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11.04.2009 | Investors

Watson Reports Third Quarter 2009 GAAP EPS of $0.55; Adjusted EPS of $0.66

MORRISTOWN, N.J., Nov. 4 /PRNewswire-FirstCall/ -- Watson Pharmaceuticals, Inc. (NYSE: WPI) today reported net income of $63.0 million, or $0.55 per diluted share for the third quarter ended September 30, 2009. Excluding special items as detailed in the reconciliation table below, adjusted net income for the third quarter was $76.1 million, or $0.66 per diluted share, an increase of $22.1 million or 41 percent over the adjusted net income for the third quarter ended September 30, 2008. As detailed in the attached reconciliation table, adjusted EBITDA for the third quarter was $178.4 million.

Net revenue for the third quarter 2009 was $662.1 million, an increase of $21.4 million or three percent from the third quarter 2008. Cash flow from operations was $74.4 million and cash and marketable securities were $826.0 million as of September 30, 2009.

"Adjusted net income for the quarter increased over 40 percent, driven by sustainable margin improvements resulting from operating efficiencies delivered by our Global Supply Chain Initiative as well as the contribution of new products," said Paul Bisaro, Watson's President and Chief Executive Officer. "Key generic products such as metroprolol extended-release, potassium chloride and Next Choice(TM) contributed to a nine percent increase in generic revenue, while brand revenue for the quarter exceeded $112 million, the result of contributions from new products such as Rapaflo® and Gelnique®, and promoted products such as AndroGel® and Femring®.

"While achieving strong earnings growth, we also increased our investment in product development by 15% to approximately $52 million, and continued to invest in sales and marketing to support our brand portfolio," continued Mr. Bisaro. "In preparation for completing the acquisition of Arrow Group, we completed our bond offering during the quarter at very favorable rates and stand to close as soon as Federal Trade Commission (FTC) clearance is received. Management continues to refine the strategies that will ensure the smooth and efficient integration of this business to maximize its contribution going forward. We remain confident that the addition of Arrow will efficiently expand our global marketing presence and help create a strong platform for future growth," Mr. Bisaro concluded.


    Third Quarter 2009 Business Segment Results

                                         September 30,       September 30,
                                         -------------       --------------
    (Unaudited; $ in millions)           2009    2008        2009      2008
                                         ----    ----        ----      ----
    Generic Segment Contribution
    Product sales                       $392.3  $352.2    $1,181.3  $1,038.9
    Other revenue                          5.7    11.6        19.6      68.3
                                           ---    ----        ----      ----
      Net revenue                        398.0   363.8     1,200.9   1,107.2
    Operating expenses:
      Cost of sales                      204.1   212.4       676.7     669.7
      Research and development            37.0    31.7        97.0      83.4
      Selling and marketing               11.7    14.0        35.8      41.9
                                          ----    ----        ----      ----
    Segment contribution                $145.2  $105.7      $391.4    $312.2
                                        ======  ======      ======    ======
    Segment margin                        36.5%   29.1%       32.6%     28.2%

    Adjusted gross profit (1)           $200.6  $155.7      $546.3    $444.3
    Adjusted gross margin                 50.4%   42.8%       45.5%     40.7%


    (1) Adjusted gross profit
    represents adjusted net revenue
    less adjusted cost of sales and
    excludes amortization of acquired
    intangibles. Pro forma adjustments
    to revenue and cost of sales for
    the respective periods include
    the following:

      Global supply chain
       initiative costs                  $(6.7)  $(4.3)     $(22.1)   $(21.8)
      Revenue from
       legal settlements                     -       -           -     (15.0)

Generic product sales for the third quarter of 2009 increased $40.1 million or 11 percent to $392.3 million, reflecting the addition of new products, including metoprolol extended-release, potassium-chloride extended-release capsules, and Next Choice(TM). The increase was partially offset by lower sales from omeprazole 40mg. Generic other revenue decreased $5.9 million to $5.7 million, primarily due to a decline in royalties from Sandoz's sales of metoprolol extended-release tablets 50mg.

Adjusted Generic gross profit increased $44.9 million or 29 percent to $200.6 million in the third quarter of 2009, compared to $155.7 million in the third quarter of 2008 and $175.2 million in the second quarter of 2009. The year over year quarterly increase was positively influenced by lower costs resulting from Watson's Global Supply Chain Initiative, as well as the launch of new products. Adjusted Generic gross profit for the third quarter excludes approximately $6.7 million in costs related to the Global Supply Chain Initiative.

