NOTE 6. SEGMENT RESULTS

Concurrent with the February 28, 2014 acquisition of Paladin, the Company changed the names of its reportable segments. This change to our segments had no impact on the Company’s unaudited Condensed Consolidated Financial Statements for all periods presented. In addition, the International Pharmaceuticals segment was added, which is comprised of the operations of the acquired Paladin and Somar businesses.

The four reportable business segments in which the Company now operates are: (1) U.S. Branded Pharmaceuticals (f/k/a Endo Pharmaceuticals), (2) U.S. Generic Pharmaceuticals (f/k/a Qualitest), (3) Devices (f/k/a AMS) and (4) International Pharmaceuticals. 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. 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 each segment’s adjusted income (loss) from continuing operations before income tax, which we define as (loss) income from continuing operations before income tax before certain upfront and milestone payments to partners, acquisition-related and integration items, cost reduction and integration-related 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, litigation-related and other contingent matters and certain other items that the Company believes do not reflect its core operating performance.

Certain of the corporate general and administrative expenses incurred by the Company are not 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". The Company's consolidated adjusted income from continuing operations before income tax is equal to the combined results of each of its segment less these unallocated corporate costs.

U.S. Branded Pharmaceuticals

Our U.S. Branded Pharmaceuticals segment 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 segment include Lidoderm^®, Opana^® ER, Voltaren^® Gel, Percocet^®, Frova^®, Fortesta^® Gel, Supprelin^® LA, Vantas^®, Valstar^®, Sumavel^® DosePro^®and Aveed^®.

U.S. Generic Pharmaceuticals

Our U.S. Generic Pharmaceuticals segment 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. The product offerings of this segment include products in the pain management, urology, CNS disorders, immunosuppression, oncology, women’s health and hypertension markets, among others. Additionally, in May 2014, we launched an authorized generic lidocaine patch 5% (referred to as "Lidoderm^® authorized generic").

Devices

Our Devices segment focuses on providing technology solutions to physicians treating men’s and women’s pelvic health conditions and operates in the following business lines: men’s health, women’s health, and benign prostatic hyperplasia (BPH or prostate health) therapy. AMS distributes devices through its direct sales force and independent sales representatives in the U.S., Canada, Australia and Western Europe. Additionally, we distribute devices through foreign independent distributors, primarily in Europe, Asia, and South America, who then sell the products to medical institutions. None of our customers or distributors accounted for 10% or more of our total revenues during the three and nine months ended September 30, 2014 and 2013. Foreign subsidiary sales are predominantly to customers in Canada, Australia and Western Europe.

International Pharmaceuticals

Our International Pharmaceuticals segment includes a variety of specialty pharmaceutical products for the Canadian, Mexican, South African and world markets, which we acquired from Paladin and Somar. Paladin's key products serve growing drug markets including ADHD, pain, urology and allergy. Somar develops, manufactures, and markets high-quality generic, branded generic and over-the-counter products across key market segments including dermatology and anti-infectives.

The following represents selected information for the Company’s reportable segments for the three and nine months ended September 30, 2014 and 2013 (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net revenues to external customers:
U.S. Branded Pharmaceuticals	$	240,931	$	366,136	$	723,643	$	1,139,372
U.S. Generic Pharmaceuticals	319,399		183,939		803,467		532,722
Devices (1)	109,822		111,244		359,425		359,867
International Pharmaceuticals (2)	93,786		—		190,696		—
Total net revenues to external customers	$	763,938	$	661,319	$	2,077,231	$	2,031,961

Adjusted income (loss) from continuing operations before income tax:
U.S. Branded Pharmaceuticals	$	130,613	$	224,747	$	395,446	$	635,168
U.S. Generic Pharmaceuticals	139,497		48,630		318,528		141,720
Devices	32,136		29,156		109,575		96,847
International Pharmaceuticals	27,234		—		59,131		—

__________


(1)	The following table displays our Devices segment revenue by geography for the three and nine months ended September 30, 2014 and 2013 (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Devices:
United States	$	73,429	$	75,484	$	230,530	$	233,091
International	36,393		35,760		128,895		126,776
Total Devices revenues	$	109,822	$	111,244	$	359,425	$	359,867


(2)	Revenues generated by our International Pharmaceuticals segment are primarily attributable to Canada, Mexico and South Africa.

