CORONA, Calif. (Map) - CORONA, Calif., Nov. 6 /PRNewswire-FirstCall/ -- Watson Pharmaceuticals, Inc. (NYSE: WPI), a leading specialty pharmaceutical company, today reported revenue and earnings for its third quarter ended September 30, 2007.

Net revenue for the third quarter 2007 was $594.7 million and net income was $34.6 million, or $0.31 per diluted share. Excluding special items as detailed in the reconciliation table below, adjusted net income for the third quarter was $37.2 million, or $0.33 per diluted share.

Excluding special items as detailed in the EBITDA reconciliation table below, adjusted EBITDA for the third quarter 2007 was $134.6 million.

Cash flow from operations was $56.5 million for the third quarter and $255.7 million for the first nine months of 2007, respectively. Cash and marketable securities were $145.1 million as of September 30, 2007.

"I am pleased to report a strong quarter overall for Watson," said Paul Bisaro, Watson's President and Chief Executive Officer. "While we had strong contributions from our Brand and Generic businesses, Distribution revenue was weaker, reflecting an industry-wide reduction of new product launches in the quarter as well as changes in market dynamics on key distributed products."

"In my first few months as Watson's CEO, I've been able to assess the unique opportunities and assets that are available to the Company. We have a great base to build upon, including a strong generic business, a promising brand pipeline and a solid distribution business. Maximizing the value of these assets will be my top priority. I am confident that we are poised for continued success," Bisaro concluded.

For the nine months ended September 30, 2007, net revenue increased 38 percent to $1,869.3 million, as compared to $1,358.1 million for the first nine months of 2006. Net income for the first nine months of 2007 was $102.6 million, or $0.93 per diluted share, as compared to net income of $44.0 million, or $0.43 per diluted share, for the same period of 2006. On an adjusted basis, as detailed in the attached reconciliation table, net income for the first nine months of 2007 was $112.4 million, or $1.01 per diluted share, as compared to adjusted net income of $83.7 million, or $0.77 per diluted share, for the same period of 2006.

Third Quarter and Nine Month Business Segment Results Generic Segment Information Three Months Ended Nine Months Ended (Unaudited; $ in September 30, September 30, thousands) 2007 2006 2007 2006 Generic Segment Contribution Product sales $326,231 $347,635 $1,065,152 $1,088,491 Other revenue 31,489 5,436 62,834 7,101 Net revenue 357,720 353,071 1,127,986 1,095,592 Cost of sales 210,931 234,973 693,896 758,921 Gross profit 146,789 118,098 434,090 336,671 Gross margin 41.0% 33.4% 38.5% 30.7% Research and development 26,555 18,339 77,036 56,958 Selling and marketing 14,018 12,656 41,764 39,120 Segment contribution $106,216 $87,103 $315,290 $240,593 Segment margin 29.7% 24.7% 28.0% 22.0%

Generic segment net revenue for the third quarter of 2007 increased one percent or $4.6 million to $357.7 million, compared to $353.1 million in the prior year period.

Generic product sales for the third quarter of 2007 decreased $21.4 million to $326.2 million, primarily related to the loss of revenue from oxycodone HCl controlled-release tablets, following the termination of a distribution agreement, and lower sales of pravastatin sodium tablets. This was offset in part by the addition of product revenue from the Company's recently acquired Florida operations and revenue from the launch of bupropion hydrochloride extended-release tablets 300 mg. In addition, sales of the Company's generic oral contraceptives portfolio increased $8.6 million to $92.5 million.

Other revenue increased $26.1 million to $31.5 million as compared to the prior year period, due primarily to the addition of royalties from Sandoz's sales of metoprolol succinate extended-release tablets 50 mg and GlaxoSmithKline's sales of Wellbutrin XLP(R)P 150 mg.

Gross margin for the Generic segment increased from 33.4 percent in the third quarter 2006 to 41.0 percent in the third quarter 2007 due to the increase in other revenue and lower sales of authorized generics.

Watson currently has approximately 70 ANDAs on file, including tentative approvals.

