233       152,049  
Add:  Interest expense on CODES, net of tax
    2,029       1,873       7,939       7,779  
Adjusted net income, adjusted for interest on CODES
  $ 62,673     $ 41,541     $ 239,172     $ 159,828  
                                 
Diluted earnings per share
                               
                                 
Diluted earnings per share - GAAP
  $ 0.50     $ 0.34     $ 2.09     $ 1.27  
                                 
Diluted earnings per share - Adjusted
  $ 0.53     $ 0.35     $ 2.03     $ 1.37  
                                 
Basic weighted average common shares outstanding
    103,035       102,608       102,821       102,273  
Effect of dilutive securities:
                               
Conversion of CODES
    14,357       14,357       14,357       14,357  
Dilutive share-based compensation arrangements
    605       409       545       409  
Diluted weighted average common shares outstanding
    117,997       117,374       117,723       117,039  
   
(1) 
   
For the three months ended December 31, 2008, global supply chain initiative charges of $6,532 were represented within cost of sales ($6,045), research and development ($406) and selling, general and administrative ($81). For the twelve months ended December 31, 2008, global supply chain initiative charges of $30,436 were represented within cost of sales ($28,049), research and development ($1,444) and selling, general and administrative ($943). For the three and twelve months ended 2008, cost of sales included accelerated depreciation charges of $1,807 and $7,407, respectively.
 
 
 

 

The following table presents a reconciliation of reported net income for the three and twelve months ended December 31, 2008 and 2007 to adjusted EBITDA:

Table 5
Watson Pharmaceuticals, Inc.
Adjusted EBITDA Reconciliation Table
(Unaudited; in millions)

   
Three Months Ended
December 31,
   
Twelve Months Ended 
December 31,
 
   
2008
   
2007
   
2008
   
2007
 
                         
GAAP net income
  $ 56.4     $ 38.4     $ 238.4     $ 141.0  
Plus:
                               
Interest expense
    7.4       9.0       28.2       44.5  
Interest income
    (2.9 )     (2.2 )     (9.0 )     (8.9 )
Provision for income taxes
    30.2       21.4       119.9       83.2  
Depreciation (2008 includes accelerated depreciation)
    22.7       20.2       90.0       77.2  
Amortization
    20.1       44.2       80.7       176.4  
EBITDA
    133.9       131.0       548.2       513.4  
Adjusted for:
                               
Global supply chain initiative
    4.7       -       23.0       -  
Acquisition and licensing charges
    -       1.5       6.5       12.8  
Gain on sale of assets
    -       -       (9.6 )     (13.1 )
Loss on asset sales and impairments
    -       0.1       0.3       4.6  
Favorable settlement of tax related liability
    -       -       (5.9 )     -  
Loss on early extinguishment of debt
    -       1.2       1.1       5.6  
Legal settlements
    -       (0.8 )     (15.0 )     7.9  
Share-based compensation
    4.5       3.9       18.5       14.2  
Adjusted EBITDA
  $ 143.1     $ 136.9     $ 567.1     $ 545.4  
 
 
 

 

The following table presents a reconciliation of forecasted net income for the 12 months ending December 31, 2009 to adjusted net income and adjusted earnings per diluted share:

Table 6
Watson Pharmaceuticals, Inc.
Reconciliation Table - Forecasted Adjusted Earnings per Diluted Share
(Unaudited; in millions except per share amounts)

   
Forecast for Twelve Months
Ending December 31, 2009
 
   
Low
   
High
 
             
             
GAAP to adjusted net income calculation
           
             
GAAP net income
  $ 233.2     $ 245.3  
Adjusted for:
               
Licensing charges
    4.3       4.3  
Global supply chain initiative
    22.7       22.7  
Income taxes
    (10.0 )     (10.0 )
Adjusted net income
    250.2       262.3  
Add:  Interest expense on CODES, net of tax
    7.9       7.9  
Adjusted net income, adjusted for interest on CODES
  $ 258.1     $ 270.2  
                 
Diluted earnings per share
               
                 
Diluted earnings per share - GAAP
  $ 2.03     $ 2.14  
                 
Diluted earnings per share - Adjusted
  $ 2.18     $ 2.28  
                 
Diluted weighted average common shares outstanding
    118.6       118.6  

The reconciliation table is based in part on management’s estimate of net income for the year ending December 31, 2009.  Watson expects certain known GAAP charges for 2009, as presented in the schedule above.  Other GAAP charges that may be excluded from adjusted net income are possible, but their amounts are dependent on numerous factors that we currently cannot ascertain with sufficient certainty or are presently unknown.  These GAAP charges, such as potential asset impairment charges, are dependent upon future events and valuations that have not yet been performed.

 
 

 

The following table presents a reconciliation of forecasted net income for the 12 months ending December 31, 2009 to adjusted EBITDA:

Table 7
Watson Pharmaceuticals, Inc.
Reconciliation Table - Forecasted Adjusted EBITDA
(Unaudited; in millions)

   
Forecast for Twelve Months
Ending December 31, 2009
 
   
Low
   
High
 
             
             
GAAP net income
  $ 233.2     $ 245.3  
Plus:
               
Interest expense
    21.1       21.1  
Interest income
    (13.3 )     (12.5 )
Provision for income taxes
    137.0       144.1  
Depreciation (includes accelerated depreciation)
    97.5       97.5  
Amortization
    87.8       87.8  
EBITDA
    563.3       583.3  
Adjusted for:
               
Share-based compensation
    16.9       16.9  
Global supply chain initiative
    15.5       15.5  
Licensing charges
    4.3       4.3  
Adjusted EBITDA
  $ 600.0     $ 620.0  

The reconciliation table is based in part on management’s estimate of adjusted EBITDA for the year ending December 31, 2009.  Watson expects certain known GAAP charges for 2009, as presented in the schedule above.  Other GAAP charges that may be excluded from estimated EBITDA are possible, but their amounts are dependent on numerous factors that we currently cannot ascertain with sufficient certainty or are presently unknown.  These GAAP charges, such as potential asset impairment charges, are dependent upon future events and valuations that have not yet been performed.

 
 

 
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