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ACT > SEC Filings for ACT > Form 10-Q on 31-Oct-2013All Recent SEC Filings

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Form 10-Q for ACTAVIS PLC


31-Oct-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and the results of operations should be read in conjunction with the "Consolidated Financial Statements" and notes thereto included elsewhere in the Quarterly Report on Form 10-Q ("Quarterly Report"). This discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, among others, those identified under "Cautionary Note Regarding Forward-Looking Statements" below and elsewhere in this Quarterly Report.

COMPANY OVERVIEW

Actavis plc (formerly known as Actavis Limited) was incorporated in Ireland on May 16, 2013 as a private limited company and re-registered effective September 18, 2013 as a public limited company. It was established for the purpose of facilitating the acquisition by Actavis, Inc. of Warner Chilcott plc ("Warner Chilcott"). As of September 30, 2013, the principal activity of Actavis plc ("Company" or "we") was investment holding.

Through a series of transactions on September 30, 2013, the Company issued 133,628,967 ordinary shares that were ultimately acquired by Actavis W.C. Holding Corporation in exchange for an increased equity interest in Actavis Ireland Holding Limited ("AIHL"), an Irish registered company. As AIHL and Actavis W.C. Holding Corporation are wholly owned subsidiaries, these transactions were eliminated in the consolidated financial statements. In addition, at the balance sheet date, Matsack Nominees Limited ("Matsack") owned seven ordinary shares with a value of $0 and 40,000 1 par value deferred ordinary shares with a value of $53,121.

On October 1, 2013, the Company became the successor registrant to Actavis, Inc. and Warner Chilcott in connection with the consummation of the acquisitions of Warner Chilcott and Actavis, Inc., which is further described below.

Subsequent Events

Acquisitions of Warner Chilcott and Actavis, Inc.

On October 1, 2013 (the "Closing Date"), we acquired Warner Chilcott (the "Acquisition") pursuant to a scheme of arrangement under Section 201, and a capital reduction under Sections 72 and 74, of the Irish Companies Act of 1963 and our indirect wholly-owned subsidiary merged with and into Actavis, Inc., with Actavis, Inc. as the surviving corporation in the merger (the "Merger" and, together with the Acquisition, the "Transactions"). Following the consummation of the Transactions, each of Actavis, Inc. and Warner Chilcott became wholly-owned subsidiaries of the Company.

In connection with the Transactions, each Warner Chilcott ordinary share was converted into 0.160 of a Company ordinary share (the "Company Ordinary Shares"), and each of Actavis, Inc.'s common shares was converted into one Company Ordinary Share.

The issuance of the Company Ordinary Shares in connection with the Transactions was registered under the Securities Act of 1933, as amended, pursuant to the Company's registration statement on Form S-4 (File No. 333-189402) filed with the SEC and declared effective on July 31, 2013.

Pursuant to Rule 12g-3(c) under the Exchange Act, the Company is the successor issuer to Actavis, Inc. and to Warner Chilcott. The Company Ordinary Shares are deemed to be registered under Section 12(b) of the Exchange Act, and the Company is subject to the informational requirements of the Exchange Act, and the rules and regulations promulgated thereunder. The Company Ordinary Shares were approved for listing on the New York Stock Exchange ("NYSE") and trade under the symbol "ACT".

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Financing Related to the Acquisitions

The Company satisfied the cash components of the Transactions (i.e., cash payments required under the Warner Chilcott Equity Award Holder Proposal as defined in the Transaction Agreement) and paid certain transactional expenses on the Closing Date of the Acquisition with cash on hand of the Company, Actavis, Inc. and/or Warner Chilcott and drawings under available credit facilities. However, the consummation of the Acquisition was not conditioned upon the receipt of any financing.

