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Segment Results
 6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
SEGMENT RESULTS
NOTE 4. SEGMENT RESULTS
The Company’s four reportable business segments are Branded Pharmaceuticals, Sterile Injectables, Generic Pharmaceuticals and International Pharmaceuticals. These segments reflect the level at which the chief operating decision maker (CODM) regularly reviews financial information to assess performance and to make decisions about resources to be allocated. Each segment derives revenue from the sales or licensing of its respective products and is discussed in more detail below.
We evaluate segment performance based on segment adjusted income from continuing operations before income tax, which we define as Income (loss) from continuing operations before income tax and before certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs and changes in the fair value of contingent consideration; cost reduction and integration-related initiatives such as separation benefits, continuity payments, other exit costs and certain costs associated with integrating an acquired company's operations; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; certain legal costs; gains or losses from early termination of debt; debt modification costs; gains or losses from the sales of businesses and other assets; foreign currency gains or losses on intercompany financing arrangements; and certain other items. Effective January 1, 2020, the Company revised its definition of segment adjusted income from continuing operations before income tax to exclude certain legal costs in order to reflect changes in how the CODM reviews segment performance. The Company believes that such costs are not indicative of business performance and that excluding them more accurately reflects each segment’s results and better enables management to compare financial results between periods. Prior period results have been adjusted to reflect this change. Specifically, for the three months ended June 30, 2019, certain legal costs of $18.6 million and $0.4 million have been excluded from our Branded Pharmaceuticals and Generic Pharmaceuticals segments, respectively, and for the six months ended June 30, 2019, certain legal costs of $34.8 million and $0.8 million have been excluded from our Branded Pharmaceuticals and Generic Pharmaceuticals segments, respectively, resulting in increases to the segment adjusted income from continuing operations before income tax for these segments. This change had no impact on our Total consolidated income (loss) from continuing operations before income tax.
Certain of the corporate expenses incurred by the Company are not directly attributable to any specific segment. Accordingly, these costs are not allocated to any of the Company’s segments and are included in the results below as “Corporate unallocated costs.” Interest income and expense are also considered corporate items and not allocated to any of the Company’s segments. The Company’s total segment adjusted income from continuing operations before income tax is equal to the combined results of each of its segments.
Branded Pharmaceuticals
Our Branded Pharmaceuticals segment includes a variety of branded prescription products to treat and manage conditions in urology, urologic oncology, endocrinology, pain and orthopedics. The products in this segment include XIAFLEX®, SUPPRELIN® LA, NASCOBAL® Nasal Spray, AVEED®, PERCOCET®, LIDODERM®, EDEX® and TESTOPEL®, among others.
Sterile Injectables
Our Sterile Injectables segment consists primarily of branded sterile injectable products such as VASOSTRICT®, ADRENALIN® and APLISOL®, among others, and certain generic sterile injectable products, including ertapenem for injection (the authorized generic of Merck Sharp & Dohme Corp.’s (Merck) Invanz®) and ephedrine sulfate injection, among others.
Generic Pharmaceuticals
Our Generic Pharmaceuticals segment consists of a differentiated product portfolio including solid oral extended-release, solid oral immediate-release, liquids, semi-solids, patches, powders, ophthalmics and sprays and includes products in the pain management, urology, central nervous system disorders, immunosuppression, oncology, women’s health and cardiovascular disease markets, among others.
International Pharmaceuticals
Our International Pharmaceuticals segment includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin Labs Inc. (Paladin). The key products of this segment serve various therapeutic areas, including attention deficit hyperactivity disorder, pain, women’s health and oncology.
The following represents selected information for the Company’s reportable segments for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net revenues from external customers:
Branded Pharmaceuticals$129,521  $209,013  $333,594  $412,538  
Sterile Injectables319,214  244,280  655,604  514,328  
Generic Pharmaceuticals215,879  217,784  467,162  436,310  
International Pharmaceuticals (1)22,974  28,650  51,633  56,962  
Total net revenues from external customers$687,588  $699,727  $1,507,993  $1,420,138  
Segment adjusted income from continuing operations before income tax:
Branded Pharmaceuticals$49,174  $101,535  $147,596  $196,818  
Sterile Injectables241,753  172,188  505,649  368,371  
Generic Pharmaceuticals47,394  49,722  104,721  100,133  
International Pharmaceuticals9,304  11,447  23,501  23,542  
Total segment adjusted income from continuing operations before income tax$347,625  $334,892  $781,467  $688,864  
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(1)Revenues generated by our International Pharmaceuticals segment are primarily attributable to external customers located in Canada.
There were no material revenues from external customers attributed to an individual country outside of the U.S. during any of the periods presented.
