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 $488 million in cash, subject to certain customary 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 we acquired JHP and the factors that contributed to the preliminary recognition of goodwill was that the JHP Acquisition immediately expanded our presence into the rapidly growing market for injectable products and will eventually include 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 our 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 our acquisition.

JHP operates principally through its operating subsidiary, JHP Pharmaceuticals, LLC, which we have renamed Par Sterile Products, LLC (“Par Sterile”). Par Sterile will continue its activities as a leading specialty pharmaceutical company that develops, manufactures and markets 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 have 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. Par Sterile’s 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 March 31, 2014 are included in the accompanying condensed consolidated statement of operations as part of the Par Pharmaceutical segment, reflecting total revenues of approximately $14 million and an immaterial impact on loss from continuing operations. The condensed consolidated balance sheet as of March 31, 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 incurred for the quarter ended March 31, 2014 totaled $12,350 thousand of which $8,213 thousand were included in operating expenses as selling, general and administrative 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 for the quarter ended March 31, 2014 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:
	Senior secured term loan	$	395,000		Cash purchase of equity	$	487,929
	Sponsor equity contribution	110,000			Transaction costs	12,350
	Company cash on hand	1,633			Accrued interest on Company debt	6,354
	Total source of funds	$	506,633		Total use of funds	$	506,633

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):



	As of February 20, 2014
Cash and cash equivalents	$	9,278
Accounts receivable, net	6,244
Inventories	35,418
Prepaid expenses and other current assets	1,797
Property, plant and equipment	73,939
Intangible assets	290,299
Other long-term assets, net	2,658

Total identifiable assets	419,633

Accounts payable	13,716
Accrued expenses and other current liabilities	2,496
Deferred tax liabilities	67,425
Other long-term liabilities	754

Total liabilities assumed	84,391

Net identifiable assets acquired	335,242

Goodwill	152,687

Net assets acquired	$	487,929

Approximately $20 million of the goodwill identified above and recorded on the condensed consolidated balance sheet as of March 31, 2014 will be deductible for income tax purposes.

Supplemental Pro forma Information (unaudited)

The following unaudited pro forma information for the quarter ended March 31, 2014, and the quarter ended March 31, 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, or is it intended to be a projection of future results or trends.



	Three months ended
(In thousands)	March 31, 2014			March 31, 2013
Total revenues	$	308,146		$	328,768
Loss from continuing operations	$	(29,476	)	$	(32,502	)

These amounts have been calculated after adjusting for the additional expense that would have been recorded assuming the fair value adjustments to finite-lived intangible assets ($199,300 thousand) and inventory ($10,748 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 quarter ended March 31, 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 quarter ended March 31, 2013 was adjusted to include the JHP Acquisition-related costs with the consequential tax effects. Pro forma loss from continuing operations for the quarters ended March 31, 2014 and 2013 have been adjusted to exclude certain JHP historical amounts such as intangible asset amortization.