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Watson Third Quarter 2012 Non-GAAP Diluted EPS Increases 24% to $1.35; Net Revenue Increases 19% to $1.29 Billion



  Watson Third Quarter 2012 Non-GAAP Diluted EPS Increases 24% to $1.35; Net
                    Revenue Increases 19% to $1.29 Billion

- GAAP Earnings of $0.60 per diluted share -

- 18% Increase in Adjusted EBITDA -

- Company Updates 2012 Forecast Including Actavis Acquisition -

- Company Provides Preliminary 2013 Outlook -

PR Newswire

PARSIPPANY, N.J., Nov. 1, 2012

PARSIPPANY, N.J., Nov. 1, 2012 /PRNewswire/ -- Watson Pharmaceuticals, Inc.
(NYSE: WPI) today reported net income for the third quarter 2012 increased
24.2 percent to $172.3 million or $1.35 per diluted share on a non-GAAP basis,
compared to $138.7 million or $1.09 per diluted share in the third quarter
2011.  Non-GAAP net income for the third quarter 2012 included $6.7 million or
$0.05 per share related to the favorable settlement of a tax audit and other
tax benefits realized in the quarter. Net revenue increased 18.8 percent to
$1.29 billion, compared to $1.08 billion in the third quarter 2011. On a GAAP
basis, net income increased by $8.6 million or 13 percent to $76.7 million or
$0.60 per diluted share compared to earnings of $68.1 million or $0.54 per
diluted share in the third quarter 2011. 

For the third quarter 2012, adjusted EBITDA increased 18 percent to $304.6
million, compared to $258.2 million in the third quarter 2011.  Refer to the
attached reconciliation tables for adjustments to GAAP earnings.  Cash flow
from operations was $145.9 million and cash and marketable securities were
$234.4 million at September 30, 2012.

"Our third quarter 2012 double digit growth in global revenues, non-GAAP
earnings and adjusted EBITDA represents another quarter of solid growth and
strong execution at Watson," said Paul Bisaro, President and CEO. "We are very
pleased that as we transition from Watson stand-alone to a larger company
following the Actavis acquisition, we have demonstrated outstanding execution
of our 2012 business plan. We delivered this performance while we
simultaneously focused on integration planning and are now ready to capitalize
on our objectives for uniting Watson and Actavis, and creating a larger, more
powerful global competitor."

"During the quarter, Watson received a number of important FDA approvals
including generic versions of Lidoderm^®, Arthrotec^®, Pulmicort Respules^®
and Watson's Next Choice^™ ONE DOSE. In addition, we launched an authorized
generic version of Xopenex^® inhalation solution during the quarter and filed
a number of new ANDAs containing Paragraph IV patent challenges, including a
first-to-file opportunity for a generic version of Xopenex^® HFA, " Bisaro
continued. 

"On October 2^nd, we completed the remaining financing necessary to fund the
acquisition of Actavis at very favorable interest rates.  We have already
announced our new global management structure for the combined company.  While
we celebrate our stand-alone achievements for the third quarter of 2012, we
now transition our focus to the seamless execution of our integration
strategies and on maximizing the value of this acquisition to achieve strong
growth in 2013 and beyond," concluded Bisaro.

 

Business Segment Results
Global Generics Segment
Information
                              Three Months Ended      Nine Months Ended
                              September 30,           September 30,
(Unaudited; $ in millions)    2012         2011       2012         2011
Product sales                 $            $          $            $    
                              912.5         792.4      2,996.5      2,158.8
Other revenue                 8.4          10.1       35.5         36.1
 Net revenue                  920.9        802.5      3,032.0      2,194.9
Operating expenses:
 Cost of sales                487.5        437.7      1,619.1      1,165.8
 Research and development     55.3         54.6       165.2        167.4
 Selling and marketing        51.9         45.3       152.0        113.5
Segment contribution          $            $          $            $        
                              326.2         264.9      1,095.7     748.2
Segment margin                35.4%        33.0%      36.1%        34.1%
Adjusted gross profit ^(1)    $            $          $            $    
                              434.8         372.4      1,406.7      1,037.5
Adjusted gross margin         47.2%        46.5%      46.6%        47.5%
^(1)Adjusted gross profit represents adjusted net revenue less

adjusted cost of sales and excludes amortization of acquired

intangibles. Pro forma adjustments for the respective periods

include the following: 
  Settlement of contingent
  asset acquired as part of a $            $          $            $          
                                      -          -         -        (7.4)
  business acquisition (other
  revenue)
  Net revenue from milestone
  related to divested         -            (2.4)      (10.9)       (2.4)
  products
  Operational Excellence      1.4          2.7        4.7          8.2
  Initiative
  Purchase accounting         -            7.3        -            10.0
  adjustments

