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`10-Q 1prx-20150331x10q.htm10-Q
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, DC 20549
`
`FORMlO-Q
`QUARTERLY REPORT PURSUANT TO SECTION 13OR15(d)
`OF THE SECURITIES EXCHANGE ACT OF 1934
`
`For the quarterly period ended: March 31, 2015
`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.RS. Employer
`Identification No.)
`
`One Ram Ridge Road, Chestnut Ridge, New York 10977
`(Address of principal executive offices)
`Registrant's telephone number, including area code: (845) 573-5500
`
`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 Im No D
`
`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 l&I No
`D
`
`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 D Accelerated filer D Non-accelerated filer l&I
`
`Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 ofthe Exchange Act).
`Yes D No Im
`
`Number of shares of the Registrant's common stock outstanding as of May 11, 2015: 100
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`TABLE OF CONTENTS
`PAR PHARMACEUTICAL COMPANIES, INC.
`FORM 10-Q
`FOR THE QUARTER ENDED MARCH 31,2015
`
`PART I
`
`FINANCIAL INFORMATION
`
`Item 1.
`
`Condensed Consolidated Financial Statements <unaudited)
`
`Condensed Consolidated Balance Sheets as of March 31 2015 and
`December 31. 2014
`
`1
`
`Condensed Consolidated Statements of Operations for the three months ended March 31. 2015
`andMarch31.2014
`
`~
`
`Condensed Consolidated Statements of Comprehensive Income [&ss) for the three months
`ended March 31. 2015 and March 31. 2014
`
`Condensed Consolidated Statements of Cash Flows forthe three months
`ended March 31. 2015 and March 31. 2014
`
`Notes to Condensed Consolidated Financial Statements
`
`ltem2.
`
`Management's Discussion and Analysis ofFinapcial Condition
`and Results of Operations
`
`Item 3.
`
`Ouantitatiye and Oµalitatiye Disclosures about Market Risk
`
`~
`
`'l
`
`ltem4.
`
`Controls and Procedures
`
`PART II
`
`OTHER INFORMATION
`
`Item 1.
`
`Legal Proceedings
`
`Item IA. Risk Factors
`
`Item6.
`
`Exhibits
`
`SIGNATURES
`
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`ITEM 1. CONDENSED CON SO LIDA TED FINANCIAL STATEMENTS (UNAUDITED)
`ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
`
`3
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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
`Accounts receivable, net
`Inventories
`Prepaid expenses and other current assets
`Defurred income tax assets
`Total current assets
`
`Property, plant and equipment, net
`Intangible assets, net
`Goodwill
`Other assets
`
`Total assets
`
`LIABILffiES AND STOCKHOLDERS' EOUITY
`Current liabilities:
`Current portion oflong-tenn debt
`Accounts payable
`Payables due to distribution agreement partners
`Accrued salaries and employee benefits
`Accrued government pricing liabilities
`Accrued legal fues
`Accrued interest payable
`Accrued expenses and other current liabilities
`Total current liabilities
`
`Long-term liabilities
`Non-<:urrent defurred tax liabilities
`Long-term debt, less current portion
`Commitments and contingencies
`
`$
`
`$
`
`$
`
`March 31,
`
`2015
`
`December 31,
`
`2014
`
`$
`
`$
`
`$
`
`185,880
`73,833
`166,761
`26,076
`68,057
`520,607
`
`223,748
`1,006,177
`1,036,958
`88,445
`2,875,935
`
`18,753
`81,793
`44,818
`17,517
`23,942
`12,839
`16,563
`19,556
`235,781
`
`244,440
`158,732
`154,687
`28,255
`66,936
`653,050
`
`217,314
`1,040,753
`1,012,108
`83,909
`3,007,134
`
`14,503
`79,987
`53,213
`32,246
`42,647
`4,864
`7,529
`42,815
`277,804
`
`21,910
`233,286
`2,318,510
`
`17,004
`247,191
`1,904,069
`
`Stockholders' equity:
`Common stock, $0.001 par value per share, 100 shares authorized and issued
`Additional paid-in capital
`Accumulated deficit
`Accumulated other comprehensive loss
`Total stockholders' equity
`Total liabilities and stockholders' equity
`
`295,476
`(223,648)
`(5,380)
`66,448
`2,875,935
`
`$
`
`808,647
`(243,933)
`(3,648)
`561,066
`3,007,134
`
`$
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`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`4
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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
`Operating income (loss)
`Interest income
`Interest expense
`Loss on debt extinguishment
`Income (loss) befure provision (benefit) fur income taxes
`Provision (benefit) for income taxes
`Net income (loss)
`
`Three monthll ended
`
`March JI,
`2015
`
`March JI,
`2014
`
`$
`
`353,119 $
`6,125
`359,244
`165,379
`48,792
`214,171
`145,073
`
`26,850
`56,386
`
`(25)
`363
`83,574
`61,499
`17
`(29,511)
`
`32,005
`11,720
`20,285 $
`
`$
`
`282,833
`6,251
`289,084
`150,668
`44,102
`194,770
`94,314
`
`34,624
`50,941
`41,758
`
`1,146
`128,469
`(34,155)
`14
`(25,467)
`(3,989)
`(63,597)
`(24,232)
`(39,365)
`
`The accompanying notes are an integral part of these condensed consolidated :financial statements.
`
`5
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`PAR PHARMACEUTICAL COMPANIES, INC.
`CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
`(In Thousands)
`(Unaudited)
`
`Net income (loss)
`Other comprehensive loss, net of tax :
`Unrealized loss on marketable securities, net of tax
`Unrealized loss on cash flow hedges, net of tax
`Less: reclassification adjustment for realized losses included in net income (loss), net of tax
`Other comprehensive loss
`Comprehensive income (loss)
`
`Three months ended
`
`March31,
`2015
`20,285 $
`
`March31,
`2014
`(39,365)
`
`$
`
`(2,666)
`934
`(1,732)
`18,553
`
`$
`
`$
`
`(6)
`(1,212)
`635
`(583)
`(39,948)
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`6
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`PAR PHARMACEUTICAL COMPANIES, INC.
`CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
`(In $Thousands)
`(Unaudited)
`
`Three months ended
`March 31,
`2014
`
`March31,
`
`2015
`
`Cash Dows from operating ac-.S:
`
`Net income (loss)
`Adjustments to reconcile net income (loss) to net cash provided by operating activities:
`Deferred income taxes
`
`Depreciation and amortization
`
`Non-cash interest expense
`
`Cost of goods on acquired inventory step up
`
`Intangible asset impairment
`
`Allowances against accounts receivable
`
`Share-based compensation expense
`
`Loss on debt extinguishment
`Other, net
`Changes in assets and liabilities:
`
`Decrease in accounls receivable
`Increase in inventories
`
`Decrease (increase) in prepaid expenses and other assets
`(Decrease) increase in accounls payable, accrued expenses and o1her liabilities
`Decrease in payables due to distribution agreement partners
`
`Decrease in income taxes receivable/payable
`
`N e1 cash provided by operating activities
`Cash Dows from investing activities:
`Capital expenditures
`
`Business acquisitions, net of cash acquired
`
`Purchases of in1angibles
`
`Proceeds from available for sale marketable debt securities
`Net cash used in investing activities
`
`Cash Dows from rmancing aC-..:
`
`Proceeds from debt
`
`Paymenls of debt
`
`(Paymenls) proceeds from equicy transactions, net
`Debt issuance costs
`Cash dividend paid
`Dividend-equivalent payments to Holdings stock option holders, net of tax
`Costs for issuance of capital
`Ne1 cash (used in) provided by financing activities
`
`Ne1 (decrease) increase in cash and cash equivalents
`
`Cash and cash equivalents at beginning of period
`
`Cash and cash equivalents at end of period
`
`$
`
`20,285
`
`$
`
`(39,365)
`
`(14,539)
`
`57,082
`
`2,742
`
`(14,175)
`
`5,213
`
`109
`
`99,373
`
`(11,443)
`
`3,455
`
`(36,733)
`
`(8,395)
`
`(2,767)
`
`100,207
`
`(8,492)
`
`(34,793)
`
`(8,000)
`
`(51,285)
`
`422,875
`
`(4,688)
`
`(716)
`
`(6,069)
`
`(494,300)
`
`(23,367)
`
`(l,217)
`
`(107,482)
`
`(58,560)
`
`244,440
`
`$
`
`185,880
`
`$
`
`(28,036)
`
`50,663
`
`2,686
`
`2,986
`
`41,758
`
`13,520
`
`942
`
`3,989
`
`(53)
`
`41,997
`
`(20,984)
`
`(1,343)
`
`36,386
`
`(12,102)
`
`(3,905)
`
`89,139
`
`(13,212)
`
`(478,647)
`
`1,000
`
`(490,859)
`
`525,541
`
`(140,191)
`
`110,000
`
`(3,150)
`
`492,200
`
`90,480
`
`130,080
`
`220,560
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`Supplemental disclosure of cash flow information:
`Cash paid during the period for:
`Income 1axes, net
`
`Interest paid
`
`Non-cash transactions:
`Capital expenditures incurred but not yet paid
`
`$
`
`$
`
`$
`
`15,829
`
`17,735
`
`$
`7,721
`=======
`$
`13,631
`
`556
`
`$
`
`731
`
`The accompan;ying notes are an integral part of these condemed cOllSOiidated financial statements.
`
`7
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`PAR PHARMACEUTICAL COMPANIES, INC.
`NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
`March 31, 2015
`(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),
`manufuctures and distributes generic pharmaceuticals in the United States. Our branded products division, Par Specialty
`Pharmaceuticals ("Par Specialty"), 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-0wned subsidiary of Sky Growth Holdings Corporation ("Holdings"). Holdings changed its
`name to Par Pharmaceutical Holdings, Inc. in March 2015. 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 ofHoldings (see Note 2, "Sky Growth Merger").
`
`Note 1 - Basis of Presentation and Recendy Issued Accounting Standards:
`
`The accompanying condensed consolidated financial statements at March 31, 2015 and for the three-month periods ended
`March 31, 2015 and March 31, 2014 are unaudited. In the opinion of management, however, such statements include all normal
`recurring adjustments necessary to present fuirly the information presented therein. The condensed consolidated balance sheet at
`December 31, 2014 was derived from the Company's audited consolidated financial statements included in our 2014 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 2014 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 StanJ/ards
`In May 2014, the Financial Accounting Standards Board ("FASB ") issued Accounting Standards Update 2014-09,
`Revenue from Contracts with Customers (Topic 606) (ASU No. 2014--09). This new standard will replace all current U.S. GAAP
`guidance on this topic and eliminate all industry-specific guidance. In April 2015, the FASB issued an exposure draft proposing to
`defer the effective date of the new revenue standard for interim and annual periods beginning after December 15, 201 7 (previously
`December 15, 2016). The proposal will allow public entities to adopt the new standard as early as the original public entity
`effective date (i.e. annual reporting periods beginning after December 15, 2016 and interim periods therein). Early adoption prior
`to that date will not be permitted. ASU 2014--09 allows for either full retrospective or modified retrospective adoption. The
`Company is evaluating the transition method that will be elected and the potential effects of adopting the provisions of ASU No.
`2014-09.
`
`In March 2015, the FASB issued ASU 2015-03, "'Interest -Imputation oflnterest (Subtopic 835-30): Simplifying the
`Presentation of Debt Issuance Costs" ("ASU 2015-03 ")intended to simplify the presentation of debt issuance costs. These
`amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
`deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement
`guidance for debt issuance costs are not affected by the amendments in this ASU. The pronouncement is effective for public
`business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within
`those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after
`December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted for
`financial statements that have not been previously issued. We currently do not anticipate a material impact of ASU 2015--03 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-0wned
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`subsidiaries were fonned by affiliates of TPG solely for the pwposes of completing the Merger and the related transactions. At the
`time of the Merger, each share ofourcommon 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 subsidiruy ofHoldings.
`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
`
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`liabilities assumed at fuir 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 ofTPG (the "Manager"). Pursuant to the agreement, in exchange for on-going consulting and management
`advisory services, the Manager receives an annual monitoring fue paid quarterly equal to 1 % ofEBITDA as defined under the credit
`agreement for the Senior Credit Facilities (as defined in Note 14 - Debt"). There is an annual cap of$4.0 million for this fue. 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$1.0 million and $0.9 million for consulting and management advisory service
`fues which are included in selling, general and administrative expenses in the condensed consolidated statement of operations for
`the three months ended March 31,2015 and 2014.
`
`Note 3 - Par Sterile Acquisition:
`On February 20, 2014, the Company completed its acquisition ofJHP 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 "Par
`Sterile Acquisition"). The consideration for the Par Sterile Acquisition consisted of$487.0 million in cash, after finalization of
`certain customary working capital adjustments. The Company financed the Par Sterile Acquisition with proceeds received in
`connection with the debt financing provided by third party lenders of$395.0 million and an equity contribution of$ I I 0.0 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 Par Sterile Acquisition 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.
`
`JHP operated principally through its operating subsidiary, JHP Pharmaceuticals, LLC, which was renamed Par Sterile
`Products, LLC ("Par Sterile") subsequent to the Par Sterile Acquisition. We continue to operate Par Sterile as a specialty
`pharmaceutical company developing and manufacturing sterile injectable products. Par Sterile's products are primarily sold
`through wholesalers, often via an arrangement with a group purchasing organization, prior to being dispensed at hospitals or
`directly administered by physicians. 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(cid:173)
`scale clinical through large-scale commercial products.
`
`The operating results of Par Sterile for the three months ended March 31, 2015 are included in the accompanying
`condensed consolidated statement of operations as part of the Par Pharmaceutical segment, reflecting total revenues of$66.6
`million. Par Sterile's contribution to the overall Par Pharmaceutical segment's operating income is not tracked separately. The
`condensed consolidated balance sheet as ofMarch 31, 2015 reflects the acquisition, including goodwill, which represents Par
`Sterile's workforce expertise in research and development, marketing and manufacturing.
`
`The 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 acquisition date and that the fuir 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 acquisition. The process for estimating the fair values ofIPR&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 transfurred and were expensed as incurred. The
`acquisition and financing transaction costs totaled $12.4 million of which $8.2 million were included in operating expenses as
`selling, general and administrative expenses on the condensed consolidated statements of operations and $4.1 million were
`capitalized as defurred financing costs or debt discount on the consolidated balance sheet. The acquisition-related transaction costs
`were comprised ofbank fees ($10.4 million), legal fues ($1.5 million), and otherfues ($0.5 million). The excess of the purchase price
`(consideration transfurred) over the estimated amounts of identifiable assets and liabilities of Par Sterile as of the effective date of
`the acquisition was allocated to goodwill, as part of the Par Pharmaceutical segment, in accordance with ASC 805. The purchase
`price allocation was finalized with the completion ofouranalysis of the fuirvalue of the assets and liabilities of Par Sterile as of the
`effective date of the acquisition. The establishment of the fair value of the consideration for an acquisition, and the allocation to
`identifiable tangible and intangible assets and liabilities, requires the extensive use of accounting estimates and management
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`judgment. We believe the filir values assigned to the assets acquired and liabilities assumed are based on reasonable estimates and
`assumptions.
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`The sources and uses of funds in connection with the Par Sterile Acquisition are summarized below($ in thousands):
`
`Sources·
`
`Senior secured term loan
`Sponsor equity contribution
`Company cash on hand
`
`Total source of funds
`
`$
`
`llw;.
`395,000
`Cash purchase of equity
`Transaction costs
`110,000
`1,133 (a) Accrued interest on Company debt
`- - - - - -
`$
`506,133
`
`Total use of funds
`
`$
`
`$
`
`487,429 (a)
`12,350
`6,354
`
`506,133
`
`(a) Adjusted to reflect the finalization ofwmking capital adjustments noted above.
`
`Fair Value Estimate of Assets Acquired and Liabilities Assumed
`
`The purchase price of Par Sterile has been allocated 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
`
`Total identifiable assets
`
`Accounts payable
`Accrued expenses and other liabilities
`Deferred tax liabilities
`
`Total liabilities assumed
`
`Net identifiable assets acquired
`
`Goodwill
`
`Net assets acquired
`
`As of February 20, 2014
`$
`9,204
`5,413
`35,959
`10,583
`73,579
`283,500
`
`418,238
`
`13,796
`1,902
`71,493
`
`87,191
`
`331,047
`
`156,382
`
`$
`
`487,429
`
`Approximately $20.0 million of the goodwill identified above and recorded on the condensed consolidated balance sheet
`as of March 31, 2015 has been and will be deductible forincome tax purposes.
