NOTE 5. ACQUISITIONS

For each of the acquisitions described below, the estimated fair values of the net assets acquired have been finalized and all measurement period adjustments were complete as of December 31, 2016.

Paladin Labs Inc. Acquisition

On February 28, 2014 (the Paladin Acquisition Date), the Company acquired all of the shares of Paladin Labs Inc. (Paladin) Under the terms of the transaction, former Paladin shareholders received 1.6331 Endo ordinary shares, or 35.5 million shares, and C$1.16 in cash, for total consideration of $2.87 billion as of February 28, 2014.

Paladin is a specialty pharmaceutical company headquartered in Montreal, Canada, focused on acquiring and in-licensing innovative pharmaceutical products for the Canadian and world markets. Paladin’s key products serve growing therapeutic areas, including attention deficit hyperactivity disorder (ADHD), pain, and urology. In addition to its Canadian operations, as of the Paladin Acquisition Date, Paladin owned a controlling interest in Laboratorios Paladin de Mexico S.A. in Mexico and in publicly traded Litha in South Africa.

The operating results of Paladin are included in the accompanying Consolidated Statements of Operations for the years ended December 31, 2016 and 2015 and the operating results from the acquisition date of February 28, 2014 are included in the accompanying Consolidated Statements of Operations for the year ended December 31, 2014. The Consolidated Balance Sheets as of December 31, 2016 and 2015 reflect the acquisition of Paladin. Our measurement period adjustments for Paladin were complete as of February 28, 2015.

The amounts of Paladin Revenue and Net income attributable to Endo International plc included in the Company’s Consolidated Statements of Operations from and including February 28, 2014 to December 31, 2014 are as follows (in thousands, except per share data):



Revenue	$	224,806
Net income attributable to Endo International plc	$	26,966
Basic net income per share	$	0.18
Diluted net income per share	$	0.17

The following supplemental unaudited pro forma information presents the financial results as if the acquisition of Paladin had occurred on January 1, 2014 for the year ended December 31, 2014. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on January 1, 2014, nor are they indicative of any future results.



	Year Ended December 31, 2014
Unaudited pro forma consolidated results (in thousands, except per share data):
Revenue	$	2,423,683
Net loss attributable to Endo International plc	$	(727,961	)
Basic net (loss) per share	$	(4.96	)
Diluted net (loss) per share	$	(4.64	)

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Paladin to reflect factually supportable adjustments that give effect to events that are directly attributable to the Paladin acquisition assuming the Paladin acquisition had occurred January 1, 2014. These adjustments mainly include adjustments to interest expense and additional intangible amortization. The adjustments to interest expense, net of tax, related to borrowings to finance the acquisition which decreased the expense by $4.1 million for the year ended December 31, 2014. The adjustments to additional intangible amortization, net of tax, that would have been charged assuming the Company’s estimated fair value of the intangible assets, increased the expense by $2.8 million for the year ended December 31, 2014.

Acquisition of Remaining Shares of Litha

In February 2015, the Company acquired substantially all of Litha’s remaining outstanding ordinary share capital that it did not own for consideration of approximately $40 million. At December 31, 2014, the Company owned 70.3% of the issued ordinary share capital of Litha. In connection with this transaction, the Company had deposited cash into an escrow account, primarily for the purpose of guaranteeing amounts required to be paid to Litha’s security holders in connection with this acquisition, which was released from escrow at the time of acquisition. As of December 31, 2016, the assets and liabilities of the Litha business are classified as held for sale as further discussed in Note 3. Discontinued Operations and Held for Sale.

Auxilium Pharmaceuticals, Inc.

On January 29, 2015 (the Auxilium Acquisition Date), the Company acquired all of the outstanding shares of common stock of Auxilium, a fully integrated specialty biopharmaceutical company in the men’s healthcare sector with a strategically focused product portfolio and pipeline in orthopedics, dermatology and other therapeutic areas, in a cash and stock transaction valued at $2.6 billion.

