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Watson Q1 Net Revenue Climbs 28 Percent to $857 Million - First Quarter 2010 GAAP EPS of $0.57; Adjusted Cash EPS of $0.81 - Adjusted EBITDA Increases 26 percent to $198.9 Million - Company Increases 2010 Forecast

MORRISTOWN, N.J., May 10, 2010 /PRNewswire via COMTEX/ -- Watson Pharmaceuticals, Inc. (NYSE: WPI) today reported a 28 percent increase in net revenue for the first quarter ended March 31, 2010 to $856.5 million, compared to $667.4 million in the first quarter 2009. On an adjusted cash basis, net income increased 25 percent to $100.3 million or $0.81 per share, compared to $80.2 million or $0.69 per share in the first quarter 2009. GAAP earnings for the first quarter 2010 were $0.57 per share, compared to $0.43 per share in the prior year period.

For the first quarter 2010, adjusted EBITDA increased 26 percent to $198.9 million, versus $158.0 million for the first quarter 2009. Cash and marketable securities were $182.3 million as of March 31, 2010. Please refer to the attached reconciliation tables for adjustments to GAAP earnings. Watson's results include a full quarter of Arrow Group results.

"Watson completed its first quarter with strong earnings and significant momentum for the remainder of the year," said Paul Bisaro, President and CEO.

"Our generics business benefitted from the first full quarter of sales from our newly acquired international business, the launch of Diltiazem LA, as well as growth of our Metoprolol business. We have entered into ten new patent challenges so far this year. In our global brands business, we received approval for a six month formulation of TRELSTAR(R) and completed several key product development deals, expanding our women's health portfolio and furthering our biologics efforts." "Our overall performance in the quarter, combined with the proceeds from the sale of our interest in Scinopharm, permitted us to substantially reduce our debt, while continuing to support a strong investment in R&D. We also continued our focus on driving further efficiencies within our global supply chain, " Bisaro added. "Given the strong start to the year and the positive trends we see for the remainder of the year, we are increasing our forecast for 2010 and now expect our adjusted cash earnings to be between $3.25 and $3.45 per share." First Quarter 2010 Business Segment Results Global Generics Segment Information Three Months Ended March 31, --------- (Unaudited; $ in millions) 2010 2009 ---- ---- Product sales $534.1 $395.2 Other revenue 9.7 6.5 --- --- Net revenue 543.8 401.7 Operating expenses: Cost of sales 287.5 238.5 Research and development 42.2 30.1 Selling and marketing 26.9 12.7 ---- ---- Segment contribution $187.2 $120.4 ====== ====== Segment margin 34.4% 30.0% Adjusted gross profit (1) $273.1 $170.5 Adjusted gross margin 50.2% 42.4% (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: Global Supply Chain Initiative $5.0 $7.3 Purchase accounting adjustments 11.8 - Global Generics net revenue for the first quarter 2010 increased 35 percent to $543.8 million, reflecting the addition of product sales from our new international markets and higher sales of extended release products, including Metoprolol. International product sales were $106 million.

Adjusted Global Generics gross margin increased eight percent to 50.2 percent in the first quarter 2010, due to the launch of new products and increased efficiencies resulting from our Global Supply Chain Initiative.

Global Generics research and development expense increased $12.1 million to $42.2 million in the first quarter 2010, due to higher international R&D expense. Watson currently has more than 100 ANDAs pending in the U.S., including tentative approvals, and more than 900 applications pending outside of the U.S.

Global Brands Segment Contribution Three Months Ended March 31, --------- (Unaudited; $ in millions) 2010 2009 ---- ---- Product sales $72.4 $98.2 Other revenue 18.9 13.8 ---- ---- Net revenue 91.3 112.0 Operating expenses: Cost of sales 24.7 24.2 Research and development 17.3 12.2 Selling and marketing 32.5 36.9 ---- ---- Segment contribution $16.8 $38.7 ===== ===== Segment margin 18.4% 34.6% Adjusted gross profit (1) $66.6 $87.8 Adjusted gross margin 72.9% 78.4% (1) Adjusted gross profit represents net revenue less cost of sales and excludes amortization of acquired intangibles.

Global Brands net revenue decreased 18 percent to $91.3 million in the first quarter 2010. Global Brands product sales for the first quarter 2010 decreased $25.8 million to $72.4 million, due to the loss of Ferrlecit(R) in December 2009, partially offset by increased sales of our new products RAPAFLO(R) and Gelnique(R), as well as higher sales of INFeD(R). Global Brands Other revenue increased $5.1 million to $18.9 million, due to higher revenue from our co-promoted brand products Androgel(R) and Femring(R).

