UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

________________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2014

Commission file number: 1-10827

PAR PHARMACEUTICAL COMPANIES, INC.

(Exact name of registrant as specified in its charter)



Delaware		22-3122182
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

300 Tice Boulevard, Woodcliff Lake, New Jersey 07677

(Address of principal executive offices)

Registrant’s telephone number, including area code: (201) 802-4000

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 x No ¨

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 x No ¨

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 ¨ Accelerated filer ¨ Non-accelerated filer x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Number of shares of the Registrant’s common stock outstanding as of November 12, 2014: 100

TABLE OF CONTENTS

PAR PHARMACEUTICAL COMPANIES, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2014



PART I		FINANCIAL INFORMATION	PAGE

	Item 1.	Condensed Consolidated Financial Statements (unaudited)	3

		Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	4

		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and September 30, 2013	5

		Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2014 and September 30, 2013	6

		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and September 30, 2013	7

		Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	61

	Item 4.	Controls and Procedures	62

PART II		OTHER INFORMATION	63

	Item 1.	Legal Proceedings	63

	Item 1A.	Risk Factors	63

	Item 6.	Exhibits	63

	SIGNATURES		64

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Par Value per Share Data)

(Unaudited)



	September 30,			December 31,
	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	108,677		$	130,080
Available for sale marketable debt securities	—			3,541
Accounts receivable, net	173,935			143,279
Inventories	162,272			117,307
Prepaid expenses and other current assets	27,807			13,980
Deferred income tax assets	56,439			55,932
Income taxes receivable	36,044			1,458
Total current assets	565,174			465,577

Property, plant and equipment, net	208,066			127,276
Intangible assets, net	1,161,921			1,092,648
Goodwill	1,006,034			849,652
Other assets	88,356			96,342
Total assets	$	3,029,551		$	2,631,495

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	14,503		$	21,462
Accounts payable	73,249			31,181
Payables due to distribution agreement partners	54,748			79,117
Accrued salaries and employee benefits	28,227			20,700
Accrued government pricing liabilities	42,078			35,829
Accrued legal settlements	—			41,367
Accrued interest payable	16,563			7,629
Accrued expenses and other current liabilities	32,447			21,686
Total current liabilities	261,815			258,971

Long-term liabilities	16,254			20,322
Non-current deferred tax liabilities	283,426			288,783
Long-term debt, less current portion	1,907,303			1,516,057
Commitments and contingencies	—			—

Stockholders' equity:
Common stock, $0.001 par value per share, 100 shares authorized and issued	—			—
Additional paid-in capital	805,325			686,577
Accumulated deficit	(242,340		)	(138,416		)
Accumulated other comprehensive loss	(2,232		)	(799		)
Total stockholders' equity	560,753			547,362
Total liabilities and stockholders’ equity	$	3,029,551		$	2,631,495

The accompanying notes are an integral part of these condensed consolidated financial statements.

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)



	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2014			2013			2014			2013
Revenues:
Net product sales	$	326,142		$	259,244		$	898,739		$	766,264
Other product related revenues	9,975			8,077			21,868			24,922
Total revenues	336,117			267,321			920,607			791,186
Cost of goods sold, excluding amortization expense	156,688			131,722			470,191			443,707
Amortization expense	38,604			54,208			121,766			135,744
Total cost of goods sold	195,292			185,930			591,957			579,451
Gross margin	140,825			81,391			328,650			211,735
Operating expenses:
Research and development	26,481			27,246			89,536			73,282
Selling, general and administrative	42,039			39,390			136,858			117,006
Intangible asset impairment	11,466			39,480			89,086			39,946
Settlements and loss contingencies, net	90,107			—			90,107			3,300
Restructuring costs	565			—			4,578			1,816
Total operating expenses	170,658			106,116			410,165			235,350
Loss on sale of product rights	(3,042		)	—			(3,042		)	—
Operating loss	(32,875		)	(24,725		)	(84,557		)	(23,615		)
Interest income	2			14			16			70
Interest expense	(27,690		)	(23,385		)	(80,656		)	(71,033		)
Loss on debt extinguishment	—			—			(3,989		)	(7,335		)
Other Income	500			—			500			—
Loss before benefit for income taxes	(60,063		)	(48,096		)	(168,686		)	(101,913		)
Benefit for income taxes	(22,425		)	(18,797		)	(64,762		)	(36,077		)
Net loss	$	(37,638	)	$	(29,299	)	$	(103,924	)	$	(65,836	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In Thousands)

(Unaudited)



	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2014			2013			2014			2013
Net loss	$	(37,638	)	$	(29,299	)	$	(103,924	)	$	(65,836	)
Other comprehensive income (loss), net of tax :
Unrealized loss on marketable securities, net of tax	—			—			(3		)	(22		)
Unrealized gain (loss) on cash flow hedges, net of tax	877			(1,878		)	(3,395		)	(1,878		)
Less: reclassification adjustment for realized losses included in net loss, net of tax	649			—			1,926			—
Other	39						39
Other comprehensive income (loss)	1,565			(1,878		)	(1,433		)	(1,900		)
Comprehensive loss	$	(36,073	)	$	(31,177	)	$	(105,357	)	$	(67,736	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In $ Thousands)

(Unaudited)



	Nine months ended
	September 30,			September 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(103,924	)	$	(65,836	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Deferred income taxes	(69,193		)	(39,313		)
Depreciation and amortization	142,095			153,517
Non-cash interest expense	8,054			8,045
Cost of goods on acquired inventory step up	9,031			6,557
Intangible asset impairment	89,086			39,946
Allowances against accounts receivable	56,353			29,059
Share-based compensation expense	6,558			6,824
Loss on debt extinguishment	3,989			7,335
Loss on ANDA divestiture	3,042			—
Other, net	699			342
Changes in assets and liabilities:
Increase in accounts receivable	(81,596		)	(30,558		)
Increase in inventories	(20,295		)	(21,196		)
(Increase) decrease in prepaid expenses and other assets	(10,470		)	12,227
Increase in accounts payable, accrued expenses and other liabilities, excluding certain items	51,211			29,191
Payment to Department of Justice (DOJ)	—			(46,071		)
Payment related to AWP settlement	(32,350		)	(7,200		)
(Decrease) increase in payables due to distribution agreement partners	(24,375		)	5,657
Decrease in income taxes receivable/payable	(38,108		)	(8,940		)
Net cash (used in) provided by operating activities	(10,193		)	79,586
Cash flows from investing activities:
Capital expenditures	(29,423		)	(12,743		)
Business acquisitions, net of cash acquired	(478,226		)	(1,733		)
Purchases of intangibles	—			(1,000		)
Proceeds from available for sale marketable debt securities	3,514			8,000
Proceeds from the sale of ANDA	750			—
Net cash used in investing activities	(503,385		)	(7,476		)
Cash flows from financing activities:
Proceeds from debt	525,541			198,889
Payments of debt	(142,406		)	(204,216		)
Proceeds from equity contributions, net	112,190			1,754
Debt issuance costs	(3,150		)	—
Payments to extinguish debt	—			(1,412		)
Net cash provided by (used in) financing activities	492,175			(4,985		)
Net (decrease) increase in cash and cash equivalents	(21,403		)	67,125
Cash and cash equivalents at beginning of period	130,080			36,794
Cash and cash equivalents at end of period	$	108,677		$	103,919

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net	$	42,132		$	12,080
Interest paid	$	63,031		$	50,190
Non-cash transactions:
Capital expenditures incurred but not yet paid	$	418		$	536

The accompanying notes are an integral part of these condensed consolidated financial statements.

PAR PHARMACEUTICAL COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(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), manufactures and distributes generic pharmaceuticals in the United States. Our branded products division, Strativa Pharmaceuticals (“Strativa”), 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-owned subsidiary of Sky Growth Holdings Corporation (“Holdings”). 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 of Holdings (see Note 2, “Sky Growth Merger”).

Note 1 – Basis of Presentation and Recently Issued Accounting Standards:

The accompanying condensed consolidated financial statements at September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and September 30, 2013 are unaudited. In the opinion of management, however, such statements include all normal recurring adjustments necessary to present fairly the information presented therein. The condensed consolidated balance sheet at December 31, 2013 was derived from the Company’s audited consolidated financial statements included in our 2013 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 2013 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 Standards

In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" ("ASU 2014-08"). ASU 2014-08 amends guidance for reporting discontinued operations and disposals of components of an entity. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The guidance also expands the disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure is intended to provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. ASU 2014-08 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 with early adoption permitted only for disposals that have not been previously reported. We currently do not anticipate an impact of ASU 2014-08 on our condensed consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under accounting principles generally accepted in the United States of America. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The core principle of ASU 2014-09 is to recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle: 1) identify the contract with a customer, 2) identify the separate performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the separate performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. ASU 2014-09 can be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial application in retained earnings or accumulated deficit. We are currently evaluating the impact of ASU 2014-09 on our condensed consolidated financial statements and related disclosures and we have not yet selected a transition method.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (ASU 2014-15), which defines management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is effective for annual reporting periods ending after December 15, 2016 with early adoption permitted. We currently do not anticipate an impact of ASU 2014-15 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-owned subsidiaries were formed by affiliates of TPG solely for the purposes of completing the Merger and the related transactions. At the time of the Merger, each share of our common 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 subsidiary of Holdings.

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 liabilities assumed at fair 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 of TPG (the “Manager”). Pursuant to the agreement, in exchange for on-going consulting and management advisory services, the Manager receives an annual monitoring fee paid quarterly equal to 1% of EBITDA as defined under the Company’s senior secured credit facilities. There is an annual cap of $4 million for this fee. 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 $1,258 thousand for the three months ended September 30, 2014 and an expense of $1,023 thousand for the three months ended September 30, 2013 for consulting and management advisory service fees. The Company recorded an expense of $3,072 thousand for the nine months ended September 30, 2014 and an expense of $2,417 thousand for the nine months ended September 30, 2013 for consulting and management advisory service fees. These expenses are included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Note 3 – 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 $487 million in cash, after finalization of certain customary working capital adjustments. During the three months ended September 30, 2014, we received $500 thousand in connection with the 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 the Company acquired JHP and the factors that contributed to the preliminary recognition of goodwill was that the JHP Acquisition immediately 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. With its high-barrier-to-entry products, JHP represents a complement to the Company's 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 the acquisition.

JHP operates principally through its operating subsidiary, JHP Pharmaceuticals, LLC, which was renamed Par Sterile Products, LLC (“Par Sterile”) subsequent to the JHP Acquisition. We will continue to operate Par Sterile as a leading specialty pharmaceutical company developing and manufacturing 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 had 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. Our Par Sterile 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 September 30, 2014 are included in the accompanying condensed consolidated statement of operations as part of the Par Pharmaceutical segment, reflecting total revenues of approximately $96 million. Par Sterile's contribution to the overall Par Pharmaceutical segment's operating (loss) or income is not tracked separately.

The condensed consolidated balance sheet as of September 30, 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 totaled $12,350 thousand of which $8,213 thousand were included in operating expenses as selling, general and administrative expenses 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 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	$	487,429	(a)
	Sponsor equity contribution	110,000			Transaction costs	12,350
	Company cash on hand	1,133		(a)	Accrued interest on Company debt	6,354
	Total source of funds	$	506,133		Total use of funds	$	506,133

(a)	Adjusted to reflect the finalization of working capital adjustments noted above.

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	$	9,204
Accounts receivable, net	5,413
Inventories	33,701
Prepaid expenses and other current assets	2,721
Property, plant and equipment	73,579
Intangible assets	283,500
Other long-term assets, net	2,258

Total identifiable assets	410,376

Accounts payable	13,796
Accrued expenses and other current liabilities	1,781
Deferred tax liabilities	63,631
Other long-term liabilities	121

Total liabilities assumed	79,329

Net identifiable assets acquired	331,047

Goodwill	156,382

Net assets acquired	$	487,429

Approximately $20 million of the goodwill identified above and recorded on the condensed consolidated balance sheet as of September 30, 2014 will be deductible for income tax purposes.

Supplemental Pro forma Information (unaudited)

The following unaudited pro forma information for the nine-month periods ended September 30, 2014, and September 30, 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, nor is it intended to be a projection of future results or trends.




	Nine months ended
(In thousands)	September 30, 2014			September 30, 2013
Total revenues	$	939,668		$	901,910
Loss from continuing operations	$	(93,617	)	$	(90,456	)

These amounts have been calculated after adjusting for the additional expense that would have been recorded assuming the fair value adjustments to long-lived assets ($205,070 thousand) and inventory ($9,031 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 nine-month period ended September 30, 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 nine-month period ended September 30, 2013 was adjusted to include the JHP Acquisition-related costs with the consequential tax effects. Pro forma loss from continuing operations for the nine-month periods ended September 30, 2014 and 2013 have been adjusted to exclude certain JHP historical amounts such as intangible asset amortization.

Note 4 – Acquisition of Divested Products from the Watson/Actavis Merger:

In connection with the merger of Watson Pharmaceuticals, Inc. and Actavis Group on November 6, 2012 (the “Watson/Actavis Merger”), Par acquired the U.S. marketing rights to five generic products that were marketed by Watson or Actavis, as well as eight Abbreviated New Drug Applications (“ANDA”) awaiting regulatory approval, and a generic product in late-stage development, for $110 million. Par also acquired a number of related supply agreements, each with a term of three years. The purchase price was paid in cash and funded from our cash on hand.

The acquisition was accounted for as a business combination and a bargain purchase under ASC 805. The purchase price of the acquisition was allocated to the assets acquired, with the excess of the fair value of assets acquired over the purchase price recorded as a gain. The gain was mainly attributed to the FTC-mandated divestiture of products by Watson and Actavis in conjunction with the approval of the related Watson/Actavis Merger.

Note 5 – Edict Acquisition:

On February 17, 2012, through Par Pharmaceutical, Inc., our wholly-owned subsidiary, we completed our acquisition of privately-held Edict Pharmaceuticals Private Limited, which has been renamed Par Formulations Private Limited (“Par Formulations”), for cash and our repayment of certain additional pre-close indebtedness (the “Edict Acquisition”). The operating results of Par Formulations were included in our consolidated financial results from the date of acquisition. The operating results were reflected as part of the Par Pharmaceutical segment. We funded the purchase from cash on hand.

The addition of Par Formulations broadened our industry expertise and expanded our R&D and manufacturing capabilities. The Edict Acquisition was revalued as part of the Merger. Refer to Note 2, “Sky Growth Merger.”

