`
`10-Q
`PAR PHARMACEUTICAL COMPANIES, INC. filed this Form 10-Q on 11/12/2014
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`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, DC 20549
`
`________________
`FORM 10-Q
`QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
`OF THE SECURITIES EXCHANGE ACT OF 1934
`
`For the quarterly period ended: September 30, 2014
`Commission file number: 1-10827
`
`PAR PHARMACEUTICAL COMPANIES, INC.
`(Exact name of registrant as specified in its charter)
`
`Delaware
`(State or other jurisdiction of
`incorporation or organization)
`
`
`
`
`
`22-3122182
`(I.R.S. Employer
`Identification No.)
`
`300 Tice Boulevard, Woodcliff Lake, New Jersey 07677
`(Address of principal executive offices)
`Registrant’s telephone number, including area code: (201) 802-4000
`
`Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
`the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
`required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
`
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
`any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
`this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
`such files). Yes No
`
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
`filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:
`
`Large accelerated filer Accelerated filer Non-accelerated filer
`
`Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
`Yes No
`
`Number of shares of the Registrant’s common stock outstanding as of November 12, 2014: 100
`
`http://pr.parpharm.com/phoenix.zhtml?c=81806&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTk4… 1/83
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`JAZZ EXHIBIT 2016
`Amneal Pharms. et al. (Petitioners) v. Jazz Pharms., Inc. (Patent Owner)
`Case IPR2015-00547
`
`Page 1 of 83
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`TABLE OF CONTENTS
`PAR PHARMACEUTICAL COMPANIES, INC.
`FORM 10-Q
`FOR THE QUARTER ENDED SEPTEMBER 30, 2014
`
`FINANCIAL INFORMATION
`
`Condensed Consolidated Financial Statements (unaudited)
`
`Condensed Consolidated Balance Sheets as of September 30, 2014 and
`December 31, 2013
`
`Condensed Consolidated Statements of Operations for the three and nine months ended
`September 30, 2014 and September 30, 2013
`
`Condensed Consolidated Statements of Comprehensive Loss for the three and nine months
`ended September 30, 2014 and September 30, 2013
`
`Condensed Consolidated Statements of Cash Flows for the nine months
`ended September 30, 2014 and September 30, 2013
`
`Notes to Condensed Consolidated Financial Statements
`
`Management’s Discussion and Analysis of Financial Condition
`and Results of Operations
`
`Quantitative and Qualitative Disclosures about Market Risk
`
`
`Controls and Procedures
`
`PAGE
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`3
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`4
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`5
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`6
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`7
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`8
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`42
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`61
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`62
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`63
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`63
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`63
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`63
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`64
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`PART I
`
`
`
`Item 1.
`
`
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`Item 2.
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`Item 3.
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`Item 4.
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`OTHER INFORMATION
`PART II
`
`
`
`Legal Proceedings
`
`Item 1.
`
`
`
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`Item 1A. Risk Factors
`
`
`
`
`Item 6.
`Exhibits
`
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`
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`SIGNATURES
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`PART I. FINANCIAL INFORMATION
`ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
`
`3
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`Page 3 of 83
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`PAR PHARMACEUTICAL COMPANIES, INC.
