ENDP-6.30.2015-10Q
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 JUNE 30, 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
August 4, 2015
:
208,251,366




ENDO INTERNATIONAL PLC
INDEX
 
 
Page
Forward-Looking Statements
 
 
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
Condensed Consolidated Balance Sheets June 30, 2015 (Unaudited) and December 31, 2014
 
Condensed Consolidated Statements of Operations (Unaudited) Three and Six Months Ended June 30, 2015 and 2014
 
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) Three and Six Months Ended June 30, 2015 and 2014
 
Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 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)
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
2,529,735

 
$
408,753

Restricted cash and cash equivalents
484,788

 
530,930

Marketable securities
893

 
815

Accounts receivable
1,318,286

 
1,126,078

Inventories, net
625,767

 
423,321

Prepaid expenses and other current assets
51,565

 
38,680

Income taxes receivable
109,817

 
51,846

Deferred income taxes
720,043

 
561,974

Assets held for sale (NOTE 3)
1,696,059

 
1,937,864

Total current assets
$
7,536,953

 
$
5,080,261

MARKETABLE SECURITIES
4,023

 
1,506

PROPERTY, PLANT AND EQUIPMENT, NET
413,931

 
387,703

GOODWILL
3,044,307

 
2,899,587

OTHER INTANGIBLES, NET
4,914,393

 
2,333,193

DEFERRED INCOME TAXES
3,011

 
5,059

OTHER ASSETS
215,296

 
202,307

TOTAL ASSETS
$
16,131,914

 
$
10,909,616

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
306,179

 
$
297,484

Accrued expenses
1,397,552

 
1,149,545

Current portion of legal settlement accrual
1,598,932

 
1,443,114

Current portion of long-term debt
68,423

 
155,937

Income taxes payable
11,362

 

Deferred income taxes

 
22

Liabilities held for sale (NOTE 3)
104,994

 
103,338

Total current liabilities
$
3,487,442

 
$
3,149,440

DEFERRED INCOME TAXES
719,902

 
677,740

LONG-TERM DEBT, LESS CURRENT PORTION, NET
5,361,230

 
4,202,356

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

 
262,781

OTHER LIABILITIES
411,402

 
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
45

 
48

Ordinary shares, $0.0001 and $0.0001 par value; 1,000,000,000 and 1,000,000,000 shares authorized; 208,221,710 and 153,912,985 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively
21

 
15

Additional paid-in capital
7,322,102

 
3,093,867

Accumulated deficit
(921,221
)
 
(595,085
)
Accumulated other comprehensive loss
(249,077
)
 
(124,088
)
Total Endo International plc shareholders’ equity
$
6,151,870

 
$
2,374,757

Noncontrolling interests
68

 
33,456

Total shareholders’ equity
$
6,151,938

 
$
2,408,213

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
16,131,914

 
$
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 June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 TOTAL REVENUES
$
735,166

 
$
592,848

 
$
1,449,294

 
$
1,063,690

 COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of revenues
438,858

 
303,445

 
823,124

 
516,124

Selling, general and administrative
154,491

 
124,366

 
366,069

 
284,432

Research and development
18,984

 
30,406

 
36,881

 
61,352

Litigation-related and other contingencies, net
6,875

 
3,954

 
19,875

 
3,954

Asset impairment charges
70,243

 

 
77,243

 

Acquisition-related and integration items
44,225

 
19,618

 
78,865

 
64,887

 OPERATING INCOME FROM CONTINUING OPERATIONS
$
1,490

 
$
111,059

 
$
47,237

 
$
132,941

 INTEREST EXPENSE, NET
80,611

 
52,183

 
153,750

 
105,575

 LOSS ON EXTINGUISHMENT OF DEBT

 
20,089

 
980

 
29,685

 OTHER EXPENSE (INCOME), NET
24,493

 
(6,596
)
 
12,498

 
(13,004
)
 (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX
$
(103,614
)
 
$
45,383

 
$
(119,991
)
 
$
10,685

 INCOME TAX (BENEFIT) EXPENSE
(12,720
)
 
4,808

 
(179,589
)
 
17,511

 (LOSS) INCOME FROM CONTINUING OPERATIONS
$
(90,894
)
 
$
40,575

 
$
59,598

 
$
(6,826
)
 DISCONTINUED OPERATIONS, NET OF TAX (NOTE 3)
(159,632
)
 
(20,189
)
 
(385,842
)
 
(406,066
)
 CONSOLIDATED NET (LOSS) INCOME
$
(250,526
)
 
$
20,386

 
$
(326,244
)
 
$
(412,892
)
 Less: Net (loss) income attributable to noncontrolling interests
(107
)
 
(774
)
 
(107
)
 
2,860

 NET (LOSS) INCOME ATTRIBUTABLE TO ENDO INTERNATIONAL PLC
$
(250,419
)
 
$
21,160

 
$
(326,137
)
 
$
(415,752
)
 NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—BASIC:
 
 
 
 
 
