UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For the fiscal year ended December 31, 2015
OR
Commission file number 001-14956
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
BRITISH COLUMBIA, CANADA
State or other jurisdiction of
incorporation or organization
98-0448205
(I.R.S. Employer Identification No.)
2150 St. Elzéar Blvd. West
Laval, Quebec
Canada, H7L 4A8
(Address of principal executive offices)
Registrant's telephone number, including area code (514) 744-6792
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares, No Par Value
Securities registered pursuant to section 12(g) of the Act:
Name of each exchange on which registered
New York Stock Exchange, Toronto Stock Exchange
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 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
No
Indicate by check mark 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the common shares held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed
second fiscal quarter was $75,445,451,000 based on the last reported sale price on the New York Stock Exchange on June 30, 2015.
The number of outstanding shares of the registrant’s common stock as of April 22, 2016 was 343,019,770.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the registrant’s proxy statement for the 2016 Annual Meeting of Shareholders. Such proxy
statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2015.
EXPLANATORY NOTE
This Annual Report on Form 10-K for the year ended December 31, 2015 includes consolidated financial statements for the
years ended December 31, 2013, 2014 and 2015. The audited consolidated financial statements for the year ended December 31,
2014 are restated. Valeant Pharmaceuticals International, Inc. and its subsidiaries (the “Company”) has also restated certain
unaudited quarterly results related to the three months ended December 31, 2014, the three months ended March 31, 2015, the six
months ended June 30, 2015, and the nine months ended September 30, 2015.
Restatement Background
On October 26, 2015, in light of allegations regarding the Company’s relationship with the Philidor Rx Services, LLC
(“Philidor”) pharmacy network, the Company’s Board of Directors (the “Board”) established an ad hoc committee of independent
directors of the Board (the “Ad Hoc Committee”) to review these allegations and related matters (the “AHC Review”). The scope
of the review conducted by the Ad Hoc Committee was subsequently broadened to encompass other areas of potential concern,
unrelated to Philidor, raised during the course of the review. The Ad Hoc Committee was chaired by Robert Ingram, the Company’s
current independent chairman of the board (and formerly the Company’s lead independent director). Other members included
Norma Provencio, chairperson of the Audit and Risk Committee (the “ARC”), Colleen Goggins, and Mason Morfit. The Ad Hoc
Committee engaged the law firm of Kirkland & Ellis LLP to assist and advise in carrying out the AHC Review. On February 22,
2016, the Company announced that, based on the work of the Ad Hoc Committee, as well as additional work and analysis performed
by the Company, the Company had preliminarily identified certain revenue on sales transactions to Philidor during the second
half of 2014, prior to the Company entering into a purchase option to acquire Philidor, that should have been recognized when
product was dispensed to patients rather than on delivery to Philidor.
On March 21, 2016, management of the Company, the ARC and the Board concluded that the Company’s audited financial
statements for the year ended, and unaudited financial information for the quarter ended, December 31, 2014 included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and the unaudited financial statements for the
quarter ended March 31, 2015 included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
should no longer be relied upon due to the misstatements and other qualitative factors described below. In addition, due to the fact
that the first quarter 2015 results are included within the financial statements for the six-month period ended June 30, 2015 included
in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and the financial statements for the nine-month period
ended September 30, 2015 included in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, management,
the ARC and the Board also concluded that the financial statements for such six-month and nine-month periods reflected in those
Quarterly Reports should no longer be relied upon. This determination was based on the AHC Review and additional work and
analysis performed by the Company. Based on this work, the Company determined that the earnings impact of certain revenue
transactions should have been recognized at a later date than when originally recognized.
As previously disclosed, on December 15, 2014, the Company entered into a purchase option agreement with Philidor and
its members in which the Company received an exclusive option to acquire 100% of the equity interest in Philidor, and as of which
time Philidor was consolidated with the Company for accounting purposes as a variable interest entity for which the Company
was the primary beneficiary. Prior to consolidation, revenue on sales to Philidor was recognized by the Company on a sell-in basis
(i.e., recorded when the Company delivered product to Philidor). In connection with the work of the Ad Hoc Committee, the
Company determined that certain sales transactions for deliveries to Philidor in the second half of 2014 leading up to the execution
of the purchase option agreement were not executed in the normal course of business under applicable accounting standards and
included actions taken by the Company (including fulfillment of unusually large orders with extended payment terms and increased
pricing, an emphasis on delivering product prior to the execution of the purchase option agreement and seeking and filling a
substitute order of equivalent value for an unavailable product) in contemplation of the purchase option agreement. As a result
of these actions, revenue for certain transactions completed prior to entry into the purchase option agreement should have been
recognized on a sell-through basis (i.e., record revenue when Philidor dispensed the products to patients) rather than incorrectly
recognized on the sell-in basis utilized by the Company. Additionally, related to these and certain earlier transactions, the Company
has now concluded that collectability was not reasonably assured at the time the revenue was originally recognized, and, thus,
these transactions should have been recognized at a later date (when collectability was reasonably assured which the Company
determined coincides with when the inventory is sold through to the end customer) instead of on a sell-in basis. Following the
consolidation of Philidor on the date of entry into the purchase option agreement, the Company began recognizing revenue as
Philidor dispensed product to patients.
On April 5, 2016, the Company announced that the Ad Hoc Committee had determined that its review was complete, and
that the Ad Hoc Committee had not identified any additional items that would require restatement beyond those required by matters
previously disclosed. In addition, the Company announced that, given the completion of the AHC Review, the Board had determined
to dissolve the Ad Hoc Committee and that the 12 independent directors on the Board, including the members of the ARC, would
assume oversight responsibility for remaining work, including work associated with the completion of the Company's current and
restated financial statements and disclosures, as well as its assessment of related internal controls and remediation matters.
Impact of Restatement
The Company has identified misstatements that reduce previously reported fiscal year 2014 revenue by approximately $58
million, net income attributable to Valeant Pharmaceuticals International, Inc. by approximately $33 million, and basic and diluted
earnings per share by $0.09 (as compared to the previously reported amounts for fiscal year 2014 of $8,264 million for revenue,
$914 million for net income attributable to Valeant Pharmaceuticals International, Inc. and $2.72 and $2.67 for basic and diluted
earnings per share, respectively). A substantial part of the earnings impact of these misstatements reversed in the first quarter of
2015. The Company has also identified misstatements in the first quarter of 2015, consisting primarily of the reversing effect on
earnings of the 2014 misstatements, which reduce revenue by approximately $21 million (due to timing of recognition of and
impact of consolidation for managed care rebates), increase net income attributable to Valeant Pharmaceuticals International, Inc.
by approximately $24 million and increase basic and diluted earnings per share by $0.07 (as compared to the previously reported
first quarter 2015 amounts of $2,191 million for revenue, $74 million for net income attributable to Valeant Pharmaceuticals
International, Inc. and $0.22 and $0.21 for basic and diluted earnings per share, respectively).
Internal Control Over Financial Reporting and Disclosure Controls and Procedures
Based on the results of the AHC Review, the Company's review of its financial records, and other work completed by
management, the Company and the ARC have concluded that material weaknesses in the Company's internal control over financial
reporting existed that contributed to the material misstatements in the consolidated financial statements described above. These
material weaknesses relate to the tone at the top of the organization and the accounting and disclosure for non-standard revenue
transactions particularly at or near quarter ends. The improper conduct of the Company’s former Chief Financial Officer and
former Corporate Controller, which resulted in the provision of incorrect information to the ARC and the Company’s independent
registered public accounting firm, contributed to the misstatement of financial results. In addition, as part of this assessment of
internal control over financial reporting, the Company has determined that the tone at the top of the organization, with its
performance-based environment, in which challenging targets were set and achieving those targets was a key performance
expectation, may have been a contributing factor resulting in the Company’s improper revenue recognition and the conduct
described above.
In connection with the Ad Hoc Committee’s work, certain remediation actions have been recommended, and the Company
is in the process of implementing them. For further information regarding management’s assessment of internal control over
financial reporting and disclosure controls and procedures, as well as the related remediation actions, refer to Item 9A "Controls
and Procedures" of this Form 10-K.
More Information
Note 2 titled “RESTATEMENT” to the Company's consolidated financial statements discloses the nature of the restatement
matters and adjustments and shows the impact of the restatement matters on the Company's consolidated financial statements for
2014. Note 25 titled "SUMMARY QUARTERLY INFORMATION (UNAUDITED)" to the Company's consolidated financial
statements discloses the nature of the restatement matters and adjustments and shows the impact of the restatement matters on the
Company's consolidated financial information for the three months ended December 31, 2014 and on the Company's consolidated
financial statements for the three months ended March 31, 2015, the six months ended June 30, 2015, and the nine months ended
September 30, 2015. This footnote also discloses the impact of related revisions to the Company's consolidated financial statements
for the three months and nine months ended September 30, 2014.
TABLE OF CONTENTS
GENERAL INFORMATION
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
SIGNATURES
Exhibits and Financial Statement Schedules
PART IV
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Basis of Presentation
General
Except where the context otherwise requires, all references in this Annual Report on Form 10-K (“Form 10-K”) to the
“Company”, “we”, “us”, “our” or similar words or phrases are to Valeant Pharmaceuticals International, Inc. and its subsidiaries,
taken together. In this Form 10-K, references to “$” are to United States (“U.S.”) dollars, references to “€” are to Euros, and
references to RUR are to Russian rubles. Unless otherwise indicated, the statistical and financial data contained in this Form 10-
K are presented as of December 31, 2015.
Trademarks
The following words are some of the trademarks in our Company’s trademark portfolio and are the subject of either
registration, or application for registration, in one or more of Canada, the United States of America (the “U.S.”) or certain other
jurisdictions: ACANYA®, ADDYI®, AERGEL®, AFEXA®, AKREOS®, ALREX®, AMYTAL®, ANTI-ANGIN®,
ANTIGRIPPIN®, APRISO®, ARESTIN®, ARTELAC®, ATRALIN®, B&L®, B+L®, BAUSCH & LOMB®, BAUSCH +
LOMB®, BAUSCH + LOMB ULTRA®, BEDOYECTA®, BEPREVE®, BESIVANCE®, BIOTRUE®, BIOVAIL®, BOSTON®,
CARAC®, CARDIZEM®, CERAVE®, CLEAR + BRILLIANT®, CLINDAGEL®, COLD-FX®, COMFORTMOIST®,
CONDITION & ENHANCE®, CRYSTALENS®, CUPRIMINE®, ELASTIDERM®, ENVISTA®, FRAXEL®, GLUMETZA®,
GRIFULVIN®, IPRIVASK®, ISTALOL®, JUBLIA®, KINERASE®, LACRISERT®, LIPOSONIX®, LOTEMAX®,
LUMINESSE™, LUZU®, MACUGEN®, MAXAIR®, MEDICIS®, MOISTURESEAL®, NU-DERM®, OBAGI®, OBAGI
CLENZIDERM®, OBAGI-C®, OBAGI NU-DERM®, OCUVITE®, ONEXTON®, PRESERVISION®, PROLENSA®,
PROVENGE®, PUREVISION®, RELISTOR®, RENU®, RENU MULTIPLUS®, RETIN-A®, RETIN-A MICRO®,
SECONAL®, SECONAL SODIUM®, SOFLENS®, SOLODYN®, SOLTA MEDICAL®, STELLARIS®, STORZ®,
SYNERGETICS®, SYPRINE®, TARGRETIN®, TASMAR®, THERMAGE®, THERMAGE CPT®, TIAZAC®, TRULIGN®,
UCERIS®, VALEANT®, VALEANT V & DESIGN®, VALEANT PHARMACEUTICALS & DESIGN®, VANOS®,
VICTUS®, VIRAZOLE®, VITESSE™, XENAZINE®, ZEGERID®, ZELAPAR®, ZIANA®, ZYCLARA® and ZYLET®.
WELLBUTRIN®, WELLBUTRIN XL® and ZOVIRAX® are trademarks of The GlaxoSmithKline Group of Companies
and are used by us under license. MVE® is a registered trademark of DFB Technology Ltd. and is used by us under license.
ELIDEL® and XERESE® are registered trademarks of Meda Pharma SARL and are used by us under license. VISUDYNE® is
a registered trademark of Novartis Pharma AG and is used by us under license. EMERADE® is a registered trademark of Medeca
Pharma AB and is used by us under license. DEFLUX® and SOLESTA® are registered trademarks of Galderma S.A. and are
used by us under license. ISUPREL® and NITROPRESS® are registered trademarks of Hospira, Inc. and are used by us under
license. XIFAXAN® is a registered trademark of Alfa Wasserman S.P.A. and is used by us under license. ZIRGAN® is a registered
trademark of Laboratoires Théa Corporation and is used by us under license. PEPCID® is a registered trademark of Johnson &
Johnson and is used by us under license. MOVIPREP® is a registered trademark of Velinor AG and is used by us under license.
LOCOID® is a registered trademark of Astellas Pharma Europe B.V. and is used by us under license.
In addition to the trademarks noted above, we have filed trademark applications and/or obtained trademark registrations for
many of our other trademarks in the U.S., Canada and in other jurisdictions and have implemented, on an ongoing basis, a trademark
protection program for new trademarks.
Forward-Looking Statements
Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private
Securities Litigation Reform Act of 1995:
To the extent any statements made in this Form 10-K contain information that is not historical, these statements are forward-
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and may be forward-looking information within the meaning defined under applicable Canadian
securities legislation (collectively, “forward-looking statements”).
These forward-looking statements relate to, among other things: our business strategy, business plans and prospects, product
pipeline, prospective products or product approvals, product development and distribution plans, future performance or results
of current and anticipated products; the expected benefits of our acquisitions and other transactions, such as cost savings, operating
synergies and growth potential of the Company; the impact of material weaknesses in our internal control over financial reporting;
the impact of delayed securities filings under the agreements governing our outstanding indebtedness; our liquidity and our ability
to cover our debt maturities as they become due; the impact of our distribution, fulfillment and other third party arrangements;
changes in management; our ability to reduce wholesaler inventory levels; exposure to foreign currency exchange rate changes
and interest rate changes; the outcome of contingencies, such as litigation, subpoenas, investigations, reviews, audits and regulatory
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proceedings; general market conditions; and our expectations regarding our financial performance, including revenues, expenses,
gross margins, liquidity and income taxes.
Forward-looking statements can generally be identified by the use of words such as “believe”, “anticipate”, “expect”,
“intend”, “estimate”, “plan”, “continue”, “will”, “may”, “could”, “would”, “should”, “target”, “potential”, “opportunity”,
“tentative”, “positioning”, “designed”, “create”, “predict”, “project”, “forecast”, “seek”, “ongoing”, “increase”, or “upside”
and variations or other similar expressions. In addition, any statements that refer to expectations, intentions, projections or other
characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not
be appropriate for other purposes. Although we have indicated above certain of these statements set out herein, all of the statements
in this Form 10-K that contain forward-looking statements are qualified by these cautionary statements. These statements are
based upon the current expectations and beliefs of management. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be
placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, including,
but not limited to, factors and assumptions regarding the items outlined above. Actual results may differ materially from those
expressed or implied in such statements. Important factors that could cause actual results to differ materially from these expectations
include, among other things, the following:
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the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating
to our distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former
relationship with Philidor), including pending investigations by the U.S. Attorney's Office for the District of Massachusetts,
the U.S. Attorney's Office for the Southern District of New York and the State of North Carolina Department of Justice,
the pending investigation by the U.S. Securities and Exchange Commission (the “SEC”) of the Company, pending
investigations by the U.S. Senate Special Committee on Aging and the U.S. House Committee on Oversight and
Government Reform, the request for documents and information received by the Company from the Autorité des marchés
financiers (the “AMF”) (the Company’s principal securities regulator in Canada), the document subpoena from the New
Jersey State Bureau of Securities and a number of pending purported class action securities litigations in the U.S. and
Canada and other claims, investigations or proceedings that may be initiated or that may be asserted;
our ability to manage the transition to the individual identified to succeed our current chief executive officer, the success
of such individual in assuming the roles of chairman and chief executive officer and the ability of such individual to
implement and achieve the strategies and goals of the Company as they develop;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of
management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm
that may result from the completed review by the Ad Hoc Committee;
the effect of the misstatements identified in our previously issued financial statements for the year ended December 31,
2014, the financial information for the quarter ended December 31, 2014 (included in our Annual Report for the year
ended December 31, 2014) and the financial statements for the quarter ended March 31, 2015 (included in our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2015), as well as the financial statements for the six-month period
ended June 30, 2015 (included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015) and the nine-
month period ended September 30, 2015 (included in our Quarterly Report on Form 10-Q for the quarter ended September
30, 2015), due to the fact that the financial results for the quarter ended March 31, 2015 are included within the financial
statements for these periods; the resultant restatement of the affected financial statements; the material weaknesses in
our internal control over financial reporting identified by the Company; and any claims, investigations or proceedings
(and any costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may
result therefrom), negative publicity or reputational harm that may arise as a result;
the effectiveness of the remediation measures and actions to be taken to remediate the material weaknesses in our internal
control over financial reporting identified by the Company, our deficient control environment and the contributing factors
leading to the misstatement of our results and the impact such measures may have on the Company and our businesses;
any default under the terms of our senior notes indentures or Credit Agreement and our ability, if any, to cure or obtain
waivers of such default;
any delay in the filing of any subsequent financial statements or other filings (including the expected delay in the filing
of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2016 (the “First Quarter 2016 Form
10-Q”) and any default under the terms of our senior notes indentures or Credit Agreement as a result of such delays;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of
management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm
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on our Company, products and business that may result from the recent public scrutiny of our distribution, marketing,
pricing, disclosure and accounting practices and from our former relationship with Philidor, including any claims,
proceedings, investigations and liabilities we may face as a result of any alleged wrongdoing by Philidor;
the current scrutiny of our business practices including with respect to pricing (including the investigations by the U.S.
Attorney's Offices for the District of Massachusetts and the Southern District of New York, the U.S. Senate Special
Committee on Aging, the U.S. House Committee on Oversight and Government Reform and the State of North Carolina
Department of Justice) and any pricing controls or price reductions that may be sought or imposed on our products as
a result thereof;
our substantial debt (and potential future indebtedness) and current and future debt service obligations and their impact
on our financial condition, cash flows and results of operations;
our ability to meet the financial and other covenants contained in our current or future debt agreements and the limitations,
restrictions and prohibitions such covenants impose or may impose on the way we conduct our business, including the
restrictions imposed by the April 11, 2016 amendment (the “April 2016 amendment”) to our Credit Agreement that restrict
us from, among other things, making acquisitions over an aggregate threshold (subject to certain exceptions) and from
incurring debt to finance such acquisitions, until we file our First Quarter 2016 Form 10-Q and achieve a specified
leverage ratio;
our ability to service and repay our existing or any future debt, including our ability to reduce our outstanding debt levels
further during 2016 in accordance with our stated intention;
any further downgrade by rating agencies in our credit ratings (such as the recent downgrades by Moody’s Investors
Service and Standard & Poor’s Ratings Services), which may impact, among other things, our ability to raise debt and
the cost of capital for additional debt issuances;
our ability to raise additional funds, as needed, in light of our current and projected levels of operations, general economic
conditions (including capital market conditions) and any restrictions or limitations imposed by the financial and other
covenants of our debt agreements with respect to incurring additional debt;
the potential divestiture of certain of our assets or businesses and our ability to successfully complete any future divestitures
on commercially reasonable terms and on a timely basis, or at all;
the impact of any such future divestitures on our Company, including the reduction in the size or scope of our business
or market share, any loss on sale or any adverse tax consequences suffered as a result of such divestitures;
our current shift in focus to minimal business development activity through acquisitions in 2016 and possibly beyond as
we focus on reducing our outstanding debt levels and as a result of the restrictions imposed by the April 2016 amendment
to our Credit Agreement that restrict us from, among other things, making acquisitions over an aggregate threshold
(subject to certain exceptions) and from incurring debt to finance such acquisitions, until we file our First Quarter 2016
Form 10-Q and achieve a specified leverage ratio;
our ability to retain, motivate and recruit executives and other key employees, including a new corporate controller, and
the termination or resignation of executives or key employees, such as the recently announced departure of our current
chief executive officer;
our ability to implement effective succession planning for our executives and key employees;
our proposed price reductions on certain of our products, including in connection with our arrangements with Walgreen
Co. ("Walgreens") (as further described herein), and any future pricing freezes, reductions, increases or changes we
may elect to make, as well as any proposed or future legislative price controls or price regulation, including mandated
price reductions, that may impact our products;
the challenges and difficulties associated with managing a large complex business, which has grown rapidly over the
last few years;
our ability to compete against companies that are larger and have greater financial, technical and human resources than
we do, as well as other competitive factors, such as technological advances achieved, patents obtained and new products
introduced by our competitors;
the success of our recent and future fulfillment and other arrangements with Walgreens, including market acceptance of,
or market reaction to, such arrangements (including by customers, doctors, patients, pharmacy benefit managers
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("PBMs"), third party payors and governmental agencies), the continued compliance of such arrangements with
applicable laws and the ability of the anticipated increased volume across all distribution channels resulting from such
arrangements to offset the impact of lower average selling prices associated with these arrangements;
the extent to which our products are reimbursed by government authorities, PBMs and other third party payors; the
impact our distribution, pricing and other practices (including as relates to our former relationship with Philidor, any
wrongdoing by Philidor and our current relationship with Walgreens) may have on the decisions of such government
authorities, PBMs and other third party payors to reimburse our products; and the impact of obtaining or maintaining
such reimbursement on the price and sales of our products;
the inclusion of our products on formularies or our ability to achieve favorable formulary status, as well as the impact
on the price and sales of our products in connection therewith;
our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business
profits of certain of our subsidiaries, including the impact on such matters of the recent proposals published by the
Organization for Economic Co-operation and Development ("OECD") respecting base erosion and profit shifting
("BEPS");
the actions of our third party partners or service providers of research, development, manufacturing, marketing,
distribution or other services, including their compliance with applicable laws and contracts, which actions may be
beyond our control or influence, and the impact of such actions on our Company, including the impact to the Company
of our former relationship with Philidor and any alleged legal or contractual non-compliance by Philidor;
the risks associated with the international scope of our operations, including our presence in emerging markets and the
challenges we face when entering new geographic markets (including the challenges created by new and different
regulatory regimes in such countries), such as with our recent acquisition of Amoun Pharmaceutical Company S.A.E. in
Egypt;
adverse global economic conditions and credit markets and foreign currency exchange uncertainty and volatility in the
countries in which we do business (such as the recent instability in Brazil, China, Russia, Ukraine, Argentina and the
Middle East);
our ability to reduce wholesaler inventory levels in Russia, Poland and certain other countries, in-line with our targeted
levels for such markets;
our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend
against challenges to such intellectual property;
the introduction of generic, biosimilar or other competitors of our branded products and other products, including the
introduction of products that compete against our products that do not have patent or data exclusivity rights;
once the additional limitations in our Credit Agreement restricting our ability to make acquisitions are no longer applicable
and to the extent we elect to resume business development activities through acquisitions, our ability to identify, finance,
acquire, close and integrate acquisition targets successfully and on a timely basis;
factors relating to the acquisition and integration of the companies, businesses and products that have been acquired by
the Company (and that may in the future be acquired by the Company, once the additional limitations in our Credit
Agreement restricting our ability to make acquisitions are no longer applicable and to the extent we elect to resume
business development activities through acquisitions), such as the time and resources required to integrate such companies,
businesses and products, the difficulties associated with such integrations (including potential disruptions in sales
activities and potential challenges with information technology systems integrations), the difficulties and challenges
associated with entering into new business areas and new geographic markets, the difficulties, challenges and costs
associated with managing and integrating new facilities, equipment and other assets, and the achievement of the
anticipated benefits from such integrations, as well as risks associated with the acquired companies, businesses and
products;
factors relating to our ability to achieve all of the estimated synergies from such acquisitions as a result of cost-
rationalization and integration initiatives. These factors may include greater than expected operating costs, the difficulty
in eliminating certain duplicative costs, facilities and functions, and the outcome of many operational and strategic
decisions, some of which have not yet been made;
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the expense, timing and outcome of pending or future legal and governmental proceedings, arbitrations, investigations,
subpoenas, tax and other regulatory audits, reviews and regulatory proceedings against us or relating to us and settlements
thereof;
the uncertainties associated with the acquisition and launch of new products (such as our recently launched Addyi®
product), including, but not limited to, our ability to provide the time, resources, expertise and costs required for the
commercial launch of new products, the acceptance and demand for new pharmaceutical products, and the impact of
competitive products and pricing, which could lead to material impairment charges;
our ability to obtain components, raw materials or finished products supplied by third parties (some of which may be
single-sourced) and other manufacturing and related supply difficulties, interruptions and delays;
the disruption of delivery of our products and the routine flow of manufactured goods;
ongoing oversight and review of our products and facilities by regulatory and governmental agencies, including periodic
audits by the U.S. Food and Drug Administration (the "FDA"), and the results thereof;
economic factors over which the Company has no control, including changes in inflation, interest rates, foreign currency
rates, and the potential effect of such factors on revenues, expenses and resulting margins;
interest rate risks associated with our floating rate debt borrowings;
our ability to effectively distribute our products and the effectiveness and success of our distribution arrangements,
including the impact of our recent arrangements with Walgreens;
our ability to secure and maintain third party research, development, manufacturing, marketing or distribution
arrangements;
the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to potential
lawsuits, product liability claims and damages and/or withdrawals of products from the market;
the availability of and our ability to obtain and maintain adequate insurance coverage and/or our ability to cover or
insure against the total amount of the claims and liabilities we face, whether through third party insurance or self-
insurance;
the difficulty in predicting the expense, timing and outcome within our legal and regulatory environment, including with
respect to approvals by the FDA, Health Canada and similar agencies in other countries, legal and regulatory proceedings
and settlements thereof, the protection afforded by our patents and other intellectual and proprietary property, successful
generic challenges to our products and infringement or alleged infringement of the intellectual property of others;
the results of continuing safety and efficacy studies by industry and government agencies;
the success of preclinical and clinical trials for our drug development pipeline or delays in clinical trials that adversely
impact the timely commercialization of our pipeline products, as well as factors impacting the commercial success of our
currently marketed products (such as our recently launched Addyi® product), which could lead to material impairment
charges;
the results of management reviews of our research and development portfolio, conducted periodically and in connection
with certain acquisitions, the decisions from which could result in terminations of specific projects which, in turn, could
lead to material impairment charges;
the seasonality of sales of certain of our products;
declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over
which we have no or limited control;
compliance by the Company or our third party partners and service providers (over whom we may have limited influence),
or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other
extensive regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide
anti-bribery laws (including the U.S. Foreign Corrupt Practices Act), worldwide environmental laws and regulation and
privacy and security regulations;
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the impacts of the Patient Protection and Affordable Care Act (as amended) and other legislative and regulatory healthcare
reforms in the countries in which we operate, including with respect to recent government inquiries on pricing;
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the impact of the upcoming United States elections, including any healthcare reforms arising therefrom, including with
respect to pricing controls;
factors relating to our acquisition of Salix, including the impact of substantial additional debt on our financial condition,
cash flows and results of operations; our ability to effectively and efficiently integrate the operations of the Company
and Salix; our ability to achieve the estimated synergies from this transaction; once integrated, the effects of such business
combination on our future financial condition, operating results, strategy and plans; and, our ability to achieve the
anticipated benefits of such acquisition, including the anticipated revenue growth resulting from such acquisition (such
as the anticipated revenue of the Xifaxan® product, including the recently-approved IBS-D indication);
potential ramifications, including financial penalties, relating to Salix's restatement of its historical financial results;
illegal distribution or sale of counterfeit versions of our products;
interruptions, breakdowns or breaches in our information technology systems; and
other risks detailed from time to time in our filings with the SEC and the Canadian Securities Administrators (the “CSA”),
as well as our ability to anticipate and manage the risks associated with the foregoing.
Additional information about these factors and about the material factors or assumptions underlying such forward-looking
statements may be found elsewhere in this Form 10-K, under Item 1A. “Risk Factors” and in the Company’s other filings with the
SEC and CSA. When relying on our forward-looking statements to make decisions with respect to the Company, investors and
others should carefully consider the foregoing factors and other uncertainties and potential events. These forward-looking
statements speak only as of the date made. We undertake no obligation to update or revise any of these forward-looking statements
to reflect events or circumstances after the date of this Form 10-K or to reflect actual outcomes, except as required by law. We
caution that, as it is not possible to predict or identify all relevant factors that may impact forward-looking statements, the foregoing
list of important factors that may affect future results is not exhaustive and should not be considered a complete statement of all
potential risks and uncertainties.
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Item 1. Business
PART I
Biovail Corporation (“Biovail”) was formed under the Business Corporations Act (Ontario) on February 18, 2000, as a result
of the amalgamation of TXM Corporation and Biovail Corporation International. Biovail was continued under the Canada Business
Corporations Act (the “CBCA”) effective June 29, 2005. In connection with the acquisition of Valeant Pharmaceuticals
International (“Valeant”) in September 2010, Biovail was renamed “Valeant Pharmaceuticals International, Inc.”
Effective August 9, 2013, we continued from the federal jurisdiction of Canada to the Province of British Columbia, meaning
that we became a company registered under the laws of the Province of British Columbia as if we had been incorporated under
the laws of the Province of British Columbia. As a result of this continuance, our legal domicile became the Province of British
Columbia, the Canada Business Corporations Act ceased to apply to us and we became subject to the British Columbia Business
Corporations Act.
On April 25, 2016, we announced that our Board of Directors has named Joseph C. Papa to become our Chairman and Chief
Executive Officer. Mr. Papa is expected to join the Company by early May.
Unless the context indicates otherwise, when we refer to “we”, “us”, “our” or the “Company” in this Annual Report on
Form 10-K (“Form 10-K”), we are referring to Valeant Pharmaceuticals International, Inc. and its subsidiaries on a consolidated
basis.
Introduction
We are a multinational, specialty pharmaceutical and medical device company that develops, manufactures, and markets a
broad range of branded, generic and branded generic pharmaceuticals, over-the-counter (“OTC”) products, and medical devices
(contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices), which are marketed directly or indirectly
in over 100 countries. In the Developed Markets segment, we focus most of our efforts in the areas of dermatology, neurology,
gastrointestinal (“GI”) disorders, and eye health therapeutic classes. In the Emerging Markets segment, we focus primarily on
branded generics, OTC products, and medical devices. We are diverse not only in our sources of revenue from our broad drug
and medical device portfolio, but also among the therapeutic classes and geographies we serve.
Business Strategy
Our strategy is to focus our business on core geographies and therapeutic classes that offer attractive growth opportunities
while maintaining our lower selling, general and administrative cost model and decentralized operating structure. Within our
chosen therapeutic classes and geographies, we primarily focus on durable products which have the potential for strong operating
margins and sustainable organic growth. We believe these products are particularly attractive for a number of reasons including:
• They are largely cash pay, or are reimbursed through private insurance, and, as a result, are less dependent on increasing
government reimbursement pressures than other products;
• They tend to have established brand names and do not rely primarily on patent or regulatory exclusivity;
• They tend to have the potential for line extensions and life-cycle management programs; and
• They tend to be smaller on an individual basis, and therefore typically not the focus of larger pharmaceutical companies.
Another critical element of our strategy is our lower risk, output-focused research and development model. This model
allows us to advance certain development programs to drive future commercial growth, while minimizing our research and
development expense. This is achieved primarily by:
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focusing on innovation through our internal research and development, acquisitions, and in-licensing;
focusing on productivity through measures such as leveraging industry overcapacity and outsourcing commodity services;
focusing on critical skills and capabilities needed to bring new technologies to the market;
pursuing life-cycle management programs for currently marketed products to increase such products’ value during their
commercial lives; and
acquiring dossiers and registrations for branded generic products in emerging markets, which require limited
manufacturing start-up and development activities.
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Some of our key development programs are described in Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Products in Development” of this Form 10-K.
Our long-term strategy has also included deploying cash via business development, debt repayment and repurchases, and
share buybacks. Since the Company’s (then named Biovail Corporation) acquisition of Valeant on September 28, 2010, we have
completed numerous transactions to expand our portfolio offering and geographic footprint, including, among others, the
acquisitions of Salix Pharmaceuticals, Ltd. (“Salix”) and Bausch & Lomb Holdings Incorporated (“B&L”). While we anticipate
that business development through acquisitions may continue to be a component of our long-term strategy, we expect the volume
and size of acquisitions to be minimal in 2016 and possibly beyond, as we focus on reducing our outstanding debt levels.
Additionally, as a result of the April 11, 2016 amendment to our Credit Agreement (as defined herein), until we file our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2016 (“First Quarter 2016 Form 10-Q”) and achieve a specified leverage
ratio, we are subject to various restrictions that will impact how we conduct our business, including restrictions on making
acquisitions, subject to certain exceptions, over an aggregate Transaction Cap (as defined herein) and from incurring any further
debt to finance such acquisitions and a requirement that the proceeds from certain asset sales be used to repay the term loans under
our Credit Agreement, instead of being reinvested in the business. In addition, our ability to, among other things, repurchase our
common shares will also be restricted and subject to the Transaction Cap described above, until such time that we file our First
Quarter 2016 Form 10-Q and achieve a specified leverage ratio. Refer to Note 26 titled "SUBSEQUENT EVENTS" of notes to
consolidated financial statements in Item 15 of this Form 10-K for additional details on and exceptions to these restrictions.
We believe our strategy will allow us to maximize both the growth rate and profitability of the Company and to enhance
shareholder value.
Segment Information
We have two operating and reportable segments: (i) Developed Markets and (ii) Emerging Markets. Comparative segment
information for 2015, 2014 and 2013 is presented in Note 23 titled "SEGMENT INFORMATION" of notes to consolidated financial
statements in Item 15 of this Form 10-K.
Our current product portfolio comprises approximately 1,800 products.
Developed Markets
The Developed Markets segment consists of (i) sales in the U.S. of pharmaceutical products, OTC products, and medical
device products, as well as alliance and contract service revenues, in the areas of dermatology and podiatry, neurology,
gastrointestinal disorders, eye health, oncology and urology, dentistry, aesthetics, and women's health, and (ii) pharmaceutical
products, OTC products, and medical device products sold in Western Europe, Canada, Japan, Australia and New Zealand.
Pharmaceutical Products — Our principal pharmaceutical products include:
• Xifaxan®, acquired as part of the Salix acquisition, including (i) tablets indicated for the treatment of irritable bowel
syndrome with diarrhea ("IBS-D") in adults (launched in 2015) and for the reduction in risk of overt hepatic encephalopathy
recurrence in adults and (ii) tablets indicated for the treatment of travelers’ diarrhea caused by noninvasive strains of
Escherichia coli in patients 12 years of age and older.
• Wellbutrin XL® is an extended-release formulation of bupropion indicated for the treatment of major depressive disorder
in adults.
• An Acne franchise, which includes Solodyn®, a prescription oral antibiotic approved to treat only the red, pus-filled
pimples of moderate to severe acne in patients 12 years of age and older, as well as Ziana®, Clindagel®, Acanya®,
Atralin®, Retin-A® franchise and Onexton® Gel, a fixed combination 1.2% clindamycin phosphate and 3.75% benzoyl
peroxide medication for the once-daily treatment of comedonal (non-inflammatory) and inflammatory acne in patients
12 years of age and older.
• Glumetza® (metformin hydrochloride) extended release tablets, acquired as part of the Salix acquisition, are indicated
as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus.
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Provenge® (sipuleucel-T), acquired as part of the acquisition of certain assets of Dendreon Corporation, is an autologous
cellular immunotherapy indicated for the treatment of asymptomatic or minimally symptomatic metastatic castrate-
resistant (hormone-refractory) prostate cancer.
Jublia® (efinaconazole 10% topical solution), is a topical azole approved for the treatment of onychomycosis of the
toenails (toenail fungus).
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• Nitropress® (sodium nitroprusside), acquired as part of the acquisition of certain assets of Marathon Pharmaceuticals,
LLC ("Marathon"), is indicated for the immediate reduction of blood pressure of patients in hypertensive crises.
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Isuprel® (Isoproterenol hydrochloride) injections, acquired as part of the acquisition of certain assets of Marathon, is
indicated for (i) mild or transient episodes of heart block that do not require electric shock or pacemaker therapy, (ii) for
serious episodes of heart block and Adams-Stokes attacks (except when caused by ventricular tachycardia or fibrillation),
(iii) for use in cardiac arrest until electric shock or pacemaker therapy, the treatments of choice, is available and (iv) for
bronchospasm occurring during anesthesia.
• Xenazine® is indicated for the treatment of chorea associated with Huntington’s disease. In the U.S., Xenazine® is
distributed for us by Lundbeck LLC under an exclusive marketing, distribution and supply agreement.
• Uceris® (budesonide) extended release tablets, acquired as part of the Salix acquisition, are a prescription corticosteroid
medicine used to help get mild to moderate ulcerative colitis under control (induce remission).
• Lotemax® Gel is a topical corticosteroid indicated for the treatment of post-operative inflammation and pain following
ocular surgery. This formulation is a technology that allows the drug to adhere to the ocular surface and offers dose
uniformity, which eliminates the need to shake the product in order to ensure the drug is in suspension. The product
contains a low concentration of preservative and two known moisturizers.
• Arestin® (minocycline hydrochloride) is a subgingival sustained-release antibiotic. Arestin® is indicated as an adjunct
to scaling and root planing ("SRP") procedures for reduction of pocket depth in patients with adult periodontitis. Arestin®
may be used as part of a periodontal maintenance program, which includes good oral hygiene and SRP.
OTC Products — Our principal OTC products include:
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PreserVision® is an antioxidant eye vitamin and mineral supplement.
• CeraVe® is a range of OTC products with essential ceramides and other skin-nourishing and skin-moisturizing ingredients
(humectants and emollients) combined with a unique, patented Multivesicular Emulsion (MVE®) delivery technology
that, together, work to rebuild and repair the skin barrier. CeraVe® formulations incorporate ceramides, cholesterol and
fatty acids, all of which are essential for skin barrier repair and are used as adjunct therapy in the management of various
skin conditions.
• Biotrue® multi-purpose solution uses a lubricant also found in eyes and it is pH balanced to match healthy tears and
helps prevent certain tear proteins from denaturing and fights germs for healthy contact lens wear.
• ReNu Multiplus® is a sterile, preserved solution used to lubricate and rewet soft (hydrophilic) contact lenses. ReNu
Multiplus® product contains povidone, a lubricant that can be used with daily, overnight, and disposable soft contact
lenses.
• Ocuvite® is a lutein eye vitamin and mineral supplement that contains lutein (an antioxidant carotenoid), a nutrient that
supports macular health by helping filter harmful blue light.
• Boston® solution is a specialty cleansing solution design for gas permeable ("GP") contact lenses.
• Artelac® is a solution in the form of eye drops to treat dry eyes caused by chronic tear dysfunction.
Device Products — Our principal device products include:
• A portfolio of ophthalmic surgical products, including (i) intraocular lenses such as Akreos®, enVista®, Crystalens®,
and Trulign®, (ii) a suite of surgical instruments including Storz® and Synergetics®, and (iii) surgical equipment for
cataract, refractive, and vitreoretinal surgery, such as Stellaris® PC, a vitreoretinal and cataract surgery system,
VersaVIT2.0 for vitreoretinal surgery, and the VICTUS® femtosecond laser for cataract surgery.
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SofLens® Daily Disposable Contact Lenses use ComfortMoist® Technology (a combination of thin lens design and
moisture-rich packaging solution) and High Definition Optics™, an aspheric design that reduces spherical aberration
over a range of powers, especially in low light.
• Biotrue® ONEday daily disposable contact lenses are made of a unique material that works like the eye to form a
dehydration barrier. The lens maintains over 98% of its moisture for up to 16 hours, it matches the water content of the
cornea at 78%, and allows for the oxygen a healthy eye needs.
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• Bausch + Lomb Ultra® is a silicone hydrogel frequent replacement contact lens that uses MoistureSeal® technology
which allows the contact lens to retain 95% of moisture after 16 hours of wear, limiting lens dryness and resulting
symptoms.
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PureVision® is a silicone hydrogel frequent replacement contact lens using AerGel® technology lens material to allow
natural levels of oxygen to reach the eye as well as resist protein buildup. The lens also incorporates an aspheric optical
design that reduces spherical aberration.
• Medical device systems for aesthetic applications including the Thermage CPT® system that provides non-invasive
treatment options using radiofrequency energy for skin tightening.
Generic Products — Our principal branded and other generic products include:
• Tobramycin and Dexamethasone ophthalmic suspension is indicated for steroid responsive inflammatory ocular
conditions where superficial bacterial ocular infection or a risk of bacterial ocular infection exists.
• Metronidazole is indicated to treat bacterial infections of the vagina, stomach, skin, joints, and respiratory tract.
• Retin-A Micro® (tretinoin gel) microsphere, 0.04%/0.1% Pump, is an oil-free prescription-strength acne treatment.
• Latanoprost is one of a group of medicines known as prostaglandins and is indicated to treat a type of glaucoma called
open angle glaucoma and also ocular hypertension.
Other Revenues — We generate alliance revenue and service revenue from the licensing of products and from contract services
mainly in the areas of dermatology and topical medication. Contract service revenue is derived primarily from contract
manufacturing for third parties.
Emerging Markets
The Emerging Markets segment consists of branded generic pharmaceutical products and branded pharmaceuticals, OTC
products, and medical device products. Products are sold primarily in Central and Eastern Europe (primarily Poland and Russia),
Asia, Latin America (Mexico, Brazil, Argentina, and Colombia and exports out of Mexico to other Latin American markets), Africa
and the Middle East.
Branded and Other Generic Products and Branded Pharmaceuticals — Our branded generics and branded pharmaceuticals
businesses in Europe, Asia, Latin America, Africa and the Middle East cover a broad range of treatments, including antibiotics,
treatments for cardiovascular and neurological diseases, dermatological products, diabetic therapies, and eye health products,
among many others (inclusive of the acquisition of Mercury (Cayman) Holdings, the holding company of Amoun Pharmaceutical
Company S.A.E. (“Amoun”), in October 2015).
OTC — Our principal OTC products include:
• ReNu Multiplus® is a sterile, preserved solution used to lubricate and rewet soft (hydrophilic) contact lenses. ReNu
Multiplus® product contains povidone, a lubricant that can be used with daily, overnight, and disposable soft contact
lenses.
• Bedoyecta® is a brand of vitamin B complex (B1, B6 and B12 vitamins) products. Bedoyecta® products act as energy
improvement agents for fatigue related to age or chronic diseases, and as nervous system maintenance agents to treat
neurotic pain and neuropathy. Bedoyecta® is sold in an injectable form, as well as in a tablet form.
• Artelac® is a solution in the form of eye drops to treat dry eyes caused by chronic tear dysfunction.
• Ocuvite® is a lutein eye vitamin and mineral supplement that contains lutein (an antioxidant carotenoid), a nutrient that
supports macular health by helping filter harmful blue light.
Device Products — Our principal device products include:
• A portfolio of ophthalmic surgical products, including (i) intraocular lenses such as Akreos®, enVista®, Crystalens®,
and Trulign®, (ii) a suite of surgical instruments including Storz® and Synergetics®, and (iii) surgical equipment for
cataract, refractive, and vitreoretinal surgery, such as Stellaris® PC, a vitreoretinal and cataract surgery system,
VersaVIT2.0 for vitreoretinal surgery, and the VICTUS® femtosecond laser for cataract surgery.
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PureVision® is a silicone hydrogel frequent replacement contact lens using AerGel® technology lens material to allow
natural levels of oxygen to reach the eye as well as resist protein buildup. The lens also incorporates an aspheric optical
design that reduces spherical aberration.
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• Medical device systems for aesthetic applications including the Thermage CPT® system that provides non-invasive
treatment options using radiofrequency energy for skin tightening.
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SofLens® Daily Disposable Contact Lenses use ComfortMoist® Technology (a combination of thin lens design and
moisture-rich packaging solution) and High Definition Optics™, an aspheric design that reduces spherical aberration
over a range of powers, especially in low light.
Research and Development
Our research and development (“R&D”) organization focuses on the development of products through clinical trials. Our
research and development expenses for the years ended December 31, 2015, 2014 and 2013 were $334 million, $246 million and
$157 million, respectively, excluding impairment charges. As of December 31, 2015, approximately 1,200 employees (including
regulatory affairs and quality assurance employees) were involved in our R&D efforts.
For more information regarding our products in clinical development, see Item 7 “Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Products in Development” of this Form 10-K.
Trademarks, Patents and Proprietary Rights
We rely on a combination of contractual provisions, confidentiality policies and procedures and patent, trademark, copyright
and trade secrecy laws to protect the proprietary aspects of our technology and business. Our policy is to vigorously protect,
enforce and defend our rights to our intellectual property and proprietary rights, as appropriate. See Item 1A “Risk Factors” of
this Form 10-K for additional information on the risk associated with our intellectual property and proprietary rights.
Trademarks
We believe that trademark protection is an important part of establishing product and brand recognition. We own or license
a number of registered trademarks and trademark applications in the U.S., Canada and in various other countries throughout the
world. U.S. federal registrations for trademarks remain in force for 10 years and may be renewed every 10 years after issuance,
provided the mark is still being used in commerce. Trademark registrations in Canada remain in force for 15 years and may be
renewed every 15 years after issuance, provided that, as in the case of U.S. federal trademark registrations, the mark is still being
used in commerce. Other countries generally have similar but varying terms and renewal policies with respect to trademarks
registered in those countries.
Data and Patent Exclusivity
For certain of our products, we rely on a combination of regulatory and patent rights to protect the value of our investment
in the development of these products.
A patent is the grant of a property right which allows its holder to exclude others from, among other things, selling the
subject invention in, or importing such invention into, the jurisdiction that granted the patent. In the U.S., Canada and the European
Union (“EU”), generally patents expire 20 years from the date of application. We have obtained, acquired or in-licensed a number
of patents and patent applications covering key aspects of certain of our principal products. In the aggregate, our patents are of
material importance to our business taken as a whole. However, we do not consider any single patent material to our business as
a whole.
In the U.S., the Hatch-Waxman Act provides non-patent regulatory exclusivity for five years from the date of the first FDA
approval of a new drug compound in a New Drug Application (“NDA”). The FDA, with one exception, is prohibited during those
five years from accepting for filing a generic, or ANDA, that references the NDA. In reference to the foregoing exception, if a
patent is indexed in the FDA Orange Book for the new drug compound, a generic may file an ANDA four years from the NDA
approval date if it also files a Paragraph IV Certification with the FDA challenging the patent. Protection under the Hatch-Waxman
Act will not prevent the filing or approval of another full NDA. However, the NDA applicant would be required to conduct its
own pre-clinical and adequate and well-controlled clinical trials to independently demonstrate safety and effectiveness.
A similar data exclusivity scheme exists in the EU, whereby only the pioneer drug company can use data obtained at the
pioneer’s expense for up to eight years from the date of the first approval of a drug by the European Medicines Agency (“EMA”)
and no generic drug can be marketed for ten years from the approval of the innovator product. Under both the U.S. and the EU
data exclusivity programs, products without patent protection can be marketed by others so long as they repeat the clinical trials
necessary to show safety and efficacy. Canada employs a similar data exclusivity regulatory regime for innovative drugs.
Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a disease
or condition that affects populations of fewer than 200,000 individuals in the U.S. or a disease whose incidence rates number more
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than 200,000 where the sponsor establishes that it does not realistically anticipate that its product sales will be sufficient to recover
its costs. The sponsor that obtains the first marketing approval for a designated orphan drug for a given rare disease is eligible to
receive marketing exclusivity for use of that drug for the orphan indication for a period of seven years.
Proprietary Know-How
We also rely upon unpatented proprietary know-how, trade secrets and technological innovation in the development and
manufacture of many of our principal products. We protect our proprietary rights through a variety of methods, including
confidentiality and non-disclosure agreements and proprietary information agreements with vendors, employees, consultants and
others who may have access to proprietary information.
Government Regulations
Government authorities in the U.S., at the federal, state and local level, in Canada, in the EU and in other countries extensively
regulate, among other things, the research, development, testing, approval, manufacturing, labeling, post-approval monitoring and
reporting, packaging, advertising and promotion, storage, distribution, marketing and export and import of pharmaceutical products
and medical devices. As such, our products and product candidates are subject to extensive regulation both before and after
approval. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and
foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with these
regulations could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product
candidate, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product
approval, injunctions or criminal prosecution.
Prior to human use, FDA approval (drugs (in the form of an NDA or ANDA for generic equivalents), biologics (in the form
of a Biologics License Application (“BLA”)) and some medical devices) or marketing clearance (other devices) must be obtained
in the U.S., approval by Health Canada must be obtained in Canada, EMA approval (drugs) or a CE Marking (devices) must be
obtained for countries that are part of the EU and approval must be obtained from comparable agencies in other countries prior
to manufacturing or marketing new pharmaceutical products or medical devices. Generally, preclinical studies and clinical trials
of the products must first be conducted and the results submitted to the applicable regulatory agency (such as the FDA) for approval.
Regulation by other federal agencies, such as the Drug Enforcement Administration (“DEA”), and state and local authorities
in the U.S., and by comparable agencies in certain foreign countries, is also required. In the U.S., the Federal Trade Commission
(the “FTC”), the FDA and state and local authorities regulate the advertising of medical devices, prescription drugs, over-the-
counter drugs and cosmetics. The Federal Food, Drug and Cosmetic Act, as amended and the regulations promulgated thereunder,
and other federal and state statutes and regulations, govern, among other things, the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, sale, distribution, advertising and promotion of our products. The FDA requires a
Boxed Warning (sometimes referred to as a “Black Box” Warning) for products that have shown a significant risk of severe or
life-threatening adverse events and similar warnings are also required to be displayed on the product in certain other jurisdictions.
Manufacturers of pharmaceutical products and medical devices are required to comply with manufacturing regulations,
including current good manufacturing practices and quality system management requirements, enforced by the FDA and Health
Canada, in the U.S. and Canada respectively, and similar regulations enforced by regulatory agencies in other countries and we
may face ongoing audits of our facilities and plants and those of our contract manufacturers by the FDA and such other regulatory
agencies. In addition, we are subject to price control restrictions on our pharmaceutical products in many countries in which
we operate.
We are also subject to extensive U.S. federal and state health care marketing and fraud and abuse regulations, such as the
federal False Claims Act, federal and provincial marketing regulation in Canada and similar regulations in foreign countries in
which we may conduct our business. The federal False Claims Act imposes civil and criminal liability on individuals or entities
who submit (or cause the submission of) false or fraudulent claims for payment to the government. The U.S. federal Anti-Kickback
Statute prohibits persons or entities from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly
or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service,
for which payment may be made under a federal or state healthcare program such as the Medicare and Medicaid programs. Some
state anti-kickback laws also prohibit such conduct where commercial insurance, rather than federal or state, programs are
involved. Due to recent legislative changes, violations of the U.S. federal Anti-Kickback Statute also carry potential federal False
Claims Act liability. In addition, in the U.S., companies may not promote drugs or medical devices for “off-label” uses - that is,
uses that are not described in the product’s labeling and that differ from those that were approved or cleared by the FDA - and
“off-label promotion” has also formed the predicate for False Claims Act liability resulting in significant financial settlements.
These and other laws and regulations, rules and policies may significantly impact the manner in which we are permitted to market
our products. If our operations are found to be in violation of any of these laws, regulations, rules or policies or any other law or
6
governmental regulation, or if interpretations of the foregoing change, we may be subject to civil and criminal penalties, damages,
fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations.
We may also be subject to various privacy and security regulations, including, but not limited to, the Health Insurance
Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health
Act of 2009 (collectively, "HIPAA"). HIPAA mandates, among other things, the adoption of uniform standards for the electronic
exchange of information in common health care transactions (e.g., health care claims information and plan eligibility, referral
certification and authorization, claims status, plan enrollment, coordination of benefits and related information), as well as standards
relating to the privacy and security of individually identifiable health information. These standards require the adoption of
administrative, physical and technical safeguards to protect such information. In addition, many states have enacted comparable
laws addressing the privacy and security of health information, some of which are more stringent than HIPAA. Complying with
these laws involves costs to our business, and failure to comply with these laws can result in the imposition of significant civil
and criminal penalties.
Successful commercialization of our products may depend, in part, on the availability of governmental and third party payor
reimbursement for the cost of our products. Third party payors may include government health administration authorities, private
health insurers and other organizations. In the U.S., the E.U. and other significant or potentially significant markets for our products
and product candidates, government authorities and third party payors are increasingly attempting to limit or regulate the price of
medical products and services, which has resulted in lower average selling prices. In the U.S., these pressures can arise from rules
and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid
and healthcare reform, pharmaceutical reimbursement policies and pricing in general. In particular, sales of our products may be
subject to discounts from list price and rebate obligations, as well as formulary coverage decisions impacting or limiting the types
of patients for whom coverage will be provided. Various U.S. healthcare and other laws regulate our interactions with government
agencies, private insurance companies and other third party payors regarding coverage and reimbursement for our products. Failure
to comply with these laws could subject us to civil, criminal and administrative sanctions. In countries outside the U.S., the success
of our products may depend, at least in part, on obtaining and maintaining government reimbursement because in many countries,
patients are unlikely to use prescription drugs that are not reimbursed by their governments. In addition, negotiating prices with
certain governmental authorities for newly developed products can delay commercialization. In many international markets,
governments control the prices of prescription pharmaceuticals, including through the implementation of reference pricing, price
cuts, rebates, revenue-related taxes, tenders and profit control, and they expect prices of prescription pharmaceuticals to decline
over the life of the product or as volumes increase.
See Item 1A “Risk Factors” of this Form 10-K for additional information on the risks associated with these regulations and
related matters.
Environmental and Other Regulation
Our facilities and operations are subject to federal, state and local environmental and occupational health and safety laws
and regulations in both the U.S. and countries outside the U.S., including those governing the discharges of substances into the
air, water and land, the handling, storage and disposal of hazardous wastes, wastewater and solid waste, the cleanup of properties
affected by known pollutants and other environmental matters. Certain of our development and manufacturing activities involve
the controlled use of hazardous materials. We believe we are in compliance in all material respects with applicable environmental
laws and regulations. We are not aware of any pending litigation or significant financial obligations arising from current or past
environmental practices that are likely to have a material adverse effect on our financial position. We cannot assure, however, that
environmental liabilities relating to facilities owned or operated by us will not develop in the future, and we cannot predict whether
any such liabilities, if they were to develop, would require significant expenditures on our part. In addition, we are unable to predict
what legislation or regulations may be adopted or enacted in the future with respect to environmental protection, hazardous materials
management and waste disposal. See Item 1A “Risk Factors” of this Form 10-K for additional information.
Marketing and Customers
Our top four geographic markets by country, based on 2015 revenue, are: the U.S. and Puerto Rico, Canada, China and
Poland, which represent 68%, 3%, 3% and 2% of our total revenue for the year ended December 31, 2015, respectively.
The following table identifies external customers that accounted for 10% or more of our total revenue for the years ended
December 31, 2015, 2014 and 2013:
7
McKesson Corporation
AmerisourceBergen Corporation
Cardinal Health, Inc.
2015
20%
14%
12%
2014
17%
10%
9%
2013
19%
7%
13%
No other customer generated over 10% of our total revenues.
We currently promote our pharmaceutical products to physicians, hospitals, pharmacies and wholesalers through our own
sales force and sell through wholesalers. In some limited markets, we additionally sell directly to physicians, hospitals and large
drug store chains and we sell through distributors in countries where we do not have our own sales staff. Certain products were
dispensed through the Philidor pharmacy network. In October 2015, we announced that we would be severing all ties with Philidor,
and effective November 1, 2015, we signed an agreement terminating all arrangements with or relating to Philidor, other than
certain transition services which ended in January 2016 (see Item 7 “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” of this Form 10-K for additional information regarding Philidor, as well as our new fulfillment
agreements with Walgreens). As part of our marketing program for pharmaceuticals, we use direct to customer advertising, direct
mailings, advertise in trade and medical periodicals, exhibit products at medical conventions and sponsor medical education
symposia.
Competition
Competitive Landscape for Products and Products in Development
The pharmaceutical and medical device industries are highly competitive. Our competitors include specialty and other large
pharmaceutical companies, medical device companies, biotechnology companies, OTC companies and generic manufacturers, in
the U.S., Canada, Europe, Asia, Latin America and in other countries in which we market our products. The dermatology competitive
landscape is highly fragmented, with a large number of mid-size and smaller companies competing in both the prescription sector
and the OTC and cosmeceutical sectors. With respect to the GI market, generic entrants continue to capture significant share for
treatment of many GI conditions. In the area of irritable bowel syndrome ("IBS") and opioid induced constipation ("OIC"),
competitors have recently launched new competing products, which should increase the size of these markets and intensify
competition. The market for eye health products is very competitive, both across product categories and geographies. In addition
to larger diversified pharmaceutical and medical device companies, we face competition in the eye health market from mid-size
and smaller, regional and entrepreneurial companies with fewer products in niche areas or regions.
Our competitors are pursuing the development and/or acquisition of pharmaceuticals, medical devices and OTC products
that target the same diseases and conditions that we are targeting in dermatology and podiatry, GI disorders, eye health and other
therapeutic areas. Academic and other research and development institutions may also develop products or technologies that
compete with our products, which technologies and products may be acquired or licensed by our competitors. These competitors
may have greater financial, R&D or marketing resources than we do. If competitors introduce new products, delivery systems or
processes with therapeutic or cost advantages, our products can be subject to progressive price reductions or decreased volume
of sales, or both. Most new products that we introduce must compete with other products already on the market or products that
are later developed by competitors.
We sell a broad range of products, and competitive factors vary by product line and geographic area in which the products
are sold. The principal methods of competition for our products include quality, efficacy, market acceptance, price, and marketing
and promotional efforts.
Generic Competition
We face increased competition from manufacturers of generic pharmaceutical products when patents covering certain of
our currently marketed products expire or are successfully challenged or when the regulatory exclusivity for our products expires
or is otherwise lost. Generic versions are generally significantly less expensive than branded versions, and, where available, may
be required to be utilized before or in preference to the branded version under third party reimbursement programs, or substituted
by pharmacies. Accordingly, when a branded product loses its market exclusivity, it normally faces intense price competition
from generic forms of the product. To successfully compete for business with managed care and pharmacy benefits management
organizations, we must often demonstrate that our products offer not only medical benefits, but also cost advantages as compared
with other forms of care.
A number of our products already face generic competition, including, among others, Glumetza®, Vanos® (in the U.S.),
Wellbutrin XL® (in the U.S. and Canada), Zovirax® ointment, certain strengths of Retin-A Micro®, Carac®, Xenazine®,
Targetin® capsules, Atralin®, and Tasmar®. In addition, certain of our products face the expiration of their patent or regulatory
8
exclusivity in 2016 or in later years, following which we anticipate generic competition of these products. In addition, in certain
cases, as a result of negotiated settlements of some of our patent infringement proceedings against generic competitors, we have
granted licenses to such generic companies, which will permit them to enter the market with their generic products prior to the
expiration of our applicable patent or regulatory exclusivity. Finally, for certain of our products that lost patent or regulatory
exclusivity in prior years, we anticipate that generic competitors may launch in 2016 or in later years. Our products facing a
potential loss of exclusivity and/or generic competition in 2016 and in later years include, among others, the following: in 2016,
Ziana®, Zirgan®, Visudyne®, Zegerid®, Virazole®, and Nitropress®; in 2017, Lotemax® Gel, Macugen®, Deflux®, Solesta®,
and Isuprel®; in 2018, Acanya®, Solodyn®, Istalol®, Elidel®, and Moviprep®; in 2019, Zyclara®; and in 2020, Luzu® and
Tiazac® (in Canada).
In addition, for a number of our products (including Xifaxan®, Relistor®, Onexton®, Prolensa®, Uceris®, Moviprep®,
Acanya®, Bepreve® and Apriso®), we have commenced infringement proceedings against potential generic competitors in the
U.S. and Canada. If we are not successful in these proceedings, we may face increased generic competition for these products.
See Note 21 titled "LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K for
additional details regarding certain of these infringement proceedings.
See Item 1A “Risk Factors” of this Form 10-K for additional information on our competition risks.
Manufacturing
We currently operate approximately 50 manufacturing plants worldwide. All of our manufacturing facilities that require
certification from the FDA, Health Canada or foreign agencies have obtained such approval.
We also subcontract the manufacturing of certain of our products, including products manufactured under the rights acquired
from other pharmaceutical companies. Generally, where the selling company is manufacturing the acquired products, acquired
products continue to be produced for a specific period of time by the selling company. During that time, we integrate the products
into our own manufacturing facilities or initiate manufacturing agreements with third parties. Where the acquired products are
manufactured by contract manufacturers, we generally assume those arrangements from the selling company.
Products representing approximately half of our product sales for 2015 are produced by third party manufacturers under
manufacturing arrangements.
In some cases, the principal raw materials, including active pharmaceutical ingredient, used by us (or our third party
manufacturers) for our various products are purchased in the open market or are otherwise available from several sources. However,
some of the active pharmaceutical ingredients and other raw materials used in our products and some of the finished products
themselves are currently only available from a single source; or others may in the future become available from only one source.
In addition, in some cases, only a single source of such active pharmaceutical ingredient is identified in filings with regulatory
agencies, including the FDA, and cannot be changed without prior regulatory approval. Any disruption in the supply of any such
single-sourced active pharmaceutical ingredient, other raw material or finished product or an increase in the cost of such materials
or products could adversely impact our ability to manufacture or sell such products, the ability of our third party manufacturers
to supply us with such products, or our profitability. We attempt to manage the risks associated with reliance on single sources of
active pharmaceutical ingredient, other raw materials or finished products by carrying additional inventories or, where possible,
developing second sources of supply. See Item 1A “Risk Factors” of this Form 10-K for additional information on the risks
associated with our manufacturing arrangements.
Employees
As of December 31, 2015, we had approximately 22,000 employees. These employees included approximately 10,100 in
production, 8,600 in sales and marketing, 2,100 in general and administrative positions and 1,200 in R&D (including regulatory
affairs and quality assurance). Collective bargaining exists for some employees in a number of countries in which we do business.
We consider our relations with our employees to be good and have not experienced any work stoppages, slowdowns or other
serious labor problems that have materially impeded our business operations.
Product Liability Insurance
Since March 31, 2014, we have self-insured substantially all of our product liability risk for claims arising after that date.
In the future, we will continue to re-evaluate our decision to self-insure and may purchase additional product liability insurance
to cover product liability risk. See Item 1A “Risk Factors” of this Form 10-K for additional information.
Seasonality of Business
9
Historically, revenues from our business tend to be weighted toward the second half of the year. Sales in the first quarter
tend to be lower as patient co-pays and deductibles reset at the beginning of each year. Further, the third quarter “back to school”
period favorably impacts demand for certain of our dermatology products. Sales in the fourth quarter tend to be higher based on
consumer and customer purchasing patterns associated with healthcare reimbursement programs. However, there are no assurances
that these historical trends will continue in the future.
We expect the weighting of revenues toward the second half of the year to be more pronounced in 2016, given the transition
of certain of our products under the fulfillment arrangements with Walgreens described in Item 7 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” of this Form 10-K.
Geographic Areas
A significant portion of our revenues is generated from operations or otherwise earned outside the U.S. and Canada. All of
our foreign operations are subject to risks inherent in conducting business abroad, including price and currency exchange controls,
fluctuations in the relative values of currencies, political and economic instability and restrictive governmental actions including
possible nationalization or expropriation. Changes in the relative values of currencies may materially affect our results of operations.
For a discussion of these risks, see Item 1A “Risk Factors” of this Form 10-K.
See Note 23 titled “SEGMENT INFORMATION” of notes to consolidated financial statements in Item 15 of this Form 10-
K for detailed information regarding revenues and long-lived assets by geographic area.
In 2015, a material portion of our revenue and income was earned in Ireland, Luxembourg and Switzerland, which have low
tax rates. See Item 1A “Risk Factors” of this Form 10-K relating to tax rates.
Available Information
Our Internet address is www.valeant.com. We post links on our website to the following filings as soon as reasonably
practicable after they are electronically filed or furnished to the SEC: annual reports on Form 10-K, quarterly reports on Form 10-
Q, current reports on Form 8-K and any amendment to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended. All such filings are available through our website free of charge. The information
on our Internet website is not incorporated by reference into this Form 10-K or our other securities filings and is not a part of
such filings.
We are also required to file reports and other information with the securities commissions in all provinces in Canada. You
are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the
provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic
Document Analysis and Retrieval (“SEDAR”) (http://www.sedar.com), the Canadian equivalent of the SEC’s electronic document
gathering and retrieval system.
Our filings may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington,
DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other
information regarding issuers, including us, that file electronically with the SEC.
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Item 1A. Risk Factors
Our business, financial condition, cash flows and results of operations are subject to various risks and uncertainties. You
should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10-
K, including those risks set forth under the heading entitled “Forward-Looking Statements”, and in other documents that we file
with the SEC and the CSA, before making any investment decision with respect to our common shares or debt securities. If any of
the risks or uncertainties actually occur or develop, our business, financial condition, cash flows, results of operations and/or
future growth prospects could change, and such change could be materially adverse. Under these circumstances, the market value
of our common shares and/or debt securities could decline, and you could lose all or part of your investment in our common shares
and/or debt securities.
Restatement and Related Risks
The restatement of our previously issued financial statements has been time-consuming and expensive and could expose us to
additional risks that could have a material adverse effect on our business, financial condition, cash flows and results of
operations and could cause the market value of our common shares and/or debt securities to decline.
As discussed herein, we have restated our previously issued audited financial statements for the year ended December 31,
2014 and the unaudited financial information for the quarter ended December 31, 2014 included in our Annual Report on Form
10-K for the year ended December 31, 2014 and the unaudited financial statements for the quarter ended March 31, 2015 included
in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, as well as the financial statements for the six-month
period ended June 30, 2015 included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and the nine-
month period September 30, 2015 included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (due
to the fact that the financial results for the quarter ended March 31, 2015 are included within these financial statements). This
restatement (including the review of the misstatements that necessitated our restatement of our financial statements) has been time
consuming and expensive and could expose us to potential claims and additional risks that could have a material adverse effect
on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares
and/or debt securities to decline. In particular, we have incurred substantial unanticipated expenses and costs, including audit,
legal, consulting and other professional fees, in connection with the completed review conducted by the Ad Hoc Committee, the
restatement of our previously issued financial statements and the ongoing remediation of material weaknesses in our internal
control over financial reporting. Certain remediation actions have been recommended and we are in the process of implementing
them (see Item 9A "Controls and Procedures" of this Form 10-K for a description of these remediation measures). To the extent
these steps are not successful, we could be forced to incur additional time and expense. Our management’s attention has also been
diverted from the operation of our business in connection with the restatement and these ongoing remediation efforts. In addition,
as a result of these restatements, we could be subject to additional shareholder, governmental, or other actions in connection with
the restatements or related or other matters. Any such proceedings would, regardless of the outcome, consume a significant amount
of management’s time and attention and would result in additional legal, accounting and other costs. If we were not to prevail in
any such proceedings, we could be required to pay substantial damages or settlement costs. In addition, the restatements and related
matters could further impair our reputation or could lead to a further loss of investor confidence. Furthermore, this restatement
and any future restatements may result in further downgrades by rating agencies in our corporate credit ratings, which may impact,
among other things, our ability to raise debt and the cost of capital for additional debt issuances.
We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, adversely
affect our ability to report our financial condition, cash flows and results of operations in a timely and accurate manner and/
or increase the risk of future misstatements, which could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as
defined in Rule 13a-15(f) under the Exchange Act. Based on the review by the Ad Hoc Committee, the Company's review of its
financial records, and other work completed by management, the Company and the ARC have concluded that material weaknesses
in the Company's internal control over financial reporting existed that contributed to the material misstatements in the consolidated
financial statements described above. As a result, certain remediation actions have been recommended and we are in the process
of implementing them, but our remediation efforts are not complete and are ongoing. If we do not complete our remediation in a
timely manner or if our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses
in our internal controls are discovered or occur in the future, it may materially adversely affect our ability to report our financial
condition and results of operations in a timely and accurate manner and there will continue to be an increased risk of future
misstatements. Although we regularly review and evaluate internal control systems to allow management to report on the
effectiveness of our internal control over financial reporting, we may discover additional weaknesses in our internal control over
financial reporting or disclosure controls and procedures. The next time we evaluate our internal control over financial reporting
and disclosure controls and procedures, if we identify one or more new material weaknesses or have been unable to timely remediate
11
our existing material weaknesses, we would be unable to conclude that our internal control over financial reporting or disclosure
controls and procedures are effective. If we are unable to conclude that our internal control over financial reporting or our disclosure
controls and procedures are effective, or if our independent registered public accounting firm expresses an opinion that our internal
control over financial reporting is ineffective, we may not be able to report our financial condition and results of operations in a
timely and accurate manner, which could have a material adverse effect on our business, financial condition, cash flows and results
of operations and could cause the market value of our common shares and/or debt securities to decline. In addition, any potential
future restatements could subject us to additional adverse consequences, including sanctions or investigations by the SEC or the
CSA, shareholder litigation and other adverse actions. Moreover, we may be the subject of further negative publicity focusing on
the financial statement adjustments and resulting restatement and negative reactions from our shareholders, creditors or others
with whom we do business. The occurrence of any of the foregoing could have a material adverse effect on our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities
to decline.
Delays in the filing of future Exchange Act reports, the related financial statements and other required securities reporting
obligations may result in a default under one or more of the indentures governing our outstanding senior notes and/or under
our Credit Agreement, which could have a material adverse effect on our business, financial condition, cash flows and results
of operations and could cause the market value of our common shares and/or debt securities to decline.
If any future misstatements, restatements or material weaknesses in our internal control over financial reporting and disclosure
controls and procedures are discovered or occur, this may result in a delay in filing future Exchange Act reports and other required
filings under applicable securities laws.
Under the indentures governing our outstanding senior notes, if we do not file required reports within specified time periods,
we will be in default due to the breach of the reporting covenant in the indentures and the trustee or holders of at least 25% of any
series of notes may deliver a notice of default for such series of notes. If we do not cure this default by filing the delayed report
within a 60-day cure period, the notes may be accelerated by the trustee or holders of at least 25% of the series of notes that
provided the notice of default. Furthermore, the occurrence of a default in the reporting covenant under any of our senior note
indentures would result in a cross default under our Credit Agreement which would impact our ability to draw on our revolving
credit facility and could lead to an acceleration of the Credit Agreement.
The acceleration of one series of notes could result in a cross acceleration to other series of notes or the loans under the
Credit Agreement, and the acceleration of the loans under the Credit Agreement could result in a cross acceleration to our senior
notes. If any of our notes or any of the loans under our Credit Agreement are accelerated, we may not have sufficient funds to
satisfy our debt obligations. While we may be successful in obtaining relief or an extension of time under the indentures and/or
the Credit Agreement, we cannot guarantee that such relief or extension would be granted or, if granted, would provide us with a
sufficient period of time to cure the reporting default. In addition, in order to obtain any such relief or extension, we may be
required to accept terms that are adverse to us and we may incur significant costs.
Under our Credit Agreement, if we do not file required reports within specified time periods, we will be in breach of the
reporting covenant in the Credit Agreement, which would permit a majority of the lenders in principal amount thereunder to
accelerate the loans if we do not cure the default within a specified cure period. Although the April 2016 amendment extends the
deadline to file our First Quarter 2016 Form 10-Q under our Credit Agreement to July 31, 2016, we may be delayed in filing
beyond such date and we may be delayed in filing other required reports, any of which could result in a default under our Credit
Agreement. In addition, while the filing of this Form 10-K has cured the default under our senior note indentures triggered by the
failure to timely file this Form 10-K, any future delays in our required Exchange Act filings may result in additional defaults under
our senior note indentures. Under the terms of our senior note indentures, if we do not file the First Quarter 2016 Form 10-Q by
May 16, 2016, we will be in default under the terms of our senior note indentures. Although the April 2016 amendment waives
any cross default that would be triggered under our Credit Agreement as a result of this default under the senior note indentures,
the April 2016 amendment does not prevent the trustee or the holders under any of our senior note indentures from delivering a
notice of default should we be delayed in filing the First Quarter 2016 Form 10-Q beyond the deadline for the filing of such report
set forth in the applicable indenture. Any such notice of default related to a late filing of our First Quarter 2016 Form 10-Q may
result in shortening the extended deadline of July 31, 2016 for filing such First Quarter 2016 Form 10-Q under the Credit Agreement.
We may also face further reputational harm or loss of investor confidence as a result of any future delays in the filing of
Exchange Act reports or other required filings under applicable securities laws, including as a result of the expected delay in filing
our First Quarter 2016 Form 10-Q.
A delay in making any of our required securities filings and the associated default under any of our indentures or Credit
Agreement could have a material adverse effect on our business, financial condition, cash flows and results of operations and
could cause the market value of our common shares and/or debt securities to decline.
12
Employment-related Risks
We have identified a candidate to succeed our current chief executive officer and our inability to successfully manage the
transition to our new chairman and chief executive officer or other operational disruptions resulting from this transition could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
We recently announced that our current chief executive officer, J. Michael Pearson, will be leaving the Company and that
we have named Joseph C. Papa to become our new Chairman and Chief Executive Officer. The loss of Mr. Pearson as our chief
executive officer could create disruptions in the operations of our business and could cause concerns and instability for management,
employees, current and potential customers, other third parties with whom we do business, credit rating agencies and our
shareholders and debt holders regarding our ability to continue to execute our business strategy and manage operations in the
manner previously conducted, which could have a material adverse effect on our business, financial condition, cash flows and
results of operations and could cause the market value of our common shares and/or debt securities to decline.
Furthermore, the transition to our new chairman and chief executive officer may be difficult to manage and we cannot
guarantee that the selected replacement will efficiently transition into the roles of chairman and chief executive officer or ultimately
be successful in such roles. During this transition period, we may experience operational disruptions and there may be additional
uncertainty, instability and concerns for management, employees, current and potential customers, other third parties with whom
we do business and shareholders and we may experience difficulties in executing our business strategies and goals. Furthermore,
our new chairman and chief executive officer may implement changes to our business strategies, which could create further
disruption and uncertainty among management, employees, current and potential customers, other third parties with whom we do
business and shareholders. Any of these factors relating to the appointment and transition of our new chairman and chief executive
officer could have a material adverse effect on our business, financial condition, cash flows and results of operations and could
cause the market value of our common shares and/or debt securities to decline.
The loss of the services of, or our inability to recruit, retain, motivate, our executives and other key employees could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
We must continue to retain and motivate our executives and other key employees, and to recruit other executives and
employees, in order to strengthen our management team and workforce. For example, given recent events, we anticipate the need
to recruit additional employees for our finance team, including a new corporate controller. A failure by us to retain, motivate and
recruit executives and other key employees or the unanticipated loss of the services of any of these executives or key employees
for any reason, whether temporary or permanent, could create disruptions in our business, could cause concerns and instability
for management and employees, current and potential customers, credit rating agencies and other third parties with whom we do
business and our shareholders and debt holders and could cause concern regarding our ability to execute our business strategy or
to manage operations in the manner previously conducted and, as a result, could have a material adverse effect on our business,
financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt
securities to decline. Furthermore, as a result of any failure to retain, or loss of, any executives or key employees, we may experience
increased costs in order to identify and recruit a suitable replacement in a timely manner (and, even if we are able to hire a qualified
successor, the search process and transition period may be difficult to manage and result in additional periods of uncertainty),
which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could
cause the market value of our common shares and/or debt securities to decline. With respect to the need to recruit key finance
employees, if we are unable to recruit such employees in a timely manner, we may be adversely impacted in our efforts to remediate
existing material weaknesses in our internal control over financial reporting and in our efforts to avoid future material weaknesses
and misstatements.
Legal and Reputational Risks
We are the subject of a number of recent legal proceedings, investigations and inquiries respecting certain of our distribution,
marketing, pricing, disclosure and accounting practices, including our former relationship with Philidor, which have had and
could continue to have a material adverse effect on our reputation, business, financial condition, cash flows and results of
operations, could result in additional claims and material liabilities, and could cause the market value of our common shares
and/or debt securities to decline.
We are the subject of a number of recent legal proceedings and investigations and inquiries by governmental agencies,
including the following: (i) investigations by the U.S. Attorney's Offices for the District of Massachusetts and the Southern District
of New York relating to certain matters, including the Company’s patient assistance programs, its former relationship with Philidor
and other pharmacies, its accounting treatment for sales by specialty pharmacies, financial support provided by the Company for
patients, distribution of the Company's products, information provided to the Centers for Medicare and Medicaid Services, discounts
13
and rebates on the Company's products and issues related to the Company’s pricing decisions; (ii) the investigation by the SEC
of the Company relating to certain matters, including the Company’s former relationship with Philidor, its accounting practices
and policies and its public disclosures; (iii) investigations by the U.S. Senate Special Committee on Aging and the U.S. House
Committee on Oversight and Government Reform relating to certain matters, including the Company’s pricing decisions on
particular drugs, as well as financial support provided by the Company for patients and matters relating to the Company’s research
and development program, Medicare, and Medicaid; (iv) an investigation by the State of North Carolina Department of Justice
relating to certain matters, including the production, marketing, distribution, sale and pricing of, and patient assistance programs
covering, the Company's Nitropress®, Isuprel® and Cuprimine® products and the Company's pricing decisions for certain of its
other products; (v) a request for documents and other information received by the Company from the AMF relating to certain
matters, including with respect to its former relationship with Philidor and its accounting practices and policies; (vi) a document
subpoena from the New Jersey State Bureau of Securities relating to the Company’s former relationship with Philidor, its accounting
treatment for sales to Philidor, its financial reporting and public disclosures and other matters; and (vii) a number of purported
class action securities litigations in the U.S. and Canada have been instituted, the allegations of which relate to, among other things,
allegedly false and misleading statements by the Company and/or failures to disclose information about the Company’s business
and prospects, including relating to drug pricing, the Company’s policies and accounting practices, the Company’s use of specialty
pharmacies, and the Company’s former relationship with Philidor. In addition, the completed review of the Ad Hoc Committee
could result in additional legal proceedings and investigations and inquiries by governmental agencies. Philidor is also subject to
disputes with third party payors and governmental investigations related to its business practices and relationship with the Company
which may result in claims being asserted against the Company. For more information regarding legal proceedings, see Note 21
titled “LEGAL PROCEEDINGS” of notes to consolidated financial statements in Item 15 of this Form 10-K.
We are unable to predict how long such proceedings, investigations and inquiries will continue, but we anticipate that we
will continue to incur significant costs in connection with these matters and that these proceedings, investigations and inquiries
will result in a substantial distraction of management’s time, regardless of the outcome. These proceedings, investigations and
inquiries may result in damages, fines, penalties or other administrative sanctions against the Company and/or certain of our
officers, or in changes to our business practices. Furthermore, publicity surrounding these proceedings, investigations and inquiries
or any enforcement action as a result thereof, even if ultimately resolved favorably for us, coupled with the recent intensified
public scrutiny of our Company and certain of its practices, could result in additional investigations and legal proceedings. As a
result, these proceedings, investigations and inquiries could have a material adverse effect on our reputation, business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to
decline.
The completed review of the Ad Hoc Committee of our Board of Directors, the restatement of our previously issued financial
statements, the misstatements that resulted in such restatement, the material weaknesses that have been identified in our internal
control over financial reporting and the determination that our disclosure controls and procedures were not effective at certain
times, could result in additional litigation and governmental proceedings and investigations, which could have a material
adverse effect on our reputation, business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
The Ad Hoc Committee has now completed its review. Based on the review by the Ad Hoc Committee and additional work
and analysis by the Company, certain misstatements in the Company’s financial results were identified which resulted in the
restatement of certain of the Company’s previously issued financial statements and the Company also concluded that certain
material weaknesses exist in the Company’s internal control over financial reporting and that, as a result, the Company’s disclosure
controls and procedures were not effective at specified times. The completed review by the Ad Hoc Committee, the restatement
of our previously issued financial statements and the misstatements and material weaknesses identified by the Company could
expose us to a number of additional risks that could have a material adverse effect on our business, financial condition, cash flows
and results of operations and could cause the market value of our common shares and/or debt securities to decline. In particular,
we could be subject to further shareholder litigation and additional governmental investigations and proceedings arising from the
completed review by the Ad Hoc Committee. Any such proceedings, regardless of the outcome, would consume a significant
amount of management’s time and attention and would result in additional legal, accounting and other costs. If we do not prevail
in any such proceedings, we could be required to pay substantial damages or settlement costs. In addition, the Company has
experienced and may continue to experience reputational harm and a loss of investor confidence as a result of these matters.
Our business practices, including with respect to pricing, are under scrutiny. Any changes to our practices relating to pricing
or the current prices of products, whether imposed, legislated or voluntary, could have a material adverse effect on our business,
financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt
securities to decline.
We are under scrutiny with respect to our business practices (including with respect to pricing), including investigations by
the U.S. Attorney's Offices for the District of Massachusetts and the Southern District of New York, the State of North Carolina
14
Department of Justice, the U.S. Senate Special Committee on Aging, the U.S. House Committee on Oversight and Government
Reform, various purported class action suits against us in the U.S. and Canada and certain recent statements made (and actions
threatened to be taken) by third parties with respect to certain of our products. We are unable to predict how such proceedings,
investigations and inquiries will impact our business practices, including with respect to pricing, or the prices of our products,
including whether we will be required to impose pricing freezes or controls, pricing reductions (including on a retroactive basis)
or other price regulation for some or all of our products.
In addition, in recent years, in the U.S., state and federal governments have considered implementing legislation that would
control or regulate the prices of drugs. Other countries have announced or implemented measures on pricing, including the
suspensions on price increases, prospective and possibly retroactive price reductions and other recoupments. These measures and
proposed measures vary by country. These measures and these proposed measures and legislation, if implemented, could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value
of our common shares and/or debt securities to decline.
We are involved in various other legal and governmental proceedings that are uncertain, costly and time-consuming and could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
We are involved in a number of other legal and governmental proceedings and may be involved in additional litigation in
the future. These proceedings are complex and extended and occupy the resources of our management and employees. These
proceedings are also costly to prosecute and defend and may involve substantial awards or damages payable by us if not found in
our favor. We may also be required to pay substantial amounts or grant certain rights on unfavorable terms in order to settle such
proceedings. Defending against or settling such claims and any unfavorable legal decisions, settlements or orders could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value
of our common shares and/or debt securities to decline. For more information regarding legal proceedings, see Note 21 titled
“LEGAL PROCEEDINGS” of notes to consolidated financial statements in Item 15 of this Form 10-K.
For example, the pharmaceutical industry, and our Company in particular, has been the focus of both private payor and
governmental concern regarding pricing of pharmaceutical products. Related actions, including Congressional and other
governmental investigations and litigation, are costly and time-consuming, and adverse resolution of such actions or changes in
our business practices, such as our approach to the pricing of our pharmaceutical products, could adversely affect our business,
financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt
securities to decline.
Further, the pharmaceutical and medical device industries historically have generated substantial litigation concerning the
manufacture, use and sale of products and we expect this litigation activity to continue. As a result, we expect that patents related
to our products will be routinely challenged (as is the case with the recent patent infringement proceeding commenced in connection
with our Xifaxan® product and related patents), and our patents may not be upheld. In order to protect or enforce patent rights,
we may initiate litigation against third parties. If we are not successful in defending an attack on our patents and maintaining
exclusive rights to market one or more of our products still under patent protection, we could lose a significant portion of sales in
a very short period. We may also become subject to infringement claims by third parties and may have to defend against charges
that we violated patents or the proprietary rights of third parties. If we infringe the intellectual property rights of others, we could
lose our right to develop, manufacture or sell products, including our generic products, or could be required to pay monetary
damages or royalties to license proprietary rights from third parties.
In addition, in the U.S., it has become increasingly common for patent infringement actions to prompt claims that antitrust
laws have been violated during the prosecution of the patent or during litigation involving the defense of that patent. Such claims
by direct and indirect purchasers and other payers are typically filed as class actions. The relief sought may include treble damages
and restitution claims. Similarly, antitrust claims may be brought by government entities or private parties following settlement
of patent litigation, alleging that such settlements are anti-competitive and in violation of antitrust laws. In the U.S. and Europe,
regulatory authorities have continued to challenge as anti-competitive so-called “reverse payment” settlements between branded
and generic drug manufacturers. We may also be subject to other antitrust litigation involving competition claims unrelated to
patent infringement and prosecution. A successful antitrust claim by a private party or government entity against us could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value
of our common shares and/or debt securities to decline.
We depend on third parties to meet their contractual, legal, regulatory, and other obligations.
We rely on distributors, suppliers, contract research organizations, vendors, service providers, business partners and other
third parties to research, develop, manufacture, distribute, market and sell our products, as well as perform other services relating
to our business. We rely on these third parties to meet their contractual, legal, regulatory and other obligations. A failure to maintain
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these relationships or poor performance by these third parties could negatively impact our business. In addition, we cannot guarantee
that the contractual terms and protections and compliance controls, policies and procedures we have put in place will be sufficient
to ensure that such third parties will meet their legal, contractual and regulatory obligations or that these terms, controls, policies,
procedures and other protections will protect us from acts committed by our agents, contractors, distributors, suppliers, service
providers or business partners that violate contractual obligations or the laws or regulations of the jurisdictions in which we operate,
including matters respecting anti-corruption, fraud, kickbacks and false claims, pricing, sales and marketing practices, privacy
laws and other legal obligations. Any failure of such third parties to meet these legal, contractual and regulatory obligations or
any improper actions by such third parties or even allegations of such non-compliance or actions could damage our reputation,
adversely impact our ability to conduct business in certain markets and subject us to civil or criminal legal proceedings and
regulatory investigations, monetary and non-monetary damages and penalties and could cause us to incur significant legal and
investigatory fees and, as a result, could have a material adverse effect on our business, financial condition, cash flows and results
of operations and could cause the market value of our common shares and/or debt securities to decline. For example, the recent
allegations about the activities of Philidor and our former relationship with Philidor have resulted in a number of investigations,
inquiries and legal proceedings against us, which may damage our reputation and result in damages, fines, penalties or administrative
sanctions against the Company and/or certain of our officers. For more information regarding legal proceedings, see Note 21 titled
“LEGAL PROCEEDINGS” of notes to consolidated financial statements in Item 15 of this Form 10-K.
If our products cause, or are alleged to cause, serious or widespread personal injury, we may have to withdraw those products
from the market and/or incur significant costs, including payment of substantial sums in damages, and we may be subject to
exposure relating to product liability claims. In addition, our product liability self-insurance program may not be adequate to
cover future losses.
We face an inherent business risk of exposure to significant product liability and other claims in the event that the use of
our products caused, or is alleged to have caused, adverse effects. Furthermore, our products may cause, or may appear to have
caused, adverse side effects (including death) or potentially dangerous drug interactions that we may not learn about or understand
fully until the drug has been administered to patients for some time. The withdrawal of a product following complaints and/or
incurring significant costs, including the requirement to pay substantial damages in personal injury cases or product liability cases,
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
In addition, since March 31, 2014, we have self-insured substantially all of our product liability risk for claims arising after
that date. We currently reserve for anticipated losses and related expenses. We periodically evaluate and adjust our claims reserves
to reflect trends in our own experience, as well as industry trends. However, historical loss trends may not be adequate to cover
future losses, as historical trends may not be indicative of future losses. If ultimate results exceed our estimates, this would result
in losses in excess of our reserved amounts. If we were required to pay a significant amount on account of these liabilities for
which we self-insure, this could have a material adverse effect on our business, financial condition, cash flows and results of
operations and could cause the market value of our common shares and/or debt securities to decline.
Our marketing, promotional and business practices, including with respect to pricing, as well as the manner in which sales
forces interact with purchasers, prescribers and patients, are subject to extensive regulation and any material failure to comply
could result in significant sanctions against us.
The marketing, promotional and business practices, including with respect to pricing, of pharmaceutical and medical device
companies, as well as the manner in which companies’ in-house or third party sales forces interact with purchasers, prescribers,
and patients, are subject to extensive regulation, enforcement of which may result in the imposition of civil and/or criminal penalties,
injunctions, and/or limitations on marketing practice for some of our products and/or pricing restrictions or mandated price
reductions for some of our products. Many companies, including us, have been the subject of claims related to these practices
asserted by federal authorities. These claims have resulted in fines and other consequences. Companies may not promote drugs
for “off-label” uses - that is, uses that are not described in the product’s labeling and that differ from those approved by the FDA,
Health Canada, EMA or other applicable regulatory agencies. A company that is found to have improperly promoted off-label
uses may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition,
management's attention could be diverted from our business operations and our reputation could be damaged. For more information
regarding legal proceedings, see Note 21 titled “LEGAL PROCEEDINGS” of notes to consolidated financial statements in Item 15
of this Form 10-K.
Debt-related Risks
Our Credit Agreement and the indentures governing our senior notes impose restrictive and financial covenants on us. Our
failure to comply with these covenants could trigger events, which, if not cured or waived, could result in the acceleration of
the related debt, a cross-default or cross-acceleration to other debt, foreclosure upon any collateral securing the debt and
termination of any commitments to lend, each of which would have a material adverse effect on our business, financial condition,
16
cash flows and results of operations and would cause the market value of our common shares and/or securities to decline and
could lead to bankruptcy or liquidation.
Our Credit Agreement and the various indentures governing our senior notes contain covenants that restrict the way we
conduct business, as well as financial covenants that, for example, require us to maintain certain financial ratios at fiscal quarter
end and satisfy certain financial tests upon incurrence of certain debt. As of December 31, 2015, we were in compliance with all
covenants associated with our outstanding debt. However, subsequent to December 31, 2015, the delay in filing our Form 10-K
for the fiscal year ended December 31, 2015 resulted in a violation of covenants contained in our Credit Agreement and senior
note indentures, for which we received several notices of default in April 2016 in respect of certain series of our senior notes. All
defaults under the Credit Agreement resulting from the failure to timely deliver the Form 10-K have been waived by the requisite
lenders under our Credit Agreement by the April 2016 amendment, and this Form 10-K has been filed within the extended timeframe
granted to us as part of that amendment. The default under our senior note indentures arising from the failure to timely file the
Form 10-K was cured in all respects by the filing of this Form 10-K. Delays in the filing of future Exchange Act reports, the
related financial statements and other required securities reporting obligations (including the expected delay in filing our First
Quarter 2016 Form 10-Q) may result in a default under our Credit Agreement or one or more of our senior note indentures. See
"—Restatement and Related Risks-Delays in the filing of future Exchange Act reports, the related financial statements and other
required securities reporting obligations may result in a default under one or more of the indentures governing our outstanding
senior notes and/or under our Credit Agreement, which could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline."
In addition, we can make no assurance that we will be able to comply with the restrictive and financial covenants contained in
our Credit Agreement and senior note indentures in the future. Furthermore, our ability to remain in compliance with the financial
and other covenants can be affected by events beyond our control.
Our inability to comply with these covenants could lead to a default or an event of default under the terms of our Credit
Agreement or the applicable indentures, for which we may need to seek relief from our lenders and noteholders in order to waive
the associated default or event of default and avoid a potential acceleration of the related indebtedness or cross-default or cross-
acceleration to other debt. There can be no assurance that we would be able to obtain such relief on commercially reasonable terms
or otherwise and we may be required to incur significant additional costs. In addition, the lenders under our Credit Agreement and
holders of our senior notes may impose additional operating and financial restrictions on us as a condition to granting any such
waiver.
If an event of default is not cured or is not otherwise waived, a majority of lenders in principal amount under our Credit
Agreement or the trustee or holders of at least 25% in principal amount of a series of our senior notes may accelerate the maturity
of the related debt under these agreements, foreclose upon any collateral securing the debt and terminate any commitments to
lend, any of which would have a material adverse effect on our business, financial condition, cash flows and results of operations
and would cause the market value of our securities to decline. Furthermore, under these circumstances, we may not have sufficient
funds or other resources to satisfy all of our obligations and we may be unable to obtain alternative financing on terms acceptable
to us or at all. In such circumstances, we could be forced into bankruptcy or liquidation and, as a result, investors could lose all
or a portion of their investment in our securities.
To service our debt, we will be required to generate a significant amount of cash. Our ability to generate cash depends on a
number of factors, some of which are beyond our control, and any failure to meet our debt service obligations would have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
We have a significant amount of indebtedness. Our ability to satisfy our debt obligations will depend principally upon our
future operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which
are beyond our control, may affect our ability to make payments on our debt. If we do not generate sufficient cash flow to satisfy
our debt service obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt,
selling assets, reducing or delaying capital investments or seeking to raise additional capital. Our ability to restructure or refinance
our debt will depend on the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher
interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
Our inability to generate sufficient cash flow to satisfy our debt service obligations or to refinance our obligations on commercially
reasonable terms could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
Repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make
such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted
to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and,
under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. Certain
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non-guarantor subsidiaries include non-U.S. subsidiaries that may be prohibited by law or other regulations from distributing
funds to us and/or we may be subject to payment of taxes and withholdings on such distributions. In the event that we do not
receive distributions from our subsidiaries or receive cash via services rendered and intellectual property licensed, we may be
unable to make required principal and interest payments on our indebtedness.
We have publicly indicated that it is our intention during 2016 to focus on reducing our outstanding debt levels. As described
above, our ability to reduce our indebtedness will depend upon factors including our future operating performance and prevailing
economic conditions and financial, business and other factors, many of which are beyond our control. We can provide no assurance
of the amount by which we will reduce our debt, if at all.
We have incurred significant indebtedness, which restricts the manner in which we conduct business.
We have incurred significant indebtedness, including in connection with our prior acquisitions. We may incur additional
long-term debt and working capital lines of credit to meet future financing needs, subject to certain restrictions and prohibitions
under the agreements governing our indebtedness, which would increase our total debt. This additional debt may be substantial
and some of this indebtedness may be secured.
Our current indebtedness contains restrictive covenants which impose certain limitations on the way we conduct our business,
including limitations on the amount of additional debt we are able to incur, prohibitions on incurring additional debt if certain
financial covenants are not met and restrictions on our ability to make certain investments and other restricted payments. Any
additional debt, to the extent we are able to incur it, may further restrict the manner in which we conduct business. Such restrictions,
prohibitions and limitations could impact our ability to implement elements of our strategy in the following ways:
•
•
•
•
our ability to obtain additional debt financing on favorable terms or at all could be limited;
there may be instances in which we are unable to meet the financial covenants contained in our debt agreements or to
generate cash sufficient to make required payments on our debt, which circumstances may result in the acceleration of
the maturity of some or all of our outstanding indebtedness (which we may not have the ability to pay);
there may be instances in which we are unable to meet the financial covenants contained in our debt agreements, at which
time we may be prohibited from incurring any additional debt until such covenants are met;
in 2016 and possibly beyond, a substantial portion of our cash flow from operations will be allocated (and, in future years,
may be allocated) to service our debt, thus reducing the amount of our cash flow available for other purposes, including
operating costs and capital expenditures that could improve our competitive position and results of operations;
• we may issue debt or equity securities or sell some of our assets (subject to certain restrictions under our existing
indebtedness) to meet payment obligations or to reduce our financial leverage, and we cannot assure you whether such
transactions will be on favorable terms;
•
our flexibility to plan for, or react to, competitive challenges in our business and the pharmaceutical and medical device
industries may be compromised;
• we may be put at a competitive disadvantage relative to competitors that do not have as much debt as we have, and
competitors that may be in a more favorable position to access additional capital resources; and
•
as further described below, our ability to make acquisitions and execute business development activities through
acquisitions will be limited and may, in future years, continue to be limited.