`CONDENSED CONSOLIDATED BALANCE SHEETS
`(In Thousands, Except Share and Par Value per Share Data)
`(Unaudited)
`
`
`
` ASSETS
`Current assets:
`Cash and cash equivalents
`Available for sale marketable debt securities
`Accounts receivable, net
`Inventories
`Prepaid expenses and other current assets
`Deferred income tax assets
`Income taxes receivable
`Total current assets
`
`
`Property, plant and equipment, net
`Intangible assets, net
`Goodwill
`Other assets
`Total assets
`
` LIABILITIES AND STOCKHOLDERS’ EQUITY
`Current liabilities:
`Current portion of long-term debt
`Accounts payable
`Payables due to distribution agreement partners
`Accrued salaries and employee benefits
`Accrued government pricing liabilities
`Accrued legal settlements
`Accrued interest payable
`Accrued expenses and other current liabilities
`Total current liabilities
`
`
`Long-term liabilities
`Non-current deferred tax liabilities
`Long-term debt, less current portion
`Commitments and contingencies
`
`Stockholders' equity:
`Common stock, $0.001 par value per share, 100 shares authorized and issued
`Additional paid-in capital
`
`Accumulated deficit
`
`
`
`$
`
`
`
`$
`
`
`
`$
`
`
`
`
`
`
`September 30,
`2014
`
`
`
`
`
`108,677 $
`—
`173,935
`162,272
`27,807
`56,439
`36,044
`565,174
`
`208,066
`1,161,921
`1,006,034
`88,356
`3,029,551 $
`
`
`
`14,503 $
`73,249
`54,748
`28,227
`42,078
`—
`16,563
`32,447
`261,815
`
`16,254
`283,426
`1,907,303
`—
`
`
`—
`805,325
`(242,340
`)
`
`(2,232)
`Accumulated other comprehensive loss
`560,753
`Total stockholders' equity
`3,029,551 $
`$
`Total liabilities and stockholders’ equity
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`4
`
`December 31,
`2013
`
`130,080
`3,541
`143,279
`117,307
`13,980
`55,932
`1,458
`465,577
`
`127,276
`1,092,648
`849,652
`96,342
`2,631,495
`
`21,462
`31,181
`79,117
`20,700
`35,829
`41,367
`7,629
`21,686
`258,971
`
`20,322
`288,783
`1,516,057
`—
`
`—
`686,577
`(138,416
`
`)
`
`(799)
`547,362
`2,631,495
`
`http://pr.parpharm.com/phoenix.zhtml?c=81806&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTk4… 4/83
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`Page 4 of 83
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`PAR PHARMACEUTICAL COMPANIES, INC.
`CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
`(In Thousands)
`(Unaudited)
`
`
`
`
`Revenues:
`Net product sales
`Other product related revenues
`Total revenues
`Cost of goods sold, excluding amortization expense
`Amortization expense
`Total cost of goods sold
`Gross margin
`Operating expenses:
`Research and development
`Selling, general and administrative
`Intangible asset impairment
`Settlements and loss contingencies, net
`Restructuring costs
`Total operating expenses
`Loss on sale of product rights
`Operating loss
`Interest income
`Interest expense
`Loss on debt extinguishment
`Other Income
`Loss before benefit for income taxes
`Benefit for income taxes
`Net loss
`
`Three months ended
`
`September 30,
`September 30,
`
`2014
`2013
`
`326,142 $
`9,975
`336,117
`156,688
`38,604
`195,292
`140,825
`
`26,481
`42,039
`11,466
`90,107
`565
`170,658
`(3,042)
`(32,875)
`2
`(27,690)
`—
`500
`(60,063)
`(22,425)
`(37,638) $
`
`
`
`
`
`259,244 $
`8,077
`267,321
`131,722
`54,208
`185,930
`81,391
`
`27,246
`39,390
`39,480
`—
`—
`106,116
`—
`(24,725)
`14
`(23,385)
`—
`—
`(48,096)
`(18,797)
`(29,299) $
`
`
`$
`
`
`
`$
`
`766,264
`24,922
`791,186
`443,707
`135,744
`579,451
`211,735
`
`Nine months ended
`
`September 30,
`September 30,
`
`2014
`2013
`
`898,739 $
`21,868
`920,607
`470,191
`121,766
`591,957
`328,650
`
`89,536
`136,858
`89,086
`90,107
`4,578
`410,165
`(3,042)
`(84,557)
`16
`(80,656)
`(3,989)
`500
`(168,686)
`(64,762)
`(103,924) $
`
`73,282
`117,006
`39,946
`3,300
`1,816
`235,350
`—
`(23,615)
`70
`(71,033)
`(7,335)
`—
`(101,913)
`(36,077)
`(65,836)
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`5
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`Page 5 of 83
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`PAR PHARMACEUTICAL COMPANIES, INC.
`CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
`(In Thousands)
`(Unaudited)
`
`
`
`
`Net loss
`Other comprehensive income (loss), net of tax :
`Unrealized loss on marketable securities, net of tax
`Unrealized gain (loss) on cash flow hedges, net of tax
`Less: reclassification adjustment for realized losses included in net
`loss, net of tax
`Other
`Other comprehensive income (loss)
`Comprehensive loss
`
`
`Three months ended
`
`
`September 30,
`September 30,
`
`
`2014
`2013
`(37,638) $
`(29,299) $
`
`
`—
`—
`877
`(1,878)
`649
`—
`39
`
`1,565
`(1,878)
`(36,073) $
`(31,177) $
`
`$
`
`
`$
`
`(1,900)
`(67,736)
`
`Nine months ended
`
`September 30,
`September 30,
`
`2014
`2013
`(103,924) $
`(65,836)
`
`(3)
`(3,395)
`1,926
`39
`(1,433)
`(105,357) $
`
`(22)
`(1,878)
`
`—
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`6
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`Page 6 of 83
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`PAR PHARMACEUTICAL COMPANIES, INC.
`CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
`(In $ Thousands)
`(Unaudited)
`
`
`
`
`
`Cash flows from operating activities:
`
`Net loss
`
`Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
`
`Deferred income taxes
`
`Depreciation and amortization
`
`Non-cash interest expense
`
`Cost of goods on acquired inventory step up
`
`Intangible asset impairment
`
`Allowances against accounts receivable
`
`Share-based compensation expense
`
`Loss on debt extinguishment
`
`Loss on ANDA divestiture
`
`Other, net
`
`Changes in assets and liabilities:
`
`Increase in accounts receivable
`
`Increase in inventories
`
`(Increase) decrease in prepaid expenses and other assets
`
`Increase in accounts payable, accrued expenses and other liabilities, excluding certain items
`
`Payment to Department of Justice (DOJ)
`
`Payment related to AWP settlement
`
`(Decrease) increase in payables due to distribution agreement partners
`
`Decrease in income taxes receivable/payable
`
`September 30,
`
`2014
`
`2013
`
`
`
`$
`
`
`
`
`8,054
`
`9,031
`
`89,086
`
`56,353
`
`6,558
`
`3,989
`
`3,042
`
`699
`
`(65,836)
`
`(39,313)
`
`153,517
`
`8,045
`
`6,557
`
`39,946
`
`29,059
`
`6,824
`
`7,335
`
`—
`
`342
`
`(30,558)
`
`(21,196)
`
`12,227
`
`29,191
`
`(46,071)
`
`(7,200)
`
`5,657
`
`(8,940)
`
`Nine months ended
`
`September 30,
`
`
`(103,924) $
`
`(69,193)
`
`142,095
`
`
`
`
`
`
`
`
`
`(81,596)
`(20,295)
`(10,470)
`51,211
`—
`(32,350)
`(24,375)
`(38,108)
`(10,193)
`
`(29,423)
`(478,226)
`—
`
`3,514
`
`750
`(503,385)
`
`
`525,541
`(142,406)
`
`112,190
`(3,150)
`—
`
`492,175
`(21,403
`)
`
`79,586
`
`(12,743)
`
`(1,733)
`
`(1,000)
`
`8,000
`
`—
`
`(7,476)
`
`198,889
`
`(204,216)
`
`1,754
`
`—
`
`(1,412)
`
`(4,985)
`67,125
`
`130,080
`
`108,677
`
`42,132
`
`63,031
`
`418
`
`
` $
`
`
`
` $
` $
`
` $
`
`36,794
`
`103,919
`
`12,080
`
`50,190
`
`536
`
`
`
`
`
`$
`
`
`
`$
`
`$
`
`$
`
` Net cash (used in) provided by operating activities
`
`Cash flows from investing activities:
`
`Capital expenditures
`
`Business acquisitions, net of cash acquired
`
`Purchases of intangibles
`
`Proceeds from available for sale marketable debt securities
`
`Proceeds from the sale of ANDA
`
`Net cash used in investing activities
`
`Cash flows from financing activities:
`
`Proceeds from debt
`
`Payments of debt
`
`Proceeds from equity contributions, net
`
`Debt issuance costs
`
`Payments to extinguish debt
`
`Net cash provided by (used in) financing activities
`
`Net (decrease) increase in cash and cash equivalents
`
`Cash and cash equivalents at beginning of period
`
`Cash and cash equivalents at end of period
`
`
`Supplemental disclosure of cash flow information:
`
`Cash paid during the period for:
`
`Income taxes, net
`
`Interest paid
`
`Non-cash transactions:
`
`Capital expenditures incurred but not yet paid
`
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`7
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`PAR PHARMACEUTICAL COMPANIES, INC.
`NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
`September 30, 2014
`(Unaudited)
`
`Par Pharmaceutical Companies, Inc. operates primarily through its wholly owned subsidiary, Par Pharmaceutical,
`Inc. (collectively referred to herein as “the Company,” “we,” “our,” or “us”), in two business segments. Our generic products
`division, Par Pharmaceutical (“Par”), develops (including through third party development arrangements and product
`acquisitions), manufactures and distributes generic pharmaceuticals in the United States. Our branded products division,
`Strativa Pharmaceuticals (“Strativa”), acquires, manufactures and distributes branded pharmaceuticals in the United States.
`The products we market are principally in the solid oral dosage form (tablet, caplet, two-piece hard-shell capsule) and sterile
`injectable dosage form. We also distribute several oral suspension products and nasal spray products.
`We were acquired at the close of business on September 28, 2012 through a merger transaction with Sky Growth
`Acquisition Corporation, a wholly-owned subsidiary of Sky Growth Holdings Corporation (“Holdings”). Holdings was formed
`by investment funds affiliated with TPG Capital, L.P. (“TPG” and, together with certain affiliated entities, collectively, the
`“Sponsor”). Holdings is owned by affiliates of the Sponsor and members of management. The acquisition was
`accomplished through a reverse subsidiary merger of Sky Growth Acquisition Corporation with and into the Company, with
`the Company being the surviving entity (the “Merger”). Subsequent to the Merger, we became an indirect, wholly owned
`subsidiary of Holdings (see Note 2, “Sky Growth Merger”).
`
`
`Note 1 – Basis of Presentation and Recently Issued Accounting Standards:
`The accompanying condensed consolidated financial statements at September 30, 2014 and for the three-month
`and nine-month periods ended September 30, 2014 and September 30, 2013 are unaudited. In the opinion of management,
`however, such statements include all normal recurring adjustments necessary to present fairly the information presented
`therein. The condensed consolidated balance sheet at December 31, 2013 was derived from the Company’s audited
`consolidated financial statements included in our 2013 Annual Report on Form 10-K.
`The accompanying condensed consolidated financial statements and these notes to condensed consolidated
`financial statements do not include all disclosures required by the accounting principles generally accepted in the United
`States of America for audited financial statements. Accordingly, these statements should be read in conjunction with our
`2013 Annual Report on Form 10-K. Results of operations for interim periods are not necessarily indicative of those that may
`be achieved for full fiscal years.
`Recently Issued Accounting Standards
`In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of
`Components of an Entity" ("ASU 2014-08"). ASU 2014-08 amends guidance for reporting discontinued operations and
`disposals of components of an entity. Under the new guidance, only disposals representing a strategic shift in operations
`should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s
`operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a
`major equity method investment. The new guidance requires expanded disclosures about discontinued operations that will
`provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued
`operations. The guidance also expands the disclosure of the pre-tax income attributable to a disposal of a significant part of
`an organization that does not qualify for discontinued operations reporting. This disclosure is intended to provide users with
`information about the ongoing trends in a reporting organization’s results from continuing operations. ASU 2014-08 is
`effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014
`with early adoption permitted only for disposals that have not been previously reported. We currently do not anticipate an
`impact of ASU 2014-08 on our condensed consolidated financial statements and related disclosures.
`
`In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). ASU
`2014-09 supersedes nearly all existing revenue recognition guidance under accounting principles generally accepted in the
`United States of America. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods
`or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of
`other standards (e.g., insurance contracts or lease contracts). The core principle of ASU 2014-09 is to recognize revenues
`to depict the transfer of promised goods or services to customers in an amount that reflects the consideration that is
`expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core
`principle: 1) identify the contract with a customer, 2) identify the separate performance obligations in the contract,
`3) determine the transaction price, 4) allocate the transaction price to the separate performance obligations in the contract,
`and 5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 is effective for annual
`reporting periods beginning after December 15, 2016. Early adoption is not permitted. ASU 2014-09 can be applied
`retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the change
`recognized at the date of the initial application in retained earnings or accumulated deficit. We are currently evaluating the
`impact of ASU 2014-09 on our condensed consolidated financial statements and related disclosures and we have not yet
`selected a transition method.