 
 
Continuing operations
$
(0.49
)
 
$
0.27

 
$
0.34

 
$
(0.04
)
Discontinued operations
$
(0.86
)
 
$
(0.13
)
 
$
(2.18
)
 
$
(2.92
)
Basic
$
(1.35
)
 
$
0.14

 
$
(1.84
)
 
$
(2.96
)
 NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—DILUTED:
 
 
 
 
 
 
 
Continuing operations
$
(0.49
)
 
$
0.25

 
$
0.33

 
$
(0.04
)
Discontinued operations
$
(0.86
)
 
$
(0.12
)
 
$
(2.11
)
 
$
(2.92
)
Diluted
$
(1.35
)
 
$
0.13

 
$
(1.78
)
 
$
(2.96
)
 WEIGHTED AVERAGE SHARES:
 
 
 
 
 
 
 
Basic
185,328

 
152,368

 
177,490

 
140,252

Diluted
185,328

 
163,369

 
182,822

 
140,252

See Notes to Condensed Consolidated Financial Statements.

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ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(In thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 CONSOLIDATED NET (LOSS) INCOME
 
 
$
(250,526
)
 
 
 
$
20,386

 
 
 
$
(326,244
)
 
 
 
$
(412,892
)
 OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net unrealized gain on securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain arising during the period
$
201

 
 
 
$
2,034

 
 
 
$
1,714

 
 
 
$
1,694

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

 
201

 

 
2,034

 

 
1,714

 

 
1,694

Foreign currency translation gain (loss)
 
 
8,001

 
 
 
44,393

 
 
 
(123,347
)
 
 
 
49,470

 OTHER COMPREHENSIVE INCOME (LOSS)
 
 
$
8,202

 
 
 
$
46,427

 
 
 
$
(121,633
)
 
 
 
$
51,164

 CONSOLIDATED COMPREHENSIVE (LOSS) INCOME
 
 
$
(242,324
)
 
 
 
$
66,813

 
 
 
$
(447,877
)
 
 
 
$
(361,728
)
Less: Net (loss) income attributable to noncontrolling interests
 
 
(107
)
 
 
 
(774
)
 
 
 
(107
)
 
 
 
2,860

Less: Other comprehensive loss attributable to noncontrolling interests
 
 
57

 
 
 
(1,942
)
 
 
 
(549
)
 
 
 
(1,942
)
 COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENDO INTERNATIONAL PLC
 
 
$
(242,274
)
 
 
 
$
69,529

 
 
 
$
(447,221
)
 
 
 
$
(362,646
)
See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ENDO INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Six Months Ended June 30,
 
2015
 
2014
OPERATING ACTIVITIES:
 
 
 
Consolidated net loss
$
(326,244
)
 
$
(412,892
)
Adjustments to reconcile consolidated net loss to Net cash used in operating activities:
 
 
 
Depreciation and amortization
249,181

 
152,818

Inventory step-up
84,253

 
22,725

Share-based compensation
24,753

 
14,376

Amortization of debt issuance costs and premium / discount
10,580

 
17,993

Provision for bad debts
1,141

 
980

Deferred income taxes
(244,152
)
 
(169,195
)
Net (gain) loss on disposal of property, plant and equipment
(132
)
 
1,017

Loss on extinguishment of debt
980

 
29,685

Asset impairment charges (including other than temporary impairment of Litha joint venture investment)
318,865

 

Gain on sale of business and other assets

 
(2,718
)
Changes in assets and liabilities which (used) provided cash:
 
 
 
Accounts receivable
(124,681
)
 
(22,227
)
Inventories
(22,425
)
 
13,170

Prepaid and other assets
(12,268
)
 
11,019

Accounts payable
4,349

 
(83,991
)
Accrued expenses
235,867

 
662,533

Other liabilities
(228,938
)
 
(194,067
)
Income taxes payable/receivable
(48,615
)
 
(93,857
)
Net cash used in operating activities
$
(77,486
)
 
$
(52,631
)
INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment
(38,621
)
 
(40,398
)
Proceeds from sale of property, plant and equipment

 
19

Acquisitions, net of cash acquired
(915,945
)
 
(203,088
)
Proceeds from sale of marketable securities and investments
24

 
47,850

Proceeds from notes receivable
17

 
23,066

Patent acquisition costs and license fees

 
(5,000
)
Proceeds from sale of business, net
4,712

 
54,521

Proceeds from settlement escrow

 
3,148

Increase in restricted cash and cash equivalents
(381,223
)
 

Decrease in restricted cash and cash equivalents
424,695

 
704,223

Other investing activities

 
4,000

Net cash (used in) provided by investing activities
$
(906,341
)
 
$
588,341


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Table of Contents

 
Six Months Ended June 30,
 
2015
 
2014
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of notes
1,200,000

 
750,000

Proceeds from issuance of term loans

 
1,525,000

Principal payments on term loans
(26,188
)
 
(1,407,394
)
Proceeds from draw of revolving debt
175,000

 