Generic research and development expense increased $5.3 million or 17 percent to $37.0 million. Watson currently has approximately 60 ANDAs on file with the Food and Drug Administration (FDA).


    Brand Segment Information

                                           Three Months         Nine Months
                                              Ended               Ended
                                           September 30,       September 30,
                                           -------------       -------------
    (Unaudited; $ in millions)              2009   2008        2009    2008
                                            ----   ----        ----    ----
    Brand Segment Contribution
    Product sales                           $96.1  $94.3      $291.9  $294.8
    Other revenue                            16.6   11.7        48.1    44.5
                                             ----   ----        ----    ----
      Net revenue                           112.7  106.0       340.0   339.3
    Operating expenses:
      Cost of sales                          20.7   30.2        66.9    82.1
      Research and development               14.9   13.6        39.8    39.1
      Selling and marketing                  32.5   29.0       108.5    86.6
                                             ----   ----       -----    ----
    Segment contribution                    $44.6  $33.2      $124.8  $131.5
                                            =====  =====      ======  ======
    Segment margin                           39.6%  31.3%       36.7%   38.8%

    Adjusted gross profit (1)               $92.0  $75.8      $273.1  $257.4
    Adjusted gross margin                    81.6%  71.5%       80.3%   75.9%

    (1) Adjusted gross profit represents
    net revenue less adjusted cost of
    sales and excludes amortization
    of acquired intangibles. Adjusted
    cost of sales for the nine months
    ended September 30, 2008 includes
    a $0.2 million adjustment for
    Global Supply Chain Costs.

Brand product sales for the third quarter of 2009 increased slightly to $96.1 million, due primarily to sales of new products, including Rapaflo® and Gelnique®, and increased sales of Androderm®. This increase was offset in part by lower sales of Ferrlecit®. Brand other revenue increased $4.9 million to $16.6 million, due primarily to increased revenue from the Company's promotion of AndroGel® and Femring®.

Brand selling and marketing expense for the third quarter of 2009 increased 12 percent to $32.5 million, due to higher spending related to the launches of Rapaflo® and Gelnique®.



    Distribution Segment Information

                                           Three Months         Nine Months
                                              Ended                Ended
                                           September 30,       September 30,
                                           -------------       -------------
    (Unaudited; $ in millions)             2009    2008        2009    2008
                                           ----    ----        ----    ----
    Distribution Segment Contribution
    Net revenue                           $151.4  $170.9      $466.4  $443.8
    Operating expenses:
      Cost of sales                        128.9   144.1       391.9   374.9
      Selling and marketing                 15.8    15.6        47.6    43.7
                                            ----    ----        ----    ----
    Segment contribution                    $6.7   $11.2       $26.9   $25.2
                                            ====   =====       =====   =====
    Segment margin                           4.4%    6.6%        5.8%    5.7%

    Adjusted gross profit (1)              $22.5   $26.8       $74.5   $68.9
    Adjusted gross margin                   14.9%   15.7%       16.0%   15.5%

    (1) Adjusted Gross profit represents
    net revenue less cost of sales and
    excludes amortization of acquired
    intangibles.

Distribution segment net revenue decreased 11 percent or $19.5 million to $151.4 million for the third quarter of 2009. The decrease was primarily due to fewer third-party generic new product launches in the third quarter, partially offset by an increase in brand product sales. Distribution revenue excludes sales of Watson products.

Distribution segment adjusted gross margin was 14.9 percent in the third quarter of 2009 compared to 15.7 percent in the third quarter 2008.

Other Operating Expenses

Consolidated general and administrative expenses for the third quarter 2009 increased $17.5 million to $60.1 million, primarily as a result of higher legal expenses and expenses related to the acquisition of Arrow Group. General and administrative expenses for the third quarter 2008 reflect a $5.9 million favorable settlement of a tax-related liability due to the resolution of an Internal Revenue Service audit.

Amortization expense for the third quarter 2009 increased $2.0 million to $22.2 million, reflecting the addition of product rights acquired from Teva Pharmaceutical Industries, Ltd.

2009 Financial Outlook

Based on actual results for the first nine months of 2009 and the forecast for the remainder of the year, Watson is adjusting its estimates for the full year 2009. GAAP earnings per diluted share is estimated to be between $2.04 and $2.12, and as detailed in reconciliation Table 6, Watson has affirmed its estimate for adjusted earnings per diluted share, which is expected to be between $2.50 and $2.58. Excluding special items as detailed in the EBITDA reconciliation Table 7 below, adjusted EBITDA continues to be between $668 million and $685 million.