The operating results of Auxilium are included in the accompanying Consolidated Statements of Operations for the year ended December 31, 2016 and the operating results from the acquisition date of January 29, 2015 are included in the accompanying Consolidated Statements of Operations for the year ended December 31, 2015. The Consolidated Balance Sheets as of December 31, 2016 and 2015 reflect the acquisition of Auxilium. Our measurement period adjustments for Auxilium were complete as of December 31, 2015.

The Company recognized no acquisition-related transaction costs associated with the Auxilium acquisition during the year ended December 31, 2016. The Company recognized acquisition-related transaction costs associated with the Auxilium acquisition during the year ended December 31, 2015 totaling $23.1 million. These costs, which related primarily to bank fees, legal and accounting services, and fees for other professional services, are included in Acquisition-related and integration items in the accompanying Consolidated Statements of Operations.

The amounts of Auxilium Revenue and Net loss included in the Company’s Consolidated Statements of Operations from and including January 29, 2015 to December 31, 2015 are as follows (in thousands, except per share data):



Revenue	$	341,520
Net loss attributable to Endo International plc (1)	$	(469,986	)
Basic and diluted net loss per share	$	(2.38	)

__________


(1)	Net loss attributable to Endo International plc does not include any portion of the goodwill impairment charges recorded during 2015 since it is not possible to distinguish the amount of the charges directly attributable to Auxilium.

The following supplemental unaudited pro forma information presents the financial results as if the acquisition of Auxilium had occurred on January 1, 2015 for the year ended December 31, 2015. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on January 1, 2015, nor are they indicative of any future results.



	Year Ended December 31, 2015
Unaudited pro forma consolidated results (in thousands, except per share data):
Revenue	$	3,292,293
Net loss attributable to Endo International plc	$	(1,513,625	)
Basic and diluted net loss per share	$	(7.68	)

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Auxilium to reflect factually supportable adjustments that give effect to events that are directly attributable to the Auxilium acquisition assuming the Auxilium acquisition had occurred on January 1, 2015. These adjustments mainly include adjustments to interest expense and additional intangible amortization. The adjustments to interest expense, net of tax, related to borrowings to finance the acquisition increased the expense by $1.1 million for the year ended December 31, 2015. In addition, the adjustments include additional intangible amortization, net of tax, which would have been charged assuming the Company’s estimated fair value of the intangible assets. The adjustment to the amortization expense for the year ended December 31, 2015 increased the expense by $6.2 million.

Acquisition of Par Pharmaceutical Holdings, Inc.

On September 25, 2015 (Par Acquisition Date), the Company acquired Par, a specialty pharmaceutical company that develops, licenses, manufactures, markets and distributes innovative and cost-effective pharmaceuticals with a focus on high-barrier-to-entry products and first-to-file or first-to-market opportunities, for total consideration of $8.14 billion, including the assumption of Par debt. The consideration included the Company’s 18,069,899 ordinary shares valued at $1.33 billion.

The operating results of Par are included in the accompanying Consolidated Statements of Operations for the year ended December 31, 2016 and the operating results from the acquisition date of September 25, 2015 are included in the accompanying Consolidated Statements of Operations for the year ended December 31, 2015. The Consolidated Balance Sheets as of December 31, 2016 and 2015 reflect the acquisition of Par. The amounts of Par revenue and Net loss attributable to Endo International plc included in the Company’s Consolidated Statements of Operations for the year ended December 31, 2015 from and including September 25, 2015 to December 31, 2015 are as follows (in thousands, except per share data):



Revenue	$	401,238
Net loss attributable to Endo International plc	$	(4,348	)
Basic and diluted net loss per share	$	(0.02	)

The following table summarizes the fair values of the assets acquired and liabilities assumed at the Par Acquisition Date, including measurement period adjustments since the fair values presented in the Company’s Form 10-K for the year ended December 31, 2015 filed with the SEC on February 29, 2016, (in thousands):