Repayments of revolving debt
(175,000
)
 

Principal payments on other indebtedness, net
(3,231
)
 
(5,800
)
Repurchase of convertible senior subordinated notes
(247,760
)
 
(547,852
)
Payments to settle ordinary share warrants

 
(242,192
)
Proceeds from the settlement of the hedge on convertible senior subordinated notes due 2015

 
302,113

Deferred financing fees
(25,696
)
 
(58,715
)
Payment for contingent consideration
(7,383
)
 

Tax benefits of share awards
20,079

 
27,573

Payments of tax withholding for restricted shares
(12,570
)
 
(22,803
)
Exercise of options
23,440

 
31,616

Issuance of ordinary shares
2,302,281

 
2,288

Payments related to the issuance of ordinary shares
(66,956
)
 
(4,800
)
Cash distributions to noncontrolling interests

 
(6,144
)
Cash buy-out of noncontrolling interests
(39,608
)
 
(82
)
Net cash provided by financing activities
$
3,116,408

 
$
342,808

Effect of foreign exchange rate
(11,599
)
 
4,716

NET INCREASE IN CASH AND CASH EQUIVALENTS
$
2,120,982

 
$
883,234

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

 
(17,413
)
NET INCREASE IN CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS
$
2,120,982

 
$
900,647

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
408,753

 
526,597

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
2,529,735

 
$
1,427,244

SUPPLEMENTAL INFORMATION:
 
 
 
Cash paid into Qualified Settlement Funds for mesh legal settlements
$
377,074

 
$

Cash paid out of Qualified Settlement Funds for mesh legal settlements
$
385,087

 
$
3,148

Other cash distributions for mesh legal settlements
$
10,829

 
$
3,517

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

 
$
578

Accrual for purchases of property, plant and equipment
$
2,072

 
$
4,423

Acquisition financed by ordinary shares
$
1,519,318

 
$
2,844,279

Repurchase of convertible senior subordinated notes financed by ordinary shares
$
625,483

 
$

See Notes to Condensed Consolidated Financial Statements.

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ENDO INTERNATIONAL PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 necessary to a fair statement of the Company’s financial position as of June 30, 2015 and the results of our operations and our cash flows for the periods presented. Operating results for the three and six months ended June 30, 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 three months ended June 30, 2015, the Company recorded a $2.7 million correcting adjustment to deferred taxes resulting from the impact of currency translation on a foreign denominated intercompany loan. Based on changes in the underlying exchange rate over the first three months of 2015, the impact to the Company’s Condensed Consolidated Balance Sheet as of March 31, 2015 would have been a $22.2 million increase to Accumulated other comprehensive loss with an offset to Deferred income taxes. The corresponding impact for the three months ended June 30, 2015 would have been a $19.5 million decrease to Accumulated other comprehensive loss with an offset to Deferred income taxes. The net $2.7 million adjustment is included in Foreign currency translation gain (loss) in the Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2015. The Company determined that neither the prior period nor the current period corrections are material to the periods presented or the expected 2015 full year results.
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. On July 9, 2015, the FASB deferred the effective date of the new revenue recognition standard by one year. This ASU, as issued, is effective for annual reporting periods beginning after December 15, 2017 and interim reporting periods within that reporting period. The Company currently plans to adopt this ASU on January 1, 2018. 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,

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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 financial position.
In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (ASU 2015-05). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. In addition, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets as a result of the guidance in ASU 2015-05. ASU 2015-05 is effective for annual periods beginning after December 15, 2015 and interim periods in annual periods beginning after December 15, 2016, with early adoption permitted. Companies may use either a full retrospective approach or a prospective approach entered into or materially modified after the effective date to adopt this ASU. The Company is currently evaluating the impact of ASU 2015-05 on the Company’s consolidated results of operations and financial position.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory” (ASU 2015-11). ASU 2015-11 states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this update should be applied prospectively and early application is permitted. The Company is currently evaluating the impact of ASU 2015-05 on the Company’s consolidated results of operations and financial position.
NOTE 3. DISCONTINUED OPERATIONS
American Medical Systems
On February 24, 2015, the Board of Directors approved a plan to sell the Company’s American Medical Systems Holdings, Inc. (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 agreed to 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 closed on August 3, 2015. 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. We estimated the fair value of the Men’s Health and Prostate Health division based on the agreed upon purchase price with Boston Scientific. The fair value of the Women’s Health component was estimated based on expressions of interest from 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 expense of $0.5 million during the three months and a $159.2 million tax benefit during six months ended June 30, 2015, respectively, which was recorded as Income tax (benefit) expense (a component of (loss) income from continuing operations) in the Condensed Consolidated Statements of Operations. In connection with

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the closing of the sale to Boston Scientific, it is expected there will be further tax benefits which will be recorded during the three months ended September 30, 2015.
The following table provides the operating results of the Discontinued operations of AMS, net of tax for the three and six months ended June 30 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$
119,940