Consideration Transferred

The acquisition-date fair value of the consideration transferred consisted of the following items ($ amounts in thousands):



Cash paid for equity	$	20,659
Contingent purchase price liabilities	11,641		(1)
Cash paid for assumed indebtedness	4,300
Total consideration	$	36,600


(1)	Contingent purchase price liabilities represent subsequent milestone payments related to successful FDA inspection of the Par Formulations manufacturing facility and ANDA filings. All contingent purchase price liabilities were paid in full within 18 months of the acquisition date.

Note 6 – Pending Acquisition of Nuray Assets:

Our wholly-owned subsidiary, Par Formulations Private Limited, is in the process of acquiring certain assets of privately-held Nuray Chemicals Private Limited ("Nuray"), a Chennai, India based developer and manufacturer of active pharmaceutical ingredients (“API”) for approximately $20 million in cash, contingent payments and other consideration. A vice president of Par is a minority shareholder of Nuray. The assets to be acquired via a definitive agreement consist of a FDA approved facility that manufactures API, including real property, improvements and related assets. The closing of the acquisition is subject to the receipt of applicable regulatory approvals and other customary closing terms and conditions. The acquisition will be accounted for as a business combination under the guidance of ASC 805. The operating results of the acquired business will be included in our consolidated financial results from the date of the closing of the acquisition as part of the Par Pharmaceutical segment. We intend to fund the purchase from cash on hand.

Note 7 – Available for Sale Marketable Debt Securities:

At September 30, 2014 we had no marketable debt securities. As of December 31, 2013, all of our investments in marketable debt securities were classified as available for sale and, as a result, were reported at their estimated fair values on the condensed consolidated balance sheets. Refer to Note 8, “Fair Value Measurements.” The following is a summary of amortized cost and estimated fair value of our marketable debt securities available for sale at September 30, 2014 ($ amounts in thousands):

Estimated

Unrealized

Fair

Cost

Gain

(Loss)

Value

Corporate bonds

—

Available for sale marketable debt securities are generally classified as current on our condensed consolidated balance sheet.

The following is a summary of amortized cost and estimated fair value of our investments in marketable debt securities available for sale at December 31, 2013 ($ amounts in thousands):



							Estimated
			Unrealized				Fair
	Cost		Gain		(Loss)		Value
Corporate bonds	$	3,522	$	19	$	—	$	3,541

Note 8 – Fair Value Measurements:

ASC 820-10 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets and liabilities. Active market means a market in which transactions for assets or liabilities occur with “sufficient frequency” and volume to provide pricing information on an ongoing unadjusted basis. Cash equivalents include highly liquid investments with an original maturity of three months or less at acquisition. We have determined that our cash equivalents in their entirety are classified as Level 1 within the fair value hierarchy.

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Our Level 2 assets primarily include debt securities, including corporate bonds with quoted prices that are traded less frequently than exchange-traded instruments. All of our Level 2 asset values are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. The pricing model information is provided by third party entities (e.g., banks or brokers). In some instances, these third party entities engage external pricing services to estimate the fair value of these securities. We have a general understanding of the methodologies employed by the pricing services in their pricing models. We corroborate the estimates of non-binding quotes from the third party entities’ pricing services to an independent source that provides quoted market prices from broker or dealer quotations. We investigate large differences, if any. Based on historical differences, we have not been required to adjust quotes provided by the third party entities’ pricing services used in estimating the fair value of these securities.

Level 3: Unobservable inputs that are not corroborated by market data.

Financial assets and liabilities

The fair value of our financial assets and liabilities measured at fair value as of September 30, 2014 were as follows ($ amounts in thousands):



	Estimated Fair Value at
	September 30, 2014		Level 1		Level 2		Level 3
Corporate bonds (Note 7)	$	—	$	—	$	—	$	—
Cash equivalents	$	20,000	$	20,000	$	—	$	—
Senior secured term loan (Note 15)	$	1,405,275	$	—	$	1,405,275	$	—
7.375% senior notes (Note 15)	$	520,625	$	—	$	520,625	$	—
Derivative instruments - Interest rate caps (Note 16)	$	3,488	$	—	$	3,488	$	—

The fair value of our financial assets and liabilities measured at fair value as of December 31, 2013 were as follows ($ amounts in thousands):



	Estimated Fair Value at
	December 31, 2013		Level 1		Level 2		Level 3
Corporate bonds (Note 7)	$	3,541	$	—	$	3,541	$	—
Cash equivalents	$	66,782	$	66,782	$	—	$	—
Senior secured term loan (Note 15)	$	1,063,255	$	—	$	1,063,255	$	—
7.375% senior notes (Note 15)	$	507,150	$	—	$	507,150	$	—
Derivative instruments - Interest rate caps (Note 16)	$	1,189	$	—	$	1,189	$	—

The carrying amount reported in the condensed consolidated balance sheets for accounts receivables, net, inventories, prepaid expenses and other current assets, accounts payable, payables due to distribution agreement partners, accrued salaries and employee benefits, accrued government pricing liabilities, accrued legal settlements, and accrued expenses and other current liabilities approximate fair value because of their short-term nature.

There have been no transfers between Level 1 and Level 2 of the fair value hierarchy as of September 30, 2014 or December 31, 2013.

Non-financial assets and liabilities

The Company does not have any non-financial assets or liabilities as of September 30, 2014 or December 31, 2013 that are measured in the condensed consolidated financial statements at fair value.

Intangible Assets

We evaluate long-lived assets, including intangible assets with definite lives, for impairment periodically or whenever events or other changes in circumstances indicate that the carrying value of an asset may no longer be recoverable. If such circumstances are determined to exist, projected undiscounted future cash flows to be generated by the long-lived asset or the appropriate grouping of assets (level 3 inputs), is compared to the carrying value to determine whether impairment exists at its lowest level of identifiable cash flows. During the nine months ended September 30, 2014, we recorded intangible asset impairments totaling $89,086 thousand for eight generic products not expected to achieve their originally forecasted operating results, inclusive of one discontinued product, one partially impaired product primarily due to the contract ending with the partner and a partially impaired IPR&D project from the JHP Acquisition due to an adverse court ruling pertaining to related patent litigation. During the nine months ended September 30, 2013, we recorded intangible asset impairments totaling $39,946 thousand related to an adjustment to the forecasted operating results of five Par Pharmaceutical segment products compared to their originally forecasted operating results at date of acquisition, as well as ceased selling one product that had been acquired with the divested products from the Watson/Actavis Merger.

Derivative Instruments - Interest Rate Caps

We use interest rate cap agreements to manage our interest rate risk on our variable rate long-term debt. Refer to Note 16, "Derivatives Instruments and Hedging Activities," for further information.

Note 9 – Accounts Receivable:

We account for revenue in accordance with ASC 605, "Revenue Recognition." In accordance with that standard, we recognize revenue for product sales when title and risk of loss have transferred to our customers, when reliable estimates of rebates, chargebacks, returns and other adjustments can be made, and when collectability is reasonably assured. This is generally at the time that products are received by our direct customers. We also review available trade inventory levels at certain large wholesalers to evaluate any potential excess supply levels in relation to expected demand. We determine whether we will recognize revenue at the time that our products are received by our direct customers or defer revenue recognition until a later date on a product by product basis at the time of launch. Upon recognizing revenue from a sale, we record estimates for chargebacks, rebates and incentive programs, product returns, cash discounts and other sales reserves that reduce accounts receivable.

The following tables summarize the impact of accounts receivable reserves and allowance for doubtful accounts on the gross trade accounts receivable balances at each balance sheet date ($ amounts in thousands):



	September 30,			December 31,
	2014			2013
Gross trade accounts receivable	$	489,028		$	383,347
Chargebacks	(60,341		)	(48,766		)
Rebates and incentive programs	(107,445		)	(75,321		)
Returns	(87,720		)	(78,181		)
Cash discounts and other	(59,354		)	(37,793		)
Allowance for doubtful accounts	(233		)	(7		)
Accounts receivable, net	$	173,935		$	143,279

Allowance for doubtful accounts

($ amounts in thousands)



	Nine months ended
	September 30, 2014			September 30, 2013

Par balance at beginning of period	$	(7	)	$	—
Par Sterile beginning balance	(278		)	—
Additions – charge to expense	(259		)	4
Adjustments and/or deductions	311			(6		)
Balance at end of period	$	(233	)	$	(2	)

The following tables summarize the activity for the nine months ended September 30, 2014 and for the nine months ended September 30, 2013, in the accounts affected by the estimated provisions described below ($ amounts in thousands):



	Nine months ended September 30, 2014
Accounts receivable reserves	Par beginning balance			Par Sterile beginning balance			Provision recorded for current period sales			(Provision) reversal recorded for prior period sales				Credits processed		Ending balance
Chargebacks	$	(48,766	)	$	(6,296	)	$	(607,097	)	$	2,628		(1)	$	599,190	$	(60,341	)
Rebates and incentive programs	(75,321		)	(5,489		)	(316,915		)	—				290,280		(107,445		)
Returns	(78,181		)	(4,820		)	(25,482		)	—				20,763		(87,720		)
Cash discounts and other	(37,793		)	(1,792		)	(192,650		)	(1,448		)	(3)	174,329		(59,354		)
Total	$	(240,061	)	$	(18,397	)	$	(1,142,144	)	$	1,180			$	1,084,562	$	(314,860	)

Accrued liabilities (2)	$	(35,829	)	$	(382	)	$	(62,536	)	$	2,804		(4)	$	53,865	$	(42,078	)



	Nine months ended September 30, 2013
Accounts receivable reserves	Beginning balance			Provision recorded for current period sales			(Provision) reversal recorded for prior period sales			Credits processed		Ending balance
Chargebacks	$	(41,670	)	$	(455,191	)	$	—	(1)	$	448,140	$	(48,721	)
Rebates and incentive programs	(59,426		)	(197,693		)	574			189,917		(66,628		)
Returns	(68,062		)	(31,709		)	—			22,371		(77,400		)
Cash discounts and other	(26,544		)	(139,855		)	269			134,119		(32,011		)
Total	$	(195,702	)	$	(824,448	)	$	843		$	794,547	$	(224,760	)

Accrued liabilities (2)	$	(42,162	)	$	(61,745	)	$	3,566	(4)	$	50,425	$	(49,916	)

(1)

Unless specific in nature, the amount of provision or reversal of reserves related to prior periods for chargebacks is not determinable on a product or customer specific basis; however, based upon historical analysis and analysis of activity in subsequent periods, we believe that our chargeback estimates remain reasonable. During the three months ended September 30, 2014, the Company settled a dispute with a customer resulting in a recovery payment of $3.6 million of which $2.6 million pertained to prior year transactions.


(2)	Includes amounts due to indirect customers for which no underlying accounts receivable exists and is principally comprised of Medicaid rebates and rebates due under other U.S. Government pricing programs, such as TriCare and the Department of Veterans Affairs.


(3)	During the first half of 2014, we recorded an additional reserve totaling approximately $1.0 million related to a dispute with a customer.


(4)	Based upon additional available information related to Managed Medicaid utilization in California, we reduced our Medicaid accruals for the periods March 2010 through December 2013 by approximately $3.6 million. Our Medicaid accrual represents our best estimate at this time.

The Company sells its products directly to wholesalers, retail drug store chains, drug distributors, mail order pharmacies and other direct purchasers as well as customers that purchase its products indirectly through the wholesalers, including independent pharmacies, non-warehousing retail drug store chains, hospitals, managed health care providers and other indirect purchasers. The Company often negotiates product pricing directly with health care providers that purchase products through the Company’s wholesale customers. In those instances, chargeback credits are issued to the wholesaler for the difference between the invoice price paid to the Company by our wholesale customer for a particular product and the negotiated contract price that the wholesaler’s customer pays for that product. The information that the Company considers when establishing its chargeback reserves includes contract and non-contract sales trends, average historical contract pricing, actual price changes, processing time lags and customer inventory information from its three largest wholesale customers. The Company’s chargeback provision and related reserve vary with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventory.

Customer rebates and incentive programs are generally provided to customers as an incentive for the customers to continue carrying the Company’s products or replace competing products in their distribution channels with our products. Rebate programs are based on a customer’s dollar purchases made during an applicable monthly, quarterly or annual period. The Company also provides indirect rebates, which are rebates paid to indirect customers that have purchased the Company’s products from a wholesaler under a contract with us. The incentive programs include stocking or trade show promotions where additional discounts may be given on a new product or certain existing products as an added incentive to stock the Company’s products. We may, from time to time, also provide price and/or volume incentives on new products that have multiple competitors and/or on existing products that confront new competition in order to attempt to secure or maintain a certain market share. The information that the Company considers when establishing its rebate and incentive program reserves are rebate agreements with, and purchases by, each customer, tracking and analysis of promotional offers, projected annual sales for customers with annual incentive programs, actual rebates and incentive payments made, processing time lags, and for indirect rebates, the level of inventory in the distribution channel that will be subject to indirect rebates. We do not provide incentives designed to increase shipments to our customers that we believe would result in out-of-the-ordinary course of business inventory for them. The Company regularly reviews and monitors estimated or actual customer inventory information at its three largest wholesale customers for its key products to ascertain whether customer inventories are in excess of ordinary course of business levels.

Pursuant to a drug rebate agreement with the Centers for Medicare and Medicaid Services, TriCare and similar supplemental agreements with various states, the Company provides a rebate on drugs dispensed under such government programs. The Company determines its estimate of the Medicaid rebate accrual primarily based on historical experience of claims submitted by the various states and any new information regarding changes in the Medicaid program that might impact the Company’s provision for Medicaid rebates. In determining the appropriate accrual amount we consider historical payment rates; processing lag for outstanding claims and payments; levels of inventory in the distribution channel; and the impact of the healthcare reform acts. The Company reviews the accrual and assumptions on a quarterly basis against actual claims data to help ensure that the estimates made are reliable. TriCare rebate accruals reflect the Fiscal Year 2008 National Defense Authorization Act and are based on actual and estimated rebates on Department of Defense eligible sales.