In addition, the April 2016 amendment imposes a number of restrictions on us until the time that we file the First Quarter
2016 Form 10-Q and the Company’s leverage ratio (being the ratio, as of the last day of any fiscal quarter, of Consolidated Total
Debt (as defined in the Credit Agreement) as of such day to Consolidated Adjusted EBITDA (as defined in the Credit Agreement)
for the four fiscal quarter period ending on such date) is less than 4.50 to 1.00, including (i) imposing a $250 million aggregate
cap (the “Transaction Cap”) on acquisitions, subject to certain exceptions, (ii) restricting the incurrence of debt to finance such
acquisitions and (iii) requiring the net proceeds from certain asset sales be used to repay the term loans instead of being reinvested
in the business. In addition, our ability to make certain other investments, dividends, distributions, share repurchases and other
restricted payments will also be restricted and subject to the Transaction Cap until the First Quarter 2016 Form 10-Q has been
filed and the Company’s leverage ratio is less than 4.00 to 1.00. Refer to Note 26 titled "SUBSEQUENT EVENTS" of notes to
consolidated financial statements in Item 15 of this Form 10-K for additional details on and exceptions to these restrictions.
Our current corporate credit rating is B2 for Moody’s Investors Service (“Moody's”) (which was downgraded from a credit
rating of Ba3 on March 16, 2016 and further downgraded from a credit rating of B1 on March 31, 2016) and B for Standard &
Poor’s Ratings Services (“Standard & Poor's”) (which was downgraded from a credit rating of BB- on October 30, 2015 and
18
further downgraded from a credit rating of B+ on April 14, 2016). Both Moody's and Standard & Poor's have indicated that our
corporate credit rating remains under review for potential further downgrade. Any downgrade or further downgrade in our corporate
credit ratings or other credit ratings may increase our cost of borrowing and may negatively impact our ability to raise additional
debt capital.
We are exposed to risks related to interest rates.
Our senior secured credit facilities bear interest based on U.S. dollar London Interbank Offering Rates, or U.S. Prime Rate,
or Federal Funds effective rate. Thus, a change in the short-term interest rate environment could have a material adverse effect on
our business, financial condition, cash flows and results of operations and could cause the market value of our common shares
and/or debt securities to decline. As of December 31, 2015, we did not have any outstanding interest rate swap contracts.
Tax-related Risks
Our effective tax rates may increase.
We have operations in various countries that have differing tax laws and rates. Our tax reporting is supported by current
domestic tax laws in the countries in which we operate and the application of tax treaties between the various countries in which
we operate. Our income tax reporting is subject to audit by domestic and foreign authorities. Our effective tax rate may change
from year to year based on changes in the mix of activities and income earned among the different jurisdictions in which we
operate; changes in tax laws in these jurisdictions; changes in the tax treaties between various countries in which we operate;
changes in our eligibility for benefits under those tax treaties; and changes in the estimated values of deferred tax assets and
liabilities. Such changes could result in a substantial increase in the effective tax rate on all or a portion of our income. One potential
change in the tax laws relates to the recent proposals of the Organization for Economic Co-operation and Development (“OECD”)
respecting base erosion and profit shifting (“BEPS”) and measures designed to prevent these activities, as published in recently
released reports from the OECD. These measures could have a significant unfavorable impact on our consolidated income tax
rate.
Our provision for income taxes is based on certain estimates and assumptions made by management. Our consolidated
income tax rate is affected by the amount of pre-tax income earned in our various operating jurisdictions, the availability of benefits
under tax treaties, and the rates of taxes payable in respect of that income. We enter into many transactions and arrangements in
the ordinary course of business in respect of which the tax treatment is not entirely certain. We therefore make estimates and
judgments based on our knowledge and understanding of applicable tax laws and tax treaties, and the application of those tax laws
and tax treaties to our business, in determining our consolidated tax provision. For example, certain countries could seek to tax a
greater share of income than we will allocate to them. The final outcome of any audits by taxation authorities may differ from the
estimates and assumptions that we may use in determining our consolidated tax provisions and accruals. This could result in a
material adverse effect on our consolidated income tax provision, financial condition and the net income for the period in which
such determinations are made.
Our deferred tax liabilities, deferred tax assets and any related valuation allowances are affected by events and transactions
arising in the ordinary course of business, acquisitions of assets and businesses, and non-recurring items. The assessment of the
appropriate amount of a valuation allowance against the deferred tax assets is dependent upon several factors, including estimates
of the realization of deferred income tax assets, which realization will be primarily based on future taxable income, including the
reversal of existing taxable temporary differences. Significant judgment is applied to determine the appropriate amount of valuation
allowance to record. Changes in the amount of any valuation allowance required could materially increase or decrease our provision
for income taxes in a given period.
Risks relating to Our Shift in Business Strategy
We may sell assets, which could adversely affect our business, prospects and opportunities for growth.
We may, from time to time, divest or otherwise dispose of assets, products or businesses that we deem not to fit with our
strategic plan, that are not achieving the desired return on investment or that we believe present an attractive or desirable opportunity
to monetize or to reduce our outstanding debt levels. These transactions pose risks and challenges that could negatively impact
our business. For example, we may be unable to dispose of a business or assets on satisfactory or commercially reasonable terms
within our anticipated timeframe. We may also sell certain assets, products or businesses at a loss and recognize a loss on sale in
connection with such divestitures. We may also suffer adverse tax consequences as a result of such divestitures, including capital
gains tax. In addition, any such divestiture could reduce the size or scope of our business, our market share in particular markets,
our opportunities with respect to certain markets, products or therapeutic categories or our ability to compete in certain markets
and therapeutic categories. Furthermore, until we have filed our First Quarter 2016 Form 10-Q and have achieved the applicable
specified leverage ratio, we will be required to use the net proceeds from certain asset sales to repay the term loans under the
Credit Agreement and, as a result, will not be able to invest such proceeds into our business. Refer to Note 26 titled "SUBSEQUENT
19
EVENTS" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional details on and exceptions to
these restrictions. As a result of these factors, any divestiture could have a material adverse effect on our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities
to decline.
Historically, a significant part of our business strategy has been business development through acquisitions. However, we
expect the volume and size of acquisitions to be minimal in 2016 and possibly beyond and this could have a material adverse
effect on our business, financial condition, cash flows and results of operations and could cause the market value of our
common shares and/or debt securities to decline.
A significant part of our business strategy has historically been the acquisition of companies, businesses and products.
However, we expect the volume and size of acquisitions to be minimal in 2016 and possibly beyond, as we focus on reducing our
outstanding debt levels. In addition, as a result of the recent amendment to our Credit Agreement, we are prohibited from making
acquisitions, subject to certain exceptions, in excess of the aggregate Transaction Cap, until we file our First Quarter 2016 Form
10-Q and our leverage ratio (the ratio, as of the last day of any fiscal quarter, of Consolidated Total Debt (as defined in the Credit
Agreement) as of such day to Consolidated Adjusted EBITDA (as defined in the Credit Agreement) for the four fiscal quarter
period ending on such date) is less than 4.50 to 1.00. In addition, during this period, we will also be restricted from incurring debt
to finance such acquisitions. Refer to Note 26 titled "SUBSEQUENT EVENTS" of notes to consolidated financial statements in
Item 15 of this Form 10-K for additional details on and exceptions to these restrictions. Furthermore, while we anticipate business
development through acquisitions may be a component of our long-term strategy, we cannot predict if or when we will shift our
focus back to more significant business development activities through acquisitions.
We are unable to determine what the impact may be on our Company as a result of this shift in focus away from business
development through acquisitions and the restrictions on making acquisitions imposed on us by our Credit Agreement, which
could have a material adverse effect on our business, financial condition, cash flows and results of operations, and could cause
the market value of our common shares and/or debt securities to decline.
We have made commitments and public statements with respect to the cessation of or limitation on pricing increases for certain
of our products. Our decision to cease or limit price increases or to reduce prices could have a material adverse effect on our
business, financial condition, cash flows and results of operations and could cause the market value of our common shares
and/or debt securities to decline.
We are assessing our practices related to pricing and considering certain changes thereto. For example, in conjunction with
our fulfillment arrangements with Walgreens, we announced that we would reduce prices of certain products within our branded
prescription-based dermatology and ophthalmology businesses, by, on average, ten percent, which reduced pricing will apply to
the wholesale list prices of these products and will be phased in over six to nine months following the launch of the program (such
launch occurred in January 2016). We have also made public statements about our intentions to cease or limit pricing increases
on certain of our products in 2016. At this time, we cannot predict what other changes we will make to our business practices,
including with respect to pricing (such as imposing limits or prohibitions on the amount of pricing increases we may take on
certain of our products) or the current prices of our products (such as taking retroactive or future price reductions) nor can we
predict the impact such pricing changes will or would have on our business. However, any such changes to our business practices,
including with respect to pricing, or existing prices could have a material adverse effect on our business, financial condition, cash
flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. For
example, by limiting or eliminating price increases on certain of our products, this will result in fewer or lower price appreciation
credits from certain of our wholesalers. Price appreciation credits are generated when we increase a product’s wholesaler acquisition
cost (“WAC”) under our contracts with certain wholesalers. Under such contracts, we are entitled to credits from such wholesalers
for the impact of that WAC increase on inventory currently on hand at the wholesalers. Such credits, which can be significant, are
used to offset against the total distribution service fees we pay on all of our products to each wholesaler. As a result, to the extent
we decide to cease or limit price increases, we will have fewer or lower price appreciation credits to use to offset against our
distribution fees owing to these wholesalers. In addition, under certain of our agreements with our wholesaler customers, we have
price protection or price depreciation provisions, pursuant to which we have agreed to adjust the value of any on-hand or in-transit
inventory with such customers in the event we reduce the price of any of our products. As a result, to the extent we reduce the
WAC price for any of our products, we may owe a payment to such customers (or such customers may earn a credit to be offset
against any amounts owing to us) equal to the amount of such inventory multiplied by the difference between the price at which
they acquired the product inventory and the new reduced price.
Given recent and expected changes to our management and Board of Directors and the implementation of the remediation
measures designed to address the material weaknesses identified in our internal control over financial reporting, there may
be changes in the way we conduct our business and/or our business strategy and these changes could have a material adverse
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effect on our business, financial condition, cash flows and results of operations and could cause the market value of our
common shares and/or debt securities to decline.
We recently announced that our current chief executive officer, J. Michael Pearson, will be leaving the Company and that
Joseph C. Papa will become our new Chairman and Chief Executive Officer. With the appointment of our new chairman and chief
executive officer, other changes to management may occur. There have also been recent changes to the composition of our Board
of Directors. In addition, certain remediation measures have been recommended to us and we are in the process of implementing
them. As a result of these changes to our management and Board of Directors and these ongoing remediation measures, we may
experience changes in the way we conduct our business, as well as potential changes to our business strategy. Some of these
changes may be significant. For example, we have already announced certain changes to our pricing practices. Other changes may
include changes in our distribution practices in the U.S. and internationally, such as reductions in wholesaler inventory levels. For
example, during 2016, our goal is to bring our wholesaler inventory levels in Russia and Poland below three months on hand, in-
line with our targeted levels for such markets.
We cannot predict what these changes to our business practices and strategy may involve or the timing of any such changes
and how they will impact our product sales, revenue, business, financial condition, cash flows or results of operation, but any such
changes could have a material adverse effect on our business, financial condition, cash flows and results of operations and could
cause the market value of our common shares and/or debt securities to decline.
Competitive and Operational Risks
We operate in extremely competitive industries. If competitors develop or acquire more effective or less costly pharmaceutical
products or medical devices for our target indications, it could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
The pharmaceutical and medical device industries are extremely competitive. Our success and future growth depend, in
part, on our ability to acquire, license or develop products that are more effective than those of our competitors or that incorporate
the latest technologies and our ability to effectively manufacture and market those products. Many of our competitors, particularly
larger pharmaceutical and medical device companies, have substantially greater financial, technical and human resources than we
do. Many of our competitors spend significantly more on research and development related activities than we do. Others may
succeed in developing or acquiring products and technologies that are more effective, more advanced or less costly than those
currently marketed or proposed for development by us. In addition, academic institutions, government agencies and other public
and private organizations conducting research may seek patent protection with respect to potentially competitive products and
may also establish exclusive collaborative or licensing relationships with our competitors. These competitors and the introduction
of competing products (that may be more effective or less costly than our products) could make our products less competitive or
obsolete, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and
could cause the market value of our common shares and/or debt securities to decline.
In prior years, we have grown at a very rapid pace. Our inability to properly manage or support this growth could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
We have grown very rapidly over the past few years as a result of our acquisitions. This growth has put significant demands
on our processes, systems and employees. We have made and expect to make further investments in additional personnel, systems
and internal control processes to help manage this growth. If we are unable to successfully manage and support this rapid growth,
and the challenges and difficulties associated with managing a larger, more complex business, this could cause a material adverse
effect on our business, financial condition, cash flows and results of operations, and could cause the market value of our common
shares and/or debt securities to decline.
Products representing a significant amount of our revenue are not protected by patent or data exclusivity rights or are nearing
the end of their exclusivity period. In addition, we have faced generic competition in the past and expect to face additional
generic competition in the future. Competitors (including generic and biosimilar competitors) of our products could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
A significant number of the products we sell have no meaningful exclusivity protection via patent or data exclusivity rights
or are protected by patents or regulatory exclusivity periods that will be expiring in the near future. These products represent a
significant amount of our revenues (See Item 1 “Business-Competition-Generic Competition” in this Form 10-K for a list of some
of these products). Without exclusivity protection, competitors (including generics and biosimilars) face fewer barriers in
introducing competing products. Upon the expiration or loss of patent exclusivity or market exclusivity for our products or otherwise
upon the introduction of generic, biosimilar or other competitors (which may be sold at significantly lower prices than our products),
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we could lose a significant portion of sales and market share of that product in a very short period. In addition, the introduction
of generic and biosimilar competitors may have a significant downward pressure on the pricing of our branded products which
compete with such generics and biosimilars. The introduction of competing products (including generic products and biosimilars)
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
Commercialization Risks
Our approved products may not achieve or maintain expected levels of market acceptance.
Even if we are able to obtain and maintain regulatory approvals for our pharmaceutical and medical device products, generic
or branded, the success of these products is dependent upon achieving and maintaining market acceptance. Launching and
commercializing products is time consuming, expensive and unpredictable. The commercial launch of a product takes significant
time, resources, personnel and expertise, which we may not have in sufficient levels to achieve success, and is subject to various
market conditions, some of which may be beyond our control. There can be no assurance that we will be able to, either by ourselves
or in collaboration with our partners or through our licensees or distributors, successfully launch and commercialize new products
or gain market acceptance for such products. New product candidates that appear promising in development may fail to reach the
market or may have only limited or no commercial success. While we have been successful in launching some of our products,
such as Jublia® in the U.S., we may not achieve the same level of success with respect to all of our new products, especially where
such product is in a new therapeutic area (as is the case with our new women’s health product, Addyi®). Our inability to successfully
launch our new products may negatively impact the commercial success of such product, which could have a material adverse
effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common
shares and/or debt securities to decline. Our inability to successfully launch our new products could also lead to material impairment
charges, as could be the case with Addyi®.
Levels of market acceptance for our new products (such as Addyi®) could be impacted by several factors, some of which
are not within our control, including but not limited to the:
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safety, efficacy, convenience and cost-effectiveness of our products compared to products of our competitors;
scope of approved uses and marketing approval;
availability of patent or regulatory exclusivity;
timing of market approvals and market entry;
ongoing regulatory obligations following approval, such as the requirement to conduct a Risk Evaluation and Mitigation
Strategy (REMS) programs;
any restrictions or “black box” warnings required on the labeling of such products:
availability of alternative products from our competitors;
acceptance of the price of our products;
effectiveness of our sales forces and promotional efforts;
the level of reimbursement of our products;
acceptance of our products on government and private formularies;
ability to market our products effectively at the retail level or in the appropriate setting of care; and
the reputation of our products.
Further, the market perception and reputation of our products and their safety and efficacy are important to our business and
the continued acceptance of our products. Any negative publicity about our products, such as the discovery of safety issues with
our products, adverse events involving our products, or even public rumors about such events, could have a material adverse effect
on our business, financial condition, cash flows or results of operation or could cause the market value of our common shares and/
or debt securities to decline. In addition, the discovery of significant problems with a product similar to one of our products that
implicate (or are perceived to implicate) an entire class of products or the withdrawal or recall of such similar products could have
a material adverse effect on sales of our products. Accordingly, new data about our products, or products similar to our products,
could cause us reputational harm and could negatively impact demand for our products due to real or perceived side effects or
uncertainty regarding safety or efficacy and, in some cases, could result in product withdrawal.
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If our products fail to gain, or lose, market acceptance, our revenues would be adversely impacted and we may be required
to take material impairment charges, all of which could have a material adverse effect on our business, financial condition, cash
flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our new arrangements with Walgreens may not be successful.
In December 2015, we announced new fulfillment arrangements with Walgreens, which included a brand fulfillment
agreement, pursuant to which we have made certain of our dermatology products (including Jublia®, Luzu®, Solodyn®, Retin-
A Micro® Gel 0.08%, Onexton® and Acanya® Gel), certain of our ophthalmology products (including Besivance®, Lotemax®,
Alrex®, Prolensa®, Bepreve®, and Zylet®) and Addyi® available to eligible patients through a patient access and co-pay program
available at Walgreens U.S. retail pharmacy locations, as well as participating independent retail pharmacies. We also entered into
a separate agreement respecting generic fulfillment, which we plan to make available through Walgreens retail pharmacies in the
second half of 2016. We cannot predict whether these arrangements with Walgreens will be successful, whether these arrangements
will result in full recovery from the market disruption caused by the termination of our former relationship with Philidor, nor can
we predict how the market, including customers, doctors, patients, pharmacy benefit managers and third party payors, or
governmental agencies, will react to these arrangements and programs. If these arrangements or programs fail, if they do not
achieve sufficient success and market acceptance, if we face retaliation from third parties as a result of these arrangements and
programs (for example, in the form of limitations on or exclusions from the reimbursement of our products) or if any part of these
arrangements is found to be non-compliant with applicable law or regulations, this could have a material adverse effect on our
business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/
or debt securities to decline. In addition, in conjunction with our fulfillment arrangements with Walgreens, we announced that we
would reduce prices of certain products within our branded prescription-based dermatology and ophthalmology businesses, by,
on average, ten percent, which reduced pricing will apply to the wholesale list prices of these products and will be phased in over
six to nine months following the launch of the program (which launch occurred in January 2016). While we anticipate that the
impact of the increased volume resulting from such price reductions will offset or exceed the impact of lower prices, we cannot
guarantee that the benefit from increased volume will outweigh the impact of lower prices.
For certain of our products, we depend on reimbursement from governmental and other third party payors and a reduction in
reimbursement could reduce our product sales and revenue. In addition, failure to be included in formularies developed by
managed care organizations and coverage by other organizations may negatively impact the utilization of our products, which
could harm our market share and could have a material adverse effect on our business, financial condition, cash flows and
results of operations and could cause the market value of our common shares and/or debt securities to decline.
Sales of certain of our products are dependent, in part, on the availability and extent of reimbursement from government
health administration authorities, private health insurers, pharmacy benefit managers and other organizations of the costs of our
products and the continued reimbursement and coverage of our products in such programs. Changes in government regulations
or private third party payors’ reimbursement policies may reduce reimbursement for our products. In addition, such third party
payors may otherwise make the decision to reduce reimbursement of some or all our products or fail to cover some or all our
products in such programs or assert that reimbursements were not in accordance with applicable requirements. Any reduction or
elimination of such reimbursement or coverage could result in a negative impact on the utilization of our products and, as a result,
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
Managed care organizations and other third party payors try to negotiate the pricing of medical services and products to
control their costs. Managed care organizations and pharmacy benefit managers typically develop formularies to reduce their cost
for medications. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their lower
costs, generic products are often favored. The breadth of the products covered by formularies varies considerably from one managed
care organization to another, and many formularies include alternative and competitive products for treatment of particular medical
conditions. Failure to be included in such formularies or to achieve favorable formulary status may negatively impact the utilization
and market share of our products. If our products are not included within an adequate number of formularies or adequate
reimbursement levels are not provided, or if those policies increasingly favor generic products, this could have a material adverse
effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common
shares and/or debt securities to decline.
We may experience declines in sales volumes or prices of certain of our products as the result of the concentration of sales to
wholesalers and the continuing trend towards consolidation of such wholesalers and other customer groups and this could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
For certain of our products, a significant portion of our sales are to a relatively small number of customers. If our relationship
with one or more of such customers is disrupted or changes adversely or if one or more of such customers experience financial
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difficulty or other material adverse changes in their businesses, it could materially and adversely affect our sales and financial
results, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and
could cause the market value of our common shares and/or debt securities to decline.
In addition, wholesalers and retail drug chains have undergone, and are continuing to undergo, significant consolidation.
This consolidation may result in these groups gaining additional purchasing leverage and consequently increasing the product
pricing pressures facing our business. The result of these developments could have a material adverse effect on our business,
financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt
securities to decline.
Risks related to Intellectual Property
The Company may fail to obtain, maintain, license, enforce or defend the intellectual property rights required to conduct its
business, which could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
We strive to acquire, maintain and defend patent, trademark and other intellectual property protections over our products
and the processes used to manufacture these products. However, we may not be successful in obtaining such protections, or the
patent, trademark and intellectual property rights we do obtain may not be sufficient in breadth and scope to fully protect our
products or prevent competing products, or such patent and intellectual property rights may be susceptible to third party challenges.
The failure to obtain, maintain, enforce or defend such intellectual property rights, for any reason, could allow third parties to
manufacture and sell products that compete with our products or may impact our ability to develop, manufacture and market our
own products, which could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
For certain of our products and manufacturing processes, we rely on trade secrets and other proprietary information, which
we seek to protect, in part, by confidentiality and nondisclosure agreements with our employees, consultants, advisors and partners.
We also attempt to enter into agreements whereby such employees, consultants, advisors and partners assign to us the rights in
any intellectual property they develop. These agreements may not effectively prevent disclosure of such information and disputes
may still arise with respect to the ownership of intellectual property. The disclosure of such proprietary information or the loss of
such intellectual property rights may impact our ability to develop, manufacture and market our own products or may assist
competitors in the development, manufacture and sale of competing products, which could have a material adverse effect on our
revenues, financial condition, cash flows or results of operations and could cause the market value of our common shares and/or
debt securities to decline.
We have incurred and will continue to incur substantial costs and resources in applying for and prosecuting these patent,
trademark and other intellectual property rights and in defending or litigating these rights against third parties.
For a number of our commercialized products and pipeline products, including Xifaxan®, Jublia® and Relistor®, we rely
on licenses to patents and other technologies, know-how and proprietary rights held by third parties. Any loss, expiration,
termination or suspension of our rights to such licensed intellectual property would result in our inability to continue to develop,
manufacture and market our products or product candidates and, as a result, could have a material adverse effect on our business,
financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt
securities to decline. In the future, we may also need to obtain such licenses from third parties to develop, manufacture, market
or continue to manufacture or market our products. If we are unable to timely obtain these licenses on commercially reasonable
terms, our ability to develop, manufacture and market our products may be inhibited or prevented, which could have a material
adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our
common shares and/or debt securities to decline.
Risks related to the International Scope of our Business
Our business, financial condition, cash flows and results of operations are subject to risks arising from the international scope
of our operations.
We conduct a significant portion of our business outside the U.S. and Canada and may, in the future, expand our operations
into new countries, including emerging markets (such as in connection with our recent acquisition of Amoun in Egypt and our
expansion in other regions). We sell our pharmaceutical and medical device products in many countries around the world. All of
our foreign operations are subject to risks inherent in conducting business abroad, including, among other things:
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foreign laws as well as Canadian and U.S. laws applicable to Canadian companies with U.S. and foreign operations, such
as export laws and the U.S. Foreign Corrupt Practices Act ("FCPA"), and other applicable worldwide anti-bribery laws;
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price and currency exchange controls;
restrictions on the repatriation of funds;
scarcity of hard currency, including the U.S. dollar, such as is the case currently in Egypt, which may require a transfer
or loan of funds to the operations in such countries, which they may not be able to repay on a timely basis;
political and economic instability;
compliance with multiple regulatory regimes;
less established legal and regulatory regimes in certain jurisdictions, including as relates to enforcement of anti-bribery
and anti-corruption laws and the reliability of the judicial systems;
differing degrees of protection for intellectual property;
unexpected changes in foreign regulatory requirements, including quality standards and other certification requirements;
new export license requirements;
adverse changes in tariff and trade protection measures;
differing labor regulations;
potentially negative consequences from changes in or interpretations of tax laws;
restrictive governmental actions;
possible nationalization or expropriation;
credit market uncertainty;
differing local practices, customs and cultures, some of which may not align or comply with our Company practices and
policies or U.S. laws and regulations;
difficulties with licensees, contract counterparties, or other commercial partners; and
differing local product preferences and product requirements.
Any of these factors, or any other international factors, could have a material adverse effect on our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities
to decline.
Similarly, adverse economic conditions impacting our customers in these countries or uncertainty about global economic
conditions could cause purchases of our products to decline, which would adversely affect our revenues and operating results.
Moreover, our projected revenues and operating results are based on assumptions concerning certain levels of customer spending.
Any failure to attain our projected revenues and operating results as a result of adverse economic or market conditions could have
a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
Due to the large portion of our business conducted in currency other than U.S. dollars, we have significant foreign currency risk.
We face foreign currency exposure on the translation into U.S. dollars of the financial results of our operations in Europe,
Canada, Australia, Latin America, Asia, Africa and the Middle East, including, for example, as a result of the recent strengthening
of the U.S. dollar against other foreign currencies that occurred in 2015. Where possible, we manage foreign currency risk by
managing same currency revenue in relation to same currency expenses. We face foreign currency exposure in those countries
where we have revenue denominated in the local foreign currency and expenses denominated in other currencies. Both favorable
and unfavorable foreign currency impacts to our foreign currency-denominated operating expenses are mitigated to a certain extent
by the natural, opposite impact on our foreign currency-denominated revenue. In addition, the repurchase of principal under our
U.S. dollar denominated debt may result in foreign exchange gains or losses for Canadian income tax purposes. One half of any
foreign exchange gains or losses will be included in our Canadian taxable income. Any foreign exchange gain will result in a
corresponding reduction in our available Canadian tax attributes.
Risks relating to Our Acquisitions
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To the extent we resume business development activities through acquisitions, we may be unable to identify, acquire, close or
integrate acquisition targets successfully.
Part of our historic business strategy has included acquiring and integrating complementary businesses, products,
technologies or other assets, and forming strategic alliances, joint ventures and other business combinations, to help drive future
growth. We have also historically in-licensed new products or compounds. As we have indicated, we expect the volume and size
of acquisitions to be minimal in 2016 and possibly beyond. However, we anticipate that business development through acquisitions
may continue to be a component of our long-term strategy. In that respect, once the additional limitations imposed by the Credit
Agreement are no longer applicable following the filing of our First Quarter 2016 Form10-Q and the achievement of a specified
leverage ratio and we have reduced our debt to a desired level, we may resume business development activities through acquisitions,
although we cannot guarantee or predict the timing or level of such business development activity.
Acquisitions or similar arrangements may be complex, time consuming and expensive. In some cases, we may move very
rapidly to negotiate and consummate the transaction, once we identify the acquisition target. We may not consummate some
negotiations for acquisitions or other arrangements, which could result in significant diversion of management and other employee
time, as well as substantial out-of-pocket costs. In addition, there are a number of risks and uncertainties relating to closing
transactions. If such transactions are not completed for any reason, we will be subject to several risks, including the following:
(i) the market price of our common shares may reflect a market assumption that such transactions will occur, and a failure to
complete such transactions could result in a negative perception by the market of us generally and a decline in the market price
of our common shares; and (ii) many costs relating to the such transactions may be payable by us whether or not such transactions
are completed.
If an acquisition is consummated, the integration of the acquired business, product or other assets into our Company may
also be complex and time-consuming and, if such businesses, products and assets are not successfully integrated, we may not
achieve the anticipated benefits, cost-savings or growth opportunities. Potential difficulties that may be encountered in the
integration process include the following: integrating and retaining personnel, operations and systems, while maintaining focus
on selling and promoting existing and newly-acquired products; coordinating geographically dispersed organizations; distracting
management and employees from operations; retaining existing customers and attracting new customers; maintaining the business
relationships the acquired company has established, including with healthcare providers; addressing regulatory concerns of the
newly-acquired business; and managing inefficiencies associated with integrating the operations of the Company.
Furthermore, we have incurred, and may incur in the future, restructuring and integration costs and a number of non-recurring
transaction costs associated with these acquisitions, combining the operations of the Company and the acquired company and
achieving desired synergies. These fees and costs may be substantial. Non-recurring transaction costs include, but are not limited
to, fees paid to legal, financial and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be
incurred in the integration of the businesses of the Company and the acquired company. There can be no assurance that the
elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the acquired
business, will offset the incremental transaction-related costs over time. Therefore, any net benefit may not be achieved in the
near term, the long term or at all.
These acquisitions and other arrangements, even if successfully integrated, may fail to further our business strategy as
anticipated. We may also fail to achieve the anticipated benefits and successes of such acquisitions, including the achievement of
any expected revenue growth resulting from such acquisitions (for example, the anticipated revenue growth we expect in connection
with the Xifaxan® product (including the recently-approved IBS-D indication), which product we acquired as part of the Salix
Acquisition or the anticipated revenue we expect in connection with the Addyi® product we acquired in the acquisition of Sprout
Pharmaceuticals, Inc.). In addition, these acquisitions may expose us to increased competition or challenges with respect to our
products or geographic markets, and expose us to additional liabilities associated with an acquired business, product, technology
or other asset or arrangement. Any one of these challenges or risks could impair our ability to realize any benefit from our acquisition
or arrangement after we have expended resources on them. For example, certain of the acquisition agreements by which we have
acquired companies, businesses, products, technologies or other assets require the former owners to indemnify us against certain
past liabilities. However, these indemnification provisions may not protect us fully or at all from the liabilities we may face
following the closing of such acquisitions, because either the liability of the former owners may be limited or capped or such
former owners may not meet their indemnification responsibilities should any liabilities arise.
Development and Regulatory Risks
The successful development of our pipeline products is highly uncertain and requires significant expenditures and time. In
addition, obtaining necessary government approvals is time-consuming and not assured. The failure to commercialize certain
of our pipeline products could have a material adverse effect on our business, financial condition, cash flows and results of
operations and could cause the market value of our common shares and/or debt securities to decline.
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We currently have a number of pipeline products in development. We and our development partners, as applicable, conduct
extensive preclinical studies and clinical trials to demonstrate the safety and efficacy in humans of our pipeline products in order
to obtain regulatory approval for the sale of our pipeline products. Preclinical studies and clinical trials are expensive, complex,
can take many years and have uncertain outcomes. None of, or only a small number of, our research and development programs
may actually result in the commercialization of a product. We will not be able to commercialize our pipeline products if preclinical
studies do not produce successful results or if clinical trials do not demonstrate safety and efficacy in humans. Furthermore, success
in preclinical studies or early-stage clinical trials does not ensure that later stage clinical trials will be successful nor does it ensure
that regulatory approval for the product candidate will be obtained. In addition, the process for the completion of pre-clinical and
clinical trials is lengthy and may be subject to a number of delays for various reasons, which would delay the commercialization
of any successful product. If our development projects are not successful or are significantly delayed, we may not recover our
substantial investments in the pipeline product and our failure to bring these pipeline products to market on a timely basis, or at
all, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause
the market value of our common shares and/or debt securities to decline.
In addition, FDA and Health Canada approval must be obtained in the U.S. and Canada, respectively, EMA approval (drugs)
and CE Marking (devices) must be obtained in countries in the EU and similar approvals must be obtained from comparable
agencies in other countries, prior to marketing or manufacturing new pharmaceutical and medical device products for use by
humans. Obtaining such regulatory approvals for new products and devices and manufacturing processes can take a number of
years and involves the expenditure of substantial resources. Even if such products appear promising in development stages,
regulatory approval may not be achieved and no assurance can be given that we will obtain approval in those countries where we
wish to commercialize such products. Nor can any assurance be given that if such approval is secured, the approved labeling will
not have significant labeling limitations, including limitations on the indications for which we can market a product, or require
onerous risk management programs. Furthermore, from time to time, changes to the applicable legislation or regulations may be
introduced that change these review and approval processes for our products, which changes may make it more difficult and costly
to obtain or maintain regulatory approvals.
Our marketed drugs will be subject to ongoing regulatory review.
Following initial regulatory approval of any products, we or our partners may develop or acquire, we will be subject to
continuing regulatory review by various government authorities in those countries where our products are marketed or intended
to be marketed, including the review of adverse drug events and clinical results that are reported after product candidates become
commercially available. In addition, we are subject to ongoing audits and investigations of our facilities and products by the FDA,
as well as other regulatory agencies in and outside the U.S. If we fail to comply with the regulatory requirements in those countries
where our products are sold, we could lose our marketing approvals or be subject to fines or other sanctions. Also, as a condition
to granting marketing approval of a product, the applicable regulatory agencies may require a company to conduct additional
clinical trials, the results of which could result in the subsequent loss of marketing approval, changes in product labeling or new
or increased concerns about side effects or efficacy of a product.
In addition, incidents of adverse drug reactions, unintended side effects or misuse relating to our products could result in
additional regulatory controls or restrictions, or even lead to the regulatory authority requiring us to withdraw the product from
the market. Further, if faced with these incidents of adverse drug reactions, unintended side effects or misuse relating to our
products, we may elect to voluntarily implement a recall or market withdrawal of our product. A recall or market withdrawal,
whether voluntary or required by a regulatory authority, may involve significant costs to us, potential disruptions in the supply of
our products to our customers and reputational harm to our products and business, all of which could harm our ability to market
our products and could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
Manufacturing and Supply Risks
If we or our third party manufacturers are unable to manufacture our products or the manufacturing process is interrupted
due to failure to comply with regulations or for other reasons, the interruption of the manufacture of our products could
adversely affect our business. Other manufacturing and supply difficulties or delays may also have a material adverse effect
on our business, financial condition, cash flows and results of operations and could cause the market value of our common
shares and/or debt securities to decline.
Our manufacturing facilities and those of our contract manufacturers must be inspected and found to be in full compliance
with current good manufacturing practices (“cGMP”), quality system management requirements or similar standards before
approval for marketing. While we attempt to build in certain contractual obligations on such third party manufacturers, we may
not be able to ensure that such third parties comply with these obligations. Our failure or that of our contract manufacturers to
comply with cGMP regulations, quality system management requirements or similar regulations outside of the U.S. could result
in enforcement action by the FDA or its foreign counterparts, including, but not limited to, warning letters, fines, injunctions, civil
27
or criminal penalties, recall or seizure of products, total or partial suspension of production or importation, suspension or withdrawal
of regulatory approval for approved or in-market products, refusal of the government to renew marketing applications or approve
pending applications or supplements, suspension of ongoing clinical trials, imposition of new manufacturing requirements, closure
of facilities and criminal prosecution. These enforcement actions could lead to a delay or suspension in production.
In addition, our manufacturing and other processes use complicated and sophisticated equipment, which sometimes requires
a significant amount of time to obtain and install. Manufacturing complexity, testing requirements and safety and security processes
combine to increase the overall difficulty of manufacturing these products and resolving manufacturing problems that we may
encounter. Although we endeavor to properly maintain our equipment (and require our contract manufacturers to properly maintain
their equipment), including through on-site quality control and experienced manufacturing supervision, and have key spare parts
on hand, our business could suffer if certain manufacturing or other equipment, or all or a portion of our or their facilities, were
to become inoperable for a period of time. We could experience substantial production delays or inventory shortages in the event
of any such occurrence until we or they repair such equipment or facility or we or they build or locate replacement equipment or
a replacement facility, as applicable, and seek to obtain necessary regulatory approvals for such replacement. Any interruption in
our manufacture of products could adversely affect the sales of our current products or introduction of new products and could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
The supply of our products to our customers (or, in some case, supply from our contract manufacturers to us) is subject to
and dependent upon the use of transportation services. Disruption of transportation services (including as a result of weather
conditions) could have a material adverse effect on our business, financial condition, cash flows and results of operations and
could cause the market value of our common shares and/or debt securities to decline. In addition, any prolonged disruption in the
operations of our existing distribution facilities, whether due to technical, labor or other difficulties, weather conditions, equipment
malfunction, contamination, failure to follow specific protocols and procedures, destruction of or damage to any facility or other
reasons, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could
cause the market value of our common shares and/or debt securities to decline.
For some of our finished products and raw materials, we obtain supply from one or a limited number of sources. If we are
unable to obtain components or raw materials, or products supplied by third parties, our ability to manufacture and deliver
our products to the market would be impeded, which could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Some components and raw materials used in our manufactured products, and some finished products sold by us, are currently
available only from one or a limited number of domestic or foreign suppliers. In the event an existing supplier fails to supply
product on a timely basis and/or in the requested amount, supplies product that fails to meet regulatory requirements, becomes
unavailable through business interruption or financial insolvency or loses its regulatory status as an approved source or we are
unable to renew current supply agreements when such agreements expire and we do not have a second supplier, we may be unable
to obtain the required components, raw materials or products on a timely basis or at commercially reasonable prices. We attempt
to mitigate these risks by maintaining safety stock of these products, but such safety stock may not be sufficient. In addition, in
some cases, only a single source of active pharmaceutical ingredient is identified in filings with regulatory agencies, including
the FDA, and cannot be changed without prior regulatory approval, which would involve time and expense to us. A prolonged
interruption in the supply of a single-sourced raw material, including the active pharmaceutical ingredient, or single-sourced
finished product could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline. In addition, these third party manufacturers
may have the ability to increase the supply price payable by us for the manufacture and supply of our products, in some cases
without our consent.
As a result, our dependence upon others to manufacture our products may adversely affect our profit margins and our ability
to obtain approval for and produce our products on a timely and competitive basis, which could have a material adverse effect on
our business, financial condition, cash flows and results of operations and could cause the market value of our common shares
and/or debt securities to decline.
Risks related to Specific Legislation and Regulations
We are subject to various laws and regulations, including “fraud and abuse” laws, anti-bribery laws, environmental laws and
privacy and security regulations, and a failure to comply with such laws and regulations or prevail in any litigation related to
noncompliance could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
Pharmaceutical and medical device companies have faced lawsuits and investigations pertaining to violations of health care
“fraud and abuse” laws, such as the federal False Claims Act, the federal Anti-Kickback Statute (“AKS”) and other state and
28
federal laws and regulations. The AKS prohibits, among other things, knowingly and willfully offering, paying, soliciting or
receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any
healthcare item or service reimbursable under federally financed healthcare programs. This statute has been interpreted to apply
to arrangements between pharmaceutical or medical device manufacturers, on the one hand, and prescribers, purchasers, formulary
managers and other health care related professionals, on the other hand. More generally, the federal False Claims Act, among other
things, prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal
government. Pharmaceutical and medical device companies have been prosecuted or faced civil liability under these laws for a
variety of alleged promotional and marketing activities, including engaging in off-label promotion that caused claims to be submitted
for non-covered off-label uses.
We also face increasingly strict data privacy and security laws in the U.S. and in other countries, the violation of which
could result in fines and other sanctions. The U.S. Department of Health and Human Services Office of Inspector General
recommends, and increasingly states require pharmaceutical companies to have comprehensive compliance programs. In addition,
the Physician Payment Sunshine Act enacted in 2010 imposes reporting and disclosure requirements on device and drug
manufacturers for any “transfer of value” made or distributed to prescribers and other healthcare providers. Failure to submit this
required information may result in significant civil monetary penalties. While we have developed corporate compliance programs
based on what we believe to be current best practices, we cannot assure you that we or our employees or agents are or will be in
compliance with all applicable federal, state or foreign regulations and laws. If we are in violation of any of these requirements
or any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business, including the imposition of significant criminal and civil fines and penalties,
exclusion from federal healthcare programs or other sanctions.
The U.S. FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making
improper payments to officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these
anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption and in certain
circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices or may require us to interact
with doctors and hospitals, some of which may be state controlled, in a manner that is different than in the U.S. and Canada. We
cannot assure you that our internal control policies and procedures will protect us from reckless or criminal acts committed by
our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in criminal
or civil penalties or remedial measures, any of which could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
We are subject to laws and regulations concerning the environment, safety matters, regulation of chemicals and product
safety in the countries where we manufacture and sell our products or otherwise operate our business. These requirements include
regulation of the handling, manufacture, transportation, use and disposal of materials, including the discharge of pollutants into
the environment. In the normal course of our business, hazardous substances may be released into the environment, which could
cause environmental or property damage or personal injuries, and which could subject us to remediation obligations regarding
contaminated soil and groundwater or potential liability for damage claims. Under certain laws, we may be required to remediate
contamination at certain of our properties regardless of whether the contamination was caused by us or by previous occupants of
the property or by others. In recent years, the operations of all companies have become subject to increasingly stringent legislation
and regulation related to occupational safety and health, product registration and environmental protection. Such legislation and
regulations are complex and constantly changing, and future changes in laws or regulations may require us to install additional
controls for certain of our emission sources, to undertake changes in our manufacturing processes or to remediate soil or groundwater
contamination at facilities where such cleanup is not currently required.
We are also subject to various privacy and security regulations, including but not limited to HIPAA. HIPAA mandates, among
other things, the adoption of uniform standards for the electronic exchange of information in common health care transactions
(e.g., health care claims information and plan eligibility, referral certification and authorization, claims status, plan enrollment,
coordination of benefits and related information), as well as standards relating to the privacy and security of individually identifiable
health information, which require the adoption of administrative, physical and technical safeguards to protect such information.
In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which
are more stringent than HIPAA. Failure to comply with these laws can result in the imposition of significant civil and criminal
penalties. The costs of compliance with these laws and the potential liability associated with the failure to comply with these laws
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline.
We are also subject to U.S. federal laws regarding reporting and payment obligations with respect to our participation in
federal health care programs, including Medicare and Medicaid. Because our processes for calculating applicable government
prices and the judgments involved in making these calculations involve subjective decisions and complex methodologies, these
calculations are subject to risk of errors and differing interpretations. In addition, they are subject to review and challenge by the
29
applicable governmental agencies, and it is possible that such reviews could result in changes that could have material adverse
legal, regulatory, or economic consequences.
Legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably and could have
a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
In the U.S. and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the
healthcare system in ways that could impact our ability to sell our products profitably. The Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Health Care Reform Act”) may affect the
operational results of companies in the pharmaceutical and medical device industries, including the Company and other healthcare
related industries, by imposing on them additional costs. Effective January 1, 2010, the Health Care Reform Act increased the
minimum Medicaid drug rebates for pharmaceutical companies, expanded the 340B drug discount program, and made changes
to affect the Medicare Part D coverage gap, or "donut hole". The law also revised the definition of "average manufacturer price"
for reporting purposes, which may affect the amount of our Medicaid drug rebates to states. Beginning in 2011, the law imposed
a significant annual fee on companies that manufacture or import branded prescription drug products. Finally, the law imposed
an annual tax on manufacturers of certain medical devices. As a part of the Consolidated Appropriations Act of 2016 signed by
President Obama on December 18, 2015, a 2-year moratorium has been placed on the payment of the Medical Device Excise Tax
(MDET) for the period January 1, 2016 to December 31, 2017.
The Health Care Reform Act and further changes to health care laws or regulatory framework that reduce our revenues or
increase our costs could also have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
Other Risks
Our operating results and financial condition may fluctuate.
Our operating results and financial condition may fluctuate from quarter to quarter for a number of reasons. In addition, our
stock price is volatile. The following events or occurrences, among others, could cause fluctuations in our financial performance
and/or stock price from period to period:
•
•
•
•
•
•
•
development and launch of new competitive products;
the timing and receipt of FDA approvals or lack of approvals;
costs related to business development transactions;
changes in the amount we spend to promote our products;
delays between our expenditures to acquire new products, technologies or businesses and the generation of revenues
from those acquired products, technologies or businesses;
changes in treatment practices of physicians that currently prescribe certain of our products;
increases in the cost of raw materials used to manufacture our products;
• manufacturing and supply interruptions;
•
•
our responses to price competition;
expenditures as a result of legal actions (and settlements thereof), including the defense of our patents and other intellectual
property;
• market acceptance of our products;
•
•
•
•
•
the timing of wholesaler and distributor purchases;
general economic and industry conditions, including potential fluctuations in interest rates;
changes in seasonality of demand for certain of our products;
foreign currency exchange rate fluctuations;
changes to, or the confidence in, our business strategy;
30
•
•
changes to, or the confidence in, our management; and
expectations for future growth.
As a result, we believe that quarter-to-quarter comparisons of results from operations, or any other similar period-to-period
comparisons, should not be construed as reliable indicators of our future performance. In any quarterly period, our results may be
below the expectations of market analysts and investors, which could cause the market value of our common shares and/or debt
securities to decline.
We have significant goodwill and other intangible assets and potential impairment of goodwill and other intangibles may have
a significant adverse impact on our profitability.
Goodwill and intangible assets represent a significant portion of our total assets. Finite-lived intangible assets are subject
to an impairment analysis whenever events or changes in circumstances indicate the carrying amount of the asset may not be
recoverable. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset may be impaired. If an impairment exists, we would be required to take an
impairment charge with respect to the impaired asset. Events giving rise to impairment are difficult to predict, including the
uncertainties associated with the launch of new products (such as our recently launched Addyi® product), and are an inherent risk
in the pharmaceutical and medical device industries. As a result of the significance of goodwill and intangible assets, our financial
condition and results of operations in a future period could be negatively impacted should such an impairment of goodwill or
intangible assets occur, which could cause the market value of our common shares and/or debt securities to decline. For example,
if an impairment were to occur with respect to our recently launched Addyi® product, the resulting impairment charge could have
a material negative impact on our financial condition and results of operations.
We have become increasingly dependent on information technology and any breakdown, interruption or breach of our
information technology systems could subject us to liability or interrupt the operation of our business, which could have a
material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
We are increasingly dependent upon sophisticated information technology systems and infrastructure in connection with
the conduct of our business. We must constantly update our information technology infrastructure and we cannot assure you that
our various current information technology systems throughout the organization will continue to meet our current and future
business needs. Furthermore, modification, upgrade or replacement of such systems may be costly. In addition, due to the size
and complexity of these systems, any breakdown, interruption, corruption or unauthorized access to or cyber-attack on these
systems could create system disruptions, shutdowns or unauthorized disclosure of confidential information. While we attempt to
take appropriate security and cyber-security measures to protect our data and information technology systems and to prevent such
breakdowns and unauthorized breaches and cyber-attacks, we cannot guarantee that these measures will be successful and that
these breakdowns and breaches in, or attacks on, our systems and data will be prevented. Such breakdowns, breaches or attacks
may cause business interruption and could have a material adverse effect on our business, financial condition, cash flows and
results of operations and could cause the market value of our common shares and/or debt securities to decline, and we may suffer
financial damage or other loss, including fines or criminal penalties because of lost or misappropriated information.
Our business may be impacted by seasonality and other trends, which may cause our operating results and financial condition
to fluctuate.
Demand for certain of our products may be impacted by seasonality and other trends. Historically, revenues from our business
tend to be weighted toward the second half of the year. Sales in the first quarter tend to be lower as patient co-pays and deductibles
reset at the beginning of each year. Further, the third quarter “back to school” period favorably impacts demand for certain of our
dermatology products. Sales in the fourth quarter tend to be higher based on consumer and customer purchasing patterns associated
with healthcare reimbursement programs. However, there are no assurances that these historical trends will continue in the future.
In addition, we expect the weighting of revenues toward the second half of the year to be more pronounced in 2016, given the
transition of certain of our products under the fulfillment arrangements with Walgreens described in Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K. Seasonality and other trends may
cause our operating results to fluctuate.
We have entered into distribution agreements with other companies to distribute certain of our products at supply prices based
on net sales. Declines in the pricing and/or volume, over which we have no or limited control, of such products, and therefore
the amounts paid to us, could have a material adverse effect on our business, financial condition, cash flows and results of
operations and could cause the market value of our common shares and/or debt securities to decline.
Certain of our products are the subject of third party distribution agreements, pursuant to which we manufacture and sell
products to other companies, which distribute such products at a supply price, typically based on net sales. Our ability to control
31
pricing and volume of these products may be limited and, in some cases, these companies make all distribution and pricing decisions
independently of us. If the pricing or volume of such products declines, our revenues would be adversely impacted which could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our common shares and/or debt securities to decline.
The illegal distribution and sale of counterfeit versions of our products may reduce demand for our products or have a negative
impact on the reputation of our products, which could have a material adverse effect on our business, financial condition, cash
flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Third parties may illegally distribute and sell counterfeit versions of our products, which do not meet or adhere to the rigorous
quality, safety, manufacturing, storage and handling standards and regulations that apply to our products. The discovery of safety
or efficacy issues, adverse events or even death or personal injury associated with or caused by counterfeit products may be
attributed to our products and may cause reputational harm to our products or the Company. We may not be able to detect or, if
detected, prevent or prohibit the sale of such counterfeit products. As a result, the illegal sale or distribution of counterfeit products
may negatively impact the demand for and sales of our products, which could have a material adverse effect on our business,
financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt
securities to decline.
Our revenues and profits could be reduced by imports from countries where our products are available at lower prices.
Prices for our products are based on local market economics and competition and differ from country to country. Our sales
in countries with relatively higher prices may be reduced if products can be imported into those or other countries from lower
price markets. If this happens with our products, our revenues and profits may be adversely affected, which could have a material
adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our
common shares and/or debt securities to decline.
Our policies regarding returns, allowances and chargebacks, and marketing programs adopted by wholesalers, may reduce
our revenues in future fiscal periods.
We provide certain rebates, allowances, chargebacks and other credits to our customers with respect to certain of our products.
For example, we make payments or give credits to certain wholesalers for the difference between the invoice price paid to us by
our wholesaler customer for a particular product and the negotiated price that such wholesaler sells such products to its hospitals,
group purchasing organizations, pharmacies or other retail customers. We also give certain of our customers credits on our products
that such customers hold in inventory after we have decreased the WAC prices of such products, such credit being for the difference
between the old and new price. In addition, we also implement and maintain returns policies, pursuant to which our customers
may return product to us in certain circumstances in return for a credit. Although we establish reserves based on our prior experience,
wholesaler data, then-current on-hand inventory, our best estimates of the impact that these policies may have in subsequent periods
and certain other considerations, we cannot ensure that our reserves are adequate or that actual product returns, rebates, allowances
and chargebacks will not exceed our estimates, which could have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Item 1B. Unresolved Staff Comments
None.
32
Item 2. Properties
We own and lease a number of important properties. Our headquarters and one of our manufacturing facilities are located
in Laval, Quebec. We have several manufacturing facilities throughout the U.S. We also own or have an interest in manufacturing
plants or other properties outside the U.S., including Canada, Mexico, and certain countries in Europe, North Africa, Asia and
South America.
We consider our facilities to be in satisfactory condition and suitable for their intended use, although some limited investments
to improve our manufacturing and other related facilities are contemplated, based on the needs and requirements of our business.
Our administrative, marketing, research/laboratory, distribution and warehousing facilities are located in various parts of the world.
We co-locate our R&D activities with our manufacturing at the plant level in a number of facilities. Our scientists, engineers,
quality control and manufacturing technicians work side-by-side in designing and manufacturing products that fit the needs and
requirements of our customers, regulators and business units.
We believe that we have sufficient facilities to conduct our operations during 2016. Our facilities include, among others,
the following list of principal properties by segment:
Location
Laval, Quebec, Canada
Bridgewater, New Jersey(1)
Developed Markets
Rochester, New York
Waterford, Ireland
Berlin, Germany
Greenville, South Carolina
Steinbach, Manitoba, Canada
Greenville, South Carolina
Amsterdam, Netherlands
Tampa, Florida
Chattanooga, Tennessee
Emerging Markets
Jelenia Gora, Poland
San Juan del Rio, Mexico
El Obour City, Egypt
Jinan, China
Rzeszow, Poland
Cianjur, Indonesia
Long An, Vietnam
Indaiatuba, Brazil
Belgrade, Serbia
Mexico City, Mexico
Myslowice, Poland
Medellin, Colombia
Beijing, China
Beijing, China
Cheonan, Korea
Purpose
Corporate headquarters, manufacturing and warehouse
facility
Administration
Offices, R&D and manufacturing facility
R&D and manufacturing facility
Manufacturing, distribution and office facility
Distribution facility
Offices, manufacturing and warehouse facility
Manufacturing and distribution facility
Offices and warehouse facility
R&D and manufacturing facility
Distribution facility
Offices, R&D, manufacturing and warehouse facility
Offices and manufacturing facility
Offices, R&D, manufacturing and warehouse facility
Offices and manufacturing facility
Offices, R&D and manufacturing facility
Offices, manufacturing and warehouse facility
Offices, manufacturing and warehouse facility
Manufacturing facility
Offices and manufacturing facility
Offices and manufacturing facility
Warehouse facility
Offices, R&D, manufacturing and warehouse facility
Offices and manufacturing facility
Warehouse facility and distribution
Offices and manufacturing facility
Owned
or
Leased
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Leased
Owned
Approximate
Square
Footage
337,000
310,000
953,000
379,000
339,000
320,000
250,000
225,000
218,000
171,000
150,000
1,712,000
816,000
628,000
420,000
415,000
343,000
323,000
165,000
161,000
161,000
136,000
97,000
96,000
93,000
62,000
____________________________________
(1) — A lease for a second building in Bridgewater, New Jersey was signed in 2015 (not included in the square footage shown in the table above). At this time,
the building is not yet occupied.
Item 3. Legal Proceedings
33
See Note 21 titled "LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K,
which is incorporated by reference herein.
Item 4. Mine Safety Disclosures
Not applicable.
34
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common shares are traded on the New York Stock Exchange (“NYSE”) and on the Toronto Stock Exchange (“TSX”)
under the symbol “VRX”. The following table sets forth the high and low per share sales prices for our common shares on the
NYSE and TSX for the periods indicated.
2015
First quarter
Second quarter
Third quarter
Fourth quarter
2014
First quarter
Second quarter
Third quarter
Fourth quarter
_______________
Source: NYSE.net, TSX Historical Data Access
Market Price Volatility of Common Shares
NYSE
TSX
High
$
206.84
246.01
263.81
182.64
153.10
139.00
131.87
149.90
Low
$
141.64
194.50
152.94
69.33
112.26
115.14
106.00
111.41
High
C$
263.91
308.10
347.84
240.40
170.45
152.52
147.23
174.08
Low
C$
167.05
234.94
204.49
92.65
119.66
126.02
116.01
125.50
Market prices for the securities of pharmaceutical, medical devices and biotechnology companies, including our securities,
have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations
that are unrelated to the operating performance of particular companies. Factors such as fluctuations in our operating results, the
aftermath of public announcements by us or by others about us, changes in our executive management, changes in our business
strategy, concern as to safety of drugs and medical devices, the commencement or outcome of legal or governmental proceedings,
investigations or inquiries, and general market conditions can have an adverse effect on the market price of our common shares
and other securities. For example, we have recently experienced significant fluctuations and decreases in the market price of our
common shares as a result of, among other things, the reduction of our earnings guidance, the medical leave of absence of our
chief executive officer, public scrutiny of, and legal and governmental proceedings and investigations with respect to, certain of
our distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former relationship with
Philidor), and certain public allegations made by short sellers and other third parties relating to certain of these matters. See Item
1A “Risk Factors” of this Form 10-K for additional information.
Holders
The approximate number of holders of record of our common shares as of April 22, 2016 is 3,137.
Performance Graph
The following graph compares the cumulative total return on our common shares with the cumulative return on the S&P
500 Index, the TSX/S&P Composite Index and a 12-stock Custom Composite Index for the five years ended December 31, 2015,
in all cases, assuming reinvestment of dividends. The Custom Composite Index consists of Allergan Inc.; Amgen Inc.; Biogen
Idec Inc.; Bristol Myers Squibb & Co.; Celgene Corporation; Danaher Corporation; Gilead Sciences Inc.; Lilly (Eli) & Co.; Shire
plc; Mylan Inc.; Perrigo Co. and Vertex Pharmaceuticals Inc.
35
S&P 500 Index
S&P/TSX Composite Index
Valeant Pharmaceuticals International, Inc.
Custom Composite Index
Dec-10
100
100
100
100
Dec-11
102
91
165
119
Dec-12
118
98
211
144
Dec-13
157
111
415
239
Dec-14
178
122
506
317
Dec-15
181
112
359
356
Dividends
No dividends were declared or paid in 2015, 2014 or 2013. While our Board of Directors will review our dividend policy
from time to time, we currently do not intend to pay any cash dividends in the foreseeable future. In addition, our Credit Agreement
and indentures include restrictions on the payment of dividends. Further, pursuant to an amendment to our Credit Agreement
effective as of April 11, 2016, until the time that the Company delivers its First Quarter 2016 Form 10-Q and achieves a specified
leverage ratio, the Company is subject to further limitations on paying dividends. For more information on these restrictions, see
Note 26 titled "SUBSEQUENT EVENTS" of notes to consolidated financial statements in Item 15 of this Form 10-K.
Restrictions on Share Ownership by Non-Canadians
There are no limitations under the laws of Canada or in our organizational documents on the right of foreigners to hold or
vote securities of our Company, except that the Investment Canada Act (Canada) (the “Investment Canada Act”) may require
review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of our Company by a “non-Canadian”.
Investment Canada Act
An acquisition of control of a Canadian business by a non-Canadian is either reviewable (a “Reviewable Transaction”), in
which case it is subject to both a reporting obligation and an approval process, or notifiable, in which case it is subject to only a
reporting obligation. In the case of a Reviewable Transaction, the non-Canadian acquirer must submit an application for review
with the prescribed information. The responsible Minister is then required to determine whether the Reviewable Transaction is
likely to be of net benefit to Canada, taking into account the assessment factors specified in the Investment Canada Act and any
written undertakings that may have been given by the non-Canadian acquirer.
The Investment Canada Act provides that any investment by a non-Canadian in a Canadian business, even where control
has not been acquired, can be reviewed on grounds of whether it may be injurious to national security. Where an investment is
determined to be injurious to national security, Cabinet can prohibit closing or, if closed, can order the investor to divest control.
Short of a prohibition or divestment order, Cabinet can impose terms or conditions on the investment or can require the investor
to provide binding undertakings to remove the national security concern.
Competition Act
36
Part IX of the Competition Act (Canada) (the “Competition Act”) requires that a pre-merger notification filing be submitted
to the Commissioner of Competition (the “Commissioner”) in respect of certain classes of merger transactions that exceed certain
prescribed thresholds. If a proposed transaction exceeds such thresholds, subject to certain exceptions, the notification filing must
be submitted to the Commissioner and the statutory waiting period must expire or be terminated early or waived by the
Commissioner before the transaction can be completed.
All mergers, regardless of whether they are subject to Part IX of the Competition Act, are subject to the substantive mergers
provisions under Section 92 of the Competition Act. In particular, the Commissioner may challenge a transaction before the
Competition Tribunal where the transaction prevents or lessens, or is likely to prevent or lessen, competition substantially in a
market. The Commissioner may not make an application to the Competition Tribunal under Section 92 of the Competition Act
more than one year after the merger has been substantially completed.
Exchange Controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of
a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance
of dividends, profits, interest, royalties and other payments to non-resident holders of our securities, except as discussed in
“Taxation” below.
Taxation
Canadian Federal Income Taxation
The following discussion is a summary of the principal Canadian federal income tax considerations generally applicable to
a holder of our common shares who, at all relevant times, for purposes of the Income Tax Act (Canada) and the Income Tax
Regulations (collectively, the “Canadian Tax Act”) deals at arm’s-length with, and is not affiliated with, our Company, beneficially
owns its common shares as capital property, does not use or hold and is not deemed to use or hold such common shares in carrying
on a business in Canada, does not with respect to common shares enter into a “derivative forward agreement” as defined in the
Income Tax Act, and who, at all relevant times, for purposes of the application of the Canadian Tax Act and the Canada-U.S. Income
Tax Convention (1980, as amended) (the “U.S. Treaty”), is resident in the U.S., is not, and is not deemed to be, resident in Canada
and is eligible for benefits under the U.S. Treaty (a “U.S. Holder”). Special rules, which are not discussed in the summary, may
apply to a non-resident holder that is an insurer that carries on an insurance business in Canada and elsewhere or that is an
“authorized foreign bank” as defined in the Canadian Tax Act.
The U.S. Treaty includes limitation on benefits rules that restrict the ability of certain persons who are resident in the U.S. to
claim any or all benefits under the U.S. Treaty. Furthermore, limited liability companies (“LLCs”) that are not taxed as corporations
pursuant to the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) do not generally qualify as resident
in the U.S. for purposes of the U.S. Treaty. Under the U.S. Treaty, a resident of the U.S. who is a member of such an LLC and is
otherwise eligible for benefits under the U.S. Treaty may generally be entitled to claim benefits under the U.S. Treaty in respect
of income, profits or gains derived through the LLC. Residents of the U.S. should consult their own tax advisors with respect to
their eligibility for benefits under the U.S. Treaty, having regard to these rules.
This summary is based upon the current provisions of the U.S. Treaty and the Canadian Tax Act and our understanding of
the current administrative policies and assessing practices of the Canada Revenue Agency published in writing prior to the date
hereof. This summary takes into account all specific proposals to amend the U.S. Treaty and the Canadian Tax Act publicly
announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof. This summary does not otherwise take
into account or anticipate changes in law or administrative policies and assessing practices, whether by judicial, regulatory,
administrative or legislative decision or action, nor does it take into account provincial, territorial or foreign tax legislation or
considerations, which may differ from those discussed herein.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice
generally or to any particular holder. Holders should consult their own tax advisors with respect to their own particular
circumstances.
Gains on Disposition of Common Shares
In general, a U.S. Holder will not be subject to tax under the Canadian Tax Act on capital gains arising on the disposition
of such holder’s common shares unless the common shares are “taxable Canadian property” to the U.S. Holder and are not “treaty-
protected property”.
37
As long as the common shares are then listed on a “designated stock exchange”, which currently includes the NYSE and
TSX, the common shares generally will not constitute taxable Canadian property of a U.S. Holder, unless (a) at any time during
the 60-month period preceding the disposition, the U.S. Holder, persons not dealing at arm’s length with such U.S. Holder or the
U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class or series of the capital stock of
the Company and more than 50% of the fair market value of the common shares was derived, directly or indirectly, from any
combination of (i) real or immoveable property situated in Canada, (ii) “Canadian resource property” (as such term is defined in
the Canadian Tax Act), (iii) “timber resource property” (as such terms are defined in the Canadian Tax Act), or (iv) options in
respect of, or interests in, or for civil law rights in, any such properties whether or not the property exists, or (b) the common shares
are otherwise deemed to be taxable Canadian property.
Common shares will be treaty-protected property where the U.S. Holder is exempt from income tax under the Canadian
Tax Act on the disposition of common shares because of the U.S. Treaty. Common shares owned by a U.S. Holder will generally
be treaty-protected property where the value of the common shares is not derived principally from real property situated in Canada,
as defined in the U.S. Treaty.
Dividends on Common Shares
Dividends paid or credited on the common shares or deemed to be paid or credited on the common shares to a U.S. Holder
that is the beneficial owner of such dividends will generally be subject to non-resident withholding tax under the Canadian Tax Act
and the U.S. Treaty at the rate of (a) 5% of the amounts paid or credited if the U.S. Holder is a company that owns (or is deemed
to own) at least 10% of our voting stock, or (b) 15% of the amounts paid or credited in all other cases. The rate of withholding
under the Canadian Tax Act in respect of dividends paid to non-residents of Canada is 25% where no tax treaty applies.
Securities Authorized for Issuance under Equity Compensation Plans
Information required under this Item will be included in our definitive proxy statement for the 2016 Annual Meeting of
Shareholders expected to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Form 10-K
(the “2016 Proxy Statement”), and such required information is incorporated herein by reference.
Purchases of Equity Securities by the Company and Affiliated Purchases
Set forth below is the information regarding our purchases of equity securities during the fourth quarter of the year ended
December 31, 2015:
Period
Total Number of
Shares (or Units)
Purchased(1)(2)
Average Price
Paid Per Share(3)
Total Number of Shares
Purchased as
Part of Publicly
Announced Plan
October 1, 2015 to October 31, 2015
200,000
$
111.50
200,000
$
November 1, 2015 to November 30, 2015
December 1, 2015 to December 31, 2015
— $
— $
—
—
— $
— $
Total
200,000
$
111.50
200,000
Maximum Number
(Approximate Dollar Value)
of Shares That
May Yet Be Purchased
Under the Plan(1)
(In millions)
1,928
3,000
3,000
__________________
(1) On November 20, 2014, our Board of Directors authorized the repurchase of up to $2.00 billion of senior notes, common shares and/or other securities,
subject to any restrictions in our financing agreements and applicable law (the “2014 Securities Repurchase Program”). The 2014 Securities Repurchase
Program terminated on November 20, 2015. On November 18, 2015, the Company’s Board of Directors approved a new securities repurchase program
(the “2015 Securities Repurchase Program”). Under the 2015 Securities Repurchase Program, which commenced on November 21, 2015, the Company
could make purchases of up to $3.00 billion of its senior notes, common shares and/or other securities prior to the completion of the program, subject to any
restrictions in the Company’s financing agreements and applicable law. The 2015 Securities Repurchase Program will terminate on November 20, 2016.
(2) During the three-month period ended December 31, 2015, we repurchased $22 million of common shares (subsequently cancelled) under the 2014 Securities
Repurchase Program and made no purchases of our senior notes under the 2014 Securities Repurchase Program. During the three-month period ended
December 31, 2015, we did not make any repurchases of our senior notes or common shares under the 2015 Securities Repurchase Program. For more
information regarding our repurchase programs, see Note 15 titled "SECURITIES REPURCHASES AND SHARE ISSUANCES" of notes to consolidated
financial statements in Item 15 of this Form 10-K.
(3) The average price paid per share excludes any broker commissions.
Item 6. Selected Financial Data
38
The following table of selected consolidated financial data of our Company has been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements as of and for the year ended
December 31, 2014 have been restated as set forth in this Form 10-K. For additional information and a detailed discussion of the
restatement, see Note 2 titled “RESTATEMENT” of notes to consolidated financial statements in Item 15 of this Form 10-K. The
data is qualified by reference to, and should be read in conjunction with the consolidated financial statements and related notes
thereto prepared in accordance with U.S. GAAP (see Item 15 “Exhibits and Financial Statement Schedules” of this Form 10-K as
well as the discussion in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). All
dollar amounts are expressed in millions of U.S. dollars, except per share data.
$
$
$
$
$
Years Ended December 31,
2015
2014
(Restated)
2013(1)
2012
2011
10,446.5
1,527.4
$
$
8,206.0
2,000.7
$
5,769.6
(409.5)
$
3,480.4
79.7
(291.7)
880.7
(866.1)
(116.0)
(0.85) $
(0.85) $
— $
2.63
2.58
$
$
— $
(2.70) $
(2.70) $
— $
(0.38) $
(0.38) $
— $
2,427.5
300.0
159.6
0.52
0.49
—
2015
2014
(Restated)
2013(1)
2012
2011
At December 31,
$
597.3
194.6
48,964.5
31,088.4
9,897.4
$
322.6
1,423.3
26,304.7
15,228.9
8,349.2
$
600.3
1,373.4
27,932.9
17,329.8
8,301.2
$
916.1
954.7
17,910.5
10,975.7
5,940.7
164.1
433.2
13,049.6
6,592.5
5,963.6
5,911.0
5,279.4
5,118.7
3,717.4
3,929.8
342.9
334.4
333.0
303.9
306.4
Consolidated operating data:
Revenues
Operating income (loss)
Net (loss) income attributable to Valeant
Pharmaceuticals International, Inc.
(Loss) earnings per share attributable to
Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Cash dividends declared per share
Consolidated balance sheet information:
Cash and cash equivalents
Working capital(2)
Total assets(3)
Long-term debt, including current portion(3)
Common shares
Valeant Pharmaceuticals International, Inc.
shareholders’ equity
Number of common shares issued and
outstanding (in millions)
___________________
(1)
(2)
(3)
In 2013, we recognized an impairment charge of $552 million related to ezogabine/retigabine (immediate-release formulation), and we wrote off an
IPR&D asset of $94 million relating to a modified-release formulation of ezogabine/retigabine. For more information regarding these impairment charges
and other impairment charges, see Note 7 titled "FAIR VALUE MEASUREMENTS" and Note 11 titled "INTANGIBLE ASSETS AND GOODWILL"
of notes to consolidated financial statements in Item 15 of this Form 10-K.
Represents current assets less current liabilities. The reduction in working capital in 2015 primarily relates to an increase in the current portion of long-
term debt as well as an accrual for $500 million in deferred consideration related to the acquisition of Sprout Pharmaceuticals, Inc. (the "Sprout Acquisition")
(the $500 million was paid in the first quarter of 2016). For more information regarding debt and the Sprout Acquisition, see Note 13 titled "LONG-
TERM DEBT" and Note 4 titled "ACQUISITIONS" of notes to consolidated financial statements in Item 15 of this Form 10-K.
In the second quarter of 2015, the Company adopted guidance issued by the Financial Accounting Standards Board which requires certain debt issuance
costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt, consistent with the presentation of a debt
discount. The adoption of this guidance, which was applied retrospectively to all periods presented, impacted presentation only. The resulting
reclassifications between assets and long-term debt did not have a material impact on the Company's financial statements.
The amounts presented in the tables above also include the impact of several acquisitions and divestitures of businesses and
assets. For more information regarding our acquisitions and divestitures, see Note 4 titled "ACQUISITIONS" and Note 5 titled
"DIVESTITURES" of notes to consolidated financial statements in Item 15 of this Form 10-K.
39
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESTATEMENT
The accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations gives effect
to the restatement adjustments made to the previously reported consolidated financial statements (see Note 2 titled
"RESTATEMENT" and Note 25 titled "SUMMARY QUARTERLY INFORMATION (UNAUDITED)" of notes to consolidated
financial statements in Item 15 of this Form 10-K for further discussion of the restatement and impact of the restatement matters).
Additionally, our management and the Audit and Risk Committee have concluded that material weaknesses in our internal control
over financial reporting existed that contributed to the material misstatements in our consolidated financial statements. For further
information regarding management’s assessment of internal control over financial reporting, refer to Item 9A "Controls and
Procedures" in this Form 10-K.
INTRODUCTION
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should
be read in conjunction with the audited consolidated financial statements, and notes thereto, prepared in accordance with
United States (“U.S.”) generally accepted accounting principles (“GAAP”) as of December 31, 2015 and 2014 and each of the
three years in the period ended December 31, 2015 (the “2015 Financial Statements”).
Additional information relating to the Company, including this Form 10-K, is available on SEDAR at www.sedar.com and
on the U.S. Securities and Exchange Commission (the “SEC”) website at www.sec.gov.
Unless otherwise indicated herein, the discussion and analysis contained in this MD&A is as of April 29, 2016.
All dollar amounts are expressed in U.S. dollars, unless otherwise noted.
OVERVIEW
Valeant Pharmaceuticals International, Inc. (“we”, “us”, “our” or the “Company”) is a multinational, specialty pharmaceutical
and medical device company that develops, manufactures, and markets a broad range of branded, generic and branded generic
pharmaceuticals, over-the-counter (“OTC”) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical
equipment, and aesthetics devices), which are marketed directly or indirectly in over 100 countries. In the Developed Markets
segment, we focus most of our efforts in the dermatology, neurology, gastrointestinal (“GI”) disorders, and eye health therapeutic
classes. In the Emerging Markets segment, we focus primarily on branded generics, OTC products, and medical devices. We are
diverse not only in our sources of revenue from our broad drug and medical device portfolio, but also among the therapeutic classes
and geographies we serve.
On April 1, 2015, we acquired Salix Pharmaceuticals, Ltd. (“Salix”), pursuant to an Agreement and Plan of Merger dated
February 20, 2015, as amended on March 16, 2015 (the “Merger Agreement”). Subject to the terms and conditions set forth in the
Merger Agreement, Salix became a wholly owned subsidiary of Valeant Pharmaceuticals International (“Valeant”), our subsidiary
(the “Salix Acquisition”). Salix is a specialty pharmaceutical company dedicated to developing and commercializing prescription
drugs and medical devices used in treatment of variety of GI disorders with a portfolio of over 20 marketed products, including
Xifaxan®, Uceris®, Apriso®, Glumetza®, and Relistor®. For further information regarding the Salix Acquisition, see Note 4
titled "ACQUISITIONS" of notes to consolidated financial statements in Item 15 of this Form 10-K.
Our strategy is to focus our business on core geographies and therapeutic classes that offer attractive growth opportunities
while maintaining our lower selling, general and administrative cost model and decentralized operating structure. Within our
chosen therapeutic classes and geographies, we primarily focus on durable products which have the potential for strong operating
margins and sustainable organic growth. The growth of our business is further augmented through our lower risk, output-focused
research and development model, which allows us to advance certain development programs to drive future commercial growth,
while minimizing our research and development expense.
Further, our long-term strategy has also included deploying cash via business development, debt repayment and repurchases,
and share buybacks. Since the Company’s (then named Biovail Corporation (“Biovail”)) acquisition of Valeant on September 28,
2010 (the “Merger”), we have completed numerous transactions to expand our portfolio offering and geographic footprint, including,
among others, the Salix Acquisition and the acquisition of Bausch & Lomb Holdings Incorporated (“B&L”). While we anticipate
business development through acquisitions may continue to be a component of our long-term strategy, we expect the volume and
size of acquisitions to be minimal in 2016 and possibly beyond, as we focus on reducing our outstanding debt levels. Refer to
Note 26 titled "SUBSEQUENT EVENTS" of notes to consolidated financial statements in Item 15 of this Form 10-K for details
40
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
related to the April 11, 2016 amendment (the "April 2016 amendment") to our Credit Agreement including various restrictions
that will impact how we conduct our business.
We believe our strategy will allow us to maximize both the growth rate and profitability of the Company and to enhance
shareholder value. See Item 1 "Business" of this Form 10-K for additional information regarding our strategy, as well as other
details around our business.
We measure our success through total shareholder return and, on that basis, as of April 22, 2016, the market price of our
common shares on the New York Stock Exchange (“NYSE”) has increased approximately 40%, and the market price of our
common shares on the Toronto Stock Exchange (“TSX”) has increased approximately 75%, since the Merger, as adjusted for the
post-Merger special dividend of $1.00 per common share (the “post-Merger special dividend”). However, in recent months the
market price of our common shares has declined significantly, experiencing a decrease of approximately 85% on each of the NYSE
and TSX from August 5, 2015 (representing the date of the highest market price for our common shares) through April 22, 2016.
In 2016, we plan to continue to execute our strategy to drive growth of key products, progress our research and development
pipeline, and execute new product launches. Some of our top priorities include, among others:
• Maximizing our key therapeutic area businesses including: dermatology, GI, and eye health;
• Obtaining regulatory approval for and successfully launching brodalumab, latanoprostene bunod, and Oral Relistor®,
described further under "Products in Development" below;
• Completing a successful transition of certain of our products to the new fulfillment arrangements with Walgreen Co.
("Walgreens"), described further under ''Selected Financial Information" below; and
• Reducing outstanding debt levels.
ACQUISITIONS AND DIVESTITURES
We have completed several transactions in 2015, 2014, and 2013 including, among others, the following acquisitions, licenses
and divestitures.
Acquisitions/licenses
2015
Amoun Pharmaceutical Company S.A.E. (“Amoun”)
Sprout Pharmaceuticals, Inc. (“Sprout”)
Certain brodalumab product rights
Salix
Certain assets of Dendreon Corporation (“Dendreon”)
Certain assets of Marathon Pharmaceuticals, LLC (“Marathon”)
2014
PreCision Dermatology, Inc. (“PreCision”)
Solta Medical, Inc. (“Solta Medical”)
2013
B&L
Obagi Medical Products, Inc. (“Obagi”)
Natur Produkt International, JSC (“Natur Produkt”)
Divestitures
2014
Facial aesthetic fillers and toxins
Metronidazole 1.3%
Tretin-X® (tretinoin) cream and generic tretinoin gel and cream products
41
Acquisition
Date
October 2015
October 2015
October 2015
April 2015
February 2015
February 2015
July 2014
January 2014
August 2013
April 2013
February 2013
Divestiture
Date
July 2014
July 2014
July 2014
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
For more information regarding our acquisitions and divestitures, see Note 4 titled "ACQUISITIONS" and Note 5 titled
"DIVESTITURES" of notes to consolidated financial statements in Item 15 of this Form 10-K.
PRODUCTS IN DEVELOPMENT
The following products, among others, are currently in development:
Dermatology
• Brodalumab is an IL-17 receptor monoclonal antibody for patients with moderate-to-severe plaque psoriasis and psoriatic
arthritis. Regulatory submission in both the U.S. and the European Union occurred in November 2015. In January 2016,
we announced that the U.S. Food and Drug Administration (the "FDA") accepted for review the Biologics License
Application ("BLA") for brodalumab, and the FDA assigned a Prescription Drug User Fee Act ("PDUFA") action date
of November 16, 2016.
•
•
•
•
IDP-118 is a fixed combination product with two different mechanisms of action for treating psoriasis. The Phase 3
program has commenced.
IDP-120 is a combination acne treatment. The Phase 2 program has commenced.
IDP-121 is a formulation of tretenoin for the treatment of acne. The Phase 3 program has commenced.
IDP-122 is a topical formulation of a steroid for the treatment of psoriasis. The Phase 3 program has commenced.
• Next Generation Thermage® is a device designed to address the appearance of fine lines and wrinkles. Design verification
testing is ongoing.
Eye Health
•
enVista® Toric is a one-piece hydrophobic acrylic toric intraocular lens ("IOL"). The lens is designed to minimize Posterior
Capsular Opacification ("PCO"), a common post-surgical complication with IOLs that causes vision to become clouded
post-surgery. The clinical study is ongoing.
• Luminesse™ is being developed as an ocular redness reliever. Phase 3 studies have demonstrated fast onset and long-
lasting efficacy, with low potential for rebound redness. We are currently in process of preparing the application for the
FDA filing.
• Latanoprostene bunod is an intraocular pressure ("IOP") lowering single-agent eye drop dosed once daily for patients
with open angle glaucoma or ocular hypertension. In September 2015, we announced that the FDA has accepted for
review the New Drug Application ("NDA") for this product and set a PDUFA action date of July 21, 2016.
• Lotemax® Gel Next Generation (loteprednol etabonate 0.38%), an ophthalmic steroid, is being developed for the reduction
of inflammation and pain following cataract surgery. The Phase 3 program is ongoing.
• Ultra Toric and Multi-Focal contact lenses are made with a novel silicone hydrogel (samfilcon A) which allows more
oxygen to the eyes for ocular health. These contact lenses contain our MoistureSeal® technology, and we have expanded
the design range of these contact lenses to provide these new lenses to more patients. The lenses have received approval
from the FDA, and we are preparing final product qualifications and validations.
• Vitesse™ is a novel vitreous cutter used in vitreoretinal surgeries and designed to compete against existing mechanical
devices. Design verification testing is ongoing.
• Next Generation Stellaris® is a new platform for cataract and retinal surgery. Several design concepts are currently being
evaluated.
Gastrointestinal
• Oral Relistor® is a tablet for the treatment of opioid-induced constipation in adult patients with chronic non-cancer pain.
In September 2015, we announced that the FDA accepted for review the New Drug Application and set a PDUFA action
date of April 19, 2016. In April 2016, we announced that the FDA had extended the PDUFA action date to July 19, 2016
to allow for a full review of our responses to certain information requests from the FDA.
42
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESTRUCTURING AND INTEGRATION
In connection with our acquisitions, we have implemented cost-rationalization and integration initiatives to capture operating
synergies and generate cost savings across the Company. These measures included:
• workforce reductions across the Company and other organizational changes;
•
•
•
closing of duplicative facilities and other site rationalization actions company-wide, including research and development
facilities, sales offices and corporate facilities;
leveraging research and development spend; and
procurement savings.
Salix Acquisition-Related Cost-Rationalization and Integration Initiatives
The complementary nature of the Company and Salix businesses has provided an opportunity to capture significant operating
synergies from reductions in sales and marketing, general and administrative expenses, and research and development. In total, in
connection with the acquisition of Salix, we have identified approximately $530 million of cost synergies on an annual run rate
basis that have been substantially achieved by the end of 2015. This amount does not include revenue synergies or the benefits of
incorporating Salix’s operations into the Company’s corporate structure. We estimate that we will incur total costs of approximately
$300 million in connection with these cost-rationalization and integration initiatives, of which $217 million has been incurred as
of December 31, 2015.
B&L Acquisition-Related Cost-Rationalization and Integration Initiatives
The complementary nature of the Company and B&L businesses has provided an opportunity to capture significant operating
synergies from reductions in sales and marketing, general and administrative expenses, and research and development. In total,
we identified greater than $900 million of cost synergies on an annual run rate basis that were substantially achieved by the end
of 2014. This amount does not include revenue synergies or the benefits of incorporating B&L’s operations into the Company’s
corporate structure. We had estimated that we would incur total costs of approximately $600 million (excluding the charges of
$53 million described in Note 6 titled "RESTRUCTURING, INTEGRATION AND OTHER COSTS" of notes to consolidated
financial statements in Item 15 of this Form 10-K) in connection with these cost-rationalization and integration initiatives, which
were substantially completed by the end of 2014. As of December 31, 2015, we have incurred total costs of $578 million, and we
do not expect to incur any additional costs beyond 2015.
See Note 6 titled "RESTRUCTURING, INTEGRATION AND OTHER COSTS" of notes to consolidated financial statements
in Item 15 of this Form 10-K for detailed information summarizing the major components of costs incurred in connection with
our Salix and B&L acquisition-related initiatives through December 31, 2015.
U.S. HEALTHCARE REFORM
The U.S. federal and state governments continue to propose and pass legislation designed to regulate the healthcare industry.
In March 2010, the Patient Protection and Affordable Care Act (the “Act”) was enacted in the U.S. The Act contains several
provisions that impact our business, including: (i) an increase in the minimum Medicaid rebate to states participating in the Medicaid
program; (ii) the extension of the Medicaid rebates to Managed Care Organizations that dispense drugs to Medicaid beneficiaries;
(iii) the expansion of the 340(B) Public Health Services drug pricing program, which provides outpatient drugs at reduced rates,
to include additional hospitals, clinics, and healthcare centers; and (iv) a fee payable to the federal government based on our prior-
calendar-year share relative to other companies of branded prescription drug sales to specified government programs.
In addition to the above, in 2013: (i) federal subsidies began to be phased in for brand-name prescription drugs filled in the
Medicare Part D cover gap and (ii) the law requires the medical device industry to subsidize healthcare reform in the form of a
2.3% excise tax on U.S. sales of most medical devices. However, the Consolidated Appropriations Act, 2016 (Pub. L. 114-113),
signed into law on December 18, 2015, includes a two year moratorium on the medical device excise tax. Thus, the medical device
excise tax does not apply to the sale of a taxable medical device by the manufacturer, producer, or importer of the device during
the period beginning on January 1, 2016, and ending on December 31, 2017. The Act also included provisions designed to increase
the number of Americans covered by health insurance. In 2014, the Act’s private health insurance exchanges began to operate
along with the mandate on individuals to purchase health insurance. The Act also allows states to expand Medicaid coverage with
most of the expansion’s cost paid for by the federal government.
43
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In 2015, 2014 and 2013, we incurred costs of $28 million, $9 million and $3 million, respectively, related to the annual fee
assessed on prescription drug manufacturers and importers that sell branded prescription drugs to specified U.S. government
programs (e.g., Medicare and Medicaid). We also incurred costs of $104 million, $43 million and $29 million on Medicare Part D
utilization incurred by beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap
(i.e., the “donut hole”) in 2015, 2014 and 2013, respectively. The increase in Medicare Part D coverage gap liability is mainly due
to Xifaxan®. Under the legislation, the total cost incurred by us for the medical device excise tax during 2015, 2014 and 2013 was
$5 million, $6 million, and $4 million, respectively.
In July 2014, the Internal Revenue Service issued final regulations related to the branded pharmaceutical drug annual fee
pursuant to the Act. Under the final regulations, an entity’s obligation to pay the annual fee is triggered by qualifying sales in the
current year, rather than the liability being triggered upon the first qualifying sale of the following year. We adopted this guidance
in the third quarter of 2014, and it did not have a material impact on our financial position or results of operations.
The financial impact of the Act may be affected by certain additional developments over the next few years, including pending
implementation guidance and certain healthcare reform proposals. Additionally, policy efforts designed specifically to reduce
patient out-of-pocket costs for medicines could result in new mandatory rebates and discounts or other pricing restrictions.
Legislative efforts relating to drug pricing have been proposed and considered at the U.S. federal and state level. In addition, a
number of the candidates for the 2016 U.S. presidential elections have introduced such policy proposals, and a November 2015
U.S. Department of Health and Human Services forum dedicated to drug pricing could lead to further proposals.
SELECTED FINANCIAL INFORMATION
The following table provides selected financial information for each of the last three years:
Years Ended December 31,
Change
2015
$
10,446.5
8,919.1
2014
(Restated)
$
8,206.0
6,205.3
2013
$
5,769.6
6,179.1
2014 to 2015
(Restated)
$
2,240.5
2,713.8
%
27
44
2013 to 2014
(Restated)
$
2,436.4
26.2
%
42
—
(291.7)
880.7
(866.1)
(1,172.4)
NM
1,746.8
NM
(0.85)
(0.85)
2.63
2.58
(2.70)
(2.70)
(3.48)
(3.43)
NM
NM
5.33
5.28
NM
NM
($ in millions, except per share data)
Revenues
Operating expenses
Net (loss) income attributable to Valeant
Pharmaceuticals International, Inc.
(Loss) earnings per share attributable to Valeant
Pharmaceuticals International, Inc.:
Basic
Diluted
____________________________________
NM — Not meaningful
Financial Performance
Changes in Revenues
Total revenues increased $2.24 billion, or 27%, to $10.45 billion in 2015, primarily due to incremental product sales revenue
of $2.21 billion, in the aggregate, from all 2014 and 2015 acquisitions. This increase was partially offset by (i) a negative foreign
currency exchange impact on the existing business of $597 million in 2015, and (ii) a negative impact from divestitures and
discontinuations of $141 million in 2015. Excluding the items described above, we realized incremental product sales revenue of
$763 million in 2015 related to growth from the remainder of the existing business.
In October 2015, we announced that we would be severing all ties with and relating to the Philidor Rx Services, LLC
("Philidor") pharmacy network, which is consolidated as a variable interest entity within our consolidated financial statements as
of December 31, 2014 and December 31, 2015. Effective November 1, 2015, we signed a termination agreement terminating all
arrangements with and relating to Philidor, other than certain transition services which ended in January 2016, and Philidor will
be deconsolidated from our consolidated financial statements in the first quarter of 2016 (For more information regarding Philidor,
see Note 4 titled "ACQUISITIONS" of notes to consolidated financial statements in Item 15 of this Form 10-K). Net sales
recognized through Philidor represented approximately 5% of our total consolidated net revenue for 2015. The impact of Philidor
as a consolidated entity on our net revenue for 2014 was nominal (and the net revenue on sales to Philidor prior to its consolidation
within our consolidated financial statements represented less than 1% of our total consolidated net revenue for 2014).
44
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In December 2015, we announced new fulfillment agreements with Walgreens and indicated that we intend to extend these
programs to additional participating independent retail pharmacies. In conjunction with the fulfillment agreements, we will reduce
prices of certain products within our branded prescription-based dermatological and ophthalmological businesses by, on average,
approximately 10 percent. The reduced pricing will apply to the wholesale list prices of the products and will be phased in over
six to nine months following the launch of the program (January 2016). Under the terms of the brand fulfillment agreement, we
will make available certain of our products to eligible patients through a patient access and co-pay program available at Walgreens
U.S. retail pharmacy locations, as well as participating independent retail pharmacies. The programs under this 20-year agreement
will initially cover certain of our dermatology products, including Jublia®, Luzu®, Solodyn®, Retin-A Micro® Gel 0.08%,
Onexton® and Acanya® Gel, certain of our ophthalmology products, including Besivance®, Lotemax®, Alrex®, Prolensa®,
Bepreve®, and Zylet®, and Addyi®. We also entered into a separate generic fulfillment agreement with Walgreens, which we
plan to make available through Walgreens retail pharmacies in the second half of 2016. As a result of these new fulfillment
agreements, in 2016, we anticipate the impact across all distribution channels of increased volume will approximate the impact
of lower average selling prices. Over time, we anticipate the impact of the increased volume will more than offset the impact of
lower average selling prices.
Total revenues increased $2.44 billion, or 42%, to $8.21 billion in 2014, primarily due to incremental product sales revenue
of $2.28 billion, in the aggregate, from all 2013 and 2014 acquisitions, partially offset by (i) a negative impact from divestitures,
discontinuations and supply interruptions of $323 million in 2014 and (ii) a negative foreign currency exchange impact on the
existing business of $165 million in 2014. Excluding the items described above, we realized incremental product sales revenue
of $613 million in 2014 related to growth from the remainder of the existing business, partially offset by the impact of generic
competition in the Developed Markets segment.
The above changes in revenues are further described below under “—Results of Operations—Revenues by Segment”.
As is customary in the pharmaceutical industry, our gross product sales are subject to a variety of deductions in arriving at
reported net product sales. Provisions for these deductions are recorded concurrently with the recognition of gross product sales
revenue and include cash discounts and allowances, chargebacks, and distribution fees, which are paid to direct customers, as well
as rebates and returns, which can be paid to both direct and indirect customers. Price appreciation credits are generated when we
increase a product’s wholesaler acquisition cost (“WAC”) under our contracts with certain wholesalers. Under such contracts, we
are entitled to credits from such wholesalers for the impact of that WAC increase on inventory currently on hand at the wholesalers.
Such credits are used to offset against the total distribution service fees we pay on all of our products to each wholesaler. Net
revenue on these credits is recognized on the date that the wholesaler is notified of the price increase. Provision balances relating
to estimated amounts payable to direct customers are netted against accounts receivable, and balances relating to indirect customers
are included in accrued liabilities. The provisions recorded to reduce gross product sales to net product sales were as follows:
($ in millions)
Gross product sales
Provisions to reduce gross product sales to net product sales
Net product sales
Percentage of provisions to gross sales
Years Ended December 31,
2015
$
15,508.2
5,216.0
10,292.2
2014
(Restated)
$
11,436.6
3,390.5
8,046.1
2013
$
7,849.8
2,209.5
5,640.3
34%
30%
28%
Provisions as a percentage of gross sales increased to 34% in 2015 from 30% in 2014. The increase was driven primarily
by product mix due to increased sales of products which carry higher contractual rebates and co-pay assistance programs, including
the impact of gross price increases where customers receive incremental rebates based on contractual price increase limitations.
Specifically, the comparisons were impacted primarily by (i) higher provisions for rebates, chargebacks, and returns, including
managed care rebates for Jublia® and the co-pay assistance programs for launch products and other promoted products including
Jublia®, Onexton®, Retin-A Micro® Microsphere 0.08% (“RAM 0.08%”), and Solodyn®, as well as Salix products and (ii)
higher rebate percentages for sales to the U.S. government (including Wellbutrin XL®).
Provisions as a percentage of gross sales increased to 30% in 2014 from 28% in 2013. The increase was driven primarily
by higher provisions for returns and rebates, including the new co-pay assistance programs for launch products including Jublia®,
Luzu®, and RAM 0.08%, as well as increased sales of generic products and Wellbutrin XL® (to the U.S. government), which
have higher rebate percentages.
45
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
During the fourth quarter of 2015, we identified a misclassification between previously reported “Gross product sales” and
“Provisions to reduce gross product sales to net product sales” in the table above. This misclassification did not impact “Net
product sales” as reported in the consolidated statements of (loss) income. For the full year 2014 and the nine months ended
September 30, 2015, we previously reported “Gross product sales” of $11,594 million and $11,885 million, respectively, which
after adjusting for the misclassification, should have been $11,517 million and $11,106 million, respectively, prior to reflecting
the effect of the restatement discussed in Note 2 titled “RESTATEMENT” of notes to consolidated financial statements. For the
full year 2014 and the nine months ended September 30, 2015, we previously reported “Provisions to reduce gross product sales
to net product sales” of $3,490 million and $4,295 million, respectively, which after adjusting for the misclassification, should
have been $3,413 million and $3,516 million, respectively, prior to reflecting the effect of the restatement discussed in Note 2
titled “RESTATEMENT” of notes to consolidated financial statements. This misclassification relates to the presentation of gross
product sales and related provisions for sales through Philidor, subsequent to the consolidation of Philidor in December 2014. The
amounts reflected in the table above reflect the correction of this misclassification as well as the effect of the restatement.
Changes in Earnings Attributable to Valeant Pharmaceuticals International, Inc.
Net loss attributable to Valeant Pharmaceuticals International, Inc. was $292 million in 2015, compared with net income
attributable to Valeant Pharmaceuticals International, Inc. of $881 million in 2014, reflecting the following factors: (i) an increase
in contribution (product sales revenue less cost of goods sold, exclusive of amortization and impairments of finite-lived intangible
assets) of $1.89 billion in 2015 more than offset by (ii) an increase in operating expenses driven mainly by an increase in amortization
and impairments of finite-lived intangible assets, selling, general and administrative expenses, and other expense, and (iii) an
increase in non-operating expenses driven mainly by interest expense. Operating expenses in the fourth quarter of 2015 include
the impact from the termination of the Philidor arrangement (the termination was announced in October 2015), including
impairments of intangible assets and property, plant and equipment of $102 million, in the aggregate, and incremental accounts
receivable reserves of $27 million, partially offset by a contingent consideration gain of $47 million related to fair value adjustments
to sales-based milestones.
Net income attributable to Valeant Pharmaceuticals International, Inc. was $881 million in 2014, compared with net loss
attributable to Valeant Pharmaceuticals International, Inc. of $866 million in 2013, reflecting the following factors: (i) an increase
in contribution (product sales revenue less cost of goods sold, exclusive of amortization and impairments of finite-lived intangible
assets) of $2.07 billion in 2014, (ii) higher impairment charges in 2013 (primarily driven by the impairment charge for ezogabine/
retigabine) and (iii) a net gain related to the divestiture of facial aesthetic fillers and toxins assets in 2014, partially offset by (iv)
an increase in selling, general and administrative expenses, (v) an increase in the provision for income taxes and (vi) an increase
in non-operating expense, net which included increases in interest expense, loss on extinguishment of debt, and foreign exchange
and other, which were partially offset by the net gain recognized in connection with the sale by PS Fund 1, LLC (“PS Fund 1”)
of the Allergan Inc. (“Allergan”) shares.