Watson estimates total net revenue for the full year of 2009 at approximately $2.70 billion. Estimates for segment revenue are as follows:

  • Total Generic segment revenue between $1.60 billion and $1.65 billion.
  • Total Brand segment revenue between $450 million and $465 million.
  • Total Distribution segment revenue between $620 million and $640 million.

Watson's estimates are based on the Company's actual results for the first nine months of 2009, and management's current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches and events. Watson's forecast for 2009 excludes the impact of the acquisition of Arrow Group, which is expected the close in the fourth quarter of 2009.

Webcast and Conference Call Details

Watson will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time to discuss second quarter 2009 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 32523724. 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, November 13, 2009. 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 global leader in the development and distribution of pharmaceuticals with a broad portfolio of generic products and a specialized portfolio of brand pharmaceuticals focused on Urology, Women's Health and Nephrology/Medical.

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; the difficulty of predicting the timing or outcome of litigation; successful integration of strategic transactions including the pending acquisition of the Arrow Group; the ability to recognize the anticipated synergies and benefits of strategic transactions, including the pending 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; 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; 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, 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 quarterly report on Form 10-Q for the period ended June 30, 2009. Except as expressly required by law, Watson disclaims any intent or obligation to update these forward-looking statements.

AndroGel® is a registered trademark of Solvay Pharmaceuticals Inc. Femring® is a registered trademark of Warner Chilcott.

The following table presents Watson's results of operations for the three and nine months ended September 30, 2009 and 2008:


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

                                           Three Months       Nine Months
                                              Ended             Ended
                                           September 30,     September 30,
                                           -------------     -------------
                                           2009    2008      2009      2008
                                           ----    ----      ----      ----

    Net revenues                          $662.1  $640.7  $2,007.3  $1,890.3
                                          ------  ------  --------  --------
    Operating expenses:
      Cost of sales (excludes
       amortization, presented below)      353.7   386.7   1,135.5   1,126.7
      Research and development              51.9    45.3     136.8     122.5
      Selling, general and administrative  120.1   101.2     383.0     312.2
      Amortization                          22.2    20.2      66.1      60.6
      Loss on asset sales and impairment     3.5     0.3       2.2       0.3
                                             ---     ---       ---       ---
        Total operating expenses           551.4   553.7   1,723.6   1,622.3
                                           -----   -----   -------   -------
    Operating income                       110.7    87.0     283.7     268.0
                                           -----    ----     -----     -----

    Non-operating (expense) income, net:
      Loss on early extinguishment of debt  (2.0)      -      (2.0)     (1.1)
      Interest income                        1.0     2.2       4.3       6.2
      Interest expense                      (9.0)   (7.0)    (18.3)    (20.7)
      Other income                           1.6    11.9       5.2      19.3
                                             ---    ----       ---      ----
        Total non-operating (expense)
         income, net                        (8.4)    7.1     (10.8)      3.7
                                            -----    ---     ------      ---


    Income before income taxes             102.3    94.1     272.9     271.7
    Provision for income taxes              39.3    23.0     107.8      89.7
                                            ----    ----     -----      ----
    Net income                             $63.0   $71.1    $165.1    $182.0
                                           =====   =====    ======    ======

    Diluted earnings per share             $0.55   $0.62     $1.45     $1.60
                                           =====   =====     =====     =====

    Diluted weighted average shares
     outstanding                           117.1   118.0     118.1     117.7
                                           =====   =====     =====     =====

The following table presents Watson's Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008:


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

                                                   September 30, December 31,
                                                          2009         2008
                                                          ----         ----
    Assets
      Cash and cash equivalents                          $812.9       $507.6
      Marketable securities                                13.1         13.2
      Accounts receivable, net                            377.1        305.0
      Inventories                                         505.7        473.1
      Other current assets                                176.5        159.5
      Property and equipment, net                         625.1        658.5
      Investments and other assets                        137.1        132.9
      Product rights and other intangibles, net           510.2        560.0
      Goodwill                                            868.1        868.1
                                                          -----        -----
        Total assets                                   $4,025.8     $3,677.9
                                                       ========     ========

    Liabilities & Stockholders' Equity
      Current liabilities                                $438.3       $428.8
      Current debt and current portion of long-term
       debt                                                 1.6         53.2
      Long-term debt                                      997.4        824.7
      Deferred income taxes and other liabilities         277.9        262.6
      Stockholders' equity                              2,310.6      2,108.6
                                                        -------      -------
        Total liabilities and stockholders' equity     $4,025.8     $3,677.9
                                                       ========     ========