The Company accepts returns of product according to the following criteria: (i) the product returns must be approved by authorized personnel with the lot number and expiration date accompanying any request and (ii) we generally will accept returns of products from any customer and will provide the customer with a credit memo for such returns if such products are returned between six months prior to, and 12 months following, such products’ expiration date. Par Sterile generally will accept returns of products from any customer and will provide the customer with a credit memo for such returns if such products are returned between six months prior to and six months following, such Par Sterile products’ expiration date. The Company records a provision for product returns based on historical experience, including actual rate of expired and damaged in-transit returns, average remaining shelf-lives of products sold, which generally range from 12 to 48 months, and estimated return dates. Additionally, we consider other factors when estimating the current period return provision, including levels of inventory in the distribution channel, significant market changes that

may impact future expected returns, and actual product returns, and may record additional provisions for specific returns that we believe are not covered by the historical rates.

The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for paying within invoice terms, which generally range from 30 to 90 days. The Company accounts for cash discounts by reducing accounts receivable by the full amount of the discounts that we expect our customers to take.

The Company may at its discretion provide price adjustments due to various competitive factors, through shelf-stock adjustments on customers’ existing inventory levels. There are circumstances under which we may not provide price adjustments to certain customers as a matter of business strategy, and consequently may lose future sales volume to competitors and risk a greater level of sales returns on products that remain in the customer’s existing inventory.

In addition to the significant gross-to-net sales adjustments described above, we periodically make other sales adjustments. The Company generally accounts for these other gross-to-net adjustments by establishing an accrual in the amount equal to its estimate of such adjustments.

As detailed above, we have the experience and access to relevant information that we believe are necessary to reasonably estimate the amounts of such deductions from gross revenues, except as described below. Some of the assumptions we use for certain of our estimates are based on information received from third parties, such as wholesale customer inventories and market data, or other market factors beyond our control. The estimates that are most critical to the establishment of these reserves, and therefore, would have the largest impact if these estimates were not accurate, are estimates related to contract sales volumes, average contract pricing, customer inventories and return volumes. The Company regularly reviews the information related to these estimates and adjusts its reserves accordingly, if and when actual experience differs from previous estimates. With the exception of the product returns allowance, the ending balances of accounts receivable reserves and allowances generally are processed during a two-month to four-month period.

Use of Estimates in Reserves

We believe that our reserves, allowances and accruals for items that are deducted from gross revenues are reasonable and appropriate based on current facts and circumstances. It is possible however, that other parties applying reasonable judgment to the same facts and circumstances could develop different allowance and accrual amounts for items that are deducted from gross revenues. Additionally, changes in actual experience or changes in other qualitative factors could cause our allowances and accruals to fluctuate, particularly with newly launched or acquired products. We review the rates and amounts in our allowance and accrual estimates on a quarterly basis. If future estimated rates and amounts are significantly greater than those reflected in our recorded reserves, the resulting adjustments to those reserves would decrease our reported net revenues; conversely, if actual product returns, rebates and chargebacks are significantly less than those reflected in our recorded reserves, the resulting adjustments to those reserves would increase our reported net revenues. We regularly review the information related to these estimates and adjust our reserves accordingly, if and when actual experience differs from previous estimates.

As is customary and in the ordinary course of business, our revenue that has been recognized for product launches included initial trade inventory stocking that we believed was commensurate with new product introductions. At the time of each product launch, we were able to make reasonable estimates of product returns, rebates, chargebacks and other sales reserves by using historical experience of similar product launches and significant existing demand for the products. For certain sterile product launches and certain other customer contractual arrangements, we defer revenue until we can determine the risk of loss has passed to the end customers. The amounts related to deferred revenues are insignificant for all periods presented.

Note 10 – Inventories:

($ amounts in thousands)



	September 30,		December 31,
	2014		2013
Raw materials and supplies	$	59,117	$	44,403
Work-in-process	27,692		9,834
Finished goods	75,463		63,070
	$	162,272	$	117,307

Inventory write-offs (inclusive of pre-launch inventories detailed below)

($ amounts in thousands)



	Three months ended				Nine months ended
	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Inventory write-offs	$	624	$	955	$	7,885	$	11,484

Par capitalizes inventory costs associated with certain products prior to regulatory approval and product launch, based on management's judgment of reasonably certain future commercial use and net realizable value, when it is reasonably certain that the pre-launch inventories will be saleable. The determination to capitalize is made once Par (or its third party development partners) has filed an Abbreviated New Drug Application (“ANDA”) that has been acknowledged by the FDA for containing sufficient information to allow the FDA to conduct their review in an efficient and timely manner and management is reasonably certain that all regulatory and legal hurdles will be cleared. This determination is based on the particular facts and circumstances relating to the expected FDA approval of the generic drug product being considered, and accordingly, the time frame within which the determination is made varies from product to product. Par could be required to write down previously capitalized costs related to pre-launch inventories upon a change in such judgment, or due to a denial or delay of approval by regulatory bodies, or a delay in commercialization, or other potential factors. As of September 30, 2014, Par had approximately $5.9 million in inventories related to generic products that were not yet available to be sold.

Strativa also capitalizes inventory costs associated with in-licensed branded products subsequent to FDA approval, but prior to product launch based on management’s judgment of probable future commercial use and net realizable value. We believe that numerous factors must be considered in determining probable future commercial use and net realizable value including, but not limited to, Strativa’s limited number of historical product launches, as well as the ability of third party partners to successfully manufacture commercial quantities of product. Strativa could be required to expense previously capitalized costs related to pre-launch inventory upon a change in such judgment, due to a delay in commercialization, product expiration dates, projected sales volume, estimated selling price or other potential factors. As of September 30, 2014, Strativa had approximately $1.3 million in inventories related to products that were not yet available to be sold.

The amounts in the table below represent inventories related to products that were not yet available to be sold and are also included in the total inventory balances presented above.

Pre-Launch Inventories

($ amounts in thousands)



	September 30,		December 31,
	2014		2013
Raw materials and supplies	$	5,390	$	6,308
Work-in-process	1,653		93
Finished goods	208		118
	$	7,251	$	6,519

Write-offs of pre-launch inventories

($ amounts in thousands)



	Three months ended						Nine months ended
	September 30, 2014				September 30, 2013		September 30, 2014		September 30, 2013
Pre-launch inventory write-offs (recoveries), net of partner allocation	$	(1,185	)	[A]	$	665	$	2,358	$	1,354

[A] During the three months ended September 30, 2014, we reached an agreement with a partner to cancel a project. As part the agreement we recovered the value of our initial pre-launch inventory purchase, for which we had previously recorded a write-off.

Note 11 – Property, Plant and Equipment, net:

($ amounts in thousands)



	September 30,			December 31,
	2014			2013
Land	$	11,634		$	4,553
Buildings	61,638			29,491
Machinery and equipment	91,849			58,556
Office equipment, furniture and fixtures	9,202			5,433
Computer software and hardware	25,675			21,582
Leasehold improvements	26,333			25,828
Construction in progress	32,318			12,286
	258,649			157,729
Accumulated depreciation and amortization	(50,583		)	(30,453		)
	$	208,066		$	127,276

Depreciation and amortization expense related to property, plant and equipment

($ amounts in thousands)



	Three months ended				Nine months ended
	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Depreciation and amortization expense		$6,332		$6,013	$	20,244	$	17,718

Note 12 – Intangible Assets, net:

($ amounts in thousands)



	September 30, 2014							December 31, 2013
			Accumulated							Accumulated
	Cost		Amortization			Net		Cost		Amortization			Net
Developed products (1)	$	989,955	$	(314,543	)	$	675,412	$	878,607	$	(204,218	)	$	674,389
Other product related royalty streams	115,600		(32,995		)	82,605		115,600		(22,709		)	92,891
IPR&D (2)	376,673		—			376,673		298,100		—			298,100
Trade names (3)	27,100		(83		)	27,017		26,400		—			26,400
Other	1,000		(786		)	214		1,000		(132		)	868
	$	1,510,328	$	(348,407	)	$	1,161,921	$	1,319,707	$	(227,059	)	$	1,092,648

(1) Developed products include intangible assets related to commercial products as part of the Merger, subsequently developed IPR&D, products acquired from the Watson/Actavis Merger, and intangible assets related to commercial products as part of the JHP Acquisition. These products are amortized based on its remaining useful life.

(2) IPR&D indefinite-lived assets include IPR&D as part of the Merger, IPR&D acquired from the Watson/Actavis Merger, and IPR&D acquired as part of the JHP Acquisition.

(3) Trade names include Par and JHP trade names. JHP trade name is amortized over its useful life, while the Par trade name is treated as an indefinite-lived asset and is not amortized.

We recorded amortization expense related to intangible assets of $121,348 thousand for the nine months ended September 30, 2014 and $135,744 thousand for the nine months ended September 30, 2013. Amortization expense was included in cost of goods sold.

During the three months ended September 30, 2014, we reduced IPR&D by approximately $3.8 million related to the sale of three ANDAs.

Intangible Assets Acquired in the Merger

We were acquired on September 28, 2012 through the Merger. Refer to Note 2, “Sky Growth Merger,” for details of the Merger and related transactions. As part of the Merger, we revalued intangible assets related to commercial products (developed technology), royalty streams, IPR&D, and our trade name.

The remaining net book value of the related intangible asset related to developed products is being amortized over a weighted average amortization period of approximately five years.

IPR&D assets are related to R&D projects that were incomplete at the Merger. Due to the nature of our generic product portfolio pipeline, individual products in the annual IPR&D groups are expected to launch within an annual time period or reasonably close thereto. When the first product of each annual IPR&D group launches, it is our policy to commence amortization of the entire annual group utilizing the related cash flows expected to be generated for the annual group. The remaining net book value of the related intangible asset associated with subsequently developed annual IPR&D groups will be amortized over a weighted average amortization period of approximately six years.

Trade names constitute intellectual property rights and are marketing-related intangible assets. Our corporate trade name was valued using a relief from royalty method of the income approach and accounted for as an indefinite-lived intangible asset that will be subject to annual impairment testing or whenever events or changes in business circumstances necessitate an evaluation for impairment using a fair value approach.

Intangible Assets acquired with the Divested Products from the Watson/Actavis Merger

On November 6, 2012, in connection with the Watson/Actavis Merger, we acquired the U.S. marketing rights to five generic products that were marketed by Watson or Actavis, eight ANDAs that were awaiting regulatory approval and a generic product in late-stage development. Refer to Note 4, “Acquisition of Divested Products from the Watson/Actavis Merger,” for details of the transaction.

The remaining net book value of the related intangible asset related to developed products is being amortized over a weighted average amortization period of approximately five years.

IPR&D consists of technology-related intangible assets used in R&D activities, which were incomplete at the time of the acquisition. Upon the successful completion and launch of a product in the group, we will make a separate determination of useful life of the related IPR&D intangible asset and commence amortization.

Intangible Assets acquired with the JHP Acquisition

On February 20, 2014, we acquired intangible assets as part of the JHP Acquisition. Refer to Note 3, "JHP Acquisition," for further details. The intangible assets related to commercial products (developed technology), IPR&D, and the JHP trade name.

The fair value of the developed technology and in-process research and development intangible assets were estimated using the discounted cash flow method of the income approach. We believe that the level and timing of cash flows appropriately reflect market participant assumptions. Some of the significant assumptions inherent in the development of the identifiable intangible asset valuations, from the perspective of a market participant, include the estimated net cash flows by year by project or product (including net revenues, costs of sales, research and development costs, selling and marketing costs and other charges), 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, competitive trends impacting the asset and each cash flow stream, and other factors.

Developed products are defined as products that are commercialized, all research and development efforts have been completed by the seller, and final regulatory approvals have been received. The developed product intangible assets are composite assets, comprising the market position of the product, the developed technology utilized, and the customer base to which the products are sold. Developed technology and the customer base were considered but have not been identified separately as any related cash flows would be very much intertwined with the product related intangibles. Developed products held by the Company are considered separable from the business as they could be sold to a third party. Developed products were valued using a multi-period excess earnings method under the income approach. The principle behind this method is that the value of the intangible asset is equal to the present value of the after-tax cash flows attributable to the intangible asset only. The remaining net book value of the related intangible asset related to developed products will be amortized over a weighted average amortization period of approximately nine years.

IPR&D is related to R&D projects that were incomplete at the time of the JHP Acquisition. We grouped and valued IPR&D based on the projected year of launch for each group, with the exception of one project that was expected to produce large cash flows in the future and we valued this project by itself. IPR&D is considered separable from the business as it could be sold to a third party. The value of IPR&D was accounted for as an indefinite-lived intangible asset and will be subject to impairment testing until the completion or abandonment of each group. Upon the successful completion and launch of a product in a group, we will make a separate determination of useful life of the IPR&D intangible asset and commence amortization. This methodology resulted in six groups of IPR&D (2014 through 2018 plus a group with a single IPR&D project). When the first product of each IPR&D group launches, it is our policy to commence amortization of the entire group utilizing the related cash flows expected to be generated for the group. Due to the nature of our generic injectable product portfolio pipeline, individual products in the IPR&D groups are expected to launch within an annual time period or reasonably close thereto.

Trade names constitute intellectual property rights and are marketing-related intangible assets. The JHP trade name was valued using a relief from royalty method of the income approach and accounted for with a five year useful life based on expected utility. This asset will be subject to impairment testing whenever events or changes in business circumstances necessitate an evaluation for impairment using a fair value approach.

Intangible Asset Impairments

During the nine months ended September 30, 2014, we recorded intangible asset impairments totaling $89,086 thousand related to an adjustment to the forecasted operating results for eight Par Pharmaceutical segment products compared to their originally forecasted operating results at date of acquisition, inclusive of one discontinued product, one partially impaired product primarily due to the contract ending with the partner and a partially impaired IPR&D project from the JHP Acquisition due to an adverse court ruling pertaining to related patent litigation. The estimated fair values of the assets were determined by completing updated discounted cash flow models. During the nine months ended September 30, 2013, we recorded intangible asset impairments totaling $39,946 thousand related to an adjustment to the forecasted operating results of five Par Pharmaceutical segment products compared to their originally forecasted operating results at date of acquisition, as well as ceased selling one product that had been acquired with the divested products from the Watson/Actavis Merger.

Estimated Amortization Expense for Existing Intangible Assets at September 30, 2014

The following table assumes the intangible asset related to the Par trade name as an indefinite-lived asset that will not be amortized in the future.

