ENDP-3.31.2015-10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549  
_______________________________
FORM 10-Q
_______________________________ 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM              TO
Commission file number: 001-36326   
____________________________________________________________________________________________
ENDO INTERNATIONAL PLC
(Exact Name of Registrant as Specified in Its Charter)  
____________________________________________________________________________________________
Ireland
Not Applicable
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland
Not Applicable
(Address of Principal Executive Offices)
(Zip Code)
011-353-1-268-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Ordinary shares, nominal value $0.0001 per share
The NASDAQ Global Market, The Toronto Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
____________________________________________________________________________________________
Indicate by check whether the registrant: (1) has filed all reports required to be filed by Sections 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   o
Indicate by check 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   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  o    NO   x
Indicate the number of shares outstanding of each of the issuer’s classes of ordinary shares, as of the latest practical date.
Ordinary shares, $0.0001 par value
Number of ordinary shares outstanding as of
May 1, 2015
:
178,746,233




ENDO INTERNATIONAL PLC
INDEX
 
 
Page
Forward-Looking Statements
 
 
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
Condensed Consolidated Balance Sheets March 31, 2015 (Unaudited) and December 31, 2014
 
Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2015 and 2014
 
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) Three Months Ended March 31, 2015 and 2014
 
Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2015 and 2014
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
 
 
 
Signatures
Exhibit Index
 



Table of Contents

FORWARD-LOOKING STATEMENTS
Statements contained or incorporated by reference in this document contain information that includes or is based on “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements, including estimates of future revenues, future expenses, future net income and future net income per share, contained in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in this document, are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed results of operations. We have tried, whenever possible, to identify such statements by words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plan,” “projected,” “forecast,” “will,” “may” or similar expressions. We have based these forward-looking statements on our current expectations and projections about the growth of our business, our financial performance and the development of our industry. Because these statements reflect our current views concerning future events, these forward-looking statements involve risks and uncertainties. Investors should note that many factors, as more fully described under the caption “Risk Factors” in Item 1A. of this document and in Part I, Item 1A. under the caption “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2014, supplement, and as otherwise enumerated herein, could affect our future financial results and could cause our actual results to differ materially from those expressed in forward-looking statements contained or incorporated by reference in this document.
We do not undertake any obligation to update our forward-looking statements after the date of this document for any reason, even if new information becomes available or other events occur in the future, except as may be required under applicable securities law. You are advised to consult any further disclosures we make on related subjects in our reports filed with the Securities and Exchange Commission (SEC) and with securities regulators in Canada on the System for Electronic Document Analysis and Retrieval (SEDAR). Also note that, in Item 1A. of this document and in Part I, Item 1A. under the caption “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2014, we provide a cautionary discussion of the risks, uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by Section 27A of the Securities Act and Section 21E of the Exchange Act. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider this to be a complete discussion of all potential risks or uncertainties.

i

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.         Financial Statements
ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
 
March 31,
2015
 
December 31,
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
377,461

 
$
408,753

Restricted cash and cash equivalents
534,162

 
530,930

Marketable securities
1,103

 
815

Accounts receivable
1,235,383

 
1,126,078

Inventories, net
611,401

 
423,321

Prepaid expenses and other current assets
54,601

 
38,680

Income taxes receivable
169,753

 
51,846

Deferred income taxes
650,411

 
561,974

Assets held for sale (NOTE 3)
1,693,594

 
1,937,864

Total current assets
$
5,327,869

 
$
5,080,261

MARKETABLE SECURITIES
3,349

 
1,506

PROPERTY, PLANT AND EQUIPMENT, NET
406,757

 
387,703

GOODWILL
3,025,070

 
2,899,587

OTHER INTANGIBLES, NET
5,070,074

 
2,333,193

DEFERRED INCOME TAXES
3,019

 
5,059

OTHER ASSETS
309,539

 
202,307

TOTAL ASSETS
$
14,145,677

 
$
10,909,616

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
312,016

 
$
297,484

Accrued expenses
1,234,255

 
1,149,545

Current portion of legal settlement accrual
1,593,121

 
1,443,114

Current portion of long-term debt
160,613

 
155,937

Income taxes payable
42,819

 

Deferred income taxes
84

 
22

Liabilities held for sale (NOTE 3)
99,112

 
103,024

Total current liabilities
$
3,442,020

 
$
3,149,126

DEFERRED INCOME TAXES
754,258

 
678,054

LONG-TERM DEBT, LESS CURRENT PORTION, NET
5,386,547

 
4,202,356

LONG-TERM LEGAL SETTLEMENT ACCRUAL, LESS CURRENT PORTION, NET

 
262,781

OTHER LIABILITIES
423,136

 
209,086

COMMITMENTS AND CONTINGENCIES (NOTE 12)


 


SHAREHOLDERS’ EQUITY:
 
 
 
Euro deferred shares, $0.01 par value; 4,000,000 shares authorized; 4,000,000 issued
42

 
48

Ordinary shares, $0.0001 and $0.0001 par value; 1,000,000,000 and 1,000,000,000 shares authorized; 178,611,350 and 153,912,985 shares issued; 178,611,350 and 153,912,985 shares outstanding at March 31, 2015 and December 31, 2014, respectively
18

 
15

Additional paid-in capital
5,067,562

 
3,093,867

Accumulated deficit
(670,803
)
 
(595,085
)
Accumulated other comprehensive loss
(257,221
)
 
(124,088
)
Total Endo International plc shareholders’ equity
$
4,139,598

 
$
2,374,757

Noncontrolling interests
118

 
33,456

Total shareholders’ equity
$
4,139,716

 
$
2,408,213

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
14,145,677

 
$
10,909,616

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
 
Three Months Ended March 31,
 
2015
 
2014
 TOTAL REVENUES
$
714,128

 
$
470,842

 COSTS AND EXPENSES:
 
 
 
Cost of revenues
384,266

 
212,679

Selling, general and administrative
211,578

 
160,066

Research and development
17,897

 
30,946

Litigation-related and other contingencies, net
13,000

 

Asset impairment charges
7,000

 

Acquisition-related and integration items
34,640

 
45,269

 OPERATING INCOME FROM CONTINUING OPERATIONS
$
45,747

 
$
21,882

 INTEREST EXPENSE, NET
73,139

 
53,392

 LOSS ON EXTINGUISHMENT OF DEBT
980

 
9,596

 OTHER INCOME, NET
(11,995
)
 
(6,408
)
 LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX
$
(16,377
)
 
$
(34,698
)
 INCOME TAX (BENEFIT) EXPENSE
(166,869
)
 
12,703

 INCOME (LOSS) FROM CONTINUING OPERATIONS
$
150,492

 
$
(47,401
)
 DISCONTINUED OPERATIONS, NET OF TAX (NOTE 3)
(226,210
)
 
(385,877
)
 CONSOLIDATED NET LOSS
$
(75,718
)
 
$
(433,278
)
 Less: Net income attributable to noncontrolling interests

 
3,634

 NET LOSS ATTRIBUTABLE TO ENDO INTERNATIONAL PLC
$
(75,718
)
 
$
(436,912
)
 NET LOSS PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—BASIC:
 
 
 
Continuing operations
$
0.89

 
$
(0.37
)
Discontinued operations
$
(1.34
)
 
$
(3.04
)
Basic
$
(0.45
)
 
$
(3.41
)
 NET LOSS PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—DILUTED:
 
 
 
Continuing operations
$
0.85

 
$
(0.37
)
Discontinued operations
$
(1.28
)
 
$
(3.04
)
Diluted
$
(0.43
)
 
$
(3.41
)
 WEIGHTED AVERAGE SHARES:
 
 
 
Basic
169,653

 
128,135

Diluted
176,825

 
128,135

See Notes to Condensed Consolidated Financial Statements.

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ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(In thousands)
 
Three Months Ended March 31,
 
2015
 
2014
 CONSOLIDATED NET LOSS
 
 
$
(75,718
)
 
 
 
$
(433,278
)
 OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
 
 
 
 
 
 
 
 Net unrealized gain (loss) on securities:
 
 
 
 
 
 
 
Unrealized gain (loss) arising during the period
$
1,513

 
 
 
$
(340
)
 
 
Less: reclassification adjustments for (gain) loss realized in net loss

 
1,513

 

 
(340
)
Foreign currency translation (loss) gain
 
 
(131,348
)
 
 
 
5,077

 OTHER COMPREHENSIVE (LOSS) INCOME
 
 
$
(129,835
)
 
 
 
$
4,737

 CONSOLIDATED COMPREHENSIVE LOSS
 
 
$
(205,553
)
 
 
 
$
(428,541
)
Less: Net income attributable to noncontrolling interests
 
 

 
 
 
3,634

Less: Other comprehensive (loss) income attributable to noncontrolling interests
 
 
(606
)
 
 
 

 COMPREHENSIVE LOSS ATTRIBUTABLE TO ENDO INTERNATIONAL PLC
 
 
$
(204,947
)
 
 
 
$
(432,175
)
See Notes to Condensed Consolidated Financial Statements.

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ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Three Months Ended March 31,
 
2015
 
2014
OPERATING ACTIVITIES:
 
 
 
Consolidated net loss
$
(75,718
)
 
$
(433,278
)
Adjustments to reconcile consolidated net loss to Net cash used in operating activities:
 
 
 
Depreciation and amortization
119,590

 
74,588

Inventory step-up
37,554

 
3,581

Share-based compensation
13,837

 
7,595

Amortization of debt issuance costs and premium / discount
5,947

 
9,952

Provision for bad debts
232

 
775

Deferred income taxes
(164,535
)
 
(186,222
)
Net loss on disposal of property, plant and equipment
52

 
875

Loss on extinguishment of debt
980

 
9,596

Asset impairment charges
229,753

 

Gain on sale of business and other assets

 
(1,545
)
Changes in assets and liabilities which (used) provided cash:
 
 
 
Accounts receivable
(39,941
)
 
43,889

Inventories
(10,166
)
 
(10,224
)
Prepaid and other assets
6,580

 
12,734

Accounts payable
6,267

 
(59,916
)
Accrued expenses
80,034

 
298,229

Other liabilities
(223,415
)
 
37,489

Income taxes payable/receivable
(76,859
)
 
(55,061
)
Net cash used in operating activities
$
(89,808
)
 
$
(246,943
)
INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment
(17,189
)
 
(20,837
)
Proceeds from sale of property, plant and equipment

 
19

Acquisitions, net of cash acquired
(911,892
)
 
(113,464
)
Proceeds from sale of marketable securities and investments

 
15,167

Proceeds from notes receivable
17

 

Proceeds from sale of business, net
4,712

 
55,271

Proceeds from settlement escrow

 
3,148

Increase in restricted cash and cash equivalents
(172,900
)
 

Decrease in restricted cash and cash equivalents
166,768

 
702,495

Net cash (used in) provided by investing activities
$
(930,484
)
 
$
641,799


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Table of Contents

 
Three Months Ended March 31,
 
2015
 
2014
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of notes
1,200,000

 

Proceeds from issuance of term loans

 
1,525,000

Principal payments on term loans
(11,375
)
 
(1,396,019
)
Principal payments on other indebtedness, net
(270
)
 
(3,134
)
Repurchase of convertible senior subordinated notes
(149,068
)
 

Deferred financing fees
(20,482
)
 
(38,435
)
Payment for contingent consideration
(4,723
)
 

Tax benefits of share awards
16,797

 
23,861

Payments of tax withholding for restricted shares
(11,930
)
 
(21,475
)
Exercise of options
18,470

 
21,593

Payments related to the issuance of ordinary shares
(2,068
)
 
(4,800
)
Issuance of ordinary shares related to the employee stock purchase plan
1,118

 
1,178

Cash distributions to noncontrolling interests

 
(5,285
)
Cash buy-out of noncontrolling interests
(39,608
)
 
(82
)
Net cash provided by financing activities
$
996,861

 
$
102,402

Effect of foreign exchange rate
(7,861
)
 
12

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
$
(31,292
)
 
