ACQUISITIONS AND DIVESTITURES

All of the below acquisitions, with the exception of the generic Benzaclin™ product purchase, have been accounted for under the acquisition method of accounting based on our analysis of the acquired inputs and processes, and the related assets acquired and liabilities assumed were recorded at fair value as of the acquisition date.

Fair value estimates are based on a complex series of judgments about future events and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.

The effects of all of the acquisitions described below are included in the Condensed Consolidated Financial Statements prospectively from the date of each acquisition. Unless otherwise indicated, acquisition costs incurred were immaterial and were recorded in Administration expense.

Current Year Acquisitions

Generic Benzaclin™ Product

On August 2, 2016, we purchased the remaining 60.9% product rights to a generic Benzaclin™ product ("Generic Benzaclin™"), which we had developed and marketed in collaboration with Barr Laboratories, Inc. ("Barr"), a subsidiary of Teva Pharmaceuticals, for $62.0 million in cash. In September 2007, we entered into an initial development, marketing and commercialization agreement with Barr, in which Barr contributed to the product's development costs and we developed and marketed the product in the U.S. and Israel. Under this agreement, we paid Barr a percentage of net income from the product's sales in these territories, adjusted for Barr's contributions to the product's development costs. By purchasing the remaining product right from Barr, we are now entitled to 100% of income from sales of the product. Operating results attributable to Generic Benzaclin™ are included within our Prescription Pharmaceuticals ("Rx") segment. The intangible asset acquired is a distribution and license agreement with a nine-year useful life.

Tretinoin Product Portfolio

On January 22, 2016, we acquired a portfolio of generic dosage forms and strengths of Retin-A^®(tretinoin), a topical prescription acne treatment, from Matawan Pharmaceuticals, LLC, for $416.4 million in cash ("Tretinoin Products"), which further expanded our extended topicals portfolio. We were the authorized generic distributor of these products from 2005 to 2013. Operating results attributable to the acquisition are included within our Rx segment. The intangible assets acquired included generic product rights valued using the multi-period excess earnings method and assigned a 20-year useful life, and non-compete agreements valued using the lost income method and assigned a five-year useful life. The goodwill acquired is deductible for tax purposes.

Development-Stage Rx Products

In May 2015, we entered into an agreement with a clinical stage biotechnology company for two specialty pharmaceutical products in development ("Development-Stage Rx Products"). We paid $18.0 million for an option to acquire the two products, which was recorded in Research and Development expense. On March 1, 2016, to further invest in our specialty Rx portfolio, we exercised the option for both products, which requires us to make contingent payments if we obtain regulatory approval and achieve certain sales milestones. We will also be obligated to make certain royalty payments over periods ranging from seven to ten years from the launch of each product.

We accounted for the option exercise as a business acquisition within our Rx segment, recording IPR&D and contingent consideration on the balance sheet. The IPR&D was valued using the multi-period excess earnings method and has an indefinite useful life until such time as the research is completed (at which time it will become a definite-lived intangible asset), or is determined to have no future use (at which time it would be impaired). The contingent consideration is an estimate of the future milestone payments and royalties based on probability-weighted outcomes, sensitivity analysis, and discount rates reflective of the risk involved. The amount of contingent consideration recognized was $24.9 million and was recorded in Other non-current liabilities.

Purchase Price Allocation of Current Year Acquisitions

The purchase accounting allocation for four small product acquisitions in our Consumer Healthcare ("CHC") and Rx segments (included in "All Other" in the table below) are preliminary and are based on the valuation information, estimates, and assumptions available at October 1, 2016. As we finalize the fair value estimate, additional purchase price adjustments may be recorded during the measurement period to contingent consideration and intangible assets.

The below table indicates the purchase price allocation for acquisitions completed in the current year (in millions):



	Tretinoin Products		Development-Stage Rx Products		All Other⁽¹⁾*
Purchase price paid	$	416.4	$	—	$	21.9
Contingent consideration	—		24.9		30.6
Total purchase consideration	$	416.4	$	24.9	$	52.5

Assets acquired:
Cash and cash equivalents	$	—	$	—	$	3.8
Accounts receivable	—		—		4.9
Inventories	1.4		—		7.1
Prepaid expenses and other current assets	—		—		0.1
Property and equipment	—		—		1.2
Goodwill	1.7		—		0.2
Definite-lived intangibles:
Distribution and license agreements, supply agreements	—		—		3.4
Developed product technology, formulations, and product rights	411.0		—		23.3
Customer relationships and distribution networks	—		—		8.2
Non-compete agreements	2.3		—		—
Indefinite-lived intangibles:
In-process research and development	—		24.9		7.0
Total intangible assets	$	413.3	$	24.9	$	41.9
Total assets	$	416.4	$	24.9	$	59.2
Liabilities assumed:
Accounts payable	$	—	$	—	$	2.8
Accrued liabilities	—		—		0.1
Long-term debt	—		—		3.3
Net deferred income tax liabilities	—		—		0.5
Total liabilities	$	—	$	—	$	6.7
Net assets acquired	$	416.4	$	24.9	$	52.5