Brand Segment Information Three Months Ended Nine Months Ended (Unaudited; $ in September 30, September 30, thousands) 2007 2006 2007 2006 Brand Segment Contribution Product sales $93,534 $85,543 $281,096 $256,831 Other revenue 13,577 1,879 38,288 5,659 Net revenue 107,111 87,422 319,384 262,490 Cost of sales 22,089 22,923 74,099 64,589 Gross profit 85,022 64,499 245,285 197,901 Gross margin 79.4% 73.8% 76.8% 75.4% Research and development 9,102 11,108 31,932 33,451 Selling and marketing 26,613 26,447 79,397 85,187 Segment contribution $49,307 $26,944 $133,956 $79,263 Segment margin 46.0% 30.8% 41.9% 30.2%

Brand segment net revenue for the third quarter of 2007 increased 23 percent, or $19.7 million to $107.1 million, compared to $87.4 million in the prior year period due to increases in both Brand product sales and other revenue.

Brand product sales for the third quarter of 2007 increased nine percent or $8.0 million to $93.5 million, primarily due to increased sales of Trelstar(R) and Androderm(R). Other revenue increased $11.7 million to $13.6 million, due to the addition of revenue related to the co-promotion of AndroGel(R) and other revenue resulting from the Andrx acquisition.

Gross margin for the Brand segment increased from 73.8 percent in the third quarter 2006 to 79.4 percent in the third quarter 2007, due to the increase in other revenue and improved manufacturing costs.

In Watson's Brand product pipeline, the Company remains on track for submitting a New Drug Application (NDA) in the first quarter 2008 for silodosin, an investigational product for the treatment of benign prostatic hyperplasia. The Company also recently completed the Phase 3 program on its topical gel formulation of oxybutynin for overactive bladder. An NDA is expected to be submitted to FDA in the second quarter of 2008. Finally, Debiopharm, Watson's partner on Trelstar(R), completed the Phase 3 program for its 6-month formulation of Trelstar(R), an investigational product for the treatment of advanced prostate cancer. Preliminary results indicate the trial was successful. Pending a final analysis of the data, Debiopharm plans to submit an NDA for the Trelstar(R) 6-month formulation in the second quarter 2008.

Distribution Segment Information Three Nine Months Ended Months Ended (Unaudited; $ in thousands) September 30, 2007 September 30, 2007 Distribution segment contribution Product sales $129,875 $421,946 Other revenue -- -- Net revenue 129,875 421,946 Cost of sales 113,400 363,583 Gross profit 16,475 58,363 Gross margin 12.7% 13.8% Research and development -- -- Selling and marketing 12,716 39,246 Segment contribution $3,759 $19,117 Segment margin 2.9% 4.5%

Distribution segment net revenue for the third quarter of 2007 was $129.9 million, down 11 percent from $146.6 million reported in the second quarter 2007, primarily due to fewer new products reaching the market and lower sales of products that became multi-source in the third quarter.

Gross margin for the Distribution segment fell from 15.9 percent in the second quarter 2007 to 12.7 percent in the third quarter 2007 due primarily to lower pricing on key generic products and a shift in product mix.

Other Operating Expenses

Consolidated general and administrative expenses for the third quarter of 2007 increased $33.8 million to $59.1 million, compared to $25.4 million in the prior year period, primarily due to the Andrx acquisition. Consolidated general and administrative expense for the third quarter 2007 includes an $8.5 million litigation charge.

2007 Financial Outlook

Watson's forecasts are based on the Company's actual results for the first nine months of 2007, and management's current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches. The current 2007 forecast excludes approximately $19 million ($12 million net of tax, or $0.10 per diluted share) of acquisition, litigation and impairment charges and certain other gains and losses as detailed in Table 6 below.

Watson estimates total net revenue for the full year of 2007 at approximately $2.5 billion.

Net Revenue Estimates by Segment For the Twelve Months Ended December 31, 2007 Generic Segment Approximately $1.5 Billion Brand Segment $420 - $430 Million Distribution $550 - $565 Million

Research and development investment for 2007 is expected to be approximately six percent of total revenue. Selling, general and administrative expenses for 2007 are expected to be approximately 17 percent of total revenue.

