8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 15, 2011

WATSON PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Nevada	001-13305	95-3872914
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

311 Bonnie Circle Corona, California	92880
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (951) 493-5300

N/A

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On February 15, 2011, Watson Pharmaceuticals, Inc. (the “Company”) issued a press release reporting the financial results of the Company for the fourth quarter and year ended December 31, 2010, and providing a forecast of certain estimated financial metrics for 2011. A copy of the Company’s press release is attached to this report as Exhibit 99.1 and incorporated herein by reference.

Additionally, on February 15, 2011, the Company posted on its “Investors/Quarterly Results” section of its Web site at http://www.watson.com, a tables showing adjustments to certain line items of the Company’s Statement of Operations to reconcile U.S. generally accepted accounting principles (“GAAP”) net income to Non-GAAP net income for the quarter and year ended December 31, 2010 and the year ended December 31, 2009. A copy of these tables are attached to this report as Exhibit 99.2, Exhibit 99.3 and Exhibit 99.4 and incorporated herein by reference.

Non-GAAP net income and earnings per share are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. We define non-GAAP net income as net income adjusted for amortization, acquisition and licensing charges, expenses associated with our operational excellence/global supply chain initiative (including accelerated depreciation charges associated therewith), legal settlements and certain special charges that are otherwise included in GAAP net income, including loss (gain) on asset sales/impairment, loss (gain) on security sales and impairment, loss on debt repurchases and income taxes. Non-GAAP earnings per share refers to non-GAAP net income divided by the number of diluted shares outstanding.

In its press release and in the quarterly and full year reconciliation tables, the Company discloses non-GAAP financial measures (as defined in Regulation G promulgated by the U. S. Securities and Exchange Commission) that exclude certain significant charges or credits that are important to an understanding of the Company’s ongoing operations. The Company believes that its inclusion of non-GAAP financial measures provides useful supplementary information to and facilitates analysis by investors in evaluating the Company’s performance and trends. The determination of significant charges or credits may not be comparable to similar measures used by other companies and may vary from period to period. The Company uses both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage the Company’s operations and to better understand its business. These non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

The information in this report (including the exhibits) is furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

d. Exhibits:

99.1	Press Release titled “Watson Fourth Quarter 2010 Net Revenue Increases 21% to $953 Million” dated February 15, 2011.
99.2	Table entitled “Statement of Operations GAAP to Non-GAAP Adjustments by Line Item — October 1, 2010 — December 31, 2010.”
99.3	Table entitled “Statement of Operations GAAP to Non-GAAP Adjustments by Line Item — January 1, 2010 — December 31, 2010.”
99.4	Table entitled “Statement of Operations GAAP to Non-GAAP Adjustments by Line Item — January 1, 2009 — December 31, 2009.”

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: February 15, 2011	WATSON PHARMACEUTICALS, INC.
	By:	/s/ R. Todd Joyce
		R. Todd Joyce
		Senior Vice President — Chief Financial Officer

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EXHIBIT INDEX

Exhibit
No.		Description
	99.1	Press Release titled “Watson Fourth Quarter 2010 Net Revenue Increases 21% to $953 Million” dated February 15, 2011.
	99.2	Table entitled “Statement of Operations GAAP to Non-GAAP Adjustments by Line Item — October 1, 2010 — December 31, 2010.”
	99.3	Table entitled “Statement of Operations GAAP to Non-GAAP Adjustments by Line Item — January 1, 2010 — December 31, 2010.”
	99.4	Table entitled “Statement of Operations GAAP to Non-GAAP Adjustments by Line Item — January 1, 2009 — December 31, 2009.”

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EX-99.1

Exhibit 99.1

NEWS RELEASE

CONTACTS: Watson Pharmaceuticals, Inc.
Patty Eisenhaur
(973) 355-8141

Charlie Mayr
(973) 355-8483

Watson Fourth Quarter 2010 Net Revenue Increases 21% to $953 Million

• Fourth Quarter 2010 Non-GAAP EPS $0.93

• Full Year 2010 Net Revenues of $3.6 Billion

• Full Year 2010 Non-GAAP EPS $3.42

MORRISTOWN, NJ — February 15, 2011 — Watson Pharmaceuticals, Inc. (NYSE: WPI) today reported net revenue increased 21 percent to $952.7 million for the fourth quarter ended December 31, 2010, compared to $785.7 million in the fourth quarter 2009. On a non-GAAP basis, net income for the fourth quarter 2010 was $116.5 million or $0.93 per share, an increase of 23 percent, compared to $94.4 million or $0.85 per share in the fourth quarter 2009. GAAP earnings per share for the fourth quarter 2010 were $0.15, compared to $0.51 in the prior year period.

