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.

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SOURCE Watson Pharmaceuticals, Inc.

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