The above changes are further described below under “Results of Operations”.
RESULTS OF OPERATIONS
Reportable Segments
We have two operating and reportable segments: (i) Developed Markets, and (ii) Emerging Markets. The following is a brief
description of our segments as of December 31, 2015:
• Developed Markets consists of (i) sales in the U.S. of pharmaceutical products, OTC products, and medical device
products, as well as alliance and contract service revenues, in the areas of dermatology and podiatry, neurology,
gastrointestinal disorders, eye health, oncology and urology, dentistry, aesthetics, and women's health and (ii)
pharmaceutical products, OTC products, and medical device products sold in Western Europe, Canada, Japan, Australia
and New Zealand.
• Emerging Markets consists of branded generic pharmaceutical products and branded pharmaceuticals, OTC products,
and medical device products. Products are sold primarily in Central and Eastern Europe (primarily Poland and Russia),
Asia, Latin America (Mexico, Brazil, Argentina, and Colombia and exports out of Mexico to other Latin American
markets), Africa and the Middle East.
Revenues By Segment
Our primary sources of revenues are the sale of pharmaceutical products, OTC products, and medical devices. The following
table displays revenues by segment for each of the last three years, the percentage of each segment’s revenues compared with total
46
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
revenues in the respective year, and the dollar and percentage change in the dollar amount of each segment’s revenues. Percentages
may not sum due to rounding.
Years Ended December 31,
Change
($ in millions)
Developed Markets
Emerging Markets
Total revenues
2015 vs 2014
2015
$
8,537.3
1,909.2
%
82
18
2014
(Restated)
$
6,109.6
2,096.4
%
74
26
2013
$
4,293.2
1,476.4
%
74
26
10,446.5
100
8,206.0
100
5,769.6
100
2,240.5
2014 to 2015
(Restated)
2013 to 2014
(Restated)
$
2,427.7
(187.2)
%
40
(9)
27
$
1,816.4
620.0
2,436.4
%
42
42
42
Total revenues increased $2.24 billion, or 27%, to $10.45 billion in 2015. The growth was mainly attributable to the effect
of the following factors:
Developed Markets segment:
•
the incremental product sales revenue of $2.12 billion, in the aggregate, from all 2014 and 2015 acquisitions, primarily
from the 2015 acquisitions of Salix (mainly driven by Xifaxan®, as well as Glumetza®, Uceris®, Apriso®, and
Omeprazole product sales), certain assets of Marathon (mainly driven by Isuprel® and Nitropress® product sales),
and certain assets of Dendreon (Provenge® product sales). Of the $2.12 billion increase, approximately one-quarter
of such amount was attributable to price increases implemented subsequent to such acquisitions (primarily related to
Isuprel®, Nitropress®, and Glumetza®). Regarding the Salix Acquisition, wholesaler inventory levels were reduced
to less than two months at December 31, 2015, and we anticipate selling to demand by the second quarter of 2016.
Overall, our U.S. wholesaler inventory levels were approximately 1.5 months at December 31, 2015, slightly under
two months at December 31, 2014, and approximately 1.5 months at December 31, 2013.
These factors were partially offset by:
•
•
a negative foreign currency exchange impact on the existing business of $246 million in 2015, due to the impact of a
strengthening of the U.S. dollar against certain currencies, including the Euro, Canadian dollar, Australian dollar, and
Japanese yen; and
a negative impact from divestitures and discontinuations of $121 million in 2015, primarily driven by $94 million in
the U.S. related to the divestiture in the third quarter of 2014 of facial aesthetic fillers and toxins.
Excluding the items described above, we realized incremental product sales revenue from the remainder of the existing
business of $667 million in 2015, driven by pricing actions, including those implemented in the first three quarters of 2015,
in particular with respect to the neurology portfolio. These pricing actions included approximately $130 million of price
appreciation credits. Volume was essentially flat as gains realized during the first nine months of 2015 were offset by
volume reductions in the fourth quarter of 2015 primarily due to continued declines in neurology and lower volumes in
dermatology as a result of the wind-down of the Philidor relationship. For the full year, volume reflects decreases in the
Cardizem® family due to supply issues, Zovirax® and Targretin® due to generic competition, and Acanya® due to our
competitive launch of the next-generation product, Onexton®, offset by increased volumes reflecting (1) higher sales of
(i) Jublia® (launched in mid-2014), (ii) the Retin-A® franchise (including the launch of RAM 0.08% in mid-2014), (iii)
Onexton® (launched in the fourth quarter of 2014), (iv) Arestin®, (v) Xenazine®, (vi) CeraVe® and (vii) Bausch + Lomb
Ultra® and (2) higher sales from other recent product launches, including the launch of Biotrue® ONEday.
Emerging Markets segment:
•
the incremental product sales revenue of $92 million, in the aggregate, from all 2014 and 2015 acquisitions, including
the 2015 acquisition of Amoun.
This factor was more than offset by:
•
a negative foreign currency exchange impact on the existing business of $351 million in 2015, due to the impact of a
strengthening of the U.S. dollar against certain currencies, including the Russian ruble, Polish zloty, Euro, Brazilian
real, and the Mexican peso; and
47
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
•
a negative impact from divestitures and discontinuations of $20 million in 2015, primarily from Latin America.
Excluding the items described above, we realized incremental product sales revenue from the remainder of the existing
business of $96 million in 2015, driven primarily by volume. The overall growth primarily reflected higher sales in Asia
(primarily China), Mexico, and Middle East/North Africa, partially offset by declining sales in Russia. Our wholesaler
inventory levels in Russia and Poland, in the aggregate, approximated four to five months during 2015 (as compared to
approximately three to four months during 2014). During 2016, our goal is to bring such inventory levels below three
months on hand, in-line with our targeted levels for such markets, which we anticipate will reduce revenue by approximately
$50 million in 2016.
2014 vs 2013
Total revenues increased $2.44 billion, or 42%, to $8.21 billion in 2014 primarily due to growth from acquisitions, including
the B&L Acquisition. The remaining growth in 2014 reflected both price and volume, with slightly more than half of the growth
from price. In the Developed Markets, the majority of growth was driven by price, and in the Emerging Markets, the growth was
driven almost entirely by volume. The growth was mainly attributable to the effect of the following factors:
Developed Markets segment:
•
the incremental product sales revenue of $1.70 billion, in the aggregate, from all 2013 and 2014 acquisitions, primarily
from (i) the 2013 acquisition of B&L (driven by Ocuvite®/PreserVision®, Lotemax®, ReNu Multiplus®, and Biotrue®
Multipurpose solution product sales) and (ii) the 2014 acquisition of Solta Medical (mainly driven by Thermage CPT®
system product sales) and PreCision (mainly driven by Clindagel® product sales); and
•
an increase in other revenues of $23 million in 2014, primarily related to higher royalty revenue.
Those factors were partially offset by:
•
•
a negative impact from divestitures, discontinuations and supply interruptions of $263 million in 2014, primarily driven
by a decrease of $174 million related to the divestiture in the third quarter of 2014 of facial aesthetic fillers and toxins,
as well as the discontinuation of Maxair® and the divestiture of Buphenyl® in 2013; and
a negative foreign currency exchange impact on the existing business of $60 million in 2014 due to the impact of a
strengthening of the U.S. dollar against certain currencies, including the Canadian dollar, Japanese yen, and Australian
dollar.
Excluding the items described above, we realized incremental product sales revenue from the remainder of the existing
business of $417 million in 2014. The growth reflected (1) higher sales of (i) orphan products (Syprine® and Xenazine®),
(ii) Targretin®, (iii) Wellbutrin XL® (U.S.), and (iv) Jublia® and (2) higher sales from recent product launches, including
the launches of RAM 0.08% and Luzu®, partially offset by a decrease in product sales of $172 million, in the aggregate,
due to generic competition. The decrease from generic competition related to a decline in sales of the Vanos®, Retin-A
Micro® (excluding RAM 0.08%) and Zovirax® franchises and Wellbutrin® XL (Canada).
Emerging Markets segment:
•
the incremental product sales revenue of $581 million, in the aggregate, from all 2013 and 2014 acquisitions, primarily
from the 2013 acquisition of B&L (driven by ReNu Multiplus®, Ocuvite®, and Artelac® product sales) and the 2014
acquisition of Solta Medical (mainly driven by Thermage CPT® system product sales).
This factor was partially offset by:
•
•
a negative foreign currency exchange impact on the existing business of $105 million in 2014 due to the impact of a
strengthening of the U.S. dollar against certain currencies, in particular the Russian ruble; and
a negative impact from divestitures, discontinuations and supply interruptions of $60 million in 2014, primarily from
Eastern Europe and Brazil.
Excluding the items described above, we realized incremental product sales revenue from the remainder of the existing
business of $196 million in 2014. The growth reflected higher sales in Eastern Europe, Middle East and North Africa,
Southeast Asia and Mexico.
Segment Profit
48
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Segment profit is based on operating income after the elimination of intercompany transactions (including transactions with
any consolidated variable interest entities). Certain costs, such as restructuring, integration and acquisition-related costs, in-process
research and development impairments and other charges and other (income) expense, are not included in the measure of segment
profit, as management excludes these items in assessing segment financial performance. In addition, a portion of share-based
compensation, representing the difference between actual and budgeted expense, is not allocated to segments.
The following table displays profit by segment for each of the last three years, the percentage of each segment’s profit
compared with corresponding segment revenues in the respective year, and the dollar and percentage change in the dollar amount
of each segment’s profit. Percentages may not add due to rounding.
($ in millions)
Developed Markets
Emerging Markets
Total segment profit
Years Ended December 31,
Change
2015
$
2,463.8
238.5
2,702.3
%(1)
29
12
26
2014
(Restated)
$
1,980.7
337.3
2,318.0
%(1)
32
16
28
2013
$
573.2
93.0
666.2
%(1)
13
6
12
2014 to 2015
(Restated)
2013 to 2014
(Restated)
$
483.1
%
24
(98.8)
(29)
384.3
17
$
1,407.5
244.3
1,651.8
%
246
263
248
____________________________________
(1) — Represents profit as a percentage of the corresponding revenues.
2015 vs 2014
Total segment profit increased $384 million, or 17%, to $2.70 billion in 2015, mainly attributable to the effect of the following
factors:
Developed Markets segment:
•
•
an increase in contribution of $1.65 billion, in the aggregate, from all 2014 and 2015 acquisitions in 2015, primarily
from sales of Salix, Marathon, and Dendreon products, including expenses for acquisition accounting adjustments
related to inventory of $130 million (primarily Salix and Marathon), in the aggregate, in 2015; and
a favorable impact of $27 million related to the existing business acquisition accounting adjustments related to inventory
in 2014, that did not similarly occur in 2015.
Those factors were partially offset by:
•
•
•
an increase in operating expenses (including amortization and impairments of finite-lived intangible assets) of $1.57
billion in 2015, primarily associated with the acquisitions of new businesses within the segment (primarily Salix);
a negative foreign currency exchange impact on the existing business contribution of $184 million in 2015, due to the
impact of a strengthening of the U.S. dollar against certain currencies, including the Euro, Canadian dollar, Australian
dollar, and Japanese yen; and
a decrease in contribution related to divestitures and discontinuations of $97 million in 2015, primarily driven by $80
million related to the divestiture in the third quarter of 2014 of facial aesthetic fillers and toxins.
Excluding the items described above, we realized incremental contribution from product sales from the remainder of the
existing business of $650 million in 2015. Refer to "—Revenues By Segment" above for additional details.
Emerging Markets segment:
•
a decrease in operating expenses (including amortization and impairments of finite-lived intangible assets) of $56
million in 2015, primarily driven by foreign currency exchange; and
•
an increase in contribution of $43 million in 2015, primarily from all 2014 and 2015 acquisitions.
These factors were more than offset by:
•
a negative foreign currency exchange impact on the existing business contribution of $211 million in 2015, due to the
impact of a strengthening of the U.S. dollar against certain currencies, including the Russian ruble, Polish zloty, Euro,
Brazilian real, and the Mexican peso; and
49
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
•
a decrease in contribution related to divestitures and discontinuations of $12 million in 2015.
Excluding the items described above, we realized incremental contribution from product sales from the remainder of the
existing business of $30 million in 2015. Refer to "—Revenues By Segment" above for additional details.
2014 vs 2013
Total segment profit increased $1.65 billion, or 248%, to $2.32 billion in 2014, mainly attributable to the effect of the
following factors:
Developed Markets segment:
•
•
an increase in contribution of $1.14 billion, in the aggregate, from all 2013 and 2014 acquisitions, primarily from the
product sales of B&L, Solta Medical and PreCision, including higher expenses for acquisition accounting adjustments
related to inventory of $29 million, in the aggregate, in 2014; and
a favorable impact of $307 million related to the existing business acquisition accounting adjustments related to
inventory in 2013 that did not similarly occur in 2014 (primarily related to B&L).
Those factors were partially offset by:
•
•
•
a decrease in contribution related to divestitures, discontinuations and supply interruptions of $214 million in 2014,
primarily driven by a decrease in contribution of $149 million related to the divestiture of facial aesthetic fillers and
toxins in the third quarter of 2014;
an increase in operating expenses (including amortization and impairments of finite-lived intangible assets) of $202
million in 2014 primarily due to (i) the acquisitions of new businesses within the segment (primarily B&L), partially
offset by (ii) the impairment charge of $552 million related to ezogabine/retigabine in the third quarter of 2013; and
a negative foreign currency exchange impact on the existing business contribution of $45 million in 2014 due to the
impact of a strengthening of the U.S. dollar against certain currencies, including the Canadian dollar, Japanese yen,
and Australian dollar.
Excluding the items described above, we realized incremental contribution from product sales from the remainder of the
existing business of $395 million in 2014, driven by (1) higher sales of (i) orphan products (Syprine® and Xenazine®),
(ii) Targretin®, (iii) Jublia®, and (iv) Wellbutrin XL® (U.S.) and (2) higher sales from recent product launches, including
the launches of RAM 0.08% and Luzu®, partially offset by a decrease in contribution of $160 million related to a decline
in sales of the Vanos®, Retin-A Micro® (excluding RAM 0.08%) and Zovirax® franchises and Wellbutrin® XL (Canada)
as a result of the continued impact of generic competition.
Emerging Markets segment:
•
•
an increase in contribution of $379 million, in the aggregate, from all 2013 and 2014 acquisitions, primarily from the
sale of B&L and Solta Medical products; and
a favorable impact of $65 million related to the existing business acquisition accounting adjustments related to inventory
in 2013 that did not similarly occur in 2014 (primarily related to B&L).
Those factors were partially offset by:
•
•
an increase in operating expenses (including amortization and impairments of finite-lived intangible assets) of $250
million in 2014, primarily associated with the acquisitions of new businesses within the segment;
a negative foreign currency exchange impact on the existing business contribution of $65 million in 2014 due to the
impact of a strengthening of the U.S. dollar against certain currencies, in particular the Russian ruble; and
•
a decrease in contribution related to divestitures, discontinuations and supply interruptions of $38 million in 2014.
Excluding the items described above, we realized incremental contribution from product sales from the remainder of the
existing business of $149 million in 2014. The growth reflected higher sales in Eastern Europe, Middle East and North
Africa, Southeast Asia and Mexico.
Operating Expenses
50
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The following table displays the dollar amount of each operating expense category for each of the last three years, the
percentage of each category compared with total revenues in the respective year, and the dollar and percentage changes in the
dollar amount of each category. Percentages may not sum due to rounding.
($ in millions)
$
%(1)
$
%(1)
$
%(1)
$
%
$
%
Years Ended December 31,
Change
2015
2014
(Restated)
2013
2014 to 2015
(Restated)
2013 to 2014
(Restated)
Cost of goods sold (exclusive of
amortization and impairments of finite-
lived intangible assets shown separately
below)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization and impairments of finite-
lived intangible assets
Restructuring, integration and other costs
In-process research and development
impairments and other charges
Acquisition-related costs
Acquisition-related contingent
consideration
Other expense (income)
Total operating expenses
____________________________________
2,531.6
53.1
2,699.8
334.4
2,418.3
361.9
248.4
24
1
26
3
23
3
2
38.5 —
2,177.7
58.4
2,026.3
246.0
1,550.7
381.7
27
1
25
3
19
5
41.0 —
6.3 —
(23.0) —
(14.1) —
256.1
8,919.1
2
85
(268.7)
6,205.3
(3)
76
1,846.3
58.8
1,305.2
156.8
1,902.0
462.0
153.6
36.4
32
1
23
3
33
8
3
1
(29.2)
287.2
(1)
5
353.9
(5.3)
673.5
88.4
867.6
(19.8)
207.4
32.2
(8.9)
524.8
6,179.1
107
2,713.8
16
(9)
33
36
56
(5)
506
511
63
NM
44
331.4
(0.4)
721.1
89.2
(351.3)
(80.3)
(112.6)
(30.1)
18
(1)
55
57
(18)
(17)
(73)
(83)
15.1
(52)
(555.9) NM
26.2 —
(1) — Represents the percentage for each category as compared to total revenues.
NM — Not meaningful
Cost of Goods Sold (exclusive of amortization and impairments of finite-lived intangible assets)
Cost of goods sold primarily includes: manufacturing and packaging; the cost of products we purchase from third parties;
royalty payments we make to third parties; depreciation of manufacturing facilities and equipment; and lower of cost or market
adjustments to inventories. Cost of goods sold excludes the amortization and impairments of finite-lived intangible assets described
separately below under “— Amortization and Impairments of Finite-Lived Intangible Assets.”
Cost of goods sold increased $354 million, or 16%, to $2.53 billion in 2015. As a percentage of revenue, Cost of goods sold
decreased to 24% in 2015 as compared to 27% in 2014. The comparisons were impacted primarily by:
•
•
a favorable impact from product mix and geographic mix driven by growth in the U.S. businesses and recent dermatology
product launches, including Jublia®, RAM 0.08%, and Onexton®. These are higher margin products as compared to our
overall product portfolio; and
a favorable impact from sales of certain products acquired in the Salix Acquisition in the second quarter of 2015 (such
as Xifaxan®), which represent higher margin products as compared to our overall product portfolio.
Those factors were partially offset by:
•
•
•
an unfavorable impact on margin from foreign currency exchange of $372 million in 2015;
the impact of incremental acquisition accounting adjustments of $106 million in 2015, primarily related to the fair value
step-up for acquired inventory from the Salix Acquisition and the acquisition of certain assets of Marathon which was
expensed in 2015 that did not similarly occur in 2014; and
an unfavorable impact from sales of Provenge® (acquired as part of the acquisition of certain assets of Dendreon in the
first quarter of 2015) and Glumetza® (acquired as part of the Salix Acquisition in the second quarter of 2015), both of
which represent lower margin products as compared to our overall product portfolio.
Cost of goods sold increased $331 million, or 18%, to $2.18 billion in 2014. As a percentage of revenue, Cost of goods sold
decreased to 27% in 2014 as compared to 32% in 2013, primarily due to:
51
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
•
•
the impact of lower acquisition accounting adjustments of $345 million in 2014, primarily related to the fair value step-
up for acquired inventory from the B&L Acquisition and the 2012 acquisition of Medicis Pharmaceutical Corporation
("Medicis") which was expensed in 2013 that did not similarly occur in 2014; and
a favorable impact from product mix driven by new product launches, including Jublia®, Luzu®, and RAM 0.08%,
which represent higher margin products as compared to our overall product portfolio.
Those factors were partially offset by:
•
an unfavorable impact from product mix related to (i) the product portfolio acquired as part of the B&L Acquisition and
(ii) decreased sales of certain products in the Developed Markets segment due to generic competition (as described above)
which represent higher margin products as compared to our overall product portfolio.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") primarily include: employee compensation costs associated with
sales and marketing, finance, legal, information technology, human resources, and other administrative functions; certain outside
legal fees and consultancy costs; product promotion expenses; overhead and occupancy costs; depreciation of corporate facilities
and equipment; and other general and administrative costs.
SG&A increased $674 million, or 33%, to $2.70 billion in 2015. As a percentage of revenue, SG&A increased to 26% in
2015 as compared to 25% in 2014. SG&A in 2015 was impacted primarily by:
•
•
•
•
higher expenses of $378 million to support the U.S. operations, primarily to support recent product launches in dermatology
(including Jublia® and Onexton®) and the contact lens business;
higher expenses of $311 million, related to acquisitions, including the Salix Acquisition and the acquisition of certain
assets of Dendreon;
increased share-based compensation expense of $62 million, primarily driven by new awards granted during the period,
the impact of the accelerated vesting related to certain performance-based restricted stock unit ("RSU") awards, and the
impact from a modification made to certain share-based awards;
a charge in the fourth quarter of 2015 of $27 million for incremental accounts receivable reserves primarily related to (i)
a settlement with R&O Pharmacy, LLC ("R&O") regarding outstanding receivable amounts and (ii) certain Philidor
customers (see Note 3 titled "SIGNIFICANT ACCOUNTING POLICIES" and Note 21 titled "LEGAL PROCEEDINGS"
of notes to consolidated financial statements in Item 15 of this Form 10-K for additional information regarding R&O);
and
•
a write-off of property, plant and equipment in the fourth quarter of 2015 of $23 million in connection with the termination
of the arrangements with and relating to Philidor.
Those factors were partially offset by:
•
•
a favorable impact from foreign currency exchange of $189 million in 2015; and
lower expenses of $32 million, related to the facial aesthetic fillers and toxins assets which were divested in the third
quarter of 2014.
SG&A increased $721 million, or 55%, to $2.03 billion in 2014. As a percentage of revenue, SG&A increased to 25% in
2014 as compared to 23% in 2013. SG&A in 2014 was impacted primarily by:
•
•
•
higher expenses of $464 million from the full year impact of expenses related to the B&L Acquisition;
higher expenses of $39 million associated with sales force expansion for the dermatology and contact lens businesses;
increased share-based compensation expenses of $27 million driven primarily by (i) the incremental compensation expense
related to the higher fair value for share-based awards granted in 2014 and (ii) the impact of the accelerated vesting in
the first half of 2014 related to certain performance-based RSU awards; and
•
higher expenses of $18 million related to product launches, including the launches of Jublia®, Luzu®, and RAM 0.08%.
52
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
See Note 16 titled "SHARE-BASED COMPENSATION" of notes to consolidated financial statements in Item 15 of this
Form 10-K for additional information related to share-based compensation.
Research and Development Expenses
Expenses related to research and development programs include: employee compensation costs; overhead and occupancy
costs; depreciation of research and development facilities and equipment; clinical trial costs; clinical manufacturing and scale-up
costs; and other third party development costs.
Research and development expenses increased $88 million, or 36%, to $334 million in 2015, primarily due to spending on
programs acquired in the Salix Acquisition and the acquisition of certain assets of Dendreon.
In September 2015, we announced that the FDA accepted for review the NDA for latanoprostene bunod ophthalmic solution
0.024%, and the FDA assigned a PDUFA action date of July 21, 2016.
In September 2015, we announced that the FDA accepted for review the NDA for Oral Relistor®, and the FDA assigned a
PDUFA action date of April 19, 2016. In April 2016, we announced that the FDA had extended the PDUFA action date for Oral
Relistor® to July 19, 2016 to allow for a full review of our responses to certain information requests from the FDA.
In January 2016, we announced that the FDA accepted for review the BLA for brodalumab, and the FDA assigned a PDUFA
action date of November 16, 2016.
Research and development expenses increased $89 million, or 57%, to $246 million in 2014, primarily due to higher spending
on programs acquired in the B&L Acquisition, including latanoprostene bunod, Lotemax® life cycle programs, and brimonidine,
partially offset by lower spending on Jublia® (efinaconazole 10% topical solution). In June 2014, the FDA approved the NDA for
Jublia®, and the product was launched.
Amortization and Impairments of Finite-Lived Intangible Assets
Amortization and impairments of finite-lived intangible assets increased $868 million, or 56%, to $2.42 billion in 2015,
primarily due to (i) amortization of 2014 and 2015 acquisitions in 2015 (primarily the Salix Acquisition, and the acquisitions of
certain assets of both Marathon and Dendreon) that did not similarly exist for the full year in 2014, including amortization of $284
million related to Xifaxan® 550 mg for the treatment of irritable bowel syndrome with diarrhea in adults ("Xifaxan® IBS-D"),
acquired as part of the Salix Acquisition, since its approval date in May 2015, (ii) the write-off of intangible assets in the fourth
quarter of 2015 of $79 million in connection with the termination of the arrangements with and relating to Philidor, (iii) an
impairment charge in the fourth quarter of 2015 of $27 million related to the write-off of the remaining intangible asset for
ezogabine/retigabine (immediate-release formulation) resulting from further analysis of commercialization strategy and
projections, and (iv) an impairment charge in the third quarter of 2015 of $26 million related to Zelapar® resulting from declining
sales trends, partially offset by (v) a decrease of $25 million in 2015 in amortization of the facial aesthetic fillers and toxins assets
which were divested in July 2014.
Amortization and impairments of finite-lived intangible assets decreased $351 million, or 18%, to $1.55 billion in 2014,
primarily due to (i) a decrease of $631 million for ezogabine/retigabine due to the impairment charge of $552 million recognized
in the third quarter of 2013 (which also resulted in lower amortization expense in 2014), (ii) a decrease in amortization of the
facial aesthetic fillers and toxins assets which were divested in July 2014 of $44 million, (iii) impairment charges of $32 million
recognized in 2013 related to the write-down of the carrying values of assets held for sale related to certain suncare and skincare
brands sold primarily in Australia, and (iv) a $22 million write-off recognized in 2013 related to the Opana® intangible asset,
partially offset by (v) an increase in amortization of the B&L, Solta Medical and PreCision identifiable intangible assets of $243
million, in the aggregate, in 2014, (vi) a $55 million write-off recognized in 2014 related to the Kinerase® intangible asset, and
(vii) a $32 million write-off in 2014 related to the Grifulvin® intangible asset.
As part of our ongoing assessment of potential impairment indicators related to our finite-lived and indefinite-lived intangible
assets, we will closely monitor the performance of our product portfolio, such as our recently launched Addyi® product. If our
ongoing assessments reveal indications of impairment, we may determine that an impairment charge is necessary and such charge
could be material.
Restructuring, Integration and Other Costs
We recognized restructuring, integration, and other costs of $362 million in 2015, compared with $382 million and $462
million in 2014 and 2013, respectively, primarily related to the Salix Acquisition and the acquisition of certain assets of Dendreon
in 2015, the Solta Medical and Precision acquisitions in 2014, and the B&L acquisition in 2013, as well as other smaller acquisitions.
53
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Refer to Note 6 titled "RESTRUCTURING, INTEGRATION AND OTHER COSTS" of notes to consolidated financial statements
in Item 15 of this Form 10-K for further detail.
In-Process Research and Development Impairments and Other Charges
In-process research and development impairments and other charges represents impairments and other costs associated with
compounds, new indications, or line extensions under development that have not received regulatory approval for marketing at
the time of acquisition. IPR&D acquired through an asset acquisition is written off at the acquisition date if the assets have no
alternative future use. IPR&D acquired in a business combination is capitalized as indefinite-lived intangible assets (irrespective
of whether these assets have an alternative future use) until completion or abandonment of the related research and development
activities. Costs associated with the development of acquired IPR&D assets are expensed as incurred.
In 2015, we recognized in-process research and development charges of $248 million, primarily related to (i) the $100
million upfront payment in connection with the license of brodalumab, (ii) a write-off of $90 million in the third quarter of 2015
related to the Rifaximin SSD development program based on analysis of Phase 2 study data, (iii) a write-off of $28 million in the
fourth quarter of 2015 related to the Emerade® program in the U.S. based on analysis of feedback received from the FDA, and
(iv) a write-off of $12 million in the second quarter of 2015 related to the Arestin® Peri-Implantitis development program based
on analysis of Phase 3 study data.
In 2014, we recognized charges of $41 million primarily due to (i) the write-off of an IPR&D asset of $13 million related
to analysis of Phase 2 study data for a dermatological product candidate acquired in the Medicis acquisition, (ii) an up-front
payment of $12 million made in connection with an amendment to a license and distribution agreement with a third party, and
(iii) payments to third parties associated with the achievement of specific development milestones prior to regulatory approval
under our research and development programs, including Jublia®, in 2014.
In 2013, we recognized charges of $154 million, primarily due to the write-off of (i) $94 million relating to the modified-
release formulation of ezogabine/retigabine, (ii) $27 million of IPR&D assets, mainly related to the termination of the A007
(Lacrisert®) development program, (iii) $14 million related to the termination of the Mapracorat development program, and (iv)
$9 million related to a Xerese® life-cycle product.
Acquisition-Related Costs
Acquisition-related costs increased $32 million, or 511%, to $39 million in 2015, reflecting higher expenses incurred in
2015 related primarily to the Salix Acquisition, as well as other acquisitions, partially offset by acquisition activities in 2014,
primarily related to the PreCision and Solta Medical acquisitions.
Acquisition-related costs decreased $30 million, or 83%, to $6 million in 2014, reflecting higher expenses incurred in 2013
related to the B&L, Obagi and Natur Produkt acquisitions, as well as other acquisitions, partially offset by acquisition activities
in 2014, primarily related to the PreCision and Solta Medical acquisitions.
See Note 4 titled "ACQUISITIONS" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional
information regarding business combinations. Certain costs related to our investment in PS Fund 1 were recorded in Gain on
investments, net. See Note 24 titled "PS FUND 1 INVESTMENT" of notes to consolidated financial statements in Item 15 of
this Form 10-K for additional information relating to these costs.
Acquisition-Related Contingent Consideration
In 2015, we recognized an acquisition-related contingent consideration gain of $23 million. The net gain was primarily
driven by fair value adjustments in the fourth quarter of 2015 of $47 million resulting from the termination of the arrangements
with and relating to Philidor and $16 million resulting from the termination of the Emerade® IPR&D program in the U.S., partially
offset by accretion for the time value of money for the Salix Acquisition and the Elidel®/Xerese®/Zovirax® agreement entered
into with Meda Pharma SARL in June 2011 (the "Elidel®/Xerese®/Zovirax® agreement").
In 2014, we recognized an acquisition-related contingent consideration gain of $14 million. The net gain was primarily
driven by net fair value adjustments of $19 million related to the Elidel®/Xerese®/Zovirax® agreement, as a result of continued
assessment of the impact from generic competition on performance trends and future revenue forecasts for Zovirax®.
In 2013, we recognized an acquisition-related contingent consideration gain of $29 million. The net gain was primarily
driven by a net gain related to the Elidel®/Xerese®/Zovirax® agreement. As a result of analysis in the third quarter of 2013 of
performance trends since the launch of a generic Zovirax® ointment in April 2013, we adjusted the projected revenue forecast,
resulting in an acquisition-related contingent consideration net gain of $20 million in 2013. Also contributing to the acquisition-
54
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
related contingent net gain was a net gain of $7 million, which resulted from the termination, in the third quarter of 2013, of the
A007 (Lacrisert®) development program, which impacted the probability associated with potential milestone payments.
Other Expense (Income)
Other expense (income) primarily includes: legal settlements and related fees and gains/losses from the sale of assets and
businesses.
In 2015, we recognized other expense of $256 million, primarily due to (i) a post-combination expense of $168 million
recognized in the second quarter of 2015 related to the acceleration of unvested restricted stock for Salix employees (including
$3 million of related payroll taxes) in connection with the Salix Acquisition, (ii) a legal-related charge of $25 million recognized
in the third quarter of 2015 related to the AntiGrippin® litigation, and (iii) a post-combination expense of $12 million recognized
in the fourth quarter of 2015 related to bonuses paid to Amoun employees. Refer to Note 4 titled "ACQUISITIONS" and Note
21 titled "LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K for further details
related to the Salix and Amoun acquisitions and the AntiGrippin® litigation, respectively.
In 2014, we recognized other income of $269 million, primarily related to (i) a net gain of $324 million related to the
divestiture of facial aesthetic fillers and toxins in the third quarter of 2014 and (ii) the reversal of a $50 million reserve related to
the AntiGrippin® litigation in the first quarter of 2014, partially offset by (iii) a net loss of $59 million related to the divestiture
of Metronidazole 1.3% in the third quarter of 2014, (iv) a post-combination expense of $20 million in the third quarter of 2014
related to the acceleration of unvested stock options for PreCision employees, and (v) a loss on sale of $9 million related to the
divestiture of the generic tretinoin product rights in the third quarter of 2014, acquired in the PreCision acquisition. Refer to Note
4 titled "ACQUISITIONS", Note 5 titled "DIVESTITURES" and Note 21 titled "LEGAL PROCEEDINGS" of notes to
consolidated financial statements in Item 15 of this Form 10-K for further details related to the divestitures of facial aesthetic
fillers and toxins and Metronidazole 1.3%, the AntiGrippin® litigation and the acquisition of PreCision, respectively.
In 2013, we recognized other expense of $287 million, primarily due to (i) a charge of $143 million in the third quarter of
2013 related to a settlement agreement with Anacor Pharmaceuticals, Inc. (“Anacor”), (ii) a post-combination expense of $53
million, in the aggregate, related to B&L’s previously cancelled performance-based options and the acceleration of unvested stock
options for B&L employees as a result of the B&L Acquisition, (iii) a charge of $50 million in the fourth quarter of 2013 related
to AntiGrippin® litigation, and (iv) a loss of $10 million related to the sale of certain skincare products sold primarily in Australia
in the fourth quarter of 2013. Refer to Note 4 titled "ACQUISITIONS", Note 5 titled "DIVESTITURES" and Note 21 titled
"LEGAL PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K for further details related
to the divestiture of certain skincare products sold in Australia, the B&L Acquisition, and the AntiGrippin® litigation, respectively.
Non-Operating (Expense) Income
The following table displays each non-operating income or expense category for each of the last three years, and the dollar
and percentage changes in the dollar amount of each category.
($ in millions; Income (Expense))
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Gain on investments, net
Total non-operating expense
____________________________________
NM — Not meaningful
Interest Expense
Years Ended December 31,
Change
2015
$
3.3
(1,563.2)
(20.0)
(102.8)
—
(1,682.7)
2014
$
2013
$
2014 to 2015
2013 to 2014
$
%
$
%
5.0
(971.0)
(129.6)
(144.1)
292.6
(947.1)
8.0
(844.3)
(65.0)
(9.4)
5.8
(1.7)
(34)
(592.2)
109.6
41.3
61
(85)
(29)
(292.6)
(100)
(3.0)
(38)
(126.7)
(64.6)
15
99
(134.7) NM
286.8
NM
(904.9)
(735.6)
78
(42.2)
5
Interest expense increased $592 million, or 61%, to $1.56 billion in 2015, primarily due to an increase of (i) $488 million
related to the issuances of senior unsecured notes primarily in connection with the Salix Acquisition, (ii) $109 million related to
our term loans, primarily due to issuances as part of the Salix Acquisition, and (iii) $75 million related to non-cash amortization
and write-off of debt discounts and debt issuance costs driven by $72 million related to financing costs associated with the
commitment letter entered into in connection with the Salix Acquisition, partially offset by a decrease of (iv) $87 million related
55
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
to the early redemptions of the 6.875% senior notes due December 2018 (the “December 2018 Notes”) in December 2014 and
February 2015 and 6.75% senior notes due 2017 (the “2017 Notes”) in October 2014.
Interest expense increased $127 million, or 15%, to $971 million in 2014, primarily due to an increase of (i) $170 million
related to higher debt balances, driven by the borrowings in the third quarter of 2013 in conjunction with the B&L Acquisition,
(ii) $47 million related to the issuance of 5.625% senior notes due 2021 in December 2013, partially offset by (iii) a decrease of
$66 million, in the aggregate, related to the early redemption of 6.50% senior notes due 2016 (the "2016 Notes") in December
2013 and the 2017 Notes in October 2014, and (iv) a decrease of $20 million, in the aggregate, related to the non-cash amortization
and write-off of debt discounts and debt issuance costs.
Refer to Note 13 titled "LONG-TERM DEBT" of notes to consolidated financial statements in Item 15 of this Form 10-K
for further details.
Loss on Extinguishment of Debt
In 2015, we recognized losses of $20 million related to the redemption of the December 2018 Notes in February 2015.
In 2014, we recognized losses of $130 million, primarily related to (i) the refinancing of our Series E tranche B term loan
facility in February 2014, (ii) the redemption of the 2017 Notes in October 2014, and (iii) the redemption of the December 2018
Notes in December 2014.
In 2013, we recognized losses of $65 million, related primarily due to (i) the redemption of the 2016 Notes in December
2013, (ii) the repricing of our Series D tranche B term loan facility and our Series C of the tranche B term loan facility in February
2013, and (iii) the redemption of 9.875% senior notes assumed in connection with the B&L Acquisition in the third quarter of
2013.
Refer to Note 13 titled "LONG-TERM DEBT" of notes to consolidated financial statements in Item 15 of this Form 10-K
for further details.
Foreign Exchange and Other
In 2015, we recognized foreign exchange and other losses of $103 million, primarily due to (i) net foreign exchange losses
of $67 million on intercompany transactions, mainly driven by a foreign exchange loss of $50 million on a euro-denominated
intercompany loan and (ii) the $26 million loss recognized in the first quarter of 2015 in connection with the foreign currency
forward-exchange contracts entered into in March 2015 (refer to Note 7 titled "FAIR VALUE MEASUREMENTS" of notes to
consolidated financial statements in Item 15 of this Form 10-K for further details).
In 2014, we recognized foreign exchange and other losses of $144 million, primarily due to (i) a foreign exchange loss on
a euro-denominated intercompany loan and (ii) translation losses from intercompany transactions within our European operations.
In 2013, we recognized foreign exchange and other losses of $9 million primarily reflecting an unrealized foreign exchange
loss of $8 million on an intercompany financing arrangement.
Gain on Investments, Net
In 2014, we recognized a gain on investment, net of $293 million. The gain on investment, net was primarily driven by a
net gain of $287 million recognized in connection with the sale by PS Fund 1 of the Allergan shares. Refer to Note 24 titled "PS
FUND 1 INVESTMENT" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional information.
Income Taxes
The following table displays the dollar amount of the current and deferred provisions for (recovery of) income taxes for
each of the last three years, and the dollar and percentage changes in the dollar amount of each provision. Percentages may not
sum due to rounding.
56
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
($ in millions; Expense (Income))
Current income tax expense
Deferred income tax expense (benefit)
Total provision for (recovery of) income taxes
____________________________________
NM — Not meaningful
Years Ended December 31,
Change
2015
$
76.9
55.6
132.5
2014
(Restated)
$
150.7
23.5
174.2
2013
$
83.4
(534.2)
(450.8)
2014 to 2015
(Restated)
2013 to 2014
(Restated)
$
(73.8)
32.1
(41.7)
%
(49)
137
(24)
$
67.3
557.7
625.0
%
81
NM
NM
In 2015, our effective tax rate differed from the Canadian statutory tax rate due to (i) income earned in jurisdictions with a
lower statutory rate than in Canada, (ii) the effect of valuation allowance on our tax attribute carryforwards, (iii) tax benefits related
to internal integrations and restructurings primarily affecting foreign taxable income, and (iv) benefit of intra-entity transfers
including the amortization of intangibles for tax purposes. Our consolidated foreign rate differential reflects the net total tax cost
or benefit on income earned or losses incurred in jurisdictions outside of Canada as compared to the net total tax cost or benefit
of such income (on a jurisdictional basis) at the Canadian statutory rate. Tax costs below the Canadian statutory rate generate a
beneficial foreign rate differential as do tax benefits generated in jurisdictions where the statutory tax rate exceeds the Canadian
statutory tax rate. The net total foreign rate differentials generated in each jurisdiction in which we operate is not expected to bear
a direct relationship to the net total amount of foreign income (or loss) earned outside of Canada.
We record a valuation allowance against our deferred tax assets to reduce the net carrying value to an amount that we believe
is more likely than not to be realized. When we establish or reduce the valuation allowance against our deferred tax assets, the
provision for income taxes will increase or decrease, respectively, in the period such determination is made. The majority of the
increase in 2015 is due to changes in the deferred tax asset balance in Canada, and foreign tax credits recorded in the U.S. In
determining the amount of the valuation allowance that was necessary, we considered the amount of U.S. tax loss carryforwards,
U.S. research and development tax credits, Canadian tax loss carryforwards, scientific research and experimental development
pool, and investment tax credits that we would more likely than not be able to utilize based on future sources of income. Our taxes
payable is impacted by our ability to use net operating losses on a current basis.
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following table presents a summary of our unaudited quarterly results of operations and operating cash flows for the
fourth quarters of 2015 and 2014. The fourth quarter of 2014 has been restated. See Note 25 titled "SUMMARY QUARTERLY
INFORMATION (UNAUDITED)" of notes to consolidated financial statements in Item 15 of this Form 10-K for a reconciliation
to previously “As Reported” amounts for the fourth quarter of 2014, as well as other quarters in 2014 and 2015 which have been
restated or revised.
Quarter Ended December 31,
Change
2015
$
2014
(Restated)
$
2,757.2
2,590.1
167.1
(385.9)
(1.12)
(1.12)
562.3
2,235.4
1,618.0
617.4
512.5
1.53
1.50
815.7
2014 to 2015
$
521.8
972.1
(450.3)
(898.4)
%
23
60
(73)
NM
(2.65)
(2.62)
NM
NM
(253.4)
(31)
($ in millions)
Revenue
Expenses
Operating income
Net (loss) income attributable to Valeant Pharmaceuticals International, Inc.
(Loss) earnings per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Net cash provided by operating activities
____________________________________
NM — Not meaningful
Fourth Quarter of 2015 Compared to Fourth Quarter of 2014 (Restated)
Results of Operations
57
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Total revenues increased $522 million, or 23%, to $2.76 billion in the fourth quarter of 2015 as compared to the fourth
quarter of 2014. The growth reflected the following factors:
•
the incremental product sales revenue of $781 million, in the aggregate, from all 2014 and 2015 acquisitions, primarily
from the 2015 acquisitions of Salix (mainly driven by Xifaxan®, as well as Glumetza®, Omeprazole, Uceris®, Apriso®
and Relistor® product sales), certain assets of Marathon (mainly driven by Isuprel® and Nitropress® product sales),
and assets of Dendreon (Provenge® product sales).
This factor was partially offset by:
•
a negative foreign currency impact on the existing business of $122 million in the fourth quarter of 2015 due to the impact
of a strengthening of the U.S. dollar against certain currencies, including the Euro, Canadian dollar, Brazilian real, Polish
zloty, Mexican peso and Russian ruble.
Excluding the items described above, we experienced a decline in product sales revenue from the remainder of the existing
business of $121 million in the fourth quarter of 2015, primarily as a result of continued declining volumes in the neurology
portfolio, lower volumes in dermatology as a result of the wind-down of the Philidor relationship and generic competition
for Carac® and Targretin®, partially offset by higher volumes for Jublia®, Biotrue® ONEday, and Bausch + Lomb Ultra®.
The impact from pricing was not significant as the effect of pricing actions taken prior to the fourth quarter of 2015 primarily
within the neurology portfolio was largely offset by lower average realized prices in the dermatology portfolio primarily
resulting from reduced managed care coverage and increased patient subsidies, as a result of the wind-down of the Philidor
relationship.
Net loss attributable to Valeant Pharmaceuticals International, Inc. was $386 million in the fourth quarter of 2015, compared
with a net income of $513 million in the fourth quarter of 2014, primarily reflecting the following factors:
•
an increase in contribution (product sales revenue less cost of goods sold, exclusive of amortization and impairments of
finite-lived intangible assets) of $372 million driven primarily from the growth in revenues discussed above.
This factor was more than offset by:
•
•
•
•
•
an increase in non-operating expenses, net of $381 million driven mainly by (i) the gain on investment of $287 million
recognized in the fourth quarter of 2014 in connection with the sale by PS Fund 1 of the Allergan shares that did not
similarly occur in the fourth quarter of 2015 and (ii) higher interest expense of $208 million, partially offset by (iii) lower
foreign exchange losses of $78 million primarily due to lower losses on intercompany transactions and (iv) the loss on
debt extinguishment of $36 million recognized in the fourth quarter of 2014 related to the redemption of the 6.75% senior
notes due 2017 and 6.875% senior notes due 2018 that did not similarly occur in the fourth quarter of 2015;
an increase in amortization and impairments of finite-lived intangible assets of $352 million primarily due to (i)
amortization from acquisitions consummated in 2015 (mainly related to the Salix and Sprout acquisitions), including
amortization of $118 million related to Xifaxan® IBS-D (amortization commenced in May 2015 upon approval by the
FDA), and (ii) the write-off of intangible assets of $79 million in connection with the termination of the arrangement
with and relating to Philidor;
an increase in selling, general and administrative expenses of $218 million primarily due to higher expenses related to
acquisitions, including the Salix Acquisition, the Sprout Acquisition and the acquisition of certain assets of Dendreon;
an increase in in-process research and development impairments and other charges of $140 million primarily due to the
$100 million upfront payment in connection with the license of brodalumab and the write-off of $28 million related to
the Emerade® program in the U.S.; and
an increase in restructuring, integration and other costs of $44 million primarily due to higher expenses related to the
Salix Acquisition as well as other small acquisitions.
In connection with the termination of the arrangement with and relating to Philidor, in addition to the write-off of intangible
assets of $79 million described above, we also recognized, in the fourth quarter of 2015, incremental accounts receivable reserves
of $27 million and impairments of property, plant and equipment of $23 million, partially offset by a contingent consideration
gain of $47 million related to fair value adjustments to sales-based milestones.
Cash Flows From Operations
58
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net cash provided by operating activities decreased $253 million to $562 million in the fourth quarter of 2015, primarily
due to:
•
•
$398 million of cash proceeds representing the return on our investment in PS Fund 1 from the appreciation in the Allergan
share price and our right to 15% of the net profits realized by Pershing Square on the sale of Allergan shares in the fourth
quarter of 2014, which did not similarly occur in the fourth quarter of 2015. Refer to Note 24 titled "PS FUND 1
INVESTMENT" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional information;
and
higher payments of $16 million related to restructuring, integration and other costs primarily due to payments made in
the fourth quarter of 2015 related to the Salix Acquisition and the acquisition of certain assets of Dendreon, partially
offset by lower payments related to the B&L Acquisition.
Those factors were partially offset by:
•
a decreased investment in working capital of $278 million in the fourth quarter of 2015, primarily related to (i) changes
in geographic and product mix, in particular the impact on receivables from lower product sales for the U.S. Dermatology
business in the month of December, (ii) a true-up payment of $138 million, related to price appreciation credits, received
under a distribution service agreement, and (iii) changes related to timing of payments and receipts in the ordinary course
of business, partially offset by higher payments related to interest and product sales provisions (such as managed care
rebates, government rebates, and patient subsidies); and
•
the inclusion of cash flows from the operations in the fourth quarter of 2015 from the 2015 acquisitions, including the
Salix Acquisition, and the acquisition of certain assets of Marathon and Dendreon.
59
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary sources of cash include: cash collected from customers, funds available from our revolving credit facility,
issuances of long-term debt and issuances of equity. Our primary uses of cash include: business development transactions, funding
ongoing operations, interest and debt principal payments, securities repurchases and restructuring activities. The following table
displays cash flow information for each of the last three years:
($ in millions)
Net cash provided by operating activities
Net cash used in investing activities
Years Ended December 31,
2015
$
2014
$
2013
$
2,200.4
2,294.7
1,042.0
(94.3)
(15,577.4)
(99.7)
(5,380.3)
(15,477.7) NM
Change
2014 to 2015
2013 to 2014
$
%
(4)
$
1,252.7
5,280.6
%
120
(98)
Net cash provided by (used in) financing activities
13,681.8
(2,443.7)
4,027.7
16,125.5
NM
(6,471.4) NM
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(30.1)
274.7
322.6
597.3
(29.0)
(277.7)
600.3
322.6
(5.2)
(315.8)
916.1
600.3
(1.1)
4
552.4
(277.7)
274.7
NM
(46)
85
(23.8)
38.1
(315.8)
(277.7)
458
(12)
(34)
(46)
____________________________________
NM — Not meaningful
Operating Activities
Net cash provided by operating activities decreased $94 million, or 4%, to $2.20 billion in 2015, primarily due to:
•
•
•
•
$398 million of cash proceeds in 2014 (which did not similarly occur in 2015), representing the return on our previous
investment in PS Fund 1 from the appreciation in the Allergan share price and our right to 15% of the net profits realized
by Pershing Square on the sale of Allergan shares. Refer to Note 24 titled "PS FUND 1 INVESTMENT" of notes to
consolidated financial statements in Item 15 of this Form 10-K for additional information;
an increased investment in working capital of $193 million in 2015, primarily related to (i) the post-acquisition build up
in accounts receivable for recent acquisitions (primarily the Salix Acquisition and the acquisition of certain assets of
Marathon), where minimal accounts receivable balances were acquired, (ii) higher payments related to interest and product
sales provisions (such as managed care rebates, government rebates, and patient subsidies), (iii) slower account receivable
collections in Russia, and (iv) the impact of changes related to timing of payments and receipts in the ordinary course of
business, partially offset by (v) changes in geographic and product mix, in particular the impact on receivables from
lower product sales for the U.S. dermatology business in the month of December and (vi) true-up payments, related to
price appreciation credits, received under our distribution service agreements;
payment of $168 million in the second quarter of 2015 for outstanding restricted stock that was accelerated in connection
with the Salix Acquisition, which includes $3 million of related payroll taxes (recognized as a post-combination expense
within Other expense (income)); and
a payment of approximately $25 million related to the AntiGrippin® litigation (refer to Note 21 titled "LEGAL
PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K).
Those factors were partially offset by:
•
•
•
the inclusion of cash flows in 2015 from all 2014 and 2015 acquisitions, including the Salix Acquisition and the acquisitions
of certain assets of both Marathon and Dendreon;
incremental cash flows from the continued growth of the existing business, including new product launches; and
lower payments of $82 million related to restructuring, integration and other costs primarily due to lower payments related
to the B&L Acquisition, partially offset by payments made in 2015 related to the Salix Acquisition and the acquisition
of certain assets of Dendreon.
Net cash provided by operating activities increased $1.25 billion, or 120%, to $2.29 billion in 2014, primarily due to:
60
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
•
•
•
the inclusion of cash flows in 2014 from all 2013 acquisitions, primarily the B&L and Obagi acquisitions, as well as all
2014 acquisitions;
$398 million of cash proceeds representing the return on our previous investment in PS Fund 1 from the appreciation in
the Allergan share price and our right to 15% of the net profits realized by Pershing Square on the sale of Allergan shares;
and
incremental cash flows from the continued growth of the existing business, including new product launches, partially
offset by a decrease in contribution of $160 million in 2014 related to the lower sales of the Vanos®, Retin-A Micro®
(excluding RAM 0.08%) and Zovirax® franchises and Wellbutrin® XL (Canada) as a result of generic competition.
Those factors were partially offset by:
•
an increased investment in working capital of $251 million in 2014, primarily related to (i) an increase in receivables
driven by higher gross sales and geographic and product mix and (ii) the impact of changes related to timing of payments,
including prepaid expenses, interest, severance, and integration payments, and receipts in the ordinary course of business,
partially offset by an increase in accrued liabilities due to higher gross to net sales reserves; and
•
higher payments of $56 million related to restructuring, integration and other costs in 2014.
Investing Activities
Net cash used in investing activities increased $15.48 billion to $15.58 billion in 2015, primarily due to:
•
•
an increase of $14.24 billion, in the aggregate, related to higher purchases of businesses (net of cash acquired) and
intangible assets, driven by the Salix, Amoun, and Sprout acquisitions, and the acquisitions of certain assets of both
Dendreon and Marathon; and
an increase of $1.48 billion, related to proceeds in 2014 from the sale of assets and businesses, net of costs to sell, primarily
attributable to the cash proceeds of approximately $1.40 billion for the divestiture of facial aesthetic fillers and toxins to
Galderma S.A. ("Galderma"), which did not similarly occur in 2015.
Those factors were partially offset by:
•
a decrease of $185 million related to the net impact from the settlement of derivative contracts assumed in the Salix
Acquisition in the second quarter of 2015 (consists of the settlement of the $1.27 billion asset mostly offset by the
settlement of the $1.08 billion liability, as further described in Note 4 titled "ACQUISITIONS" of notes to consolidated
financial statements in Item 15 of this Form 10-K); and
•
a decrease of $56 million related to lower purchases of property, plant and equipment in 2015.
Net cash used in investing activities decreased $5.28 billion, or 98%, to $100 million in 2014, primarily due to:
•
•
a decrease of $4.04 billion, in the aggregate, related to lower purchases of businesses (net of cash acquired) and intangible
assets in 2014, driven mainly by the August 2013 B&L Acquisition; and
a decrease of $1.45 billion, related to higher proceeds from the sale of assets and businesses, net of costs to sell, primarily
attributable to the cash proceeds of approximately $1.40 billion for the divestiture of facial aesthetic fillers and toxins to
Galderma in the third quarter of 2014.
Those factors were partially offset by:
•
an increase of $176 million related to higher purchases of property, plant and equipment in 2014.
Financing Activities
Net cash provided by financing activities was $13.68 billion in 2015, compared with the net cash used in financing activities
of $2.44 billion in 2014, reflecting an increase of $16.13 billion, primarily due to:
•
•
an increase due to the net proceeds of $10 billion related to the issuance of the senior notes in the first quarter of 2015
(which were released from escrow in April 2015 and utilized to fund the Salix Acquisition);
an increase due to the net proceeds of $5.06 billion, in the aggregate, related to the issuances of incremental term loans
under the Series A-4 Tranche A Facility and the Series F Tranche B Term Loan Facility in the second quarter of 2015;
61
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
•
•
•
an increase of $1.83 billion primarily related to (i) lower repayments of $1.39 billion in 2015 associated with incremental
term loans and our revolving credit facility and (ii) redemption of $945 million of senior notes in 2014 that did not
similarly occur in 2015, partially offset by (iii) $500 million paid in connection with the redemption of the December
2018 Notes in the first quarter of 2015.
an increase due to the net proceeds of $1.43 billion related to the issuance of common stock in March 2015, which were
utilized to fund the Salix Acquisition; and
an increase due to the net proceeds of $992 million from the issuance of the 5.50% senior unsecured notes due 2023 in
the first quarter of 2015.
Those factors were partially offset by:
•
a decrease due to $3.12 billion paid in connection with the redemption of the convertible notes assumed in the Salix
Acquisition in the second quarter of 2015.
Net cash used in financing activities was $2.44 billion in 2014, compared with the net cash provided by financing activities
of $4.03 billion in 2013, reflecting a decrease of $6.47 billion, primarily due to:
•
•
•
a decrease of $4.7 billion, in the aggregate, related to net proceeds from our senior secured credit facilities primarily due
to (i) the borrowings of $3.9 billion in the third quarter of 2013 in connection with the B&L Acquisition and (ii) the
repayments of $1.0 billion, in the aggregate, in the third quarter of 2014, partially offset by (iii) the issuance of $226
million in incremental term loans in the first quarter of 2014;
a decrease related to net proceeds of $4.1 billion from the issuance of senior notes in 2013; and
a decrease of $2.31 billion related to the net proceeds from the issuance of common stock in June 2013, which were
utilized to fund the B&L Acquisition.
Those factors were partially offset by:
•
•
•
•
•
an increase of $4.2 billion related to the repayment of long-term debt assumed in connection with the B&L Acquisition
in 2013 that did not similarly occur in 2014;
an increase of $234 million related to the repayments of long-term debt assumed in connection with the Medicis acquisition
in 2013 that did not similarly occur in 2014;
an increase of $56 million related to the repurchases of common shares in 2013 that did not similarly occur in 2014;
an increase of $38 million related to the repayments of short-term borrowings and long-term debt, in the aggregate,
assumed in connection with the Natur Produkt acquisition in 2013 that did not similarly occur in 2014; and
an increase of $20 million related to the lower debt financing costs paid in 2014 due to the lower refinancing activities
in 2014.
See Note 13 titled "LONG-TERM DEBT" of notes to consolidated financial statements in Item 15 of this Form 10-K for additional
information regarding the financing activities described above.
Debt and Liquidity
Long-term debt (including the current portion) increased $15.86 billion, or 104%, to $31.09 billion as of December 31, 2015
as compared to December 31, 2014, primarily due to financing for the Salix Acquisition including the issuance of senior notes
and incremental terms loans in 2015. Refer to "—Cash Flows" above and Note 13 titled "LONG-TERM DEBT" of notes to
consolidated financial statements in Item 15 of this Form 10-K for detailed information regarding our long-term debt.
The senior notes issued by us are our senior unsecured obligations and are jointly and severally guaranteed on a senior
unsecured basis by each of our subsidiaries that is a guarantor under our senior secured credit facilities. The senior notes issued
by our subsidiary Valeant are senior unsecured obligations of Valeant and are jointly and severally guaranteed on a senior unsecured
basis by us and each of our subsidiaries (other than Valeant) that is a guarantor under our senior secured credit facilities. Certain
of the future subsidiaries of the Company and Valeant may be required to guarantee the senior notes. On a non-consolidated basis,
the non-guarantor subsidiaries had total assets of $5.92 billion and total liabilities of $3.36 billion as of December 31, 2015, and
revenues of $3.01 billion and operating loss of $382 million for the year ended December 31, 2015.
62
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Our primary sources of liquidity are our cash, cash collected from customers, funds available from our revolving credit
facility, issuances of long-term debt and issuances of equity. We believe these sources will be sufficient to meet our current liquidity
needs for the next twelve months and beyond. However, to the extent necessary or desirable, we may seek additional debt financing,
issue additional equity or equity-linked securities or sell assets to finance our operations, future growth or for other general corporate
purposes. We have commitments approximating $90 million for expenditures related to property, plant and equipment. We expect
the volume and size of acquisitions to be minimal in 2016 and possibly beyond, as we focus on reducing our outstanding debt
levels.
Our current corporate credit rating is B2 for Moody’s Investors Service (“Moody's”) (which was downgraded from a credit
rating of Ba3 on March 16, 2016 and further downgraded from a credit rating of B1 on March 31, 2016) and B for Standard &
Poor’s Ratings Services (“Standard & Poor's”) (which was downgraded from a credit rating of BB- on October 30, 2015 and
further downgraded from a credit rating of B+ on April 14, 2016). Both Moody's and Standard & Poor's have indicated that our
corporate credit rating remains under review for potential further downgrade. Any downgrade may increase our cost of borrowing
and may negatively impact our ability to raise additional debt capital. See Item 1A “Risk Factors — Debt-Related Risks —We
have incurred significant indebtedness, which restricts the manner in which we conduct business” of this Form 10-K. The current
outlooks and credit ratings from Moody's and Standard & Poor's for certain of our outstanding obligations are as follows:
Rating Agency
Moody’s
Standard & Poor’s
Corporate Rating
Senior Secured Rating
Senior Unsecured Rating
Outlook
B2
B
Ba2
BB-
B3
B-
Under Review for
Downgrade
CreditWatch Developing
As of December 31, 2015, we were in compliance with all of our covenants related to our outstanding debt. However,
subsequent to December 31, 2015, the delay in filing our Form 10-K for the fiscal year ended December 31, 2015 resulted in a
violation of covenants contained in our Credit Agreement and senior note indentures, for which we received several notices of
default in April 2016 in respect of certain series of our senior notes. All defaults under the Credit Agreement resulting from the
failure to timely deliver the Form 10-K have been waived by the requisite lenders under our Credit Agreement by the April 2016
amendment, and this Form 10-K has been filed within the extended timeframe granted to us as part of that amendment and waiver.
The default under our senior note indentures arising from the failure to timely file the Form 10-K was cured in all respects by the
filing of this Form 10-K. See Note 26 titled “SUBSEQUENT EVENTS” of notes to consolidated financial statements in Item 15
of this Form 10-K for additional information respecting the amendment and waiver to our Credit Agreement and these notices of
default. Any future inability to comply with these covenants could lead to a default or an event of default under the terms of our
Credit Agreement or the applicable indentures, for which we may need to seek relief from our lenders and noteholders in order to
waive the associated default or event of default and avoid a potential acceleration of the related indebtedness or cross-default or
cross-acceleration to other debt. There can be no assurance that we would be able to obtain such relief on commercially reasonable
terms or otherwise and we may be required to incur significant additional costs. In addition, the lenders under our Credit Agreement
and holders of our senior notes may impose additional operating and financial restrictions on us as a condition to granting any
such waiver.
As of December 31, 2015, our short-term portion of long-term debt totaled $823 million, in the aggregate. We believe our
existing cash and cash generated from operations will be sufficient to cover our debt maturities as they become due. If we do not
generate sufficient cash flow to satisfy our debt service obligations, we may have to undertake alternative financing plans, such
as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional
capital and we cannot assure you that such transactions will be on favorable terms.
Securities Repurchase Programs
See Note 15 titled "SECURITIES REPURCHASES AND SHARE ISSUANCES" of notes to consolidated financial
statements in Item 15 of this Form 10-K for detailed information regarding our various securities repurchase programs.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material
future effect on our results of operations, financial condition, capital expenditures, liquidity, or capital resources.
The following table summarizes our contractual obligations as of December 31, 2015:
63
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
($ in millions)
Long-term debt obligations, including interest(1)
Acquisition-related deferred consideration(2)
Operating lease obligations
Capital lease obligations
Purchase obligations(3)
Total contractual obligations
____________________________________
Payments Due by Period
2017 and
2018
$
2019 and
2020
$
2016
$
Thereafter
$
Total
$
41,404.4
2,432.6
7,100.2
12,823.1
19,048.5
525.8
383.0
32.4
630.5
525.8
79.4
6.1
480.1
—
106.4
7.6
134.7
—
75.3
6.2
15.6
—
121.9
12.5
0.1
42,976.1
3,524.0
7,348.9
12,920.2
19,183.0
(1)
(2)
Expected interest payments assume repayment of the principal amounts of the debt obligations at maturity and on each scheduled amortization payment
date and do not reflect the effect of the voluntary prepayment of $125 million on April 1, 2016, which had an insignificant impact on amortization amounts,
or the increased interest related to the April 2016 amendment. See Note 26 titled "SUBSEQUENT EVENTS" of notes to consolidated financial statements
in Item 15 of this Form 10-K for details related to the April 2016 amendment to our credit agreement, which among other things, increased the interest
rate applicable to our loans under our credit agreement by 1.00% until delivery of our financial statements for the fiscal quarter ending June 30, 2017.
Thereafter, the interest rate applicable to the loans will be determined on the basis of a pricing grid tied to the Company’s secured leverage ratio.
Consists primarily of the $500 million deferred consideration for the acquisition of Sprout, which was paid in the first quarter of 2016 and scheduled
installment dates. The above table does not reflect our contractual obligation in connection with the acquisition of Sprout for expenditures of at least
$200 million with respect to Addyi® for selling, general and administrative, marketing and research and development expenses from the period commencing
January 1, 2016 through June 30, 2017. See Note 4 titled "ACQUISITIONS" of notes to consolidated financial statements in Item 15 of this Form 10-
K for additional information related to the acquisition of Sprout.
(3)
Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and include obligations for minimum
inventory and capital expenditures, and outsourced information technology, product promotion and clinical research services.
The above table does not reflect (i) contingent payments related to contingent milestone payments to third parties as part of
certain development, collaboration and license agreements and (ii) acquisition-related contingent consideration. See Note 22 titled
"COMMITMENTS AND CONTINGENCIES" of notes to consolidated financial statements in Item 15 of this Form 10-K for
additional information related to these contingent payments.
Also excluded from the above table is a liability for uncertain tax positions totaling $127 million. This liability has been
excluded because we cannot currently make a reliable estimate of the period in which the liability will be payable, if ever.
OUTSTANDING SHARE DATA
Our common shares are listed on the TSX and the NYSE under the ticker symbol “VRX”.
At April 22, 2016, we had 343,019,770 issued and outstanding common shares. In addition, as of April 22, 2016, we had
6,826,578 stock options and 1,652,619 time-based RSUs that each represent the right of a holder to receive one of the Company’s
common shares, and 1,455,083 performance-based RSUs that represent the right of a holder to receive a number of the Company's
common shares up to a specified maximum. A maximum of 4,523,306 common shares could be issued upon vesting of the
performance-based RSUs outstanding.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our business and financial results are affected by fluctuations in world financial markets, including the impacts of foreign
currency exchange rate and interest rate movements. We evaluate our exposure to such risks on an ongoing basis, and seek ways
to manage these risks to an acceptable level, based on management’s judgment of the appropriate trade-off between risk, opportunity
and cost. We may use derivative financial instruments from time to time as a risk management tool and not for trading or speculative
purposes. Currently, we do not hold any market risk sensitive instruments whose value is subject to market price risk.
Inflation; Seasonality
We are subject to price control restrictions on our pharmaceutical products in a number of countries in which we now operate.
As a result, our ability to raise prices in a timely fashion in anticipation of inflation may be limited in some markets.
Historically, revenues from our business tend to be weighted toward the second half of the year. Sales in the first quarter
tend to be lower as patient co-pays and deductibles reset at the beginning of each year. Further, the third quarter “back to school”
64
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
period favorably impacts demand for certain of our dermatology products. Sales in the fourth quarter tend to be higher based on
consumer and customer purchasing patterns associated with healthcare reimbursement programs. However, there are no assurances
that these historical trends will continue in the future.
We expect the weighting of revenues toward the second half of the year to be more pronounced in 2016, given the transition
of certain of our products under the fulfillment arrangements with Walgreens described above.
Foreign Currency Risk
In 2015, a majority of our revenue and expense activities and capital expenditures were denominated in U.S. dollars. We
have exposure to multiple foreign currencies, including, among others, the Euro, Canadian dollar, Chinese yuan, Australian dollar,
and Japanese yen. Our operations are subject to risks inherent in conducting business abroad, including price and currency exchange
controls and fluctuations in the relative values of currencies. In addition, to the extent that we require, as a source of debt repayment,
earnings and cash flows from some of our operations located in foreign countries, we are subject to risk of changes in the value
of the U.S. dollar, relative to all other currencies in which we operate, which may materially affect our results of operations. Where
possible, we manage foreign currency risk by managing same currency revenues in relation to same currency expenses. As of
December 31, 2015, a 1% change in foreign currency exchange rates would have impacted our shareholders’ equity by
approximately $50 million.
As of December 31, 2015, the aggregate unrealized foreign exchange loss on the translation of the remaining principal
amount of the senior secured credit facilities and senior notes was approximately $5.58 billion ($2.80 billion and $2.78 billion,
respectively) for Canadian income tax purposes. Additionally, as of December 31, 2015, the unrealized foreign exchange gain on
certain intercompany balances was equal to $913 million. One-half of any realized foreign exchange gain or loss will be included
in our Canadian taxable income. Any resulting gain will result in a corresponding reduction in our available Canadian Non-Capital
Losses, Scientific Research and Experimental Development Pool, and/or Investment Tax Credit carryforward balances. However,
the repayment of the senior secured credit facilities and the intercompany loans denominated in U.S. dollars does not result in a
foreign exchange gain or loss being recognized in our consolidated financial statements, as these statements are prepared in U.S.
dollars.
Interest Rate Risk
We currently do not hold financial instruments for speculative purposes. Our financial assets are not subject to significant
interest rate risk due to their short duration. The primary objective of our policy for the investment of temporary cash surpluses
is the protection of principal, and accordingly, we generally invest in high quality, money market investments and time deposits
with varying maturities, but typically less than three months. As it is our intent and policy to hold these investments until maturity,
we do not have a material exposure to interest rate risk.
As of December 31, 2015, we had $17.78 billion and $12.03 billion principal amount of issued fixed rate debt and variable
rate debt, respectively, that requires U.S. dollar repayment, as well as €1.50 billion principal amount of issued fixed rate debt that
requires repayment in Euros. The estimated fair value of our issued fixed rate debt as of December 31, 2015, including the debt
denominated in Euros, was $18.02 billion. If interest rates were to increase by 100 basis-points, the fair value of our long-term
debt would decrease by approximately $847 million. If interest rates were to decrease by 100 basis-points, the fair value of our
long-term debt would increase by approximately $872 million. We are subject to interest rate risk on our variable rate debt as
changes in interest rates could adversely affect earnings and cash flows. A 100 basis-points increase in interest rates, based on 3-
month LIBOR, would have an annualized pre-tax effect of approximately $108 million in our consolidated statements of (loss)
income and cash flows, based on current outstanding borrowings and effective interest rates on our variable rate debt. For the
tranches in our credit facility that have a LIBOR floor, an increase in interest rates would only impact interest expense on those
term loans to the extent LIBOR exceeds the floor. While our variable-rate debt may impact earnings and cash flows as interest
rates change, it is not subject to changes in fair value.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and estimates are those policies and estimates that are most important and material to the
preparation of our consolidated financial statements, and which require management’s most subjective and complex judgments
due to the need to select policies from among alternatives available, and to make estimates about matters that are inherently
uncertain. We base our estimates on historical experience and other factors that we believe to be reasonable under the circumstances.
On an ongoing basis, we review our estimates to ensure that these estimates appropriately reflect changes in our business and new
information as it becomes available. If historical experience and other factors we use to make these estimates do not reasonably
reflect future activity, our results of operations and financial condition could be materially impacted.
65
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Revenue Recognition
For products sold directly to wholesalers and retailers, we recognize product sales revenue when persuasive evidence of an
arrangement exists, delivery has occurred, collectability is reasonably assured, and the price to the buyer is fixed or determinable,
the timing of which is based on the specific contractual terms with each customer. Delivery occurs when title has transferred to
the customer, and the customer has assumed the risks and rewards of ownership. As such, we generally recognize revenue on a
sell-in basis (i.e., record revenue upon delivery); however, based upon specific terms and circumstances, we have determined that,
for certain arrangements with third parties, revenue should be recognized on a sell-through basis (i.e. record revenue when products
are dispensed to patients). Refer to Note 2 titled "RESTATEMENT" of notes to consolidated financial statements in Item 15 of
this Form 10-K for information regarding the arrangement with Philidor. With respect to the recent launch of Addyi® in the U.S.
in the fourth quarter of 2015, we have determined that we do not have the ability to reasonably estimate returns due to a lack of
historical returns data for this product or similar products. Therefore, we are recording revenue for Addyi® on a sell-through basis
until we determine that returns can be reasonably estimated. In evaluating the proper revenue recognition for sales transactions,
we consider all relevant factors, including additional discounts or extended payment terms which we grant to certain customers,
often near the end of fiscal quarterly periods.
Revenue from product sales is recognized net of provisions for estimated cash discounts, allowances, returns, rebates,
chargebacks and distribution fees paid to certain of our wholesale customers. We establish these provisions concurrently with the
recognition of product sales revenue.
Under certain product manufacturing and supply agreements, we rely on estimates for future returns, rebates and chargebacks
made by our commercialization counterparties. We make adjustments as needed to state these estimates on a basis consistent with
our revenue recognition policy and our methodology for estimating returns, rebates, and chargebacks related to our own direct
product sales.
We continually monitor our product sales provisions and evaluate the estimates used as additional information becomes
available. We make adjustments to these provisions periodically to reflect new facts and circumstances that may indicate that
historical experience may not be indicative of current and/or future results. We are required to make subjective judgments based
primarily on our evaluation of current market conditions and trade inventory levels related to our products. This evaluation may
result in an increase or decrease in the experience rate that is applied to current and future sales, or an adjustment related to past
sales, or both.
Product Sales Provisions
The following table presents the activity and ending balances for our product sales provisions for each of the last three years.
($ in millions)
Reserve balance, January 1, 2013
Acquisition of B&L
Current year provision
Prior year provision
Payments or credits
Reserve balance, December 31, 2013
Acquisition of PreCision
Current year provision
Prior year provision
Payments or credits
Reserve balance, December 31, 2014 (restated)
Acquisition of Salix
Current year provision
Prior year provision
Payments or credits
Reserve balance, December 31, 2015
Discounts
and
Allowances
$
Returns
$
Rebates
(Restated) Chargebacks
$
369.3
104.1
1,277.1
—
(1,183.9)
566.6
31.4
1,249.1
(0.9)
(1,153.7)
692.5
212.0
2,155.7
1.3
$
28.0
20.8
407.1
0.9
(378.0)
78.8
1.5
985.1
—
(877.9)
187.5
64.7
1,736.1
—
Distribution
Fees
$
13.9
11.7
156.9
—
(136.3)
Total
$
601.0
241.0
2,207.5
2.0
(2,043.7)
46.2
1,007.8
—
438.0
—
(399.1)
85.1
—
226.7
—
57.1
3,380.2
10.3
(2,983.6)
1,471.8
396.7
5,212.8
3.2
171.1
55.4
124.6
1.7
(127.3)
225.5
20.7
285.9
10.3
(162.1)
380.3
120.0
481.1
0.9
(355.9)
(2,159.6)
(1,717.3)
(199.6)
(5,069.9)
626.4
901.9
271.0
112.2
2,014.6
66
18.7
49.0
241.8
(0.6)
(218.2)
90.7
3.5
422.1
0.9
(390.8)
126.4
—
613.2
1.0
(637.5)
103.1
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Use of Information from External Sources
In the U.S., we use information from external sources to estimate our product sales provisions. We have data sharing
agreements with the three largest wholesalers in the U.S. Where we do not have data sharing agreements, we use third party data
to estimate the level of product inventories and product demand at wholesalers and retail pharmacies. Third party data with respect
to prescription demand and wholesaler inventory levels are subject to the inherent limitations of estimates that rely on information
from external sources, as this information may itself rely on certain estimates and reflect other limitations.
Our distribution agreements with the three largest wholesalers in the U.S. contain target inventory levels between ½ and 2
months supply of our products, calculated using historical demand. Wholesaler inventory levels can fluctuate based on changes
in demand, such as the launch of a new product (such as Onexton® and Addyi®). The inventory data from these wholesalers is
provided to us in the aggregate rather than by specific lot number, which is the level of detail that would be required to determine
the original sale date and remaining shelf life of the inventory.
Cash Discounts and Allowances
We offer cash discounts for prompt payment and allowances for volume purchases to customers. Provisions for cash discounts
are estimated at the time of sale and recorded as direct reductions to accounts receivable and revenue. We estimate provisions for
cash discounts and allowances based on contractual sales terms with customers, an analysis of unpaid invoices, and historical
payment experience. Estimated cash discounts and allowances have historically been predictable and less subjective, due to the
limited number of assumptions involved, the consistency of historical experience, and the fact that we generally settle these amounts
within one month of incurring the liability.
Returns
Consistent with industry practice, we generally allow customers to return product within a specified period of time before
and after its expiration date, excluding our European businesses which generally do not carry a right of return. Our product returns
provision is estimated based on historical sales and return rates over the period during which customers have a right of return,
taking into account additional available information on competitive products and contract changes. We utilize the following
information to estimate our provision for returns:
•
•
•
•
•
historical return and exchange levels;
external data with respect to inventory levels in the wholesale distribution channel;
external data with respect to prescription demand for our products;
remaining shelf lives of our products at the date of sale; and
estimated returns liability to be processed by year of sale based on an analysis of lot information related to actual historical
returns.
In determining our estimates for returns, we are required to make certain assumptions regarding the timing of the introduction
of new products and the potential of these products to capture market share. In addition, we make certain assumptions with respect
to the extent and pattern of decline associated with generic competition. To make these assessments, we utilize market data for
similar products as analogs for our estimates. We use our best judgment to formulate these assumptions based on past experience
and information available to us at the time. We continually reassess and make the appropriate changes to our estimates and
assumptions as new information becomes available to us. A change of 1% in the estimated return rates would have impacted our
pre-tax earnings by approximately $84 million for the year ended December 31, 2015.
Our estimate for returns may be impacted by a number of factors, but the principal factor relates to the level of inventory
in the distribution channel. When we are aware of an increase in the level of inventory of our products in the distribution channel,
we consider the reasons for the increase to determine if the increase may be temporary or other-than-temporary. Increases in
wholesaler inventory levels assessed as temporary will not differ from our original estimates of our provision for returns. Other-
than-temporary increases in wholesaler inventory levels, however, may be an indication that future product returns could be higher
than originally anticipated, and, as a result, we may need to adjust our estimate for returns. Some of the factors that may suggest
that an increase in wholesaler inventory levels will be temporary include:
•
•
recently implemented or announced price increases for our products;
new product launches or expanded indications for our existing products; and
67
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
•
timing of purchases by our wholesale customers.
Conversely, factors that may suggest that an increase in wholesaler inventory levels will be other-than-temporary include:
•
•
•
•
declining sales trends based on prescription demand;
introduction of new products or generic competition;
increasing price competition from generic competitors; and
recent changes to the U.S. National Drug Codes (“NDC”) of our products, which could result in a period of higher returns
related to products with the old NDC, as our U.S. customers generally permit only one NDC per product for identification
and tracking within their inventory systems.
Rebates and Chargebacks
We are subject to rebates on sales made under governmental and managed-care pricing programs in the U.S. We participate
in state government-managed Medicaid programs, as well as certain other qualifying federal and state government programs
whereby discounts and rebates are provided to participating government entities. Medicaid rebates are generally billed 45 days
after the quarter, but can be billed up to 270 days after the quarter in which the product is dispensed to the Medicaid participant.
As a result, our Medicaid rebate reserve includes an estimate of outstanding claims for end-customer sales that occurred but for
which the related claim has not been billed and/or paid, and an estimate for future claims that will be made when inventory in the
distribution channel is sold through to plan participants. Our calculation also requires other estimates, such as estimates of sales
mix, to determine which sales are subject to rebates and the amount of such rebates. A change of 1% in the volume of product
sold through to Medicaid plan participants would have impacted our pre-tax earnings by approximately $78 million for the year
ended December 31, 2015. Quarterly, we adjust the Medicaid rebate reserve based on actual claims paid. Due to the delay in
billing, adjustments to actual claims paid may incorporate revisions of that reserve for several periods.
Managed Care rebates relate to our contractual agreements to sell products to managed care organizations and pharmacy
benefit managers at contractual rebate percentages in exchange for volume and/or market share. The reserve balance for Managed
Care rebates were $336 million, $241 million and $148 million as of December 31, 2015, 2014 and 2013, respectively.
Chargebacks relate to our contractual agreements to sell products to government agencies, group purchasing organizations
and other indirect customers at contractual prices that are lower than the list prices we charge wholesalers. When these group
purchasing organizations or other indirect customers purchase our products through wholesalers at these reduced prices, the
wholesaler charges us for the difference between the prices they paid us and the prices at which they sold the products to the
indirect customers.
In estimating our provisions for rebates and chargebacks, we consider relevant statutes with respect to governmental pricing
programs and contractual sales terms with managed-care providers and group purchasing organizations. We estimate the amount
of our product sales subject to these programs based on historical utilization levels. Changes in the level of utilization of our
products through private or public benefit plans and group purchasing organizations will affect the amount of rebates and
chargebacks that we are obligated to pay. We continually update these factors based on new contractual or statutory requirements,
and any significant changes in sales trends that may impact the percentage of our products subject to rebates or chargebacks.
The amount of Managed Care, Medicaid, and other rebates and chargebacks has become more significant as a result of a
combination of deeper discounts due to the price increases we implemented in each of the last three years, changes in our product
portfolio due to recent acquisitions and increased Medicaid utilization due to expansion of government funding for these
programs. Our estimate for rebates and chargebacks may be impacted by a number of factors, but the principal factor relates to
the level of inventory in the distribution channel.
Rebate provisions are based on factors such as timing and terms of plans under contract, time to process rebates, product
pricing, sales volumes, amount of inventory in the distribution channel and prescription trends. Accordingly, we generally assume
that adjustments made to rebate provisions relate to sales made in the prior years due to the delay in billing. However, we assume
that adjustments made to chargebacks are generally related to sales made in the current year, as we settle these amounts within a
few months of original sale. Our adjustments to actual in 2015, 2014 and 2013 were not material to our revenues or earnings.
Patient Co-Pay Assistance programs, Consumer Rebates and Loyalty Programs are rebates we offer on many of our products.
Patient Co-Pay Assistance Programs are patient discount programs we offer in the form of coupon cards or point of sale discounts
which patients receive certain discounts off their prescription at participating pharmacies, as defined by the specific product
program. We generally account for these programs by establishing an accrual based on our estimate of the discount, rebate and
68
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
loyalty incentives attributable to a sale. We accrue our estimates on historical experience and other relevant factors. We adjust
our accruals periodically throughout each quarter based on actual experience and changes in other factors, if any, to ensure the
balance is fairly stated. The reserve balance for Patient Co-Pay Assistance, Consumer Rebates and Loyalty Programs was $111
million, $110 million and $114 million as of December 31, 2015, 2014 and 2013, respectively.
Distribution Fees
We sell product primarily to wholesalers, and in some instances to large pharmacy chains such as CVS and Wal-Mart. We
have entered into Distribution Services Agreements ("DSAs") with several large wholesale customers such as McKesson,
AmerisourceBergen Corporation, Cardinal, and McKesson Specialty. Under the DSA agreements, the wholesalers agree to provide
services, and we pay contracted DSA Fees for these services based on product volumes. Additionally, price appreciation credits
are generated when we increase a product’s WAC under our contracts with certain wholesalers. Under such contracts, we are
entitled to credits from such wholesalers for the impact of that WAC increase on inventory currently on hand at the wholesalers.
Such credits are used to offset against the total distribution service fees we pay on all of our products to each wholesaler. Net
revenue on these credits is recognized on the date that the wholesaler is notified of the price increase. The net revenue impact
from such price appreciation credits for the years ended December 31, 2015, 2014, and 2013 was $171 million, $53 million, and
$44 million, respectively (such amounts are reflected in the table above as a deduction to the distribution fees).
Acquisitions
We have completed several acquisitions of companies, as well as acquisitions of certain assets of companies. To determine
whether such acquisitions qualify as business combinations or asset acquisitions, we make certain judgments, which include
assessment of the inputs, processes, and outputs associated with the acquired set of activities. If we determine that the acquisition
consists of inputs, as well as processes that when applied to those inputs have the ability to create outputs, the acquisition is
determined to be a business combination. In instances where the acquired set of activities does not include all of the inputs and
processes used by the seller in operating the business, we make judgments as to whether market participants would be capable of
acquiring the business and continuing to produce outputs, for example, by integrating the business with their own inputs and
processes. If we conclude that market participants would have this capability, the acquisition is determined to be a business
combination.
In a business combination, we account for acquired businesses using the acquisition method of accounting, which requires
that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions. The judgments made in determining
the estimated fair value assigned to each class of asset acquired and liability assumed can materially impact our results of operations.
As part of our valuation procedures, we typically consult an independent advisor. There are several methods that can be used to
determine fair value. For intangible assets, we typically use an excess earnings or relief from royalty method. The excess earnings
method starts with a forecast of the net cash flows expected to be generated by the asset over its estimated useful life. These cash
flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the
cash flow streams. Some of the more significant estimates and assumptions inherent in the excess earnings method include:
•
•
•
•
the amount and timing of projected future cash flows, adjusted for the probability of technical success of products in the
IPR&D stage;
the amount and timing of projected costs to develop IPR&D into commercially viable products;
the discount rate selected to measure the risks inherent in the future cash flows; and
an assessment of the asset’s life-cycle and the competitive trends impacting the asset, including consideration of any
technical, legal, regulatory, or economic barriers to entry.
The relief from royalty method involves estimating the amount of notional royalty income that could be generated if the
intangible asset was licensed to a third party. The fair value of the intangible asset is the net present value of the prospective
stream of the notional royalty income that would be generated over the expected useful life of the intangible asset. Values derived
using the relief from royalty method are based on royalty rates observed for comparable intangible assets.
We believe the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions.
However, these assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur. We will
finalize these amounts as we obtain the information necessary to complete the measurement processes. Any changes resulting
from facts and circumstances that existed as of the acquisition dates may result in adjustments to the provisional amounts recognized
at the acquisition dates. These changes could be significant. We will finalize these amounts no later than one year from the respective
acquisition dates.
69
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have
different useful lives and certain assets may even be considered to have indefinite useful lives. Useful life is the period over which
the intangible asset is expected to contribute directly or indirectly to our future cash flows. We determine the useful lives of
intangible assets based on a number of factors, such as legal, regulatory, or contractual provisions that may limit the useful life,
and the effects of obsolescence, anticipated demand, existence or absence of competition, and other economic factors on useful life.
We determined that the B&L corporate trademark has an indefinite useful life as there are no legal, regulatory, contractual,
competitive, economic, or other factors that limit the useful life of this intangible asset.
Acquisition-Related Contingent Consideration
Some of the business combinations that we have consummated include contingent consideration to be potentially paid based
upon the occurrence of future events, such as sales performance and the achievement of certain future development, regulatory
and sales milestones. Acquisition-related contingent consideration associated with a business combination is initially recognized
at fair value and then remeasured each reporting period, with changes in fair value recorded in the consolidated statements of
(loss) income. The estimates of fair value involve the use of acceptable valuation methods, such as probability-weighted discounted
cash flow analysis and Monte Carlo Simulation, and contain uncertainties as they require assumptions about the likelihood of
achieving specified milestone criteria, projections of future financial performance, and assumed discount rates. Changes in the
fair value of the acquisition-related contingent consideration obligations result from several factors including changes in discount
periods and rates, changes in the timing and amount of revenue estimates and changes in probability assumptions with respect to
the likelihood of achieving specified milestone criteria. A change in any of these assumptions could produce a different fair value,
which could have a material impact on our results of operations.
Intangible Assets
We evaluate potential impairments of amortizable intangible assets acquired through asset acquisitions or business
combinations if events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. Our
evaluation is based on an assessment of potential indicators of impairment, such as:
•
•
•
an adverse change in legal factors or in the business climate that could affect the value of an asset. For example, a
successful challenge of our patent rights resulting in earlier than expected generic competition;
an adverse change in the extent or manner in which an asset is used or is expected to be used. For example, a decision
not to pursue a product line-extension strategy to enhance an existing product due to changes in market conditions and/
or technological advances; or
current or forecasted reductions in revenue, operating income, or cash flows associated with the use of an asset. For
example, the introduction of a competing product that results in a significant loss of market share.
Impairment exists when the carrying amount of an amortizable intangible asset is not recoverable and its carrying value
exceeds its estimated fair value. A discounted cash flow analysis is typically used to determine fair value using estimates and
assumptions that market participants would apply. Some of the estimates and assumptions inherent in a discounted cash flow
model include the amount and timing of the projected future cash flows, and the discount rate used to reflect the risks inherent in
the future cash flows. A change in any of these estimates and assumptions could produce a different fair value, which could have
a material impact on our results of operations. In addition, an intangible asset’s expected useful life can increase estimation risk,
as longer-lived assets necessarily require longer-term cash flow forecasts, which for some of our intangible assets can be up to
25 years. In connection with an impairment evaluation, we also reassess the remaining useful life of the intangible asset and modify
it, as appropriate.
Indefinite-lived intangible assets, including IPR&D and the B&L corporate trademark, are tested for impairment annually,
or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired. Impairment
losses on indefinite-lived intangible assets are recognized based solely on a comparison of their fair value to carrying value, without
consideration of any recoverability test. In particular, we will continue to monitor closely the progression of our R&D programs,
including Oral Relistor® and latanoprostene bunod (which represent a large portion of our IPR&D asset balance), as their likelihood
of success is contingent upon the achievement of future milestones. Refer to “Products in Development” above for additional
information regarding our R&D programs.
Goodwill
Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit is the
same as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that would be received to
70
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
sell the unit as a whole in an orderly transaction between market participants. We operate in two operating/reportable segments:
Developed Markets and Emerging Markets. The Developed Markets segment consists of four reporting units based on geography,
namely (i) U.S., (ii) Canada and Australia, (iii) Western Europe, and (iv) Japan. The Emerging Markets segment consists of three
reporting units based on geography, namely (i) Central/Eastern Europe, Middle East and Africa, (ii) Latin America, and (iii) Asia.
We conducted our annual goodwill impairment test in the fourth quarter of 2015, and we conducted an update of the test reflecting
our most recent financial forecasts. We estimated the fair values of our reporting units using a discounted cash flow analysis
approach. These calculations contain uncertainties as they require us to make assumptions about future cash flows and the
appropriate discount rate to reflect the risk inherent in the future cash flows. A change in any of these estimates and assumptions,
could produce a different fair value, which could have a material impact on our results of operations. Also, certain reporting units,
in particular Central/Eastern Europe, Middle East and Africa and Latin America have been impacted, and may continue to be
impacted, by adverse economic conditions in such regions and foreign currency exchange uncertainty. We determined that none
of the goodwill associated with our reporting units was impaired. The estimated fair values of each reporting unit substantially
exceeded their carrying values at the date of testing. We applied a hypothetical 15% decrease to the fair values of each reporting
unit, which at such date, would not have triggered additional impairment testing and analysis.
Contingencies
In the normal course of business, we are subject to loss contingencies, such as claims and assessments arising from litigation
and other legal proceedings, contractual indemnities, product and environmental liabilities, and tax matters. Other than loss
contingencies that are assumed in business combinations for which we can reliably estimate the fair value, we are required to
accrue for such loss contingencies if it is probable that the outcome will be unfavorable and if the amount of the loss can be
reasonably estimated. We evaluate our exposure to loss based on the progress of each contingency, experience in similar
contingencies, and consultation with our legal counsel. We re-evaluate all contingencies as additional information becomes
available. Given the uncertainties inherent in complex litigation and other contingencies, these evaluations can involve significant
judgment about future events. The ultimate outcome of any litigation or other contingency may be material to our results of
operations, financial condition, and cash flows. For a discussion of our current legal proceedings, see Note 21 titled "LEGAL
PROCEEDINGS" of notes to consolidated financial statements in Item 15 of this Form 10-K.
Income Taxes
We have operations in various countries that have differing tax laws and rates. Our tax structure is supported by current
domestic tax laws in the countries in which we operate and the application of tax treaties between the various countries in which
we operate. Our income tax reporting is subject to audit by domestic and foreign tax authorities. Our effective tax rate may change
from year to year based on changes in the mix of activities and income allocated or earned among the different jurisdictions in
which we operate, changes in tax laws in these jurisdictions, changes in tax treaties between various countries in which we operate,
changes in our eligibility for benefits under those tax treaties, and changes in the estimated values of deferred tax assets and
liabilities. Such changes could result in an increase in the effective tax rate on all or a portion of our income and/or any of our
subsidiaries.
Our provision for income taxes is based on a number of estimates and assumptions made by management. Our consolidated
income tax rate is affected by the amount of income earned in our various operating jurisdictions, the availability of benefits under
tax treaties, and the rates of taxes payable in respect of that income. We enter into many transactions and arrangements in the
ordinary course of business in which the tax treatment is not entirely certain. We must therefore make estimates and judgments
based on our knowledge and understanding of applicable tax laws and tax treaties, and the application of those tax laws and tax
treaties to our business, in determining our consolidated tax provision. For example, certain countries could seek to tax a greater
share of income than has been provided for by us. The final outcome of any audits by taxation authorities may differ from the
estimates and assumptions we have used in determining our consolidated income tax provisions and accruals. This could result
in a material effect on our consolidated income tax provision, results of operations, and financial condition for the period in which
such determinations are made.
Our income tax returns are subject to audit in various jurisdictions. Existing and future audits by, or other disputes with, tax
authorities may not be resolved favorably for us and could have a material adverse effect on our reported effective tax rate and
after-tax cash flows. We record liabilities for uncertain tax positions, which involve significant management judgment. New laws
and new interpretations of laws and rulings by tax authorities may affect the liability for uncertain tax positions. Due to the
subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from our estimates. To the
extent that our estimates differ from amounts eventually assessed and paid our income and cash flows may be materially and
adversely affected.
71
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
We assess whether it is more likely than not that we will realize the tax benefits associated with our deferred tax assets and
establish a valuation allowance for assets that are not expected to result in a realized tax benefit. A significant amount of judgment
is used in this process, including preparation of forecasts of future taxable income and evaluation of tax planning initiatives. If
we revise these forecasts or determine that certain planning events will not occur, an adjustment to the valuation allowance will
be made to tax expense in the period such determination is made.
Share-Based Compensation
We recognize employee share-based compensation, including grants of stock options and RSUs, at estimated fair value. As
there is no market for trading our employee stock options, we use the Black-Scholes option-pricing model to calculate stock option
fair values, which requires certain assumptions related to the expected life of the stock option, future stock price volatility, risk-
free interest rate, and dividend yield. The expected life of the stock option is based on historical exercise and forfeiture patterns.
The expected volatility of our common stock is estimated by using implied volatility in market traded options. The risk-free interest
rate is based on the rate at the time of grant for U.S. Treasury bonds with a remaining term equal to the expected life of the stock
option. Dividend yield is based on the stock option’s exercise price and expected annual dividend rate at the time of grant. Changes
to any of these assumptions, or the use of a different option-pricing model, such as the lattice model, could produce a different
fair value for share-based compensation expense, which could have a material impact on our results of operations.
We determine the fair value of each RSU granted based on the trading price of our common shares on the date of grant,
unless the vesting of the RSU is conditional on the attainment of any applicable performance goals, in which case we use a Monte
Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that the
performance condition will be achieved. Changes to any of these inputs could materially affect the measurement of the fair value
of the performance-based RSUs.
NEW ACCOUNTING STANDARDS
Information regarding the recently issued new accounting guidance (adopted and not adopted as of December 31, 2015) is
contained in Note 3 titled "SIGNIFICANT ACCOUNTING POLICIES" of notes to consolidated financial statements in Item 15
of this Form 10-K.
FORWARD-LOOKING STATEMENTS
Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private
Securities Litigation Reform Act of 1995:
To the extent any statements made in this Form 10-K contain information that is not historical, these statements are forward-
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and may be forward-looking information within the meaning defined under applicable Canadian
securities legislation (collectively, “forward-looking statements”).
These forward-looking statements relate to, among other things: our business strategy, business plans and prospects, product
pipeline, prospective products or product approvals, product development and distribution plans, future performance or results of
current and anticipated products; the expected benefits of our acquisitions and other transactions, such as cost savings, operating
synergies and growth potential of the Company; the impact of material weaknesses in our internal control over financial reporting;
the impact of delayed securities filings under the agreements governing our outstanding indebtedness; our liquidity and our ability
to cover our debt maturities as they become due; the impact of our distribution, fulfillment and other third party arrangements;
changes in management; our ability to reduce wholesaler inventory levels; exposure to foreign currency exchange rate changes
and interest rate changes; the outcome of contingencies, such as litigation, subpoenas, investigations, reviews, audits and regulatory
proceedings; general market conditions; and our expectations regarding our financial performance, including revenues, expenses,
gross margins, liquidity and income taxes.