For the fourth quarter 2010, adjusted EBITDA increased 17 percent to $220.8 million, compared to $188.8 million for the fourth quarter 2009. Cash and marketable securities were $293.9 million as of December 31, 2010. Refer to the attached reconciliation tables for adjustments to GAAP earnings.

Full Year 2010 Results

For the full year 2010, net revenue increased 28 percent to $3.6 billion, compared to net revenue of $2.8 billion for full year 2009. On a non-GAAP basis, net income increased 22 percent to $425.4 million, or $3.42 per share for the full year 2010, compared to 2009 net income of $348.8 million, or $3.04 per share. GAAP earnings per share were $1.48 for the full year 2010, compared to $1.96 in 2009.

For the full year 2010, adjusted EBITDA was $838.2 million, an increase of 22 percent from the full year 2009. Cash flow from operations was $571.0 million.

“2010 was an extremely successful year for Watson. From a financial perspective, revenues grew by 28 percent and non-GAAP earnings per share increased by 13 percent. Additionally, strong cash flow from operations of over $570 million enabled us to reduce our debt to adjusted EBITDA ratio to approximately 1.2x, which provides us the flexibility to capitalize on future opportunities to grow the Company,” said Paul Bisaro, President and CEO. “We also reported continued progress in our Global Brands and Generics businesses. During the year we launched 7 new generic products in the U.S., disclosed the initiation of 17 new patent challenges, and announced an agreement that will enable us to launch generic Concerta^® in May 2011. Investing for the future, we filed 34 Abbreviated New Drug Applications in the U.S. and over 145 applications globally.”

“In our Global Brands business, we launched three new products in the U.S., completed the phase III study with Columbia Labs on Prochieve^® 8% for the prevention of pre-term birth in women with a short cervix, and announced an alliance with Gedeon Richter to develop Esmya^® for the treatment of uterine fibroids. We also licensed our first biologic, recombinant follicle stimulating hormone (rFSH),” Bisaro continued.

“During 2010 we continued to successfully integrate our assets in key international markets and invested in the new and exciting high growth markets of Brazil and Mexico through our joint venture with Moksha8. We also realized significant enhancements to our global supply chain through our Operational Excellence Initiative,” concluded Bisaro.

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Fourth Quarter and Full year 2010 Business Segment Results

Global Generics Segment Information

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
(Unaudited; $ in millions)	2010			2009			2010			2009
Product sales	$	607.9		$	460.5		$	2,268.9		$	1,641.8
Other revenue		38.1			6.8			69.5			26.4
Net revenue		646.0			467.3			2,338.4			1,668.2
Operating expenses:
Cost of sales		315.3			270.4			1,198.9			947.1
Research and development		53.7			43.4			194.6			140.4
Selling and marketing		31.0			18.0			111.9			53.8
Segment contribution	$	246.0		$	135.5		$	833.0		$	526.9
Segment margin		38.1	%		29.0	%		35.6	%		31.6	%
Adjusted gross profit (1)	$	314.2		$	218.3		$	1,154.2		$	764.6
Adjusted gross margin		50.6	%		46.7	%		49.9	%		45.8	%

⁽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:

Acquisition and licensing adjustments (other revenue)	$	(25.0	)	$	—	$	(27.5	)	$	—
Global Supply Chain Initiative		8.5			7.2		30.3			29.3
Purchase accounting adjustments		—			14.2		11.9			14.2

Global Generics net revenue for the fourth quarter 2010 increased 38 percent to $646.0 million. Product sales increased due to the addition of our international business and new products, including metoprolol succinate extended-release, Zarah^® and diltiazem extended-release. Other revenue increased primarily as a result of the contribution from our international markets. Fourth quarter international net revenue was $148.6 million, and includes a $25 million payment from a development partner. Our non-GAAP financial results exclude this payment.