Global Generics net revenue for the third quarter 2012 increased 15 percent to
$920.9 million as a result of new product launches including the launch of a
generic version of Lovenox^® in January of 2012, a generic version of
Vancocin^® in April of 2012, an authorized generic version of Xopenex^® in
August of 2012, and higher international revenues. Third quarter 2012
international net revenue increased 37 percent to $198.1 million, when
compared to the third quarter 2011. This increase was the result of the
acquisition of Ascent in January of 2012 and higher sales in key markets
including France, UK and Canada.  

Global Generics R&D investment for the third quarter 2012 was $55.3
million. Global Generics selling and marketing expenses for the third quarter
2012 increased 15 percent to $51.9 million, primarily due to higher
international selling and marketing expenses from the addition of Ascent.

Global Generics adjusted gross margin increased to 47.2 percent from 46.5
percent in the third quarter of 2011, as a result of higher share of profit
from sales of the authorized generic version of Concerta^®.

 

Global Brands Segment Information
                       Three Months Ended            Nine Months Ended
                       September 30,                 September 30,
(Unaudited; $ in       2012             2011         2012         2011
millions)
Product sales          $                $            $            $      
                       105.2             92.5         299.0        264.8
Other revenue          16.1             17.8         51.2         55.3
 Net revenue           121.3            110.3        350.2        320.1
Operating expenses:
 Cost of sales         30.3             25.4         84.8         68.3
 Research and          57.2             18.8         115.5        60.8
 development
 Selling and marketing 40.0             40.8         130.2        122.1
Segment contribution   $                $            $            $        
                       (6.2)             25.3         19.7         68.9
Segment margin         (5.1)%           22.9%        5.6%         21.5%
Adjusted gross profit  $                $            $            $      
^(1)                    91.0             85.5         265.4        252.4
Adjusted gross margin  75.0%            77.5%        75.8%        78.9%
^(1)Adjusted gross profit represents net revenue less

adjusted cost of sales and excludes amortization of

acquired intangibles. Pro forma adjustments for the

respective periods include the following: 
   Acquisition and     $                $            $            $          
   licensing              -              0.6             -         0.6

Global Brands net revenue increased 10 percent to $121.3 million in the third
quarter 2012, primarily the result of continued growth of our promoted
products including Generess^® Fe, Crinone^® and Rapaflo^®. In addition, the
establishment of our business in Canada also contributed to the revenue
increase when compared to the third quarter 2011.

Global Brands R&D investment increased $38.4 million to $57.2 million in the
third quarter 2012 compared to the third quarter 2011. The increase was
primarily due to higher upfront and third party development milestone costs
for biosimilars in our Global Brands segment, including in-licensing costs
associated with the agreement with Synthon for a biosimilar to Herceptin,
which we contributed to our biosimilars collaboration with Amgen. Global
Brands selling and marketing expenses of $40.0 million in the third quarter of
2012 decreased by 2 percent relative to the prior year period.

Global Brands adjusted gross margin for the third quarter of 2012 was 75.0
percent, compared to 77.5 percent for third quarter of 2011 as a result of
increased manufacturing costs and a more favorable product mix in the prior
year period.

 

Distribution Segment Information
                         Three Months Ended          Nine Months Ended
                         September 30,               September 30,
(Unaudited; $ in         2012          2011          2012         2011
millions)
Net revenue              $             $             $            $      
                         243.0          168.8         782.5        524.8
Operating expenses:
   Cost of sales         206.3         140.1         678.5        438.1
   Selling and marketing 22.8          18.3          68.5         56.4
Segment contribution     $             $             $            $        
                          13.9          10.4          35.5         30.3
Segment margin           5.7%          6.2%          4.5%         5.8%
Gross profit             $             $             $            $        
                          36.7          28.7          104.0        86.7
Gross margin             15.1%         17.0%         13.3%        16.5%

 

Distribution segment net revenue increased 44 percent to $243.0 million for
the third quarter 2012 compared to $168.8 million in the third quarter 2011.
The increase was related to new third-party product launches during the third
quarter. Distribution revenue consists only of sales of third-party products
and excludes sales of Watson's brand and generic products.