 
$
125,836

 
$
238,605

 
$
249,603

Litigation related and other contingencies, net
$
268,552

 
$
32,000

 
$
273,752

 
$
658,151

Asset impairment charges

 

 
222,753

 

Loss from discontinued operations before income taxes
(257,642
)
 
(6,235
)
 
(487,500
)
 
(625,655
)
Income tax (benefit) expense
(98,010
)
 
10,786

 
(101,658
)
 
(217,338
)
Discontinued operations, net of tax
$
(159,632
)
 
$
(17,021
)
 
$
(385,842
)
 
$
(408,317
)
The following table provides the components of Assets and Liabilities held for sale of AMS as of June 30, 2015 and December 31, 2014 (in thousands):
 
June 30, 2015
 
December 31, 2014
Current assets
$
160,551

 
$
165,075

Property, plant and equipment
41,954

 
41,122

Goodwill
636,583

 
862,960

Other intangibles, net
849,475

 
861,174

Other assets
7,496

 
7,533

Assets held for sale
$
1,696,059

 
$
1,937,864

Current liabilities
$
57,617

 
$
53,143

Deferred taxes
43,679

 
46,538

Other liabilities
3,698

 
3,657

Liabilities held for sale
$
104,994

 
$
103,338

The following table provides the Depreciation and amortization and Purchases of property, plant and equipment of AMS for the six months ended June 30 (in thousands):
 
Six Months Ended June 30,
 
2015
 
2014
Cash flows from discontinued operating activities:
 
 
 
Net loss
$
(385,842
)
 
$
(408,317
)
Depreciation and amortization
11,555

 
35,565

Cash flows from discontinued investing activities:
 
 
 
Purchases of property, plant and equipment
$
(2,182
)
 
$
(2,460
)
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 June 30, 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 $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.

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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 the three and six months ended June 30, 2014.
The following table provides the operating results of Discontinued operations of HealthTronics, net of tax for the three and six months ended June 30, 2014 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2014
Revenue
$

 
$
14,442

Income from discontinued operations before income taxes
$
(2,677
)
 
$
1,721

Income tax expense (benefit)
491

 
(530
)
Discontinued operations, net of tax
$
(3,168
)
 
$
2,251

There were no Assets or Liabilities held for sale relating to HealthTronics included in the Condensed Consolidated Balance Sheets as of June 30, 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 $4.4 million and $45.2 million during the three and six months ended June 30, 2015, respectively, consisting of $4.4 million and $30.3 million of employee severance, retention and other benefit-related costs during the three and six months ended June 30, 2015, respectively. The expenses were also attributable to 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 during the first quarter of 2015, and $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, during the first quarter of 2015. There were no additional asset impairment charges and no additional expenses relating to the facility’s cease use date recorded during the three months ended June 30, 2015. The Company anticipates there will be additional pre-tax restructuring expenses of $1.1 million related to employee severance, retention and other benefit-related costs and these actions are expected to be completed by December 31, 2015, with substantially 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 and six months ended June 30, 2015 (in thousands):
 
Three Months Ended June 30,
Six Months Ended June 30,
 
2015
 
2015
Employee Severance, Retention and Other Benefit-Related Costs
$
4,365

 
$
30,330

Asset Impairment Charges

 
7,000

Other Restructuring Costs

 
7,860

Total
$
4,365

 
$
45,190


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The liability related to the Auxilium restructuring initiative totaled $24.5 million at June 30, 2015. At June 30, 2015, this liability is included in Accrued expenses in the Condensed Consolidated Balance Sheets. Changes to this accrual during the six months ended June 30, 2015 were as follows (in thousands):
 
Employee Severance, Retention and Other Benefit-Related Costs
 
Other Restructuring Costs
 
Total
Liability balance as of January 1, 2015
$

 
$

 
$

Expenses
30,330

 
7,860

 
38,190

Cash payments
(13,352
)
 
(348
)
 
(13,700
)
Liability balance as of June 30, 2015
$
16,978

 
$
7,512

 
$
24,490

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. These charges, which primarily related to employee severance, retention and other benefit-related costs, are included in the following lines in the Condensed Consolidated Statements of Operations (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Selling, general and administrative
2,305

 
5,688

 
11,841

 
8,121

Discontinued operations, net of tax
11,692

 
85

 
18,141

 
2,138

Total Other Restructuring
$
13,997

 
$
5,773

 
$
29,982

 
$
10,259

The liability related to these initiatives totaled $28.8 million and $17.0 million at June 30, 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, Paladin and Sumavel® DosePro® (Sumavel®), the estimated fair values of the net assets acquired below are provisional as of June 30, 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, Paladin and Sumavel as of February 3, 2015, February 28, 2015 and May 19, 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 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%.

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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 and six months ended June 30, 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 and six months ended June 30, 2014. The Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 reflect the acquisition of Paladin, effective February 28, 2014.
Our measurement period adjustments for Paladin were complete as of February 28, 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 acquisition-related transaction costs associated with the Paladin acquisition during the six months ended June 30, 2014 totaling $33.4 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. There were no acquisition-related transaction costs associated with the Paladin acquisition during the six months ended June 30, 2015.