$
497,270

LESS: NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS

 
(17,413
)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS
$
(31,292
)
 
$
514,683

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
408,753

 
526,597

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
377,461

 
$
1,041,280

SUPPLEMENTAL INFORMATION:
 
 
 
Cash paid into Qualified Settlement Funds for mesh legal settlements
$
170,739

 
$

Cash paid out of Qualified Settlement Funds for mesh legal settlements
$
127,160

 
$
3,148

Other cash distributions for mesh legal settlements
$
3,815

 
$

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment financed by capital leases
$
54

 
$
4

Accrual for purchases of property, plant and equipment
$
3,179

 
$
5,589

Acquisition financed by ordinary shares
$
1,519,318

 
$
2,844,279

Repurchase of convertible senior subordinated notes financed by ordinary shares
$
408,585

 
$

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ENDO INTERNATIONAL PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2015
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements of Endo International plc have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements of Endo and its subsidiaries, which are unaudited, include all normal and recurring adjustments considered necessary to present fairly the Company’s financial position as of March 31, 2015 and the results of our operations and our cash flows for the periods presented. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The year-end Condensed Consolidated Balance Sheet data as of December 31, 2014 was derived from the audited financial statements.
In periods prior to February 28, 2014, our Condensed Consolidated Financial Statements presented the accounts of Endo Health Solutions Inc., which was incorporated under the laws of the State of Delaware on November 18, 1997, and all of its subsidiaries (EHSI). Endo International plc was incorporated in Ireland on October 31, 2013 as a private limited company and re-registered effective February 18, 2014 as a public limited company. It was established for the purpose of facilitating the business combination between EHSI and Paladin Labs Inc. (Paladin). On February 28, 2014, we became the successor registrant of EHSI and Paladin in connection with the consummation of certain transactions further described elsewhere in our Condensed Consolidated Financial Statements. In addition, on February 28, 2014, the shares of Endo International plc began trading on the NASDAQ under the symbol “ENDP,” the same symbol under which EHSI’s shares previously traded, and on the Toronto Stock Exchange under the symbol “ENL”.
References throughout to “Endo”, the “Company”, “we”, “our” or “us” refer to financial information and transactions of Endo Health Solutions Inc. prior to February 28, 2014 and Endo International plc thereafter.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2014. During the first quarter 2015, the Company recorded approximately $3.6 million of adjustments to income from continuing operations that relate to 2014. These adjustments relate to the correction of prior year items. This amount is not material to the Company’s results of operations for the quarter ended March 31, 2015 or expected full year 2015 results. This amount is also not material to any prior years.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards update (ASU) No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. This ASU sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. This ASU, as issued, is effective for annual reporting periods beginning after December 15, 2016 and interim reporting periods within that reporting period, with early adoption not permitted. Accordingly, the Company currently plans to adopt this ASU on January 1, 2017. However, on April 1, 2015, the FASB voted to propose to defer the effective date of the new revenue recognition standard by one year, with early adoption permitted, but not before the original public organization effective date. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU. The Company is currently evaluating the impact of ASU 2014-09 on the Company’s consolidated results of operations and financial position.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015. ASU 2015-03 requires retrospective application. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2015-03 on the Company’s consolidated results of operations and financial position.

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NOTE 3. DISCONTINUED OPERATIONS
American Medical Systems
On February 24, 2015, the Board of Directors approved a plan to sell the Company’s AMS business, which comprises the entirety of our Devices segment. Subsequently, the Company entered into a definitive agreement to sell the Men’s Health and Prostate Health components of the AMS business to Boston Scientific Corporation (Boston Scientific) for up to $1.65 billion, with $1.60 billion in upfront cash. The Company is also eligible to receive a potential milestone payment of $50.0 million in cash conditioned on Boston Scientific achieving certain product revenue milestones in the Men’s Health and Prostate Health components in 2016. In addition, Boston Scientific will pay $60.0 million in exchange for 60,000 shares of Series B Non-Voting Preferred Stock issued by American Medical Systems Holdings, Inc. The preferred stock entitles the holder to dividends payable quarterly at an initial annual rate of 7.25%, which will increase by 0.25% each year on January 1, from 2018 until the rate equals 11.50%. While the preferred stock remains outstanding, American Medical Systems Holdings, Inc. will be subject to certain affirmative and negative covenants, including an obligation to maintain assets in excess of the liquidation preference of the preferred stock, and restrictions on the sale of assets and the incurrence of certain indebtedness. The preferred stock matures and becomes mandatorily redeemable in 2035.
The transaction with Boston Scientific is expected to close in the third quarter of 2015, subject to customary conditions, including the expiration or termination of any applicable waiting periods under applicable competition laws. In addition, the Company is currently pursuing a sale of the Women’s Health component of the AMS business.
The majority of the assets and liabilities of the AMS business, previously known as the Devices segment, are classified as held for sale in the Condensed Consolidated Balance Sheets. Certain of AMS’s assets and liabilities, primarily with respect to its product liability accrual for all known pending and estimated future claims related to vaginal mesh cases, the related Qualified Settlement Funds and certain intangible and fixed assets, are not classified as held for sale based on management’s current expectation that these assets and liabilities will remain with the Company subsequent to sale. Depreciation and amortization expense are not recorded on assets held for sale. The operating results of this business are reported as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for all periods presented.
In connection with classifying AMS as held-for-sale, the Company was required to compare the estimated fair values of the underlying disposal groups, less the costs to sell, to the respective carrying amounts. As a result of this analysis, the Company recorded a combined asset impairment charge of $222.8 million during the three months ended March 31, 2015, which was classified as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations. The fair market value was based on our discussions with third parties. In addition, as a result of determining that the sale of the AMS disposal groups was probable, the Company re-assessed its permanent reinvestment assertion for certain components of the AMS business and recognized a corresponding tax benefit of $159.7 million during the three months ended March 31, 2015, which was recorded as Income tax (benefit) expense (a component of income (loss) from continuing operations) in the Condensed Consolidated Statements of Operations. In connection with the closing of the sale to Boston Scientific, it is expected there will be further tax benefits which will be recorded upon closing of the sale.

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The following table provides the operating results of the Discontinued operations of AMS, net of tax for the three months ended March 31 (in thousands):
 
Three Months Ended March 31,
 
2015
 
2014
Revenue
$
118,665

 
$
123,767

Loss from discontinued operations before income taxes
$
(229,858
)
 
$
(619,420
)
Income tax benefit
(3,648
)
 
(228,124
)
Discontinued operations, net of tax
$
(226,210
)
 
$
(391,296
)
The following table provides the components of Assets and Liabilities held for sale of AMS as of March 31, 2015 and December 31, 2014 (in thousands):
 
March 31, 2015
 
December 31, 2014
Current assets
$
161,600

 
$
165,075

Property, plant and equipment
40,667

 
41,122

Goodwill
634,984

 
862,960

Other intangibles, net
848,847

 
861,174

Other assets
7,496

 
7,533

Assets held for sale
$
1,693,594

 
$
1,937,864

Current liabilities
$
51,060

 
$
53,143

Deferred taxes
44,374

 
46,224

Other liabilities
3,678

 
3,657

Liabilities held for sale
$
99,112

 
$
103,024

The following table provides the Depreciation and amortization and Purchases of property, plant and equipment of AMS for the three months ended March 31 (in thousands):
 
Three Months Ended March 31,
 
2015
 
2014
Cash flows from discontinued operating activities:
 
 
 
Net loss
$
(226,210
)
 
$
(391,296
)
Depreciation and amortization
11,555

 
17,610

Cash flows from discontinued investing activities:
 
 
 
Purchases of property, plant and equipment
$
(934
)
 
$
(894
)
HealthTronics
On December 28, 2013, the EHSI Board approved a plan to sell the HealthTronics business and the Company entered into a definitive agreement to sell the business on January 9, 2014 to Altaris Capital Partners LLC for an upfront cash payment of $85.0 million, subject to cash and other working capital adjustments. During the three months ended March 31, 2015, we received additional cash payments of $4.7 million from the purchaser of HealthTronics. In addition, as of March 31, 2015, EHSI has rights to additional cash payments of up to $30.0 million based on the operating performance of HealthTronics through December 31, 2015, for total potential consideration of up to $119.7 million. Additional cash payments, if any, will be recorded when earned. The sale was completed on February 3, 2014.
In 2014, the Company recorded a net gain of approximately $3.6 million, representing the carrying amount of the assets sold less the amount of the net proceeds, including the $4.7 million described above, which the Company became entitled to receive during the fourth quarter of 2014.
Until it was sold on February 3, 2014, the assets of this business, previously known as the HealthTronics segment, and related liabilities were classified as held for sale in the Condensed Consolidated Balance Sheets. Depreciation and amortization expense were not recorded on assets held for sale. The operating results of this business are reported as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for all periods presented.

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The following table provides the operating results of Discontinued operations of HealthTronics, net of tax for the three months ended March 31, 2014 (in thousands):
Revenue
$
14,442

Income from discontinued operations before income taxes
$
4,398

Income tax benefit
(1,021
)
Discontinued operations, net of tax
$
5,419

There were no Assets or Liabilities held for sale relating to HealthTronics included in the Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014.
NOTE 4. RESTRUCTURING
Auxilium Restructuring
In connection with the acquisition of Auxilium on January 29, 2015, the Company implemented cost-rationalization and integration initiatives to capture operating synergies and generate cost savings across the Company. These measures included realigning our sales, sales support, and management activities and staffing, which included severance benefits to former Auxilium employees, in addition to the closing of duplicative facilities. The cost reduction initiatives included a reduction in headcount of approximately 40% of the former Auxilium workforce. For former Auxilium employees that have agreed to continue employment with the Company for a merger transition period, the severance payable upon completion of their retention period is being expensed over their respective retention period.
As a result of the Auxilium restructuring initiative, the Company incurred restructuring expenses of $40.8 million during the three months ended March 31, 2015, consisting of $26.0 million of employee severance and other benefit-related costs and certain charges related to our Auxilium subsidiary’s former corporate headquarters in Chesterbrook, Pennsylvania, including $7.0 million of asset impairment charges on certain related leasehold improvements and approximately $7.9 million recorded upon the facility’s cease use date, representing the liability for our remaining obligations under the respective lease agreement, net of estimated sublease income. The Company anticipates there will be additional pre-tax restructuring expenses of approximately $5.6 million related to the Auxilium restructuring and these actions are expected to be completed by December 31, 2015, with all cash payments made by the end of 2016. These restructuring costs are allocated to the U.S. Branded Pharmaceuticals segment, and are primarily included in Selling, general and administrative in the Condensed Consolidated Statements of Operations.
A summary of expenses related to the Auxilium restructuring initiatives is included below for the three months ended March 31, 2015 (in thousands):
 
Employee Severance and Other Benefit-Related Costs
 
Asset Impairment Charges
 
Other Restructuring Costs
 
Total
Auxilium Pharmaceuticals
$
25,965

 
$
7,000

 
$
7,860

 
$
40,825

Total
$
25,965

 
$
7,000

 
$
7,860

 
$
40,825

The liability related to the Auxilium restructuring initiative totaled $23.7 million at March 31, 2015. At March 31, 2015, this liability is included in Accrued expenses in the Condensed Consolidated Balance Sheets. Changes to this accrual during the three months ended March 31, 2015 were as follows (in thousands):
 
Employee Severance and Other Benefit-Related Costs
 
Other Restructuring Costs
 
Total
Liability balance as of January 1, 2015
$

 
$

 
$

Expenses
25,965

 
7,860

 
33,825

Cash distributions
(10,138
)
 

 
(10,138
)
Liability balance as of March 31, 2015
$
15,827

 
$
7,860

 
$
23,687

Other Restructuring Initiatives
The Company and certain of its subsidiaries have recently undertaken certain other restructuring initiatives that were individually not material to the Company’s Condensed Consolidated Financial Statements for any of the periods presented. On an aggregate basis, the Company recorded charges related to these initiatives totaling $9.5 million for the three months ended March 31, 2015, which primarily consisted of employee severance and other benefit-related costs. The Company recorded charges related to