Amended and Restated Actavis, Inc. Credit and Guaranty Agreements

Actavis, Inc. entered into (i) that certain Term Loan Amendment Agreement (the "Term Loan Amendment Agreement") by and among Actavis, Inc., Bank of America, N.A. ("BofA"), as administrative agent thereunder, and the lenders party thereto and (ii) that certain Revolver Loan Amendment Agreement (the "Revolver Amendment Agreement" and, together with the Term Amendment Agreement, the "Amendment Agreements"), by and among Actavis, Inc., BofA, as administrative agent thereunder, and the lenders party thereto, each dated as of August 1, 2013. The Amendment Agreements amended and restated (i) Actavis, Inc.'s $1.8 billion senior unsecured term loan credit facility, dated as of June 22, 2012 (such facility, prior to its amendment and restatement pursuant to the Term Amendment Agreement, the "Existing Term Loan"), and (ii) Actavis, Inc.'s $750.0 million senior unsecured revolving credit facility, dated as of September 2011, as amended by that certain Amendment No. 1 to Credit Agreement and Joinder Agreement, dated as of May 21, 2012 (such facility, prior to its amendment and restatement pursuant to the Revolver Amendment Agreement, the "Existing Revolver").

On the Closing Date and pursuant to the Amendment Agreements, the Company, as parent guarantor, Actavis WC Holding S. r.l. ("the ACT Borrower"), as borrower, Actavis, Inc., as a subsidiary guarantor, and BofA, as administrative agent thereunder, entered into that certain Amended and Restated Actavis Term Loan Credit and Guaranty Agreement (the "ACT Term Loan Agreement") and that certain Amended and Restated Revolving Credit and Guaranty Agreement (the "ACT Revolving Credit Agreement"), each dated as of October 1, 2013. The Existing Term Loan and the Existing Revolver, as amended by the Amendment Agreements, are referred to herein collectively as the "Amended and Restated Credit Facilities." The Amendment Agreements, among other things: (i) replaced Actavis, Inc., as borrower, with the ACT Borrower, (ii) added the Company and Actavis, Inc. as guarantors, (iii) deleted the springing minimum net worth financial maintenance covenant and (iv) revised certain representations and warranties, financial reporting requirements and other affirmative and negative covenants and events of default, as more fully set out in the Amended and Restated Credit Facilities. In addition, the Revolver Amendment extended the maturity of the Existing Revolver by one year, to September 16, 2017 (or if such day is not a business day, the next preceding business day).

The effectiveness of the Amended and Restated Credit Facilities on the Closing Date of the Acquisition was subject to several conditions, including (i) no "Warner Chilcott Material Adverse Effect" under the Transaction Agreement,
(ii) consummation of the Acquisition, (iii) receipt of customary closing documents and (iv) other customary closing conditions, as more fully set out in the Amended and Restated Credit Facilities. At closing, an aggregate principal amount of $1.6 billion was outstanding under the ACT Term Loan Agreement, and $6.7 million of letters of credit were outstanding under the ACT Revolving Credit Agreement. At closing, no loans were outstanding under the ACT Revolving Credit Agreement.

WC Term Loan Credit and Guaranty Agreement

The Company, as parent guarantor, BofA, as administrative agent thereunder, and a syndicate of banks participating as lenders entered into that certain WC Term Loan Credit and Guaranty Agreement (the "WC Term Loan Agreement"), dated as of August 1, 2013, and on the Closing Date, Warner Chilcott Corporation ("WC Corporation"), WC Luxco S. r.l. ("WC Luxco"), Warner Chilcott Company, LLC ("WC Company" and, together with WC Corporation and WC Luxco, the "WC Borrowers"), as borrowers, and Warner Chilcott Finance LLC, as a subsidiary guarantor, became parties to the WC Term Loan Agreement. Pursuant to the WC Term Loan Agreement, on the Closing Date, the lenders party thereto provided term loans to the WC Borrowers in a total aggregate principal amount of $2.0 billion, comprised of
(i) a tranche pursuant to which loans were made in US Dollars to each of the WC Borrowers in a total aggregate principal amount of $1.0 billion, which loans will mature on the third anniversary of the Closing Date and (ii) a tranche pursuant to which loans were made in US Dollars to each of the WC Borrowers in a total aggregate principal amount of $1.0 billion, which loans will mature on the fifth anniversary of the Closing Date. The proceeds of borrowings under the WC Term Loan Agreement were used to finance, in part, the repayment in full of all amounts owing under that certain Credit Agreement, dated as of March 17, 2011, as amended by Amendment No. 1 on August 20, 2012, among Warner Chilcott Holdings Company III, Limited, the WC Borrowers, BofA, as administrative agent thereunder and a syndicate of banks participating as lenders.