($ amounts in thousands)



	Estimated
	Amortization
	Expense
Remainder of 2014	$	69,809
2015	178,636
2016	172,693
2017	202,519
2018	158,776
2019 and thereafter	353,088
	$	1,135,521

Note 13 – Goodwill:

($ amounts in thousands)



	September 30,		December 31,
	2014		2013
Balance at beginning of period	$	849,652	$	850,652
Additions:
JHP Acquisition (1)	156,382		—
Deductions:
Finalization of purchase accounting (2)	—		(1,000		)
Balance at end of period	$	1,006,034	$	849,652

(1) As noted in Note 3, “JHP Acquisition,” we acquired JHP as of February 20, 2014. Based upon our purchase price allocation, we recorded $156,382 thousand of incremental goodwill. This goodwill was allocated to Par.

(2) As noted in Note 2, “Sky Growth Merger,” we were acquired through the Merger. Based upon purchase price allocation in accordance with ASC 350-20-35-30, we recorded goodwill, which was allocated to Par.

Goodwill is not being amortized, but is tested at least annually, on or about October 1st or whenever events or changes in business circumstances necessitate an evaluation for impairment using a fair value approach. The goodwill impairment test consists of a two-step process. The first step is to identify a potential impairment and the second step measures the amount of impairment, if any. We will perform a qualitative assessment ("Step Zero analysis") to determine whether it is necessary to perform the two-step goodwill impairment test. The Step Zero analysis entails an assessment of the totality of events and circumstances that could affect the comparison of a reporting unit's fair value with its carrying amount. Goodwill is deemed to be impaired if the carrying amount of a

reporting unit exceeds its estimated fair value. As of October 1, 2013, Par performed its annual goodwill impairment assessment and concluded there was no impairment. No impairments of goodwill had been recognized through September 30, 2014.

Note 14 – Income Taxes:

($ in thousands)



	Three months ended						Nine months ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Benefit for income taxes	$	(22,425	)	$	(18,797	)	$	(64,762	)	$	(36,077	)
Effective tax rate	37		%	39		%	38		%	35		%

The effective tax rate for the three months ended September 30, 2014 reflects benefits for deductions specific to U.S. domestic manufacturing companies and a benefit related to the release of certain tax reserves in settlement of an audit offset by our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act. The effective tax rate for the three months ended September 30, 2013 reflects benefits for deductions specific to U.S. domestic manufacturing companies and our R&D credit partially offset by our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act.

The effective tax rate for the nine months ended September 30, 2014 reflects benefits for deductions specific to U.S. domestic manufacturing companies, a benefit related to determination of deductibility of certain settled AWP litigation, and benefits related to the release of certain tax reserves in the settlement of certain audits offset by our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act. The effective tax rate for the nine months ended September 30, 2013 reflects benefits for deductions specific to U.S. domestic manufacturing companies, offset by our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act.

Current deferred income tax assets at September 30, 2014 consist of temporary differences primarily related to accounts receivable reserves, inventory reserves, and net operating loss carryforwards. Non-current deferred income tax liabilities at September 30, 2014 consist of timing differences primarily related to intangible assets, debt, depreciation and stock compensation.

Par Pharmaceutical Companies, Inc. is no longer subject to IRS audit for periods prior to 2012. Par is currently under audit in two state jurisdictions for the years 2005 to 2009. In most other state jurisdictions, we are no longer subject to examination by state tax authorities for years prior to 2008.

We reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of income tax provision or benefit.

The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to ASC 740-10 represents an unrecognized tax benefit. An unrecognized tax benefit is a liability that represents a potential future obligation to the taxing authorities. An unrecognized tax benefit is a liability that represents a potential future obligation to the taxing authorities. As of September 30, 2014, we had $15,995 thousand included in “Long-term liabilities” on the condensed consolidated balance sheet that represented unrecognized tax benefits, interest and penalties based on evaluation of tax positions. During the nine months ended September 30, 2014, we recorded an increase in unrecognized tax benefits of $1,997 thousand as a result of tax positions taken during the period and a decrease in unrecognized tax benefits of $6,944 thousand as a result of an audit settlement. We expect that a portion of this total liability could potentially settle in the next 12 months. However, the dollar range for a potential settlement cannot be estimated at this time.

Note 15 - Debt:

($ amounts in thousands)



	September 30,			December 31,
	2014			2013
Senior credit facilities:
Senior secured term loan	$	1,439,462		$	1,055,340
Senior secured revolving credit facility	—			—
7.375% senior notes	490,000			490,000
	1,929,462			1,545,340
Less unamortized debt discount to senior secured term loan	(7,656		)	(7,821		)
Less current portion	(14,503		)	(21,462		)
Long-term debt	$	1,907,303		$	1,516,057

Senior Credit Facilities

In connection with the Merger, on September 28, 2012, we entered into a credit agreement (the "Credit Agreement") with a syndicate of banks, led by Bank of America, N.A., as Administrative Agent, Bank of America, N.A., Deutsche Bank Securities, Inc., Goldman Sachs Bank USA, Citigroup Global Markets, Inc., RBC Capital Markets LLC and BMO Capital Markets as Joint Lead Arrangers and Joint Lead Bookrunners, Deutsche Bank Securities, Inc. and Goldman Sachs Bank USA as Co-Syndication Agents, and Citigroup Global Markets Inc. and RBC Capital Markets LLC as Co-Documentation Agents, to provide Senior Credit Facilities comprised of a seven-year senior secured term loan in an initial aggregate principal amount of $1,055 million (the “Term Loan Facility”) and a five-year senior secured revolving credit facility in an initial amount of $150 million (the “Revolving Facility”). The proceeds of the Revolving Facility are available for general corporate purposes.

The Credit Agreement contains customary representations and warranties, as well as customary events of default, in certain cases subject to reasonable and customary periods to cure, including but not limited to: failure to make payments when due, breach of covenants, breach of representations and warranties, insolvency proceedings, certain judgments and any change of control. The Credit Agreement also contains various customary covenants that, in certain instances, restrict our ability to: (i) create liens on assets; (ii) incur additional indebtedness; (iii) engage in mergers or consolidations with or into other companies; (iv) engage in dispositions of assets, including entering into a sale and leaseback transaction; (v) pay dividends and distributions or repurchase capital stock; (vi) make investments, loans, guarantees or advances in or to other companies; (vii) change the nature of our business; (viii) repay or redeem certain junior indebtedness; (ix) engage in transactions with affiliates; and (x) enter into restrictive agreements. In addition, the Credit Agreement requires us to demonstrate compliance with a maximum senior secured first lien leverage ratio whenever amounts are outstanding under the revolving credit facility as of the last day of any quarterly testing period. All obligations under the Credit Agreement are guaranteed by our material domestic subsidiaries. We were in compliance with all covenants as of September 30, 2014.

The Credit Agreement includes an accordion feature pursuant to which we may increase the amount available to be borrowed by up to an additional $250,000 thousand (or a greater amount if we meet certain specified financial ratios) under certain circumstances. Repayments of the proceeds of the term loan are due in quarterly installments over the term of the Credit Agreement. Amounts borrowed under the Revolving Facility are payable in full upon expiration of the Credit Agreement. We are also obligated to pay a commitment fee based on the unused portion of the Revolving Facility.

We are obligated to make mandatory principal prepayments for any fiscal year if the ratio of total amount of outstanding senior secured debt less cash and cash equivalents divided by our consolidated EBITDA is greater than 2.50 to 1.00 as of December 31 of any fiscal year. When the ratio is greater than 2.50 to 1.00 but less than or equal to 3.00 to 1.00, we are required to pay 25% of excess cash flows, as defined in the Credit Agreement. When the ratio is greater than 3.00 to 1.00, we are required to pay 50% of excess cash flows in the form of principal prepayments. For the year ended December 31, 2013, we were obligated to pay $10,802 thousand of principal prepayments during the first quarter of 2014. However, certain Term Lenders exercised their right under the Credit Agreement to decline their pro rata share of the mandatory principal prepayment. Therefore our actual mandatory principal prepayment in the first quarter of 2014 was $5,036 thousand. As permitted under the Credit Agreement, we applied this mandatory principal prepayment amount against scheduled principal payments for the second and third quarters of 2014.

Repricing of the Term Loan Facility and Additional Borrowings - 2014

On February 20, 2014 in conjunction with our acquisition of JHP, we entered into an amendment to our Senior Credit Facility that refinanced all of the outstanding tranche B-1 term loans of the Borrower (the “Existing Tranche B Term Loans”) with a new tranche of tranche B-2 term loans (the “New Tranche B Term Loans”) in an aggregate principal amount of $1,055 million. The terms of the New Tranche B Term Loans are substantially the same as the terms of the then Existing Tranche B Term Loans, except that (1) the interest rate margins applicable to the New Tranche B Term Loans are 3.00% for LIBOR and 2.00% for base rate, a 25 basis point reduction compared to the Existing Tranche B Term Loans, and (2) the New Tranche B Loans were subject to a soft call provision applicable to the optional prepayment of the loans which would have required a premium equal to 1.00% of the aggregate principal amount of the loans being prepaid if, on or prior to August 20, 2014, the Company entered into certain repricing transactions. Additionally, the maximum senior secured net leverage ratio in compliance with which the Company can incur new incremental debt was increased by 25 basis points to 3.75:1.00.

Additionally, on February 20, 2014 in conjunction with our acquisition of JHP, we also entered into the Incremental Term B-2 Joinder Agreement (the “Joinder”) among us, Holdings, and certain of our subsidiaries, and our lenders. Under the terms of the Joinder, we borrowed an additional $395 million of New Tranche B Term Loans from the lenders participating therein for the purpose of consummating our acquisition of JHP.

In connection with the transactions described herein, we incurred related transaction costs for the quarter ended March 31, 2014 that 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. In accordance with the applicable accounting guidance for debt modifications and extinguishments, approximately $3,989 thousand of the existing unamortized deferred financing costs were written

off in connection with this repricing and included in the condensed consolidated statements of operations as a loss on debt extinguishment.

Refinancing of the Term Loan Facility - 2013

On February 6, 2013, the Company, Par Pharmaceutical, Inc., as co-borrower, Sky Growth Intermediate Holdings II Corporation (“Intermediate Holdings”), the subsidiary guarantor party thereto, Bank of America, as administrative agent, and the lenders and other parties thereto modified the Term Loan Facility (as amended, the “New Term Loan Facility”) by entering into Amendment No. 1 (“Amendment No. 1”) to the Credit Agreement.

Amendment No. 1 replaced the existing term loans with a new class of term loans in an aggregate principal amount of $1,066 million (the “New Term Loans”). Borrowings under the New Term Loan Facility bore interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (which is subject to a 1.00% floor) or the base rate rate (which is subject to a 2.00% floor). The applicable margin for borrowings under the New Term Loans was 3.25% for LIBOR borrowings and 2.25% for base rate borrowings. Amendment No. 1 provided for a soft call option applicable to the New Term Loans. The soft call option provided for a premium equal to 1.00% of the amount of the outstanding principal if, on or prior to August 6, 2013, the Company entered into certain repricing transactions. The other terms applicable to the New Term Loans were substantially the same terms as the original term loans.

In connection with the transactions described herein, the Company paid a 1.00% soft call premium in an aggregate amount of approximately $10,500 thousand on the existing term loan in February 2013, a portion of which was capitalized as a discount to the New Term Loan Facility. In accordance with the applicable accounting guidance for debt modifications and extinguishments, approximately $5,923 thousand of the existing unamortized deferred financing costs and $1,412 thousand of the related $10,500 thousand soft call premium were written off in connection with this refinancing and included in the condensed consolidated statements of operations as a loss on debt extinguishment.

Repricing of the Revolving Facility - 2013

The Company and Par Pharmaceutical, Inc., as co-borrower, Intermediate Holdings, the subsidiary guarantor party thereto, Bank of America, as administrative agent, and the lenders and other parties thereto modified the Revolving Credit Facility by entering into Amendment No. 2 (“Amendment No. 2”), dated February 22, 2013, and Amendment No. 3 (“Amendment No. 3” and, together with Amendment No. 2, the “Revolver Amendments”), dated February 28, 2013, to the Credit Agreement.

The Revolver Amendments extend the scheduled maturity of the revolving credit commitments of certain existing lenders (the “Extending Lenders”) who have elected to do so, such extension to be effected by converting such amount of the existing revolving credit commitments of the Extending Lenders into a new tranche of revolving credit commitments (the “Extended Revolving Facility”). The Revolver Amendments also set forth the interest rate payable on borrowings outstanding under the Extended Revolving Facility, as described below. The aggregate commitments under the Extended Revolving Facility are $127.5 million and the aggregate commitments under the non-extended portion of the Revolving Facility are $22.5 million. There were no outstanding borrowings from the Revolving Facility or the Extended Revolving Facility as of September 30, 2014.

Borrowings under the Extended Revolving Facility bear interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR or the base rate. The initial applicable margin for borrowings under the Extended Revolving Facility is 3.25% for LIBOR borrowings and 2.25% for base rate borrowings. The Extended Revolving Facility will mature on December 28, 2017. Borrowings and repayments of loans under the Extended Revolving Facility and the non-extended portion of the Revolving Facility may be made on a non-pro rata basis with one another, and the commitments under the non-extended portion of the Revolving Facility may be terminated prior to the commitments under the Extended Revolving Credit Facility. The other terms applicable to the Extended Revolving Credit Facility are substantially identical to those of the Revolving Credit Facility.

7.375% Senior Notes

In connection with the Merger, on September 28, 2012, we issued $490,000 thousand aggregate principal amount of 7.375% senior notes due 2020 (the “Notes”). The Notes were issued pursuant to an indenture entered into as of the same date between the Company and Wells Fargo Bank, National Association, as trustee. Interest on the Notes is payable semi-annually on April 15 and October 15, commencing on April 15, 2013. The Notes mature on October 15, 2020.

We may redeem the Notes at our option, in whole or in part on one or more occasions, at any time on or after October 15, 2015, at specified redemption prices that vary by year, together with accrued and unpaid interest, if any, to the date of redemption. At any time prior to October 15, 2015, we may redeem up to 40% of the aggregate principal amount of the Notes with the net proceeds of certain equity offerings at a redemption price equal to the sum of (i) 107.375% of the aggregate principal amount thereof, plus (ii) accrued and unpaid interest, if any, to the redemption date. At any time prior to October 15, 2015, we may also redeem the Notes, in whole or in part on one or more occasions, at a price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest and a specified “make-whole premium.”

The Notes are guaranteed on a senior unsecured basis by our material existing direct and indirect wholly-owned domestic subsidiaries and, subject to certain exceptions, each of our future direct and indirect domestic subsidiaries that guarantees the Senior

Credit Facilities or our other indebtedness or indebtedness of the guarantors will guarantee the Notes. Under certain circumstances, the subsidiary guarantors may be released from their guarantees without consent of the holders of Notes.