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these initiatives totaling $2.3 million during the three months ended March 31, 2014, which primarily related to employee severance and other benefit-related costs.
The liability related to these initiatives totaled $14.4 million and $13.3 million at March 31, 2015 and December 31, 2014, respectively. This liability is included in Accrued expenses in the Condensed Consolidated Balance Sheets. The change in the liability relates to recognition of the expenses mentioned in the preceding paragraph, partially offset by cash payments made during 2015.
NOTE 5. ACQUISITIONS
For each of the acquisitions described below, except for Boca and Paladin, the estimated fair values of the net assets acquired below are provisional as of March 31, 2015 and are based on information that is currently available to the Company. Additional information is being gathered to finalize these provisional measurements. Accordingly, the measurement of the assets acquired and liabilities assumed may change upon finalization of the Company’s valuations and completion of the purchase price allocations, all of which are expected to occur no later than one year from the respective acquisition dates. Our measurement period adjustments were complete for Boca and Paladin as of February 3, 2015 and February 28, 2015, respectively. 
Paladin Labs Inc. Acquisition
On February 28, 2014 (the Paladin Acquisition Date), EHSI acquired all of the shares of Paladin and a subsidiary of ours merged with and into EHSI, with EHSI surviving the merger. As a result of these transactions, the former shareholders of EHSI and Paladin became the shareholders of Endo International plc, a public limited company organized under the laws of Ireland, and both EHSI and Paladin became our indirect wholly-owned subsidiaries.
Under the terms of the transaction, former Paladin shareholders received 1.6331 shares of Endo International plc stock, or approximately 35.5 million shares, and C$1.16 in cash, for total consideration of $2.87 billion as of February 28, 2014. On the Paladin Acquisition Date, each then current EHSI shareholder received one ordinary share of Endo International plc for each share of EHSI common stock owned upon closing. Immediately following the closing of the transaction, former EHSI shareholders owned approximately 79% of Endo International plc, and former Paladin shareholders owned approximately 21%.
The acquisition consideration was as follows (in thousands, except for per share amounts):
Number of Paladin shares paid through the delivery of Endo International ordinary shares
20,765

 
 
Exchange ratio
1.6331

 
 
Number of ordinary shares of Endo International—as exchanged*
33,912

 
 
Endo International ordinary share price on February 28, 2014
$
80.00

 
 
Fair value of ordinary shares of Endo International issued to Paladin Shareholders*
 
 
$
2,712,956

Number of Paladin shares paid in cash
20,765

 
 
Per share cash consideration for Paladin shares (1)
$
1.09

 
 
Cash distribution to Paladin shareholders*
 
 
22,647

Fair value of the vested portion of Paladin stock options outstanding—1.3 million at February 28, 2014 (2)
 
 
131,323

Total acquisition consideration
 
 
$
2,866,926

__________
*
Amounts do not recalculate due to rounding.
(1)
Represents the cash consideration per the arrangement agreement of C$1.16 per Paladin share translated into U.S. dollars utilizing an exchange rate of $0.9402.
(2)
Represents the fair value of vested Paladin stock option awards attributed to pre-combination services that were outstanding on the Paladin Acquisition Date and settled on a cash-less exercise basis for Endo International plc shares.
Paladin is a specialty pharmaceutical company headquartered in Montreal, Canada, focused on acquiring and in-licensing innovative pharmaceutical products for the Canadian and world markets. Paladin’s key products serve growing therapeutic areas including attention deficit hyperactivity disorder (ADHD), pain, and urology. In addition to its Canadian operations, as of the Paladin Acquisition date, Paladin owned a controlling interest in Laboratorios Paladin de Mexico S.A. in Mexico and in publicly traded Litha Healthcare Group Limited (Litha) in South Africa.
The operating results of Paladin are included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and the operating results from the acquisition date of February 28, 2014 are included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2014. The Condensed

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Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 reflect the acquisition of Paladin, effective February 28, 2014.
As of March 31, 2015, in connection with the finalization of our measurement period adjustments for Paladin, we recorded a decrease to certain deferred tax assets of $1.4 million, with a corresponding increase to goodwill. Other than these adjustments, there have been no changes to the fair values of the assets acquired and liabilities assumed at the Paladin Acquisition Date from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on March 2, 2015. Goodwill arising from the Paladin acquisition has been assigned to multiple reporting units across each of the Company’s reportable segments based on the relative incremental benefit expected to be realized by each impacted reporting unit.
The Company recognized $36.8 million of Paladin acquisition-related and integration costs that were expensed during the three months ended March 31, 2014. These costs, which related primarily to bank fees, legal and accounting services, and fees for other professional services, are included in Acquisition-related and integration items in the accompanying Condensed Consolidated Statements of Operations. There were no acquisition-related transaction costs associated with the Paladin acquisition for the three months ended March 31, 2015.
The amounts of Paladin Revenue and Net income attributable to Endo International plc included in the Company’s Condensed Consolidated Statements of Operations from and including February 28, 2014 to March 31, 2014 are as follows (in thousands, except per share data):
Revenue
$
24,822

Net income attributable to Endo International plc
$
3,685

Basic and diluted net income per share
$
0.03

The following supplemental unaudited pro forma information presents the financial results as if the acquisition of Paladin had occurred on January 1, 2014 for the quarter ended March 31, 2014. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on January 1, 2014, nor are they indicative of any future results.
 
Three Months Ended March 31, 2014
Unaudited pro forma consolidated results (in thousands, except per share data):
 
Revenue
$
513,394

Net loss attributable to Endo International plc
$
(448,426
)
Basic and diluted net loss per share
$
(3.50
)
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Paladin to reflect factually supportable adjustments that give effect to events that are directly attributable to the Paladin acquisition assuming the Paladin acquisition had occurred January 1, 2014. These adjustments mainly include adjustments to interest expense and additional intangible amortization. The adjustments to interest expense, net of tax, related to borrowings to finance the acquisition increased the expense by $0.7 million for the three months ended March 31, 2014. In addition, the adjustments include additional intangible amortization, net of tax, that would have been charged assuming the Company’s estimated fair value of the intangible assets, which increased the expense by $2.8 million for the three months ended March 31, 2014.
Acquisition of Remaining Shares of Litha
In February 2015, Paladin acquired substantially all of Litha’s remaining outstanding ordinary share capital that it did not own for consideration of approximately $40 million, based on the exchange rate in effect on December 31, 2014. At December 31, 2014, our Paladin subsidiary owned approximately 70.3% of the issued ordinary share capital of Litha. In connection with this transaction, Paladin had deposited cash into an escrow account, primarily for the purpose of guaranteeing amounts required to be paid to Litha’s security holders in connection with this acquisition. The balance in this account at December 31, 2014 of approximately $40 million was included in Restricted cash and cash equivalents in the Condensed Consolidated Balance Sheets and was subsequently paid in February 2015. Refer to Note 14. Shareholders' Equity for further information.
Boca Pharmacal LLC Acquisition
On February 3, 2014, the Company acquired Boca Pharmacal LLC (Boca) for approximately $236.6 million in cash. Boca is a specialty generics company that focuses on niche areas, commercializing and developing products in categories that include controlled substances, semisolids and solutions.

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The fair values of the net identifiable assets acquired totaled approximately $212.3 million, resulting in goodwill of approximately $24.3 million, which was assigned to our U.S. Generic Pharmaceuticals segment. The amount of net identifiable assets acquired in connection with the Boca acquisition includes approximately $140.9 million of identifiable intangible assets, including $112.3 million of developed technology to be amortized over an average life of approximately 11 years and $28.6 million of IPR&D.
The operating results of Boca are included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and the operating results from the acquisition date of February 3, 2014 are included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2014. The Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 reflect the acquisition of Boca, effective February 3, 2014. Our measurement period adjustments were complete for Boca as of February 3, 2015.
Pro forma results of operations have not been presented because the effect of the Boca acquisition was not material.
Sumavel® DosePro® 
On May 19, 2014, the Company’s Endo Pharmaceuticals Inc. (EPI) subsidiary acquired the worldwide rights to Sumavel® DosePro® (Sumavel) for subcutaneous use, a needle-free delivery system for sumatriptan, from Zogenix, Inc. The Company is accounting for this transaction as a business combination in accordance with the relevant accounting literature.
EPI acquired the product for consideration of $93.8 million, consisting of an upfront payment of $89.7 million and contingent cash consideration with an acquisition-date fair value of $4.1 million. See Note 7. Fair Value Measurements for further discussion of this contingent consideration. In addition, the Company provided Zogenix, Inc. with a $7.0 million non-interest bearing loan due 2023 for working capital needs and it assumed an existing third-party royalty obligation on net sales. Sumavel® is a prescription medicine given with a needle-free delivery system to treat adults who have been diagnosed with acute migraine or cluster headaches.
The preliminary fair values of the net identifiable assets acquired totaled approximately $93.8 million, resulting in no goodwill. The amount of net identifiable assets acquired in connection with the Sumavel® acquisition includes approximately $90.0 million of identifiable developed technology intangible assets to be amortized over an average life of approximately 13 years.
The operating results of Sumavel® are included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2015. There are no results included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2014. The Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 reflect the acquisition of Sumavel®, effective May 19, 2014.
Pro forma results of operations have not been presented because the effect of the Sumavel® acquisition was not material.
Grupo Farmacéutico Somar Acquisition
On July 24, 2014, the Company, together with its Endo Netherlands B.V. subsidiary (Endo Dutch B.V.), acquired the representative shares of the capital stock of Grupo Farmacéutico Somar, Sociedad Anónima Promotora de Inversión de Capital Variable (Somar), a leading privately-owned specialty pharmaceuticals company based in Mexico City, for $270.1 million in cash consideration, subject to a customary post-closing net working capital adjustment.
The preliminary fair values of the net identifiable assets acquired totaled approximately $184.4 million, resulting in goodwill of approximately $85.7 million, which was assigned to our International Pharmaceuticals segment. The amount of net identifiable assets acquired in connection with the Somar acquisition includes approximately $169.3 million of identifiable intangible assets, including $149.3 million to be amortized over an average life of approximately 12 years and $20.0 million of IPR&D.
The operating results of Somar are included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2015. There are no results included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2014. The Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 reflect the acquisition of Somar, effective July 24, 2014.
Pro forma results of operations have not been presented because the effect of the Somar acquisition was not material.
DAVA Pharmaceuticals, Inc. Acquisition
On August 6, 2014 (the DAVA Acquisition Date), the Company’s Generics International (US), Inc. subsidiary acquired DAVA Pharmaceuticals, Inc. (DAVA), a privately-held company specializing in marketed, pre-launch and pipeline generic pharmaceuticals based in Fort Lee, New Jersey, for consideration of $595.3 million. The consideration consisted of cash consideration of $590.2 million, subject to a customary post-closing net working capital adjustment, and contingent cash