The following table presents Watson's Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008:


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

                                                               Nine Months
                                                                  Ended
                                                              September 30,
                                                              -------------
                                                              2009     2008
                                                              ----     ----

    Cash Flows from Operating Activities:
    Net income                                               $165.1   $182.0
                                                             ------   ------
    Reconciliation to net cash provided by operating
     activities:
      Depreciation and amortization                           137.6    128.0
      Deferred income tax provision                             8.4     17.0
      Provision for inventory reserve                          36.0     35.9
      Restricted stock and stock option compensation           14.4     14.0
      Other adjustments                                         0.1    (20.4)
    Changes in assets and liabilities:
      Accounts receivable, net                                (72.1)   (47.3)
      Inventories                                             (68.6)   (26.9)
      Accounts payable and accrued expenses                    17.7    (45.8)
      Income taxes payable                                     (6.6)     9.9
      Other assets and liabilities                              3.6     (6.2)
                                                                ---     ----
          Total adjustments                                    70.5     58.2
                                                               ----     ----
              Net cash provided by operating activities       235.6    240.2
                                                              -----    -----
    Cash Flows from Investing Activities:
    Additions to property, equipment and product rights       (59.5)   (43.3)
    Additions to marketable securities and long-term
     investments                                               (4.4)    (5.8)
    Proceeds from sale of marketable securities and
     investments                                                5.9     13.0
    Proceeds from sale of fixed assets                          3.0      0.8
                                                                ---      ---
              Net cash used in investing activities           (55.0)   (35.3)
                                                             ------   ------

    Cash Flows from Financing Activities:
    Payments on term loan, current debt and other long-term
     liabilities                                             (726.6)   (95.6)
    Proceeds from issuance of debt and other long-term
     liabilities                                              833.0     17.9
    Proceeds from stock plans                                  21.5      8.4
    Repurchase of common stock                                 (3.2)    (0.8)
                                                              -----    -----
              Net cash provided by (used in) financing
               activities                                     124.7    (70.1)
                                                              -----   ------
              Net increase in cash and cash equivalents       305.3    134.8
    Cash and cash equivalents at beginning of period          507.6    204.6
                                                              -----    -----
    Cash and cash equivalents at end of period               $812.9   $339.4
                                                             ======   ======

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 September 30, 2009 and 2008:


                                                                      Table 4
                       Watson Pharmaceuticals, Inc.
                           Reconciliation Table
            (Unaudited; in millions except per share amounts)

                                        Three Months Ended  Nine Months Ended
                                            September 30,      September 30,
                                             2009   2008       2009     2008
                                             ----   ----       ----     ----

    GAAP to adjusted net income calculation

      Reported GAAP net income              $63.0  $71.1     $165.1   $182.0
      Adjusted for:
        Global supply chain initiative(1)     7.0    4.8       24.8     23.9
        Acquisition and licensing charges     2.9    1.0       14.8      6.5
        (Gain) loss on securities and
         impairment                             -   (8.2)       1.1     (9.6)
        Loss on asset sales and impairment    3.5    0.3        2.2      0.3
        Favorable settlement of tax related
         liability                              -   (5.9)         -     (5.9)
        Loss on early extinguishment of debt  2.0      -        2.0      1.1
        Legal settlements                     3.5      -       22.3    (15.0)
        Income taxes                         (5.8)  (9.1)     (19.3)   (12.7)
                                            -----  -----     ------   ------
      Adjusted net income                    76.1   54.0      213.0    170.6
      Add:  Interest expense on CODES,
       net of tax                             1.6    2.0        5.5      5.9
                                              ---    ---        ---      ---
      Adjusted net income, adjusted for
       interest on CODES                    $77.7  $56.0     $218.5   $176.5
                                            =====  =====     ======   ======

    Diluted earnings per share

      Diluted earnings per share - GAAP     $0.55  $0.62      $1.45    $1.60
                                            =====  =====      =====    =====

      Diluted earnings per share -
       Adjusted                             $0.66  $0.47      $1.85    $1.50
                                            =====  =====      =====    =====

      Basic weighted average common
       shares outstanding                   103.8  102.9      103.4    102.7
      Effect of dilutive securities:
        Conversion of CODES                  11.9   14.4       13.6     14.4
        Dilutive share-based compensation
         arrangements                         1.4    0.7        1.1      0.6
                                              ---    ---        ---      ---
      Diluted weighted average common
       shares outstanding                   117.1  118.0      118.1    117.7
                                            =====  =====      =====    =====

     (1) Includes accelerated depreciation charges.