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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 June 30, 2014 are as follows (in thousands, except per share data):
Revenue
$
96,910

Net income attributable to Endo International plc
$
671

Basic and diluted net income per share
$

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 six months ended June 30, 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.
 
Six Months Ended June 30, 2014
Unaudited pro forma consolidated results (in thousands, except per share data):
 
Revenue
$
1,106,690

Net loss attributable to Endo International plc
$
(426,578
)
Basic and diluted net loss per share
$
(3.04
)
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 additional intangible amortization. The adjustments to additional intangible amortization, net of tax, that would have been charged assuming the Company’s estimated fair value of the intangible assets, increased the expense by $2.8 million for the six months ended June 30, 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. At December 31, 2014, our Paladin subsidiary owned 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 $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.
The fair values of the net identifiable assets acquired totaled $212.3 million, resulting in goodwill of $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 $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 and six months ended June 30, 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 and six months ended June 30, 2014. The Condensed Consolidated Balance Sheets as of June 30, 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® 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.

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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 $93.8 million, resulting in no goodwill. The amount of net identifiable assets acquired in connection with the Sumavel® acquisition includes $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 and six months ended June 30, 2015 and the operating results from the acquisition date of May 19, 2014 are included in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014. The Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 reflect the acquisition of Sumavel®, effective May 19, 2014. Our measurement period adjustments were complete for Sumavel as of May 19, 2015.
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 $184.4 million, resulting in goodwill of $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 $167.9 million of identifiable intangible assets, including $148.3 million to be amortized over an average life of approximately 12 years and $19.6 million of IPR&D.
The operating results of Somar are included in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015. There are no results included in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014. The Condensed Consolidated Balance Sheets as of June 30, 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 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 and six months ended June 30, 2015. There are no results included in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014. The Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 reflect the acquisition of DAVA, effective August 6, 2014.
As of June 30, 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.

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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 $56.7 million, resulting in no goodwill. The amount of net identifiable assets acquired in connection with the Natesto™ acquisition includes $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 and six months ended June 30, 2015. There are no results included in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014. The Condensed Consolidated Balance Sheets as of June 30, 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 $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.
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 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

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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 and six months ended June 30, 2015. The Condensed Consolidated Balance Sheet as of June 30, 2015 reflects the acquisition of Auxilium, effective January 29, 2015.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the Auxilium Acquisition Date (in thousands):
 
January 29, 2015
(As initially reported)
 
Measurement period adjustments
 
January 29, 2015
(As adjusted)
Cash and cash equivalents
$
115,973

 
$

 
$
115,973

Accounts receivable
75,849

 

 
75,849

Inventories
341,900

 
(38,400
)
 
303,500

Prepaid expenses and other current assets
6,687

 

 
6,687

Property, plant and equipment
31,500

 

 
31,500

Intangible assets
2,838,000

 
7,500

 
2,845,500

Other assets
9,285

 
(999
)
 
8,286

Total identifiable assets
$
3,419,194

 
$
(31,899
)
 
$
3,387,295

Accounts payable and accrued expenses
$
120,553

 
$
12,391

 
$
132,944

Deferred income taxes
164,379

 
(26,598
)
 
137,781

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

 

 
571,132

Other liabilities
171,400

 
(4,320
)
 
167,080

Total liabilities assumed
$
1,027,464

 
$
(18,527
)
 
$
1,008,937

Net identifiable assets acquired
$
2,391,730

 
$
(13,372
)
 
$
2,378,358

Goodwill
177,854

 
13,372

 
191,226

Net assets acquired
$
2,569,584

 
$

 
$
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 June 30, 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.

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The valuation of the intangible assets acquired and related amortization periods are as follows:
 
Valuation (in millions) 
 
Amortization period (in years)  
Developed Technology:
 
 
 
XIAFLEX®
$
1,501.1

 
12
TESTOPEL®
584.3

 
15
Urology Retail
311.0

 
13
Other
128.7

 
15
Total
$
2,525.1

 
 
In Process Research & Development (IPR&D):
 
 
 
XIAFLEX®—Cellulite
$
320.4

 
n/a
Total
$
320.4

 
n/a
Total other intangible assets
$
2,845.5

 
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.
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 and inventory step-up.
The Company recognized acquisition-related transaction costs associated with the Auxilium acquisition during the six months ended June 30, 2015 totaling $23.1 million. These costs, which related primarily to bank fees, legal and accounting services, and fees for other professional services, are included in Acquisition-related and integration items in the accompanying 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 from and including January 29, 2015 to June 30, 2015 are as follows (in thousands, except per share data):
Revenue
$
155,367

Net loss attributable to Endo International plc
$
(110,838
)
Basic net loss per share
$
(0.62
)
Diluted net loss per share
$
(0.61
)

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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 six months ended June 30, 2015 and for the three and six months ended June 30, 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.
 