Forward-looking statements can generally be identified by the use of words such as “believe”, “anticipate”, “expect”, “intend”,
“estimate”, “plan”, “continue”, “will”, “may”, “could”, “would”, “should”, “target”, “potential”, “opportunity”, “tentative”,
“positioning”, “designed”, “create”, “predict”, “project”, “forecast”, “seek”, “ongoing”, “increase”, or “upside” and variations or
other similar expressions. In addition, any statements that refer to expectations, intentions, projections or other characterizations
of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for
other purposes. Although we have indicated above certain of these statements set out herein, all of the statements in this Form 10-
K that contain forward-looking statements are qualified by these cautionary statements. These statements are based upon the
current expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such
statements. Certain material factors or assumptions are applied in making forward-looking statements, including, but not limited
to, factors and assumptions regarding the items outlined above. Actual results may differ materially from those expressed or implied
in such statements. Important factors that could cause actual results to differ materially from these expectations include, among
other things, the following:
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the expense, timing and outcome of legal and governmental proceedings, investigations and information requests relating
to our distribution, marketing, pricing, disclosure and accounting practices (including with respect to our former
relationship with Philidor), including pending investigations by the U.S. Attorney's Office for the District of
Massachusetts, the U.S. Attorney's Office for the Southern District of New York and the State of North Carolina
Department of Justice, the pending investigation by the U.S. Securities and Exchange Commission (the “SEC”) of the
Company, pending investigations by the U.S. Senate Special Committee on Aging and the U.S. House Committee on
Oversight and Government Reform, the request for documents and information received by the Company from the Autorité
des marchés financiers (the “AMF”) (the Company’s principal securities regulator in Canada), the document subpoena
from the New Jersey State Bureau of Securities and a number of pending purported class action securities litigations in
the U.S. and Canada and other claims, investigations or proceedings that may be initiated or that may be asserted;
our ability to manage the transition to the individual identified to succeed our current chief executive officer, the success
of such individual in assuming the roles of chairman and chief executive officer and the ability of such individual to
implement and achieve the strategies and goals of the Company as they develop;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of
management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm
that may result from the completed review by the Ad Hoc Committee;
the effect of the misstatements identified in our previously issued financial statements for the year ended December 31,
2014, the financial information for the quarter ended December 31, 2014 (included in our Annual Report for the year
ended December 31, 2014) and the financial statements for the quarter ended March 31, 2015 (included in our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2015), as well as the financial statements for the six-month period
ended June 30, 2015 (included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015) and the nine-
month period ended September 30, 2015 (included in our Quarterly Report on Form 10-Q for the quarter ended September
30, 2015), due to the fact that the financial results for the quarter ended March 31, 2015 are included within the financial
statements for these periods; the resultant restatement of the affected financial statements; the material weaknesses in
our internal control over financial reporting identified by the Company; and any claims, investigations or proceedings
(and any costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may
result therefrom), negative publicity or reputational harm that may arise as a result;
the effectiveness of the remediation measures and actions to be taken to remediate the material weaknesses in our internal
control over financial reporting identified by the Company, our deficient control environment and the contributing factors
leading to the misstatement of our results and the impact such measures may have on the Company and our businesses;
any default under the terms of our senior notes indentures or Credit Agreement and our ability, if any, to cure or obtain
waivers of such default;
any delay in the filing of any subsequent financial statements or other filings (including the expected delay in the filing
of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2016 (the “First Quarter 2016 Form
10-Q”) and any default under the terms of our senior notes indentures or Credit Agreement as a result of such delays;
potential additional litigation and regulatory investigations (and any costs, expenses, use of resources, diversion of
management time and efforts, liability and damages that may result therefrom), negative publicity and reputational harm
on our Company, products and business that may result from the recent public scrutiny of our distribution, marketing,
pricing, disclosure and accounting practices and from our former relationship with Philidor, including any claims,
proceedings, investigations and liabilities we may face as a result of any alleged wrongdoing by Philidor;
the current scrutiny of our business practices including with respect to pricing (including the investigations by the U.S.
Attorney's Offices for the District of Massachusetts and the Southern District of New York, the U.S. Senate Special
Committee on Aging, the U.S. House Committee on Oversight and Government Reform and the State of North Carolina
Department of Justice) and any pricing controls or price reductions that may be sought or imposed on our products as a
result thereof;
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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our substantial debt (and potential future indebtedness) and current and future debt service obligations and their impact
on our financial condition, cash flows and results of operations;
our ability to meet the financial and other covenants contained in our current or future debt agreements and the limitations,
restrictions and prohibitions such covenants impose or may impose on the way we conduct our business, including the
restrictions imposed by the April 2016 amendment to our Credit Agreement that restrict us from, among other things,
making acquisitions over an aggregate threshold (subject to certain exceptions) and from incurring debt to finance such
acquisitions, until we file our First Quarter 2016 Form 10-Q and achieve a specified leverage ratio;
our ability to service and repay our existing or any future debt, including our ability to reduce our outstanding debt levels
further during 2016 in accordance with our stated intention;
any further downgrade by rating agencies in our credit ratings (such as the recent downgrades by Moody’s Investors
Service and Standard & Poor’s Ratings Services), which may impact, among other things, our ability to raise debt and
the cost of capital for additional debt issuances;
our ability to raise additional funds, as needed, in light of our current and projected levels of operations, general economic
conditions (including capital market conditions) and any restrictions or limitations imposed by the financial and other
covenants of our debt agreements with respect to incurring additional debt;
the potential divestiture of certain of our assets or businesses and our ability to successfully complete any future divestitures
on commercially reasonable terms and on a timely basis, or at all;
the impact of any such future divestitures on our Company, including the reduction in the size or scope of our business
or market share, any loss on sale or any adverse tax consequences suffered as a result of such divestitures;
our current shift in focus to minimal business development activity through acquisitions in 2016 and possibly beyond as
we focus on reducing our outstanding debt levels and as a result of the restrictions imposed by the April 2016 amendment
to our Credit Agreement that restrict us from, among other things, making acquisitions over an aggregate threshold (subject
to certain exceptions) and from incurring debt to finance such acquisitions, until we file our First Quarter 2016 Form 10-
Q and achieve a specified leverage ratio;
our ability to retain, motivate and recruit executives and other key employees, including a new corporate controller, and
the termination or resignation of executives or key employees, such as the recently announced departure of our current
chief executive officer;
our ability to implement effective succession planning for our executives and key employees;
our proposed price reductions on certain of our products, including in connection with our arrangements with Walgreen
Co. ("Walgreens") (as further described herein), and any future pricing freezes, reductions, increases or changes we may
elect to make, as well as any proposed or future legislative price controls or price regulation, including mandated price
reductions, that may impact our products;
the challenges and difficulties associated with managing a large complex business, which has grown rapidly over the last
few years;
our ability to compete against companies that are larger and have greater financial, technical and human resources than
we do, as well as other competitive factors, such as technological advances achieved, patents obtained and new products
introduced by our competitors;
the success of our recent and future fulfillment and other arrangements with Walgreens, including market acceptance of,
or market reaction to, such arrangements (including by customers, doctors, patients, pharmacy benefit managers ("PBMs"),
third party payors and governmental agencies), the continued compliance of such arrangements with applicable laws and
the ability of the anticipated increased volume across all distribution channels resulting from such arrangements to offset
the impact of lower average selling prices associated with these arrangements;
the extent to which our products are reimbursed by government authorities, PBMs and other third party payors; the impact
our distribution, pricing and other practices (including as relates to our former relationship with Philidor, any wrongdoing
by Philidor and our current relationship with Walgreens) may have on the decisions of such government authorities,
PBMs and other third party payors to reimburse our products; and the impact of obtaining or maintaining such
reimbursement on the price and sales of our products;
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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the inclusion of our products on formularies or our ability to achieve favorable formulary status, as well as the impact
on the price and sales of our products in connection therewith;
our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business
profits of certain of our subsidiaries, including the impact on such matters of the recent proposals published by the
Organization for Economic Co-operation and Development ("OECD") respecting base erosion and profit shifting
("BEPS");
the actions of our third party partners or service providers of research, development, manufacturing, marketing, distribution
or other services, including their compliance with applicable laws and contracts, which actions may be beyond our control
or influence, and the impact of such actions on our Company, including the impact to the Company of our former
relationship with Philidor and any alleged legal or contractual non-compliance by Philidor;
the risks associated with the international scope of our operations, including our presence in emerging markets and the
challenges we face when entering new geographic markets (including the challenges created by new and different
regulatory regimes in such countries), such as with our recent acquisition of Amoun Pharmaceutical Company S.A.E. in
Egypt;
adverse global economic conditions and credit markets and foreign currency exchange uncertainty and volatility in the
countries in which we do business (such as the recent instability in Brazil, China, Russia, Ukraine, Argentina and the
Middle East);
our ability to reduce wholesaler inventory levels in Russia, Poland and certain other countries, in-line with our targeted
levels for such markets;
our ability to obtain, maintain and license sufficient intellectual property rights over our products and enforce and defend
against challenges to such intellectual property;
the introduction of generic, biosimilar or other competitors of our branded products and other products, including the
introduction of products that compete against our products that do not have patent or data exclusivity rights;
once the additional limitations in our Credit Agreement restricting our ability to make acquisitions are no longer applicable
and to the extent we elect to resume business development activities through acquisitions, our ability to identify, finance,
acquire, close and integrate acquisition targets successfully and on a timely basis;
factors relating to the acquisition and integration of the companies, businesses and products that have been acquired by
the Company (and that may in the future be acquired by the Company, once the additional limitations in our Credit
Agreement restricting our ability to make acquisitions are no longer applicable and to the extent we elect to resume
business development activities through acquisitions), such as the time and resources required to integrate such companies,
businesses and products, the difficulties associated with such integrations (including potential disruptions in sales activities
and potential challenges with information technology systems integrations), the difficulties and challenges associated
with entering into new business areas and new geographic markets, the difficulties, challenges and costs associated with
managing and integrating new facilities, equipment and other assets, and the achievement of the anticipated benefits from
such integrations, as well as risks associated with the acquired companies, businesses and products;
factors relating to our ability to achieve all of the estimated synergies from such acquisitions as a result of cost-
rationalization and integration initiatives. These factors may include greater than expected operating costs, the difficulty
in eliminating certain duplicative costs, facilities and functions, and the outcome of many operational and strategic
decisions, some of which have not yet been made;
the expense, timing and outcome of pending or future legal and governmental proceedings, arbitrations, investigations,
subpoenas, tax and other regulatory audits, reviews and regulatory proceedings against us or relating to us and settlements
thereof;
the uncertainties associated with the acquisition and launch of new products (such as our recently launched Addyi®
product), including, but not limited to, our ability to provide the time, resources, expertise and costs required for the
commercial launch of new products, the acceptance and demand for new pharmaceutical products, and the impact of
competitive products and pricing, which could lead to material impairment charges;
our ability to obtain components, raw materials or finished products supplied by third parties (some of which may be
single-sourced) and other manufacturing and related supply difficulties, interruptions and delays;
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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the disruption of delivery of our products and the routine flow of manufactured goods;
ongoing oversight and review of our products and facilities by regulatory and governmental agencies, including periodic
audits by the U.S. Food and Drug Administration (the "FDA"), and the results thereof;
economic factors over which the Company has no control, including changes in inflation, interest rates, foreign currency
rates, and the potential effect of such factors on revenues, expenses and resulting margins;
interest rate risks associated with our floating rate debt borrowings;
our ability to effectively distribute our products and the effectiveness and success of our distribution arrangements,
including the impact of our recent arrangements with Walgreens;
our ability to secure and maintain third party research, development, manufacturing, marketing or distribution
arrangements;
the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to potential
lawsuits, product liability claims and damages and/or withdrawals of products from the market;
the availability of and our ability to obtain and maintain adequate insurance coverage and/or our ability to cover or insure
against the total amount of the claims and liabilities we face, whether through third party insurance or self-insurance;
the difficulty in predicting the expense, timing and outcome within our legal and regulatory environment, including with
respect to approvals by the FDA, Health Canada and similar agencies in other countries, legal and regulatory proceedings
and settlements thereof, the protection afforded by our patents and other intellectual and proprietary property, successful
generic challenges to our products and infringement or alleged infringement of the intellectual property of others;
the results of continuing safety and efficacy studies by industry and government agencies;
the success of preclinical and clinical trials for our drug development pipeline or delays in clinical trials that adversely
impact the timely commercialization of our pipeline products, as well as factors impacting the commercial success of
our currently marketed products (such as our recently launched Addyi® product), which could lead to material impairment
charges;
the results of management reviews of our research and development portfolio, conducted periodically and in connection
with certain acquisitions, the decisions from which could result in terminations of specific projects which, in turn, could
lead to material impairment charges;
the seasonality of sales of certain of our products;
declines in the pricing and sales volume of certain of our products that are distributed or marketed by third parties, over
which we have no or limited control;
compliance by the Company or our third party partners and service providers (over whom we may have limited influence),
or the failure of our Company or these third parties to comply, with health care “fraud and abuse” laws and other extensive
regulation of our marketing, promotional and business practices (including with respect to pricing), worldwide anti-
bribery laws (including the U.S. Foreign Corrupt Practices Act), worldwide environmental laws and regulation and privacy
and security regulations;
the impacts of the Patient Protection and Affordable Care Act (as amended) and other legislative and regulatory healthcare
reforms in the countries in which we operate, including with respect to recent government inquiries on pricing;
the impact of the upcoming United States elections, including any healthcare reforms arising therefrom, including with
respect to pricing controls;
factors relating to our acquisition of Salix, including the impact of substantial additional debt on our financial condition,
cash flows and results of operations; our ability to effectively and efficiently integrate the operations of the Company
and Salix; our ability to achieve the estimated synergies from this transaction; once integrated, the effects of such business
combination on our future financial condition, operating results, strategy and plans; and, our ability to achieve the
anticipated benefits of such acquisition, including the anticipated revenue growth resulting from such acquisition (such
as the anticipated revenue of the Xifaxan® product, including the recently-approved IBS-D indication);
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potential ramifications, including financial penalties, relating to Salix's restatement of its historical financial results;
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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illegal distribution or sale of counterfeit versions of our products;
interruptions, breakdowns or breaches in our information technology systems; and
other risks detailed from time to time in our filings with the SEC and the Canadian Securities Administrators (the “CSA”),
as well as our ability to anticipate and manage the risks associated with the foregoing.
Additional information about these factors and about the material factors or assumptions underlying such forward-looking
statements may be found elsewhere in this Form 10-K, under Item 1A. “Risk Factors” and in the Company’s other filings with
the SEC and CSA. When relying on our forward-looking statements to make decisions with respect to the Company, investors
and others should carefully consider the foregoing factors and other uncertainties and potential events. These forward-looking
statements speak only as of the date made. We undertake no obligation to update or revise any of these forward-looking statements
to reflect events or circumstances after the date of this Form 10-K or to reflect actual outcomes, except as required by law. We
caution that, as it is not possible to predict or identify all relevant factors that may impact forward-looking statements, the foregoing
list of important factors that may affect future results is not exhaustive and should not be considered a complete statement of all
potential risks and uncertainties.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information relating to quantitative and qualitative disclosures about market risk is detailed in Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About
Market Risk” and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is contained in the financial statements set forth in Item 15 “Exhibits and Financial
Statement Schedules” as part of this Form 10-K and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Restatement of Previously Issued Financial Statements
As described in additional detail in the Explanatory Note to this Form 10-K and Note 2 titled “RESTATEMENT” to the
Company's consolidated financial statements, in October 2015, an Ad Hoc Committee of the Board of Directors was appointed
to review allegations related to the Company’s relationship with Philidor and related matters. Based on that review, as well as
additional work and analysis performed by the Company, the Company’s management, the ARC and the Board concluded that
the Company’s audited financial statements for the year ended, and unaudited financial information for the quarter ended,
December 31, 2014 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and the
unaudited financial statements for the quarter ended March 31, 2015 included in the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2015 should no longer be relied upon. In addition, due to the fact that the first quarter 2015 results
are included within the financial statements for the six-month period ended June 30, 2015 included in the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2015 and the financial statements for the nine-month period ended September
30, 2015 included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, management, the
ARC and the Board also concluded that the financial statements for such six-month and nine-month periods reflected in those
Quarterly Reports should no longer be relied upon. The restated audited financial statements for the year ended December 31,
2014 are provided in this Form 10-K. The restated unaudited financial information for the fourth quarter of 2014 and the first
quarter of 2015, along with the six and nine-month periods ended June 30, 2015 and September 30, 2015, are provided in unaudited
Note 25 titled “SUMMARY QUARTERLY INFORMATION (UNAUDITED)” to the financial statements.
On March 21, 2016, the Company announced that the Board has initiated a search for a new Chief Executive Officer. On
April 25, 2016, the Company announced that the Board named Joseph C. Papa to become the Company's Chairman and Chief
Executive Officer. The Company’s current Chief Executive Officer is expected to continue to serve in that role and as a member
of the Board until Mr. Papa joins the Company, which is expected by early May.
On April 5, 2016, based on the Ad Hoc Committee’s recommendation to the Board, the Ad Hoc Committee was dissolved
following completion of its review. Following dissolution of the Ad Hoc Committee, the independent directors on the Board,
including the members of the ARC, assumed oversight responsibility for remaining work, including work associated with the
completion of the Company’s current and restated financial statements and disclosures, as well as internal control and remediation
matters.
To assist the Company in completing the restatement, the Company augmented its personnel with qualified consulting
resources. Moreover, additional procedures were employed in connection with the preparation of the financial statements included
in this Form 10-K.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15
(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2015. Based on that
evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that as of December
31, 2015, due to the existence of the material weaknesses in the Company’s internal control over financial reporting described
below, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that the information
required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed,
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summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated
and communicated to management as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and the
Company’s Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial
reporting based on the framework described in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management has concluded that the Company
did not maintain effective internal control over financial reporting as of December 31, 2015 due to the existence of the material
weaknesses in internal control over financial reporting described below.
Material Weaknesses
The Company’s control environment is the responsibility of senior management and is subject to the oversight of the ARC
and the Board. That environment helps set the tone of the organization, influences the control consciousness of its officers and
employees, and is an important component affecting how the organization performs financial analysis, accounting, and financial
reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be
prevented or detected on a timely basis.
Management has determined that the Company did not maintain effective internal control over financial reporting as of
December 31, 2015 due to the existence of the following material weaknesses identified by management:
• Tone at the Top: The Company has determined that the tone at the top of the organization, with its performance-based
environment, in which challenging targets were set and achieving those targets was a key performance expectation, was
not effective in supporting the control environment. Based on observations of the Ad Hoc Committee and additional
work performed by the Company:
The Company has determined that the tone at the top material weakness may have been a contributing factor to
circumstances resulting in the Company’s improper revenue recognition for the Philidor related transactions
giving rise to the restatement.
The tone at the top material weakness also may have been a contributing factor in the improper conduct of our
former Chief Financial Officer and our former Corporate Controller, which resulted in the provision of incorrect
information to the ARC and the Company’s independent registered public accounting firm related to the nature
and intent of certain sales transactions during the fourth quarter of 2014 leading up to the date the Company
entered into a purchase option agreement with Philidor and its members in which the Company received an
exclusive option to acquire 100% of the equity interest in Philidor. The Company has since determined that
certain sales transactions to Philidor were not executed in the normal course of business under applicable
accounting standards and included actions taken by the Company with respect to Philidor sales (including
fulfillment of unusually large orders with extended payment terms and increased pricing, an emphasis on
delivering product prior to the execution of the purchase option agreement and seeking and filling a substitute
order of equivalent value for an unavailable product) in contemplation of the purchase option agreement. The
Company’s historical conclusions on the revenue recognition for these transactions were based on the incorrect
information, which led to the need for the restatement.
The tone at the top material weakness may have been a contributing factor in sales efforts that resulted (i) in
inventories above target levels at certain distributors in Russia and Poland at various quarter ends and (ii) in
incentivizing distributors through the granting of discounts and extension of certain payment terms to make
purchases at certain quarter ends, although these sales efforts did not result in a material misstatement of the
Company’s financial statements.
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• Non-Standard Revenue Transactions: The Company has determined that it did not design and maintain effective controls
over the review, approval and documentation of the accounting and disclosure for non-standard revenue transactions
particularly at or near quarter ends, including the Philidor transactions giving rise to the restatement and other revenue
transactions involving non-standard terms or amendments to arrangements.
As described above, these material weaknesses resulted in the restatement of certain of the Company’s financial statements.
Until such time as they are remediated, these material weaknesses could result in additional material misstatements of the Company's
financial statements that would not be prevented or detected on a timely basis.
Management has excluded Amoun Pharmaceutical Company S.A.E. and the acquired Dendreon Corporation business
(together, the “Acquired Businesses”), which were acquired by the Company in purchase business combinations during 2015,
from its assessment of internal control over financial reporting as of December 31, 2015. The Acquired Businesses represented
approximately 3% of the Company’s consolidated revenues for the year ended December 31, 2015, and assets associated with the
Acquired Businesses represented approximately 1% of the Company’s consolidated total assets as of December 31, 2015.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Prior Period Disclosure Controls and Procedures and Internal Control Over Financial Reporting
At the time that the Annual Report on Form 10-K for the year ended December 31, 2014 was originally filed, the Company’s
Chief Executive Officer and the Company’s then-Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective as of December 31, 2014 and management concluded that internal control over financial reporting was
effective as of December 31, 2014. Similarly, the Company’s Chief Executive Officer and Chief Financial Officer concluded that
the Company’s disclosure controls and procedures were effective as of March 31, 2015, June 30, 2015 and September 30, 2015.
As a result of the restatement described above, management, with the participation of the Company’s Chief Executive Officer and
the Company’s current Chief Financial Officer, has reassessed the effectiveness of the Company’s disclosure controls and
procedures as of December 31, 2014, March 31, 2015, June 30, 2015 and September 30, 2015 and, due to the existence of the
material weaknesses in internal control over financial reporting described above (which had not been identified prior to the Ad
Hoc Committee’s review), the Chief Executive Officer and the current Chief Financial Officer have determined that such disclosure
controls and procedures were not effective as of such dates. Similarly, as a result of the restatement, management, with the
participation of the Company’s Chief Executive Officer and the Company’s current Chief Financial Officer, has reassessed the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 and, due to the existence of the
material weaknesses in internal control over financial reporting described above, management has determined that internal control
over financial reporting was not effective as of such date.
Remediation of Material Weaknesses
The Company has, and continues to, identify and implement actions to improve the effectiveness of its internal control over
financial reporting and disclosure controls and procedures, including plans to enhance the Company’s resources and training with
respect to financial reporting and disclosure responsibilities and to review such actions with the ARC. Accordingly, the following
personnel actions and plans have been implemented:
• The Company placed our former Corporate Controller on administrative leave. The Company has initiated a search to
fill this role on a permanent basis, and intends to enhance the corporate accounting and finance function by hiring additional
staffing.
• The Board has requested that our former Chief Financial Officer, who currently serves on the Board, resign from the
Board.
• The Board and the Talent and Compensation Committee of the Board have determined that the ineffective control
environment, among other things, would impact executive compensation decisions with respect to 2015 compensation
for certain members of senior management.
The Company is committed to maintaining a strong internal control environment and to ensuring that a proper, consistent
tone is communicated throughout the organization, including the expectation that previously existing deficiencies will be
remediated through implementation of processes and controls to ensure strict compliance with generally accepted accounting
principles. The Company also has taken steps to effect a proper tone through changes in our personnel discussed above, as well
as additional training and adoption of additional policies. The Company will increase communication and training to employees
regarding the ethical values of the Company, the requirement to comply with laws, Company policies and the Code of Conduct
(which is signed by all Company employees upon hiring and on an annual basis thereafter) and the importance of accurate and
transparent financial reporting. Specifically, the following actions have been or will be implemented:
80
• The Company will engage a third party to conduct a tone at the top and enterprise risk review and make appropriate
recommendations to ensure that the Company’s tone at the top is appropriate, demonstrates a commitment to integrity
and ethical values and support a robust internal control environment that mitigates risks of inappropriate behavior,
accounting errors or irregularities, and promotes appropriate disclosures.
• The Company’s Executive Management Team, Business Unit Leaders, Business Unit Vice Presidents of Finance and
Accounting, and certain other officers and/or employees, will be required periodically to participate in Company-
sponsored training programs regarding their roles and responsibilities with respect to proper revenue recognition
accounting and the Company’s internal control over financial reporting framework.
• The Company will prepare and periodically distribute internally to the appropriate personnel a communication
emphasizing the importance of appropriate behavior and “Tone at the Top” with respect to accurate financial reporting
and adherence to the Company’s internal control over financial reporting framework and accounting policies.
• The ARC will conduct quarterly private sessions with the Company’s business unit leaders and their Vice Presidents in
the Finance and Accounting areas to ensure a candid and timely dialogue regarding accounting and financial reporting
matters, including but not limited to significant unusual transactions and the business purposes thereof, significant changes
in business terms and/or conditions, tone at the top and the level of senior management pressure to meet key performance
measures.
• One or more independent Board members will periodically attend the Company’s planning and forecasting telephone
conferences and the Company’s periodic business reviews to monitor, and, if necessary, address any tone at the top,
management override, corporate governance, internal control, and accounting and financial reporting issues.
Additionally, the Company will reinforce the importance of adherence to established internal controls and Company policies
and procedures through other formal communications, town hall meetings and other employee trainings.
To address the material weakness related to non-standard revenue transactions, the Company is in the process of strengthening
processes and controls over such transactions including:
• Establishing clearer policies and procedures for the review, approval and application of generally accepted accounting
principles to, and disclosure with respect to, non-standard revenue transactions at or near quarter end.
• Requiring accounting personnel in the field to obtain approval from the Company’s Corporate Accounting group for the
accounting for each instance of a non-standard revenue transaction that meets defined criteria.
• Conducting annual training for all business unit leaders and relevant accounting and legal personnel related to revenue
recognition for non-standard revenue transactions, as well as including such training in orientation for all such new
employees.
• Related to the documentation of the accounting conclusions for such transactions, requiring the preparer of the
documentation to include substantive evidence supporting each key assertion that is important to the accounting
conclusion.
As the Company continues to evaluate and work to improve internal control over financial reporting, the Company may
determine to take additional measures to address material weaknesses or determine to modify the remediation efforts described
above. Until the remediation efforts discussed above, including any additional remediation efforts that the Company identifies as
necessary, are implemented, tested and deemed to be operating effectively, the material weaknesses described above will continue
to exist.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting during the last fiscal quarter of
2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Item 9B. Other Information
None.
81
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required under this Item is incorporated herein by reference from information included in the 2016 Proxy
Statement.
The Board of Directors has adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer,
the principal accounting officer, controller, and all vice presidents and above in the finance department of the Company worldwide.
A copy of the Code of Ethics can be found as an annex to our Standards of Business Conduct, which is located on our website at:
www.valeant.com. We intend to satisfy the SEC disclosure requirements regarding amendments to, or waivers from, any provisions
of our Code of Ethics on our website.
Item 11. Executive Compensation
Information required under this Item relating to executive compensation is incorporated herein by reference from information
included in the 2016 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required under this Item relating to securities authorized for issuance under equity compensation plans and to
security ownership of certain beneficial owners and management is incorporated herein by reference from information included
in the 2016 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required under this Item relating to certain relationships and transactions with related parties and about director
independence is incorporated herein by reference from information included in the 2016 Proxy Statement.
Item 14. Principal Accounting Fees and Services
Information required under this Item relating to the fees for professional services rendered by our independent auditors in
2015 and 2014 is incorporated herein by reference from information included in the 2016 Proxy Statement.
82
Item 15. Exhibits and Financial Statement Schedules
Documents filed as a part of the report:
PART IV
(1) The consolidated financial statements required to be filed in the Annual Report on Form 10-K are listed on
page F-1 hereof.
(2) Schedule II — Valuation and Qualifying Accounts.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts expressed in millions of U.S. dollars)
Year ended December 31, 2015
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Year ended December 31, 2014
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Year ended December 31, 2013
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
Balance at
End of
Year
$
$
$
$
$
$
35.9
859.2
27.6
477.6
12.5
124.5
$
$
$
$
$
$
38.9
343.3
5.2
272.6
5.8
214.1
$
$
$
$
$
$
6.2
164.1
7.9
109.0
10.2
139.0
$
$
$
$
$
$
(13.7) $
67.3
— $
1,366.6
(4.8) $
— $
(0.9) $
— $
35.9
859.2
27.6
477.6
With respect to the deferred tax valuation allowance, the amounts in 2015 and 2014 charged to other accounts relates primarily
to foreign currency fluctuations on debt. The amount in 2013 charged to other accounts relates primarily to valuation allowances
assumed as part of acquisitions consummated during the year, with the most significant contributor being the B&L Acquisition.
(3) Exhibits
83
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.1
3.2
3.3
4.1
4.2
4.3
INDEX TO EXHIBITS
Exhibit Description
Agreement and Plan of Merger, dated as of June 20, 2010, among Biovail Corporation, Valeant Pharmaceuticals
International, Biovail Americas Corp. and Beach Merger Corp., originally filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed on June 23, 2010, which is incorporated by reference herein. ††
Agreement and Plan of Merger, dated as of September 2, 2012, among Valeant Pharmaceuticals International,
Inc., Valeant Pharmaceuticals International, Merlin Merger Sub, Inc. and Medicis Pharmaceutical Corporation,
originally filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on September 4, 2012, which
is incorporated by reference herein. ††
Agreement and Plan of Merger, dated as of March 19, 2013, by and among Valeant Pharmaceuticals International,
Inc., Valeant Pharmaceuticals International, Odysseus Acquisition Corp. and Obagi Medical Products, Inc.,
originally filed as Exhibit 2.1 to Obagi Medical Products, Inc.'s Current Report on Form 8-K filed on March 20,
2013, which is incorporated by reference herein.
Amendment to Agreement and Plan of Merger, dated as of April 3, 2013, by and among Valeant Pharmaceuticals
International, Odysseus Acquisition Corp., Obagi Medical Products, Inc. and Valeant Pharmaceuticals
International, Inc., originally filed as Exhibit 2.1 to Obagi Medical Products, Inc.'s Current Report on Form 8-K
filed on April 3, 2013, which is incorporated by reference herein.
Agreement and Plan of Merger, dated as of May 24, 2013, by and among Valeant Pharmaceuticals International,
Inc., Valeant Pharmaceuticals International, Stratos Merger Corp. and Bausch & Lomb Holdings Incorporated,
originally filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on May 31, 2013, which is
incorporated by reference herein. ††
Amendment No. 1, dated August 2, 2013, to the Agreement and Plan of Merger, dated as of May 24, 2013, by
and among Valeant Pharmaceuticals International, Inc., Valeant Pharmaceuticals International, Stratos Merger
Corp. and Bausch & Lomb Holdings Incorporated, originally filed as Exhibit 2.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2013 filed on November 1, 2013, which is
incorporated by reference herein.
Amendment No. 2, dated August 5, 2013, to the Agreement and Plan of Merger, dated as of May 24, 2013, by
and among Valeant Pharmaceuticals International, Inc., Valeant Pharmaceuticals International, Stratos Merger
Corp. and Bausch & Lomb Holdings Incorporated, originally filed as Exhibit 2.2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2013 filed on November 1, 2013, which is
incorporated by reference herein.
Agreement and Plan of Merger, dated as of February 20, 2015, among Valeant Pharmaceuticals International,
Inc., Valeant Pharmaceuticals International, Sun Merger Sub, Inc. and Salix Pharmaceuticals, Ltd., originally
filed as Exhibit 2.1 to the Company’s Form 8-K filed on February 23, 2015, which is incorporated by reference
herein. ††
Amendment No. 1 to the Agreement and Plan of Merger, dated as of March 16, 2015, among Valeant
Pharmaceuticals International, Inc., Valeant Pharmaceuticals International, Sun Merger Sub, Inc. and Salix
Pharmaceuticals, Ltd., originally filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on
March 16, 2015, which is incorporated by reference herein.
Certificate of Continuation, dated August 9, 2013, originally filed as Exhibit 3.1 to the Company's Current Report
on Form 8-K filed on August 13, 2013, which is incorporated by reference herein.
Notice of Articles of Valeant Pharmaceuticals International, Inc., dated August 9, 2013, originally filed as Exhibit
3.2 to the Company's Current Report on Form 8-K filed on August 13, 2013, which is incorporated by reference
herein.
Articles of Valeant Pharmaceuticals International, Inc., dated August 8, 2013, originally filed as Exhibit 3.3 to
the Company's Current Report on Form 8-K filed on August 13, 2013, which is incorporated by reference herein.
Indenture, dated as of September 28, 2010, among Valeant Pharmaceuticals International, Valeant Pharmaceuticals
International, Inc., The Bank of New York Mellon Trust Company, N.A., as trustee, and the guarantors named
therein, governing the 6.75% Senior Notes due 2017 and the 7.00% Senior Notes due 2020, originally filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K filed on October 1, 2010, which is incorporated by
reference herein.
Indenture, dated as of February 8, 2011, by and among Valeant Pharmaceuticals International, Valeant
Pharmaceuticals International, Inc., the guarantors named therein and The Bank of New York Mellon Trust
Company, N.A., as trustee, governing the 6.75% Senior Notes due 2021, originally filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on February 9, 2011, which is incorporated by reference herein.
Indenture, dated as of March 8, 2011, by and among Valeant Pharmaceuticals International, Valeant
Pharmaceuticals International, Inc., the guarantors named therein and The Bank of New York Mellon Trust
Company, N.A., as trustee, governing the 6.50% Senior Notes due 2016 and the 7.25% Senior Notes due 2022,
originally filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on March 10, 2011, which is
incorporated by reference herein.
84
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
10.1
10.2
10.3
10.4
10.5*
10.6
10.7
Indenture, dated as of October 4, 2012 (the “VPI Escrow Corp Indenture”), by and among VPI Escrow Corp. and
The Bank of New York Mellon Trust Company, N.A., as trustee, governing the 6.375% Senior Notes due 2020
(the “2020 Senior Notes”), originally filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on
October 9, 2012, which is incorporated by reference herein.
Supplemental Indenture to the VPI Escrow Corp Indenture, dated as of October 4, 2012, by and among Valeant
Pharmaceuticals International, Valeant Pharmaceuticals International, Inc., the guarantors named therein and The
Bank of New York Mellon Trust Company, N.A., as trustee governing the 2020 Senior Notes, originally filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K filed on October 9, 2012, which is incorporated by
reference herein.
Indenture, dated as of July 12, 2013 (the “VPII Escrow Corp Indenture”), between VPII Escrow Corp. and the
Bank of New York Mellon Trust Company, N.A., as trustee, governing the 6.75% Senior Notes due 2018 (the
“2018 Senior Notes”) and the 7.50% Senior Notes due 2021 (the “2021 Senior Notes”), originally filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K filed on July 12, 2013, which is incorporated by reference
herein.
Supplemental Indenture to the VPII Escrow Corp Indenture, dated as of July 12, 2013, among Valeant
Pharmaceuticals International, Inc., the guarantors named therein and the Bank of New York Mellon Trust
Company, N.A., as trustee, governing the 2018 Senior Notes and the 2021 Senior Notes, originally filed as Exhibit
4.2 to the Company’s Current Report on Form 8-K filed on July 12, 2013, which is incorporated by reference
herein.
Indenture, dated as of December 2, 2013, between Valeant Pharmaceuticals International, Inc., the guarantors
named therein and the Bank of New York Mellon Trust Company, N.A., as trustee, governing the 5.625% Senior
Notes due 2021, originally filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on December
2, 2013, which is incorporated by reference herein.
Indenture, dated as of January 30, 2015, between Valeant Pharmaceuticals International, Inc., the guarantors
named therein and the Bank of New York Mellon Trust Company, N.A., as trustee, governing the 5.50% Senior
Notes due 2023, originally filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on January
30, 2015, which is incorporated by reference herein.
Indenture, dated as of March 27, 2015 (the “VRX Escrow Corp Indenture”), between VRX Escrow Corp., the
Bank of New York Mellon Trust Company, N.A., as trustee, registrar and US paying agent, and The Bank of New
York Mellon, acting through its London branch, as the Euro paying agent, governing the 5.375% Senior Notes
due 2020 (the “2020 Notes”), the 5.875% Senior Notes due 2023 (the “May 2023 Notes”), the 4.50% Senior
Notes due 2023 (the “Euro Notes”) and the 6.125% Senior Notes due 2025 (the “2025 Notes” and together with
the 2020 Notes, the May 2023 Notes and the Euro Notes, the “Notes”), originally filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on March 27, 2015, which is incorporated by reference herein.
First Supplemental Indenture to the VRX Escrow Corp Indenture, dated as of March 27, 2015, between Valeant
Pharmaceuticals International, Inc., the guarantors named therein and the Bank of New York Mellon Trust
Company, N.A., as trustee, governing the Notes, originally filed as Exhibit 4.2 to the Company's Current Report
on Form 8-K filed on March 27, 2015, which is incorporated by reference herein.
Valeant Pharmaceuticals International, Inc. 2014 Omnibus Incentive Plan (the “2014 Omnibus Incentive Plan”),
as approved by the shareholders on May 20, 2014, originally filed as Exhibit B to the Company's Management
Proxy Circular and Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on
April 22, 2014, which is incorporated by reference herein.†
Form of Share Unit Grant Agreement (Performance Vesting) (Performance Restricted Share Units), under the
2014 Omnibus Incentive Plan, originally filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2014 filed on February 25, 2015, which is incorporated by reference
herein.†
Form of Stock Option Grant Agreement (Nonstatutory Stock Options), under the 2014 Omnibus Incentive Plan,
originally filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2014 filed on February 25, 2015, which is incorporated by reference herein.†
Form of Matching Restricted Stock Unit Award Agreement (Matching Units), under the 2014 Omnibus Incentive
Plan, originally filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2014 filed on February 25, 2015, which is incorporated by reference herein.†
Form of Matching Restricted Stock Unit Award Agreement (Matching Units - EMT), under the 2014 Omnibus
Incentive Plan.†
Valeant Pharmaceuticals International, Inc. 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”),
effective as of April 6, 2011, as amended on and approved by the shareholders on May 16, 2011, originally filed
as Annex A to the Company's Management Proxy Circular and Proxy Statement on Schedule 14A filed with the
Securities and Exchange Commission on April 14, 2011, as amended by the Supplement dated May 10, 2011 to
the Company's Management Proxy Circular and Proxy Statement filed with the Securities and Exchange
Commission on May 10, 2011, which is incorporated by reference herein.†
Form of Stock Option Grant Agreement under the 2011 Omnibus Incentive Plan, originally filed as Exhibit 10.2
to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed on February
28, 2012, which is incorporated by reference herein.†
85
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26*
10.27*
10.28*
Form of Matching Restricted Stock Unit Grant Agreement under the 2011 Omnibus Incentive Plan, originally
filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011
filed on February 28, 2012, which is incorporated by reference herein.†
Form of Share Unit Grant Agreement (Performance Vesting) under the 2011 Omnibus Incentive Plan, originally
filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011
filed on February 28, 2012, which is incorporated by reference herein.†
Biovail Corporation 2007 Equity Compensation Plan (the “2007 Equity Compensation Plan”) dated as of May 16,
2007, originally filed as Exhibit 10.49 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2009 filed on February 26, 2010, which is incorporated by reference herein.†
Amendment No. 1 to the 2007 Equity Compensation Plan dated as of December 18, 2008, originally filed as
Exhibit 10.50 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed
on February 26, 2010, which is incorporated by reference herein.†
Amendment, dated April 6, 2011 and approved by the shareholders on May 16, 2011, to the 2007 Equity
Compensation Plan, originally filed as Annex B to the Company's Management Proxy Circular and Proxy
Statement on Schedule 14A filed with the Securities and Exchange Commission on April 14, 2011, which is
incorporated by reference herein.†
Form of Stock Option Grant Notice and Form of Stock Option Grant Agreement under the 2007 Equity
Compensation Plan, originally filed as Exhibit 10.44 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2010 filed on February 28, 2011, which is incorporated by reference herein.†
Form of Unit Grant Notice and Form of Unit Grant Agreement under the 2007 Equity Compensation Plan,
originally filed as Exhibit 10.45 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2010 filed on February 28, 2011, which is incorporated by reference herein.†
Form of Unit Grant Notice (Performance Vesting) and Form of Unit Grant Agreement (Performance Vesting)
under the 2007 Equity Compensation Plan, originally filed as Exhibit 10.26 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2010 filed on February 28, 2011, which is incorporated by
reference herein.†
Valeant Pharmaceuticals International, Inc. Directors Share Unit Plan, effective May 16, 2011, originally filed
as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011 filed
on August 8, 2011, which is incorporated by reference herein.†
Employment Agreement between Valeant Pharmaceuticals International, Inc. and J. Michael Pearson, dated as
of January 7, 2015, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January
13, 2015, which is incorporated by reference herein.†
Employment Letter between Valeant Pharmaceuticals International, Inc. and Howard Schiller, dated as of
November 10, 2011, originally filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011 filed on February 29, 2012, which is incorporated by reference herein.†
Separation Agreement dated July 14, 2015 between Valeant Pharmaceuticals International, Inc. and Howard B.
Schiller, originally filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2015 filed on July 28, 2015, which is incorporated by reference herein.†
Employment Letter between Valeant Pharmaceuticals International, Inc. and Howard Schiller, dated February 1,
2016, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 2, 2016,
which is incorporated by reference herein.†
Employment Letter dated June 10, 2015 between Valeant Pharmaceuticals International, Inc. and Robert Rosiello,
originally filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2015 filed on July 28, 2015, which is incorporated by reference herein.†
Employment Letter between Valeant Pharmaceuticals International, Inc. and Robert Chai-Onn, dated as of January
13, 2014, originally filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2013 filed on February 28, 2014, which is incorporated by reference herein.†
Employment Letter between Valeant Pharmaceuticals International, Inc. and Ari Kellen dated as of December
30, 2014, originally filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2014 filed on February 25, 2015, which is incorporated by reference herein.†
Employment Letter between the Company and Pavel Mirovsky dated as of April 2, 2012, originally filed as
Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed
on February 25, 2015, which is incorporated by reference herein.†
Employment Letter between Valeant Pharmaceuticals International, Inc. and Brian Stolz, dated June 27, 2011,
originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on July 7, 2011, which is
incorporated by reference herein.†
Employment Letter between Valeant Pharmaceuticals International, Inc. and Brian Stolz, dated as of July 1, 2015.†
Employment Letter between Valeant Pharmaceuticals International, Inc. and Anne Whitaker, dated as of April
25, 2015.†
Employment Letter between Valeant Pharmaceuticals International, Inc. and Deborah Jorn, dated as of July 19,
2013.†
86
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
Employment Agreement between Valeant Pharmaceuticals International, Inc. and Joseph C. Papa, dated as of
April 25, 2016, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 27,
2016, which is incorporated by reference herein.†
Third Amended and Restated Credit and Guaranty Agreement, dated as of February 13, 2012, among Valeant
Pharmaceuticals International, Inc., certain subsidiaries of Valeant Pharmaceuticals International, Inc. as
guarantors, each of the lenders named therein, J.P. Morgan Securities LLC, Goldman Sachs Lending Partners LLC
(“GSLP”) and Morgan Stanley Senior Funding, Inc. (“Morgan Stanley”), as Joint Lead Arrangers and Joint
Bookrunners, JPMorgan Chase Bank, N.A. (“JPMorgan”) and Morgan Stanley, as Co-Syndication Agents,
JPMorgan, as Issuing Bank, GSLP, as Administrative Agent and Collateral Agent, and the other agents party
thereto (the “Third Amended and Restated Credit and Guaranty Agreement of Valeant Pharmaceuticals
International, Inc.”), originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
February 17, 2012, which is incorporated by reference herein.
Amendment No. 1, dated March 6, 2012, to the Third Amended and Restated Credit and Guaranty Agreement of
Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 2012 filed on November 5, 2012, which is incorporated
by reference herein.
Amendment No. 2, dated September 10, 2012, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 2012 filed on November 5, 2012, which is incorporated
by reference herein.
Amendment No. 3, dated January 24, 2013, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.25 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2012 filed on February 28, 2013, which is incorporated by
reference herein.
Amendment No. 4, dated February 21, 2013, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.26 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2012 filed on February 28, 2013, which is incorporated by
reference herein.
Amendment No. 5, dated as of June 6, 2013, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 2013 filed on August 7, 2013, which is incorporated by
reference herein.
Amendment No. 6, dated June 26, 2013, to the Third Amended and Restated Credit and Guaranty Agreement of
Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 2013 filed on August 7, 2013, which is incorporated by
reference herein.
Amendment No. 7, dated September 17, 2013, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 2013 filed on November 1, 2013, which is incorporated
by reference herein.
Amendment No. 8, dated December 20, 2013, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.28 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2013 filed on February 28, 2014, which is incorporated by
reference herein.
Successor Agent Agreement and Amendment No. 9, dated as of January 8, 2015, to the Third Amended and
Restated Credit and Guaranty Agreement of Valeant Pharmaceuticals International, Inc., by and among Valeant
Pharmaceuticals International, Inc., certain subsidiaries of Valeant Pharmaceuticals International, Inc. as
guarantors, each of the lenders named therein, Barclays Bank PLC, as the successor agent, and GSLP, originally
filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2014 filed on February 25, 2015, which is incorporated by reference herein.
Amendment No. 10, dated as of March 5, 2015, to the Third Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., by and among Valeant Pharmaceuticals International,
Inc., certain subsidiaries of Valeant Pharmaceuticals International, Inc. as guarantors, each of the lenders named
therein, and Barclays Bank PLC, as administrative and collateral agent, originally filed as Exhibit (b)(23) to the
Company’s Tender Offer Statement on Schedule TO filed on March 4, 2015 on Amendment No. 1 to Schedule
TO filed on March 6, 2015, which is incorporated by reference herein.
Amendment No. 11, dated as of May 29, 2015, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., by and among Valeant Pharmaceuticals International, Inc., certain
subsidiaries of Valeant Pharmaceuticals International, Inc.as guarantors, each of the lenders named therein, and
Barclays Bank PLC, as administrative and collateral agent, originally filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2015 filed on July 27, 2015, which is
incorporated by reference herein.
87
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
Amendment No. 12 and Waiver, dated as of April 11, 2016, to Third Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., by and among Valeant Pharmaceuticals International,
Inc., certain subsidiaries of Valeant Pharmaceuticals International, Inc. as guarantors and Barclays Bank PLC, as
administrative agent and on behalf of the requisite lenders and as Amendment No. 12 arranger, originally filed
as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 11, 2016, which is incorporated by
reference herein.
Joinder Agreement, dated June 14, 2012, to the Third Amended and Restated Credit and Guaranty Agreement of
Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on June 15, 2012, which is incorporated by reference herein.
Joinder Agreement, dated July 9, 2012, to the Third Amended and Restated Credit and Guaranty Agreement of
Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 2012 filed on August 3, 2012, which is incorporated by
reference herein.
Joinder Agreement, dated as of September 11, 2012, to the Third Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2012 filed on November 5, 2012,
which is incorporated by reference herein.
Joinder Agreement, dated as of October 2, 2012, to the Third Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on October 9, 2012, which is incorporated by reference herein.
Joinder Agreement, dated as of December 11, 2012, to the Third Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed on February 28, 2013, which is
incorporated by reference herein.
Joinder Agreement, dated as of August 5, 2013, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2013 filed on August 7, 2013, which is incorporated by reference
herein.
Joinder Agreement, dated as of August 5, 2013, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2013 filed on August 7, 2013, which is incorporated by reference
herein.
Joinder Agreement, dated as of February 6, 2014, to the Third Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.36 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on February 28, 2014, which is
incorporated by reference herein.
Joinder Agreement, dated as of February 6, 2014, to the Third Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.37 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on February 28, 2014, which is
incorporated by reference herein.
Joinder Agreement, dated as of January 22, 2015, to the Third Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., relating to the New Revolving Loan Commitment,
originally filed as Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2014 filed on February 25, 2015, which is incorporated by reference herein.
Joinder Agreement, dated as of January 22, 2015, to the Third Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.42 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed on February 25, 2015, which is
incorporated by reference herein.
Joinder Agreement, dated as of April 1, 2015, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.5 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2015 filed on April 30, 2015, which is incorporated by reference
herein.
Joinder Agreement, dated as of April 1, 2015, to the Third Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.6 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2015 filed on April 30, 2015, which is incorporated by reference
herein.
Second Amended and Restated Credit and Guaranty Agreement, dated as of October 20, 2011, among Valeant
Pharmaceuticals International, Inc., certain subsidiaries of Valeant Pharmaceuticals International, Inc. as
guarantors, each of the lenders named therein, GSLP and J.P. Morgan Securities LLC, as Joint Lead Arrangers
and Joint Bookrunners, JPMorgan, as Syndication Agent and Issuing Bank, GSLP, as Administrative Agent and
Collateral Agent, and the other agents party thereto (the “Second Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc.”), originally filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on October 26, 2011, which is incorporated by reference herein.
88
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
10.67
10.68
10.69
10.70
10.71
10.72
10.73
Amendment No. 1, dated as of February 13, 2012, to the Second Amended and Restated Credit and Guaranty
Agreement of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein.
Amended and Restated Credit and Guaranty Agreement, dated as of August 10, 2011, among Valeant
Pharmaceuticals International, Valeant Pharmaceuticals International, Inc. and certain subsidiaries of Valeant
Pharmaceuticals International, Inc. as guarantors, each of the lenders named therein, GSLP as Sole Lead Arranger,
Sole Bookrunner and Syndication Agent, and GSLP, as Administrative Agent and Collateral Agent (the “Amended
and Restated Credit and Guaranty Agreement of Valeant Pharmaceuticals International”), originally filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 15, 2011, which is incorporated by
reference herein.
Amendment No. 1, dated as of August 12, 2011, to the Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, originally filed as Exhibit 10.3 to the Company's Current Report on
Form 8-K filed on August 15, 2011, which is incorporated by reference herein.
Amendment No. 2, dated as of September 6, 2011, to the Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, originally filed as Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2011 filed on February 29, 2012, which is incorporated by
reference herein.
Amendment No. 3, dated as of October 20, 2011, to the Amended and Restated Credit and Guaranty Agreement
of Valeant Pharmaceuticals International, originally filed as Exhibit 10.2 to the Company's Current Report on
Form 8-K filed on October 26, 2011, which is incorporated by reference herein.
Credit and Guaranty Agreement, dated June 29, 2011, among Valeant Pharmaceuticals International, Valeant
Pharmaceuticals International, Inc. and certain subsidiaries of Valeant Pharmaceuticals International, Inc. as
guarantors, each of the lenders named therein, GSLP as Sole Lead Arranger, Sole Bookrunner and Syndication
Agent, and GSLP, as Administrative Agent and Collateral Agent (the “Credit and Guaranty Agreement of Valeant
Pharmaceuticals International”), originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on July 6, 2011, which is incorporated by reference herein.
Amendment No. 1, dated as of August 10, 2011, to the Credit and Guaranty Agreement of Valeant Pharmaceuticals
International, originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 15,
2011, which is incorporated by reference herein.
Trademark and Domain Name License Agreement, dated as of February 22, 2011, by and between
GlaxoSmithKline LLC and Biovail Laboratories International SRL, originally filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed on February 28, 2011,
which is incorporated by reference herein.
Supply Agreement dated June 24, 1996 ("Supply Agreement") between Alfa Wassermann S.p.A. and Salix
Pharmaceuticals, Ltd., originally filed as Exhibit 10.13 to Form S-1 of Salix Pharmaceuticals, Ltd. (“Salix”) filed
on August 15, 1997, which is incorporated by reference herein.
Amendment Number Two to Supply Agreement dated August 6, 2012 by and between Alfa Wassermann S.p.A.
and Salix Pharmaceuticals, Inc., originally filed as Exhibit 10.97 to Salix’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2012 filed on November 8, 2012, which is incorporated by reference herein.
Amendment Number Three to Supply Agreement dated July 30, 2014 between Salix Pharmaceuticals, Inc. and
Alfa Wassermann, S.p.A., originally filed as Exhibit 10.1 to Salix’s Current Report on Form 8-K filed on October
17, 2014, which is incorporated by reference herein.
Amendment Number Four to Supply Agreement dated September 4, 2014 between Salix Pharmaceuticals, Inc.
and Alfa Wassermann, S.p.A., originally filed as Exhibit 10.2 to Salix’s Current Report on Form 8-K filed on
October 17, 2014, which is incorporated by reference herein.
Amended and Restated License Agreement dated August 6, 2012 by and between Alfa Wassermann S.p.A. and
Salix Pharmaceuticals, Inc., originally filed as Exhibit 10.95 to Salix’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2012 filed on November 8, 2012, which is incorporated by reference herein.
Letter Amendment dated September 5, 2012 by and between Alfa Wassermann S.p.A. and Salix Pharmaceuticals,
Inc., originally filed as Exhibit 10.100 to Salix’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2012 filed on November 8, 2012, which is incorporated by reference herein.
Trademark License Agreement (Alfa to Salix) dated August 6, 2012 by and between Alfa Wassermann Hungary
Kft. and Salix Pharmaceuticals, Inc., originally filed as Exhibit 10.98 to Salix’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2012 filed on November 8, 2012, which is incorporated by reference herein.
License Agreement dated June 22, 2006 between Cedars-Sinai Medical Center and Salix Pharmaceuticals, Inc.,
originally filed as Exhibit 10.55 to Salix’s Current Report on Form 8-K filed on July 5, 2006, which is incorporated
by reference herein.
Plea Agreement and Side Letter, dated as of May 16, 2008, between United States Attorney for the District of
Massachusetts and Biovail Pharmaceuticals, Inc., originally filed as Exhibit 10.30 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2009 filed on February 26, 2010, which is
incorporated by reference herein.
89
10.74
10.75
10.76
10.77
10.78
10.79
10.80
10.81
10.82
10.83
10.84
10.85
10.86
21.1*
23.1*
31.1*
31.2*
32.1*
Corporate Integrity Agreement, dated as of September 11, 2009, between Biovail Corporation and the Office of
Inspector General of the Department of Health and Human Services, originally filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed on February 26, 2010,
which is incorporated by reference herein.
Settlement Agreement, dated as of September 11, 2009, among the United States of America, United States
Department of Justice, Office of Inspector General of the Department of Health and Human Services and Biovail
Corporation, originally filed as Exhibit 10.32 to the Company's Annual Report on Form 10-K filed for the fiscal
year ended December 31, 2009 filed on February 26, 2010, which is incorporated by reference herein.
Securities Litigation, Stipulation and Agreement of Settlement, dated as of April 4, 2008, between the
United States District Court, Southern District of New York and Biovail Corporation, originally filed as
Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed
on February 26, 2010, which is incorporated by reference herein.
Settlement Agreement, dated January 7, 2009, between Staff of the Ontario Securities Commission and Biovail
Corporation, originally filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2009 filed on February 26, 2010, which is incorporated by reference herein.
Settlement Agreement, dated March 2008, between the U.S. Securities and Exchange Commission and Biovail
Corporation, originally filed as Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2009 filed on February 26, 2010, which is incorporated by reference herein.
Letter Agreement, dated May 30, 2014, between Valeant Pharmaceuticals International, Inc. and Pershing Square
Capital Management, L.P., originally filed as Exhibit 99.3 to the Company’s Schedule 13D/A filed on June 2,
2014, which is incorporated by reference herein.
Letter Agreement, dated February 25, 2014, between Valeant Pharmaceuticals International, Inc. and Pershing
Square Capital Management L.P., originally filed as Exhibit 99.3 to the Company’s Schedule 13D filed on April
21, 2014, which is incorporated by reference herein.
Letter Agreement, dated as of March 22, 2016, by and among Valeant Pharmaceuticals International, Inc., William
A. Ackman and Pershing Square Capital Management, L.P., originally filed as Exhibit 99.2 to the Company's
Current Report on Form 8-K filed on March 24, 2016, which is incorporated by reference herein.
Letter Agreement, dated as of March 8, 2016, between Valeant Pharmaceuticals International, Inc. and Pershing
Square Capital Management, L.P., originally filed as Exhibit 99.2 to the Company's Current Report on Form 8-
K filed on March 14, 2016, which is incorporated by reference herein.
Commitment Letter, dated as of May 24, 2013, among Valeant Pharmaceuticals International, Inc., Valeant
Pharmaceuticals International, Goldman Sachs Lending Partners LLC and Goldman Sachs Bank USA, originally
filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 31, 2013, which is incorporated
by reference herein.
Commitment Letter, dated as of February 20, 2015, among Valeant Pharmaceuticals International, Inc., Valeant
Pharmaceuticals International, Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Islands Branch,
Deutsche Bank Securities Inc., HSBC Bank USA, National Association, HSBC Bank Canada, The Hongkong
and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., The Bank of Tokyo-Mitsubishi UFJ,
Ltd., DNB Capital LLC, DNB Markets, Inc., SunTrust Bank and SunTrust Robinson Humphrey, Inc., originally
filed as Exhibit 10.1 to the Company’s Form 8-K filed on February 23, 2015, which is incorporated by reference
herein.
Amended and Restated Commitment Letter, dated as of March 8, 2015, among Valeant Pharmaceuticals
International, Inc., Valeant Pharmaceuticals International, Deutsche Bank AG New York Branch, Deutsche Bank
AG Cayman Island Branch, Deutsche Bank Securities Inc., HSBC Bank USA, National Association, HSBC Bank
Canada, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., The Bank of
Tokyo-Mitsubishi UFJ, Ltd., DNB Capital LLC, DNB Markets, Inc., SunTrust Bank, SunTrust Robinson
Humphrey, Inc., Barclays Bank PLC, Morgan Stanley Senior Funding, Inc., Royal Bank of Canada, RBC Capital
Markets and Citigroup Global Markets Inc., originally filed as Exhibit (b)(24) to the Company’s Tender Offer
Statement on Schedule TO filed on March 4, 2015 on Amendment No. 2 to Schedule TO filed on March 9, 2015,
which is incorporated by reference herein.
Underwriting Agreement, dated March 17, 2015, among Valeant Pharmaceuticals International, Inc., Deutsche
Bank Securities Inc., HSBC Securities (USA) Inc., Mitsubishi UFJ Securities (USA) Inc., DNB Markets, Inc.,
Barclays Capital Inc., Morgan Stanley & Co. LLC, RBC Capital Markets, LLC and SunTrust Robinson Humphrey,
Inc., originally filed as Exhibit 1.1 the Company’s Current Report on Form 8-K filed on March 18, 2015, which
is incorporated by reference herein.
Subsidiaries of Valeant Pharmaceuticals International, Inc.
Consent of PricewaterhouseCoopers LLP.
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certificate of the Chief Executive Officer of Valeant Pharmaceuticals International, Inc. pursuant to 18 U.S.C.
§ 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
90
32.2*
*101.INS
*101.SCH
*101.CAL
*101.LAB
*101.PRE
*101.DEF
Certificate of the Chief Financial Officer of Valeant Pharmaceuticals International, Inc. pursuant to 18 U.S.C.
§ 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
____________________________________
* Filed herewith.
† Management contract or compensatory plan or arrangement.
†† One or more exhibits or schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We undertake
to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request.
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
(Registrant)
Date: April 29, 2016
By:
/s/ J. MICHAEL PEARSON
J. Michael Pearson
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ J. MICHAEL PEARSON
J. Michael Pearson
/s/ ROBERT L. ROSIELLO
Robert L. Rosiello
/s/ ROBERT A. INGRAM
Robert A. Ingram
/s/ WILLIAM A. ACKMAN
William A. Ackman
/s/ FREDRIC N. ESHELMAN
Fredric N. Eshelman
/s/ RONALD H. FARMER
Ronald H. Farmer
/s/ STEPHEN FRAIDIN
Stephen Fraidin
/s/ COLLEEN A. GOGGINS
Colleen A. Goggins
/s/ D. ROBERT HALE
D. Robert Hale
/s/ THEO MELAS-KYRIAZI
Theo Melas-Kyriazi
/s/ G. MASON MORFIT
G. Mason Morfit
/s/ ROBERT N. POWER
Robert N. Power
/s/ NORMA A. PROVENCIO
Norma A. Provencio
/s/ THOMAS W. ROSS, SR.
Thomas W. Ross, Sr.
Chief Executive Officer and Director
April 29, 2016
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
April 29, 2016
Chairman of the Board
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
92
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Management on Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014 (Restated)
Consolidated Statements of (Loss) Income for the years ended December 31, 2015, 2014 (Restated)
and 2013
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2015, 2014 (Restated)
and 2013
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015, 2014 (Restated)
and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 (Restated)
and 2013
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-10
F-1
REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
The Company’s management is responsible for preparing the accompanying consolidated financial statements in conformity
with United States generally accepted accounting principles (“U.S. GAAP”). In preparing these consolidated financial statements,
management selects appropriate accounting policies and uses its judgment and best estimates to report events and transactions as
they occur. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial
statements are presented fairly, in all material respects. Financial information included throughout this Annual Report is prepared
on a basis consistent with that of the accompanying consolidated financial statements.
PricewaterhouseCoopers LLP has been engaged by the Company to audit the consolidated financial statements.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is
ultimately responsible for reviewing and approving the consolidated financial statements. The Board of Directors carries out this
responsibility principally through its Audit and Risk Committee. The members of the Audit and Risk Committee are outside
Directors. The Audit and Risk Committee considers, for review by the Board of Directors and approval by the shareholders, the
engagement or reappointment of the external auditors. PricewaterhouseCoopers LLP has full and free access to the Audit and
Risk Committee.
/s/ J. MICHAEL PEARSON
J. Michael Pearson
Chief Executive Officer
April 29, 2016
/s/ ROBERT L. ROSIELLO
Robert L. Rosiello
Executive Vice President and
Chief Financial Officer
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Valeant Pharmaceuticals International, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of (loss) income,
comprehensive (loss) income, shareholders’ equity, and cash flows present fairly, in all material respects, the financial position of
Valeant Pharmaceuticals International, Inc. and its subsidiaries at December 31, 2015 and December 31, 2014, and the results of
their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule appearing under item 15(2) presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in our opinion, the Company did not maintain, in all material
respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) because material weaknesses in internal control over financial reporting related to the tone at the top of the organization
and the accounting and disclosure for non-standard revenue transactions particularly at or near quarter ends existed as of that date.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or
detected on a timely basis. The material weaknesses referred to above are described in Management’s Report on Internal Control
Over Financial Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing,
and extent of audit tests applied in our audit of the 2015 consolidated financial statements and our opinion regarding the effectiveness
of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting
included in management's report referred to above. Our responsibility is to express opinions on these financial statements, on the
financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company has restated its 2014 consolidated financial
statements to correct a misstatement.
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for
deferred tax assets and liabilities in 2015.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management's Report on Internal Control Over Financial Reporting, management has excluded Amoun
Pharmaceutical Company S.A.E. and the acquired Dendreon Corporation business (together the “Acquired Businesses”), which
were acquired by the Company in purchase business combinations during 2015, from its assessment of internal control over
F-3
financial reporting as of December 31, 2015. We have also excluded the Acquired Businesses from our audit of internal control
over financial reporting. The Acquired Businesses represented approximately 3% of the Company’s consolidated revenues for
the year ended December 31, 2015, and assets associated with the Acquired Businesses represented approximately 1% of the
Company’s consolidated total assets as of December 31, 2015.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
April 29, 2016
F-4
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(All dollar amounts expressed in millions of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents
Trade receivables, net
Inventories, net
Prepaid expenses and other current assets
Deferred tax assets, net (Note 3)
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets, net
Other long-term assets, net
Total assets
Liabilities
Current liabilities:
Accounts payable
Accrued and other current liabilities
Acquisition-related contingent consideration
Current portion of long-term debt
Deferred tax liabilities, net (Note 3)
Total current liabilities
Acquisition-related contingent consideration
Long-term debt
Pension and other benefit liabilities
Liabilities for uncertain tax positions
Deferred tax liabilities, net
Other long-term liabilities
Total liabilities
Commitments and contingencies (Notes 21 and 22)
Equity
Common shares, no par value, unlimited shares authorized, 342,926,531 and
334,402,964 issued and outstanding at December 31, 2015 and 2014, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Valeant Pharmaceuticals International, Inc. shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
On behalf of the Board:
$
$
$
As of December 31,
2015
2014
(Restated)
$
$
$
597.3
2,686.9
1,256.6
966.4
—
5,507.2
1,441.8
23,083.0
18,552.8
156.0
223.7
48,964.5
433.7
3,859.1
196.8
823.0
—
5,312.6
959.1
30,265.4
190.4
120.2
5,902.4
184.6
42,934.7
9,897.4
304.9
(2,749.7)
(1,541.6)
5,911.0
118.8
6,029.8
322.6
2,075.8
889.2
650.8
193.3
4,131.7
1,312.3
11,277.9
9,361.4
54.0
167.4
26,304.7
398.0
2,157.0
141.8
0.9
10.7
2,708.4
205.8
15,228.0
239.8
102.6
2,221.3
197.1
20,903.0
8,349.2
243.9
(2,397.8)
(915.9)
5,279.4
122.3
5,401.7
$
48,964.5
$
26,304.7
/s/ J. MICHAEL PEARSON
J. Michael Pearson
Chief Executive Officer
/s/ NORMA A. PROVENCIO
Norma A. Provencio
Chairperson, Audit and Risk Committee
The accompanying notes are an integral part of these consolidated financial statements.
F-5
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(All dollar amounts expressed in millions of U.S. dollars, except per share data)
Revenues
Product sales
Other revenues
Expenses
Cost of goods sold (exclusive of amortization and impairments of finite-lived intangible assets shown
separately below)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization and impairments of finite-lived intangible assets (Note 11)
Restructuring, integration and other costs
In-process research and development impairments and other charges
Acquisition-related costs
Acquisition-related contingent consideration
Other expense (income) (Notes 4, 5, and 21)
Operating income (loss)
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Gain on investments, net (Note 24)
(Loss) Income before provision for (recovery of) income taxes
Provision for (recovery of) income taxes
Net (loss) income
Less: Net income (loss) attributable to noncontrolling interest
Net (loss) income attributable to Valeant Pharmaceuticals International, Inc.
(Loss) earnings per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Weighted-average common shares (in millions)
Basic
Diluted
Years Ended December 31,
2015
2014
(Restated)
2013
$
10,292.2
$
8,046.1
$
5,640.3
154.3
10,446.5
159.9
8,206.0
129.3
5,769.6
2,531.6
53.1
2,699.8
334.4
2,418.3
361.9
248.4
38.5
(23.0)
256.1
8,919.1
1,527.4
3.3
(1,563.2)
(20.0)
(102.8)
—
(155.3)
132.5
(287.8)
3.9
2,177.7
58.4
2,026.3
246.0
1,550.7
381.7
41.0
6.3
(14.1)
(268.7)
6,205.3
2,000.7
5.0
(971.0)
(129.6)
(144.1)
292.6
1,846.3
58.8
1,305.2
156.8
1,902.0
462.0
153.6
36.4
(29.2)
287.2
6,179.1
(409.5)
8.0
(844.3)
(65.0)
(9.4)
5.8
1,053.6
(1,314.4)
174.2
879.4
(1.3)
(450.8)
(863.6)
2.5
$
$
$
(291.7) $
880.7
$
(866.1)
(0.85) $
(0.85) $
2.63
2.58
$
$
(2.70)
(2.70)
342.7
342.7
335.4
341.5
321.0
321.0
The accompanying notes are an integral part of these consolidated financial statements.
F-6
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(All dollar amounts expressed in millions of U.S. dollars)
Net (loss) income
Other comprehensive loss
Foreign currency translation adjustment
Unrealized gain on equity method investment, net of tax:
Arising in period
Reclassification to net income (loss)
Net unrealized holding gain on available-for-sale equity securities:
Arising in period
Reclassification to net income (loss)
Pension and postretirement benefit plan adjustments:
Newly established prior service credit
Net actuarial gain (loss) arising during the year
Amortization of prior service credit
Amortization or settlement recognition of net loss
Income tax (expense) benefit
Currency impact
Other comprehensive loss
Comprehensive (loss) income
Less: Comprehensive income (loss) attributable to noncontrolling interest
Years Ended December 31,
2015
2014
(Restated)
2013
$
(287.8) $
879.4
$
(863.6)
(646.7)
(717.8)
(50.5)
—
—
—
—
51.3
(51.3)
1.8
(1.8)
(646.7)
(717.8)
—
20.8
(3.1)
2.7
(2.6)
(0.6)
17.2
(629.5)
(917.3)
0.1
29.4
(127.3)
(2.5)
0.9
27.4
5.2
(66.9)
(784.7)
94.7
(2.9)
—
—
3.6
(4.0)
(50.9)
27.9
24.5
—
0.6
(15.4)
0.2
37.8
(13.1)
(876.7)
2.8
Comprehensive (loss) income attributable to Valeant Pharmaceuticals International, Inc.
$
(917.4) $
97.6
$
(879.5)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(All dollar amounts expressed in millions of U.S. dollars)
Valeant Pharmaceuticals International, Inc. Shareholders
Common Shares
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Valeant
Pharmaceuticals
International, Inc.
Shareholders'
Equity
Noncontrolling
Interest
Total
Equity
Balance, January 1, 2013
303.9
$
5,940.7
$
267.1
$
(2,371.0)
$
(119.4)
$
3,717.4
$
— $
3,717.4
Issuance of common stock (Note 15)
Common shares issued under share-based
compensation plans
Repurchase of common shares (Note 15)
Share-based compensation
Employee withholding taxes related to share-
based awards
Tax benefits from share-based compensation
Noncontrolling interest from business
combinations
Noncontrolling interest distributions
Comprehensive loss:
Net loss
Other comprehensive loss
Total comprehensive loss
Balance, December 31, 2013
Common shares issued under share-based
compensation plans
Settlement of stock options
Share-based compensation
Employee withholding taxes related to share-
based awards
Tax benefits from share-based compensation
Noncontrolling interest from business
combinations
Acquisition of noncontrolling interest
Noncontrolling interest distributions
Comprehensive income:
Net income (Restated)
Other comprehensive loss
Total comprehensive income (Restated)
Balance, December 31, 2014 (Restated)
Issuance of common stock (Note 15)
Common shares issued under share-based
compensation plans
Repurchases of common shares (Note 15)
Share-based compensation
Employee withholding taxes related to share-
based awards
Excess tax benefits from share-based
compensation
Noncontrolling interest from business
combinations
Noncontrolling interest distributions
Comprehensive loss:
Net (loss) income
Other comprehensive loss
Total comprehensive loss
27.6
2.2
(0.7)
—
—
—
—
—
2,306.9
67.8
(14.2)
—
—
—
—
—
—
(61.4)
—
45.5
(46.6)
24.2
—
—
—
—
(41.4)
—
—
—
—
—
—
—
—
—
—
—
—
—
2,306.9
6.4
(55.6)
45.5
(46.6)
24.2
—
—
333.0
8,301.2
228.8
(2,412.4)
(119.4)
5,998.2
—
—
333.0
1.4
—
—
—
—
—
—
—
—
—
—
—
(866.1)
—
—
(13.4)
8,301.2
228.8
(3,278.5)
(132.8)
48.0
—
—
—
—
—
—
—
(31.9)
(3.1)
78.2
(44.1)
17.1
—
(1.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(866.1)
(13.4)
(879.5)
5,118.7
16.1
(3.1)
78.2
(44.1)
17.1
—
(1.1)
—
—
—
—
—
—
—
113.9
(2.1)
111.8
2.5
0.3
2.8
2,306.9
6.4
(55.6)
45.5
(46.6)
24.2
113.9
(2.1)
6,110.0
(863.6)
(13.1)
(876.7)
114.6
5,233.3
—
—
—
—
—
15.0
(2.2)
(2.2)
16.1
(3.1)
78.2
(44.1)
17.1
15.0
(3.3)
(2.2)
334.4
8,349.2
243.9
(3,278.5)
(132.8)
5,181.8
125.2
5,307.0
—
—
334.4
7.5
1.4
(0.4)
—
—
—
—
—
—
—
8,349.2
1,482.3
78.1
(12.2)
—
—
—
—
—
—
—
243.9
—
(47.9)
—
140.1
(88.0)
56.8
—
—
880.7
—
—
(783.1)
(2,397.8)
(915.9)
—
—
(60.2)
—
—
—
—
—
—
—
—
—
—
—
—
—
880.7
(783.1)
97.6
5,279.4
1,482.3
30.2
(72.4)
140.1
(88.0)
56.8
—
—
(1.3)
(1.6)
(2.9)
122.3
—
—
—
—
—
—
4.9
(8.5)
879.4
(784.7)
94.7
5,401.7
1,482.3
30.2
(72.4)
140.1
(88.0)
56.8
4.9
(8.5)
342.9
9,897.4
304.9
(2,458.0)
(915.9)
6,828.4
118.7
6,947.1
—
—
—
—
—
—
(291.7)
—
—
(625.7)
(291.7)
(625.7)
(917.4)
3.9
(3.8)
0.1
(287.8)
(629.5)
(917.3)
Balance, December 31, 2015
342.9
$
9,897.4
$
304.9
$
(2,749.7)
$
(1,541.6)
$
5,911.0
$
118.8
$
6,029.8
The accompanying notes are an integral part of these consolidated financial statements.
F-8
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts expressed in millions of U.S. dollars)
Cash Flows From Operating Activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization, including impairments of finite-lived intangible assets
Amortization and write-off of debt discounts and debt issuance costs
In-process research and development impairments
Acquisition accounting adjustment on inventory sold
Acquisition-related contingent consideration
Allowances for losses on accounts receivable and inventories
Deferred income taxes
Loss (gain) on disposal of assets and businesses
Additions (reduction) to accrued legal settlements
Payments of accrued legal settlements
Share-based compensation
Tax benefits from share-based compensation
Foreign exchange loss
Loss on extinguishment of debt
Payment of accreted interest on contingent consideration
Other
Changes in operating assets and liabilities:
Trade receivables
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued and other liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities
Acquisition of businesses, net of cash acquired
Acquisition of intangible assets and other assets
Purchases of property, plant and equipment
Proceeds from sales and maturities of short-term investments
Net settlement of assumed derivative contracts (Note 4)
Settlement of foreign currency forward exchange contracts
Purchases of marketable securities
Purchase of equity method investment
Proceeds from sale of equity method investment
Proceeds from sale of assets and businesses, net of costs to sell
Increase in restricted cash
Net cash used in investing activities
Cash Flows From Financing Activities
Issuance of long-term debt, net of discount
Repayments of long-term debt
Short-term debt borrowings
Short-term debt repayments
Repayments of convertible notes assumed
Issuance of common stock, net
Repurchases of common shares
Proceeds from exercise of stock options
Excess tax benefits from share-based compensation
Payments of employee withholding tax upon vesting of share-based awards
Payments of contingent consideration
Payments of deferred consideration
Payments of financing costs
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Non-Cash Investing and Financing Activities
Acquisition of businesses, contingent and deferred consideration obligations at fair value
Acquisition of businesses, debt assumed
Years Ended December 31,
2015
2014
(Restated)
2013
$
(287.8)
$
879.4
$
(863.6)
2,627.5
145.3
144.5
133.7
(23.0)
115.3
(7.0)
5.4
37.3
(32.9)
140.1
(56.8)
95.2
20.0
(23.0)
(11.2)
(625.9)
(276.0)
(90.6)
170.3
2,200.4
(15,457.4)
(68.1)
(235.2)
66.7
184.6
(26.3)
(49.3)
—
—
12.8
(5.2)
(15,577.4)
17,817.4
(2,055.1)
7.6
(7.9)
(3,122.8)
1,432.8
(72.4)
30.2
56.8
(88.0)
(150.9)
(54.7)
(102.9)
(8.3)
13,681.8
(30.1)
274.7
322.6
597.3
(1,695.8)
(3,129.2)
$
$
$
$
1,737.6
70.0
21.0
27.3
(14.1)
81.3
75.6
(253.5)
(44.7)
(3.2)
78.2
(17.1)
135.1
129.6
(10.7)
32.3
(572.4)
(192.8)
(110.3)
246.1
2,294.7
(1,102.6)
(179.0)
(291.6)
53.2
—
—
(72.0)
(75.9)
75.9
1,492.3
—
(99.7)
1,629.6
(3,888.0)
19.4
(28.4)
—
—
—
17.2
17.1
(44.1)
(106.1)
—
(52.2)
(8.2)
(2,443.7)
(29.0)
(277.7)
600.3
322.6
(132.6)
(11.2)
$
$
2,015.8
89.5
151.9
372.4
(29.2)
68.3
(515.9)
10.2
220.5
(180.8)
45.5
(24.2)
9.8
65.0
(11.1)
(3.8)
(300.6)
(122.7)
121.5
(76.5)
1,042.0
(5,253.5)
(69.6)
(115.3)
35.2
—
—
(18.2)
—
—
41.1
—
(5,380.3)
8,385.4
(6,326.2)
27.4
(75.1)
—
2,307.4
(55.6)
10.0
24.2
(65.5)
(130.1)
—
(72.1)
(2.1)
4,027.7
(5.2)
(315.8)
916.1
600.3
(76.1)
(4,264.7)
The accompanying notes are an integral part of these consolidated financial statements.
F-9
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
1. DESCRIPTION OF BUSINESS
Valeant Pharmaceuticals International, Inc. (the “Company”) is a multinational, specialty pharmaceutical and medical device
company that develops, manufactures, and markets a broad range of branded, generic and branded generic pharmaceuticals,
over-the-counter (“OTC”) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment,
and aesthetics devices), which are marketed directly or indirectly in over 100 countries. Effective August 9, 2013, the Company
continued from the federal jurisdiction of Canada to the Province of British Columbia, meaning that the Company became a
company registered under the laws of the Province of British Columbia as if it had been incorporated under the laws of the
Province of British Columbia. As a result of this continuance, the legal domicile of the Company became the Province of
British Columbia, the Canada Business Corporations Act ceased to apply to the Company and the Company became subject
to the British Columbia Business Corporations Act.
On April 1, 2015, the Company acquired Salix Pharmaceuticals, Ltd. (“Salix”), pursuant to an Agreement and Plan of Merger
dated February 20, 2015, as amended on March 16, 2015 (the “Salix Merger Agreement”), with Salix surviving as a wholly
owned subsidiary of Valeant Pharmaceuticals International (“Valeant”), a subsidiary of the Company (the “Salix Acquisition”).
For further information regarding the Salix Acquisition, including the related financing, see Note 4 and Note 13.
2. RESTATEMENT
This Note 2 to the consolidated financial statements discloses the nature of the restatement matters and adjustments and shows
the impact of the restatement matters on the consolidated financial statements as of and for the year ended December 31, 2014.
The impact of the restatement on interim periods is described in Note 25 (unaudited).
Restatement Background
On October 26, 2015, in light of allegations regarding the Company’s relationship with the Philidor Rx Services, LLC
(“Philidor”) pharmacy network, the Company’s Board of Directors (the “Board”) established an ad hoc committee of
independent directors of the Board (the “Ad Hoc Committee”) to review these allegations and related matters (the “AHC
Review”). The scope of the review conducted by the Ad Hoc Committee was subsequently broadened to encompass other
areas of potential concern, unrelated to Philidor, raised during the course of the review. The Ad Hoc Committee was chaired
by Robert Ingram, the Company’s current independent chairman of the board (and formerly the Company's lead independent
director). Other members included Norma Provencio, chairperson of the Audit and Risk Committee (the “ARC”), Colleen
Goggins and Mason Morfit. The Ad Hoc Committee engaged the law firm of Kirkland & Ellis LLP to assist and advise in
carrying out the AHC Review. On February 22, 2016, the Company announced that, based on the work of the Ad Hoc
Committee, as well as additional work and analysis performed by the Company, the Company had preliminarily identified
certain revenue on sales transactions to Philidor during the second half of 2014, prior to the Company entering into a purchase
option to acquire Philidor, that should have been recognized when product was dispensed to patients rather than on delivery
to Philidor.
On March 21, 2016, management of the Company, the ARC and the Board concluded that the Company’s audited financial
statements for the year ended, and unaudited financial information for the quarter ended, December 31, 2014 included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and the unaudited financial statements for
the quarter ended March 31, 2015 included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2015 should no longer be relied upon due to the misstatements and other qualitative factors described below. In addition, due
to the fact that the first quarter 2015 results are included within the financial statements for the six-month period ended June
30, 2015 included in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and the financial statements for
the nine-month period ended September 30, 2015 included in the Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015, management, the ARC and the Board also concluded that the financial statements for such six-month
and nine-month periods reflected in those Quarterly Reports should no longer be relied upon. This determination was based
on the AHC Review and additional work and analysis performed by the Company. Based on this work, the Company determined
that the earnings impact of certain revenue transactions should have been recognized at a later date than when originally
recognized.
On December 15, 2014, the Company entered into a purchase option agreement with Philidor and its members in which the
Company received an exclusive option to acquire 100% of the equity interest in Philidor, and as of which time Philidor was
consolidated with the Company for accounting purposes as a variable interest entity for which the Company was the primary
F-10
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
beneficiary. Prior to consolidation, revenue on sales to Philidor was recognized by the Company on a sell-in basis (i.e., recorded
when the Company delivered product to Philidor). In connection with the work of the Ad Hoc Committee, the Company
determined that certain sales transactions for deliveries to Philidor in the second half of 2014 leading up to the execution of
the purchase option agreement were not executed in the normal course of business under applicable accounting standards and
included actions taken by the Company (including fulfillment of unusually large orders with extended payment terms and
increased pricing, an emphasis on delivering product prior to the execution of the purchase option agreement and seeking and
filling a substitute order of equivalent value for an unavailable product) in contemplation of the purchase option agreement.
As a result of these actions, revenue for certain transactions completed prior to entry into the purchase option agreement should
have been recognized on a sell-through basis (i.e., record revenue when Philidor dispensed the products to patients) rather
than incorrectly recognized on the sell-in basis utilized by the Company. Additionally, related to these and certain earlier
transactions, the Company has now concluded that collectability was not reasonably assured at the time the revenue was
originally recognized, and, thus, these transactions should have been recognized at a later date (when collectability was
reasonably assured which the Company determined coincides with when the inventory is sold through to the end customer)
instead of on a sell-in basis. Following the consolidation of Philidor on the date of entry into the purchase option agreement,
the Company began recognizing revenue as Philidor dispensed product to patients.
On April 5, 2016, the Company announced that the Ad Hoc Committee had determined that its review was complete, and that
the Ad Hoc Committee had not identified any additional items that would require restatement beyond those required by matters
previously disclosed. In addition, the Company announced that, given the completion of the AHC Review, the Board had
determined to dissolve the Ad Hoc Committee and that the 12 independent directors on the Board, including the members of
the ARC, would assume oversight responsibility for remaining work, including work associated with the completion of the
Company's current and restated financial statements and disclosures, as well as its assessment of related internal controls and
remediation matters.
Impact of Restatement
As a result of the foregoing, the Company has restated its financial statements for the year ended December 31, 2014. The
restatement reduced revenue by approximately $58 million and reduced the Company's net income attributable to Valeant
Pharmaceuticals International, Inc. and diluted earnings per share for the year ended December 31, 2014 by approximately
$33 million and $0.09 per share, respectively.
The individual restatement matters that underlie the restatement adjustments are described below and are reflected and
quantified, as applicable, in the footnotes to the below tables.
(a) Philidor revenue recognition adjustments - The correction of the misstatement from recognizing revenue related to sales
to Philidor from a sell-in to sell-through basis had the effect of eliminating certain revenue recorded in 2014 prior to the
date that Philidor was consolidated as a variable interest entity. The revenue that is being eliminated from 2014 does not
result in an increase to revenue in subsequent periods as a result of the Company having previously recognized that
revenue, subsequent to the consolidation of Philidor, when Philidor dispensed the product to patients. Under the sell-in
method previously utilized by the Company with respect to sales to Philidor prior to its consolidation in December 2014,
revenue was recognized upon delivery of the products to Philidor. At the date of consolidation, certain of that previously
sold inventory was still held by Philidor. Subsequent to the consolidation, Philidor recognized revenue on that inventory
when it dispensed products to patients, and that revenue was consolidated into the Company’s results. As long as those
pre-consolidation sales transactions were in the normal course of business under applicable accounting standards and not
entered into in contemplation of the purchase option agreement, the Company’s historical accounting for this revenue
was in accordance with generally accepted accounting principles. The Company has now determined that certain sales
transactions for deliveries to Philidor, leading up to the purchase option agreement, were not executed in the normal
course of business under applicable accounting standards and included actions taken by the Company (including fulfillment
of unusually large orders with extended payment terms and increased pricing, an emphasis on delivering product prior
to the execution of the purchase option agreement and seeking and filling a substitute order of equivalent value for an
unavailable product) in contemplation of the purchase option agreement. As such, revenue, net of managed care rebates,
of $58 million previously recorded in 2014 is now being corrected. However, because that revenue was also recorded by
Philidor subsequent to consolidation, upon dispensing of products to patients, the elimination of this revenue in 2014,
prior to consolidation, does not result in additional revenue being recorded in 2015. Additionally, provisions for managed
care rebates of $21 million previously recorded in 2014 will now be recognized against that revenue in the first quarter
of 2015.
F-11
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
The reduction in inventory relates to the Philidor revenue recognition adjustments described above. At the time of the
consolidation of Philidor in December 2014, under the acquisition method of accounting, the Company recorded the fair
value of the inventory on hand at Philidor at the net price the Company previously sold the inventory to Philidor, exclusive
of the impact of managed care rebates. The restatement adjustments to eliminate the revenue for certain sales transactions
between the Company and Philidor prior to consolidation, result in a reduction, for accounting purposes, to the amount
of inventory that the Company acquired from Philidor. Eliminating the pre-consolidation sales described above had the
effect of reducing pre-tax profit that was recognized in 2014 by $39 million. The majority of this profit is now recognized
in 2015 as a reduction to previously recorded Cost of Goods Sold as the restated carrying amount of this inventory does
not include the stepped up value resulting from the Company's consolidation of Philidor.
(b) Philidor measurement period adjustments - Related to the consolidation of Philidor, the Company previously recorded
certain measurement period adjustments during the second and third quarters of 2015 when known, which should be
retroactively recorded as of the date Philidor was consolidated (December 2014). These measurement period adjustments
primarily resulted in (1) an increase to acquisition-related contingent consideration as a result of further valuation analysis
around the probability and timing of certain milestone payments; (2) increases in the fair value of certain intangible assets
resulting from the higher sales forecast; and (3) a net increase in goodwill as a result of (1) and (2) above. The measurement
period adjustments were previously determined to be immaterial to the Company’s consolidated financial statements, but
are now being recorded in the fourth quarter of 2014 in connection with the other restatement adjustments related to
Philidor.
(c) Tax effect of restatement adjustments - The Company calculated the tax effect of the adjustments noted above.
(d) Accumulated deficit - This adjustment reflects the cumulative net loss impact of the restatement adjustments as of the
balance sheet date.
F-12
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED BALANCE SHEET
(All dollar amounts expressed in millions of U.S. dollars)
As of December 31,
2014
(As Previously
Reported)(1)
Restatement
Adjustments
2014
(Restated)
Restatement
Ref
Assets
Current assets:
Cash and cash equivalents
Trade receivables, net
Inventories, net
Prepaid expenses and other current assets
Deferred tax assets, net
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets, net
Other long-term assets, net
Total assets
Liabilities
Current liabilities:
Accounts payable
Accrued and other current liabilities
Acquisition-related contingent consideration
Current portion of long-term debt
Deferred tax liabilities, net
Total current liabilities
Acquisition-related contingent consideration
Long-term debt
Pension and other benefit liabilities
Liabilities for uncertain tax positions
Deferred tax liabilities, net
Other long-term liabilities
Total liabilities
Equity
Common shares, no par value, unlimited shares authorized, 334,402,964
issued and outstanding at December 31, 2014
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Valeant Pharmaceuticals International, Inc. shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
____________________________________
$
322.6
$
— $
2,075.8
950.6
650.8
193.3
4,193.1
1,310.5
11,255.9
9,346.4
54.0
167.4
—
(61.4)
—
—
(61.4)
1.8
22.0
15.0
—
—
322.6
2,075.8
889.2
650.8
193.3
4,131.7
1,312.3
11,277.9
9,361.4
54.0
167.4
$
$
26,327.3
$
(22.6) $
26,304.7
398.0
$
2,179.4
141.8
0.9
10.7
2,730.8
167.0
15,228.0
239.8
102.6
2,227.5
197.1
20,892.8
8,349.2
243.9
(2,365.0)
(915.9)
5,312.2
122.3
5,434.5
— $
(22.4)
—
—
—
(22.4)
38.8
—
—
—
(6.2)
—
10.2
—
—
(32.8)
—
(32.8)
—
(32.8)
398.0
2,157.0
141.8
0.9
10.7
2,708.4
205.8
15,228.0
239.8
102.6
2,221.3
197.1
20,903.0
8,349.2
243.9
(2,397.8)
(915.9)
5,279.4
122.3
5,401.7
$
26,327.3
$
(22.6) $
26,304.7
(a)
(b)
(b)
(b)
(a)
(b)
(c)
(d)
(1) As described in Note 3, the Company adopted guidance issued by the Financial Accounting Standards Board which requires certain debt issuance costs to
be presented in the balance sheet as a direct deduction from the carrying value of the associated debt, consistent with the presentation of a debt discount. The
adoption of this guidance was applied retrospectively and impacted presentation only. The resulting reclassifications between assets and long-term debt did
not have a material impact on the Company's financial statements.
F-13
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF INCOME
(All dollar amounts expressed in millions of U.S. dollars, except per share data)
Year Ended December 31,
2014
(As Previously
Reported)
Restatement
Adjustments
2014
(Restated)
Restatement
Ref
$
8,103.6
$
(57.5) $
—
(57.5)
(18.5)
—
—
—
—
—
—
—
—
—
(18.5)
(39.0)
—
—
—
—
—
(39.0)
(6.2)
(32.8)
—
(32.8) $
(0.09) $
(0.09) $
159.9
8,263.5
2,196.2
58.4
2,026.3
246.0
1,550.7
381.7
41.0
6.3
(14.1)
(268.7)
6,223.8
2,039.7
5.0
(971.0)
(129.6)
(144.1)
292.6
1,092.6
180.4
912.2
(1.3)
913.5
2.72
2.67
335.4
341.5
$
$
$
(a)
(a)
(c)
8,046.1
159.9
8,206.0
2,177.7
58.4
2,026.3
246.0
1,550.7
381.7
41.0
6.3
(14.1)
(268.7)
6,205.3
2,000.7
5.0
(971.0)
(129.6)
(144.1)
292.6
1,053.6
174.2
879.4
(1.3)
880.7
2.63
2.58
335.4
341.5
Revenues
Product sales
Other revenues
Expenses
Cost of goods sold (Exclusive of amortization and impairments of
finite lived intangible assets shown separately below)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization and impairment of finite-lived intangible assets
Restructuring, integration and other costs
In-process research and development impairments and other changes
Acquisition-related costs
Acquisition-related contingent consideration
Other income
Operating income (loss)
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Gain on investments, net
Income (loss) before provision for (recovery of) income taxes
Provision for (recovery of) income taxes
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Valeant Pharmaceuticals International, Inc.
Earnings (loss) per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Weighted-average common shares (in millions)
Basic
Diluted
$
$
$
F-14
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
There was no net impact of the 2014 restatement adjustments on net cash provided by operating activities, net cash used in
investing activities and net cash used in financing activities in the Consolidated Statement of Cash Flows. The adjustments
only had an impact on certain captions within cash flows from operating activities.
CONSOLIDATED STATEMENT OF CASH FLOWS
(All dollar amounts expressed in millions of U.S. dollars)
Year Ended December 31,
2014
(As Previously
Reported)
Restatement
Adjustments
2014
(Restated)
Restatement
Ref
$
912.2
$
(32.8) $
879.4
1,737.6
70.0
21.0
27.3
(14.1)
81.3
81.8
(253.5)
(44.7)
(3.2)
78.2
(17.1)
135.1
129.6
(10.7)
32.3
(572.4)
(174.3)
(110.3)
188.6
2,294.7
(99.7)
(2,443.7)
(29.0)
(277.7)
600.3
—
—
—
—
—
—
(6.2)
—
—
—
—
—
—
—
—
—
(18.5)
—
57.5
—
—
—
—
—
—
322.6
$
— $
(c)
(a)
(a)
1,737.6
70.0
21.0
27.3
(14.1)
81.3
75.6
(253.5)
(44.7)
(3.2)
78.2
(17.1)
135.1
129.6
(10.7)
32.3
(572.4)
(192.8)
(110.3)
246.1
2,294.7
(99.7)
(2,443.7)
(29.0)
(277.7)
600.3
322.6
(93.8) $
(38.8) $
(11.2)
—
(132.6)
(11.2)
(b)
Cash Flow From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including impairments of finite-lived intangible
assets
Amortization and write-off of debt discounts and debt issuance costs
In-process research and development impairments
Acquisition accounting adjustment on inventory sold
Acquisition-related contingent consideration
Allowances for losses on accounts receivable and inventories
Deferred income taxes
Gain on disposal of assets and liabilities
Reduction to accrued legal settlements
Payments of accrued legal settlements
Share-based compensation
Tax benefits from share-based compensation
Foreign exchange loss
Loss on extinguishment of debt
Payment of accreted interest on contingent consideration
Other
Changes in operating assets and liabilities:
Trade receivables
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued and other liabilities
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Non- Cash Investing and Financing Activities
Acquisition of businesses, contingent consideration at fair value
Acquisition of businesses, debt assumed
$
$
F-15
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared by the Company in United States (“U.S.”) dollars and in accordance
with U.S. generally accepted accounting principles (“GAAP”), applied on a consistent basis. Refer to “Adoption of New
Accounting Standards” in this Note 3 below for details on the Company's adoption of new standards, some of which were
adopted prospectively, as permitted under the respective standard.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and those of its subsidiaries and any variable
interest entities (“VIEs”) for which the Company is the primary beneficiary. All significant intercompany transactions and
balances have been eliminated.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with the current year presentation. Such amounts
include a reclassification of $26 million of debt issuance costs as of December 31, 2014 from Other long-term assets, net to
Long-term debt (treated as a deduction to Long-term debt) on the consolidated balance sheet as a result of adoption of guidance
issued by the Financial Accounting Standards Board (“FASB”) (see below under “Adoption of New Accounting Standards”
in this Note 3 for more details).
The reclassifications described above had no effect on the Company’s previously reported results of operations.
Acquisitions
Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and
liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of
the net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed
as incurred. The operating results of the acquired business are reflected in our consolidated financial statements after the date
of acquisition. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized
as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. If the acquired
net assets do not constitute a business under the acquisition method of accounting, the transaction is accounted for as an asset
acquisition and no goodwill is recognized. In an asset acquisition, the amount allocated to acquired IPR&D with no alternative
future use is charged to expense at the acquisition date.
Use of Estimates
In preparing the Company’s consolidated financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates
made by management include: provisions for product returns, rebates, chargebacks, discounts and allowances, and distribution
fees paid to certain wholesalers; useful lives of amortizable intangible assets and property, plant and equipment; expected
future cash flows used in evaluating intangible assets for impairment; reporting unit fair values in testing goodwill for
impairment; provisions for loss contingencies; provisions for income taxes, uncertain tax positions and realizability of deferred
tax assets; and the allocation of the purchase price for acquired assets and businesses, including the fair value of contingent
consideration. Under certain product manufacturing and supply agreements, management relies on estimates for future returns,
rebates and chargebacks made by the Company’s commercialization counterparties.
On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the
Company’s business and new information as it becomes available. If historical experience and other factors used by
management to make these estimates do not reasonably reflect future activity, the Company’s consolidated financial statements
could be materially impacted.
Fair Value of Financial Instruments
The estimated fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximate their carrying values due to their short maturity periods. The fair value of acquisition-related contingent
consideration is based on estimated discounted future cash flows or Monte Carlo Simulation analyses and assessment of the
F-16
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
probability of occurrence of potential future events. The fair values of marketable securities and long-term debt are based on
quoted market prices, if available, or estimated discounted future cash flows.