The table below provides reconciliations of our segment adjusted income from continuing operations before income tax to our consolidated (loss) income from continuing operations before income tax, which is determined in accordance with U.S. GAAP, for the three and nine months ended September 30, 2014 and 2013 (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Total segment adjusted income from continuing operations before income tax:	$	329,480		$	302,533		$	882,680		$	873,735
Corporate unallocated costs	(97,326		)	(81,975		)	(246,763		)	(238,641		)
Upfront and milestone payments to partners	(13,448		)	(3,092		)	(34,953		)	(11,064		)
Asset impairment charges	—			(807		)	—			(4,756		)
Acquisition-related and integration items (1)	(6,932		)	(1,493		)	(71,819		)	(3,876		)
Separation benefits and other cost reduction initiatives (2)	(8,230		)	(20,673		)	(19,970		)	(85,929		)
Excise tax (3)	1,000			—			(54,300		)	—
Amortization of intangible assets	(70,806		)	(44,987		)	(194,273		)	(143,326		)
Inventory step-up	(17,364		)	—			(40,089		)	—
Non-cash interest expense related to the 1.75% Convertible Senior Subordinated Notes	(1,992		)	(5,704		)	(11,307		)	(16,816		)
Loss on extinguishment of debt	(2,027		)	—			(31,712		)	(11,312		)
Watson litigation settlement income, net	—			14,628			—			50,400
Certain litigation-related charges, net (4)	(483,926		)	(44,600		)	(1,157,885		)	(193,969		)
Charge related to the non-recoverability of certain non-trade receivables	—			—			(10,000		)	—
Net gain on sale of certain early-stage drug discovery and development assets	150			—			4,000			—
Foreign currency impact related to the remeasurement of intercompany debt instruments	5,740			—			5,740			—
Charge for an additional year of the branded prescription drug fee in accordance with IRS regulations issued in the third quarter of 2014	(24,972		)	—			(24,972		)	—
Other, net	(161		)	—			(161		)	1,048
Total consolidated (loss) income from continuing operations before income tax	$	(390,814	)	$	113,830		$	(1,005,784	)	$	215,494

__________


(1)	Acquisition-related and integration-items include costs directly associated with the closing of certain acquisitions, changes in the fair value of contingent consideration and the costs of integration activities related to both current and prior period acquisitions.

(2)

Separation benefits and other cost reduction initiatives include employee separation costs of $1.5 million and $10.5 million during the three and nine months ended September 30, 2014, respectively, compared to $5.6 million and $46.8 million for the three and nine months ended September 30, 2013, respectively. Additionally, amounts during the three and nine months ended September 30, 2014 include costs associated with the sale of our HealthTronics business and changes in estimates related to certain cost reduction initiative accruals. Additionally, the amount of separation benefits and other cost reduction initiatives during the three and nine months ended September 30, 2013 includes an expense recorded upon the cease use date of our Chadds Ford, Pennsylvania and Westbury, New York properties in the first quarter of 2013, representing the liability for our remaining obligations under the respective lease agreements of $7.2 million. These expenses were primarily recorded as Selling, general and administrative and Research and development expense in our Condensed Consolidated Statements of Operations. Refer to Note 4. Restructuring for discussion of our material restructuring initiatives.


(3)	This amount represents charges related to the expense for the reimbursement of director's and certain employee's excise tax liabilities pursuant to Section 4985 of the Internal Revenue Code.


(4)	These amounts include charges for Litigation-related and other contingencies, net, consisting primarily of mesh-related product liability charges, as well as mesh litigation-related defense costs for the three and nine months ended September 30, 2014 and 2013.

The following represents additional selected financial information for our reportable segments for the three and nine months ended September 30, 2014 and 2013 (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Depreciation expense:
U.S. Branded Pharmaceuticals	$	4,319	$	4,059	$	12,730	$	14,774
U.S. Generic Pharmaceuticals	4,514		3,402		12,392		9,841
Devices	1,776		2,221		6,304		7,876
International Pharmaceuticals	718		—		1,209		—
Corporate unallocated	2,091		2,180		6,104		6,374
Total depreciation expense	$	13,418	$	11,862	$	38,739	$	38,865



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Amortization expense:
U.S. Branded Pharmaceuticals	$	18,590	$	18,743	$	57,052	$	64,870
U.S. Generic Pharmaceuticals	24,818		10,881		63,588		32,643
Devices	15,438		15,512		46,475		46,263
International Pharmaceuticals	11,960		—		27,158		—
Total amortization expense	$	70,806	$	45,136	$	194,273	$	143,776

Interest income and expense are considered corporate items and included in Corporate unallocated. 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.