Selling and marketing expenses increased $4.5 million to $22.8 million, as a
result of higher freight costs and expenses associated with relocating our
Groveport, Ohio distribution operations to our Olive Branch, Mississippi
facility and higher sales related expenses. Distribution segment gross margin
decreased 1.9 percentage points to 15.1 percent in the third quarter 2012 as a
result of higher sales to chain customers at lower margins.

Other Operating Expenses

Consolidated general and administrative expenses were $110.1 million in the
third quarter 2012, an increase of 29.2 percent from the third quarter 2011.
The increase was due to costs associated with the pending acquisition of
Actavis, the addition of Ascent and higher legal expenses.  Amortization
expense for the third quarter 2012 was $95.2 million, compared to $71.8
million in third quarter 2011. The increase was due to the amortization of
levalbuterol product rights acquired in the Arrow acquisition and product
rights acquired in the Ascent acquisition.

2012 Financial Outlook*

Watson's estimates include the Actavis business as of  November 1, 2012.
  Estimates are based on actual results for the first nine months of 2012 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 2012 will be approximately $5.9
billion.

  o Adjusted non-GAAP earnings for 2012 are expected to be between $5.85 and
    $5.95 per diluted share.
  o Adjusted EBITDA for 2012 is expected to be between $1.36 and $1.39
    billion.

2013 Financial Outlook*

Based on preliminary estimates Watson expects full year 2013 non-GAAP earnings
per share will grow between 30 percent and 40 percent over the high-end of our
estimated combined range for 2012.

*Includes an additional 5.5 million shares as of the acquisition close on
November 1, 2012.

Webcast and Conference Call Details

Watson will host a conference call and webcast today at 8:30 a.m. Eastern Time
to discuss third quarter 2012 results, the outlook for 2012 and 2013 and
recent corporate developments.  The dial-in number to access the call is (877)
251-7980, or from international locations, (706) 643-1573.  The Conference ID
is 37197625.

A taped replay of the conference call will also be available beginning
approximately two hours after the call's conclusion and will remain available
through 12:00 midnight Eastern Time on November 15, 2012. The replay may be
accessed by dialing (855) 859-2056 and entering the same Conference ID above.
From international locations, the replay may be accessed by dialing (404)
537-3406. To access the webcast, go to Watson's Investor Relations Web site at
http://ir.watson.com. 

About Watson Pharmaceuticals, Inc.

Watson Pharmaceuticals, Inc. (NYSE: WPI) is a global, integrated specialty
pharmaceutical company focused on developing, manufacturing and distributing
generic, brand and biosimilar products.  The Company has global and U.S.
headquarters in Parsippany, New Jersey, USA, and international headquarters in
Zug, Switzerland. 

Watson is the world's third-largest generics manufacturer, with more than 750
products marketed globally through operations in more than 60 countries. 
Watson's global branded pharmaceutical business develops and markets products
principally in Urology and Women's Health, and is committed to developing and
marketing biosimilars products in Women's Health, Oncology and other
therapeutic categories.  In addition, Watson is the fourth-largest U.S.
generic pharmaceutical product distributor through its Anda, Inc. business,
and also develops and out-licenses generic pharmaceutical products outside of
the U.S. through its Medis third-party business.

For press release and other company information, visit 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; successful
integration of the Actavis acquisition and the ability to recognize the
anticipated synergies and benefits of the Actavis acquisition; the difficulty
of predicting the timing and outcome of pending or future litigation and
government investigations and risks that an adverse outcome in such litigation
or investigations could render Watson liable for substantial damages or
penalties; risks that resolution of patent infringement litigation through
settlement could result in investigations or actions by private parties or
government authorities or agencies; the impact of competitive products and
pricing; risks related to fluctuations in foreign currency exchange rates;
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; the timing and
success of product launches; the difficulty of predicting the timing or
outcome of product development efforts and regulatory agency approvals or
actions if any; risks and uncertainties normally incident to the
pharmaceutical industry, including product liability claims and the
availability of product liability insurance on reasonable terms; market
acceptance of and continued demand for Watson's products; difficulties or
delays in manufacturing; the availability and pricing of third party sourced
products and materials; successful compliance with governmental regulations
applicable to Watson's facilities, products and/or businesses; changes in the
laws and regulations, including Medicare, Medicaid, and similar laws in
foreign countries affecting, among other things, pricing and reimbursement of
pharmaceutical products and the settlement of patent litigation; 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 on Form 10-K for the year ended December 31, 2011 and
Watson's Quarterly Report on Form 10-Q for the period June 30, 2012. Except as
expressly required by law, Watson disclaims any intent or obligation to update
these forward-looking statements.

