| CONDENSED COMBINED DEBTOR-IN-POSSESSION FINANCIAL INFORMATION | NOTE 2. BANKRUPTCY PROCEEDINGS Chapter 11 Filing As noted above, on the Petition Date, the Debtors filed voluntary petitions for relief under the Bankruptcy Code. The Debtors have received approval from the U.S. Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) to jointly administer their chapter 11 cases (the Chapter 11 Cases) for administrative purposes only pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure under the caption In re Endo International plc, et al . Certain entities consolidated by Endo International plc and included in these Consolidated Financial Statements are not party to the Chapter 11 Cases. These entities are collectively referred to herein as the Non-Debtor Affiliates. The Debtors will continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. As debtors-in-possession, the Debtors are generally permitted to continue to operate as ongoing businesses and pay debts and honor obligations arising in the ordinary course of their businesses after the Petition Date. However, the Debtors generally may not pay third-party claims or creditors on account of obligations arising before the Petition Date or engage in transactions outside the ordinary course of business without approval of the Bankruptcy Court. Under the Bankruptcy Code, third-party actions to collect pre-petition indebtedness owed by the Debtors, as well as most litigation pending against the Debtors as of the Petition Date, are generally subject to an automatic stay. However, under the Bankruptcy Code, certain legal proceedings, such as those involving the assertion of a governmental entity’s police or regulatory powers, may not be subject to the automatic stay and may continue unless otherwise ordered by the Bankruptcy Court. Among other requirements, chapter 11 proceedings must comply with the priority scheme established by the Bankruptcy Code, under which certain post-petition and secured or “priority” pre-petition liabilities generally need to be satisfied before general unsecured creditors and shareholders are entitled to receive any distribution. Under the Bankruptcy Code, the Debtors may assume, modify, assign or reject certain executory contracts and unexpired leases, including, without limitation, leases of real property and equipment, subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease in this report, including, where applicable, the express termination rights thereunder or a quantification of obligations, must be read in conjunction with, and is qualified by, any overriding rejection rights the Debtors have under the Bankruptcy Code. To ensure their ability to continue operating in the ordinary course of business, the Debtors have filed with the Bankruptcy Court a variety of motions seeking “first day” relief, including the authority to access cash collateral, continue using their cash management system, pay employee wages and benefits and pay vendors in the ordinary course of business. At a hearing held on August 18, 2022, the Bankruptcy Court generally approved the relief sought in these motions on an interim basis. Following subsequent hearings held on September 28, 2022, October 13, 2022 and October 19, 2022, the Bankruptcy Court entered orders approving substantially all of the relief sought on a final basis. Events of Default The August 16, 2022 bankruptcy filings by the Debtors constituted an event of default that accelerated our obligations under substantially all of our then-outstanding debt instruments. However, section 362 of the Bankruptcy Code stays creditors from taking any action to enforce the related financial obligations and creditors’ rights of enforcement in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code. Refer to Note 15. Debt for additional information. Restructuring Support Agreement On August 16, 2022, we entered into a Restructuring Support Agreement (the RSA) with an ad hoc group (the Ad Hoc First Lien Group) of certain creditors holding in excess of 50% of the aggregate outstanding principal amount of Secured Debt (as defined in that certain collateral trust agreement, dated as of April 27, 2017, among Endo International plc, certain subsidiaries of Endo International plc, the other grantors from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent under the Credit Agreement, and Wells Fargo Bank, National Association, as indenture trustee, and Wilmington Trust, National Association, as collateral trustee (the Collateral Trust Agreement)), pursuant to which, among other things, one or more entities formed in a manner acceptable to the Ad Hoc First Lien Group (the Stalking Horse Bidder or the Purchaser) will serve as stalking horse bidder as we seek to sell all or substantially all of our assets in a sale pursuant to section 363 of the Bankruptcy Code (the Sale). As described in the RSA, the Stalking Horse Bidder’s bid (the Stalking Horse Bid), which is subject to higher or otherwise better bids from other parties, includes an offer to purchase substantially all