The Notes and the subsidiary guarantees will be our and the guarantors’ senior unsecured obligations and will (i) rank senior in right of payment to all of our and the subsidiary guarantors’ existing and future subordinated indebtedness; (ii) rank equally in right of payment with all of our and the subsidiary guarantors’ existing and future senior indebtedness; (iii) be effectively subordinated to any of our and the subsidiary guarantors’ existing and future secured debt, to the extent of the value of the assets securing such debt; and, (iv) be structurally subordinated to all of the existing and future liabilities (including trade payables) of each of our subsidiaries that do not guarantee the Notes.

The indenture governing the Notes contains customary representations and warranties, as well as customary events of default, in certain cases subject to reasonable and customary periods to cure, including but not limited to: failure to make payments when due, breach of covenants, a payment default or acceleration equaling $40,000 thousand or more according to the terms of certain other indebtedness, failure to pay final judgments aggregating in excess of $40,000 thousand when due, insolvency proceedings, a required guarantee shall cease to remain in full force. The indenture also contains various customary covenants that, in certain instances, restrict our ability to: (i) pay dividends and distributions or repurchase capital stock; (ii) incur additional indebtedness; (iii) make investments, loans, guarantees or advances in or to other companies; (iv) engage in dispositions of assets, including entering into a sale and leaseback transaction; (v) engage in transactions with affiliates; (vi) create liens on assets; (vii) redeem or repay certain subordinated indebtedness; (viii) engage in mergers or consolidations with or into other companies; and, (ix) change the nature of our business. The covenants are subject to a number of exceptions and qualifications. Certain of these covenants will be suspended during any period of time that (1) the Notes have Investment Grade Ratings (as defined in the indenture) from both Moody’s Investors Service, Inc. and Standard & Poor’s, and (2) no default has occurred and is continuing under the indenture. In the event that the Notes are downgraded to below an Investment Grade Rating, the Company and certain subsidiaries will again be subject to the suspended covenants with respect to future events. We were in compliance with all covenants as of September 30, 2014.

Par Pharmaceutical Companies, Inc., the parent company, is the sole issuer of the Notes. The Notes are guaranteed on a senior unsecured basis by Par Pharmaceutical Companies, Inc.'s material direct and indirect wholly-owned domestic subsidiaries. The guarantees are full and unconditional and joint and several. Par Pharmaceutical Companies, Inc. has no independent assets or operations. Each of the subsidiary guarantors is 100% owned by Par Pharmaceutical Companies, Inc. and all non-guarantor subsidiaries of Par Pharmaceutical Companies, Inc. are minor subsidiaries.

Debt Maturities as of September 30, 2014



Debt Maturities as of September 30, 2014	($ amounts in thousands)
Remainder of 2014	$	3,626
2015	14,503
2016	14,503
2017	14,503
2018	14,503
2019	1,377,824
2020	490,000
Total debt at September 30, 2014	$	1,929,462

Note 16 - Derivative Instruments and Hedging Activities:

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from global economic conditions. We manage economic risks, including interest rate risk primarily through the use of derivative financial instruments to mitigate the potential impact of interest rate risk. All derivatives are carried at fair value on our condensed consolidated balance sheets. We do not enter into speculative derivatives. Specifically, we enter into derivative financial instruments to manage exposures that arise from payment of future known and uncertain cash amounts related to our borrowings, the value of which are determined by LIBOR interest rates. We may net settle any of our derivative positions under agreements with our counterparty, when applicable.

Cash Flow Hedges of Interest Rate Risk via Interest Rate Caps

Our objective in using interest rate derivatives is to add certainty to interest expense amounts and to manage our exposure to interest rate movements, specifically to protect us from variability in cash flows attributable to changes in LIBOR interest rates. To accomplish this objective, we primarily use interest rate caps as part of our interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if LIBOR exceeds the strike rate in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Over time, we entered into such derivatives to hedge the variable cash flows associated with existing variable-rate debt under

our Credit Agreement. These instruments are designated for accounting purposes as cash flow hedges of benchmark interest rate risk related to our Credit Agreement. We assess effectiveness and the effective portion of changes in the fair value of derivatives designated and qualified as cash flow hedges for financial reporting purposes and changes in fair value are recorded in “Accumulated other comprehensive loss” on our condensed consolidated balance sheet and will be subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of the change in fair value of the derivatives would be recognized directly in earnings.

Interest Rate Caps

As of September 30, 2014, we had eight outstanding interest rate caps with two counterparties with various termination dates and notional amounts, which we deemed to be effective for accounting purposes. These derivatives had a combined notional value of $750,000 thousand, with effective dates as of either September 30, 2013 or 2014, and with termination dates each September 30th beginning in 2015 and ending in 2018. Consistent with the terms of the Credit Agreement, the interest rate caps have a strike of 1% which matches the LIBOR floor of 1.0% on the debt. The premium is deferred and paid over the life of the instrument. The effective annual interest rate related to these interest rate caps was a fixed weighted average rate of approximately 4.8% at September 30, 2014. These instruments are designated for accounting purposes as cash flow hedges of interest rate risk related to our Credit Agreement. Future payments under these interest rate caps will be reflected as interest expense on our condensed consolidated statements of operations. In addition, amounts reported in “Accumulated other comprehensive loss” on our condensed consolidated balance sheet related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt under the Credit Agreement. Approximately 36% of our total outstanding debt at September 30, 2014 remains subject to variability in cash flows attributable to changes in LIBOR interest rates.

During the next twelve months, we estimate that $5,847 thousand will be reclassified from “Accumulated other comprehensive loss” on our condensed consolidated balance sheet at September 30, 2014 to interest expense.

Fair Value

As of the effective date, we designated the interest rate swap agreements as cash flow hedges. As cash flow hedges, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in LIBOR interest rates. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses will be recorded as a component of interest expense. As of September 30, 2014, we recorded $3,488 thousand (or $2,232 thousand, net of tax) as part of “Accumulated other comprehensive loss” on our condensed consolidated balance sheet. Future realized gains and losses in connection with each required interest payment will be reclassified from Accumulated other comprehensive loss to interest expense.

We elected to use the income approach to value the derivatives, using observable Level 2 market expectations at each measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) assuming that participants are motivated, but not compelled to transact. Level 2 inputs for the cap valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates, volatility and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for fair value measurements. Key inputs for valuation models include the cash rates, futures rates, swap rates, credit rates and interest rate volatilities. Reset rates, discount rates and volatilities are interpolated from these market inputs to calculate cash flows as well as to discount those future cash flows to present value at each measurement date. Refer to Note 8 for additional information regarding fair value measurements.

The fair value of our derivative instruments measured as outlined above as of September 30, 2014 was as follows:

($ amounts in thousands)



	September 30,			Quoted Prices		Significant Other Observable Inputs			Significant Other Unobservable Inputs
Description	2014			Level 1		Level 2			Level 3

ASSETS

Current Assets
Derivatives	$	—		$	—	$	—		$	—
	$	—		$	—	$	—		$	—

LIABILITIES

Current Liabilities
Derivatives	$	(3,488	)	$	—	$	(3,488	)	$	—
	$	(3,488	)	$	—	$	(3,488	)	$	—

The following table summarizes the fair value and presentation in our condensed consolidated balance sheets for derivative instruments as of September 30, 2014 and December 31, 2013:

($ amounts in thousands)



	Asset Derivatives					Liability Derivatives
		September 30, 2014		December 31, 2013			September 30, 2014			December 31, 2013
	Balance Sheet Location	Fair Value		Fair Value		Balance Sheet Location	Fair Value			Fair Value

Derivatives designated as hedging instruments under ASC 815
Interest rate cap contracts		$	—	$	—	Other Current Liabilities	$	(5,847	)	(4,002		)
Interest rate cap contracts		—		—		Other Non-Current (Liabilities) / Other Assets	2,359			2,813

Total derivatives designated as hedging instruments under ASC 815		$	—	$	—		$	(3,488	)	$	(1,189	)
Total derivatives		$	—	$	—		$	(3,488	)	$	(1,189	)

The following tables summarize our eight interest cap agreements with two counterparties. We separately record the short-term and long-term portion of our derivatives. As of September 30, 2014, each agreement represented a net liability and none of our interest cap agreements represented a net asset:

($ amounts in thousands)



Offsetting of Derivative Liabilities
As of September 30, 2014
											Gross Amounts Not Offset in the Statement of Financial Position
Description		Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Liabilities Presented in the Statement of Financial Position			Financial Instruments		Cash Collateral Pledged		Net Amount
Derivatives by counterparty
	Counterparty 1	$	(2,345	)	$	(1,616	)	$	(3,961	)	$	1,616	$	—	$	(2,345	)
	Counterparty 2	(1,143		)	(743		)	(1,886		)	743		—		(1,143		)
Total		$	(3,488	)	$	(2,359	)	$	(5,847	)	$	2,359	$	—	$	(3,488	)

($ amounts in thousands)



Offsetting of Derivative Assets
As of September 30, 2014
								Gross Amounts Not Offset in the Statement of Financial Position
Description		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets Presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Pledged		Net Amount
Derivatives by counterparty
	Counterparty 1	$	—	$	1,616	$	1,616	$	(1,616	)	$	—	$	—
	Counterparty 2	—		743		743		(743		)	—		—
Total		$	—	$	2,359	$	2,359	$	(2,359	)	$	—	$	—

The following table summarizes information about the fair values of our derivative instruments on the condensed consolidated statements of other comprehensive loss for the nine months ended September 30, 2014 and September 30, 2013 (Pre-tax):



Other Comprehensive Loss Rollforward:	Nine months ended
	September 30, 2014			September 30, 2013
Beginning Balance Gain/(Loss) (Pre-tax)	$	(1,189	)	$	—
Amount Recognized in Other Comprehensive Loss on Derivative (Pre-tax)	(5,305		)	(2,935		)
Amount Reclassified from Other Comprehensive Loss into Interest Expense (Pre-tax)	3,006			—
Ending Balance Gain/(Loss) (Pre-tax)	$	(3,488	)	$	(2,935	)

The following table summarizes the effect and presentation of derivative instruments, including the effective portion or ineffective portion of our cash flow hedges, on the condensed consolidated statements of operations for the periods ending September 30, 2014 and 2013:

($ amounts in thousands)



The Effect of Derivative Instruments on the Statement of Financial Performance
For the Nine Months Ended September 30, 2014 and September 30, 2013

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss) (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Loss) (Effective Portion)					Location of Gain or (Loss) Recognized in Income (Loss) on Derivative (Ineffective Portion )	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion )
Derivatives in ASC 815 Cash Flow Hedging Relationships	2014			2013				2014			2013			2014		2013
Interest rate cap contracts	$	(5,305	)	$	(2,935	)	Interest Expense	$	(3,006	)	$	—	Interest Expense	$	—	$	—

Total	$	(5,305	)	$	(2,935	)		$	(3,006	)	$	—		$	—	$	—

Note 17 – Changes in Stockholders’ Equity:

Changes in our Common Stock, Additional Paid-In Capital and Accumulated Other Comprehensive Income accounts during the nine-month period ended September 30, 2014 were as follows (share amounts and $ amounts in thousands):



	Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss
	Shares	Amount
Balance, December 31, 2013	—	$	—	$	686,577		$	(799	)
Unrealized loss on available for sale securities, net of tax	—	—		—			(3		)
Unrealized loss on cash flow hedges, net of tax	—	—		—			(3,395		)
Less: reclassification adjustment for net losses included in net income, net of tax	—	—		—			1,926
Compensatory arrangements	—	—		6,558			—
Capital contribution from Holdings				112,756
Other	—	—		(566		)	39
Balance, September 30, 2014	—	$	—	$	805,325		$	(2,232	)

Note 18 – Share-Based Compensation:

We account for share-based compensation as required by ASC 718-10, Compensation – Stock Compensation, ("ASC 718-10") which requires companies to recognize compensation expense in the amount equal to the fair value of all share-based payments granted to employees. Under ASC 718-10, we recognize share-based compensation ratably over the service period applicable to the award. ASC 718-10 also requires that excess tax benefits be reflected as financing cash flows.

On May 9, 2014 and June 13, 2014, in view of the limited number of shares remaining in the Sky Growth Holdings Corporation 2012 Equity Incentive Plan (the “Plan”) and in order to enhance the Company’s ability to retain employees and to increase the mutuality of interests between employees and stockholders, the Board of Directors of Holdings amended the Plan to increase the maximum number of shares of Holdings Common Stock, $0.001 par value per share (the “Stock”) that may be delivered in satisfaction of, or may underlie, awards under the Plan, including stock options (the “Pool”), by 8,750,000 shares of Stock. At September 30, 2014, approximately 4 million total shares of Stock were available for future issuances from the Pool.

In addition, during the nine-month period ended September 30, 2014, the Holdings Board of Directors authorized the additional grants of options to purchase shares of Holdings’ Stock pursuant to the Plan at an exercise price of $1.40 (equal to the estimated fair market value of Holdings’ Stock) to certain employees and a member of Holdings Board. The stock option grants are roughly divided into two tranches of stock options. Tranche 1 of the options will vest in equal increments of 25% on each of the first, second, third, and fourth anniversaries of the “Vesting Commencement Date” as defined in each stock option agreement, provided that

each employee remains in continuous employment with the Company through such dates. Tranche 2 of the options (the “Performance Options”) will vest in equal increments of 25%, subject to the employee remaining in continuous employment with the Company through the applicable anniversary of the Vesting Commencement Date and to the Company’s achievement of specified annual EBITDA targets for 2014 through 2017. If an applicable portion of the Performance Options do not vest based on the achievement of the specified annual EBITDA target for a particular year, such portion will be eligible to vest in the next succeeding fiscal year if a two-year cumulative EBITDA target is met (other than with respect to 2017, for which there is no two-year cumulative EBITDA target). In circumstances where the specified annual or bi-annual EBITDA targets are not met, Tranche 2 options may also vest in amounts of either 50% or 100% of the original award in the event of an initial public offering or other sale of Holdings to a third party buyer (a market condition) that returns a specified level of proceeds calculated as a multiple of its investment in Holdings by the Sponsor.