The following table presents a reconciliation of reported net income for the three and nine months ended September 30, 2009 and 2008 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,
                                           2009    2008       2009      2008
                                           ----    ----       ----      ----

    GAAP net income                       $63.0   $71.1     $165.1    $182.0
    Plus:
      Interest expense                      9.0     7.0       18.3      20.7
      Interest income                      (1.0)   (2.2)      (4.3)     (6.2)
      Provision for income taxes           39.3    23.0      107.8      89.7
      Depreciation (includes accelerated
       depreciation)                       24.2    23.2       71.5      67.4
      Amortization                         22.2    20.2       66.1      60.6
                                           ----    ----       ----      ----
    EBITDA                                156.7   142.3      424.5     414.2
                                          -----   -----      -----     -----
    Adjusted for:
      Global supply chain initiative        5.0     2.9       19.2      18.3
      Acquisition and licensing charges     2.9     1.0       14.8       6.5
      (Gain) loss on securities and
       impairment                             -    (8.2)       1.1      (9.6)
      Loss on asset sales and impairment    3.5     0.3        2.2       0.3
      Favorable settlement of tax
       related liability                      -    (5.9)         -      (5.9)
      Loss on early extinguishment of debt  2.0       -        2.0       1.1
      Legal settlements                     3.5       -       22.3     (15.0)
      Share-based compensation              4.8     4.8       14.4      14.1
                                            ---     ---       ----      ----
    Adjusted EBITDA                      $178.4  $137.2     $500.5    $424.0
                                         ======  ======     ======    ======

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                              $228.9   $237.5
      Adjusted for:
               Acquisition and licensing charges     17.7     17.7
               Global supply chain initiative        30.0     30.0
               Legal settlements                     22.3     22.3
               Loss on asset sales/impairment         2.2      2.2
               Loss on security sales and
                impairment                            1.1      1.1
               Loss on early extinguishment of
                debt                                  2.0      2.0
               Income taxes                         (22.2)   (22.2)
                                                    ------   ------
      Adjusted net income                           282.0    290.6
      Add:  Interest expense on CODES, net of tax     5.5      5.5
                                                      ---      ---
      Adjusted net income, adjusted for interest
       on CODES                                    $287.5   $296.1
                                                   ======   ======

    Diluted earnings per share

      Diluted earnings per share - GAAP             $2.04    $2.12
                                                    =====    =====

      Diluted earnings per share - Adjusted         $2.50    $2.58
                                                    =====    =====

      Diluted weighted average common shares
       outstanding                                  114.9    114.9
                                                    =====    =====

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 schedule above does not include or incorporate the anticipated impact of the Arrow Acquisition on forecasted adjusted net income, diluted shares outstanding or diluted earnings per share for the twelve months ending December 31, 2009.

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                          $228.9   $237.5
      Plus:
        Interest expense                         31.5     31.5
        Interest income                          (8.8)    (5.8)
        Provision for income taxes              145.0    150.4
        Depreciation (includes accelerated
         depreciation)                           96.6     96.6
        Amortization                             88.3     88.3
                                                 ----     ----
      EBITDA                                    581.5    598.5
                                                -----    -----
      Adjusted for:
        Loss on asset sales/impairment            2.2      2.2
        Share-based compensation                 18.7     18.7
        Global supply chain initiative           22.5     22.5
        Acquisition and licensing charges        17.7     17.7
        Legal settlements                        22.3     22.3
        Loss on debt repurchases                  2.0      2.0
        Loss on security sales and impairment     1.1      1.1

                                               ------   ------
      Adjusted EBITDA                          $668.0   $685.0
                                               ======   ======

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. The schedule above does not include or incorporate the anticipated impact of the Arrow Acquisition on forecasted GAAP net income, adjustments or adjusted EBITDA for the twelve months ending December 31, 2009.

SOURCE Watson Pharmaceuticals, Inc.

Patty Eisenhaur of Watson Pharmaceuticals, Inc., +1-973-355-8141

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International Product Media Relations
+44 773 850 6476

For local media contacts in other countries, please visit the relevant country website.

Investor relations:

Karina Calzadilla
Investor Relations
+1 (862) 261 7488