of our assets for an aggregate purchase price including: (i) a credit bid in full satisfaction of the Prepetition First Lien Indebtedness (as defined in the RSA); (ii) $5 million in cash on account of certain unencumbered assets; (iii) $122 million to wind-down our operations following the Sale closing date (the Wind-Down Amount); (iv) pre-closing professional fees; and (v) the assumption of certain liabilities. As part of the Stalking Horse Bid, the Stalking Horse Bidder will also make offers of employment to all of our active employees. Pursuant to the RSA, the definitive purchase and sale agreement with respect to the Stalking Horse Bid will include customary representations and warranties and customary covenants by the parties thereto. On November 23, 2022, we filed: (i) a motion seeking Bankruptcy Court approval of bidding procedures in connection with the Sale and (ii) a motion seeking to set deadlines for all claimants to file claims against the Debtors. Although both motions were initially set to be heard by the Bankruptcy Court at a hearing on December 15, 2022, following several conferences with both the Bankruptcy Court and all major parties in interest in the Chapter 11 Cases, the hearing on both motions was adjourned to allow the Debtors and certain key parties in the Chapter 11 Cases to participate in a mediation process to attempt to resolve certain objections and contested issues relating to the Sale and other critical matters in the Chapter 11 Cases. On March 3, 2023, the Debtors announced that, as a result of the mediation process, the Ad Hoc First Lien Group (and Stalking Horse Bidder) had reached certain resolutions in principle with both the unsecured creditors’ committee and opioid claimants’ committee appointed in the Chapter 11 Cases and certain ad hoc groups of debtholders. These resolutions, which remain subject to definitive documentation, are supported by the Debtors. In connection with such resolutions, the Company agreed in principle with the Ad Hoc First Lien Group to reduce the Wind-Down Amount associated with the Stalking Horse Bid from $122 million to approximately $115 million, subject to definitive documentation. As negotiations among the mediation parties continue, the mediation has been extended and remains ongoing and the Bankruptcy Court hearing on both motions has been adjourned to an undetermined date. As a result of such adjournment, the proposed timelines and deadlines set forth in both motions are expected to be extended. The RSA contemplates a marketing process and auction that will be conducted under the supervision of the Bankruptcy Court, during which interested parties will have an opportunity to conduct due diligence and determine whether to submit a bid to acquire the Debtors’ assets. If the Stalking Horse Bid is selected as the highest or otherwise best offer following said marketing process and auction, the Ad Hoc First Lien Group will direct the Collateral Trustee (as defined in the Collateral Trust Agreement) to assign its rights to credit bid, on behalf of the Secured Parties (as defined in the Collateral Trust Agreement), to the Stalking Horse Bidder, so as to enable the Stalking Horse Bidder to credit bid for all or substantially all of our assets in exchange for the extinguishment of the obligations to the Secured Parties. The RSA further contemplates that the Purchaser will fund one or more trusts for parties with opioid-related claims against us, as further discussed in Note 16. Commitments and Contingencies. Pursuant to the RSA, each of the parties agreed to, among other things, take all actions as are necessary and appropriate to facilitate the implementation and consummation of the Restructuring (as defined in the RSA), negotiate in good faith certain definitive documents relating to the Restructuring and obtain required approvals. In addition, we agreed to conduct our business in the ordinary course, provide notice and certain materials relating to the Restructuring to the consenting creditors’ advisors and pay certain fees and expenses of the consenting creditors. The RSA provides certain milestones for the Restructuring. If we fail to satisfy these milestones and such failure is not the result of a breach of the RSA by the Required Consenting First Lien Creditors (as defined in the RSA), the Required Consenting First Lien Creditors will have the right to terminate the RSA. These milestones, as modified since we entered into the RSA (and which may be further modified from time to time), include: (i) not later than 11:59 p.m. prevailing Eastern Time on October 25, 2022, the Bankruptcy Court shall have entered the Cash Collateral Order on a final basis; (ii) not later than 11:59 p.m. prevailing Eastern Time on March 16, 2023, the Bankruptcy Court shall have entered an order approving the bidding procedures; (iii) not later than 11:59 p.m. prevailing Eastern Time on September 13, 2023, the Bankruptcy Court shall have entered an order approving the Sale; and (iv) not later than 11:59 p.m. prevailing Eastern Time