Stock Options

In conjunction with the Merger, certain senior level employees of the Company were granted stock options in Holdings, effectively granted as of September 28, 2012, under the terms of the Sky Growth Holdings Corporation 2012 Equity Incentive Plan. The share-based compensation expense relating to awards to those persons has been pushed down from Holdings to the Company.

Each employee received two equal tranches of stock options. Tranche 1 options vest based upon continued employment over a five year period, ratably 20% each annual period. Our policy is to recognize expense for this type of award on a straight-line basis over the requisite service period for the entire award (5 years). Tranche 2 options vest based upon continued employment and the Company achieving specified annual or bi-annual EBITDA targets. Compensation expense will be recognized on a graded vesting schedule. In circumstances where the specified annual or bi-annual EBITDA targets are not met, Tranche 2 options may also vest in amounts of either 50% or 100% of the original award in the event of an initial public offering or other sale of Holdings to a third party buyer (a market condition) that returns a specified level of proceeds calculated as a multiple of its investment in Holdings by the Sponsor.

We used the Black-Scholes stock option pricing model to estimate the fair value of all Tranche 1 options and Tranche 2 options without a market condition (i.e., Tranche 2 options with service and performance conditions only) on September 28, 2012 and during the nine-month period ended September 30, 2014.

The Tranche 2 options with a market condition granted on September 28, 2012 and during the nine-month period ended September 30, 2014 were valued using a Monte Carlo simulation. The Monte Carlo simulation developed a range of projected outcomes of the market condition by projecting potential share prices over a 5 year simulation and determining if the share price had reached the specified level of proceeds stipulated in the equity plan. Millions of simulations were run as the basis to conclude on the fair value of the Tranche 2 options with market condition as the average of present value of the payoffs across all simulations.

We used the Black-Scholes stock option pricing model to estimate the fair value of Tranche 1 and Tranche 2 without a market condition (service and performance conditions only) stock option awards issued during the nine-month period ended September 30, 2014 with the following weighted average assumptions:



	Nine months ended
	September 30, 2014
TRANCHE 1
Risk-free interest rate	2.1	%
Expected life (in years)	6.3
Expected volatility	63.0	%
Dividend	0.0	%

	Nine months ended
	September 30, 2014
TRANCHE 2
Risk-free interest rate	2.1	%
Expected life (in years)	6.5
Expected volatility	63.0	%
Dividend	0.0	%

A summary of the calculated estimated grant date fair value per option is as follows:



	Grants as of		Grants during the nine months ended
	September 28,		September 30,
Fair value of stock options	2012		2014
TRANCHE 1		$0.67		$0.83
TRANCHE 2 without market condition		$0.68		$0.85
TRANCHE 2 with market condition		$0.66		$0.72

For Tranche 2 options, each quarter we will evaluate the probability of the Company achieving the annual or the bi-annual EBITDA targets (“Vesting Event A”) and the probability of an initial public offering or other sale of the Company to a third party buyer (“Vesting Event B”). If it is probable that the Company will achieve Vesting Event A, then the Company will recognize expense for Tranche 2 options at the per option value noted above with any necessary adjustments to expense to be equal to the ratable expense as of the end of that particular quarter end. If it is probable that the Company will achieve Vesting Event B, but not Vesting Event A, then the Company will recognize expense for Tranche 2 options at the per option value (which is the fair value taking into account the market condition) noted above with any necessary adjustment to expense to be equal to the ratable expense as of the end of that particular quarter end.

We granted a member of the Board of Directors of Holdings stock options in Holdings during the nine-month period ended September 30, 2013 under similar terms as the Tranche 1 options granted as of September 28, 2012 under the Sky Growth Holdings Corporation 2012 Equity Incentive Plan. These stock options vest based upon continued service over an approximate five year period, ratably 20% each period ending September 28^th. We will recognize expense on a straight-line basis over the requisite service period for the entire award. The share-based compensation expense relating to the award has been pushed down from Holdings to the Company. We used the Black-Scholes stock option pricing model to estimate the fair value of the stock option awards.

Set forth below is the impact on our results of operations of recording share-based compensation from stock options ($ amounts in thousands):



	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2014			2013			2014			2013
Cost of goods sold	$	259		$	226		$	648		$	674
Selling, general and administrative	2,334			2,040			5,833			6,068
Total, pre-tax	$	2,593		$	2,266		$	6,481		$	6,742
Tax effect of share-based compensation	(933		)	(838		)	(2,333		)	(2,495		)
Total, net of tax	$	1,660		$	1,428		$	4,148		$	4,247

The following is a summary of our stock option activity (shares and aggregate intrinsic value in thousands):



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Life	Aggregate Intrinsic Value
TRANCHE 1
Balance at December 31, 2013	21,830			$1.00
Granted	6,604		1.40
Exercised	(50	)	1.00
Forfeited	(200	)	1.00
Balance at September 30, 2014	28,184			$1.09	8.5	$	8,632
Exercisable at September 30, 2014	8,882			$1.01	8.1	$	3,453
Vested and expected to vest at September 30, 2014	27,749			$1.10	8.5	$	8,458



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Life	Aggregate Intrinsic Value
TRANCHE 2
Balance at December 31, 2013	21,330			$1.00
Granted	6,104		1.40
Exercised	(50	)	1.00
Forfeited	(200	)	1.00
Balance at September 30, 2014	27,184			$1.09	8.4	$	8,432
Exercisable at September 30, 2014	4,216			$1.00	8.1	$	1,686
Vested and expected to vest at September 30, 2014	26,560			$1.09	8.4	$	8,262

Rollover Options

As part of the Merger, certain employees of the Company were given the opportunity to exchange their stock options in Predecessor for stock options in Holdings (“Rollover Stock Options”). Sponsor was not legally or contractually required to replace Predecessor stock options with Holdings stock options, therefore the Rollover Stock Options were not part of the purchase price. The ratio of exchange was based on the intrinsic value of the Predecessor stock options at September 28, 2012.

The term of the Predecessor stock options exchanged for Holdings stock options were not extended. All Rollover Stock Options maintained their 10 year term from original grant date.

All of the Rollover Stock Options were either vested prior to September 27, 2012 or were accelerated vested on September 27, 2012 (date of the Predecessor shareholders’ meeting that approved the Merger) in accordance with the terms of the Predecessor stock option agreements. No additional vesting conditions were imposed on the holders of the Rollover Stock Options. All remaining unrecognized share-based compensation expense associated with the Rollover Stock Options was recognized in the period ended September 28, 2012.

The following is a summary of our Rollover Stock Options activity (shares and aggregate intrinsic value in thousands):



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Life	Aggregate Intrinsic Value
Balance at December 31, 2013	17,351			$0.25
Granted	—		0.25
Exercised	(268	)	0.25
Forfeited	—		0.25
Balance at September 30, 2014	17,083			$0.25	5.7	$	19,645
Exercisable at September 30, 2014	17,083			$0.25	5.7	$	19,645

Restricted Stock

In conjunction with the Merger, certain senior level employees were granted restricted stock units ("RSUs") in Holdings. The share-based compensation expense relating to awards to those persons has been pushed down from Holdings to the Company.

Each RSU has only a time-based service condition and will vest no later than the fifth anniversary of the grant date (September 28, 2017) upon fulfillment of the service condition.

The fair value of each RSU is based on fair value of each share of Holdings common stock on the grant date. The RSUs are classified as equity awards. The total calculated value, net of estimated forfeitures, will be recognized ratably over the 5 year vesting period.

Set forth below is the impact on our results of operations of recording share-based compensation from RSUs for the three-month periods and nine-month periods ended September 30, 2014 and 2013 ($ amounts in thousands):



	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2014			2013			2014			2013
Cost of goods sold	$	—		$	—		$	—		$	—
Selling, general and administrative	27			24			78			82
Total, pre-tax	$	27		$	24		$	78		$	82
Tax effect of stock-based compensation	(10		)	(9		)	(28		)	(30		)
Total, net of tax	$	17		$	15		$	50		$	52

The following is a summary of our RSU activity for the nine-month period ended September 30, 2014 (shares and aggregate intrinsic value in thousands):



	Shares		Weighted Average Grant Price		Aggregate Intrinsic Value
Balance at December 31, 2013	375			$1.00
Granted	—		1.00
Vested	(50	)	1.00
Forfeited	—		1.00
Non-vested restricted stock unit balance at September 30, 2014	325			$1.00	$	455

Long-term Cash Incentive Awards

In conjunction with the Merger, certain employees were granted awards under the Long-term Cash Incentive Award Agreement incentive plan (the “Incentive Plan”) from Holdings. Each participant has the potential to receive a cash award based on specific achievements in the event of a transaction (e.g., initial public offering or sale of the company to a third party buyer) that returns a specified level of proceeds calculated as a multiple of the equity invested in the Company by the Sponsor. There is no vesting period under the Incentive Plan. The grantees must be employed by Sky Growth Holdings Corporation and its subsidiaries at the time of a transaction event in order to be eligible for a cash payment.

This plan is accounted for in accordance with ASC 450 and will be evaluated quarterly. If information available before the financial statements are issued indicates that it is probable that a liability had been incurred at the date of the financial statements then an accrual shall be made for the estimated cash payout. No amount was accrued for the Incentive Plan at September 30, 2014.

Note 19 – Commitments, Contingencies and Other Matters:

Legal Proceedings

Our legal proceedings are complex and subject to significant uncertainties. As such, we cannot predict the outcome or the effects of the legal proceedings described below. While we believe that we have valid claims and/or defenses in the litigations described below, litigation is inherently unpredictable, and the outcome of these proceedings could include substantial damages, the imposition of substantial fines, penalties, and injunctive or administrative remedies. For proceedings where losses are both probable and reasonably estimable, we have accrued for such potential loss as set forth below. Such accruals have been developed based upon estimates and assumptions that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may ultimately prove to be inaccurate or incomplete, and unknown circumstances may exist or unforeseen events occur that could lead us to change those estimates and assumptions. Unless otherwise indicated below, at this time we are not able to estimate the possible loss or range of loss, if any, associated with these legal proceedings. In general, we intend to continue to vigorously prosecute and/or defend these proceedings, as appropriate; however, from time to time, we may settle or otherwise resolve these matters on terms and conditions that we believe are in the best interests of the Company. Resolution of any or all claims, investigations, and legal proceedings, individually or in the aggregate, could have a material adverse effect on our results of operations and/or cash flows in any given accounting period or on our overall financial condition.

Patent Related Matters

On April 28, 2006, CIMA Labs, Inc. and Schwarz Pharma, Inc. filed separate lawsuits against us in the U.S. District Court for the District of New Jersey. CIMA and Schwarz Pharma each have alleged that we infringed U.S. Patent Nos. 6,024,981 (the “'981 patent”) and 6,221,392 (the “'392 patent”) by submitting a Paragraph IV certification to the FDA for approval of alprazolam orally disintegrating tablets. On July 10, 2008, the United States Patent and Trademark Office (“USPTO”) rejected all claims pending in both the '392 and '981 patents. On September 28, 2009, the USPTO's Patent Trial and Appeal Board (“PTAB”) affirmed the Examiner's rejection of all claims in the '981 patent, and on March 24, 2011, the PTAB affirmed the rejections pending for both

patents and added new grounds for rejection of the '981 patent. On June 24, 2011, the plaintiffs re-opened prosecution on both patents at the USPTO. On May 13, 2013, the PTAB reversed outstanding rejections to the currently pending claims of the '392 patent reexamination application and affirmed a conclusion by the Examiner that testimony offered by the patentee had overcome other rejections. On September 20, 2013, a reexamination certificate was issued for the ’392 patent, and on January 9, 2014, a reexamination certificate was issued for the ’981 patent, each incorporating narrower claims than the respective originally-issued patent. We intend to vigorously defend this lawsuit and pursue our counterclaims.

Unimed and Laboratories Besins Iscovesco (“Besins”) filed a lawsuit on August 22, 2003 against Paddock Laboratories, Inc. in the U.S. District Court for the Northern District of Georgia alleging patent infringement as a result of Paddock's submitting an ANDA with a Paragraph IV certification seeking FDA approval of testosterone 1% gel, a generic version of Unimed Pharmaceuticals, Inc.'s Androgel^®. On September 13, 2006, we acquired from Paddock all rights to the ANDA, and the litigation was resolved by a settlement and license agreement that permits us to launch the generic version of the product no earlier than August 31, 2015, and no later than February 28, 2016, assuring our ability to market a generic version of Androgel^® well before the expiration of the patents at issue. On January 30, 2009, the Bureau of Competition for the FTC filed a lawsuit against us in the U.S. District Court for the Central District of California, subsequently transferred to the Northern District of Georgia, alleging violations of antitrust laws stemming from our court-approved settlement, and several distributors and retailers followed suit with a number of private plaintiffs' complaints beginning in February 2009. On February 23, 2010, the District Court granted our motion to dismiss the FTC's claims and granted in part and denied in part our motion to dismiss the claims of the private plaintiffs. On September 28, 2012, the District Court granted our motion for summary judgment against the private plaintiffs' claims of sham litigation. On June 10, 2010, the FTC appealed the District Court's dismissal of the FTC's claims to the U.S. Court of Appeals for the 11th Circuit. On April 25, 2012, the Court of Appeals affirmed the District Court's decision. On June 17, 2013, the Supreme Court of the United States reversed the Court of Appeals’ decision and remanded the case to the U.S. District Court for the Northern District of Georgia for further proceedings. On October 23, 2013, the District Court issued an order on indicative ruling on a request for relief from judgment, effectively remanding to the District Court the appeal of the grant of our motion for summary judgment against the private plaintiffs’ claims and holding those claims in abeyance while the remaining issues pending before the Court are resolved. On January 15, 2014 we filed a motion to dismiss the FTC’s complaint for failure to state a claim; and on April 21, 2014, that motion was denied. On April 22, 2014, we filed a motion for an interlocutory appeal of that motion, and on May 9, 2014, that motion was in turn denied. The period for expert discovery is scheduled to end August 28, 2015, and the deadline for the filing of summary judgment motions is set for September 28, 2015. We believe we have complied with all applicable laws in connection with the court-approved settlement and intend to continue to vigorously defend these actions.