All trademarks are the property of their respective owners.  

The following table presents Watson's results of operations for the three and
nine months ended
September 30, 2012 and 2011:

                                                                   Table 1
WATSON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
                            Three Months Ended        Nine Months Ended
                            September 30,             September 30,
                            2012         2011         2012         2011
Net revenues                $            $            $            $          
                             1,285.2      1,081.6      4,164.7      3,039.8
Operating expenses:
 Cost of sales (excludes
 amortization, presented    724.1        603.2        2,382.4      1,672.2
 below)
 Research and development   112.5        73.4         280.7        228.2
 Selling, general and       224.8        189.6        747.0        541.9
 administrative
 Amortization               95.2         71.8         332.9        203.0
 Loss on asset sales and    39.6         3.8          119.6        25.6
 impairments, net
     Total operating        1,196.2      941.8        3,862.6      2,670.9
     expenses
Operating income            89.0         139.8        302.1        368.9
Non-operating income
(expense):
 Interest income            0.4          0.3          1.3          1.6
 Interest expense           (19.4)       (24.4)       (62.1)       (69.1)
 Other income (expense),    41.7         2.9          (113.4)      (1.1)
 net
     Total other income     22.7         (21.2)       (174.2)      (68.6)
     (expense), net
Income before income taxes
and noncontrolling          111.7        118.6        127.9        300.3
interest 
Provision for income taxes  35.0         50.9         58.6         135.4
Net income                  76.7         67.7         69.3         164.9
 Loss attributable to       -            0.4          -            1.2
 noncontrolling interest
Net income attributable to  $            $            $            $          
common shareholders               76.7         68.1         69.3       166.1
Earnings per share
attributable to common
shareholders:
 Basic                      $            $            $            $          
                                  0.61         0.55         0.55         1.34
 Diluted                    $            $            $            $          
                                  0.60         0.54         0.54         1.31
Weighted average shares
outstanding:
 Basic                      126.0        124.9        125.7        124.4
 Diluted                    128.0        126.9        127.6        126.4

      

The following table presents Watson's Condensed Consolidated Balance Sheet at
September 30, 2012 and December 31, 2011.

                                                           Table 2
WATSON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED  BALANCE SHEETS
(Unaudited; in millions)
                                      September 30,        December 31,
                                      2012                 2011
Assets
 Cash and cash equivalents            $             222.0  $             209.3
 Marketable securities                12.4                 14.9
 Accounts receivable, net             924.8                1,165.7
 Inventories, net                     885.1                889.4
 Other current assets                 397.2                290.4
 Property and equipment, net          708.0                713.7
 Investments and other assets         99.7                 93.0
 Product rights and other             1,392.0              1,613.6
 intangibles, net
 Goodwill                             1,924.8              1,708.3
        Total assets                  $          6,566.0   $          6,698.3
Liabilities & Equity
 Current liabilities                  $          1,555.6   $          1,839.5
 Long-term debt                       1,023.8              848.5
 Deferred income taxes and other      296.7                447.8
 liabilities
 Total equity                         3,689.9              3,562.5
        Total liabilities and equity  $          6,566.0   $          6,698.3

 

The following table presents Watson's Condensed Consolidated Statements of
Cash Flows for the nine months ended September 30, 2012 and 2011.