Borrowings under the WC Term Loan Agreement are subject to conditions that are substantially similar to those in the Amended and Restated Credit Facilities, and the final termination date for the availability of the loans under the WC Term Loan Agreement is the "End Date" under the Transaction Agreement.

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Actavis, Inc. Supplemental Indenture

On the Closing Date, the Company, Actavis, Inc. and Wells Fargo Bank, National Association, as trustee, entered into a fourth supplemental indenture to the indenture, dated as of August 24, 2009 pursuant to which the Company has provided a full and unconditional guarantee of Actavis, Inc.'s obligations under its 5.000% Senior Notes due August 15, 2014, (the "2014 Notes"), 6.125% Senior Notes due August 15, 2019, 1.875% Senior Notes due 2017, 3.250% Senior Notes due 2022 and 4.625% Senior Notes due 2042.

On October 18, 2013, Actavis, Inc. instructed Wells Fargo Bank, National Association, as trustee (the "Trustee"), pursuant to the indenture governing its 2014 Notes, to issue a notice from Actavis, Inc. to the holders of the 2014 Notes that Actavis, Inc. has elected to redeem in full the entire aggregate principal amount of the 2014 Notes on November 5, 2013 (the "Redemption Date"). The 2014 Notes, which have an outstanding principal balance of $450.0 million and which are fully and unconditionally guaranteed by the Company, will be redeemed at a redemption price equal to the sum of the present values of the remaining scheduled payments of principal and interest on the 2014 Notes from the Redemption Date to August 15, 2014, discounted to the Redemption Date on a semi-annual basis at the Treasury Rate (as defined in the Indenture), plus 40 basis points, plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date.

WC Supplemental Indenture

On the Closing Date, the Company, WC Company, Warner Chilcott Finance LLC (the "Co-Issuer" and together with WC Company, the "Issuers") and Wells Fargo Bank, National Association, as trustee (the "WC Trustee"), entered into a third supplemental indenture (the "Supplemental Indenture") to the indenture, dated as of August 20, 2010 (the "WC Indenture"), with respect to the Issuers' 7.75% senior notes due 2018 (the "WC Notes") pursuant to which, the Company has provided a full and unconditional guarantee of the Issuers' obligations under the WC Notes and the WC Indenture.

On the Closing Date, the Issuers and the WC Trustee also entered into a Release of Guarantees of Certain Guarantors, pursuant to which Warner Chilcott's guarantee of the WC Notes and the guarantees of certain other guarantors were released in accordance with the terms of the WC Indenture.

Indemnification Agreements and Other Events

Effective as of the Closing Date, the Company entered into deeds of indemnification (the "Deeds of Indemnification") with certain of the Company's directors and officers. The Deeds of Indemnification provide indemnification to such directors and officers to the fullest extent permitted by the laws of Ireland, and in accordance with the Company's Memorandum and Articles of Association, for all expenses actually and reasonably incurred in any action or proceeding in which the officer or director is or may be involved in by reason of the fact that he or she is or was a Company officer or director, on the terms and conditions set forth in the Deeds of Indemnification. Further, the Company agrees to advance expenses incurred in defense of these proceedings, on the terms and conditions set forth in the Deeds of Indemnification. The Deeds of Indemnification also provide procedures for requesting and obtaining indemnification and advancement of expenses.

Effective as of the Closing Date, Actavis W.C. Holding Inc. ("U.S. Holdco"), an indirectly wholly-owned subsidiary of the Company, entered into indemnification agreements (the "Holdco Indemnification Agreements") with certain directors and executive officers of the Company. The Holdco Indemnification Agreements provide indemnification to such directors and officers to the fullest extent permitted by the General Corporation Law of Delaware, and in accordance with U.S. Holdco's Bylaws, for all expenses actually and reasonably incurred in any action or proceeding in which the director or officer is or may be involved by reason of the fact that he or she is or was a U.S. Holdco director or officer, on the terms and conditions set forth in the Holdco Indemnification Agreements. Further, U.S. Holdco agrees to advance expenses incurred in defense of these proceedings, on the terms and conditions set forth in the Holdco Indemnification Agreements. The Holdco Indemnification Agreements also provide procedures for requesting and obtaining indemnification and advancement of expenses.