Adjusted earnings per diluted share for 2007 is expected to be between $1.30 and $1.33. Excluding special items as detailed in the EBITDA reconciliation table below, adjusted EBITDA is expected to be between $536 and $541 million.

Webcast and Conference Call Details

Watson will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time to discuss 2007 third quarter results, projections for the remainder of 2007 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 19494140. 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, Friday, November 16, 2007. 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., headquartered in Corona, California, is a leading specialty pharmaceutical company that develops, manufactures, markets, sells and distributes brand and generic pharmaceutical products. Watson pursues a growth strategy combining internal product development, strategic alliances and collaborations and synergistic acquisitions of products and businesses.

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; successful integration of strategic transactions, including the Company's March 16, 2006 acquisition of Sekhsaria Chemicals, Ltd. and its November 3, 2006 acquisition of Andrx Corporation; the ability to timely resolve with FDA the pending Official Action Indicated status of the Davie, Florida manufacturing facility; the ability to timely and cost effectively integrate Watson and Andrx's operations; the ability to recognize the anticipated synergies and benefits of strategic transactions, including the Andrx Acquisition; variability of revenue mix between the Company's Brand and Generic 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; costs and efforts to defend or enforce intellectual property rights; 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; uncertainties related to the timing and outcome of litigation and other claims; changes in the laws and regulations, including Medicare and Medicaid, affecting among other things, pricing and reimbursement of pharmaceutical products; 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 year ended December 31, 2006. Except as expressly required by law, Watson disclaims any intent or obligation to update these forward-looking statements.

Wellbutrin XLP(R)P is a registered trademark of GlaxoSmithKline.

AndroGel(R) is a registered trademark of Unimed Pharmaceuticals, Inc., a wholly-owned subsidiary of Solvay Pharmaceuticals, Inc.

The following table presents Watson's results of operations for the three and nine months ended September 30, 2007 and 2006:

Table 1 Watson Pharmaceuticals, Inc. Condensed Consolidated Statements of Operations (Unaudited; in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Restated* Restated* Net revenues $594,706 $440,493 $1,869,316 $1,358,082 Cost of sales (excludes amortization, presented below) 346,420 257,896 1,131,578 823,510 Gross profit 248,286 182,597 737,738 534,572 Operating expenses: Research and development 35,657 29,447 108,968 90,409 Selling, general and administrative 112,491 64,467 312,867 201,991 Amortization 44,159 39,392 132,251 121,593 Net (gain) loss on asset sales and impairments (6,118) -- (6,118) 66,981 Total operating expenses 186,189 133,306 547,968 480,974 Operating income 62,097 49,291 189,770 53,598 Non-operating (expense) income, net: Loss on early extinguishment of debt -- -- (4,410) (525) Interest income 1,964 9,601 6,696 22,766 Interest expense (10,125) (3,814) (35,476) (10,437) Other income (expense) 1,449 (225) 7,886 4,851 Total non-operating (expense) income, net (6,712) 5,562 (25,304) 16,655 Income before income taxes 55,385 54,853 164,466 70,253 Provision for income taxes 20,779 20,460 61,839 26,297 Net income $34,606 $34,393 $102,627 $43,956 Diluted earnings per share $0.31 $0.31 $0.93 $0.43 Diluted weighted average shares outstanding 117,421 116,353 117,042 116,356 * Net income for 2006 has been restated for earnings on equity method investments to account for our investment in common shares of Andrx prior to the Andrx Acquisition using the equity method of accounting in accordance with Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" ("APB 18").

The following table presents Watson's Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006:

Table 2 Watson Pharmaceuticals, Inc. Condensed Consolidated Balance Sheets (Unaudited; in thousands) September 30, December 31, 2007 2006 Assets Cash and cash equivalents $133,348 $154,171 Marketable securities 11,721 6,649 Accounts receivable, net 275,840 384,692 Inventories 524,107 517,236 Other current assets 178,985 198,928 Property and equipment, net 683,441 697,415 Investments and other assets 124,864 131,725 Product rights and other intangibles, net 647,526 779,284 Goodwill 875,443 890,477 Total Assets $3,455,275 $3,760,577 Liabilities & Stockholders' Equity Current liabilities $394,943 $689,929 Long-term debt 974,342 1,124,145 Deferred income taxes and other liabilities 278,994 266,115 Stockholders' equity 1,806,996 1,680,388 Total liabilities and stockholders' equity $3,455,275 $3,760,577