WATSON PHARMACEUTICALS, INC.                                     Table 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
                                                Nine Months Ended
                                                September 30,
                                                2012             2011
Cash Flows From Operating Activities:
Net income                                      $                $            
                                                69.3             164.9
Reconciliation to net cash provided by
operating activities:
  Depreciation                                  60.7             70.4
  Amortization                                  333.0            203.0
  Provision for inventory reserve               37.1             38.3
  Share-based compensation                      34.6             25.6
  Deferred income tax benefit                   (124.1)          (51.2)
  Losses on equity method investments           0.2              5.7
  (Gain) loss on sale of securities             -                (0.8)
  Loss on asset sales and impairment, net       141.0            25.6
  Loss on foreign exchange derivatives          90.0             -
  Amortization of deferred financing costs      24.3             -
  Increase in allowance for doubtful accounts   2.4              -
  Accretion of preferred stock and contingent   20.3             35.9
  consideration obligations
  Contingent consideration fair value           (21.3)           -
  adjustment
  Excess tax benefit from stock-based           (12.6)           (13.7)
  compensation
  Other, net                                    2.5              (0.1)
  Changes in assets and liabilities (net of
  effects of acquisitions):
       Accounts receivable, net                 265.0            (121.0)
       Inventories                              (4.3)            (61.2)
       Prepaid expenses and other current       (19.9)           21.4
       assets
       Accounts payable and accrued expenses    (303.0)          98.5
       Deferred revenue                         (7.7)            (7.1)
       Income and other taxes payable           (143.6)          (15.4)
       Other assets and liabilities             2.1              (8.6)
       Total adjustments                        376.7            245.3
       Net cash provided by operating           446.0            410.2
       activities
Cash Flows From Investing Activities:
Additions to property and equipment             (93.3)           (87.9)
Additions to product rights and other           (5.9)            (17.7)
intangibles
Proceeds from sales of property and equipment   7.7              6.4
Proceeds from sales of marketable securities    8.8              3.9
and other investments
Additions to investments                        (5.3)            (2.6)
Acquisition of business, net of cash acquired   (383.5)          (571.6)
Other investing activities, net                 -                0.6
       Net cash used in investing activities    (471.5)          (668.9)
Cash Flows From Financing Activities:
Proceeds from borrowings on credit facility     375.0            400.0
Debt issuance costs                             (34.1)           -
Principal payments on debt                      (201.7)          (303.8)
Proceeds from stock plans                       17.1             53.6
Payment of contingent consideration             (107.2)          (4.5)
Repurchase of common stock                      (15.4)           (13.6)
Acquisition of noncontrolling interest          (4.5)            (5.5)
Excess tax benefit from stock-based             12.6             13.7
compensation
       Net cash provided by financing           41.8             139.9
       activities
Effect of currency exchange rate changes on     (3.6)            (0.7)
cash and cash equivalents
       Net (decrease) increase in cash and      12.7             (119.5)
       cash equivalents
Cash and cash equivalents at beginning of       209.3            282.8
period
Cash and cash equivalents at end of period      $                $            
                                                222.0            163.3

 

The following table presents a reconciliation of reported net income and
diluted earnings per share to non-GAAP net income for the three and nine
months ended September 30, 2012 and 2011:

                                                                    Table 4
Watson Pharmaceuticals, Inc.
Reconciliation Table
(Unaudited; in millions except per share amounts)
                               Three Months Ended      Nine Months Ended
                               September 30,           September 30,
                               2012         2011       2012         2011
GAAP to non-GAAP net income
calculation
     Reported GAAP net income  $            $          $            $      
     attributable to             76.7       68.1         69.3       166.1
       common shareholders
     Adjusted for:
              Amortization     95.4         72.0       333.5        204.0
              Global supply    1.8          3.3        6.8          15.1
     chain initiative^(1)
              Acquisition and  5.6          9.5        216.7        22.9
     licensing charges
              Interest
     accretion on contingent   5.5          10.8       20.7         29.7
     liabilities
              Non-cash         39.6         3.8        119.6        25.6
     impairment/asset sales
              Non-recurring    0.1          (5.1)      (15.3)       (12.2)
     (gains) losses
              Legal            0.6          -          60.4         -
     settlements
              Income taxes on  (53.0)       (23.7)     (249.2)      (72.7)
     items above
     Non-GAAP net income       $            $          $            $      
     attributable to           172.3        138.7      562.5        378.5
       common shareholders
Diluted earnings per share 
     Diluted earnings per      $            $          $            $        
     share - GAAP                0.60       0.54         0.54       1.31
     Diluted earnings per      $            $          $            $        
     share - Non-GAAP            1.35       1.09         4.41       2.99
     Basic weighted average
     common shares             126.0        124.9      125.7        124.4
     outstanding
     Effect of dilutive
     securities:
        Dilutive share-based
     compensation              2.0          2.0        1.9          2.0
     arrangements
     Diluted weighted average
     common shares             128.0        126.9      127.6        126.4
     outstanding
^(1) Includes accelerated depreciation charges.