On October 1, 2013, in connection with the consummation of the Transactions, the Company amended and restated its memorandum and articles of association.

Other subsequent events

On October 1, 2013, Matsack transferred legal ownership of their seven Company Ordinary Shares of Actavis plc to Actavis plc and transferred their 40,000 deferred ordinary shares to Actavis, Inc. On the same day, Actavis, Inc. transferred the 40,000 deferred ordinary shares to Watson Pharma International Holding S..r.L.

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On October 28, 2013, Warner Chilcott Company, LLC ("WCCL"), an indirect wholly-owned subsidiary of the Company, and Sanofi- Aventis U.S. LLC ("Sanofi") entered into an amendment (the "Amendment") to the global collaboration agreement (as amended, the "Collaboration Agreement") to which WCCL and Sanofi are parties. Under the Collaboration Agreement, about which you may find additional information in the Warner Chilcott plc's Annual Report on Form 10-K for the year ended December 31, 2012, WCCL and Sanofi co-develop and market Actonel and Atelvia (risedronate sodium) on a global basis, excluding Japan.

Pursuant to the Amendment, the parties amended the Collaboration Agreement with respect to ACTONEL and ATELVIA in the U.S. and Puerto Rico (the "Exclusive Territory") to provide that, in exchange for the payment of a lump sum of $125.0 million by WCCL to Sanofi no later than December 2, 2013, WCCL's obligations with respect to the global reimbursement payment as it relates to the Exclusive Territory for the year ended December 31, 2014 shall be satisfied in full. The Amendment does not apply to or affect the parties' respective rights and obligations under the Collaboration Agreement with respect to (i) the remainder of 2013 or (ii) territories outside the Exclusive Territory.

Results of Operations

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2013 and for the period from May 16, 2013 (date of incorporation) to September 30, 2013 were $970 consisting of foreign exchange gains related to foreign denominated cash and cash equivalents.

Liquidity and Capital Resources

Working capital at September 30, 2013 was $54,101 of cash and cash equivalents.

Cash Flows from Operating Activities

Operating cash flows for the period from May 16, 2013 (date of incorporation) to September 30, 2013 consist of $970 of foreign exchange gains related to foreign denominated cash and cash equivalents.

Cash Flows from Financing Activities

Financing cash flows during the period from May 16, 2013 (date of incorporation) to September 30, 2013 were $53,131, consisting of proceeds from the issuance of equity to Matsack

Off-Balance Sheet Arrangements

At September 30, 2013 we do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, liquidity or capital resources.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board issued guidance to address the diversity in practice related to the financial statement presentation of unrecognized tax benefits as either a reduction of a deferred tax asset or a liability when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance is not expected to have any impact on the Company's consolidated financial statements.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Any statements made in this report that are not statements of historical fact or that refer to estimated or anticipated future events are forward-looking statements. We have based our forward-looking statements on management's beliefs and assumptions based on information available to our management at the time these statements are made. Such forward-looking statements reflect our current perspective of our business, future performance, existing trends and information as of the date of this filing. These include, but are not limited to, our beliefs about future revenue and expense levels and growth rates, prospects related to our strategic initiatives and business strategies, including the integration of, and synergies associated with, strategic acquisitions, express or implied assumptions about government regulatory action or inaction, anticipated product approvals and launches, business initiatives and product development activities, assessments related to clinical trial results, product performance and competitive environment, and anticipated financial performance. Without limiting the generality of the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "plan", "intend", "could", "would", "should", "estimate", "continue", or "pursue", or the negative or other variations thereof or comparable terminology, are intended to identify forward-looking statements. The statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We caution the reader that these statements are based on certain assumptions, risks and uncertainties, many of which are beyond our control. In addition, certain important factors may affect our actual operating results and could cause such results to differ materially from those expressed or implied by forward-looking statements. We believe the risks and uncertainties discussed under the section entitled "Item 1A. Risk Factors", and other risks and uncertainties detailed herein and from time to time in our filings with the Securities and Exchange Commission (the "SEC"), may cause our actual results to vary materially from those anticipated in any forward-looking statement.

We disclaim any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

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