On September 13, 2007, Santarus, Inc. and The Curators of the University of Missouri (“Missouri”) filed a lawsuit against us in the U.S. District Court for the District of Delaware alleging infringement of U.S. Patent Nos. 6,699,885; 6,489,346; and 6,645,988 because we submitted an ANDA with a Paragraph IV certification seeking FDA approval of 20 mg and 40 mg omeprazole/sodium bicarbonate capsules. On December 20, 2007, Santarus and Missouri filed a second lawsuit alleging infringement of the patents because we submitted an ANDA with a Paragraph IV certification seeking FDA approval of 20 mg and 40 mg omeprazole/sodium bicarbonate powders for oral suspension. The complaints generally sought (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. On October 20, 2008, plaintiffs amended their complaint to add U.S. Patent Nos. 6,780,882 and 7,399,722. On April 14, 2010, the District Court ruled in our favor, finding that the plaintiffs’ patents were invalid as being obvious and without adequate written description. On July 1, 2010, we launched our 20 mg and 40 mg generic omeprazole/sodium bicarbonate capsules product. Santarus and Missouri appealed the District Court’s decision to the U.S. Court of Appeals for the Federal Circuit, and we cross-appealed the District Court’s decision of enforceability of plaintiffs’ patents. On September 4, 2012, the Court of Appeals reversed the District Court’s finding of invalidity and remanded to the District Court for further proceedings, and we ceased further distribution of our 20 mg and 40 mg generic omeprazole/sodium bicarbonate capsules product. Santarus was acquired by Salix Pharmaceuticals, Inc. on January 2, 2014. On September 22, 2014, we entered into a settlement agreement with Salix, Santarus and Missouri to resolve all claims relating to this matter, and the dismissal stipulation was entered on September 26, 2014. As part of the settlement, Salix, Santarus and Missouri released all claims against us in exchange for a payment of $100 million. We recorded a charge of $91 million in the third quarter of 2014 in addition to the $9 million previously accrued.

On April 29, 2009, Pronova BioPharma ASA filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 5,502,077 and 5,656,667 because we submitted an ANDA with a Paragraph IV certification seeking FDA approval of omega-3-acid ethyl esters oral capsules. On May 29, 2012, the District Court ruled in favor of Pronova in the initial case, and we appealed to the U.S. Court of Appeals for the Federal Circuit on June 25, 2012. An oral hearing was held on May 8, 2013, and on September 12, 2013, the Court of Appeals ruled in our favor, reversing the lower District Court decision. On October 15, 2013, Pronova filed petitions for panel and en banc rehearing, which were denied on January 16, 2014. On March 5, 2014, judgment in our favor was formally entered in the District Court. On April 16, 2014, Pronova petitioned for writ of certiorari to the U.S. Supreme Court, which was denied on October 6, 2014.

On August 10, 2011, Avanir Pharmaceuticals, Inc. et al. filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 7,659,282 and RE38115 because we submitted an ANDA with a Paragraph IV certification seeking FDA approval of oral capsules of 20 mg dextromethorphan hydrobromide and 10 mg quinidine sulfate. The complaint generally seeks (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. Our case was consolidated with those of other defendants, Actavis, Impax,

and Wockhardt. On September 12, 2012, Avanir filed an additional complaint against us, adding U.S. Patent No. 8,227,484 to the case. A Markman ruling was entered December 3, 2012 and a bench trial was held from September 9, 2013 to September13, 2013 and on October 15, 2013. On April 30, 2014, a decision was entered in favor of Avanir. On June 10, 2014, we filed our notice of appeal to the U.S. Court of Appeals for the Federal Circuit. On August 20, 2014, the Court issued an order requiring that Avanir delist the ‘115 patent, leaving only the ‘484 and ‘282 to be addressed on appeal. We intend to prosecute our appeal of this decision vigorously.

On September 1, 2011, we, along with EDT Pharma Holdings Ltd. (now known as Alkermes Pharma Ireland Limited) (Elan), filed a complaint against TWi Pharmaceuticals, Inc. of Taiwan in the U.S. District Court for the District of Maryland and another complaint against TWi on September 2, 2011, in the U.S. District Court for the Northern District of Illinois. In both complaints, Elan and we allege infringement of U.S. Patent No. 7,101,576 because TWi filed an ANDA with a Paragraph IV certification seeking FDA approval of a generic version of Megace® ES. On February 6, 2012, we voluntarily dismissed our case in the Northern District of Illinois and proceeded with our case in the District of Maryland. Our complaint seeks (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. On July 17, 2013, the District Court granted in part and denied in part TWi's motion for summary judgment of invalidity and noninfringement and granted summary judgment in our favor dismissing two of TWi's invalidity defenses. On September 25, 2013, the District Court entered a stipulation in which TWi conceded infringement of the ’576 patent. A bench trial was held from October 7 to October15, 2013. On February 21, 2014, the District Court issued a decision in favor of TWi, finding all asserted claims of the ’576 patent invalid for obviousness. On March 18, 2014, we filed our notice of appeal to the U.S. Court of Appeals for the Federal Circuit. On July 18, 2014, we filed a motion for preliminary injunction requesting the District Court to enjoin TWi's launch of its generic product, which motion was granted on August 12, 2014. An oral hearing before the Court of Appeals was held on October 3, 2014. We intend to vigorously pursue our appeal.

On April 4, 2012, AR Holding Company, Inc. filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 7,619,004; 7,601,758; 7,820,681; 7,915,269; 7,964,647; 7,964,648; 7,981,938; 8,093,296; 8,093,297; and 8,097,655 because we submitted an ANDA with a Paragraph IV certification seeking FDA approval of oral tablets of 0.6 mg colchicine. On November 1, 2012, Takeda Pharmaceuticals was substituted as the plaintiff and real party-in-interest in the case. The complaint generally seeks (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. On August 30, 2013, Takeda filed a new complaint against us in view of our change of the ANDA’s labeled indication. A Markman hearing is scheduled for May 4, 2015 and trial is scheduled for November 30, 2015. We intend to defend this action vigorously.

On August 22, 2012, we were added as a defendant to the action pending before the U.S. District Court for the Northern District of California brought by Takeda Pharmaceuticals, originally against Handa Pharmaceuticals. Takeda's complaints allege infringement of U.S. Patent Nos. 6,462,058; 6,664,276; 6,939,971; 7,285,668; 7,737,282; and 7,790,755 because Handa submitted an ANDA with a Paragraph IV certification to the FDA for approval of dexlansoprazole delayed release capsules, 30 mg and 60 mg. The complaint generally seeks (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We assumed the rights to this ANDA. A bench trial was held on June 5-13, 2013. On April 26, 2013, we filed a declaratory judgment complaint in the U.S. District Court for the Northern District of California in view of U.S. Patent Nos. 8,105,626 and 8,173,158, and another in the same court on July 9, 2013 with respect to U.S. Patent No. 8,461,187, in each case against Takeda Pharmaceuticals, and asserting that the patents in questions are not infringed, invalid, or unenforceable. On October 17, 2013, a decision in favor of Takeda was entered in the original District Court case with respect to the ’282 and ’276 patents. On November 6, 2013, we filed our appeal of the original District Court’s judgment to the U.S. Court of Appeals for the Federal Circuit. On July 18, 2014, orders to stay both the appeal and the second District Court case were entered pending regulatory review of a settlement entered into by the parties on July 16, 2014. Pursuant to that settlement, the original District Court case was dismissed on September 8, 2014, the second District Court case was dismissed on September 5, 2014, and the appeal was dismissed on September 10, 2014.

On October 25, 2012, Purdue Pharma L.P. and Transcept Pharmaceuticals filed a lawsuit against us in the U.S. District Court for the District of New Jersey. The complaint alleged infringement of U.S. Patent Nos. 8,242,131 and 8,252,809 because we submitted an ANDA with a Paragraph IV certification seeking FDA approval of zolpidem tartrate sublingual tablets 1.75 and 3.5 mg. The complaint generally seeks (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. A Markman hearing was held on May 8, 2014, and a trial is scheduled for December 1, 2014. We intend to defend this action vigorously.

On December 19, 2012, Endo Pharmaceuticals and Grunenthal filed a lawsuit against us in the U.S. District Court for the Southern District of New York. The complaint alleges infringement of U.S. Patent Nos. 7,851,482; 8,114,383; 8,192,722; 8.309, 060; 8,309,122; and 8,329,216 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of oxymorphone hydrochloride extended release tablets 40 mg. The complaint generally seeks (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defend this action vigorously.

On January 8, 2013, we were substituted for Actavis as defendant in litigation then pending in the U.S. District Court for the District of Delaware. The action was brought by Novartis against Actavis for filing an ANDA with a Paragraph IV certification seeking FDA approval of rivastigmine transdermal extended release film 4.6 and 9.5 mg/24 hr. We assumed the rights to this ANDA. The complaint alleges infringement of U.S. Patents 5,602,176; 6,316,023; and 6,335,031 and generally seeks (i) a finding of

infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. A trial was held August 26-29, 2013, and a second bench trial directed to our non-infringement positions was held on May 1-2, 2014. On August 29, 2014, the Court entered judgment in our favor, finding that we do not infringe the asserted patents. On October 20, 2014, Novartis filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. We intend to defend this action vigorously.

On February 7, 2013, Sucampo Pharmaceuticals, Takeda Pharmaceuticals, and R-Tech Ueno filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 6,414,016; 7,795,312; 8,026,393; 8,071,613; 8,097,653; and 8,338,639 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of lubiprostone oral capsules 8 mcg and 24 mcg. The complaint seeks (i) a finding of infringement; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. On July 3, 2013, an amended complaint was filed, adding U.S. Patent No. 8,389,542 to the case. On October 9, 2014, the parties entered into a settlement agreement resolving the dispute and allowing us to launch our generic lubiprostone product on January 1, 2021, or earlier in certain circumstances. The case is stayed pending regulatory review of the settlement agreement.

On May 14, 2013, Bayer Pharma AG, Bayer IP GMBH, and Bayer Healthcare Pharmaceuticals, Inc. filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 6,362,178 and 7,696,206 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of vardenafil hydrochloride orally disintegrating tablets. The complaint seeks (i) a finding of infringement; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. On September 10, 2014, the case was dismissed pursuant to stipulation in view of our conversion from a Paragraph IV certification to a Paragraph III certification.

On May 15, 2013, Endo Pharmaceuticals filed a lawsuit against us in the U.S. District Court for the Southern District of New York. The complaint alleges infringement of U.S. Patent Nos. 7,851,482; 8,309,122; and 8,329,216 as a result of our November 2012 acquisition from Watson of an ANDA with a Paragraph IV certification seeking FDA approval of non-tamper resistant oxymorphone hydrochloride extended release tablets. The complaint generally seeks (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. While Watson had settled patent litigation relating to this product in October 2010, Endo is asserting patents that issued after that settlement agreement was executed. We intend to defend this action vigorously.

On June 19, 2013, Alza Corporation and Janssen Pharmaceuticals, Inc. filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent No. 8,163,798 as a result of our November 2012 acquisition from Watson of an ANDA with a Paragraph IV certification seeking FDA approval of methylphenidate hydrochloride extended release tablets. The complaint generally seeks (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. On September 9, 2014, a consent judgment was entered in view of a confidential settlement agreement entered into by the parties, and the case was dismissed.

On June 21, 2013, we, along with Alkermes Pharma Ireland Ltd., filed a complaint against Breckenridge Pharmaceutical, Inc. in the U.S. District Court for the District of Delaware. In the complaint, we allege infringement of U.S. Patent Nos. 6,592,903 and 7,101,576 because Breckenridge filed an ANDA with a Paragraph IV certification seeking FDA approval of a generic version of Megace^® ES. Our complaint seeks (i) a finding of infringement, validity, and/or enforceability; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. A stipulation to stay the proceedings was entered on July 22, 2014. We intend to prosecute this infringement case vigorously.

On September 23, 2013, Forest Labs and Royalty Pharma filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos., 6,602,911; 7,888,342; and 7,994,220 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of 12.5, 25, 50, and 100 mg milnacipran HCl oral tablets. The complaint seeks (i) a finding of infringement; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. A bench trial is scheduled for January 19, 2016. We intend to defend this action vigorously.

On August 20, 2013, MonoSol RX and Reckitt Benckiser filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos., 8,017,150 and 8,475,832 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of EQ 2/0.5, 8/2, 4/1, 12/3 mg base buprenorphine HCl/naloxone HCl sublingual films. The complaint seeks (i) a finding of infringement; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. A three-day bench trial is scheduled for August 31, 2015. We intend to defend this action vigorously.

On December 27, 2013, Jazz Pharmaceuticals filed a lawsuit against us in the U.S. District Court for the District of New Jersey. The complaint alleges infringement of U.S. Patent Nos. 6,472,431; 6,780,889; 7,262,219; 7,851,506; 8,263,650; 8,324,275; 8,461,203; 7,668,730; 7,765,106; 7,765,107; 7,895,059; 8,457,988; and 8,589,182 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of 500mg/ml sodium oxybate oral solution. The complaint seeks (i) a finding of infringement; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defend this action vigorously.

On January 21, 2014, Lyne Laboratories, Fresenius USA Manufacturing and Fresenius Medical Care Holdings filed a lawsuit against us in the U.S. District Court for the District of Massachusetts. The complaint alleges infringement of U.S. Patent Nos. 8,591,938 and 8,592,480 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of 169mg/5ml calcium acetate oral solution. The complaint seeks (i) a finding of infringement; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defend this action vigorously.

On January 23, 2014, Eli Lilly filed two lawsuits against us in the U.S. District Court for the Southern District of Indiana, and on January 24, 2014, Lilly, Daiichi Sankyo, and Ube Industries, Ltd. filed two lawsuits against us in the U.S. District Court for the District of New Jersey. The complaints allege infringement of U.S. Patent Nos. 8,404,703 and 8,569,325 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of EQ 5 mg and EQ 10 mg prasugrel hydrochloride oral tablets. The complaints seek (i) a finding of infringement and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. Pursuant to our conversion of our Paragraph IV certification to a Paragraph III certification, the New Jersey District Court cases were dismissed on June 26 and August 21, respectively, and the cases in the Southern District of Indiana were dismissed on July 22, 2014.

On February 14, 2014, Forest Laboratories, Inc., Forest Laboratories Holdings, Ltd., and Adamas Pharmaceuticals, Inc., filed a lawsuit against us and our Anchen subsidiary in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 8,039,009; 8,168,209; 8,173,708; 8,283,379; 8,329,752; 8,362,085; and 8,598,233 because we submitted ANDAs with Paragraph IV certifications to the FDA for approval of 7, 14, 21, and 28 mg memantine hydrochloride extended release capsules. The complaint seeks (i) a finding of infringement and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defend this action vigorously.