	September 25, 2015		Measurement period adjustments			September 25, 2015 (As adjusted)
Cash and cash equivalents	$	215,612	$	—		$	215,612
Accounts and other receivables	530,664		(13,755		)	516,909
Inventories	330,406		(1,849		)	328,557
Prepaid expenses and other current assets	31,124		—			31,124
Deferred income tax assets, current	14,652		30,176			44,828
Property, plant and equipment	256,293		4,744			261,037
Intangible assets	3,627,000		(154,500		)	3,472,500
Other assets	8,477		—			8,477
Total identifiable assets	$	5,014,228	$	(135,184	)	$	4,879,044
Accounts payable and accrued expenses	$	551,614	$	(511	)	$	551,103
Deferred income tax liabilities	1,093,779		(44,961		)	1,048,818
Other liabilities	16,057		2,556			18,613
Total liabilities assumed	$	1,661,450	$	(42,916	)	$	1,618,534
Net identifiable assets acquired	$	3,352,778	$	(92,268	)	$	3,260,510
Goodwill	4,782,876		92,268			4,875,144
Net assets acquired	$	8,135,654	$	—		$	8,135,654

Our measurement period adjustments for Par were complete as of September 30, 2016. As a result of the measurement period adjustments recorded above, the Company recorded a reduction of $3.8 million of expense, $3.1 million related to the amortization of intangible assets and $0.7 million related to the amortization of inventory step-up, during the year ended December 31, 2016. During the three months ended December 31, 2015, the Company recorded an additional $3.1 million of expense related to the amortization of inventory step-up and intangible assets, which related to the third quarter of 2015.

The valuation of the intangible assets acquired and related amortization periods are as follows:



	Valuation (in millions)		Amortization period (in years)
Developed Technology:
Vasostrict^®	$	556.0	8
Aplisol^®	312.4		11
Developed - Other - Non-Partnered (Generic Non-Injectable)	230.4		7
Developed - Other - Partnered (Combined)	164.4		7
Nascobal^®	118.3		9
Developed - Other - Non-Partnered (Generic Injectable)	116.4		10
Other	517.9		9
Total	$	2,015.8
In Process Research & Development (IPR&D):
IPR&D 2019 Launch	$	401.0	n/a
IPR&D 2018 Launch	283.8		n/a
Ezetimibe	147.6		n/a
IPR&D 2016 Launch	133.3		n/a
Ephedrine Sulphate	128.6		n/a
Neostigmine vial	118.6		n/a
Other	243.8		n/a
Total	$	1,456.7	n/a
Total other intangible assets	$	3,472.5	n/a

The fair values of the developed technology and IPR&D assets were estimated using a discounted present value income approach. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To calculate fair value, the Company used cash flows discounted at rates ranging from 9% to 10.5%, which were considered appropriate given the inherent risks associated with each type of asset. The Company believes that the level and timing of cash flows appropriately reflect market participant assumptions.

The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to existing pharmaceutical businesses, the assembled workforce of Par and other factors. At the acquisition date, approximately $34.2 million of goodwill was expected to be deductible for income tax purposes.

Deferred tax assets and liabilities are related primarily to the difference between the book basis and tax basis of identifiable intangible assets and inventory step-up.

The following supplemental unaudited pro forma information presents the financial results as if the acquisition of Par had occurred on January 1, 2015 for the year ended December 31, 2015. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on January 1, 2015, nor are they indicative of any future results.



