Segment Results

6 Months Ended

Jun. 30, 2011

Segment Results

Segment Results

NOTE 6. SEGMENT RESULTS

As a result of our 2010 acquisitions, the Company realigned its internal management reporting in 2010 to reflect a total of three reportable segments. These segments reflect the level at which executive management regularly reviews financial information to assess performance and to make decisions about resources to be allocated.

The three reportable business segments in which the Company now operates include: (1) Branded Pharmaceuticals, (2) Generics and (3) Devices and Services. Each segment derives revenue from the sales or licensing of their respective products or services and is discussed below.

Branded Pharmaceuticals

This group of products includes a variety of branded prescription products related to treating and managing pain as well as our urology, endocrinology and oncology products. The marketed products that are included in this operating segment include Lidoderm^®, Opana^® ER and Opana^®, Percocet^®, Voltaren^® Gel, Frova^®, Supprelin^® LA, Vantas^®, Valstar^®, and Fortesta^TM Gel.

Generics

This segment is comprised of our legacy Endo non-branded generic portfolio and the portfolio from our recently acquired Qualitest business. Our generics business has historically focused on selective generics related to pain that have one or more barriers to market entry, such as complex formulation, regulatory or legal challenges or difficulty in raw material sourcing. With the addition of Qualitest, the segment's product offerings now include products in the pain management, urology, central nervous system (CNS) disorder, immunosuppression, oncology, and hypertension markets, among others.

Devices and Services

The Devices and Services operating segment provides urological services, products and support systems to urologists, hospitals, surgery centers and clinics across the United States. These services and products are sold through the following eight business lines: men's health, women's health, BPH therapy, lithotripsy services, prostate treatment services, radiation therapy services, anatomical pathology services, and medical products manufacturing, sales and maintenance. These business lines are discussed in greater detail within Note 5.

In 2010, the Company began to evaluate segment performance based on each segment's adjusted income (loss) before income tax. We define adjusted income (loss) before income tax as income (loss) before income tax before certain upfront and milestone payments to partners, acquisition-related items, cost reduction initiatives, asset impairment charges, amortization of intangible assets related to marketed products and customer relationships, inventory step-up recorded as part of our acquisitions, non-cash interest expense, and certain other items that the Company believes do not reflect its core operating performance. Certain corporate general and administrative expenses are not allocated and are therefore included within Corporate unallocated. We calculate consolidated adjusted income (loss) before income tax by adding the adjusted income (loss) before income tax of each of our reportable segments to corporate unallocated adjusted income (loss) before income tax.

The following represents selected information for the Company's reportable segments for the three and six months ended June 30, 2011 and 2010 (in thousands):

	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Net revenues to external customers
Branded Pharmaceuticals	$	398,267		$	368,840		$	773,781		$	707,376
Generics		133,047			27,684			267,456			53,560
Devices and Services		76,297			—			126,400			—
Total consolidated net revenues to external customers	$	607,611		$	396,524		$	1,167,637		$	760,936
Adjusted income (loss) before income tax
Branded Pharmaceuticals	$	209,619		$	183,787		$	402,875		$	353,111
Generics		21,126			3,065			47,513			6,311
Devices and Services		25,474			—			39,915			—
Corporate unallocated		(67,032	)		(43,935	)		(123,301	)		(88,289	)
Total consolidated adjusted income before income tax	$	189,187		$	142,917		$	367,002		$	271,133

The table below provides reconciliations of our consolidated adjusted income (loss) before income tax to our consolidated income before income tax, which is determined in accordance with U.S. generally accepted accounting principles (GAAP), for the three and six months ended June 30, 2011 and 2010 (in thousands):

	Three months ended June,						Six months ended June 30,
	2011			2010			2011			2010
Total consolidated adjusted income before income tax	$	189,187		$	142,917		$	367,002		$	271,133
Upfront and milestone payments to partners		(13,990	)		(15,911	)		(24,991	)		(18,891	)
Acquisition-related items		(17,626	)		(4,796	)		(23,699	)		(6,325	)
Cost reduction initiatives and separation benefits		(533	)		(4,006	)		(3,995	)		(9,520	)
Impairment of other intangible assets		—			(13,000	)		—			(13,000	)
Amortization of intangible assets related to marketed products and customer relationships		(40,444	)		(17,135	)		(77,655	)		(34,352	)
Inventory step-up		(2,995	)		—			(16,781	)		—
Non-cash interest expense		(4,719	)		(4,212	)		(9,260	)		(8,262	)
Loss on extinguishment of debt, net		(8,548	)		—			(8,548	)		—
Other (expense) income, net		—			(35	)		—			(239	)
Total consolidated income before income tax	$	100,332		$	83,822		$	202,073		$	180,544

The following represents additional selected financial information for our reportable segments three and six months ended June 30, 2011 and 2010 (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
Depreciation expense
Branded Pharmaceuticals	$	2,775	$	3,255	$	6,442	$	6,594
Generics		2,571		205		5,184		409
Devices and Services		3,296		—		6,389		—
Corporate unallocated		763		688		1,769		1,381
Total depreciation expense	$	9,405	$	4,148	$	19,784	$	8,384
Amortization expense
Branded Pharmaceuticals	$	26,199	$	17,285	$	52,260	$	34,571
Generics		9,697		—		19,597		—
Devices and Services		4,697		—		6,098		—
Total amortization expense	$	40,593	$	17,285	$	77,955	$	34,571

Asset information is not accounted for at the segment level and consequently is not reviewed or included within our internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.