NOTE 4. RESTRUCTURING

2016 U.S. Generic Pharmaceuticals Restructuring

As part of the ongoing U.S. Generic Pharmaceuticals integration efforts initiated in connection with the acquisition of Par Pharmaceutical Holdings Inc. in September 2015, the Company announced a restructuring initiative in May 2016 to optimize its product portfolio and rationalize its manufacturing sites to expand product margins (the 2016 U.S. Generic Pharmaceuticals restructuring initiative). These measures included certain cost savings initiatives, including a reduction in headcount and the disposal of our Charlotte, North Carolina manufacturing facility (the Charlotte facility). On October 31, 2016, we entered into a definitive agreement to sell the Charlotte facility for cash proceeds of $14 million. The transaction closed in January 2017. The assets of the Charlotte facility were classified as held for sale in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2016.

As a result of the 2016 U.S. Generic Pharmaceuticals restructuring initiative, the Company incurred pre-tax charges of $1.1 million during the nine months ended September 30, 2017. These charges related primarily to employee separation and other benefit-related costs. The Company did not incur charges related to this restructuring initiative during the three months ended September 30, 2017.

The Company incurred pre-tax charges of $13.3 million and $159.5 million during the three and nine months ended September 30, 2016, respectively. These charges consisted of certain intangible asset impairment charges of $100.3 million during the nine months ended September 30, 2016, which were recorded in the first quarter of 2016, and charges to increase excess inventory reserves of $33.3 million during the nine months ended September 30, 2016, which were recorded in the first half of 2016. Also included in these amounts were charges relating to employee separation, retention and other benefit-related costs of $7.0 million and $13.4 million, accelerated depreciation of $3.4 million and $6.8 million and other charges of $3.0 million and $5.7 million during the three and nine months ended September 30, 2016, respectively. These charges are included in the U.S. Generic Pharmaceuticals segment and are included in Asset impairment charges, Cost of revenues and Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. The Company does not expect to incur additional significant expenses related to this restructuring initiative. The Company anticipates substantially all related cash payments will be made by the end of 2017. Under this restructuring initiative, separation costs were expensed ratably over the requisite service period, as applicable.

The liability related to the 2016 U.S. Generic Pharmaceuticals restructuring initiative is included in Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets and is entirely related to employee separation and other benefit-related costs. Changes to this liability during the nine months ended September 30, 2017 were as follows (in thousands):



	Total
Liability balance as of January 1, 2017	$	9,939
Expenses	1,071
Cash distributions	(10,351		)
Liability balance as of September 30, 2017	$	659

2016 U.S. Branded Pharmaceutical Restructuring

In December 2016, the Company announced that it was terminating its worldwide license and development agreement with BioDelivery Sciences International, Inc. (BDSI) for BELBUCA™ and returning the product to BDSI. This termination was completed on January 6, 2017. As a result of this announcement and a comprehensive assessment of its product portfolio, the Company restructured its U.S. Branded Pharmaceuticals segment sales organization during the fourth quarter of 2016 (the 2016 U.S. Branded restructuring initiative), which included the elimination of an approximate 375-member U.S. Branded Pharmaceuticals pain field sales force and the termination of certain contracts.

The Company did not incur any significant pre-tax charges during the three and nine months ended September 30, 2017 or 2016 as a result of the 2016 U.S. Branded restructuring initiative. Actions related to this initiative were completed by December 31, 2016 and substantially all of the cash payments are anticipated to be made by the end of 2017. The Company does not expect to incur any additional material pre-tax restructuring expenses related to this initiative.

The liability related to the 2016 U.S. Branded Pharmaceutical restructuring initiative is included in Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets. Changes to this liability during the nine months ended September 30, 2017 were as follows (in thousands):



	Employee Separation and Other Benefit-Related Costs			Contract Termination Charges			Total
Liability balance as of January 1, 2017	$	16,544		$	5,224		$	21,768
Cash distributions	(16,086		)	(5,224		)	(21,310		)
Liability balance as of September 30, 2017	$	458		$	—		$	458

January 2017 Restructuring

On January 26, 2017, the Company announced a restructuring initiative implemented as part of its ongoing organizational review (the January 2017 restructuring initiative). This restructuring is intended to further integrate, streamline and optimize the Company’s operations by aligning certain corporate and R&D functions with its recently restructured U.S. Generics Pharmaceutical and U.S. Branded Pharmaceutical business units in order to create efficiencies and cost savings. As part of this restructuring, the Company undertook certain cost reduction initiatives, including a reduction of approximately 90 positions of its workforce, primarily related to corporate and U.S. Branded Pharmaceutical R&D functions in Malvern, PA and Chestnut Ridge, NY, a streamlining of general and administrative expenses, an optimization of commercial spend and a refocusing of research and development efforts.