The following table presents a reconciliation of reported net income for the
three and nine months ended September 30, 2012 and 2011 to adjusted EBITDA:

                                                                   Table 5
Watson Pharmaceuticals, Inc.
Adjusted EBITDA Reconciliation Table
(Unaudited; in millions)
                                    Three Months Ended  Nine Months Ended
                                    September 30,       September 30,
                                    2012       2011     2012       2011
GAAP net income attributable to     $          $        $          $      
common shareholders                  76.7        68.1    69.3      166.1
Plus:
      Interest expense              19.4       24.4     62.1       69.1
      Interest income               (0.4)      (0.3)    (1.3)      (1.6)
      Provision for income taxes    35.0       50.9     58.6       135.4
      Depreciation (includes        20.2       23.6     60.7       72.3
      accelerated depreciation)
      Amortization^(1)              95.4       72.0     333.5      204.0
EBITDA                              246.3      238.7    582.9      645.3
Adjusted for:
      Global supply chain           1.9        2.3      6.0        10.7
      initiative
      Acquisition and licensing     5.4        9.5      216.3      22.9
      charges
      Non-cash impairment charges   39.6       3.8      119.6      25.6
      Non-recurring (gains) losses  0.1        (5.1)    (15.3)     (12.2)
      Legal settlements             0.6        -        60.4       -
      Accretion (income) expense    -          (0.2)    0.4        (0.2)
      Share-based compensation      10.7       9.2      34.6       25.4
Adjusted EBITDA                     $          $        $          $      
                                     304.6     258.2    1,004.9    717.5
^(1) Includes amortization of excess purchase price on equity method
investment.

 

The following table presents a reconciliation of forecasted net income for the
twelve months ending December 31, 2012 to non-GAAP net income and non-GAAP
earnings per diluted share:

                                                              Table 6
Watson Pharmaceuticals, Inc.
Reconciliation Table - Forecasted Non-GAAP Earnings Per Diluted Share
(Unaudited; in millions except per share amounts)
                                           Forecast for Twelve Months

                                           Ending December 31, 2012
                                           Low                High
GAAP to Non-GAAP net income calculation
 GAAP net income                           $              85  $            105
 Adjusted for:
          Amortization                     490                490
          Global supply chain initiative   10                 10
          Acquisition and licensing        355                355
 charges^ 
          Interest accretion on            25                 25
 contingent liability^ 
          Non-cash impairment charges      120                120
          Non-recurring (gains) losses     (158)              (158)
          Legal settlements                60                 60
          Income taxes on items above      (234)              (241)
 Adjusted Non-GAAP net income              753                766
Diluted earnings per share
 Diluted earnings per share - GAAP         $           0.66   $           0.82
 Diluted earnings per share - Non-GAAP     $           5.85   $           5.95
 Diluted weighted average common shares    128.7              128.7
 outstanding

 

The reconciliation table is based in part on management's estimate of non-GAAP
net income for the year ending December 31, 2012.  Watson expects certain
known GAAP charges for 2012, as presented in the schedule above.  Other GAAP
charges that may be excluded from non-GAAP 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 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
twelve months ending December 31, 2012 to adjusted EBITDA:

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

                                           Ending December 31, 2012
                                           Low                High
 GAAP net income                           $              85  $            105
 Plus:
       Interest expense                    120                120
       Interest income                     (2)                (2)
       Provision for income taxes          144                149
       Depreciation (includes accelerated  100                105
       depreciation)
       Amortization                        485                490
 EBITDA                                    932                967
 Adjusted for:
       Global supply chain initiative      8                  8
       Acquisition and licensing charges   353                353
       Non-cash impairment charges^        120                120
       Non-recurring (gains) losses        (158)              (158)
       Legal settlements                   60                 60
       Share-based compensation            45                 45
 Adjusted EBITDA                           $      1,360.0     $      1,395.0

 

The reconciliation table is based in part on management's estimate of adjusted
EBITDA for the year ending December 31, 2012.  Watson expects certain known
GAAP charges for 2012, 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 are
dependent upon future events and valuations that have not yet been performed.

(Logo: http://photos.prnewswire.com/prnh/20100121/LA41294LOGO )

CONTACTS:
Investors:
Lisa DeFrancesco
(862) 261-7152

Media:
Charlie Mayr
(862) 261-8030

SOURCE Watson Pharmaceuticals, Inc.

Website: http://www.watson.com
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