Six Months Ended June 30, 2015
 
Three Months Ended June 30, 2014
 
Six Months Ended June 30, 2014
Unaudited pro forma consolidated results (in thousands, except per share data):
 
 
 
 
 
Revenue
$
1,472,869

 
$
675,866

 
$
1,235,227

Net loss attributable to Endo International plc
$
(333,583
)
 
$
(42,256
)
 
$
(562,638
)
Basic net loss per share
$
(1.88
)
 
$
(0.28
)
 
$
(4.01
)
Diluted net loss per share
$
(1.82
)
 
$
(0.28
)
 
$
(4.01
)
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 $5.5 million for the three months ended June 30, 2014, and increased the expense by $1.1 million and $11.4 million for the six months ended June 30, 2015 and June 30, 2014, respectively. 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, increased the expense by $21.4 million for the three months ended June 30, 2014. An adjustment to the amortization expense for the six months ended June 30, 2015 and June 30, 2014 increased the expense by $8.8 million and $43.0 million, respectively.
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 $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.
The operating results of the acquired authorized generic of potassium chloride oral solution are included in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 given the launch of this product in April 2015. There are no results included in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014. The Condensed Consolidated Balance Sheet as of June 30, 2015 reflects the acquisition of the authorized generic of potassium chloride oral solution, effective March 19, 2015.
Pending Acquisitions
Aspen Holdings
In May 2015, Litha Pharma (Pty) Limited, a subsidiary of the Company, entered into an agreement to acquire a broad portfolio of branded and generic injectable and established products focused on pain, anti-infectives, cardiovascular and other specialty therapeutics areas from a subsidiary of Aspen Holdings, a leading publicly-traded South African company that supplies branded and generic products in more than 150 countries, and from GlaxoSmithKline plc (GSK). The transaction is expected to expand Endo’s presence in South Africa. Under the terms of the agreement, the subsidiary of Aspen Holdings and GSK will receive a one-time payment of approximately $150 million subject to usual and customary closing adjustments. The transaction is expected to close in the second half of 2015.
Acquisition of Par Pharmaceutical Holdings, Inc.

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In May 2015, the Company entered into a definitive agreement with Par Pharmaceutical Holdings, Inc. (Par) pursuant to which the Company shall acquire privately-held Par from TPG Capital in a transaction initially valued at $8.05 billion, including assumption of Par debt. The purchase price consists of 18.0 million shares ($1.55 billion of value based on the 10-day volume weighted average share price of Endo ending on May 15, 2015) of Endo equity and $6.50 billion cash consideration to Par shareholders, subject to certain adjustments. The transaction is expected to close in the second half of 2015.
On June 10, 2015, the Company completed the sale of 27,627,628 ordinary shares for aggregate gross proceeds of $2,300.0 million in order to finance a portion of the pending Par acquisition. The net proceeds of this share issuance, totaling $2,235.1 million are included as a component of Cash and cash equivalents at June 30, 2015.
In July 2015, Endo Designated Activity Company, formerly known as Endo Limited (Endo DAC), Endo Finance LLC and Endo Finco Inc. (collectively, the Issuers) issued $1.64 billion in aggregate principal amount of the 2023 Notes. The Company intends to incur an Incremental Term Loan B Facility in an aggregate principal amount of up to $2,800 million in accordance with the Amended 2014 Credit Facility prior to or substantially simultaneously with the closing of the Par acquisition. In addition, the Company intends to increase its incremental revolving facility capacity in an aggregate principal amount of up to $250.0 million under the Amended 2014 Credit Facility prior to or substantially simultaneously with the closing of the Par acquisition.
The 2023 Notes were issued to, together with the Incremental Term Loan B Facility and cash on hand, (i) fund the purchase price of the Par acquisition, as well as for repayments of indebtedness of Par and certain transaction expenses, (ii) refinance the Company’s existing 2014 Term Loan B Facility, and (iii) redeem all $499.9 million aggregate principal amount outstanding of the 7.00% Senior Notes due 2019, which redemption occurred in July 2015. The Company intends to use any remaining proceeds for general corporate purposes, including acquisitions and debt repayments.
Par is a specialty pharmaceutical company that develops, manufactures and markets safe, innovative and cost-effective pharmaceuticals that help improve patient quality of life. Par Pharmaceutical offers a line of high-barrier-to-entry generic drugs, while Par Specialty Pharmaceuticals provides niche, innovative brands. Par Sterile Products develops, manufactures and markets both branded and generic aseptic injectable pharmaceuticals. As a result, we believe its business is highly complementary to Endo’s generic pharmaceuticals business. The Company further believes this transaction provides attractive long-term pipeline opportunities and significant financial synergies. The Company has incurred $9.9 million and $10.0 million of transaction costs during the three and six months ended June 30, 2015, which are included in Acquisition-related and integration items in the accompanying Condensed Consolidated Statements of Operations.
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 former 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. On August 3, 2015, the Company completed the sale of the Men’s Health and Prostate Health components of its 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) income 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; certain 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