on September 13, 2023 (the Outside Date), the closing of the Sale shall have occurred, subject to certain extensions of the Outside Date as set forth in the RSA, including: (a) for extensions of prior milestones; (b) to close the Sale transaction with a backup bidder; and (c) for delays in obtaining regulatory or third-party approvals or consents. Each of the parties to the RSA may terminate the agreement (and thereby their support for the Sale) under certain limited circumstances, including for material breaches and materially untrue representations and warranties by their counterparties, if a governmental agency enjoins the Sale or if the purchase and sale agreement with respect to the Sale is terminated under certain circumstances. The transactions contemplated by the RSA are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated. The Chapter 11 Proceedings Cash Collateral In October 2022, the Bankruptcy Court entered the Cash Collateral Order approving the Debtors’ consensual use of their secured creditors’ cash collateral. The Debtors intend to use the cash collateral to, among other things, permit the orderly continuation of their businesses, pay the costs of administration of their estates and satisfy other working capital and general corporate purposes. As described in additional detail elsewhere in this report, including in Note 15. Debt, the Cash Collateral Order obligates the Debtors to make certain adequate protection payments during the bankruptcy proceedings, establishes a budget for the Debtors’ use of cash collateral, establishes certain informational rights for the Debtors’ secured creditors and provides for the waiver of certain Bankruptcy Code provisions. The Cash Collateral Order also requires the Debtors to maintain at least $600.0 million of “liquidity,” calculated at the end of each week as unrestricted cash and cash equivalents plus certain specified amounts of restricted cash associated with the TLC Agreement, which is further discussed below in Note 12. License, Collaboration and Asset Acquisition Agreements. Potential Claims In November 2022, the Debtors filed with the Bankruptcy Court schedules and statements, subject to further amendment or modification, which set forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. As part of the Chapter 11 Cases, persons and entities believing that they have claims or causes of action against the Debtors may file proofs of claim evidencing such claims. As noted above, the Debtors have filed a motion seeking to set a bar date (deadline) for holders of claims to file proofs of claim (including general claims and claims of governmental units), which motion has been adjourned to an undetermined date. The Debtors have received numerous claims as of the date of this report including, in certain cases, duplicate claims across multiple Debtors. For example, the IRS has filed multiple proofs of claim against several of the Debtors, as further discussed in Note 21. Income Taxes. We expect that the Debtors may continue to receive a significant number of claims in the future. As claims are filed, they are being evaluated for validity and compared to amounts recorded in our accounting records. As of the date of this report, the amounts of certain of the claims received exceed the amounts of the corresponding liabilities, if any, that we have recorded based on our assessments of the purported liabilities underlying such claims, and it is likely this will continue to be the case in future periods. We are not aware of any claims that we currently expect will require a material adjustment to the accounts and balances as reported as of December 31, 2022. Differences in amounts recorded and claims filed by creditors will continue to be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Debtors may ask the Bankruptcy Court to disallow claims that the Debtors believe are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Debtors may identify additional liabilities that will need to be recorded or reclassified to Liabilities subject to compromise in the Consolidated Balance Sheets. In light of the substantial number of claims that may be filed, the claims resolution process may take considerable time to complete and may continue for the duration of the Debtors’ bankruptcy proceedings. Subsequent Developments The Bankruptcy Court adjourned the hearings for certain critical motions filed in November and December 2022, including: (i) our motion to establish bidding procedures in connection with the Sale; (ii) our motion to establish deadlines for creditors to file proofs of claim; and (iii) our motion to extend our exclusive periods to file and solicit a plan of reorganization, in order to allow the Debtors and certain key parties in the Chapter 11 Cases to participate in a mediation process to attempt to resolve certain objections and contested issues relating to the Sale and other critical matters. On March 3, 2023, the Debtors announced that, as a result of the mediation process, the Ad Hoc First Lien Group (and Stalking