Cash and Cash Equivalents
Cash and cash equivalents include certificates of deposit, treasury bills, certain money-market funds and term deposits with
maturities of three months or less when purchased.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of
cash and cash equivalents, marketable securities and accounts receivable.
The Company invests its excess cash in high-quality, money market instruments and term deposits with varying maturities,
but typically less than three months. The Company maintains its cash and cash equivalents with major financial institutions.
The Company has not experienced any significant losses on its cash or cash equivalents.
The Company’s accounts receivable primarily represent amounts due from wholesale distributors, retail pharmacies,
government entities and group purchasing organizations. Outside of the U.S., concentrations of credit risk with respect to
trade receivables, which are typically unsecured, are limited due to the number of customers using the Company’s products,
as well as their dispersion across many different geographic areas. The Company performs periodic credit evaluations of
customers and does not require collateral. The Company monitors economic conditions, including volatility associated with
international economies, and related impacts on the relevant financial markets and its business, especially in light of sovereign
credit issues. The credit and economic conditions within Italy, Portugal, Spain, Greece, among other members of the European
Union, Russia, Brazil, and Egypt have been weak in recent years. These conditions have increased, and may continue to
increase, the average length of time that it takes to collect on the Company’s accounts receivable outstanding in these countries.
An allowance for doubtful accounts is maintained for potential credit losses based on the aging of accounts receivable, historical
bad debts experience, and changes in customer payment patterns. Accounts receivable balances are written off against the
allowance when it is deemed probable that the receivable will not be collected.
As of December 31, 2015, the Company’s three largest U.S. wholesaler customers accounted for approximately 40% of net
trade receivables. In addition, as of December 31, 2015 and 2014, the Company’s net trade receivable balance from Russia,
Egypt, Italy, Brazil, Spain, Greece and Portugal amounted to $253 million and $204 million, respectively, of which the majority
has been outstanding for less than 90 days. The portion of the net trade receivable from these countries that is past due more
than 90 days amounted to $17 million, in the aggregate, as of December 31, 2015, a portion of which is comprised of public
hospitals. Based on analysis of bad debt experience and assessment of historical payment patterns for such customers, the
Company has established a reserve covering approximately half of the balance past due more than 90 days for such countries,
in the aggregate. The Company has not experienced any significant losses from uncollectible accounts in the three-year period
ended December 31, 2015. The Company recognized incremental reserves of $27 million in the fourth quarter of 2015
primarily related to (i) a settlement with R&O Pharmacy, LLC ("R&O") regarding outstanding receivable amounts (see Note
21 for additional information regarding R&O) and (ii) receivables from certain customers of Philidor. See further discussion
of Philidor in Note 4.
Inventories
Inventories comprise raw materials, work in process, and finished goods, which are valued at the lower of cost or market, on
a first-in, first-out basis. Cost for work in process and finished goods inventories includes materials, direct labor, and an
allocation of overheads. Market for raw materials is replacement cost, and for work in process and finished goods is net
realizable value.
The Company evaluates the carrying value of inventories on a regular basis, taking into account such factors as historical and
anticipated future sales compared with quantities on hand, the price the Company expects to obtain for products in their
respective markets compared with historical cost and the remaining shelf life of goods on hand.
Property, Plant and Equipment
Property, plant and equipment are reported at cost, less accumulated depreciation. Costs incurred on assets under construction
are capitalized as construction in progress. Depreciation is calculated using the straight-line method, commencing when the
assets become available for productive use, based on the following estimated useful lives:
F-17
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Buildings
Machinery and equipment
Other equipment
Equipment on operating lease
Leasehold improvements and capital leases
Intangible Assets
Up to 40 years
3 - 20 years
3 - 10 years
Up to 5 years
Lesser of term of lease or 10 years
Intangible assets are reported at cost, less accumulated amortization. Intangible assets with finite lives are amortized over
their estimated useful lives. Amortization is calculated primarily using the straight-line method based on the following estimated
useful lives:
Product brands
Corporate brands(1)
Product rights
Partner relationships
Out-licensed technology and other
____________________________________
1 - 25 years
4 - 20 years
2 - 15 years
4 - 9 years
1 - 10 years
(1) Corporate brands useful lives shown in the table above does not include the B&L corporate trademark, which has an indefinite useful life and is not
amortizable. See Note 4 for further information.
Divestitures of Products
The Company nets the proceeds on the divestitures of products with the carrying amount of the related assets and records a
gain/loss on sale within Other expense (income). Any contingent payments that are potentially due to the Company as a result
of these divestitures are recorded when realizable.
IPR&D
The fair value of IPR&D acquired through a business combination is capitalized as an indefinite-lived intangible asset until
the completion or abandonment of the related research and development activities. When the related research and development
is completed, the asset will be assigned a useful life and amortized.
The fair value of an IPR&D intangible asset is determined using an income approach. This approach starts with a forecast of
the net cash flows expected to be generated by the asset over its estimated useful life. The net cash flows reflect the asset’s
stage of completion, the probability of technical success, the projected costs to complete, expected market competition, and
an assessment of the asset’s life-cycle. The net cash flows are then adjusted to present value by applying an appropriate discount
rate that reflects the risk factors associated with the cash flow streams.
Impairment of Long-Lived Assets
Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. If indicators of impairment are present, the asset is tested for recoverability
by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived
from the asset. If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired
and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.
Indefinite-lived intangible assets, including acquired IPR&D, are tested for impairment annually or more frequently if events
or changes in circumstances between annual tests indicate that the asset may be impaired. Impairment losses on indefinite-
lived intangible assets are recognized based solely on a comparison of the fair value of the asset to its carrying value.
Goodwill
Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values
assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at least annually
at the reporting unit level. A reporting unit is the same as, or one level below, an operating segment.
F-18
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
An interim goodwill impairment test in advance of the annual impairment assessment may be required if events occur that
indicate an impairment might be present. For example, a substantial decline in the Company’s market capitalization, unexpected
adverse business conditions, economic factors and unanticipated competitive activities may signal that an interim impairment
test is needed. Accordingly, among other factors, the Company monitors changes in its share price between annual impairment
tests. The Company considers a decline in its share price that corresponds to an overall deterioration in stock market conditions
to be less of an indicator of goodwill impairment than a unilateral decline in its share price reflecting adverse changes in its
underlying operating performance, cash flows, financial condition, and/or liquidity. In the event that the Company's market
capitalization does decline below its book value, the Company would consider the length and severity of the decline and the
reason for the decline when assessing whether potential goodwill impairment exists. The Company believes that short-term
fluctuations in share prices may not necessarily reflect underlying values.
The Company performs its annual goodwill impairment in the fourth quarter of each fiscal year. The goodwill impairment
test consists of two steps. In step one, the Company compares the carrying value of each reporting unit to its fair value. In
step two, if the carrying value of a reporting unit exceeds its fair value, the Company will determine the amount of goodwill
impairment as the excess of the carrying value of the reporting unit's goodwill over its fair value, if any. The fair value of
goodwill is derived as the excess of the fair value of the reporting unit over the fair value of the reporting unit's identifiable
assets and liabilities.
During the fourth quarter of 2015, the Company performed its annual goodwill impairment test (which incorporated the impact
from certain events in the fourth quarter of 2015 leading to the significant decline in the Company's share price), and the
Company conducted an update of the test reflecting its most recent financial forecasts. The Company determined that none
of the goodwill associated with its reporting units was impaired.
Deferred Financing Costs
Deferred financing costs are reported at cost, less accumulated amortization, and are presented in the balance sheet as a direct
deduction from the carrying value of the associated debt, with the exception of deferred financing costs associated with
revolving-debt arrangements which are presented as assets. See "Adoption of New Accounting Standards" below in this Note
3 for additional information. Amortization expense is included in interest expense.
Foreign Currency Translation
The assets and liabilities of the Company’s foreign operations having a functional currency other than the U.S. dollar are
translated into U.S. dollars at the exchange rate prevailing at the balance sheet date, and at the average exchange rate for the
reporting period for revenue and expense accounts. The cumulative foreign currency translation adjustment is recorded as a
component of accumulated other comprehensive income in shareholders’ equity.
Foreign currency exchange gains and losses on transactions occurring in a currency other than an operation’s functional
currency are recognized in net income.
Revenue Recognition
Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price to the customer is fixed or determinable, and collectability is reasonably assured.
Product Sales
For products sold directly to wholesalers and retailers, the Company recognizes product sales revenue when persuasive evidence
of an arrangement exists, delivery has occurred, collectability is reasonably assured, and the price to the buyer is fixed or
determinable, the timing of which is based on the specific contractual terms with each customer. Delivery occurs when title
has transferred to the customer, and the customer has assumed the risks and rewards of ownership. As such, the Company
generally recognizes revenue on a sell-in basis (i.e., record revenue upon delivery); however, based upon specific terms and
circumstances, the Company has determined that, for certain arrangements with third parties, revenue should be recognized
on a sell-through basis (i.e., record revenue when products are dispensed to patients). Refer to Note 2 for information regarding
the arrangement with Philidor. With respect to the recent launch of Addyi® in the U.S. in the fourth quarter of 2015, the
Company has determined that it does not have the ability to reasonably estimate returns due to a lack of historical returns data
for this product or similar products. Therefore, the Company is recording revenue for Addyi® on a sell-through basis until
it determines that returns can be reasonably estimated. In evaluating the proper revenue recognition for sales transactions,
F-19
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
the Company considers all relevant factors, including additional discounts or extended payment terms which the Company
grants to certain customers, often near the end of fiscal quarterly periods.
Revenue from product sales is recognized net of provisions for estimated cash discounts, allowances, returns, rebates,
chargebacks and distribution fees paid to certain of the Company’s wholesale customers. The Company establishes these
provisions concurrently with the recognition of product sales revenue. Price appreciation credits are generated when the
Company increases a product’s wholesaler acquisition cost (“WAC”) under our contracts with certain wholesalers. Under
such contracts, the Company is entitled to credits from such wholesalers for the impact of that WAC increase on inventory
currently on hand at the wholesalers. Such credits, which can be significant, are used to offset against the total distribution
service fees the Company pays on all of its products to each wholesaler. Net revenue on these credits is recognized on the
date that the wholesaler is notified of the price increase. The Company offers cash discounts for prompt payment and allowances
for volume purchases to customers. Provisions for cash discounts and allowances are estimated based on contractual sales
terms with customers, an analysis of unpaid invoices, and historical payment experience. The Company generally allows
customers to return product within a specified period of time before and after its expiration date, excluding the Company’s
European businesses which generally do not carry a right of return. Provisions for returns are estimated based on historical
sales and return levels, taking into account additional available information such as historical return and exchange levels,
external data with respect to inventory levels in the wholesale distribution channel, external data with respect to prescription
demand for the Company’s products, remaining shelf lives of the Company’s products at the date of sale and estimated returns
liability to be processed by year of sale based on analysis of lot information related to actual historical returns. The Company
reviews its methodology and adequacy of the provision for returns on a quarterly basis, adjusting for changes in assumptions,
historical results and business practices, as necessary. The Company is subject to rebates on sales made under governmental
and managed-care programs in the U.S., and chargebacks on sales made to government agencies, group purchasing
organizations and other indirect customers. Provisions for rebates and chargebacks are estimated based on historical utilization
levels, relevant statutes with respect to governmental pricing programs and contractual sales terms with managed-care
providers and group purchasing organizations. Changes in the level of utilization of the Company’s products through private
or public benefit plans and group purchasing organizations will impact the amount of rebates and chargebacks that the Company
is obligated to pay.
The Company is party to product manufacturing and supply agreements with a number of commercialization counterparties
in the U.S. Under the terms of these agreements, the Company’s supply prices for its products are determined after taking into
consideration estimates for future returns, rebates, and chargebacks provided by each counterparty. The Company makes
adjustments as needed to state these estimates on a basis consistent with this policy and its methodology for estimating returns,
rebates and chargebacks related to its own direct product sales.
Research and Development Expenses
Costs related to internal research and development programs, including costs associated with the development of acquired
IPR&D, are expensed as goods are delivered or services are performed. Under certain research and development arrangements
with third parties, the Company may be required to make payments that are contingent on the achievement of specific
developmental, regulatory and/or commercial milestones. Before a product receives regulatory approval, milestone payments
made to third parties are expensed when the milestone is achieved. Milestone payments made to third parties after regulatory
approval is received are capitalized and amortized over the estimated useful life of the approved product.
Amounts due from third parties as reimbursement of development activities conducted under certain research and development
arrangements are recognized as a reduction of research and development expenses.
Legal Costs
Legal fees and other costs related to litigation and other legal proceedings are expensed as incurred and are included in Selling,
general and administrative expenses. Certain legal costs associated with acquisitions are included in Acquisition-related costs,
and certain legal costs associated with divestitures, legal settlements, and other business development activity are included
in Other expense (income) or Gain on investments, net (see Note 24), as appropriate. Certain costs for legal matters related
to contingent liabilities assumed in the Salix Acquisition were recorded at estimated fair value (see Note 4). Legal costs
expensed are reported net of expected insurance recoveries. A claim for insurance recovery is recognized when realization
becomes probable.
Advertising Costs
F-20
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Advertising costs comprise product samples, print media, promotional materials and television advertising. Advertising costs
related to new product launches are expensed on the first use of the advertisement. As of December 31, 2015 and 2014, prepaid
advertising costs of $20 million and $8 million, respectively, were recorded in Prepaid expenses and other current assets in
the consolidated balance sheet.
Advertising costs expensed in 2015, 2014 and 2013 were $652 million, $435 million and $277 million, respectively. These
costs are included in Selling, general and administrative expenses.
Share-Based Compensation
The Company recognizes all share-based payments to employees, including grants of employee stock options and restricted
share units (“RSUs”), at estimated fair value. The Company amortizes the fair value of stock option or RSU grants on a
straight-line basis over the requisite service period of the individual stock option or RSU grant, which generally equals the
vesting period. Stock option and RSU forfeitures are estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.
Share-based compensation is recorded in Cost of goods sold, Research and development expenses, Selling, general and
administrative expenses and Restructuring, integration and other costs, as appropriate.
Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration, which consists primarily of potential milestone payments and royalty obligations,
is recorded in the consolidated balance sheets at its acquisition date estimated fair value, in accordance with the acquisition
method of accounting. The fair value of the acquisition-related contingent consideration is remeasured each reporting period,
with changes in fair value recorded in the consolidated statements of (loss) income. The fair value measurement is based on
significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement
accounting.
Interest Expense
Interest expense includes standby fees and the amortization of debt discounts and deferred financing costs. Interest costs are
expensed as incurred, except to the extent such interest is related to construction in progress, in which case interest is capitalized.
The capitalized interest recorded in 2015, 2014 and 2013 was not material.
Income Taxes
Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the differences
between the financial statement and income tax bases of assets and liabilities, and for operating losses and tax credit
carryforwards. A valuation allowance is provided for the portion of deferred tax assets that is more likely than not to remain
unrealized. Deferred tax assets and liabilities are measured using enacted tax rates and laws.
The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be
sustained upon examination by the appropriate taxing authority, based on the technical merits of the position. The tax benefits
recognized from such position are measured based on the amount that is greater than 50% likely of being realized upon
settlement. Liabilities associated with uncertain tax positions are classified as long-term unless expected to be paid within
one year. Interest and penalties related to uncertain tax positions, if any, are recorded in the provision for income taxes and
classified with the related liability on the consolidated balance sheets.
Refer to “Adoption of New Accounting Standards” in this Note 3 below for details on the Company's adoption of a new
standard related to the presentation of deferred tax liabilities and assets.
Earnings Per Share
Basic earnings per share attributable to Valeant Pharmaceuticals International, Inc. is calculated by dividing net income
attributable to Valeant Pharmaceuticals International, Inc. by the weighted-average number of common shares outstanding
during the reporting period. Diluted earnings per share is calculated by dividing net income attributable to Valeant
Pharmaceuticals International, Inc. by the weighted-average number of common shares outstanding during the reporting period
after giving effect to dilutive potential common shares for stock options and RSUs, determined using the treasury stock method.
Comprehensive Income
F-21
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Comprehensive income comprises net income and other comprehensive income. Other comprehensive income includes items
such as foreign currency translation adjustments, unrealized holding gains and losses on available-for-sale and other
investments and certain pension and other postretirement benefit plan adjustments. Accumulated other comprehensive income
is recorded as a component of shareholders’ equity.
Contingencies
In the normal course of business, the Company is subject to loss contingencies, such as claims and assessments arising from
litigation and other legal proceedings, contractual indemnities, product and environmental liabilities, and tax matters. Accruals
for loss contingencies are recorded when the Company determines that it is both probable that a liability has been incurred
and the amount of loss can be reasonably estimated. If the estimate of the amount of the loss is a range and some amount
within the range appears to be a better estimate than any other amount within the range, that amount is accrued as a liability.
If no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued as
a liability. These accruals are adjusted periodically as assessments change or additional information becomes available.
If no accrual is made for a loss contingency because the amount of loss cannot be reasonably estimated, the Company will
disclose contingent liabilities when there is at least a reasonable possibility that a loss or an additional loss may have been
incurred.
Certain legal-related contingencies assumed as part of the Salix Acquisition were recorded at estimated fair value (see Note
4).
Employee Benefit Plans
The Company sponsors various retirement and pension plans, including defined benefit pension plans, defined contribution
plans and a participatory defined benefit postretirement plan. The determination of defined benefit pension and postretirement
plan obligations and their associated expenses requires the use of actuarial valuations to estimate the benefits employees earn
while working, as well as the present value of those benefits. Net actuarial gains and losses that exceed 10 percent of the
greater of the plan’s projected benefit obligations or the market-related value of assets are amortized to earnings over the
shorter of the estimated average future service period of the plan participants (or the estimated average future lifetime of the
plan participants if the majority of plan participants are inactive) or the period until any anticipated final plan settlements.
Adoption of New Accounting Standards
In April 2014, the FASB issued guidance which changes the criteria for reporting a discontinued operation while enhancing
disclosures in this area. Under the new guidance, a disposal of a component of an entity or group of components of an entity
that represents a strategic shift that has, or will have, a major effect on operations and financial results is a discontinued
operation when any of the following occurs: (i) it meets the criteria to be classified as held for sale, (ii) it is disposed of by
sale, or (iii) it is disposed of other than by sale. Also, a business that, on acquisition, meets the criteria to be classified as held
for sale is reported in discontinued operations. Additionally, the new guidance requires expanded disclosures about discontinued
operations, as well as disclosure of the pre-tax profit or loss attributable to a disposal of an individually significant component
of an entity that does not qualify for discontinued operations presentation. The Company early adopted this guidance in the
second quarter of 2014, and the Company applied this guidance to the divestitures described in Note 5.
In April 2015, the FASB issued guidance which requires debt issuance costs to be presented in the balance sheet as a direct
deduction from the carrying value of the associated debt, consistent with the presentation of a debt discount. The guidance is
effective for annual periods beginning after December 15, 2015, and all annual and interim periods thereafter. As permitted,
the Company early-adopted this guidance in the second quarter of 2015. The adoption of this guidance, which was applied
retrospectively and impacted presentation only, resulted in a reclassification of $26 million as of December 31, 2014 from
Other long-term assets, net to Long-term debt (treated as a deduction to Long-term debt) on the consolidated balance sheet.
There was no impact on the Company's results of operations. In August 2015, the FASB issued guidance about the presentation
and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. As permitted under this
guidance, the Company will continue to present debt issuance costs associated with revolving-debt arrangements as assets.
In September 2015, the FASB issued guidance which eliminates the requirement to retrospectively adjust the financial
statements for measurement-period adjustments that occur in periods after a business combination is consummated.
Measurement period adjustments are calculated as if they were known at the acquisition date, but are recognized in the reporting
period in which they are determined. Additional disclosures are required about the impact on current-period income statement
line items of adjustments that would have been recognized in prior periods if prior-period information had been revised. The
F-22
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
guidance is effective for annual periods beginning after December 15, 2015 and is to be applied prospectively to adjustments
of provisional amounts that occur after the effective date. Early application is permitted. As permitted, the Company early-
adopted this guidance prospectively commencing in the fourth quarter of 2015.
In November 2015, the FASB issued guidance which requires that deferred tax liabilities and assets be classified as noncurrent.
The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented
as a single amount is not affected by the guidance. The guidance is effective for annual periods beginning after December
15, 2016, and interim periods within the annual periods. As permitted, the Company early-adopted this guidance in the fourth
quarter of 2015. The adoption of this guidance was applied prospectively, as permitted, and, as such, prior periods were not
retrospectively adjusted.
Recently Issued Accounting Standards, Not Adopted as of December 31, 2015
In May 2014, the FASB issued guidance on recognizing revenue from contracts with customers. The core principle of the
revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In
applying the revenue model to contracts within its scope, an entity will: (i) identify the contract(s) with a customer, (ii) identify
the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the
performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
In addition to these provisions, the new standard provides implementation guidance on several other topics, including the
accounting for certain revenue-related costs, as well as enhanced disclosure requirements. The new guidance requires entities
to disclose both quantitative and qualitative information that enables users of financial statements to understand the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In March 2016, the FASB
issued an amendment to clarify the implementation guidance around considerations whether an entity is a principal or an
agent, impacting whether an entity reports revenue on a gross or net basis. In April 2016, the FASB issued an amendment to
clarify guidance on identifying performance obligations and the implementation guidance on licensing. The guidance is
effective for annual reporting periods (including interim reporting periods within those periods) beginning after December
15, 2017. Early application is permitted but not before the annual reporting period (and interim reporting period) beginning
January 1, 2017. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance.
The Company is evaluating the impact of adoption of this guidance on its financial position and results of operations.
In August 2014, the FASB issued guidance which requires management to assess an entity’s ability to continue as a going
concern and to provide related disclosures in certain circumstances. Under the new guidance, disclosures are required when
conditions give rise to substantial doubt about an entity’s ability to continue as a going concern within one year from the
financial statement issuance date. The guidance is effective for annual periods ending after December 15, 2016, and all annual
and interim periods thereafter. Early application is permitted. The adoption of this guidance will not have any impact on the
Company’s financial position and results of operations and, at this time, the Company does not expect any impact on its
disclosures.
In February 2015, the FASB issued guidance which amends certain consolidation requirements. The new guidance has the
following stipulations, among others: (i) eliminates the presumption that a general partner should consolidate a limited
partnership and eliminates the consolidation model specific to limited partnerships, (ii) clarifies when fees paid to a decision
maker should be a factor to include in the consolidation of VIEs, (iii) amends the guidance for assessing how relationships of
related parties affect the consolidation analysis of VIEs, and (iv) reduces the number of VIE consolidation models from two
to one by eliminating the indefinite deferral for certain investment funds. The guidance is effective for annual reporting periods
(including interim reporting periods within those annual periods) beginning after December 15, 2015. Early application is
permitted. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt the
guidance. The adoption of this standard is not expected to have a material impact on the presentation of the Company's results
of operations, cash flows or financial position.
In July 2015, the FASB issued guidance which requires entities to measure most inventory “at the lower of cost and net
realizable value (“NRV”),” thereby simplifying the current guidance under which an entity must measure inventory at the
lower of cost or market. Under the new guidance, inventory is “measured at the lower of cost and net realizable value,” which
eliminates the need to determine replacement cost and evaluate whether it is above the ceiling (NRV) or below the floor (NRV
less a normal profit margin). The guidance defines NRV as the “estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and transportation”. The guidance is effective for annual periods
F-23
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. The
Company is evaluating the impact of adoption of this guidance on its financial position and results of operations.
In January 2016, the FASB issued guidance which amends the classification and measurement of investments in equity
securities and the presentation of certain fair value changes for financial liabilities measured under the fair value option. The
guidance also amends certain disclosure requirements associated with the fair value of financial instruments. The guidance
is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early
application is permitted. The Company is evaluating the impact of adoption of this guidance on its financial position, results
of operations and disclosures.
In February 2016, the FASB issued new guidance on leases. The new guidance will increase transparency and comparability
among organizations that lease buildings, equipment, and other assets by recognizing the assets and liabilities that arise from
lease transactions. Current off-balance sheet leasing activities will be required to be reflected on balance sheets so that investors
and other users of financial statements can more readily and accurately understand the rights and obligations associated with
these transactions. Consistent with the current lease standard, the new guidance addresses two types of leases: finance leases
and operating leases. Finance leases will be accounted for in substantially the same manner as capital leases are accounted
for under current GAAP. Operating leases will be accounted for (both in the income statement and statement of cash flows)
in a manner consistent with operating leases under existing GAAP. However, as it relates to the balance sheet, lessees will
recognize lease liabilities based upon the present value of remaining lease payments and corresponding lease assets for operating
leases with limited exception. The new guidance will also require lessees and lessors to provide additional qualitative and
quantitative disclosures to help financial statement users assess the amount, timing, and uncertainty of cash flows arising from
leases. These disclosures are intended to supplement the amounts recorded in the financial statements so that users can
understand more about the nature of an organization’s leasing activities. The new guidance is effective for annual reporting
periods (including interim reporting periods within those annual periods) beginning after December 15, 2018. Early application
is permitted. The Company is evaluating the impact of adoption of this guidance on its financial position, results of operations
and disclosures.
In March 2016, the FASB issued new guidance which simplifies several aspects of the accounting for employee share-based
payment transactions. The areas for simplification involve several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, accounting for
forfeitures, and classification on the statement of cash flows. The guidance is effective for annual periods beginning after
December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating
the impact of adoption of this guidance on its financial position, results of operations and cash flows.
4. ACQUISITIONS
The Company’s business strategy has involved selective acquisitions with a focus on core geographies and therapeutic
classes.
(a) Business combinations in 2015 included the following:
Amoun
Description of the Transaction
On October 19, 2015, the Company acquired Mercury (Cayman) Holdings, the holding company of Amoun Pharmaceutical
Company S.A.E. (“Amoun”), for consideration of approximately $910 million, including contingent payments (the “Amoun
Acquisition”). Amoun develops and markets a wide range of pharmaceutical brands in therapeutic areas such as anti-
hypertensives, broad spectrum antibiotics, and anti-diarrheals primarily in North Africa and the Middle East.
Fair Value of Consideration Transferred
The fair value of consideration transferred to effect the Amoun Acquisition consisted of $846 million in cash, plus contingent
consideration based upon the achievement of specified sales-based milestones. The range of potential milestone payments as
of the acquisition date is from nil if none of the milestones is achieved to a maximum of up to approximately $75 million over
time if all milestones are achieved, in the aggregate. The total fair value of the contingent consideration of $64 million as of
the acquisition date was determined using probability-weighted discounted cash flows. Refer to Note 7 for additional
F-24
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
information regarding contingent consideration. The Company recognized a post-combination expense of $12 million within
Other expense (income) in the fourth quarter of 2015 related to cash bonuses paid to Amoun employees.
Assets Acquired and Liabilities Assumed
The transaction has been accounted for as a business combination under the acquisition method of accounting. The following
table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. Due to
the timing of this acquisition, these amounts are provisional and subject to change. The Company will finalize these amounts
as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and
circumstances that existed as of the acquisition date may result in adjustments to the provisional amounts recognized at the
acquisition date. These changes could be significant. The Company will finalize these amounts no later than one year from
the acquisition date.
Cash
Accounts receivable(a)
Inventories
Other current assets
Property, plant and equipment
Identifiable intangible assets, excluding acquired IPR&D(b)
Acquired IPR&D
Other non-current assets
Current liabilities
Deferred tax liability, net(c)
Other non-current liabilities
Total identifiable net assets
Goodwill(d)
Total fair value of consideration transferred
________________________
Amounts
Recognized as of
Acquisition Date
$
$
43.5
64.2
37.9
12.2
96.4
528.0
18.5
0.1
(30.8)
(130.5)
(11.2)
628.3
282.0
910.3
(a) The fair value of trade accounts receivable acquired was $64 million, with the gross contractual amount being $66 million, of which the Company
expects that $2 million will be uncollectible.
(b) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:
Product brands
Corporate brand
Total identifiable intangible assets acquired
Weighted-
Average
Useful Lives
(Years)
Amounts
Recognized as of
Acquisition Date
9
15
9
$
$
490.8
37.2
528.0
(c) Comprised of deferred tax liabilities partially offset by nominal deferred tax assets.
(d) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets
acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:
• the Company’s expectation to develop and market new products and expand its business to new geographic markets;
• the value of the continuing operations of Amoun's existing business (that is, the higher rate of return on the assembled net assets versus if the Company
had acquired all of the net assets separately); and
• intangible assets that do not qualify for separate recognition (for instance, Amoun's assembled workforce).
The provisional amount of goodwill has been allocated to the Company’s Emerging Markets segment.
F-25
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Acquisition-Related Costs
The Company has incurred to date $4 million of transaction costs directly related to the Amoun Acquisition, which includes
expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as
acquisition-related costs.
Revenue and Net Loss of Amoun
The revenues of Amoun for the period from the acquisition date to December 31, 2015 were $48 million and net loss was $9
million. The net loss includes the effects of the acquisition accounting adjustments and acquisition-related costs.
Sprout
Description of the Transaction
On October 1, 2015, the Company acquired Sprout Pharmaceuticals, Inc. (“Sprout”), pursuant to the merger agreement, among
Sprout, the Company, Valeant, Miranda Acquisition Sub, Inc., a wholly owned subsidiary of Valeant, and Shareholder
Representative Services LLC, as stockholder representative, on a debt-free basis (the “Sprout Acquisition”), for an aggregate
purchase price of $1.45 billion, which includes cash plus contingent consideration. Sprout has focused solely on the delivery
of a treatment option for the unmet need of pre-menopausal women with acquired, generalized hypoactive sexual desire
disorder (HSDD) as characterized by low sexual desire that causes marked distress or interpersonal difficulty and is not due
to a co-existing medical or psychiatric condition, problems within the relationship, or the effects of a medication or other drug
substance. In August 2015, Sprout received approval from the U.S. Food and Drug Administration ("FDA") on its New Drug
Application ("NDA") for flibanserin, which is being marketed as Addyi® in the U.S. (launched in the U.S. in the fourth quarter
of 2015). Sprout also has global rights to flibanserin. In connection with the acquisition of Sprout, the Company has a
contractual obligation for expenditures of at least $200 million with respect to Addyi® for selling, general and administrative,
marketing and research and development expenses from the period commencing January 1, 2016 through June 30, 2017.
Fair Value of Consideration Transferred
The Company paid approximately $530 million, inclusive of customary purchase price adjustments, upon closing of the
transaction in October 2015, and an additional payment in the amount of $500 million (acquisition date fair value of $495
million) was paid in the first quarter of 2016. In addition, the transaction includes contingent consideration representing
payments to the former shareholders and former holders of vested stock appreciation rights of Sprout for a share of future
profits. The share of future profits with the former shareholders and former holders of vested stock appreciation rights of
Sprout is uncapped and commences on the date that the earlier of the following events occurs (a) net cumulative worldwide
sales of flibanserin products (plus any amounts received from sublicenses on the sale of flibanserin products) exceeds $1
billion or (b) July 1, 2017 and it continues until December 31, 2030. The total fair value of the contingent consideration of
$422 million as of the acquisition date was determined using a Monte Carlo Simulation. Refer to Note 7 for additional
information regarding contingent consideration.
Assets Acquired and Liabilities Assumed
The transaction has been accounted for as a business combination under the acquisition method of accounting. The following
table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. Due to
the timing of this acquisition, these amounts are provisional and subject to change. The Company will finalize these amounts
as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and
circumstances that existed as of the acquisition date may result in adjustments to the provisional amounts recognized at the
acquisition date. These changes could be significant. The Company will finalize these amounts no later than one year from
the acquisition date.
F-26
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Cash and cash equivalents
Inventories
Other assets
Identifiable intangible assets(a)
Current liabilities
Deferred income taxes, net
Total identifiable net assets
Goodwill(b)
Amounts
Recognized as of
Acquisition Date
$
26.6
11.0
1.6
993.7
(4.4)
(351.9)
676.6
769.9
Total fair value of consideration transferred
$
1,446.5
________________________
(a) Consists of product rights with a weighted-average useful life of 11 years.
(b) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets
acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:
• the Company’s potential ability to develop and market the product to additional types of patients/indications and launch the product in a variety of
new geographies;
• the value of the continuing operations of Sprout's existing business (that is, the higher rate of return on the assembled net assets versus if the Company
had acquired all of the net assets separately); and
• intangible assets that do not qualify for separate recognition (for instance, Sprout's assembled workforce).
The provisional amount of goodwill has been allocated to the Company’s Developed Markets segment.
Acquisition-Related Costs
The Company has incurred to date $4 million of transaction costs directly related to the Sprout Acquisition, which includes
expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as
acquisition-related costs.
Revenue and Net Loss of Sprout
The revenues of Sprout for the period from the acquisition date to December 31, 2015 were nominal and net loss was $37
million. The net loss includes the effects of the acquisition accounting adjustments and acquisition-related costs. The Company
is recording revenue for Addyi® on a sell-through basis, as the Company has determined that it does not have the ability to
reasonably estimate returns. Refer to Note 3 for additional information.
Salix
Description of the Transaction
On April 1, 2015, the Company acquired Salix, pursuant to the Salix Merger Agreement, among the Company, Valeant, Sun
Merger Sub, Inc., a wholly owned subsidiary of Valeant (“Sun Merger Sub”), and Salix. Salix is a specialty pharmaceutical
company dedicated to developing and commercializing prescription drugs and medical devices used in treatment of variety
of gastrointestinal (GI) disorders with a portfolio of over 20 marketed products, including Xifaxan®, Uceris®, Apriso®,
Glumetza®, and Relistor®.
In accordance with the terms of the Salix Merger Agreement, Sun Merger Sub commenced a tender offer (the “Offer”) for all
of Salix’s outstanding shares of common stock, par value $0.001 per share (the “Salix Shares”), at a purchase price of $173.00
per Salix Share, net to the holder in cash, without interest, less any applicable withholding taxes. The Offer expired on April 1,
2015, as scheduled. A sufficient number of Salix Shares were validly tendered in the Offer such that the minimum tender
condition to the Offer was satisfied, and Sun Merger Sub accepted for payment all such tendered Salix Shares. Following the
expiration of the Offer on April 1, 2015, Sun Merger Sub merged with and into Salix, with Salix surviving as a wholly owned
subsidiary of Valeant (the “Merger”). The Merger was governed by Section 251(h) of the General Corporation Law of the
F-27
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
State of Delaware, with no stockholder vote required to consummate the Merger. At the effective time of the Merger, each
Salix Share then outstanding was converted into the right to receive $173.00 in cash, without interest, less any applicable
withholding taxes, except for Salix Shares then owned by the Company or Salix or their respective wholly owned subsidiaries,
which Salix Shares were cancelled for no consideration.
In connection with the Merger, each unexpired and unexercised option to purchase Salix Shares (the “Salix Options”), whether
or not then exercisable or vested, was cancelled and, in exchange therefor, each former holder of any such cancelled Salix
Option was entitled to receive, a payment in cash (subject to any applicable withholding or other taxes required by applicable
law to be withheld) of an amount equal to the product of (i) the total number of Salix Shares previously subject to such Salix
Option and (ii) the excess, if any, of $173.00 over the exercise price per Salix Share previously subject to such Salix Options.
Each unvested Salix Share subject to forfeiture restrictions, repurchase rights or other restrictions (the “Salix Restricted Stock”)
automatically became fully vested and was cancelled and, in exchange therefor, each former holder of such cancelled Salix
Restricted Stock was entitled to receive, a payment in cash (subject to any applicable withholding or other taxes required by
applicable law to be withheld) equal to $173.00 per share of Salix Restricted Stock.
The Salix Acquisition (including the Offer and the Merger), as well as related transactions and expenses, were funded through
a combination of: (i) the proceeds from an issuance of senior unsecured notes that closed on March 27, 2015; (ii) the proceeds
from incremental term loan commitments; (iii) the proceeds from a registered offering of Valeant’s common shares in the
United States that closed on March 27, 2015; and (iv) cash on hand.
For further information regarding the debt and equity issuances, see Note 13 and Note 15, respectively.
Fair Value of Consideration Transferred
The following table indicates the consideration transferred to effect the Salix Acquisition:
(In millions except per share data)
Number of shares of Salix common stock outstanding as of acquisition date
Multiplied by Per Share Merger Consideration
Number of outstanding stock options of Salix cancelled and exchanged for cash(a)
Number of outstanding restricted stock of Salix cancelled and exchanged for cash(a)
Less: Cash consideration paid for Salix’s restricted stock that was accelerated at the closing of
the Salix Acquisition(a)
Add: Payment of Salix’s Term Loan B Credit Facility(b)
Add: Payment of Salix’s 6.00% Senior Notes due 2021(b)
Conversion
Calculation
64.3
Fair
Value
$
173.00
$
11,123.9
0.1
1.1
10.1
195.0
11,329.0
(164.5)
1,125.2
842.3
Total fair value of consideration transferred
$
13,132.0
___________________________________
(a) The purchase consideration paid to holders of Salix stock options and restricted stock attributable to pre-combination services was included as a
component of the purchase price. Purchase consideration of $165 million paid for outstanding restricted stock that was accelerated by the Company
in connection with the Salix Acquisition was excluded from the purchase price and accounted for as post-combination expense within Other expense
(income) in the second quarter of 2015.
(b) The repayment of Salix’s Term Loan B Credit Facility has been reflected as part of the purchase consideration as the debt was repaid concurrently with
the consummation of the Salix Acquisition and was not assumed by the Company as part of the acquisition. Similarly, the redemption of Salix’s 6.00%
Senior Notes due 2021 has been reflected as part of the purchase consideration as the indenture governing the 6.00% Senior Notes due 2021 was
satisfied and discharged concurrently with the consummation of the Salix Acquisition and was not assumed by the Company as part of the acquisition.
Assets Acquired and Liabilities Assumed
The transaction has been accounted for as a business combination under the acquisition method of accounting. The following
table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date.
F-28
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Amounts
Recognized as of
Acquisition Date
(as previously
reported)(a)
$
Cash and cash equivalents
Inventories(c)
Other assets(d)
Property, plant and equipment, net
Identifiable intangible assets, excluding acquired IPR&D(e)
Acquired IPR&D(f)
Current liabilities(g)
Contingent consideration, including current and long-term portion(h)
Long-term debt, including current portion(i)
Deferred income taxes, net(j)
Other non-current liabilities
Total identifiable net assets
Goodwill(k)
113.7
233.2
1,400.3
24.3
6,756.3
5,366.8
(1,764.2)
(327.9)
(3,123.1)
(3,512.0)
(7.3)
5,160.1
7,971.9
Amounts
Recognized as of
December 31, 2015
(as adjusted)
Measurement
Period
Adjustments(b)
$
— $
(0.6)
10.1
—
—
(183.9)
(175.0)
(6.2)
—
84.1
(36.0)
(307.5)
307.5
113.7
232.6
1,410.4
24.3
6,756.3
5,182.9
(1,939.2)
(334.1)
(3,123.1)
(3,427.9)
(43.3)
4,852.6
8,279.4
13,132.0
Total fair value of consideration transferred
$
13,132.0
$
— $
________________________
(a) As previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.
(b) The measurement period adjustments primarily reflect: (i) a reduction in acquired IPR&D assets, specifically for the Oral Relistor® program based
mainly on refinement of the pricing assumptions and cost projections (see further discussion of IPR&D programs in (f) below) and (ii) the tax impact
of pre-tax measurement period adjustments as well as reclassifications of certain tax balances impacting current liabilities. The measurement period
adjustments were made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to
the acquisition date. These adjustments did not have a significant impact on the Company’s consolidated financial statements for the current period.
(c)
Includes an estimated fair value step-up adjustment to inventory of $108 million.
(d) Primarily includes an estimated fair value of $1.27 billion to record the capped call transactions and convertible bond hedge transactions that were
entered into by Salix prior to the Salix Acquisition in connection with its 1.5% Convertible Senior Notes due 2019 and 2.75% Convertible Senior Notes
due 2015. These instruments were settled on the date of the Salix Acquisition and, as such, the fair value was based on the settlement amounts. Other
assets also includes an estimated insurance recovery of $80 million, based on estimated fair value, related to the legal matters discussed in (g) below.
(e) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:
Product brands
Corporate brand
Total identifiable intangible assets acquired
Weighted-
Average
Useful Lives
(Years)
Amounts
Recognized as of
Acquisition Date
(as previously
reported)
Measurement
Period
Adjustments
Amounts
Recognized as of
December 31, 2015
(as adjusted)
10
20
11
$
$
6,088.3
668.0
6,756.3
$
$
1.3
$
(1.3)
— $
6,089.6
666.7
6,756.3
(f) A multi-period excess earnings methodology (income approach) was used to determine the estimated fair values of the acquired IPR&D assets from a
market participant perspective. The projected cash flows from these assets were adjusted for the probabilities of successful development and
commercialization of each project, and the Company used risk-adjusted discount rates of 9.5%-11% to present value the projected cash flows.
The IPR&D assets primarily relate to Xifaxan® 550 mg for the treatment of irritable bowel syndrome with diarrhea (new indication) in adults ("Xifaxan®
IBS-D"). In determining the fair value of Xifaxan® IBS-D ($4.79 billion as of the acquisition date), the Company assumed material cash inflows
would commence in 2015. In May 2015, Xifaxan® IBS-D received approval from the FDA, and, accordingly, such asset has been reclassified to an
amortizable intangible asset as of the approval date and is being amortized over a period of 10 years.
Other IPR&D assets include, among others, Oral Relistor® for the treatment of opioid-induced constipation in adult patients with chronic non-cancer
pain and Rifaximin soluble solid dispersion ("SSD") for the treatment of early decompensated liver cirrhosis. In September 2015, the Company
announced that the FDA accepted for review the Company's NDA for Oral Relistor®, and the FDA assigned a Prescription Drug User Fee Act (PDUFA)
action date of April 19, 2016. In April 2016, the Company announced that the FDA had extended the PDUFA action date for Oral Relistor® to July
F-29
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
19, 2016 to allow time for a full review of the Company's responses to certain information requests from the FDA. In the third quarter of 2015, the
Company terminated the Rifaximin SSD IPR&D program and recognized an impairment charge as described in Note 11.
(g) Primarily includes an estimated fair value of $1.08 billion to record the warrant transactions that were entered into by Salix prior to the Salix Acquisition
in connection with its 1.5% Convertible Senior Notes due 2019 (these instruments were settled on the date of the Salix Acquisition and, as such, the
fair value was based on the settlement amounts), as well as accruals for (i) the estimated fair value of $336 million (exclusive of the related insurance
recovery described in (d) above) for potential losses and related costs associated with legal matters relating to the legacy Salix business (See Note 21
for additional information regarding these legal matters) and (ii) product returns and rebates of $375 million.
(h) The contingent consideration consists of potential payments to third parties including developmental milestone payments due upon specified regulatory
achievements, commercialization milestones contingent upon achieving specified targets for net sales, and royalty-based payments. As of the acquisition
date, the range of potential milestone payments (excluding royalty-based payments) is from nil if none of the milestones are achieved to a maximum
of up to approximately $650 million (the majority of which relates to sales-based milestones) over time if all milestones are achieved, in the aggregate,
to third parties. This amount includes up to $250 million in developmental and sales-based milestones to Progenics Pharmaceuticals, Inc. related to
Relistor® (including Oral Relistor®), and various other developmental and sales-based milestones. The total fair value of the contingent consideration
of $334 million as of the acquisition date was determined using probability-weighted discounted cash flows. Refer to Note 7 for additional information
regarding contingent consideration.
(i) The following table summarizes the fair value of long-term debt assumed as of the acquisition date:
1.5% Convertible Senior Notes due 2019(1)
2.75% Convertible Senior Notes due 2015(1)
Total long-term debt assumed
____________________________________
Amounts
Recognized as of
Acquisition Date
$
$
1,837.1
1,286.0
3,123.1
(1) The Company subsequently redeemed these amounts in full in the second quarter of 2015, except for a nominal amount of the 1.5% Convertible
Senior Notes due 2019.
(j) Comprises deferred tax assets ($303 million) and deferred tax liabilities ($3.73 billion).
(k) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets
acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:
• the Company’s expectation to develop and market new product brands, product lines and technology;
• cost savings and operating synergies expected to result from combining the operations of Salix with those of the Company;
• the value of the continuing operations of Salix’s existing business (that is, the higher rate of return on the assembled net assets versus if the Company
had acquired all of the net assets separately); and
• intangible assets that do not qualify for separate recognition (for instance, Salix’s assembled workforce).
The amount of goodwill has been allocated to the Company’s Developed Markets segment.
Acquisition-Related Costs
The Company has incurred to date $15 million of transaction costs directly related to the Salix Acquisition, which includes
expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as
acquisition-related costs.
Revenue and Net Loss of Salix
The revenues of Salix for the period from the acquisition date to December 31, 2015 were $1.28 billion and net loss was $302
million. The net loss includes the effects of the acquisition accounting adjustments and acquisition-related costs.
Other 2015 Business Combinations (excluding the Amoun Acquisition, the Sprout Acquisition, and the Salix
Acquisition)
Description of the Transactions
In the year ended December 31, 2015, the Company completed other business combinations (excluding the Amoun Acquisition,
the Sprout Acquisition, and the Salix Acquisition), which included the acquisition of the following businesses, for an aggregate
F-30
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
purchase price of $1.41 billion. The other business combinations completed during the year ended December 31, 2015 included
contingent consideration arrangements with an aggregate acquisition date fair value of $191 million, primarily related to the
acquisition of certain assets of Marathon Pharmaceuticals, LLC ("Marathon") (see below), as well as milestone payments and
royalties related to other smaller acquisitions. Refer to Note 7 for additional information regarding contingent consideration.
• On February 23, 2015, the Company, completed via a "stalking horse bid" in a sales process conducted under the U.S.
Bankruptcy Code, acquired certain assets of Dendreon Corporation ("Dendreon") for a purchase price of $415 million,
net of cash received ($495 million less cash received of $80 million). The purchase price included approximately $50
million in stock consideration, and such shares were issued in June 2015. The assets acquired from Dendreon included
the worldwide rights to the Provenge® product (an immunotherapy treatment designed to treat men with advanced prostate
cancer).
• On February 10, 2015, the Company acquired certain assets of Marathon. The assets acquired from Marathon comprised
a portfolio of hospital products, including Nitropress®, Isuprel®, Opium Tincture, Pepcid®, Seconal Sodium®, Amytal®
Sodium, and Iprivask® for an aggregate purchase price of $286 million (which is net of a $64 million assumed liability
owed to a third party which is reflected in the table below). Also, as part of this acquisition, the Company assumed a
contingent consideration liability as described further below.
• During the year ended December 31, 2015, the Company completed other smaller acquisitions which are not material
individually or in the aggregate. These acquisitions are included in the aggregated amounts presented below.
Assets Acquired and Liabilities Assumed
These transactions have been accounted for as business combinations under the acquisition method of accounting. The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to the business
combinations, in the aggregate, as of the applicable acquisition dates. The following recognized amounts related to certain
smaller acquisitions, are provisional and subject to change:
•
•
amounts for intangible assets, property and equipment, inventories, receivables and other working capital adjustments
pending finalization of the valuation;
amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax
aspects of the transactions; and
•
amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed.
The Company will finalize these amounts as it obtains the information necessary to complete the measurement processes.
Any changes resulting from facts and circumstances that existed as of the acquisition dates may result in adjustments to the
provisional amounts recognized at the acquisition dates. These changes could be significant. The Company will finalize these
amounts no later than one year from the respective acquisition dates.
F-31
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Cash
Accounts receivable(b)
Inventories
Other current assets
Property, plant and equipment
Identifiable intangible assets, excluding acquired IPR&D(c)
Acquired IPR&D
Other non-current assets
Deferred tax (liability) asset, net
Current liabilities(d)
Long-term debt
Non-current liabilities(d)
Total identifiable net assets
Goodwill(e)
Amounts
Recognized as of
Acquisition Dates
92.2
$
49.5
142.9
20.2
94.6
1,121.6
57.5
2.9
(54.7)
(123.9)
(6.1)
(117.4)
1,279.3
141.9
Total fair value of consideration transferred
$
1,421.2
$
________________________
Measurement
Period
Adjustments(a)
$
Amounts
Recognized as of
December 31, 2015
(as adjusted)
— $
(0.7)
(0.6)
(0.3)
(14.7)
(37.4)
(3.7)
—
59.7
(0.9)
—
0.2
1.6
(10.6)
(9.0) $
92.2
48.8
142.3
19.9
79.9
1,084.2
53.8
2.9
5.0
(124.8)
(6.1)
(117.2)
1,280.9
131.3
1,412.2
(a) The measurement period adjustments primarily relate to the acquisition of certain assets of Dendreon and reflect: (i) an increase to the deferred tax
assets based on further assessment of the Dendreon net operating losses ("NOLs") available to the Company post-acquisition, (ii) a reduction in the
estimated fair value of intangible assets based on further assessment of assumptions related to the probability-weighted cash flows, (iii) a reduction in
the estimated fair value of property, plant and equipment driven by further assessment of the fair value of a manufacturing facility, and (iv) the tax
impact of pre-tax measurement period adjustments. The measurement period adjustments were made to reflect facts and circumstances existing as of
the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact
on the Company’s consolidated financial statements for the current period.
(b) The fair value of trade accounts receivable acquired was $49 million, with the gross contractual amount being $51 million, of which the Company
expects that $2 million will be uncollectible.
(c) The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:
Product brands
Product rights
Corporate brands
Partner relationships
Technology/know-how
Other
Total identifiable intangible assets acquired
Weighted-
Average
Useful Lives
(Years)
Amounts
Recognized as of
Acquisition Dates
Measurement
Period
Adjustments
Amounts
Recognized as of
December 31, 2015
(as adjusted)
7
3
16
8
10
6
8
$
$
741.2
$
42.7
6.6
7.8
321.3
2.0
0.1
$
(0.7)
—
—
(36.8)
—
741.3
42.0
6.6
7.8
284.5
2.0
1,121.6
$
(37.4) $
1,084.2
(d) As part of the acquisition of certain assets of Marathon, the Company assumed a contingent consideration liability related to potential payments, in the
aggregate, of up to approximately $200 million as of the acquisition date, for Isuprel® and Nitropress®, the amounts of which are dependent on the
timing of generic entrants for these products. The fair value of the liability as of the acquisition date was determined using probability-weighted
projected cash flows, with $41 million classified in Current liabilities and $46 million classified in Non-current liabilities in the table above. As of
December 31, 2015, the assumptions used for determining the fair value of the contingent consideration liability have not changed significantly from
those used as of the acquisition date. Through December 31, 2015, the Company has made contingent consideration payments of $35 million related
to the acquisition of certain assets of Marathon.
(e) The goodwill relates primarily to certain smaller acquisitions and the acquisition of certain assets of Marathon. Goodwill is calculated as the difference
between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. The
majority of the goodwill is not expected to be deductible for tax purposes. The goodwill represents primarily the cost savings, operating synergies and
other benefits expected to result from combining the operations with those of the Company.
F-32
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
The provisional amount of goodwill has been allocated primarily to the Company’s Developed Markets segment.
Acquisition-Related Costs
The Company has incurred to date $16 million, in the aggregate, of transaction costs directly related to these business
combinations, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs
have been expensed as acquisition-related costs.
Revenue and Net Income
The revenues of these business combinations for the period from the respective acquisition dates to December 31, 2015 were
$771 million, in the aggregate, and net income was $208 million, in the aggregate. The net income includes the effects of the
acquisition accounting adjustments and acquisition-related costs.
2015 Asset Acquisitions
On October 1, 2015, pursuant to an agreement entered into with AstraZeneca Collaboration Ventures, LLC (“AstraZeneca”),
the Company was granted an exclusive license to develop and commercialize brodalumab. Brodalumab is an IL-17 receptor
monoclonal antibody in development for patients with moderate-to-severe plaque psoriasis and psoriatic arthritis. Under the
agreement, the Company holds the exclusive rights to develop and commercialize brodalumab globally, except in Japan and
certain other Asian countries where rights are held by Kyowa Hakko Kirin Co., Ltd under a prior arrangement with Amgen
Inc., the originator of brodalumab. The Company assumed all remaining development obligations associated with the regulatory
approval for brodalumab subsequent to the acquisition. Regulatory submission in the U.S. and European Union for brodalumab
in moderate-to-severe psoriasis occurred in November 2015, and, in January 2016, the Company announced that the FDA
accepted for review the Biologics License Application ("BLA") for brodalumab and assigned a PDUFA action date of November
16, 2016. Under the terms of the agreement, the Company made an up-front payment to AstraZeneca of $100 million in
October 2015, which was recognized in In-process research and development impairments and other charges in the fourth
quarter of 2015 in the consolidated statement of (loss) income as the product has not yet received regulatory approval at the
time of the acquisition. In addition, the Company may pay additional pre-launch milestones of up to $170 million and sales-
related milestone payments of up to $175 million following launch. After approval, AstraZeneca and the Company will share
profits.
(b) Business combinations in 2014 included the following:
In the year ended December 31, 2014, the Company completed business combinations, which included the acquisition of the
following businesses, for an aggregate purchase price of $1.35 billion. The aggregate purchase price included contingent
consideration payment obligations with an aggregate acquisition date fair value of $132 million, primarily related to sales-
based milestones. Refer to Note 7 for additional information regarding contingent consideration.
• On July 7, 2014, the Company acquired all of the outstanding common stock of PreCision Dermatology, Inc. (“PreCision”)
for an aggregate purchase price of $459 million. Under the terms of the merger agreement, the Company agreed to pay
contingent consideration of $25 million upon the achievement of a sales-based milestone for 2014. The fair value of this
contingent consideration was determined to be nominal as of the acquisition date, based on the sales forecast. As the
sales-based milestone was not achieved, no such payment was made. The Company recognized a post-combination
expense of $20 million within Other expense (income) in the third quarter of 2014 related to the acceleration of unvested
stock options for PreCision employees. In connection with the acquisition of PreCision, the Company was required by
the Federal Trade Commission (“FTC”) to divest the rights to PreCision’s Tretin-X® (tretinoin) cream product and
PreCision’s generic tretinoin gel and cream products (see Note 5 for additional information). PreCision develops and
markets a range of medical dermatology products, treating a number of topical disease states such as acne and atopic
dermatitis with products such as Locoid® and Clindagel®.
• On January 23, 2014, the Company acquired all of the outstanding common stock of Solta Medical, Inc. (“Solta Medical”)
for $293 million, which includes $2.92 per share in cash and $44 million for the repayment of Solta Medical’s long-term
debt, including accrued interest. Solta Medical designs, develops, manufactures, and markets energy-based medical device
systems for aesthetic applications, and its products include the Thermage CPT® system, the Fraxel® repair system, the
Clear + Brilliant® system, and the Liposonix® system.
• During the year ended December 31, 2014, the Company completed other smaller acquisitions which were not material
individually or in the aggregate. These acquisitions are included in the aggregated amounts presented below. Beginning
F-33
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
in December 2014, the Company consolidated the Philidor pharmacy network. The Company determined that based on
its rights, including its option to acquire Philidor, Philidor was a variable interest entity for which the Company was the
primary beneficiary, given its power to direct Philidor’s key activities and its obligation to absorb their losses and rights
to receive their benefits. As a result, since December 2014, the Company included the assets and liabilities and results of
operations of Philidor in its consolidated financial statements. In October 2015, the Company announced that it would
be severing all ties with Philidor. Effective November 2015, the Company signed an agreement terminating all
arrangements with or relating to Philidor, other than certain transition services which ended on January 30, 2016. Philidor
will be deconsolidated from the Company's consolidated financial statements in the first quarter of 2016. Net sales
recognized through Philidor represented approximately 5% of the Company's total consolidated net revenue for the year
ended December 31, 2015, and the total assets of Philidor represented less than 1% of the Company's total consolidated
assets as of December 31, 2015. The impact of Philidor as a consolidated entity on the Company's net revenue for 2014
was nominal. Refer to Note 2 for additional information regarding the restatement impact on the consolidation of Philidor.
Assets Acquired and Liabilities Assumed
These transactions have been accounted for as business combinations under the acquisition method of accounting. The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to the business
combinations, in the aggregate, as of the applicable acquisition dates:
Amounts
Recognized as of
Acquisition Dates
(Restated)
Measurement
Period
Adjustments(a)
(Restated)
Amounts
Recognized as of
December 31, 2015
(as adjusted)
$
Cash and cash equivalents
Accounts receivable(b)
Assets held for sale(c)
Inventories
Other current assets
Property, plant and equipment, net
Identifiable intangible assets, excluding acquired IPR&D(d)
Acquired IPR&D(e)
Other non-current assets
Current liabilities
Long-term debt, including current portion
Deferred income taxes, net
Other non-current liabilities
Total identifiable net assets
Noncontrolling interest
Goodwill(f)
33.6
87.7
125.7
90.5
19.1
60.3
719.2
65.8
4.0
(152.0)
(11.2)
(116.0)
(13.4)
913.3
(15.0)
425.4
$
1.1
$
(5.9)
(0.8)
(15.9)
(4.9)
(2.4)
0.4
(2.8)
(2.1)
(16.9)
0.3
45.1
(0.1)
(4.9)
(4.9)
33.2
34.7
81.8
124.9
74.6
14.2
57.9
719.6
63.0
1.9
(168.9)
(10.9)
(70.9)
(13.5)
908.4
(19.9)
458.6
Total fair value of consideration transferred
$
1,323.7
$
23.4
$
1,347.1
________________________
(a) The measurement period adjustments primarily reflect: (i) a net increase in the fair value of contingent consideration related to smaller acquisitions
based on assessment of probability and timing assumptions for potential milestone payments, related to factors that existed as of the respective acquisition
dates, (ii) a decrease in the net deferred tax liability primarily related to the PreCision and Solta Medical acquisitions, (iii) an increase in current liabilities
primarily related to the PreCision acquisition and other smaller acquisitions, and (iv) a decrease in inventory primarily related to the Solta Medical
acquisition and other smaller acquisitions. The measurement period adjustments were made to reflect facts and circumstances existing as of the acquisition
date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact on the Company’s
previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.
(b) The fair value of trade accounts receivable acquired was $82 million, with the gross contractual amount being $88 million, of which the Company
expects that $6 million will be uncollectible.
(c) Assets held for sale relate to the Tretin-X® product rights and the product rights for the generic tretinoin gel and cream products acquired in the PreCision
acquisition, which were subsequently divested in the third quarter of 2014.
F-34
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
(d) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:
Product brands
Product rights
Corporate brand
In-licensed products
Partner relationships
Other
Total identifiable intangible assets acquired
Weighted-
Average
Useful Lives
(Years)
Amounts
Recognized as of
Acquisition Dates
(Restated)
Measurement
Period
Adjustments
(Restated)
Amounts
Recognized as of
December 31, 2015
(as adjusted)
10
8
15
9
9
9
10
$
$
506.0
$
2.0
$
95.2
30.9
1.5
51.1
34.5
(3.3)
2.0
(0.3)
—
—
719.2
$
0.4
$
508.0
91.9
32.9
1.2
51.1
34.5
719.6
(e) The acquired IPR&D assets primarily relate to programs from smaller acquisitions. In addition, the Solta Medical acquisition includes a program for
the development of a next generation Thermage® product.
(f) The goodwill relates primarily to the PreCision and Solta Medical acquisitions. Goodwill is calculated as the difference between the acquisition date
fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Substantially all of the goodwill is not
expected to be deductible for tax purposes. The goodwill recorded from the PreCision and Solta Medical acquisitions represents the following:
• cost savings, operating synergies and other benefits expected to result from combining the operations of PreCision and Solta Medical with those of
the Company;
• the Company’s expectation to develop and market new products and technology; and
• intangible assets that do not qualify for separate recognition (for instance, PreCision’s and Solta Medical’s assembled workforces).
The goodwill from the PreCision acquisition has been allocated to the Company’s Developed Markets segment ($194 million). The goodwill from the
Solta Medical acquisition has been allocated to both the Company’s Developed Markets segment ($56 million) and Emerging Markets segment ($38
million). The goodwill from the other acquisitions has been allocated primarily to the Company’s Developed Markets segment.
(c) Business combinations in 2013 included the following:
B&L
Description of the Transaction
On August 5, 2013, the Company acquired Bausch & Lomb Holdings Incorporated ("B&L") for an aggregate purchase price
equal to $8.70 billion minus B&L’s existing indebtedness for borrowed money (which was paid off by Valeant in accordance
with the terms of the merger agreement dated May 24, 2013, as amended (the "B&L Merger Agreement") among the Company,
Valeant, B&L and Stratos Merger Corp., a wholly-owned subsidiary of Valeant) and related fees and costs, minus certain of
B&L’s transaction expenses, minus certain payments with respect to certain cancelled B&L performance-based options (which
were not outstanding immediately prior to such effective time), plus the aggregate exercise price applicable to B&L’s
outstanding options immediately prior to such effective time, and plus certain cash amounts, all as further described in the
B&L Merger Agreement (the "B&L Acquisition"). The B&L Acquisition was financed with debt and equity issuances (see
Note 13 for additional information). Each B&L restricted share and stock option, whether vested or unvested, that was
outstanding immediately prior to such effective time, was cancelled and converted into the right to receive the per share merger
consideration in the case of restricted shares or, in the case of stock options, the excess, if any, of the per share merger
consideration over the exercise price of such stock option.
Fair Value of Consideration Transferred
The following table indicates the consideration transferred to effect the B&L Acquisition:
F-35
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Enterprise value
Adjusted for the following:
B&L’s outstanding debt, including accrued interest
B&L’s company expenses
Payment for B&L’s performance-based option(a)
Payment for B&L’s cash balance(b)
Additional cash payment(b)
Other
Equity purchase price
Less: Cash consideration paid for B&L’s unvested stock options(c)
Fair Value
$
8,700.0
(4,248.3)
(6.4)
(48.5)
149.0
75.0
(3.2)
4,617.6
(4.3)
Total fair value of consideration transferred
$
4,613.3
_________________________________
(a) The cash consideration paid for previously cancelled B&L’s performance-based options was recognized as a post-combination expense within Other
expense (income) in the third quarter of 2013.
(b) As defined in the B&L Merger Agreement.
(c) The cash consideration paid for B&L stock options and restricted stock attributable to pre-combination services has been included as a component of
purchase price. The remaining $4 million balance related to the acceleration of unvested stock options for B&L employees was recognized as a post-
combination expense within Other expense (income) in the third quarter of 2013.
Assets Acquired and Liabilities Assumed
The transaction has been accounted for as a business combination under the acquisition method of accounting. The following
table summarizes the estimated fair values of the assets acquired and liabilities assumed as of acquisition date.
Cash and cash equivalents
Accounts receivable(b)
Inventories(c)
Other current assets
Property, plant and equipment, net(d)
Identifiable intangible assets, excluding acquired IPR&D(e)
Acquired IPR&D(f)
Other non-current assets
Current liabilities
Long-term debt, including current portion(g)
Deferred income taxes, net(h)
Other non-current liabilities(i)
Total identifiable net assets
Noncontrolling interest(j)
Goodwill(k)
$
Amounts
Recognized as of
Acquisition Date
(as previously
reported)
209.5
547.9
675.8
146.6
761.4
4,316.1
398.1
58.8
(885.6)
(4,209.9)
(1,410.9)
(280.2)
327.6
(102.3)
4,388.0
Total fair value of consideration transferred
$
4,613.3
$
________________________
F-36
Amounts
Recognized as of
December 31, 2014
(as adjusted)
Measurement
Period
Adjustments(a)
$
(31.4) $
(7.2)
(34.0)
0.3
33.2
17.3
17.0
(1.9)
2.1
—
36.0
(1.0)
30.4
(0.4)
(30.0)
— $
178.1
540.7
641.8
146.9
794.6
4,333.4
415.1
56.9
(883.5)
(4,209.9)
(1,374.9)
(281.2)
358.0
(102.7)
4,358.0
4,613.3
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
(a) The measurement period adjustments primarily reflect: (i) a decrease in the net deferred tax liability, (ii) a reduction in the estimated fair value of
inventory, (iii) an increase in the estimated fair value of property, plant and equipment mainly related to certain machinery and equipment in Western
Europe and the U.S., partially offset by a reduction in the estimated fair value related to certain manufacturing facilities and an office building, (iv) an
adjustment between cash and accounts payable, and (v) increases in the estimated fair value of intangible assets, which included a net increase to IPR&D
assets driven by a higher fair value for the next generation silicone hydrogel lens (Bausch + Lomb Ultra®). The measurement period adjustments were
made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date.
These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company
has not retrospectively adjusted those financial statements.
(b) The fair value of trade accounts receivable acquired was $541 million, with the gross contractual amount being $556 million, of which the Company
expects that $15 million will be uncollectible.
(c)
Includes an estimated fair value adjustment to inventory of $269 million.
(d) The following table summarizes the amounts and useful lives assigned to property, plant and equipment:
Land
Buildings
Machinery and equipment
Leasehold improvements
Equipment on operating lease
Construction in progress
Total property, plant and equipment acquired
Weighted-
Average
Useful Lives
(Years)
Amounts
Recognized as of
Acquisition Date
(as previously
reported)
Measurement
Period
Adjustments
Amounts
Recognized as of
December 31, 2014
(as adjusted)
NA
24
5
5
3
NA
$
$
47.4
$
(12.6) $
273.1
273.5
22.5
13.8
131.1
(23.8)
76.3
(0.3)
(0.2)
(6.2)
761.4
$
33.2
$
34.8
249.3
349.8
22.2
13.6
124.9
794.6
The Company sold an office building in Rochester, New York, with an adjusted carrying amount of $14 million, in the third quarter of 2014. There
was no gain or loss associated with the sale.
(e) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:
Product brands
Product rights
Corporate brand
Total identifiable intangible assets acquired
Weighted-
Average
Useful Lives
(Years)
10
8
Indefinite
9
Amounts
Recognized as of
Acquisition Date
(as previously
reported)
Measurement
Period
Adjustments
Amounts
Recognized as of
December 31, 2014
(as adjusted)
$
$
1,770.2
$
855.4
1,690.5
$
4.6
5.7
7.0
4,316.1
$
17.3
$
1,774.8
861.1
1,697.5
4,333.4
The corporate brand represents the B&L corporate trademark and has an indefinite useful life as there are no legal, regulatory, contractual, competitive,
economic, or other factors that limit the useful life of this intangible asset. The estimated fair value was determined using the relief from royalty method.
(f) The significant components of the acquired IPR&D assets primarily relate to the development of (i) various vision care products ($223 million in the
aggregate), such as the next generation silicone hydrogel lens (Bausch + Lomb Ultra®), (ii) various pharmaceutical products ($171 million, in the
aggregate), such as latanoprostene bunod, and (iii) various surgical products ($21 million, in the aggregate). See Note 22 for further information related
to the worldwide licensing agreement with NicOx, S.A. (“NicOx”) for latanoprostene bunod. A multi-period excess earnings methodology (income
approach) was used to determine the estimated fair values of the acquired IPR&D assets from market participant perspective. The projected cash flows
from these assets were adjusted for the probabilities of successful development and commercialization of each project, and a risk-adjusted discount
rate of 10% was used to present value the projected cash flows. In determining fair value for latanoprostene bunod and Bausch + Lomb Ultra®, the
Company assumed, as of the acquisition date, that material cash inflows for these products would commence in 2016 and 2014, respectively. In
September 2013, the FDA approved Bausch + Lomb Ultra®, and the product was launched in February 2014. In September 2015, the Company
announced that the FDA had accepted for review the NDA for latanoprostene bunod and set a PDUFA action date of July 21, 2016.
(g)
In 2013, the Company repaid in full the amounts outstanding, with the exception of certain debentures. In connection with the redemption of the assumed
9.875% senior notes, the Company recognized a loss on extinguishment of debt of $8 million in the third quarter of 2013. As of December 31, 2015
and 2014, the debentures have an outstanding balance of $12 million, in the aggregate.
(h) Comprises current net deferred tax assets ($62 million) and non-current net deferred tax liabilities ($1.44 billion).
(i)
Includes $224 million related to the estimated fair value of pension and other benefits liabilities.
F-37
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
(j) Represents the estimated fair value of B&L’s noncontrolling interest related primarily to Chinese joint ventures. A discounted cash flow methodology
was used to determine the estimated fair values as of the acquisition date.
(k) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets
acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:
• the Company’s expectation to develop and market new product brands, product lines and technology;
• cost savings and operating synergies expected to result from combining the operations of B&L with those of the Company;
• the value of the continuing operations of B&L’s existing business (that is, the higher rate of return on the assembled net assets versus if the Company
had acquired all of the net assets separately); and
• intangible assets that do not qualify for separate recognition (for instance, B&L’s assembled workforce).
The amount of goodwill has been allocated to the Company’s Developed Markets segment ($3.30 billion) and Emerging Markets segment ($1.10
billion).
Other 2013 Business Combinations (excluding the B&L Acquisition)
Description of the Transactions
In the year ended December 31, 2013, the Company completed other business combinations, which included the acquisition
of the following businesses, for an aggregate purchase price of $898 million. The aggregate purchase price included contingent
consideration payment obligations with an aggregate acquisition date fair value of $59 million.
• On April 25, 2013, the Company acquired all of the outstanding shares of Obagi Medical Products, Inc. (“Obagi”) at a
price of $24.00 per share in cash. The aggregate purchase price paid by the Company was approximately $437 million.
Obagi is a specialty pharmaceutical company that develops, markets, and sells topical aesthetic and therapeutic skin-
health systems with a product portfolio of dermatology brands including Obagi Nu-Derm®, Condition & Enhance®,
Obagi-C® Rx, ELASTIDerm® and Obagi CLENZIDerm®.
• On February 1, 2013, the Company acquired Natur Produkt International, JSC (“Natur Produkt”), a specialty
pharmaceutical company in Russia, for a purchase price of $150 million, including a $20 million contingent refund of
purchase price relating to the outcome of certain litigation involving AntiGrippin® that commenced prior to the acquisition.
Subsequent to the acquisition, during the three-month period ended March 31, 2013, the litigation was resolved, and the
$20 million was refunded back to the Company. Natur Produkt’s key brand products include AntiGrippin®, Anti-Angin®,
Sage™ and Eucalyptus MA™.
• During the year ended December 31, 2013, the Company completed other smaller acquisitions which are not material
individually or in the aggregate. These acquisitions are included in the aggregated amounts presented below.
Assets Acquired and Liabilities Assumed
These transactions have been accounted for as business combinations under the acquisition method of accounting. The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to the business
combinations, in the aggregate, as of the applicable acquisition dates.
F-38
Measurement
Period
Adjustments(a)
$
— $
Amounts
Recognized as of
December 31, 2014
(as adjusted)
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Amounts
Recognized as of
Acquisition Dates
(as previously
reported)
$
Cash
Accounts receivable(b)
Inventories
Other current assets
Property, plant and equipment
Identifiable intangible assets, excluding acquired IPR&D(c)
Acquired IPR&D(d)
Indemnification assets
Other non-current assets
Current liabilities
Short-term borrowings(e)
Long-term debt(e)
Deferred tax liability, net
Other non-current liabilities
Total identifiable net assets
Noncontrolling interest(f)
Goodwill(g)
43.1
64.0
33.6
14.0
13.9
722.9
18.7
3.2
0.2
(36.2)
(33.3)
(24.0)
(147.8)
(1.5)
670.8
(11.2)
224.3
0.5
1.9
—
(3.3)
3.9
0.2
(0.7)
3.7
(0.4)
0.5
—
(1.1)
—
5.2
—
9.0
43.1
64.5
35.5
14.0
10.6
726.8
18.9
2.5
3.9
(36.6)
(32.8)
(24.0)
(148.9)
(1.5)
676.0
(11.2)
233.3
898.1
Total fair value of consideration transferred
$
883.9
$
14.2
$
________________________
(a) The measurement period adjustments primarily reflect an increase in the total fair value of consideration transferred with respect to the Natur Produkt
acquisition pursuant to a purchase price adjustment. The measurement period adjustments were made to reflect facts and circumstances existing as of
the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact
on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial
statements.
(b) The fair value of trade accounts receivable acquired was $65 million, with the gross contractual amount being $68 million, of which the Company
expects that $3 million will be uncollectible.
(c) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:
Product brands
Corporate brand
Patents
Royalty Agreement
Partner relationships
Technology
Total identifiable intangible assets acquired
Weighted-
Average
Useful Lives
(Years)
Amounts
Recognized as of
Acquisition Dates
(as previously
reported)
Measurement
Period
Adjustments
Amounts
Recognized as of
December 31, 2014
(as adjusted)
7
13
3
5
5
10
8
$
$
517.2
$
86.1
71.7
26.5
16.0
5.4
$
3.1
0.8
—
—
—
—
722.9
$
3.9
$
520.3
86.9
71.7
26.5
16.0
5.4
726.8
(d) The acquired IPR&D assets relate to the Obagi and Natur Produkt acquisitions. Obagi’s acquired IPR&D assets primarily relate to the development of
dermatology products for anti-aging and suncare. Natur Produkt’s acquired IPR&D assets include a product indicated for the prevention of viral diseases,
specifically cold and flu, and a product indicated for the treatment of inflammation and muscular disorders.
(e) Short-term borrowings and long-term debt primarily relate to the Natur Produkt acquisition. In March 2013, the Company settled all of Natur Produkt’s
outstanding third party short-term borrowings and long-term debt.
(f) Represents the estimated fair value of noncontrolling interest related to a smaller acquisition completed in the third quarter of 2013.
F-39
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
(g) The goodwill relates primarily to the Obagi and Natur Produkt acquisitions. Goodwill is calculated as the difference between the acquisition date fair
value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. None of Obagi’s and Natur Produkt’s
goodwill is expected to be deductible for tax purposes. The goodwill recorded from the Obagi and the Natur Produkt acquisitions represents primarily
the cost savings, operating synergies and other benefits expected to result from combining the operations with those of the Company.
The amount of goodwill from the Obagi acquisition has been allocated primarily to the Company’s Developed Markets segment. The amount of goodwill
from the Natur Produkt acquisition has been allocated to the Company’s Emerging Markets segment.
Pro Forma Impact of Business Combinations
The following table presents unaudited pro forma consolidated results of operations for the years ended December 31, 2015,
2014 and 2013, as if the 2015 acquisitions had occurred as of January 1, 2014, the 2014 acquisitions had occurred as of
January 1, 2013, and the 2013 acquisitions occurred as of January 1, 2012.
Revenues
Net loss attributable to Valeant Pharmaceuticals International, Inc.
Loss per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Unaudited
2014
(Restated)
2015
2013
10,709.6
(619.1)
$
10,247.6
(374.7)
$
7,929.9
(801.9)
(1.80) $
(1.80) $
(1.09) $
(1.09) $
(2.43)
(2.43)
$
$
$
Pro forma revenues in the year ended December 31, 2015 as compared to the year ended December 31, 2014 were impacted
by the following:
•
•
•
growth from the existing business, including the impact of recent product launches;
negative foreign currency exchange impact; and
lower sales resulting from the July 2014 divestiture of facial aesthetic fillers and toxins.
The unaudited pro forma consolidated results of operations were prepared using the acquisition method of accounting and are
based on the historical financial information of the Company and the acquired businesses described above. Except to the
extent realized in the years ended December 31, 2015, 2014 and 2013, the unaudited pro forma information does not reflect
any cost savings, operating synergies and other benefits that the Company may achieve as a result of these acquisitions, or
the costs necessary to achieve these cost savings, operating synergies and other benefits. In addition, except to the extent
recognized in the years ended December 31, 2015, 2014 and 2013, the unaudited pro forma information does not reflect the
costs to integrate the operations of the Company with those of the acquired businesses.
The unaudited pro forma information is not necessarily indicative of what the Company’s consolidated results of operations
actually would have been had the 2015 acquisitions, the 2014 acquisitions, and the 2013 acquisitions been completed on
January 1, 2014, January 1, 2013, and January 1, 2012, respectively. In addition, the unaudited pro forma information does
not purport to project the future results of operations of the Company. The unaudited pro forma information reflects primarily
the following adjustments:
•
•
•
•
•
elimination of historical intangible asset amortization expense of these acquisitions;
additional amortization expense related to the fair value of identifiable intangible assets acquired;
additional depreciation expense related to fair value adjustment to property, plant and equipment acquired;
additional interest expense associated with the financing obtained by the Company in connection with the Salix acquisition;
and
the exclusion from pro forma earnings in the years ended December 31, 2015, 2014 and 2013 of the acquisition accounting
adjustments on these acquisitions’ inventories that were sold subsequent to the acquisition date of $130 million, $20
million and $370 million, in the aggregate, respectively, and the acquisition-related costs of $35 million, $2 million and
$25 million, in the aggregate, respectively, incurred for these acquisitions in the years ended December 31, 2015, 2014
and 2013 and the inclusion of those amounts in pro forma earnings of the respective preceding fiscal years.
F-40
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
In addition, all of the above adjustments were adjusted for the applicable tax impact.
5. DIVESTITURES
During 2014, the Company completed the following divestitures, among others:
Facial Aesthetic Fillers and Toxins
On July 10, 2014, the Company sold all rights to Restylane®, Perlane®, Emervel®, Sculptra®, and Dysport® owned or held
by the Company to Galderma S.A. (“Galderma”) for approximately $1.40 billion in cash. These assets were included primarily
in the Company’s Developed Markets segment. As a result of this transaction, the Company recognized a net gain on sale of
$324 million in the third quarter of 2014 within Other expense (income) in the consolidated statement of (loss) income. The
costs to sell for this divestiture of approximately $43 million were recognized in the third quarter of 2014 and included as part
of the net gain on sale (and netted against the proceeds in the consolidated statement of cash flows).
Metronidazole 1.3%
On July 1, 2014, the Company sold the worldwide rights in its Metronidazole 1.3% Vaginal Gel antibiotic product, a topical
antibiotic for the treatment of bacterial vaginosis, to Actavis Specialty Brands for upfront and certain milestone payments of
$10 million, in the aggregate, and minimum royalties for the first three years of commercialization. This asset was included
in the Company’s Developed Markets segment. In addition, royalties are payable to the Company beyond the initial three-
year commercialization period. In the event of generic competition on Metronidazole 1.3%, should Actavis Specialty Brands
choose to launch an authorized generic product, Actavis Specialty Brands would share the gross profits of the authorized
generic with the Company. The FDA approved the NDA for Metronidazole 1.3% in March 2014. In connection with the sale
of the Metronidazole 1.3%, the Company recognized a loss on sale of $59 million in the third quarter of 2014, as the Company’s
accounting policy is to not recognize contingent payments until such amounts are realizable. The loss on sale was included
within Other expense (income) in the consolidated statement of (loss) income.
Tretin-X® and Generic Tretinoin
In connection with the acquisition of PreCision, the Company was required by the FTC to divest the rights to PreCision’s
Tretin-X® (tretinoin) cream product and PreCision’s generic tretinoin gel and cream products. In July 2014, the Tretin-X
product rights were sold to Watson Laboratories, Inc. for an up-front purchase price of $70 million, and the generic tretinoin
products rights were sold to Matawan Pharmaceuticals, LLC (“Matawan”) for an up-front purchase price of $45 million plus
additional contingent payments. In connection with the sale of the generic tretinoin product rights to Matawan, the Company
recognized a loss on sale of $9 million in the third quarter of 2014 within Other expense (income) in the consolidated statement
of (loss) income, as the Company’s accounting policy is to not recognize contingent payments until such amounts are realizable.
There was no gain or loss associated with the sale of the Tretin-X product rights.
6. RESTRUCTURING, INTEGRATION AND OTHER COSTS
In connection with the Salix Acquisition, the B&L Acquisition, as well as other acquisitions, the Company has implemented
cost-rationalization and integration initiatives to capture operating synergies and generate cost savings across the Company.
These measures included:
• workforce reductions across the Company and other organizational changes;
•
•
•
closing of duplicative facilities and other site rationalization actions company-wide, including research and development
facilities, sales offices and corporate facilities;
leveraging research and development spend; and/or
procurement savings.
Salix Acquisition-Related Cost-Rationalization and Integration Initiatives
The Company estimates that it will incur total costs of approximately $300 million in connection with the cost-rationalization
and integration initiatives relating to the Salix Acquisition, which the Company expects to substantially complete by mid-2016.
Since the acquisition date, total costs of $217 million have been incurred through December 31, 2015, including (i) $110
F-41
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
million of integration expenses, (ii) $92 million of restructuring expenses, and (iii) $15 million of acquisition-related costs.
The estimate of total costs to be incurred primarily includes: employee termination costs payable to approximately 475
employees of the Company and Salix who have been or will be terminated as a result of the Salix Acquisition; potential IPR&D
termination costs related to the transfer to other parties of product-development programs that do not align with our research
and development model; costs to consolidate or close facilities and relocate employees; and contract termination and lease
cancellation costs.
Salix Restructuring Costs
The following table summarizes the major components of the restructuring costs incurred in connection with the Salix
Acquisition since the acquisition date through December 31, 2015:
Balance, January 1, 2015
Costs incurred and/or charged to expense
Cash payments
Non-cash adjustments
Balance, December 31, 2015
Salix Integration Costs
Severance and
Related Benefits
Contract
Termination,
Facility Closure
and Other Costs
$
$
— $
— $
90.6
(57.8)
2.2
0.9
(0.3)
—
35.0
$
0.6
$
Total
—
91.5
(58.1)
2.2
35.6
As mentioned above, the Company has incurred $110 million of integration costs related to the Salix Acquisition since the
acquisition date, which related primarily to integration consulting, duplicate labor, transition service, and other costs. The
Company made payments of $100 million related to Salix integration costs since the acquisition date.
B&L Acquisition-Related Cost-Rationalization and Integration Initiatives
The Company had estimated that it would incur total costs of approximately $600 million (excluding charges of $53 million
described under the table below) in connection with the cost-rationalization and integration initiatives relating to the B&L
Acquisition, which were substantially completed by the end of 2014. However, restructuring and integration costs of $9
million, in the aggregate, were incurred in 2015. Since the acquisition date, total costs of $578 million (including $52 million
related to cost-rationalization measures at a contact lens manufacturing plant in Waterford, Ireland, as described below) were
incurred through December 31, 2015, including (i) $308 million of restructuring expenses, (ii) $257 million of integration
expenses, and (iii) $13 million of acquisition-related costs. The Company does not expect to incur any additional costs beyond
2015. The estimate of total costs incurred primarily included: employee termination costs payable to approximately 3,000
employees of the Company and B&L who have been or will be terminated as a result of the B&L Acquisition; IPR&D
termination costs related to the transfer to other parties of product-development programs that did not align with our research
and development model; costs to consolidate or close facilities and relocate employees; and contract termination and lease
cancellation costs.
B&L Restructuring Costs
The following table summarizes the major components of the restructuring costs incurred in connection with the B&L
Acquisition since the acquisition date through December 31, 2015:
F-42
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Balance, January 1, 2013
Costs incurred and charged to expense
Cash payments
Non-cash adjustments
Balance, December 31, 2013
Costs incurred and charged to expense
Cash payments
Non-cash adjustments
Balance, December 31, 2014
Costs incurred and charged to expense
Cash payments
Non-cash adjustments
Balance, December 31, 2015
___________________________________
Employee Termination Costs
Severance and
Related Benefits
Share-Based
Compensation(1)
Contract
Termination,
Facility Closure
and Other Costs
Total
$
$
$
$
— $
— $
— $
—
155.7
(77.8)
11.4
89.3
46.0
(110.7)
(5.7)
$
18.9
$
2.9
(17.9)
(1.6)
52.8
(52.8)
—
— $
—
—
—
— $
—
—
—
25.6
(7.8)
(6.8)
11.0
23.7
(24.9)
(5.4)
4.4
2.2
(2.8)
(0.9)
$
$
2.3
$
— $
2.9
$
234.1
(138.4)
4.6
100.3
69.7
(135.6)
(11.1)
23.3
5.1
(20.7)
(2.5)
5.2
(1) Relates to B&L’s previously cancelled performance-based options and the acceleration of unvested stock options for B&L employees as a result of the
B&L Acquisition. These charges were reclassified in 2014 to Other expense (income) to conform to the current year presentation.
B&L Integration Costs
As mentioned above, the Company has incurred $257 million of integration costs related to the B&L Acquisition since the
acquisition date. In the years ended December 31, 2015, 2014 and 2013, the Company incurred $8 million, $133 million and
$116 million, respectively, of integration costs related to the B&L Acquisition, which related primarily to integration consulting,
duplicate labor, transition service, and other costs. The Company made payments of $11 million, $144 million and $102
million related to B&L integration costs for the years ended December 31, 2015, 2014 and 2013, respectively.
In addition to the restructuring and integration costs described above, the Company has recognized $52 million of restructuring
costs related to a contact lens manufacturing plant in Waterford, Ireland (the plant was acquired as part of the B&L Acquisition)
since the acquisition date (substantially all of which were recognized in the second quarter of 2014). These costs related to
employee termination costs with respect to cost-rationalization measures. A reduction of $4 million was recognized in the
second quarter of 2015 based on revised estimates. The Company made payments of $22 million and $24 million with respect
to this initiative for the years ended December 31, 2015 and 2014, respectively.
Other Restructuring and Integration-Related Costs (Excluding Salix and B&L)
In the year ended December 31, 2015, in addition to the restructuring and integration costs associated with the Salix Acquisition
and the B&L Acquisition described above, the Company incurred an additional $151 million of other restructuring, integration-
related and other costs. These costs included (i) $95 million of integration consulting, duplicate labor, transition service, and
other costs, (ii) $48 million of severance costs, (iii) $7 million of facility closure costs, and (iv) $1 million of other costs.
These costs primarily related to integration and restructuring costs for the acquisition of certain assets of Dendreon and other
smaller acquisitions. The Company made payments of $125 million during the year ended December 31, 2015 (in addition
to the payments related to the Salix Acquisition and the B&L Acquisition described above).
In the year ended December 31, 2014, in addition to the restructuring and integration costs associated with the B&L Acquisition
described above, the Company incurred an additional $123 million of other restructuring, integration-related and other costs.
These costs included (i) $79 million of integration consulting, duplicate labor, transition service, and other costs, (ii) $25
million of severance costs, (iii) $12 million of facility closure costs, and (iv) $7 million of other costs. These costs primarily
related to (i) integration and restructuring costs for the Solta Medical acquisition and other smaller acquisitions and (ii)
intellectual property migration and the global consolidation of the Company’s manufacturing facilities. The Company made
payments of $117 million during the year ended December 31, 2014 (in addition to the payments related to the B&L Acquisition
described above).
F-43
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
In the year ended December 31, 2013, in addition to the restructuring and integration costs associated with the B&L Acquisition
described above, the Company incurred an additional $165 million of other restructuring, integration-related and other costs.
These costs included (i) $74 million of integration consulting, duplicate labor, transition service, and other costs, (ii) $43
million of facility closure costs, (iii) $35 million of severance costs, and (iv) $13 million of other costs, including non-personnel
manufacturing integration costs. These costs primarily related to (i) integration and restructuring costs for other smaller
acquisitions, (ii) intellectual property migration and the global consolidation of the Company’s manufacturing facilities, and
(iii) systems integration initiatives. The Company made payments of $177 million during the year ended December 31, 2013
(in addition to the payments related to the B&L Acquisition described above).
As described in Note 23, restructuring costs are not recorded in the Company’s reportable segments.
7. FAIR VALUE MEASUREMENTS
Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:
• Level 1 — Quoted prices in active markets for identical assets or liabilities;
• Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities; and
• Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose
values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as
instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization
is based on the lowest level input that is significant to the fair value measurement of the instrument.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following fair value hierarchy table presents the components and classification of the Company’s financial assets and
liabilities measured at fair value as of December 31, 2015 and 2014:
2015
2014
(Restated)
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Carrying
Value
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
167.2
$
156.1
$
11.1
$
— $
4.6
$
2.8
$
1.8
$
—
$
(1,155.9)
$
— $
— $
(1,155.9)
$
(347.6)
$
— $
— $
(347.6)
Assets:
Cash equivalents(1)
Liabilities:
Acquisition-related contingent
consideration
___________________________________
(1) Cash equivalents include highly liquid investments with an original maturity of three months or less at acquisition, primarily including money market
funds, reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.
In March 2015, the Company entered into foreign currency forward-exchange contracts to sell €1.53 billion and buy U.S.
dollars in order to reduce its exposure to the variability in expected cash inflows attributable to the changes in foreign exchange
rates related to the €1.50 billion aggregate principal amount and related interest of 4.50% senior unsecured notes due 2023
(the "Euro Notes") issued on March 27, 2015, the proceeds of which were used to finance the Salix Acquisition (see Note 13
for information related to the financing of the Salix Acquisition). These derivative contracts were not designated as hedges
for accounting purposes, and such contracts matured on April 1, 2015 (which coincides with the consummation of the Salix
Acquisition). A foreign exchange loss of $26 million was recognized in Foreign exchange and other in the consolidated
statement of (loss) income for the three-month period ended March 31, 2015.
F-44
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
In addition to the above, the Company has time deposits valued at cost, which approximates fair value due to their short-term
maturities. The carrying value of $16 million and $43 million as of December 31, 2015 and 2014, respectively, related to
these investments is classified within Prepaid expenses and other current assets in the consolidated balance sheets. These
investments are Level 2.
There were no transfers between Level 1 and Level 2 during the years ended December 31, 2015 and 2014.
Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
The fair value measurement of contingent consideration obligations arising from business combinations is determined via a
probability-weighted discounted cash flow analysis or Monte Carlo Simulation, using unobservable (Level 3) inputs. These
inputs may include (i) the estimated amount and timing of projected cash flows; (ii) the probability of the achievement of the
factor(s) on which the contingency is based; (iii) the risk-adjusted discount rate used to present value the probability-weighted
cash flows; and (iv) volatility of projected performance (Monte Carlo Simulation). Significant increases (decreases) in any
of those inputs in isolation could result in a significantly lower (higher) fair value measurement.
The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using
significant unobservable inputs (Level 3) for the years ended December 31, 2015 and 2014:
Balance, beginning of year
Included in net income (loss):
Arising during the year(1)
Included in other comprehensive (loss) income:
Arising during the year
Issuances(2)
Payments(3)
Release from restricted cash
Balance, end of year
____________________________________
2015
2014
(Restated)
$
(347.6) $
(355.8)
23.0
14.1
1.1
(1,010.4)
174.0
4.0
4.1
(132.6)
116.8
5.8
$
(1,155.9) $
(347.6)
(1) For the year ended December 31, 2015, a net gain of $23 million was recognized as Acquisition-related contingent consideration in the consolidated
statements of (loss) income, primarily reflecting (i) the termination of the arrangements with and relating to Philidor and the resulting fair value
adjustments to the sales-based milestones of $47 million in the fourth quarter of 2015 and (ii) the termination of the Emerade® IPR&D program in the
U.S. and the resulting fair value adjustments to the regulatory and approval milestones of $16 million in the fourth quarter of 2015 (both of the
terminations described above also resulted in asset impairment charges as described in Note 11), partially offset by accretion for the time value of
money for the Salix Acquisition and the Elidel®/Xerese®/Zovirax® agreement entered into with Meda Pharma SARL in June 2011 (the "Elidel®/
Xerese®/Zovirax® agreement").
For the year ended December 31, 2014, a net gain of $14 million was recognized as Acquisition-related contingent consideration in the consolidated
statements of income (loss). The acquisition-related contingent consideration net gain was primarily driven by net fair value adjustments of $19 million
related to the Elidel®/Xerese®/Zovirax® agreement, as a result of continued assessment of the impact from generic competition on performance trends
and future revenue forecasts for Zovirax®.
(2) The 2015 issuances relate primarily to the Sprout Acquisition, the Salix Acquisition, the acquisition of certain assets of Marathon, and the Amoun
Acquisition, as well as the impact of measurement period adjustments, as described in Note 4. The 2014 issuances relate primarily to contingent
consideration liabilities related to the Solta Medical acquisition and other smaller acquisitions.
(3) The 2015 payments of acquisition-related contingent consideration primarily relate to the Elidel®/Xerese®/Zovirax® agreement, the acquisition of
certain assets of Marathon, the OraPharma Topco Holdings, Inc. ("OraPharma") acquisition consummated in June 2012, the iNova acquisition
consummated in December 2011, and the Targretin® agreement entered into with Eisai Inc. in February 2013. The 2014 payments of acquisition-
related contingent consideration relate to the OraPharma acquisition, the Elidel®/Xerese®/Zovirax® agreement, and other smaller acquisitions. See
Note 4 for more information.
There were no transfers into or out of Level 3 during the years ended December 31, 2015 and 2014.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
As of December 31, 2013, the Company’s assets measured at fair value on a non-recurring basis subsequent to initial recognition
included an intangible asset within the Company’s Developed Markets segment, related to ezogabine/retigabine (immediate-
F-45
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
release formulation) which is co-developed and marketed under a collaboration agreement with GlaxoSmithKline (“GSK”).
The Company recognized an impairment charge of $552 million in the third quarter of 2013 in Amortization and impairments
of finite-lived intangible assets in the consolidated statements of (loss) income. In addition, the Company fully impaired an
IPR&D asset, within the Company’s Developed Markets segment, relating to a modified-release formulation of ezogabine/
retigabine, which resulted in a charge of $94 million. The $94 million write-off was recognized in the third quarter of 2013
in In-process research and development impairments and other charges in the consolidated statements of (loss) income. These
impairment charges were driven by analysis of expected future cash flows based on the communication received from the
FDA in September 2013 regarding labeling changes and a required modification of the approved risk evaluation and mitigation
strategy (REMS), which includes restrictions on distribution and additional patient monitoring. Further, as a result of this
feedback received from the FDA, GSK decided that all sales force promotion for the product will be eliminated in the U.S.,
and they will not launch the product in certain other planned territories. Per the terms of the collaboration agreement, GSK
controls all sales force promotion for the product. Such changes were expected to have a significant impact on future cash
flows of ezogabine/retigabine. The adjusted carrying amount of the ezogabine/retigabine (immediate-release formulation)
of $45 million as of the third quarter of 2013 was equal to its estimated fair value, which was determined using discounted
cash flows and represents Level 3 inputs. As a result of the events noted above, the Company believes that the value of the
modified-release formulation of ezogabine/retigabine to a market participant would be zero.
For further information regarding asset impairment charges, see Note 11.
8. TRADE RECEIVABLES, NET
The components of trade receivables, net as of December 31, 2015 and 2014 were as follows:
Trade
Less allowance for doubtful accounts
9.
INVENTORIES
The components of inventories as of December 31, 2015 and 2014 were as follows:
Raw materials(1)
Work in process(1)
Finished goods(1)
2015
2,754.2
(67.3)
2,686.9
$
$
2014
2,111.7
(35.9)
2,075.8
$
$
2015
2014
(Restated)
$
$
289.3
152.7
814.6
$ 1,256.6
$
191.1
94.2
603.9
889.2
___________________________________
(1) The components of inventories shown in the table above are net of allowance for obsolescence.
10. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment as of December 31, 2015 and 2014 were as follows:
F-46
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Land
Buildings
Machinery and equipment
Other equipment and leasehold improvements
Equipment on operating lease
Construction in progress
Less accumulated depreciation
$
2015
81.1
655.4
1,240.3
362.8
34.3
251.9
2,625.8
(1,184.0)
2014
(Restated)
$
79.6
602.8
1,083.1
278.0
32.7
214.0
2,290.2
(977.9)
$
1,441.8
$
1,312.3
Depreciation expense amounted to $209 million, $187 million, and $114 million in the years ended December 31, 2015, 2014
and 2013, respectively.
11. INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The major components of intangible assets as of December 31, 2015 and 2014 were as follows:
Weighted-
Average
Useful
Lives
(Years)
Gross
Carrying
Amount
2015
Accumulated
Amortization,
Including
Impairments
Net
Carrying
Amount
Gross
Carrying
Amount
2014
(Restated)
Accumulated
Amortization,
Including
Impairments
Net
Carrying
Amount
Finite-lived intangible assets:
Product brands
Corporate brands
Product rights/patents
Partner relationships
Technology and other
Total finite-lived intangible
assets(1)
Indefinite-lived intangible assets:
Acquired IPR&D(2)
Corporate brand(3)
9
17
8
3
7
8
NA
NA
____________________________________
$
22,082.8
$
(5,236.4) $
16,846.4
$
10,320.1
$
(3,579.8) $
6,740.3
1,066.1
4,339.9
217.6
480.3
(107.1)
(1,711.7)
(170.3)
(186.1)
959.0
2,628.2
47.3
294.2
366.1
3,225.9
236.8
282.0
(65.2)
(1,263.8)
(107.5)
(124.3)
300.9
1,962.1
129.3
157.7
28,186.7
(7,411.6)
20,775.1
14,430.9
(5,140.6)
9,290.3
610.4
1,697.5
—
—
610.4
1,697.5
290.1
1,697.5
—
—
290.1
1,697.5
$
30,494.6
$
(7,411.6) $
23,083.0
$
16,418.5
$
(5,140.6) $
11,277.9
(1)
In the fourth quarter of 2015, the Company recognized impairment charges of $79 million related to the write-off of intangible assets and $23 million
related to the write-off of property, plant and equipment, in connection with the termination (the termination was announced in October 2015) of the
arrangements with and relating to Philidor (Developed Markets segment). Refer to Note 4 for additional information regarding the Philidor arrangements
and their termination. In addition, in the fourth quarter of 2015, the Company recognized an impairment charge of $27 million related to the write-off
of ezogabine/retigabine (immediate-release formulation) (Developed Markets segment) resulting from further analysis of commercialization strategy
and projections. GSK controls all sales force promotion for ezogabine/retigabine. See Note 7 for information regarding impairment charges recognized
in 2013 relating to ezogabine/retigabine.
In the third quarter of 2015, the Company recognized an impairment charge of $26 million related to Zelapar® (Developed Markets segment), resulting
from declining sales trends.
In the fourth quarter of 2014, the Company recognized a write-off of $55 million related to the Kinerase® product (Developed Markets segment). The
write-off was driven by the discontinuation of the product.
In the third quarter of 2014, the Company recognized a write-off of $32 million related to Grifulvin®, an anti-fungal product (Developed Markets
segment). The write-off was driven by withdrawal of the supplemental Abbreviated New Drug Application, which resulted from assessment of extended
timelines and increased costs associated with a change in the supplier and the manufacturing process, based on feedback received from the FDA.
F-47
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
These impairment charges were recognized in Amortization and impairments of finite-lived intangible assets in the consolidated statements of (loss)
income.
(2) The Company acquired certain IPR&D assets as part of the Salix Acquisition, as described further in Note 4.
In the fourth quarter of 2015, the Company wrote off an IPR&D asset of $28 million related to the Emerade® development program in the U.S.
(Developed Markets segment) based on analysis of feedback received from the FDA, and such program was terminated in the U.S.
In the third quarter of 2015, the Company wrote off an IPR&D asset of $90 million related to the Rifaximin SSD development program (Developed
Markets segment) based on analysis of Phase 2 study data, and the program was subsequently terminated.
In the second quarter of 2015, the Company wrote off an IPR&D asset of $12 million related to the Arestin® Peri-Implantitis development program
(Developed Markets segment), resulting from analysis of Phase 3 study data.
In the third quarter of 2014, the Company wrote off IPR&D assets of $20 million primarily related to analysis of Phase 2 study data for a dermatological
product candidate (Developed Markets segment) acquired in the December 2012 Medicis acquisition.
The write-offs of the IPR&D assets were recognized in In-process research and development impairments and other charges in the consolidated
statements of (loss) income.
(3) Represents the B&L corporate trademark, which has an indefinite useful life and is not amortizable. See Note 4 for further information.
Estimated aggregate amortization expense for each of the five succeeding years ending December 31 is as follows:
Amortization expense(1)
$
2,733.2
$
2,659.0
$
2,522.7
$
2,383.9
$
2,176.6
2016
2017
2018
2019
2020
____________________________________
(1) Estimated amortization expense shown in the table above does not include potential future impairments of finite-lived intangible assets, if any.
Goodwill
The changes in the carrying amount of goodwill for years ended December 31, 2015 and 2014 were as follows:
Balance, December 31, 2013
Additions (Restated)(1)
Adjustments(2)
Divestitures(3)
Foreign exchange and other
Balance, December 31, 2014 (Restated)
Additions(4)
Adjustments(5)
Foreign exchange and other
Balance, December 31, 2015
Developed
Markets
Emerging
Markets
Total
$
7,428.7
$
2,323.4
$
9,752.1
332.4
(19.6)
(428.9)
(182.6)
7,130.0
9,154.1
33.5
(176.3)
78.9
(4.3)
—
(166.6)
2,231.4
308.6
3.7
(132.2)
411.3
(23.9)
(428.9)
(349.2)
9,361.4
9,462.7
37.2
(308.5)
$
16,141.3
$
2,411.5
$
18,552.8
____________________________________
(1) Primarily relates to the PreCision and Solta Medical acquisitions.
(2) Primarily reflects the impact of measurement period adjustments related to the B&L Acquisition.
(3) See Note 5 for additional information regarding divestitures.
(4) Primarily relates to the Salix Acquisition and the Sprout Acquisition (as described in Note 4).
(5) Primarily reflects the impact of measurement period adjustments for 2014 acquisitions, including PreCision and other smaller acquisitions.
As describe in Note 4, the allocations of the goodwill balance associated with certain acquisitions are provisional and subject
to the completion of the valuation of the assets acquired and liabilities assumed.
F-48
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
12. ACCRUED AND OTHER CURRENT LIABILITIES
The major components of accrued and other current liabilities as of December 31, 2015 and 2014 were as follows:
Product rebates
Product returns
Accrued deferred consideration(1)
Interest
Salix legal-related accruals(2)
Employee costs
Income taxes payable
Restructuring, integration and other costs
Royalties
Advertising and promotion
Professional fees
Value added tax
Capital expenditures
Deferred income
Short-term borrowings
Legal settlements and related fees
Accrued milestones
Liabilities for uncertain tax positions
Other
____________________________________
2015
2014
(Restated)
$
901.9
$
626.4
515.6
327.8
315.3
243.5
221.3
60.7
83.8
77.3
52.8
37.1
17.4
16.6
15.5
12.3
49.0
6.7
278.1
692.5
380.3
—
196.7
—
204.9
122.9
66.6
41.4
33.3
55.6
24.7
25.6
18.7
6.2
8.0
62.0
6.8
210.8
$
3,859.1
$
2,157.0
(1) Consists primarily of the $500 million deferred consideration for the Sprout Acquisition, which was paid in the first quarter of 2016.
(2) Represents accruals for certain legal matters related to legacy Salix business assumed by the Company in connection with the Salix Acquisition (see
Note 21 for additional information regarding these legal matters).
13. LONG-TERM DEBT
A summary of the Company’s consolidated long-term debt as of December 31, 2015 and 2014, respectively, is outlined in the
table below:
F-49
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Revolving Credit Facility(1)
Series A-1 Tranche A Term Loan Facility, net of unamortized debt discount
(2015 — $0.6; 2014 — $1.7)(1)
Series A-2 Tranche A Term Loan Facility, net of unamortized debt discount
(2015 — $0.8; 2014 — $2.6)(1)
Series A-3 Tranche A Term Loan Facility, net of unamortized debt discount
(2015 — $28.8; 2014 — $26.5)(1)
Series A-4 Tranche A Term Loan Facility, net of unamortized debt discount
(2015 — $11.2)(1)
Series D-2 Tranche B Term Loan Facility, net of unamortized debt discount
(2015 — $21.1; 2014 — $20.2)(1)
Series C-2 Tranche B Term Loan Facility, net of unamortized debt discount
(2015 — $17.7; 2014 — $17.8)(1)
Series E-1 Tranche B Term Loan Facility, net of unamortized debt discount
(2015 — $16.6; 2014 — $4.0)(1)
Series F Tranche B Term Loan Facility, net of unamortized debt discount
(2015 — $63.1)(1)
Senior Notes:
6.875%, net of unamortized debt discount (2014 — $3.0)
7.00%, net of unamortized debt discount (2015 — $2.0; 2014 — $2.5)
6.75%, net of unamortized debt discount (2015 — $3.9; 2014 — $4.6)
7.25%, net of unamortized debt discount (2015 — $7.9; 2014 — $9.1)
6.375%, net of unamortized discount (2015 — $23.5; 2014 — $28.4)
6.75%, net of unamortized discount (2015 — $11.2; 2014 — $15.5)
7.50%, net of unamortized discount (2015 — $15.3; 2014 — $18.1)
5.625%, net of unamortized discount (2015 — $6.8; 2014 — $8.2)
5.50%, net of unamortized discount (2015 — $9.4)
5.375%, net of unamortized discount (2015 — $20.1)
5.875%, net of unamortized discount (2015 — $35.0)
4.50%, net of unamortized discount (2015 — $17.6)(2)
6.125%, net of unamortized discount (2015 — $35.7)
Other(3)
Less current portion
Total long-term debt
____________________________________
Maturity Date
April 2018
2015
2014
$
250.0
$
165.0
April 2016
April 2016
140.4
137.3
139.3
135.5
October 2018
1,881.5
1,633.8
April 2020
951.3
—
February 2019
1,087.5
1,088.4
December 2019
835.1
835.0
August 2020
2,531.2
2,543.8
April 2022
4,055.8
—
December 2018
October 2020
August 2021
July 2022
October 2020
August 2018
July 2021
December 2021
March 2023
March 2020
May 2023
May 2023
April 2025
Various
—
688.0
646.1
542.1
2,226.5
1,588.8
1,609.7
893.2
990.6
1,979.9
3,215.0
1,611.8
3,214.3
496.6
687.5
645.4
540.9
2,221.6
1,584.5
1,606.9
891.8
—
—
—
—
—
12.3
31,088.4
(823.0)
12.9
15,228.9
(0.9)
$
30,265.4
$
15,228.0
(1) Together, the “Senior Secured Credit Facilities” under the Company’s Third Amended and Restated Credit and Guaranty Agreement, as amended (the
“Credit Agreement”).
(2) Represents the U.S. dollar equivalent of Euro-denominated debt (discussed below).
(3) Relates primarily to the debentures assumed in the B&L Acquisition, as described in Note 4.
The Company’s Senior Secured Credit Facilities and indentures governing its senior notes contain customary affirmative and
negative covenants, including, among other things, and subject to certain qualifications and exceptions, covenants that restrict
the Company’s ability and the ability of its subsidiaries to: incur or guarantee additional indebtedness; create or permit liens
on assets; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; make
certain investments and other restricted payments; engage in mergers, acquisitions, consolidations and amalgamations; transfer
and sell certain assets; and engage in transactions with affiliates. The indentures relating to the senior notes issued by the
Company’s subsidiary Valeant contain similar covenants.
The Company’s Senior Secured Credit Facilities also contain specified financial maintenance covenants (consisting of a
secured leverage ratio and an interest coverage ratio) and specified events of default. The Company’s and Valeant’s indentures
also contain certain specified events of default.
F-50
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
In addition, the recent amendment to the Company's Credit Agreement, effective April 11, 2016 (the “April 2016 amendment”),
imposes a number of additional restrictions on the Company until the Company files its Quarterly Report on Form 10-Q for
the first quarter of 2016 and the Company achieves specified leverage ratios. See Note 26 for additional details on and
exceptions to these restrictions.
As of December 31, 2015, the Company was in compliance with all covenants associated with the Company’s outstanding
debt. However, subsequent to December 31, 2015, the Company's delay in filing its Form 10-K for the fiscal year ended
December 31, 2015 resulted in a violation of covenants contained in the Company's Credit Agreement and senior note
indentures, for which the Company received several notices of default in April 2016 in respect of certain series of the Company's
senior notes. All defaults under the Credit Agreement resulting from the failure to timely deliver the Form 10-K have been
waived by the requisite lenders under the Credit Agreement by the April 2016 amendment, and this Form 10-K has been filed
within the extended timeframe granted to the Company as part of that amendment and waiver. The default under the Company’s
senior note indentures arising from the failure to timely file the Form 10-K was cured in all respects by the filing of this Form
10-K. See Note 26 for additional information respecting the amendment and waiver to the Credit Agreement and these notices
of default.
The total fair value of the Company’s long-term debt, with carrying values of $31.09 billion and $15.23 billion at December 31,
2015 and 2014, was $29.60 billion and $15.78 billion, respectively. The fair value of the Company’s long-term debt is estimated
using the quoted market prices for the same or similar debt issuances (Level 2).
Aggregate maturities and mandatory amortization payments of the Company's long-term debt for each of the five succeeding
years ending December 31 and thereafter are as follows(1):
2016
2017
2018
2019
2020
Thereafter
Total gross maturities
Unamortized discounts
Total long-term debt
$
823.0
630.9
3,173.0
2,202.9
7,829.3
16,777.5
31,436.6
(348.2)
$
31,088.4
____________________________________
(1) This schedule does not reflect the effect of the voluntary prepayment of $125 million on April 1, 2016, as discussed later in this footnote.
Senior Secured Credit Facilities
On February 13, 2012, the Company and certain of its subsidiaries as guarantors entered into the Credit Agreement with a
syndicate of financial institutions and investors.
2013 Activity
In 2013, the Company and certain of its subsidiaries as guarantors entered into a series of amendments to, among other things,
(i) reprice and refinance the existing tranche A term loan facility (as so amended, the “Series A-1 Tranche A Term Loan
Facility”), (ii) effectuate two repricings of the Series D Tranche B Term Loan Facility and Series C Tranche B Term Loan
Facility (as so amended in the second repricing, the “Series D-2 Tranche B Term Loan Facility” and “Series C-2 Tranche B
Term Loan Facility”, respectively), and (iii) increase the amount of commitments under the Revolving Credit Facility to $1.0
billion and extend its maturity. In connection with the repricing of the Series D Tranche B Term Loan Facility and the Series
C Tranche B Term Loan Facility, the Company recognized a loss on extinguishment of debt of $21 million in the three-month
period ended March 31, 2013. In addition, in connection with the B&L Acquisition, the Company issued $850 million of
tranche A term loans (the “Series A-2 Tranche A Term Loan Facility”) and $3.2 billion of tranche B term loans (the “Series
E Tranche B Term Loan Facility”). Furthermore, on December 20, 2013, the Company entered into Amendment No. 8 to the
Credit Agreement to allow for the extension of the maturity of all or a portion of the Series A-1 Tranche A Term Loan Facility
and Series A-2 Tranche A Term Loan Facility outstanding from April 20, 2016 to October 20, 2018 (as extended, the “Series
A-3 Tranche A Term Loan Facility”).
F-51
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
2014 Activity
On February 6, 2014, the Company and certain of its subsidiaries as guarantors entered into a joinder agreement to reprice
and refinance the Series E Tranche B Term Loan Facility by the issuance of $2.95 billion in new term loans (the “Series E-1
Tranche B Term Loan Facility”). Term loans under the Series E Tranche B Term Loan Facility were either exchanged for, or
repaid with the proceeds of, the Series E-1 Tranche B Term Loan Facility and proceeds of the additional Series A-3 Tranche
A Term Loan Facility described below. The Series E-1 Tranche B Term Loan Facility has terms consistent with the Series E
Tranche B Term Loan Facility. In connection with this transaction, the Company recognized a loss on extinguishment of debt
of $94 million in the three-month period ended March 31, 2014.
Concurrently, on February 6, 2014, the Company and certain of its subsidiaries as guarantors entered into a joinder agreement
for the issuance of $226 million in incremental term loans under the Series A-3 Tranche A Term Loan Facility. Proceeds from
this transaction were used to repay part of the term loans outstanding under the Series E Tranche B Term Loan Facility.
In July 2014, the Company made principal payments of $1.0 billion, in the aggregate, related to the Senior Secured Credit
Facilities.
2015 Activity
On January 22, 2015, the Company and certain of its subsidiaries, as guarantors, entered into joinder agreements to allow for
an increase in commitments under the Revolving Credit Facility to $1.50 billion and the issuance of $250 million in incremental
term loans under the Series A-3 Tranche A Term Loan Facility. The Revolving Credit Facility and the Series A-3 Tranche A
Term Loan Facility terms remained unchanged.
On March 5, 2015, the Company entered into an amendment to the Credit Agreement to implement certain revisions in
connection with the Salix Acquisition. The amendment, among other things, permitted the Salix Acquisition and the refinancing,
repayment, termination and discharge of Salix's outstanding indebtedness, as well as the issuance of senior unsecured notes
to be used to fund the Salix Acquisition (as described below). The amendment also modified the interest coverage ratio
financial maintenance covenant applicable to the Company through March 31, 2016.
Concurrently with the Salix Acquisition on April 1, 2015, the Company obtained incremental term loan commitments in the
aggregate principal amount of $5.15 billion (the "Incremental Term Loan Facilities") under its existing Credit Agreement.
The Incremental Term Loan Facilities, which were fully drawn in the second quarter of 2015, consist of (1) $1.00 billion of
tranche A term loans (the "Series A-4 Tranche A Term Loan Facility"), bearing interest at a rate per annum equal to, at the
election of the Company, (i) the base rate plus a range between 0.75% and 1.25% or (ii) LIBO rate plus a range between 1.75%
and 2.25%, in each case, depending on the Company's leverage ratio and having terms that are consistent with the Company's
existing tranche A term loans, and (2) $4.15 billion of tranche B term loans (the "Series F Tranche B Term Loan Facility"),
bearing interest at a rate per annum equal to, at election of the Company, (i) the base rate plus a range between 2.00% and
2.25% or (ii) LIBO rate plus a range between 3.00% and 3.25%, depending on the Company's secured leverage ratio and
subject to a 1.75% base rate floor and 0.75% LIBO rate floor, and having terms that are consistent with the Company's existing
tranche B term loans. These interest rates do not reflect the changes resulting from the amendment to the Credit Agreement
that became effective on April 11, 2016. See Note 26 for additional information respecting the amendment and waiver to the
Credit Agreement. In connection with the issuance of the Incremental Term Loan Facilities, the Company incurred a total of
approximately $85 million of costs and fees (treated as a deduction to Long-term debt), including an original issue discount
of approximately $21 million.
The Series A-4 Tranche A Term Loan Facility matures on April 1, 2020 and quarterly amortization commenced June 30, 2015
at the initial annual rate of 5%. The amortization schedule under the Series A-4 Tranche A Term Loan Facility will increase
to 10% annually commencing June 30, 2016 and 20% annually commencing June 30, 2017, payable in quarterly installments.
The Series F Tranche B Term Loan Facility matures on April 1, 2022 and quarterly amortization commenced June 30, 2015
at an annual rate of 1%. These amortization schedules for these loan facilities do not reflect the effect of the voluntary
prepayment of $125 million on April 1, 2016, which has an insignificant impact on amortization amounts.
On May 29, 2015, the Company and certain of its subsidiaries, as guarantors, entered into Amendment No. 11 to the Credit
Agreement to reprice the Series D-2 Tranche B Term Loan Facility. The applicable margins for borrowings under the Series
D-2 Tranche B Term Loan Facility, as modified by the repricing, were initially 1.75% with respect to base rate borrowings
and 2.75% with respect to LIBO rate borrowings. Then, commencing with the delivery of the financial statements of the
Company for the fiscal quarter ending September 30, 2015, such margins were changed to between 1.50% and 1.75% for base
F-52
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
rate borrowings and between 2.50% and 2.75% for LIBO rate borrowings, in each case, based on the secured leverage ratio
of the Company for each fiscal quarter for which financial statements are delivered as required under the Credit Agreement,
subject to a 1.75% base rate floor and a 0.75% LIBO rate floor. The applicable margins do not reflect the changes resulting
from the amendment to the Credit Agreement that became effective on April 11, 2016. See Note 26 for additional information
respecting the amendment and waiver to the Credit Agreement. Costs and fees incurred in connection with the repricing of
the Series D-2 Tranche B Term Loan Facility were nominal.
As of December 31, 2015, the remaining quarterly amortization payments for the Senior Secured Credit Facilities were as
follows: $11 million for the Series A-1 Tranche A Term Loan Facility; $8 million for the Series A-2 Tranche A Term Loan
Facility; $104 million for the Series A-3 Tranche A Term Loan Facility; $13 million for the Series A-4 Tranche A Term Loan
Facility, increasing to $25 million starting June 30, 2016 and $50 million starting June 30, 2017; and $10 million for the Series
F Tranche B Term Loan Facility. There are no remaining quarterly amortization payments for the Series D-2 Tranche B Term
Loan Facility, the Series C-2 Tranche B Term Loan Facility and the Series E-1 Tranche B Term Loan Facility. These amortization
payments do not reflect the effect of the voluntary prepayment of $125 million on April 1, 2016, which has an insignificant
impact on amortization amounts.
The effective rates of interest for the year ended December 31, 2015 and the applicable margins available as of December 31,
2015 on the Company's borrowings under the Senior Secured Credit Facilities were as follows:
Revolving Credit Facility
Series A-1 Tranche A Term Loan Facility
Series A-2 Tranche A Term Loan Facility
Series A-3 Tranche A Term Loan Facility
Series A-4 Tranche A Term Loan Facility
Series D-2 Tranche B Term Loan Facility(1)
Series C-2 Tranche B Term Loan Facility(1)
Series E-1 Tranche B Term Loan Facility(1)
Series F Tranche B Term Loan Facility(1)
____________________________________
Margins(2)
Effective
Interest
Rate
Base Rate
Borrowings
LIBO Rate
Borrowings
2.51%
2.34%
2.34%
2.34%
2.46%
3.50%
3.59%
3.59%
4.00%
1.25%
1.25%
1.25%
1.25%
1.25%
1.75%
2.00%
2.00%
2.25%
2.25%
2.25%
2.25%
2.25%
2.25%
2.75%
3.00%
3.00%
3.25%
(1) Subject to a 1.75% base rate floor and a 0.75% LIBO rate floor.
(2) The applicable margins included in the table do not reflect the changes from the amendment to the Credit Agreement that became effective on April
11, 2016. See Note 26 for additional information respecting the amendment and waiver to the Credit Agreement.
The loans under the Senior Secured Credit Facilities may be made to, and the letters of credit under the Revolving Credit
Facility may be issued on behalf of, the Company. All borrowings under the Senior Secured Credit Facilities are subject to
the satisfaction of customary conditions, including the absence of a default or an event of default and the accuracy in all
material respects of representations and warranties.
In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, the Company is required to
pay commitment fees of 0.50% per annum in respect of the unutilized commitments under the Revolving Credit Facility,
payable quarterly in arrears. The Company also is required to pay letter of credit fees on the maximum amount available to
be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBO rate borrowings under
the Revolving Credit Facility on a per annum basis, payable quarterly in arrears, as well as customary fronting fees for the
issuance of letters of credit and agency fees.
Subject to certain exceptions and customary baskets set forth in the Credit Agreement, the Company is required to make
mandatory prepayments of the loans under the Senior Secured Credit Facilities under certain circumstances, including from
(a) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to reinvestment
rights and net proceeds threshold), (b) 50% of the net cash proceeds from the issuance of equity securities subject to decrease
based on leverage ratios, (c) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as defined
F-53
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
in the Credit Agreement), (d) 50% of Consolidated Excess Cash Flow (as defined in the Credit Agreement) subject to decrease
based on leverage ratios and (e) 100% of net cash proceeds from asset sales outside the ordinary course of business (subject
to reinvestment rights, which were restricted by the terms of the amendment to the Company’s Credit Agreement effective
April 11, 2016. See Note 26 for additional information respecting the amendment and waiver to the Credit Agreement).
The Company is permitted to voluntarily reduce the unutilized portion of the revolving commitment amount and repay
outstanding loans under the Revolving Credit Facility at any time without premium or penalty, other than customary “breakage”
costs with respect to LIBO rate loans. As of December 31, 2015, the Company is permitted to voluntarily repay outstanding
loans under the Tranche A Term Loan facilities and Tranche B Term Loan facilities at any time without premium or penalty,
other than customary “breakage” costs with respect to LIBO rate loans.
The Company’s obligations and the obligations of the guarantors under the Senior Secured Credit Facilities and certain hedging
arrangements and cash management arrangements entered into with lenders under the Senior Secured Credit Facilities
(or affiliates thereof) are secured by first-priority security interests in substantially all tangible and intangible assets of the
Company and the guarantors, including 100% of the capital stock of Valeant and each material subsidiary of the Company
(other than Valeant’s foreign subsidiaries) and 65% of the capital stock of each foreign subsidiary of Valeant that is directly
owned by Valeant or owned by a guarantor that is a domestic subsidiary of Valeant, in each case subject to certain exclusions
set forth in the credit documentation governing the Senior Secured Credit Facilities.
On April 1, 2016, the Company made a voluntary prepayment in the amount of $125 million that was applied pro rata across
the Company’s term loans. The voluntary prepayment represents an estimate of the mandatory excess cash flow payment for
the fiscal year ended December 31, 2015 based on preliminary 2015 results at that time.
On April 11, 2016, the Company obtained an amendment and waiver to its Credit Agreement. See Note 26 for additional
information on this amendment and waiver.
Senior Notes
The senior notes issued by the Company are the Company’s senior unsecured obligations and are jointly and severally
guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor under the Senior Secured Credit Facilities.
The senior notes issued by the Company’s subsidiary Valeant are senior unsecured obligations of Valeant and are jointly and
severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than Valeant) that is a
guarantor under the Senior Secured Credit Facilities. Certain of the future subsidiaries of the Company and Valeant may be
required to guarantee the senior notes.
If the Company experiences a change in control, the Company may be required to make an offer to repurchase each series of
the senior notes discussed below, as applicable, in whole or in part, at a purchase price equal to 101% of the aggregate principal
amount of the senior notes repurchased, plus accrued and unpaid interest to, but excluding, the applicable purchase date of
the senior notes.
6.875% Senior Notes due 2018
On November 23, 2010, Valeant issued $1.0 billion aggregate principal amount of 6.875% senior notes due December 2018
(the "December 2018 Notes") in a private placement. In connection with the December 29, 2014 redemption of $445 million
aggregate principal amount of the December 2018 Notes for $463 million, including a call premium of $15 million, plus
accrued and unpaid interest, the Company recognized a loss on the extinguishment of debt of $18 million in the three-month
period ended December 31, 2014.
On February 17, 2015, Valeant redeemed the remaining $500 million aggregate principal amount of outstanding December
2018 Notes for $524 million, including a call premium of $17 million, plus accrued and unpaid interest, and satisfied and
discharged the December 2018 Notes indenture. In connection with this transaction, the Company recognized a loss on
extinguishment of debt of $20 million in the three-month period ended March 31, 2015.
7.00% Senior Notes due 2020
On September 28, 2010, Valeant issued $700 million aggregate principal amount of 7.00% senior notes due 2020 (the “October
2020 Notes”) in a private placement. The October 2020 Notes accrue interest at the rate of 7.00% per year, payable semi-
annually in arrears.
F-54
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Valeant may redeem all or a portion of the October 2020 Notes at the redemption prices applicable to the October 2020 Notes,
as set forth in the October 2020 Notes indenture, plus accrued and unpaid interest to the date of redemption.
6.75% Senior Notes due 2021
On February 8, 2011, Valeant issued $650 million aggregate principal amount of 6.75% senior notes due 2021 (the “August
2021 Notes”) in a private placement. The August 2021 Notes accrue interest at the rate of 6.75% per year, payable semi-
annually in arrears.
Valeant may redeem all or a portion of the August 2021 Notes at the redemption prices applicable to the August 2021 Notes,
as set forth in the August 2021 Notes indenture, plus accrued and unpaid interest to the date of redemption.
7.25% Senior Notes due 2022
On March 8, 2011, Valeant issued $550 million aggregate principal amount of 7.25% senior notes due 2022 (the “2022 Notes”)
in a private placement. The 2022 Notes accrue interest at the rate of 7.25% per year, payable semi-annually in arrears.
Valeant may redeem all or a portion of the 2022 Notes at any time prior to July 15, 2016 at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium.
On or after July 15, 2016, Valeant may redeem all or a portion of the 2022 Notes at the redemption prices applicable to the
2022 Notes, as set forth in the 2022 Notes indenture, plus accrued and unpaid interest to the date of redemption.
6.375% Senior Notes due 2020
On October 4, 2012, VPI Escrow Corp. (the “VPI Escrow Issuer”), a newly formed wholly owned subsidiary of Valeant,
issued $1.75 billion aggregate principal amount of 6.375% senior notes due 2020 (the “6.375% Notes”) in a private placement.
The 6.375% Notes accrue interest at the rate of 6.375% per year, payable semi-annually in arrears. At the time of the closing
of the Medicis acquisition, (1) the VPI Escrow Issuer merged with and into Valeant, with Valeant continuing as the surviving
corporation, (2) Valeant assumed all of the VPI Escrow Issuer’s obligations under the 6.375% Notes and the related indenture
and (3) the funds previously held in escrow were released to the Company and were used to finance the Medicis acquisition.
Valeant may redeem all or a portion of the 6.375% Notes at any time prior to October 15, 2016 at a price equal to 100% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a "make-whole" premium.
On or after October 15, 2016, Valeant may redeem all or a portion of the 6.375% Notes at the redemption prices applicable
to the 6.375% Notes, as set forth in the 6.375% Notes indenture, plus accrued and unpaid interest to the date of redemption.
Concurrently with the offering of the 6.375% Notes, Valeant issued $500 million aggregate principal amount of 6.375% senior
notes due 2020 (the “Exchangeable Notes”) in a private placement, the form and terms of such notes being substantially
identical to the form and terms of the 6.375% Notes, as described above.
On March 29, 2013, the Company announced that Valeant commenced an offer to exchange (the “Exchange Offer”) any and
all of its Exchangeable Notes into 6.375% Notes. Valeant conducted the Exchange Offer in order to satisfy its obligations
under the indenture governing the Exchangeable Notes with the anticipated result being that some or all of such notes would
be part of a single series of 6.375% Notes under one indenture. The Exchange Offer, which did not result in any changes to
existing terms or to the total amount of the Company’s outstanding debt, expired on April 26, 2013. All of the Exchangeable
Notes were tendered in the Exchange Offer and exchanged for 6.375% Notes to form a single series.
6.75% Senior Notes due 2018 and 7.50% Senior Notes due 2021
On July 12, 2013, VPII Escrow Corp. (the “VPII Escrow Issuer”), a newly formed wholly-owned subsidiary of the Company,
issued $1.6 billion aggregate principal amount of 6.75% senior notes due 2018 (the “August 2018 Notes”) and $1.63 billion
aggregate principal amount of 7.50% senior notes due 2021 (the “July 2021 Notes”) in a private placement. The August 2018
Notes accrue interest at the rate of 6.75% per year, payable semi-annually in arrears. The July 2021 Notes accrue interest at
the rate of 7.50% per year, payable semi-annually in arrears. At the time of the closing of the B&L Acquisition, (1) the VPII
Escrow Issuer was voluntarily liquidated and all of its obligations were assumed by, and all of its assets were distributed to,
the Company, (2) the Company assumed all of the VPII Escrow Issuer’s obligations under the August 2018 Notes and July
2021 Notes and the related indenture and (3) the funds previously held in escrow were released to the Company and were
used to finance the B&L Acquisition.
F-55
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
The Company may redeem all or a portion of the August 2018 Notes at the redemption prices applicable to the August 2018
Notes, as set forth in the August 2018 Notes indenture, plus accrued and unpaid interest to the date of redemption. The Company
may redeem all or a portion of the July 2021 Notes at any time prior to July 15, 2016 at a price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium. In addition,
at any time prior to July 15, 2016, the Company may redeem up to 35% of the aggregate principal amount of the July 2021
Notes with the net proceeds of certain equity offerings at the redemption price set forth in the July 2021 Notes indenture. On
or after July 15, 2016, the Company may redeem all or a portion of the July 2021 Notes at the redemption prices applicable
to the July 2021 Notes, as set forth in the July 2021 Notes indenture, plus accrued and unpaid interest to the date of redemption.
5.625% Senior Notes due 2021
On December 2, 2013, the Company issued $900 million aggregate principal amount of 5.625% senior notes due 2021 (the
“December 2021 Notes”) in a private placement. The December 2021 Notes accrue interest at the rate of 5.625% per year,
payable semi-annually in arrears.
The Company may redeem all or a portion of the December 2021 Notes at any time prior to December 1, 2016 at a price equal
to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-
whole” premium. In addition, at any time prior to December 1, 2016, the Company may redeem up to 35% of the aggregate
principal amount of the outstanding December 2021 Notes with the net proceeds of certain equity offerings at the redemption
price set forth in the December 2021 Notes indenture. On or after December 1, 2016, the Company may redeem all or a portion
of the December 2021 Notes at the redemption prices applicable to the December 2021 Notes, as set forth in the December
2021 Notes indenture, plus accrued and unpaid interest to the date of redemption.
5.50% Senior Notes due 2023
On January 30, 2015, the Company issued $1.0 billion aggregate principal amount of 5.50% senior notes due 2023 ("2023
Notes") in a private placement. The 2023 Notes accrue interest at the rate of 5.50% per year, payable semi-annually in arrears.
The Company may redeem all or a portion of the 2023 Notes at any time prior to March 1, 2018 at a price equal to 100% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium.
In addition, at any time prior to March 1, 2018, the Company may redeem up to 40% of the aggregate principal amount of
the outstanding 2023 Notes with the net proceeds of certain equity offerings at the redemption price set forth in the 2023 Notes
indenture. On or after March 1, 2018, the Company may redeem all or a portion of the 2023 Notes at the redemption prices
applicable to the 2023 Notes, as set forth in the 2023 Notes indenture, plus accrued and unpaid interest to the date of redemption.
5.375% Senior Notes due 2020, 5.875% Senior Notes due 2023, 4.50% Senior Notes due 2023, and 6.125% Senior Notes due
2025
On March 27, 2015, VRX Escrow Corp. (the "VRX Issuer"), a newly formed wholly owned subsidiary of the Company, issued
$2 billion aggregate principal amount of 5.375% senior notes due 2020 (the "2020 Notes"), $3.25 billion aggregate principal
amount of 5.875% senior notes due 2023 (the "May 2023 Notes"), €1.50 billion aggregate principal amount of 4.50% senior
notes due 2023 (the "Euro Notes”) and $3.25 billion aggregate principal amount of 6.125% senior notes due 2025 (the "2025
Notes" and, together with the 2020 Notes, the May 2023 Notes and the Euro Notes, the "VRX Notes") in a private placement.
In addition, the VRX Issuer entered into an escrow and security agreement (the “Escrow Agreement”) dated as of March 27,
2015, with an escrow agent. Pursuant to the Escrow Agreement, the proceeds from the issuance of the VRX Notes, together
with cash sufficient to fund certain accrued and unpaid interest on the VRX Notes, totaling $10.34 billion in the aggregate,
were deposited into escrow accounts and held as collateral security for the VRX Issuer’s obligations until the consummation
of the Salix Acquisition, which occurred on April 1, 2015. At the time of the closing of the Salix Acquisition, (1) the VRX
Issuer was voluntarily liquidated and all of its obligations were assumed by, and all of its assets were distributed to, the
Company, (2) the Company assumed all of the VRX Issuer's obligations under the VRX Notes and the related indenture and
(3) the funds previously held in escrow were released to the Company and were used to finance the Salix Acquisition (as such,
the $10.34 billion referenced in this paragraph was released from restricted cash and cash equivalents in April 2015.)
The 2020 Notes accrue interest at the rate of 5.375% per year, payable semi-annually in arrears. The May 2023 Notes and the
Euro Notes accrue interest at the rate of 5.875% and 4.50% per year, respectively, payable semi-annually in arrears. The 2025
Notes accrue interest at the rate of 6.125% per year, payable semi-annually in arrears.
F-56
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
The Company may redeem all or a portion of the 2020 Notes, the May 2023 Notes, the Euro Notes and the 2025 Notes at any
time prior to March 15, 2017, May 15, 2018, May 15, 2018 and April 15, 2020, respectively, at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium.
In addition, at any time prior to March 15, 2017 in the case of the 2020 Notes, May 15, 2018 in the case of the May 2023
Notes, May 15, 2018 in the case of the Euro Notes and April 15, 2018 in the case of the 2025 Notes, the Company may redeem
up to 40% of the aggregate principal amount of the applicable series of notes with the net proceeds of certain equity offerings
at the redemption prices set forth in the applicable indenture. On or after March 15, 2017, May 15, 2018, May 15, 2018 and
April 15, 2020, the Company may redeem all or a portion of the 2020 Notes, the May 2023 Notes, the Euro Notes and the
2025 Notes, respectively, at the redemption prices applicable to each series of such notes, as set forth in the applicable indenture,
plus accrued and unpaid interest to the date of redemption.
Convertible Notes
The convertible notes assumed as of the acquisition date by the Company in connection with the Salix Acquisition consisted
of two tranches: (i) 2.75% senior notes due May 15, 2015 (the “2.75% Convertible Notes”), with an outstanding principal
amount of $345 million, and (ii) 1.5% convertible senior notes due March 15, 2019 (the “1.5% Convertible Notes”), with an
outstanding principal amount of $690 million.
In connection with the completion of the Salix Acquisition, the Company and the trustee of each of the convertible notes
indentures entered into a supplemental indenture on April 1, 2015, providing that, at and after the effective time of the Salix
Acquisition, the right to convert each $1,000 principal amount of any notes into cash, shares of common stock of Salix or a
combination of cash and shares of common stock of Salix at the Company's election, has been changed to a right to convert
each $1,000 principal amount of such notes into cash.
During the second quarter of 2015, all of the outstanding principal amount of the 2.75% Convertible Notes were settled in
cash at an average price of $3,729.46 per $1,000 principal amount of the notes, plus accrued interest, and all of the outstanding
principal amount of the 1.5% Convertible Notes, except for a nominal amount, were settled in cash at an average price of
$2,663.26 per $1,000 principal amount of the notes.
Commitment Letters
In connection with the Salix Acquisition (see Note 4), the Company entered into a commitment letter dated as of February
20, 2015 (as amended and restated as of March 8, 2015, the “Salix Commitment Letter”), with a syndicate of banks, led by
Deutsche Bank and HSBC. Pursuant to the Salix Commitment Letter, commitment parties committed to provide (i) incremental
term loans pursuant to the Credit Agreement of up to $5.55 billion and (ii) senior unsecured increasing rate bridge loans under
a new senior unsecured bridge facility of up to $9.60 billion. Subsequently, the Company obtained $15.25 billion in debt
financing comprised of a combination of the incremental term loan facilities under the Company's existing Credit Agreement
in an aggregate principal amount of $5.15 billion and the issuance of the Notes in the U.S. dollar equivalent aggregate principal
amount of approximately $10.1 billion, as described above. In the first quarter of 2015, the Company expensed $72 million
of financing costs associated with the Salix Commitment Letter to Interest expense in the consolidated statement of (loss)
income.
In addition, on March 27, 2015, the Company issued new equity of approximately $1.45 billion to fund the Salix Acquisition
(see Note 15 for further information regarding the equity issuance).
In connection with the B&L Acquisition (see Note 4), the Company and its subsidiary, Valeant, entered into a commitment
letter dated as of May 24, 2013 (as amended and restated as of June 4, 2013, the “B&L Commitment Letter”), with various
financial institutions to provide up to $9.28 billion of unsecured bridge loans. Subsequently, the Company obtained $9.58
billion in debt and equity financing to fund the B&L Acquisition. In connection with the B&L Commitment Letter, the Company
incurred approximately $37 million in fees, which were recognized as deferred financing costs and expensed to Interest expense
in the consolidated statements of (loss) income during 2013.
14. EMPLOYEE BENEFIT PLANS
In connection with the B&L Acquisition completed on August 5, 2013, the Company assumed all of B&L’s benefit obligations
and related plan assets. This includes defined benefit plans and a participatory defined benefit postretirement medical and life
insurance plan, which covers a closed grandfathered group of legacy B&L U.S. employees and employees in certain other
countries. The U.S. defined benefit accruals were frozen as of December 31, 2004 and benefits that were earned up to December
F-57
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
31, 2004 were preserved. Participants continue to earn interest credits on their cash balance. The most significant non-U.S.
plans are two defined benefit plans in Ireland. In 2011, both Ireland benefit plans were closed to future service benefit accruals;
however additional accruals related to annual salary increases continued. In December 2014, one of the Ireland benefit plans
was amended effective August 2014 to eliminate future benefit accruals related to salary increases. All of the pension benefits
accrued through the plan amendment date were preserved. As a result of the recent plan amendment, there are no active plan
participants accruing benefits under the amended Ireland benefit plan. The U.S. postretirement benefit plan was amended
effective January 1, 2005 to eliminate employer contributions after age 65 for participants who did not meet the minimum
requirements of age and service on that date. The employer contributions for medical and prescription drug benefits for
participants retiring after March 1, 1989 were frozen effective January 1, 2010. Effective January 1, 2014, the Company no
longer offers medical and life insurance coverage to new retirees.
In addition to the B&L benefit plans, outside of the U.S., a limited group of Valeant employees are covered by defined benefit
pension plans.
The Company uses December 31 as the year-end measurement date for all of its defined benefit pension plans and the
postretirement benefit plan.
Accounting for Pension Benefit Plans and Postretirement Benefit Plan
The Company recognizes on its balance sheet an asset or liability equal to the over- or under-funded benefit obligation of each
defined benefit pension plans and other postretirement benefit plan. Actuarial gains or losses and prior service costs or credits
that arise during the period but are not recognized as components of net periodic benefit cost are recognized, net of tax, as a
component of other comprehensive income.
The table below presents the amounts recognized in accumulated other comprehensive loss for the years ended December 31,
2015, 2014 and 2013:
Pension Benefit Plans
U.S. Plan
Non-U.S. Plans
2015
2014
2013
2015
2014
2013
2015
Postretirement
Benefit
Plan
2014
2013
Unrecognized actuarial
(losses) gains
Unrecognized prior service
credits(1)
$
(23.8) $
(18.2) $
11.2
$
(39.5) $
(72.9) $
12.7
$
(1.2) $
(3.8) $
1.0
—
—
—
23.5
26.8
—
23.0
25.5
27.9
____________________________________
(1) Relates to negative plan amendments, as described below.
Of the December 31, 2015 amounts, the Company expects to recognize $2 million and $1 million of unrecognized prior service
credits related to the U.S. postretirement benefit plan and the non-U.S. pension benefit plans, respectively, in net periodic
(benefit) cost during 2016. In addition, the Company expects to recognize $1 million of unrecognized net loss related to the
non-U.S. pension benefit plans in net periodic (benefit) cost during 2016.
Net Periodic (Benefit) Cost
The following table provides the components of net periodic (benefit) cost for the Company’s defined benefit pension plans
and postretirement benefit plan for the years ended December 31, 2015 and 2014:
F-58
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Pension Benefit Plans
U.S. Plan
Non-U.S. Plans
Postretirement
Benefit
Plan
2015
2014
2013
2015
2014
2013
2015
2014
2013
$
2.2
3.7
(3.1)
—
—
—
0.6
—
3.4
$
1.9
2.2
(0.2)
—
—
$
1.7
2.3
(0.5)
—
—
(2.5)
(2.5)
—
—
—
—
0.9
1.6
(0.3)
—
—
—
—
—
$
1.4
$
1.0
$
2.2
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss (gain)
Curtailment gain recognized
Amortization of prior service
credit
Settlement loss (gain) recognized
Other
$
1.6
9.5
(14.5)
—
—
—
—
—
$
0.4
$
10.8
(14.7)
—
—
—
0.9
—
$
0.1
4.5
(5.9)
—
—
—
(0.1)
—
Net periodic (benefit) cost
$
(3.4) $
(2.6) $
(1.4) $
3.1
6.0
(7.3)
1.0
—
(0.6)
1.7
0.3
4.2
$
$
3.9
8.3
(7.7)
(0.2)
(1.6)
—
0.2
0.2
3.1
$
$
F-59
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Benefit Obligation, Change in Plan Assets and Funded Status
The table below presents components of the change in projected benefit obligation, change in plan assets and funded status
at December 31, 2015 and 2014:
Pension Benefit Plans
U.S. Plan
Non-U.S. Plans
Postretirement
Benefit
Plan
2015
2014
2015
2014
2015
2014
Change in Projected benefit Obligation
Projected benefit obligation, beginning of year
$
251.8
$
234.6
$
272.6
$
229.7
$
62.2
$
59.2
Service cost
Interest cost
Employee contributions
Plan amendments(1)
Plan curtailments
Settlements
Benefits paid
Actuarial (gains) losses
Currency translation adjustments
Other
1.6
9.5
—
—
—
—
(16.0)
(14.9)
—
—
0.4
10.8
—
—
—
(13.0)
(10.4)
29.4
—
—
Projected benefit obligation, end of year
232.0
251.8
3.1
6.0
—
—
—
(8.9)
(4.9)
(27.6)
(25.8)
2.7
217.2
3.9
8.3
—
(29.4)
(1.6)
(0.4)
(6.2)
101.9
(33.8)
0.2
272.6
Change in Plan Assets
Fair value of plan assets, beginning of year
$
196.6
$
197.3
$
140.5
$
139.1
$
Actual return on plan assets
Employee contributions
Company contributions
Settlements
Benefits paid
Currency translation adjustments
Other
(6.1)
—
7.8
—
(16.0)
—
—
13.8
—
8.9
(13.0)
(10.4)
—
—
Fair value of plan assets, end of year
182.3
196.6
3.6
—
6.2
(8.9)
(4.9)
(13.1)
2.6
126.0
17.5
—
8.4
(0.4)
(6.2)
(17.9)
—
140.5
1.9
2.2
1.2
—
—
—
(6.8)
(2.8)
—
—
57.9
9.1
—
1.2
—
—
(6.8)
—
—
3.5
1.7
2.3
1.2
—
—
—
(8.1)
5.9
—
—
62.2
$
14.5
1.5
1.2
—
—
(8.1)
—
—
9.1
Funded Status at end of year
Recognized as:
Other long-term assets, net
Accrued and other current liabilities
Pension and other benefit liabilities
____________________________________
$
$
(49.7) $
(55.2) $
(91.2) $
(132.1) $
(54.4) $
(53.1)
— $
— $
— $
1.4
$
— $
—
(49.7)
—
(55.2)
(1.6)
(89.6)
(2.0)
(131.5)
(3.3)
(51.1)
—
—
(53.1)
(1)
In December 2014, one of the Ireland benefit plans was amended effective August 2014 to eliminate future benefit accruals related to salary increases.
The reduction in accruing benefits was accounted for as a negative plan amendment resulting in an accumulated benefit obligation reduction that was
recognized as a component of accumulated other comprehensive loss and is being amortized into income over approximately 42.5 years. In the fourth
quarter of 2013, the Company announced that effective January 1, 2014, B&L will no longer offer medical and life insurance coverage to new retirees.
The reduction in medical benefits was accounted for as a negative plan amendment resulting in an accumulated postretirement benefit obligation
reduction that was recognized as a component of accumulated other comprehensive loss and is being amortized into income over approximately 11.3
years.
A number of the Company’s pension benefit plans were underfunded as of December 31, 2015 and 2014, having accumulated
benefit obligations exceeding the fair value of plan assets. Information for the underfunded plans is presented in the following
table:
F-60
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Pension Benefit Plans
U.S. Plan
Non-U.S. Plans
2015
2014
2015
2014
$
232.0
$
251.8
$
216.1
$
232.0
182.3
251.8
196.6
207.0
125.1
266.4
257.3
133.1
Information for the pension benefit plans that are underfunded on a projected benefit obligation basis (versus underfunded on
an accumulated benefit basis as in the table above) is presented in the following table:
Projected benefit obligation
Fair value of plan assets
Pension Benefit Plans
U.S. Plan
Non-U.S. Plans
2015
2014
2015
2014
$
232.0
$
251.8
$
217.2
$
182.3
196.6
126.0
267.9
134.3
The non-U.S. benefit plans’ accumulated benefit obligation for both the funded and underfunded pension benefit plans was
$208 million and $263 million as of December 31, 2015 and 2014, respectively.
The Company’s policy for funding its pension benefit plans is to make contributions that meet or exceed the minimum statutory
funding requirements. These contributions are determined based upon recommendations made by the actuary under accepted
actuarial principles. In 2016, the Company does not expect to make additional contributions to the U.S. pension benefit plan
and expects to contribute $6 million and $3 million to the non-U.S. pension benefit plans and the U.S. postretirement benefit
plan, respectively.
The Company plans to use postretirement benefit plan assets and cash on hand, as necessary, to fund the U.S. postretirement
benefit plan benefit payments in 2016.
Estimated Future Benefit Payments
Future benefit payments over the next 10 years for the pension benefit plans and the postretirement benefit plan, which reflect
expected future service, as appropriate, are expected to be paid as follows:
2016
2017
2018
2019
2020
2021-2025
Assumptions
Pension Benefit Plans
U.S. Plan
Non-U.S. Plans
Postretirement
Benefit
Plan
$
$
12.8
18.5
18.1
17.4
18.1
82.9
$
3.3
3.3
3.6
4.2
4.0
30.8
6.8
6.3
5.7
5.3
4.8
19.1
The weighted-average assumptions used to determine net periodic benefit costs and benefit obligations as of December 31,
2015, 2014 and 2013 were as follows:
F-61
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
For Determining Net Periodic (Benefit) Cost
U.S. Plans:
Discount rate(2)
Expected rate of return on plan assets
Rate of compensation increase
Non-U.S. Plans:
Discount rate
Expected rate of return on plan assets
Rate of compensation increase
For Determining Benefit Obligation
U.S. Plans:
Discount rate
Rate of compensation increase
Non-U.S. Plans:
Discount rate
Rate of compensation increase
Pension Benefit
Plans
Postretirement
Benefit Plan(1)
2015
2014
2013
2015
2014
2013
3.70%
5.50%
—
4.30%
5.50%
—
4.50%
5.50%
—
3.90%
7.50%
—
2.41%
5.60%
2.86%
4.70%
7.50%
—
3.86%
5.63%
2.88%
4.50%
7.50%
—
3.61%
5.59%
2.80%
Pension Benefit
Plans
Postretirement
Benefit Plan(1)
2015
2014
2015
2014
4.34%
3.90%
4.13%
3.70%
—
—
—
—
2.74%
2.87%
2.41%
2.86%
____________________________________
(1) The Company does not have non-U.S. postretirement benefit plans.
(2) The discount rate in 2014 for the U.S. postretirement benefit plan was impacted by the amendment described above which eliminated coverage for new
retirees.
The expected long-term rate of return on plan assets was developed based on a capital markets model that uses expected asset
class returns, variance and correlation assumptions. The expected asset class returns were developed starting with current
Treasury (for the U.S. pension plan) or Eurozone (for the Ireland pension plans) government yields and then adding corporate
bond spreads and equity risk premiums to develop the return expectations for each asset class. The expected asset class returns
are forward-looking. The variance and correlation assumptions are also forward-looking. They take into account historical
relationships, but are adjusted to reflect expected capital market trends. The expected return on plan assets for the Company’s
U.S. pension plan for 2015 was 7.50% and for the postretirement benefit plan was 5.50%. The expected return for the U.S.
postretirement plan is based on the expected return for the U.S. pension plan reduced by 2.0% to reflect an estimate of additional
administrative expenses. The expected return on plan assets for the Company’s Ireland pension plans was 6.0% for 2015.
The discount rate used to determine benefit obligations represents the current rate at which the benefit plan liabilities could
be effectively settled considering the timing of expected payments for plan participants.
The 2016 expected rate of return for the U.S. pension benefit plan and the U.S. postretirement benefit plan will remain at
7.50% and 5.50%, respectively. The 2016 expected rate of return for the Ireland pension benefit plans will be 5.80%.
Plan Assets
Pension and postretirement benefit plan assets are invested in several asset categories. The following presents the actual asset
allocation as of December 31, 2015 and 2014:
F-62
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
U.S. Plan
Equity securities
Fixed income securities
Cash
Non-U.S. Plans
Equity securities
Fixed income securities
Other
Pension Benefit
Plans
Postretirement
Benefit Plan
2015
2014
2015
2014
57%
20%
23%
45%
16%
39%
61%
39%
—%
44%
41%
15%
60%
40%
—%
44%
42%
14%
The investment strategy underlying pension plan asset allocation is to manage the assets of the plan to provide for the long-
term liabilities while maintaining sufficient liquidity to pay current benefits. Pension plan assets are diversified to protect
against large investment losses and to reduce the probability of excessive performance volatility. Diversification of assets is
achieved by allocating funds to various asset classes and investment styles within asset classes, and retaining investment
management firm(s) with complementary investment philosophies, styles and approaches.
The Company’s pension plan assets are managed by outside investment managers using a total return investment approach,
whereby a mix of equity and debt securities investments are used to maximize the long-term rate of return on plan assets. A
significant portion of the assets of the U.S. and Ireland pension plans have been invested in equity securities, as equity portfolios
have historically provided higher returns than debt and other asset classes over extended time horizons. Correspondingly,
equity investments also entail greater risks than other investments. Equity risks are balanced by investing a significant portion
of plan assets in broadly diversified fixed income securities.
Fair Value of Plan Assets
The Company measured the fair value of plan assets based on the prices that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements
are based on a three-tier hierarchy described in Note 7.
The table below presents total plan assets by investment category as of December 31, 2015 and 2014 and the classification
of each investment category within the fair value hierarchy with respect to the inputs used to measure fair value:
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of December 31, 2015
Pension Benefit Plans - U.S. Plans
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of December 31, 2014
Total
$
— $
— $
— $
— $
1.3
$
— $
— $
1.3
—
—
—
—
—
69.2
16.4
24.9
53.0
18.8
—
—
—
—
—
69.2
16.4
24.9
53.0
18.8
—
—
—
—
—
74.9
15.9
25.5
59.4
19.6
—
—
—
—
—
74.9
15.9
25.5
59.4
19.6
$
— $
182.3
$
— $
182.3
$
1.3
$
195.3
$
— $
196.6
Assets
Cash & cash equivalents(1)
Commingled funds:(2)(3)
Equity securities:
U.S. broad market
Emerging markets
Non-U.S. developed markets
Fixed income securities:
Investment grade
Global high yield
F-63
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Pension Benefit Plans - Non-U.S. Plans
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of December 31, 2015
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of December 31, 2014
Total
$
13.0
$
— $
— $
13.0
$
14.0
$
— $
— $
14.0
—
—
—
—
—
—
0.3
55.5
10.4
0.8
40.0
6.0
—
—
—
—
—
—
0.3
55.5
10.4
0.8
40.0
6.0
—
—
—
—
—
—
1.0
61.5
11.2
1.0
46.4
5.4
—
—
—
—
—
—
1.0
61.5
11.2
1.0
46.4
5.4
$
13.0
$
113.0
$
— $
126.0
$
14.0
$
126.5
$
— $
140.5
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of December 31, 2015
Postretirement Benefit Plan
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of December 31, 2014
Total
$
$
0.8
—
0.8
$
$
— $
2.7
2.7
$
— $
—
— $
0.8
2.7
3.5
$
$
3.5
—
3.5
$
$
— $
5.6
5.6
$
— $
—
— $
3.5
5.6
9.1
Assets
Cash & cash equivalents(1)
Commingled funds:(2)(3)
Equity securities:
Emerging markets
Worldwide developed markets
Fixed income securities:
Investment grade
Global high yield
Government bond funds
Other assets
Assets
Cash
Insurance policies(4)
____________________________________
(1) Cash equivalents consisted primarily of term deposits and money market instruments. The fair value of the term deposits approximates their carrying
amounts due to their short term maturities. The money market instruments also have short maturities and are valued using a market approach based on
the quoted market prices of identical instruments.
(2) Commingled funds are not publicly traded. The underlying assets in these funds are publicly traded on the exchanges and have readily available price
quotes. The Ireland pension plans held approximately 90% and 85% of the non-U.S. commingled funds in 2015 and 2014, respectively. The commingled
funds held by the U.S. and Ireland pension plans are primarily invested in index funds.
(3) The underlying assets in the fixed income funds are generally valued using the net asset value per fund share, which is derived using a market approach
with inputs that include broker quotes, benchmark yields, base spreads and reported trades.
(4) The insurance policies held by the postretirement benefit plan consist of variable life insurance contracts whose fair value is their cash surrender value.
Cash surrender value is the amount currently payable by the insurance company upon surrender of the policy and is based principally on the net asset
values of the underlying trust funds. The trust funds are commingled funds that are not publicly traded. The underlying assets in these funds are primarily
publicly traded on exchanges and have readily available price quotes.
There were no transfers between Level 1 and Level 2 during the years ended December 31, 2015 and 2014.
Health Care Cost Trend Rate
The health care cost trend rate assumptions for the postretirement benefit plan are as follows:
F-64
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline
Year that the rate reaches the ultimate trend rate
A one percentage point change in health care cost trend rate would have had the following effects:
Effect on benefit obligations
Defined Contribution Plans
2015
2014
7.02%
4.50%
2038
7.31%
4.50%
2029
One Percentage Point
Increase
Decrease
$
0.7
$
0.6
The Company sponsors defined contribution plans in the U.S., Ireland and certain other countries. Under these plans, employees
are allowed to contribute a portion of their salaries to the plans, and the Company matches a portion of the employee
contributions. The Company contributed $28 million, $21 million and $16 million to these plans in the years ended December
31, 2015, 2014 and 2013, respectively.
15. SECURITIES REPURCHASES AND SHARE ISSUANCES
Securities Repurchase Programs
On November 19, 2012, the Company announced that its Board of Directors had approved a new securities repurchase program
(the “2012 Securities Repurchase Program”). Under the 2012 Securities Repurchase Program, which commenced on
November 15, 2012, the Company could make purchases of up to $1.50 billion of senior notes, common shares and/or other
future debt or shares, subject to any restrictions in the Company’s financing agreements and applicable law. The 2012 Securities
Repurchase Program terminated on November 14, 2013.
On November 21, 2013, the Company’s Board of Directors approved a new securities repurchase program
(the “2013 Securities Repurchase Program”). Under the 2013 Securities Repurchase Program, which commenced on
November 22, 2013, the Company could make purchases of up to $1.50 billion of its convertible notes, senior notes, common
shares and/or other future debt or shares, subject to any restrictions in the Company’s financing agreements and applicable
law. The 2013 Securities Repurchase Program terminated on November 21, 2014.
On November 20, 2014, the Company’s Board of Directors approved a new securities repurchase program
(the “2014 Securities Repurchase Program”). Under the 2014 Securities Repurchase Program, which commenced on
November 21, 2014, the Company could make purchases of up to $2.00 billion of its convertible notes, senior notes, common
shares and/or other future debt or shares, subject to any restrictions in the Company’s financing agreements and applicable
law. The 2014 Securities Repurchase Program terminated on November 20, 2015.
On November 18, 2015, the Company’s Board of Directors approved a new securities repurchase program
(the “2015 Securities Repurchase Program”). Under the 2015 Securities Repurchase Program, which commenced on
November 21, 2015, the Company could make purchases of up to $3.00 billion of its convertible notes, senior notes, common
shares and/or other future debt or shares, subject to any restrictions in the Company’s financing agreements and applicable
law. The 2015 Securities Repurchase Program will terminate on November 20, 2016.
The Board of Directors also approved a sub-limit under the 2015 Securities Repurchase Program for the repurchase of an
amount of common shares equal to the greater of 10% of the Company’s public float or 5% of the Company’s issued and
outstanding common shares, in each case calculated as of the date of the commencement of the 2015 Securities Repurchase
Program. The Company may initially purchase up to 5% of the Company's issued and outstanding common shares, calculated
as of the date of the commencement of the 2015 Securities Repurchase Program, through the facilities of the New York Stock
Exchange (“NYSE”). Subject to completion of appropriate filings with and approval by the Toronto Stock Exchange (“TSX”),
the Company may also make purchases of its common shares over the facilities of the TSX. Purchases of common shares
will be made at prevailing market prices of such shares on the NYSE or the TSX, as the case may be, at the time of the
acquisition and shall be made in accordance with the respective rules and guidelines of the NYSE and the TSX and applicable
law.
F-65
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Repurchases of Shares and Senior Notes
During the year ended December 31, 2015, no common shares were repurchased under the 2015 Securities Repurchase
Program.
During the year ended December 31, 2015, under the 2014 Securities Repurchase Program, the Company repurchased 424,215
of its common shares for an aggregate purchase price of $72 million. The excess of the purchase price over the carrying value
of the common shares repurchased of $60 million was charged to the accumulated deficit. These common shares were
subsequently cancelled.
During the years ended December 31, 2014 and 2013, no common shares were repurchased under the 2013 Securities
Repurchase Program or the 2014 Securities Repurchase Program.
During the year ended December 31, 2013, under the 2012 Securities Repurchase Program, the Company repurchased 507,957
of its common shares for an aggregate purchase price of $36 million. The excess of the purchase price over the carrying value
of the common shares repurchased of $26 million was charged to the accumulated deficit. These common shares were
subsequently cancelled.
During the years ended December 31, 2015, 2014, and 2013, the Company did not make any purchases of its senior notes
under the applicable securities repurchase programs.
Additional Repurchases outside the 2012 Securities Repurchase Program
In addition to the repurchases made under the 2012 Securities Repurchase Program, during the second quarter of 2013, the
Company repurchased an additional 217,294 of its common shares on behalf of certain members of the Company’s Board of
Directors, in connection with the share settlement of certain deferred stock units and restricted stock units held by such directors
following the termination of the applicable equity program. These common shares were subsequently transferred to such
directors. These common shares were repurchased for an aggregate purchase price of $20 million. The excess of the purchase
price over the carrying value of the common shares repurchased of $16 million was charged to the accumulated deficit. As
the common shares were repurchased on behalf of certain of the Company’s directors, these repurchases were not made under
the 2012 Securities Repurchase Program.
Issuances of Common Stock
On June 10, 2015, the Company issued 213,610 common shares, representing a portion of the consideration transferred in
connection with the acquisition of certain assets of Dendreon. The shares had an aggregate value of approximately $50 million
as of the date of issuance. See Note 4 for additional information regarding the acquisition of certain assets of Dendreon.
On March 27, 2015, the Company completed, pursuant to an Underwriting Agreement dated March 17, 2015 with Deutsche
Bank Securities Inc. on behalf of several underwriters, a registered offering in the United States of 7,286,432 of its common
shares, no par value, at a price of $199.00 per common share, for aggregate gross proceeds of approximately $1.45 billion.
In connection with the issuance of these new common shares, the Company incurred approximately $18 million of issuance
costs, which has been reflected as reduction to the gross proceeds from the equity issuance. The proceeds of this offering
were used to fund the Salix Acquisition. The Company granted the underwriters an option to purchase additional common
shares equal to up to 15% of the common shares initially issued in the offering. This option was not exercised by the
underwriters.
On June 24, 2013, the Company completed, pursuant to an Underwriting Agreement with Goldman Sachs & Co. and Goldman
Sachs Canada, Inc., a public offering for the sale of 27,058,824 of its common shares, no par value, at a price of $85.00 per
share, or aggregate gross proceeds of approximately $2.3 billion. In connection with the issuance of these new common shares,
the Company incurred approximately $31 million of issuance costs, which has been reflected as reduction to the gross proceeds
from the equity issuance.
16. SHARE-BASED COMPENSATION
In May 2014, shareholders approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”) which replaced the
Company’s 2011 Omnibus Incentive Plan (the “2011 Plan”) for future equity awards granted by the Company. The Company
transferred the common shares available under the 2011 Plan to the 2014 Plan. The maximum number of common shares that
may be issued to participants under the 2014 Plan is equal to 18,000,000 common shares, plus the number of common shares
F-66
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
under the 2011 Plan reserved but unissued and not underlying outstanding awards and the number of common shares becoming
available for reuse after awards are terminated, forfeited, cancelled, exchanged or surrendered under the 2011 Plan and the
Company’s 2007 Equity Compensation Plan. The Company registered, in the aggregate, 20,000,000 common shares of
common stock for issuance under the 2014 Plan. Approximately 13,119,260 shares were available for future grants as of
December 31, 2015. The Company uses reserved and unissued common shares to satisfy its obligation under its share-based
compensation plans.
The following table summarizes the components and classification of share-based compensation expense related to stock
options and restricted share units ("RSUs"):
Stock options
RSUs
Share-based compensation expense
Research and development expenses
Selling, general and administrative expenses
Share-based compensation expense
2015
2014
2013
$
$
$
17.1
123.0
140.1
6.0
134.1
$
140.1
$
$
$
$
18.2
60.0
78.2
5.6
72.6
78.2
$
$
$
$
17.3
28.2
45.5
—
45.5
45.5
On June 30, 2015, the Company's former Chief Financial Officer terminated his employment and subsequently entered into
a consulting service agreement with the Company through January 2016. As a result, the outstanding awards held by him
were modified to allow the recipient to continue vesting in those awards as service is rendered during the consulting services
period. Share-based compensation expense previously recognized of $6 million related to the original awards was reversed
in the second quarter of 2015 when such awards were deemed improbable of vesting. The modified awards are re-measured
at fair value, at each reporting period, until a performance commitment is reached or the performance is complete. The value
of the modified awards is recognized as expense over the requisite service period and resulted in expense of $12 million for
the year ended December 31, 2015. Subsequently, on January 6, 2016, the consulting services period was terminated in
connection with such executive’s appointment as the Company’s interim chief executive officer. The termination of the
consulting services period resulted in acceleration of vesting for all unvested equity awards that were scheduled to vest during
the remainder of such consulting services period (January 2016) and consequently, the associated unrecognized expense was
fully recognized on such date.
In the second quarter of 2013, certain equity awards held by current non-management directors were modified from units
settled in common shares to units settled in cash, which changed the classification from equity awards to liability awards.
The resulting reduction in share-based compensation expense of $6 million was more than offset by incremental compensation
expense of $21 million recognized in the second quarter of 2013, which represents the fair value of the awards settled in cash.
The Company recognized $57 million, $17 million, and $24 million of tax benefits from share-based compensation in the
years ended December 31, 2015, 2014 and 2013 respectively.
Stock Options
All stock options granted by the Company under its 2007 Equity Compensation Plan expire on the fifth anniversary of the
grant date and all stock options granted under the 2011 Plan and 2014 Plan expire on the tenth anniversary of the grant date.
The exercise price of any stock option granted under its 2007 Equity Compensation Plan is not to be less than the volume-
weighted average trading price of the Company’s common shares for the five trading days immediately preceding the date
of grant (or, for participants subject to U.S. taxation, on the single trading day immediately preceding the date of grant,
whichever is greater). The exercise price of any stock option granted under the 2011 Plan and 2014 Plan will not be less than
the closing price per common share preceding the date of grant. Stock options generally vest 25% each year over a four-year
period on the anniversary of the date of grant.
The fair values of all stock options granted during the years ended December 31, 2015, 2014 and 2013 were estimated as of
the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
F-67
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Expected stock option life (years)(1)
Expected volatility(2)
Risk-free interest rate(3)
Expected dividend yield(4)
____________________________________
(1) Determined based on historical exercise and forfeiture patterns.
2015
2014
2013
3.4
5.8
4.0
44.5%
43.0%
40.1%
1.3%
—%
1.8%
—%
1.0%
—%
(2) Determined based on implied volatility in the market traded options of the Company’s common stock.
(3) Determined based on the rate at the time of grant for zero-coupon U.S. or Canadian government bonds with maturity dates equal to the expected life
of the stock option.
(4) Determined based on the stock option’s exercise price and expected annual dividend rate at the time of grant.
The Black-Scholes option-pricing model used by the Company to calculate stock option values was developed to estimate
the fair value of freely tradeable, fully transferable stock options without vesting restrictions, which significantly differ from
the Company’s stock option awards. This model also requires highly subjective assumptions, including future stock price
volatility and expected time until exercise, which greatly affect the calculated values.
The following table summarizes stock option activity during the year ended December 31, 2015:
Outstanding, January 1, 2015
Granted
Exercised
Expired or forfeited
Outstanding, December 31, 2015
Vested and exercisable, December 31, 2015
Weighted-
Average
Exercise
Price
Options
7.7
0.1
(0.7)
(0.2)
6.9
6.1
$
$
$
31.44
212.24
43.49
91.55
32.59
20.52
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
4.3
3.7
$
$
499.2
493.9
The weighted-average fair values of all stock options granted in 2015, 2014 and 2013 were $73.10, $62.15 and $30.47,
respectively. The total intrinsic values of stock options exercised in 2015, 2014 and 2013 were $119 million, $87 million and
$30 million, respectively. Proceeds received on the exercise of stock options in 2015, 2014 and 2013 were $30 million, $17
million and $10 million, respectively.
As of December 31, 2015, the total remaining unrecognized compensation expense related to non-vested stock options
amounted to $33 million, which will be amortized over the weighted-average remaining requisite service period of
approximately 3.0 years. The total fair value of stock options vested in 2015, 2014 and 2013 were $26 million, $36 million
and $26 million, respectively.
RSUs
RSUs generally vest on the third anniversary date from the date of grant. Annual RSUs granted to non-management directors
vest immediately prior to the next Annual Meeting of Shareholders. Pursuant to the applicable unit agreement, certain RSUs
may be subject to the attainment of any applicable performance goals specified by the Board of Directors. If the vesting of
the RSUs is conditional upon the attainment of performance goals, any RSUs that do not vest as a result of a determination
that a holder of RSUs has failed to attain the prescribed performance goals will be forfeited immediately upon such
determination. RSUs are credited with dividend equivalents, in the form of additional RSUs, when dividends are paid on the
Company’s common shares. Such additional RSUs will have the same vesting dates and will vest under the same terms as
the RSUs in respect of which such additional RSUs are credited.
F-68
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
To the extent provided for in a RSU agreement, the Company may, in lieu of all or a portion of the common shares which
would otherwise be provided to a holder, elect to pay a cash amount equivalent to the market price of the Company’s common
shares on the vesting date for each vested RSU. The amount of cash payment will be determined based on the average market
price of the Company’s common shares on the vesting date. The Company’s current intent is to settle vested RSUs through
the issuance of common shares.
Time-Based RSUs
Each vested RSU without performance goals (“time-based RSU”) represents the right of a holder to receive one of the
Company’s common shares. The fair value of each RSU granted is estimated based on the trading price of the Company’s
common shares on the date of grant.
The following table summarizes non-vested time-based RSU activity during the year ended December 31, 2015:
Non-vested, January 1, 2015
Granted
Vested
Non-vested, December 31, 2015
Time-Based
RSUs
Weighted-
Average
Grant-Date
Fair Value
$
0.9
1.0
(0.1)
1.8
$
51.34
110.01
85.58
80.96
As of December 31, 2015, the total remaining unrecognized compensation expense related to non-vested time-based RSUs
amounted to $100 million, which will be amortized over the weighted-average remaining requisite service period of
approximately 1.9 years. The total fair value of time-based RSUs vested in 2015, 2014 and 2013 were $7 million, $8 million
and $15 million, respectively.
Performance-Based RSUs
Each vested RSU with performance goals (“performance-based RSU”) represents the right of a holder to receive a number
of the Company’s common shares up to a specified maximum. Performance-based RSUs vest upon achievement of certain
share price appreciation conditions. If the Company’s performance is below a specified performance level, no common shares
will be paid.
The fair value of each performance-based RSU granted during the years ended December 31, 2015, 2014 and 2013 was
estimated using a Monte Carlo Simulation model, which utilizes multiple input variables to estimate the probability that the
performance condition will be achieved.
The fair values of performance-based RSUs granted during the years ended December 31, 2015, 2014 and 2013 were estimated
with the following assumptions:
2015
2014
2013
Contractual term (years)
Expected Company share volatility(1)
Risk-free interest rate(2)
____________________________________
2.8 - 6.3
2.6 - 6.3
40.9% - 60.3% 38.7% - 45.4% 36.1% - 44.4%
0.5% - 1.3%
0.8% - 2.3%
1.1% - 2.1%
2.8 - 4.3
(1) Determined based on historical volatility over the contractual term of the performance-based RSU.
(2) Determined based on the rate at the time of grant for zero-coupon U.S. government bonds with maturity dates equal to the contractual term of the
performance-based RSUs.
The following table summarizes non-vested performance-based RSU activity during the year ended December 31, 2015:
F-69
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Non-vested, January 1, 2015
Granted
Vested
Forfeited
Non-vested, December 31, 2015
Performance-
Based RSUs
Weighted-
Average
Grant-Date
Fair Value
$
1.2
0.8
(0.3)
(0.2)
1.5
$
160.44
320.15
78.80
217.39
261.33
As of December 31, 2015, the total remaining unrecognized compensation expense related to the non-vested performance-
based RSUs amounted to $252 million, which will be amortized over the weighted-average remaining requisite service period
of approximately 3.5 years. A maximum of 4,610,663 common shares could be issued upon vesting of the performance-based
RSUs outstanding as of December 31, 2015.
17. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss as of December 31, 2015, 2014 and 2013 were as follows:
Foreign
Currency
Translation
Adjustment
Unrealized
Gain on
Equity
Investment
Net
Unrealized
Holding
Gain
on Available-
For-Sale
Equity
Securities
Net
Unrealized
Holding
Loss
on Available-
For-Sale
Debt
Securities
Pension
Adjustment
Total
$
(119.5)
$
— $
(50.8)
—
—
—
(170.3)
(716.2)
—
—
—
—
—
(886.5)
(642.9)
—
—
—
—
—
—
—
51.3
(51.3)
—
—
—
—
—
—
0.4
—
3.6
(4.0)
—
—
—
—
—
1.8
(1.8)
—
—
—
—
$
— $
(0.3)
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
37.8
37.5
—
—
—
—
—
(66.9)
(29.4)
—
17.2
(119.4)
(50.8)
3.6
(4.0)
37.8
(132.8)
(716.2)
51.3
(51.3)
1.8
(1.8)
(66.9)
(915.9)
(642.9)
17.2
$
(1,529.4)
$
— $
— $
— $
(12.2)
$
(1,541.6)
Balance, January 1, 2013
Foreign currency translation adjustment
Net unrealized holding gain on available-for-sale equity securities
Reclassification to net income (loss)(1)
Pension adjustment, net of tax(2)
Balance, December 31, 2013
Foreign currency translation adjustment
Unrealized gain on equity method investment, net of tax
Reclassification to net income (loss)(1)
Net unrealized holding gain on available-for-sale equity securities,
net of tax
Reclassification to net income (loss)(1)
Pension adjustment, net of tax(2)
Balance, December 31, 2014
Foreign currency translation adjustment
Pension adjustment, net of tax(2)
Balance, December 31, 2015
____________________________________
(1)
Included in gain on investments, net.
(2) Reflects changes in defined benefit obligations and related plan assets of the Company’s defined benefit pension plans and the U.S. postretirement
benefit plan (as described in Note 14).
Income taxes are not provided for foreign currency translation adjustments arising on the translation of the Company’s
operations having a functional currency other than the U.S. dollar. Income taxes allocated to reclassification adjustments were
not material.
18. INCOME TAXES
F-70
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
The components of (Loss) Income before provision for (recovery of) income taxes were as follows:
Domestic
Foreign
The components of Provision for (recovery of) income taxes were as follows:
Current:
Domestic
Foreign
Deferred:
Domestic
Foreign
2015
2014
(Restated)
2013
$
$
(1,516.0) $
1,360.7
(851.1) $
1,904.7
(574.5)
(739.9)
(155.3) $
1,053.6
$
(1,314.4)
2015
2014
(Restated)
2013
$
— $
76.9
76.9
(3.6)
59.2
55.6
$
0.6
150.1
150.7
—
23.5
23.5
$
132.5
$
174.2
$
3.4
80.0
83.4
—
(534.2)
(534.2)
(450.8)
The Provision for (recovery of) income taxes differs from the expected amount calculated by applying the Company’s Canadian
statutory rate to (Loss) Income before provision for (recovery of) income taxes. The reasons for this difference and the related
tax effects are as follows:
(Loss) Income before provision for (recovery of) income taxes
Expected Canadian statutory rate
Expected (recovery) provision for of income taxes
Non-deductible amounts:
Share-based compensation
Merger and acquisition costs
Adjustments to tax attributes
Non-taxable gain on disposal of investments
Changes in enacted income tax rates
Canadian dollar foreign exchange gain for Canadian tax purposes
Change in valuation allowance related to foreign tax credits and net operating losses
Change in valuation allowance on Canadian deferred tax assets and
tax rate changes
Pharma fee
Change in uncertain tax positions
Foreign tax rate differences
Withholding taxes on foreign income
Taxable foreign income
Tax benefit on intra-entity transfers
Other
$
2015
(155.3)
26.9%
(41.8)
2014
(Restated)
$
1,053.6
26.9%
2013
$ (1,314.4)
26.9%
283.4
(353.6)
4.4
3.1
(87.1)
—
—
173.6
114.0
229.4
15.9
(0.1)
(350.0)
6.7
441.4
(374.9)
(2.1)
19.8
—
(32.3)
(50.1)
29.6
22.8
17.4
255.2
3.5
(1.8)
(502.8)
3.7
269.0
(147.3)
4.1
13.1
1.1
(3.0)
—
6.6
0.6
70.2
143.9
—
—
(407.6)
3.4
55.4
(5.7)
24.8
$
132.5
$
174.2
$
(450.8)
The tax effect of major items recorded as deferred tax assets and liabilities is as follows:
F-71
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Deferred tax assets:
Tax loss carryforwards
Tax credit carryforwards
Scientific Research and Experimental Development pool
Research and development tax credits
Provisions
Plant, equipment and technology
Deferred revenue
Deferred financing and share issue costs
Share-based compensation
Other
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Intangible assets
Outside basis differences
Plant, equipment and technology
Prepaid expenses
Other
Total deferred tax liabilities
Net deferred income taxes
$
2015
2014
(Restated)
$
1,439.7
294.8
50.7
134.4
594.2
—
13.1
525.3
67.9
—
3,120.1
(1,366.6)
1,753.5
4,711.4
2,607.0
16.2
95.7
69.6
964.5
234.9
58.2
90.5
369.9
2.8
13.5
209.4
49.8
38.2
2,031.7
(859.2)
1,172.5
520.0
2,636.6
—
0.6
—
7,499.9
3,157.2
$
(5,746.4) $
(1,984.7)
The Company effected an internal reorganization in December 2013 to streamline and integrate certain aspects of its operations.
As part of this internal reorganization, the Company migrated certain of its intellectual property to a foreign holding company
operating in Ireland and Luxembourg. During 2014, the Company concluded certain additional steps relating to this internal
reorganization. The 2014 steps required the Company to convert its existing basis differences in the contributed intellectual
property to an outside basis difference.
The realization of deferred tax assets is dependent on the Company generating sufficient domestic and foreign taxable income
in the years that the temporary differences become deductible. A valuation allowance has been provided for the portion of the
deferred tax assets that the Company determined is more likely than not to remain unrealized based on estimated future taxable
income and tax planning strategies. In 2015 and 2014, the valuation allowance increased by $507 million and $382 million,
respectively. For both periods, the net increase in valuation allowance resulted from an increase in losses in Canada, and
additional foreign tax credits generated by the Company’s U.S. subsidiaries. Given the Company’s history of pre-tax losses
and expected future losses in Canada, the Company determined there was insufficient objective evidence to release the
remaining valuation allowance against Canadian tax loss carryforwards, International Tax Credits (“ITC”) and pooled Scientific
Research and Experimental Development Tax Incentive (“SR&ED”) expenditures. The Company determined that it will not
earn sufficient foreign source taxable income to utilize the Company’s U.S. foreign tax credits.
As of December 31, 2015, the Company had accumulated losses of approximately $1.80 billion (2014 - $1.01 billion) available
for federal and provincial tax purposes in Canada. As of December 31, 2015, the Company had approximately $33 million
(2014 - $39 million) of unclaimed Canadian ITCs, which expire from 2017 to 2034. These losses and ITCs can be used to
offset future years’ taxable income and federal tax, respectively. In addition, as of December 31, 2015, the Company had
pooled SR&ED expenditures amounting to approximately $188 million (2014 - $216 million) available to offset against future
years’ taxable income from its Canadian operations, which may be carried forward indefinitely. As in past years, a full valuation
allowance has been maintained against the net Canadian deferred tax assets of $973 million (2014 - $572 million).
As of December 31, 2015, the Company has accumulated tax losses of approximately $2.75 billion (2014 - $2.38 billion) for
U.S. federal income tax purposes which expire between 2021 and 2035, including acquired losses. While the losses are subject
to multiple annual loss limitations, the Company believes that the recoverability of the deferred tax assets associated with the
F-72
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
losses is more likely than not to be realized. The Company’s accumulated losses are subject to annual limitations as a result
of previous ownership changes that have occurred. As of December 31, 2015, the Company had approximately $85 million
(2014 - $71 million) of U.S. research and development credits, which expire between 2021 and 2035, which includes acquired
research and development credits. As of December 31, 2015, the Company had approximately $259 million in foreign tax
credits, including acquired foreign tax credits, recognized on tax returns for which a full valuation allowance has been
established as they are not expected to be utilized before their expiration. Approximately $86 million of the $2.75 billion of
tax losses relates to the exercise of non-qualified stock options and restricted stock awards.
The Company accrues for U.S. tax on the unremitted earnings of the foreign subsidiaries owned by the Company’s
U.S. subsidiaries. In addition, the Company provides for the non-U.S. tax on the unremitted earnings of its direct foreign
affiliates except for its direct U.S. subsidiaries. The Company continues to assert that the unremitted earnings of its
U.S. subsidiaries will be permanently reinvested and not repatriated to Canada. As of December 31, 2015 the Company
estimates there will be no Canadian tax liability attributable to the permanently reinvested U.S. earnings.
As of December 31, 2015, the total amount of unrecognized tax benefits (including interest and penalties) was $344 million
(2014 - $345 million), of which $127 million (2014 - $109 million) would affect the effective tax rate. The remaining
approximately $217 million of unrecognized tax benefits would not impact the effective tax rate as the tax positions are offset
against existing tax attributes with valuation allowances or are timing in nature. In the year ended December 31, 2015, the
Company recognized a $5 million (2014 - $143 million) increase and a $21 million (2014 - $46 million) net decrease in the
amount of unrecognized tax benefits related to tax positions taken in the current and prior years, respectively.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties in the provision for income taxes.
As of December 31, 2015, approximately $46 million (2014 - $39 million) was accrued for the payment of interest and
penalties. In the year ended December 31, 2015, the Company recognized an increase of approximately $7 million (2014 -
decrease of $8 million) of interest and penalties.
The Company and one or more of its subsidiaries file federal income tax returns in Canada, the U.S., and other foreign
jurisdictions, as well as various provinces and states in Canada and the U.S. The Company and its subsidiaries have open tax
years primarily from 2005 to 2014 with significant taxing jurisdictions including Canada, and the U.S. These open years
contain certain matters that could be subject to differing interpretations of applicable tax laws and regulations, and tax treaties,
as they relate to the amount, timing, or inclusion of revenues and expenses, or the sustainability of income tax positions of
the Company and its subsidiaries. Certain of these tax years are expected to remain open indefinitely.
Jurisdiction:
United States - Federal
Canada
Brazil
Germany
France
China
Ireland
Netherlands
Open Years
2013 - 2014
2005 - 2014
2009 - 2014
2011 - 2014
2011 - 2014
2009 - 2014
2009 - 2014
2011 - 2014
The audit of Valeant’s U.S. consolidated federal income tax return for the 2011 and 2012 tax years was concluded by the
Internal Revenue Service during 2015. Valeant remains under examination for various state tax audits in the U.S. for years
2002 to 2013. The Company is currently under examination by the Canada Revenue Agency for three separate cycles: (a)
years 2005 through 2006, (b) 2007 through 2009, and (c) 2010 through 2012. In February 2013 the Company received a
proposed audit adjustment for the years 2005 through 2007. The Company disagrees with the adjustments and has filed a
Notice of Objection. The total proposed adjustment will result in a loss of tax attributes which are subject to a full valuation
allowance and will not result in material change to the provision for income taxes.
In 2014, the Company’s subsidiaries in Australia were notified that the Australian Tax Office would conduct an audit of the
2010 - 2011 tax years. There have been no assessments or proposed adjustments at this time.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Balance, beginning of year
Acquisition of B&L
Acquisition of Salix
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statute of limitations
Balance, end of year
$
2015
2014
2013
$
345.0
—
15.4
4.6
23.3
(39.3)
(5.0)
$
247.5
—
—
143.0
12.8
(50.2)
(8.1)
128.0
52.2
—
60.7
19.4
(10.8)
(2.0)
$
344.0
$
345.0
$
247.5
The Company estimates approximately $7 million of the above unrecognized tax benefits will be realized during the next
12 months.
19. (LOSS) EARNINGS PER SHARE
(Loss) earnings per share attributable to Valeant Pharmaceuticals International, Inc. for the years ended December 31, 2015,
2014 and 2013 were calculated as follows:
Net (loss) income attributable to Valeant Pharmaceuticals International, Inc.
$
(291.7) $
880.7
$
(866.1)
Basic weighted-average number of common shares outstanding
Dilutive effect of stock options and RSUs
Diluted weighted-average number of common shares outstanding
342.7
—
342.7
335.4
6.1
341.5
321.0
—
321.0
2015
2014
(Restated)
2013
(Loss) earnings per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
$
$
(0.85) $
(0.85) $
2.63
2.58
$
$
(2.70)
(2.70)
In 2015 and 2013, all stock options, RSUs and convertible notes were excluded from the calculation of diluted loss per share,
as the effect of including them would have been anti-dilutive. The dilutive effect of potential common shares issuable for
stock options and RSUs on the weighted-average number of common shares outstanding would have been as follows:
Basic weighted-average number of common shares outstanding
Dilutive effect of stock options and RSUs
Diluted weighted-average number of common shares outstanding
2015
2013
342.7
6.1
348.8
321.0
6.5
327.5
In 2015, 2014 and 2013, stock options to purchase approximately 134,000, 877,000 and 1,090,000 common shares of the
Company, respectively, were not included in the computation of diluted earnings per share because the effect would have been
anti-dilutive under the treasury stock method.
20. SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest and income taxes paid during the years ended December 31, 2015, 2014 and 2013 were as follows:
Interest paid
Income taxes paid
2015
2014
2013
$ 1,269.4
94.6
$
$
934.0
98.7
652.9
65.1
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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
As part of a business combination completed in 2014, the Company effectively settled a pre-existing relationship with Philidor.
The impact was approximately $43 million, which was reflected as additional purchase price. There was no impact to the
consolidated statement of (loss) income or the consolidated statement of cash flows.
21. LEGAL PROCEEDINGS
From time to time, the Company becomes involved in various legal and administrative proceedings, which include product
liability, intellectual property, commercial, antitrust, governmental and regulatory investigations, related private litigation and
ordinary course employment-related issues. From time to time, the Company also initiates actions or files counterclaims. The
Company could be subject to counterclaims or other suits in response to actions it may initiate. The Company believes that
the prosecution of these actions and counterclaims is important to preserve and protect the Company, its reputation and
its assets. Certain of these proceedings and actions are described below.
Unless otherwise indicated, the Company cannot reasonably predict the outcome of these legal proceedings, nor can it estimate
the amount of loss, or range of loss, if any, that may result from these proceedings. An adverse outcome in certain of these
proceedings could have a material adverse effect on the Company’s business, financial condition and results of operations,
and could cause the market value of its common shares and/or debt securities to decline.
Governmental and Regulatory Inquiries
Legacy Biovail Matters
On May 16, 2008, Biovail Pharmaceuticals, Inc. (“BPI”), the Company’s former subsidiary, entered into a written plea
agreement with the U.S. Attorney’s Office (“USAO”) for the District of Massachusetts whereby it agreed to plead guilty to
violating the U.S. Anti-Kickback Statute and pay a fine of $22 million.
In addition, on May 16, 2008, the Company entered into a non-prosecution agreement with the USAO whereby the USAO
agreed to decline prosecution of Biovail Corporation (“Biovail”) in exchange for continuing cooperation and a civil settlement
agreement and pay a civil penalty of $2 million. A hearing before the U.S. District Court in Boston took place on September 14,
2009 and the plea was approved.
In addition, as part of the overall settlement, Biovail entered into a Corporate Integrity Agreement (“CIA”) with the Office
of the Inspector General ("OIG") and the Department of Health and Human Services on September 11, 2009. The CIA required
the Company to have a compliance program in place and to undertake a set of defined corporate integrity obligations for a
five-year term which concluded on September 10, 2014. The CIA also included requirements for an annual independent review
of these obligations. The Company submitted its final annual report to the OIG on February 6, 2015. The matter has been
closed by the OIG.
Civil Investigative Demand from the U.S. Federal Trade Commission
On May 2, 2012, Medicis Pharmaceutical Corporation ("Medicis") received a civil investigative demand from the FTC
requiring that Medicis provide to the FTC information and documents relating to various settlement and other agreements
with makers of generic SOLODYN® products following patent infringement claims and litigation, each of which was
previously filed with the FTC and the Antitrust Division of the Department of Justice, and other efforts principally relating
to SOLODYN®. On June 7, 2013, Medicis received an additional civil investigative demand relating to such settlements,
agreements and efforts. Medicis cooperated with this investigative process. On or about November 13, 2015, Medicis received
a closing letter from the FTC stating that no further action is warranted by the FTC at this time and that the investigation has
been closed.
Subpoena from the New York Regional Office of Inspector General for the U.S. Department of Health and Human Services
On June 29, 2011, B&L received a subpoena from the New York Regional Office of Inspector General for the U.S. Department
of Health and Human Services concerning an investigation being run by the Department of Justice and the United States
Attorney’s Office for the District of New Jersey regarding payments and communications between B&L and medical
professionals related to its pharmaceutical products Lotemax® and Besivance®. The government has indicated that the
subpoena was issued in connection with a civil investigation and B&L is cooperating with the investigation. B&L is aware
of no investigative activity at this time, and whether the government’s investigation is ongoing or will result in further requests
for information is unknown. As needed, B&L and the Company will continue to work with the Office of Inspector General
regarding the scope of the subpoena and any additional specific information that may be requested.
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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
ISTA Settlement with Department of Justice
On or about May 24, 2013 (prior to the Company’s acquisition of B&L in August 2013), B&L’s subsidiary, ISTA
Pharmaceuticals, Inc. (“ISTA”), reached agreement with the U.S. government to resolve and conclude civil and criminal
allegations against ISTA. The settlement involved conduct by ISTA that occurred between January 2006 and March 2011,
prior to B&L’s acquisition of ISTA in June 2012. B&L was aware of the government investigation prior to its acquisition, and
fully cooperated with the government to resolve the matter. In connection with the settlement, ISTA pled guilty to certain
charges and paid approximately $34 million in civil and criminal fines, including interest and attorney’s fees. In addition,
B&L agreed to maintain a specified compliance and ethics program and to annually certify compliance with this requirement
to the Department of Justice for a period of three years. Failure to comply with the requirements of the settlement could result
in fines. The Company submitted its final annual report to the Department of Justice on February 29, 2016. The matter has
concluded with the Department of Justice.
Letter from the U.S. Department of Justice Civil Division and the U.S. Attorney’s Office for the Eastern District of Pennsylvania
The Company has received a letter dated September 10, 2015 from the U.S. Department of Justice Civil Division and the
U.S. Attorney’s Office for the Eastern District of Pennsylvania stating that they are investigating potential violations of the
False Claims Act arising out of BPI’s treatment of certain service agreements with wholesalers when calculating and reporting
Average Manufacturer Prices in connection with the Medicaid Drug Rebate Program. The letter requests that the Company
voluntarily produce documents and information relating to the investigation. The Company produced certain documents in
response to the request and is cooperating with the government’s investigation. The Company cannot predict the outcome or
the duration of these investigations or any other legal proceedings or any enforcement actions or other remedies that may be
imposed on the Company arising out of these investigations.
U.S. Department of Justice Investigation
On September 15, 2015, B&L received a subpoena from the Criminal Division of the U.S. Department of Justice regarding
agreements and payments between B&L and medical professionals related to its surgical products Crystalens® IOL and
Victus® femtosecond laser platform. The government has indicated that the subpoena was issued in connection with a criminal
investigation into possible violations of Federal health care laws. B&L produced certain documents in response to the subpoena
and is cooperating with the investigation. The Company cannot predict the outcome or the duration of this investigation or
any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out
of this investigation.
Investigations by the U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern
District of New York
In or about October 2015, the Company received subpoenas from the U.S. Attorney's Offices for the District of
Massachusetts and the Southern District of New York. The materials requested by those offices include documents with
respect to the Company’s patient assistance programs; its former relationship with Philidor and other pharmacies; the
Company’s accounting treatment for sales by specialty pharmacies; financial support provided by the Company for patients;
distribution of the Company's products; information provided to the Centers for Medicare and Medicaid Services; discounts
and rebates on the Company's products; and issues related to the Company’s pricing decisions. The Company is cooperating
with those investigations. The Company cannot predict the outcome or the duration of these investigations or any other legal
proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of these
investigations.
Voluntary Request Letter from the U.S. Federal Trade Commission
On or about October 16, 2015, the Company received a voluntary request letter from the FTC with respect to its non-public
investigation into the Company's recent acquisition of Paragon Holdings I, Inc. (“Paragon”). In the letter, the FTC has requested
that the Company provide, on a voluntary basis, certain information and documentation relating to its acquisition of Paragon.
The Company produced certain documents and information in response to the request and is cooperating with the FTC in
connection with this investigation.
Congressional Inquiries
Beginning in November 2015, the Company has received from the United States Senate Special Committee on Aging various
document requests, as well as subpoenas for documents, depositions and a hearing which was held on April 27, 2016. Certain
F-76
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
directors, officers and other employees of the Company have also received from the United States Senate Special Committee
on Aging subpoenas for depositions and/or hearings. In January, 2016, the Company received from the United States House
Committee on Oversight and Government Reform a document request and an invitation for the Company’s interim CEO to
testify at a hearing, at which he testified on February 4, 2016. Most of the materials requested to date relate to the Company’s
pricing decisions on particular drugs, as well as revenue, expense and profit information, and also include requests relating
to financial support provided by the Company for patients and financial data related to the Company’s research and development
program, Medicare and Medicaid. The Company is cooperating with these inquiries; however, the Company cannot predict
their outcome or duration.
SEC Investigation
On November 18, 2015, the Company received a document subpoena from the staff of the Los Angeles Regional Office of
the SEC related to its investigation of the Company, including requests for documents concerning the Company's former
relationship with Philidor, its accounting practices and policies, its public disclosures and other matters. The Company is
cooperating with the SEC in this matter. The Company cannot predict the outcome or the duration of the SEC investigation
or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising
out of the SEC investigation.