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“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 and men’s health, endocrinology and orthopedic products. The marketed products that are included in this segment include Lidoderm®, Opana® ER, Voltaren® Gel, Percocet®, Fortesta® Gel, Supprelin® LA, XIAFLEX®, STENDRA®, Aveed® 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.
The following represents selected information for the Company’s reportable segments for the three and six months ended June 30 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net revenues to external customers:
 
 
 
 
 
 
 
U.S. Branded Pharmaceuticals
$
315,913

 
$
248,547

 
$
600,420

 
$
482,712

U.S. Generic Pharmaceuticals
338,326

 
272,213

 
695,288

 
484,068

International Pharmaceuticals (1)
80,927

 
72,088

 
153,586

 
96,910

Total net revenues to external customers
$
735,166

 
$
592,848

 
$
1,449,294

 
$
1,063,690

 
 
 
 
 
 
 
 
Adjusted income (loss) from continuing operations before income tax:
 
 
 
 
 
 
 
U.S. Branded Pharmaceuticals
$
169,575

 
$
130,416

 
$
328,996

 
$
264,833

U.S. Generic Pharmaceuticals
146,089

 
105,234

 
$
329,546

 
$
179,031

International Pharmaceuticals
12,797

 
22,602

 
$
21,091

 
$
31,897

__________
(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 and six months ended June 30, 2015 and 2014. There were no material tangible long-lived assets attributed to an individual foreign country as of June 30, 2015 or December 31, 2014.

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The table below provides reconciliations of our segment adjusted income from continuing operations before income tax to our consolidated (loss) income from continuing operations before income tax, which is determined in accordance with U.S. GAAP, for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Total segment adjusted income from continuing operations before income tax:
$
328,461

 
$
258,252

 
$
679,633

 
$
475,761

Corporate unallocated costs
(109,154
)
 
(70,711
)
 
(212,576
)
 
(149,608
)
Upfront and milestone payments to partners
(2,135
)
 
(10,350
)
 
(4,802
)
 
(21,505
)
Asset impairment charges
(70,243
)
 

 
(77,243
)
 

Acquisition-related and integration items (1)
(44,225
)
 
(19,618
)
 
(78,865
)
 
(64,887
)
Separation benefits and other cost reduction initiatives (2)
(5,780
)
 
(11,446
)
 
(47,587
)
 
(9,516
)
Excise tax (3)

 
4,700

 

 
(55,300
)
Amortization of intangible assets
(116,987
)
 
(52,761
)
 
(212,256
)
 
(92,431
)
Inventory step-up and certain excess manufacturing costs that will be eliminated pursuant to integration plans
(48,948
)
 
(19,144
)
 
(88,864
)
 
(22,725
)
Non-cash interest expense related to the 1.75% Convertible Senior Subordinated Notes
(253
)
 
(3,346
)
 
(1,632
)
 
(9,315
)
Loss on extinguishment of debt

 
(20,089
)
 
(980
)
 
(29,685
)
Certain litigation-related charges, net
(6,875
)
 
(3,954
)
 
(19,875
)
 
(3,954
)
Foreign currency impact related to the remeasurement of intercompany debt instruments
(2,792
)
 

 
18,298

 

Costs associated with unused financing commitments
(2,261
)
 

 
(14,071
)
 

Acceleration of Auxilium employee equity awards at closing

 

 
(37,603
)
 

Charge related to the non-recoverability of certain non-trade receivables

 
(10,000
)
 

 
(10,000
)
Net gain on sale of certain early-stage drug discovery and development assets

 
3,850

 

 
3,850

Other than temporary impairment of equity investment
(18,869
)
 

 
(18,869
)
 

Other, net
(3,553
)
 

 
(2,699
)
 

Total consolidated (loss) income from continuing operations before income tax
$
(103,614
)
 
$
45,383

 
$
(119,991
)
 
$
10,685

__________
(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.
(2)
Separation benefits and other cost reduction initiatives include employee separation costs of $4.8 million and $37.2 million during the three and six months ended June 30, 2015, respectively, compared to $4.0 million and $6.8 million during the three and six months ended June 30, 2014, respectively. During the six months ended June 30, 2015, a $7.9 million charge was 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, which we had previously estimated to be $60.0 million in the first quarter of 2014.

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The following represents additional selected financial information for our reportable segments for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Depreciation expense:
 
 
 
 
 
 
 
U.S. Branded Pharmaceuticals
$
5,325

 
$
4,374

 
$
10,621

 
$
8,411

U.S. Generic Pharmaceuticals
4,744

 
4,339

 
9,481

 
11,908

International Pharmaceuticals
918

 
350

 
1,579

 
491

Corporate unallocated
1,616

 
2,119

 
3,688

 
4,013

Total depreciation expense
$
12,603

 
$
11,182

 
$
25,369

 
$
24,823

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Amortization expense:
 
 
 
 
 
 
 
U.S. Branded Pharmaceuticals
$
73,957

 
$
17,739

 
$
128,161

 
$
38,462

U.S. Generic Pharmaceuticals
25,418

 
20,156

 
50,835

 
38,770

International Pharmaceuticals
17,612

 
11,198

 
33,260

 
15,198

Total amortization expense
$
116,987

 
$
49,093

 
$
212,256

 
$
92,430

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.