Adjusted gross margin for the Global Brands segment decreased 5.5 percent to 72.9 percent, in the first quarter 2010 as a result of the loss of Ferrlecit(R) in December 2009.

Global Brands R&D investment increased $5.1 million to $17.3 million, due primarily to a licensing payment for a new women's health product.

Distribution Segment Information Three Months Ended March 31, --------- (Unaudited; $ in millions) 2010 2009 ---- ---- Net revenue $221.4 $153.7 Operating expenses: Cost of sales 192.5 126.0 Selling and marketing 18.2 16.1 ---- ---- Segment contribution $10.7 $11.6 ===== ===== Segment margin 4.8% 7.5% Adjusted gross profit (1) $28.9 $27.7 Adjusted gross margin 13.1% 18.0% (1) Adjusted gross profit represents net revenue less cost of sales and excludes amortization of acquired intangibles.

Distribution segment net revenue for the first quarter 2010 increased 44 percent or $67.7 million to $221.4 million. The increase was primarily due to sales of generic versions of Aldara(R) and Flomax(R) launched in the first quarter 2010, as well as sales of new products launched late in 2009. Distribution revenue consists of sales of third-party products and excludes sales of Watson's brand and generic products.

Distribution segment adjusted gross margin decreased to 13.1 percent in the first quarter 2010, compared to 18.0 percent in the first quarter 2009 and 14.6 percent in the fourth quarter 2009. The decrease is the result of product mix including higher third-party brand product sales compared to the prior year period.

Other Operating Expenses Consolidated general and administrative expense increased eight percent from $68.9 million to $74.4 million primarily as a result of our newly acquired international business, and includes a $3.0 million legal settlement in the current year. The prior year period included $18.8 million in legal settlements.

Amortization expense for the first quarter 2010 was $39.0 million, which includes $18.6 million in amortization related to the Arrow Group acquisition.

Amortization expense was $21.8 million in 2009.

2010 Financial Outlook Watson's estimates are based on actual results for the first quarter 2010 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 ended December 31, 2010 at approximately $3.55 billion.

Total Global Generics segment revenue between $2.25 and $2.40 billion, with international product sales between $500 and $550 million Total Global Brands segment revenue between $440 and $480 million Total Distribution segment revenue between $730 and $780 million Adjusted EBITDA between $800 million and $850 million Cash earnings per share between $3.25 and $3.45 Webcast and Conference Call Details Watson will host a conference call and webcast today at 8:30 a.m. Eastern Time to discuss first quarter results, the outlook for 2010 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 66758855. 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 Time, May 14, 2010. To access the live webcast, go to Watson's Investor Relations Web site at http://ir.watson.com.

About Watson Pharmaceuticals, Inc.

Watson Pharmaceuticals, Inc. is a leading global specialty pharmaceutical company. The Company is engaged in the development and distribution of generic pharmaceuticals and specialized branded pharmaceutical products focused on Urology and Women's Health. Watson has operations in many of the world's established and growing international markets.

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; the impact of competitive products and pricing; timely and successful consummation of strategic transactions, including the pending transaction with Columbia Laboratories, Inc. to acquire rights to Crinone(R) and Prochieve(R); the difficulty of predicting the timing or outcome of litigation; successful integration of strategic transactions including the acquisition of the Arrow Group; the ability to recognize the anticipated synergies and benefits of strategic transactions, including the acquisition of the Arrow Group; 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; 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; 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; changes in the laws and regulations, including Medicare and Medicaid, 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 period ended December 31, 2009. Except as expressly required by law, Watson disclaims any intent or obligation to update these forward-looking statements.

All trademarks used are the property of their respective owners.