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consideration with an acquisition-date fair value of $5.1 million. See Note 7. Fair Value Measurements for further discussion of this contingent consideration. DAVA’s strategically-focused generics portfolio includes thirteen on-market products in a variety of therapeutic categories.
The operating results of DAVA are included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2015. There are no results included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2014. The Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 reflect the acquisition of DAVA, effective August 6, 2014.
As of March 31, 2015, there have been no changes to the preliminary fair values of the assets acquired and liabilities assumed at the DAVA Acquisition Date from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on March 2, 2015.
Pro forma results of operations have not been presented because the effect of the DAVA acquisition was not material.
Natesto™
On December 9, 2014, the Company’s EPI subsidiary acquired the rights to Natesto™ (testosterone nasal gel), the first and only testosterone nasal gel for replacement therapy in adult males diagnosed with hypogonadism, from Trimel BioPharma SRL, a wholly-owned subsidiary of Trimel Pharmaceuticals Corporation. EPI will collaborate with Trimel on all regulatory and clinical development activities regarding Natesto™. The Company is accounting for this transaction as a business combination in accordance with the relevant accounting literature. Natesto™ was approved by the U.S. Food and Drug Administration (FDA) in May 2014. On March 16, 2015, Endo announced the commercial availability of Natesto™.
EPI acquired the product for consideration of $56.7 million, consisting of an upfront payment of $25.0 million, prepaid inventory of $5.0 million and contingent cash consideration with an acquisition-date fair value of $26.7 million, including the impact of a measurement period adjustment recorded during the first quarter of 2015. See Note 7. Fair Value Measurements for further discussion of this contingent consideration.
The preliminary fair values of the net identifiable assets acquired totaled approximately $56.7 million, resulting in no goodwill. The amount of net identifiable assets acquired in connection with the Natesto™ acquisition includes approximately $51.7 million of developed technology to be amortized over 10 years.
The operating results of Natesto™ are included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2015. There are no results included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2014. The Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 reflect the acquisition of Natesto™, effective December 9, 2014.
Pro forma results of operations have not been presented because the effect of the Natesto™ acquisition was not material.
Auxilium Pharmaceuticals, Inc.
On January 29, 2015 (the Auxilium Acquisition Date), the Company’s Endo U.S., Inc. subsidiary acquired all of the outstanding shares of common stock (the Merger Agreement) of Auxilium Pharmaceuticals, Inc. (Auxilium) in a transaction valued at approximately $2.6 billion, as enumerated in the table below.
Pursuant to the terms of the Merger Agreement, of the 55.0 million outstanding Auxilium shares eligible to make an election, 94.9% elected to receive transaction consideration equal to 0.4880 Endo shares per Auxilium share (the Stock Election Consideration), 0.4% elected to receive 100% cash, which equated to $33.25 of cash per Auxilium share (the Cash Election Consideration) and 4.7% elected or defaulted to receive a mix of $16.625 in cash and 0.2440 Endo shares per Auxilium share (the Standard Election Consideration). The result of the elections led to an oversubscription of the Stock Election Consideration and, in accordance with the proration method described in the Merger Agreement and proxy statement/prospectus provided to Auxilium shareholders, each Auxilium share for which an election was made to receive the Stock Election Consideration was instead entitled to receive approximately 0.3448 Endo shares and $9.75 in cash.

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The acquisition consideration was as follows (in thousands, except for per share amounts):
Number of Endo ordinary shares issued pursuant to the Merger Agreement
18,610

 
 
Endo share price on January 29, 2015
$
81.64

 
 
Fair value of Endo ordinary shares issued to Auxilium stockholders
 
 
$
1,519,320

Cash distribution at closing (1)
 
 
1,021,864

Settlement of pre-existing relationships
 
 
28,400

Total acquisition consideration
 
 
$
2,569,584

__________
(1)
Represents the cash paid directly to shareholders pursuant to the Merger Agreement, the fair value of Auxilium stock option awards attributed to pre-combination services that were outstanding on the Auxilium Acquisition Date and settled in connection with the Auxilium acquisition, and amounts paid by Endo on behalf of Auxilium (including transactions costs incurred by Auxilium in connection with the acquisition and amounts paid to settle existing Auxilium indebtedness and related instruments).
Auxilium is a fully integrated specialty biopharmaceutical company with a focus on developing and commercializing innovative products for specific patients’ needs. Auxilium, with a broad range of first- and second-line products across multiple indications, is an emerging leader in the men’s healthcare sector and has strategically focused its product portfolio and pipeline in orthopedics, dermatology and other therapeutic areas.
The Company believes Auxilium is highly complementary to Endo’s branded pharmaceuticals business. The Company further believes this transaction is well aligned with its growth strategy and the Company sees significant opportunities to leverage its leading presence in men’s health, as well as the Company’s R&D capabilities and financial resources to accelerate the growth of Auxilium’s XIAFLEX® and its other products.
While the Auxilium acquisition was primarily equity based, Endo also made changes to its existing debt structure to complete the transaction, as further described in Note 11. Debt.
The operating results from the acquisition date of January 29, 2015 are included in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2015. The Condensed Consolidated Balance Sheet as of March 31, 2015 reflects the acquisition of Auxilium, effective January 29, 2015.

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The following table summarizes the fair values of the assets acquired and liabilities assumed at the Auxilium Acquisition Date (in thousands):
 
January 29, 2015
Cash and cash equivalents
$
115,973

Accounts receivable
75,849

Inventories
341,900

Prepaid expenses and other current assets
6,687

Property, plant and equipment
31,500

Intangible assets
2,838,000

Other assets
9,285

Total identifiable assets
$
3,419,194

Accounts payable and accrued expenses
$
120,553

Deferred income taxes
164,379

Convertible debt, including equity component (1)
571,132

Other liabilities
171,400

Total liabilities assumed
$
1,027,464

Net identifiable assets acquired
$
2,391,730

Goodwill
177,854

Net assets acquired
$
2,569,584

__________
(1)
As further described in Note 11. Debt, this amount consists of $293.1 million and $278.0 million, representing the debt and equity components of the Auxilium convertible notes, respectively.
The estimated fair value of the Auxilium assets acquired and liabilities assumed are provisional as of March 31, 2015 and are based on information that is currently available to the Company. Additional information is being gathered to finalize these provisional measurements, particularly with respect to property, plant and equipment, intangible assets, inventory, accrued expenses, contingent liabilities, deferred income taxes and income taxes payable. Accordingly, the measurement of the Auxilium assets acquired and liabilities assumed may change significantly upon finalization of the Company’s valuations and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date.
The valuation of the intangible assets acquired and related amortization periods are as follows:
 
Valuation (in millions) 
 
Amortization period (in years)  
Developed Technology:
 
 
 
XIAFLEX®
$
1,487.5

 
12
TESTOPEL®
582.6

 
15
Urology Retail
322.0

 
12
Other
121.8

 
15
Total
$
2,513.9

 
 
In Process Research & Development (IPR&D):
 
 
 
XIAFLEX®—Cellulite
$
324.1

 
n/a
Total
$
324.1

 
n/a
Total other intangible assets
$
2,838.0

 
n/a
The preliminary fair values of the developed technology and IPR&D assets were estimated using a discounted present value income approach. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To calculate fair value, the Company used cash flows discounted at rates ranging from 9% to 11%, which were considered appropriate given the inherent risks associated with each type of asset. The Company believes that the level and timing of cash flows appropriately reflect market participant assumptions.

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The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to existing pharmaceutical businesses, the assembled workforce of Auxilium and other factors. The goodwill is not expected to be deductible for income tax purposes.
Deferred tax assets and liabilities are related primarily to the difference between the book basis and tax basis of identifiable intangible assets.
The Company recognized acquisition-related transaction costs associated with the Auxilium acquisition during the three months ended March 31, 2015 totaling $19.4 million. These costs, which related primarily to bank fees, legal and accounting services, and fees for other professional services, are included in Acquisition-related and integration items in the accompanying Condensed Consolidated Statements of Operations.
The amounts of Auxilium Revenue and Net income attributable to Endo International plc included in the Company’s Condensed Consolidated Statements of Operations during the three months ended March 31, 2015 are as follows (in thousands, except per share data):
Revenue
$
66,796

Net loss attributable to Endo International plc
$
(50,907
)
Basic net loss per share
$
(0.30
)
Diluted net loss per share
$
(0.29
)
The following supplemental unaudited pro forma information presents the financial results as if the acquisition of Auxilium had occurred on January 1, 2014 for the quarters ended March 31, 2015 and 2014. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on January 1, 2014, nor are they indicative of any future results.
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
Unaudited pro forma consolidated results (in thousands, except per share data):
 
 
 
Revenue
$
737,703

 
$
559,361

Net loss attributable to Endo International plc
$
(82,582
)
 
$
(518,486
)
Basic and diluted net loss per share
$
(0.49
)
 
$
(4.05
)
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Auxilium to reflect factually supportable adjustments that give effect to events that are directly attributable to the Auxilium acquisition assuming the Auxilium acquisition had occurred January 1, 2014. These adjustments mainly include adjustments to interest expense and additional intangible amortization. The adjustments to interest expense, net of tax, related to borrowings to finance the acquisition increased the expense by $5.9 million for the three months ended March 31, 2014, and increased the expense by $1.1 million for the three months ended March 31, 2015. In addition, the adjustments include additional intangible amortization, net of tax, that would have been charged assuming the Company’s estimated fair value of the intangible assets, which increased the expense by $19.7 million for the three months ended March 31, 2014. An adjustment to the amortization expense for the three months ended March 31, 2015 increased the expense by $6.9 million.
Authorized Generic of Potassium Chloride Oral Solution
On March 19, 2015, our Endo Global Ventures (EGV) subsidiary acquired exclusive license rights to the authorized generic of potassium chloride oral solution from Lehigh Valley Technologies, Inc. (LVT). The Company is accounting for this transaction as a business combination in accordance with the relevant accounting literature.
EGV acquired the product for consideration of $47.7 million, consisting of an upfront payment of $6.0 million and contingent cash consideration with an acquisition-date fair value of $41.7 million. See Note 7. Fair Value Measurements for further discussion of this contingent consideration.
The preliminary fair value of the related net identifiable developed technology intangible asset acquired totaled approximately $47.7 million, with no related goodwill. The intangible asset will be amortized over an average life of approximately 10 years. However, commensurate with our current expectations with respect to the amount and timing of projected cash flows resulting from this acquisition, we expect to record the majority of the related amortization within the first 18 months after product launch.
Pro forma results of operations have not been presented because the effect of this acquisition was not material.

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NOTE 6. SEGMENT RESULTS
On February 24, 2015, the Company’s Board of Directors approved a plan to sell its AMS business, which comprises the entirety of our Devices segment. Subsequently, the Company entered into a definitive agreement to sell the Men’s Health and Prostate Health components of the AMS business to Boston Scientific Corporation. The assets of this business segment and related liabilities are classified as held for sale in the Condensed Consolidated Balance Sheets for all periods presented. Depreciation and amortization expense are not recorded on assets held for sale. The operating results of this business segment are reported as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for all periods presented. For additional information, see Note 3. Discontinued Operations.
The three remaining reportable business segments in which the Company now operates are: (1) U.S. Branded Pharmaceuticals, (2) U.S. Generic Pharmaceuticals and (3) International Pharmaceuticals. These segments reflect the level at which executive management regularly reviews financial information to assess performance and to make decisions about resources to be allocated. Each segment derives revenue from the sales or licensing of its respective products and is discussed in more detail below.
We evaluate segment performance based on each segment’s adjusted income (loss) from continuing operations before income tax, which we define as loss from continuing operations before income tax before certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; excess costs that will be eliminated pursuant to integration plans; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; non-cash interest expense; litigation-related and other contingent matters; gains or losses from early termination of debt and hedging activities; foreign currency gains or losses on intercompany financing arrangements; and certain other items that the Company believes do not reflect its core operating performance.
Certain of the corporate general and administrative expenses incurred by the Company are not attributable to any specific segment. Accordingly, these costs are not allocated to any of the Company’s segments and are included in the results below as “Corporate unallocated”. The Company’s consolidated adjusted income from continuing operations before income tax is equal to the combined results of each of its segment less these unallocated corporate costs.
U.S. Branded Pharmaceuticals
Our U.S. Branded Pharmaceuticals segment includes a variety of branded prescription products related to treating and managing pain as well as our urology, endocrinology and oncology products. The marketed products that are included in this segment include Lidoderm®, Opana® ER, Voltaren® Gel, Percocet®, Fortesta® Gel, Supprelin® LA, XIAFLEX® and Testim®, among others.
U.S. Generic Pharmaceuticals
Our U.S. Generic Pharmaceuticals segment consists of products primarily focused in pain management through a differentiated portfolio of controlled substances and liquids that have one or more barriers to market entry, such as complex formulation, regulatory or legal challenges or difficulty in raw material sourcing. The product offerings of this segment include products in the pain management, urology, CNS disorders, immunosuppression, oncology, women’s health and hypertension markets, among others. Additionally, in May 2014, we launched an authorized generic lidocaine patch 5% (referred to as Lidoderm® authorized generic).
International Pharmaceuticals
Our International Pharmaceuticals segment includes a variety of specialty pharmaceutical products and certain medical devices for the Canadian, Mexican, South African and world markets, which we acquired from Paladin and Somar. Paladin’s key products serve growing therapeutic areas including ADHD, pain, and urology. Somar develops, manufactures, and markets high-quality generic, branded generic and over-the-counter products across key market segments including dermatology and anti-infectives.