Adjusted Global Generics gross margin increased 3.9 percentage points to 50.6 percent in the fourth quarter 2010, compared to 46.7 percent in the fourth quarter 2009. Adjusted Global Generics gross margin was positively influenced by increased sales of extended-release products, partially offset by lower gross margins in our international business.

Global Generics R&D investment for the fourth quarter 2010 increased 24 percent to $53.7 million, primarily due to the inclusion of international R&D investments beginning in December 2009.

3

For the full year 2010, Global Generics net revenue increased 40 percent to $2.34 billion, including product sales of $2.27 billion and other revenue of $69.5 million. Product sales were driven by increased sales of extended-release products, the launch of new products and the addition of product sales from our international markets. Global Generics other revenue for 2010 increased $43.1 million compared to 2009, due primarily to higher other revenue from our international business. International net revenues for the full year 2010 were $472.0 million.

Adjusted Global Generics gross margin increased from 45.8 percent in 2009 to 49.9 percent in 2010, due to the launch of new products, an increase in extended-release products and enhanced operational efficiencies resulting from the Company’s Operational Excellence Initiative.

Global Brands Segment Information

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
(Unaudited; $ in millions)	2010			2009			2010			2009
Product sales	$	84.6		$	101.8		$	316.3		$	393.7
Other revenue		18.7			19.2			81.5			67.3
Net revenue		103.3			121.0			397.8			461.0
Operating expenses:
Cost of sales		20.3			22.4			88.4			89.3
Research and development		45.3			17.1			101.5			56.9
Selling and marketing		35.6			36.0			137.8			144.5
Segment contribution	$	2.1		$	45.5		$	70.1		$	170.3
Segment margin		2.0	%		37.6	%		17.6	%		36.9	%
Adjusted gross profit (1)	$	83.0		$	98.6		$	309.4		$	371.7
Adjusted gross margin		80.3	%		81.5	%		77.8	%		80.6	%

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

Global Brands net revenue was $103.3 million in the fourth quarter. Global Brands net revenue for the fourth quarter 2010 was lower than the previous year due primarily to the loss of Ferrlecit^®, partially offset by an increase in sales of Rapaflo^®, Gelnique^®, Androderm^® and the addition of Crinone^®.

4

Adjusted gross margin for the Global Brands segment decreased from 81.5 percent to 80.3 percent in the fourth quarter 2010 primarily as a result of the loss of Ferrlecit^®.

Global Brands R&D investment increased $28.2 million in the fourth quarter 2010, due primarily to milestone payments for pipeline products, including Esmya^®, the initiation of the Phase III program for our contraceptive patch and the addition of Eden Biodesign. Global Brands selling and marketing expenses were consistent with the fourth quarter of 2009 at $35.6 million.

For the full year 2010, Global Brands segment net revenue decreased $63.2 million to $397.8 million, and included product sales of $316.3 million and other revenue of $81.5 million. Product sales decreased compared to 2009, due primarily to the loss of Ferrlecit^®, which was partially offset by increased sales of Rapaflo^®, Gelnique^®, Androderm^® and the addition of Crinone^®.

Global Brands segment adjusted gross margin for the full year 2010 was 77.8 percent, compared to 80.6 percent in 2009, reflecting the loss of Ferrlecit^®.

Distribution Segment Information

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
(Unaudited; $ in millions)	2010			2009			2010			2009
Net revenue	$	203.4		$	197.4		$	830.7		$	663.8
Operating expenses:
Cost of sales		175.6			168.5			711.2			560.4
Selling and marketing		17.0			17.2			70.3			64.8
Segment contribution	$	10.8		$	11.7		$	49.2		$	38.6
Segment margin		5.3	%		5.9	%		5.9	%		5.8	%
Adjusted gross profit (1)	$	27.8		$	28.9		$	119.5		$	103.4
Adjusted gross margin		13.7	%		14.6	%		14.4	%		15.6	%

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

Distribution segment net revenue for the fourth quarter 2010 increased three percent, or $6.0 million to $203.4 million. The increase was primarily due to sales of generic versions of Adderall XR^®, Aricept^® and Effexor XR^®. Distribution revenue consists of sales of third-party products and excludes sales of Watson’s brand and generic products.