The table below provides reconciliations of our Total consolidated income (loss) from continuing operations before income tax, which is determined in accordance with U.S. GAAP, to our total segment adjusted income from continuing operations before income tax for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Total consolidated income (loss) from continuing operations before income tax$25,252  $(94,584) $46,501  $(96,293) 
Interest expense, net129,164  134,809  262,041  267,484  
Corporate unallocated costs (1)33,590  38,365  76,912  86,460  
Amortization of intangible assets104,498  140,418  221,735  286,017  
Upfront and milestone payments to partners444  1,444  2,194  2,383  
Continuity and separation benefits and other cost reduction initiatives (2)9,444  2,124  32,664  4,149  
Certain litigation-related and other contingencies, net (3)(8,572) 10,315  (25,748) 10,321  
Certain legal costs (4)18,005  18,984  33,541  35,673  
Asset impairment charges (5)—  88,438  97,785  253,886  
Acquisition-related and integration items, net (6)6,045  (5,507) 18,507  (43,008) 
Gain on extinguishment of debt—  —  —  (119,828) 
Foreign currency impact related to the remeasurement of intercompany debt instruments3,005  2,262  (4,089) 3,796  
Other, net (7)26,750  (2,176) 19,424  (2,176) 
Total segment adjusted income from continuing operations before income tax$347,625  $334,892  $781,467  $688,864  
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(1)Amounts include certain corporate overhead costs, such as headcount, facility and corporate litigation expenses and certain other income and expenses.
(2)Amounts for the three and six months ended June 30, 2020 include $4.1 million and $17.9 million, respectively, of costs associated with certain continuity and transitional compensation arrangements for certain senior management of the Company. Other amounts in 2020 related primarily to certain cost reduction initiatives. Such amounts included accelerated depreciation of $1.8 million and other charges of $3.6 million during the three months ended June 30, 2020 and accelerated depreciation of $8.4 million and other charges of $6.4 million during the six months ended June 30, 2020. Amounts for the three and six months ended June 30, 2019 primarily relate to employee separation costs of $0.4 million and $2.2 million, respectively, and other charges of $1.7 million and $1.9 million, respectively.
(3)Amounts include adjustments to our accruals for litigation-related settlement charges and certain settlement proceeds related to suits filed by our subsidiaries. Our material legal proceedings and other contingent matters are described in more detail in Note 12. Commitments and Contingencies.
(4)Amounts relate to opioid-related legal expenses.
(5)Amounts primarily relate to charges to impair goodwill and intangible assets as further described in Note 8. Goodwill and Other Intangibles.
(6)Amounts primarily relate to changes in the fair value of contingent consideration.
(7)The amounts during the three and six months ended June 30, 2020 primarily relate to $30.7 million of third party fees incurred in connection with the June 2020 Refinancing Transactions, which were accounted for as debt modifications. Refer to Note 11. Debt for additional information. Remaining amounts in this line primarily relate to gains on sales of businesses and other assets, as further described in Note 15. Other (Income) Expense, Net.
Asset information is not reviewed or included within our internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.
During the three and six months ended June 30, 2020 and 2019, the Company disaggregated its revenue from contracts with customers into the categories included in the table below (in thousands). The Company believes these categories depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors.
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Branded Pharmaceuticals:
Specialty Products:
XIAFLEX®$33,783  $74,855  $122,855  $143,362  
SUPPRELIN® LA15,395  23,714  35,115  45,770  
Other Specialty (1)19,566  25,524  45,071  49,927  
Total Specialty Products$68,744  $124,093  $203,041  $239,059  
Established Products:
PERCOCET®$27,578  $28,878  $55,281  $59,638  
LIDODERM®7,056  9,051  14,279  17,120  
EDEX®6,604  7,662  15,172  13,633  
Other Established (2)19,539  39,329  45,821  83,088  
Total Established Products$60,777  $84,920  $130,553  $173,479  
Total Branded Pharmaceuticals (3)$129,521  $209,013  $333,594  $412,538  
Sterile Injectables:
VASOSTRICT®$214,214  $116,026  $417,118  $255,163  
ADRENALIN®33,161  45,835  89,673  93,157  
Ertapenem for injection11,990  25,547  29,864  57,766  
APLISOL®6,511  15,530  16,378  27,911  
Other Sterile Injectables (4)53,338  41,342  102,571  80,331  
Total Sterile Injectables (3)$319,214  $244,280  $655,604  $514,328  
Total Generic Pharmaceuticals (5)$215,879  $217,784  $467,162  $436,310  
Total International Pharmaceuticals (6)$22,974  $28,650  $51,633  $56,962  
Total revenues, net$687,588  $699,727  $1,507,993  $1,420,138  
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(1)Products included within Other Specialty are NASCOBAL® Nasal Spray and AVEED®.
(2)Products included within Other Established include, but are not limited to, TESTOPEL®.
(3)Individual products presented above represent the top two performing products in each product category for either the three or six months ended June 30, 2020 and/or any product having revenues in excess of $25 million during any quarterly period in 2020 or 2019.
(4)Products included within Other Sterile Injectables include ephedrine sulfate injection and others.
(5)The Generic Pharmaceuticals segment is comprised of a portfolio of products that are generic versions of branded products, are distributed primarily through the same wholesalers, generally have no intellectual property protection and are sold within the U.S. During the three and six months ended June 30, 2019, colchicine tablets (the authorized generic of Takeda Pharmaceuticals U.S.A., Inc.’s (Takeda) Colcrys®), which launched in July 2018, made up 7% and 6% of consolidated total revenue, respectively. No other individual product within this segment has exceeded 5% of consolidated total revenues for the periods presented.
(6)The International Pharmaceuticals segment, which accounted for 3% of consolidated total revenues during both the three and six months ended June 30, 2020 and 4% of consolidated total revenues during both the three and six months ended June 30, 2019, includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin.