NOTE 4 — Acquisitions and Other Agreements

During the three months ended March 31, 2015 and the year ended December 31, 2014, the Company acquired material assets and businesses. The pro forma results of the businesses acquired that materially impacted the reported results of the Company are as follows (unaudited; $ in millions except per share information):


	Three Months Ended March 31, 2015
	As reported			Allergan Acquisition		Pro Forma
Net Revenue	$	4,234.2		$	1,523.0	$	5,757.2
Net (loss)/income attributable to ordinary shareholders	$	(535.2	)	$	45.7	$	(489.5	)
(Loss) per share
Basic	$	(1.85	)			$	(1.25	)
Diluted	$	(1.85	)			$	(1.25	)


	Three Months Ended March 31, 2014
	As reported		Allergan Acquisition			Forest Acquisition			Pro Forma
Net Revenue	$	2,655.1	$	1,643.0		$	1,150.7		$	5,448.8
Net (loss)/income attributable to ordinary shareholders	$	96.5	$	(1,020.6	)	$	(347.7	)	$	(1,271.8	)
(Loss) per share
Basic	$	0.56							$	(3.09	)
Diluted	$	0.55							$	(3.09	)

Pro forma (loss) per share includes the impact of share issuances as part of the respective acquisitions.

2015 Transactions

The following are the material transactions that were completed in the three months ended March 31, 2015.

Allergan Acquisition

On March 17, 2015, Actavis plc acquired Allergan, Inc. (“Allergan”) for approximately $77.0 billion including outstanding indebtedness assumed of $2.2 billion, cash consideration of $40.1 billion and equity consideration of $34.7 billion, which includes outstanding equity awards (the “Allergan Acquisition”). Under the terms of the agreement, Allergan shareholders received 111.2 million Actavis plc ordinary shares, 7.0 million of Actavis plc non-qualified stock options and 0.5 million Actavis plc share units. The addition of Allergan’s therapeutic franchises in ophthalmology, neurosciences and medical aesthetics/dermatology/plastic surgery will complement Actavis’ existing central nervous system, gastroenterology, women’s health and urology franchises. The combined company will also benefit significantly from Allergan’s global brand equity and consumer awareness of key products, including Botox^® and Restasis^®. The transaction also expands our presence and market and product reach across many international markets, with strengthened commercial positions across Canada, Europe, Southeast Asia and other high-value growth markets, including China, India, the Middle East and Latin America.

The consolidated results of the Company include the impact of the Allergan Acquisition from March 17, 2015, including the following select operating results for the three months ended March 31, 2015 ($ in million):


	Three Months Ended March 31, 2015
Net revenues	$	258.4
Cost of sales (excludes amortization and impairment of acquired intangibles including product rights)		117.0
Selling and marketing		149.7
General and administrative		407.9

Operating expenses relating to the Allergan Acquisition include the financing, acquisition accounting valuation-related items, including stock-based compensation and restructuring charges associated with the acquisition.

Assets Acquired and Liabilities Assumed at Fair Value

The transaction has been accounted for using the acquisition method of accounting. This method requires that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. As of March 31, 2015, certain amounts relating to the valuation of intangible assets, inventory, property, plant and equipment, SRA reserves and tax related matters have not been finalized. The finalization of these matters may result in changes to goodwill. The Company expects to finalize such matters in 2015.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):


	Amounts
Cash and cash equivalents	$	5,424.5
Accounts receivable		962.7
Inventories		1,223.2
Other current assets		318.8
Property, plant and equipment, net		1,202.5
Other long-term assets		189.3
IPR&D intangible assets		11,010.0
Intangible assets		45,050.5
Goodwill		26,368.5
Current liabilities		(1,212.2	)
Contingent consideration		(379.1	)
Deferred tax liabilities, net		(12,512.9	)
Other taxes payable		(82.4	)
Other long-term liabilities		(622.0	)
Outstanding indebtedness		(2,183.5	)

	$	74,757.9

Consideration

The total consideration for the Allergan Acquisition of $74.8 billion is comprised of the equity value of shares that were outstanding and vested prior to March 17, 2015 of $33.9 billion, the portion of outstanding equity awards deemed to have been earned as of March 17, 2015 of $0.8 billion and cash of $40.1 billion. The portion of outstanding equity awards deemed not to have been earned of $843.1 million as of March 17, 2015 will be expensed over the remaining future vesting period, including $268.6 million in the three months ended March 31, 2015.

Inventories

The fair value of inventories acquired included an acquisition accounting fair market value step-up of $928.5 million. In the three months ended March 31, 2015, the Company recognized $71.0 million, as a component of cost of sales as the inventory acquired on March 17, 2015 was sold to the Company’s customers. Included in finished goods and work-in process (“WIP”) inventory as of March 31, 2015, which includes the impact of foreign currency, was $193.4 million and $679.1 million, respectively, relating to the remaining fair value step-up associated with the Allergan Acquisition.

IPR&D and Intangible Assets

IPR&D intangible assets represent the value assigned to acquired R&D projects that, as of the acquisition date, had not established technological feasibility and had no alternative future use. The IPR&D intangible assets are capitalized and accounted for as indefinite-lived intangible assets and will be subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project and launch of the product, the Company will make a separate determination of the estimated useful life of the IPR&D intangible asset and the related amortization will be recorded as an expense over the estimated useful life (“IPR&D Acquisition Accounting”).

The estimated fair value of the IPR&D and identifiable intangible assets was determined using the “income approach,” which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each asset or product (including net revenues, cost of sales, R&D costs, selling and marketing costs, working capital/asset contributory asset charges and other cash flow assumptions), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, the potential regulatory and commercial success risks, competitive trends impacting the asset and each cash flow stream as well as other factors (the “IPR&D and Intangible Asset Valuation Technique”).

The fair value of the IPR&D intangible assets was determined by the IPR&D and Intangible Asset Valuation Technique. The discount rate used to arrive at the present value at the acquisition date of CMPs was 10.0% and for IPR&D intangible ranged from 10.0% to 11.0% to reflect the internal rate of return and incremental commercial uncertainty in the cash flow projections. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.

The following table identifies the summarized amounts recognized and the weighted average useful lives using the economic benefit of intangible assets:


	Amount recognized as of the acquisition date		Weighted average useful lives (years)
*Definite lived assets*
Restasis ^®	$	3,970.0		4.0
Refresh^® / Optive ^®		2,720.0		7.6
Other Eye Care Products		6,690.0		4.2
Botox ^®		22,570.0		8.0
Aczone ^®		160.0		1.3
Other Skin Products		820.0		5.0
Other Aesthetics		6,370.0		6.0

Total CMP		43,300.0		6.7


Trade name		700.0		4.5
Customer relationships		1,050.5		3.4


Total definite lived assets		45,050.5		6.6


*In-process research and development*
Eye Care		6,460.0
Botox ^®		810.0
Aesthetics		2,620.0
Other		1,120.0

		11,010.0



Total Intangible Assets	$	56,060.5

Goodwill

Among the primary reasons the Company acquired Allergan and factors that contributed to the preliminary recognition of goodwill were to expand the Company’s product portfolio, and to acquire certain benefits from the Allergan pipeline and the expectation of certain synergies. The goodwill recognized from the Allergan Acquisition, which includes the increase in the purchase price resulting from the movement in Actavis plc’s share price from the date of announcing the deal, until the date of acquisition, is not deductible for tax purposes.

Contingent Consideration

Additional consideration is conditionally due upon the achievement of certain milestones in respect to the development and commercialization of the products as well as reaching certain sales targets. The Company estimated the fair value of the contingent consideration to be $379.1 million using a probability weighting approach that considered the possible outcomes based on assumptions related to the timing and probability of the product launch date, discount rates matched to the timing of first payment, and probability of success rates and discount adjustments on the related cash flows.

Retirement Plans

The Company acquired post-retirement plans as part of the Allergan Acquisition including defined benefit pensions in the United States and Europe which had a net liability balance of $305.9 million. As of March 17, 2015, the Allergan pension plans had assets with a fair value of $1,042.0 million, which includes cash and cash equivalents of $13.6 million, equity securities of $480.1 million, and fixed income securities of $548.3 million. In addition, the Company acquired other benefit obligations which had an acquisition date fair value of assets of $117.1 million and an acquisition date fair value of liabilities of $120.0 million.

Deferred Tax Liabilities, net

Deferred tax liabilities, net, include the impact resulting from identifiable intangible assets and inventory fair value adjustments. These adjustments create excess book basis over the tax basis which is multiplied by the statutory tax rate for the jurisdiction in which the deferred taxes exist.

Acquisition-Related Expenses

As a result of the acquisition, the Company incurred the following transaction and integration costs in the three months ended March 31, 2015 ($ in millions):


	Three Months Ended March 31, 2015
Cost of sales
Stock-based compensation acquired for Allergan employees	$	6.9
Acquisition, integration and restructuring related charges	$	14.5
Research and development
Stock-based compensation acquired for Allergan employees	$	55.5
Acquisition, integration and restructuring related charges	$	60.6
Selling and marketing
Stock-based compensation acquired for Allergan employees	$	23.2
Acquisition, integration and restructuring related charges	$	62.2
General and administrative
Stock-based compensation acquired for Allergan employees	$	183.0
Acquisition related expenditures	$	65.5
Acquisition, integration and restructuring related charges	$	130.6
Other (expense) income
Bridge loan facilities expense	$	(263.0	)
Interest rate lock	$	31.0

Total transaction and integration costs	$	834.0

Respiratory Business

As part of the Forest Acquisition (defined below), we acquired certain assets that comprised a respiratory business. During the year ended December 31, 2014, we held for sale the respiratory assets of $734.0 million, including allocated goodwill to this unit of $309.1 million. On February 5, 2015, the Company announced the sale of its respiratory business to AstraZeneca plc (“AstraZeneca”) for consideration of $600.0 million upon closing, additional funds to be received for the sale of certain of our inventory to AstraZeneca and low single-digit royalties above a certain revenue threshold. AstraZeneca also paid Actavis an additional $100.0 million, and Actavis has agreed to a number of contractual consents and approvals, including certain amendments to the ongoing collaboration agreements between AstraZeneca and Actavis (the “Respiratory Sale”). The transaction closed on March 2, 2015. As a result of the final terms of the agreement, in the quarter ended March 31, 2015, the Company recognized an incremental charge in cost of sales (including the acquisition accounting fair value mark-up of inventory) relating to inventory that will not be sold to AstraZeneca of $35.3 million. The Company also recognized a gain on the sale of the business of $33.5 million, which is included within other (expense) income.

Pharmatech

As part of the Forest Acquisition, the Company acquired certain manufacturing plants and contract manufacturing agreements within our Aptalis Pharmaceutical Technologies (“Pharmatech”) entities. In accordance with acquisition accounting, the assets were fair valued on July 1, 2014 as assets held in use, including market participant synergies anticipated under the concept of “highest and best use”. During the fourth quarter of 2014, the decision was made to hold these assets for sale as one complete unit, without integrating the unit and realizing anticipated synergies. During the year ended December 31, 2014, the Company recognized an impairment on assets held for sale of $189.9 million (the “Pharmatech Transaction”) which included a portion of goodwill allocated to this business unit. On April 1, 2015, the Company and TPG, a global private investment firm, completed the majority of the divestiture of the Pharmatech business.

Australia

During the first quarter of 2015, the Company entered into an agreement with Amneal Pharmaceuticals LLC to divest the Australian generics business for upfront consideration of $5.0 million plus future royalties, which closed on May 1, 2015 (the “Australia Transaction”). As a result of the agreement, the Company impaired intangible assets of $36.1 million, miscellaneous assets and goodwill allocated to the business of $2.5 million. The Company held for sale the remaining value of intellectual property and inventory.

Auden Mckenzie

On January 26, 2015, the Company announced that they have reached a definitive agreement, under which Actavis will acquire Auden Mckenzie Holdings Limited (“Auden”) for approximately £306.0 million in cash, plus a two-year royalty on a percentage of gross profits of one of Auden’s products. The acquisition will be accounted for as a business combination and is expected to close in the second quarter of 2015.

2014 Transactions

The following are the material transactions that were completed in the year ended December 31, 2014.

Durata Therapeutics Acquisition

On November 17, 2014, the Company completed its tender offer to purchase all of the outstanding shares of Durata Therapeutics, Inc. (“Durata”), an innovative pharmaceutical company focused on the development and commercialization of novel therapeutics for patients with infectious diseases and acute illnesses (the “Durata Acquisition”). Actavis purchased all outstanding shares of Durata, which were valued at approximately $724.5 million, including the assumption of debt. Additionally, there is one contingent value right (“CVR”) per share, entitling the holder to receive additional cash payments of up to $5.00 per CVR if certain regulatory or commercial milestones related to Durata’s lead product Dalvance™ are achieved. The CVR had an acquisition date fair value of $49.0 million.

Recognition and Measurement of Assets Acquired and Liabilities Assumed at Fair Value

The Durata Acquisition has been accounted for using the acquisition method of accounting. This method requires that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The following table summarizes the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date (in millions):


	Final Values as of March 31, 2015
Cash and cash equivalents	$	17.8
Inventory		21.0
IPR&D intangible assets		249.0
Intangible assets		480.0
Goodwill		75.8
Other assets and liabilities		(30.2	)
Contingent Consideration		(49.0	)
Deferred tax liabilities, net		(39.9	)
Outstanding indebtedness		(67.0	)

Net assets acquired	$	657.5

IPR&D and Intangible Assets

The fair value of the IPR&D and CMP intangible assets was determined using the IPR&D and Intangible Asset Valuation Technique. The discount rate used to arrive at the present value of CMPs was 9.5% and for IPR&D intangible assets was 10.5% to reflect the internal rate of return and incremental commercial uncertainty in the cash flow projections. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.

Contingent Consideration

At the time of the acquisition, additional consideration was conditionally due to the seller based upon the approval of Dalvance^TM in Europe, the approval of a single dose indication and the product reaching certain sales milestones. The Company estimated the acquisition accounting fair value of the contingent consideration to be $49.0 million using a probability weighted approach that considered the possible outcomes based on assumptions related to the timing and probability of the product launch date, discount rates matched to the timing of the payment, and probability of success rates and discount adjustments on the related cash flows. On March 2, 2015, the Company announced that the European Commission has granted Actavis’ subsidiary Durata Therapeutics International B.V., marketing authorization for Xydalba™ (dalbavancin) for the treatment of acute bacterial skin and skin structure infections (ABSSSI) in adults. The approval triggered the first CVR payment in the quarter ended March 31, 2015 of $30.9 million. The difference between the fair value of the CVR on the date of acquisition of $24.5 million and the payment made of $30.9 million, or $6.4 million, was recorded as an operating expense in the quarter ended March 31, 2015.

Furiex Acquisition

On July 2, 2014, the Company completed an agreement to acquire Furiex Pharmaceuticals, Inc. (“Furiex”) in an all-cash transaction (the “Furiex Acquisition”) valued at $1,156.2 million (including the assumption of debt) and up to approximately $360.0 million in a CVR that may be payable based on the designation of eluxadoline, Furiex’s lead product, as a controlled drug following approval (if any) which had an acquisition accounting fair value of $88.0 million on the date of acquisition (included in the value of $1,156.2 million).

Eluxadoline is a first-in-class, locally-acting mu opioid receptor agonist and delta opioid receptor antagonist for treating symptoms of diarrhea-predominant irritable bowel syndrome (IBS-d), a condition that affects approximately 28 million patients in the United States and Europe. The CVR payment is based on the status of eluxadoline, as a controlled drug following approval, if any, as follows:

•

If eluxadoline is determined to be a schedule III (C-III) drug, there will be no additional consideration for the CVR.

•

If eluxadoline is determined to be a schedule IV (C-IV) drug, CVR holders are entitled to $10 in cash for each CVR held.

•

If eluxadoline is determined to be a schedule V (C-V) drug, CVR holders are entitled to $20 in cash for each CVR held.

•

If eluxadoline is determined to not be subject to DEA scheduling, CVR holders are entitled to $30 in cash for each CVR held.

In connection with the close of the Furiex Acquisition, the Company further announced that it has closed the transaction related to the sale of Furiex’s royalties on Alogliptin and Priligy^® to Royalty Pharma for $408.6 million in cash consideration.

Contingent Consideration

Additional consideration is conditionally due to the seller based upon the status of eluxadoline as a controlled drug following approval, if any. The Company estimated the acquisition accounting fair value of the contingent consideration to be $88.0 million using a probability weighted approach that considered the possible outcomes based on assumptions related to the timing and probability of the product launch date, discount rates matched to the timing of the payment, and probability of success rates and discount adjustments on the related cash flows. The fair value as of March 31, 2015 is $88.5 million.

Forest Laboratories

On July 1, 2014, the Company acquired Forest Laboratories, Inc. (“Forest”) for $30.9 billion including outstanding indebtedness assumed of $3.3 billion, equity consideration of $20.6 billion, which includes outstanding equity awards, and cash consideration of $7.1 billion (the “Forest Acquisition”). Under the terms of the transaction, Forest shareholders received 89.8 million Actavis plc ordinary shares, 6.1 million Actavis plc non-qualified stock options and 1.1 million Actavis plc share units. Forest was a leading, fully integrated, specialty pharmaceutical company largely focused on the United States market. Forest marketed a portfolio of branded drug products and developed new medicines to treat patients suffering from diseases principally in the following therapeutic areas: central nervous system, cardiovascular, gastrointestinal, respiratory, anti-infective, and cystic fibrosis.

Assets Acquired and Liabilities Assumed at Fair Value

The transaction has been accounted for using the acquisition method of accounting. This method requires that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):


	Final Values as of March 31, 2015
Cash and cash equivalents	$	3,424.2
Accounts receivable		496.2
Inventories		1,455.8
Other current assets		261.2
Current assets held for sale		87.1
Property, plant and equipment, net		221.1
Other long-term assets		84.1
IPR&D intangible assets		1,362.0
Intangible assets		11,515.5
Goodwill		16,372.4
Current liabilities		(1,322.1	)
Deferred tax liabilities, net		(2,296.1	)
Other taxes payable		(618.4	)
Other long-term liabilities		(120.0	)
Outstanding indebtedness		(3,261.9	)

	$	27,661.1

Consideration

The total consideration for the Forest Acquisition of $27.7 billion is comprised of the equity value of shares that were outstanding and vested prior to July 1, 2014 of $20.0 billion, the portion of outstanding equity awards deemed to have been earned as of July 1, 2014 of $568.1 million and cash of $7.1 billion. The portion of outstanding equity awards deemed not to have been earned of $570.4 million as of July 1, 2014 will be expensed over the remaining future vesting period, including $57.9 million in the three months ended March 31, 2015.

Inventories

The fair value of inventories acquired included an acquisition accounting fair market value step-up of $1,036.3 million. In the three months ended March 31, 2015, the Company recognized $136.8 million, as a component of cost of sales as the inventory acquired on July 1, 2014 was sold to the Company’s customers in addition to a write-off associated with the Respiratory Sale. Included in inventory as of March 31, 2015 was $107.8 million, relating to the remaining fair value step-up associated with the Forest Acquisition.

Acquisition-Related Expenses

As a result of the Forest Acquisition, the Company incurred the following transaction and integration costs in the three months ended March 31, 2015 ($ in millions):


	Three Months Ended March 31, 2015
Cost of sales
Stock-based compensation acquired for Forest employees	$	1.2
Severance related charges		1.0
Research and development
Stock-based compensation acquired for Forest employees		16.0
Severance related charges		8.8
Selling and marketing
Stock-based compensation acquired for Forest employees		19.6
Severance related charges		16.8
General and administrative
Stock-based compensation acquired for Forest employees		21.1
Other integration charges		1.6
Severance related charges		11.4

Total transaction and integration costs	$	97.5

Western European Divestiture

During the year ended December 31, 2013, we held for sale our then current commercial infrastructure in France, Italy, Spain, Portugal, Belgium, Germany and the Netherlands, including products, marketing authorizations and dossier license rights. On January 17, 2014, we announced our intention to enter into an agreement with Aurobindo Pharma Limited (“Aurobindo”) to sell these businesses. On April 1, 2014, the Company completed the sale of the assets in Western Europe.

2013 Transactions

The following are the material transactions that were completed in the year ended December 31, 2013.

Acquisition of Warner Chilcott

On October 1, 2013, the Company completed the acquisition of Warner Chilcott plc (“Warner Chilcott”) in a stock for stock transaction for a value, including the assumption of debt, of $9.2 billion (the “Warner Chilcott Acquisition”). Warner Chilcott was a leading specialty pharmaceutical company focused on the women’s healthcare, gastroenterology, urology and dermatology segments of the branded pharmaceuticals market, primarily in North America.

Inventories

In the quarters ended March 31, 2015 and 2014, the Company recognized $1.9 million and $124.6 million as a component of cost of sales, respectively, as the inventory acquired on October 1, 2013 was sold to the Company’s customers.

Acquisition-Related Expenses

Included in general and administrative expenses for the quarter ended March 31, 2014 are integration and restructuring charges of $12.4 million, including stock-based compensation of $5.0 million incurred in connection with the Warner Chilcott Acquisition.