5

Distribution segment adjusted gross margin was 13.7 percent in the fourth quarter 2010, a decrease of approximately one percentage point from the prior year, due primarily to higher inventory reserves.

For the full year 2010, Distribution segment net revenues increased 25 percent or $166.9 million to $830.7 million, compared to $663.8 million in 2009. This increase was driven by sales of new generic and brand products.

Other Operating Expenses

Consolidated general and administrative expenses were $122.3 million in the fourth quarter 2010, an increase of $56.3 million from the fourth quarter 2009, due primarily to a $40 million legal reserve associated with drug pricing litigation and the addition of our international business acquired in 2009. Amortization expense for the fourth quarter 2010 was $52.0 million, compared to $26.5 million in fourth quarter 2009, reflecting amortization related to the Arrow Group acquisition.

For the full year 2010, consolidated general and administrative expenses were $436.1 million, an increase of $179.0 million from the full year 2009, as a result of a $129.9 million legal reserve associated with drug pricing litigation and the addition of our international business which was acquired in December of 2009. Amortization expense for the full year 2010 was $180.0 million, compared to $92.6 million in full year 2009, reflecting the Arrow Group acquisition.

2011 Financial Outlook

Watson’s estimates are based on actual results for 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, 2011 at approximately $4.2 billion.

• Total Global Generic segment revenue between $2.8 and $3.0 billion

• Total Global Brand segment revenue of approximately $470 and $490 million

• Total Distribution segment revenue between $820 and $840 million

• Selling, General and Administrative expenses between $650 and $675 million

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• Research and Development expenses between $290 and $310 million

• Adjusted EBITDA between $925 million and $1.0 billion

• Non-GAAP earnings per share between $3.85 and $4.15.

Webcast and Conference Call Details

Watson will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time to discuss fourth quarter and full year 2010 results, the outlook for 2011 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 40449367. 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, March 1, 2011. 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 integrated global 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.

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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; 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 and acquisition of the Crinone^® product rights; 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; fluctuations in foreign currency exchange rates; 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, 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 period ended December 31, 2009 and Watson’s quarterly report on Form 10-Q for the period ended September 30, 2010. 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.

8

The following table presents Watson’s results of operations for the three and twelve months ended December 31, 2010 and 2009:

Table 1

Watson Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited; in millions, except per share amounts)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
Net revenues	$	952.7		$	785.7		$	3,566.9		$	2,793.0
Operating expenses:
Cost of sales (excludes amortization, presented below)		511.2			461.3			1,998.5			1,596.8
Research and development		99.0			60.5			296.1			197.3
Selling, general and administrative		205.9			137.2			756.1			520.2
Amortization		52.0			26.5			180.0			92.6
Loss on asset sales and impairment		29.6			—			30.8			2.2
Total operating expenses		897.7			685.5			3,261.5			2,409.1
Operating income		55.0			100.2			305.4			383.9
Non-operating income (expense), net:
Interest income		0.6			0.7			1.6			5.0
Interest expense		(22.4	)		(15.9	)		(84.1	)		(34.2	)
Other income		(1.1	)		4.7			27.7			7.9
Total non-operating expense, net		(22.9	)		(10.5	)		(54.8	)		(21.3	)
Income before income taxes and noncontrolling interest		32.1			89.7			250.6			362.6
Provision for income taxes		14.9			32.8			67.3			140.6
Income before noncontrolling interest		17.2			56.9			183.3			222.0
Loss attributable to noncontrolling interest		1.1			—			1.1			—
Net income attributable to common shareholders	$	18.3		$	56.9		$	184.4		$	222.0
Diluted earnings per share	$	0.15		$	0.51		$	1.48		$	1.96
Diluted weighted average shares outstanding		125.1			111.3			124.2			116.4

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The following table presents Watson’s Condensed Consolidated Balance Sheets for the twelve months ended December 31, 2010 and 2009.