As a result of the January 2017 restructuring initiative, the Company incurred total pre-tax charges of approximately $15.1 million during the nine months ended September 30, 2017 related to employee separation and other benefit-related costs. There were no expenses related to this restructuring initiative for the three months ended September 30, 2017. Of the total charges incurred, $6.9 million are included in the U.S. Branded Pharmaceuticals segment, $4.9 million are included in Corporate unallocated costs and $3.3 million are included in the U.S. Generic Pharmaceuticals segment for nine months ended September 30, 2017, respectively. These charges are included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. The Company does not expect to incur additional material pre-tax restructuring-related expenses. Substantially all cash payments are anticipated to be made by the end of 2017 and substantially all of the actions associated with this restructuring were completed by the end of April 2017.

The liability related to the January 2017 restructuring initiative is included in Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets and is entirely related to employee separation and other benefit-related costs. Changes to this liability during the nine months ended September 30, 2017 were as follows (in thousands):



	Total
Liability balance as of January 1, 2017	$	—
Expenses	15,078
Cash distributions	(9,223		)
Liability balance as of September 30, 2017	$	5,855

2017 U.S. Generics Pharmaceuticals Restructuring

On July 21, 2017, the Company announced that after completing a comprehensive review of its manufacturing network, the Company will be ceasing operations and closing its manufacturing and distribution facilities in Huntsville, Alabama (the 2017 U.S. Generics Pharmaceuticals restructuring initiative). The closure of the facilities is expected to occur by the end of 2018.

As a result of the 2017 U.S. Generics Pharmaceuticals restructuring initiative, the Company’s workforce is expected to be reduced by approximately 815 employees and the Company expects total pre-tax charges related to this initiative to be approximately $325 million, including total estimated cash outlays of approximately $60 million, substantially all of which will be paid by the end of 2018. The estimated restructuring charges consist of accelerated depreciation charges of approximately $155 million, asset impairment charges related to identifiable intangible assets and certain property, plant and equipment of approximately $100 million, charges to increase excess inventory reserves of approximately $10 million, employee separation, retention and other benefit-related costs of approximately $40 million and certain other charges of approximately $20 million. Employee separation, retention and certain other employee benefit-related costs will be expensed ratably over the requisite service period. Other costs including, but not limited to, contract termination fees and product technology transfer costs, will be expensed as incurred.

As a result of the 2017 U.S. Generics Pharmaceuticals restructuring initiative, the Company incurred pretax charges of $94.2 million and $203.7 million during the three and nine months ended September 30, 2017, respectively. These expenses consist of charges relating to accelerated depreciation of $59.8 million during both the three and nine months ended September 30, 2017, employee separation, retention and other benefit-related costs of $19.5 million during both the three and nine months ended September 30, 2017, charges to increase excess inventory reserves of $7.9 million during the nine months ended September 30, 2017, certain intangible asset and property, plant and equipment impairment charges of $14.2 million and $103.7 million during the three and nine months ended September 30, 2017, respectively, and certain other charges of $0.6 million and $12.7 million during the three and nine months ended September 30, 2017, respectively. In the third quarter of 2017, the Company recorded a correcting entry to increase Property, plant and equipment impairment charges resulting from certain assets that should have been impaired during the second quarter of 2017. The pre-tax impact for the three months ended September 30, 2017 includes a correcting adjustment of $14.2 million, which had a corresponding decrease to Property, plant and equipment, net. The Company determined that the impact to the prior period and the current period are not material to the quarterly periods presented and have no impact on 2017 full year results.

These charges are included in the U.S. Generic Pharmaceuticals segment. Intangible asset and property, plant and equipment impairment charges are included in Asset impairment charges, charges to increase excess inventory reserves are included in Cost of revenues, employee separation, retention and other benefit-related costs are included in Cost of revenues and certain other charges are included in both Cost of revenues and Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The liability related to the 2017 U.S. Generics Pharmaceuticals restructuring initiative is included in Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets. Changes to this liability during the nine months ended September 30, 2017 were as follows (in thousands):



	Employee Separation and Other Benefit-Related Costs			Other Restructuring Costs			Total
Liability balance as of January 1, 2017	$	—		$	—		$	—
Expenses	19,535			10,576			30,111
Cash distributions	(3,227		)	(5,607		)	(8,834		)
Liability balance as of September 30, 2017	$	16,308		$	4,969		$	21,277