Investigation by the State of North Carolina Department of Justice
In the beginning of March 2016, the Company received an investigative demand from the State of North Carolina Department
of Justice. The materials requested relate to the Company's Nitropress®, Isuprel® and Cuprimine® products, including
documents relating to the production, marketing, distribution, sale and pricing of, and patient assistance programs covering,
such products, as well as issues relating to the Company's pricing decisions for certain of its other products. The Company
is cooperating with this investigation. The Company cannot predict the outcome or the duration of this investigation or any
other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of
this investigation.
Request for Information from the AMF
On April 12, 2016, the Company received a request letter from the Autorité des marchés financiers (the “AMF”) requesting
documents concerning the work of the Ad Hoc Committee, the Company’s former relationship with Philidor, the Company's
accounting practices and policies and other matters. The Company is cooperating with the AMF in this matter. The Company
has not received any notice of investigation from the AMF, and the Company cannot predict whether any investigation will
be commenced by the AMF or, if commenced, whether any enforcement action against the Company would result from any
such investigation.
Investigation by the State of New Jersey Department of Law and Public Safety, Division of Consumer Affairs, Bureau of
Securities
On April 20, 2016, the Company received a document subpoena from the New Jersey State Bureau of Securities. The materials
requested include documents concerning the Company’s former relationship with Philidor, its accounting treatment for sales
to Philidor, its financial reporting and public disclosures and other matters. The Company is cooperating with this investigation.
The Company cannot predict the outcome or the duration of this investigation or any other legal proceedings or any enforcement
actions or other remedies that may be imposed on the Company arising out of this investigation.
Investigation by the State of Texas
On May 27, 2014, the State of Texas served Bausch & Lomb, Inc. (“B&L Inc.”) with a Civil Investigative Demand concerning
various price reporting matters relating to the State's Medicaid program and the amounts the State paid in reimbursement for
B&L products for the period from 1995 to the date of the Civil Investigative Demand. The Company and B&L Inc. have
cooperated fully with the State's investigation and have produced all of the documents requested by the State. In April 2016,
the State sent B&L Inc. a demand letter claiming damages in the amount of $20 million. The Company and B&L Inc. are
currently evaluating this demand letter, and at this time are unable to estimate what liability, if any, they may have with respect
to this matter.
Securities
Allergan Securities Litigation
F-77
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
On August 1, 2014, Allergan Inc. ("Allergan") commenced the federal securities litigation in the U.S. District Court for the
Central District of California against the Company, Valeant, Valeant’s subsidiary AGMS Inc. (“AGMS”), Pershing Square
Capital Management, L.P. ("Pershing Square"), PS Management, GP, LLC, PS Fund 1, LLC (“PS Fund 1”) and William A.
Ackman (Allergan, Inc. et al. v. Valeant Pharmaceuticals International, Inc., et al., Case No. 14-cv-01214-DOC). The lawsuit
alleged violations of Sections 13(d), 14(a), 14(e) and 20A of the Exchange Act and rules promulgated by the SEC under those
Sections. On August 19, 2014, the Company, Valeant, AGMS, PS Fund 1 and William A. Ackman filed Counterclaims against
Allergan and the members of the Allergan Board of Directors alleging violations of Sections 14(a), 14(e) and 20A of the
Exchange Act and rules promulgated by the SEC under those Sections. On November 4, 2014, the Court denied in part and
granted in part a motion filed by plaintiffs seeking a preliminary injunction. The Court directed the defendants to make certain
additional disclosures, and otherwise denied the motion. On January 28, 2015, the plaintiffs filed an amended complaint,
alleging that all defendants violated Section 14(e) of the Exchange Act and SEC rules under that section. The amended
complaint also asserted violations of Sections 13(d) and Schedule 13D thereunder and Section 20A of the Exchange Act
against Pershing Square, PS Management, GP, LLC, PS Fund 1 and William A. Ackman. On April 9, 2015, the parties filed
a stipulation providing for the voluntary dismissal of all claims.
Allergan Shareholder Class Action
On December 16, 2014, Anthony Basile, an alleged shareholder of Allergan filed a lawsuit on behalf of a putative class of
Allergan shareholders against the Company, Valeant, AGMS, Pershing Square, PS Management, GP, LLC, PS Fund 1 and
William A. Ackman in the U.S. District Court for the Central District of California (Basile v. Valeant Pharmaceuticals
International, Inc., et al., Case No. 14-cv-02004-DOC). On June 26, 2015, lead plaintiffs the State Teachers Retirement System
of Ohio, the Iowa Public Employees Retirement System and Patrick T. Johnson filed an amended complaint against the
Company, Valeant, J. Michael Pearson, Pershing Square, PS Management, GP, LLC, PS Fund 1 and William A. Ackman. The
amended complaint alleges claims on behalf of a putative class of sellers of Allergan securities between February 25, 2014
and April 21, 2014, against all defendants contending that various purchases of Allergan securities by AGMS were made
while in possession of material, non-public information concerning a potential tender offer by the Company for Allergan
stock, and asserting violations of Section 14(e) of the Exchange Act and rules promulgated by the SEC thereunder and Section
20A of the Exchange Act. The amended complaint also alleges violations of Section 20(a) of the Exchange Act against Pershing
Square, PS Management, GP, LLC, William A. Ackman and J. Michael Pearson. The amended complaint seeks, among other
relief, money damages, equitable relief, and attorneys’ fees and costs. On August 7, 2015, the defendants moved to dismiss
the amended complaint in its entirety, and, on November 9, 2015, the court denied that motion. The Company intends to
vigorously defend these matters.
Salix Shareholder Class Actions
Following the announcement of the execution of the Merger Agreement with Salix, between February 25, 2015 and March
12, 2015, six purported stockholder class actions were filed challenging the Salix Acquisition. All of the actions were filed
in the Delaware Court of Chancery, and alleged claims against some or all of the board of directors of Salix (the “Salix Board”),
the Company, Salix, Valeant and Sun Merger Sub, Inc. (“Sun Merger Sub”). On March 17, 2015, the Court consolidated the
actions under the caption Salix Pharmaceuticals, Ltd. Shareholder Litigation, Consolidated C.A. No.10721-CB. On September
25, 2015, Plaintiffs filed an amended complaint. The operative complaint alleges generally that the members of the Salix
Board breached their fiduciary duties to stockholders, and that the other defendants aided and abetted such breaches, by
seeking to sell Salix through an allegedly inadequate sales process and for allegedly inadequate consideration and by agreeing
to allegedly preclusive deal protections. The complaint also alleges that the Schedule 14D-9 filed by Salix in connection with
the Salix Acquisition contained inaccurate or materially misleading information about, among other things, the Salix
Acquisition and the sales process leading up to the Merger Agreement. The complaint seeks, among other things, money
damages and unspecified attorneys’ and other fees and costs. Defendants’ Motions to Dismiss were fully briefed as of February
19, 2016. The Court has scheduled oral argument for May 19, 2016. Salix and the Company are vigorously defending this
consolidated matter.
Synergetics Shareholder Class Actions
On September 1, 2015, Valeant entered into a merger agreement, whereby it would acquire all shares of Synergetics USA,
Inc. (“Synergetics”). The merger was announced on September 2, 2015. Following the announcement of the merger, four
putative stockholder class actions were filed challenging the merger. Three of these actions were filed in the Eleventh Judicial
Circuit of the State of Missouri and name as defendants all members of the Synergetics Board of Directors, Synergetics,
Valeant and Blue Subsidiary Corp. (a wholly-owned subsidiary of Valeant). Those actions are captioned as follows: Murphy,
F-78
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
et al. v. Synergetics USA Inc., et al., C.A. No. 1511-CC00778 (filed September 15, 2015 and amended September 23, 2015
(the “Murphy Action”)); Glorioso, et al., v. Synergetics USA Inc., et al., C.A. No. 1511-CC00803 (filed September 23, 2015
(the “Glorioso Action”)); and Scarantino, et al. v. Synergetics USA Inc., et al., C.A. No. 1511-CC00810 (filed September 28,
2015 (the “Scarantino Action”)) (collectively, the “Missouri Actions”). The fourth action, captioned Nilsen, et al. v. Valeant
Pharmaceuticals International, et al., C.A. No. 11552-VCL (the “Delaware Action,” and together with the Missouri Actions,
the “Actions”) was filed on September 28, 2015, in the Delaware Court of Chancery and named as defendants all members
of the Synergetics Board of Directors, Valeant, and Blue Subsidiary Corp. The Actions generally allege that the members of
the Synergetics Board of Directors breached their fiduciary duties to Synergetics stockholders by, among other things,
conducting a flawed process in considering the transaction, agreeing to an inadequate offer price, providing incomplete and
misleading information to Synergetics stockholders, and accepting unreasonable deal protection measures in the merger
agreement that allegedly dissuaded other potential bidders from making competing offers. The Actions also allege that Valeant
and Blue Subsidiary Corp. aided and abetted these alleged breaches of fiduciary duties. The Missouri Actions sought, among
other things, an order enjoining consummation of the merger, rescission of the merger or awarding damages to members of
the class, and an award of fees and expenses. The Delaware Action sought, among other things, an order awarding damages
to members of the class, and an award of fees and expenses.
On October 2, 2015, Synergetics, each member of the Synergetics Board of Directors, Valeant, and Blue Subsidiary Corp.
entered into a Memorandum of Understanding (the “MOU”) with the plaintiffs in the Actions, which sets forth the parties’
agreement in principle for a settlement of the Actions on the basis of the additional disclosures made in a supplement to the
Schedule 14D-9 filed with the SEC on October 2, 2015. The MOU contemplates that the parties 1) would stipulate to the
certification of the consolidated Missouri Actions as a class action, consisting of a mandatory non opt-out class, that includes
any and all persons who held Synergetics shares (excluding defendants, and their immediate family members, and any
successors in interest thereto) at any time during the period beginning on September 1, 2015, through October 15, 2015 (the
date of consummation of the merger), and 2) shall seek to enter into a stipulation of settlement providing for the release of,
among other things, certain claims relating to the Actions, the merger and disclosures made in connection therewith, subject
to approval of the Circuit Court of St. Charles County in the State of Missouri. On October 8, 2015 the Delaware Court of
Chancery unilaterally dismissed the Delaware Action. In October 2015, the Missouri Actions were consolidated into the
Murphy Action. In January 2016, the parties engaged in confirmatory discovery, including additional documents produced
by Defendants and conducting two depositions.
Thereafter, the parties negotiated and reached agreement on a stipulation of settlement and ancillary settlement documents,
which were filed with the Court on April 25, 2016. A hearing with the Court is scheduled for April 29, 2016. The parties
continue to negotiate attorneys' fees. Any amounts payable by the Company in this matter is expected to be nominal.
Valeant U.S. Securities Class Action
From October 22, 2015 to October 30, 2015, four putative securities class actions were filed in the U.S. District Court for the
District of New Jersey against the Company and certain current or former officers and directors. Those four actions, captioned
Potter v. Valeant Pharmaceuticals International, Inc. et al. (Case No. 15-cv-7658), Chen v. Valeant Pharmaceuticals
International, Inc. et al. (Case No. 15-cv-7679), Yang v. Valeant Pharmaceuticals International, Inc. et al. (Case No. 15-
cv-7746), and Fein v. Valeant Pharmaceuticals International, Inc. et al. (Case No. 15-cv-7809), all assert securities fraud claims
under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of putative classes of persons who purchased
or otherwise acquired Valeant stock during various time periods between February 28, 2014 and October 21, 2015. The
allegations relate to, among other things, allegedly false and misleading statements and/or failures to disclose information
about the Company’s business and prospects, including relating to drug pricing, the Company’s use of specialty pharmacies,
and the Company’s relationship with Philidor. On December 21, 2015, several plaintiffs filed motions to consolidate the four
actions and appoint a lead plaintiff and lead plaintiff’s counsel to prosecute all claims. Those motions remain pending. The
Company believes the actions are without merit and intends to defend itself vigorously.
Canadian Securities Class Actions
In 2015, six putative class actions were filed and served against the Company in Canada in the provinces of British Columbia,
Ontario and Quebec. These actions are captioned: (a) Alladina v. Valeant, et al. (Case No. S-1594B6) (Supreme Court of
British Columbia) (filed November 17, 2015); (b) Kowalyshyn v. Valeant, et al. (CV-15-540593-00CP) (Ontario Superior
Court) (filed November 16, 2015); (c) Kowalyshyn et al. v. Valeant, et al. (CV-15-541082-00CP (Ontario Superior Court)
(filed November 23, 2015); (d) O’Brien v. Valeant et al. (CV-15-543678-00CP) (Ontario Superior Court) (filed December
30, 2015); (e) Catucci v. Valeant, et al. (Court File No. 540-17-011743159) (Quebec Superior Court) (filed October 26, 2015);
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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
and (f) Rousseau-Godbout v. Valeant, et al. (Court File No. 500-06-000770-152) (Quebec Superior Court) (filed October 27,
2015). The Alladina, Kowalyshyn, O’Brien, Catucci and Rousseau-Godbout actions also name, among others, certain current
or former directors and officers of the Company. The Rosseau-Godbout action was subsequently stayed by the Quebec Superior
Court by consent order.
Each of the five remaining actions alleges violations of Canadian provincial securities legislation on behalf of putative classes
of persons who purchased or otherwise acquired securities of the Company for periods commencing as early as January 1,
2013 and ending as late as November 16, 2015. The alleged violations relate to, among other things, alleged misrepresentations
and/or failures to disclose material information about the Company’s business and prospects, relating to drug pricing, the
Company’s policies and accounting practices, the Company’s use of specialty pharmacies and, in particular, the Company’s
relationship with Philidor. The Alladina, Kowalyshyn and O’Brien actions also assert common law claims for negligent
misrepresentation, and the Alladina claim additionally asserts common law negligence, conspiracy, and claims under the
British Columbia Business Corporations Act, including the statutory oppression remedies in that legislation. The Catucci
action asserts claims under the Quebec Civil Code, alleging the Company breached its duty of care under the civil standard
of liability contemplated by the Code.
The Company is aware of two additional putative class actions that have been filed with the applicable court but which not
yet been served on the Company. These actions are captioned: (i) Okeley v. Valeant, et al. (Case No. S-159991) (Supreme
Court of British Columbia) (filed December 2, 2015); and (ii) Sukenaga v Valeant et al. (CV-15-540567-00CP) (Ontario
Superior Court) (filed November 16, 2015), and the factual allegations made in these actions are substantially similar to those
outlined above. The Company has been advised that the plaintiffs in these actions do not intend to pursue the actions.
The Company expects that certain of these actions will be consolidated or stayed prior to proceeding to motions for leave and
certification and that no more than one action will proceed in any jurisdiction. In particular, on April 8, 2016, motions were
heard by the Ontario Superior Court of Justice to determine which of the actions filed in that court will proceed.
The Company believes that it has viable defenses to each of the actions, and in each case intends to defend itself vigorously.
Antitrust
Solodyn® Antitrust Class Actions
Beginning in July 2013, a number of civil antitrust class action suits were filed against Medicis, the Company and various
manufacturers of generic forms of Solodyn, alleging that the defendants engaged in an anticompetitive scheme to exclude
competition from the market for minocycline hydrochloride extended release tablets, a prescription drug for the treatment of
acne marketed by Medicis under the brand name, Solodyn. The plaintiffs in such suits alleged violations of Sections 1 and
2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and of various state antitrust and consumer protection laws, and further alleged that
the defendants have been unjustly enriched through their alleged conduct. The plaintiffs sought declaratory and injunctive
relief and, where applicable, treble, multiple, punitive and/or other damages, including attorneys’ fees. By order dated February
25, 2014, the Judicial Panel for Multidistrict Litigation (‘‘JPML’’) centralized the suits in the District of Massachusetts, under
the caption In re Solodyn (Minocycline Hydrochloride) Antitrust Litigation, Case No. 1:14-md-02503-DJC, before U.S.
District Judge Denise Casper. After the Direct Purchaser Class Plaintiffs and the End-Payor Class Plaintiffs each filed a
consolidated amended class action complaint on September 12, 2014, the defendants jointly moved to dismiss those complaints.
On August 14, 2015, the Court granted the Defendants' motion to dismiss with respect to claims brought under Sherman Act,
Section 2 and various state laws but denied the motion to dismiss with respect to claims brought under Sherman Act, Section
1 and other state laws. The Company was dismissed from the case, but the litigation continues against Medicis and the generic
manufacturers as to the remaining claims. The actions are currently in discovery. On March 26, 2015, and on April 6, 2015,
while the motion to dismiss the class action complaints was pending, two additional non-class action complaints were filed
against Medicis by certain retail pharmacy and grocery chains ("Individual Plaintiffs") making similar allegations and seeking
similar relief to that sought by Direct Purchaser Class Plaintiffs. Those suits have been centralized with the class action suits
in the District of Massachusetts. Following the Court's August 14, 2015 decision on the motion to dismiss, the Individual
Plaintiffs each filed amended complaints on October 1, 2015, and Medicis answered on December 7, 2015. A third non-class
action was filed by another retail pharmacy against Medicis on January 26, 2016, and Medicis answered on March 28, 2016.
The Company intends to vigorously defend all of these actions.
Contact Lens Antitrust Class Actions
F-80
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Beginning in March 2015, a number of civil antitrust class action suits were filed by purchasers of contact lenses against
B&L, three other contact lens manufacturers, and a contact lens distributor, alleging that the defendants engaged in an
anticompetitive scheme to eliminate price competition on certain contact lens lines through the use of unilateral pricing
policies. The plaintiffs in such suits alleged violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, and of various state
antitrust and consumer protection laws, and further alleged that the defendants have been unjustly enriched through their
alleged conduct. The plaintiffs sought declaratory and injunctive relief and, where applicable, treble, punitive and/or other
damages, including attorneys’ fees. By order dated June 8, 2015, the JPML centralized the suits in the Middle District of
Florida, under the caption In re Disposable Contact Lens Antitrust Litigation, Case No. 3:15-md-02626-HES-JRK, before
U.S. District Judge Harvey E. Schlesinger. After the Class Plaintiffs filed a corrected consolidated class action complaint on
December 16, 2015, the defendants jointly moved to dismiss those complaints. The defendants’ motion to dismiss is currently
pending in the district court, and the actions are currently in discovery. The Company intends to vigorously defend all of
these actions.
Intellectual Property
AntiGrippin® Litigation
A suit was brought against the Company’s subsidiary, Natur Produkt International, JSC ("Natur Produkt") seeking lost profits
in connection with the registration by Natur Produkt of its AntiGrippin® trademark. The plaintiff in this matter alleged that
Natur Produkt violated Russian competition law by preventing plaintiff from producing and marketing its products under
certain brand names. The matter (Case No. A-56-23056/2013, Arbitration Court of St. Petersburg) was accepted for proceedings
on June 24, 2013 and a hearing was held on November 28, 2013. In a decision dated December 4, 2013, the court found in
favor of the plaintiff (AnviLab) and awarded the plaintiff lost profits in the amount of approximately RUR 1.66 billion (being
approximately $50 million at the December 4, 2013 decision date). This charge was recognized in the fourth quarter of 2013
in Other expense (income) in the consolidated statements of income. Natur Produkt appealed this decision, and a hearing in
the appeal proceeding was held on March 16, 2014. The appeal court found in favor of Natur Produkt and dismissed the
plaintiff’s claim in full. Following this decision, the Company concluded that the potential loss was no longer probable, and
therefore the reserve was reversed in the first quarter of 2014 in Other expense (income) in the consolidated statements of
income. AnviLab appealed the appeal court’s decision to the cassation court. On June 19, 2014, the cassation court resolved
that the matter is within the jurisdiction of the Intellectual Property (IP) court in this instance. The hearing before the IP court
was held on July 30, 2014 and August 1, 2014. The IP Court found in favor of the plaintiff and ruled to send the case for the
second review to the court of the first instance, indicating that the court of the first instance should decide on the amount of
damages suffered by AnviLab. Natur Produkt appealed the decision of the IP Court to the Supreme Court on September 15,
2014, but, on October 22, 2014, the Supreme Court denied that appeal and the matter was sent back to the court of first instance
for the second review. The court of first instance appointed an expert to provide a report on the claimed lost profit amount,
which was provided on or about March 10, 2015. Hearings before the court of first instance in this matter were held on March
12, 2015 and April 9, 2015. Following the April 9, 2015 hearing, the court of first instance ruled in favor of the plaintiff and
awarded the plaintiff lost profits in the amount of approximately RUR 1.66 billion. Natur Produkt filed an appeal against this
decision, both as to the merits and the quantum of damages, to the appeal court on May 15, 2015. The hearing before the
appeal court was held on July 28, 2015 and the court ruled in favor of the plaintiff. Subsequently, Natur Produkt filed an
appeal to the IP Court. At a hearing held on October 6, 2015, the IP Court ruled in favor of the plaintiff and upheld the decision
of the appeal court. Natur Produkt appealed to the Supreme Court for review of the IP Court’s decision and, on December
30, 2015, the Supreme Court rejected Natur Produkt’s request for appeal. In January 2016, Natur Produkt requested clarification
of this decision of the Supreme Court, but it is not anticipated that this request will result in a modification to or reversal of
the Supreme Court’s decision to reject Natur Produkt’s appeal. As Natur Produkt’s appeal to the IP Court did not delay
enforcement of the appeal court’s decision, Natur Produkt was required to pay the claimed amount of RUR 1.66 billion (being
approximately $25 million as of the payment date) to the plaintiff, via bailiffs’ account, on September 28, 2015. The Company
recognized the $25 million charge in the third quarter of 2015 in Other expense (income) in the consolidated statements of
(loss) income.
Following the decision of the IP Court, AnviLab filed two more claims against Natur Produkt relating to the matter described
above (the “Original AnviLab Matter”). The first claim by AnviLab was filed on December 3, 2015 with the Saint Petersburg
Arbitration Tribunal (Case No. A-56-89244/2015) and seeks an amount in respect of the interest payable on the amount
awarded by the appeal court in the Original AnviLab Matter for the period between the date the amount was awarded by the
appeal court (August 4, 2015) and the date AnviLab received the payment (September 29, 2015). A hearing in this matter was
held on March 24, 2016 and a subsequent hearing was held on April 14, 2016. The second claim by AnviLab was filed on
December 15, 2015 with the Saint Petersburg Arbitration Tribunal (Case No.A-56-23056/2013) and seeks an amount in respect
F-81
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
of litigation costs related to Original AnviLab Matter. A hearing in this matter was held on February 25, 2016 and a subsequent
hearing was held on April 14, 2016. The Court awarded amounts to AnviLab with respect to each of these claims. For both
of these claims, the amount awarded to AnviLab was insignificant. Natur Produkt currently anticipates that it will appeal these
decisions.
Patent Litigation/Paragraph IV Matters
The Company (and/or certain of its affiliates) is also party to certain patent infringement proceedings in the United States,
including as arising from claims filed by the Company in connection with Notices of Paragraph IV Certification received
from third parties respecting their pending ANDA applications for generic versions of certain products sold by or on behalf
of the Company, including Onexton®, Relistor®, Prolensa®, Apriso®, Uceris®, Moviprep®, Acanya® and Bepreve®, or
other similar suits. These matters are proceeding in the ordinary course.
In addition, on or about February 16, 2016, the Company received a Notice of Paragraph IV Certification dated February 11,
2016, from Actavis Laboratories FL, Inc. (“Actavis”), in which Actavis asserted that the following U.S. patents, each of which
is listed in the FDA’s Orange Book for Salix Pharmaceuticals, Inc.’s (“Salix Inc.”) Xifaxan® tablets, 550 mg, are either invalid,
unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Actavis’ generic rifaximin tables,
550 mg, for which an ANDA has been filed by Actavis: U.S. Patent No. 8,309,569 (the “‘569 patent”), U.S. Patent No.
8,642,573 (the “‘573 patent”), U.S. Patent No. 8,829,017 (the “‘017 patent”), U.S. Patent No. 8,946,252 (the “‘252 patent”),
U.S. Patent No. 8,969,398 (the “‘398 patent”), U.S. Patent No. 7,045,620 (the “‘620 patent”), U.S. Patent No. 7,612,199 (the
“‘199 patent”), U.S. Patent No. 7,902,206 (the “‘206 patent”), U.S. Patent No. 7,906,542 (the “‘542 patent”), U.S. Patent No.
7,915,275 (the “‘275 patent”), U.S. Patent No. 8,158,644 (the “‘644 patent”), U.S. Patent No. 8,158,781 (the “‘781 patent”),
U.S. Patent No. 8,193,196 (the “‘196 patent”), U.S. Patent No. 8,518,949 (the “‘949 patent”), U.S. Patent No. 8,741,904 (the
“‘904 patent”), U.S. Patent No. 8,835,452 (the “‘452 patent”), U.S. Patent No. 8,853,231 (the “‘231 patent”), U.S. Patent No.
6,861,053 (the “‘053 patent”), U.S. Patent No. 7,452,857 (the “‘857 patent”), U.S. Patent No. 7,605,240 (the “‘240 patent”),
U.S. Patent No. 7,718,608 (the “‘608 patent”) and U.S. Patent No. 7,935,799 (the “‘799 patent”) (collectively, the “Xifaxan®
Patents”). Salix Inc. holds the NDA for Xifaxan® and its affiliate, Salix Pharmaceuticals, Ltd. (“Salix Ltd.”), is the owner of
the ‘569 patent, the ‘573 patent, the ‘017 patent, the ‘252 patent and the ‘398 patent. Alfa Wassermann S.p.A. (“Alfa
Wassermann”) is the owner of the ‘620 patent, the ‘199 patent, the ‘206 patent, the ‘542 patent, the ‘275 patent, the ‘644
patent, the ‘781 patent, the ‘196 patent, the ‘949 patent, the ‘904 patent, the ‘452 patent and the ‘231 patent, each of which
has been exclusively licensed to Salix Inc. and its affiliate, Valeant Pharmaceuticals Luxembourg S.à r.l. (“Valeant
Luxembourg”) to market Xifaxan® tablets, 550 mg. Cedars-Sinai Medical Center (“Cedars-Sinai”) is the owner of the ‘053
patent, the ‘857 patent, the ‘240 patent, the ‘608 patent and the ‘799 patent , each of which has been exclusively licensed to
Salix Inc. and its affiliate, Valeant Luxembourg, to market Xifaxan® tablets, 550 mg. On March 23, 2016, Salix Inc. and its
affiliates, Salix Ltd. and Valeant Luxembourg, Alfa Wassermann and Cedars-Sinai filed suit against Actavis in the U.S. District
Court for the District of Delaware (Case No. 1:16-cv-00188), pursuant to the Hatch-Waxman Act, alleging infringement by
Actavis of one or more claims of each of the Xifaxan® Patents, thereby triggering a 30-month stay of the approval of Actavis’
ANDA for rifaximin tablets, 550 mg. The Company believes the allegations raised in Actavis’ notice are without merit and
intends to vigorously pursue this suit.
General Civil Actions
Afexa Class Action
On March 9, 2012, a Notice of Civil Claim was filed in the Supreme Court of British Columbia which seeks an order certifying
a proposed class proceeding against the Company and a predecessor, Afexa (Case No. NEW-S-S-140954). The proposed
claim asserts that Afexa and the Company made false representations respecting Cold-FX® to residents of British Columbia
who purchased the product during the applicable period and that the proposed class has suffered damages as a result. On
November 8, 2013, the Plaintiff served an amended notice of civil claim which sought to re-characterize the representation
claims and broaden them from what was originally claimed. On December 8, 2014, the Company filed a motion to strike
certain elements of the Plaintiff’s claim for failure to state a cause of action. In response, the Plaintiff proposed further
amendments to its claim. The hearing on the motion to strike and the Plaintiff’s amended claim was held on February 4,
2015. The Court allowed certain amendments, while it struck others. The hearing to certify the class was held on April 4-8,
2016 and a decision is pending. The Company denies the allegations being made and is vigorously defending this matter.
R&O Pharmacy Complaint
F-82
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
On October 6, 2015, R&O filed a complaint against Valeant Pharmaceuticals North America LLC (“VPNA”) in the U.S.
District Court for the Central District of California (Case No. 2:15-cv-07846). R&O’s lawsuit did not seek damages, but
sought a declaration of rights against VPNA that R&O owes no duties or amounts to VPNA with respect to certain Company
products ordered by and shipped to R&O. On October 29, 2015, VPNA filed its answer to R&O’s complaint. Also on that
date, VPNA filed a counterclaim against R&O, including claims for breach of contract, unjust enrichment, accounting, and
an open book account, with respect to these unpaid amounts. VPNA’s counterclaim sought damages in excess of $19 million.
On November 19, 2015, R&O filed its answer to VPNA’s counterclaim. R&O did not assert any counterclaims. R&O generally
claimed an entitlement to hold the funds achieved from the sale of Company products as an offset to potential claims arising
out of Philidor’s conduct, which R&O asserts is attributable to the Company under an alter ego theory (being the theory that
the Company should be responsible for Philidor’s actions in disregard of the fact that the two are separate legal entities). The
Court held a scheduling conference with the parties on February 8, 2016 and set a November 2016 trial date. Subsequently,
on March 8, 2016, the parties reached a confidential settlement that resolved all claims between them and, on March 10, the
Court dismissed the lawsuit with prejudice. While the terms of the settlement are confidential, the resolution includes a
payment by R&O to VPNA for less than the damages sought by VPNA in its counterclaim. VPNA firmly believes it acted
appropriately and refutes any suggestion of wrongdoing.
Product Liability Matters
MoistureLoc™ Product Liability Lawsuits
B&L had previously been served or was aware that it had been named as a defendant in approximately 321 product liability
lawsuits (some with multiple plaintiffs) pending in a New York State Consolidated Proceeding described below, as well as in
certain other U.S. state courts, on behalf of individuals who claimed that they had suffered personal injury as a result of using
a contact lens solution with MoistureLoc™. Two consolidated cases were established to handle MoistureLoc™ claims. First,
on August 14, 2006, the Federal Judicial Panel on Multidistrict Litigation created a coordinated proceeding in the Federal
District Court for the District of South Carolina. Second, on January 2, 2007, the New York State Litigation Coordinating
Panel ordered the consolidation of cases filed in New York State, and assigned the coordination responsibilities to the Supreme
Court of the State of New York, New York County. There were approximately 320 currently active non-fusarium cases pending
in the New York Consolidated Proceeding. On July 15, 2009, the New York State Supreme Court overseeing the New York
Consolidated Proceeding granted B&L’s motion to exclude plaintiffs’ general causation testimony with regard to non-fusarium
infections, which effectively excluded plaintiffs from testifying that MoistureLoc™ caused non-fusarium infections. On
September 15, 2011, the New York State Appellate Division, First Department, affirmed the Trial Court’s ruling. On February 7,
2012, the New York Court of Appeals denied plaintiffs’ additional appeal. Plaintiffs subsequently filed a motion to renew the
trial court’s ruling, and B&L cross-filed a motion for summary judgment to dismiss all remaining claims. On May 31, 2013,
the Trial Court denied Plaintiffs’ motion to renew, and granted B&L’s motion for summary judgment, dismissing all remaining
non-fusarium claims. On June 28, 2013, Plaintiffs filed a Notice of Appeal to the Trial Court’s ruling. The appeal was argued
January 20, 2015. The Court issued its decision on February 10, 2015, denying plaintiffs’ appeal to renew and affirming the
lower court’s decision granting B&L’s motion for summary judgment regarding all remaining non-fusarium claims. On March
10, 2015, the plaintiffs filed their motion for leave to appeal this decision, which was denied on May 21, 2015. Plaintiffs filed
their motion for leave to appeal from that decision to the New York State Court of Appeals on July 1, 2015. B&L filed its
brief in opposition on July 13, 2015. On September 22, 2015, the New York State Court of Appeals denied plaintiffs’ motion
for leave to appeal. Plaintiffs have exhausted all appellate remedies.
All matters under jurisdiction of the coordinated proceedings in the Federal District Court for the District of South Carolina
have been dismissed, including individual actions for personal injury and a class action purporting to represent a class of
consumers who suffered economic claims as a result of purchasing a contact lens solution with MoistureLoc™. B&L has
settled approximately 630 cases in connection with MoistureLoc™ product liability suits. All U.S.-based fusarium claims
have now been resolved and there is one active fusarium claim involving a claimant outside of the United States that remains
pending. B&L is defending against this one active claim and the Company currently expects that any potential judgment in
this matter would not be material.
Salix Legal Proceedings
The estimated fair values of the potential losses regarding the matters described below, along with other matters, are included
as part of contingent liabilities assumed in the Salix Acquisition. Refer to Note 4 for additional information. Each of the Salix
legal proceeding matters set out below was commenced prior to the Company’s acquisition of Salix.
DOJ Subpoena
F-83
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
On February 1, 2013, Salix received a subpoena from the U.S. Attorney’s Office for the Southern District of New York
requesting documents regarding sales and promotional practices for its Xifaxan®, Relistor® and Apriso® products. Following
recent settlement discussions, the Company, the United States and the state Medicaid Fraud Control Unit negotiating team
agreed, in principle, to resolve the investigation as to the Company for $54 million, plus payment of applicable interest and
reasonable relators’ attorneys’ fees. The settlement has certain material contingencies, including, without limitation, the parties
negotiating satisfactory civil settlement documents and final approvals by the United States Department of Justice, the various
state attorneys general and the Company. The Company can provide no assurance that the settlement will be finalized, in
whole or in part, with the United States and the states. The amount of the agreement-in-principle is within the range expected
by the Company at the time of acquisition, is included within the liability recorded at fair value as part of the Salix Acquisition
and an adjustment, if any, to this liability will be recorded when and if the settlement is finalized.
Salix SEC Investigation
The SEC is conducting a formal investigation into possible securities law violations by Salix relating to disclosures by Salix
of inventory amounts in the distribution channel and related issues in press releases, on analyst calls and in Salix’s various
SEC filings, as well as related accounting issues. Salix and the Company are cooperating with the SEC in its investigation,
including through the production of documents to the SEC Enforcement Staff. The Company cannot predict the outcome or
the duration of the SEC investigation or any other legal proceedings or any enforcement actions or other remedies that may
be imposed on Salix or the Company arising out of the SEC investigation.
Salix Securities Litigation
Beginning on November 7, 2014, three putative class action lawsuits were filed by shareholders of Salix, each of which
generally alleges that Salix and certain of its former officers and directors violated federal securities laws in connection with
Salix’s disclosures regarding certain products, including with respect to disclosures concerning historic wholesaler inventory
levels, business prospects and demand, reserves and internal controls. Two of these actions were filed in the U.S. District
Court for the Southern District of New York, and are captioned: Woburn Retirement System v. Salix Pharmaceuticals, Ltd.,
et al. (Case No: 1:14-CV-08925 (KMW)), and Bruyn v. Salix Pharmaceuticals, Ltd., et al. (Case No. 1:14-CV-09226
(KMW)). These two actions have been consolidated under the caption In re Salix Pharmaceuticals, Ltd. (Case No. 14-
CV-8925 (KMW)). Defendants’ Motions to Dismiss were fully briefed as of August 3, 2015. The Court denied the Motions
to Dismiss in an order dated March 31, 2016 for the reasons stated in an opinion dated April 22, 2016. By stipulation of the
parties, Defendants’ Answers to the operative Complaint will be filed on May 31, 2016. Salix and the Company are vigorously
defending this consolidated matter. A third action was filed in the U.S. District Court for the Eastern District of North Carolina
under the caption Grignon v. Salix Pharmaceuticals, Ltd. et al. (Case No. 5:14-cv-00804-D), but was subsequently voluntarily
dismissed.
Philidor Matters
As mentioned above in this section, the Company is involved in certain investigations, disputes and other proceedings related
to the Company’s now terminated relationship with Philidor. These include the securities putative class action litigation and
the investigations by certain offices of the Department of Justice, the SEC, the request for documents and other information
received from the AMF and certain Congressional committees and a document subpoena from the New Jersey State Bureau
of Securities. There can be no assurances that governmental agencies or other third parties will not commence additional
investigations or assert claims relating to the Company’s former relationship with Philidor or Philidor’s business practices,
including claims that Philidor or its affiliated pharmacies improperly billed third parties or that that the Company is liable,
directly or indirectly, for such practices. The Company is cooperating with all existing governmental investigations related
to Philidor and is vigorously defending the putative class action litigation. No assurance can be given regarding the ultimate
outcome of any present or future proceedings relating to Philidor.
22. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain facilities, vehicles and equipment principally under operating leases. Rental expense related to
operating lease agreements amounted to $85 million, $75 million and $52 million in 2015, 2014 and 2013, respectively. The
increase in rental expense for the year ended December 31, 2014 was driven primarily by incremental costs incurred from
the full year impact of the B&L Acquisition (the acquisition was completed in August 2013).
F-84
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
Minimum future rental payments under non-cancelable operating and capital leases for each of the five succeeding years
ending December 31 and thereafter are as follows:
($ in millions)
Operating lease obligations
Capital lease obligations
Other Commitments
Total
$
383.0
32.4
2016
$
79.4
6.1
2017
$
57.9
4.2
2018
$
48.5
3.4
2019
$
41.5
3.1
2020
Thereafter
$
33.8
3.1
$
121.9
12.5
The Company has commitments related to capital expenditures of approximately $90 million as of December 31, 2015,
primarily related to capital projects in Waterford, Ireland and the U.S. to support the contact lens business.
Under certain agreements, the Company may be required to make payments contingent upon the achievement of specific
developmental, regulatory, or commercial milestones. In connection with certain business combinations, including the Salix
Acquisition and the Sprout Acquisition, among others, the Company may make contingent consideration payments, as further
described in Note 4 and Note 7. In addition to these contingent consideration payments, as of December 31, 2015, the Company
estimates that it may pay other potential milestone payments and license fees, including sales-based milestones, of up to
approximately $1.5 billion over time, in the aggregate, to third-parties, primarily consisting of the following:
•
In connection with certain agreements assumed in the Salix Acquisition which was consummated in April 2015, the
Company estimates that it may pay to third parties potential milestones of up to approximately $500 million over time
(the majority of which relates to sales-based milestones), in the aggregate.
• Under the terms of the October 2015 license agreement with AstraZeneca for brodalumab, described in Note 4, the
Company may pay up to $170 million in pre-launch milestones and up to another $175 million in sales-related milestones.
After approval, AstraZeneca and the Company will share profits.
• Under the terms of a March 2010 development and licensing agreement between B&L and NicOx, the Company has
exclusive worldwide rights to develop and commercialize, for certain indications, products containing latanoprostene
bunod, a nitric oxide donating compound for the treatment of glaucoma and ocular hypertension. The Company may be
required to make potential regulatory, commercialization and sales-based milestones payments over time up to $163
million, in the aggregate, as well as royalties on future sales.
• Under the terms of amendments entered into in August 2014 to the agreements with Spear with respect to the authorized
generic for Retin-A® and the authorized generic for Carac®, respectively, the Company may be required to make uncapped
sales-based milestones over time, which the Company currently estimates will not exceed $100 million, in the aggregate,
within the next five years.
Due to the nature of these arrangements, the future potential payments related to the attainment of the specified milestones
over a period of several years are inherently uncertain.
Indemnification Provisions
In the normal course of business, the Company enters into agreements that include indemnification provisions for product
liability and other matters. These provisions are generally subject to maximum amounts, specified claim periods, and other
conditions and limits. As of December 31, 2015 or 2014, no material amounts were accrued for the Company’s obligations
under these indemnification provisions. In addition, the Company is obligated to indemnify its officers and directors in respect
of any legal claims or actions initiated against them in their capacity as officers and directors of the Company in accordance
with applicable law. Pursuant to such indemnities, the Company is indemnifying certain former officers and directors in respect
of certain litigation and regulatory matters.
23. SEGMENT INFORMATION
Reportable Segments
The Company has two operating and reportable segments: (i) Developed Markets and (ii) Emerging Markets. The following
is a brief description of the Company’s segments:
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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
• Developed Markets consists of (i) sales in the U.S. of pharmaceutical products, OTC products, and medical device
products, as well as alliance and contract service revenues, in the areas of dermatology and podiatry, neurology,
gastrointestinal disorders, eye health, oncology and urology, dentistry, aesthetics, and women's health and (ii)
pharmaceutical products, OTC products, and medical device products sold in Western Europe, Canada, Japan, Australia
and New Zealand.
• Emerging Markets consists of branded generic pharmaceutical products and branded pharmaceuticals, OTC products,
and medical device products. Products are sold primarily in Central and Eastern Europe (primarily Poland and Russia),
Asia, Latin America (Mexico, Brazil, Argentina, and Colombia and exports out of Mexico to other Latin American
markets), Africa and the Middle East.
Segment profit is based on operating income after the elimination of intercompany transactions. Certain costs, such as
restructuring and acquisition-related costs, other expense (income), and in-process research and development impairments
and other charges, are not included in the measure of segment profit, as management excludes these items in assessing financial
performance.
Corporate includes the finance, treasury, tax and legal operations of the Company’s businesses and maintains and/or incurs
certain assets, liabilities, expenses, gains and losses related to the overall management of the Company, which are not allocated
to the other business segments. In addition, a portion of share-based compensation is considered a corporate cost, since the
amount of such expense depends on Company-wide performance rather than the operating performance of any single segment.
Segment Revenues and Profit
Segment revenues and profit for the years ended December 31, 2015, 2014 and 2013 were as follows:
Revenues:
Developed Markets(1)
Emerging Markets(2)
Total revenues
Segment profit:
Developed Markets(3)
Emerging Markets(4)
Total segment profit
Corporate(5)
Restructuring, integration and other costs
In-process research and development impairments and other charges
Acquisition-related costs
Acquisition-related contingent consideration
Other (expense) income
Operating income (loss)
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Gain on investments, net
2015
2014
(Restated)
2013
$
8,537.3
$
6,109.6
$
4,293.2
1,909.2
10,446.5
2,096.4
8,206.0
1,476.4
5,769.6
2,463.8
238.5
2,702.3
(293.0)
(361.9)
(248.4)
(38.5)
23.0
(256.1)
1,527.4
3.3
(1,563.2)
(20.0)
(102.8)
—
1,980.7
337.3
2,318.0
(171.1)
(381.7)
(41.0)
(6.3)
14.1
268.7
2,000.7
5.0
(971.0)
(129.6)
(144.1)
292.6
573.2
93.0
666.2
(165.7)
(462.0)
(153.6)
(36.4)
29.2
(287.2)
(409.5)
8.0
(844.3)
(65.0)
(9.4)
5.8
(Loss) Income before provision for (recovery of) income taxes
$
(155.3) $
1,053.6
$
(1,314.4)
____________________________________
(1) Developed Markets segment revenues reflect (i) incremental product sales revenue in 2015 from 2014 and 2015 acquisitions of $2.12 billion, in the
aggregate, primarily from the Salix Acquisition and the acquisitions of certain assets of both Marathon and Dendreon and (ii) incremental product sales
revenue in 2014 from 2013 and 2014 acquisitions of $1.70 billion, in the aggregate, primarily from the 2013 acquisition of B&L and the 2014 acquisition
of Solta Medical and PreCision.
F-86
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
(2) Emerging Markets segment revenues reflect (i) incremental product sales revenue in 2015 from 2014 and 2015 acquisitions of $92 million, in the
aggregate, primarily from 2014 and 2015 acquisitions and (ii) incremental product sales revenue in 2014 from 2013 and 2014 acquisitions of $581
million, in the aggregate, primarily from the 2013 acquisition of B&L and the 2014 acquisition of Solta Medical.
(3) Developed Markets segment profit in 2015, 2014 and 2013 reflects the impact of acquisition accounting adjustments related to the fair value adjustments
to inventory and identifiable intangible assets as follows: (i) $2.22 billion in 2015, in the aggregate, primarily from the Salix Acquisition, (ii) $906
million in 2014, in the aggregate, and (iii) $1.08 billion in 2013, in the aggregate.
Developed Markets segment profit in 2013 also reflects an impairment charge of $552 million related to ezogabine/retigabine in the third quarter of
2013 (see Note 7 for further information).
(4) Emerging Markets segment profit in 2015, 2014 and 2013 reflects the impact of acquisition accounting adjustments related to the fair value adjustments
to inventory and identifiable intangible assets as follows: (i) $323 million in 2015, in the aggregate, (ii) $324 million in 2014, in the aggregate, and (iii)
$321 million in 2013, in the aggregate.
(5) Corporate reflects non-restructuring-related share-based compensation expense of $95 million, $40 million and $46 million in 2015, 2014 and 2013,
respectively.
Segment Assets
Total assets by segment as of December 31, 2015, 2014 and 2013 were as follows:
Assets:
Developed Markets(2)
Emerging Markets(2)
Corporate
Total assets
____________________________________
2015
2014(1)
(Restated)
2013(1)
$
41,182.7
$
19,070.8
$
20,007.2
6,897.4
48,080.1
884.4
6,332.9
25,403.7
901.0
6,907.8
26,915.0
1,017.9
$
48,964.5
$
26,304.7
$
27,932.9
(1) As described in Note 3, the Company adopted guidance issued by the FASB retrospectively (impacted presentation only) resulting in reclassifications
between assets and long-term debt which did not have a material impact on the Company's financial statements.
(2) Segment assets as of December 31, 2015 were impacted by the identifiable intangible assets and goodwill from the various acquisitions in the current
year. See Note 4 for additional information regarding the current year acquisitions.
Capital Expenditures, and Depreciation and Amortization, including Impairments of Finite-Lived Intangible Assets
Capital expenditures, and depreciation and amortization, including impairments of finite-lived intangible assets by segment
for the years ended December 31, 2015, 2014 and 2013 were as follows:
Capital expenditures:
Developed Markets
Emerging Markets
Corporate
Total capital expenditures
Depreciation and amortization, including impairments of finite-lived intangible assets(1):
Developed Markets
Emerging Markets
Corporate
2015
2014
2013
$
$
$
$
190.7
26.9
217.6
17.6
$
152.7
29.3
182.0
109.6
235.2
$
291.6
$
54.1
51.9
106.0
9.3
115.3
2,245.9
354.7
2,600.6
26.9
$ 1,336.9
385.7
$ 1,687.7
313.7
1,722.6
15.0
2,001.4
14.4
Total depreciation and amortization, including impairments of finite-lived intangible assets
$
2,627.5
$ 1,737.6
$ 2,015.8
____________________________________
F-87
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
(1) Depreciation and amortization, including impairments of finite-lived intangible assets in 2015, 2014 and 2013 reflects the impact of acquisition
accounting adjustments related to the fair value adjustments to identifiable intangible assets.
For more information regarding business combinations and asset impairment charges and write-offs, see Note 4, Note 7 and Note 11.
Revenues by Product Category
Revenues by product category for the years ended December 31, 2015, 2014 and 2013 were as follows:
Pharmaceuticals
Devices
OTC
Branded and Other Generics
Other revenues
Geographic Information
2015
2014
(Restated)
2013
$
$
6,094.3
1,494.6
1,582.9
1,120.4
154.3
$
3,445.3
1,629.4
1,711.4
1,260.0
159.9
$
10,446.5
$
8,206.0
$
2,677.6
845.3
1,086.6
1,030.8
129.3
5,769.6
Revenues by geographic region for the years ended December 31, 2015, 2014 and 2013 were as follows:
U.S. and Puerto Rico
Canada
China
Poland
Japan
Mexico
Australia
France
Russia
Germany
Brazil
U.K.
Other (2)
$
Revenues(1)
2014
(Restated)
2015
$
7,063.0
333.6
271.5
213.5
206.4
203.9
182.3
178.3
168.9
159.4
110.2
105.1
1,250.4
4,415.5
375.1
232.0
276.2
248.7
221.6
196.3
204.7
275.1
204.4
161.0
114.2
1,281.2
$
2013
3,194.5
387.4
91.0
268.8
104.9
200.9
178.2
86.9
202.8
130.9
155.6
47.0
720.7
$
10,446.5
$
8,206.0
$
5,769.6
____________________________________
(1) Revenues are attributed to countries based on the location of the customer.
(2) Other consists primarily of countries in Europe, Asia, Africa, the Middle East, and Latin America.
Long-lived assets by geographic region as of December 31, 2015, 2014 and 2013 were as follows:
F-88
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
U.S. and Puerto Rico
Egypt(2)
Poland
Canada
Germany
Mexico
China
France
Serbia
Italy
Brazil
Other (3)
$
Long-Lived Assets(1)
2014
(Restated)
2015
2013
$
824.3
97.3
88.6
75.6
62.6
62.3
32.7
29.9
27.3
20.7
20.4
100.1
$
720.0
—
99.4
83.7
73.5
73.8
39.6
36.0
31.8
23.1
31.4
100.0
592.0
—
110.0
87.7
83.8
82.5
44.3
40.5
40.0
25.3
41.4
86.7
$
1,441.8
$
1,312.3
$
1,234.2
____________________________________
(1) Long-lived assets consist of property, plant and equipment, net of accumulated depreciation, which is attributed to countries based on the physical
location of the assets.
(2) Relates to the Amoun Acquisition, described further in Note 4.
(3) Other consists primarily of countries in Europe, Asia, Latin America, and the Middle East.
Major Customers
External customers that accounted for 10% or more of the Company’s total revenues for the years ended December 31, 2015,
2014 and 2013 were as follows:
McKesson Corporation
AmerisourceBergen Corporation
Cardinal Health, Inc.
24. PS FUND 1 INVESTMENT
2015
20%
14%
12%
2014
17%
10%
9%
2013
19%
7%
13%
In connection with the merger proposal (which has since been withdrawn as described below) to the Board of Directors of
Allergan Inc. (“Allergan”), the Company and Pershing Square Capital Management, L.P. (“Pershing Square”) entered into an
agreement pursuant to which, among other things, Valeant and Pershing Square became members of a newly formed jointly
owned entity, PS Fund 1. In April 2014, the Company contributed $76 million to PS Fund 1, which was used by PS Fund 1,
together with funds contributed by funds managed by Pershing Square, to purchase shares of Allergan common stock and
derivative instruments referencing Allergan common stock. The investment in Allergan shares was considered an available-
for-sale security. 597,431 of the 28,878,538 shares of Allergan common stock held for PS Fund 1 were allocable to the
Company. Based on the Company’s degree of influence over such entity, the Company’s investment in PS Fund 1 was
accounted for under the equity method of accounting. Accordingly, the Company recognized its share of any unrealized gains
or losses on the Allergan shares held by PS Fund 1 as part of other comprehensive (loss) income.
On November 19, 2014, the Company withdrew its exchange offer to acquire all of the outstanding shares of Allergan.
Consequently, the Company and Pershing Square amended their previous agreement, and, as a result, the Company is no
longer a member of PS Fund 1. PS Fund 1 sold the shares of Allergan common stock and distributed to the Company proceeds
of $473 million, in the aggregate, in the fourth quarter of 2014 which included (i) proceeds of $127 million from the 597,431
shares allocable to the Company plus (ii) proceeds of $346 million representing the Company’s right to 15% of the net profits
on the sale of shares realized by Pershing Square. In connection with the sale, the Company recognized a net gain of $287
F-89
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
million in the fourth quarter of 2014 (which included the recognition of previously unrealized gains that had been recorded
as part of other comprehensive (loss) income).
Also, in connection with the withdrawal of the exchange offer, the commitment letter which the Company had received for
the purpose of financing the cash component of the consideration to be paid in the exchange offer, was terminated. As a result,
in the fourth quarter of 2014, the Company expensed and paid $54 million of fees associated with the commitment letter.
The net gain of $287 million was recognized in Gain on investments, net in the consolidated statements of (loss) income and
is net of expenses of approximately $110 million, in the aggregate, which includes the $54 million of commitment letter fees
described in the preceding paragraph as well as legal, consulting, and other related expenses.
In the consolidated statement of cash flows for the year ended December 31, 2014, $76 million of the total proceeds was
included as an investing activity as it represents a return of the Company's initial investment. The remaining portion of the
proceeds of $398 million, representing the Company’s return on investment, was classified as an operating activity, as were
the payments related to the commitment letter fees and legal, consulting, and other related expenses.
25. SUMMARY QUARTERLY INFORMATION (UNAUDITED)
2015
Q1
(Restated)
$
2,170.1
1,599.1
571.0
Q2
$
2,732.4
2,390.9
341.5
Q2
Six Months
Ending
(Restated)
$
4,902.5
3,990.0
912.5
Q3
Nine Months
Ending
(Restated)
$
7,689.3
6,329.0
1,360.3
Q3
$
2,786.8
2,339.0
447.8
Q4
$
2,757.2
2,590.1
167.1
97.7
(53.0)
44.7
49.5
94.2
(385.9)
0.29
0.28
491.1
(0.15)
(0.15)
410.5
0.13
0.13
901.6
0.14
0.14
736.5
0.28
0.27
1,638.1
(1.12)
(1.12)
562.3
2014
Q1
$
1,886.2
1,529.6
356.6
Q2
$
2,041.1
1,686.0
355.1
Q2
Six Months
Ending
Q3
(Revised)
$
3,927.3
3,215.6
711.7
$
2,043.3
1,371.7
671.6
Q3
Nine Months
Ending
(Revised)
$
5,970.6
4,587.3
1,383.3
Q4
(Restated)
$
2,235.4
1,618.0
617.4
(22.6)
125.8
103.2
265.0
368.2
512.5
(0.07)
(0.07)
484.3
0.38
0.37
376.0
0.31
0.30
860.3
0.79
0.78
618.7
1.10
1.08
1,479.0
1.53
1.50
815.7
($ in millions, except per share data)
Revenue
Expenses
Operating income
Net income (loss) attributable to Valeant Pharmaceuticals
International, Inc.
Earnings (loss) per share attributable to Valeant
Pharmaceuticals International, Inc.:
Basic
Diluted
Net cash provided by operating activities
($ in millions, except per share data)
Revenue
Expenses
Operating income
Net (loss) income attributable to Valeant Pharmaceuticals
International, Inc.
(Loss) earnings per share attributable to Valeant
Pharmaceuticals International, Inc.:
Basic
Diluted
Net cash provided by operating activities
Impact of Restatement on Quarterly Results
This footnote discloses the nature of the restatement matters and adjustments and shows the impact of the restatement matters
on the Company's consolidated financial information for the three months ended December 31, 2014, and on the consolidated
financial statements for the three months ended March 31, 2015, the six months ended June 30, 2015, and the nine months
F-90
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
ended September 30, 2015. In addition, this footnote also discloses the nature and impact of the adjustments to the Company's
consolidated financial statements for the three and nine months ended September 30, 2014 (these periods have been revised
for the adjustments as the previously presented financial statements were determined to be not materially misstated). For
further discussion of the 2014 annual impact of the restatement matters see Note 2.
As described earlier in this Form 10-K, the Company has restated its financial statements for the year ended December 31,
2014 (including the financial information for the three months ended December 31, 2014), the three months ended March 31,
2015, six months ended June 30, 2015 and nine months ended September 30, 2015. The restatement of previously issued
financial statements reduced the Company's net income attributable to Valeant Pharmaceuticals International, Inc. and diluted
earnings per share for the three months and year ended December 31, 2014 by approximately $22 million or $0.06 per share
and $33 million or $0.09 per share, respectively, and increased the Company's net income attributable to Valeant
Pharmaceuticals International, Inc. and diluted earnings per share for the three months ended March 31, 2015, six months
ended June 30, 2015 and nine months ended September 30, 2015 by approximately $24 million or $0.07 per share.
The individual restatement matters that underlie the restatement adjustments are described below and are reflected and
quantified, as applicable, in the footnotes to the below tables.
(a) Philidor revenue recognition adjustments - The correction of the misstatement from recognizing revenue related to sales
to Philidor from a sell-in to sell-through basis had the effect of eliminating certain revenue recorded in 2014 prior to the
date that Philidor was consolidated as a variable interest entity. The revenue that is being eliminated from 2014 does not
result in an increase to revenue in subsequent periods as a result of the Company having previously recognized that
revenue, subsequent to the consolidation of Philidor, when Philidor dispensed the product to patients. Under the sell-in
method previously utilized by the Company with respect to sales to Philidor prior to its consolidation in December 2014,
revenue was recognized upon delivery of the products to Philidor. At the date of consolidation, certain of that previously
sold inventory was still held by Philidor. Subsequent to the consolidation, Philidor recognized revenue on that inventory
when it dispensed products to patients, and that revenue was consolidated into the Company’s results. As long as those
pre-consolidation sales transactions were in the normal course of business under applicable accounting standards and not
entered into in contemplation of the purchase option agreement, the Company’s historical accounting for this revenue
was in accordance with generally accepted accounting principles. The Company has now determined that certain sales
transactions for deliveries to Philidor, leading up to the purchase option agreement, were not executed in the normal
course of business under applicable accounting standards and included actions taken by the Company (including fulfillment
of unusually large orders with extended payment terms and increased pricing, an emphasis on delivering product prior
to the execution of the purchase option agreement and seeking and filling a substitute order of equivalent value for an
unavailable product) in contemplation of the purchase option agreement. As such, revenue, net of managed care rebates,
of $58 million previously recorded in 2014 is now being corrected. However, because that revenue was also recorded by
Philidor subsequent to consolidation, upon dispensing of products to patients, the elimination of this revenue in 2014,
prior to consolidation, does not result in additional revenue being recorded in 2015. Additionally, provisions for managed
care rebates of $21 million previously recorded in 2014 will now be recognized against that revenue in the first quarter
of 2015.
The reduction in inventory for all periods subsequent to the consolidation date relates to the Philidor revenue recognition
adjustments described above. At the time of the consolidation of Philidor in December 2014, under the acquisition method
of accounting, the Company recorded the fair value of the inventory on hand at Philidor at the net price the Company
previously sold the inventory to Philidor, exclusive of the impact of managed care rebates. The restatement adjustments
to eliminate the revenue for certain sales transactions between the Company and Philidor prior to consolidation, result in
a reduction, for accounting purposes, to the amount of inventory that the Company acquired from Philidor. Eliminating
the pre-consolidation sales described above had the effect of reducing pre-tax profit that was recognized in 2014 by $39
million. The majority of this profit is now recognized in 2015 as a reduction to previously recorded Cost of Goods Sold
as the restated carrying amount of this inventory does not include the stepped up value resulting from the Company's
consolidation of Philidor.
(b) Philidor measurement period adjustments - Related to the consolidation of Philidor, the Company previously recorded
certain measurement period adjustments during the second and third quarters of 2015 when known, which should be
retroactively recorded as of the date Philidor was consolidated (December 2014). These measurement period adjustments
primarily resulted in (1) an increase to acquisition-related contingent consideration as a result of further valuation analysis
around the probability and timing of certain milestone payments; (2) increases in the fair value of certain intangible assets
resulting from the higher sales forecast; and (3) a net increase in goodwill as a result of (1) and (2) above. The measurement
period adjustments were previously determined to be immaterial to the Company’s consolidated financial statements, but
F-91
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
are now being recorded in the fourth quarter of 2014 in connection with the other restatement adjustments related to
Philidor.
(c) Accrued liability adjustment - Unrelated to Philidor, the Company recorded an accrual for previously unrecorded
professional fees related to acquisition-related costs.
(d) Tax effect of restatement adjustments - The Company calculated the tax effect of the adjustments noted above.
(e) Accumulated deficit - This adjustment reflects the cumulative net loss impact of the restatement adjustments as of the
balance sheet date.
F-92
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED BALANCE SHEET
(All dollar amounts expressed in millions of U.S. dollars)
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
Trade receivables, net
Inventories, net
Prepaid expenses and other current assets
Assets held for sale
Deferred tax assets, net
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets, net
Other long-term assets, net
Total assets
Liabilities
Current liabilities:
Accounts payable
Accrued and other current liabilities
Acquisition-related contingent consideration
Current portion of long-term debt
Deferred tax liabilities, net
Total current liabilities
Acquisition-related contingent consideration
Long-term debt
Pension and other benefit liabilities
Liabilities for uncertain tax positions
Deferred tax liabilities, net
Other long-term liabilities
Total liabilities
Equity
Common shares, no par value, unlimited shares authorized, 334,004,879
issued and outstanding at September 30, 2014
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Valeant Pharmaceuticals International, Inc. shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
____________________________________
As of September 30,
2014
(As Previously
Reported)(1)
Revision
Adjustments
2014
(Revised)
Revision
Ref
$
808.8
$
— $
1,880.2
932.7
465.6
10.0
316.4
4,413.7
1,300.4
11,620.4
9,467.8
23.9
203.9
—
0.6
—
—
—
0.6
—
—
—
—
—
808.8
1,880.2
933.3
465.6
10.0
316.4
4,414.3
1,300.4
11,620.4
9,467.8
23.9
203.9
$
$
27,030.1
$
0.6
$
27,030.7
323.3
$
— $
1,993.9
116.5
690.6
19.0
3,143.3
211.3
15,554.8
157.7
113.8
2,407.0
208.6
21,796.5
8,334.4
240.2
(2,899.9)
(552.0)
5,122.7
110.9
5,233.6
12.9
—
—
—
12.9
—
—
—
—
(1.9)
—
11.0
—
—
(10.4)
—
(10.4)
—
(10.4)
323.3
2,006.8
116.5
690.6
19.0
3,156.2
211.3
15,554.8
157.7
113.8
2,405.1
208.6
21,807.5
8,334.4
240.2
(2,910.3)
(552.0)
5,112.3
110.9
5,223.2
$
27,030.1
$
0.6
$
27,030.7
(a)
(a)
(d)
(e)
(1) As described in Note 3, the Company adopted guidance issued by the Financial Accounting Standards Board which requires certain debt issuance costs to
be presented in the balance sheet as a direct deduction from the carrying value of the associated debt, consistent with the presentation of a debt discount. The
adoption of this guidance was applied retrospectively and impacted presentation only. The resulting reclassifications between assets and long-term debt did
not have a material impact on the Company's financial statements.
F-93
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF INCOME
(All dollar amounts expressed in millions of U.S. dollars, except per share data)
(Unaudited)
Revenues
Product sales
Other revenues
Expenses
Cost of goods sold (exclusive of amortization and impairments of finite-lived
intangible assets shown separately below)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization and impairment of finite-lived intangible assets
Restructuring, integration and other costs
In-process research and development impairments and other changes
Acquisition-related costs
Acquisition-related contingent consideration
Other income
Operating income (loss)
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Gain on investments, net
Income (loss) before provision for (recovery of) income taxes
Provision for (recovery of) income taxes
Net income (loss)
Less: Net income attributable to noncontrolling interest
Net income (loss) attributable to Valeant Pharmaceuticals International, Inc.
Earnings (loss) per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Weighted-average common shares (in millions)
Basic
Diluted
Three Months Ended September 30,
2014
(As Previously
Reported)
Revision
Adjustments
2014
(Revised)
Revision
Ref
$
2,022.9
$
(12.9) $
33.3
2,056.2
545.8
15.0
504.1
59.1
393.1
61.7
19.9
1.6
4.0
(232.0)
1,372.3
683.9
0.8
(258.4)
—
(53.0)
3.4
376.7
100.3
276.4
1.0
—
(12.9)
(0.6)
—
—
—
—
—
—
—
—
—
(0.6)
(12.3)
—
—
—
—
—
(12.3)
(1.9)
(10.4)
—
$
$
$
275.4
$
(10.4) $
0.82
0.81
$
$
(0.03) $
(0.03) $
335.4
341.3
(a)
(a)
(d)
2,010.0
33.3
2,043.3
545.2
15.0
504.1
59.1
393.1
61.7
19.9
1.6
4.0
(232.0)
1,371.7
671.6
0.8
(258.4)
—
(53.0)
3.4
364.4
98.4
266.0
1.0
265.0
0.79
0.78
335.4
341.3
F-94
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF INCOME
(All dollar amounts expressed in millions of U.S. dollars, except per share data)
(Unaudited)
Revenues
Product sales
Other revenues
Expenses
Cost of goods sold (exclusive of amortization and impairments of finite-lived
intangible assets shown separately below)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization and impairment of finite-lived intangible assets
Restructuring, integration and other costs
In-process research and development impairments and other changes
Acquisition-related costs
Acquisition-related contingent consideration
Other income
Operating income (loss)
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Gain on investments, net
Income (loss) before provision for (recovery of) income taxes
Provision for (recovery of) income taxes
Net income (loss)
Less: Net loss attributable to noncontrolling interest
Net income (loss) attributable to Valeant Pharmaceuticals International, Inc.
Earnings (loss) per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Weighted-average common shares (in millions)
Basic
Diluted
Nine Months Ended September 30,
2014
(As Previously
Reported)
Revision
Adjustments
2014
(Revised)
Revision
Ref
$
5,868.1
$
(12.9) $
115.4
5,983.5
1,619.5
45.3
1,501.8
186.9
1,113.9
337.4
40.3
3.7
14.8
(275.7)
4,587.9
1,395.6
3.8
(746.1)
(93.7)
(63.0)
5.9
502.5
124.4
378.1
(0.5)
—
(12.9)
(0.6)
—
—
—
—
—
—
—
—
—
(0.6)
(12.3)
—
—
—
—
—
(12.3)
(1.9)
(10.4)
—
$
$
$
378.6
$
(10.4) $
1.13
1.11
$
$
(0.03) $
(0.03) $
335.2
341.4
(a)
(a)
(d)
5,855.2
115.4
5,970.6
1,618.9
45.3
1,501.8
186.9
1,113.9
337.4
40.3
3.7
14.8
(275.7)
4,587.3
1,383.3
3.8
(746.1)
(93.7)
(63.0)
5.9
490.2
122.5
367.7
(0.5)
368.2
1.10
1.08
335.2
341.4
F-95
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
There was no net impact of the 2014 revision adjustments on net cash provided by operating activities, net cash provided by
investing activities and net cash used in financing activities in the Consolidated Statement of Cash Flows. The adjustments
only had an impact on certain captions within cash flows from operating activities.
CONSOLIDATED STATEMENT OF CASH FLOWS
(All dollar amounts expressed in millions of U.S. dollars)
(Unaudited)
Three Months Ended September 30,
2014
(As Previously
Reported)
Revision
Adjustments
2014
(Revised)
Revision
Ref
$
276.4
$
(10.4) $
266.0
439.3
34.6
19.9
12.4
4.0
12.0
74.6
(254.5)
(0.9)
(0.2)
20.2
(15.9)
55.1
(1.3)
9.7
(121.4)
(41.5)
5.5
90.7
618.7
756.3
(1,082.1)
(15.3)
277.6
531.2
—
—
—
—
—
—
(1.9)
—
—
—
—
—
—
—
—
—
(0.6)
—
12.9
—
—
—
—
—
—
808.8
$
— $
(d)
(a)
(a)
439.3
34.6
19.9
12.4
4.0
12.0
72.7
(254.5)
(0.9)
(0.2)
20.2
(15.9)
55.1
(1.3)
9.7
(121.4)
(42.1)
5.5
103.6
618.7
756.3
(1,082.1)
(15.3)
277.6
531.2
808.8
(16.0) $
(4.5)
— $
—
(16.0)
(4.5)
Cash Flow From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including impairments of finite-lived intangible
assets
Amortization and write-off of debt discounts and debt issuance costs
In-process research and development impairments
Acquisition accounting adjustment on inventory sold
Acquisition-related contingent consideration
Allowances for losses on accounts receivable and inventories
Deferred income taxes
Gain on disposal of assets and businesses
Reduction to accrued legal settlements
Payments of accrued legal settlements
Share-based compensation
Tax benefits from share-based compensation
Foreign exchange loss
Payment of accreted interest on contingent consideration
Other
Changes in operating assets and liabilities:
Trade receivables
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued and other liabilities
Net cash provided by operating activities
Net cash provided by investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Non- Cash Investing and Financing Activities
Acquisition of businesses, contingent consideration at fair value
Acquisition of businesses, debt assumed
$
$
F-96
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF CASH FLOWS
(All dollar amounts expressed in millions of U.S. dollars)
(Unaudited)
Nine Months Ended September 30,
2014
(As Previously
Reported)
Revision
Adjustments
2014
(Revised)
Revision
Ref
$
378.1
$
(10.4) $
367.7
1,248.1
58.1
20.3
21.9
14.8
47.6
63.2
(254.5)
(48.2)
(1.2)
60.6
(17.1)
62.4
93.7
(9.5)
15.8
(205.2)
(122.8)
34.5
18.4
1,479.0
105.8
(1,361.4)
(14.9)
208.5
600.3
—
—
—
—
—
—
(1.9)
—
—
—
—
—
—
—
—
—
—
(0.6)
—
12.9
—
—
—
—
—
—
808.8
$
— $
(d)
(a)
(a)
1,248.1
58.1
20.3
21.9
14.8
47.6
61.3
(254.5)
(48.2)
(1.2)
60.6
(17.1)
62.4
93.7
(9.5)
15.8
(205.2)
(123.4)
34.5
31.3
1,479.0
105.8
(1,361.4)
(14.9)
208.5
600.3
808.8
(65.1) $
(8.5)
— $
—
(65.1)
(8.5)
Cash Flow From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including impairments of finite-lived intangible
assets
Amortization and write-off of debt discounts and debt issuance costs
In-process research and development impairments
Acquisition accounting adjustment on inventory sold
Acquisition-related contingent consideration
Allowances for losses on accounts receivable and inventories
Deferred income taxes
Gain on disposal of assets and businesses
Reduction to accrued legal settlements
Payments of accrued legal settlements
Share-based compensation
Tax benefits from share-based compensation
Foreign exchange loss
Loss on extinguishment of debt
Payment of accreted interest on contingent consideration
Other
Changes in operating assets and liabilities:
Trade receivables
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued and other liabilities
Net cash provided by operating activities
Net cash provided by investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Non- Cash Investing and Financing Activities
Acquisition of businesses, contingent consideration at fair value
Acquisition of businesses, debt assumed
$
$
F-97
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF INCOME
(All dollar amounts expressed in millions of U.S. dollars, except per share data)
(Unaudited)
Three Months Ended December 31,
2014
(As Previously
Reported)
Restatement
Adjustments
2014
(Restated)
Restatement
Ref
$
2,235.5
$
(44.6) $
2,190.9
(a)
Revenues
Product sales
Other revenues
Expenses
Cost of goods sold (exclusive of amortization and impairments of finite-lived
intangible assets shown separately below)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization and impairment of finite-lived intangible assets
Restructuring, integration and other costs
In-process research and development impairments and other changes
Acquisition-related costs
Acquisition-related contingent consideration
Other expense
Operating income (loss)
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Gain on investments, net
Income (loss) before provision for (recovery of) income taxes
Provision for (recovery of) income taxes
Net income (loss)
Less: Net loss attributable to noncontrolling interest
Net income (loss) attributable to Valeant Pharmaceuticals International, Inc.
Earnings (loss) per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
44.5
2,280.0
576.7
13.1
524.5
59.1
436.8
44.3
0.7
2.6
(28.9)
7.0
1,635.9
644.1
1.2
(224.9)
(35.9)
(81.1)
286.7
590.1
56.0
534.1
(0.8)
—
(44.6)
(17.9)
—
—
—
—
—
—
—
—
—
(17.9)
(26.7)
—
—
—
—
—
(26.7)
(4.3)
(22.4)
—
$
$
$
534.9
$
(22.4) $
1.59
1.56
$
$
(0.06) $
(0.06) $
Weighted-average common shares (in millions)
Basic
Diluted
335.8
341.9
F-98
(a)
(d)
44.5
2,235.4
558.8
13.1
524.5
59.1
436.8
44.3
0.7
2.6
(28.9)
7.0
1,618.0
617.4
1.2
(224.9)
(35.9)
(81.1)
286.7
563.4
51.7
511.7
(0.8)
512.5
1.53
1.50
335.8
341.9
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED BALANCE SHEET
(All dollar amounts expressed in millions of U.S. dollars)
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
Trade receivables, net
Inventories, net
Restricted cash and cash equivalents
Prepaid expenses and other current assets
Assets held for sale
Deferred tax assets, net
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets, net
Other long-term assets, net
Total assets
Liabilities
Current liabilities:
Accounts payable
Accrued and other current liabilities
Acquisition-related contingent consideration
Current portion of long-term debt
Deferred tax liabilities, net
Total current liabilities
Acquisition-related contingent consideration
Long-term debt
Pension and other benefit liabilities
Liabilities for uncertain tax positions
Deferred tax liabilities, net
Other long-term liabilities
Total liabilities
Equity
Common shares, no par value, unlimited shares authorized, 342,266,409
issued and outstanding at March 31, 2015
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Valeant Pharmaceuticals International, Inc. shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
____________________________________
As of March 31,
2015
(As Previously
Reported)(1)
Restatement
Adjustments
2015
(Restated)
Restatement
Ref
$
1,864.4
$
— $
2,108.8
998.9
10,354.9
660.9
7.8
196.5
16,192.2
1,334.8
11,554.6
9,161.4
151.7
129.9
—
(8.8)
—
—
—
—
(8.8)
1.8
22.0
15.0
—
—
1,864.4
2,108.8
990.1
10,354.9
660.9
7.8
196.5
16,183.4
1,336.6
11,576.6
9,176.4
151.7
129.9
$
$
38,524.6
$
30.0
$
38,554.6
352.5
$
— $
2,424.4
186.3
122.8
11.1
3,097.1
198.9
25,856.6
227.7
98.7
2,261.5
208.9
31,949.4
9,810.3
260.9
(2,291.3)
(1,327.6)
6,452.3
122.9
6,575.2
2.6
—
—
—
2.6
38.8
—
—
—
(2.6)
—
38.8
—
—
(8.8)
—
(8.8)
—
(8.8)
352.5
2,427.0
186.3
122.8
11.1
3,099.7
237.7
25,856.6
227.7
98.7
2,258.9
208.9
31,988.2
9,810.3
260.9
(2,300.1)
(1,327.6)
6,443.5
122.9
6,566.4
$
38,524.6
$
30.0
$
38,554.6
(a)
(b)
(b)
(b)
(a), (c)
(b)
(d)
(e)
(1) As described in Note 3, the Company adopted guidance issued by the Financial Accounting Standards Board which requires certain debt issuance costs to
be presented in the balance sheet as a direct deduction from the carrying value of the associated debt, consistent with the presentation of a debt discount. The
adoption of this guidance was applied retrospectively and impacted presentation only. The resulting reclassifications between assets and long-term debt did
not have a material impact on the Company's financial statements.
F-99
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF INCOME
(All dollar amounts expressed in millions of U.S. dollars, except per share data)
(Unaudited)
Revenues
Product sales
Other revenues
Expenses
Cost of goods sold (exclusive of amortization and impairments of finite-lived
intangible assets shown separately below)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization and impairment of finite-lived intangible assets
Restructuring, integration and other costs
Acquisition-related costs
Acquisition-related contingent consideration
Other expense
Operating income
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Income before provision for income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Valeant Pharmaceuticals International, Inc.
Earnings per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Weighted-average common shares (in millions)
Basic
Diluted
Three Months Ended March 31,
2015
(As Previously
Reported)
Restatement
Adjustments
2015
(Restated)
Restatement
Ref
(a)
(a)
(c)
(d)
$
2,146.9
$
(20.8) $
44.0
2,190.9
560.4
14.3
573.8
55.8
365.2
55.0
9.8
7.1
6.1
1,647.5
543.4
0.9
(297.8)
(20.0)
(71.1)
155.4
80.9
74.5
0.8
—
(20.8)
(52.5)
—
—
—
—
—
4.1
—
—
(48.4)
27.6
—
—
—
—
27.6
3.6
24.0
—
$
$
$
73.7
$
24.0
$
0.22
0.21
$
$
0.07
0.07
$
$
336.8
343.4
2,126.1
44.0
2,170.1
507.9
14.3
573.8
55.8
365.2
55.0
13.9
7.1
6.1
1,599.1
571.0
0.9
(297.8)
(20.0)
(71.1)
183.0
84.5
98.5
0.8
97.7
0.29
0.28
336.8
343.4
F-100
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
There was no net impact of the 2015 restatement adjustments on net cash provided by operating activities, net cash used in
investing activities and net cash provided by financing activities in the Consolidated Statement of Cash Flows. The adjustments
only had an impact on certain captions within cash flows from operating activities.
CONSOLIDATED STATEMENT OF CASH FLOWS
(All dollar amounts expressed in millions of U.S. dollars)
(Unaudited)
Three Months Ended March 31,
2015
(As Previously
Reported)
Restatement
Adjustments
2015
(Restated)
Restatement
Ref
$
74.5
$
24.0
$
98.5
407.0
10.5
24.5
7.1
12.2
62.5
1.5
(3.0)
35.0
(17.9)
75.9
20.0
(2.2)
(7.2)
(67.0)
(38.5)
(45.1)
(58.7)
491.1
(11,240.5)
12,306.3
(15.1)
1,541.8
322.6
—
—
—
—
—
3.6
—
—
—
—
—
—
—
—
—
(52.5)
—
24.9
—
—
—
—
—
—
1,864.4
$
— $
(d)
(a)
(a), (c)
407.0
10.5
24.5
7.1
12.2
66.1
1.5
(3.0)
35.0
(17.9)
75.9
20.0
(2.2)
(7.2)
(67.0)
(91.0)
(45.1)
(33.8)
491.1
(11,240.5)
12,306.3
(15.1)
1,541.8
322.6
1,864.4
(286.9) $
— $
(286.9)
—
—
—
Cash Flow From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including impairments of finite-lived intangible
assets
Amortization and write-off of debt discounts and debt issuance costs
Acquisition accounting adjustment on inventory sold
Acquisition-related contingent consideration
Allowances for losses on accounts receivable and inventories
Deferred income taxes
Additions to accrued legal settlements
Payments of accrued legal settlements
Share-based compensation
Tax benefits from share based compensation
Foreign exchange loss
Loss on extinguishment of debt
Payment of accreted interest on contingent consideration
Other
Changes in operating assets and liabilities:
Trade receivables
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued and other liabilities
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Non- Cash Investing and Financing Activities
Acquisition of businesses, contingent consideration at fair value
Acquisition of businesses, debt assumed
$
$
F-101
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF INCOME
(All dollar amounts expressed in millions of U.S. dollars, except per share data)
(Unaudited)
Revenues
Product sales
Other revenues
Expenses
Cost of goods sold (exclusive of amortization and impairments of finite-lived
intangible assets shown separately below)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization and impairment of finite-lived intangible assets
Restructuring, integration and other costs
In-process research and development impairments and other changes
Acquisition-related costs
Acquisition-related contingent consideration
Other expense
Operating income
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Income before provision for income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Valeant Pharmaceuticals International, Inc.
Earnings per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Weighted-average common shares (in millions)
Basic
Diluted
Six Months Ended June 30,
2015
(As Previously
Reported)
Restatement
Adjustments
2015
(Restated)
Restatement
Ref
(a)
(a)
(c)
(d)
$
4,841.9
$
(20.8) $
81.4
4,923.3
1,230.3
29.5
1,259.3
136.9
950.6
198.4
12.3
19.3
18.8
183.0
4,038.4
884.9
1.8
(710.5)
(20.0)
(65.5)
90.7
67.8
22.9
2.2
—
(20.8)
(52.5)
—
—
—
—
—
—
4.1
—
—
(48.4)
27.6
—
—
—
—
27.6
3.6
24.0
—
$
$
$
20.7
$
24.0
$
0.06
0.06
$
$
0.07
0.07
$
$
340.5
347.1
4,821.1
81.4
4,902.5
1,177.8
29.5
1,259.3
136.9
950.6
198.4
12.3
23.4
18.8
183.0
3,990.0
912.5
1.8
(710.5)
(20.0)
(65.5)
118.3
71.4
46.9
2.2
44.7
0.13
0.13
340.5
347.1
F-102
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF CASH FLOWS
(All dollar amounts expressed in millions of U.S. dollars)
(Unaudited)
Six Months Ended June 30,
2015
(As Previously
Reported)
Restatement
Adjustments
2015
(Restated)
Restatement
Ref
$
22.9
$
24.0
$
46.9
1,042.0
103.2
12.3
70.5
18.8
26.8
12.4
6.3
(5.9)
60.9
(25.6)
65.6
20.0
(12.1)
(9.9)
(308.8)
(86.8)
(163.5)
52.5
901.6
(13,885.7)
13,631.6
(12.1)
635.4
322.6
—
—
—
—
—
—
3.6
—
—
—
—
—
—
—
—
(52.5)
—
24.9
—
—
—
—
—
—
958.0
$
— $
(d)
(a)
(a), (c)
1,042.0
103.2
12.3
70.5
18.8
26.8
16.0
6.3
(5.9)
60.9
(25.6)
65.6
20.0
(12.1)
(9.9)
(308.8)
(139.3)
(163.5)
77.4
901.6
(13,885.7)
13,631.6
(12.1)
635.4
322.6
958.0
(674.6) $
38.8
$
(3,123.1)
—
(635.8)
(3,123.1)
(b)
Cash Flow From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including impairments of finite-lived intangible
assets
Amortization and write-off of debt discounts and debt issuance costs
In-process research and development impairments
Acquisition accounting adjustment on inventory sold
Acquisition-related contingent consideration
Allowances for losses on accounts receivable and inventories
Deferred income taxes
Additions to accrued legal settlements
Payments of accrued legal settlements
Share-based compensation
Tax benefits from share-based compensation
Foreign exchange loss
Loss on extinguishment of debt
Payment of accreted interest on contingent consideration
Other
Changes in operating assets and liabilities:
Trade receivables
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued and other liabilities
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Non- Cash Investing and Financing Activities
Acquisition of businesses, contingent consideration at fair value
Acquisition of businesses, debt assumed
$
$
F-103
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF INCOME
(All dollar amounts expressed in millions of U.S. dollars, except per share data)
(Unaudited)
Revenues
Product sales
Other revenues
Expenses
Cost of goods sold (exclusive of amortization and impairments of finite-lived
intangible assets shown separately below)
Cost of other revenues
Selling, general and administrative
Research and development
Amortization and impairment of finite-lived intangible assets
Restructuring, integration and other costs
In-process research and development impairments and other changes
Acquisition-related costs
Acquisition-related contingent consideration
Other expense
Operating income
Interest income
Interest expense
Loss on extinguishment of debt
Foreign exchange and other
Income before provision for income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Valeant Pharmaceuticals International, Inc.
Earnings per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic
Diluted
Weighted-average common shares (in millions)
Basic
Diluted
Nine Months Ended September 30,
2015
(As Previously
Reported)
Restatement
Adjustments
2015
(Restated)
Restatement
Ref
(a)
(a)
(c)
(d)
$
7,590.1
$
(20.8) $
120.0
7,710.1
1,864.9
43.1
1,956.9
238.5
1,629.8
274.0
108.1
26.3
22.6
213.2
6,377.4
1,332.7
2.5
(1,130.7)
(20.0)
(99.5)
85.0
10.4
74.6
4.4
—
(20.8)
(52.5)
—
—
—
—
—
—
4.1
—
—
(48.4)
27.6
—
—
—
—
27.6
3.6
24.0
—
$
$
$
70.2
$
24.0
$
0.21
0.20
$
$
0.07
0.07
$
$
340.8
347.2
7,569.3
120.0
7,689.3
1,812.4
43.1
1,956.9
238.5
1,629.8
274.0
108.1
30.4
22.6
213.2
6,329.0
1,360.3
2.5
(1,130.7)
(20.0)
(99.5)
112.6
14.0
98.6
4.4
94.2
0.28
0.27
340.8
347.2
F-104
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
CONSOLIDATED STATEMENT OF CASH FLOWS
(All dollar amounts expressed in millions of U.S. dollars)
(Unaudited)
Cash Flow From Operating Activities
Net income
Nine Months Ended September 30,
2015
(As Previously
Reported)
Restatement
Adjustments
2015
(Restated)
Restatement
Ref
$
74.6
$
24.0
$
98.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including impairments of finite-lived intangible
assets
1,768.4
—
—
—
—
—
—
3.6
—
—
—
—
—
—
—
—
—
(52.5)
—
24.9
—
—
—
—
—
—
(d)
(a)
(a), (c)
1,768.4
123.7
108.1
97.7
22.6
46.4
(75.4)
9.2
31.9
(32.1)
111.4
(21.7)
96.6
20.0
(19.8)
(13.6)
(656.0)
(184.9)
(252.0)
359.0
1,638.1
(14,041.9)
13,523.2
(22.0)
1,097.4
322.6
1,420.0
1,420.0
$
— $
(783.3) $
38.8
$
(3,129.2)
—
(744.5)
(3,129.2)
(b)
123.7
108.1
97.7
22.6
46.4
(79.0)
9.2
31.9
(32.1)
111.4
(21.7)
96.6
20.0
(19.8)
(13.6)
(656.0)
(132.4)
(252.0)
334.1
1,638.1
(14,041.9)
13,523.2
(22.0)
1,097.4
322.6
Amortization and write-off of debt discounts and debt issuance costs
In-process research and development impairments
Acquisition accounting adjustment on inventory sold
Acquisition-related contingent consideration
Allowances for losses on accounts receivable and inventories
Deferred income taxes
Loss on disposal of assets and liabilities
Additions to accrued legal settlements
Payments of accrued legal settlements
Share-based compensation
Tax benefits from share-based compensation
Foreign exchange loss
Loss on extinguishment of debt
Payment of accreted interest on contingent consideration
Other
Changes in operating assets and liabilities:
Trade receivables
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued and other liabilities
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Non- Cash Investing and Financing Activities
Acquisition of businesses, contingent consideration at fair value
Acquisition of businesses, debt assumed
$
$
F-105
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
26. SUBSEQUENT EVENTS
Appointment of Chairman and Chief Executive Officer
On April 25, 2016, the Company announced that its Board of Directors has named Joseph C. Papa to become the Company’s
Chairman and Chief Executive Officer. Mr. Papa is expected to join the Company by early May. Mr. Papa, who will also
join the Company’s Board of Directors, will succeed J. Michael Pearson, who is expected to remain as chief executive officer
and a director until Mr. Papa joins the Company. Mr. Papa will join the Company from Perrigo Company plc, a leading global
healthcare supplier that develops, manufactures and distributes over-the-counter (OTC) and prescription (Rx) pharmaceuticals,
where he served as Chairman and Chief Executive Officer.
Notices of Default Under Senior Note Indentures
As a result of the delay in the Company filing its Annual Report on Form 10-K for the fiscal year ended December 31, 2015,
on April 12, 2016, the Company received a notice of default from certain holders of its 5.5% Notes due 2023 and, on April
22, 2016, the Company received additional notices of default from the trustee under the respective indentures governing the
Company’s 5.375% Senior Notes due 2020, 6.375% Senior Notes due 2020, 7.50% Senior Notes due 2021 and 7.250% Senior
Notes due 2022. The filing of this Form 10-K has cured in all respects the default under the Company’s senior note indentures
triggered by the failure to timely file this Form 10-K. If the Company is delinquent in filing future reports, including the
expected delay in filing the First Quarter 2016 Form 10-Q, the Company may receive similar notices of default from the
trustee or noteholders under the Company’s senior note indentures.
Credit Facility Amendment
On April 11, 2016, the Company obtained an amendment and waiver to its Credit Agreement. Pursuant to the amendment,
the Company obtained an extension to the deadline for filing (i) the Company's Form 10-K for the fiscal year ended December
31, 2015 to May 31, 2016 and (ii) the Company's Form 10-Q for the fiscal quarter ended March 31, 2016 to July 31, 2016.
The amendment also waived, among other things, the cross-default under the Credit Agreement to Valeant's indentures that
arose when the Form 10-K for the fiscal year ended December 31, 2015 was not filed by March 15, 2016, as well as any cross
default that may have arisen under the Company's other indebtedness from the failure to timely deliver this Form 10-K. Any
cross default that may arise under the indentures or the Company’s other indebtedness as a result of any delay in filing the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (the “First Quarter 2016 Form 10-Q”) was
also waived. The amendment modified, among other things, the interest coverage financial maintenance covenant from 3.00
to 1.00 to 2.75 to 1.00 from the fiscal quarter ending June 30, 2016 through the fiscal quarter ending March 31, 2017. Certain
financial definitions were also amended, including the definition of “Consolidated Adjusted EBITDA” which has been
modified to add back fees and expenses in connection with any amendment or modification of the Credit Agreement or any
other indebtedness, and to permit up to $175,000,000 to be added back in connection with costs, fees and expenses relating
to, among other things, Philidor-related matters and/or product pricing-related matters and any review by the Board and the
Ad Hoc Committee related to such matters. The amendment also modified certain existing add-backs to Consolidated Adjusted
EBITDA under the Credit Agreement, including increasing the add-back for (i) restructuring charges in any twelve-month
period to $200,000,000 from $125,000,000 and (ii) fees and expenses in connection with any proposed or actual issuance of
debt, equity, acquisitions, investments, assets sales or divestitures to $150,000,000 from $75,000,000 for any twelve month
period ending on or prior to March 31, 2017.
The terms of the amendment impose a number of restrictions on the Company and its subsidiaries until the time that (i) the
Company delivers its Form 10-K for the fiscal year ended December 31, 2015 and its Form 10-Q for the fiscal quarter ended
March 31, 2016 (such requirements, the "Financial Reporting Requirements") and (ii) the leverage ratio of the Company and
its subsidiaries (being the ratio, as of the last day of any fiscal quarter, of Consolidated Total Debt (as defined in the Credit
Agreement) as of such day to Consolidated Adjusted EBITDA (as defined in the Credit Agreement) for the four fiscal quarter
period ending on such date) is less than 4.50 to 1.00, including imposing (i) a $250,000,000 aggregate cap (the "Transaction
Cap") on acquisitions (although the Transaction Cap does not apply to any portion of acquisition consideration paid for by
either the issuance of the Company’s equity or the proceeds of any such equity issuance), (ii) a restriction on the incurrence
of debt to finance such acquisitions and (iii) a requirement that the net proceeds from certain asset sales be used to repay the
term loans under the Credit Agreement, instead of investing such net proceeds in real estate, equipment, other tangible assets
or intellectual property useful in the business. In addition, the Company's ability to make investments, dividends, distributions,
share repurchases and other restricted payments is also restricted and subject to the Transaction Cap until such time as the
Financial Reporting Requirements are satisfied and the leverage ratio of the Company and its subsidiaries is less than 4.00
to 1.00 (unless such investments or restricted payments can fit within other existing exceptions set out in the Credit Agreement).
F-106
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)
The amendment also increased the interest rate applicable to the Company's loans under the Credit Agreement by 1.00% until
delivery of the Company's financial statements for the fiscal quarter ending June 30, 2017. Thereafter, the interest rate
applicable to the loans will be determined on the basis of a pricing grid tied to the Company's secured leverage ratio.
Management Cease Trade Order Application
On March 21, 2016, the Company applied for a customary management cease trade order (the “MCTO”) from the AMF, the
Company's principal securities regulator in Canada. The application was made in connection with the Company’s anticipated
delay in filing its audited consolidated annual financial statements for the fiscal year ended December 31, 2015, the related
management’s discussion and analysis, certificates of its Chief Executive Officer and Chief Financial Officer and this Form
10-K (collectively, the “Required Canadian Filings”) with Canadian securities regulators until after the March 30, 2016 filing
deadline. The MCTO was issued on March 31, 2016 and prohibits the trading in or acquisition of any securities of the Company,
directly or indirectly, by each of the Company’s current Chief Executive Officer, Chief Financial Officer and each other current
member of the Board. A similar order was issued by the Ontario Securities Commission with respect to a director of the
Company who is resident in that province. The restrictions imposed by the MCTO are expected to be lifted shortly following
the making of the Required Canadian Filings. The MCTO does not affect the ability of other shareholders of the Company
to trade in the Company’s securities.
F-107
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
2014 OMNIBUS INCENTIVE PLAN
MATCHING RESTRICTED STOCK UNIT AWARD AGREEMENT
(MATCHING UNITS)
Exhibit 10.5
Valeant Pharmaceuticals International, Inc. (the “Company”), pursuant to the Company’s 2014 Omnibus Incentive Plan (the
“Plan”), hereby awards to Participant a Restricted Stock Unit Award in the form of matching share units (the “Matching
Restricted Stock Units” or the “Award”), payable in common shares of the Company (“Common Shares”), covering the
number of Common Shares set forth below. This Award is subject to all of the terms and conditions as set forth herein (the
“Award Agreement”) and in the Plan, which is incorporated herein in its entirety. Capitalized terms not otherwise defined
herein shall have the meanings set forth in your Offer Letter, and if such terms are not so defined, the terms shall have the
meanings set forth in the Plan.
Participant:
Date of Grant:
Number of Shares Subject to Award:
Purchase Period:
The details of your Award are as follows.
Calendar quarter ending on the Date of Grant (or, if the
Date of Grant is not the last day of a calendar quarter, the
full calendar quarter immediately preceding the Date of
Grant)
1. CONSIDERATION. Consideration for this Award is satisfied by your services to the Company and your purchase and
retention of the Purchased Shares (as defined in Section 2(b) of this Award Agreement).
2. VESTING.
(a) In General. Subject to the provisions of the Plan and this Award Agreement (including the provisions of
Section 2(b) below), onethird (1/3rd) of the Award shall vest on the first anniversary of the Date of Grant and an additional
onethird (1/3rd) of the Award shall vest each of the second and third anniversaries of the Date of Grant, provided you are
employed on the relevant vesting date. Settlement of vested Awards shall be pursuant to Section 4 below.
(b) Additional Forfeiture Provisions. Notwithstanding the provisions of Section 2(a), if (i) prior to the third
anniversary of the Date of Grant, you sell (or otherwise dispose of in a manner not specifically approved by the Committee)
any Purchased Shares or Net Shares (as defined in Section 3 of this Award Agreement) or (ii) prior to the date that is six
months following the Date of Grant, you sell (or otherwise dispose of in a manner not specifically approved by the
Committee) any Common Shares held by you, whether or not Purchased Shares, in either case, an equal number of unvested
Matching Restricted Stock Units (up to the maximum number of Matching Restricted Stock Units unvested as of the date of
sale or disposition) shall be forfeited with the Matching Restricted Stock Units next scheduled to vest being forfeited first. In
addition, to the extent, following the Date of Grant, the Company becomes aware that you sold Common Shares in the six
month period prior to the Date of Grant, such that, had the Company been aware of such sale prior to the Date of Grant, some
or all of the Matching Restricted Stock Units would not have been granted to you pursuant to the terms of this Award
Agreement, a number of Matching Restricted Stock Units (whether or not vested) equal to the number of Common Shares
sold shall be forfeited, with the Matching Restricted Stock Units next scheduled to vest being forfeited first, and should it be
determined that you were aware of such undisclosed sale or disposition at the time of the Grant Date, the Company may
terminate your employment with the Company and its affiliates and such termination shall be deemed to be a termination for
Cause for all purposes (including without limitation, for purposes of determining your right to separation pay under any
agreement with the Company that you are a party to or any plan or policy of the Company and for purposes of determining
the treatment of any Company equity awards that you may hold at the time of your termination). For purposes of this Award
Agreement, “Purchased Shares” shall mean the Common Shares that you purchase during the Purchase Period (as set forth
above), or if you exercise a previously granted option during the Purchase Period, a number of Common Shares acquired in
connection with such exercise equal to the aggregate exercise price divided by the Market Price of a Common Share on the
date of exercise; provided, however, that the aggregate number of Purchased Shares shall not exceed the number of Matching
Restricted Stock Units granted to you hereunder. For the avoidance of doubt, the net settlement of any previously granted
equity awards to satisfy exercise price or tax withholding obligations shall not be considered a sale or other disposition of
Common Shares for purposes of this Award Agreement.