`
`8
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`In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic
`205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (ASU 2014-15), which
`defines management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related
`footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is
`effective for annual reporting periods ending after December 15, 2016 with early adoption permitted. We currently do not
`anticipate an impact of ASU 2014-15 on our condensed consolidated financial statements and related disclosures.
`
`Note 2 – Sky Growth Merger:
`
`The Transactions
`We were acquired at the close of business on September 28, 2012 through the Merger. Holdings and its wholly-
`owned subsidiaries were formed by affiliates of TPG solely for the purposes of completing the Merger and the related
`transactions. At the time of the Merger, each share of our common stock issued and outstanding immediately prior to the
`close of the Merger was converted into the right to receive cash. Aggregate consideration tendered at September 28, 2012
`was for 100% of the equity of the Company. Subsequent to the Merger, we became an indirect, wholly owned subsidiary of
`Holdings.
`
`The Merger was accounted for as a purchase business combination in accordance with ASC 805, "Business
`Combinations," ("ASC 805") whereby the purchase price paid to effect the Merger was allocated to recognize the acquired
`assets and liabilities assumed at fair value. The acquisition method of accounting uses the fair value concept defined in
`ASC 820, Fair Value Measurements and Disclosures ("ASC 820").
`
`Transactions with Manager
`In connection with the Merger and the related transactions, the Company entered into a management services
`agreement with an affiliate of TPG (the “Manager”). Pursuant to the agreement, in exchange for on-going consulting and
`management advisory services, the Manager receives an annual monitoring fee paid quarterly equal to 1% of EBITDA as
`defined under the Company’s senior secured credit facilities. There is an annual cap of $4 million for this fee. The Manager
`also receives reimbursement for out-of-pocket expenses incurred in connection with services provided pursuant to the
`agreement. The Company recorded an expense of $1,258 thousand for the three months ended September 30, 2014 and an
`expense of $1,023 thousand for the three months ended September 30, 2013 for consulting and management advisory
`service fees. The Company recorded an expense of $3,072 thousand for the nine months ended September 30, 2014 and an
`expense of $2,417 thousand for the nine months ended September 30, 2013 for consulting and management advisory
`service fees. These expenses are included in selling, general and administrative expenses in the condensed consolidated
`statements of operations.
`
`Note 3 – JHP Acquisition:
`On February 20, 2014, the Company completed its acquisition of JHP Group Holdings, Inc. and its subsidiaries
`(collectively, “JHP”), a privately-held, specialty sterile products pharmaceutical company. The acquisition was
`accomplished through a reverse subsidiary merger of an indirect subsidiary of the Company with and into JHP Group
`Holdings, Inc., in which JHP Group Holdings, Inc. was the surviving entity and became an indirect, wholly owned
`subsidiary of the Company (the “JHP Acquisition”). The consideration for the JHP Acquisition consisted of $487 million in
`cash, after finalization of certain customary working capital adjustments. During the three months ended September 30,
`2014, we received $500 thousand in connection with the working capital adjustments. The Company financed the JHP
`Acquisition with proceeds received in connection with the debt financing provided by third party lenders of $395 million and
`an equity contribution of $110 million from certain investment funds associated with TPG. Among the primary reasons the
`Company acquired JHP and the factors that contributed to the preliminary recognition of goodwill was that the JHP
`Acquisition immediately expanded its capability and presence into the rapidly growing sterile drug market for injectable
`products including ophthalmics and otics. The result is a broader and more diversified product portfolio, and an expanded
`development pipeline. With its high-barrier-to-entry products, JHP represents a complement to the Company's strategy and
`product line. JHP also has a reputation for high-quality products and a strong record of regulatory compliance, which had
`driven its steady revenue growth prior to the acquisition.