Table 2

Watson Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(Unaudited; in millions)

	December 31,		December 31,
	2010		2009
			(Revised)
Assets
Cash and cash equivalents	$	282.8	$	201.4
Marketable securities		11.1		13.6
Accounts receivable, net		560.9		517.4
Inventories		631.0		692.3
Other current assets		313.6		344.8
Property and equipment, net		642.3		694.2
Investments and other assets		225.5		225.3
Product rights and other intangibles, net		1,632.0		1,713.5
Goodwill		1,528.1		1,501.0
Total assets	$	5,827.3	$	5,903.5
Liabilities & Equity
Current liabilities	$	820.7	$	740.3
Current debt and current portion of long-term debt		—		307.6
Long-term debt		1,016.1		1,150.2
Deferred income taxes and other liabilities		707.9		682.3
Total equity		3,282.6		3,023.1
Total liabilities and equity	$	5,827.3	$	5,903.5

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The following table presents Watson’s Condensed Consolidated Statements of Cash Flows for the twelve months ended December 31, 2010 and 2009.

Table 3

Watson Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited; in millions)

	Twelve Months Ended
	December 31,
	2010			2009
Cash Flows from Operating Activities:
Net income	$	184.4		$	222.0
Reconciliation to net cash provided by operating activities:
Depreciation and amortization		281.9			189.0
Deferred income tax benefit		(118.3	)		(19.0	)
Provision for inventory reserve		50.0			51.0
Restricted stock and stock option compensation		23.5			19.1
(Gain) loss on sale of securities		(27.3	)		1.1
Accretion of preferred stock and contingent payment obligations		38.4			2.2
Loss on asset sales and impairments		29.8			2.6
Other adjustments		19.7			(4.2	)
Changes in assets and liabilities:
Accounts receivable, net		(57.1	)		(108.2	)
Inventories		10.5			(82.2	)
Accounts payable and accrued expenses		96.5			72.0
Income taxes payable		(20.8	)		16.9
Other assets and liabilities		59.8			14.5
Total adjustments		386.6			154.8
Net cash provided by operating activities		571.0			376.8
Cash Flows from Investing Activities:
Additions to property, equipment and product rights		(67.5	)		(71.9	)
Additions to marketable securities and long-term investments		(49.2	)		(8.0	)
Proceeds from sale of marketable securities and investments		104.9			9.0
Acquisitions of businesses, net of cash acquired		(67.5	)		(968.2	)
Other investing activities, net		5.2			3.0
Net cash used in investing activities		(74.1	)		(1,036.1	)
Cash Flows from Financing Activities:
Payments on debt		(459.7	)		(786.6	)
Proceeds from issuance of long term debt		—			1,109.9
Proceeds from stock plans		54.7			33.4
Repurchase of common stock		(6.3	)		(3.6	)
Net cash (used in) provided by financing activities		(411.3	)		353.1
Effect of currency exchange rate changes on cash and cash equivalents		(4.2	)		—
Net increase (decrease) in cash and cash equivalents		81.4			(306.2	)
Cash and cash equivalents at beginning of period		201.4			507.6
Cash and cash equivalents at end of period	$	282.8		$	201.4

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The following table presents a reconciliation of reported net income and diluted earnings per share to non-GAAP net income for the three and twelve months ended December 31, 2010 and 2009:

Table 4

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

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
GAAP to non-GAAP net income calculation
Reported GAAP net income	$	18.3		$	56.9		$	184.4		$	222.0
Adjusted for:
Global supply chain initiative(1)		11.8			7.8			41.5			32.5
Acquisition and licensing charges		13.0			21.6			58.4			36.4
(Gain) loss on securities and impairment		(0.8	)		—			(25.6	)		1.1
Loss on asset sales and impairment		31.4			—			32.6			2.2
Loss on early extinguishment of debt		0.5			—			0.5			2.0
Legal settlements		40.0			2.4			132.9			24.7
Amortization		52.0			26.5			180.0			92.6
Income taxes		(49.7	)		(20.8	)		(179.3	)		(64.7	)
Non-GAAP net income		116.5			94.4			425.4			348.8
Add: Interest expense on CODES, net of tax		—			—			—			5.5
Non-GAAP net income, adjusted for interest on CODES	$	116.5		$	94.4		$	425.4		$	354.3
Diluted earnings per share
Diluted earnings per share — GAAP	$	0.15		$	0.51		$	1.48		$	1.96
Diluted earnings per share — Non-GAAP	$	0.93		$	0.85		$	3.42		$	3.04
Basic weighted average common shares outstanding		123.1			109.7			122.4			105.0
Effect of dilutive securities:
Conversion of CODES		—			—			—			10.1
Dilutive share-based compensation arrangements		2.0			1.6			1.8			1.3
Diluted weighted average common shares outstanding		125.1			111.3			124.2			116.4