Horse Bidder) had reached certain resolutions in principle with both the unsecured creditors’ committee and opioid claimants’ committee appointed in the Chapter 11 Cases and certain ad hoc groups of debtholders. These resolutions, which remain subject to definitive documentation, are supported by the Debtors. In connection with such resolutions, the mediation has been extended and remains ongoing and the Bankruptcy Court hearing on the three motions has been adjourned to an undetermined date. Bankruptcy Accounting As a result of the Chapter 11 Cases, we have applied the provisions of ASC 852 in preparing the accompanying Consolidated Financial Statements. ASC 852 requires that, for periods including and after the filing of a chapter 11 petition, the Consolidated Financial Statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, for periods beginning with the third quarter of 2022, pre-petition unsecured and undersecured claims related to the Debtors that may be impacted by the bankruptcy reorganization process have been classified as Liabilities subject to compromise in the Consolidated Balance Sheets. Liabilities subject to compromise include pre-petition liabilities for which there is uncertainty about whether such pre-petition liabilities could be impaired as a result of the Chapter 11 Cases. Liabilities subject to compromise are recorded at the expected amount of the total allowed claim, even if they may ultimately be settled for different amounts. The following table sets forth, as of December 31, 2022, information about the amounts presented as Liabilities subject to compromise in our Consolidated Balance Sheets (in thousands): December 31, 2022 Accounts payable $ 30,317 Accrued interest 160,617 Debt 7,834,717 Litigation accruals 820,805 Uncertain tax positions 235,176 Other (1) 87,150 Total $ 9,168,782 __________ (1) Amounts include operating and finance lease liabilities as further described in Note 9. Leases, acquisition-related contingent consideration liabilities as further described in Note 7. Fair Value Measurements and a variety of other miscellaneous liabilities. The determination of how liabilities will ultimately be settled or treated cannot be made until approved by the Bankruptcy Court. Therefore, the amounts in the table above are preliminary and may be subject to future adjustments as a result of, among other things, the possibility or occurrence of certain Bankruptcy Court actions, further developments with respect to disputed claims, any rejection by us of executory contracts and/or any payments by us of amounts classified as Liabilities subject to compromise, which may be allowed in certain limited circumstances. Amounts are also subject to adjustments if we make changes to our assumptions or estimates related to claims as additional information becomes available to us including, without limitation, those related to the expected amounts of allowed claims, the value of any collateral securing claims and the secured status of claims. Such adjustments may be material. Additionally, as a result of our ongoing bankruptcy proceedings, we may sell or otherwise dispose of or liquidate assets or settle liabilities for amounts other than those reflected in the accompanying Consolidated Financial Statements. The possibility or occurrence of any such actions could materially impact the amounts and classifications of such assets and liabilities reported in our Consolidated Balance Sheets and could have a material adverse effect on our business, financial condition, results of operations and cash flows. Certain expenses, gains and losses resulting from and recognized during our bankruptcy proceedings are now being recorded in Reorganization items, net in our Consolidated Statements of Operations. The following table sets forth, for the year ended December 31, 2022, information about the amounts presented as Reorganization items, net in our Consolidated Statements of Operations (in thousands): 2022 Professional fees $ 113,781 Debt valuation adjustments 89,197 Total $ 202,978 Since the Petition Date, our operating cash flows included net cash outflows of $53.7 million related to amounts classified or expected to be classified as Reorganization items, net, which primarily consisted of payments for professional fees. Refer also to Note 15. Debt for information about how our bankruptcy proceedings and certain related developments have affected our debt service payments and how such payments are being reflected in our Consolidated Financial Statements. Nasdaq Delisting On August 17, 2022, we received a letter (the Notice) from Nasdaq stating that, in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that Endo’s ordinary shares would be delisted. In accordance with the Notice, trading of Endo’s ordinary shares was suspended at the opening of business on August 26, 2022. As a result, Endo’s ordinary shares began trading exclusively on the over-the-counter market on August 26, 2022. On the over-the-counter market, Endo’s ordinary shares, which previously traded on the