`JHP operates principally through its operating subsidiary, JHP Pharmaceuticals, LLC, which was renamed Par
`Sterile Products, LLC (“Par Sterile”) subsequent to the JHP Acquisition. We will continue to operate Par Sterile as a leading
`specialty pharmaceutical company developing and manufacturing sterile injectable products. Par Sterile marketed a portfolio
`of 14 specialty injectable products, including Aplisol® and Adrenalin®, and had developed a pipeline of approximately 30
`products, 17 of which had been submitted for approval to the U.S. Food and Drug Administration at the time of the JHP
`Acquisition. Par Sterile’s products are predominately sold to hospitals through the wholesale distribution channel. Par
`Sterile targets products with limited competition due to difficulty in manufacturing and/or the product’s market size. Our Par
`Sterile manufacturing facility in Rochester, Michigan has the capability to manufacture small-scale clinical through large-
`scale commercial products.
`The operating results of Par Sterile from February 20, 2014 to September 30, 2014 are included in the
`accompanying condensed consolidated statement of operations as part of the Par Pharmaceutical segment, reflecting total
`revenues of approximately $96 million. Par Sterile's contribution to the overall Par Pharmaceutical segment's operating
`(loss) or income is not tracked separately.
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`The condensed consolidated balance sheet as of September 30, 2014 reflects the JHP Acquisition, including goodwill,
`which represents Par Sterile's workforce expertise in R&D, marketing and manufacturing.
`The JHP Acquisition has been accounted for as a business purchase combination using the acquisition method of
`accounting under the provisions of ASC 805. The acquisition method of accounting uses the fair value concept defined in
`ASC 820. ASC 805 requires, among other things, that most assets acquired and liabilities assumed in a business purchase
`combination be recognized at their fair values as of the JHP Acquisition date and that the fair value of acquired in-process
`research and development (“IPR&D”) be recorded on the balance sheet regardless of the likelihood of success of the
`related product or technology as of the completion of the JHP Acquisition. The process for estimating the fair values of
`IPR&D, identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions,
`including estimating future cash flows, developing appropriate discount rates, estimating the costs, timing and probability of
`success to complete in-process projects and projecting regulatory approvals. Under ASC 805, transaction costs are not
`included as a component of consideration transferred and were expensed as incurred. The JHP Acquisition-related
`transaction costs totaled $12,350 thousand of which $8,213 thousand were included in operating expenses as selling,
`general and administrative expenses on the condensed consolidated statements of operations and $4,137 thousand were
`capitalized as deferred financing costs or debt discount on the condensed consolidated balance sheet. The JHP
`Acquisition-related transaction costs were comprised of bank fees ($10,388 thousand), legal fees ($1,505 thousand), and
`other fees ($457 thousand). The excess of the purchase price (consideration transferred) over the estimated amounts of
`identifiable assets and liabilities of JHP as of the effective date of the JHP Acquisition was allocated to goodwill, as part of
`the Par Pharmaceutical segment, in accordance with ASC 805. The purchase price allocation is subject to completion of
`our analysis of the fair value of the assets and liabilities of JHP as of the effective date of the JHP Acquisition.
`Accordingly, the purchase price allocation below is preliminary and will be adjusted upon completion of the final valuation.
`These adjustments could be material. Specific provisional areas include preliminary amounts for inventories, including
`related step-up to fair value; property, plant and equipment; intangible assets related to trade name, developed products and
`in-process research and development products; and goodwill. The final valuation is expected to be completed as soon as
`practicable but no later than one year from the consummation of the acquisition on February 20, 2014. The establishment of
`the fair value of the consideration for an acquisition, and the allocation to identifiable tangible and intangible assets and
`liabilities, requires the extensive use of accounting estimates and management judgment. We believe the fair values
`assigned to the assets acquired and liabilities assumed are based on reasonable estimates and assumptions based on data
`currently available.
`The sources and uses of funds in connection with the JHP Acquisition are summarized below ($ in thousands):
`
`Sources:
`Uses:
`
`395,000
`Cash purchase of equity
` $
`
`Senior secured term loan
`110,000
`Transaction costs
`
`
`Sponsor equity contribution
`1,133 (a) Accrued interest on Company debt
`
`
`Company cash on hand
`506,133
` $
`Total use of funds
`
`Total source of funds
`
`
`
`
`
`(a) Adjusted to reflect the finalization of working capital adjustments noted above.