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The following represents selected information for the Company’s reportable segments for the quarters ended March 31 (in thousands):
 
Three Months Ended March 31,
 
2015
 
2014
Net revenues to external customers:
 
 
 
U.S. Branded Pharmaceuticals
$
284,507

 
$
234,165

U.S. Generic Pharmaceuticals
356,962

 
211,855

International Pharmaceuticals (1)
72,659

 
24,822

Total net revenues to external customers
$
714,128

 
$
470,842

 
 
 
 
Adjusted income (loss) from continuing operations before income tax:
 
 
 
U.S. Branded Pharmaceuticals
$
159,421

 
$
134,417

U.S. Generic Pharmaceuticals
$
183,457

 
$
73,797

International Pharmaceuticals
$
8,294

 
$
9,295

__________
(1)
Revenues generated by our International Pharmaceuticals segment are primarily attributable to Canada, Mexico and South Africa.
There were no material revenues from external customers attributed to an individual foreign country during the three months ended March 31, 2015 and 2014. There were no material tangible long-lived assets attributed to an individual foreign country as of March 31, 2015 or December 31, 2014.
The table below provides reconciliations of our segment adjusted income from continuing operations before income tax to our consolidated loss from continuing operations before income tax, which is determined in accordance with U.S. GAAP, for the three months ended March 31 (in thousands):
 
Three Months Ended March 31,
 
2015
 
2014
Total segment adjusted income from continuing operations before income tax:
$
351,172

 
$
217,509

Corporate unallocated costs
(103,422
)
 
(78,897
)
Upfront and milestone payments to partners
(2,667
)
 
(11,155
)
Asset impairment charges
(7,000
)
 

Acquisition-related and integration items (1)
(34,640
)
 
(45,269
)
Separation benefits and other cost reduction initiatives (2)
(41,807
)
 
1,930

Excise tax (3)

 
(60,000
)
Amortization of intangible assets
(95,269
)
 
(39,670
)
Inventory step-up and certain excess costs that will be eliminated pursuant to integration plans
(39,916
)
 
(3,581
)
Non-cash interest expense related to the 1.75% Convertible Senior Subordinated Notes
(1,379
)
 
(5,969
)
Loss on extinguishment of debt
(980
)
 
(9,596
)
Certain litigation-related charges, net
(13,000
)
 

Foreign currency impact related to the remeasurement of intercompany debt instruments
21,090

 

Costs associated with unused financing commitments
(11,810
)
 

Acceleration of Auxilium employee equity awards at closing
(37,603
)
 

Other, net
854

 

Total consolidated loss from continuing operations before income tax
$
(16,377
)
 
$
(34,698
)
__________
(1)
Acquisition-related and integration-items include costs directly associated with the closing of certain acquisitions, changes in the fair value of contingent consideration, costs of integration activities related to both current and prior period acquisitions and excess costs that will be eliminated pursuant to integration plans.

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(2)
Separation benefits and other cost reduction initiatives include employee separation costs of $32.4 million for the three months ended March 31, 2015 and a $7.9 million charge recorded upon the cease use date of our Auxilium subsidiary’s former corporate headquarters, representing the liability for our remaining obligations under the respective lease agreement, net of estimated sublease income. Amounts in the comparable 2014 period primarily consisted of employee separation costs and changes in estimates related to certain cost reduction initiative accruals. These amounts were primarily recorded as Selling, general and administrative expense in our Condensed Consolidated Statements of Operations. See Note 4. Restructuring for discussion of our material restructuring initiatives.
(3)
This amount represents charges related to the expense for the reimbursement of directors’ and certain employees’ excise tax liabilities pursuant to Section 4985 of the Internal Revenue Code.
The following represents additional selected financial information for our reportable segments for the three months ended March 31 (in thousands):
 
Three Months Ended March 31,
 
2015
 
2014
Depreciation expense:
 
 
 
U.S. Branded Pharmaceuticals
$
5,296

 
$
4,037

U.S. Generic Pharmaceuticals
4,737

 
7,569

International Pharmaceuticals
661

 
141

Corporate unallocated
2,072

 
1,894

Total depreciation expense
$
12,766

 
$
13,641

 
Three Months Ended March 31,
 
2015
 
2014
Amortization expense:
 
 
 
U.S. Branded Pharmaceuticals
$
54,204

 
$
20,723

U.S. Generic Pharmaceuticals
25,417

 
18,614

International Pharmaceuticals
15,648

 
4,000

Total amortization expense
$
95,269

 
$
43,337

Interest income and expense are considered corporate items and included in Corporate unallocated. Asset information is not reviewed or included within our internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.
NOTE 7. FAIR VALUE MEASUREMENTS
Financial Instruments
The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, marketable securities, equity and cost method investments, accounts payable and accrued expenses, acquisition-related contingent consideration and debt obligations. Included in cash and cash equivalents and restricted cash and cash equivalents are money market funds representing a type of mutual fund required by law to invest in low-risk securities (for example, U.S. government bonds, U.S. Treasury Bills and commercial paper). Money market funds are structured to maintain the fund’s net asset value at $1.00 per unit, which assists in providing adequate liquidity upon demand by the holder. Money market funds pay dividends that generally reflect short-term interest rates. Thus, only the dividend yield fluctuates. Due to their short-term maturity, the carrying amounts of non-restricted and restricted cash and cash equivalents (including money market funds), accounts receivable, accounts payable and accrued expenses approximate their fair values.
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.


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Marketable Securities
Equity securities consist of investments in the stock of publicly traded companies, the values of which are based on quoted market prices and thus represent Level 1 measurements within the fair value hierarchy, as defined above. These securities are not held to support current operations and are therefore classified as non-current assets. Equity securities are included in Marketable securities in the Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014.
At the time of purchase, we classify our marketable securities as either available-for-sale securities or trading securities, depending on our intent at that time. Available-for-sale and trading securities are carried at fair value with unrealized holding gains and losses recorded within other comprehensive income or net income, respectively. The Company reviews unrealized losses associated with available-for-sale securities to determine the classification as a “temporary” or “other-than-temporary” impairment. A temporary impairment results in an unrealized loss being recorded in other comprehensive income. An impairment that is viewed as other-than-temporary is recognized in net income. The Company considers various factors in determining the classification, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the issuer or investee, and the Company’s ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Loans Receivable
Our loans receivable at March 31, 2015 relate primarily to loans totaling $16.0 million to our joint venture owned through our Litha subsidiary. The joint venture investment is further described below. The majority of this amount is secured by certain of the assets of our joint venture. The fair values of these loans were based on anticipated cash flows, which approximate the carrying amount, and were classified in Level 2 measurements in the fair value hierarchy. These loans are included in Other assets in our Condensed Consolidated Balance Sheets.
Equity and Cost Method Investments
We have various investments that we account for using the equity or cost method of accounting, including a $30.0 million joint venture investment in the Biologicals and Vaccines Institute of Southern Africa (Pty) Limited, owned through our Litha subsidiary, which is accounted for as an equity method investment. The fair value of the equity method and cost method investments is not readily available nor have we estimated the fair value of these investments. The Company is not aware of any identified events or changes in circumstances that would have a significant adverse effect on the carrying value of any of our equity or cost method investments included in Other assets in our Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014.
Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration is measured at fair value on a recurring basis using unobservable inputs, hence these instruments represent Level 3 measurements within the fair value hierarchy. See Recurring Fair Value Measurements below for additional information on the fair value methodology used for the acquisition-related contingent consideration.
Voltaren® Gel Royalties due to Novartis
The initial fair value of the Minimum Voltaren® Gel royalties due to Novartis were determined using an income approach (present value technique) taking into consideration the level and timing of expected cash flows and an assumed discount rate. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The liability is currently being accreted up to the expected minimum payments, less payments made to date. We believe the carrying amount of this minimum royalty guarantee at March 31, 2015 and December 31, 2014 represents a reasonable approximation of the price that would be paid to transfer the liability in an orderly transaction between market participants at the measurement date. Accordingly, the carrying value approximates fair value as of March 31, 2015 and December 31, 2014.

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Recurring Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2015 and December 31, 2014 were as follows (in thousands):
 
Fair Value Measurements at Reporting Date using:
March 31, 2015
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds
$
219,426

 
$

 
$

 
$
219,426

Equity securities
4,452

 
$

 

 
4,452

Total
$
223,878

 
$

 
$

 
$
223,878

Liabilities:
 
 
 
 
 
 
 
Acquisition-related contingent consideration—short-term
$

 
$

 
$
28,946

 
$
28,946

Acquisition-related contingent consideration—long-term

 

 
155,315

 
155,315

Total
$

 
$

 
$
184,261

 
$
184,261

 
At March 31, 2015, money market funds include $189.9 million in Qualified Settlement Funds to be disbursed to mesh-related product liability claimants. See Note 12. Commitments and Contingencies for further discussion of our product liability cases.

 
Fair Value Measurements at Reporting Date using:
December 31, 2014
Quoted Prices in
Active Markets
for Identical
Assets (Level 1) 
 
Significant Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds
$
279,327

 
$

 
$

 
$
279,327

Equity securities
2,321

 

 

 
2,321

Total
$
281,648

 
$

 
$

 
$
281,648

Liabilities:
 
 
 
 
 
 
 
Acquisition-related contingent consideration—short-term
$

 
$

 
$
4,282

 
$
4,282

Acquisition-related contingent consideration—long-term

 

 
41,723

 
41,723

Total
$

 
$

 
$
46,005

 
$
46,005

At December 31, 2014, money market funds include $124.4 million in Qualified Settlement Funds to be disbursed to mesh-related product liability claimants. See Note 12. Commitments and Contingencies for further discussion of our product liability cases.
Acquisition-Related Contingent Consideration
On November 30, 2010 (the Qualitest Pharmaceuticals Acquisition Date), the Company acquired Generics International (US Parent), Inc. (doing business as Qualitest Pharmaceuticals), which was party to an asset purchase agreement with Teva Pharmaceutical Industries Ltd (Teva) (the Teva Agreement). Pursuant to the Teva Agreement, Qualitest Pharmaceuticals purchased certain pipeline generic products from Teva and could be obligated to pay consideration to Teva upon the achievement of certain future regulatory milestones (the Teva Contingent Consideration).
The current range of the undiscounted amounts the Company could be obligated to pay in future periods under the Teva Agreement is between zero and $5.0 million after giving effect to payments made to date. The Company is accounting for the Teva Contingent Consideration in the same manner as if it had entered into that arrangement with respect to its acquisition of Qualitest Pharmaceuticals. Accordingly, the fair value was estimated based on a probability-weighted discounted cash flow model (income approach). Using this valuation technique, the fair value of the contractual obligation to pay the Teva Contingent Consideration was determined to be approximately $2.8 million at March 31, 2015 and $5.2 million at December 31, 2014. The decrease in the balance primarily relates to a first quarter 2015 payment of $2.5 million related to the achievement of certain regulatory milestones.
During the second quarter of 2014, in connection with EPI’s acquisition of Sumavel®, we entered into an agreement to make contingent cash consideration payments to the former owner of Sumavel® of between zero and $20.0 million (the Sumavel® Contingent Consideration), based on certain factors relating primarily to the financial performance of Sumavel®. At the acquisition date, we estimated the fair value of this obligation to be $4.1 million based on a probability-weighted discounted cash flow model (income approach). Using this valuation technique, the fair value of the contractual obligation to pay the Sumavel® Contingent