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 June 30, 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

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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 June 30, 2015 relate primarily to loans totaling $16.7 million to our joint venture investment 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
As of June 30, 2015, we have various investments that we account for using the equity or cost method of accounting totaling $23.7 million, including a joint venture investment owned through our Litha subsidiary. During the three months ended June 30, 2015, the Company recognized an other than temporary impairment of our Litha joint venture investment totaling $18.9 million, reflecting the excess carrying value of this investment over its estimated fair value. To estimate the fair value of this joint venture investment we relied primarily on a market approach based on the terms of the recently announced divestiture of that investment. With respect to our other equity or cost method investments, which are included in Other Assets in our Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014, the Company did not recognize any other-than-temporary impairments. We considered various factors, including the operating results of our equity method investments and the lack of an unrealized loss position on our cost method investments.
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 June 30, 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 June 30, 2015 and December 31, 2014.
Recurring Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2015 and December 31, 2014 were as follows (in thousands):
 
Fair Value Measurements at Reporting Date using:
June 30, 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
$
1,220,671

 
$

 
$

 
$
1,220,671

Equity securities
4,916

 

 

 
4,916

Total
$
1,225,587

 
$

 
$

 
$
1,225,587

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

 
$

 
$
41,069

 
$
41,069

Acquisition-related contingent consideration—long-term

 

 
148,013

 
148,013

Total
$

 
$

 
$
189,082

 
$
189,082

 

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Table of Contents

At June 30, 2015, money market funds include $98.9 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 $3.8 million at June 30, 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, partially offset by an increase due to certain market and regulatory considerations impacting the commercial potential of related products.
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 Consideration was determined to be approximately $4.7 million at June 30, 2015 and $4.7 million at December 31, 2014.
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 zero at June 30, 2015 and $5.1 million at December 31, 2014. The change in the balance primarily relates to certain market and regulatory considerations impacting the commercial potential of related products.
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 the Natesto acquisition date, Endo estimated the fair value of this obligation to be $31.0 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 $26.3 million at June 30, 2015 and $31.0 million at December 31, 2014. The decrease in the balance primarily relates to a measurement period adjustment of $4.3 million.
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

23

Table of Contents

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 $36.4 million at June 30, 2015. The change in the balance primarily relates to 2015 payments of $3.7 million related to sales-based royalties and a measurement period adjustment.
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 $57.4 million at June 30, 2015. The change in the balance primarily relates to a measurement period adjustment.
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 on 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 $42.0 million at June 30, 2015. The increase in the balance primarily relates to certain market and regulatory considerations impacting the commercial potential of related products, partially offset by a second quarter 2015 payment of $2.1 million related to the achievement of certain commercial milestones and sales-based royalties.
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.
In addition to the material contingent consideration agreements disclosed above, the Company has entered into and may enter into future agreements to make contingent cash consideration payments in connection with other acquisitions.
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.
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 and six months ended June 30 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Beginning of period
$
184,261

 
$
4,759

 
$
46,005

 
$
4,747

Amounts acquired
18,435

 
3,700

 
166,535

 
3,700

Amounts settled
(3,851
)
 

 
(8,574
)
 

Transfers (in) and/or out of Level 3

 

 

 

Measurement period adjustments
(7,243
)
 

 
(11,556
)
 

Changes in fair value recorded in earnings
(2,520
)
 
44

 
(3,328
)
 
56

End of period
$
189,082

 
$
8,503

 
$
189,082

 
$
8,503

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.

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Table of Contents

The following is a summary of available-for-sale securities held by the Company at June 30, 2015 and December 31, 2014 (in thousands):
 
Available-for-sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses) 
 
Fair Value
June 30, 2015
 
 
 
 
 
 
 
Money market funds
$
1,220,671

 
$

 
$

 
$
1,220,671

Total included in cash and cash equivalents
$
1,121,751

 
$

 
$

 
$
1,121,751

Total included in restricted cash and cash equivalents
$
98,920

 
$

 
$

 
$
98,920

Equity securities
$
805

 
$
88

 
$

 
$
893

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

 
$
88

 
$

 
$
893

Equity securities
$
1,766

 
$
2,257

 
$

 
$
4,023

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

 
$
2,257

 
$

 
$
4,023


 
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
The Company’s financial assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2015 were as follows (in thousands):
 
Fair Value Measurements at Reporting Date using:
 
Total Income (Expense) for the Year Ended June 30, 2015
 
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 
Assets:
 
 
 
 
 
 
 
Auxilium leasehold improvements (Note 4)
$