* Opening balance sheet is preliminary


(1)	Consists of four product acquisitions in the CHC and Rx segments

Prior Year Acquisitions

Entocort^®

On December 15, 2015, we completed our acquisition of Entocort^®(budesonide) capsules, as well as the authorized generic capsules, for sale within the U.S., from AstraZeneca plc for $380.2 million in cash. Entocort^®is a gastroenterology medicine for patients with mild to moderate Crohn's disease. The acquisition complemented our Rx portfolio. Operating results attributable to the acquisition are included within our Rx segment. The intangible assets acquired included branded and authorized generic product rights with useful lives of 10 and 15 years, respectively, which were valued using the multi-period excess earnings method.

Naturwohl Pharma GmbH

On September 15, 2015, we completed our acquisition of 100% of Naturwohl Pharma GmbH ("Naturwohl"), a Munich, Germany-based nutritional business known for its leading German dietary supplement brand, Yokebe^®. The acquisition built on our BCH segment's OTC product portfolio and European commercial infrastructure. The assets were purchased through an all-cash transaction valued at €133.5 million ($150.4 million). Operating results attributable to Naturwohl are included in the BCH segment. The intangible assets acquired included a trademark with a 20-year useful life, customer relationships with a 15-year useful life, non-compete agreements with a three-year useful life, and a licensing agreement with a three-year useful life. We utilized the relief from royalty method for valuing the trademark, the multi-period excess earnings method for valuing the customer relationships, and the lost income method for valuing the non-compete agreements and the licensing agreement. The goodwill acquired is not deductible for tax purposes.

ScarAway^®

On August 28, 2015, we completed our acquisition of ScarAway^®, a leading U.S. OTC scar management brand portfolio comprised of five products, from Enaltus, LLC, for $26.7 million in cash. This acquisition served as our entry into the niche branded OTC business in the U.S. Operating results attributable to ScarAway^®are included in the CHC segment. The intangible assets acquired included a trademark with a 25-year useful life, non-compete agreements with a four-year useful life, developed product technology with an eight-year useful life, and customer relationships with a 15-year useful life. We utilized the relief from royalty method for valuing the trademark and developed product technology, the multi-period excess earnings method for valuing the customer relationships, and the lost income method for valuing the non-compete agreements. The goodwill acquired is deductible for tax purposes.

GlaxoSmithKline Consumer Healthcare Product Portfolio

On August 28, 2015, we completed our acquisition of a portfolio of well-established OTC brands from GlaxoSmithKline Consumer Healthcare (“GSK Products”). This acquisition further leveraged our European market share and expanded our product offerings. The assets were purchased through an all-cash transaction valued at €200.0 million ($223.6 million). Operating results attributable to the acquired GSK Products are included primarily in the BCH segment. The intangible assets acquired included trademarks with a 20-year useful life and customer relationships with a 15-year useful life. We utilized the relief from royalty method for valuing the trademarks and the multi-period excess earnings method for valuing the customer relationships. The goodwill acquired is deductible for tax purposes and recorded primarily in the BCH segment.

Gelcaps Exportadora de Mexico, S.A. de C.V.

On May 12, 2015, we completed our acquisition of 100% of Gelcaps Exportadora de Mexico, S.A. de C.V. ("Gelcaps"), the Mexican operations of Durham, North Carolina-based Patheon Inc., for $37.9 million in cash. The acquisition added softgel manufacturing technology to our supply chain capabilities and broadened our presence, product portfolio, and customer network in Mexico. Operating results attributable to Gelcaps are included in the CHC segment. The intangible assets acquired included a trademark with a 25-year useful life and customer relationships with a 20-year useful life. We utilized the relief from royalty method for valuing the trademark and the multi-period excess earnings method for valuing the customer relationships.

Based on valuation estimates utilizing the comparative sales method, a step-up in the value of inventory of $0.6 million was recorded in the opening balance sheet, which was charged to cost of goods sold during the three months ended June 27, 2015. In addition, property, plant and equipment was written up by $0.9 million to its estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets. The goodwill recorded is not deductible for tax purposes.

Omega Pharma Invest N.V.

On March 30, 2015, we completed our acquisition of Omega Pharma Invest N.V. ("Omega"), a limited liability company incorporated under the laws of Belgium. Omega was a leading European OTC company and is providing us several key benefits, including advancing our growth strategy outside the U.S. by providing access across a larger global platform with critical mass in key European countries, establishing commercial infrastructure in the high barrier-to-entry European OTC marketplace, strengthening our product portfolio while enhancing scale and distribution, and expanding our international management capabilities.