On April 23, 2014, Hyperion Therapeutics filed a lawsuit against us in the U.S. District Court for the Eastern District of Texas. The complaint alleges infringement of U.S. Patent Nos. 8,404,215 and 8,642,012 because we submitted an ANDA with Paragraph IV certifications to the FDA for approval of 1.1 g/ml glyceryl phenylbutyrate oral liquid. The complaint seeks (i) a finding of infringement and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defend this action vigorously.

On June 20, 2014, Otsuka Pharmaceutical Co. filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 5,753,677 and 8,501,730 relating to our Paragraph IV certification accompanying our ANDA for approval of 15 and 30 mg tolvaptan oral tablets. The complaint seeks (i) a finding of infringement; and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defend this action vigorously.

On June 30, 2014, AstraZeneca filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent No. 7,951,400 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of eq 2.5 mg and eq 5 mg saxagliptin hydrochloride oral tablets. The complaint seeks (i) a finding of infringement and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defend this action vigorously.

On July 17, 2014, Glycyx Pharmaceuticals and Salix filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 6,197,341 and 8,497,256 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of 1.1 g balsalazide disodium oral tablets. The complaint seeks (i) a finding of infringement and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defend this action vigorously.

On August 6, 2014, Prometheus Labs filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent No. 6,284,770 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of 0.5 and 1.0 mg alosetron hydrochloride tablets. The complaint seeks (i) a finding of infringement and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defend this action vigorously.

On August 19, 2014, Hospira filed a declaratory judgment complaint against the FDA in the U.S. District Court for the District of Maryland in view of the FDA’s approval of our ANDA for dexmedetomidine hydrochloride injection, concentrate (100 mcg/ml) vials pursuant to our submission and statement under section viii. On August 20, 2014, we moved to intervene in the case on the side of the FDA. On August 25, 2014, we filed a declaratory judgment complaint against Hospira in view of U.S. Patent No. 6,716,867 in the U.S. District Court for the District of New Jersey. On September 5, 2014, the Maryland Court ruled in favor of the FDA, Par, and joint intervenor Mylan on summary judgment. Hospira and its intervenor/co-complainant Sandoz appealed that judgment to the U.S. Court of Appeals for the Fourth Circuit that same day. On October 29, 2014, all parties stipulated jointly to a dismissal of all of the cases (Maryland, New Jersey, and the Fourth Circuit) pursuant to a settlement, the terms of which are confidential.

On October 10, 2014, Novartis Pharmaceuticals Corporation and Novartis AG filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 5,665,772; 6,004,973; and 6,455,518 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of 0.25, 0.5, and 0.75 mg everolimus tablets. The complaint seeks (i) a finding of infringement and (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit. We intend to defense this action vigorously.

Under a Development and Supply Agreement between Pharmaceutics International, Inc. (“PII”) and Par Sterile Products, LLC (formerly JHP Pharmaceuticals, LLC), PII agreed to develop and manufacture, and Par Sterile Products agreed to market and sell, certain pharmaceutical products, including zoledronic acid, the generic version of Zometa® and Reclast®. Under the Agreement, the parties agreed to share equally all mutually agreed expenses and costs of Paragraph IV proceedings related to the product, including any costs and expenses related to any mutually agreed upon settlement. On February 20, 2013, Novartis Pharmaceuticals Corporation filed a lawsuit against PII, along with several other defendants, in the U.S. District Court for the District of New Jersey,

for filing ANDAs with Paragraph IV certifications seeking FDA approval of both zoledronic acid eq 4 mg base/5 ml vials and zoledronic acid eq 5 mg base/100 ml bottles. The complaint alleges, among other things, that the sale of generic versions of Reclast® and Zometa® would infringe one or more of US Patent Nos. 8,324,189; 7,932,241; and 8,052,987 and seeks (i) a finding of infringement, validity, and/or enforceability; (ii) a permanent injunction be entered, terminating at the expiration of the patents-in-suit; and (iii) damages or other monetary relief in light of commercial manufacture, use, offers to sell, or sale of the ANDA products. On March 1, 2013, the District Court denied Novartis’s request for a temporary restraining order against PII and the other defendants. On March 4, 2013, Par Sterile began distribution of PII’s generic Zometa® product and began distribution of the generic Reclast® product in December 2013. In September 2014, Novartis served a subpoena on Par Sterile seeking documents and testimony related to the lawsuit.

Industry Related Matters

We, along with numerous other pharmaceutical companies, have been named as a defendant in a state law qui tam action brought on behalf of the state of Wisconsin by Peggy Lautenschlager and Bauer & Bach, LLC, alleging generally that the defendants defrauded the state Medicaid systems by purportedly reporting or causing the reporting of AWP and/or “Wholesale Acquisition Costs” that exceeded the actual selling price of the defendants’ prescription drugs. On February 17, 2014, the Dane County Circuit Court for the State of Wisconsin dismissed the complaint. On June 12, 2014, the Dane County Circuit Court denied the plaintiffs’ renewed motion to amend the complaint and issued a final order of dismissal in the state law qui tam action. The plaintiffs subsequently appealed the ruling, and on September 22, 2014, the Wisconsin Court of Appeals dismissed the plaintiffs’ appeal. As a result, all existing AWP cases involving the Company have been concluded.

The Attorneys General of Florida, Indiana and Virginia and the U.S. Office of Personnel Management (the “USOPM”) have issued subpoenas, and the Attorneys General of Michigan, Tennessee, Texas, and Utah have issued civil investigative demands, to us. The demands generally request documents and information pertaining to allegations that certain of our sales and marketing practices caused pharmacies to substitute ranitidine capsules for ranitidine tablets, fluoxetine tablets for fluoxetine capsules, and two 7.5 mg buspirone tablets for one 15 mg buspirone tablet, under circumstances in which some state Medicaid programs at various times reimbursed the new dosage form at a higher rate than the dosage form being substituted. We have provided documents in response to these subpoenas to the respective Attorneys General and the USOPM. The aforementioned subpoenas and civil investigative demands culminated in the federal and state law qui tam action brought on behalf of the United States and several states by Bernard Lisitza. The complaint was unsealed on August 30, 2011. The United States intervened in this action on July 8, 2011 and filed a separate complaint on September 9, 2011, alleging claims for violations of the Federal False Claims Act and common law fraud. The states of Michigan and Indiana have also intervened as to claims arising under their respective state false claims acts, common law fraud, and unjust enrichment. We intend to vigorously defend these lawsuits.

Other

On August 6, 2014, we received a subpoena from the Office of the Attorney General of the State of Connecticut requesting documents related to our agreement with Covis Pharma S.a.r.l. to distribute an authorized generic version of Covis' Lanoxin^®(digoxin) oral tablets. We intend to cooperate fully with the Attorney General's request.

We are, from time to time, a party to certain other litigations, including product liability litigations. We believe that these litigations are part of the ordinary course of our business and that their ultimate resolution will not have a material effect on our financial condition, results of operations or liquidity. We intend to defend or, in cases where we are the plaintiff, to prosecute these litigations vigorously.

Note 20 – Segment Information:

We operate in two reportable business segments: generic pharmaceuticals (referred to as “Par Pharmaceutical” or “Par”) and branded pharmaceuticals (referred to as “Strativa Pharmaceuticals” or “Strativa”). Branded products are marketed under brand names through marketing programs that are designed to generate physician and consumer loyalty. Branded products generally are patent protected, which provides a period of market exclusivity during which they are sold with little or no direct competition. Generic pharmaceutical products are the chemical and therapeutic equivalents of corresponding brand drugs. The Drug Price Competition and Patent Term Restoration Act of 1984 provides that generic drugs may enter the market upon the approval of an ANDA and the expiration, invalidation or circumvention of any patents on corresponding brand drugs, or the expiration of any other market exclusivity periods related to the brand drugs. Our chief operating decision maker is our Chief Executive Officer.

Our business segments were determined based on management’s reporting and decision-making requirements in accordance with ASC 280-10, "Segment Reporting." We believe that our generic products represent a single operating segment because the demand for these products is mainly driven by consumers seeking a lower cost alternative to brand name drugs. Par’s generic drugs are developed using similar methodologies, for the same purpose (e.g., seeking bioequivalence with a brand name drug nearing the end of its market exclusivity period for any reason discussed above). Par’s generic products are produced using similar processes and standards mandated by the FDA, and Par’s generic products are sold to similar customers. Based on the similar economic characteristics, production processes and customers of Par’s generic products, management has determined that Par’s generic

pharmaceuticals are a single reportable business segment. Our chief operating decision maker does not review the Par (generic) or Strativa (brand) segments in any more granularity, such as at the therapeutic or other classes or categories. Certain of our expenses, such as the direct sales force and other sales and marketing expenses and specific research and development expenses, are charged directly to either of the two segments. Other expenses, such as general and administrative expenses and non-specific research and development expenses are allocated between the two segments based on assumptions determined by management.

Our chief operating decision maker does not review our assets or depreciation by business segment at this time as they are not material to Strativa. Therefore, such allocations by segment are not provided.

The financial data for the two business segments are as follows ($ amounts in thousands):



	Three months ended						Nine months ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Revenues:
Par Pharmaceutical	$	318,784		$	249,818		$	871,425		$	737,733
Strativa	17,333			17,503			49,182			53,453
Total revenues	$	336,117		$	267,321		$	920,607		$	791,186

Gross margin:
Par Pharmaceutical	$	129,845		$	69,506		$	297,374		$	175,502
Strativa	10,980			11,885			31,276			36,233
Total gross margin	$	140,825		$	81,391		$	328,650		$	211,735

Operating loss:
Par Pharmaceutical	$	(29,846	)	$	(18,352	)	$	(61,409	)	$	(19,169	)
Strativa	(3,029		)	(6,373		)	(23,148		)	(4,446		)
Total operating loss	$	(32,875	)	$	(24,725	)	$	(84,557	)	$	(23,615	)
Interest income	2			14			16			70
Interest expense	(27,690		)	(23,385		)	(80,656		)	(71,033		)
Loss on debt extinguishment	—			—			(3,989		)	(7,335		)
Other Income	500			—			500			—
Benefit for income taxes	(22,425		)	(18,797		)	(64,762		)	(36,077		)
Net loss	$	(37,638	)	$	(29,299	)	$	(103,924	)	$	(65,836	)

Total revenues of our top selling products were as follows ($ amounts in thousands):



	Three months ended						Nine months ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Product
Par Pharmaceutical
Budesonide (Entocort® EC)	$	32,065		$	54,952		$	107,680		$	150,382
Propafenone (Rythmol SR®)	18,858			19,423			55,235			53,919
Oxycodone (Oxycontin®)	18,334			—			18,334			—
Omega-3 acid ethyl esters (Lovaza®)	17,716			—			17,716			—
Bupropion ER (Wellbutrin®)	16,581			11,450			51,346			31,268
Divalproex (Depakote®)	10,849			26,343			46,765			20,116
Metoprolol succinate ER (Toprol-XL®)	9,312			12,277			35,525			45,206
Lamotrigine (Lamictal XR®)	8,789			11,079			29,185			41,725
Rizatriptan (Maxalt®)	3,760			5,283			7,555			42,296
Par Sterile Products	46,751			—			96,479			—
Other (1)	126,959			101,788			386,369			330,624
Other product related revenues (2)	8,810			7,223			19,236			22,197
Total Par Pharmaceutical Revenues	$	318,784		$	249,818		$	871,425		$	737,733

Strativa
Megace® ES	$	7,712		$	9,455		$	23,644		$	31,009
Nascobal® Nasal Spray	8,457			7,592			22,953			20,596
Other	(1		)	(398		)	(47		)	(877		)
Other product related revenues (2)	1,165			854			2,632			2,725
Total Strativa Revenues	$	17,333		$	17,503		$	49,182		$	53,453


(1)	The further detailing of revenues of the other approximately 85 generic drugs was not considered significant to the overall disclosure due to the lower volume of revenues associated with each of these generic products. No single product in the other category was significant to total generic revenues for the nine-month periods ended September 30, 2014 and 2013.


(2)	Other product related revenues represents licensing and royalty related revenues from profit sharing agreements.

Note 21 – Restructuring:

2014

Subsequent to the JHP Acquisition, we eliminated approximately 26 redundant positions within Par Pharmaceutical and accrued severance and other employee-related costs for those employees affected by the workforce reduction in the first quarter of 2014.

($ amounts in thousands)



Restructuring Activities (JHP)	Initial Charge		Additional Charge		Cash Payments			Non-Cash Charge Related to Inventory and/or Intangible Assets		Reversals, Reclass or Transfers		Liabilities at September 30, 2014
Severance and employee benefits to be paid in cash	$	1,146	$	3,432	$	(1,839	)	$	—	$	—	$	2,739
Total restructuring costs line item	$	1,146	$	3,432	$	(1,839	)	$	—	$	—	$	2,739

2013

In January 2013, we initiated a restructuring of Strativa, our branded pharmaceuticals division, in anticipation of entering into a settlement agreement and corporate integrity agreement that terminated the U.S. Department of Justice’s ongoing investigation of Strativa’s marketing of Megace^® ES. We reduced our Strativa workforce by approximately 70 people, with the majority of the reductions in the sales force. The remaining Strativa sales force has been reorganized into a single sales team of approximately 60 professionals that focus their marketing efforts principally on Nascobal^® Nasal Spray. In connection with these actions, we incurred expenses for severance and other employee-related costs as well as the termination of certain contracts. There were no remaining liabilities at September 30, 2014 on the condensed consolidated balance sheet.

($ amounts in thousands)



Restructuring Activities (Strativa)	Initial Charge		Cash Payments			Non-Cash Charge Related to Inventory and/or Intangible Assets			Reversals, Reclass or Transfers			Liabilities at September 30, 2014
Severance and employee benefits to be paid in cash	$	1,413	$	(1,409	)	$	—		$	(4	)	$	—
Asset impairments and other	403		—			(403		)	—			—
Total restructuring costs line item	$	1,816	$	(1,409	)	$	(403	)	$	(4	)	$	—

Note 22 - Subsequent Event

During the fourth quarter of 2014, we entered into a definitive agreement to purchase a privately-held domestic corporation that is engaged in the business of researching, developing and manufacturing transdermal patches and thin film, slow dissolve film, coated/non-woven film and other coated pharmaceutical and

PAR PHARMACEUTICAL COMPANIES, INC. 10-Q