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Consideration was determined to be approximately $4.8 million at March 31, 2015 and $4.7 million at December 31, 2014. The increase in the balance primarily relates to changes in the fair value of the liability, primarily reflecting changes to the present value assumptions associated with our valuation model.
In connection with our acquisition of DAVA, we agreed to make cash consideration payments of up to $25.0 million (the DAVA Contingent Consideration) contingent on the achievement of certain sales-based milestones. At the DAVA Acquisition date, we estimated the fair value of this obligation to be $5.1 million based on a probability-weighted discounted cash flow model (income approach). Using this valuation technique, the fair value of the contractual obligation to pay the DAVA Contingent Consideration was determined to be approximately $2.6 million at March 31, 2015 and $5.1 million at December 31, 2014. The decrease in the balance primarily relates to changes in the fair value of the liability, primarily reflecting changes to the present value assumptions associated with our valuation model.
In connection with the acquisition of Natesto™, we entered into an agreement to make contingent cash consideration payments to the former owners of Natesto™ based on certain potential clinical and commercial milestones of up to $165.0 million as well as royalties based on a percentage of potential future sales of Natesto™ (the Natesto™ Contingent Consideration). As of March 31, 2015, our current estimate of the acquisition date fair value of this obligation is $26.7 million based on a probability-weighted discounted cash flow model (income approach). Using this valuation technique, the fair value of the contractual obligation to pay the Natesto™ Contingent Consideration was determined to be approximately $28.2 million at March 31, 2015 and $31.0 million at December 31, 2014. The decrease in the balance primarily relates to a measurement period adjustment offset by changes in the fair value of the liability, primarily reflecting changes to the present value assumptions associated with our valuation model.
On January 29, 2015, we acquired Auxilium, which is party to an agreement pursuant to which it could be obligated to make certain contingent cash consideration payments (the Actient Contingent Consideration). These payments relate primarily to potential sales-based royalties on edex® and TESTOPEL®, which Auxilium had previously acquired in connection with its 2013 acquisition of Actient Pharmaceuticals, LLC (Actient). As of the Auxilium acquisition date, Endo estimated the fair value of the Actient Contingent Consideration to be $46.8 million. The fair value was estimated based on a probability-weighted discounted cash flow model (income approach). The fair value of the Actient Contingent Consideration was determined to be approximately $44.9 million at March 31, 2015. The change in the balance primarily relates to a first quarter 2015 payment of $1.9 million related to sales-based royalties.
Auxilium is also party to an agreement with VIVUS, Inc. (VIVUS) to make contingent cash consideration payments consisting of royalties based on a percentage of net sales of STENDRA® as well as sales-based milestones of up to approximately $260 million (the STENDRA® Contingent Consideration). On January 29, 2015, the date Endo acquired Auxilium, Endo estimated the fair value of the STENDRA® Contingent Consideration to be $59.6 million. The fair value was estimated based on a probability-weighted discounted cash flow model (income approach). Using this valuation technique, the fair value of the STENDRA® Contingent Consideration was determined to be approximately $59.3 million at March 31, 2015. The change in the balance primarily relates to a first quarter 2015 payment of $0.3 million related to sales-based royalties.
In connection with the acquisition of the exclusive license rights of potassium chloride oral solution from LVT, we entered into an agreement to make contingent cash consideration payments to LVT based certain operational and commercial milestones of up to $4.0 million, as well as payment to LVT based on a percentage of profits realized on the licensed product, to be determined in accordance with the license agreement with LVT. At the acquisition date, we estimated the fair value of this obligation to be $41.7 million based on a probability-weighted discounted cash flow model (income approach). Using this valuation technique, the fair value of the contractual obligation to pay the contingent consideration was determined to be approximately $41.7 million at March 31, 2015.
The fair values of contingent consideration amounts above were estimated based on assumptions and projections relevant to revenues and a discounted cash flow model using risk-adjusted discount rates ranging from 4.7% to 25.0%. The Company assesses these assumptions on an ongoing basis as additional information impacting the assumptions is obtained.
Amounts recorded for the short-term and long-term portions of acquisition related contingent consideration are included in Accrued expenses and Other liabilities, respectively, in the Condensed Consolidated Balance Sheets.

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Fair Value Measurements Using Significant Unobservable Inputs
The following table presents changes to the Company’s liability for acquisition-related contingent consideration, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31 (in thousands):
 
Three Months Ended March 31,
 
2015
 
2014
Beginning of period
$
46,005

 
$
4,747

Amounts acquired
148,100

 

Amounts settled
(4,723
)
 

Transfers (in) and/or out of Level 3

 

Measurement period adjustments
(4,313
)
 

Changes in fair value recorded in earnings
(808
)
 
12

End of period
$
184,261

 
$
4,759

Changes in fair value recorded in earnings related to acquisition-related contingent consideration are included in the Condensed Consolidated Statements of Operations as Acquisition-related and integration items.
The following is a summary of available-for-sale securities held by the Company at March 31, 2015 and December 31, 2014 (in thousands):
 
Available-for-sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses) 
 
Fair Value
March 31, 2015
 
 
 
 
 
 
 
Money market funds
$
219,426

 
$

 
$

 
$
219,426

Total included in cash and cash equivalents
$
29,503

 
$

 
$

 
$
29,503

Total included in restricted cash and cash equivalents
$
189,923

 
$

 
$

 
$
189,923

Equity securities
$
805

 
$
298

 
$

 
$
1,103

Total other short-term available-for-sale securities
$
805

 
$
298

 
$

 
$
1,103

Equity securities
$
1,766

 
$
1,583

 
$

 
$
3,349

Long-term available-for-sale securities
$
1,766

 
$
1,583

 
$

 
$
3,349


 
Available-for-sale
 
Amortized
Cost
 
Gross
Unrealized
Gains 
 
Gross
Unrealized
(Losses)
 
Fair Value
December 31, 2014
 
 
 
 
 
 
 
Money market funds
$
279,327

 
$

 
$

 
$
279,327

Total included in cash and cash equivalents
$
154,959

 
$

 
$

 
$
154,959

Total included in restricted cash and cash equivalents
$
124,368

 
$

 
$

 
$
124,368

Equity securities
$
805

 
$
10

 
$

 
$
815

Total other short-term available-for-sale securities
$
805

 
$
10

 
$

 
$
815

Equity securities
$
1,766

 
$

 
$
(260
)
 
$
1,506

Long-term available-for-sale securities
$
1,766

 
$

 
$
(260
)
 
$
1,506

Nonrecurring Fair Value Measurements
During the first quarter of 2015, the Company recorded an impairment charge of $7.0 million to write off leasehold improvement assets associated with our Auxilium subsidiary’s former corporate headquarters.

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NOTE 8. INVENTORIES
Inventories consist of the following at March 31, 2015 and December 31, 2014 (in thousands):
 
March 31, 2015
 
December 31, 2014
Raw materials
$
108,106

 
$
118,432

Work-in-process
85,207

 
43,290

Finished goods
418,088

 
261,599

     Total
$
611,401

 
$
423,321

Inventory that is in excess of the amount expected to be sold within one year, which relates primarily to our Auxilium subsidiary acquired in January 2015, is classified as long-term inventory and is not included in the table above. At March 31, 2015, approximately $119.8 million of long-term inventory was included in Other assets in the Condensed Consolidated Balance Sheets.
NOTE 9. GOODWILL AND OTHER INTANGIBLES
Goodwill
Changes in the carrying amount of our goodwill for the quarter ended March 31, 2015 were as follows (in thousands):
 
Carrying Amount
 
U.S. Branded Pharmaceuticals
 
U.S. Generic Pharmaceuticals
 
International Pharmaceuticals
 
Total Consolidated
Balance as of December 31, 2014
$
1,131,932

 
$
1,071,637

 
$
696,018

 
$
2,899,587

Goodwill acquired during the period
177,854

 

 
1,355

 
179,209

Effect of currency translation

 

 
(53,726
)
 
(53,726
)
Balance as of March 31, 2015
$
1,309,786

 
$
1,071,637

 
$
643,647

 
$
3,025,070

Goodwill related to our Devices segment of $863.0 million as of December 31, 2014 became part of the disposal group and is part of the Assets held for sale, net of impairment and current period adjustments related to currency translation, as of March 31, 2015.

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Other Intangible Assets
The following is a summary of other intangibles held by the Company at March 31, 2015 and December 31, 2014 (in thousands):
Cost basis:
Balance as of December 31, 2014
 
Acquisitions
(1)
 
Other
(2)
 
Effect of Currency Translation
 
Balance as of March 31, 2015
Indefinite-lived intangibles:
 
 
 
 
 
 
 
 
 
In-process research and development
$
184,598

 
$
324,100

 
$
(17,000
)
 
$
(5,807
)
 
$
485,891

Total indefinite-lived intangibles
$
184,598

 
$
324,100

 
$
(17,000
)
 
$
(5,807
)
 
$
485,891

Definite-lived intangibles:
 
 
 
 
 
 
 
 
 
Licenses (weighted average life of 9 years)
$
664,367

 
$

 
$

 
$

 
$
664,367

Tradenames (weighted average life of 15 years)
21,315

 

 

 
(44
)
 
21,271

Developed technology (weighted average life of 13 years)
2,243,215

 
2,561,600

 
12,687

 
(46,629
)
 
4,770,873

Total definite-lived intangibles (weighted average life of 13 years)
$
2,928,897

 
$
2,561,600

 
$
12,687

 
$
(46,673
)
 
$
5,456,511

Total other intangibles
$
3,113,495

 
$
2,885,700

 
$
(4,313
)
 
$
(52,480
)
 
$
5,942,402

 
 
 
 
 
 
 
 
 
 
Accumulated amortization:
Balance as of December 31, 2014
 
Amortization
 
Other
 
Effect of Currency Translation
 
Balance as of March 31, 2015
Indefinite-lived intangibles:
 
 
 
 
 
 
 
 
 
In-process research and development
$

 
$

 
$

 
$

 
$

Total indefinite-lived intangibles
$

 
$

 
$

 
$

 
$

Definite-lived intangibles:
 
 
 
 
 
 
 
 
 
Licenses
$
(426,413
)
 
$
(19,716
)
 
$

 
$

 
$
(446,129
)
Tradenames
(5,462
)
 
(359
)
 

 
2

 
(5,819
)
Developed technology
(348,427
)
 
(75,194
)
 

 
3,241

 
(420,380
)
Total definite-lived intangibles
$
(780,302
)
 
$
(95,269
)
 
$

 
$
3,243

 
$
(872,328
)
Total other intangibles
$
(780,302
)
 
$
(95,269
)
 
$

 
$
3,243

 
$
(872,328
)
Net other intangibles
$
2,333,193

 
 
 
 
 
 
 
$
5,070,074

__________
(1)
Includes intangible assets acquired in connection with the acquisitions of Auxilium and Lehigh Valley Technologies, Inc. See Note 5. Acquisitions for further information.
(2)
During the first quarter of 2015, certain IPR&D assets totaling $17.0 million were put into service, partially offset by a reduction of $4.3 million relating to measurement period adjustments to certain intangible assets.
Amortization expense for the three months ended March 31, 2015 and 2014 totaled $95.3 million and $43.3 million, respectively. Estimated amortization of intangibles for the five fiscal years subsequent to December 31, 2014 is as follows (in thousands):
2015
$
447,230

2016
$
422,715

2017
$
398,265

2018
$
397,999

2019
$
382,709


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Changes in the gross carrying amount of our other intangibles for the quarter ended March 31, 2015 were as follows (in thousands):
 
Gross
Carrying
Amount
December 31, 2014
$
3,113,495

Auxilium acquisition
2,838,000

Lehigh Valley Technologies, Inc. acquisition
47,700

Measurement period adjustments relating to acquisitions closed during 2014
(4,313
)
Effect of currency translation
(52,480
)
March 31, 2015
$
5,942,402