`
`
` $
`
`
` $
`
`
`
`487,429 (a)
`12,350
`6,354
`506,133
`
`
`
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`Fair Value Estimate of Assets Acquired and Liabilities Assumed
`The purchase price of JHP has been allocated on a preliminary basis to the following assets and liabilities ($ in
`thousands):
`
`
`Cash and cash equivalents
`Accounts receivable, net
`Inventories
`Prepaid expenses and other current assets
`Property, plant and equipment
`Intangible assets
`Other long-term assets, net
`
`Total identifiable assets
`
`Accounts payable
`Accrued expenses and other current liabilities
`Deferred tax liabilities
`Other long-term liabilities
`
`Total liabilities assumed
`
`Net identifiable assets acquired
`
`Goodwill
`
`Net assets acquired
`
` As of February 20, 2014
` $
`9,204
`
`5,413
`
`33,701
`
`2,721
`
`73,579
`
`283,500
`
`2,258
`
`
`
`
`
`
`
`
`
`
`
`
`
`
` $
`
`410,376
`
`13,796
`1,781
`63,631
`121
`
`79,329
`
`331,047
`
`156,382
`
`487,429
`
`Approximately $20 million of the goodwill identified above and recorded on the condensed consolidated balance
`sheet as of September 30, 2014 will be deductible for income tax purposes.
`
`Supplemental Pro forma Information (unaudited)
`The following unaudited pro forma information for the nine-month periods ended September 30, 2014, and
`September 30, 2013 assumes the JHP Acquisition occurred as of January 1, 2013. The pro forma information is not
`necessarily indicative either of the combined results of operations that actually would have been realized had the JHP
`Acquisition been consummated during the periods for which pro forma information is presented, nor is it intended to be a
`projection of future results or trends.
`
`
`
`
`
`
`
`
`
`Nine months ended
`
`
`(In thousands)
`September 30, 2014
`September 30, 2013
`939,668 $
`901,910
` $
`Total revenues
`(93,617) $
`(90,456)
` $
`Loss from continuing operations
`These amounts have been calculated after adjusting for the additional expense that would have been recorded
`assuming the fair value adjustments to long-lived assets ($205,070 thousand) and inventory ($9,031 thousand) had been
`applied on January 1, 2013, and the debt incurred as a result of the JHP Acquisition ($395,000 thousand) had been
`outstanding since January 1, 2013, along with the related repricing of the Term Loan Facility (as defined in Note 15,
`"Debt"), together with the consequential tax effects.
`Pro forma loss from continuing operations for the nine-month period ended September 30, 2014 was adjusted to
`exclude $8,213 thousand of JHP Acquisition-related costs incurred in 2014 with the consequential tax effects. These costs
`were primarily bank fees, accounting fees, and legal fees. Pro forma loss from continuing operations for the nine-month
`period ended September 30, 2013 was adjusted to include the JHP Acquisition-related costs with the consequential tax
`effects. Pro forma loss from continuing operations for the nine-month periods ended September 30, 2014 and 2013 have
`been adjusted to exclude certain JHP historical amounts such as intangible asset amortization.
`
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`Note 4 – Acquisition of Divested Products from the Watson/Actavis Merger:
`
`In connection with the merger of Watson Pharmaceuticals, Inc. and Actavis Group on November 6, 2012 (the
`“Watson/Actavis Merger”), Par acquired the U.S. marketing rights to five generic products that were marketed by Watson or
`Actavis, as well as eight Abbreviated New Drug Applications (“ANDA”) awaiting regulatory approval, and a generic product
`in late-stage development, for $110 million. Par also acquired a number of related supply agreements, each with a term of
`three years. The purchase price was paid in cash and funded from our cash on hand.
`The acquisition was accounted for as a business combination and a bargain purchase under ASC 805. The
`purchase price of the acquisition was allocated to the assets acquired, with the excess of the fair value of assets acquired
`over the purchase price recorded as a gain. The gain was mainly attributed to the FTC-mandated divestiture of products by
`Watson and Actavis in conjunction with the approval of the related Watson/Actavis Merger.
`
`Note 5 – Edict Acquisition:
`On February 17, 2012, through Par Pharmaceutical, Inc., our wholly-owned subsidiary, we completed our
`acquisit