ACQUISITIONS

CanAm Care, LLC - On January 6, 2012, the Company acquired substantially all of the assets of CanAm Care, LLC (CanAm) for $39,014. The purchase price included an up-front cash payment of $36,114 and contingent consideration totaling $2,900 based primarily on the estimated fair value of contingent payments to the seller pending the Company's future execution of a promotion agreement with a third party related to a certain diabetes care product. See Note 5 regarding the valuation of the $2,900 contingent consideration. Located in Alpharetta, Georgia, CanAm was a distributor of diabetes care products. The acquisition expands the Company's diabetic product offering within the Consumer Healthcare segment.

The preliminary allocation of the $39,014 purchase price through March 31, 2012 was:



Accounts receivable	$	3,568
Inventory	6,391
Property and equipment	91
Other assets	126
Deferred income tax assets	625
Goodwill	15,040
Intangible assets	15,830
Total assets acquired	41,671

Accounts payable	2,237
Other current liabilities	420
Total liabilities assumed	2,657
Net assets acquired	$	39,014

The excess of the purchase price over the fair value of net assets acquired, amounting to $15,040, was preliminarily recorded as goodwill in the condensed consolidated balance sheet and was assigned to the Company’s Consumer Healthcare segment. Goodwill is not amortized for financial reporting purposes, but is amortized for tax purposes. See Note 7 regarding the timing of the Company’s annual goodwill impairment testing.

Intangible assets acquired in the acquisition were valued as follows:



Customer relationships	$	12,000
Developed product technology	1,600
Non-compete agreements	1,540
Trade name and trademarks	690
Total intangible assets acquired	$	15,830

Management assigned fair values to the identifiable intangible assets through a combination of the relief from royalty method, the excess earnings method and the lost income method. Customer relationships are based on a 15-year useful life and amortized on a proportionate basis consistent with the economic benefits derived therefrom. Developed product technology and non-compete agreements are based on a 20- and 5-year useful life, respectively, and are amortized on a straight-line basis. Trade name and trademarks were considered to have an indefinite life.

Paddock Laboratories, Inc. – On July 26, 2011, the Company completed the acquisition of substantially all of the assets of Paddock Laboratories, Inc. (Paddock). After taking into account final working capital adjustments, the ultimate cash paid for Paddock was $546,215. Headquartered in Minneapolis, Minnesota, Paddock was a manufacturer and marketer of generic Rx pharmaceutical products. The acquisition expanded the Company’s generic Rx product offering, pipeline and scale.

On the acquisition date, the Company funded the transaction using $250,000 of term loan debt, $212,052 of cash on hand and $85,000 from its accounts receivable securitization program. In fiscal 2011, the Company incurred $2,560 of acquisition costs, of which $1,315, $695 and $550 were expensed in operations in the second, third and fourth quarters of fiscal 2011, respectively. The Company incurred an additional $5,600 of acquisition costs, along with severance costs of $3,800, of which approximately $600 of severance costs was expensed in operations in the second quarter of fiscal 2012.

The acquisition was accounted for under the acquisition method of accounting, and the related assets acquired and liabilities assumed were recorded at fair value. The operating results for Paddock are included in the Rx Pharmaceuticals segment of the Company's consolidated results of operations for the period from the acquisition date to March 31, 2012. Since the acquisition date, Paddock contributed approximately $169,400 in revenue and operating income of $34,400, which included a non-recurring charge of $27,179 to cost of sales related to the step-up in value of inventory acquired and sold during the first quarter of fiscal 2012 and severance costs of $3,800.

During the measurement period, which ended March 31, 2012, the Company finalized the post-closing working capital adjustment, the valuation of accrued customer programs and deferred income taxes, which resulted in recording net adjustments of $837. The following table summarizes the final fair values of the assets acquired and liabilities assumed related to the Paddock acquisition:



	Initial Valuation		Measurement Period Adjustments			Final Valuation
Accounts receivable	$	55,467	$	—		$	55,467
Inventory	57,540		—			57,540
Property and equipment	33,200		—			33,200
Other assets	1,743		—			1,743
Deferred income tax assets	20,863		(344		)	20,519
Goodwill	150,035		(1,170		)	148,865
Intangible assets	272,000		—			272,000
Total assets acquired	590,848		(1,514		)	589,334

Accounts payable	10,685		—			10,685
Other current liabilities	2,386		—			2,386
Accrued customer programs	26,926		(677		)	26,249
Accrued expenses	3,799		—			3,799
Total liabilities assumed	43,796		(677		)	43,119
Net assets acquired	$	547,052	$	(837	)	$	546,215

The excess of the purchase price over the fair value of net assets acquired, amounting to $148,865, was recorded as goodwill in the condensed consolidated balance sheet and was assigned to the Company’s Rx Pharmaceuticals segment. Goodwill is not amortized for financial reporting purposes, but is amortized for tax purposes. See Note 7 regarding the timing of the Company’s annual goodwill impairment testing.

Intangible assets acquired in the acquisition were valued as follows:



Developed product technology	$	237,000
In-process research and development (IPR&D)	35,000
Total intangible assets acquired	$	272,000

Management assigned fair values to the identifiable intangible assets through the excess earnings method. The developed product technology assets are based on a 10-year useful life and amortized on a straight-line basis. IPR&D assets initially recognized at fair value will be classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. An IPR&D asset is tested for impairment during the period it is considered an indefinite-lived asset.

At the time of the acquisition, a step-up in the value of inventory of $27,179 was recorded in the allocation of the purchase price based on valuation estimates, all of which was charged to cost of sales in the first quarter of fiscal 2012 as the inventory was sold. In addition, fixed assets were written up by $7,400 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.

As a condition to Federal Trade Commission (FTC) approval of the overall transaction with Paddock, immediately subsequent to the acquisition, the Company sold to Watson Pharmaceuticals four Abbreviated New Drug Application (ANDA) products acquired as part of the Paddock portfolio along with the rights to two of the Company's pipeline development projects for a total of $10,500. The Company allocated $7,000 of proceeds to the four ANDA products and wrote off the corresponding developed product technology intangible asset, which was recorded at its fair value of $7,000. In addition, the Company recorded a $3,500 gain on the sale of its pipeline development projects.

The following unaudited pro forma financial information presents results as if the acquisitions of CanAm and Paddock had occurred at the beginning of fiscal 2011:



(Unaudited)	Year-to-Date
	2012		2011
Net sales	$	2,376,546	$	2,247,105
Income from continuing operations	$	309,348	$	241,150
Basic earnings from continuing operations per share	$	3.32	$	2.62
Diluted earnings from continuing operations per share	$	3.29	$	2.58

For purposes of the pro forma disclosures above, the primary adjustments for fiscal 2011 include: i) a non-recurring charge to cost of goods sold related to the fair value adjustment to acquisition-date inventory of $27,179; ii) amortization of acquired intangibles of $17,800; iii) additional interest expense of $6,800 from the $335,000 in debt associated with the Paddock acquisition; and iv) acquisition-related and severance charges of $9,400. The primary adjustments for fiscal 2012 include: i) the elimination of the non-recurring charge to cost of goods sold related to the fair value adjustment to acquisition-date inventory of $27,179 and ii) the elimination of the acquisition-related and severance charges of $9,400.