	Year Ended December 31, 2015
Unaudited pro forma consolidated results (in thousands, except per share data):
Revenue	$	4,268,110
Net loss attributable to Endo International plc	$	(1,594,130	)
Basic and diluted net loss per share	$	(8.09	)

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Par to reflect factually supportable adjustments that give effect to events that are directly attributable to the Par acquisition assuming the Par acquisition had occurred on January 1, 2015. These adjustments mainly include adjustments to interest expense and additional intangible amortization. The adjustments to interest expense, net of tax, related to borrowings to finance the acquisition increased the expense by $11.7 million for the year ended December 31, 2015. In addition, the adjustments include additional intangible amortization, net of tax, that would have been charged assuming the Company’s estimated fair value of the intangible assets. An adjustment to the amortization expense for the year ended December 31, 2015 increased the expense by $129.2 million.

Aspen Holdings

On October 1, 2015, the Company acquired a broad portfolio of branded and generic injectable and established products focused on pain, anti-infectives, cardiovascular and other specialty therapeutic areas from a subsidiary of Aspen Pharmacare Holdings Ltd, a leading publicly-traded South African company that supplies branded and generic products in more than 150 countries, and from GlaxoSmithKline plc (GSK) for total consideration of approximately $135.6 million (the Aspen Asset Acquisition). The Company is accounting for this transaction as a business combination in accordance with the relevant accounting literature. The transaction expanded the Company’s presence in South Africa.

The operating results of the Aspen Asset Acquisition are included in the accompanying Consolidated Statements of Operations for the year ended December 31, 2016 and the operating results from the acquisition date of October 1, 2015 are included in the accompanying Consolidated Statements of Operations for the year ended December 31, 2015. The Consolidated Balance Sheets as of December 31, 2016 and 2015 reflect the Aspen Asset Acquisition. Aspen Holdings is part of our Litha business, and as of December 31, 2016, the assets and liabilities of the Litha business, including the assets acquired in the Aspen Asset Acquisition, are classified as held for sale as further discussed in Note 3. Discontinued Operations and Held for Sale. Our measurement period adjustments for the Aspen Asset Acquisition were complete as of September 30, 2016.

Pro forma results of operations have not been presented because the effect of the Aspen Asset Acquisition was not material.

Voltaren^® Gel

The Company had exclusive U.S. marketing rights to Voltaren^® Gel through June 30, 2016 pursuant to a License and Supply Agreement entered into in 2008 with and among Novartis AG and Novartis Consumer Health, Inc. (the 2008 Voltaren^® Gel Agreement). On December 11, 2015, the Company, Novartis AG and Sandoz entered into a new License and Supply Agreement (the 2015 Voltaren^® Gel Agreement) whereby the Company licensed exclusive U.S. marketing and license rights to commercialize Voltaren^® Gel and to launch an authorized generic of Voltaren^® Gel effective July 1, 2016. Pursuant to the 2015 Voltaren^® Gel Agreement, the former 2008 Voltaren^® Gel Agreement expired on June 30, 2016 in accordance with its terms.

The Company is accounting for this transaction as a business combination as of the effective date in accordance with the relevant accounting literature. The Company acquired the product for consideration of approximately $162.7 million, consisting of an upfront payment of $16.2 million and contingent cash consideration with an acquisition-date fair value of approximately $146 million, including the impact of a measurement period adjustment recorded during the fourth quarter of 2016. See Note 7. Fair Value Measurements for further discussion of this contingent consideration. See Note 11. License and Collaboration Agreements for further discussion of the License and Supply Agreement.

The preliminary fair values of the net identifiable assets acquired totaled approximately $162.7 million, resulting in no goodwill. The amount of net identifiable assets acquired in connection with the Voltaren^® Gel acquisition includes approximately $162.7 million of identifiable developed technology intangible assets to be amortized over an average life of approximately 7 years. Our measurement period adjustments for the acquisition of Voltaren^® Gel were complete as of December 31, 2016.

The operating results of Voltaren^® Gel under business combination accounting effective July 1, 2016 are included in the accompanying Consolidated Statements of Operations for the six months ended December 31, 2016. The results included in the accompanying Consolidated Statements of Operations for the year ended December 31, 2015 and for the six months ended June 30, 2016, were accounted for under the previous license and supply agreement, which was not treated as a business combination.