⁽¹⁾ Includes accelerated depreciation charges.

12

The following table presents a reconciliation of reported net income for the three and twelve months ended December 31, 2010 and 2009 to adjusted EBITDA:

Table 5

Watson Pharmaceuticals, Inc.
Adjusted EBITDA Reconciliation Table
(Unaudited; in millions)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
GAAP net income	$	18.3		$	56.9		$	184.4		$	222.0
Plus:
Interest expense		22.4			15.9			84.1			34.2
Interest income		(0.6	)		(0.7	)		(1.6	)		(5.0	)
Provision for income taxes		14.9			32.8			67.3			140.6
Depreciation (includes accelerated depreciation)		25.5			24.9			101.9			96.4
Amortization		52.0			26.5			180.0			92.6
EBITDA		132.5			156.3			616.1			580.8
Adjusted for:
Global supply chain initiative		6.5			6.0			29.7			25.2
Acquisition and licensing charges		4.6			19.5			28.5			34.2
Loss on asset sales and impairment		31.4			—			32.6			2.2
(Gain) loss on securities and impairment		(0.8	)		—			(25.6	)		1.1
Loss on early extinguishment of debt		0.5			—			0.5			2.0
Legal settlements		40.0			2.4			132.9			24.7
Share-based compensation		6.1			4.6			23.5			19.1
Adjusted EBITDA	$	220.8		$	188.8		$	838.2		$	689.3

13

The following table presents a reconciliation of forecasted net income for the twelve months ending December 31, 2011 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, 2011
	Low			High
GAAP to non-GAAP net income calculation
GAAP net income	$	223		$	260
Adjusted for:
Amortization		270			270
Acquisition and licensing charges		77			77
Global supply chain initiative		17			17
Legal settlements		—			—
Loss on asset sales/impairment		—			—
Loss on security sales		—			—
Income taxes		(103	)		(103	)
Non-GAAP net income	$	484		$	521
Diluted earnings per share
Diluted earnings per share — GAAP	$	1.78		$	2.07
Diluted earnings per share — Non-GAAP	$	3.85		$	4.15
Diluted weighted average common shares outstanding		125.6			125.6

The reconciliation table is based in part on management’s estimate of non-GAAP net income for the year ending December 31, 2011. Watson expects certain known GAAP charges for 2011, 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.

14

The following table presents a reconciliation of forecasted net income for the twelve months ending December 31, 2011 to adjusted EBITDA:

Table 7

Watson Pharmaceuticals, Inc.
Reconciliation Table — Forecasted Adjusted EBITDA
(Unaudited; in millions)

	Forecast for Twelve Months
	Ending December 31, 2011
	Low			High
GAAP net income	$	223		$	260
Plus:
Interest expense		102			102
Interest income		(2	)		(2	)
Provision for income taxes		171			203
Depreciation (includes accelerated depreciation)		103			103
Amortization		270			270
EBITDA		867			936
Adjusted for:
Loss on asset sales/impairment		—			—
Share-based compensation		23			26
Global supply chain initiative		11			14
Acquisition and licensing charges		24			24
Legal settlements		—			—
Loss on security sales and impairment		—			—
Adjusted EBITDA	$	925		$	1,000

The reconciliation table is based in part on management’s estimate of adjusted EBITDA for the year ending December 31, 2011. Watson expects certain known GAAP charges for 2011, 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.