The following table presents Watson's results of operations for the three months ended March 31, 2010 and 2009: Table 1 Watson Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations (Unaudited; in millions, except per share amounts) Three Months Ended March 31, --------- 2010 2009 ---- ---- Net revenues $856.5 $667.4 ------ ------ Operating expenses: Cost of sales (excludes amortization, presented below) 504.7 388.7 Research and development 59.5 42.3 Selling, general and administrative 152.0 134.6 Amortization 39.0 21.8 Loss (gain) on asset sales and impairment 1.0 (1.5) --- ---- Total operating expenses 756.2 585.9 ----- ----- Operating income 100.3 81.5 ----- ---- Non-operating income (expense), net: Interest income 0.4 2.0 Interest expense (20.3) (4.7) Other income 26.1 1.2 ---- --- Total non-operating income (expense), net 6.2 (1.5) --- ---- Income before income taxes and noncontrolling interest 106.5 80.0 Income attributable to noncontrolling interest - - --- --- Income before income taxes 106.5 80.0 Provision for income taxes 36.7 30.9 ---- ---- Net income $69.8 $49.1 ===== ===== Diluted earnings per share $0.57 $0.43 ===== ===== Diluted weighted average shares outstanding 123.4 118.2 ===== ===== The following table presents Watson's Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009.

Table 2 Watson Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets (Unaudited; in millions) March December 31, 31, 2010 2009 ---- ---- Assets Cash and cash equivalents $169.2 $201.4 Marketable securities 13.1 13.6 Accounts receivable, net 543.8 519.5 Inventories 710.7 692.3 Other current assets 204.4 213.3 Current deferred tax assets 128.5 130.9 Property and equipment, net 678.1 695.5 Investments and other assets 87.0 155.7 Product rights and other intangibles, net 1,684.5 1,721.9 Goodwill 1,670.9 1,648.1 ------- ------- Total assets $5,890.2 $5,992.2 ======== ======== Liabilities & Stockholders' Equity Current liabilities $795.5 $744.8 Current debt and current portion of long-term debt 85.0 307.6 Long-term debt 1,155.5 1,150.2 Deferred income taxes and other liabilities 760.8 766.5 Stockholders' equity 3,093.4 3,023.1 ------- ------- Total liabilities and stockholders' equity $5,890.2 $5,992.2 ======== ======== The following table presents Watson's Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009.

Table 3 Watson Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited; in millions) Three Months Ended March 31, --------- 2010 2009 ---- ---- Cash Flows from Operating Activities: Net income $69.8 $49.1 ----- ----- Reconciliation to net cash provided by operating activities: Depreciation and amortization 63.7 45.0 Deferred income tax (benefit) provision (14.8) 5.7 Provision for inventory reserve 11.9 12.3 Restricted stock and stock option compensation 4.9 4.5 (Gain) loss on securities and impairment (23.4) 1.1 Other adjustments 3.6 (3.8) Changes in assets and liabilities: Accounts receivable, net (32.3) (48.6) Inventories (44.1) (15.3) Accounts payable and accrued expenses 11.7 1.5 Income taxes payable 46.5 10.8 Other assets and liabilities 14.8 7.2 ---- --- Total adjustments 42.5 20.4 ---- ---- Net cash provided by operating activities 112.3 69.5 ----- Cash Flows from Investing Activities: Additions to property, equipment and product rights (7.9) (23.1) Additions to marketable securities and long- term investments (5.8) - Proceeds from sale of marketable securities and investments 3.8 2.2 Acquisition of business, net of cash acquired (16.8) - Proceeds from the sale of cost/equity investments 94.1 - Other investing activities, net 1.0 3.0 --- --- Net cash provided by (used in) investing activities 68.4 (17.9) ---- Cash Flows from Financing Activities: Payments on term loan, current debt and other long-term liabilities (223.4) (1.6) Proceeds from stock plans 14.9 3.6 Repurchase of common stock (4.4) (2.2) ---- ---- Net cash used in financing activities (212.9) (0.2) ------- Net (decrease) increase in cash and cash equivalents (32.2) 51.4 Cash and cash equivalents at beginning of period 201.4 507.6 Cash and cash equivalents at end of period $169.2 $559.0 ====== ====== The following table presents a reconciliation of reported net income and diluted earnings per share to pro forma cash net income for the three months ended March 31, 2010 and 2009: Table 4 Watson Pharmaceuticals, Inc.