`
`Supplemental Pro Jonna Irifonnation (unaudited)
`
`The following unaudited pro forma information for the quarter ended March 31, 2014 assumes the Par Sterile Acquisition
`occurred as of January 1, 2013. The unaudited proforma results reflect certain adjustments related to past operating performance,
`the impact of the debt assumed, acquisition costs and acquisition accounting adjustments, such as increased depreciation and
`amortization expense based on the fair valuation of assets acquired and the related tax effects. The proforma information is not
`necessarily indicative either of the combined results of operations that actually would have been realized had the Par Sterile
`Acquisition been consummated during the period for which pro forma information is presented, or is it intended to be a projection
`of future results or trends.
`
`(In thousands)
`
`Three months ended
`
`Mareh 31, 2014
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`Total revenues
`Loss from continuing operations
`
`Note 4 - Par Biosciences Acquisition:
`
`PRX- 2015.03.31 -10Q
`
`$
`$
`
`308,146
`(29,476)
`
`On January 14, 2015, we completed the acquisition of a privately-held Chennai, India-based clinical research organization
`("CRO"), which we renamed Par Biosciences Private Limited ("Par Biosciences"), for $10.0 million. The operating results of Par
`
`10
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`PRX- 2015.03.31 - 100
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`Biosciences were included in our condensed consolidated financial results from the date ofacquisition. The purchase price was
`paid in cash and funded from our cash on hand.
`The operating results of Par Biosciences from January 14, 2015 through March 31, 2015 are included in the accompanying
`condensed consolidated statement of operations as part of the Par Pharmaceutical segment, reflecting an immaterial impact on
`income befure taxes. The condensed consolidated balance sheet as ofMarch 31, 2015 reflects the acquisition, including goodwill,
`which represents Par Biosciences' workfurce expertise in research and development.
`
`The acquisition has been accounted fur 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 acquisition date. The process fur estimating the fair values of certain identifiable assets requires the use of
`significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, and
`estimating the costs. Under ASC 805, transaction costs are not included as a component of consideration transferred and were
`expensed as incurred. The acquisition-related transaction costs incurred for the quarter ended March 31, 2015 totaled $0 .5 million,
`which were included in operating expenses as selling, general and administrative on the condensed consolidated statements of
`operations. The excess of the purchase price (consideration transferred) over the estimated amounts of identifiable assets and
`liabilities of Par Biosciences as of the effective date of the acquisition was allocated to goodwill, as part of the Par Pharmaceutical
`segment, in accordance with ASC 805. The purchase price allocation is subject to completion ofour analysis of the fair value of the
`assets and liabilities as of the effective date of the acquisition. Accordingly, the purchase price allocation below is preliminary and
`will be adjusted upon completion of the final valuation. These adjustments are not expected to be material. The final valuation is
`expected to be completed as soon as practicable but no later than one year from the consummation of the acquisition. The
`establishment of the fair value of the consideration fur an acquisition, and the allocation to identifiable tangible and intangible
`assets and liabilities, requires the extensive use of accounting estimates and management judgment. We believe the fair values
`assigned to the assets acquired and liabilities assumed are based on reasonable estimates and assumptions based on data currently
`available.
`
`Consideration Transferred
`The acquisition-date fair value of the consideration transferred consisted of the fullowing items($ in thousands):
`
`Cash paid for equity
`Deferred purchase price liabilities
`Total consideration
`
`$
`
`$
`
`8,761
`1,231 (I)
`9,992
`
`(1) Deferred purchase price liabilities represent two subsequent deferred payments due on the first and third anniversary of the
`closing date.
`
`Fair Value Estimate of Assets Acquired and Liabilities Assumed
`
`The purchase price of Par Biosciences has been allocated on a preliminary basis to the following assets and liabilities($ in
`thousands):
`
`Cash and cash equivalents
`Prepaid expenses and other assets
`Property, plant and equipment
`
`Total identifiable assets
`
`Accounts payable I accrued expenses and other liabilities
`
`Total liabilities assumed
`
`Net identifiable assets acquired
`
`As of January 14, 2015
`$
`72
`213
`3,370
`
`3,655
`
`605
`
`605
`
`3,050
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`Goodwill
`
`Net assets acquired
`
`PRX- 2015.03.31 -10Q
`
`11
`
`6,942
`
`9,992
`
`$
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