15

EX-99.2

Exhibit 99.2

STATEMENT OF OPERATIONS GAAP TO NON-GAAP ADJUSTMENTS BY LINE ITEM
October 1, 2010 — December 31, 2010

	Generic Segment												Brand Segment														(Gain)
										Total Generic											Total Brand						loss on														Total After-
	Other					Sales and				Segment			Other				Sales and				Segment						sale of		Interest			Other			Total Pre-tax						tax
Expense Type	Revenue			COS		Marketing		R&D		Adjustments			Revenue		COS		Marketing		R&D		Adjustments		G&A		Amortization		assets		Expense			income			Adjustments			Tax Effect			Adjustments
Amortization	$	—		$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	52.0	$	—	$	—		$	—		$	52.0		$	(15.4	)	$	36.6
Acquisition and licensing charges		(25.0	)		—		—		—		(25.0	)		—		—		—		24.9		24.9		4.9		—		—		8.2	(1)		—			13.0			(7.9	)		5.1
Global supply chain initiative		—			8.5		—		2.9		11.4			—		—		—		—		—		0.4		—		—		—			—			11.8			(3.8	)		8.0
Legal settlements		—			—		—		—		—			—		—		—		—		—		40.0		—		—		—			—			40.0			(14.0	)		26.0
Asset sales/impairments		—			—		—		—		—			—		—		—		—		—		—		—		29.6		—			1.8			31.4			(9.2	)		22.2
(Gain) loss on securities		—			—		—		—		—			—		—		—		—		—		—		—		—		—			(0.8	)		(0.8	)		0.3			(0.5	)
Loss on early extinguishment of debt		—			—		—		—		—			—		—		—		—		—		—		—		—		—			0.5			0.5			(0.2	)		0.3
Totals by Segment and P&L Line Item	$	(25.0	)	$	8.5	$	—	$	2.9	$	(13.6	)	$	—	$	—	$	—	$	24.9	$	24.9	$	45.3	$	52.0	$	29.6	$	8.2		$	1.5		$	147.9		$	(50.2	)	$	97.7
Other tax items																																							0.5			0.5

																(Gain)
										Total						loss on
	Other					Sales and				Segment						sale of		Interest		Other		Total Pre-tax
	Revenue			COS		Marketing		R&D		Adjustments		G&A		Amortization		assets		Expense		Income		Adjustments
Totals by P&L Line Item	$	(25.0	)	$	8.5	$	—	$	27.8	$	11.3	$	45.3	$	52.0	$	29.6	$	8.2	$	1.5	$	147.9	$	(49.7	)	$	98.2
(1)       Included within acquisition and licensing charges are interest accretion charges on the following obligations:
Atorvastatin contingent consideration obligation																		$	3.1
Manditorily Redeemable Preferred Stock																			3.9
Columbia contingent consideration obligation																			1.2
																		$	8.2

EX-99.3

Exhibit 99.3

STATEMENT OF OPERATIONS GAAP TO NON-GAAP ADJUSTMENTS BY LINE ITEM
January 1, 2010 — December 31, 2010

	Generic Segment													Brand Segment														(Gain)
											Total Generic											Total Brand						loss on															Total After-
	Other					Sales and					Segment			Other				Sales and				Segment						sale of			Interest			Other			Total Pre-tax			Tax			tax
Expense Type	Revenue			COS		Marketing			R&D		Adjustments			Revenue		COS		Marketing		R&D		Adjustments		G&A		Amortization		assets			Expense			income			Adjustments			Effect			Adjustments
Amortization	$	—		$	—	$	—		$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	180.0	$	—		$	—		$	—		$	180.0		$	(50.7	)	$	129.3
Acquisition and licensing charges		(27.5	)		11.8		0.2			—		(15.5	)		—		—		—		33.9		33.9		10.2		—		—			29.8	(1)		—			58.4			(16.3	)		42.1
Global supply chain initiative		—			30.3		(0.3	)		9.5		39.5			—		—		—		—		—		2.0		—		—			—			—			41.5			(14.1	)		27.4
Legal settlements		—			—		—			—		—			—		—		—		—		—		132.9		—		—			—			—			132.9			(51.2	)		81.7
Asset sales/impairments		—			—		—			—		—			—		—		—		—		—		—		—		30.8			—			1.8			32.6			(15.0	)		17.6
(Gain) loss on securities		—			—		—			—		—			—		—		—		—		—		—		—		(24.8	)		—			(0.8	)		(25.6	)		9.7			(15.9	)
Loss on early extinguishment of debt		—			—		—			—		—			—		—		—		—		—		—		—		—			—			0.5			0.5			(0.2	)		0.3
Totals by Segment and P&L Line Item	$	(27.5	)	$	42.1	$	(0.1	)	$	9.5	$	24.0		$	—	$	—	$	—	$	33.9	$	33.9	$	145.1	$	180.0	$	6.0		$	29.8		$	1.5		$	420.3		$	(137.8	)	$	282.5
I.R.S. audit settlement																																									(18.7	)		(18.7	)
Other tax items																																									(22.8	)		(22.8	)

