Note 3 – Edict Acquisition:

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

Edict Pharmaceuticals, which is now known as Par Formulations, was a privately-held generic pharmaceutical company until our acquisition. Par Formulations broadens our industry expertise and expands our R&D and manufacturing capabilities. The operating results of Par Formulations from February 17, 2012 to June 30, 2012 are included in the accompanying Condensed Consolidated Statements of Operations, reflecting a loss from continuing operations of approximately $1,888 thousand. The Condensed Consolidated Balance Sheet as of June 30, 2012 reflects the Edict Acquisition, including goodwill, which represents the Par Formulations workforce’s expertise in R&D and manufacturing.

The Edict Acquisition has been accounted for as a business purchase combination using the acquisition method of accounting under the provisions of ASC 805. The acquisition method of accounting uses the fair value concept defined in ASC 820, “Fair Value Measurements and Disclosures.” ASC 805 requires, among other things, that most assets acquired and liabilities assumed in a business purchase combination be recognized at their fair values as of the Edict Acquisition date and that the fair value of acquired IPR&D be recorded on the balance sheet regardless of the likelihood of success of the related product or technology as of the completion of the Edict Acquisition. The process for estimating the fair values of IPR&D, identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, timing and probability of success to complete in-process projects and projecting regulatory approvals. Under ASC 805, transaction costs are not included as a component of consideration transferred and were expensed as incurred. The Edict Acquisition related transaction costs expensed totaled $2,880 thousand and were included in operating expenses as selling, general and administrative for the year ended December 31, 2011 and the six months ended June 30, 2012. The excess of the purchase price (consideration transferred) over the estimated amounts of identifiable assets and liabilities of Edict as of the effective date of the acquisition was allocated to goodwill in accordance with ASC 805. The purchase price allocation is subject to completion of our analysis of the fair value of the assets and liabilities of Edict as of the effective date of the Edict Acquisition. Accordingly, the purchase price allocation below is preliminary and may be adjusted upon completion of the final valuation. These adjustments could be material. The final valuation is expected to be completed as soon as practicable but no later than one year from the consummation of the acquisition on February 17, 2012. The establishment of the fair value of the consideration for an acquisition, and the allocation to identifiable tangible and intangible assets and liabilities requires the extensive use of accounting estimates and management judgment. We believe the fair values assigned to the assets acquired and liabilities assumed are based on reasonable estimates and assumptions based on data currently available.

Consideration Transferred

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



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


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

Fair Value Estimate of Assets Acquired and Liabilities Assumed

The purchase price of Par Formulations, has been allocated on a preliminary basis to the following assets and liabilities ($ in thousands):



	As of February 17, 2012
Cash and cash equivalents	$	273
Inventories	192
Prepaid expenses and other current assets	1,143
Property, plant and equipment	5,370
Intangible assets	1,850
Total identifiable assets	8,828

Accounts payable	995
Accrued expenses and other current liabilities	200
Deferred tax liabilities	938
Total liabilities assumed	2,133

Net identifiable assets acquired	6,695
Goodwill	29,905
Net assets acquired	$	36,600

None of the goodwill identified above and recorded on the condensed consolidated balance sheet as of June 30, 2012 will be deductible for income tax purposes.

Supplemental Pro forma Information (unaudited)

The following unaudited pro forma information for the six months ended June 30, 2012, and the six months ended June 30, 2011 assumes the Edict Acquisition occurred as of January 1, 2011. The pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized had the Edict Acquisition been consummated during the periods for which pro forma information is presented, or is it intended to be a projection of future results or trends.



	Six Months ended		Six Months ended
(In thousands, except per share data)	June 30, 2012		June 30, 2011
Total revenues	$	565,805	$	457,140
Income (loss) from continuing operations	23,738		(102,783		)
Income (loss) from continuing operations per diluted share	$	0.64	$	(2.88	)

These amounts have been calculated after adjusting for the additional expense that would have been recorded assuming the fair value adjustments to finite-lived intangible assets ($750 thousand) had been applied on January 1, 2011, together with the consequential tax effects.

Pro forma income from continuing operations for the six months ended June 30, 2012 was adjusted to exclude $2,880 thousand of Edict Acquisition related costs incurred with the consequential tax effects. These costs were primarily accounting fees and legal fees. Pro forma loss from continuing operations for the six months ended June 30, 2011 was adjusted to include the Edict Acquisition related costs with the consequential tax effects.