We purchased 95.77% of the issued and outstanding share capital of Omega (685,348,257 shares) from Alychlo N.V. (“Alychlo”) and Holdco I BE N.V. (together with Alychlo, the “Sellers”), limited liability companies incorporated under the laws of Belgium, under the terms of the Share Purchase Agreement dated November 6, 2014 (the "Share Purchase Agreement"). Omega holds the remaining 30,243,983 shares as treasury shares.

The acquisition was a cash and stock transaction made up of the following consideration (in millions except per share data):



Perrigo ordinary shares issued	5.4
Perrigo per share price at transaction close on March 30, 2015	$	167.64
Total value of Perrigo ordinary shares issued	$	904.9
Cash consideration	2,078.3
Total consideration	$	2,983.2

The cash consideration shown in the above table was financed by a combination of debt and equity. We issued $1.6 billion of debt as described in Note 10, and issued 6.8 million ordinary shares, which raised $999.3 million, net of issuance costs.

The Sellers agreed to indemnify us for certain potential future losses. The Sellers’ indemnification and other obligations to us under the Share Purchase Agreement are secured by up to €120.9 million ($135.9 million as of October 1, 2016) in cash that has been escrowed or is committed to be escrowed and 1.08 million of our ordinary shares, which are both being held in escrow to secure such obligations. Under the terms of the Share Purchase Agreement, Alychlo and its affiliates are subject to a three-year non-compete in Europe, and the Sellers are subject to a two-year non-solicit, in each case subject to certain exceptions. The Share Purchase Agreement contains other customary representations, warranties, and covenants of the parties thereto. Our Board of Directors has authorized us to issue an arbitral claim against the sellers, which we plan to do.

The operating results attributable to Omega are included in the BCH segment. We incurred general transaction costs (legal, banking and other professional fees), financing fees, and debt extinguishment charges in connection with the Omega acquisition. The amounts recorded were not allocated to a reporting segment. The table below details the acquisition costs, as well as losses on hedging activities associated with the acquisition purchase price, and where they were recorded for the nine months ended September 26, 2015 (in millions):



	Nine Months Ended
Line item	September 26, 2015
Administration	$	18.1
Interest expense, net	18.7
Other expense, net	258.2
Total acquisition-related costs	$	295.0

See Note 8 for further details on losses on the Omega-related hedging activities shown above in Other expense, net, and Note 10 for details on the loss on extinguishment of debt.

We acquired the following intangible assets: indefinite-lived brands, a definite-lived trade name with an eight-year useful life, definite-lived brands with a 22-year useful life, a distribution network with a 21-year useful life, and developed product technology with useful lives ranging from four to 13 years. We also recorded goodwill, which is not deductible for tax purposes and represents the value we assigned to the expected synergies described above, in our BCH segment. We utilized the multi-period excess earnings method to value the indefinite-lived brands, the definite-lived brands, and distribution network. We utilized the relief from royalty method to value the developed product technology and definite-lived trade name.

Based on valuation estimates utilizing the comparative sales method, a step-up in the value of inventory of $15.1 million was recorded in the opening balance sheet and was charged to cost of goods sold during the three months ended June 27, 2015. In addition, property, plant and equipment were written up $41.5 million to their estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets. Additionally, the fair value of the debt assumed on the date of acquisition exceeded par value by $101.9 million, which was recorded as part of the carrying value of the underlying debt and will be amortized as a reduction of interest expense over the remaining terms of the respective debt instruments. For more information on the debt we assumed from Omega and our subsequent payments on the debt, see Note 10.

Purchase Price Allocation of Prior Year Acquisitions

The purchase accounting allocation for the Entocort^®and GSK Products acquisitions were finalized during the three months ended April 2, 2016. Changes to the allocations were due to adjustments to the intangible asset valuation assumptions. The purchase accounting for all other prior year acquisitions was final as of December 31, 2015. The below table indicates the purchase price allocation for acquisitions completed during the year ended December 31, 2015 (in millions):



	Entocort^®		Naturwohl		ScarAway^®		GSK Products		Gelcaps		Omega		All Other⁽¹⁾
Purchase price paid	$	380.2	$	150.4	$	26.7	$	223.6	$	37.9	$	2,983.2	$	15.3
Contingent consideration	—		—		—		—		—		—		13.9
Total purchase consideration	$	380.2	$	150.4	$	26.7	$	223.6	$	37.9	$	2,983.2	$	29.2