The following table presents Watson's Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006:

Table 3 Watson Pharmaceuticals, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited; in thousands) Nine Months Ended September 30, 2007 2006 Restated* Cash Flows from Operating Activities: Net income $102,627 $43,956 Reconciliation to net cash provided by operating activities: Depreciation and amortization 189,185 158,620 Non-cash impairment charges 4,499 66,981 Deferred income tax benefit (15,509) (54,134) Provision for inventory reserve 36,908 18,126 Restricted stock and stock option compensation 10,337 9,731 Other adjustments to reconcile net income to net cash provided (8,810) (7,315) Changes in assets and liabilities: Accounts receivable, net 111,852 69,931 Inventories (48,654) (53,712) Accounts payable and accrued expense (142,957) 40,445 Income taxes payable 2,967 48,183 Prepaids and other changes to assets and liabilities 13,280 (3,045) Total adjustments 153,098 293,811 Net cash provided by operating activities 255,725 337,767 Cash Flows from Investing Activities: Additions to property, equipment and product rights (50,304) (25,908) Acquisition of business, net of cash acquired -- (29,574) Proceeds from sale of property and equipment 14,385 -- Other (2,838) (3,516) Net cash used in investing activities (38,757) (58,998) Cash Flows from Financing Activities: Payments on term loan and other long- term liabilities (252,910) (18,926) Proceeds from stock plans 15,195 7,928 Other (76) -- Net cash used in financing activities (237,791) (10,998) Net (decrease) increase in cash and cash equivalents (20,823) 267,771 Cash and cash equivalents at beginning of period 154,171 467,451 Cash and cash equivalents at end of period $133,348 $735,222 * Net income for 2006 has been restated for earnings on equity method investments to account for our investment in common shares of Andrx prior to the Andrx Acquisition using the equity method of accounting in accordance with APB 18.

The following table presents a reconciliation of reported net income and earnings per diluted share to adjusted net income and diluted earnings per share for the three and nine months ended September 30, 2007 and 2006:

Table 4 Watson Pharmaceuticals, Inc. Reconciliation Table (Unaudited; in thousands except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Restated* Restated* GAAP to adjusted net income calculation Reported GAAP net income $34,606 $34,393 $102,627 $43,956 Adjusted for: Acquisition charges 1,710 108 11,288 189 Gain on sale of assets (10,617) -- (13,089) (3,695) Non-cash impairment charges 4,499 -- 4,499 66,981 Loss on early extinguishment of debt -- -- 4,410 525 Legal settlements 8,500 -- 8,658 -- Income taxes (1,534) (40) (6,012) (24,269) Adjusted net income 37,164 34,461 112,381 83,687 Add: Interest expense on CODES, net of tax 1,905 2,026 5,906 5,485 Adjusted net income, adjusted for interest on CODES $39,069 $36,487 $118,287 $89,172 Diluted earnings per share Diluted earnings per share - GAAP $0.31 $0.31 $0.93 $0.43 Diluted earnings per share - Adjusted $0.33 $0.31 $1.01 $0.77 Basic weighted average common shares outstanding 102,453 101,865 102,266 101,760 Effect of dilutive securities: Conversion of CODES 14,357 14,357 14,357 14,357 Dilutive stock options 611 131 419 239 Diluted weighted average common shares outstanding 117,421 116,353 117,042 116,356 * Net income for 2006 has been restated for earnings on equity method investments to account for our investment in common shares of Andrx prior to the Andrx Acquisition using the equity method of accounting in accordance with APB 18. The following table presents a reconciliation of reported net income for the three and nine months ended September 30, 2007 and 2006 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, 2007 2006 2007 2006 Restated* Restated* GAAP net income $34.6 $34.4 $102.6 $44.0 Plus: Interest expense 10.1 3.8 35.5 10.5 Interest income (2.0) (9.6) (6.7) (22.8) Provision for income taxes 20.8 20.4 61.8 26.3 Depreciation 19.4 12.5 56.9 37.0 Amortization 44.2 39.4 132.3 121.6 EBITDA 127.1 100.9 382.4 216.6 Adjusted for: Non-cash impairment charges 4.5 -- 4.5 67.0 Share-based compensation 3.4 3.1 10.3 9.7 Acquisition related charges 1.7 0.1 11.3 0.2 Litigation charge 8.5 -- 8.7 -- Loss on early extinguishment of debt -- -- 4.4 0.5 Gain on sales of assets (10.6) -- (13.1) (3.7) Adjusted EBITDA $134.6 $104.1 $408.5 $290.3 * Net income for 2006 has been restated for earnings on equity method investments to account for our investment in common shares of Andrx prior to the Andrx Acquisition using the equity method of accounting in accordance with APB 18.