NOTE 10. LICENSE AND COLLABORATION AGREEMENTS
Our subsidiaries have entered into certain license, collaboration and discovery agreements with third parties for product development. These agreements require our subsidiaries to share in the development costs of such products and grant marketing rights to our subsidiaries for such products.
The Company and its subsidiaries are generally required to make upfront payments as well as other payments upon successful completion of regulatory or sales milestones. In addition, these agreements generally require our subsidiaries to pay royalties on sales of the products arising from these agreements. These agreements generally permit our subsidiaries to terminate the agreement with no significant continuing obligation.
Commercial Products
Novartis AG and Novartis Consumer Health, Inc.
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, our subsidiary Endo Pharmaceuticals Inc. (EPI) is party to a License and Supply Agreement (the Voltaren® Gel Agreement) with and among Novartis AG and Novartis Consumer Health, Inc. (Novartis) to obtain the exclusive U.S. marketing rights for the prescription medicine Voltaren® Gel (Voltaren® Gel or the Licensed Product). Voltaren® Gel royalties incurred during the quarters ended March 31, 2015 and 2014 were $7.5 million and $7.5 million, respectively, representing minimum royalties pursuant to the Voltaren® Gel Agreement.
Also as previously disclosed, EPI is required to incur a minimum amount of annual advertising and promotional expenses (A&P Expenditures) on the commercialization of the Licensed Product, which may be reduced under certain circumstances including Novartis’s failure to supply the Licensed Product. During the period beginning on July 1, 2013 and extending through June 30, 2014, EPI agreed to spend approximately $5.9 million on A&P Expenditures. During the period beginning on July 1, 2014 and extending through June 30, 2015, EPI agreed to spend approximately $8.4 million on A&P Expenditures. In subsequent Agreement Years, the minimum A&P Expenditures set forth in the Voltaren® Gel Agreement are determined based on a percentage of net sales of Voltaren® Gel, which may be reduced under certain circumstances, including Novartis’s failure to supply Voltaren® Gel. Amounts incurred for such A&P Expenditures were $0.8 million and $2.1 million for the quarters ended March 31, 2015 and 2014, respectively.
BioSpecifics Technologies Corp.
On January 29, 2015, we acquired Auxilium, which is party to a development and license agreement, as amended (the BioSpecifics Agreement) with BioSpecifics Technologies Corp. (BioSpecifics). The BioSpecifics Agreement was originally entered into by Auxilium in June 2004 to obtain exclusive worldwide rights to develop, market and sell certain products containing BioSpecifics’ enzyme, which we refer to as XIAFLEX®. Auxilium’s licensed rights concern the development and commercialization of products, other than dermal formulations labeled for topical administration, and currently, Auxilium’s licensed rights cover the indications of Dupuytren’s contracture (DC), Peyronie’s Disease (PD), Frozen Shoulder syndrome and cellulite. Auxilium may further expand the BioSpecifics Agreement, at its option, to cover other indications as they are developed by Auxilium or BioSpecifics.
The BioSpecifics Agreement extends, on a country-by-country and product-by-product basis, for the longer of the patent life, the expiration of any regulatory exclusivity period or twelve years. Either party may terminate the BioSpecifics Agreement as a result of the other party’s breach or bankruptcy. Auxilium may terminate the BioSpecifics Agreement with 90 days’ written notice.
Under the BioSpecifics Agreement, the Company is responsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for the clinical supply of products.
Auxilium must pay BioSpecifics on a country-by-country and product-by-product basis a specified percentage within a range of 5% to 15% of net sales for products covered by the BioSpecifics Agreement. This royalty applies to net sales by Auxilium or its sublicensees, including Actelion Pharmaceuticals Ltd (Actelion), Asahi Kasei Pharma Corporation (Asahi Kasei) and Swedish Orphan

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Biovitrium AB (Sobi). Auxilium could also be obligated to pay a percentage of future regulatory or commercial milestone payments received from its sublicensees. In addition, Auxilium must pay BioSpecifics an amount equal to a specified mark-up on the cost of goods related to supply of XIAFLEX® (which mark-up is capped at a specified percentage within the range of 5% to 15% of the cost of goods of XIAFLEX® for the applicable country) for products sold by Auxilium or its sublicensees.
XIAFLEX® and XIAPEX® Out-license Agreements
Our Auxilium subsidiary is party to certain out-licensing agreements with Actelion, Asahi Kasei and Sobi (the XIAFLEX® Sublicensees), pursuant to which the XIAFLEX® Sublicensees have marketing, development and/or commercial rights for XIAFLEX® and XIAPEX® (the European Union tradename for XIAFLEX®) in a variety of countries outside of the U.S.
These agreements were entered into from 2011 to 2013 and extend, pursuant to the terms of each respective agreement and subject to each party’s termination rights, as follows:
The agreement with Actelion extends on a product-by-product and country-by-country basis from the date of the agreement until the last to occur of (i) the date on which the product is no longer covered by a valid claim of a patent or patent application controlled by the Company in such country, (ii) the 15th anniversary of the first commercial sale of the product in such country after receipt of required regulatory approvals, (iii) the achievement of a specified market share of generic versions of the product in such country, or (iv) the loss of certain marketing rights or data exclusivity in such country.
The agreement with Asahi Kasei extends on a product-by-product basis from the date of the agreement until the last to occur of (i) the date on which the product is no longer covered by a valid claim of a patent, (ii) the 15th anniversary of the first commercial sale of the product, or (iii) the entry of a generic to XIAFLEX® in the Japanese market.
The agreement with Sobi extends on a product-by-product basis from the date of the agreement until its 10th anniversary. The term will be automatically extended for sequential two year periods unless a notice of non-renewal is provided in writing to the other party at least six months prior to expiration of the then current term.
Under these agreements, the Company is entitled to receive royalties based on net sales of the licensed product by the XIAFLEX® Sublicensees. These royalties are tiered as follows:
Actelion—15%-25%, 20%-30%, and 25%-35% based on net sales of the licensed product;
Asahi Kasei—30%-40% and 35%-45% based on net sales of the licensed product; and
Sobi—45%-55%, 50%-60% and 55%-65% based on net sales of the licensed product, which also include payments for product supply and which percentages will decrease by approximately 10% upon the occurrence of certain manufacturing milestones or July 1, 2016, whichever is earlier.
The applicable royalty percentages increase from tier to tier upon the achievement of a specified threshold of aggregate annual net sales of the licensed product and may decrease if a generic is marketed in the applicable territory. Pursuant to each of these out-licensing agreements, the Company will be responsible for all clinical and commercial drug manufacturing and supply and, in certain cases, for development costs. The Company has determined that these contractual responsibilities, together with the development and commercialization rights provided by the Company, constitute multiple deliverables. In accordance with the accounting guidance on revenue recognition for multiple-element agreements, certain elements of these agreements meet the criteria for separation and are treated as a single unit of accounting, with the corresponding revenue recognized when earned. Deliverables that do not have stand-alone value to the XIAFLEX® Sublicensees are being accounted for as one unit of accounting, with the related revenue being recorded on a straight-line basis over the respective performance period.
Revenue recognized related to these agreements was not material to the Condensed Consolidated Financial Statements for any of the periods presented.
VIVUS, Inc.
Our Auxilium subsidiary is party to a license and commercialization agreement (the STENDRA® License Agreement) with VIVUS, Inc. (VIVUS). Under the STENDRA® License Agreement, Auxilium has the exclusive right to commercialize VIVUS’s pharmaceutical product STENDRA® for the treatment of any urological disease or condition in humans, including male erectile dysfunction, in the U.S. and Canada and their respective territories. Subject to each party’s termination rights, the STENDRA® License Agreement will remain in effect until the later of, on a country-by-country basis, (i) 10 years from the date STENDRA® launches in such country and (ii) the expiration of the last to expire patent covering the product in such country. Upon the expiration of the term of the STENDRA® License Agreement, the license grant by VIVUS to Auxilium will become fully paid-up, royalty-free, perpetual and irrevocable.
In connection with the STENDRA® License Agreement, Auxilium could become obligated to make certain contingent cash consideration payments to VIVUS consisting of royalties based on a percentage of net sales of STENDRA® as well as sales-based milestones of up to approximately $260 million. Refer to Note 7. Fair Value Measurements for further discussion.
Auxilium makes royalty payments to VIVUS based on tiered percentages of the aggregate annual net sales of STENDRA®. The percentage of the Auxilium’s aggregate annual net sales to be paid to VIVUS increases in accordance with the achievement of specified thresholds of aggregate annual net sales of the product. The royalty percentage could range from 5%-20% and could be

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reduced following the entry of a generic product to the market. Royalties paid to VIVUS were not material to the Condensed Consolidated Financial Statements for any of the periods presented.
Products in Development
BioDelivery Sciences International, Inc.
EPI is party to a worldwide license and development agreement (the BioDelivery Agreement) with BioDelivery Sciences International, Inc. (BioDelivery) for the exclusive rights to develop and commercialize Belbuca™ (buprenorphine HCl) Buccal Film. The drug is a transmucosal form of buprenorphine, a partial mu-opiate receptor agonist, which incorporates a bioerodible mucoadhesive (BEMA®) technology. The NDA for Belbuca™ was submitted on December 23, 2014 and accepted by the U.S. Food and Drug Administration (FDA) in February 2015.
During each of the first, second and fourth quarters of 2014, $10.0 million of milestones were incurred related to the achievement of certain clinical milestones, resulting in a total of $30.0 million recorded as Research and development expense during 2014. If Belbuca™ is approved, EPI will be obligated to pay additional regulatory milestones of $50.0 million. In addition, EPI will pay royalties based on net sales of the drug and could be obligated to pay additional commercial milestones of up to approximately $55.0 million.
BioSpecifics Technologies Corp.
As disclosed above, our Auxilium subsidiary is party to a development and license agreement, as amended, with BioSpecifics to obtain exclusive worldwide rights to develop, market and sell certain products containing BioSpecifics’ collagenase clostridium histolyticum enzyme (CCH), which we refer to as XIAFLEX®. The Company is responsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for the clinical supply of products.
The Company is currently conducting a XIAFLEX® Phase II trial for a cellulite indication and in March 2015 completed a XIAFLEX® Phase II trial for a Frozen Shoulder syndrome indication. The study for the Frozen Shoulder syndrome indication did not meet its prospective defined primary or secondary efficacy endpoints, primarily as a consequence of an unexpected marked placebo response. The safety profile was as previously seen, with the majority of the adverse events being mild to moderate, transient and related to the local administration of XIAFLEX®. The company is currently conducting additional analyses to determine the path forward for continued progression in this indication.
BioSpecifics is currently conducting a CCH Phase II clinical trial for the treatment of lipomas in humans. The Company has the option to license development and marketing rights to the CCH human lipoma indication based on a full analysis of the data from the Phase II clinical trial, which would transfer responsibility for the future development costs to the Company and trigger an opt-in payment and potential future milestone and royalty payments to BioSpecifics. In 2013, BioSpecifics also concluded a CCH Phase II clinical trial for the treatment of lipomas in canines. The trial did not meet its primary endpoint of a statistically significant post-treatment difference in the mean percent change in lipoma; however, statistical significance was shown in secondary endpoints. The Company is currently managing the development of CCH in canine lipomas.