Assets acquired:
Cash and cash equivalents	$	—	$	4.6	$	—	$	—	$	4.6	$	14.7	$	—
Accounts receivable	—		3.3		—		—		7.3		260.1		—
Inventories	0.2		1.5		1.0		—		7.2		202.5		—
Prepaid expenses and other current assets	—		—		—		—		2.1		39.2		—
Property and equipment	—		—		—		—		6.0		130.8		—
Goodwill	—		61.0		3.5		32.6		6.0		1,900.4		—
Definite-lived intangibles:
Distribution and license agreements, supply agreements	—		21.4		—		—		—		—		—
Developed product technology, formulations, and product rights	380.0		—		0.5		—		—		27.2		—
Customer relationships and distribution networks	—		25.9		9.8		61.5		6.6		1,056.3		—
Trademarks, trade names, and brands	—		64.2		11.4		129.5		—		287.5		—
Non-compete agreements	—		0.3		0.5		—		—		—		—
Indefinite-lived intangibles:
Trademarks, trade names, and brands	—		—		—		—		4.4		2,003.8		—
In-process research and development	—		—		—		—		—		—		29.2
Total intangible assets	$	380.0	$	111.8	$	22.2	$	191.0	$	11.0	$	3,374.8	$	29.2
Other non-current assets	—		—		—		—		0.4		2.4		—
Total assets	$	380.2	$	182.2	$	26.7	$	223.6	$	44.6	$	5,924.9	$	29.2
Liabilities assumed:
Accounts payable	$	—	$	2.8	$	—	$	—	$	3.3	$	243.1	$	—
Short-term debt	—		—		—		—		—		24.6		—
Accrued liabilities	—		1.6		—		—		1.6		43.9		—
Payroll and related taxes	—		—		—		—		—		51.3		—
Accrued customer programs	—		—		—		—		—		39.8		—
Long-term debt	—		—		—		—		—		1,471.0		—
Net deferred income tax liabilities	—		27.4		—		—		1.4		1,014.5		—
Other non-current liabilities	—		—		—		—		0.4		53.5		—
Total liabilities	—		31.8		—		—		6.7		2,941.7		—
Net assets acquired	$	380.2	$	150.4	$	26.7	$	223.6	$	37.9	$	2,983.2	$	29.2


(1)	Consists of eight product acquisitions in the CHC, BCH, and Rx segments

Actual and Unaudited Pro Forma Impact of Acquisitions

Our Condensed Consolidated Financial Statements include operating results from the Tretinoin Products, Entocort^®, Naturwohl, GSK Products, ScarAway^®, Omega, and Gelcaps acquisitions, as well as from four small product acquisitions, from the date of each acquisition through October 1, 2016. Net sales and operating income attributable to acquisitions completed in the current year and included in our financial statements totaled $25.3 million and $13.0 million, respectively, for the three months ended October 1, 2016 and totaled $47.7 million and $31.3 million, respectively, for the nine months ended October 1, 2016.

The following unaudited pro forma information gives effect to the Tretinoin Products, Entocort^®, Naturwohl, GSK Products, ScarAway^®, Omega, and Gelcaps acquisitions, as well as four small product acquisitions, as if the acquisitions had occurred on the first day of the nine months ended September 26, 2015 and had been included in our Results of Operations for all periods presented thereafter (in millions):



	Three Months Ended					Nine Months Ended
(Unaudited)	October 1, 2016			September 26, 2015		October 1, 2016			September 26, 2015
Net sales	$	1,359.6		$	1,429.9	$	4,243.3		$	4,451.4
Net income (loss)	$	(1,254.9	)	$	142.0	$	(1,392.8	)	$	154.7

The historical consolidated financial information of Perrigo, and the Tretinoin Products, Entocort^®, Naturwohl, GSK Products, ScarAway^®, Omega and Gelcaps acquisitions and the four small product acquisitions, has been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on combined results. In order to reflect the occurrence of the acquisitions on the first day of the nine months ended September 26, 2015 as required, the unaudited pro forma results include adjustments to reflect the incremental amortization expense to be incurred based on the current values of each acquisition's identifiable intangible and tangible assets, along with the reclassification of acquisition-related costs from the nine months ended October 1, 2016 to the nine months ended September 26, 2015. The unaudited pro forma results do not reflect future events that have occurred or may occur after the acquisitions.

Current Year Divestitures

On August 5, 2016, we completed the sale of our U.S. Vitamins, Minerals, and Supplements ("VMS") business within our CHC segment to International Vitamins Corporation ("IVC") for $61.8 million inclusive of an estimated working capital adjustment. The assets and liabilities related to this sale were classified as held-for-sale at December 31, 2015. Prior to closing the sale, we determined that the carrying value of the VMS business exceeded its fair value less the cost to sell, resulting in an impairment charge of $6.2 million, which was recorded in Impairment charges on the Condensed Consolidated Statements of Operations during the nine months ended October 1, 2016.