The following table presents a reconciliation of reported net income for the nine months ended September 30, 2007 and forecasted net income for the 12 months ended December 31, 2007:

Table 6 Watson Pharmaceuticals, Inc. Reconciliation Table - Forecasted Adjusted Earnings per Diluted Share (Unaudited; in millions except per share amounts) Forecast for Forecast for Nine Months Three Months Twelve Months Ended Ended December Ended December September 30, 31, 2007 31, 2007 2007 Low High Low High GAAP to adjusted net income calculation GAAP net income $102.6 $30.5 $34.0 $133.1 $136.6 Adjusted for: Acquisition charges 11.3 2.2 2.2 13.5 13.5 Gain on sale of assets (13.1) -- -- (13.1) (13.1) Non-cash impairment charges 4.5 -- -- 4.5 4.5 Loss on early extinguishment of debt 4.4 1.1 1.1 5.5 5.5 Legal settlements 8.7 -- -- 8.7 8.7 Income taxes (6.0) (1.2) (1.2) (7.2) (7.2) Adjusted net income 112.4 32.6 36.1 145.0 148.5 Add: Interest expense on CODES, net of tax 5.9 2.0 2.0 7.9 7.9 Adjusted net income, adjusted for interest on CODES $118.3 $34.6 $38.1 $152.9 $156.4 Diluted earnings per share Diluted earnings per share - GAAP $0.93 $0.28 $0.31 $1.20 $1.23 Diluted earnings per share - Adjusted $1.01 $0.29 $0.32 $1.30 $1.33 Diluted weighted average common shares outstanding 117.0 117.7 117.7 117.2 117.2

The reconciliation table is based in part on management's estimate of net income for the year ended December 31, 2007. Watson expects certain known GAAP charges for 2007, 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 following table presents a reconciliation of reported net income for the nine months ended September 30, 2007 and forecasted net income for the 12 months ended December 31, 2007 to adjusted EBITDA:

Table 7 Watson Pharmaceuticals, Inc. Forecasted Adjusted EBITDA Reconciliation Table (Unaudited; in millions) Forecast for Forecast for Nine Months Three Months Twelve Months Ended Ended December Ended December September 30, 31, 2007 31, 2007 2007 Low High Low High GAAP net income $102.6 $30.5 $34.0 $133.1 $136.6 Plus: Interest expense 35.5 9.0 9.0 44.5 44.5 Interest income (6.7) (1.6) (1.6) (8.3) (8.3) Provision for income taxes 61.8 18.4 20.5 80.2 82.3 Depreciation 56.9 19.8 19.8 76.7 76.7 Amortization 132.3 44.2 44.2 176.5 176.5 EBITDA 382.4 120.3 125.9 502.7 508.3 Adjusted for: Non-cash impairment charges 4.5 -- -- 4.5 4.5 Share-based compensation 10.3 3.7 3.7 14.0 14.0 Acquisition related charges 11.3 2.2 2.2 13.5 13.5 Litigation charge 8.7 -- -- 8.7 8.7 Loss on early extinguishment of debt 4.4 1.1 1.1 5.5 5.5 Gain on sales of assets (13.1) -- -- (13.1) (13.1) Adjusted EBITDA $408.5 $127.3 $132.9 $535.8 $541.4

The reconciliation table is based in part on management's estimate of adjusted EBITDA for the year ended December 31, 2007. Watson expects certain known GAAP charges for 2007, 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.

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