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NOTE 11. DEBT
The following table presents the carrying amounts and estimated fair values of the Company’s total indebtedness at March 31, 2015 and December 31, 2014 (in thousands):
 
March 31, 2015
 
December 31, 2014
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
1.75% Convertible Senior Subordinated Notes due 2015
$
98,692

 
 
 
$
98,818

 
 
Unamortized discount on 1.75% Convertible Senior Subordinated Notes due 2015
(254
)
 
 
 
(1,759
)
 
 
1.75% Convertible Senior Subordinated Notes due 2015, net
$
98,438

 
$
98,692

 
$
97,059

 
$
98,317

7.00% Senior Notes due 2019
499,875

 
522,500

 
499,875

 
522,813

7.00% Senior Notes due 2020
400,000

 
 
 
400,000

 
 
Unamortized initial purchaser’s discount
(2,303
)
 
 
 
(2,338
)
 
 
7.00% Senior Notes due 2020, net
$
397,697

 
418,750

 
$
397,662

 
422,250

7.25% Senior Notes due 2022
400,000

 
426,250

 
400,000

 
429,278

5.75% Senior Notes due 2022
700,000

 
720,125

 
700,000

 
707,000

5.375% Senior Notes due 2023
750,000

 
752,813

 
750,000

 
735,469

6.00% Senior Notes due 2025
1,200,000

 
1,236,000

 

 

Term Loan A Facility Due 2019
1,058,750

 
1,058,591

 
1,069,063

 
1,062,889

Term Loan B Facility Due 2021
420,750

 
421,655

 
421,812

 
409,685

Other debt
21,650

 
21,737

 
22,822

 
22,886

Total long-term debt, net
$
5,547,160

 
$
5,677,113

 
$
4,358,293

 
$
4,410,587

Less current portion, net
160,613

 
160,613

 
155,937

 
154,226

Total long-term debt, less current portion, net
$
5,386,547

 
$
5,516,500

 
$
4,202,356

 
$
4,256,361

As of March 31, 2015, based on the proximity of the maturity date of the 1.75% Convertible Senior Subordinated Notes to March 31, 2015, the principal amount of these notes approximated fair value. As of December 31, 2014, the fair value of our 1.75% Convertible Senior Subordinated Notes was based on an income approach, which incorporated certain inputs and assumptions, including scheduled coupon and principal payments, the inherent conversion and put features in the notes and share price volatility assumptions based on historic volatility of the Company’s ordinary shares and other factors. These fair value measurements are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy.
The fair values of the various term loan facilities and senior notes were based on market quotes and transactions proximate to the valuation date. Based on this valuation methodology, we determined these debt instruments represent Level 2 measurements within the fair value hierarchy.
Credit Facility
Upon closing of the Paladin acquisition on February 28, 2014, certain subsidiaries of the Company entered into a credit facility with Deutsche Bank AG New York Branch and Royal Bank of Canada and certain other lenders, which replaced Endo’s prior credit facility. The initial borrowings under this credit facility consisted of a five-year senior secured term loan A facility of $1.1 billion (the 2014 Term Loan A Facility), a seven-year senior secured term loan B facility of $425.0 million (the 2014 Term Loan B Facility), and a five-year revolving credit facility with an initial borrowing capacity of up to $750.0 million (the 2014 Revolving Credit Facility and, together with the 2014 Term Loan A Facility and the 2014 Term Loan B Facility, the 2014 Credit Facility). Substantially all of the 2014 Revolving Credit Facility was available at March 31, 2015. The 2014 Credit Facility was issued to refinance certain of our existing indebtedness and for general corporate purposes, including acquisitions. Refer to Note 18. Subsequent Events for discussion relating to the drawdown of the revolver during April 2015.
The 2014 Credit Facility contains affirmative and negative covenants that the Company believes to be usual and customary for a senior secured credit facility. The negative covenants include, among other things, limitations on capital expenditures, asset sales, mergers and acquisitions, indebtedness, liens, dividends, investments and transactions with the Company’s affiliates. As of March 31, 2015, we were in compliance with all such covenants.

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6.00% Senior Notes Due 2025
On January 27, 2015, Endo Limited, Endo Finance LLC and Endo Finco Inc. (collectively, the Issuers) issued $1.20 billion in aggregate principal amount of 6.00% senior notes due 2025 (the 2025 Notes). The 2025 Notes were issued in a private offering for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. In connection with the 2025 Notes, we incurred new debt issuance costs of approximately $20.5 million, which were deferred and will be amortized over the term of the 2025 Notes.
The 2025 Notes are senior unsecured obligations of the Issuers and are guaranteed on a senior unsecured basis by certain of the Company’s subsidiaries. Interest on the 2025 Notes is payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2015. The 2025 Notes will mature on February 1, 2025, subject to earlier repurchase or redemption in accordance with the terms of the 2025 Notes indenture incorporated by reference herein.
The 2025 Notes were issued to (i) finance its acquisition of Auxilium, (ii) refinance certain indebtedness of Auxilium and (iii) pay related transaction fees and expenses.
On or after February 1, 2020, the Issuers may on any one or more occasions redeem all or a part of the 2025 Notes, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and additional interest, if any, if redeemed during the twelve-month period beginning on February 1 of the years indicated below:  
Payment Dates (between indicated dates)
Redemption
Percentage  
From February 1, 2020 to and including January 31, 2021
103.000
%
From February 1, 2021 to and including January 31, 2022
102.000
%
From February 1, 2022 to and including January 31, 2023
101.000
%
From February 1, 2023 and thereafter
100.000
%
In addition, at any time prior to February 1, 2020, the Issuers may on any one or more occasions redeem all or a part of the 2025 Notes at a specified redemption price set forth in the indenture, plus accrued and unpaid interest and additional interest, if any. In addition, prior to February 1, 2018, the Issuers may redeem up to 35% of the aggregate principal amount of the 2025 Notes with the net cash proceeds from specified equity offerings at a redemption price equal to 106.000% of the aggregate principal amount of the 2025 Notes redeemed, plus accrued and unpaid interest. If Endo Limited experiences certain change of control events, the Issuers must offer to repurchase the 2025 Notes at 101% of their principal amount, plus accrued and unpaid interest and additional interest, if any.
The 2025 Notes indenture contains covenants that, among other things, restrict Endo Limited’s ability and the ability of its restricted subsidiaries to incur certain additional indebtedness and issue preferred stock, make restricted payments, sell certain assets, agree to payment restrictions on the ability of restricted subsidiaries to make payments to Endo Limited, create certain liens, merge, consolidate or sell substantially all of Endo Limited’s assets, or enter into certain transactions with affiliates. These covenants are subject to a number of important exceptions and qualifications, including the fall away or revision of certain of these covenants upon the 2025 Notes receiving investment grade credit ratings.
Also on January 27, 2015, the Issuers and the guarantors of the 2025 Notes entered into a registration rights agreement under which they will be required to use their commercially reasonable efforts to (i) file with the SEC by March 31, 2016 an exchange offer registration statement pursuant to which they will offer, in exchange for the 2025 Notes, new notes having terms substantially identical in all material respects to those of the 2025 Notes (except the new notes will not contain terms with respect to transfer restrictions) (the A/B Exchange Offer), (ii) complete the A/B Exchange Offer by July 1, 2016 or, under specified circumstances, (iii) file a shelf registration statement with the SEC covering resales of the 2025 Notes. The Issuers may be required to pay additional interest if they fail to comply with the registration and exchange requirements set forth in the registration rights agreement.
1.75% Convertible Senior Subordinated Notes Due 2015
At March 31, 2015, our indebtedness included 1.75% Convertible Senior Subordinated Notes due April 15, 2015 (the Convertible Notes). Refer to Note 18. Subsequent Events for discussion relating to the full repayment of the remaining Convertible Notes and the settlement of the remaining call options during April 2015.
As discussed in Note 17. Net (Loss) Income Per Share, in periods in which our ordinary shares price exceeds the conversion price of the Convertible Notes or the strike price of the warrants, we include the effects of the additional shares that may be issued in our diluted net loss per share calculation using the treasury stock method.

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1.50% Convertible Senior Notes Due 2018
On January 29, 2015, in connection with the consummation of the Merger Agreement between Endo and Auxilium, Endo entered into an agreement relating to Auxilium’s $350.0 million of 1.50% convertible senior notes due 2018 (the Auxilium Notes), pursuant to which the Auxilium Notes are no longer convertible into shares of Auxilium common stock and instead are convertible into cash and ordinary shares of Endo based on the weighted average of the cash and Endo ordinary shares received by Auxilium stockholders that affirmatively made an election in connection with the Merger. As a result of such elections, for each share of Auxilium common stock a holder of Auxilium Notes was previously entitled to receive upon conversion of Notes, such holder instead became entitled to receive $9.88 in cash and 0.3430 Endo ordinary shares. Pursuant to this agreement, Endo became a co-obligor of Auxilium’s obligations under the Auxilium Notes and expressly agreed to assume, jointly and severally with Auxilium, liability for (a) the due and punctual payment of the principal (and premium, if any) and interest, if any, on all of the Auxilium Notes issued under the corresponding indenture, (b) the due and punctual delivery of Endo ordinary shares and/or cash upon conversion of the Auxilium Notes by note holders and (c) the due and punctual performance and observance of all of the covenants and conditions of the corresponding indenture to be performed by Auxilium.
As further described in Note 5. Acquisitions, and as a result of the variability in the number of ordinary shares to be issued, the Auxilium Notes were initially recorded at their estimated fair value of $571.1 million upon the acquisition of Auxilium. In accordance with accounting guidance for debt with conversion and other options, we separately accounted for the liability and equity components of the Auxilium Notes by allocating the proceeds between the liability component and the embedded conversion option, or equity component, due to our ability to settle the Auxilium Notes in a combination of cash and ordinary shares, with $293.1 million allocated to debt and $278.0 million allocated to Additional paid-in capital. The fair value of the liability component was determined using a discounted cash flow model with a discount rate consistent that of a similar liability that does not have an associated convertible feature, based on comparable market transactions. Fair value of the equity component was determined using an integrated lattice valuation, which incorporates the conversion option and assumptions related to default.
Subsequent to the closing of the acquisition on January 29, 2015, during the first quarter of 2015, holders of the Auxilium Notes converted substantially all of the Auxilium Notes and received aggregate consideration consisting of $148.9 million of cash and 5.2 million ordinary shares valued at approximately $408.6 million. The value of the ordinary shares issued resulted in an increase to Additional paid-in capital of $408.6 million. In connection with these conversions, we charged $1.0 million to expense, representing the differences between the fair value of the repurchased debt components and their carrying amounts. The expense was included in the Condensed Consolidated Statements of Operations as a Loss on extinguishment of debt. Additionally, we recorded a combined decrease to Additional paid-in capital in the amount of $263.5 million during the first quarter of 2015, representing the fair value of the equity component of the repurchased Auxilium Notes.
Other than as described above, there have been no material changes to our other indebtedness from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on March 2, 2015.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Manufacturing, Supply and Other Service Agreements
Our subsidiaries contract with various third party manufacturers, suppliers and service providers to provide raw materials used in our subsidiaries’ products and semi-finished and finished goods, as well as certain packaging and labeling services. The most significant of these agreements are with Novartis Consumer Health, Inc. and Novartis AG (collectively, Novartis), Teikoku Seiyaku Co., Ltd., Noramco, Inc., Grünenthal GmbH, Sharp Corporation, VIVUS, Inc., Jubilant HollisterStier Laboratories LLC and UPS Supply Chain Solutions, Inc. If, for any reason, we are unable to obtain sufficient quantities of any of the finished goods or raw materials or components required for their products or services needed to conduct their business, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition to the manufacturing and supply agreements described above, we have agreements with various companies for clinical development services. Although we have no reason to believe that the parties to these agreements will not meet their obligations, failure by any of these third parties to honor their contractual obligations may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Teikoku Seiyaku Co., Ltd.
Under the terms of EPI's agreement (the Teikoku Agreement) with Teikoku Seiyaku Co. Ltd. (Teikoku), during the three months ended March 31, 2015 and 2014, we recorded $5.0 million and $1.8 million of royalties to Teikoku, respectively. These amounts were included in our Condensed Consolidated Statements of Operations as Cost of revenues. At March 31, 2015, $5.0 million was recorded as a royalty payable and included in Accounts payable in the accompanying Condensed Consolidated Balance Sheets.

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The Teikoku Agreement will not expire until December 31, 2021, unless terminated in accordance with its terms. After December 31, 2021, the Teikoku Agreement shall be automatically renewed on the first day of January each year unless terminated in accordance with its terms. Either party may terminate the Teikoku Agreement, following a 45-day cure period, in the event that EPI fails to issue firm purchase orde