Reconciliation Table (Unaudited; in millions except per share amounts) Three Months Ended March 31, --------- 2010 2009 ---- ---- GAAP to Adjusted cash net income calculation Reported GAAP net income $69.8 $49.1 Adjusted for: Global supply chain initiative(1) 5.2 9.3 Acquisition and licensing charges 26.0 - Loss (gain) on securities and impairment (23.4) 1.1 Loss (gain) on asset sales and impairment 1.0 (1.5) Legal settlements 3.0 18.8 Amortization 39.0 21.8 Income taxes (20.3) (18.4) ----- ----- Adjusted cash net income 100.3 80.2 Add: Interest expense on CODES, net of tax - 1.9 Adjusted cash net income, adjusted for interest on CODES $100.3 $82.1 ====== ===== Diluted earnings per share Diluted earnings per share - GAAP $0.57 $0.43 ===== ===== Diluted earnings per share - Cash $0.81 $0.69 ===== ===== Basic weighted average common shares outstanding 121.7 103.1 Effect of dilutive securities: Conversion of CODES - 14.4 Dilutive share-based compensation arrangements 1.7 0.7 --- --- Diluted weighted average common shares outstanding 123.4 118.2 ===== ===== (1) Includes accelerated depreciation charges.

The following table presents a reconciliation of reported net income for the three months ended March 31, 2010 and 2009 to adjusted EBITDA: Table 5 Watson Pharmaceuticals, Inc.

Adjusted EBITDA Reconciliation Table (Unaudited; in millions) Three Months Ended March 31, --------- 2010 2009 ---- ---- GAAP net income $69.8 $49.1 Plus: Interest expense 20.3 4.7 Interest income (0.4) (2.0) Provision for income taxes 36.7 30.9 Depreciation (includes accelerated depreciation) 24.7 23.2 Amortization 39.0 21.8 ---- ---- EBITDA 190.1 127.7 ----- ----- Adjusted for: Global supply chain initiative 3.8 7.4 Acquisition and licensing charges 19.4 - Loss (gain) on securities and impairment (23.4) 1.1 Loss (gain) on asset sales and impairment 1.0 (1.5) Legal settlements 3.0 18.8 Share-based compensation 5.0 4.5 --- --- Adjusted EBITDA $198.9 $158.0 ====== ====== The following table presents a reconciliation of forecasted net income for the twelve months ending December 31, 2010 to adjusted net income and adjusted earnings per diluted share: Table 6 Watson Pharmaceuticals, Inc.

Reconciliation Table -Forecasted Adjusted Cash Earnings per Diluted Share (Unaudited; in millions except per share amounts) Forecast for Twelve Months Ending December 31, 2010 ---------------------- Low High --- ---- GAAP to Adjusted cash net income calculation GAAP net income $246.7 $271.0 Adjusted for: Amortization 170.7 170.7 Acquisition and licensing charges 50.0 50.0 Global supply chain initiative 35.4 35.4 Legal settlements 3.0 3.0 Loss on asset sales/impairment 1.0 1.0 Gain on security sales (23.4) (23.4) Income taxes (79.9) (79.9) Adjusted cash net income $403.5 $427.8 ====== ====== Diluted earnings per share Diluted earnings per share - GAAP $1.99 $2.19 ===== ===== Diluted earnings per share - Cash $3.25 $3.45 ===== ===== Diluted weighted average common shares outstanding 124.0 124.0 ===== ===== The reconciliation table is based in part on management's estimate of adjusted cash net income for the year ending December 31, 2010. Watson expects certain known GAAP charges for 2010, as presented in the schedule above. Other GAAP charges that may be excluded from adjusted cash 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 twelve months ending December 31, 2010 to adjusted EBITDA: Table 7 Watson Pharmaceuticals, Inc.

Reconciliation Table - Forecasted Adjusted EBITDA (Unaudited; in millions) Forecast for Twelve Months Ending December 31, 2010 ---------------------- Low High --- ---- GAAP net income $246.7 $271.0 Plus: Interest expense 80.3 80.3 Interest income (1.0) (1.0) Provision for income taxes 154.1 169.0 Depreciation (includes accelerated depreciation) 95.3 106.1 Amortization 170.7 170.7 ----- ----- EBITDA 746.1 796.1 ----- ----- Adjusted for: Loss on asset sales/impairment 1.0 1.0 Share-based compensation 19.0 19.0 Global supply chain initiative 31.6 31.6 Acquisition and licensing charges 22.7 22.7 Legal settlements 3.0 3.0 Gain on security sales/impairment (23.4) (23.4) Adjusted EBITDA $800.0 $850.0 ====== ====== The reconciliation table is based in part on management's estimate of adjusted EBITDA for the year ending December 31, 2010. Watson expects certain known GAAP charges for 2010, 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.

(Logo: http://www.newscom.com/cgi-bin/prnh/20100121/LA41294LOGO ) SOURCE Watson Pharmaceuticals, Inc.

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