Exhibit 10.26
400 Somerset Corporate Blvd.
Bridgewater, NJ 08807
www.valeant.com
July 1, 2015
Mr. Brian Stolz
Dear Brian:
This letter agreement outlines the details of your continuing employment with Valeant Pharmaceuticals International, Inc.
(the “Company”), and your Company assignment during the Employment Term (as defined below).
1. Effect on Other Agreements.
(a) Except as specifically described in Section 1(b) and referenced in Section 11(k), the terms of this letter agreement
constitute the entire agreement between the Company and you with respect to the subject matter hereof, and
supersede all prior agreements and negotiations, including, without limitation, the terms of the letter agreement
between you and the Company, dated June 27, 2011 (the “June 2011 Letter”).
(b) For the avoidance of doubt, except as specifically set forth in Section 11(l) of this letter, the terms of any equity
awards held by you with respect to the Company and those granted in conjunction with the execution of this letter
agreement shall continue to be governed exclusively by the terms set forth in the plan and award agreement
governing each such award.
2. Employment Term; Title: Duties.
(a) Employment Term. Your employment term (the “Employment Term”) under this letter agreement shall be for the
period commencing on the date hereof (the “Effective Date”) and ending on the date that is fortytwo months
following the Effective Date, unless the Employment Term is terminated earlier pursuant to Section 6 hereof. For
the avoidance of doubt, you shall not be entitled to payments pursuant to Section 8 of this letter agreement upon
the termination of your employment upon or following the expiration of the Employment Term.
Brian Stolz
Page 2
(b) Title. During the Employment Term, you shall serve as Senior Vice President – Neurology, Dentistry and Generics.
You will report initially to the Company’s Chief Executive Officer and thereafter to the Chief Executive Officer or
such other person designated by the Company from time to time. It is contemplated that you shall be part of an
extended executive management team or similarlevel management group that the Company may establish (such
group, including any successor to such group, the “EEMT”). Upon the commencement of the Employment Term,
you shall no longer be a member of the most senior management group, the Executive Management Team (such
group, and any successor group, the “EMT”) or a Section 16 “executive officer” or other “executive officer” of the
Company. The establishment of any EEMT or similar management structure is under consideration and there is no
guarantee that any such group shall be established. Your principal place of employment will be in New Jersey.
(c) AtWill Employment; Duties. Your employment with the Company is “atwill.” This means that you or the
Company have the option to terminate your employment at any time, with or without advance notice, and with or
without cause. The atwill nature of your employment can be altered only by a written agreement specifying the
altered status of your employment. Such written agreement must be signed by both you and the Chief Executive
Officer. During the Employment Term, you shall devote your full business time, energy and best efforts to the
performance of your duties hereunder and shall not engage, directly or indirectly, in any other business, profession,
occupation or investment, for compensation or otherwise, which would conflict or interfere with the rendition of
such services.
3. Annual Compensation.
(a) Base Salary. Your base salary during the Employment Term shall be $550,000 per year, and the Company, in its
sole discretion, may increase such amount from time to time.
(b) Annual Incentive. You will be eligible to participate in the Company’s management bonus plan as in effect from
time to time for each calendar year during the Employment Term, with a target bonus of 80%, with the potential of
160% of your base pay. The terms of any such plan will be determined in the discretion of the Company’s Board of
Directors (the “Board”) (or a committee thereof), which will retain the discretion to amend or terminate any such
plan at any time in its sole discretion. Any annual incentive to which you become entitled shall be payable at the
time management bonuses are paid generally. Except as otherwise set forth herein in Section 8, to be eligible for
any bonus payment, you must be employed by the Company, and not have given or received notice of the
termination of your employment, on the day on which the applicable bonus is paid to other members of the
Company management.
Brian Stolz
Page 3
4. Equity Awards; Equity Ownership; Matching Grants.
(a) Equity Awards. As soon as practicable after the Effective Date, under the Company’s 2014 Omnibus Incentive Plan
(the “Plan”), subject to any required approvals of the Board (or a committee thereof), the Company will take such
action as to grant to you 21,000 performancebased restricted share units (“PSUs”) under the Plan, pursuant to
award agreements which shall contain the terms consistent with the customary terms of such grant by the
Company, including without limitation, (x) that such PSUs shall be measured approximately 3 years (or 4 years)
from the PSU grant date and provide for 100300% vesting based on 10%30% annual compounded total
shareholder return growth rates (“TSR”) over the measurement periods, (y) that any acceleration due to TSR
performance shall not occur prior to the second anniversary of the grant date and (z) in no circumstance shall any
vesting above the 200% level occur, nor any shares above the 200% level be deliverable, due to TSR performance
until and unless you are employed with the Company and in good standing (including not having given or
received any notice of termination of employment, by either party and for any reason) on the third anniversary of
the PSU grant date.
(b) Share Ownership Commitment. You also agree to comply with any applicable share ownership requirements
adopted by the Company, as may be amended from time to time, which shall require you to hold Company shares
to the extent that share ownership is required for similarly situated employees of the Company, which you
acknowledge that, as a member of the EEMT, is two times the sum of your base salary and annual bonus target.
(c) Matching Grants for Share Purchases. In connection with such share ownership, you shall continue be eligible to
receive matching share units to the extent such a program continues to be maintained by the Company for similarly
situated employees of the Company, in accordance with the terms of any such program as may be in effect from
time to time. For avoidance of doubt, any prior purchases and matching under this program shall count toward the
program limits and nothing in this letter creates a new matching opportunity other than to the extent your
matching limit is increased due to an increase in your previous base salary or target bonus.
5. Benefits.
(a) Business Expense Reimbursement. Upon submission of proper invoices in accordance with the Company’s normal
procedures, you shall be entitled to receive prompt reimbursement of all reasonable outofpocket business,
entertainment and travel expenses incurred by you in connection with the performance of your duties hereunder.
Brian Stolz
Page 4
6. Termination. Your employment and the Employment Term may be terminated under the circumstances described in
paragraphs (a)(f) of this Section 6. The effective date of any such termination is referred to herein as the “Termination
Date.”
(a) Death. Your employment shall be terminated as of the date of your death and your beneficiaries shall be entitled to
the Accrued Obligations described in Section 7 hereof.
(b) Disability. The Company may terminate your employment, on written notice to you after having established your
Disability and while you remain Disabled, and you shall be entitled to the Accrued Obligations described in
Section 7 and any benefits to which you may be entitled under any applicable disability plan of the Company. For
purposes of this letter, “Disability” shall have the meaning assigned to such term in the Plan.
(c) Without Cause. The Company may terminate your employment without Cause and you shall be entitled to the
Accrued Obligations described in Section 7 and the benefits described in Section 8.
(d) For Cause. The Company may terminate your employment for “Cause,” and you shall be entitled to the Accrued
Obligations described in Section 7. “Cause” shall mean, for purposes of this letter, “cause” shall be defined as
(1) conviction of any felony or indictable offense (other than one related to a vehicular offense) or other criminal
act involving fraud; (2) willful misconduct that results in a material economic detriment to the Company;
(3) material violation of Company policies and directives, which is not cured after written notice and an
opportunity for cure; (4) continued refusal by you to perform your duties after written notice identifying the
deficiencies and an opportunity for cure; and (5) a material violation by you of any material covenants to the
Company. No action or inaction shall be deemed willful if not demonstrably willful and if taken or not taken by
you in good faith and with the understanding that such action or inaction was not adverse to the best interests of
the Company. Reference in this paragraph to the Company shall also include direct and indirect subsidiaries of the
Company, and materiality shall be measured based on the action or inaction and the impact upon the Company
taken as a whole. The Company may suspend you from employment (without pay, and without vesting credit for
outstanding equity awards) upon your indictment for the commission of a felony or indictable offense as described
under clause (1) above. Such suspension may remain effective until such time as there has been a final adjudication
with respect to the offense in question. If such final adjudication does not result in a conviction, as soon as
practicable following such final adjudication, the Company will pay you the base salary and target bonus amount
that you would have received for the period during which you were suspended without pay (with interest from the
date such amounts would otherwise have been paid at the shortterm applicable federal rate, compounded semi
annually, as determined under Section 1274 of the Internal Revenue Code of 1986, as amended, for the month in
which payment would have been made but for the delay) and you will receive vesting credit for purposes of your
outstanding equity awards.
Brian Stolz
Page 5
(e) For Good Reason. You may terminate your employment for Good Reason (as defined below) by delivering to the
Company a Notice of Termination (as defined below) not less than thirty (30) days prior to the termination of your
employment for Good Reason and you shall be entitled to the Accrued Obligations described in Section 7 and the
benefits described in Section 8. The Company shall have the option of terminating your duties and responsibilities
prior to the expiration of such thirtyday notice period. For purposes of this letter, Good Reason shall mean the
occurrence of any of the events or conditions described in clauses (i) through (iii) immediately below which are not
cured by the Company (if curable) within thirty (30) days after the Company has received written notice from you
which notice must be provided by you within ninety (90) days of the initial existence of the event or condition
constituting Good Reason specifying the particular events or conditions which constitute Good Reason and the
specific cure requested by you. For the avoidance of doubt, the provisions of this Section 6(e) shall not be triggered
upon any event or circumstance resulting from any change in duties or responsibilities (including any
corresponding title change) so long as your title is at the level of senior vice president (or a comparable title) or
above; your death or Disability; the termination of your employment for Cause; or your termination of your
employment other than for Good Reason.
(i)
Diminution of Responsibility. your ceasing to have a position at the level of senior vice president (or a
comparable title) or above with respect to one or more businesses;
(ii) Compensation Reduction. Any reduction in your base salary or target bonus opportunity which is not
comparable to reductions in the base salary or target bonus opportunity of all other similarlysituated
employees at the Company; or
(iii) Company Breach. Any other material breach by the Company of any material provision of this letter.
(f) Upon or Following Expiration of Employment Term. For the avoidance of doubt, no payments shall be due to you
under this letter agreement upon a termination of your employment for any or no reason upon the expiration of, or
at any time following, the Employment Term.
(g) Notice of Termination. With the exception of a termination described in Section 6(a), any termination of your
employment by the Company or by you shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this letter agreement, a “Notice of Termination” shall mean a notice which indicates a
termination date, the specific termination provision in this letter agreement relied upon and sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of your employment under the
provision so indicated. For purposes of this letter agreement, no such termination of your employment hereunder
shall be effective without such Notice of Termination (unless waived by the party entitled to receive such notice).
Brian Stolz
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7. Accrued Obligations. Upon any termination of your employment during the Employment Term, you will be entitled to
(i) payment of the earned and unpaid base salary and accrued and unpaid vacation time through the date of termination;
(ii) reimbursement, within sixty (60) days following submission by you to the Company of appropriate supporting
documentation, for any unreimbursed business expenses properly incurred by you in accordance with Company policy
prior to the date of your termination; provided claims for such reimbursement (accompanied by appropriate supporting
documentation) are submitted to the Company within ninety (90) days following the date of your termination of
employment; and (iii) such employee benefits, if any, to which you are entitled under the employee benefit plans of the
Company under the terms of such plans (the amounts described in clauses (i) through (iii) hereof being referred to as the
“Accrued Obligations”). The treatment of any deferred compensation or equity or equitybased award held by you upon
termination shall be governed by the terms of the applicable plan and/or agreement (as modified by this letter
agreement, if applicable).
8.
Severance Benefits. If your employment is terminated by the Company without Cause or by you for Good Reason, the
Company shall have the following obligations:
(a) The Company will pay you an amount equal to the sum of (A) your annual salary as of the Termination Date, plus
(B) your annual target bonus as of the Termination Date, provided that, if your termination occurs either in
contemplation of a Change in Control or at any time within twelve (12) months following a Change in Control, the
Company shall instead pay you an amount equal to two times the sum of (A) your annual salary as of the
Termination Date, plus (B) your annual target bonus as of the Termination Date.
(b)
In addition, the Company will pay you any bonus earned but unpaid in respect of any fiscal year preceding the
Termination Date. The Company will also pay you a bonus in respect of the fiscal year in which the Termination
Date occurs, as though you had continued in employment until the payment of bonuses by the Company to its
senior management for such fiscal year, in an amount equal to the product of (A) the lesser of (x) the bonus that you
would have been entitled to receive based on actual achievement against the stated performance objectives or
(y) the bonus that you would have been entitled to receive assuming that the applicable performance objectives for
such fiscal year were achieved at “target”, and (B) a fraction (i) the numerator of which is the number of days in
such fiscal year through Termination Date and (ii) the denominator of which is 365; provided that, if your
termination occurs at any time within twelve (12) months following a Change in Control (or during the six months
prior to a Change in Control if such termination was in contemplation of, and directly related to, the Change in
Control), then in the foregoing calculation the amount under (A) shall be equal to (y). Any bonus payable to you
under this Section 8(b) shall be paid in no event later than March 15 of the calendar year following the calendar
year in which the Termination Date occurs.
Brian Stolz
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(c) The Company will provide you (and your dependents) with continued coverage under any health, medical, dental
or vision program or policy in which you were eligible to participate at the time of your employment termination
for 12 months following such termination on payment terms no less favorable to you and your dependents
(including with respect to payment for the costs thereof) than those in effect immediately prior to such termination
(it being understood that such programs or policies shall remain subject to change from time to time);
(d) The Company shall provide outplacement services through one or more outside firms of your choosing up to an
aggregate of $20,000, which services shall extend until the earlier of (i) 12 months following the termination of
your employment or (ii) the date that you secure full time employment.
(e) Notwithstanding anything herein to the contrary, the Company shall have no obligation to pay or provide any of
the severance benefits provided for by Section 8 of this letter agreement and shall have no obligations to you in
respect of the termination of your employment save and except for obligations that are expressly established by
applicable employment standards legislation unless you execute and deliver, within 60 days of the date of your
termination, and do not revoke, a general release in a form reasonably satisfactory to the Company and any
revocation period set forth in the release has lapsed. Subject to the provisions of Section 11(b), the Company shall
pay all cash severance benefits due within 10 business days following the satisfaction of all of the conditions set
forth in the preceding sentence. You shall not be required to mitigate the amount of any severance payment
provided for under this letter by seeking other employment or otherwise and no such payment shall be offset or
reduced by the amount of any compensation or benefits provided to you in any subsequent employment, except
that the benefit continuation described in Section 8(c) may be reduced by the Company to the extent that you
obtain replacement coverage following the Date of Termination.
(f) Notwithstanding anything herein to the contrary, in no event shall the timing of your execution of the general
release, directly or indirectly, result in you designating the calendar year of payment, and if a payment that is
subject to execution of the general release could be made in more than one taxable year, payment shall be made in
the later taxable year.
9. Change in Control. For purposes of each equity award outstanding as of the date hereof, (notwithstanding anything to
the contrary in the applicable award agreement), a “Change in Control” shall be deemed to occur if and when the first of
the following occurs:
(a)
the acquisition (other than from the Company), by any person (as such term is defined in Section 13(c) or 14(d) of
the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) of beneficial ownership (within the
meaning of Rule 13d3 promulgated under the Exchange Act) of fifty percent (50%) or more of the combined
voting power of the Company’s then outstanding voting securities;
Brian Stolz
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(b)
(c)
the individuals who, as of the date hereof, are members of the Board (the “Incumbent Board”), cease for any reason
to constitute at least a majority of the Board, unless the election, or nomination for election by the Company’s
shareholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, and such
new director shall be considered as a member of the Incumbent Board;
the closing of an amalgamation or similar business combination (each, an “Amalgamation”) involving the
Company if (i) the shareholders of the Company, immediately before such Amalgamation, do not, as a result of
such Amalgamation, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the
then outstanding voting securities of the entity resulting from such Amalgamation in substantially the same
proportion as their ownership of the combined voting power of the voting securities of the Company outstanding
immediately before such Amalgamation or (ii) immediately following the Amalgamation, the individuals who
comprised the Board immediately prior thereto do not constitute at least a majority of the board of directors of the
entity resulting from such Amalgamation (or, if the entity resulting from such Amalgamation is then a subsidiary,
the ultimate parent thereof);
(d) a complete liquidation or dissolution of the Company or the closing of an agreement for the sale or other
disposition of all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because fifty percent
(50%) or more of the combined voting power of the Company’s then outstanding securities is acquired by (i) a
trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company
or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or
indirectly by the shareholders of the Company in the same proportion as their ownership of shares in the Company
immediately prior to such acquisition. In addition, notwithstanding the foregoing, solely to the extent required by
Section 409A of the Internal Revenue Code of 1986 (“Section 409A”), a Change of Control shall be deemed to
have occurred only if a change in the ownership or effective control of the Company or a change in ownership of a
substantial portion of the assets of the Company shall also be deemed to have occurred under Section 409A.
10. Covenant Not to Solicit.
(a) Covenant. To protect the confidential information and other trade secrets of the Company and its affiliates, you
agree, during your employment with the Company or any of its affiliates and for a period of twelve (12) months
after your cessation of employment with the Company or any of its affiliates, not to solicit, attempt to solicit, or
participate in or assist in any way in the solicitation or attempted solicitation of any employees or independent
contractors of the Company or any its affiliates. For purposes of this covenant, “solicit” or “solicitation” means
directly or indirectly influencing or attempting to influence employees of the Company or any of its affiliates to
become employed with any other person, partnership, firm, corporation or other entity. You agree that the
covenants contained in this paragraph are reasonable and necessary to protect the confidential information and
other trade secrets of the Company and its affiliates, provided, that solicitation through general advertising or the
provision of references shall not constitute a breach of such obligations.
Brian Stolz
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(b) Remedies for Breach of Obligations Under the Covenants Not to Solicit Above. It is the intent and desire of you
and the Company (and its affiliates) that the restrictive provisions of Section 10(a) above be enforced to the fullest
extent permissible under the laws and public policies as applied in each jurisdiction in which enforcement is
sought. If any particular provision in such paragraph shall be determined to be invalid or unenforceable, such
covenant shall be amended, without any action on the part of either party hereto, to delete therefrom the portion so
determined to be invalid or unenforceable, such deletion to apply only with respect to the operation of such
covenant in the particular jurisdiction in which such adjudication is made. Your obligations under Section 10(a)
shall survive the termination of your employment with or any other employment arrangement with the Company or
any of its affiliates. You acknowledge that the Company or its affiliates will suffer irreparable injury, not readily
susceptible of valuation in monetary damages, if you breach your obligations under Section 10(a). Accordingly,
you agree that the Company and its affiliates will be entitled, in addition to any other available remedies, to obtain
injunctive relief against any breach or prospective breach by you of your obligations under Section 10(a) in any
Federal or state court sitting in the State of New Jersey, or, at the Company’s (or its affiliate’s) election, in any other
state or jurisdiction in which you maintain your principal residence or your principal place of business. You agree
that the Company or its affiliates may seek the remedies described in the preceding sentence notwithstanding any
arbitration or mediation agreement that you may enter into with the Company or any of its affiliates. You hereby
submit to the nonexclusive jurisdiction of all those courts for the purposes of any actions or proceedings instituted
by the Company or its affiliates to obtain that injunctive relief, and you agree that process in any or all of those
actions or proceedings may be served by registered mail, addressed to the last address provided by you to the
Company or its affiliates, or in any other manner authorized by law.
11. Miscellaneous.
(a)
Indemnification. You shall be indemnified by the Company as provided in its articles or, if applicable, pursuant to
an indemnification agreement with the Company if such agreements are provided to similarlysituated employees.
(b) Section 409A. The parties intend for the payments and benefits under this letter agreement to be exempt from
Section 409A or, if not so exempt, to be paid or provided in a manner which complies with the requirements of
such section, and intend that this letter agreement shall be construed and administered in accordance with such
intention. Any payments that qualify for the “shortterm deferral” exception or another exception under
Section 409A shall be paid under the applicable exception. For purposes of the limitations on nonqualified
deferred compensation under Section 409A, each payment of compensation under this letter agreement shall be
treated as a separate payment of compensation. Notwithstanding anything contained herein to the contrary, to the
extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A, amounts that would
otherwise be payable and benefits that would otherwise be provided pursuant to this letter during the sixmonth
period immediately following your separation from service shall instead be paid on the first business day after the
date that is six months following your Termination Date (or death, if earlier), with interest from the date such
amounts would otherwise have been paid at the shortterm applicable federal rate, compounded semiannually, as
determined under Section 1274 of the Internal Revenue Code of 1986, as amended, for the month in which
payment would have been made but for the delay in payment required to avoid the imposition of an additional rate
of tax on you under Section 409A. With respect to reimbursements from the Company to which you are entitled
(pursuant to Section 5(b) or otherwise) (i) the amount of reimbursements (or inkind benefits) to which you may
become entitled in any one calendar year shall not affect the amount of expenses eligible for reimbursement (or in
kind benefits) hereunder in any other calendar year; (ii) each reimbursement to which you become entitled shall be
made by the Company as soon as administratively practicable following your submission of the supporting
documentation, but in no event later than the close of business of the calendar year following the calendar year in
which the reimbursable expense is incurred and (iii) your right to reimbursement (or inkind benefits) cannot be
liquidated or exchanged for any other benefit or payment.
Brian Stolz
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(c) Recovery of Incentive Compensation. You acknowledge and agree that incentive compensation granted to you
following the Effective Date relating to your employment with the Company shall be subject to the terms of the
Company’s policies on the recovery of incentive cash compensation (sometimes referred to as “clawback”) as in
effect from time to time; provided that all of your incentive compensation, whenever granted, shall be subject to
such additional clawback provisions as required by law and applicable listing rules.
(d) Withholding. The Company shall be entitled to withhold the amount, if any, of all taxes of any applicable
jurisdiction required to be withheld by an employer with respect to any amount paid to you hereunder. The
Company, in its sole and absolute discretion, shall make all determinations as to whether it is obligated to
withhold any taxes hereunder and the amount hereof.
(e) Modification. No provision of this letter agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by you and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this
letter agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by any party which are not expressly
set forth in this letter agreement.
Brian Stolz
Page 11
(f) Assignment. This letter agreement, and all of your rights and duties hereunder, shall not be assignable or delegable
by you. This letter agreement may be assigned by the Company to a person or entity which is an affiliate or a
successor in interest to substantially all of the assets or business operations of the Company. Upon such
assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such
affiliate or successor person or entity.
(g) Notice. For the purposes of this letter agreement, notices and all other communications provided for in the letter
agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses last given by each party to each other party; provided that all notices to you shall be directed
to you at your primary home address on file with the Company; and provided that all notices to the Company shall
be directed to the attention of the Chief Executive Officer of the Company with a copy to the General Counsel. All
notices and communications shall be deemed to have been received on the date of delivery thereof or on the third
business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt.
(h) Counterparts. This letter agreement may be signed in counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same instrument.
(i) Governing Law. This letter agreement is governed by the laws of the State of New Jersey.
(j) Currency. All currency amounts set forth in the letter agreement refer to U.S. dollars.
(k) Policies. You acknowledge and agree that the policies of the Company as in effect from time to time will govern
any other matter not specifically covered by this letter agreement. Without limiting the foregoing, you agree that
during your employment by the Company, you will not engage in any activities that constitute a conflict of
interest with the interests of the Company, as outlined in the Company’s conflict of interest policies for employees
in effect from time to time.
Brian Stolz
Page 12
(l) No Good Reason Trigger. You acknowledge and agree that your transition from the roles of Executive Vice
President of Administration and Chief Human Capital Officer, and from your designation as a member of the EMT
and a Section 16 executive officer or other executive officer, to the role of Senior Vice President – Neurology,
Dentistry and Generics and, if applicable, to a member of the EEMT (it being understood that there is no
obligation to create an EEMT and you shall have no right or remedy should the Company not create, or later
dissolve, the EEMT), including the resulting change in duties, responsibilities, and title, will not constitute “Good
Reason” within the meaning of the June 2011 Letter, any Valeant equity awards that you hold, or any other
compensation plan or arrangement of Valeant and its affiliates, and that any future “Good Reason” trigger shall be
governed only by the terms and provisions (including the definition of “Good Reason”) as set forth in this letter
agreement.
As confirmation of acceptance of this employment offer, please sign this letter agreement indicating your agreement and
acceptance of the terms and conditions of employment. In addition, please mail the original signed letter agreement in the
envelope provided. A duplicate copy of this letter agreement is included for your records.
Sincerely,
Valeant Pharmaceuticals International, Inc.
By: /s/ J. Michael Pearson
J. Michael Pearson
Chief Executive Officer
/s/ Brian Stolz
Brian Stolz
(c) Notification Requirements. You hereby agree to notify the Company of (i) any Common Shares that you sell
prior to the date that is six months following the Date of Grant, (ii) any Purchased Shares that you sell prior to the third
anniversary of the Date of Grant, and (iii) any Net Shares (as defined in Section 3(a) of this Award Agreement) that you sell
prior to the third anniversary of the Date of Grant and the Company, in its sole discretion, has the authority to determine
whether such sale results in the forfeiture of any Matching Restricted Stock Units in accordance with the terms of this Award
Agreement. In addition, you agree that, through the third anniversary of the Date of Grant, the Purchased Shares and Net
Shares shall be held with one or more brokers or institutions specified by the Company, that such broker or institution may
provide information to the Company with respect to any transaction involving the Purchased Shares or Net Shares, and that
the Company shall have no responsibility or liability with respect to the actions or creditworthiness of such broker or
institution.
(d) Vesting Acceleration. In the event that (i) your employment is terminated (x) by the Company for any reason
other than on account of Cause or (y) by you for Good Reason, in either case within twelve (12) months following a Change
of Control or (ii) your employment is terminated by the Company due to your death, then the Matching Restricted Stock
Units will immediately vest and be settled in shares as soon as practicable (but not more than sixty (60) days) thereafter.
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3. SALES RESTRICTION.
(a) In General. Following the settlement of the vested Matching Restricted Stock Units subject to your Award in
Common Shares pursuant to Section 4 of this Award Agreement, you may not sell, assign, transfer or otherwise dispose of the
“Net Shares” (as defined below) transferred to you upon settlement of such vested Matching Restricted Stock Units in
Common Shares until the earliest of (i) three (3) years following the Date of Grant; (ii) a Change of Control; or (iii) the day
immediately following your last day of employment. You may be required to execute and deliver such other agreements as
may be reasonably requested by the Company that are consistent with the foregoing or that are necessary to give further
effect thereto. In order to enforce the foregoing, the Company may impose stoptransfer instructions with respect to such
Common Shares until the end of such period, or place legends on stock certificates issued pursuant to the Plan restricting the
transfer of such shares until the end of such period. For purposes of this Award Agreement, the term “Net Shares” shall mean
the net number of Common Shares transferred to you upon settlement of the vested Matching Restricted Stock Units after
subtracting any such Common Shares withheld by the Company in payment of tax withholding obligations applicable to
such settlement.
(b) Exception. Notwithstanding the restrictions in this Award Agreement that do not permit you to sell, assign,
transfer or otherwise dispose of the Purchased Shares, Common Shares or Net Shares, you are permitted to transfer any such
shares without penalty under either of the foregoing circumstances: (i) you may contribute any such shares to a limited
partnership where all partners are members of your family (“Family Limited Partnership”) or a Grantor Retained Annuity
Trust (“GRAT”) or a likevehicle, provided that the Family Limited Partnership, GRAT, or likevehicle (x) does not allow the
shares to be sold, assigned, transferred or otherwise disposed of during the applicable restricted period with respect to such
shares, (y) in the case of a GRAT, you shall at all times remain the trustee of the GRAT, and (z) in the case of a Family Limited
Partnership or such likevehicle, you retain “beneficial ownership” (within the meaning of Rule 13d3 promulgated under
the Securities Act) of such shares; and (ii) you may pledge such shares as collateral for loans, provided that (A) you represent
to the Company that you will not default or otherwise cause such collateral to be liquidated, transferred or sold during the
applicable restricted period, (B) there is an independent reasonable basis to conclude that none of the shares used as
collateral are likely to be sold to satisfy a debt during the applicable restricted period with respect to such shares, and (C) you
agree to substitute other collateral for such shares (with collateral that is not Common Shares) in the event that such collateral
would have to be liquidated, transferred or sold during the applicable restricted period with respect to such shares.
4. DISTRIBUTION OF COMMON SHARES. The Company will deliver to you a number of Common Shares equal to (i) the
number of Matching Restricted Stock Units subject to your Award that become vested in accordance with the terms of this
Award Agreement, plus (ii) any Matching Restricted Stock Units resulting from dividend equivalents credited with respect
to such Matching Restricted Stock Units in accordance with Section 6 of this Award Agreement, as soon as practicable (but,
subject to Section 7(c)(vi) of the Plan regarding blackout restrictions, in any event no later than sixty (60) days) following
the date on which such Matching Restricted Stock Units become vested; provided, that, notwithstanding anything in the
Plan to the contrary, if the Company terminates your service for Cause prior to the date on which the Common Shares are
distributed to you, you shall forfeit any right to such distribution of Common Shares.
3
5. NUMBER OF SHARES. The number of Common Shares subject to your Award may be adjusted from time to time for
capital adjustments, as provided in the Plan. The Company will establish a bookkeeping account to reflect the number of
Matching Restricted Stock Units standing to your credit from time to time. However, you will not be deemed to be the
holder of, or to have any of the rights of a stockholder with respect to, any Common Shares subject to your Award (including
but not limited to stockholder voting rights) unless and until the shares have been delivered to you in accordance with
Section 4 of this Award Agreement.
6. DIVIDEND EQUIVALENTS. The bookkeeping account maintained for your Award shall, until the vesting date or
termination and cancellation or forfeiture of the Matching Restricted Stock Units pursuant to the terms of this Award
Agreement, be allocated additional Matching Restricted Stock Units on the payment date of dividends on the Company’s
Common Shares. Such dividends will be converted into additional Common Shares covered by the Matching Restricted
Stock Units by dividing (i) the aggregate amount or value of the dividends paid with respect to that number of Common
Shares equal to the number of shares covered by the Matching Restricted Stock Units by (ii) the Market Price per Common
Share on the payment date for such dividend. Any such additional Matching Restricted Stock Units shall have the same
vesting dates and vest in accordance with the same terms as the Matching Restricted Stock Units granted under this Award
Agreement.
7. COMPLIANCE WITH SECTION 409A OF THE INTERNAL REVENUE CODE. The Award is intended to comply with
section 409A of the Code to the extent subject thereto, and shall be interpreted in accordance with section 409A of the Code
and treasury regulations and other interpretive guidance issued thereunder, including without limitation any such
regulations or other guidance that may be issued after the Date of Grant. Notwithstanding any provision in the Plan to the
contrary, no payment or distribution under this Plan that constitutes an item of deferred compensation under section 409A of
the Code and becomes payable by reason of your termination of employment or service with the Company shall be made to
you until your termination of employment or service constitutes a separation from service within the meaning of section
409A of the Code. For purposes of this Award, each amount to be paid or benefit to be provided shall be construed as a
separate identified payment for purposes of section 409A of the Code. Notwithstanding any provision in the Plan to the
contrary, if you are a specified employee within the meaning of section 409A of the Code, then to the extent necessary to
avoid the imposition of taxes under section 409A of the Code, you shall not be entitled to any payments upon a termination
of your employment or service until the earlier of: (i) the expiration of the six (6)month period measured from the date of
your separation from service or (ii) the date of your death. Upon the expiration of the applicable waiting period set forth in
the preceding sentence, all payments and benefits deferred pursuant to this Section 7 (whether they would have otherwise
been payable in a single lump sum or in installments in the absence of such deferral) shall be paid to you in a lump sum as
soon as practicable, but in no event later than sixty (60) calendar days, following such expired period, and any remaining
payments due under this Award will be paid in accordance with the normal payment dates specified for them herein.
Notwithstanding any provision of the Plan to the contrary, in no event shall the Company or any affiliate be liable to you on
account of an Award’s failure to (i) qualify for favorable U.S. or foreign tax treatment or (ii) avoid adverse tax treatment under
U.S. or foreign law, including, without limitation, section 409A of the Code.
4
8. SECURITIES LAW COMPLIANCE. You may not be issued any Common Shares under your Award unless the shares are
either (i) then registered under the Securities Act or (ii) the Company has determined that such issuance would be exempt
from the registration requirements of the Securities Act. Your Award must also comply with other applicable laws and
regulations governing the Award, and you shall not receive such shares if the Company determines that such receipt would
not be in material compliance with such laws and regulations.
9. RESTRICTIVE LEGENDS. The Common Shares issued under your Award shall be endorsed with appropriate legends,
if any, determined by the Company.
10. TRANSFERABILITY. Except as otherwise permitted by the Committee in accordance with the terms of the Plan, your
Award is not transferable, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, by
delivering written notice to the Company, in the form prescribed by the Company, you may designate a third party who, in
the event of your death, will thereafter be entitled to receive any distribution of Common Shares pursuant to Section 4 of this
Award Agreement.
11. AWARD NOT A SERVICE CONTRACT. Your Award is not an employment or service contract, and nothing in your
Award will be deemed to create in any way whatsoever any obligation on your part to continue in the service of the
Company or an affiliate, or on the part of the Company or an affiliate to continue such service. In addition, nothing in your
Award will obligate the Company or an affiliate, their respective stockholders, boards of directors or employees to continue
any relationship that you might have as an employee of the Company or an affiliate.
12. UNSECURED OBLIGATION. Your Award is unfunded and you will be considered an unsecured creditor of the
Company with respect to the Company’s obligation, if any, to issue Common Shares pursuant to this Award Agreement. You
will not have voting or any other rights as a stockholder of the Company with respect to the Common Shares subject to your
Award until such Common Shares are delivered to you pursuant to Section 4 of this Award Agreement. Upon such delivery,
you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in this Award Agreement,
and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary
relationship between you and the Company or any other person.
13. WITHHOLDING OBLIGATIONS. On or before the time you receive a distribution of Common Shares pursuant to your
Award, or at any time thereafter as requested by the Company, you hereby authorize any required withholding from the
Common Shares, payroll and any other amounts payable or issuable to you and/or otherwise agree to make adequate
provision in cash for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the
Company or any affiliate which arise in connection with your Award (the “Withholding Taxes”). You may direct the
Company to withhold Common Shares with a Fair Market Value (measured as of the date Common Shares are delivered
pursuant to Section 4) equal to the amount of such Withholding Taxes; provided, however, that the number of such Common
Shares so withheld shall not exceed the amount necessary to satisfy the Company’s required tax withholding obligations
using the minimum statutory withholding rates for federal, state, local and foreign tax purposes, including payroll taxes, that
are applicable to supplemental taxable income.
5
14. NOTICES. Any notices provided for in your Award or the Plan shall be given in writing and shall be deemed
effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
15. HEADINGS. The headings of the Sections in this Award Agreement are inserted for convenience only and will not be
deemed to constitute a part of this Award Agreement or to affect the meaning of this Award Agreement.
16. AMENDMENT. Nothing in this Award Agreement shall restrict the Company’s ability to exercise its discretionary
authority pursuant to Section 4 of the Plan; provided, however, that no such action may, without your consent, adversely
affect your rights under your Award and this Award Agreement. Without limiting the foregoing, the Board (or appropriate
committee thereof) reserves the right to change, by written notice to you, the provisions of this Award Agreement in any way
it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or
regulations or any future law, regulation, ruling, or judicial decision, provided that any such change will be applicable only
to rights relating to that portion of the Award which is then subject to restrictions as provided herein.
17. MISCELLANEOUS.
(a) The rights and obligations of the Company under your Award will be transferable by the Company to any one
or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the
Company’s successors and assigns.
(b) You agree upon request to execute any further documents or instruments necessary or desirable in the sole
determination of the Company to carry out the purposes or intent of your Award.
(c) You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to
obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.
(d) This Award Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
(e) All obligations of the Company under the Plan and this Award Agreement will be binding on any successor to
the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of the Company.
6
18. GOVERNING PLAN DOCUMENT. Your Award is subject to all the provisions of the Plan, the provisions of which are
hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may
from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of
your Award and those of the Plan, the provisions of the Plan will control; provided, however, for avoidance of doubt, terms
contained in the Award Agreement but not in the Plan shall not constitute a conflict and such terms in the Award Agreement
shall control. The Committee will have the power to interpret the Plan and this Award Agreement and to adopt such rules for
the administration, interpretation, and application of the Plan as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the Committee will be final and binding upon
you, the Company, and all other interested persons. No member of the Board or the Committee will be personally liable for
any action, determination, or interpretation made in good faith with respect to the Plan or this Award Agreement.
19. EFFECT ON OTHER EMPLOYEE BENEFIT PLANS. The value of the Award subject to this Award Agreement will not
be included as compensation, earnings, salaries, or other similar terms used when calculating the employee’s benefits under
any employee benefit plan sponsored by the Company or any affiliate except as such plan otherwise expressly provides. The
Company expressly reserves its rights to amend, modify, or terminate any of the Company’s or any affiliate’s employee
benefit plans.
20. CHOICE OF LAW. The interpretation, performance and enforcement of this Award Agreement will be governed by
the law of the Province of Ontario and the laws of Canada.
21. SEVERABILITY. If all or any part of this Award Agreement or the Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Award Agreement
or the Plan not declared to be unlawful or invalid. Any Section of this Award Agreement (or part of such a Section) so
declared to be unlawful or invalid will, if possible, be construed in a manner which will give effect to the terms of such
Section or part of a Section to the fullest extent possible while remaining lawful and valid.
7
Exhibit 10.27
CONFIDENTIAL
April 25, 2015
Ms. Anne Whitaker
Dear Anne:
This letter outlines the details of your employment with Valeant Pharmaceuticals International, Inc. or its applicable
subsidiary (the “Company”), and your Company assignment. The date your employment commences is referred to herein as
the “Commencement Date.”
• Title: Executive Vice President, Group Company Chairman, reporting to the Chief Executive Officer.
• Office Location: Your principal place of employment will be in New Jersey.
• Base Salary and Commencement Date: Your base salary will be $50,000 per month ($600,000 annualized). Your
Commencement Date shall be a date mutually agreed between you and the Company, provided that such date shall
be no later than May 31, 2015.
• Signon Bonus. The Company will pay you a onetime signon bonus payment of $900,000, which amount shall be
paid to you promptly following the Commencement Date, subject to your continued employment on the payment
date. In the event that you terminate your employment other than for Good Reason or should the Company
terminate your employment for Cause, in either case within 2 years of the Commencement Date, you will
immediately repay to the Company a prorata portion of the net amount of the signon bonus payment actually
received by you after tax and other applicable withholdings, based on the portion of such 2 year period which has
not elapsed as of the date of termination.
• Annual Incentive: You will be eligible to participate in the Company’s management bonus plan beginning with
the 2015 calendar year, on a prorata basis for the portion of 2015 during which you are employed. Your target
bonus will be 80% of your base salary, with the potential of up to 160% of your base salary. This plan, and
therefore your participation, is subject to change at the discretion of the Board of Directors. Bonuses are payable at
the time the other management bonuses are paid. To be eligible for any bonus payment, you must be employed by
the Company, and you must not have given or received notice of the termination of your employment, on the day
on which the applicable bonus is paid to other members of the Company management.
Ms. Anne Whitaker
April 25, 2015
Page 2 of 10
CONFIDENTIAL
• Equity Award: The Company will recommend to the Talent and Compensation Committee of the Company’s
Board of Directors (the “Committee”) the following equity award, valued at approximately $8,000,000:
Performance Share Units (each a “PSU”), which vest between 0300%, based on meeting certain company
performance criteria, as measured by total shareholder return approximately three years from the grant date.
The triggers for 1x, 2x and 3x vesting shall be based on the Company’s shares attaining a 10%, 20% and
30% 3year compound annual growth rate, respectively, with measurements governed by the award
agreement.
This equity award is contingent upon your acceptance of this letter agreement and the approval of the Committee
and will be made pursuant to the terms of the Company’s 2014 Omnibus Incentive Plan and governed by such plan
and applicable grant agreements. The grant date for the equity award set forth above shall be on the date that is the
later of the Commencement Date and the date that the Committee approves such award.
The PSUs shall have a base price (from which total shareholder return is measured) equal to the 20tradingday
average of the Company’s closing share price on the NYSE prior to the grant date.
• Share Ownership Commitment. You also agree to comply with any share ownership requirements adopted by the
Company applicable to you, which shall be on the same terms as similarly situated executives of the Company.
• Matching Grants for Share Purchases. In connection with such share ownership, you shall also be eligible to
receive matching share units under the Company’s matching share unit program in accordance with its terms
generally applicable to similarly situated executives of the Company, which currently provide for you to receive a
grant of one matching share unit for each common share of the Company purchased, up to an amount equal to the
two times the sum of your annual base salary and target bonus. Each such matching share unit shall vest in equal
annual portions over the 3year period following grant and shall have such other terms consistent with the terms
customarily provided to similarly situated executives of the Company.
• Good Reason. You may terminate your employment for Good Reason (as defined below) by delivering to the
Company a Notice of Termination (as defined below) not less than thirty (30) days prior to the termination of your
employment for Good Reason. The Company shall have the option of terminating your duties and responsibilities
prior to the expiration of such thirtyday notice period, subject to the payment by the Company of the
compensation and benefits provided in this letter, as may be applicable. For purposes of this letter, “Good Reason”
shall mean the occurrence of any of the events or conditions described in clauses (i) through (iii) immediately
below which are not cured by the Company (if susceptible to cure by the Company) within thirty (30) days after the
Company has received a “Notice of Termination.” “Notice of Termination” means a written notice provided by you
within ninety (90) days of the initial existence of the event or condition constituting Good Reason specifying the
particular events or conditions which constitute Good Reason and the specific cure requested by you.
Ms. Anne Whitaker
April 25, 2015
Page 3 of 10
CONFIDENTIAL
(i)
Diminution of Responsibility. (A) any material reduction in your duties or responsibilities as in effect
immediately prior thereto, or (B) removal of you from the position of Executive Vice President, Group
Company Chairman. For the avoidance of doubt, the term “Diminution of Responsibility” shall not include
(Y) any such removal resulting from a promotion, your death or Disability, the termination of your
employment for Cause, or your termination of your employment other than for Good Reason, (Z) the
reduction of or change in any particular duties or responsibilities provided you are given other duties or
responsibilities such that your overall duties and responsibilities remain at least substantially comparable to
your overall duties and responsibilities prior to the reduction or change;
(ii) Compensation Reduction. Any reduction in your base salary or target bonus opportunity which is not
comparable to reductions in the base salary or target bonus opportunity of other similarlysituated senior
executives at the Company; or
(iii) Company Breach. Any other material breach by the Company of any material provision of this letter.
• Change in Control. For purposes of this letter and, except to the extent as would result in a violation of
Section 409A of the Code, a “Change in Control” shall be deemed to occur if and when the first of the following
occurs:
(i)
(ii)
the acquisition (other than from the Company), by any person (as such term is defined in Section 13(c) or
14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)) of beneficial ownership (within
the meaning of Rule 13d3 promulgated under the 1934 Act) of fifty percent (50%) or more of the combined
voting power of the Company’s then outstanding voting securities;
the individuals who, as of the date hereof, are members of the Board (the “Incumbent Board”), cease for any
reason to constitute at least a majority of the Board, unless the election, or nomination for election by the
Company’s shareholders, of any new director was approved by a vote of at least a majority of the Incumbent
Board, and such new director shall, for purposes of this letter, be considered as a member of the Incumbent
Board;
Ms. Anne Whitaker
April 25, 2015
Page 4 of 10
CONFIDENTIAL
(iii)
the closing of an amalgamation or similar business combination (each, an “Amalgamation”) involving the
Company if (i) the shareholders of the Company, immediately before such Amalgamation, do not, as a result
of such Amalgamation, own, directly or indirectly, more than fifty percent (50%) of the combined voting
power of the then outstanding voting securities of the entity resulting from such Amalgamation in
substantially the same proportion as their ownership of the combined voting power of the voting securities
of the Company outstanding immediately before such Amalgamation or (ii) immediately following the
Amalgamation, the individuals who comprised the Board immediately prior thereto do not constitute at least
a majority of the board of directors of the entity resulting from such Amalgamation (or, if the entity resulting
from such Amalgamation is then a subsidiary, the ultimate parent thereof); or
(iv)
a complete liquidation or dissolution of the Company or the closing of an agreement for the sale or other
disposition of all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to this letter
agreement, solely because fifty percent (50%) or more of the combined voting power of the Company’s then
outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee
benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately
prior to such acquisition, is owned directly or indirectly by the shareholders of the Company in the same
proportion as their ownership of shares in the Company immediately prior to such acquisition. In addition,
notwithstanding the foregoing, solely to the extent required by Section 409A, a Change of Control shall be
deemed to have occurred only if a change in the ownership or effective control of the Company or a change in
ownership of a substantial portion of the assets of the Company shall also be deemed to have occurred under
Section 409A.
• Disability. The Company may terminate your employment, on written notice to you after having established your
Disability and while you remain Disabled, subject to the payment by the Company to you of the applicable
compensation and benefits provided pursuant to this letter agreement. For purposes of this letter agreement,
“Disability” shall have the meaning assigned to such term in the 2014 Omnibus Incentive Plan.
• Cause. The Company may terminate your employment for “Cause”, subject to the payment by the Company to you
of the applicable compensation and benefits provided in this letter agreement. “Cause” shall mean, for purposes of
this letter, “cause” as defined by applicable common law and (1) conviction of any felony or indictable offense
(other than one related to a vehicular offense) or other criminal act involving fraud; (2) willful misconduct that
results in a material economic detriment to the Company; (3) material violation of Company policies and
directives, which is not cured after written notice and a reasonable opportunity for cure; (4) continued refusal by
you to perform your duties after written notice identifying the deficiencies and a reasonable opportunity for cure; or
(5) a material violation by you of any material covenants to the Company. No action or inaction shall be, or be
deemed to be, willful if not demonstrably willful and if taken or not taken by you in good faith and with the
understanding that such action or inaction was not adverse to the best interests of the Company. Reference in this
paragraph to the Company shall also include direct and indirect subsidiaries of the Company, and materiality shall
be measured based on the action or inaction and the impact upon the Company taken as a whole. The Company
may suspend you, with pay, upon your indictment for the commission of a felony or indictable offense as described
under clause (1) above. Such suspension may remain effective until such time as the indictment is either dismissed
or a verdict of not guilty has been entered.
Ms. Anne Whitaker
April 25, 2015
Page 5 of 10
CONFIDENTIAL
• Employee and Executive Benefits. You will be eligible to participate in the employee benefit plans and programs
generally made available to similarly situated employees of the Company on the terms and conditions applicable
generally to all employees. In addition, the Company shall reimburse you for incremental taxes incurred by you
outside of the United States because of any services you provide to the Company outside of the United States or
any business that the Company conducts outside of the United States, if such incremental amount during any tax
year exceeds 1% or more of your average base salary for such tax year. You shall be required to participate in any
tax equalization program the Company may have in effect from time to time in order to qualify for the
benefit described in the preceding sentence.
• Conditions to Reimbursement. The following provisions shall be in effect for any reimbursements (and inkind
benefits) to which you otherwise may become entitled under this letter, in order to assure that such reimbursements
(and inkind benefits) do not create a deferred compensation arrangement subject to Section 409A of the Internal
Revenue Code (“Section 409A”):
(i)
(ii)
The amount of reimbursements (or inkind benefits) to which you may become entitled in any one calendar
year shall not affect the amount of expenses eligible for reimbursement (or inkind benefits) hereunder in any
other calendar year.
Each reimbursement to which you become entitled shall be made by the Company as soon as
administratively practicable following your submission of the supporting documentation, but in no event
later than the close of business of the calendar year following the calendar year in which the reimbursable
expense is incurred.
Ms. Anne Whitaker
April 25, 2015
Page 6 of 10
CONFIDENTIAL
(iii) Your right to reimbursement (or inkind benefits) cannot be liquidated or exchanged for any other benefit or
payment.
• AtWill Employment. Your employment with the Company is “at will”. This means that you or the Company have
the option to terminate your employment at any time, with or without advance notice, and with or without Cause
or with or without Good Reason. This letter of employment does not constitute an express or implied agreement of
continuing or long term employment. The at will nature of your employment can be altered only by a written
agreement specifying the altered status of your employment. Such written agreement must be signed by both you
and the Chief Executive Officer.
• Severance Benefits. Notwithstanding the immediately preceding bullet paragraph, if your employment is
terminated by the Company without Cause or by you for Good Reason, the Company shall have the following
obligations:
(i)
(ii)
The Company will pay you an amount equal to the sum of (A) your annual salary as of the Termination Date,
plus (B) your annual target bonus as of the Termination Date, provided that, if your termination occurs either
in contemplation of a Change in Control or at any time within twelve (12) months following a Change in
Control, the Company shall instead pay you an amount equal to two times the sum of (A) your annual salary
as of the Termination Date, plus (B) your annual target bonus as of the Termination Date. The “Termination
Date” shall be the date specified as the effective date of the termination of your employment in any notice of
termination of employment provided by the Company to you or accepted by the Company in the event of
your giving notice of the termination of your employment.
The Company will pay you any accrued but unpaid salary or vacation pay and any deferred compensation. In
addition, the Company will pay you any bonus earned but unpaid in respect of any fiscal year preceding the
Termination Date. The Company will also pay you a bonus in respect of the fiscal year in which the
Termination Date occurs, as though you had continued in employment until the payment of bonuses by the
Company to its executives for such fiscal year, in an amount equal to the product of (A) the lesser of (x) the
bonus that you would have been entitled to receive based on actual achievement against the stated
performance objectives or (y) the bonus that you would have been entitled to receive assuming that the
applicable performance objectives for such fiscal year were achieved at “target”, and (B) a fraction (i) the
numerator of which is the number of days in such fiscal year through Termination Date and (ii) the
denominator of which is 365; provided that, if your termination occurs either in contemplation of a Change
in Control or at any time within twelve (12) months following a Change in Control, then in the foregoing
calculation the amount under (A) shall be equal to (y). Any bonus payable to you under this bullet shall be
paid in no event later than March 15 of the calendar year following the calendar year in which the
Termination Date occurs.
Ms. Anne Whitaker
April 25, 2015
Page 7 of 10
CONFIDENTIAL
(iii) The Company will provide you with continued coverage under any health, medical, dental or vision
program or policy in which you were eligible to participate at the time of your employment termination for
12 months following such termination on terms no less favorable to you and your dependents (including
with respect to payment for the costs thereof) than those in effect immediately prior to such termination.
(iv) The Company shall provide outplacement services through one or more outside firms of your choosing up to
an aggregate of $20,000, which services shall extend until the earlier of (i) 12 months following the
Termination Date or (ii) the date that you secure full time employment.
Notwithstanding anything herein to the contrary, the Company shall have no obligation to pay or provide
any of the severance benefits referenced or set forth in this letter and shall have no obligations to you in
respect of the termination of your employment save and except for obligations that are expressly established
by applicable employment standards legislation unless you execute and deliver, within 45 days of the date
of your termination, and do not revoke, a general release in form satisfactory to the Company and any
revocation period set forth in the release has lapsed. Subject to compliance with Section 409A, the Company
shall pay all cash severance benefits due within 10 business days following the satisfaction of all of the
conditions set forth in the preceding sentence. You shall not be required to mitigate the amount of any
severance payment provided for under this letter by seeking other employment or otherwise and no such
payment shall be offset or reduced by the amount of any compensation or benefits provided to you in any
subsequent employment.
Notwithstanding anything herein to the contrary, in no event shall the timing of your execution of the
general release, directly or indirectly, result in you designating the calendar year of payment, and if a
payment that is subject to execution of the general release could be made in more than one taxable year,
payment shall be made in the later taxable year.
It is understood that, during your employment by the Company, you will not engage in any activities that
constitute a conflict of interest with the interests of the Company, as outlined in the Company’s conflict of
interest policies for employees and executives in effect from time to time.
• Covenant Not to Solicit. To protect the confidential information and other trade secrets of the Company and its
affiliates, you agree, during your employment with the Company or any of its affiliates and for a period of twelve
(12) months after your cessation of employment with the Company or any of its affiliates, not to solicit, attempt to
solicit, or participate in or assist in any way in the solicitation or attempted solicitation of any employees or
independent contractors of the Company or any of its affiliates. For purposes of this covenant, “solicit” or
“solicitation” means directly or indirectly influencing or attempting to influence employees of the Company or any
of its affiliates to become employed with any other person, partnership, firm, corporation or other entity. You agree
that the covenants contained in this paragraph are reasonable and necessary to protect the confidential information
and other trade secrets of the Company and its affiliates, provided, that solicitation through general advertising or
the provision of references shall not constitute a breach of such obligations. For purposes of this paragraph, an
“affiliate” shall mean any direct or indirect subsidiary of the Company or any joint venture or collaboration in
which any such entity or the Company participates.
Ms. Anne Whitaker
April 25, 2015
Page 8 of 10
CONFIDENTIAL
• Remedies for Breach of Obligations Under the Covenants Not to Solicit Above. It is the intent and desire of you
and the Company (and its affiliates) that the restrictive provisions in the paragraph captioned “Covenant Not to
Solicit” above be enforced to the fullest extent permissible under the laws and public policies as applied in each
jurisdiction in which enforcement is sought. If any particular provision in such paragraph shall be determined to be
invalid or unenforceable, such covenant shall be amended, without any action on the part of either party hereto, to
delete therefrom the portion so determined to be invalid or unenforceable, such deletion to apply only with respect
to the operation of such covenant in the particular jurisdiction in which such adjudication is made. Your
obligations under the two preceding paragraphs shall survive the termination of your employment with or any
other employment arrangement with the Company or any of its affiliates. You acknowledge that the Company or its
affiliates will suffer irreparable injury, not readily susceptible of valuation in monetary damages, if you breach your
obligations under the paragraph captioned “Covenant Not to Solicit” above. Accordingly, you agree that the
Company and its affiliates will be entitled, in addition to any other available remedies, to obtain injunctive relief
against any breach or prospective breach by you of your obligations under either such paragraph in any Federal or
state court sitting in the State of New Jersey, or, at the Company’s (or its affiliate’s) election, in any other state or
jurisdiction in which you maintain your principal residence or your principal place of business. You agree that the
Company or its affiliates may seek the remedies described in the preceding sentence notwithstanding any
arbitration or mediation agreement that you may enter into with the Company or any of its affiliates. You hereby
submit to the nonexclusive jurisdiction of all those courts for the purposes of any actions or proceedings instituted
by the Company or its affiliates to obtain that injunctive relief, and you agree that process in any or all of those
actions or proceedings may be served by registered mail, addressed to the last address provided by you to the
Company or its affiliates, or in any other manner authorized by law.
• Indemnification. You shall be indemnified by the Company as provided in its articles or, if applicable, pursuant to
an indemnification agreement with the Company if such agreements are provided to similarly situated executives.
Ms. Anne Whitaker
April 25, 2015
Page 9 of 10
CONFIDENTIAL
• Section 409A. The parties intend for the payments and benefits under this letter to be exempt from Section 409A or,
if not so exempt, to be paid or provided in a manner which complies with the requirements of such section, and
intend that this letter shall be construed and administered in accordance with such intention. Any payments that
qualify for the “shortterm deferral” exception or another exception under Section 409A shall be paid under the
applicable exception. For purposes of the limitations on nonqualified deferred compensation under Section 409A,
each payment of compensation under this letter shall be treated as a separate payment of compensation.
Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated
taxation and/or tax penalties under Section 409A, amounts that would otherwise be payable and benefits that
would otherwise be provided pursuant to this letter during the sixmonth period immediately following your
separation from service shall instead be paid on the first business day after the date that is six months following
your Termination Date (or death, if earlier), with interest from the date such amounts would otherwise have been
paid at the shortterm applicable federal rate, compounded semiannually, as determined under Section 1274 of the
Internal Revenue Code of 1986, as amended, for the month in which payment would have been made but for the
delay in payment required to avoid the imposition of an additional rate of tax on you under Section 409A.
• Withholding Taxes. All payments to you or your beneficiary under this letter agreement shall be subject to
withholding on account of federal, state and local taxes as required by law.
You acknowledge that you have, reviewed, agreed, signed and returned the Company’s customary onboarding
documentation.
Policies of the Company will govern any other matter not specifically covered by this letter.
Except as specifically described in the following sentence, the terms of this letter constitute the entire agreement between the
Company and you with respect to the subject matter hereof, superseding all prior agreements and negotiations. This letter is
governed by the laws of the State of New Jersey. All currency amounts set forth in the letter agreement refer to U.S. dollars.
This letter and the documents referenced herein are the full, complete and exclusive agreement between you and the
Company regarding all of the subjects covered by this letter, and supersede in their entirety any other written or verbal
agreement between you and the Company.
Ms. Anne Whitaker
April 25, 2015
Page 10 of 10
CONFIDENTIAL
As confirmation of acceptance of this letter agreement, please sign this letter indicating your agreement and acceptance of
the terms and conditions of employment. In addition, please mail the original signed letter in the envelope provided. A
duplicate copy of this letter is included for your records.
Sincerely,
Valeant Pharmaceuticals International, Inc.
By: /s/ J. Michael Pearson
J. Michael Pearson
Chief Executive Officer
/s/ Anne Whitaker
Anne Whitaker
Exhibit 10.28
Valeant Pharmaceuticals North America LLC
700 Route 202/206 North
Bridgewater, New Jersey 08807
Tel: 908.927.1400
www.valeant.com
July 23, 2013
Deborah Jorn
Bausch & Lomb
Dear Deborah,
We are pleased to provide you with this letter as confirmation of your offer of employment with Valeant Pharmaceuticals
North America, LLC (“Valeant”). This offer is contingent upon: 1) the closing of the pending merger transaction involving
Bausch & Lomb Holdings Incorporated (“Bausch & Lomb”) and Valeant Pharmaceuticals International, Inc. (the “Merger”);
and 2) your continued employment with Bausch & Lomb now through the closing date of the Merger.
This offer letter outlines the details of your continued employment including your compensation and benefits.
• Title. Your title will be VP, Marketing Dermatology.
• Salary. Your base salary will be $383,915.86 USD annually, or $15,996.50 semimonthly.
• Bonus Plan. You are eligible to participate in the Valeant Pharmaceuticals International, Inc. (“VPII”) management
bonus plan. Your target bonus will be 40% of your base salary, with the potential of 80% of your base salary. This
plan, and therefore your participation, is subject to change at the discretion of the Talent and Compensation
Committee of the Board of Directors (the “Committee”). Bonuses are payable at the time the other management
bonuses are paid. To be eligible for any bonus payment, you must be employed by Valeant, and you must not have
given or received notice of the termination of your employment, on the day on which the applicable bonus is paid
to other members of Valeant’s management. For 2013, you will be paid based on the plan that was in effect at
Bausch & Lomb for actual results through the end of June and based on Valeant’s bonus plan for the remainder of
the year.
• Equity. The Committee has authorized VPII’s Chief Executive Officer to grant the following equity awards, valued
at approximately $1,300,000:
•
19,365 Options to purchase common shares of VPII, which options vest 25% on each of the 4 anniversaries
following the date of grant and have a ten year maximum term
Deborah Jorn
July 23, 2013
•
7,345 Performance Stock Units (PSUs), which vest between 0300%, based on meeting certain VPII
performance criteria, as measured approximately three years from the grant date. The triggers for 1x, 2x and
3x vesting shall be based on VPII’s common shares attaining a 10%, 20% and 30% 3year compound annual
growth rate, respectively
These equity awards are contingent upon your acceptance of the offer and closing of the Merger and will be made
pursuant to the terms of the applicable Valeant equity plan and governed by such plan and applicable grant
agreements. The grant date for the equity awards set forth above shall be on the date of the closing of the Merger,
provided that if such date is during a trading blackout period under VPII’s Blackout Policy, the grant date shall be
the first trading day after the trading blackout is no longer in effect
• Matching Share Program. You shall be eligible to participate in VPII’s matching share program, as in effect from
time to time, which currently allows participants to receive one matching share unit, which vests over a 3 year
period, for each share purchased and held in accordance with the terms of such program. You will be eligible to
participate in the current program up to an aggregate purchase amount equal to 50% of your target cash
compensation.
• Employee Benefits. You will continue to participate in your current benefit plans with Bausch & Lomb (as may be
amended in accordance with their terms) until you are transitioned to Valeant’s plans. It is anticipated that this
change will occur on January 1, 2014. Details on Valeant’s benefit plans and open enrollment process will be
provided to you. Please note these plans are reviewed from time to time and subject to change.
• Vacation. You will participate in Valeant’s Management Vacation Plan which allows you to take vacation days, at
times mutually agreed with your supervisor. You will not accrue any vacation as a participant in this plan. Your
current balance of vacation days, if any, will transition over to Valeant.
• Years of Service. Your credited service date with Bausch & Lomb will be transferred to Valeant, and your years of
service with Bausch & Lomb will be recognized at Valeant for the purpose of determining benefits under any
servicebased compensation or benefit programs, to the extent allowed by law.
• Severance Benefits. In the event that your employment is terminated by Valeant without “Cause” (as defined
below) from the period following the closing date of the Merger through December 31, 2013, you shall be entitled
to receive severance benefits based on the Bausch & Lomb severance policy. As of January 1, 2014, you will be
eligible for severance benefits in accordance with Valeant’s U.S. Severance Pay Plan, as such plan may be modified
and in effect from time to time.
• Release Requirement. Notwithstanding anything herein to the contrary, Valeant shall have no obligation to pay or
provide any of the severance benefits set forth in this letter and shall have no obligations to you in respect of the
termination of your employment save and except for obligations that are expressly established by applicable
employment standards legislation unless you execute and deliver, within 45 days of the date of your termination,
and do not revoke, a general release in form satisfactory to Valeant and any revocation period set forth in the release
has lapsed. You shall not be required to mitigate the amount of any severance payment provided for under this
letter by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to you in any subsequent employment. Notwithstanding anything herein to
the contrary, in no event shall the timing of your execution of the general release, directly or indirectly, result in
you designating the calendar year of payment to the extent such designation would result in a violation of
Section 409A, and if a payment that is subject to execution of the general release could be made in more than one
taxable year, to the extent required to avoid a violation of Section 409A, payment shall be made in the later taxable
year.
Page 2 of 4
Deborah Jorn
July 23, 2013
• Definition of “Cause”. Valeant may terminate your employment for “Cause”, subject to the payment by Valeant to
you of the applicable benefits provided in this letter. “Cause” shall mean, for purposes of this letter, “cause” as
defined by applicable common law, and (1) conviction of any felony or indictable offense (other than one related to
a vehicular offense) or other criminal act involving fraud; (2) willful misconduct that results in a material economic
detriment to the Company; (3) material violation of Company policies and directives, which is not cured after
written notice and an opportunity for cure; (4) continued refusal by you to perform your duties after written notice
identifying the deficiencies and an opportunity for cure; and (5) a material violation by you of any material
covenants to the Company. No action or inaction shall be deemed willful if not demonstrably willful and if taken
or not taken by you in good faith and with the understanding that such action or inaction was not adverse to the
best interests of the Company. Reference in this paragraph to the Company shall also include any direct or indirect
subsidiary of VPII (including Valeant). The Company may suspend you, with pay, upon your indictment for the
commission of a felony or indictable offense as described under clause (1) above. Such suspension may remain
effective until such time as the indictment is either dismissed or a verdict of not guilty has been entered.
• AtWill Employment. This letter constitutes an offer of “atwill” employment and is not a contract providing for
guaranteed employment or employment for a specific period of time. This means that each of you and Valeant has
the option to terminate your employment at any time, with or without advance notice, for any or no reason. The “at
will” nature of your employment can only be changed by a written agreement signed by VPII’s Executive Vice
President of Administration and Chief Human Capital Officer or Chief Executive Officer.
It is understood that, during your employment by Valeant or any of its affiliates, you will not engage in any
activities that constitute a conflict of interest with the interests of Valeant or any of its affiliates, as outlined in
VPII’s conflict of interest policies for employees in effect from time to time.
• Withholding Taxes. All payments to you or, if applicable, your beneficiary by Valeant shall be subject to
withholding on account of federal, state and local taxes as required by law.
• Section 409A. The parties intend for the payments and benefits under this letter to be exempt from Section 409A or,
if not so exempt, to be paid or provided in a manner which complies with the requirements of such section, and
intend that this letter shall be construed and administered in accordance with such intention. Any payments that
qualify for the “shortterm deferral” exception or another exception under Section 409A shall be paid under the
applicable exception. For purposes of the limitations on nonqualified deferred compensation under Section 409A,
each payment of compensation under this letter shall be treated as a separate payment of compensation.
Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated
taxation and/or tax penalties under Section 409A, amounts that would otherwise be payable and benefits that
would otherwise be provided pursuant to this letter during the sixmonth period immediately following your
separation from service shall instead be paid on the first business day after the date that is six months following
your termination date (or death, if earlier).
Page 3 of 4
Deborah Jorn
July 23, 2013
It is understood that you are required to have read, reviewed, agreed, signed and returned to Valeant VPII’s Standards of
Business Conduct, Insider Trading Policy, Blackout Policy and Global AntiBribery Policy, and by signing below you
acknowledge your requirement to comply with such documents and policies at all times during your employment with
Valeant or any of its affiliates.
Policies of Valeant and its affiliates will govern any other matter not specifically covered by this letter.
This letter is governed by the laws of the State of New Jersey.
Please indicate your acceptance of this offer of employment with Valeant, by signing and faxing this letter to Sharon Roche
in Human Resources at (908) 9271458, or by scanning and emailing a signed copy to Sharon.Roche@valeant.com. Please
also provide an original copy to Sharon Roche or another member of human resources.
We are excited to have you join our team.
Welcome to Valeant Pharmaceuticals!
Sincerely,
AGREED TO AND ACCEPTED:
/s/ Brian Stolz
Brian Stolz
EVP, Admin & Chief Human Capital Officer
/s/ Deborah Jorn 7/24/2013
Deborah Jorn Date
Page 4 of 4
Subsidiary Information
As of April 29, 2016
Company
Bausch & Lomb Argentina S.R.L.
Waicon Vision S.A.
Bausch & Lomb (Australia) Pty. Limited
DermaTech Pty. Ltd.
Ganehill North America Pty. Ltd.
Ganehill Pty. Ltd.
Hissyfit International Pty. Ltd.
iNova Pharmaceuticals (Australia) Pty
Limited
iNova Sub Pty Limited
Private Formula International Holdings
Pty. Ltd.
Private Formula International Pty. Ltd.
Solta Medical Australia Proprietary
Limited
Synergetics Surgical Australia Pty. Ltd.
Valeant Holdco 2 Pty Ltd
Valeant Holdco 3 Pty Ltd
Valeant Pharmaceuticals Australasia Pty.
Limited
Wirra Holdings Pty Limited
Wirra IP Pty Limited
Wirra Operations Pty Limited
Bausch & Lomb Gesellschaft m.b.H.
Hythe Property Incorporated
Valeant Pharma
Bausch & Lomb B.V.B.A.
Bausch & Lomb Pharma S.A.
Labsystems Benelux N.V.
Valeant Pharmaceuticals Nominee
Bermuda
veliko d.o.o. Sarajevo
BL Importações Ltda.
BL Indústria Ótica Ltda.
Instituto Terapêutico Delta Ltda.
Jurisdiction of
Incorporation
Argentina
Argentina
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Austria
Barbados
Belarus
Belgium
Belgium
Belgium
Bermuda
Bosnia
Brazil
Brazil
Brazil
Exhibit 21.1
Doing Business As
Bausch & Lomb Argentina S.R.L.
Waicon Vision S.A.
Bausch & Lomb (Australia) Pty. Limited
DermaTech Pty. Ltd.
Ganehill North America Pty. Ltd.
Ganehill Pty. Ltd.
Hissyfit International Pty. Ltd.
iNova Pharmaceuticals (Australia) Pty
Limited
iNova Sub Pty Limited
Private Formula International Holdings
Pty. Ltd.
Private Formula International Pty. Ltd.
Solta Medical Australia Proprietary
Limited
Synergetics Surgical Australia Pty. Ltd.
Valeant Holdco 2 Pty Ltd
Valeant Holdco 3 Pty Ltd
Valeant Pharmaceuticals Australasia Pty.
Limited
Wirra Holdings Pty Limited
Wirra IP Pty Limited
Wirra Operations Pty Limited
Bausch & Lomb GmbH
Hythe Property Incorporated
Valeant Pharma
Bausch & Lomb B.V.B.A.
Bausch & Lomb Pharma S.A.
Labsystems Benelux N.V.
Valeant Pharmaceuticals Nominee
Bermuda
PharmaSwiss BH d.o.o. Sarajevo
BL Importações Ltda.
BL Indústria Ótica Ltda.
Instituto Terapêutico Delta Ltda.
Probiótica Laboratórios Ltda.
Valeant Farmacêutica do Brasil Ltda.
Brazil
Brazil
Probiótica Laboratórios Ltda.
Valeant Farmacêutica do Brasil Ltda.
0909657 B.C. Ltd.
0919837 B.C. Ltd.
0938638 B.C. Ltd.
0938893 B.C. Ltd.
Bausch & Lomb-Lord (BVI)
Incorporated
PharmaSwiss EOOD
Bausch & Lomb Canada Inc.
Valeant Canada GP Limited/
Commandité Valeant Canada Limitée
Valeant Canada Limited / Valeant
Canada Limitée
Valeant Canada S.E.C./Valeant Canada
LP
V-BAC Holding Corp.
Biovail Technologies West Ltd.
9079-8851 Quebec Inc.
ICN Cayman, Ltd.
ICN Global Ltd.
Mercury (Cayman) Holdings
Bausch & Lomb (Shanghai) Trading Co.,
Ltd.
Beijing Bausch & Lomb Eyecare Co.,
Ltd.
Shandong Bausch & Lomb Freda New
Packing Materials Co., Ltd.
Shandong Bausch & Lomb Freda
Pharmaceutical Co., Ltd.
Cambridge Pharmaceutical S.A.S.
Farmatech S.A.
Humax Pharmaceutical S.A.
PharmaSwiss Æeská republika s.r.o.
Valeant Czech Pharma s.r.o.
Amoun Distribution LLC
Amoun Pharmaceutical Company S.A.E.
ICN Egypt LLC
PharmaSwiss Eesti OÜ
Bausch & Lomb France S.A.S.
BCF S.A.S.
Laboratoire Chauvin S.A.S.
Pharma Pass SAS
Synergetics France SARL
Brisith Columbia (Canada)
0909657 B.C. Ltd.
British Columbia (Canada)
0919837 B.C. Ltd.
British Columbia (Canada)
0938638 B.C. Ltd.
British Columbia (Canada)
0938893 B.C. Ltd.
British Virgin Islands
Bulgaria
Canada
Canada
Canada
Canada
Canada
Ontario (Canada)
Quebec (Canada)
Cayman Islands
Cayman Islands
Cayman Islands
China
China
China
China
Colombia
Colombia
Colombia
Croatia
Czech Republic
Czech Republic
Egypt
Egypt
Egypt
Estonia
France
France
France
France
France
Bausch & Lomb-Lord (BVI)
Incorporated
PharmaSwiss EOOD
Bausch & Lomb Canada Inc.
Valeant Canada GP Limited/
Commandité Valeant Canada Limitée
Valeant Canada Limited / Valeant
Canada Limitée
Valeant Canada S.E.C./Valeant Canada
LP
V-BAC Holding Corp.
Biovail Technologies West Ltd.
9079-8851 Quebec Inc.
ICN Cayman, Ltd.
ICN Global Ltd.
Mercury (Cayman) Holdings
Bausch & Lomb (Shanghai) Trading Co.,
Ltd.
Beijing Bausch & Lomb Eyecare Co.,
Ltd.
Shandong Bausch & Lomb Freda New
Packing Materials Co., Ltd.
Shandong Bausch & Lomb Freda
Pharmaceutical Co., Ltd.
Cambridge Pharmaceutical S.A.S.
Farmatech S.A.
Humax Pharmaceutical S.A.
PharmaSwiss Æeská republika s.r.o.
Valeant Czech Pharma s.r.o.
Amoun Distribution LLC
Amoun Pharmaceutical Company S.A.E.
ICN Egypt LLC
PharmaSwiss Eesti OÜ
Bausch & Lomb France S.A.S.
BCF S.A.S.
Laboratoire Chauvin S.A.S.
Pharma Pass SAS
Synergetics France SARL
Bausch & Lomb GmbH
BLEP Europe GmbH
BLEP Holding GmbH
Chauvin ankerpharm GmbH
Croma-Pharma Deutschland Gesellschaft
m.b.H.
Dendreon Germany GmbH
Dr. Gerhard Mann chem.-pharm. Fabrik
Gesellschaft mit beschränkter Haftung
Dr. Robert Winzer Pharma GmbH
Grundstücksverwaltungsgesellschaft
Dr.Gerhard Mann chem.- pharm. Fabrik
GmbH
Pharmaplast Vertriebsgesellschaft mbH
Synergetics Germany GmbH
Technolas Perfect Vision GmbH
PharmaSwiss Hellas Commercial Societe
Anonyme of Pharmaceuticals
Bausch & Lomb (Hong Kong) Limited
iNova Pharmaceuticals (Hong Kong)
Limited
Sino Concept Technology Limited
Solta Medical International Limited
Technolas Hong Kong Limited
Valeant Pharma Magyarország
Kereskedelmi Korlátolt Felelõsségû
Társaság
Bausch & Lomb India Private Limited
PT Armoxindo Farma
PT Bausch Lomb Indonesia
PT Bausch & Lomb Indonesia
(Distributing)
PT Bausch & Lomb Manufacturing
C&C Vision International Limited
Oceana Therapeutics Limited
Valeant Holdings Ireland
Valeant Pharmaceuticals Ireland
PharmaSwiss Israel Ltd.
Bausch & Lomb-IOM S.P.A.
Synergetics Italia S.R.L.
B.L.J. Company Limited
Bausch & Lomb (Jersey) Limited
TOO "NP market Asia"
Valeant LLC
Bausch & Lomb Korea Co., Ltd.
Bescon Co., Ltd.
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Greece
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hungary
India
Indonesia
Indonesia
Indonesia
Indonesia
Ireland
Ireland
Ireland
Ireland
Israel
Italy
Italy
Japan
Jersey
Kazakhstan
Kazakhstan
Korea
Korea
Bausch & Lomb GmbH
BLEP Europe GmbH
BLEP Holding GmbH
Chauvin ankerpharm GmbH
Croma-Pharma Deutschland GmbH
Dendreon Germany GmbH
Dr. Gerhard Mann chem.-pharm. Fabrik
GmbH
Dr. Robert Winzer Pharma GmbH
Grundstücksverwaltungsgesellschaft
Dr.Gerhard Mann chem.- pharm. Fabrik
GmbH
Pharmaplast Vertriebsgesellschaft mbH
Synergetics Germany GmbH
Technolas Perfect Vision GmbH
PharmaSwiss Hellas S.A.
Bausch & Lomb (Hong Kong) Limited
iNova Pharmaceuticals (Hong Kong)
Limited
Sino Concept Technology Limited
Solta Medical International Limited
Technolas Hong Kong Limited
Valeant Pharma Magyarország
Kereskedelmi Korlátolt Felelõsségû
Társaság
Bausch & Lomb India Private Limited
PT Armoxindo Farma
PT Bausch Lomb Indonesia
PT Bausch & Lomb Indonesia
(Distributing)
PT Bausch & Lomb Manufacturing
C&C Vision International Limited
Oceana Therapeutics Limited
Valeant Holdings Ireland
Valeant Pharmaceuticals Ireland
PharmaSwiss Israel Ltd.
Bausch & Lomb-IOM S.P.A.
Synergetics Italia S.R.L.
B.L.J. Company Limited
Bausch & Lomb (Jersey) Limited
TOO "NP market Asia"
Valeant LLC
Bausch & Lomb Korea Co., Ltd.
Bescon Co., Ltd.
Sabiedriba ar ierobezotu atbildibu
PharmaSwiss Latvia
AB Sanitas
UAB PharmaSwiss
Bausch & Lomb Luxembourg S.à r.l.
Bausch & Lomb Luxembourg S.à r.l. &
Cie
Biovail International S.à r.l.
Valeant Finance Luxembourg S.à r.l.
Valeant Holdings Luxembourg S.à r.l.
Valeant International Luxembourg S.à r.l.
Valeant Pharmaceuticals Luxembourg
S.à r.l.
PharmaSwiss dooel Skopje
Bausch & Lomb (Malaysia) Sdn. Bhd.
Aton Malta Limited
Bausch & Lomb México, S.A. de C.V.
Finix-Offset, S.A. de C.V.
Laboratorios Fedal, S.A.
Laboratorios Grossman, S.A.
Logística Valeant, S.A. de C.V.
Nysco de México, S.A. de C.V.
Tecnofarma, S.A. de C.V.
Valeant Farmacéutica, S.A. de C.V.
Valeant Servicios y Administración, S.
de R.L. de C.V.
Bausch+Lomb OPS B.V.
Croma Pharma Nederland B.V.
Dendreon Holdings (Netherlands) B.V.
Dendreon Operations B.V.
Natur Produkt Europe B.V.
Solta Medical International B.V. in
liquidatie
Technolas Perfect Vision Coöperatief
U.A.
Valeant Dutch Holdings B.V.
Valeant Europe B.V.
Bausch & Lomb (New Zealand) Limited
iNova Pharmaceuticals (New Zealand)
Limited
Valeant Pharmaceuticals New Zealand
Limited
Valeant Farmacéutica Panamá, S.A.
Valeant Farmacéutica Perú S.R.L.
Bausch & Lomb Philippines Inc.
Latvia
Lithuania
Lithuania
Luxembourg
Luxembourg
Luxembourg
Luxembourg
Luxembourg
Luxembourg
Luxembourg
Macedonia
Malaysia
Malta
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
New Zealand
New Zealand
New Zealand
Panama
Peru
Philippines
Sabiedriba ar ierobezotu atbildibu
PharmaSwiss Latvia
AB Sanitas
UAB PharmaSwiss
Bausch & Lomb Luxembourg S.à r.l.
Bausch & Lomb Luxembourg S.à r.l. &
Cie
Biovail International S.à r.l.
Valeant Finance Luxembourg S.à r.l.
Valeant Holdings Luxembourg S.à r.l.
Valeant International Luxembourg S.à r.l.
Valeant Pharmaceuticals Luxembourg
S.à r.l.
PharmaSwiss dooel Skopje
Bausch & Lomb (Malaysia) Sdn. Bhd.
Aton Malta Limited
Bausch & Lomb México, S.A. de C.V.
Finix-Offset, S.A. de C.V.
Laboratorios Fedal, S.A.
Laboratorios Grossman, S.A.
Logística Valeant, S.A. de C.V.
Nysco de México, S.A. de C.V.
Tecnofarma, S.A. de C.V.
Valeant Farmacéutica, S.A. de C.V.
Valeant Servicios y Administración, S.
de R.L. de C.V.
Bausch+Lomb OPS B.V.
Croma Pharma Nederland B.V.
Dendreon Holdings (Netherlands) B.V.
Dendreon Operations B.V.
Natur Produkt Europe B.V.
Solta Medical International B.V. in
liquidatie
Technolas Perfect Vision Coöperatief
U.A.
Valeant Dutch Holdings B.V.
Valeant Europe B.V.
Bausch & Lomb (New Zealand) Limited
iNova Pharmaceuticals (New Zealand)
Limited
Valeant Pharmaceuticals New Zealand
Limited
Valeant Farmacéutica Panamá, S.A.
Valeant Farmacéutica Perú S.R.L.
Bausch & Lomb Philippines Inc.
Bausch & Lomb Polska spó³ka z
Cadogan spó³ka z ograniczon¹
Croma-Pharma Polska spó³ka z
Emo-Farm spó³ka z ograniczon¹
ICN Polfa Rzeszow Spó³ka Akcyjna
IPOPEMA 73 Fundusz Inwestycyjny
Zamkniety Aktywów Niepublicznych
(FIZAN)
Laboratorium Farmaceutyczne
Homeofarm Valeant spó³ka z
jawna
Przedsiebiorstwo Farmaceutyczne Jelfa
Spó³ka Akcyjna
Valeant Inter spó³ka z ograniczon¹
Valeant Med spó³ka z ograniczon¹
Valeant spó³ka z ograniczon¹
Valeant spó³ka z ograniczon¹
jawna
Valeant spó³ka z ograniczon¹
jawna
Valeant spó³ka z ograniczon¹
VP Valeant spó³ka z ograniczon¹
Amoun Pharmaceutical Romania SRL
S.C. Croma Romania SRL
S.C. Valeant Pharma SRL
Bausch & Lomb LLC
JSC "Natur Produkt International"
NP-Nedvizhimost LLC
Valeant LLC
PharmaSwiss doo preduzeæe za
trgovinu i zastupanje Beograd
Bausch & Lomb (Singapore) Private
Limited
iNova Pharmaceuticals (Singapore) Pte.
Limited
Solta Medical Singapore Private Limited
Technolas Singapore Pte. Ltd.
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Romania
Romania
Romania
Russia
Russia
Russia
Russia
Serbia
Singapore
Singapore
Singapore
Singapore
Bausch & Lomb Polska sp. z o.o.
Cadogan sp. z o.o.
Croma-Pharma Polska sp. z o.o.
Emo-Farm sp. z o.o.
ICN Polfa Rzeszow SA
IPOPEMA 73 Fundusz Inwestycyjny
Zamkniety Aktywow Niepublicznych
(FIZAN)
Laboratorium Farmaceutyczne
Homeofarm sp. z o.o. Valeant sp. j.
Przedsiebiorstwo Farmaceutyczne Jelfa
SA
Valeant Inter sp. z o.o.
Valeant Med sp. z o.o.
Valeant sp. z o.o.
Valeant sp. z o.o. Cochrane sp. j.
Valeant sp. z o.o. Europe sp. j.
Valeant sp. z o.o. sp. j.
VP Valeant Sp. z o.o. sp. j.
Amoun Pharmaceutical Romania SRL
S.C. Croma Romania SRL
S.C. Valeant Pharma SRL
Bausch & Lomb LLC
JSC "Natur Produkt International"
NP-Nedvizhimost LLC
Valeant LLC
PharmaSwiss d.o.o. Serbia
Bausch & Lomb (Singapore) Private
Limited
iNova Pharmaceuticals (Singapore) Pte.
Limited
Solta Medical Singapore Private Limited
Technolas Singapore Pte. Ltd.
Wirra International Bidco Pte. Limited
Wirra International Holdings Pte.
Limited
Valeant Slovakia s.r.o.
PharmaSwiss, trgovsko in proizvodno
podjetje, d.o.o.
Bausch and Lomb (South Africa) (Pty)
Ltd
iNova Pharmaceuticals (Pty) Ltd
Soflens (Pty) Ltd
Bausch & Lomb S.A.
Croma Pharma Sociedad Limitada
Bausch & Lomb Nordic AB
Croma-Pharma Nordic AB
Valeant Sweden AB
Bausch & Lomb Fribourg S.à.r.l.
Bausch & Lomb Swiss AG
Biovail SA
fx Life Sciences AG
PharmaSwiss SA
Sprout Pharmaceuticals International AG
Bausch & Lomb Taiwan Limited
Bausch & Lomb (Thailand) Limited
iNova Pharmaceuticals (Thailand) Ltd.
Bausch and Lomb Saðlýk ve Optik
Ürünleri Tic.A.Þ
Valeant Pharmaceuticals LLC
Medpharma Pharma & Chem Ind LLC
Valeant DWC-LLC
Bausch & Lomb Scotland Limited
Bausch & Lomb UK Holdings Limited
Bausch & Lomb U.K. Limited
Chauvin Pharmaceuticals Limited
Dendreon UK Ltd
iMed Systems Limited
Innovative Sclerals Limited
M.I.S.S. Ophthalmics Limited
Solta Medical UK Limited
Sterimedix Limited
Synergetics Surgical EU Limited
CRT Technology, Inc.
Paragon Holdings I, Inc.
Paragon Vision Sciences, Inc.
CLRS Technology Corporation
Singapore
Singapore
Slovakia
Slovenia
South Africa
South Africa
South Africa
Spain
Spain
Sweden
Sweden
Sweden
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Taiwan
Thailand
Thailand
Turkey
Ukraine
UAE
UAE
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Arizona (US)
Arizona (US)
Arizona (US)
Wirra International Bidco Pte. Limited
Wirra International Holdings Pte.
Limited
Valeant Slovakia s.r.o.
PharmaSwiss, trgovsko in proizvodno
podjetje, d.o.o.
Bausch and Lomb (South Africa) (Pty)
Ltd
iNova Pharmaceuticals (Pty) Ltd
Soflens (Pty) Ltd
Bausch & Lomb S.A.
Croma Pharma Sociedad Limitada
Bausch & Lomb Nordic AB
Croma-Pharma Nordic AB
Valeant Sweden AB
Bausch & Lomb Fribourg S.à.r.l.
Bausch & Lomb Swiss AG
Biovail SA
fx Life Sciences AG
PharmaSwiss SA
Sprout Pharmaceuticals International AG
Bausch & Lomb Taiwan Limited
Bausch & Lomb (Thailand) Limited
iNova Pharmaceuticals (Thailand) Ltd.
Bausch and Lomb Saðlýk ve Optik
Ürünleri Tic.A.Þ
Valeant Pharmaceuticals LLC
Medpharma Pharma & Chem Ind LLC
Valeant DWC-LLC
Bausch & Lomb Scotland Limited
Bausch & Lomb UK Holdings Limited
Bausch & Lomb U.K. Limited
Chauvin Pharmaceuticals Limited
Dendreon UK Ltd
iMed Systems Limited
Innovative Sclerals Limited
M.I.S.S. Ophthalmics Limited
Solta Medical UK Limited
Sterimedix Limited
Synergetics Surgical EU Limited
CRT Technology, Inc.
Paragon Holdings I, Inc.
Paragon Vision Sciences, Inc.
California (US)
CLRS Technology Corporation
Dr. LeWinn's Private Formula
International, Inc.
ICN Biomedicals California, Inc.
ICN Foundation, Inc.
ICN Realty (CA), Inc.
Onpharma Inc.
Private Formula Corp.
Rapid Diagnostics, Inc.
Reliant Medical Lasers, Inc.
Salix Pharmaceuticals, Inc.
Visioncare Devices, Inc.
Sound Surgical Technologies LLC
Aesthera Corporation
AGMS Inc.
Amarin Pharmaceuticals Inc.
Aton Pharma, Inc.
Audrey Enterprise, LLC
B&L Financial Holdings Corp.
B+L Diagnostics, Inc.
Bausch & Lomb China, Inc.
Bausch & Lomb Holdings Incorporated
Bausch & Lomb Pharma Holdings Corp.
Bausch & Lomb South Asia, Inc.
Bausch & Lomb Technology
Corporation
Biovail Americas Corp.
Coria Laboratories, Ltd.
Covella Pharmaceuticals, Inc.
Dendreon Pharmaceuticals, Inc.
Dow Pharmaceutical Sciences, Inc.
ECR Pharmaceuticals Co., Inc.
Emma Z LP
Erin S LP
eyeonics, inc.
Eyetech Inc.
Glycyx Pharmaceuticals, Ltd.
Hawkeye Spectrum Corp.
ISTA Pharmaceuticals, LLC
Katie Z LP
KGA Fulfillment Services, Inc.
Kika LP
LipoSonix, Inc.
Medicis Body Aesthetics, Inc.
California (US)
California (US)
California (US)
California (US)
California (US)
California (US)
California (US)
California (US)
California (US)
California (US)
Colorado (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Dr. LeWinn's Private Formula
International, Inc.
ICN Biomedicals California, Inc.
ICN Foundation, Inc.
ICN Realty (CA), Inc.
Onpharma Inc.
Private Formula Corp.
Rapid Diagnostics, Inc.
Reliant Medical Lasers, Inc.
Salix Pharmaceuticals, Inc.
Visioncare Devices, Inc.
Sound Surgical Technologies LLC
Aesthera Corporation
AGMS Inc.
Amarin Pharmaceuticals Inc.
Aton Pharma, Inc.
Audrey Enterprise, LLC
B&L Financial Holdings Corp.
B+L Diagnostics, Inc.
Bausch & Lomb China, Inc.
Bausch & Lomb Holdings Incorporated
Bausch & Lomb Pharma Holdings Corp.
Bausch & Lomb South Asia, Inc.
Bausch & Lomb Technology
Corporation
Biovail Americas Corp.
Coria Laboratories, Ltd.
Covella Pharmaceuticals, Inc.
Dendreon Pharmaceuticals, Inc.
Dow Pharmaceutical Sciences, Inc.
ECR Pharmaceuticals Co., Inc.
Emma Z LP
Erin S LP
eyeonics, inc.
Eyetech Inc.
Glycyx Pharmaceuticals, Ltd.
Hawkeye Spectrum Corp.
ISTA Pharmaceuticals, LLC
Katie Z LP
KGA Fulfillment Services, Inc.
Kika LP
LipoSonix, Inc.
Medicis Body Aesthetics, Inc.
Medicis Pharmaceutical Corporation
Obagi Medical Products, Inc.
Oceana Therapeutics, Inc.
Oceanside Pharmaceuticals, Inc.
OMP, Inc.
Onset Dermatologics LLC
OPO, Inc.
OraPharma, Inc.
OraPharma TopCo Holdings, Inc.
PreCision Dermatology, Inc.
PreCision MD LLC
Prestwick Pharmaceuticals, Inc.
Princeton Pharma Holdings, LLC
ProSkin LLC
Reliant Technologies, LLC
RHC Holdings, Inc.
RTI Acquisition Corporation, Inc.
Salix Pharmaceuticals, Ltd.
Santarus, Inc.
Sight Savers, Inc.
Solta Medical, Inc.
Solta Medical International, Inc.
Sprout Pharmaceuticals, Inc.
Stephanie LP
Synergetics Delaware, Inc.
Synergetics IP, Inc.
Synergetics USA, Inc.
Technolas Perfect Vision, Inc.
Tinea Pharmaceuticals, Inc.
Tori LP
Unilens Corp. USA
Unilens Vision Inc.
Unilens Vision Sciences Inc.
Valeant Biomedicals, Inc.
Valeant Pharmaceuticals International
Valeant Pharmaceuticals North America
LLC
VRX Holdco Inc.
VRX Holdco2 Inc.
Croma Pharmaceuticals, Inc.
Flow Laboratories, Inc.
Ucyclyd Pharma, Inc.
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Delaware (US)
Florida (US)
Maryland (US)
Maryland (US)
Medicis Pharmaceutical Corporation
Obagi Medical Products, Inc.
Oceana Therapeutics, Inc.
Oceanside Pharmaceuticals, Inc.
OMP, Inc.
Onset Dermatologics LLC
OPO, Inc.
OraPharma, Inc.
OraPharma TopCo Holdings, Inc.
PreCision Dermatology, Inc.
PreCision MD LLC
Prestwick Pharmaceuticals, Inc.
Princeton Pharma Holdings, LLC
ProSkin LLC
Reliant Technologies, LLC
RHC Holdings, Inc.
RTI Acquisition Corporation, Inc.
Salix Pharmaceuticals, Ltd.
Santarus, Inc.
Sight Savers, Inc.
Solta Medical, Inc.
Solta Medical International, Inc.
Sprout Pharmaceuticals, Inc.
Stephanie LP
Synergetics Delaware, Inc.
Synergetics IP, Inc.
Synergetics USA, Inc.
Technolas Perfect Vision, Inc.
Tinea Pharmaceuticals, Inc.
Tori LP
Unilens Corp. USA
Unilens Vision Inc.
Unilens Vision Sciences Inc.
Valeant Biomedicals, Inc.
Valeant Pharmaceuticals International
Valeant Pharmaceuticals North America
LLC
VRX Holdco Inc.
VRX Holdco2 Inc.
Croma Pharmaceuticals, Inc.
Flow Laboratories, Inc.
Ucyclyd Pharma, Inc.
Commonwealth Laboratories, LLC
Massachusetts (US)
Commonwealth Laboratories, LLC
Synergetics Development Company,
L.L.C.
Synergetics, Inc.
Azeo Processing, Inc.
Faraday Laboratories, Inc.
Faraday Urban Renewal Corporation
Alden Optical Laboratories, Inc.
Aldenex Vision LLC
Bausch & Lomb Incorporated
Bausch & Lomb International Inc.
Bausch & Lomb Realty Corporation
InKine Pharmaceutical Company, Inc.
Pedinol Pharmacal, Inc.
Renaud Skin Care Laboratories, Inc.
Image Acquisition Corp.
AcriVet Inc.
Euvipharm Pharmaceutical Joint Stock
Company - A Valeant Company
Missouri (US)
Missouri (US)
New Jersey (US)
New Jersey (US)
New Jersey (US)
New York (US)
New York (US)
New York (US)
New York (US)
New York (US)
New York (US)
New York (US)
New York (US)
Texas (US)
Utah (US)
Vietnam
Synergetics Development Company,
L.L.C.
Synergetics, Inc.
Azeo Processing, Inc.
Faraday Laboratories, Inc.
Faraday Urban Renewal Corporation
Alden Optical Laboratories, Inc.
Aldenex Vision LLC
Bausch & Lomb Incorporated
Bausch & Lomb International Inc.
Bausch & Lomb Realty Corporation
InKine Pharmaceutical Company, Inc.
Pedinol Pharmacal, Inc.
Renaud Skin Care Laboratories, Inc.
Image Acquisition Corp.
AcriVet Inc.
Euvipharm Pharmaceutical Joint Stock
Company - A Valeant Company
In accordance with the instructions of Item 601 of Regulation S-K, certain subsidiaries are omitted from the foregoing table.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-196120,
333-176205, 333-168254, 333-168629, 333-138697, and 333-92229), as amended, where applicable, of Valeant
Pharmaceuticals International, Inc. of our report dated April 29, 2016 relating to the financial statements, financial
statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
Florham Park, NJ
April 29, 2016
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, J. Michael Pearson, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Valeant Pharmaceuticals International, Inc. (the “Company”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the
periods presented in this report;
The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the Company's internal control over financial reporting that occurred
during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control
over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons
performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Company's internal control over financial reporting.
Date: April 29, 2016
/s/ J. MICHAEL PEARSON
J. Michael Pearson
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Robert L. Rosiello, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Valeant Pharmaceuticals International, Inc. (the “Company”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the
periods presented in this report;
The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the Company's internal control over financial reporting that occurred
during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control
over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons
performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Company's internal control over financial reporting.
Date: April 29, 2016
/s/ ROBERT L. ROSIELLO
Robert L. Rosiello
Executive Vice-President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. § 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, J. Michael Pearson, Chief Executive Officer of Valeant Pharmaceuticals International, Inc. (the “Company”), certify, pursuant
to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.
2.
The Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2015 (the “Annual Report”)
fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: April 29, 2016
/s/ J. MICHAEL PEARSON
J. Michael Pearson
Chief Executive Officer
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it
by reference.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. § 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Robert L. Rosiello, Executive Vice-President and Chief Financial Officer of Valeant Pharmaceuticals International, Inc.
(the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to my knowledge:
1.
2.
The Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2015 (the “Annual Report”)
fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: April 29, 2016
/s/ ROBERT L. ROSIELLO
Robert L. Rosiello
Executive Vice-President and Chief Financial Officer
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it
by reference.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.