Nasdaq Global Select Market under the symbol ENDP, began to trade under the symbol ENDPQ. On September 14, 2022, Nasdaq filed a Form 25-NSE with the SEC and Endo’s ordinary shares were subsequently delisted from the Nasdaq Global Select Market. On December 13, 2022, Endo’s ordinary shares were deregistered under Section 12(b) of the Exchange Act. NOTE 23. CONDENSED COMBINED DEBTOR-IN-POSSESSION FINANCIAL INFORMATION The financial statements included in this Note represent the Condensed Combined Financial Statements of the Debtors only, which include Endo International plc and most of its wholly-owned subsidiaries, except for its Indian subsidiaries and certain subsidiaries associated with the Company’s former Astora business. These statements reflect the results of operations, financial position and cash flows of the combined Debtors, including certain amounts and activities between Debtors and Non-Debtor Affiliates of the Company that are eliminated in the Consolidated Financial Statements. CONDENSED COMBINED BALANCE SHEETS (Dollars in thousands) December 31, 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 991,901 Restricted cash and cash equivalents 59,358 Accounts receivable, net 478,889 Inventories, net 241,349 Prepaid expenses and other current assets 111,807 Income taxes receivable 7,038 Receivables from Non-Debtor Affiliates 94,608 Total current assets $ 1,984,950 PROPERTY, PLANT AND EQUIPMENT, NET 233,114 OPERATING LEASE ASSETS 23,200 GOODWILL 1,352,011 OTHER INTANGIBLES, NET 1,732,935 INVESTMENTS IN NON-DEBTOR AFFILIATES 50,001 RECEIVABLES FROM NON-DEBTOR AFFILIATES 240,002 OTHER ASSETS 126,494 TOTAL ASSETS $ 5,742,707 LIABILITIES AND DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses $ 654,414 Current portion of operating lease liabilities 230 Income taxes payable 10 Payables to Non-Debtor Affiliates 20,162 Total current liabilities $ 674,816 DEFERRED INCOME TAXES 13,479 OPERATING LEASE LIABILITIES, LESS CURRENT PORTION 994 OTHER LIABILITIES 37,367 LIABILITIES SUBJECT TO COMPROMISE 9,168,782 TOTAL DEFICIT (4,152,731) TOTAL LIABILITIES AND DEFICIT $ 5,742,707 CONDENSED COMBINED STATEMENTS OF OPERATIONS (Dollars in thousands) 2022 TOTAL REVENUES, NET $ 2,321,426 COSTS AND EXPENSES: Cost of revenues 1,106,855 Selling, general and administrative 764,768 Research and development 137,851 Acquired in-process research and development 68,700 Litigation-related and other contingencies, net 478,722 Asset impairment charges 2,137,107 Acquisition-related and integration items, net 408 Interest expense, net 345,593 Reorganization items, net 202,978 Other income, net (13,409) LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX $ (2,908,147) INCOME TAX EXPENSE 17,721 LOSS FROM CONTINUING OPERATIONS $ (2,925,868) DISCONTINUED OPERATIONS, NET OF TAX (13,468) NET LOSS ATTRIBUTABLE TO DEBTOR ENTITIES $ (2,939,336) EQUITY IN INCOME OF NON-DEBTOR AFFILIATES, NET OF TAX 22,671 NET LOSS $ (2,916,665) CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE LOSS (Dollars in thousands) 2022 NET LOSS $ (2,916,665) OTHER COMPREHENSIVE LOSS: Net unrealized loss on foreign currency $ (10,496) Total other comprehensive loss $ (10,496) COMPREHENSIVE LOSS $ (2,927,161) CONDENSED COMBINED STATEMENTS OF CASH FLOWS (Dollars in thousands) 2022 OPERATING ACTIVITIES: Net cash provided by operating activities (1) $ 209,523 INVESTING ACTIVITIES: Capital expenditures, excluding capitalized interest (43,743) Capitalized interest payments (3,140) Proceeds from the U.S. Government Agreement 18,635 Acquisitions, including in-process research and development, net of cash and restricted cash acquired (90,320) Proceeds from sale of business and other assets, net 41,400 Proceeds from loans made to Non-Debtor Affiliates 2,355 Disbursements for loans made to Non-Debtor Affiliates (51,486) Net cash used in investing activities $ (126,299) FINANCING ACTIVITIES: Repayments of notes (180,342) Repayments of term loans (10,000) Adequate protection payments (313,109) Repayments of other indebtedness (6,062) Payments for contingent consideration (2,462) Payments of tax withholding for restricted shares (1,898) Net cash used in financing activities $ (513,873) Effect of foreign exchange rate (1,790) NET DECREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS $ (432,439) CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD 1,568,698 CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD $ 1,136,259 __________ (1) The difference between the amount of Net cash provided by operating activities included in the table above and the amount of Net cash provided by operating activities included in the Consolidated Statements of Cash Flows for the same period primarily relates to the fact that the table above: (i) excludes the operating cash flows of our Non-Debtor Affiliates, which are included in the Consolidated Statements of Cash Flows, and (ii) includes the effects of the operating cash flows of the Debtors with the Non-Debtor Affiliates, which are eliminated in the Consolidated Statements of Cash Flows. |