																	(Gain)
											Total						loss on
	Other					Sales and					Segment						sale of		Interest		Other		Total Pre-tax
	Revenue			COS		Marketing			R&D		Adjustments		G&A		Amortization		assets		Expense		Income		Adjustments
Totals by P&L Line Item	$	(27.5	)	$	42.1	$	(0.1	)	$	43.4	$	57.9	$	145.1	$	180.0	$	6.0	$	29.8	$	1.5	$	420.3	$	(179.3	)	$	241.0
(1)       Included within acquisition and licensing charges are interest accretion charges on the following obligations:
Atorvastatin contingent consideration obligation																				12.1
Manditorily Redeemable Preferred Stock																				15.2
Columbia contingent consideration obligation																				2.5
																			$	29.8

EX-99.4

Exhibit 99.4

STATEMENT OF OPERATIONS GAAP TO NON-GAAP ADJUSTMENTS BY LINE ITEM
January 1, 2009 — December 31, 2009

	Generic Segment								Brand Segment												(Gain)
							Total Generic								Total Brand						loss on												Total After-
					Sales &		Segment						Sales &		Segment						sale of		Interest			Other		Total Pre-tax					tax
Expense Type	COS		R&D		Marketing		Adjustments		COS		R&D		Marketing		Adjustments		G&A		Amortization		assets		Expense			income		Adjustments		Tax Effect			Adjustments
Amortization	$	—	$	—		—	$	—	$	—	$	—	$	—	$	—	$	—	$	92.6	$	—				$	—	$	92.6	$	(33.8	)	$	58.8
Acquisition and licensing charges		14.2		—		—		14.2		—		3.3		—		3.3		16.7		—		—		2.2	(1)		—		36.4		(7.3	)		29.1
Global supply chain initiative		29.3		2.3		0.8		32.4		—		—		—		—		0.1		—		—					—		32.5		(12.0	)		20.5
Legal settlements		—		—		—		—		—		—		—		—		24.7		—		—					—		24.7		(9.1	)		15.6
Asset sales/impairments		—		—		—		—		—		—		—		—		—		—		2.2					—		2.2		0.5			2.7
(Gain) loss on securities		—		—		—		—		—		—		—		—		—		—		—					1.1		1.1		(0.4	)		0.7
Loss on early extinguishment of debt		—		—		—		—		—		—		—		—		—		—		—					2.0		2.0		(0.7	)		1.3
Totals by Segment and P&L Line Item	$	43.5	$	2.3	$	0.8	$	46.6	$	—	$	3.3	$	—	$	3.3	$	41.5	$	92.6	$	2.2	$	2.2		$	3.1	$	191.5	$	(62.8	)	$	128.7
Other tax items																															(1.9	)		(1.9	)

													(Gain)
							Total						loss on
					Sales &		Segment						sale of		Interest		Other		Total Pre-tax
	COS		R&D		Marketing		Adjustments		G&A		Amortization		assets		Expense		Income		Adjustments
Totals by P&L Line Item	$	43.5	$	5.6	$	0.8	$	49.9	$	41.5	$	92.6	$	2.2	$	2.2	$	3.1	$	191.5	$	(64.7	)	$	126.8
(1)       Included within acquisition and licensing charges are interest accretion charges on the following obligations:
Atorvastatin contingent consideration obligation																1.0
Manditorily Redeemable Preferred Stock																1.2
															$	2.2